Presentation of the first quarter report by Cllr. N. C. Mdletshe on behalf of the mayor of KwaDukuza

Speaker of council;

The mayor in absentia;

Whip of Council;

Members of the Executive Committee;

Representatives of the Local House of Traditional Leaders;

Members of Council;

Municipal Manager and Senior Management;

Members of the Public;

Members of the media present; and

Distinguished guests;

Ladies and gentlemen

Speaker, please allow me to extend my warmest greetings as I deliver the Budget and Performance Assessment Report for the the first quarter on behalf of the mayor.

Section 52d of the MFMA requires the mayor to submit a report to council on the implementation of the budget and the financial state of the Municipality based on a high-level assessment of the municipal revenue and expenditure.

This report focuses on the first quarter which commenced on 01 July ending 30 September 2023.

UN calls members to assist families of Sharpeville massacre

This report is delivered as nations across the world cast their eyes in the middle east to observes the most horrific events in living memory. I am reminded that it was on 26 October 1964, exactly 59 years ago, that the United Nations Special Committee issued a request to its members and organisations to provide assistance to the families of South Africans who were persecuted during the Sharpeville massacre. Those who were shot and killed were opposing apartheid pass laws which were designed to restrict movement and employment of millions of Black South Africans.

This request was made four years after the massacre which occurred on 21 March 1960. The apartheid police opened fire, killing 69 non-violent protesters, injuring 180 people within the precinct of Sharpeville Police Station. This horrific event came to be known as the Sharpeville Massacre.

Many countries around the world condemned this atrocity. President‐General of the African National Congress (ANC) Chief Albert Luthuli, Nelson Mandela as well as other prominent members of the ANC burned their passes in solidarity following this tragic event.

Six years later in 1966, the moral outrage surrounding these events led the United Nations General Assembly to declare 21 March as the International Day for the Elimination of Racial Discrimination in recognition of racism as a gross human rights violation, to what is proclaimed by President Mandela as Human Rights Day.

Free Palestine

Ladies and gentlemen, I make this statement in reaction to the bloodshed that has taken the toll on the Gaza strip. The bombardment of Palestinians is a pitiful reminder of our very own history; and reminiscent of unforgettable encounters of the apartheid. During the dark days of oppression, solidarity played a crucial role therefore, it is upon us to connect our endeavours to guarantee that our message is heard by the world - that we condemn the savagery that's executed against the blameless civilians of Palestine.

Let our message resonate globally that we stand in solidarity against injustices and that we demand peace for Palestine. We believe that there is a potential for peaceful negotiations that will make way for safe passage of humanitarian aid and the establishment for a two-state solution.

We are behind the people of Palestine - their struggle is our struggle! This conflict must come to an end!

Economic outlook

Ladies and gentlemen, the wide conflict amongst nations in the middle east and eastern Europe makes it difficult for government to deal with poverty whilst delivering on its development priorities.

The municipality is indeed operating under a tough economic climate coupled with a large extent of uncertainty. The rising fuel, energy, and food prices have increased social pressure especially for the poor. The 2022 disaster and subsequent damages to municipal structures has weakened economic growth which the council is steadily improving. Therefore, this has subsequently resulted to changes in the economic outlook - driven by price hikes and subsequent inflations.

MFMA imperatives

Fellow councillors, it is significant that the mayors report is given the necessary context regarding the budget and performance as well as developments which occurred within the reporting period.

Major investments during the first quarter

KwaDukuza as a preferred area of investment, continues to enjoy huge private investments, and this is evidenced by another addition to our portfolio, the Club-Med Resort set for development in Tinley Manor consists of a huge boost of R1.6 billion. The investment adds more chapters to our portfolio and it will surely cushion KwaDukuza into becoming a world-class investment destination. Club-Med investment will create more jobs, boost local economic growth, and increase our tourism footprint.

Preparations for the festive season

KwaDukuza Municipality during the reporting period unveiled the most cutting-edge marine safety equipment which will redefine the tourism outlook along the northern coastal strip and ensure the safety of holiday makers during the festive season. A task team led by the Chief Financial Officer is in place to ensure that we mitigate possible challenges during the festive season. The team will look into energy stability, fire, marine and road safety, fighting crime, waste management and much more. We will await a progress report to council on these preparation. Such preparations will propel the north coast into becoming the safest and most user-friendly tourism destination in the province.

Grants and rollovers

In her fourth quarter report to Council, the mayor indicated her intention to respond to the Premiers call when she reported on the municipality's spending position of the municipal disaster response grant in August. The mayor has informed me that the Provincial Executive Committee welcomed the presentation by KwaDukuza Municipality and made the following recommendations:

1.   The cabinet noted that all outstanding projects would have been through the bid evaluation and adjudication phases by end of September 2023.

2.   The Executive Council committed to conduct an oversight visit to projects reported and receive an updated report into the cabinet meeting that is to be convened in KwaDukuza during November 2023.

3.   The Executive Council also committed to deal with the roll-over of funding during their oversight sitting.

4.   Lastly, the issue of stalled housing projects in KwaDukuza Municipality would be part of the oversight visit that I have referred to.

Roll over of unspent conditional grants for the 2022/23 Financial Year

Subsequent to this presentation and our application for rollovers, the National Treasury has informed us of the approval of unspent conditional grants roll overs in terms of Division of Revenue Amendment Act, to retain an amount of R927.8 million.

1.   This approval is in respect of the Municipal Infrastructure Grant (MIG) of an amount of R149 thousand towards the Groutville Market Sports Field.

2.   The Municipal Disaster Recovery Grant (MDRG) of an amount of R899.7 million for 400 projects listed as per Municipal Disaster Implementation Plan for rehabilitation & reconstruction grant projects (2022/23) that the municipality submitted as part of the rollover request.

3.   The Municipal Disaster Response Grant (MDRG) of an amount of R26.8 million was approved for:

·      Upgrading of the Mnyundwini culvert bridge (Ward 9) (R3.8 million); 

·      Replacement of Hullet Bridge (Ward 2) (R16.2 million); 

·      Installation of new bridge Sugra and Mbazuma (Ward 17) (R3.8 million); and 

·      Paying of consultant fees for construction supervision (R3 million). 

4.   For the Integrated National Electrification Programme (INEP) an amount of R1.1 million was approved for the Substation Bulk-Lot 14 switch room in Glenhills.

The full roll over report will be brough before council in respect to the projects that have been granted the rollover. We will accordingly adjust the grant income projections in terms of section 28 of the Municipal Finance Management Act, by considering the approval of the adjustments budget.

Fellow councillors, the municipality is still experiencing challenges with a number projects that are being implemented under the disaster conditional grants. This also applies significantly to our housing projects and other strategic projects.

 

The mayor through her Command Council and ExCo continues to monitor these projects; these committees continue to make interventions where necessary. I am tempted to reflect on an unfortunate event which occurred during this quarter where we recorded a protest linked with demands by local businesspeople which occurred in the beginning of September 2023. I wish to put it categorically that the municipality has condemned all acts of intimidation, and vandalism of state property to the strongest possible terms however, the municipality has had a meeting of minds with the business sector. The group of businesspeople had complained about the fact that most projects were packaged in a way that would benefit only a few. We have since had engagements and we have agreed that disaster projects are to be unbundled so that they cater for smaller and upcoming contractors.

Human Settlements

The Human Settlements MEC, Mr. K.K. Nkosi has made several inroads on a number of projects as part of his departments Operation Siyahlola programme – this is part of his commitment to make significant interventions across several projects in KwaDukuza. I am confident that as a team we will work together in turning the tide on human settlements delivery so that we once again enjoy the Govan Mbeki Housing Awards as we have done in the past.

Improving public transport facilities

In her last budget statement, the mayor mentioned that an amount of R8 million will be made available in the current financial year, she said she is working well with the public transport sector in a bid to realize the speedy upgrades into the KwaDukuza and Ballito Taxi Ranks. The SCM processes are at an advanced stage and work on the ground is to commence soon.

Revenue

Fellow councillors, the report before us reflects that we had a total revenue of 2,5 billion and we only managed to collect 562 million, resulting to a negative variance of 34,6 million which translates to a negative variance of -6%. The Total Expenditure was 2,5 billion with a negative variance of R93 million or -14%.

The First Quarter Budgeted Operating Expenditure for the 2023/24 financial year was R643 million. The actual expenditure recognised the end of the first quarter was R550 million which implies that the municipality has also realised a negative variance of approximately R93 million in expenditure.

The low expenditure is relative to Employee related costs which recorded a negative variance of R17 million which translated to 12% by the end of the quarter. The variance is as a result of the timing of the filling of vacant positions, resignations, and untimely loss of municipal officials. Recruitment processes have been finalised for many of the vacant posts and expenditure will commence from October 2023.

While there is significant underspending on Employee related costs, expenditure on Overtime reflects spending of R16,9 million which is 31% of the R53,8 million budget allocation. Overtime costs will need to be closely monitored to ensure the remaining budget is sufficient to cater for the December and April peak periods.

Another factor that has contributed to underspending is the remuneration of Councillors which reflects a negative variance of R 1,7 million which is attributable to the budget provision of annual increments to Councillors and Political Office Bearers which is guided by the Government Gazette on the determination of upper limits for Councillors. This is to be normalised once the MEC endorses the gazette which probably happens in December and January annually.

Finance charges also reflect a negative variance of R5,1 million due to the fact that interest together with redemption payments are made at specific times during the financial year. This variance represents a timing difference that will be eliminated as the year progresses. The Finance Charges budget was compiled considering the existing loans together with the anticipated new loan of R30m to be taken for the New Dukuza Substation. The Municipality currently has R 175 million existing loans with the DBSA. 

Bulk purchases reflects over-expenditure of R 7,8 million with the revenue billed by the Municipality during this period stands at R234 million. Bulk Purchases expenditure has exceeded the budget and resulted in unauthorised expenditure. The Eskom invoice for September point to R84,7 million. If the September 2023 invoice is considered, the variance results in further over expenditure of approximately R92,5 million.

Energy losses continues to be our biggest challenge as at the close of the quarter, total losses of 28,96% electricity purchases were incurred at the value of R109,6 million at 50,1 kWh. The industry norm for energy losses is 6-12%. The municipal energy loss is therefore more than twice the industry norm and significantly threatens the financial viability of the council as such losses are not sustainable. The effect of the above is clearly noted in the first quarter billing whereby the total electricity billing was R 319 million whilst the Eskom Bulk invoices total R 371 million.

We also note that the number of indigents, in terms of the non-billed households, being serviced have increased twice since the refuse service has been extended, the numbers of which are still to be verified and confirmed by the revenue section of the Municipality. It has been analysed that the total budget allocation for refuse service will be insufficient and a shortfall of approximately R15m is anticipated. Council therefore has to apply its mind to address this inadequacy.

Property Rates reflects a positive variance of R 9,479 million which means that we are currently on track.

Service Charges for Refuse Revenue received from refuse services was R 25 million, reflecting a positive variance of R870k.

The main contributing factors to the under collection/billing include the following:

Electricity reflects a negative variance of R74,3 million. The variance in this revenue category is as a result of the September billing being processed onto the financial system in the first week of October 2023. The billing is usually done around the 7th of the subsequent month whereas the report is based on the figures as at the end of each month. 

The Electricity billing for September 2023 is R 85,536m which has been billed on the 9th of October 2023. However, if this billing were to be considered, there would be a positive variance in Electricity revenue of approximately R 11,193m. The reasons for the increase as provided by the revenue section is as a result of electricity retrospective charges raised after faulty meter replacements.

Agency Services reflects R 525k negative variance from budgeted revenue. The revenue receipted to this vote is the commission received from Department of Transport and is based on the monthly transactions for licensing and testing fees. Some of the factors leading to such a variance is that certain services have been made available in private establishments. 

Interest on Outstanding Debtors reflects a R293 000 negative variance from the budgeted revenue. Interest on non-payment of electricity has been raised monthly whereas the interest for the non-payment on rates revenue will only be raised from the month of October due to rates being billed from August 2023. This revenue category will need to be closely monitored as the 2022/23 financial year target was not met, with there being a negative variance of approximately R2,9 million at year end. 

Loan Funding

An amount of R 30 million has been provided for Phase 2 of the New Dukuza Substation Project in the current financial year, however there is currently a delay in verifying compliance in terms of MFMA Circular 62 which has delayed the implementation of the project. The project has been funded by loans and internal funding in the 2023/24 financial year with the total loan value for the project over the MTREF being R 102 million. Internal funding of R8 million has also been considered for the project in the current financial year. It is highly likely that the R30 million loan funding will be considered for roll-over into the new financial year. 

Council Funding

There is 59% under-spending on the year-to-date budget relating to Council funded projects. Approximately R95,923m of the R220 million council funding relates to roll-over projects. Slower than anticipated progress implementation on infrastructure projects, delays in SCM processes, back log in the delivery of municipal vehicles in terms of the RT57 contracts and delay in the delivery of the Fire Fleet vehicle due to the non- availability of stock were sited as the main reasons for the projects being rolled over into the new financial year. 

The actual expenditure resulted in a negative variance of 81% from the year to date capital budget allocation. The main driver for the underspending is the slower than anticipated expenditure on the R603m Disaster Response Grant funded capital projects. To date only R 19,9 million has been spent on the total disaster funded projects.

Consumer debtors amounted to R 350,6 million as at 30 September 2023. This indicates an increase of R 27 million since 30 June 2023. The majority of the debt under this category is over 150 days. The effects of a slow recovering economy after Covid-19, increasing costs of basic services and living expenses, high unemployment rates and recent natural disasters in KZN, have had a lasting effect which have contributed to the slow recovery of old debt. 

With the current economic uncertainty and sudden increase in living expenses that the country is facing it is unlikely for the consumer debt to see the significant decrease within the next financial year.

For the financial year 2023/24, various revenue enhancement initiatives were carried out such as inspection of faulty meters, back-billings for electricity, refuse & consumer deposit review and implementation of the rating code for unauthorised use saw an increase in overall revenue which accounts for the increase in overall debt during the year.

The current collection rate as at 30 September 2023 is 98.27%. The collection rate for the 2022/23 financial year was 95.95%. 

Reserves

KwaDukuza Municipality’s reserves have reduced to approximately 1.04 month cash availability as at the end of September 2023 which is a significant decrease compared to the June closing coverage of 2 months cash availability. However, Council to note that cash availability reserves were 1 month at the end of September 2022. Close monitoring of the collections during the first quarter of the new financial year is necessary to ensure that we remain financially viable.

Speaker, with these remarks, I hereby present KwaDukuza Municipality 2021/2022 Section 52(D) Third Quarter Budget and Performance Assessment Report to Council for consideration and approval as is set out in the item.

Thank you

Issued by the Office of the Mayor

Enquiries: Sphe Ngobese | 073 784 7844 | sphelelon@kwadukuza.gov.za