Cost Drivers
1.6 Capital expenditure
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Table 19 Cost of Free Basic Services and Indigents
The total cost of FBS and grants and subsidies as budgeted in 2015/16 amounts to R2.5 billion.
Cognisance must be taken that in addition to the above recognised costs, there are some other grants not recorded as expenditure line items, such as:
Water rendered to informal settlements is not metered and therefore not included. Costs to this effect form part of cost for unaccounted water, which the department is addressing.
Electricity supply to all Tariff A users is heavily subsided and sold below cost to residents. The cost to subsidise the tariff is not included in the above table.
The provision of chemical toilets to informal settlements is not included because the cost thereof is funded by USDG.
The Council’s Indigent Policy prescribes various concessions to registered indigents on sundry services, such as cemetery fees, use of halls and community centres, ambulance and emergency fees, etc.
Further detail relating to FBS, the cost of FBS, revenue lost owing to FBS and basic service delivery measurement is contained in Table 31 MBRR A10 (Basic Service Delivery Measurement) on page 82.
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o Economic impacts of projects - projects were evaluated by the Economic Development Department.
The Capital Budget will be funded as follows:
o USDG grant – allocations as per the 2015 Division of Revenue Act (DoRA)) - based on housing department’s integrated planning and funding strategy and in compliance with the USDG framework.
o Other grant funding - allocation of all the external funds as per the 2015 Division of Revenue Act (DoRA) and the Provincial gazette - to fund social projects that will not necessarily generate revenue.
o External Loans - to fund economic infrastructure that will stimulate economic growth and job creation.
o Cash generated from revenue - to fund movable assets.
o Capital Replacement Reserve – to fund immovable assets.
The capital programme is aligned to asset renewal needs and backlog eradication goals and 44% of the total capital amount will be utilised for asset renewals. Operational gains and efficiencies will be directed to funding the Capital Budget. Strict adherence to the principle of no project plans no budget, if there is no business plan, no funding allocation can be made.
Projects already approved and already commenced with that have to be completed during the 2015/16 to 2017/18 financial period were allocated funding as per the approved MTREF.
Projects previously approved in the 2014/15 to 2016/17 MTREF but not yet planned nor commenced with, were subjected to departmental project prioritisation taking changed priorities and service delivery pressures into account.
Projects were subjected to project prioritisation based on a capital prioritisation model that is informed by the Capital Investment Framework to be used in 2015/16 financial year (and beyond) budget preparation. The various categories in the project prioritisation model carry the following budget requests:
Economic development – R1,028,343,621 (23.00%) Upgrading and renewal – R1, 970,120,341 (44.06%) Urban restructuring – R1, 473,099,465 (32.94%)
The National Treasury has set a benchmark of 39% - 40% of the Capital Budget to be spent on renewal projects and this was taken into account. This budget allocates 44% for asset renewals.
Impact of proposed projects on the operational budgets of future years was evaluated. It is not sustainable to construct facilities where there are not sufficient operating funds available to operationalise the facilities.
The following table provides a breakdown of budgeted capital expenditure by vote:
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Table 20 2015/16 Medium-term Capital Budget per vote
For 2015/16 an amount of R3.293 billion has been appropriated for the development of infrastructure which represents 73.65% of the total Capital Budget. In the outer years this amount totals R3.831 billion, 77.27% and R3.458 billion, 66.72% respectively for each of the financial years. Infrastructure development relates to roads and stormwater, transport, electricity, water and waste water management and other.
Further detail relating to asset classes and proposed capital expenditure is contained in Table 27 MBRR A9 (Asset Management) of Annexure B. In addition to the MBRR Table A9, MBRR Tables SA34a, b, c provides a detailed breakdown of the capital programme relating to new asset construction, capital asset renewal as well as operational repairs and maintenance by asset class.
The following graph provides a breakdown of the Capital Budget to be spent on infrastructure-related projects over the MTREF.
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Figure 2 Capital Infrastructure Programme
1.6.1 Future operational cost of new infrastructure
The future operational costs and revenues associated with the capital programme have been included in Table 96 MBRR SA35 - future financial implications of the Capital Budget on page 358. This table shows that future operational costs associated with the capital programme totals R564m in 2015/16, escalates to R596m in 2016/17 and to R631m in 2017/18. It needs to be noted that as part of the 2014/15 MTREF, this expenditure has been factored into the two outer years of the operational budget through increases in the budgets of the departments and the provision of the R55m global amount for additional vacancies.
The new facilities created through the capital programme of the Social Development Cluster have the greatest impact on future Operating Budgets as a result of the increased human resource costs associated with the facilities. The sustainability of the number of facilities created is being looked at to ensure that future tariffs are not unaffordable to our communities. Part of the long-term strategy is to invest in projects that will stimulate economic growth which will result in increased financial resources so that social facilities can be afforded.
In the short- to medium-term, however, it will require a reduction in the investment in social facilities so that available funds can be geared towards economic growth projects. The section dealing with the proposed new capital prioritisation model will further elaborate on this principle.