SECTION F FINANCIAL PLAN
3. Financial Strategy
2.3 Capital Budget Estimates
Table F.2 details the estimated Capital Investment Programme for the three years starting July 2012 and ending 30 June 2015. The Capital Investment Programme remains subject to the availability of funding.
TABLEF.2:CAPITAL INVESTMENT PROGRAMME:2012/13 TO 2014/2015 2012/2013 - 2014/2015 CAPITAL BUDGET PER FUNDING
Funding
2012/2013 Capital Budget
2013/2014 Capital Budget
2014/2015 Capital Budget
Own Funds 120 079 023 132 723 000 124 220 000
Total Own Funding 120 079 023 132 723 000 124 220 000
Integrated National Electrification Programme (INEP) 30 000 000 30 000 000 20 000 000
Electricity Demand Side Management Grant 10 000 000 0 0
Neighbourhood Development Partnership Grant 0 0 8 828 000
Public Transport Infrastructure and Systems Grant (PTIS) 78 702 000 78 762 000 0 Urban Settlement Development Grant 491 145 828 602 860 000 706 691 000 Human Settlement Development Grant 19 170 420 35 495 714 16 318 416
Total Grants 629 018 248 747 117 714 751 837 416
TOTAL PER FUNDING 749 097 271 879 840 714 876 057 416
2.4 Debt Management Framework
Table F.3 details the Debt Management Framework 2012/13
(R Mill)
2013/14 (R Mill)
2014/15 (R Mill)
CLOSING BALANCE 607,208 561,807 512,134
3.1 The Financial Framework
3.1.1 Revenue Adequacy and Certainty
It is essential that the City has access to adequate sources of revenue, from both its own operations and intergovernmental transfers, to enable it to carry out its functions. It is furthermore necessary that there is a reasonable degree of certainty with regard to source, amount and timing of revenue.
The Division of Revenue Act has laid out the level of funding from National Government that will be received for the 2013/13 to 2014/15 financial years.
The City strives to grow its own revenue by implementing an effective Revenue Strategy. This is to ensure that the City will be able to fund its own Capital Infrastructure Programmes into the future.
Currently the City is assessing its capacity to borrow so as to invest in income generating infrastructure assets.
i. Cash / Liquidity Position
Cash and cash management is vital for the short- and long-term survival and good management of any organization. The appropriate benchmarks which can assist in assessing the financial health of the City are:
The current ratio, which expresses the current assets as a proportion to current liabilities. “Current”
refers to those assets which could be converted into cash within 12 months and those liabilities which will be settled within 12 months. The norm for current ratio in the industry is 2:1, which is considered to be healthy.
The City currently stands at a ratio of 1.65:1 which is desirable in the medium term as the City’s objective is not profit driven, but focused on service delivery. However it should be noted that one of the contributing components to the increase in the current ratio are debtors and inventory.
Debtors constitute 18% of the current assets. Inventory constitutes 7% of the current assets and BCMM is currently managing its stock levels in order to avoid having its cash reserves tied up in inventory. Cash and cash equivalents comprise 75% of the current assets, it should however be noted that a large portion of the investments (R 892.64 million) is unspent conditional grants.
Debtors’ collection measurements, which have a great impact on the liquidity of the City.
Currentlythe City takes on average 76 days to recover its debts, while the annual debts collection rate is 92.09%. The City will attempt to reduce the day’s debts outstanding to less than 60 days in the medium term and will strive reach a collection rate of 95%. A desirable target in the long term will be 97%.
ii. Sustainability
The City’s budget in the 2012/13 MTREF period is funded. As there are limits on revenue, it is necessary to ensure that services are provided at levels that are affordable, and that the full costs of service delivery are recovered. BCMM is striving to ensure that all households within the jurisdiction of the metro will have access to basic services.
iii. Effective and Efficient Use of Resources
In an environment of limited resources, it is essential that the City make maximum use of the resources at its disposal by using them in an effective and efficient manner. Efficiency in operations
iv. Accountability, Transparency and Good Governance
The City is accountable to its people who provide the resources. The budgeting process and other financial decisions are open to public scrutiny and participation. In addition, accounting and financial internal control procedures are in place to minimize opportunities for corruption. It is also essential that accurate financial information is produced within acceptable time-frames.
v. Development and Investment
In order to deal effectively with backlogs in service delivery, the City needs to maximize its investments in municipal infrastructure (see Table F.2).
vii. Macro-economic Investment
As the City plays a significant role in the area, it is essential that it operates efficiently within the national macro-economic framework. The City’s financial and developmental activities should therefore support national fiscal policy.
viii. Borrowing
The strong capital market in Southern Africa (banks and other lending institutions like DBSA, INCA etc.) provides an additional instrument to access financial resources.
BCMM is indebted to DBSA for its infrastructure investments in the previously disadvantaged areas.
Currently the City is assessing its capacity to borrow so as to invest in income generating infrastructure assets, so as to grow the City’s revenue base. BCMM maintains a long term Credit Rating of ‘A’. The current “capital charges” as a percentage of income is 17%. The City will continuously aim to keep this at a desired level of below 10% over the medium term.
3.2 Strategies and Programmes
With the above framework as a background, strategies and programmes have been identified and form part of the financial plan to achieve the desired objective – the financial viability and sustainability of the City. Time frames have been set for each of the projects that have been identified.
3.2.1 Revenue Raising Strategies and Programmes
The following are some of the more significant programmes that have been identified:
The review and implementation of a Credit Control & Debt Collection Policy
This policy and the relevant procedures detail all areas of credit control, collection of amounts billed to customers, procedures for non-payment etc.
The review and implementation of an Indigent Policy
This policy defines the qualification criteria for an indigent, the level of free basic services enjoyed by indigent households, penalties for abuse etc.
The review and implementation of a Uniform Tariff Policy
This policy ensures that fair tariffs are charged in a uniform manner throughout the Buffalo City area.
The review and implementation of a Property Rates & Valuation Policy
This will ensure that a fair rates policy and an updated valuation roll is applied to the entire Buffalo City area and will aim to ensure that all properties are included in the City’s records.
Furthermore the policy will ensure that valuations are systematically carried out on a regular basis for all properties.
3.2.2 Asset Management Strategies and Programmes
The following are some of the more significant programmes that have been identified:
The implementation of an Integrated Asset Management System.
This programme involves the investigation, identification and implementation of a suitable integrated asset management system. It also includes the capture of all assets onto this system, the maintenance of this system and the production of a complete asset register in terms of GRAP requirements.
The review and update of asset and risk insurance procedures and the renewal of the insurance portfolio.
This programme involves the identification of risks in conjunction with insurers and all Directorates and the review and update of the asset and risk insurance procedure manual. It also includes the review of the existing insurance portfolio and the renewal of the insurance policy as per the renewal terms.
3.2.3 Financial Management Strategies and Programmes
The following are some of the more significant programmes that have been identified:
The review of the computerized accounting system
Integration of all computerized systems and acquisition of hardware and software required The integration of computerized systems and acquisition of the required hardware and software within the Buffalo City area to ensure that information is accurate, relevant and prompt, which in turn will facilitate the smooth running and effective management of the City.
Development of a GRAP compliant MTREF budget
Develop and implement budget and community consultation processes Develop and implement a uniform budget reporting framework
Review of Post GRAP implementation issues and standards Review and update asset and accounting policies and procedures Training and development of financial and other staff
The aim of this project will be to constantly ensure that the Financial (and other) staff receive the training they require to ensure a cost-effective and efficient service to the City.
Enhance budgetary controls and timeliness of financial data
The Budget Office submits performance reports of the municipality timeously to the various stakeholders and ensuring compliance with the Municipal Finance Management Act (MFMA).
Section 71 Reports are submitted to the Executive Mayor 10 days after month end indicating the year-to-date performance of the municipality.
3.2.4 Capital Financing Strategies and Programmes
The following are some of the more significant programmes that have been identified:
This policy will ensure that any borrowings taken by the City will be done in a responsible manner and that the repayment and servicing of such debt will be affordable.
The development and implementation of a policy for accessing finance (including donor finance)
3.2.5 Operational Financing Strategies and Programmes
The following programme has been identified:
Investigation of service delivery options and public/private partnerships
This refers to the ongoing investigation into how the City can service the community in the most efficient and effective manner, including an investigation of public/private partnerships for service delivery.
4. Financial Management Policies