Two weeks ago, the Makhado Municipality officially adopted its budget for the next financial year, but it may have to go back to the council for reconsideration. The North Gauteng High Court ruled on Friday that municipalities that did not conduct proper cost-of-supply (CoS) studies may not implement electricity tariff increases.

Although this was not officially confirmed, Makhado Municipality is believed to be one of more than 100 municipalities countrywide that did not submit proper CoS studies to the National Energy Regulator (Nersa). Most municipalities simply passed on Eskom’s increases to their own consumers. Makhado Municipality announced a 12.7% increase in electricity tariffs, effective from 1 July 2024. This may have to be put on hold and may seriously impact the municipality’s expected income and expenditure.

Nersa announced on Saturday that it would be appealing the order, but because this was an urgent application brought before the court, Nersa will first have to apply for leave to appeal. While the court processes play out, municipalities are left in the dark, unsure of whether they should go ahead and implement the electricity-rate increases. Eskom, however, will not foot the bill for the debacle, and bulk consumers, such as municipalities, will pay more for electricity from 1 July.

Makhado budget a messy affair

Trying to make sense of the complete budget of Makhado Municipality is a mission on its own. The first challenge is to establish which version is the “true” version. Municipalities countrywide are required to submit financial documentation such as budgets and annual financial statements to the National Treasury. The “Budget Final 2025” document that was submitted is, however, a highly questionable document, with column totals not correctly calculated and some figures clearly incorrect.

One of the most obvious mistakes concerns the revenue from the sale of electricity. This is normally one of the biggest revenue earners for the municipality. In the previous financial year, the full annual forecast for “Service charges – Electricity Revenue” was R615.73-million. The bulk purchases from Eskom totalled R345.56-million. This would mean a gross profit of just over R270-million.

In the budget documentation, seemingly prepared by Ms Mikateko Makhubela on 5 June 2024, the revenue generated from the sale of electricity for 2024/25 is estimated to be only R466.93-million. That would mean the gross profit earned from electricity sales, after Eskom’s increases, would drop to around R77-million.

The budget documentation available on the municipality’s website, albeit prepared on 2 April 2024, seems to be the most plausible. Here the revenue to be generated from the sale of electricity for 2024/25 is set at R693.93-million, which is exactly 12.7% more than the previous year’s forecast. To try and make some sense of the municipality’s expected income and expenditure for the next year, we opted to use this document.

Where will the money come from?

The municipality hopes to collect almost R1.5-billion from own resources and grants, which is quite an achievement. As mentioned earlier, sale of electricity to consumers should bring in R693.93-million. (If the increases are now being delayed by a month or two, this may affect the income but should not bankrupt the municipality.) Property rates should bring in R131.21-million, while refuse-removal charges should bring in R17.06-million. The council expects to collect R8.54-million from interest on external investments, and fines, penalties, and forfeits can bring in roughly R4.7-million. Other revenue sources are expected to produce R56.91-million. Property rates and other services increased by 4.9% from 1 July 2024.

Makhado expects to collect R47.63-million from interest on outstanding debtors. This immediately begs the question whether the municipality banks on getting interest on outstanding debt it knows it will have to write off. This does not, however, seem to be the case, and even though debt impairment is estimated to be R77.29-million, the current collection rate stands at 90%. (The budget documentation submitted to National Treasury puts it at 88%, which is still reasonably high.)

Grants still plug a lot of gaps

Transfers and subsidies are expected to bring in R532.81-million to assist the municipality in meeting its obligations in terms of service delivery. The biggest portion of this comes from the Equitable Share Grant (ESG), which totals R509.84-million. The ESG is an unconditional allocation and a means through which central government provides funding for municipalities to deliver free basic services to poor households.

The Integrated National Electrification Programme (INEP) adds R12.51-million to the municipality’s coffers. This is money allocated to help municipalities set up and maintain electricity infrastructure. According to the budget documentation, this will be used to set up infrastructure in areas such as Tshituni, Mpofu, and Mulima village.

Makhado Municipality will also receive funding via three other grants, namely the Disaster Grant (R6.01-million), the Extended Public Works Programme (EPWP) (R2.56-million), and the Finance Management Grant (R1.9-million). In her budget speech, Mayor Dorcus Mboyi said that the EPWP funds would be used to employ 350 workers in the coming year.

As has now become customary, the municipality will also receive a Municipal Infrastructure Grant (MIG), which should bring in R105.4-million. This is funding that must be used for capital projects, and not for the operational budget. The bulk of the MIG (R100.13-million) will be used to upgrade roads. The Midoroni Clinic Ring Road will be upgraded at a cost of R39.51-million. The Luvhalani to Dzananwa access road is also earmarked for an upgrade, at an estimated cost of R33.25-million. The road leading to the military base from Tsianda is to be upgraded at a cost of R15.67-million, while R11.7-million is set aside to upgrade the Tshikota access road.

Where will the money go to?

Although the mayor was quick to claim that only 28% of the operating budget is spent on salaries, this is not the case. The salaries and wages of council workers are expected to rise by 5.4% to R378.9-million. The cost of remunerating the councillors is expected to be R33.57-million. These two items make up 27.95% of the operating expenses, but then the contracted services need to be thrown into the pot, which takes the total to 46.01%.

Contracted services have been a contentious issue for some years now, where municipalities are accused of using outside contractors to do work that was previously done by their own staff. In many cases, the outsourced work comes at a premium price. In the 2019/20 financial year, contracted services cost the Makhado Municipality R87.3-million, or 9.39%, of its operating budget. Last year, the municipality spent R286.93-million on contracted services, which represented 20.35% of the operating expenses. This number has decreased slightly to R266.52-million (18.06%) in the new budget.

In the explanations in the budget documentation, the compiler states that contracted services will be for township development and land surveys. The money is also to be used for site demarcation, road maintenance, and electrical maintenance.

Makhado expects to pay 11.27% more for purchasing electricity from Eskom, at an estimated cost of R414.84-million. Debt impairment will cost R77.29-million, while depreciation and amortisation will rise to R159.89-million.

Some money left for capital projects

The capital budget that was approved amounts to R429.76-million. The MIG is to contribute R100.13-million, but the council will also contribute R317.12-million out of its own revenue.

The technical services department will get most of the money (R391.23-million), but R104.77-million will be spent on electricity infrastructure. Projects include the replacement of poles on high- and low-voltage lines in areas such as Sinthumule and Kutama, as well as the Levubu, Bandelierkop, and the Tshipise lines. Several substations, among them Emmarentia, Roodewal, and the one in the Tree Park, will be upgraded. The upgrading of the substation south of Pretorius Street will cost around R10-million.

The upgrading of roads remains a priority, and apart from the MIG projects, a further R168.37-million has been allocated to refurbish roads. In Louis Trichardt, roads that are earmarked for refurbishment include Celliers Street, Second Street, Bauhinia Street, Douthwait Street, and Kort Street.

Some of the other capital projects that stand out are the construction of the Dzanani taxi rank (R24.12-million), the development of roads and stormwater infrastructure for 700 new stands south of Pretorius Street (R29-million), and the development of roads and stormwater infrastructure for 164 new stands in Tshikota (R25-million).

The municipality plans to construct a council chamber and administration office at a cost of R5-million. The development of Potgieter Park (in Rissik Street) continues, and R15-million has been budgeted for this project. The infamous (and still incomplete) Waterval stadium receives another R4-million. R2-million has been earmarked to extend the library building in Louis Trichardt, while R2-million is to be set aside to (once again) try and fix the municipal swimming pool. The swimming pool in Eltivillas is also to be upgraded at a cost of R2-million, while the sports facilities in Eltivillas are to get a R1.5-million facelift.

To finish, the region should be a lot “lighter” at the end of the financial year. The council allocated a further R16-million to erect high-mast lights in various villages, such as Madombidzha, Gogobole, Buysdorp, Maelula, and Mpheni.