1. Challenge of amalgamations in urban areas – as case study of the Tshwane Metropolitan Municipality 29 May 2015

2. Table of Contents  Background  Key consideration  Impact of the merger  Cost incurred as a result of the merger  Lesson learned

3. Background The Gauteng Department of Provincial Government gave notice on 30 June 2010, in Provincial Gazette Extraordinary No 128, of the Local Government: Municipal Structures Act (117/1998), of a final amendment of the notice establishing the municipal boundaries of the City of Tshwane Metropolitan Municipality and the Metsweding District Municipality. On 19 May 2011, the municipalities of Metsweding, Kungwini and Nokeng-Tsa- Taemane were incorporated into the City of Tshwane.

4. What it meant for City of Tshwane (CoT) The most obvious result of the re-determination of the boundaries of Metsweding and the CoT was an increase of the CoT geographical area from 2199 km2 to 6321 km2 Increase of the population with approximately 153539 people or 46502 households. The administration of the Kungwini, Nokeng tsa Taemane and Metsweding including function, services, liabilities and assets became the responsibility of the CoT It necessitated the development and approval of a new organizational structure Alignment of various policies, processes and systems.

5. Key consideration The date for the incorporation was critical to the preparation of the Financial Statement. The date should coincide with the financial year, to ensure proper closure of books. Compiling different set of the financial statements meant separate audits with associated complexities and costs. One of the disestablished municipalities was qualified in 2009/10 Possibility of qualified audit opinion

6. Financial Impact At the time of merger the full extent of the financial implications was not available Some of these costs were hidden in the normal run of the business, and this cost needed to be incorporated in the budget of City of Tshwane (COT). The City, as successor in law, immediately were obligated to settle various outstanding liabilities on behalf of the erstwhile municipalities (R124,2 million).

7. Financial Impact Line departments were forced to re-align their processes, procedures and programs to ensure effective service delivery in these incorporated areas, resulting in additional costs. HR Policies SAP migration and licenses, network radio connection to Tshwane network, fibre deployment General Valuation roll Tariff structures etc Extension services of services cost the City over a billion

8. Analysis of financial position of the incorporated munics Financial Performance NokengKungwiniMetsweding 201020112010201120102011 Operating revenue153 864 142146 608 442364 255 619496 775 67232 860 08230 695 231 % change -5% 36% -7% Own revenue94 807 27197 227 097289 752 801372 864 447429 204268 654 % change 3% 29% -37% Operational Grants59 056 87249 381 34574 502 818123 911 22529 741 05029 930 733 % change -16% 66% 1% Operating Expenditure163 363 680190 554 907402 806 726547 385 64339 590 36738 411 614 % change 17% 36% -3% Deficit-9 499 538-43 963 672-40 949 500-48 601 008-6 773 627-7 848 735 Capital Expenditure23 590 33416 201 839 41 005 345

9. Assets and Liabilities NokengKungwiniMetsweding 201020112010201120102011 Cash-flow position367 1672 764 17819 440 6531 690 9957 922 47427 525 % change 653% -91% -100% Debtors20 476 56515 161 01526 820 038 94 632 54563 39462 052 % change -26% 253% -2% Creditors44 142 67462 939 326128 228 605 218 861 5342 578 1352 190 469 % change 43% 71% -15%

10. Summary of the actual costs incurred by CoT during the year of incorporation 11/12 Financial Year Payments made by City on behalf of erstwhile municipalities 124,2 million Running operational cost shortfall R538,1 million Capital expenditureR373,6 million Total cost / shortfallR1 035,9 million

11. Attempt for reimbursement The City raised concerns about the short-funding of the incorporation process during various inter-governmental engagements with the National and Provincial Treasuries. Only R20 million was transferred as grant to the City, which did not cover payments made to creditors on behalf of the erstwhile municipalities.

12. Lesson to be learn Due diligent has to be conducted which includes operational issues and mainly the financial impact Assessment of the current affairs of the municipalities Identification of risk Assessment of policies and procedures Consideration of the financial reporting dates The financial impact

13. Thank you