1. BUDGETS 2015/16 MTREF 1

2. 2 NATIONAL TREASURY – EXECUTIVE SUMMARY

3. 3 NATIONAL TREASURY MAIN RECOMMENDATIONS 1.To reconsider the prioritisation of projects – social vs trading services. Current priorities are impacting negatively on growth in own revenue (strategic budgeting) and economic development – including improving strategies to deal with backlogs quicker that will not negatively impact on tariffs / cash flow. 2.Engagements with national and provincial sector departments to align planning and funding (grants) and achieve BEPP and SDF outcomes. 3.Only implement national and provincial mandates in line with funding provided / possibility and cost of taking mandate over. 4.Investigate additional strategies to curb water losses. 5.Review the provision of the social package in terms of future affordability. 6.Separate discussion on funding for 2022 Commonwealth Games required.

4. TARIFFS 4

5. TARIFF INCREASES  Tariffs are cost reflective, affordable and sustainable i.t.o the MFMA and Systems Act  The adverse impact of the current economic climate, coupled with unfavourable external financial pressures on services, make tariff increases higher than CPI levels inevitable  Cross subsidisation also impacts on tariffs  Growth percentages conservative for tariffs – average not more than 1%, however, electricity has a negative growth.  Electricity tariffs could be increased further 5

6. PROPOSED TARIFF INCREASES YEAR ON YEAR COMPARISONS 2015/16 PROPOSED 2014/152013/142012/132011/122010/11 Electricity12.2% Eskom proposed 14.24% 7.39%5.5%11%19.8%25% Water: Domestic Business 9.5% 12.9% Umgeni Water 7.7% 9.9% 12.9% 9.5% 12.5% 15.5% 7.5% 12.5% 9.5% 12.5% Refuse Removal7.9% 6.9%7%6.5%7.5% Sanitation7.9% 6.9%6.5% NEW Rates: Average 6.9% 6.5% 7.9% 6

7. HOUSEHOLD BILLS MONTHLY ACCOUNT FOR HIGHER INCOME RANGE Ref Current Year 2014/15 Budget Year 2015/16 % increase Rates and services charges: Property rates 1 504.84 539.67 6.9% Electricity: Consumption (Residential) 1 153.20 1293.8912.2% Water: Consumption 408.98 447.83 9.5% Sanitation 91.88 99.14 7.9% Refuse removal 74.88 80.80 7.9% Other sub-total 2 233.78 2 461.33 VAT on Services 242.05 269.03 Total large household bill: 2 475.83 2 730.36 Total % increase : Higher Range 10.28 % Affordable Range 10.00% Indigent Range 10.50% References 1. Use as basis: property value of R700 000, 1 000 kWh electricity and 30kl water 7

8. FREE BASIC SERVICES 8

9. FREE BASIC SERVICES - RESIDENTIAL COST HOUSEHOLDS  Rates: Life Line R1.8 bn 207 705  Water R705.5m 521 374  Electricity R96.8m 112 960  Sewerage/ Sanitation R278.4m 386 872  Refuse removal R394.8m 559 560  COST OF FBS IS APPROXIMATELY R3.2 BILLION. PARTIALLY COVERED BY EQUITABLE SHARE OF R 2.11 BILLION FROM NATIONAL TREASURY 9 When reviewing the Free Basic Services we need to consider:  Sustainability  Impact of new Housing  Impact on non indigent ratepayers/consumers

10. NUMBER OF PROPERTIES PAYING RATES 61

11. OPERATING EXPENDITURE 11

12. FLEXIBILITY - MAJOR EXPENDITURE ITEMS 2015/16 12

13. Sustained inflationary pressure on key operating costs have seen total costs escalate. The largest component of the cost base relates to its bulk purchases – 29.5% of total expenditure The other large expenditure item relates to staff costs – 24.1%. Further, salaries and wages rose by 8.42% to R7.97 billion. Provided for 542 additional posts when compared to 2014/15 Repairs & Maintenance registered 9.5% of total expenditure Depreciation comprise 6.5% of the total expenditure Finance charges increased by 21.2% and is 4.3% of the total expenditure EXPENDITURE

14. SALARY INCREASE vs. INFLATION YearCPI (Inflation)Salary Increase 2015/20165.8%7.5% 2014/20156.2%7.5% 2013/20145.9%6.85% 2012/20135.6%7.0%

15. Backlog reduction over MTEF Basic Service Estimated Backlog (consumer units) as at 31 June 2015 Estimated Delivery per annum (units) over MTEF Backlog at 31 June 2018 based on current delivery/funding levels Water 67 271 2 25060 521 Sanitation 180 527 16 000141 527 Electricity 263 573 13 250223 823 Refuse removal 08 6000 Roads (KMS) 1 102 171 051 Housing 392 317 6 100374 017

16. BACKLOGS  Even though vast strides have been made, backlogs are huge  Not spending sufficiently on replacement and maintenance of assets  Urbanisation trends – pushes backlogs upwards  Effective Asset Management will further impact on expenditure  Existing grants and income insufficient  Municipal Infrastructure Investment Framework addresses Infrastructure backlogs  Social facilities accessible model used to match demand of facilities based on population, income and age profiles (census information)  Backlogs being fast tracked with the interim services program and a major dent in the backlog will be made over the next 5 years 16

17. IRPTN FINANCIAL IMPLICATIONS CORRIDOR C3

18. 15/16 to 17/18 Grant allocations

19. INFRASTRUCTURE CASH FLOW

20. C316/1717/1818/19 Fare Revenue+PTNO 280 869 106 285 303 870 354 457 884 Direct Operating Cost 174 981 410 185 480 295 225 856 882 Vehicle insurance 17 213 361 18 246 163 23 831 374 Support Services 88 122 550 98 423 539 108 932 321 * Station Services 64 584 000 68 459 040 72 566 582 * Inspection & Monitoring 2 341 133 3 102 001 7 891 491 * Fare Systems Management 12 753 917 13 519 152 14 330 301 * ITS Management 8 443 500 13 343 346 14 143 947 Oversight Entity 48 615 800 46 463 270 50 979 257 Marketing 13 127 206 11 529 282 10 473 312 Maintenance 21 647 276 45 892 225 48 645 759 Sub-total (Direct and other operating costs) 363 707 604 406 034 774 468 718 905 Shortfall btw fare revenue and all operating costs (Direct and other) -82 838 498 -120 730 903 -114 261 021 Shortfall btw fare revenue and direct operating costs -105 887 696 - 99 823 576 -128 601 001 C3 Operational Cost

21. FINANCIAL COMMENTARY – PHASE 1 – C3 The capital shortfall to implement phase 1 – C3 is +/- R 889M over the MTREF 2015/16 to 2017/18. The operating shortfall from date of commencement of operations (anticipated January 2017) to the end of June 2019 is anticipated to be R 318m. These cash-flows assumes that no other corridor will be implemented in 2017/18.

22. IRPTN – PHASE 1 – c3,c1,c9

23. FINANCIAL COMMENTARY – PHASE 1 The estimated capital costs for phase 1 to the year 2019 is R 13bn. The Public Transport Infrastructure Grant is only projected for the MTREF ending 2017/18 amounting to R2,7bn including the 2014/15 rollover. The anticipated capital shortfall is in the region of R10bn assuming that the PTIG is projected till the end of 2017/18. The compensation model is not finalized and is expected to be between R4,5bn to R11bn. The average operational shortfall per annum is anticipated to be R 1,7bn.

24. CASH FLOW MANAGEMENT 24

25. CASH FLOW APPLICATION - REVIEWED BY NATIONAL TREASURY 25

26.  Cash is monitored on a daily basis – reconciliation of daily cash  Multi year cash forecasts prepared  Regular analysis of payments and income streams to ensure realistic cash flow projections  Monthly cash flow, investments and borrowings report to Council  Financial strategy to target 90 days cash on hand. However, Capital budget will be reviewed in line with the borrowing limits  Cash flow forecast informs the Investment plan  An investment register and a daily summary of all investments maintained  Surplus cash invested ito the Investment Policy /Framework  Borrowings to fund capital made ito Borrowing Policy Framework and Guidelines  Regular meetings scheduled for cash flow, investments and borrowings  The 2015/16 MTREF provide for a projected positive cash position of over R 952 million year end, and increases to R1.1 billion by 2017/18, applying funds to cash backed reserves CASH FLOW MANAGEMENT (contd) 26

27. FINANCING THE CAPITAL BUDGET/ BORROWINGS 27

28. FINANCING OF CAPITAL BUDGET 28

29. FINANCING OF CAPITAL BUDGET  The Capital budget which increased from R6.0bn to R6.9bn over the MTREF period. The 2015/16 budget is financed from three sources viz Grant Funding (59.1%), Loans(16.5%) and internally generated funds(24.4%)  Maximum internally generated funds and national transfers from other spheres of government  All loans are utilised for capital projects and approximately 90% of loans applied to infrastructure type of projects “Life is an echo. What you send out – comes back. What you sow – you reap. What you give – you get. What you see in others – exists in you. Remember, life is an echo. It always gets back to you.” 29

30. BORROWINGS 30

31.  Strategy based on Borrowing Regulations Framework and Guidelines  Borrow long term at lowest possible rate with minimum risk  Borrowing requirement based on three year CAPEX coinciding with MTREF  Can commit to a loan facility but cannot borrow in advance of need.  Only Capital expenditure funded by borrowings 31 BORROWING STRATEGY 31

32.  Notwithstanding that the gearing ratio indicates a scope for borrowing any additional borrowings will impact adversely on Rates/Tariffs which is above the CPI. Accordingly, alternative funding may need to be sourced.  Duration of Loans to match, as far as possible, the useful lives of the infrastructure assets.  Large concentrations of capital repayments avoided in any particular year to ensure a smooth debt servicing profile over time.  No borrowing for investments purposes 32 BORROWINGS STRATEGY (CONTD) 32

33. KEY ISSUES AND CHALLENGES 33

34. KEY ISSUES AND CHALLENGES Current status is that land is being used for social purposes, namely housing. Our spend is also focused on social. Accordingly, there has been little to no real growth in the rates base. Focus on a densification strategy or nodal development, if not, the growth in the rates base will stagnate even further. Minimal level of growth, major costs to unblock development – return on investments - will impact on tariffs We need to turn this around. Have a wider population to serve. This requires a revision of our Land Policy Need to share land with economic development and job creation projects and broaden economic spend

35. KEY ISSUES AND CHALLENGES eThekwini high unemployment rate 25% to 45 %. Accordingly, there has been little to no real growth in the rates base. Huge backlogs and further demands due to impact on urbanization Economic growth about 3% however growth in rates base only 1% to 2 % whilst here is negative growth in real terms on water and electricity income The key risk areas are: 1. The impact of the FBS package 2. Housing - Sustainability of housing provision from current financing sources – heavily impacting on cash flows 3. IRPTN capital and operating costs KEY ISSUES AND CHALLENGES

36. Impact of Bulk purchase costs Unaccounted for water and theft of electricity Unemployment – sustaining existing collection rates Economic outlook and inflation. Salary increases continue to be above inflation Wage settlement this year need to carefully managed No increase in grants whilst there have been a reduction on some grants The funding for the Commonwealth Games and the Olympic Games KEY ISSUES AND CHALLENGES

37. THANK YOU 37