Sol faces major financial crisis

THE SOL Plaatje Municipality, which is currently one of the few in the Northern Cape that is still able to meet payments to its creditors, including Eskom, is facing a massive financial crisis which could affect its future viability and sustainability.

With the city council agreeing to drop the R260 flat rate for electricity, income from the sale of electricity is likely to drop by an estimated R110 to R115 million a year.

In the past the R260 was included in the cost of the unit price for tariffs and is not an additional amount that is now being charged.

By dropping the R260 for all domestic consumers, the unit costs for electricity will drop by as much as 30%, depending on how many units are used.

Up until July 1, when the new tariffs came into effect, residents were paying R1.4261 a unit for electricity for Block 1 (0-50 kW). Now they are paying R1.0516.

For Block 2 (51-350 kW) the cost has dropped from R1.9552 a unit to R1.3519 a unit now, a decrease of 30%.

Consumers will now pay R1.9028 a unit for Block 3 (351-600 kW), down from R2.1154 last month, while for more than 600kW the costs will remain almost the same (2.2408 a unit now instead of R2.2436 previously).

The current tariffs, without the R260 flat rate, are the lowest electricity has been in five years in Kimberley.

According to calculations done, this will result in the income from the sale of electricity dropping to between R110 to R115 million a year.

The municipality will still have to pay Eskom for the electricity purchased or face power outages like several other towns in the Province if it fails to meet its commitments.

Trying to make ends meet, may result in several projects on the municipality’s capital budgets having to be cut.

The projects on the capital budget for this coming financial year which are being funded from the municipality’s owns funds, and which could be axed, could include the money budgeted for the planning and surveying of erven, the R1 million for the Craven Street stalls, R250 000 for the renewable energy incubator, R5 million for security, R4 million for fleet replacement (there is a further R10 million on the capital budget for fleet replacement but this is still unfunded), R4 million for computer equipment and R3 million for furniture and office equipment.

Several other projects on the capital budget are being funded from other sources, including national and provincial government departments and will therefore have to go ahead or the city will lose the funding.

However, even cutting all municipal funded projects will not come close to raising the expected shortfall needed to pay Eskom.

This means that the municipality will have to look at other ways of cutting expenditure, including on maintenance projects, some of which could have a direct influence on service delivery.

Last year, the cost of bulk purchases was a total of R524 million – this included R444 million for electricity and R80 million for bulk water purchases.

Internally generated funds for capital projects has already dropped this financial year from R90.8 million in the 2016/17 financial year to R50.4 million for this year which started on July 1.

The Sol Plaatje Municipality is also facing pending salary increases for its workers, with wage negotiations currently deadlocked.

Trade unions are asking for an 8% increase, a minimum wage of R7 393, a R378 non-pensionable allowance for employees that do not qualify for mortgages but earn too much to get RDP (Reconstruction and Development Programme) houses, and an increase in the threshold for these employees from R8 000 to R15 000.

The Sol Plaatje Municipality has only budgeted for a 7% increase in its wage bill for officials, so anything above this will also have to be funded from elsewhere.

The wage total bill for the 2018/19 financial year, with the budgeted increase, is R716.7 million.

It is believed that the municipality’s financial officials will now have to relook at its budget in order to ensure that it is funded.