Transcript IMFO FINAL-NERSA Hearings on MYPD2

NERSA HEARINGS
20 JANUARY 2010
Eskom’s Revised Revenue Application
MYPD 2010/11 – 2012/13 (MYPD 2)
Presented By: Louise Muller & Goosain Abrahams
Institute of Municipal Finance Officers
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The Institute for
Municipal Finance Excellence
IMFO is the recognised professional body
for the development and promotion of
Municipal Finance Officers and Local
Government Finance
Established in 1929 – just celebrated 80
Years of Municipal Finance Excellence
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The Institute for
Municipal Finance Excellence
Role of IMFO at NERSA Hearing
IMFO is presenting from the view of:
 The financial relationship between the
municipality (Electricity Department) and the
consumer (reticulation & distribution)
and
 The financial arrangement between
municipalities and Eskom (bulk purchases)
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Municipal Finance Excellence
Overview of Presentation
 General Comments on the Revised Eskom
Revenue Application – MYPD 2
 Local Government Finances
 Recommendations
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Municipal Finance Excellence
GENERAL COMMENTS ON MYPD 2
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Municipal Finance Excellence
General Comments on MYPD 2
 A robust economic assessment of the impact of
the proposed tariff increases on macroeconomic
policy objectives would add value and credibility
to the Eskom submission
 Transparency on efficiency measures introduced
and cost saving mechanisms put in place by
Eskom
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Municipal Finance Excellence
General Comments on MYPD 2(2)
 Government as a whole and NERSA, as the
National ENERGY Regulator, should be setting
the Energy Framework for South Africa
 The 3 year MYPD 2 should not be open to change
UNLESS to reduce the % increase to below the
final level set by NERSA
 The next 3-year MYPD submission must not be
left to the last minute
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Municipal Finance Excellence
LOCAL GOVERNMENT FINANCES
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Municipal Finance Excellence
Local Government Finances
To adequately “protect” service delivery
taking place to all:
 Local Government must pay Eskom for bulk
purchases
 Out of the “affordable provision” of electricity
 While still providing equitable services
– Various different services (including electricity)
– Various categories of users
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Municipal Finance Excellence
Local Government Finances(2)
The CFO (obo Accounting Officer) must
budget for realistically expected revenue*
1. Reduced Income – from the current economic
climate – affects service delivery
2. Increased Bad Debts & Reduced Sales – due
to unemployment – causes a redirection of
funding to support increased indigent pool
* Section 17(1)(a) of the Municipal Finance Management Act
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Municipal Finance Excellence
Local Government Finances(3)
IMFO welcomes the longer term clarity and
stability the transparency of any multi-year
price determination can bring
BUT
There is still concern about the level of
increase and the ability of the economy to
absorb the impact
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Municipal Finance Excellence
Local Government Finances(4)
IF the economy cannot accommodate all the
demands ….
No growth or negative
economic growth
Reduced revenue
streams
Downward
Spiral
Reduced demand for
goods and services
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Potential increase
in unemployment
The Institute for
Municipal Finance Excellence
Local Government Finances(5)
 The Economic Impact of 3 increases of 35% have
not been adequately explored and quantified
 Eskom’s submission is silent on the usual “clawback” applied to local government to
accommodate different financial years
 Certainly the smaller businesses are going to be
hardest hit – with significant economic impacts
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Municipal Finance Excellence
RECOMMENDATIONS FROM IMFO
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Municipal Finance Excellence
IMFO Recommendations
 LG has limited revenue raising powers – the
complex balancing processes related to setting
tariffs and taxes must not be undermined and
cannot be compromised with a “CLAW-BACK”
 LG has significant social and developmental
responsibility – sufficient INDIGENT SUPPORT
must be provided/available to limit any negative
impact of increased prices on investment in
service delivery
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Municipal Finance Excellence
IMFO Recommendations(2)
 LG has to provide projections to support the “outer
years” of the budget process – provide some
certainty on the FUTURE TARIFF ADJUSTMENT
REQUIREMENTS before end of current MYPD
period
 Smaller local economies are significantly impacted by
unexpected changes in prices – don’t accede to
requests to open the MYPD unless REDUCING
TARIFFS
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Municipal Finance Excellence
IMFO Recommendations(3)
 National Government and NERSA need to set the
Energy Policy Direction – boosting
ALTERNATIVE / RENEWABLE ENERGY
research, development and implementation
 National Government and NERSA should be
considering GENERATION STANDARDS to
ensure certainty
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Municipal Finance Excellence
THANK YOU
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The Institute for
Municipal Finance Excellence