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DEVELOPMENT: Cape Town's Capex To Slow Down


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Cape Town's ambitious capital investment programme, which has been accelerated over the past few years, is impacting more heavily on the operating budget through increased interest and depreciation charges. While such increases were previously anticipated, a reassessment of the limit on the City’s medium-term borrowing capacity has indicated that a moderate slowing of capital expenditure is required to ensure long-term sustainability. In addition to continuing capital investment, the City also seeks to improve its spending on repairs, maintenance and operational costs, such as for an adequate fire service, and must ensure an adequate balance between these competing needs.

In order to avoid rates increases, that are significantly above the inflation rate, specific savings are proposed for rates-funded services in the coming year, including a cut of R180m from General Expenses, R113m from vacant posts, and reduction in provisions for international travel, furniture, equipment, grants and subsidies. A rates growth requirement of 7.7% is projected for the 2010/11 Financial Year. As a new General Valuation is to be implemented this coming year, the impact on individual rates bills will vary.

The major challenges projected are in achieving sustainable funding of the tariff-funded services:

  • Based on the proposed Eskom tariff increase of 35% and a projected zero increase in electricity sales, an average 29% increase is required in retail tariffs. This would be insufficient to fund all infrastructure needs and a number of projects will be postponed to future years.

  • Due to the closure of localised refuse disposal sites (as they have reached full capacity), the cost structure of the refuse disposal service has increased significantly. Refuse must now be transported over longer distances. The construction of transfer stations can no longer be delayed and significant capital expenditure is also required for extensions to the Vissershok refuse disposal site and the purchase of new collection trucks. An average refuse collection tariff increase of 18% is anticipated for 2010/11 to ensure adequate funding for this service.

  • The Water and Sanitation service also requires significant infrastructure provision and refurbishment. The projected 10% increase in tariffs for 2010/11 has only been achieved by the delay in the start of the Northern Areas Water Augmentation System. It will not be possible to delay this infrastructure any further and subsequent years’ increases in water tariffs will need to ensure adequate funding for this system if water supply shortages are to be avoided.

The Mayoral Committee is cognisant of the current difficult financial situation amongst ratepayers and consumers. It has thus sought to find a balance between moderating tariff increases and ensuring that services will continue to be adequately provided in coming years.

The final valuations of properties are due at the end of this month (January 2010). Once available, modelling of the impact of the proposed rates and tariffs will be undertaken to obtain a fuller understanding of the proposals on different income groups. Consideration will then be given to the rebate structure to minimise the impact of the increases on the more vulnerable members of our society.

The MTREF will form the basis for the development of the draft budget to be tabled in Council at the end of March. A public process and examination of the budget proposals by the Portfolio Committees of Council will ensue thereafter and all inputs will be considered prior to the final adoption of the budget at the end of May.

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