How major metros ‘profit’ off water, electricity

Cities use different municipal charges to varying degrees to balance budgets…
Metros derive up to 80% of their operating revenue from property rates, electricity, water, sanitation and waste management. Image: Supplied

An analysis of the operating budgets of the country’s five largest metros reveals how reliant each are on the different types of municipal charges to households and businesses.

The metros derive somewhere between 70% and 80% of their total operating revenue from property rates as well the so-called “trading services”, namely electricity, water, wastewater/sanitation and waste management/refuse.

The bulk of the remainder comes from transfers and grants from national and provincial government for certain functions. The five metros’ operating budgets total R239 billion.

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Four of the five metros generate above 20% of their revenue from property rates, but this only tells a part of the story. The size of the rates base in each city (households, factories and commercial properties) is an important factor. A smaller rates base would mean that rates would need to be higher for this to contribute the same proportion of revenue that it does in another city, for instance.

Figures are not that easy to come by, but the City of Joburg has nearly 800 000 households that are charged rates and over 46 000 commercial properties (including industrial premises).

By contrast, Cape Town, Ekurhuleni and eThekwini each have somewhere between 520 000 and 600 000 households that are charged rates and a far smaller base of commercial properties (between 15 000 and 24 000).

2021/22 budget
Property rates Electricity Water and sanitation Transfers Total revenue
Cape Town 23% 33% 11% 12% R47.5 billion
Ekurhuleni 16% 42% 13% 12% R42.9 billion
eThekwini 21% 31% 15% 8% R44 billion
Johannesburg 20% 31% 22% 16% R65.9 billion
Tshwane 22% 38% 16% 13% R39.2 billion

Together, water and sanitation have an outsized contribution to Joburg’s budget – at 22% of operating revenue. This is mostly due to how the City of Joburg charges households for sanitation (based on size of the stand). In the current year, Joburg will generate about R5.5 billion from sanitation charges.

Trading services – especially electricity and water/wastewater because of the sheer size of the revenue – are used by councils to pay for or subsidise other services.

Certain of the metros budgets explicitly state that “as a general principle, the revenues for the trading services should exceed their expenditures”.

These are not ‘profits’ in the strict sense; rather they are surpluses that are used to fund other services and capital spending.

In other words, metros cannot rely on property rates, fines and transfers alone to pay for everything but the provision of water, electricity and refuse collection. If they did, rates would be significantly higher than they are.

When it comes to electricity, the City of Cape Town runs the largest surplus as a percentage of revenue, 13.4%. But it runs barely zero surplus on water and sanitation (here, its trading budgets are practically balanced).

Electricity
Revenue Expenditure Surplus/deficit
Cape Town R15.9 billion R13.8 billion 13.4%
Tshwane R15.6 billion R14.1 billion 9.9%
Joburg R20.7 billion R18.9 billion 8.7%
eThekwini R14.4 billion R13.3 billion 7.5%
Ekurhuleni R18.8 billion R17.7 billion 6.1%

Ekurhuleni runs a surplus of 32.5% on its water and sanitation charges and a surplus of 35.7% on waste management.

Water and sanitation
Revenue Expenditure Surplus/deficit
Ekurhuleni R11.4 billion R7.7 billion 32.5%
eThekwini R9.1 billion R7.9 billion 13.2%
Joburg R14.6 billion R12.8 billion 12.8%
Tshwane R5.6 billion R5.1 billion 9.6%
Cape Town R8.04 billion R8.04 billion 0.1%

In the current year, the City of Joburg will generate a surplus of R1.8 billion on electricity trading and R1.9 billion on water and wastewater management. However, it will run a deficit on waste management (refuse removal) of just under R1 billion this year. It notes this deficit “is cross subsidised by the property rates account”.

Waste management
Revenue Expenditure Surplus/deficit
Ekurhuleni R2.2 billion R1.4 billion 35.7%
Cape Town R1.7 billion R1.3 billion 23.2%
eThekwini R1.4 billion R1.3 billion 7.1%
Tshwane R1.6 billion R1.6 billion (0.8%)
Joburg R2.3 billion R3.3 billion (43%)

Aside from using these surpluses to subsidise other operating expenses, they are also used together with grants and borrowings to fund capital expenditure.

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We really need harmonized tariff systems and accounting treatment. Part of what skews the accounting analysis is some councils accounts for some bulk expenditure under inventory movement and contracts.

They have created a monster with a massive overhead (JHB has something like 300 councillors on payroll) and voters expect delivery, which costs. Special interests conspire to protect their little interest, regardless of how unsustainable it makes the council. Eg residential rates and taxes are way too low and business property rates and taxes way too high. But there are 20,000 votes in business property owners and 500,000 votes in the suburbs.

Prediction Engine: Councils will take 1% of property sales next.

Most of the excess goes to upgrading shanty towns. But here in Cape Town the Mayco members’ salaries are in excess of R2.8 million per annum average with the Municipal Manager’s compensation package being R3,542,452.00

I don’t really have too much of an issue with executive appointees being paid commensurate with their subject matter skill.

In my DA town near Cape Town we have councillors (politicians) parachuted in that are entirely clueless.

End of comments.

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