City of Cape Town does not make a profit on the sale of electricity
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The article “Outcry over City of Cape Town’s steep electricity tariff increase” (Cape Argus 2 July 2021)“ refers.
The City of Cape Town does not budget for a profit on the sale of electricity. All income from the sale of electricity is used to provide services.
The same goes for all services and rates income.
Some 65% of the electricity tariff income is just to buy the bulk power from Eskom. And this now costs 17.8% more.
The City has absorbed as much of this massive Eskom increase as possible, but it is simply impossible to absorb such a high increase, when one’s operations are already very efficient from work done over the years to trim fat and enhance business operations.
Because the City manages its distribution network effectively, we are able to bring our tariff increases in lower than the Eskom charges.
There is no doubt that many residents are facing unprecedented financial challenges. In drawing up the budget, we focused on how best to assist and support residents, while keeping this organisation healthy enough to deliver on its core function, which is to provide basic and essential services.
Hence you’d have seen the R3.4 billion in indigent relief allocated, a R4.1 billion debt write off incentive, and continuing support for all those severely impacted by Covid-19.
No other metro has been able to absorb as much of the costs of this big Eskom increase. If we were, at all, able to avoid increases, we would have done so in a heartbeat. But we need to be realistic. It costs money to provide services and input costs go up every year – most often above inflation.
Tariff increases have been kept to the bare minimum to enable the City to continue sustainably, while protecting residents and covering the costs of providing the services.
As the City has repeatedly stated: it is a fallacy that it is sitting on R18 billion in reserves that are not being used. This is constantly stated by the Facebook group StopCoCT and this false statement that is never corrected, as it does not suit their agenda.
It is not true that the City is sitting on vast amounts of unallocated cash. R11 billion of the R18 billion is allocated for use. This enables the City to finance a significant portion of its capital programme through internal funds, rather than external borrowing, which would incur interest.
The remaining R7 billion is our working capital, which is around two months of average expenditure.
National Treasury guidelines stipulate that a municipality needs to have between one and three months of working capital. The consequences of failure to maintain these reserves are plain to see in many other municipalities across the country.
Independent research reports affirm the City’s sound governance and prudent financial management.
In addition, even industry bodies and public institutions who have done their own analysis of the City’s tariff and rates, state that the City has the lowest tariff increases of all metros in the country, and the lowest cent-in-the-rand-rate.
* Alderman Ian Neilson, Mayoral committee member for finance and Executive Deputy Mayor.
** The views expressed here are not necessarily those of Independent Media.
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