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ANNEXURE A 


BUDGET DOCUMENT 





KZN252 

NEWCASTLE 

MUNICIPALITY 



DRAFT MEDIUM TERM BUDGET 
2020/21 TO 2022/23 


Newcastle Municipality 


2019/20 to 2021/22 Draft Budget 


1 







DRAFT MEDIUM TERM BUDGET 2020/21 (T 6/1/1-2020/21): BUDGET AND TREASURY OFFICE 
18 MAY 2020 


1. EXECUTIVE SUMMARY 

Section 16(1) of the MFMA states that the municipal council must for each financial year, approve an annual 
budget for the municipality before the start of the financial year. Section 16(2) states that in order for a 
municipality to comply with subsection (1), the mayor of the municipality must table the annual budget at a 
council meeting at least 90 days before the start of the budget year. Immediately after the tabling of draft 
budget, the accounting officer must make the approved draft budget to local communities and other relevant 
stakeholder for comments and representations. 

Due to the COVID-19 lockdown regulations, it was impractical to comply with the above legislative requirement. 
However, National Treasury has since issued a circular that exempts municipality from tabling the draft budget 
90 days before the start of the financial year. The municipality is therefore aiming at tabling its draft budget 
before 31 May 2020, and to have its final budget approved before 30 June 2020. Consultation processes will 
take place immediately after the tabling of the draft budget, through various platforms, other than those that may 
cause physical contact. 


RECOMMENDATIONS 


(a) That in terms of section 24 of the Municipal Finance Management Act, 56 of 2003, the annual 
budget of the municipality for the financial year 2020/21; and indicative allocations for the two 
projected outer years 2021/22 and 2022/23; and the multi-year and single year capital 
appropriations be approved; 

(a) That the sources to fund both operating and capital budgets be noted and approved; 

(b) That the Municipality’s annual allocation of R126 225 734 to uThukela Water for the provision 
of bulk water be approved; 

(c) That in terms of section 24(2)(c)(i) of the Municipal Finance Management Act, 56 of 2003, and 
sections 74 and 75A of the Local Government Municipal Systems Act, 32 of 2000 as amended, 
the tariffs for the supply of water, electricity, waste services, sanitation services and property 
rates as set out Tariff of Charges that were used to prepare the estimates of revenue by 
source, be approved with effect from 1 July 2020 for all services, except for water and 
electricity consumption, which be levied on the new tariff with effect from 01 August 2020; 

(d) That the Tariff of Charges be approved and be applicable with effect from 01 July 2020; 

(e) That Water, Refuse and Sundry tariffs be increased by 5% with effect from 01 July 2020. 




(f) That Sewer tariffs be increased by 6% for consumption and 0% for availability charge, with 
effect from 01 July 2019; 

(g) That property rates tariffs be increased by 5% and impermissible for all properties be capped at 
85 000 with effect from 01 July 2020; 

(h) That the electricity tariff be increased by provisionally increased by 6.22%, subject to the 
NERSA guidelines on municipal tariff and the application for the tariff increase to be submitted 
by the municipality to NERSA. Any changes to NERSA's proposed tariff to be reconsidered by 
the Council before approval of the final budget in June 2020. 

(i) That bulk electricity purchases be increased by 6.9% as per NERSA’s approval of the Eskom 
tariff increase. 

G) That in terms of the Indigent Policy, the monthly household earnings of an indigent application 
be capped to twice the state pension per month. 

(k) That indigent benefit package be approved as follows: 


Electricity consumption : 50 kW/h 

Water consumption : 6 Kl 

Electricity availability 100% 

Water availability ; 100% 

Sewer : 100% 

Refuse : 100% 

Property rates : 100% 

(I) That the rate rebates be capped and approved as follows: 
Pensioners : 25% 

Flood victims : 50% 

Bread and breakfasts businesses : 10% 

Business development with 
Property greater than R50 million: 

from 0-4 years : 40% 

from 5-6 years : 25% 

from 7-8 years : 10% 






from 9 years onwards 


0 % 


(m) That the Budget Policy be approved; 

(n) That the Tariff Policy be approved; 

(o) That the Rates Policy be approved; 

(p) That the Indigent Policy be approved; 

(q) That the Customer Care, Credit Control and Debt Collection Policy be approved; 

(r) That the Provision for Doubtful Debt and Debtors Write-Off Policy be approved; 

(s) That the Supply Chain Management Policy be approved; 

(t) That the Cash and Investment Management Policy be approved; 

(u) That the Asset Management Policy be approved; 

(v) That the Petty Cash Policy be approved; 

(w) That the Virement Policy be approved; 

(x) That the Funding and Reserves Policy be approved; 

(y) That the Borrowing Policy be approved; 

(z) That the Loss control Policy be approved; 

(aa) That the Short-term Insurance Policy be approved; 

(bb) That the Cost Containment Policy be approved; 

(cc) That the Property Rates By-Laws be approved; 

(dd) That the Tariff By-Laws be approved. 



2. BUDGET REPORT 


The high level summary of the Draft Operating Budget is attached as Annexure B. Capital budget per project, 
per department, per funding source and per asset ciass are ali attached in Annexure C hereto. 

4. FINANCIAL IMPLICATIONS 

4.1. OPERATIONAL BUDGET 

The total estimated operational revenue for the 2020/21 financial year is R1.988 billion while total estimated 
operational expenditure is R2.391 billion yielding to an operating deficit of R403.3 million. The analysis of cash 
items indicates that a cash surplus of R1 million will be realised at the end of the year. A detailed narrative of 
the operational budget is contained in the Budget Document attached as Annexure B hereto. 

4.2. CAPITAL BUDGET 

The total capital expenditure for the 2020/21 is projected at R131.3 million, which will be funded as follows: 

• Grants : R 97.8 million 

• Internal Reserves : R 33.5 million 

The list of capital projects to be implemented are contained in the draft budget document and Annexure C and 
Annexure D attached hereto. A detailed narrative of the capital budget in contained in the Budget Document 
attached as Annexure A hereto. 


5. BUDGET DOCUMENTS 

The budget reiated documents are attached as foilows: 

Budget Document 

High Level Operating Budget 

Capital Budget 

Schedule A Budget Tables 

Tariff of Charges 

Budget Related Policies 


: Annexure A 
: Annexure B 
: Annexure C 
: Annexure D 
; Annexure E 
: Annexure F 


Report seen bv: 



STRATEGIC EXECUTIVE DIRECTOR 
BUDGET AND TREASURY OFFICE 


DR NNG MAHLABA 

PORTFOLIO COUNCILLOR 
BUDGET AND TREASURY OFFICE 



TABLE OF CONTENTS 


NO 

SECTION DESCRIPTION 

PAGE 

I 

Abbreviations and Acronyms 


II 

Council Organisational Structure 


III 

Newcastle Municipality Profile 





1 

PART 1 - FINAL BUDGET 


1.1 

Mayor’s Report 


1.2 

Final Budget Resolutions 


1.3 

Executive Summary 


1.4 

Final Budget Tables and Related Charts 





2 

PART 2 - SUPPORTING DOCUMENTATION 


2.1 

Overview of the Annual Budget Process 


2.2 

Overview of alignment of annul budget with Integrated Development Plan 


2.3 

Measurable Performance Objectives and indicators 


2.4 

Overview of budget related policies 


2.5 

Overview of budget assumptions 


2.6 

Overview of budget funding 


2.7 

Grant allocations and grant programmes 


2.8 

Allocations and grants made by the municipality 


2.9 

Councillor and board member allowances and employee benefits 


2.10 

Monthly targets for revenue, expenditure and cash flows 


2.11 

Annual budget and service delivery and budget implementation plans- internal 
departments 


2.12 

Annual budget and service delivery and budget implementation plans- internal 

departments 


2.13 

Contracts having future budgetary implications 


2.13 

Capital expenditure details 


2.14 

Legislation compliance status 


2.15 

Annual budget of municipal entities attached to the mimicipality’s annual budget 



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2.16 I Municipal manager’s quality certification 


L ABBREVIATIONS AND ACRONYMS 


CPIX 

Consumer Price Index 

DoRA 

Division of Revenue Act 

DOHS 

Department of Human Settlements 

DPLG 

Department of Provincial and Lx)cal Government 

EXCO 

Executive Committee 

GDP 

Gross Domestic Product 

GRAP 

Generally Accepted Accounting Practice 

IDP 

Integrated Development Plan 

IT 

Information Technology 

K1 

Kilolitre 

Km 

Kilometre 

Kh 

Kilo watt hours 

MFMA 

Municipal Finance Management Act 

MPRA 

Municipal Property Rates Act 

MSCOA 

Municipal Standard Chart of Accounts 

MTREF 

Medium Term Revenue and Expenditure Framework 

NDP 

National Development Plan 

NERSA 

National Electrification Regulator of South Aftica 

NT 

National Treasury 

SALGA 

South African Local Government Association 

SDBIP 

Service Deliver and Budget Implementation Plan 


Newcastle Municipality 


2020/21 to 202/23 Draft Budget 


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11. ORGANISATIONAL STRUCTURE AND COUNCIL 


EXECUTIVE COMMITTEE 


DESIGNATION 

SURNAME & 
INITIALS 

PORTFOLIO 

COUNCILLOR 

POLITICA 

L 

PARTY 

1 

WARD 

Mayor 

! MAHLABANNG 

Budget and Treasury 
, Office 

ANC 

PR 

Deputy Mayor 

MOLELEKOARM 

Technical Services 

ANC 

' 12 

Executive Committee 
Member 

BAMVV 

Corporate Services 

IFF 

PR 

Executive Committee 
Member 

CRONJE E J C 

Community Services , 

DA 

2 

Executive Committee 
Member 

MDLULIRN 

Corporate Services 

ANC 

13 

Executive Committee 
Member 

NZUZATM 

Budget and Treasury 

Office 

IFP 

PR 

Executive Committee ' 

Member i 

SHABANGU S E 

Community Services 

ANC 

j 

24 

Executive Committee 
Member 

SHUNMUGAM M 

Planning, Development 
and Human Settlements 

ANC 

3 

Executive Committee 
Member 

THWALA S M 

Technical Services 

EFF 

1 

PR 

1 


COUNCIL 


DESIGNATION 

SURNAME & INITIALS 

POLITICAL 

PARTY 

WAR 

D 

Speaker 

YENDES A 

ANC 

PR 1 

Councillor 

BOSMANLL 

VFP 


Councillor 

BHULIMV 

AZAPO 

PR 

Councillor 

! BUTHELEZI SB 

EFF 

PR 

Councillor 

DANISA T J C 

ANC 

31 

Councillor 

DLADLAXNM 

ANC 

1 

j Councillor 

DLAMINIBS 

ANC 

26 

Councillor 

DLAMINITN 

EFF 

PR 

Councillor | 

DUBEDX 

IFP 

PR 

Councillor 

DUKASHENP 

ANC 

PR 

1 Councillor ' 

GAMAFP 

ANC 

32 

1 Councillor 

HADEBEVF 1 

EFF 

PR 

1 Councillor 

KHOZA A 

ANC 

28 ’ 

Councillor 

KHUMALO B V | 

ANC 

7 


Newcastle Municipality 


2020/21 to 202/23 Draft Budget 


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Councillor 

KHUMALO P J 

1 ANC 

PR 

i Councillor 

KUBEKAVD 

ANC 

8 

Councillor 

LIUC 

IFP 

PR 

Councillor 

MALINGAFA 

IFP 

PR 

Councillor 

MAJOZINK 

' ANC 

11 

Councillor 

MBULIAM 

DA 

PR 

Councillor 

MEDRINGAP 

DA 

4 

Councillor 

, MIYASG 

ANC 

1 19 

Councillor 

MKHWANAZIHP 

ANC 


Councillor 

MKHWANAZITP 

ANC 

34 

Councillor 

MLANGENIMS 

IFP 

PR ' 

Councillor 

MNGOMEZULU S W 

ANC 

22 

Councillor 

MNGUNING 

ANC 

18 

' Councillor 

MOKOENAAS 

DA 

PR 

Councillor 

MOLEFEMV 

ANC 

21 ! 

Councillor 

MSEZANEXM 

PRM 

PR 

Councillor 

MTHEMBUMV 

ANC 

29 

Councillor 

MWALIPB 

INDEP 

23 

Councillor 

MZIMAVP 

ANC 

PR 

^ Councillor 

NDABATM 

ANC 

15 

Councillor 

NDIMARB 

IFP 

PR 

Councillor 

NDLANGAMANDLA S S 

ANC 

27 

Councillor 

NDLOVUMS 

DA 

PR 

Councillor 

NDLOVUPF 

EFF 

PR , 

Councillor 

NGCOBO M E 

ANC 

25 

Councillor 

NGEMABC 

ANC 

9 ' 

Councillor 

NGEMADR 

ANC 

PR 

Councillor 

NGWENYAD 

ANC 

16 1 

Councillor 

NHLAPHO C L 

IFP 

PR 1 

Councillor 

NHLAPHO S J 

ANC 

10 1 

Councillor 

NKWANAZIJB 

DA 

PR 

Councillor ^ 

SIBILWANE D M 

ANC 

17 

Councillor 

SIKHOSANE L T 

ANC 

20 

Councillor 

SITHOLE J S 

ANC 

PR ; 

Councillor 

THWALAGMB 

ANC 

^9 

Councillor 

THWALALG 

ANC 

5 

Councillor 

TWALAMW 

EFF 

PR 

Councillor 

VORSTERJA 

IFP 

9 

Councillor 

ZDCHALIMF 

ANC 

14 

Councillor 

ZONDO V G 

ANC 

PR 

1 Councillor ' 

ZULUNS 


PR 

Councillor 

ZULUS J 

RLP 1 

PR 

Councillor 

ZULUSZ 

ANC 

6 

Councillor 

ZULUTM 

IFP 

PR 

Councillor 

ZWANENA 

ANC 

PR 

Traditional Leader 

KHUMALO B D 

1 


Traditional Leader 

KUBHEKA C S 


- , 

Traditional Leader 

RADEBE B S 




Newcastle Miinicipality 


2020/21 to 202/23 Draft Budget 


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SENIOR MANAGERS 


DESIGNATION 

SURNAME & 

INITIALS 

Acting Municipal Manager 

Mayisela M J 

Strategic Executive Director: Budget and Treasury Office 

Nkosi S M 

Strategic Executive Director: Corporate Services 

Dr Mahlubi N Y 

Strategic Executive Director: Technical Services 

Chauke S 

Strategic Executive Director: Community Services 

Nkosi B D 

Strategic Executive Director: Development, Planning and Human Settlements 

Govender V 

Senior Audit Executive 

Chenia S 



Strategic 

Executive 

Director; 

Budget & 
Treasury 
Office 


Sfrd'tegfc 

Executive 

Director: 

Corporate 

Services 


Strategic 

Executive 

Director: 

Community 

Services 


Strategic 

Executive 

Director: 

Technical 

Services 


WAT*"* “ A U'fc fcv'W 

Strategic 

Executive 

Director 

Development 
& Planning & 
Human 


^•eglc 
Executive 
Director: 
Strategic & 
Governance 
Support 


C^hlet Audit 
Executive 


Supply Chain 
Management 


Administration 


Community 

Safety 


Electrical 

/Mechanical 

Services 


Human 

Settlements 


IDP& 

Monitoring & 
Evaluation 


Budget & 
Rnancial 

Reporting 


Organisational 
Development & 
Training 


Parks, 

Recreation & 
Cemeteries 


Civil 

Services 


Planning 


Information & 
Communicatio 
n Technology 


Financial 

Management 

Accounting 


Human 

Resources 

Management 


Management 


Water 

Services 


Economic 

Development 


Legal 

Services 


Enhancement 


Culture & 
Amenities 


Project 

Management 
Unit (PMU) 


Urban Renewal 
Programme & 
'Special Projects 


Communicatio 
ns & Public 
Porticipation 


Newcastle Municipality 


2020/21 to 202/23 Draft Budget 
















NEWCASTLE MUNICIPALITY PROFILE 


III. NEWCASTLE MUICIPALITY PROFILE 


According to the recent Community Survey (2016) conducted by Statistics SA, Newcastle Local 
Municipality (KZN252) remains the highest contributor in terms of population growth within 
Amajuba District Municipality. As of 2016, the population of Newcastle is recorded at 389 117 
people, thus marking a 7.1 % increase (25 881 people) over a 5-year period from the year 2011 
(363 236 people). This means that on average, Newcastle has experienced a 1,42% annual growth 
rate, which translates to 5 176 people per year, Newcastle has also experienced a significant 
increase in the total youth proportion of the population. In terms of the wider KwaZulu-Natal 
Province, Newcastle ranks 2nd as the local municipality with the highest number of people when 
compared to other local municipalities, with the highest being the Msunduzi Local Municipality. 
The population of Newcastle is spread unevenly over 34 wards as per the outcomes of the recent 
delimation process by the Demarcation Board, marking a 3 wards increase. 

Furthermore, there has been a 7% increase (6 075) in the number of households within Newcastle 
from 84 272 in 2011 to 90 347 in 2016, with the average household size remaining constant at 4.3 
people per dwelling unit. In relation to other local municipalities within the KwaZulu-Natal 
Province, in the year 2011, Newcastle Local Municipality was ranked 3rd after the Msunduzi and 
uMhlathuze Local Municipalities respectively. However, recent statistical figures reveal that 
Newcasle Local Mimicipality has dropped to 4th place after the Msunduzi, uMhlathuze, and 
KwaDukuza Local Municipalities respectively. In terms of the 2nd and 3rd ranked local 
municipalities, the reason for growth in the number of households without any significant growth 
in the population thereof may be attributed to a general decrease in the average household size 
thereof, from 3,9 to 3,6 people, and 3,3 to 3,0 people per household respectively. 

Traditionally, the town of Newcastle started off as Post-Halt Number 2 on the journey between 
Durban (then Port Natal) and the Zuid-Afiikaansche Republiek (Transvaal) and Johannesburg. It 
was strategically positioned in the year 1854, by the Surveyor General of the Natal Colony, Dr. P. 
C. Sutherland. The city was later known as the Waterfall River Township because of the Ncandu 
River and, in 1864, the town of Newcastle was founded on the site becoming the forth settlement 
to be established in natal after Durban, Weenen and Pietermaritzbxxrg. Newcastle was named after 
the British Colonial Secretary, the Duke of Newcastle and, in 1873 Newcastle became a separate 


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2020/21 to 202/23 Draft Budget 


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electoral division. In the year 1876, the Fort Amiel was built as a barrier against the Zulus, Fort 
Amiel now being embraced as one of the significant national heritage sites. 

In 1897, a sandstone construction of the town hall started and it was completed two years later in 
1899. The town hall was constructed in commemoration of Queen Victoria’s diamond, the ‘60th 
Jubilee.’ The town was also used as a depot by the British during the First and Second Boer War. 
It also fimctioned as a major transport junction and a popular stopover for wagons and post 
chaises during the late 19th century. Newcastle also served as an arena when the British 
preparation work for the Pretoria Convention of 1881 was done. In 1890, the first train arrived in 
Newcaste and in the year 1891, Newcastle was declared a district with its own administrative unit. 
The discovery of coal reserves brought a new era of prosperity and the planning of several 
ambitious building projects. 

Newcastle Local Municipality is one the three local municipalities that make up Amajuba District 
Municipality, with the others being Dannhauser and eMadlangeni Local Municipalities. It is 
located on the North-Western of the KwaZulu-Natal Province and borders onto Free State and 
Mpumalanga Provinces to the West and North respectively. The local municipalities of 
eMadlangeni and Dannahauser Local Municipalities are located along the Eastern and Southern 
boundaries of Newcastle. Spatially Newcastle covers an area of approximately 1 854km^ in extent. 
A high majority of the people (80%) within Newcastle resides within the Newcastle East area, 
which is predominantly township and semi-rural areas characterised by a general lack of adequate 
infirastructure. 

The boundaries of Newcastle Local Municipality were delineated in terms of the Municipal 
Dermarcation Act, 1998 (Act No. 27 of 1998), and takes in account population movement trends, 
regional economic patterns and the current land use pattern. Currently Newcastle has 34 wards 
and out of these wards, wards 1, 6, 7, and 30 fall under the custodianship of the Tribal Authorities 
(Inkosi u-Khathide and Inkosi u-Hadebe) held in trust on behalf of the Ingonyama Trust Board, in 
terms of the KwaZulu-Natal Ingonyama Trust Act, 1994 (Act No. 3KZ of 1994). As mentioned 
above, the population is spread unevenly amongst 34 wards with the majority of the population 
residing in the Newcastle-East area. The boundaries are not just administrative, but are also 
intended towards the promotions of social cohesion and economic development that’s mindful to 
environmental sustainability, whilst at the same time strengthening the existing regionally 
significant economic and functional linkages. 


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Newcastle Local Municipality is well placed to benefit from regional economic growth given its 
strategic location at the nexus of major tourism, logistics, farming and industrial routes, and as the 
seat of government in KwaZulu-Natal Province. It is located halfway between Johannesburg and 
the harbours of Durban and Richards Bay, hence contributing to the export of manufactured goods 
and supply to the large Gauteng market. Newcastle is also endowed with good access 
infrastructure to the areas mentioned above, and such includes quality road and railway networks. 
The town is situated on the national rail route between the Durban Container Te rminal and City 
Deep in the Gauteng Province, and has within its confines, a major rail exchange terminal, 
supporting railway stations and extensive goods conversion/warehousing facilities. 

The city’s local authority has jurisdiction over the surrounding maize, livestock and dairy farms 
including the industrial areas such as Karbochem, Mittal Steel South Afiica (previously 
ISPAT/ISCOR), and the textile service industry. In addition, the city is also well endowed with 
coal reserves hence opportunities for coal mining within the area. Arcelor Mittal produces over 
105 million tons of steel products annually. Although the Arcellor Mittal steelworks and the 
Karcbochem synthetic rubber plant dominate the Newcastle industrial portfolio, there is a wide 
range of manufacturing undertakings sharing in the success of the region. Newcastle has 
welcomed many Chinese and Taiwanese into the region with the addition of over a hundred textile 
factories. 

During the year 2002, the chrome chemical plant was completed in Newcastle which comes as a 
clear reflection of the city’s industrial future. The joint venture project between Karbochem and 
the German specialist manufacturing giant LANXESS has made Newcastle the largest producer of 
chrome chemical in Africa. The company announced an investment of €40 million (almost R600 
million) in 2012 towards the construction of a C02 plant at its site. Mittal Steel also completed a 
R400 million project to rebuild one of its coke batteries. Other large operations include a diamond 
cutting works, various heavy engineering companies, steel reinforcement and slagment cement 
factories. 

The Blackrock Casino and Entertainment Hotel provides much entertainment to Newcastle and 
the surrounding areas. The Newcastle Mall which was constructed by Zen Prop as a R500 million 
investment, is found adjacent to the Black Rockcasino and Entertainment Hotel, and it serves as a 
one-stop shopping destination for the wider region of Northern KwaZulu-Natal. Current and 
planned urban developments within Newcastle entail the new multi-storey Civic Centre, the 80 
million expansion of the Victoria Mall, the Meadowlands Estate in Madadeni (residential estate), 


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2020/21 to 202/23 Draft Budget 


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major extensions and upgrade of the Madadeni Hospital (Northern KwaZulu-Natal Regional 
Hospital), a RlOO million upgrade of the Madadeni Police Station, the Vulintaba Estate, more 
development at the comer of Allen street along the Trim Park, the new Audi dealership next to 
Newcastle Mall (Aquarand), Spar at comer Allen and Memel Road, planned Mercedes-Benz and 
dealership next to the Newcastle Mall (Aquarand), the development of the Heartlands Dry Port 
next to the train station, and the possible extension of the Newcastle Airport (Newcastle Airport 
Techno-hub), From the 1880s, Newcastle experienced rapid economic growth. Today Newcastle 
has the largest concentration of industry in the North-Western KwaZulu-Natal region. 

There has been a 23.04% decline in the level of unemployment within Newcastle, from 87 619 
(60.48%) in 2001 to 37 686 (37.44%) in 2011. In terms of unemployment by gender, the highest 
concentration is amongst the female population. With regards to formal employment by sector 
within Newcastle Municipality, trade/retail is the highest employer of the population at 8 888 as of 
July 2012, followed by Government services at 18 324. Government services as an employment 
sector is closely followed by manufacturing at 6 419, and subsequently finance at 5 375. As of 
2013 the GDP of Newcastle was recorded as occupying 80.20% of the total GDP (0.7%) 
generated by Amajuba District within the KwaZulu-Natal Province. 

In terms of the Human Development Index (HDI - the composite measure of life expectancy, 
education, and income used to measure human development), Newcastle is currently sitting at 
0.57 which is deemed by the United Nations Development Programme as being medium human 
development index. The Gini Coefficient (the measure of inequalities) in Newcastle assumes a 
municipality working towards addressing inequalities. In the year 2002 inequality was estimated 
at 0.65 and in 2012 it was estimated to be 0.62 hence marking a move towards perfect equality. 
Regarding the levels of poverty, Newcastle has also experienced a decrease from 56.0% in 2002, 
51.0% in 2006 and 44,4% in 2012. The annual income per capita of Newcastle Municipality is 
currently sitting at 29 264 thus meaning that the majority of individuals within Newcastle earn R2 
438,66 per month hence falling above the global poverty line of $1,25 per day based on the dollar 
— rand exchange rate. 


Newcastle Municipality 


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1.1 MAYOR’S REPORT 


To be included with the final budget 


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1.2 BUDGET RESOLUTIONS 


(a) That in terms of section 24 of the Municipal Finance Management Act, 56 of 2003, 
the annual budget of the municipality for the financial year 2020/21; and indicative 
allocations for the two projected outer years 2021/22 and 2022/23; and the multi¬ 
year and single year capital appropriations be approved; 

(b) That the sources to fund both operating and capital budgets be noted and approved; 

(c) That the Municipality’s annual allocation of R126 225 734 to uThukela Water for 
the provision of bulk water be approved; 

(d) That in terms of section 24(2)(c)(i) of the Municipal Finance Management Act, 56 
of 2003, and sections 74 and 75A of the Local Government Municipal Systems 
Act, 32 of 2000 as amended, the tariffs for the supply of water, electricity, waste 
services, sanitation services and property rates as set out Tariff of Charges that 
were used to prepare the estimates of revenue by source, be approved with effect 
from 1 July 2020 for all services, except for water and electricity consumption, 
which be levied on the new tariff with effect from 01 August 2020; 

(e) That the Tariff of Charges be approved and be applicable with effect from 01 July 
2020; 

(f) That Water, Sewer, Refuse and Sundry tariffs be increased by 5% with effect from 
01 July 2020. 

(g) That property rates tariffs be increased by 5% and impermissible for all properties 
be capped at R85,000 with effect from 01 July 2020; 

(h) That the electricity tariff be increased by provisionally increased by 6.22%, subject 
to the NERSA guidelines on municipal tariff and the application for the tariff 
increase to be submitted by the municipality to NERSA. Any changes to NERSA’s 


Newcastle Municipality 


2020/21 to 202/23 Draft Budget 


12 








final tariff to be reconsidered by the Council with the approval of the final budget 
in June 2020. 


(i) That bulk electricity purchases be increased by 6.9% as per NERSA’s approval of 
the ESKOM tariff increase. 

(j) That in terms of the Indigent Policy, the monthly household earnings of an indigent 
application be capped to twice the state pension per month. 

(k) That indigent benefit package be approved as follows: 


Electricity consumption : 50 kW/h 

Water consumption : 6 K1 

Electricity availability : 100% 

Water availability : 100% 

Sewer : 100% 

Refuse : 100% 

Property rates : 100% 


(1) That the rate rebates be capped and approved as follows: 


Pensioners : 25% 

Flood victims ; 50% 

Bread and breakfasts businesses : 10% 

Business development with 
Property greater than R50 million: 

from 0-4 years : 40% 

from 5-6 years : 25% 

from 7-8 years : 10% 

from 9 years onwards : 0% 


(m) That the Budget Policy be approved; 

(n) That the Tariff Policy be approved; 


(o) That the Rates Policy be approved; 


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(p) That the Indigent Policy be approved; 


(q) That the Customer Care, Credit Control and Debt Collection Policy be approved; 


(r) That the Provision for Doubtful Debt and Debtors Write-Off Policy be approved; 

(s) That the Supply Chain Management Policy be approved; 


(t) That the Cash and Investment Management Policy be approved; 


(u) That the Asset Management Policy be approved; 


(v) That the Petty Cash Policy be approved; 


(w) That the Virement Policy be approved; 


(x) That the Funding and Reserves Policy be approved; 


(y) That the Borrowing Policy be approved; 


(z) That the Loss control Policy be approved; 


(aa) That the Short-term Insurance Policy be approved; 


(bb) That the Cost Containment Policy be approved; 


(cc) That the Property Rates By-Laws be approved; 


(dd) That the Tariff By-Laws be approved; 


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1.3 EXECUTIVE SUMMARY 


1.3.1 INTRODUCTION 

The 2020/2021 annual budget is a consolidated budget of R2.5 billion which has been developed 
with an overall planning framework and includes the programmes and projects to achieve the 
minimum strategic objectives of Newcastle Municipality as per the IDP. This budget has been set 
against the back and the current slow economic growth, escalating debtors, historical 
commitments on loans and creditors, while at the same time take cognisance in respect of burden 
to consumers through rates and services. Economic challenges will still continue to put pressure 
on municipal revenue generation and its ability to collect in the 2020/21 financial year, hence a 
very conservative approach was adopted when projecting revenue and receipts based on the 
current payment factors. It is however noted with appreciation that the payment factor of the 
mxmicipality has been gradually improving since the embankment of the consumer outreach 
programme. 

Despite these challenges, its remains the mandate and responsibility of the municipality to sustain 
service delivery through this budget by reprioritising expenditure to ensure key objectives are 
achieved. Provision in this budget continue to support government’s commitment to broadening 
service delivery and expanding investment in infrastructure, especially through capital projects, 
while at the same time taking into accoimt the limited fiscal environment upon which this budget 
was prepared. The budget has further been structured to contribute to the municipality achieving 
the minimum strategic objectives of the TDP, taking into account the effect of limited resources. 
The National Treasury’s MFMA circulars were used to guide the compilation of the 2020/21 
budget. Furthermore, the budget format and the content incorporates the requirements of the 
Municipal Budget and Reporting Regulations. 

The following principles were applied in formulating the annual budget: 

- Affordable, realistic and funded budget; 

- Realistic and achievable collection rates; 

- Rates and service tariffs to be realistic and affordable to consumers; 

- Budget to contribute to achieving strategic objectives of the IDP; 

- Repayment of loans to be properly provided for, with no new loans planned for; 

Capital expenditure to be mainly funded from grants; 


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- Indigent subsidy for water be maintained to the national guideline of 6kl; 

- Indigent subsidy package to include property rates; 

- Revenue driven budget with a view to achieve affordability; 

- IDP driven budget in order to achieve the requirements of community based planning. 

This budget was not crafted without challenges. The main challenges experienced can be 
summarised as follows: 

- The on-going difficulties in the national and local economy which necessitated costs 
containment measures as required by Treasury circulars; 

- The prevalence of COVID-19 coronavirus pandemic, which required reprioritisation of 
funds from other functions 

- National Treasury austerity measures with minimal growth on conditional grants; 

- Slow economic growth and unemployment, coupled with the fact that, a number of key 
industries are shutting down businesses in the area of Newcastle; 

- Inadequate allocation for repairs and maintenance due to funds limited; 

- Limited capital infrastructure injection with no corresponding provision of near or future 
maintenance due to limited resources 

- Inability to extend capital budget projects in terms of the IDP, other than those funded by 
grants and already on the business plans. 

- The use of income-based budgeting, which has proven that previous budgets had been 
overstated in expenditure. 

- Inability to provide for adequate vacant and critical positions due to limited funding. 

- Cutting down on sum of the key functions due to limited funds, however prioritising the 
service delivery (especially maintenance of infrastructure). 

- Bulk electricity tariff increase above the increase in revenue tariff increase, which implies 
additional burden for the municipality. 

1.3.2 OVERVIEW OF THE 2020/2021 BUDGET 

OPERATING BUDGET 

The operating budget, which funds the continued provision of services provided by the 
municipality, is projected to increase from R2.355 billion in 2019/20 to R2.391 billion in 2020/21, 
representing an increase of R36.1 million (1.5%). The increase is mainly due to the increase in 


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bulk purchases, employee cost, depreciation of assets and debt impairment. A reduction in the 
repairs and maintenance has been noted due to some of grants which were fimding maintenance of 
some projects no longer expected to be received next financial year. 

There has been a drastic reduction in the contracted services as well as the general expenses due to 
the cost containment measures being implemented by the municipality. This is the indication that 
the municipality is starting to take the right direction towards cost containment of non-core 
functions, and reprioritisation of service delivery functions. The increase in the overall operating 
budget is mainly due to the provision of the following: 

- Costs of bulk purchases of electricity and water due to tariff increases; 

- Increased costs of employee related costs due projected annual salary increase; 

- Increased depreciation due to due new capital projects appropriated in the budget; 

Increase debt impairment due to high consumer debtors still not collectable 

OPERATING REVENUE 

Total operating revenue is projected at R1.988 billion in the 2020/21 financial year, representing 
an increase of R56.4 million (2.9%) from the current year’s adjusted budget of R1.931 billion. 


The major items of the operating revenue for the 2020/21 financial year are as follows: 


' Details 

2020/2021 

R'OOO 

% of Total Revenue 

1 

Electricity 

609 866 

30.7% 

Water 

190 579 

9.6% 

Sanitation / sewer 

118 672 

6.0% 1 

Refuse 

95 897 

4.8% 

Property rates 

3469 

17.4% 

1 Grants and subsidies 

576 750 

29.0% 

Other revenue 

19 564 

1.0% 

1 Interest on outstanding debtors 

6 325 

0.3% 

Rental of facilities 

8 495 

0,4% 

Fines 

13 114 

0.7% 

Interest on investments 

2 497 

0.1% 


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The following is the analysis of the revenue sources which have had the main impact in the 
increase in revenue: 

• Electricity services: R609.8 million, increase of R20.3 milli on (3%) 

Electricity tariffs are expected to increase by 6.22%. It must be noted that this tariff increase is as 
per the NERSA’s guidelines of municipal tariff increase as well as the application that has been 
submitted by the municipality to NERSA. With the tariff increase of 6.22%, electricity revenue is 
expected to increase by R20.3 million (3%) in the 2020/21 financial year. Cognisance should also 
be taken that this percentage increase of 6.22% is slightly above the projected inflation rate of 
4.6%, however this increase is based on the NERSAs tariff approval for Eskom. The revenue 
figure of R609.8 million is also net of the cost of fi-ee basic service of R8.1 million as in respect of 
electricity required in terms of the Budget and Reporting Regulations. 

• Water services: R190.5 million, increase of R10.9 milli on (6%) 

Water tariffs are expected to increase by 5% in the 2020/21 financial year. The increase of 5% in 
tariffs is expected to generate additional revenue of R10.9 million (6%), Ifom R179.6 million in 
the current year to R190.5 million in the 2020/21 financial year. The revenue figure of R190.5 
million is net of the cost of free basic services of R6 million in respect of water as required in 
terms of the Budget and Reporting Regulations. 

• Refuse removal: R95.8 million, increase of R12.4 milli on (15%) 

Refuse removal tariffs arc expected to increase by 5% in the 2020/21 financial year. The increase 
of 5% in tariffs is expected to generate additional revenue of R12.4 million (15%), Jfrom R83.4 
million in the current year to R95.8 million in the 2020/21 financial year. 

• Sanitation: R118.6 million, increase of R6.7 million (6%) 

Sanitation tariffs are expected to increase by 5% in the 2020/21 financial year. The increase of 5% 
is expected to generate additional revenue of R6.7 million (6%), from R111.9 million in the 
current year to R118.6 million in the 2020/21 financial year. The revenue figure of R118.6 million 


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is net of the cost of free basic services of R10.7 million in respect of sanitation as required in 
terms of the Budget and Reporting Regulations. 

• Property rates: R346.5 million, increase of R28.3 million (9%) 

Property rates tariffs are expected to increase by 5% in the 2020/21 financial year, while the 
impermissible amoimt will be remain at R85 000. The increase in the property rates tariffs is 
expected to generate additional revenue of R28.3 million (9%), from R318.1 million in the current 
year to R346.5 million in the 2020/21 financial year. The revenue figure of R346 million is net of 
the rates rebates of R49 million as required in terms of the Budget and Reporting Regulations. 

• Transfers recognised: R576.7 million, decrease of R12.0 million (-2%) 

Revenue from grants is expected to generate operating revenue of R576.7 million in the 2020/21 
financial year. This represents a decrease of R12.0 million (-2%) from the budget of R588.7 
million in the current year to the budget of R576.7 million in the 2020/21 financial year. These 
operating grants include the equitable share, the Finance Management Grant (FMG), Expanded 
Public Works Programme and various other provincial grants from department of Arts and 
Culture and the Department of Human Settlements. A portion of the Municipal Infrastructure 
Grant (MIG) and Water Services Infrastructure Grant (WSIG) have also been included in the 
operating grants in order to deal with capacity operational issues in the department of Technical 
Services. Reference is made to table SA18 in respect of the split of transfers which will fimd 
operational and capital expenditure. The appropriation of grant transfers in the budget has been 
made in accordance with the Division of Revenue Act and the provincial gazette. 

• Fines; R13.1 million, increase of R624 495 (5%) 

Revenue for fines is expected to generate revenue of R13.1 million in the 2020/21 financial year. 
This represents an increase of R624 thousand (5%) from the budget of R12.4 million in the 
current year, to R13.1 million in the 2020/21 financial year. Fines will be imposed in accordance 
with the traffic laws and regulations and will be influenced by law enforcement and the behaviour 
of road users in the jurisdiction of Newcastle. 


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• Interest on investments: R2.5 million, an increase of R141 338 (6%) 


Interest on investments is expected to generate revenue of R2.5 million in the 2020/21 financial 
year. This represents an increase of R141 thousand (6%) from the budget of R2.3 million in the 
current year to R2.5 million in the 2020/21 financial year. Interest will be earned based on the 
value of the investments that the mimicipality will make with various financial institutions for any 
additional funds during the financial year. 

• Interest on outstanding debtors: R6.3 million, increase of R301 177 (5%) 

Interest on outstanding debtors is expected to generate revenue of R6.3 million in the 2020/21 
financial year. This represents an increase of R301 thousand (5%) from the budget of R6.0 million 
in the current year to R6.3 million in the 2020/21 financial year. Interest will be earned based 
overdue business accounts without any arrangements in place. 

• Rental of facilities: R8.4 million, increase of R404 528 (5%) 

Tariffs from rental of municipal facilities will be increased by 5% and is expected to generate 
revenue of R8.4 million in the 2020/21 financial year. This represents an increase of R404 
thousand (5%) from the budget of R8.0 million in the current year to R8.4 million in the 2020/21 
financial year. 

• Licences: R15 174, increase of 859 (6%) 

Tariffs from licences will be increased by 5% and is expected to generate revenue of R15 
thousand in the 2020/21 financial year. This represents an increase of R859 (6%) from the budget 
of R14 315 in the current year to R15 174 in the 2020/21 financial year. 

• Other revenue: R19.5 million, a decrease of 11.8 million (-37%) 

Sundry tariffs will be increased by 5% and are expected to generate revenue of R19.5 million in 
the 2020/21 financial year. This represents a decrease of R11.8 million (-37%) from the budget of 
R31.4 million in the current year to the budget of R19.5 million in the 2020/21 financial year. The 
reduction is due to some of the properties that were earmarked for disposal in the current year, the 
process for which has been finalised. 


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• Disposal of properties: R18 million 

The municipality is in the process of disposing a properties through for the medical precinct 
project for the estimated purchase price of R18 million. Based on the value of the land, the 
municipality is projecting to generate a gain of R2.3 million in the transaction. The process of the 
disposal is planned to be initiated towards the end of the 2019/20 and be finalised in the 2020/21 
financial year. 

• Inflation target 

In terms of the latest data released by the South Afiican Reserve Bank in response to the COVID- 
19, the projected inflation rate for 2020/21 is 4.6%. It is noted that the tariff increase of 5% for 
rates and services and 6.22% for the electricity are slightly above the inflation rate, these are 
however still within the 6% that the Reserve Bank and National Treasury seek to ensure that it is 
kept within. Furthermore, the municipality has been striving to ensure that the gap between the 
tariffs increase and the rate of inflation are minimised over the past three years, with 7% applied 
during 2017/19 and 6% applied during 2019/20 financial years. 

OPERATIONAL EXPENDITURE 

Total operating expenditure is projected at R2.391 billion in the 2020/21 financial year, 
representing an increase of R36.1 million (2%) from the current financial year’s budget of R2.355 
billion. The municipality’s expenditure for the 2020/21 budget is informed by: 

• National Treasury budget and cost containment measures circulars 

• Relevant legislative imperatives, 

• Expenditure limits set by realistic and realisable revenue levels, 

• National, provincial and local economic and fiscal conditions, 

• Electricity load shedding and COVID-19 challenges. 

The major items of the operating expenditure for the 2019/20 financial year are as follows: 


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Details 

j 2019/2020 

R’OOO 

1 % of Total Budget 

Bulk purchases 

534 445 

22.3% 

Bulk water purchases 

126 225 

5.3% 

Employee related costs 

593 316 

24.8% 

1 

1 

1 Depreciation 

420 387 

17.6% 

Debt impairment 

184 699 

7.7% 

1 

Other expenditure I 

199 664 

8.4% 

Interest of loans ' 

41 881 

1.8% 

Repairs and maintenance ' 

96 650 

4.0% 

Remuneration of councillors. 

28 455 

1,2% 

Contracted services 

161 448 

6.8% 


The following are expenditure items included in the budget: 

• Employee Related Costs: R593.3 million, increase of R20.2 milli on (3.5%) 

Employee related costs has increased from R573.0 million to R593.3 million, representing an 
increase of R20.2 million (3.5%). An annual salary increase of 6.25% and notch increases of 2.4% 
have been projected for all employees, based on the SALGBC multi-year collective agreement on 
wage and salaries. In line with the National Treasury guideline, employee costs represent 24.8% 
of the total budget, which is in line with the acceptable threshold. Included in the employee costs 
of R593.3 million is a budget of R41 million in respect of vacant and critical positions. The 
municipality will come up with a reprioritisation model of which positions will be catered for 
from this budget. 

Included in the employee related costs is an amount of R28 million for overtime. This constitute 
4.7% of the total employee related costs, which is also within the National Treasury norm of 5%. 
The bulk of this provision relates to overtime for essential services which the municipality cannot 
avoid. These services include waste management, electricity maintenance, water maintenance, 
waste management, public safety and other essential services which the municipality is required to 
provide to communities. It must be noted that the municipality is currently implementing a 
number of measures to ensure that overtime is not abused and is kept to the bear minimum. 


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• Remuneration of Councillors: R28.4 milli on, an increase of Rl,6 million (6%) 

Remimeration of councillors is projected to be R28.4 million, representing an increase of R1.6 
(6%) from the current financial year budget of R26.8 million. The projection is based on the 
2019/20 notice of the upper limits issued by the MEC for Local government in March 2020, and 
an increase of 6% has been estimated in respect for 2020/21, which will be determined by the 
MEC for CoGTA at the beginning of 2021. This provision also is based on the expectation that 
EXCO coimcillors and the Chief Whip will be approved as frill time councillors during the 
2020/21 financial year. 

• Repairs and maintenance: R96.5 million, a decrease of R26.2 million (21%) 

Expenditure on Repairs and Maintenance is projected at R96.5 million, representing a decrease of 
R26.2 million (-21%) from the current financial year budget of R122.8 million. The decrease in 
the budget is attributable to the reduction in some of the grant transfers that were made available 
by other spheres of government in the current year. It must further be noted that a municipality has 
budgeted RIO million for the roads resealing under capital budget, which also form part of 
maintenance of roads. It must be noted that the provision for repairs and maintenance is below the 
required National Treasury norm of 8% of the Property Plant and Equipment (PPE) due to the 
cash flow challenges that the municipality is currently facing. The municipality will continue to 
ensure that more budget is being channelled towards the repairs and maintenance of assets through 
reprioritisation model. 

• Bulk Electricity Purchases: R534.4, an increase of R34.4 million (6.9%) 

Expenditure on bulk electricity purchases is projected at R534.4 million, representing an increase 
of R34.4 million (6.9%) from the current financial year budget of R499.9 million. This provision 
of R534.4 million is informed by the NERSA guidelines and the expected demand for electricity 
to the municipal consumers in the 2020/21 financial year. 

• UThukela Water Entity: R126.2 million, an increase of R7.1 million (6%) 

The municipality’s contribution to uThukela Water increased from R119.0 million to R126.2 
million which represents an increase of R7.1 million (6%) from the current financial year. While 
the entity has submitted a budget of R127.2 million, the current financial state of the municipality 


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makes in impractical to afford the full budget requested by the entity. Hence, the municipality has 
only afforded the increase in line with the inflation rate and the expected tariff increase of the 
municipality on water. It will critical that the entity adjust its expenditure in order to fit within the 
budget of R126.2 million. 

• Debt impairment: R184.6 million, an increase of R10.4 million (6%) 

The municipal has projected to incur R184.6 million on debt impairment, representing an increase 
of R10.4 million (6%) from the current financial year budget of R174.2 million. The provision and 
the increase is based on the council’s debtors’ book, and the rate at which doubtful debt is 
expected to escalate. The provision for doubtful debt is calculated in line with the provision of the 
Cotmcil’s approved Credit Control and Debt Collection Policy. It must however be mentioned 
that the recent campaign to collect outstanding debtors and to build the culture of payment of 
services in the townships has started to yield positive results. 

• Depreciation: R420.3 million, an increase of R23.7 million (6%) 

Provision for depreciation has been projected to be R420,3 million, representing an increase of 
R23.7 million (6%) from the current financial year’s budget of R396.5 million. The provision is 
based on the municipality’s asset register the expected lives of the assets. The increase is 
attributable to the projected capital expenditure and the infrastructure projects which were 
completed during the current financial year, the impact of the depreciation in expected fully 
during the budget year. 

• Finance Charges: R41.8 million, an increase of Rl*3 million (3%) 

Expenditure on interest on loans is projected to be R41.8 million, representing a decrease of R3.3 
million (-7%) from the current financial year budget of R45.0 million. The estimation of finance 
charges of R41.8 million is based on the amortisation schedules of the loan portfolio of the 
municipality and the loan agreements with the financial institutions, which is expected to last for 
at least next nine years. It must however be noted that no new loans will be taken by the 
municipality in the 2020/21 financial year. 


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• Contracted services: R161.4 million, a decrease of R14.3 million (-8.2%) 

Expenditure on contracted services is projected to be R161.4 million, representing a decrease of 
R14.3 million (-8.2%) from the current financial year budget of R175.8 million. The decrease is 
due to the decrease in provision for consultant fees due to some of the grants reduced by other 
government department in the 2020/21 financial year, which was only appropriated in the current 
financial year. 

Materials: R4.5 million, an increase of R1.6 million (55%) 

Expenditure on materials is projected at R4.5 million, representing an increase of R1.6 million 
(56%) from the current financial year budget of R2.9 million. Included under this items are 
materials for the cleaning of municipal buildings, halls, chemicals, cleansing material, pest 
control, etc. The increase is due to the additional provision allocated for water chemicals. 


• 'Other expenditure: R199.6 million, a decrease of R19.3 million (-9.6%) 

Other expenditure is projected to be R199.6 million, representing a decrease of R19.3 million (- 
9.6%) from the current financial year budget of 219.0 million. The decrease is due to the 
implementation of cost containment measures in line with affordability of the municipality. 
Amongst others, this items includes an amount of R16.4 million for electricity departmental 
charges. 

Included under other expenditure is an amount of R17.1 million in respect of departmental 
services for the municipality’s usage of water, electricity, sanitation and refuse. As indicated 
above, the amount of R16.4 million of the departmental charges relates to the funding for 
purchase of electricity from Eskom for the municipal usage. Other items, but not limited to, 
include R12 million for rural electrification, R11.2 million machinery costs, R8 million for 
transport costs (fuel), R6.8 million for the insurance of assets, R1 million for the interest expense, 
R5.5 million for the service connections, R5.3 for the ward committee stipends, R5.2 for AG audit 
fees and R5 million for the SALGA membership fees. 


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OPERATING SURPLUS/DEFICIT 


The operational budget therefore yields an operating deficit of R403.3 million. It is noted that the 
operating deficit has decreased by R20.2 million when compared with the budgeted deficit of 
R423.5 million in the current financial year. It remains the commitment of the municipality to 
comply with MFMA Circular No.72, which encourages municipalities to adopt a surplus position 
over the MTREF with a view to achieve and maintain financial stability of the municipality. 
Despite this deficit, the municipality is however confident that its budget is fully funded when 
analysing the cash-flow budget. The cash flow budget takes into account only the cash receipts 
and payment that the municipality will be engaged in during the budget year. The cash flow 
budget is reflected in the High Level Budget, as well and the table A7 of A Schedule tables. 

CAPITAL BUDGET 


The municipality’s capital budget is projected to be R131.3 million, consisting of R97.8 million to 
be funded from government grants, and R33.5 million to be funded from internally generated 
funds. 


The summary of the capital budget over the medium terms is depicted as follows: 


Details 

2019/2020 

R’OOO 

% of total 
expenditure 

Total Capital Budget 

131 369 

100% 

Funded as follows: 



Grant funding 

97 869 

74% 

Internal funding 

33 500 

26% 


131 369 

100% 


Government grants continue to fund the bulk of capital programme over the next three financial 
years, covering about 74% of the capital expenditure in the 2020/21 financial year. Due to the 
current cash flow position, the municipality has no plans to take new loans. 

The capital budget summarised by asset type can summarised as follows: 


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1 ASSET CLASS 

1 2019/2020 

R’OOO 

! 

2019/2020 1 

R’OOO 

! Water distribution 

' 46 805 

35.6% 

Roads and storm water 

56 188 

42.8% 

Vehicles and Machinery 

2 500 

1.9% 

Furniture and Equipment 

1 265 1 

1.0% 

Museums 

300 

0.2% 

Sanitation 

21 641 

16.5% 

Electricity distribution 

2 670 

2.0% 


TOTAL CAPITAL BUDGET 131369 100% 


The municipality will be spending the bulk of its capital programme towards basic infiiastructure, 
with R56.1 million towards roads, R46.8 million towards water, R2L6 million towards sanitation 
and R2.6 million on the electricity infrastructure. A further R2.5 million will be spent on new 
plant, R1.2 million of furniture and other tools of trade and R300 000 on the upgrade of the Fort 
Amiel museum. 


The following the list of capital projects which will be implemented over the medium term: 


! PROJECT DESCRIPTION 

1 DRAFT BUDGET 
2020 2021 

1 

’000 

1 


COMMUNITY SERVICES 


j Installation of Aircon at Mobile Office 

15 000 

Construction of Admin Office at Fort Amiel 

300 000 

Art Purchases 

50 000 

Total Community Services 

365 000 

BTO 

IT Equipment 

600 000 

Furniture and Office Eejuipment 

300 000 1 

Machinery Equipment 

100 000 

Total BTO 

1 000 000 


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DPHS 

Medical Precinct - Roads 

6 834 667 

Medical Precinct - Storm water 

3 884 667 1 

Medical Precinct - Street Lights 

600 000 

Medical Precinct - Water 

805 000 

Medical Precinct - Sewer 

910 000 

Medical Precinct - Substation 

2 070 000 

Professional fees 

2 895 666 

Total DPHS 

18 000 000 


TECH NICAL SERVICE S 


Construction of MF18 & MF19 Roads 

4 000 000 

, Construction of MF 69,7,10 Roads 

4 400 000 ' 

Construction of MCI 3 Road 

3 100 000 

Construction of OB 1 Link Road 

6 073 000 

; Construction of OA 27 Road 

3 000 000 

Construction of H39 BUS Road and Street lighting 

10 000 000 

^ Upgrade of Madadeni Waste Water Treatment Plant 

20 731 000 

; Viljoenpark Bulk Water and Sanitation 

10 000 000 

Blaauwbosch Bulk Water Supplv 

' 10 000 000 

Pipe Replacement and Upgrade 

10 000 000 

Furniture and Equipment 

200 000 

Osizweni Water Pressure System Management 

10 000 000 

' Provision ofBasic Water Supply CP46,Wardl6,12,24) 

6 000 000 

Resealing of Roads Newcastle Residential Area | 

2 500 000 

Resealing of Roads - Newcastle West 

3 500 000 

Resealing of Roads Madadeni 1 

2 000 000 

Resealing of Roads Osizweni 

2 000 000 

Construction of Speedhumps 

2 000 000 

Purchase of Vehicles i 

2 500 000 , 


Total Technical Services_112 004 000 


Total Capital Budget _131369 000 


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COST CONTAINMENT MEASURE 


The municipality adopted the its cost containment policy in the 2019/20 financial year in line with 
the Circular No.82 with regards to the implementation of the cost containment measures. The 
policy is further reviewed as part of the budget related policies in order to align with the Cost 
Containment Regulations. The municipality has also put measures through the curbing of 
unnecessary expenditure and reduction of other expenditure from the budget. This is however 
done without compromising service delivery and with the available cash resources. 


DRINKING WATER QUALITY 

The municipality complies within the required Blue Drop status in terms of the quality of water 
being provided to the citizens of Newcastle. Water test samples are being provided in all water 
storages to ensure that necessary standards is being met before water is distributed to 
communities. 

WASTE WATER MENEGEMENT QUALITY 

The municipality complies within the required Green Drop status in terms of the quality of waste 
water management being provided to the citizens of Newcastle. While it is acknowledged that the 
is a challenge of sewer infrastructure in areas currently not zoned under Newcastle Municipality, 
the municipality doe reach out to such areas using the VIP dislughing system. The municipality 
further distributes VIP toilets in areas where water-bone sewer is not yet available. The larger part 
of Newcastle Municipality does have the necessary sewer system. 


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1.4 BUDGET TABLES AND RELATED CHARTS 


As attached in Aimexixre D - Schedule A tables 


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[fart 2 - S UPPORTING DO CU MENTATION 

2.1 OVERVIEW OF BUDGET PROCESS 

2.1.1 OVERVIEW 

Budgeting is primarily about the choices that the municipality has to make between competing 
priorities and fiscal realities. The budget process is an effective process that every local 
government must undertake to ensure good governance and accountability. The process outlines 
the current and future direction that the municipality would follow in order to meet legislative 
stipulations. The budget process enables the municipality to optimally involve residents and other 
stakeholders in the budgeting process. 

The budget preparation process is guided by the following legislative requirements: 

• Municipal Finance Management Act; 

• Municipal Budget and Reporting Regulations; 

• Municipal Systems Act; and 

• Municipal Structures Act. 

Section 21 of the MFMA requires that a time schedule setting out the process to draft the IDP and 
the budget be tabled ten months before the financial year. In compliance with this requirement the 
IDP and budget time schedule was tabled before council in October 2019 due to challenges in 
convening the council meeting on time. The exemption for the late tabling of the timetable was 
submitted and approved by the KZN Provincial Treasury. The main objective of the timetable is to 
ensure integration between the Integrated Development Plan, the budget and aligned process 
towards tabling a balanced budget. The tabling of the 2020/21 Medium Term Budget for the 
Newcastle Municipality will lay the foundation by which strategic functions within the 
municipality could apply sound financial planning and management over the medium to long 
term. It will facilitate the critical alignment of planning, budgeting and sustainable service 
delivery in line with Newcastle’s vision as enshrined in the IDP. 

The purpose of the 2020/2 Ibudget is to comply with the Municipal Finance Management Act (No. 
56 of 2003) and is a financial plan to enable the municipality to achieve its vision and mission 
through the IDP which is informed by our five year programme and community/stakeholder 
inputs. The tabled budget is the start of a journey towards the final budget for approval. It will 


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include many processes both politically and administratively, amongst others, consultations with 
communities in the municipal area. In February 2020 budget instructions were issued to 
departments by the Budget and Treasury Office. Staff budget requirements were also reviewed for 
budgetary purposes with an intense scrutiny of human resource needs and assessment of the 
critical vacancies. 

A budget workshop was held during March 2020 which focused on the state of financial affairs, 
limited resources and how the budget will be allocated to departments. The workshop further dealt 
with past performance trends of operating budget and capital budget, identified budget approach 
going forward and set the criteria and basis to be used in the appropriating financial resources 
amongst municipality’s functions during budget processes. Budget meetings were also held with 
various departments and the Management Committees to provide detailed clarity on the budget 
preparation. At these meetings, budget strategy, budget policies and the alignment of the budget 
with the IDP were discussed. The IDP’s strategic focus areas informed the development of the 
budget, in addition to assessing the relative capacity to implement the budget, taking affordability 
considerations into account. 

2.1.2 POLITICAL OVERSIGHT OF THE BUDGET PROCESS 

The key to strengthening the link between priorities and spending plans lies in enhancing political 
oversi^t of the budget process. Strengthening the link between Government’s priorities and 
spending plans is not an end in itself, but the goal should be enhanced service delivery aimed at 
improving the quality of life for all people within the municipality. Section 53(1) (a) of the 
MFMA, states that, the mayor of a municipality must provide political guidance over the budget 
process and the priorities that must guide the preparation of the budget. The Management 
Committee and the Executive Committee will use the budget process to advise Council 
accordingly in this regard. Political oversight of the budget process allows government, and in 
particular, the municipality to manage the tensions between competing policy priorities and fiscal 
realities. 

2.1.3 PROCESS FOR CONSULTATIONS WITH EACH GROUP OF STAKEHOLDERS 
AND OUTCOMES 

Local government policy and legislation put great emphasis on municipalities developing a culture 
of community participation and the creation of appropriate and relevant community participation 


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mechanisms, processes and procedures. The municipality prides itself of enjoying the reputation 
of actively engaging many of its citizens as possible in its planning, budgeting, implementation 
and monitoring processes. In order to strengthen public participation, the municipality has been 
rolling out its outreach programme to all wards in the municipal area, during the year. 

Due to the COVlD-19, the mxmicipality will not be able to conduct the physical consultation 
processes with the local communities, however other virtual methods of communication will be 
used. The include radio, newspaper and zoom platforms. Accordingly, the tabling of the draft 
Budget in council will still be followed by the extensive publication of the budget documentation 
in the local newspapers, libraries, and all municipal public areas. Copies of the tabled budget in 
both electronic and printed formats were submitted to National Treasury as well as the Kwazulu- 
Natal Provincial Treasury and the Provincial Department of Co-operative Governance and 
Traditional Affairs. The tabled budget will be published on the council’s website. In terms of the 
Municipal Systems Act and in conjunction with the Municipal Finance Management Act, hearings 
on the budgets are planned to take place virtually prior to the final budget being adopted by 
council June 2020, where the Mayor officially responded to budget submissions expected to be 
made by various stakeholders. The key target groups for the budget hearings will include: 

• Newcastle Business Chamber; 

• Farmers Association; and 

• Business Chambers 

• Political Parties 

Schedules indicating dates and venues will be publicized in the local Newcastle papers and 
municipal notice board during the last week of May 2020 to allow consultation process to kick¬ 
off. 

2.1.4 SCHEDULE OF KEY DEADLINES RELATING TO THE BUDGET PROCESS 

The budget time schedule for the compilation of the 2020/21 budget cycle was tabled in October 
2019, well before the start of the budget year and in compliance with the MFMA. The plan was 
accordingly implemented and reviewed where considered necessary to do so. 

The following table reflect the activities and key deadlines that were included in the schedule. 


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DATE 

ACTIVITY 

RESPONSIBILITY 

August 2019 

• 10 montbs before start of the budget year: Tabling of 
time schedule outlining key deadlines to the 
municipal Council as per MFMA S21 (b). 

• mSCOA and Budget Steering Committee meets to 
discuss new mSCOA requirements 

• Roll over process begins 

Mayor/MM 

1 

September 

2019 

1 • Advertising of budget and IDP time schedule. 

• Conclude initial consultation and review policies, 
confirm priorities, identify other financial and non- 
financial parameters including government 
allocations, and the financial outlook in order to 
needs and to review fiscal strategies. 

MM/CFO 

October 2019 

■ Meeting with Mayor, Exco and Manco to discuss the 
strategic direction and objectives for the 2019/20 
fiscal strategies and to discuss the budget preparation 
process of the budget fi*amework to provide 
parameters and request budget inputs for 2019/2020. 

1 “ Compilation of Salary Budget. 

■ Assess impact on tariffs and charges. 

• Finalize inputs fi*om bulk resource providers 

(NERSA, uThukela) and agree on proposed price 
increase. 

Submit all Budget related policies for review. 

MM/BTO 

BTO 

November 

2019 

1 

■ Revenue assumptions 

■ Fixed cost projections 

■ Preparation of budget guidelines 

• Submission of guidelines to portfolio for comments 
Submission of budget guidelines to EXCO for 
approval 

I 

BTO/HR 

1 

December 

2019 

1 

1 

• Submission of budget guidelines to Departments( 
First week) 

• Departmental visit to departments (second week 
December) 

• Budget will be captured on the financial system 

BTO 1 

1 

January 2020 

1 

1 

i 

• Preparation of Mid-year Review 

• Mid-year submitted to portfolio, EXCO & Council 
(before 25 January) 

• Review the proposed National and Provincial ! 
allocations for incorporation into the draft budget. 

• Report back on progress with Budget inputs. 

BTO/MANCO 

' February 

2020 

! 

L 

• Finalize detailed operational and capital budget, 
finalize all budget related policies. 

• Budget/IDP Strategic Workshop to discuss budget 
inputs, link capital and operational plans to the IDP, 
and detennine proposed tariffs. 

• Link all IDP projects to budget & PMS ' 

Extended MANCO 
and EXCO | 


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DATE 

1 ACTIVITY 

RESPONSIBILITY ' 

' March 2020 

' Budget Workshop: 

EXCO 

1 

• Discussion of budget inputs, link capital and 

1 operational plans to IDP and determine proposed 

tariffs. 

MANCO 


• Validation of budget on the financial svstem 


March 2020 

Draft Budget: 

• 90 days before the start of the budget year. Council 
must consider approval of the draft budget. 

• Submit the draft multi-term operational and capital 

1 budget and all budget related policies for approval. 

• Submission of approved budget both printed and 
electronically to COGTA, National and Provincial 
Treasury. 

• Make public notice in terms of S22, 75 of the 

MAYOR, MM, CFO 

1 

! 


MFMA and 21A of the Municipal Systems Act. 


April 2020 

1 Public Consultation Process: 

MAYOR 


■ Public Consultation on draft budget throughout the 

EXCO 


municipality in terms of Chapter 4 of the Municipal 

MM 


Systems Act. 

■ Engagement with Provincial Treasury to discuss 

CFO 

! 

draft budget 


May 2020 

Respond to Public Comments in terms of S23 of the 

MAYOR 

' 

MFMA. 

BTO 


• Response to public comments and sector comments. 
Incorporate recommendations into draft budget. ! 

MM 


• Bilateral engagement with Provincial Treasur\. 


May 2020 

i 

Approval of Final Budget - MFMA S24, 

• Approve the final multi-term operational and capital 
budget together with the adoption of resolutions that 

COUNCIL 


may be necessary. 


June 2020 

Publication of Annual Budget, 

MM 1 


• Submission of the approved budget printed and 
electronically to COGTA, National and Provincial 
Treasury, S22(b). 

• Make public notice in terms of S22(a), 75 of the 
MFMA and 21A of the Municipal Systems Act. 

• Validation of budget on the financial system. 

• Submission of locking certificate in terms of S74(l) 

BTO 

1 


of the MFMA. 

i 


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2.2. OVERVIEW ALIGNEMENT OFANNUAL BUDGET WITH INTEGRATED 
DEVELOPMENT PLAN 


The municipality’s Integrated Development Plan (IDP) is its principal strategic planning 
instrument, which guides and informs its on-going planning, management and development 
actions. The IDP represents the municipality’s administration’s commitment to exercise its 
executive authority (except in cases where it is in conflict with national or provincial legislation, 
in which case such legislation prevails), and is effectively the local government’s blueprint by 
which it strives to realise its vision for Newcastle in the short, medium and long term. However, 
while the IDP represents the strategic intent of the municipality, it is also compiled with the 
understanding that a number of challenges will need to be overcome in order to achieve the 
strategic objectives it sets out. Some of these challenges are known, while others are as yet 
xxnknown and may arise at any time due to any number of local, national and international 
economic, political or social events. 

2.2.1 KEY NATIONAL AND PROVINCIAL GUIDING DOCUMENTS 

To ensure that the municipality is a more responsive, efficient, effective and accountable local 
government, we will outline, precisely how we intend to translate our long term 2035 
Municipality Vision into an effective plan that aligns the municipal budgets, monitoring and 
evaluating mechanisms as well as timeframes for delivery. The municipality has taken the 
strategic direction to achieve closer alignment between the Long Term Development objectives 
and its IDP. The development of the strategic approach for the municipality is guided by - but not 
limited to - the following; 

National Development Plan (Vision 2030) 

The intention of this plan is to improve service delivery for citizens of South Africa, whilst 
integrating national, provincial and local policies and programmes into a single, target orientated 
and long term based plan. In this plan a collective approach of improving the lives of the citizens 
is applied, and communities themselves have a role to play in this regard. The Spatial component 
of the NDP which is the Integrated Urban Development Framework provides a macro spatial 
context for urban development at a national level. 


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Delivery Agreement Outcome 9 

The aim of Delivery Agreement: Outcome 9 is to ensure a responsive, accountable, effective and 
efficient local government system so as to restore the confidence of citizens in the local 
government sphere. As such municipalities need to ensure that the basic needs of communities are 
met; build clean, effective, efficient, responsive and accountable local government; improve 
performance and professionalism and strengthen partnerships between local government, 
communities and civil society. Whilst primarily there is a reporting line to Outcome 9, the 
municipality also reports on Outcome 8 which concentrates on human settlements. 

National Priorities: SONA (State of the Nations Address 2020) 

The State of the Nation address for the 2020 confirmed the President Cyril Ramaphosa’s 
commitment to economic growth and strengthening of state capacity to deal with improving the 
living conditions of the people of South Africa. The President admitted that the coimtry is facing 
serious challenges but said action was being taken to address them. The following are some key 
points from the State of Nation Address: 

• On education, the government will introducing coding and robotics in Grade R to 3 in 200 
schools, with the plan to implement it fully by 2022; 

• On policing, the graduation of 5000 police trainees last year, 7000 new police trainees 
have been enlisted this year to strengthen local policing; 

• On housing, the social housing programme to build rental housing for low income families 
is at implementation stage; 

• On unemployment, government will begin the implementation of the Presidential Youth 
Employment Intervention with six priority actions over the next five years to reduce youth 
imemployment; 

• On NHI, more than 44 million people have already been registered at over 3000 clinics in 
the electronic Health Patient Registration System; 

• On land, around 700 000 hectares of state land will be released for agricultural purposes; 

• On data, the competition authorities are working towards a resolution with the large 
mobile operators to secure deep cuts to data prices across pre-paid monthly bundles; 

• On energy, government will also put measures in place to enable municipalities in good 
financial standing to procure their own power from Independence Power Producers; 

• On SOEs, in consultation with the Presidential SOE Council, government will undertake a 
process of rationalisation of our SOEs. 


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Towards an Integrated Urban Development Framework 

A key objective of government is to facilitate economic growth, job creation and reduce poverty 
and income inequality. The framework for integrated urban development is a key governmental 
initiative to realise this objective because it leverages the potential of our cities and towns, which 
are South Africa’s engines of growth and job creation. Urban areas offer the advantages of 
economic concentration, connectivity to global markets, the availability of new technologies and 
the reality of knowledge economies. Given the challenges that urban areas face, there is a need to 
forge a sustainable growth vision for our urban and rural spaces that will guide our development 
priorities and choices. As such the framework begins to identify key levers. 

Provincial Priorities (State of the Province Address) 

The Premier, Honourable Sihle Zikalala, highlighted key intervention areas for the province that 
would influence the IDP for municipalities. In the SOPA the alignment of the IDP, PGDS and the 
NDP were stressed. In the speech the KZN Premier listed the priority Interventions which remain 
the foundation of the Provincial Growth and Development Plan. The Interventions are: 

• Provision of basic services, especially access to clean portable water 

■ Job creation, especially for youth 
Growing the provincial economy 

• Growing the SMMEs and cooperatives 

• Improving education, health and skills development 

• Providing human settlements and sustainable livelihoods 

■ Building a peaceful province 

■ Build a caring and incorruptible government. 

The Premier also stressed on the alignment of all the above interventions with a view to create a 
progressive and a viable province aimed at achieving national strategies. The alignment of the 
provincial action plan with the President’s State of the Nation Address remain the priority of the 
provincial government of KwaZulu Natal. 

Provincial Growth and Development Strategy 

In line with the National vision 2030, the Provincial Growth and developmental Strategy will 
ensure economic growth and improved quality of life in KwaZulu-Natal. An integrated service 
delivery mechanism will be applied by various stakeholders in an effort to create employment 
opportunities, skills enhancement, effective and efficient governance, human and community 


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development, improved infrastructure and adequate utilization of spatial form. The PGDS is 
currently under review to ensure that the plan meets the objectives of the National Planning 
Commission as well as the SDG’s. 

Long Term Development Framework 

Many town and cities around the world are competing with one another on the local global open 
market to become economically competitive and in doing so, are inadvertently creating 
unsustainable environments. Against this background then, it is clear that the municipality has 
indeed a direct role to play in the facilitation and management of long-term planning and 
development processes that consider the issue of sustainability 

2.2.2 DEVELOPMENT CHALLENGES 


Significant strides have been made to address the key development challenges in the municipality. 
While significant progress has been made in all areas, there is still some distance to go towards 
addressing the following challenges; 

• High rates of unemployment and low economic growth; 

• High levels of poverty; 

• Low levels of skills development and literacy; 

• Limited access to basic household and commimity services; 

• Increased incidents of HIV/AIDS and communicable diseases; 

• Unsustainable developmental practises; 

• Ensuring adequate energy and water supply; 

• Infrastructure degradation; 

• Ensuring financial sustainability; 

• Ineffectiveness and inefficiency of inward-looking local government still prevalent in the 
municipality. 

The essence of the Newcastle Municipality’s IDP is to achieve a balance between meeting basic 
needs, strengthening the economy and developing people skills and a technology base for the 
future. 


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2.2.3 MUNICIPAL STRATEGIC PRIORITY AREAS 


In order to achieve our vision and to address the development challenges, there are a number of 
key strategic priority areas which need to be taken into consideration. These priorities lead to the 
creation of structures which support, house and associate other actions and activities - the 
building blocks around which actions and prioritisation take place. It also acts as a point of 
leverage for creating a sustainable municipality that is caring and liveable. 

2.2.4 POLITICAL PRIORITIES AND LINKAGES TO THE IDP 

The IDP is an all-encompassing plan which provides the framework for development within a 
municipality. It aims to co-ordinate the work of local and other spheres of government in coherent 
plans to improve the quality of life for all the people living in the area. All operating and capital 
programs in the 2020/21 medium-term budget have been assessed through a prioritisation 
mechanism that was developed to ensure that there is alignment to the development strategy of the 
municipality. The IDP formed the basis of the priorities identified in the strategic plan and all 
resources are focused on the achievement of the priorities. The Mayor, Ward coxmcillors, ward 
committees, and the full council full an active part in the community based planning and ensuring 
that budget takes to the priorities of the IDP, 

2.2.5 IDP OVERVIEW 

The Municipal Systems Act requires that each Municipality prepare an Integrated Development 
Plan to serve as a tool for transforming local governments towards facilitation and management of 
development within their areas of jurisdiction. The IDP is a five year plan whose principal 
purpose is to ensure the development of the local community in an integrated manner which 
involves strategic business units within the municipality, relevant strategic stakeholders and the 
community. This draft IDP marks the new 4* generation of the five years period of the new 
Council which occupied office in August 2016. 

2.2.6 IDP PROCESS AND STAKEHOLDER PARTICPATION 

The IDP is prepared every five years and reviewed yearly to inculcate a democratic approach to 
local governance by ensuring all stakeholders get an opportunity to voice their opinions in 
influencing the shape, form, direction and pace of development in their localities. The 


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municipality is committed to addressing the needs of the people and values the inputs from 
communities and stakeholders. The IDP draft process plan for 2020/2021 was presented to the 
Executive Committee and is included in the draft IDP for consideration. The plan specified 
timeframes, actions and procedures and appropriate mechanisms for public participation and 
alignment. 

The fourth generation of Newcastle’s Integrated Development Plan (IDP) was initiated in 2016 
and seeks to address community needs and how the municipality will achieve same over the next 
five years. As set out in the Municipal Systems Act (2000), a stakeholder consultation process is 
necessary. Of critical importance is for the municipality to ensure that there is thorough 
consultation with the community and strategic stakeholders. The review of the five year plan in 
2020/21 has provided further opportunity for the citizens to actively participate in the 
development of the IDP. 

2,2.7 LINK BETWEEN THE IDP AND THE BUDGET 


In compliance with the Municipal Structures Act (1998) and Municipal Financial Management 
Act (2003), our municipal budget is informed and aligned to the IDP objectives. The IDP 
determines and prioritises the needs of the community. The budgetary allocations for both the 
capital and operating expenditure are undertaken in a manner that will not only ensure that our 
IDP outcomes are achieved but also to ensxire that our municipality’s 2035 vision is realised. The 
2020/21 Annual Budget has therefore been directly informed by the revised 4* generation IDP 
process. 

We have come a long way in capital budgeting - away from departmental budgeting. Based on 
such nationally developed models, the municipality is able to link its budget with its programmes, 
and is able to adequately spread its capital budget geographically as well in accordance with the 
IDP. In terms of the operating budget we have made excellent progress but are now more 
committed than ever to ensure that critical operating budget resources are prioritised in terms of 
stated IDP outcomes. More importantly, the Performance Management System (PMS) allows the 
municipality an opportunity to monitor and evaluate organisational performance in meeting our 
IDP outcomes and vision. As with previous year’s, our IDP remains the strategic driver of both 
our budget and performance management system. 


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2.3. MEASURABLE PERFORMANCE OBJECTIVES 


2.3.1 KEY FINANCIAL RATIOS / INDICATORS 

The benchmarks reflected in the table below are based on the actual audited results of the 
municipality for the 2018/19 financial year: 


Financial Benchmark 

1 Basis of calculation 

J018/2019_ 

Debt to Asset Ratio 

Total debt / Total Assets 

0,052 

^ Debt to Revenue 

Total debt / Total Income 

32% 

Average Interest Paid on Debt 

' Interest Paid / Total Interest Bearing Debt 

9.3% 

Capital Charges to Operating 
Expenditure 

Interest and Principal Paid / Operating Expenditure 

■ - 1 

22% 

Interest as a % of Operating 
Expenditure 

Interest Paid / Operating Expenditure 

3.7% 

1 

Current Ratio 

Current Assets / Current Liabilities 

0.85 

Creditors S> stem Efficiency 

% of Creditors paid within terms 

74% 

Electricitv Distribution Losses 

Total units purchased less units sold / Total units 
jiurchased 

5% 

Water Distribution Losses 

Total units purchased less units sold / Total units 
purchased 1 

46% 


The financial benchmarks reflected in the table indicate a favourable financial state, however, one 
needs to indicate that the bulk of assets of the municipality include Property Plant and Equipment, 
as well as consumer debtors, which the municipality is struggling to convert into liquid cash. 

Debt to Asset Ratio: 

The ratio indicate the leverage ratio that defines the total amount of debt to assets. The ratio of 
0.052 indicates the ability of council total debtors to cover for total liabilities. 

Debt to Revenue: 

The ratio indicate the extent of total borrowings in relation to total operating revenue. The purpose 
of to provide assurance that sufficient revenue will be generated to repay liabilities. 

Capital charges to Operating Expenditure: 

Capital charges to operating expenditure (the measure of cost of borrowing in relation to the 
operating expenditure) compares favourably to the acceptable norm of around 6%. 


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Current ratio: 

This ratio measures the short-term liquidity, that is, the extent to which the current liabilities can 
be paid from the current assets. The higher the ratio, the healthier is the situation. The ratio of 0.85 
: 1 is below the norm of 1.5 and indicates that the municipality’s current assets are not adequate to 
cover for short term liabilities. This is a clear indication that the municipality facing serious cash¬ 
flow challenges. 


2.3.2 FREE AND SUBSIDISED BASIC SERVICES 

Municipalities play central role in supporting economic development and alleviating poverty. The 
provision of basic services is a critical input to social well-being and economic activity. Newcastle 
Municipality comprises both rural and urban areas as well as wide spread of income groups. Due 
to variation in living environment, the municipal area has a number of households who currently 
do not have access to all services. 

The basic social package is an affirmation of the municipality’s commitment to push back the 
frontiers of poverty by providing a social welfare to those residents who cannot afford to pay, 
because of adverse social and economic realities. The social package will also assist the 
municipality in meeting its constitutional obligations. The estimated cost of social package 
amounts to R98.7 million for the 2020/21 budget year. 


Details of initiatives carried out by Newcastle Council in this regard are detailed below: 


Service 

Social Package 

Million 

(R) 

1 

Assessment Rates 

All residential property owners are exempt from paying rates on 
the first R85,000 of the property value. Indigent residents will 
receive 100% rebates on rates. 

62.7 

1 Water 

The first 6kl of water is free to all residents qualified as indigents 
in terms of the policy 

6.0 

Electricity 

The first 50kwh of electricity is free to all residents qualified as 
indigents in terms of the ["Jolicv i 

8.1 

' Refiise 1 

Refuse is free to all residents qualified as indigents in terms of 
the policy 

11.0 

1 

1 Sewer 

Sewer is free to all residents qualified as indigents in tenns of the 
policN' 

10.7 

, 1 

Indigent Support 

98.7 


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The cost of indigent benefit to the tune of R49.1 million is funded from the equitable share 
provided by the National Government, which amount is based on the estimated ±7 300 number of 
indigents currently in the Indigent Register. The assistance to the qualifying households is 
regulated by Council budget related policies which are reviewed annually based on modelling the 
impacts of the tariffs on all residential properties. An additional R49.1 in respect of rates rebates 
will e funded internally by the municipality and will be recognised as revenue foregone in the 
2020/21 budget. 


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2.4 OVERVIEW OF BUDGET RELATED POLICIES 


The MFMA and the Municipal Budget and Reporting Regulations require budget related policies 
to be reviewed, and where applicable, to be updated on an annual basis. The main purpose of 
budget related policies is to govern and guide the budget process and inform the projections of the 
medium term budget. 

2.4.1 APPROVED POLICIES 

The following budget-related policies have been approved by Council and no amendments have 
been done: 

- Petty Cash Policy 

- Borrowing Policy 

- Tariff Policy 

- Supply Chain Management Policy 

2.4.2 DRAFT POLICY AND POLICIES REVIEWD 

The following policies have been amended and/or reviewed and attached with the budget for 
consideration. 

- Budget Policy 

- Cash and Investment Management Policy 

- Short-term Insurance Policy 

- Cost containment Policy 

- Asset Management Policy 

- Funding and Reserves Polity 

- Loss Control Policy 

- Virement Policy 

- Rates policy 

- Indigents policy 

- Debt write-off Policy 

- Credit Control and Debt Collection Policy 


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2.4.3 RATES POLICY 


As required in terms of section 5 of the MPRA, the Rates Policy has been reviewed for the 
2020/21 financial year. The policy is to be amended with the current budget prior to 
implementation. 

2.4.4 CREDIT CONTROL AND DEBT COLLECTION POLICY 


The primary objective of the policy is to ensure that all monies due and payable to the 
municipality in respect of services are collected efficiently and promptly. As required in terms of 
sections 97 of the Municipal Systems Act, the credit control and debt collection policy for the 
2020/2 financial year has been reviewed and is to be adopted with the current budget, 

2.4.5 TARIFF POLICY 

The Municipal Systems Act requires a municipality to have a Tariff Policy on the levying of fees 
for municipal services provided by the municipality itself or by way of service delivery, and 
which complies with the provisions of that Act, the MFMA and other legislation. Accordingly, a 
Tariff Policy which is attached with the budget for Council adoption. No amendments have been 
made to the Tariff Policy. 


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2.5 OVERVIEW OF BUDGET ASSUMPTIONS 


Budget assumptions and parameters are determined in advance of the budget process to allow 
budgets to be constructed to support achievement of the long-term financial and strategic targets. 
The assumptions and principles applied in the development of this budget are mainly based upon 
the guidelines firom National Treasury and other external bodies such as NERSA, SALGA, 
Government Departments and the major service providers. A number of assumptions that guide 
growth parameters have been built around the projected increase in the inflation (CPI), being 4.6% 
for the 2019/20 financial year. 

OPERATIONAL BUDGET 

The municipal fiscal environment is influenced by a variety of macroeconomic control measures. 
National Treasury determine the ceiling of year-on-year increases in the total operating budget, 
whilst NERSA regulates electricity tariff increases. Various government departments also effect 
municipal service delivery through the level of grants and subsidies. 

The following key assumptions underpinned the preparation of the medium term budget. Revenue 
are projected to increase by the following percentages; 


Revenue source 

2020/2021 

2021/2022 

2022/2023 ! 

Property rates 

5% 

5% 

5% 

Electricity 

6.22% 

1 8% 

8% 

Water 

5% 

5% 

5% 

Sanitation 

5% 

5% 

5% 

Waste/Refuse 

5% 

5% 

5% 

General Sources of Revenue 

5% 

5% 

5% 


Over the years, the municipality has been increase tariffs for rates, service charges and sundry 
services for more than 7%. Guided by the National Treasury and the current economic climate, the 
tariffs for 2020/21 for 5% for rates, water, sewer, refuse and sundry services. The tariff increase of 
6.22% for electricity is based on the NERSA approval of the Municipal Tariff increase guideline. 


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The projected increases in the expenditure items are as follows: 


! Revenue source 

i 

' 2020/2021 

2021/2022 

2022/2023 

Employee related costs 

6.25% 

7% 

7% 

Remuneration of councillors 

6% 

6% 

6% 

Electricity budget purchases 

6.9% 

8% ' 

8% 


The increase in employee related costs is based on the South African Local Government Bargaining 
Council miilti-year wage agreement. The projected increases in the upper limits of councillors is 
based on the upper limits for the remuneration of councillors for the current financial year, and the 
6% estimated increase during the 2020/21 financial year. The tariff increase of 6.22% is based on 
the NERSA’s approval of the tariff hike increase for ESKOM bulk electricity purchases. Where 
there are significant changes from what is been projected, the municipality may consider tabling an 
adjustment budget or accordingly correct in the final budget is still practical. 

Expenditure in respect of repairs and maintenance, contracted services and general expenses has 
been zero-based but limited to the available funding. While it is acknowledged that the costs of 
providing such goods and services may be more or less than what is projected, the municipality will 
however employ stringent budget monitoring and control measures to ensure that the municipality 
operates with the approved budget on these items. Also, the municipality has been very effective in 
ensuring that expenditure is prioritised and reallocated on service delivery functions, such as the 
repairs and maintenance. 

CAPITAL EXPENDITURE 

The municipality’s capital expenditure has been funded from a mix of government grants and 
internally generated funds. About R97.8 million is expected to be received from government grants 
and the balance of R33.5 million from internally funds. Based on DORA and the provincial gazette, 
it is expected that all grants appropriated in the medium term budget will made available by the 
National and Provincial governments. Wliere grants are withheld or additional grants made 
available during the budget year, such will be addressed by way of an adjustment budget Internally 
generated funds is expected to be realised from reflmds which will be claimed from the SARS 
capital VAT input as well as from the disposal of the municipal land or properties. 


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2.6 OVERVIEW OF FUNDING THE BUDGET 


FISCAL OVERVIEW 

Although the financial profile of the municipality is not healthy and liquid due to commitments 
fi-om the previous financial years, the municipality has ensured that realistic revenues and 
affordable expenditure are projected in the medium term budget. This has been achieved through 
the following measures: 

• Funded budget to be generated during the budget and the MTREF periods. Currently no 
reserves are available to supplement funding of both operating and capital budgets. 

• Measures will be made that the municipality operates within the budget as approved by 
Council. There is no intention to incur unauthorised expenditure. 

• The municipality will ensure that it strives to develop and maintain a positive cash and 
investment position (cash and cash equivalents). 

FUNDING OF CAPITAL BUDGET 

The capital budget is ftinded mainly from allocations to be made to the municipality by National 
and Provincial governments in the form of grants, as well a minor portion to be generated internally. 
No external loans will be taken by the municipality to fund its capital programme. Furthermore, no 
reserves are available or earmarked for the purpose of fimding the capital budget. 

The municipality has appropriated R97.8 million from grant receipts to fund the capital budget, both 
from National and Provincial Governments. This amoimt is made up of MIG, WSIG, NDPG as well 
as provincial allocations from the Departments of Sports and Recreation. R33.5 million worth of 
projects will be funded from internal funds to be generated through Vat refunded on conditional 
grants as per Circular 58 of the MFMA, and the sale of municipal properties. 

FUNDING OF OPERATING BUDGET 

Funding of operational budget is achieved through various sources of revenue, the major ones being 
service charges of electricity, water, sanitation, refuse, property rates as well as grants and subsidies 
from National and Provincial governments. The municipality is expecting to collect R312.9 million 


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from property rates, R895.1 million from services charges, R576.7 million from operating grants, 
R5.6 million from interest income, R30 million from other revenue. These collection will assist 
with the payment of expenditure which is expected to be raised during 2020/21. A further amount 
of R51.6 million is expected to be collected from arrear consumer debtors, disposal of property and 
consumer debtors. This amount is expect to assist with the payment of the outstanding Eskom debt 
and capital loan repayment of R30 million and 28.7 million respectively. The municipality is also 
planning to put aside about R54.5 million in respect of the unspent condition grants (R27.6 million), 
Housing Development Fund (R16.6 million) and Leave provision (R10.2 million). Given the above, 
the municipality is expecting to achieve a fully funded budget with a cash surplus of about R1 
million at the end of the financial year. 


It is anticipated that the above funding sources for operating and capital expenditure will be 
adequate to fully fund the budget. The total revenue or funding for both operating and capital is 
projected at R2.032 billion, while total payments are projected at R2.031 billion. The following is 
the summary of projected receipts and payments for the 2020/21 financial year: 


ITEIVI DESCRIPTION 

CASHFLOW 


2020 2021 

OPERATING RECEIPTS 


Fi nes 

(1 967 160) 

1 nterest: Externa 1 Investments 

(2 496 963) 

Interest: Outstanding Debtors 

(3 162 355) 

Li ^enses 

(15_174) 

Sundry revenue 

(19 563 721) 

P rp perty Ra tes 

(312 975 554) 

Ren ta 1 of Fa c i 11 ti es 

(S 495 OS3) 

Service Cha rges : Water 

(138 484 363) 

Service Cha rges: El ectricity 

(605 538 660) 

Service Charges: Refuse 

(75 066 377) 

Service Charges: Sanitation 

(76 025 723) 

Grants and Subsidies 

(576 750 577) 

i TOTAL RECEIPTS 

(1 820 541 712) 

OPERATING PAYIViENTS 


Bulk El ectr i city Pu rcha ses 

534 445 230 

Bujk Water Purchases 

126 225 734 

Contracted Services 

161 448 352 

CpunciIIor Remuneration 

28 455 636 

Employee Costs 

593 316 084 

Fi na nce Ch a rges 

41 SSI 638 

Materi a 1 

4 558 579 

Other Expenditure 

199 661 286 

Repairs and Maintenance 

96 560 005 


iTOTAL PAYIVIENTS 1 7SG 552 544 


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(OPERATING SURPLUS 

(33 989 167) 

Opening Cash Balance 

(28 060 OOO) 

Receipts from Arrear Debtors 

(31 620 OOO) 

Receipts from VAT Refunds 

(34 174 589) 

Proceeds from Disposal of >^sets 

(IS OOO OOO) 

Increase in Consumer Debtors 

(2 OOO OOO) 

Ca pex .G ra nt Fund i ng 

(97 869 000) 

Capital Expenditure 

131 369 OOO 

Capital Loan Repayment 

28 756 915 

Eskom Debt 

30 OOO OOO 

B7 SURPLUS 

(55 586 841) 

Unspent Conditional Grants 

27 686 179 

Housing Development Fund 

16 605 069 

Leave Provision 

lO 294 OOO 

B8 SURPLUS 

(1 OOl 593) 


COLLECTION RATES FOR EACH REVENUE SOURCE 


In accordance with the relevant legislation and national directives, the municipality’s projected 
revenue collection rates as based on realistic and sustainable trends. The rate of revenue collection 
is the cash collected from consumers expressed as the percentage of the amount billed. 


The average monthly collection rate and projections for the year are as follows: 


Revenue Source 

Average 

2020/2021 

Property rates 

85% 

Electricity 

97% 

Water 

70% 

Sewer 

59% 

Refuse 

70% 


The total average collection rate is projected at an average of at least 83% and is based on the 
combination of actual collection rates achieved to date, and is the estimated outcome for the current 
financial period. The intervention of council through the intensive scheme and the consumer 
outreach programmes which are aimed at encouraging and building the culture of payment of 
services is expected to improve the payment factor by even a larger margin than currently projected. 

The credit control measure of service disconnection is being applied on consumers whose electricity 
is supplied by the municipality. A programme of water meter testing is currently underway in order 
to identify unmetered water supply and encourage the payment of services. By and large, these are 


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areas from which a substantial and long overdue debtors of the municipality is being owed. The 
water meter testing programme is expected to improve the collection of outstanding debtors, and to 
build a culture of payment. It will also assist the municipality to clean-up its indigent register by 
identifying those consumers who can and those who cannot afford to pay. 


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2 J GRANT ALLOCATIONS AND PROGRAMMES 


Municipalities play a critical role in furthering government’s objective of providing services to all, 
while facilitating local economic development. Local government conditional grants are being 
reformed to provide targeted support to different types of municipalities. 

The following are the projected grants allocations to the municipality in terms of the 2020 Division 
of Revenue Act have been included in the medium term budget. 


National allocations 


Grant Name 

Draft Budget 
2020/2021 
’000 

Draft Budget 
2021/2022 
*000 

Draft Budget , 
2022/2023 
’000 

Equitable Share 

403 064 

435 540 

466146 ' 

Finance Management Grant 

1 700 

1700 

1 900 

Expanded Public Works Programme 

2 895 

- 

- 

Municipal Infrastructure Grant 

111 804 

121 815 

129 141 

Water Service Infrastructure Grant 

35 000 

40 000 

45 400 

Electrification 

12 000 

10 000 

10 000 

Energy Efficiency and Demand Mgnt 

- 

4 000 

4 000 

Munici]ial System Improvement Grant 

1 500 

1 500 

500 

TOTAL 

567 963 

614 555 

657 087 ' 


Provincial allocations 


1 Grant Name 

Draft Budget 
2020/2021 
'000 

' Draft Budget 
2021/2022 
’000 

Draft Budget 
2022/2023 
’000 

Accreditation Grant (Operational) 

3 839 

3 839 

3 839 ' 

Accreditation Grant (Capital) Housing 
Projects 

170 140 

124 462 

100 843 

Title Deed 

3 000 

1 _ , 

_ 

Spatial Development 

1 500 

1 000 

_ 

Art & culture Museum 

407 

429 

449 

1 Art & Culture Provincialisation of libraries 

6 729 

6 757 

6 992 

' Art & culture Community library 

2312 

2 475 

2 595 

TOTAL 

187 927 1 

138 962 

114 718 


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2.8 ALLOCATIONS AN D GRANTS MADE BY NEWCASTLE MUNICIPALITY 
No grants will be paid by the municipality to other organs during the medium-term budget. 

Please refer to tables A 21 of Schedule A. 


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2,9 COUNCILLOR ALLOWANCES AND EMPLOYEE BENEFITS 


Please refer to tables SA22 and SA24 of Schedule A 


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2,10 MONTHLY T ARGETS F OR REV E NUE, EXPENDITU RE AND CASH FLOW S (Table 15a) 

Please refer to table SA25 to SA30 of Schedule A 


VC 


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2.11 ANNUAL BUDGET AND SERVICE DELIVERY AND BUDGET 
IMPLEMENTATION PLAN - INTERNAL DEPARTMENTS 


The SDBIP will be submitted separately. 


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2A2 ANNUAL BUDGET AND SERVICE DELIVERY AGREEMENTS - MUNICIPAL 
ENTITIES AND OTHER EXTERNAL MECHANISMS 


Municipal Entities 

The agreement in currently in force in the following brief details: 

(a) Name of Entity : Uthukela Water (Pty) Ltd 

(b) Period of agreement : 30 years 

(c) Service provided : Water and sanitation 

(d) Expiry date : 24 May 2034 

The Entity is currently under Provincial Administration and being investigated in terms of section 
78 of the Municipal Systems Management Act, 32 of 2000. 


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2.13 CONTRACTS HAVING FUTURE BUDGETARY IMPLICATIONS 


In terms of the municipality’s Supply Chain Management Policy, no contracts are awarded beyond 
the medium-tenn revenue and expenditure framework unless section 33 of the MFMA has been 
complied with. 

In ensuring adherence to this time frame limitations, all reports submitted to either Bid Evaluation 
or Bid Adjudication Committees must obtain financial comments from the Budget and Treasury 
Office. 


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2.14 CAPITAL EXPENDITURE DETAILS 


Please refer to Annexure A5 of Schedule A 


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2.15 LEGISLATION COMPLIANCE STATUS 


DISCLOSURE ON IMPLEMENTATION OF MFMA AND OTHER LEGISLATION 


Compliance with the MFMA implementation reqixirements has been substantially adhered to 
through the following activities: 

BUDGET AND TREASURY OFFICE 

The Budget and Treasury Office has been established in accordance with the MFMA. 

BUDGET 

This draft annual budget has been crafted taking into account MFMA, Municipal Budget and 
Reporting Regulations, and National Treasury circiilars into account. Budgets are being tabled, 
adopted and submitted to National and Provincial Treasuries within the required legislative 
firameworks. 

IN-YEAR MONITORING 

100% compliance with regards to monthly, quarterly, mid-year and annual reports to Council, 
Provincial and National Treasuries. 

IDP 

The 2020/21 to 2022/23 Budget Process has been prepared to align with the Budget in accordance 
with the MFMA and the Municipal Systems Act requirements. 

ANNUAL REPORT 

The 2018/19 Annual Report has been developed taking into account the MFMA and National 
Treasury requirements. The report was noted by Council at its meeting held on 25 January 2020 and 
entered the public participation phase for comments immediately thereafter. 

AUDIT COMMITTEE 

The audit Committee, an independent external committee, provides an oversight fimction over the 
financial management and performance of the municipality. 


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MUNICPAL PUBLIC ACCOUNTS COMMITTEE 

The committee ensures that the administration and municipal entity are held accountable for their 
management of municipal funds and assets, and to ensure the efficient and effective utilisation of 
council resources. 

MUNICPAL STANDARD CHART OF ACCOUNTS 

As all municipalities are required by National Treasury to be fully mSCOA compliant as of 01 July 
2017, the municipality 95% ready to comply with this requirement. The following is the progress on 
the implementation of mSCOA thus far: 

The mSCOA champion has been appointed 
Steering committee has been established 

- Implementation Plan developed 

- Proof of concept has been presented to NT 

- Data clean-up issues has been identified and resolved 

- Changes to chart are attended to on an on-going basis 

- System are currently in the process of being integrated 

- The municipality went live on 01 July 2017, but still cleaning up as per developments 

- Projects has been identified and linked in terms of the IDP and the budget. 

- The municipality is addressing issues integration of systems 

- The municipality is addressing challenges on alignment between budget schedules and data 
strings 


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2.16. ANNUAL BUDGET OF MUNICIPAL ENTITY ATTACHED TO THE 
MUNICIPALITY’S ANNUAL BUDGET ___ 

The budget of the Entity Uthukela Water has not yet been received for Council consideration. A 
provision of R126.2 million has however been made in the annual budget. 


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21. MUNICIPAL MANAGER'S QUALITY CERTFICATE 


I, MJ Mayisela, the Acting Municipal Manager of Newcastle Municipality, hereby certify that the 
annual budget and supporting documentation of the 2020/21 Operating and Capital Budget have 
been prepared in accordance with the Municipal Finance Management Act, 56 of 2003, and the 
regulations made under the Act, and that the annual budget and supporting documents are consistent 
with the Integrated Development Plan of the municipality. 


Print Name : MAYISELA M J 

Acting Municipal Manager of : NEWCASTLE MUNICIPALITY 

Signature :. 

Date :... 


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