The City of Cape Town uses all income from tariffs for the provision of services, adding that it does “everything in its power to keep tariffs as affordable as possible to cover the cost of providing the services.”
Eskom’s massive price hike has resulted in a substantial increase in the cost of electricity this year, and it reportedly now costs the the City 17,8% more to buy electricity from Eskom. As the statement reads, the City was therefore compelled to implement a 13,48% electricity increase from July 1 2021, and has absorbed more of the price hike than any other metro in South Africa, where the average increases are 14,59%.
“It is very clear if one actually looks at the data that the City’s tariffs are fair, as affordable as possible and at a sustainable level to ensure the municipality is healthy and can carry on delivering services, paying Eskom for electricity bulk purchases and all other other major input costs,” the City maintains.
The City said its lowest tariff level is the cheapest among the metros. “This is due to the hard work that the city has done to keep tariffs as affordable as possible by increasing efficiencies over the years.”
In the 2021/22 financial year, a budgeted amount of approximately R11.2 billion (2020/21: R9.6 billion) will be spent out of a total operating expenditure of R13.8 billion (2020/21: R12.3 billion). ). A R1,6 billion increase in bulk purchases from Eskom therefore results in a R1,5 billion overall operating expenditure increase for the City which means that overall, other City distribution related costs have actually gone down for the 2021/22 financial year by R100 million.
The City says that it has done everything possible to reduce its own expenditure to keep the tariffs as low as possible, without contributing to the R35 billion plus owed to Eskom by other municipalities. and without having to reduce service delivery levels.
The fixed part of the electricity and water tariffs forms part of the overall tariffs, it notes.
“This enables a service provider such as the city to provide reliable services – getting enough income to provide the service and being able to absorb shocks caused by a large drop in usage without service provision being disabled,” the City said.
Registered indigent households do not pay the fixed part of the tariff.
“As it pertains to electricity, there is an erroneous assumption that all the fixed costs are recovered from customers via the fixed monthly service charges. This is not the case. The actual fixed cost attributable to residential customers amounts to around R385 per month, or roughly double the current level (R168,95 per month),” said the City’s Mayoral Committee Member for Energy and Climate Change, Councillor Phindile Maxiti.
“When it comes to water, the fixed part recovers approximately 20% of the fixed cost. It does however help to stabilise revenue streams so that changes in usage patterns, as with a drought response, do not negatively impact service operations and maintenance programmes,” the City’s Mayoral Committee Member for Water and Waste, Alderman Xanthea Limberg explained.
“All water and sanitation revenue is used to cover the costs of delivering a reliable service and building a more resilient water service through our New Water Programme, which aims to produce approximately 300 million litres (Ml) per day through groundwater abstraction, desalination and water re-use by about 2030. The service also includes the treatment and scientific quality testing of water; operation, repairs and maintenance of infrastructure; and transport and treatment of wastewater,” Limberg adds.
‘The design of tariffs is no simple exercise. There are multiple factors that come into play in the determination of the costs,” said the City’s Mayoral Committee Member for Finance, Alderman Ian Neilson.
“Electricity is becoming an increasingly expensive commodity… It is only if Eskom has competition that we will see a real impact on household electricity prices. The City has done, and continues to do, everything in its power to keep these prices in check as much as possible, in the most fair way possible,” Neilson explains.
“The City currently has a 97% payment ratio, which indicates most ratepayers are able to pay their municipal accounts and those who can’t, can approach us for assistance.
“About 40% of people in Cape Town get support with rates and services, and City rentals. The City understands the plight of many customers who have been severely affected by the Covid-19 pandemic and lockdown and has availed assistance on a case-by-case basis. Separate indigent and pensioner rates relief is also available,” said Neilson.
City water, including sanitation services, costs approximately 4c per litre compared to around R10 per litre for shop-bought bottled water – based on the first 10,500 litres used and 15mm water meter.
The City said it does not budget for a profit from the sale of water and seeks to keep service delivery costs as low as possible.
It adds that as dams are now full, some residents might be questioning whether water tariffs can be lowered to pre-drought levels, when all households, both indigent and non-indigent, were provided six kilolitres of water per month, at no charge.
“Prior to the drought, water purchases by those using high volumes of water allowed for the first six kilolitres of water to be subsidised. Water usage habits have remained significantly lower than they were before the drought, and there are very few customers today who purchase the volumes of municipal water that enabled a subsidised allocation.”
Also, it is important to keep in mind that the amount of water in our dams, which we share with several other municipalities, does not directly influence the cost of delivering the overall water and sanitation service, the City adds.