Limpopo Department of Local Government & Housing: Revenue Enhancement Strategy Development Project in 6 Local Municipalities (Jan –June 2007)
On 4 January 2007, the Limpopo Department of Local Government and Housing awarded a tender to Public Services & Utilities International (PSU) to develop revenue enhancement strategies for 6 local municipalities over a six month period. The municipalities, which are all rural, have a low revenue base and very limited resources and are supported by Project Consolidate – the municipalities are Blouberg; Greater Letaba; Lepelle-Nkumpi; Makhado; Maruleng; and Thabazimbi.
Financial and customer data from the municipalities billing systems was used to do a status quo analysis. The Municipal Data Analysis Model developed by PSU was used to electronically extract complex data sets from each municipality’s database to establish a baseline understanding of each municipality’s customer, billing, service delivery and consumption statistics. The data analysis was complemented by in depth interviews with municipal officials, especially those responsible for revenue, to gain more insight into the findings. The findings and recommendations, especially those recommended for immediate action were relatively similar for all the municipalities and could generally be categorised as follows:
Table 1: Key Findings and Recommendations
|
Finding |
Recommendation |
Advantage |
Institutional |
Key policies, bylaws, tariffs absent |
Draft, adopt, implement |
Legalised enforcement |
Vacancies/under-capacity of key staff |
Fill vacancies, training |
Effective service delivery and Revenue Management |
|
No Service Level Agreements for Water Services Provision status |
Finalise SLA with District Municipalities |
Legal Clarity on Water Services Provision |
|
Billing Environment |
Few staff trained on billing system |
Train staff on billing system |
Data Integrity/ Data Current |
Satellite offices with manual capturing |
Electronic linkup |
Errors eliminated |
|
Masses of returned bills |
Ensure Post Office delivers |
Reduced revenue loss |
|
Corrupt Data, no system indicators (ward, indigent, active/inactive, etc.) |
Data cleansing, activate indicators |
Data Integrity; Improved management of accounts and debt |
|
High Customer Debt (all categories) |
Manage Indigent Debt; Write of irrecoverable debt; Collect the rest |
Improved debt profile; borrowing capacity |
|
Service Delivery |
No indigent management |
Register indigents, credit discounts, manage consumption |
No indigent debt; Services to poor; no unaccounted for services; Accurate Equitable Share Grant allocation |
Large areas unserviced |
Planned roll out (IDP) |
New customers = new revenue |
|
Low levels of service/ unreliable |
Increase service levels and reliability |
Customer satisfaction |
The implementation plan for this project (Phase 1 of a turnaround strategy) specified that issues contributing to unsatisfactory performance and high debt would be identified and recommendations for improvement would be provided. It was intended that this project would be followed by a second (Phase 2) project which would entail the implementation of the Revenue Enhancement Strategy for each municipality. However, once the Limpopo DLGH Project Consolidate managers, Mr. J Mohlala and Ms. Kokela Silimela understood the issues, they realised that municipalities should start implementing some of the recommendations even before Phase 2 was launched – “these strategies should not be filed away in drawers, we should find the resources to implement them speedily” said Mr J Mohlala, Senior Manager: Project Consolidate Limpopo Province. This insight by the Limpopo Project Consolidate leaders yielded some extraordinarily good results in a very short time - these initial achievements of the projects are summarised below.
Achievements of the Project
The managers of the different municipalities were impressed with the analysis of the revenue data and development of strategies, and were also very pleased that they could see immediate results from implementing elements of the strategy themselves.
Immediate results in Thabazimbi were that the municipality was able to identify water losses valued at R4m per month and collect an amount of R2m as a result of targeted debt collection among Top 100” debtors. Mr R Nkomise, the Municipal Manager sums up the benefits in saying that “we appreciate the intervention of the Province and the work of highlighting the issues that can improve our municipality’s performance.”
Mr Reuben Radzilani of the Makhado municipality notes that “we have already started converting each strategy into an implementation plan” and as a result embarked on a system cleanup; installation of new meters and advancing the “Top 100” debtors to collectors.
Similarly the Blouberg municipal manager, Mr N. I. Makhura, said that he is “very impressed with the analysis and presentation of the Revenue Enhancement strategy for Blouberg, all that remains is implementation.” Blouberg has been able to reduce its debt figure by R8,4k per annum as a result of having incorrectly billed R1 per stand per month; the municipality has collected R3,9m by targeting a few of the “Top 100” debtors with R2,1m debt referred to debt collectors.
The Lepelle-Nkumpi municipality has embarked on an awareness programme on water consumption and payment; meter audits and updating the billing system – in the words of the CFO Veronica Choshane “PSU has given us a well presented analysis and a clear way forward on the issues we need to address.”
Immediate results in Greater Letaba have been the reduction of debt by R5m due to the correction of an admin/data error identified in the strategy development process; an improvement in collections amounting to R 108K was achieved by targeting “Top 100” debtors. The municipality is now targeting the collection of R 5,1m Government debt.
The process of revenue analysis and development of Revenue Enhancement Strategies provides insight into the potential of rural municipalities to improve revenue management and thus contribute to financial viability through sustainable “own-revenue” streams. It also demonstrates the benefit of provincial support to municipalities as part of Project Consolidate. The level of commitment from the provincial and municipal managers in driving the project, and especially the implementation of particular actions during the duration of the project is a good example of how best to use expertise from the private sector to gain immediate financial results – the cost of the project was R2,1m and by the end of the project the municipalities had already collectively gained a total financial benefit of at least R11 m.
However, PSU has warned that ad hoc implementation of the strategies can lead to short term gains and failure in the long term. This is because the effective implementation of a revenue enhancement strategy requires the underlying causes of low revenue and high debt to be addressed. Thus debt collection, for example, should be one of the last issues to be tackled once the root causes of debt escalation have been dealt with. The root causes are a combination of institutional, technical, financial, IT and communication/education – with data integrity on the financial system proving to be a good way to start addressing this mammoth task.