If Finance Minister Enoch Godongwana goes ahead with the plan to withhold grant payments to 39 municipalities, the Vhembe District Municipality (VDM) is likely to collapse completely. The municipality relies heavily on government grants to cover most of its expenses and the Equitable Share Grant alone accounts for 61.75% of its budgeted income.
Last week, Godongwana announced National Treasury's decision to withhold disbursement of the Equitable Share and certain Municipal Infrastructure Grant (MIG) allocations for this quarter. The move is intended to pressure municipalities into settling outstanding debts, including those owed to water boards. The Sekhukhune and Vhembe District, along with Letaba Municipality, collectively owe the Department of Water and Sanitation (DWS) just under R500 million.
The exact amount owed by Vhembe was not disclosed. However, the Limpopo provincial government has said it is committed to resolving the impasse. VDM spends about R200 million per year purchasing water from the DWS. It is also not a case of the municipality being cash-strapped — it had R421 million in its bank accounts at the end of the last financial year.
On a tight budget
When Vhembe's executive mayor, Cllr Freda Nkondo, delivered her budget speech on 30 May, it became clear that serious belt-tightening would be necessary. The municipality's income sources are dwindling, while expenses remain unchecked.
The Equitable Share Grant is expected to contribute R1.57 billion in the new financial year — 61.75% of the budgeted income that may be used for operational expenses such as salaries. Part of the MIG can also be used for operating costs, but this is projected to amount to only R30.8 million. Four smaller grants will collectively contribute R14.9 million — far from enough to meet the municipality's full expenditure.
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From its own sources, VDM has budgeted to collect R760.79 million from service charges. Tariffs were increased by 4.3% with effect from 1 July. Other own revenue is expected to bring in R165.62 million, bringing total own income to R926.41 million.
This, however, is barely enough to cover the municipality's salary bill, projected at R808.7 million. And it remains questionable whether the municipality will collect this income from consumers.
Collection rate of only 8%
VDM has a reputation for being one of the worst-performing municipalities in the province in terms of revenue collection. Water-meter readings are often inaccurate, and accounts are not sent to consumers monthly.
In her budget speech, Mayor Nkondo acknowledged that the collection rate over the past year was just 8%. The municipality now aims to improve this to 10%. This low rate forced the municipality to increase its provision for debt impairment, which now stands at R207 million.
"The municipality is not doing well with the revenue collection, hence the increase in the impairment," she said. She noted that consumer debt stood at just over R2 billion.
"The municipality will use all strategies to collect its own revenue, as under-collection of revenue will translate into serious financial challenges for the municipality," Nkondo said. She added that VDM's strategy includes accurate billing, customer service, credit control and debt collection.
Provision has also been made for households unable to pay for basic services under the municipality's indigent policy. "The target is to register 40,000 or more indigent households during the 2025/26 financial year," the mayor said.
Salaries and consultants eating it up
One of the biggest challenges facing the mayor and her team is the ballooning salary bill. In Vhembe's case, it accounts for 41% of total operating expenditure — well above the national norm. The R16.79 million that councillors are paid must be added to this, along with the controversial use of contractors and consultants, who are expected to be paid R236.80 million in the next year.
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This means that just over 40% of the operating budget remains after salaries, councillor allowances, and the fees for external contractors and consultants are deducted.
Like many Limpopo municipalities, VDM has a bloated management structure. According to the budget, 1,332 of the 1,980 permanent posts were filled last year. With a salary bill of R825.5 million (excluding councillors), this means the average municipal employee earns R50,595 per month.
The total remuneration package for the top six managers stands at R8.46 million per year. The mayor earns just under R1 million per year. The salary bill is expected to increase by 5.5% in the new financial year.
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"As part of the municipality's cost reprioritisation and cash-management strategy, vacancies have been significantly rationalised downwards," Nkondo said. She added that the workforce would not be expanded in the coming year.
Overtime payments have also been a source of contention at VDM. In 2023/24, overtime cost the municipality R77.67 million, and R94.7 million was budgeted last year for this item. In the new financial year, the budget for overtime has been slashed to R25.93 million, and by the following year, only R3.9 million is expected to be spent.
"Expenditure against overtime was significantly reduced, with provisions against this budget item only being provided for emergency services and other critical functions," Nkondo said.
She also said that the use of consultants and contractors would be limited. "The municipality will embark on training its employees as a way of reducing the use of consultants, and employees are working closely with the appointed consultants for skills transfer," she said.
Contracted services currently make up 17% of total operating costs — far exceeding the norm of between 2% and 4%.
Some money left for maintenance and projects
In her budget speech, Nkondo said VDM had allocated R549 million for repairs and maintenance. "The municipality has appointed additional personnel that will be dealing with repairs and maintenance. All those repairs that do not require special expertise will be done by municipal employees," she said.
As for capital expenditure, this will be funded through a Municipal Infrastructure Grant (R585.53 million), a Water Services Infrastructure Grant (R82,217), and VDM's own resources (R118,956).
The largest project is the upgrading of the Mutale Raw and Potable Bulk Water System, with R207.21 million allocated. The municipality has earmarked R81.82 million for upgrading the water supply and reticulation system at Ngwenani Themeleli, while R72.76 million is set aside for the Mutshedzi Regional Water Scheme.
Phase 2 of the waterworks station at Vondo is expected to cost R38.46 million, while R63.37 million will be spent at Murangoni. Malamulele's water-treatment plant will undergo a R51.6 million refurbishment.
Mayor Nkondo expressed confidence that the municipality is making progress in addressing regional water shortages. "In addition, the municipality continues to make progress in addressing service-delivery backlogs. It is anticipated that by 2027/28, the water backlog will have been very nearly eliminated," she said.