Revenue & Debt
Cost-Reflective Tariff Gap
Gap between approved service tariffs and the cost of providing each trading service.
Why tariff gaps threaten sustainability
Municipal trading services such as water, electricity and refuse are meant to be funded by cost-reflective tariffs, and a persistent gap between approved tariffs and the actual cost of delivery erodes financial sustainability and signals a going-concern risk. The MFMA and tariff policy frameworks require tariffs that recover the cost of providing each service. AuditPro Core quantifies the gap between approved tariffs and service cost so under-recovery is visible to the accounting officer and council.
The Numbers
AuditPro Core renders this view from your tenant's live, tamper-evident records. The figures below are illustrative sample data.
Services under-recovering
3 of 4
Total under-recovery
R142 m
Worst margin
-18%
Water
Refuse surplus
R6 m
Tariff vs cost of supply margin
Cost recovery by service
| Service | Cost (R m) | Revenue (R m) |
|---|---|---|
| Water | 412 | 338 |
| Electricity | 1240 | 1166 |
| Sanitation | 186 | 169 |
| Refuse | 142 | 148 |
Figures shown are illustrative sample data for demonstration. AuditPro Core renders these views from your own tenant's live, tamper-evident records.
Cost-reflective principle
A cost-reflective tariff recovers the full cost of providing a service, including bulk purchases, distribution, maintenance and a contribution to infrastructure. Tariffs set below cost create a structural deficit.
Trading-service ring-fencing
Each trading service should be ring-fenced so its revenue and costs can be compared directly. Without ring-fencing the true gap is hidden in consolidated results.
Drivers of the gap
Below-inflation tariff increases, distribution losses and uncollected billings all widen the gap between what is charged and what it costs to serve.
Sustainability consequence
A sustained gap drains reserves, defers maintenance and ultimately threatens service continuity, which is why it is treated as a going-concern indicator.
How AuditPro Core Bridges the Gap
- Service-level costing: approved tariffs are compared against the ring-fenced cost of each trading service to quantify the gap.
- Gap trending: the under- or over-recovery is tracked over time so a structural deficit is distinguished from a one-off.
- Exception flags: services where tariffs fall materially short of cost are highlighted for tariff and policy review.
- Audit-ready analysis: the tariff-gap calculation exports with costs traceable to the ledger and tariff schedule.
Key Takeaways
- Cost-reflective tariffs must recover the full cost of each service.
- Ring-fence trading services to reveal the true tariff gap.
- Losses and poor collection widen the gap beyond the tariff level itself.
- A sustained gap is a going-concern indicator, not just a budgeting issue.
See This on Your Own Data
AuditPro Core renders this dashboard from your tenant's live, tamper-evident records — every figure traceable to source.