– The economic situation is very serious

– The economic situation is very serious
– The economic situation is very serious

At the municipal council meeting in Rindal earlier this week, the municipal director and the finance manager informed about the frightening development in the municipality’s finances. The municipality loses large sums on the sale of licensed power, the operating level is still too high, and expenses are increasing more than income in the entire organisation. The municipal director describes the situation as very serious.

Rindal municipality is among the many municipalities that have had safe and stable income from licensing power for many years, until last year, but are now experiencing that the agreements that were supposed to stabilize the income are now leading to large losses. In Rindal, the loss of licensing power for 2022 is now calculated at an additional consumption of 8.3 million compared to the budget. It is dramatic, to say the least, and brings with it very large restrictions on the municipality’s room for action.

Stable income has turned into large unpredictable losses

Municipal director Mons Otnes explains that licensed power is the municipality’s rightful share of locally produced power. When there are regulated waterways, with dams, the municipality has the right to license power. This actually applies not for power produced in rivers where the water is not collected. Rindal municipality and Surnadal municipality share the licensing power from the dams in Folddalen, because here there is an influx of water from both municipalities.

The situation in the electricity market and the agreements around licensed power are very complicated and difficult to understand for the vast majority of people. But Rindal municipality, like many other power municipalities, has entered into agreements that have provided good and stable income over many years.

The concession power agreements were intended to smooth the income from year to year, so that they became more predictable. For Rindal municipality, the sale of concession power has provided an annual income of around NOK 1.5 – 2 million over many years. But last year there were dramatic changes in the power situation in Europe. The enormous price differences in the electricity market turned everything upside down. Suddenly, the sale of licensed power no longer became an income, but a cost in the millions for the municipality. This is very difficult to explain, but very simply you can say that you sell the power at a certain price, but when it has to be settled, the price is completely different.

The municipality is losing out on the enormous difference in electricity prices between central Norway and southern and eastern Norway. Due to major limitations in the transmission capacity, the concession power cannot be transferred to the areas of the country where the price is high.

Rindal municipality has entered into sales agreements three years in advance, with one third per year, explains Otnes. The municipality became aware of the challenge last summer, when prices started to run wild. In consultation with Svorka, the municipality terminated the agreements last autumn, but the municipality is still obliged to deliver all power through the agreement in 2022, two thirds of the power in 2023 and one third in 2024.

The loss occurs the moment the electricity is sold. The price is agreed in advance, and when the real price deviates greatly from the agreed price, you end up with a loss. The money that the municipality loses is “swallowed” in the huge electricity market.

The municipal director points out that when prices are much lower in central Norway and further north than in southern Norway, it is a great advantage for private individuals and businesses here. In Rindal, it is only the municipality that loses out because the situation in the electricity market is as it is now.

– Overall, we should be happy that Central Norway does not have the same prices as in Southern and Eastern Norway. It would have been incredibly demanding, especially for the business world. For companies that experience such high prices, it is a nightmare, says Otnes.

Unpredictable pension costs

The municipality’s pension costs are calculated at any time based on forecasts, and the stipulated pension cost varies. The pension costs in the budget must therefore be adjusted from time to time, and this can have significant consequences. In 2020, Rindal municipality came out favorably, as the settlement meant that the pension cost was less than what was planned. Now it seems to be the opposite. The latest estimate indicates that the municipality will have to pay around 2 million more than budgeted for pensions in 2022. But this is an uncertain forecast. You will not know what the total pension cost will actually be until after the annual settlement. The municipal director points out that this is challenging, since large amounts are involved.

Increased costs for operations and interest

Before the summer holidays, the municipal council was presented with a case on budget regulation, including at the unit for health and care, and the unit for technology, agriculture and the environment. The municipal board decided to postpone the budget regulation.

Finance manager Henning Andersen explains that the operating costs within health and care per to date, it is 4.5 million over the budget. The tertial report will show an even higher additional consumption than this, but we will have to wait for the report to see how much greater the costs will actually be. Within technology, agriculture and the environment, the additional cost as of today is NOK 2.1 million. In addition, the interest cost is now NOK 1.7 million above the budget. The interest rate has risen significantly more than was assumed when the budget was drawn up, and it continues to rise. Therefore, here too, an even greater deviation from the budget must be expected at the annual settlement.

In total, additional spending on operations and interest amounts to 8.3 million compared to the budget so far this year.

The director of the municipality refers to a decision from this spring not to replace vacant positions, i.e. to leave positions unfilled due to leave, when someone retires, etc. This applies not only in the two units mentioned, but in the entire municipality. This must necessarily happen over time, so it took time before you started to see the effects of the measure, but now after the summer the wage effect is starting to become more visible.

Still no compensation for corona costs

Last winter, the municipality had a challenging period due to the corona pandemic. The infection situation meant that there was a lot of extra work in health and care, and it was expensive. The state ordered the initiation of extraordinary measures, and promised that the costs involved would be compensated. But so far the municipalities have not received any compensation. Otnes says that he hopes that the compensation will be included in the state budget to be presented in October. For Rindal municipality, it is almost NOK 2 million. There is still a lot of uncertainty around this, and how much of the corona costs the State will possibly compensate for. Therefore, no such compensation can be budgeted for in the municipality’s budget either.

Free income and decline in population

In the revised national budget, the increase in Rindal municipality’s discretionary income compared to the budget is NOK 2.8 million. A further decline in the population in the municipality is expected in the coming years, which will reduce the basis for free income. The population after the 2nd quarter was 1,974 inhabitants.

Very high excess consumption

The final calculation does not look good. The starting point for the budget for 2022 is balanced operations, but the forecast that was advanced at the last municipal council meeting shows additional spending of 8.3 million on concession power, 2 million on pensions and 8.3 million on operations and interest. 2.8 million in increased discretionary income works in a positive direction, but the forecast still shows a staggering additional consumption of NOK 15.8 million, which is not covered by the budget, and in that case must be covered by the disposal fund. As mentioned, there are also many indications that the costs may be even higher.

Rindal municipality’s disposal fund is NOK 22.7 million as of 1 January this year.

All residents will notice this

The director of the municipality points out that the situation is extra challenging because the municipality has costs for licensing power instead of income. This means that you have much less time for adjustment than you would like. Operations must be reduced so that the accounts are balanced, or preferably with a small profit. That is the goal. This involves extensive changes in the level of service. The unit managers have been given very tight budget frameworks to deal with for next year, so unfortunately all residents will notice this, he states.

The chief financial officer’s clear message to the municipal council was this: It is impossible to imagine continuing operations at the same level as before.

The article is in Norwegian

Tags: economic situation

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