WATER BOARDS TARIFF INCREASES:

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WATER BOARDS TARIFF INCREASES IMPACT AND
IMPLICATIONS ON LOCAL GOVERNMENT STRUCTURES
BYMTHOBELI KOLISA EXECUTIVE DIRECTORMUNICIPAL
INFRASTRUCTURE AND SERVICES
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Structure of the presentation

• About SALGA
• Water Pricing Chain
• Regulations
• Challenges
• Suggested Way Forward

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SALGA GovernanceStructures
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KEY SALGA PRIORITIES IDENTIFIED FOR THE NEC TERM
OF OFFICE
CRITICAL STRATEGIC ENABLERS
CRITICAL STRATEGIC ENABLERS
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SALGA Functions

• SALGA has four main functions
• Strategic profiling - building the profile and
  image of local government within South Africa as
  well as in the internationally
• Support and advice - policy analysis, research
  and monitoring knowledge sharing and municipal
  support.
• Representation - stakeholder engagement lobbying
  and advocacy and being an effective employer
  representative for members.
• The fourth (the octagon) refers to the internal
  programmes aimed at strengthening SALGAs
  corporate governance and programmes to deliver on
  the three functions listed above.

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The water pricing chain
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The value chain
Source Strategic Framework for Water Services
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Overview of the South Water Chain
1st Tier National security of supply
2nd Tier Regional supply to WSAs
3rd Tier Local service delivery and customer
management
DWAF
WATER UTILITIES
CRITICAL POINT
x
MUNICIPALITIES WSAS
x
CONSUMER
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Area of Supply Water Utilities in SA
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Local Government and Bulk Water Utilities

• WSA are the major customers of Water Utilities
• Water Utilities bring economies of scale
• WSA depended on bulk water utilities socio -
  economic development (Umgeni and Rand)
• Water Utilities are SOE Supports Government's
  policy goals

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Implications in LG Planning

• Non Compliance to the provision of section 42
  MFMA
• Majority of the bulk providers to not comply with
  section 41 of the MFMA
• Debt owed to Water Utilities by Municipalities is
  of concern to Water Utilities
• Under-expenditure on Capex (same as DoRa
  provision on municipal Grants)
• Year to Year tariff negotiations stifles better
  Planning
• Integration of bulk and retail (Bulk is fairly an
  easy business compared to reticulation)
• Tendency to build reserves - rather than
  utilisation for Capex

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Pricing Principles

• At the end of the day, it is the consumer that
  pays the price. That is, all upstream prices
  impact on the consumer.
• For this reason, the pricing chain should be
  viewed in totality to understand the impact of
  pricing on consumers.
• For the sake of consistency, the same principles
  and pricing methodologies should be applied
  throughout the value chain.
• Any subsidies should benefit end users
  (consumers) and hence are most appropriate when
  allocated at the retail end of the pricing chain
  (and not upstream).

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National Treasury Circular

• A municipal budget Circular 48 from National
  Treasury issued on 2 March 2009 explicitly states
  that municipalities are encouraged to keep
  increases in rates, tariffs and other charges as
  low as practically possible. It further states
  that for this reason National Treasury continues
  to require that municipalities must justify in
  their budget documentation increases in excess of
  the 6 upper boundary of the South African
  Reserve Banks inflation target.

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Water Pricing and Tariff Regulations
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POINTS OF REGULATION IN THE WATER SERVICES
CYCLE
Water treatment bulk storage DWQ
Abstraction enough water for minimum services
Abstraction
Collection treatment of water containing waste
Consumer interface metering billing
Distribution pressure, basic sanitation, low
interruptions, water _at_ 200m
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Regulation Domain(social and economic)
Source DWAF
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• CHALLENGES

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Some challenges

• Water Losses
• Billing
• Maintenance of Infrastructure
• Costing of Water (cost per Kl)
• Water Pricing, Tariff Setting and investment
  models
• Separation of WSA and WSP
• Skills and Competencies to run the water business
  

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LOCAL GOVERNMENT CHALLENGES
The Water Sector requires a sound funding model ?
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Suggested Way Forward
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The impact of governance on prices

• The way prices are set depend on the governance
  arrangements that apply along the chain. For
  example
• DWAF sets its raw water price in terms of a
  policy
• Water Boards set bulk water prices in terms of
  the Water Services Act and prices are (in effect)
  approved by national government.
• Municipal tariffs which are approved by local
  councillors in terms of a local tariff policy
  which must comply with nationally defined norms.

How can consistency be ensured in this context?
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Suggested Way Forward

• The key issue facing the sector is not access to
  finance, but the fact that water is unsustainably
  priced and this calls for a review of water
  pricing in the sector
• An integrated vertical (full cycle tariff)
  pricing framework be developed (multi- year price
  determination)
• DWAF revise the pricing strategy parallel with
  the revision of the NWRS process

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Suggested Way Forward

• National Treasury and DWAF penalise Water
  Utilities for under expenditure on planned CAPEX
  if such is not undertaken
• National Treasury enforces compliance with
  section 41 of the MFMA
• The tariff structures and pricing of water at
  all levels be published every year and
• An interim independent panel of experts to
  monitor water tariffs and pricing be established

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THANK YOU