Water Boards Tariff Increases for 2010

1. Presentation to the Portfolio Committee: Water & Environment Water Boards Tariff Increases for 2010 Presentation byMs Thoko SigwazaChief Director: Institutional Oversight03-04 May 2010

2. BACKGROUND IN TARIFF SETTING PROCESS • Potable bulk water tariffs are not proposed by the Department, but are determine by Water Boards • WBs must consult with municipalities on their proposed tariff increases (Sec 42 of MFMA, 2003) • WBs must request NT & SALGA to provide written comments • NT and DWA plays a monitoring and advisory role. • I.t.o. sec 42 of the MFMA, WBs must submit (i) the proposed amendments, (ii) the comments received & (iii) an explanation of how such comments were taken into account, to the Minister to note • The Minister must table the amendments in Parliament • Neither the Minister, nor the PC has a mandate to approve or reject tariff increases • Tariff increases must be tabled on or before 15 March 2010, if the increases are to take effect from 1 July 2010 2

3. TARIFF PROPOSALS 3

4. CHALLENGES POSED DURING THE CONSULTATION PROCESSES • Often written comments by SALGA and Municipalities are not provided timeously • The timelines are very stringent • Municipalities often do not have the capacity to meet the stringent timelines to provide meaningful comments • Consultation processes as contemplated under section 42 of the MFMA does not require consent, concurrence or agreement • A three year tariff cycle will reduce administration burden 4

5. ACHIEVEMENTS IN TARIFF PROCEDURE • WBs met timelines for consultation in terms of MFMA • Submitted document confirms evidence of consultation by water boards with municipalities (customers) • Received feedback from NT and SALGA and municipalities • Minister tabled tariff increases by the set deadline 5

6. IMPACT OF TARIFF INCREASES ON WATER BOARDS • It would enable WBs to finance future CAPEX and be less reliable on loans • Over the next 5 years WB’s CAPEX is estimated to exceed R10 billion • Total cash reserves of WBs amount to R4.4 billion, while total debt amount of R3.9 billion • Borrowing to finance CAPEX is estimated at R5.7 billion, partial funding of CAPEX will allow for smoothing of tariff especially in the initial years when the newly developed infrastructure will not be fully utilised • Pressure to reduce tariff will result in a higher level of borrowing, which will effectively increase tariffs to unaffordable levels in the future • From an operation point of view, the increase in energy, chemicals and labour cost has resulted in tariff increases which will ensure sustainability of WBs 6

7. VIABILITY OF WATER BOARDS • All Water Boards (13), with the exception of Namakwa and Bushbuckridge, are financially viable • The proposed increases are reflective of the actual cost of producing potable bulk water and therefore would ensure sustainability of Water Boards • Tariff increases not only cater for operational cost, but also for infrastructure development and refurbishment • This allows for reduced level of borrowings and the avoidance of steep tariff increases over a short time frame. 7

8. IMPACT OF TARIFF INCREASE ON THE END USERS • In the last financial year many municipalities did not pass on the reduction of tariff increases to the end-users. • End-users’ tariffs are determined by the cost structures of the municipalities. • The equitable share, aimed at subsidizing the indigent, are often not used by Municipalities for the intended purposes, as a result many municipalities do not pay their water debt on time • Water accounting at municipalities are often not ringed fenced, therefore it is difficult to asses impact of tariff on end users 8

9. THANK YOU 9