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WATER BOARDS TARIFF INCREASES: IMPACT AND IMPLICATIONS ON LOCAL GOVERNMENT STRUCTURES

This presentation discusses the implications and impact of water board tariff increases on local government structures. It covers the water pricing chain, regulations, challenges, and suggests a way forward.

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WATER BOARDS TARIFF INCREASES: IMPACT AND IMPLICATIONS ON LOCAL GOVERNMENT STRUCTURES

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  1. WATER BOARDS TARIFF INCREASES: IMPACT AND IMPLICATIONS ON LOCAL GOVERNMENT STRUCTURES BYMTHOBELI KOLISA EXECUTIVE DIRECTOR:MUNICIPAL INFRASTRUCTURE AND SERVICES

  2. Structure of the presentation • About SALGA • Water Pricing Chain • Regulations • Challenges • Suggested Way Forward

  3. SALGA GovernanceStructures

  4. Governance & Institutional Coherence of SALGA Consistently Driving Relevant; Credible & Dynamic Agenda Sound Financial Management Pro-activeness Institutional Tenacity & Focus KEY SALGA PRIORITIES IDENTIFIED FOR THE NEC TERM OF OFFICE CRITICAL STRATEGIC ENABLERS CRITICAL STRATEGIC ENABLERS

  5. 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 SALGA’s corporate governance and programmes to deliver on the three functions listed above.

  6. The water pricing chain

  7. The value chain Source: Strategic Framework for Water Services

  8. Overview of the South Water Chain 1st Tier National security of supply 2nd Tier Regional supply to WSA’s 3rd Tier Local service delivery and customer management DWAF WATER UTILITIES CRITICAL POINT x MUNICIPALITIES WSA’S x CONSUMER

  9. Area of Supply: Water Utilities in SA

  10. 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

  11. 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

  12. 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).

  13. 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 Bank’s inflation target.

  14. Water Pricing and Tariff Regulations

  15. 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 @ 200m

  16. Small but potentially Significant role Key significant role Regulatory domain Drinking Environmental Water Social Water & Technical Economic health resources regulation regulation regulation regulation regulation Setting rules or standards, granting approvals Set social policy Define standard Set licence Set pricing rules Set DWQ and allocate Approve conditions; Approve tariffs standard subsidies technologies Allocate licences Monitor, analyse , publish Construction Compliance Tariffs & Social outcomes Drinking water and operation; with licence performance Pro - poor tariffs quality Health practices conditions Enforce or intervene Adjust prices. Fines? Fines? Fines; Withdraw Direct Direct Direct Withdraw subsidy intervention intervention intervention Licence. Regulation Domain(social and economic) Source: DWAF

  17. CHALLENGES

  18. 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

  19. LOCAL GOVERNMENT CHALLENGES The Water Sector requires a sound funding model ?

  20. Suggested Way Forward

  21. 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?

  22. 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;

  23. 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

  24. THANK YOU

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