Enforcement of Bulk Water Supply Contract

1. ENFORCEMENT OF THE BULK WATER SUPPLY CONTRACT By: Motlatsi Pule 16 September 2017

2. GUIDE LINES • The Water Services Act, Act 108 of 1997 • The water services Act requires that any person/institution who, at the commencement of this Act, was acting as a water services provider without approval from the water services authority having jurisdiction in the area in question, may continue to do so until the expiry of reasonable notice, which notice must not be longer than one year, given by that water services authority • it requires the service provider to enter into a contract with the water services authority • the service provision will be subject to approval by the water services authority

3. WATER SUPPPLY CONTRACTS • In order to comply with the Water services Act, Rand Water requires that all its customers fill in the General Water Supply Conditions contract before a new meter can be connected (New meter connection forms) • Rand Water has been entering into GWSC decades before the Bulk Water Supply Contract was adopted by SALGA on behalf of Municipalities, SAAWU and DWS • Municipalities enter into the Bulk Water supply contract as well as GWSC for new meter connections with Rand Water

4. THE GENERAL WATER SUPPLY CONDITIONS CONTRACT • Annexure 1- Application for Water Supply which includes: 1. Quality of water and flow rate 2. New or altered customer connection 3. Customer's infrastructure 4. Water and service charges 5. Meter testing and adjustment of charges for errors 6. Water pressure 7. Water quality 8. Water losses 9. Non interference with customer connections (locks) 10. On-supply to third parties 11. Use of water from other sources 12. Water cycle management 13. Payment terms

5. THE GENERAL WATER SUPPLY CONDITIONS CONTRACT • Annexure 2 Bank Guarantee • Rand Water will require a cash deposit or a bank guarantee from all Customers which shall serve as security for Rand Water's estimate for the maximum likely charges payable to Rand Water in any three months. • In addition to utilising the deemed or estimated charges to determine the cash deposit or bank guarantee, Rand Water may take into consideration the assessment of the customer’s credit worthiness • Rand Water may require a Customer to increase, a deposit or bank guarantee in the event of a negative change in the customer’s risk profile or in the event of default or in the event of repeated late payment, which shall be deemed to be more than two late payments over a 12 months period.

6. THE GENERAL WATER SUPPLY CONDITIONS CONTRACT • Annexure 3 Peak Daily Factors • The Customer’s estimated annual average daily demand for water for the year concerned, multiplied by the Peak Day Factor. • Rand Water will ordinarily allow this rate to be exceeded by up to 10% (where this additional capacity is available) for a period not exceeding 1 day in 7 days, to cater for exceptional circumstances such as an abnormally long, hot, dry spell. • If the Customer will at times require a higher flow rate, the Customer must either provide its own water storage facilities or purchase reservoir volume from Rand Water and pay Rand Water's charges for the additional load on its pipeline

7. THE GENERAL WATER SUPPLY CONDITIONS CONTRACT • Annexure 4 List of Required Supporting Documentation

8. Enforcement of the general water supply conditions contract • RW will never approve the GWSC application without a written consent from the Local Municipality for RW to supply the direct consumer directly • RW will never approve an application form without the necessary documentation • RW will never install a new meter connection before the installation charges are paid in full. (There will be no charge for any required upgrade in the Customer Connection after the tenth year provided that only normal growth, as determined by Rand Water, in the required quantity of water and flow rate has occurred since the tenth year). • RW will never install a new meter without a 3 month projected consumption deposit to minimise risk. (this may however not be applicable to Municipalities. However a risk profile will be conducted on all customers. A municipality may be required to pay a deposit based on its risk profile)

9. Enforcement of the general water supply conditions contract (continued) • RW may also require a capital contribution based on the criteria set out in its Capital Contribution Policy • a capital contribution is typically required where the length of the pipeline between the connection to Rand Water's existing Infrastructure and the meter exceeds the necessary minimum length required for the proper functioning of the meter; • Rand Water may alternatively, or in addition, charge a higher localised tariff • The Customers, at their own cost, must ensure that their infrastructure: • is competently designed and installed and made of good quality materials; • complies with all applicable laws; • incorporates thrust blocks or other appropriate measures to prevent damage to Rand Water's Infrastructure or injury to persons or damage to other property in the event of failure of the Customer's Infrastructure; • incorporates a flow control device to ensure that the maximum allowable flow rate does not exceed up to 10% (where this additional capacity is available) for a period not exceeding 1 day in 7 days,

10. Enforcement of the general water supply conditions contract (continued) • Risk profiling of customers • Low Risk – where the customer has no history of default, i.e. this is the first time defaulting and the customer has made prior arrangements for payment and is honouring the special arrangements made with the Water. Board In such a case, interest rate will be charged at the prime overdraft rate. • Medium Risk – where the customer has defaulted three times in one year and/or the account is 90 days or older, then the interest rate charged will be at prime overdraft rate plus either 2% (two percent) or 50% differential between the prime overdraft rate and the highest rate as referred to in the National Credit Act, whichever is lower, in respect of the account payable for water supply services provided to the customer, in each month during payment failure • High Risk – Where the customer has greater than three defaults in one year, the interest rate charged will be at prime overdraft rate plus 3% (three percent or the maximum differential between the prime overdraft rate and the highest rate as referred to in the National Credit Act, whichever is lower, of the total amount due in respect of the account payable for water supply services provided to the customer, in each month during which payment failure continues.

11. Enforcement of the general water supply conditions contract (continued) • Default • Limitation or cut off of supply • If a Customer fails to pay any amount, or to discharge any other obligation, owed to Rand Water by due date, Rand Water shall, subject to Section 4(3) (a) (b) of the Water Services Act, limit or cut-off the Customer's water supply fifteen (15) days prior notice of its intention to do so will be given to the Customer. • Rand Water shall in terms of its Credit Management Policy, prior to issuing a notice of intention to limit or cut-off the water supply, issue an early reminder to the customer. • The customer may, within fifteen (15) days of receipt of invoice and statement, make payment arrangements with regards to arrear account. In such a case, Rand Water shall not limit or cut-off the water supply unless the customer defaults on the arrangement, in which event, Rand Water shall be entitled to immediately discontinue the water supply. • .

12. Enforcement of the general water supply conditions contract (continued) • Reinstatement of supply • The supply will only be reinstated when the Customer has ceased to be in default and, if supply has been cut-off, has paid the reconnection charge set out in the schedule of charges which Rand Water shall forward to Customers annually, informing Customers of increases in charges, or has concluded an arrangement acceptable to Rand Water. • Rand Water shall recover all consequential and direct costs relating to water meter cut offs and meter reconnection fees arising from non-payment of services. • Legal costs • The Customer will be liable for any costs including legal costs on the attorney and own client scale incurred by Rand Water arising out of the Customer’s default.

13. THE BULK WATER SUPPLY CONTRACT • All Municipalities enter into Bulk water supply Contract • Objectives • To formalise and record the current and continued provision of bulk water supply services by Rand Water to the Municipality in writing in accordance with the requirements of the Water Services Act, Act 108 of 1997 and this contract; • To provide for the rendering of bulk water supply services in an efficient, equitable, cost effective and sustainable manner; and • To set terms that are fair and equitable to the Municipality and Rand Water.

14. THE BULK WATER SUPPLY CONTRACT • Content of the contract • SECTION A: Introduction • Interpretation • SECTION B: Appointment, Scope, Duration and review • SECTION C: Water supply standards • Quantity, quality, flow rate, water pressure, • SECTION D: SYSTEM OPERATING STANDARDS • Normal maintenance & repairs, Meters, emergencies, droughts, • SECTION E: New or increased meter supply connections • Application (same as GWSC), Installation of customer connection and related charges (same as GWSC), Ownership of customer connections • SECTION F: Communication & Coordination • Communication, Communication with the municipality’s end consumers, Coordination • SECTION G: INFORMATION AND REPORTING • Access to information requested, Financial statements and annual reports,

15. THE BULK WATER SUPPLY CONTRACT • Content of the contract • SECTION H: Bulk water supply charges & payment • Permissible charges, capital contribution charges, Procedure for setting of bulk water supply services charges and adoption of capital expenditure programme, Accounts for payment of bulk water supply services charges, Special payment arrangements • SECTION I: Performance management • Key performance areas, failure of the Water Board to meet obligations, action or omission of the Municipality • SECTION J: Other water related activities impacting on the parties • Direct supply by the water board to the municipality’s consumers , Direct supply by the water board to consumers of another municipality which is not a customer of the water board, Use of water from sources other than the water board, • SECTION K: Risk management • Limitation and disconnection of water supply services (as per GWSC), Permits, licenses, exemptions, permission and approvals, Liabilities and indemnities, insurance, guarantees (as per GWSC), warranties,

16. THE BULK WATER SUPPLY CONTRACT • Content of the contract • SECTION L: Breach & VIZ major • Breach, VIZ Major • SECTION M: Termination • Reasons for termination, termination process • SECTION N: Process for addressing matters impacting on municipal customers • Reduction of more than 15% off take, other water related activities impacting on the parties, Use of water from sources other than the water board, termination • SECTION O: Dispute resolution • Dispute resolution, negotiation, mediation, arbitration • SECTION P: General • Prevention of corrupt action, Confidentiality and publicity, Assignment, transfer, cession and delegation, Sub-contracting, Notices and domiciliumcitandi et executandi

17. GOVERNING LEGISLATION • Chapter 3 of the Constitution deals with co-operative government and provides that:- • S41(1)(h)(vi) – All spheres of government and organs of the state must: •  co-operate with one another in mutual trust and good faith by • avoiding legal proceedings against one another. •  S41(2) an Act of Parliament must: • establish structures that will promote intergovernmental relation; • provide for appropriate procedures to facilitate settlement of intergovernmental disputes. • It is evident from the above that the Constitution has established an operational framework which demands that legislation be promulgated to establish measures that will govern intergovernmental disputes.

18. GOVERNING LEGISLATION PUBLIC FINANCE MANAGEMENT ACT 29 1999 Regulation 31 of the PFMA compels public entities to pursue debtors with rigour in order to collect revenue that is due The regulations are however silent on the exact procedures to be followed in such collection process. Accordingly, one would then be inclined to look to other pieces of legislation in addressing claims by and between organs of the state.

19. Intergovernmental Relations framework Act 2005 (IGRFA) vs Public Finance Management Act S39 of IGRFA- Chapter 4 deals with settlement of intergovernmental disputes On the other hand, PFMA makes no specific provisions on the subject matter Accordingly, IGRFA, in the absence of a procedural provisions in PMFA, would thus dictate the process on the settlement of disputes that involve Treasury/Organs of the State.

20. Municipal Finance Management Act 56 of 2003 (MFMA) • S37: compels the municipality to promptly meet all financial commitments towards other municipalities or national and provincial organs of state • S44 further provides that a financial dispute between organs of the state must be promptly resolved out of Court • Parties to the dispute must report the matter to the National Treasury • May involve National Treasury as their mediator. In the event that the Treasury agrees to mediate, it (treasury) may determine the mediation process

21. MFMA and IGRFA • Both IGRFA and MFMA promote cooperative governance and demand that disputes be resolved amicably and out of court • MFMA does not prescribe a method by which one has to engage in the resolution process, save to prescribe a mandatory notice of dispute to the Treasury • IGRFA would then be an applicable source for procedure, with an added obligation to report the dispute to the Treasury (per s44 of MFMA

22. IGRFA Process • Before an Organ of State can declare a dispute to be a formal intergovernmental dispute, it must, in good faith, attempt to negotiate with the other Organ of State {S41(2) • In the event that the negotiations fail, the Organ of State may declare the dispute a formal intergovernmental dispute by, in writing, so informing the other party {S41(2) • The parties must convene a meeting to determine the nature of the dispute and determine the mechanism, other than judicial proceedings, that are available to assist them in resolving the dispute. The mechanism might be in accordance with contractual terms (arbitration) or legislative {S42(2)

23. IGRFA Process (continued) • If the parties fail to convene the meeting, the Minister or MEC may convene the meeting {S42(3) & (5) • A party to a formal intergovernmental dispute may request the Minister of Water and Sanitation or MEC for assistance in the settlement of the dispute where meetings fail to be convened and the Minister/MEC may designate a facilitator to administer the process [similar to treasury facilitation in Ss44(2)(b) & (3) of PFMA] • Where the Minister/MEC/Treasury fails to appoint a facilitator, a 30 day reminder notice is to be sent to the Minister

24. IGRFA Process (continued) • In the event that failure to appoint still persist, then a notice declaring the dispute unresolved is to be sent to the Minister/MEC/Treasury, which notice shall further state that RW intends to commence a judicial process to recover the outstanding

25. Bulk water supply contract dispute Resolution • Section 45 deals with Disputes between the Parties. • A dispute may arise as a result of the difference in the construction, meaning or effect of the BWSC or the rights or obligations of the Parties. • Parties irrevocably consent to comply with the provisions of Clause 45 and are subsequently bound the Dispute Resolution process under outlined in the BWSC. • Parties are prohibited from discontinuing or suspending any of its powers, rights, duties or obligations under this contract as a result of a dispute between them. The BWSC provides for the following dispute resolution procedure between the Parties: • Negotiation (BWSC Clause 46) • Mediation (BWSC Clause 47) • Arbitration (BWSC Clause 48) • Litigation

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