PRESENTATION TO THE PORTFOLIO COMMITTEE ON WATER AND ENVIRONMENTAL AFFAIRS 24 MAY 2010

1. PRESENTATION TO THE PORTFOLIO COMMITTEE ON WATER AND ENVIRONMENTAL AFFAIRS 24 MAY 2010 Presenters: Mthobeli Kolisa – Executive Director: Municipal Infrastructure Services William Moraka – Director: Water Services

2. STRUCTURE OF THE PRESENTATION • SALGAs Mandate • Last year’s issues and how these we dealt with • Water Tariff regime • Proposed increases and our comments • Optimal Institutional Arrangements • Challenges on the current tariff regime • SALGAs suggested recommendations • Conclusion

3. Mandate • Organised local government institution recognised in terms of the Organised Local Government Act • Mandate • Represent LG (Voice) • Advisor to municipalities • Employer role • limited to representing municipalities in collective employer processes • Does not employ on behalf of municipalities • Profiling LG

5. 2010/11 Recommendations'

6. 2010/11 Recommendations'

7. 2010/11 Recommendations

8. 2010/11 Recommendations

9. TARIFF REGIME 1st Tier National security of supply Tariff regulated by the raw pricing strategy DWA BULK PROVIDERS 2nd Tier Regional supply to WSA’s Not regulated however the Water Services and Municipal Finance Management Acts provides guidance Not regulated however the water services and Municipal Finance Management Acts provides guidance 3rd Tier Local service delivery and customer management MUNICIPALITIES (Water Services Authorities )

10. Bulk Water Tariff Increases 2011/12

11. Context : InternationalExperience • Other key factors that impacts on affordability by households and businesses • Electricity price increases • Petrol price increases Source: Komvies, 2005 Source: Lee, 2005

12. Context : InternationalExperience Retail Water Tariffs of South African Metros and South Africa’s Main Competitors as compared to the World Economic Forum’s Global Competitiveness rankings for 2010. Tariffs in US$ per 15 kl. (Global Water Intelligence, 2011) (World Economic Forum, 2010)

13. APPROVED TARIFFS Source: DWA Average 13.58% = 6.8% and 9.38 above PPI and CPI respectively

14. Our Comments

15. WHAT INFORMS OUR COMMENTS RATIONALE • Section 42 of the Municipal Finance Management (MFMA) Act 56 of 2003 sets out a process within which bulk water providers should consult SALGA and National Treasury when proposing to increase potable bulk water tariffs. In essence the section states that, water bulk providers must give organised local government 40 days notice on the proposed bulk water tariffs before such can be submitted to the relevant executive authority or regulator. • Municipal Inputs •  By the 10 of January 2011, SALGA had received a total of 11 bulk water tariff increases proposals for the financial year 2011/2012 for comments from various Water Boards including Midvaal Water. • SALGA scrutinised each proposal and gave comments by the 25 of January 2011 as per requirements of National Treasury circular 23 of the MFMA. 16

16. Cost Drivers

17. Capital Planning • Planed growth is higher than sustainable growth rate. • Affordable growth rate assumes a 50% debt funding, higher than ceiling set by Regulator. • BRIC countries growth almost double SA. • Capital projections must factor affordability or high tariff increases will be thrust on existing rate payers.

18. Low and High Raw Water Cost Utilities High Raw Water Cost Utilities Low Raw Water Cost Utilities Low raw water cost utilities have much higher surpluses and other costs suggesting that the low input cost may produce inefficient operations

20. Comments per Water Board 21

21. Comments per Water Board 22

22. Institutional Arrangement

23. CHALLENGES • Common understanding of the approval process • Who should approve the tariffs • Timelines for the tariff consultation • Dec-Jan are not good for consultation • During the consultation process smaller municipalities are unable to scrutinise tariff proposals and make meaning inputs • Different tariff methodologies are used • Value chain uses different approaches • Lack of Transparency • Adequate information is not made available • Quality of the tariff proposals • Proposals are not standardised • Lack of an independent economic regulator to review investment decisions and tariffs for the entire value chain • DWA plays referee, player and coach • Suggest panel of expert to fufil this role

24. SUGGESTED INSTITUTIONAL ARRANGEMENTS • Short term • Should consider establishing a panel of expert in the interim • Embark on a 3 multi-year tariff determination framework (pricing strategy could be a platform) • Long Term • Have to establish an independent economic regulator

25. Our Suggested Recommendations on the bulk potable water tariffs

26. Recommendations

27. Recommendations

28. Recommendations

29. Recommendations

30. Recommendations

31. Conclusion • For 2011-2012 DWA to take into considerations our suggested recommendations or inflation related increases plus 3% • For 2012-2013 – establish a panel of experts to oversee the tariff increase process and make recommendations • Long term the sector to focus its energies towards the establishment of an independent economic regulator • The sector explores developing a sustainable funding strategy • Common tariff methodologies • Pricing of water

32. Thank You!