PRESENTATION TO THE PORTFOLIO
COMMITTEE ON THE 2007/2008WATER
BOARD TARIFFS
18 MAY 2007
H PIENAAR: ACTING DDG-P&R and
SILAS MBEDZI:CHIEF DIRECTOR
1. Introduction
• The MFMA came into being in 2004
• Section 42 of the Act became enforceable
during the 2005/2006 FY
• IT required of all institutions involved in tariff
structuring to consult extensively with its users
2. BACKGROUND
• Introduces significant reforms requiring
transparency and minimum levels of reporting and
accountability from municipalities.
• Encourages co-operative approaches to fiscal and
financial management across all spheres of
Government.
• DWAF monitor pricing structure of organs of state
supplying bulk services to Municipalities.
• National Treasury monitor amounts payable for
bulk water supplied, arrears and age profile of
arrears and action taken to recover arrears.
3. SECTION 42 OF MFMA
• Section 42 of the MFMA enforces a co-operative
approach between Government and SEMIGovernment institutions in dealing with tariff issues
• Requires organs of state who supply bulk resources
to consult extensively on price setting of bulk
resources that impact on municipal services.
• Requires water boards to follow a process and
comply to timelines in terms of circular 23 issued in
terms of the MFMA for any tariff increases.
4. CONSULTATION IN PRICE SETTING
FOR BULK RESOURCES
•
•
Section 42 sets out a comprehensive consultation
process that Water Boards should follow before
price of a bulk resource supplied to Municipalities
are increased.
Water Boards must submit proposed price
increases to the Executive Authority prior to the
increase-submissions to include:
- Motivation for the price increase.
- How the increase takes into account the Government inflation targets and
macroeconomic policy objectives, steps to improve competitiveness and efficiency, and
objectives of a Corporate Plan of a Water Board.
- how comments by SALGA and National Treasury were taken into account.
•
Consultation process commence in Oct/Nov with
Municipalities/Municipal Entities on the proposed
increase.
5. CONSULTATION IN PRICE SETTING
FOR BULK RESOURCES (cont)
• This should enable Municipalities to consult with the
Communities in March prior to the finalization of their
price setting/tabling of their budgets in Council.
• Communication with DWAF by the Water Boards is
crucial throughout the process to clarify any issues.
• Section 42 consultation process to be completed/tabling
in Parliament by 15 March of any year if increase is to
take effect from 01 July of the same year.
• Process failure will invalidate or delay any price
increases by 12 months.
• Section 42 process to be followed in addition to any other
prescribed regulatory processes.
• MFMA circular 23 was issued to assist with the Section
42 consultation process and to ensure that it is
completed on time.
6. PROCESS AND TIMELINES IN TERMS OF
CIRCULAR 23 OF MFMA
• Water Boards must consult with Municipalities/Municipal
Entities in their supply area on the proposed tariff increaseOct/Nov
• Requests seeking comments must be lodged with National
Treasury and SALGA- No later than 01 Dec
• National Treasury and SALGA to provide written comments on
the proposed tariff increase- No later than 25 Jan
• No sooner than 40 days after lodging the request with National
Treasury and SALGA, Water Boards must lodge a submission
on the proposed increase to the Executive Authority, in this
case, the Minister of Water Affairs and Forestry- 25 Jan
• Executive Authority table the price increase in Parliament- 15
March
7. BULK WATER TARIFF INCREASES-2007/08
Name of water board
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Rand Water
Sedibeng Water
Magalies Water
Umgeni Water
Pelladrift Water
Albany Coast Water
Overberg Water
Amatola Water
Lepelle Northern Water
Bloem Water
Botshelo Water
Namakwa Water
Ikangala Water
Mhlathuze Water
Bushbuckridge Water
percentage increase
5%
5%
5%
5%
7%
4.2%
5.9%
4.5%
5.1%
5%
24.3%
10%
0%
5.8%
4%
tariffs
(r/kl)
2.90-3.13
4.93-4.61
1.92-2.03
2.69-2.96
1.49-1.59
3.55-3.70
2.21-2.45
3.52-3.67
3.58-3.61
2.91-3.06
2.14-2.66
2.99-3.29
0.86-0.90
2.82-2.93
8. TARIFF INCREASES MORE THAN THE
INFLATION TARGETS
Pelladrift Water
• Major maintenance work to be undertaken to avoid water supply
interruptions.
Namakwa Water
• Need to make provision for maintenance of works and upgrading of works.
• No price increase during the 2006/07 financial year.
• Recovery of costs.
Botshelo Water
• Increase in water use charges by DWAF by 27.6%.
• Increase in direct labour and support services by 11.3%.
• Increase in major repairs and refurbishment of filters by 42% and provision
made by DWAF was not sufficient.
• Increase in overhead costs by 44% due to the reduction of activities.
• No increase in bulk water tariffs in 2006/07 financial year.
9. CHALLENGES FACED DURING THE PROCESS
• Process begin early in October for the tariff increase to take effect
in July-economic circumstances may change.
• Timelines are very strict-does not give DWAF sufficient time to
interrogate various economic aspects, for example, efficiency and
promotion of competitiveness and whether proper consultation was
made.
• Comments from Municipalities on tariff increases were received
late, in some instances they are not received at all.
• Incomplete submissions made to DWAF-had to request additional
information.
• DWAF and Water Boards had to align their systems and internal
processes to support the MFMA process.
• Communication made with the Water Boards through SAAWU to
remind them of the processes.
10. WAY FORWARD
• Meet with water boards and SAAWU to re-affirm the MFMA
process, time frames and role and responsibilities
• Meet with Treasury/DPLG/SALGA to discuss process, ensure
alignment, reach common understanding and share
challenges.
• In line with Treasury requirements on capital structure of public
entities.
• Ensure that in-efficiencies are not passed on to the consumer.
• Multi-year tariff setting approach - over an MTEF period, ie
three years.
• DWAF will need to provide water use charges for a three year
period.
• Continued communication with the Water Boards on the MFMA
process.
11. FUTURE YEAR TARIFF INCREASES
• Set financial targets for each water board-debt/equity ratios
• Cash flow model (future budgetary projections over a period of
time)
• Bench-mark costs so that unnecessary high costs are not
passed on to the consumer
• Pro-forma table (water sales, revenue, costs, surplus etc)
• Multi-year indicative tariffs.
12. CONCLUSION
• DWAF supports the increases as
proposed by the various Water Boards
THANK YOU