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Consumptive Water Tariff Policy – City of Cape Town
ADDENDUM C
City of Cape Town
Consumptive Water Tariff Policy
Council approved 28 March 2001
Preamble
The Municipal Systems Act (Act 32 of 2000) requires local governments to
develop and implement a tariff policy which complies with the Act. The Water
Services Act provides for guidelines for the setting of water tariffs. This
Water Tariff Policy has been developed to comply with the Systems Act and to
conform to the draft national water tariff guidelines provided by the Minister
of Water Affairs and Forestry.
The policy reflects the particular priorities established for Cape Town by the
elected representatives and takes into account the local context within which
water services are delivery.
The policy deals only with retail water supply services. (An integrated policy
which includes sanitation and wastewater will follow.) Policy principles and
objectives are set out. Specific policies have been developed based on these
principles and objectives.
It is intended that these policies guide the annual setting (or revision) of
tariffs. Hence the policy does not make specific tariff proposals, nor does it
deal in any detail with the implementation of specific tariff proposals.
Once a city-wide tax and tariff policy has been developed, it is proposed that
the Consumptive Water Tariff Policy be aligned with that policy.
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Definitions
Average Historic Cost
(AHC)
The total current annual cost of the water service (including
capital charges but excluding surcharges and contributions to a
capital development fund) divided by the total billed sales for
that year.
Commercial water use
Water supplied to premises predominantly of a commercial
nature (for example, shops, offices, showrooms, service
stations).
Domestic water use
Water use which is used predominantly for domestic purposes,
including garden irrigation.
Industrial water use
Water which is used in mining, manufacturing, generating
electricity, land-based transport, construction or any related
purpose (follows definition in Water Services Act).
Other water use
All water use not defined as domestic, industrial and commercial
water use.
Long-run marginal cost
The Average Incremental Cost of system expansion, taking into
account the next large scheme or schemes to be built to meet
current and future increases in water demand.
Unit
Means a group of rooms, used for residential purposes, contained
within a block of flats, and which includes any undivided share of
common property or any other portion of the property
apportioned to that unit in terms of exclusive use, which shall
include a garage or any other outbuildings.
1. Legislative context
Two White Papers – the Water Supply and Sanitation White Paper of 1994
and the National Water Policy White Paper of 1997 – set out government’s
broad policy intentions with respect to the water sector in South Africa. The
key elements of these white papers, as they pertain to urban water pricing,
are as follows.
•
Basic services. There should be a concentrated effort to ensure
universal access to basic services. This is defined (in the national
context) as 25 litres per person per day within 200 meters of the home.
•
Affordability. Poor households should not be required to contribute to
the capital costs of water service provision.
Consumptive Water Tariff Policy – City of Cape Town
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Full cost-recovery. Aside from the affordability proviso (see above),
water tariffs should recover the full costs of service delivery from
consumers.
Two Acts govern the development of a water pricing policy – The Municipal
Systems Act (Act 32 of 2000) and the Water Services Act (Act 108 of
1997).
In terms of the Municipal Systems Act, local government must give priority
to meeting the basic needs of residents, promote economic development and
ensure universal access to at least a minimum level of basic municipal
services. Furthermore, local government must develop and implement a tariff
policy which complies with the Act. The Act sets out principles to which a
tariff policy must be aligned.
The Water Services Act provides for the regulation of water tariffs. The
national “norms and standards in respect of tariffs for water services”
(developed in terms of Section 10(1) of the Water Services Act) are
currently in draft form.
2. Cape Town context
Tariff convergence. Service policies, standards and practices across the city
need to be harmonised and a smooth transition to a city-wide service
provider needs to be assured. The current tariffs differ between geographic
areas. The city is required to implement a common set of tariffs city-wide to
minimise vulnerability to legal challenge. A city-wide tariff convergence
process has been initiated with the view to proposing rationalised tariffs for
the 2001/2 financial year.
Water restrictions. The city is facing water shortages and water
restrictions are in place. As a result of the water restrictions, a shortfall in
income (compared to budget) is anticipated. In view of the fact that water is
a ring-fenced service and the service is required to balance income and
expenditure, this short-fall in income will need to be made up. To avoid
short-term water shortages becoming a more permanent feature, the city
needs to reassess the CMC Administration water demand management
programme and develop an integrated city-wide strategy.
Free water policy. The City has promised to implement a free water policy,
making available 6000 litres per household per month, free of charge.
Opportunities for improvements. Water and sanitation services are vital to
the health and well-being of all people. While water and sanitation services in
the Cape Metropolitan Area are generally of a good standard, there is room
for improvement in three broad areas – extending access to services
(especially in informal settlements), lowering the cost of providing services
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(by increasing efficiency) and improving the quality of services provided
(through greater attention to customer care and improved wastewater
treatment).
3. Long-term policy objectives
It is important that the concerns outlined above are addressed in a
synergistic way, so as to promote three important long-terms goals for the
provision of water services in Cape Town:
•
Equity. Promoting greater equity in service provision by ensuring
universal access to a guaranteed minimum level of service and fair
treatment of consumers.
•
Sustainability. Ensuring financial sustainability, that is, that income
(actual cash paid by consumers together with secure subsidies from
other sources) is sufficient to meet ongoing expenditure needs including
maintenance, asset replacement and system expansion to cater for
growth. Promoting environmental sustainability through encouraging the
wise use of water and adequate investments in wastewater treatment.
Financial and environmental sustainability are both dependent on
consumers who are both able and willing to pay for the services
delivered.
•
Efficiency. Ensuring that service delivery is efficient.
4. Limitations
In view of the context outlined above, this water pricing policy has a number
of limitations:
•
Water only. This policy deals with water only. Ideally, a water pricing
policy should encompass the full water cycle, from source to tap to
disposal of wastewater. A policy in this regard will follow in due course.
•
Absence of a city-wide tax and tariff policy. This policy is developed
without an existing framework for a city-wide tax and tariff policy.
Water and wastewater services provide important public benefits that
need to be taken into account. These public benefits are best understood
from a holistic point of view, in conjunction with a city-wide tax policy
which provides the framework for decisions concerning the funding of
public goods.
•
Absence of a water services delivery strategy. At present, no citywide service delivery strategy exists for water services. Such a strategy
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should identify key strategic objectives, set medium-term service
delivery targets, define a basic minimum service which is guaranteed to
all citizens, identify the key cost drivers for the service, ensure financial
sustainability of the service over time, set key performance indicators
and develop an implementation strategy for achieving the strategic
objectives. This strategy should be informed by, and in turn inform, this
water pricing policy. It is envisaged that such a strategy will be
developed as part of the integration/transformation process.
5. Policy principles
The following broad policy principles have been used to inform the
development of the more specific policies (which are set out in the following
section):
1. Life-line supply. The water pricing policy should seek to ensure that a
minimum basic level of service is affordable for all households.
2. Fairness. The water pricing policy is fair in that it treats consumers in
similar circumstances in the same way. In other words, it does not
unfairly discriminate between consumers.
3. Cost-reflectivity. Water tariffs will reflect costs. This is qualified in
three ways: (a) tariffs for basic domestic consumption will not reflect
costs, (2) tariffs for luxury domestic consumption will reflect long-run
marginal costs, (3) tariffs for all other types of consumption will reflect
average historical costs (AHC), (4) the costs to be recovered should be
efficient (best value) costs, that is, tariffs should not have to recover
the costs of inefficiencies.
4. Revenue sufficiency. The revenue from all water-related tariffs should
cover the full costs of service delivery, including operations, maintenance,
rehabilitation, financing and depreciation charges. Revenue sufficiency
may be defined to include surcharges and contributions to capital
development and other funds.
5. Sustainability. Water tariffs shall encourage the wise use of water and
discourage the wasteful use of water.
6. Consumption-based. Wherever practicable, charges for water should be
in proportion to water use and/or potential peak draw-down on the
system.
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6. Water tariff policies
1. Consumer categories. Water tariffs shall distinguish between three
categories of consumers: domestic water use (D), industrial and
commercial water use (I) and other water use (O).
2. Domestic consumer categories. Water tariffs for domestic consumers
shall distinguish between five categories of domestic consumers:
(i)
Domestic communal (Dcommunal): consumers (households) with access to
communal water services (for example, a public-standpipe or a watertanker service).
(ii)
Domestic controlled (Dcontrolled): consumers with access to a controlled
volume of water supply.
(iii)
Domestic full (Dfull): consumers with access to an uncontrolled volume
of water supply which is metered.
(iv)
Domestic un-metered (Dunmetered): consumers with access to an
uncontrolled volume of water supply which is not metered or billed.
(v)
Domestic cluster (Dcluster): where one meter serves a multiunit
development.
3. Universal metering. All connections providing an uncontrolled volume of
water supply shall be metered and billed.
4. Converged tariffs. All water tariffs within the City of Cape Town area shall
be converged to a common basis by July 2002.
5. Consumption tariffs – Dcommunal . Where communal water supplies provide
water for domestic use, and where this water use is, on average, less than
6000 litres per household per month, then no charge shall be levied on
domestic households for this water.
6. Consumption tariffs – Dcontrolled. Where water use is controlled to less than
6000 litres per month per connection, then no charge shall be levied on
domestic households for this water. Where water in excess of 6000 litres
per month connection is used, a flat monthly rate shall applied to this
additional water use, based on AHC.
7. Consumption tariffs – Dfull. Consumption tariffs for uncontrolled volume,
metered, domestic connections shall be based on an increasing block
structure with the first block set at 6000 litres per connection per month
with a zero charge and the last block for consumption exceeding 60 kl per
month and based on the long-run marginal cost of system expansion. The
number of blocks shall not exceed five.
8. Consumption tariffs – Dcluster. Consumption Tariffs for multi-unit
developments served by one meter will be set at AHC. An allowance of 6000
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litres per unit will be made available at zero cost upon submission of a signed
affidavit stating the number of units supplied from that metered connection.
9. Consumption tariffs – Industrial and Other. The consumption tariffs for all
other consumers shall be set equal to Average Historical Cost (AHC).
10. Consumption tariffs – schools, sports fields, clubs, churches, charities
etc. The consumption tariffs for these consumer groupings shall be the same
as defined above for Industrial and Other (above). Note: Any subsidies to
these groupings should be made through other transparent mechanisms so as
not to distort the incentives for the wise and economical use of water.
11. Surcharge. The water tariff may include surcharges subject to Council
approval. These surcharges (in aggregate) shall not exceed 10% of the total
bill, excluding VAT. The amount of each surcharge (both as a percentage and
an absolute amount), shall be clearly stated on the water bill, together with
the purpose for which the surcharge is used.
12. Fixed charges – Dfull: There shall be no fixed monthly charge for Dfull.
13. Fixed charges – Industrial and Other:
Monthly fixed charges for
Industrial and Other connections shall be related to the size of the
connection. The charge shall be based on the costs of maintaining the
connection as well as the peak-capacity costs associated with making
available the maximum flow from a particular connection size. Note: It is
essential that this component of the tariff be retained otherwise an
important equity principle is compromised – domestic consumers pay for
capacity expansion costs through the last block high marginal consumption
tariff. Other consumers pay for capacity costs through the fixed charge.
14. Connection charges - Dcontrolled. There shall be no monthly fixed charges for
domestic controlled-supply connections.
15. Connection charges – other categories. Connection charges for all consumer
categories except Dcontrolled shall recover the full costs of connection.
16. Disconnections - Dfull: Consumers with Dfull connections who fail to pay shall,
after due process, have their uncontrolled water connections disconnected.
Where a health risk is deemed to exist by the Medical Officer of Health and
no other local source is available, the Council will make arrangements for an
alternative source of water to be made available..
17. Illegal re-connections. Consumers who, after having been disconnected for
non-payment, reconnect illegally shall forfeit the right to the free basic
water allocation until such time as the outstanding debt has been paid in full.
18. Disconnections – other: All consumers with uncontrolled volume connections
(except for Dfull) shall be disconnected for failure to pay after due process
has been followed.
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19. No means testing. The tariff policies above are deemed to provide adequate
basic services in an affordable manner to all households. Hence, there shall
be no individual means testing of households and no additional concessions to
households other than what is provided for above.
20.
Water restriction tariffs. A separate tariff schedule for water
restrictions shall be developed. This schedule shall be based on the following
principles: (1) a percentage “restriction surcharge” shall be added to
consumption-related tariffs only; (2) the “restriction surcharge” shall not be
applied to the first and last consumption blocks for Dfull; (3) the “restriction
surcharge” shall be related to the class (severity) of the restrictions
imposed.
21.
Subsidies. All subsidies (including those within and between consumer
categories) should be disclosed to the extent that this is practical.
22.
Departures. Departures from the above principles may only be made
where there are sound practical reasons which prevent the implementation of
the policy at the present time and/or where the phased adoption of the
policy or policies would reduce an otherwise onerous burden on Council and/or
consumers. The reasons for any departures must be recorded in writing.