Water Board Tariffs 2007/08: Department briefing

WATER AFFAIRS AND FORESTRY PORTFOLIO COMMITTEE
16 May 2007
WATER BOARD TARIFFS 2007/08: DEPARTMENT BRIEFING

Chairperson: Ms C September (ANC)

Documents handed out:
Water Board Tariffs presentation

Audio Recording of the Meeting

SUMMARY
The Department of Water Affairs briefed the Committee on the method applied to tariff increases, the provisions of the Municipal Finance Management Act, and how tariffs had fared over the last financial year. It was stressed that there had to be consultation with stakeholders and that timelines had to be adhered to in order that increases come into effect on 1 July. It was suggested that financial targets be set for each Water Board, and that there be bench mark costs so that unnecessary high costs were not passed on to the consumer, as well as multi year indicative tariffs. Members asked questions on the tariff calculations, and noted with concern the position of Botshelo, suggesting that some intervention was needed. They suggested that sliding scale changes be set up for the benefit of consumers, and asked how municipalities would benefit from increases, what would happen if their tariff increases were not submitted on time, and what the new financial models would achieve.
MINUTES
Water Tariffs: Department of Water Affairs and Forestry (DWAF) Briefing
Mr Silas Mbedzi, Chief Director, Department of Water Affairs and Forestry (DWAF) stated that the Municipal Finance Management Act (MFMA) came into being in 2004, and that Section 42 of this Act became enforceable only in the 2005/2006 financial year. The Act required that all institutions involved in tariff structuring consult with their users and that all organs of state supplying bulk resources must consult extensively on price setting of bulk resources that impacted upon municipal services. The Act therefore enforced transparency and accountability from municipalities. It also encouraged co-operation across of spheres of Government. Tariffs could not be set without consulting other spheres of Government. The Act also allowed DWAF to monitor the pricing structure of organs of state that supplied bulk services to municipalities.

Section 42 set out the comprehensive consultation process that Water Boards should follow before prices for bulk resources supplied to Municipalities could be increased. Water Boards must submit proposed price increases to the Executive Authority, (in this case the Ministry of Water Affairs and Forestry) prior to the increase. These submissions must include, the 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 as well as objectives of the water board’s corporate plan.

The consultation process would begin during October or November, and had to be completed by 15 March in order for price increases to take effect from 1 July of that year. Written comments were requested, by no later than 1 December, from National Treasury and SALGA and these written comments must be returned by 25 January. A submission on the proposed increase to the Executive Authority would have to be made by 25 December, and the proposed increase would then be tabled in Parliament. Communication with DWAF by the Water Boards was crucial throughout the process

Mr Mbedzi indicated that some of the boards had tariff increases exceeding inflation targets. The Pelladrift Water Board was doing major maintenance work in order to avoid water supply interruptions. The Namakwa Water Boards needed to make provision for maintenance works and upgrading of works. There had been no price increases during the 2006/2007 financial year, and this matter would be looked as the Water Board supplied almost 90% of water to the mine. The Botshelo Water Board has increased water use charges. There were however, no increases in bulk water tariffs in 2006/2007 financial year.

Mr Mbedzi stated that the process began in early October for the tariff increase to take effect in July. Economic factors had to be taken into account, and due to the strict timelines there was not always time to take these into full account. Mr Mbedzi stated that comments from Municipalities on tariff increases were received late and in some cases not received at all, and because of this DWAF had to ask for additional information. DWAF and the Water Boards had to align their systems and internal processes to support the MFMA process. The South African Association of Water Utilities (SAAWU) had communicated with them to remind them of the processes. The Water Boards and SAAWU should meet on a constant basis in order to re-affirm the MFMA process, time frames and role and responsibilities. It was also suggested that there be meetings between the Treasury, SALGA and Department of Provincial and Local Government (DPLG) to discuss the process, ensure alignment, reach common understanding and share challenges. Mr Mbedzi stated that this would ensure that inefficiencies were not passed on to the consumer. He also mentioned that DWAF would need to provide water use charges for a three year period.

Mr Mbedzi suggested that financial targets be set for each Water Board, that there be bench mark costs so that unnecessary high costs were not passed on to the consumer, as well as multi year indicative tariffs.

Discussion
During the presentation the Chairperson had noted that some of the calculations on the tariff increases supplied in the document did not amount to the same numbers that the Committee was getting, and asked if the calculation could be done at the end of the presentation

Ms J Semple (DA) queried the figures in the presentation, stating that the amount in cents did not seem to correlate to the percentage increase in Lepelle. She asked if the zero percent increase in Ikangala was viable. She was somewhat alarmed by the 24% increase in Botshelo

Mr Mbedzi answered that the Lepelle percentage was an average, thus it consisted of compound amounts payable to different schemes.

Mr Harrison Pienaar, Acting DDG, DWAF, stated that Botshelo had undergone a change in management, to overcome its challenges. He explained that Ikangala did not supply bulk water, which accounted for its zero percent increase.

Mr Mbedzi confirmed that the reasons given in the presentation were those given by Botshelo. The non-increase in the last financial had impacted the current financial year.

Mr J Arendse (ANC) asked if it was not possible to move towards the principle of the sliding scale, so changes were not effected so abruptly, but were rather smooth transitions, so households could cope with the increases. He suggested that increases should be minimal, and done gradually.

Mr Mbedzi stated the idea of the sliding scale would be taken back to the Water Boards.

A Member of the Committee stated that increases were inevitable and that the tariff increases would affect consumers. She wanted to know how the municipality would benefit financially if the Water Boards received the money from the communities

Mr Mbedzi answered that the Water Boards set up their own tariffs and that the municipalities were now doing the same thing, so that both would benefit financially.

Mr P Ditshetelo (UCDP) wanted to know what happened if municipalities failed to submit their tariff increases on time. He also stated that there were issues that seemed to arise annually.

Mr Pienaar said that if a municipality failed to submit on time DWAF would do a follow-up, so that the municipality was alerted that it should be sending through the increases.

The Chairperson asked if DWAF agreed that some course of action needed to be taken on Botshelo, as it was obvious that it was struggling

A Deputy Director stated that there were originally shortcomings in the financial targets, and that DWAF had now developed a new financial model.

Mr Pienaar added that this model would help the Department in supporting municipalities

Ms Semple hoped the tariff model would help in understanding the tariff increases

The Chairperson insisted that there be participation in all spheres, especially with communities.

The meeting was adjourned.