1. H PIENAAR: ACTING DDG-P&R and SILAS MBEDZI:CHIEF DIRECTOR
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

2. The MFMA came into being in 2004
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

3. 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.

4. 3. SECTION 42 OF MFMA
Section 42 of the MFMA enforces a co-operative approach between Government and SEMI-Government 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.

5. 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.

6. 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.

7. 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 increase- Oct/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

8. 7. BULK WATER TARIFF INCREASES-2007/08
Name of water board percentage increase tariffs
(r/kl)
Rand Water 5%
Sedibeng Water 5%
Magalies Water 5%
Umgeni Water 5%
Pelladrift Water 7%
Albany Coast Water 4.2%
Overberg Water %
Amatola Water %
Lepelle Northern Water 5.1%
Bloem Water 5%
Botshelo Water %
Namakwa Water 10%
Ikangala Water 0%
Mhlathuze Water %
Bushbuckridge Water 4%

9. 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.

10. 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.

11. 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.

12. 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.

13. DWAF supports the increases as proposed by the various Water Boards
12. CONCLUSION
DWAF supports the increases as proposed by the various Water Boards

14. THANK YOU