2. 1 WATER BOARDS TARIFF INCREASES: IMPACT AND IMPLICATIONS ON LOCAL GOVERNMENT STRUCTURES BY MTHOBELI KOLISA EXECUTIVE DIRECTOR:MUNICIPAL INFRASTRUCTURE AND SERVICES

3. 2 Structure of the presentation About SALGA Water Pricing Chain Regulations Challenges Suggested Way Forward

4. SALGA Governance Structures

5. 4 CRITICAL STRATEGIC ENABLERS Governance & Institutional Coherence of SALGA Consistently Driving Relevant; Credible & Dynamic Agenda Sound Financial Management Pro-activeness Institutional Tenacity & Focus CRITICAL STRATEGIC ENABLERS KEY SALGA PRIORITIES IDENTIFIED FOR THE NEC TERM OF OFFICE

6. SALGA Functions SALGA has four main functions: Strategic profiling - building the profile and image of local government within South Africa as well as in the internationally; Support and advice - policy analysis, research and monitoring; knowledge sharing and municipal support. Representation - stakeholder engagement; lobbying and advocacy and being an effective employer representative for members. The fourth (the octagon) refers to the internal programmes aimed at strengthening SALGA’s corporate governance and programmes to deliver on the three functions listed above.

7. 6 The water pricing chain

8. 7 Source: Strategic Framework for Water Services The value chain

9. 8 1 st Tier National security of supply 2 nd Tier Regional supply to WSA’s 3 rd Tier Local service delivery and customer management DWAF WATER UTILITIES MUNICIPALITIES WSA’S CONSUMER x x CRITICAL POINT Overview of the South Water Chain

10. 9 Area of Supply: Water Utilities in SA

11. Local Government and Bulk Water Utilities WSA are the major customers of Water Utilities Water Utilities bring economies of scale WSA depended on bulk water utilities socio - economic development (Umgeni and Rand) Water Utilities are SOE – Supports Government's policy goals

12. Implications in LG Planning Non Compliance to the provision of section 42 MFMA Majority of the bulk providers to not comply with section 41 of the MFMA Debt owed to Water Utilities by Municipalities is of concern to Water Utilities Under-expenditure on Capex (same as DoRa provision on municipal Grants) Year to Year tariff negotiations stifles better Planning Integration of bulk and retail (Bulk is fairly an easy business compared to reticulation) Tendency to build reserves - rather than utilisation for Capex

13. 12 Pricing Principles 1.At the end of the day, it is the consumer that “pays the price”. That is, all “upstream” prices impact on the consumer. 2.For this reason, the pricing chain should be viewed in totality to understand the impact of pricing on consumers. 3.For the sake of consistency, the same principles and pricing methodologies should be applied throughout the value chain. 4.Any subsidies should benefit end users (consumers) and hence are most appropriate when allocated at the retail end of the pricing chain (and not upstream).

14. 13 A municipal budget Circular 48 from National Treasury issued on 2 March 2009 explicitly states that municipalities are encouraged to keep increases in rates, tariffs and other charges as low as practically possible. It further states that for this reason National Treasury continues to require that municipalities must justify in their budget documentation increases in excess of the 6% upper boundary of the South African Reserve Bank’s inflation target. National Treasury Circular

15. 14 Water Pricing and Tariff Regulations

16. POINTS OF REGULATION IN THE WATER SERVICES CYCLE Abstraction Water treatment & bulk storage: DWQ Distribution: pressure, basic sanitation, low interruptions, water @ 200m Abstraction: enough water for minimum services Collection & treatment of water containing waste Consumer interface: metering & billing

17. Regulation Domain (social and economic) Source: DWAF

18. CHALLENGES

19. Some challenges Water Losses Billing Maintenance of Infrastructure Costing of Water (cost per Kl) Water Pricing, Tariff Setting and investment models Separation of WSA and WSP Skills and Competencies to run the water business

20. LOCAL GOVERNMENT CHALLENGES Institutional Capacity and Municipal Transformation 1.Municipal management capacity and capability 2.Serious challenges in the areas of financial management, programme Management, Engineering and Organisational development Local Economic Development 1.High levels of poverty due to unemployment 2.Scarcity of LED specialists 3.Serious social problems Financial Viability and Management 1.Billing and debt management 2.Municipal financial management 3.Low revenue base due to high levels of indigents Good Governance 1.Many local challenges and problems straddle the political and technical/administrative domains 2.Poor communication between council and communities 3.Non functioning of ward committees 4.Political leadership Basic Service Delivery and Infrastructure 1.Poor quality of services delivered 2.Water and sanitation emerge as one of the challenges 3.Housing backlog sighted as a critical issue. 4.Slow pace of basic service delivery 5.Obvious distinct lack of vertical and horizontal integration in the whole of government as communities are expecting a package of government services The Water Sector requires a sound funding model ?

21. 20 Suggested Way Forward

22. The impact of governance on prices The way prices are set depend on the governance arrangements that apply along the chain. For example: –DWAF sets its raw water price in terms of a policy –Water Boards set bulk water prices in terms of the Water Services Act and prices are (in effect) approved by national government. –Municipal tariffs which are approved by local councillors in terms of a local tariff policy which must comply with nationally defined norms. How can consistency be ensured in this context?

23. 22 Suggested Way Forward  The key issue facing the sector is not access to finance, but the fact that water is unsustainably priced – and this calls for a review of water pricing in the sector;  An integrated vertical (full cycle tariff) pricing framework be developed (multi- year price determination)  DWAF revise the pricing strategy parallel with the revision of the NWRS process;

24. 23 Suggested Way Forward  National Treasury and DWAF penalise Water Utilities for under expenditure on planned CAPEX if such is not undertaken ;  National Treasury enforces compliance with section 41 of the MFMA;  The tariff structures and pricing of water at all levels be published every year; and  An interim independent panel of experts to monitor water tariffs and pricing be established

25. THANK YOU