Water Board's Annual Report & Financial Statements 2007/08: briefing by Department of Water & Environmental Affairs & Water Boards

Water and Sanitation

30 June 2009
Chairperson: Ms M M Sotyu (ANC)
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Meeting Summary

Eight water boards presented their tariff setting methodology, their tariffs for 2009/10 as well as their current challenges and recent achievements. This was followed by a National Treasury briefing providing a commentary and analysis of the water boards’ tariffs. The Committee asked questions about the high operating costs of the Namakwa Water Board, clarity on ‘reserves’ and the agricultural project in the Overberg. The Committee commented that the Department of Water and Environmental Affairs was not giving the water boards enough support, the indigent must have access to water, and the water boards needed to be open about their problems.

The Chair directed the water boards to note the questions and to respond in the forthcoming workshop on Tuesday 12 July 2009.

Meeting report

The Chair found it unacceptable that one board had said they could not come to Parliament because they were new.

Rand Water
Mr Percy Sechemane, Chief Executive: Rand Water, said they would be forced to raise R3 billion in the next 5 years to cover capital expenditure. Because of projected revenue against income, they would be forced to go into the market by 2011, which was why they had maintained relationships with financial institutions. Costs might well have to be absorbed through tariffs. Each water board had different dynamics and challenges. Because their water was drawn from 60 kilometres away, their major cost was transportation. Regarding outstanding debt from municipalities, they needed the involvement of the Committee.

Umgeni Water Board
Mr Mzimkulu Msiwa, Chief Executive, said this water board was 35 years old. The income levels of the municipalities indicated how tariffs should be negotiated. It was necessary to deal with a sustainable tariff and take a long-term view; the cost of water needed to be affordable so poor people had access to water. A high tariff made things impossible for the poor consumer. They had accepted a 6.5% tariff increase – the consequence was a delay in their capital expenditure programme. One of the most important attributes of an effective water board was that of operational resilience – the ability to respond to climate change.

Lepelle Northern Water
Mr Labane Laballo, CEO, addressed processes around the bulk tariff and would make recommendations around the challenges they faced. Lepelle was established in 1997 and was the amalgamation of three water boards. Consultations had been concluded at the end November 2008 and the proposed tariff increase was 6.5%, which was to be reduced to 3.8% for the 2009 –2010 period. The 3.8% affected Lepelle to the tune of R4 billion for the whole year.

Magalies Water
Mr Khothamani Vilakazi, CFO, stated that this water board was 40 years old, and was classified as a Schedule 3B Public Entity (in the Public Finance Management Act). Its funding philosophy was that of a self-funding entity, which should therefore accumulate sufficient reserves and operate as a self-sufficient commercial entity. Amongst the considerations in determining the tariff were: price regulation by National Government; affordability to consumers; and the ability to recover costs, taking inflation into account. Raw water costs were one of the major cost drivers.

Mhlathuze Water Board
Ms Lindy Dhlamini (Acting General Manager: Finance) said that the Board had proposed an increase of 18% and the Minister had approved 14%. The actual increase for the 2008/09 year had been 10%, and the actual increase for the 2007/2008 year had been 5.9%. Mhlathuze had assumed an increase in electricity of 25% as opposed to the actual increase of 31.3%, and an increase in the interest rates of 12% as opposed to the actual increase of 13.3%. The impact of the tariff of 14% meant a loss for the year of R5.2 million. Reserves retained over the years now had to be considered. The majority of Mhlathuze’s clients exported products and were feeling the strain, in the light of the global recession and additional increase in costs. Aluminium exporters particularly were having large drops in demand.

Namakwa Water Board
Mr Christian Carstens, acting CEO, said Namakwa was situated in a semi-desert area, with the least dense population in country; water had to be pumped 200 kilometres. De Beers was its main client and the downscaling of De Beers had had a negative effect. The Department of Water Affairs had approved a tariff increase of 73%. He asked the Committee for their help in gaining financial assistance for operating costs as they were technically insolvent.

The Chair congratulated Mr Carstens, saying that this was one of the best presentations in that it had touched on all the crucial points and had requested help from the Committee.

Pelladrift Water Board
Mr Nathan Williams, the Chairperson of Pelladrift Water Board, said they had been in existence for 30 years and were in dire need of infrastructure repairs. They supplied the Khai Ma Municipality, farmers, and the Black Mountain Mine. They were about to sign a new contract with the newly elected Local Municipality Council. Raw water costs were the biggest challenge. The 2008/9 tariffs increased by 7%; for 2009/10 the suggested increase was 7%, but 80% for Black Mountain Mine, to which the mine had agreed. Black Mountain Mine was to close in seven years time; there would be a new mine but they would only have a clear picture of this in 2010.There was a need to get back to a break-even situation; they had no objection to falling under a different municipality.
The Chair commended their presentation and commented that this was a unique situation.

Overberg Water Board
Mr Yusuf Emeran, Chairperson of the Board, said their client base was the agricultural sector.
Their pipeline was unique in that the product was transported for 1500 kilometres, which meant maintenance and refurbishments were high. There was a dire need for refurbishment with an infrastructure up to 35 years old. One of the major challenges was that it was impossible to plan refurbishments without the agreements with the four municipalities in place. Here they needed the intervention of the Department.  Without reserves, they could not refurbish infrastructure. After the Minister’s request that the proposed tariff increases be reduced by 5%, the tariffs were effected. Overberg Water had initiated alternative funding and hoped the Minister would approve it. In order to function optimally, good corporate governance and the building of partnerships in long-term planning were necessary.

National Treasury
Ms Wendy Fanoe, Director: Local Government Finance Policy, identified three players: the local municipality, the district municipality, and the water board. Water boards were required to provide three-year tariffs. Grants went to the municipalities who were authorized to provide services; there were 45 district and 55 local municipalities currently authorized. If the water boards could not solve their own problems, they could call on National Treasury. The long-term viability of the water boards was important. National Treasury had done an analysis of the tariffs, had proposed increases and decreases, and had approved increases. Rand Water was to be complimented as the first to provide inputs. The location and number of clients had an impact. Tariffs had to be reasonable in order to provide water and electricity affordably; the same applied to the municipalities.

The Chair requested to meet with Rand Water briefly to discuss the City Press article.

Ms H Ndude (COPE) wanted the water boards to bring in the real issues they were grappling with, and asked why only the “Chairman” of Namakwa was present in the light of the high operating costs of the Namakwa Water Board. She found Umgeni’s recommendations relevant and Overberg’s solutions refreshing.

Mr G Morgan (DA) thought the Department of Water was not giving the water boards enough support, though some water boards had been cautious in saying this. They were stymied by not being able to invest in infrastructure. There had to be a new funding model so poor users had access to water; the current funding model had to be examined.

A Committee member asked for clarity on ‘reserves’ and the agricultural project in the Overberg.

Another member felt it was not the role of the Committee to make sure the water boards submitted timeously, and the water boards needed the Committee’s assistance.

The Chair directed the water boards to note questions and to respond in the forthcoming workshop on Tuesday 7 July 2009.

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