Water pricing strategy and proposed water tariff increases: Department of Water and Sanitation briefing

Water and Sanitation

27 August 2014
Chairperson: Mr L Johnson (ANC)
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Meeting Summary

The Committee was briefed by the Department of Water and Sanitation (DWS) on their water pricing strategy and proposed tariff increases. Before the presentation was delivered, there were a number of outstanding issues which the Department addressed from the Committee’s previous meeting. These issues related to fines against polluters and non-compliant licences, water supply, particular areas and situations, oversight boundaries of the Committee and engagement with municipal authorities.

The presentation provided context on how the current strategy was arrived at and the current status of the strategy before delving into the impact of the pricing strategy on user sections. The briefing also covered the calculation methodology and charge determinations, the rationale behind revising the pricing strategy, the proposed charge structure in terms of the hybrid approach and implications for sections.

Members were particularly concerned about the implications of the pricing strategy for ordinary South Africans many of whom were unemployed, poor and vulnerable. Other questions were raised around specific charges for indigents and non-indigents, unit cost calculations and public hearings to make these pricing strategies and tariffs known. Another key area of concern was related to water losses, if it was budgeted for, who was responsible and the plan to deal with invasive alien plant species. Other questions were posed around big industry players versus normal water users in terms of the pricing strategy, awareness programmes around water safety and their impact or success, interventions of the Department into municipal problems and the regulation of profits by the Department.

Meeting report

The Chairperson, after outlining the agenda for the day’s meeting, noted the apology from the Minister and Deputy Minister who were in Cabinet meetings as well as two Committee Members who had submitted apologies. 

 

Outstanding Matters

Mr Trevor Balzer, Acting DG, DWS, noted there were a number of responses outstanding from questions posed by Members from the previous meeting. With the Chairperson’s permission, Mr Balzer wanted to respond these issues. This was part of his strategy to deal more efficiently with matters raised during Committee meetings. On the question of fines against polluters or non-compliant licences, fines were scheduled and ranged from R5 million to R3 million and these fines were determined by the courts in relation to a particular contravention. On the question of water supply, the Minister had signed off on a directive to step into the particular area to stabilise the situation there. Mr Balzer added that he would be visiting the area on Friday to check on the progress made there. With the Jozini Dam and the field of pipes, this was a provincial matter and was purchased by the municipality using the Municipal Infrastructure Grant (MIG) funding. The Department of Cooperative Governance and Traditional Affairs (CoGTA) was dealing with the matter. On the Shemula scheme, the Department would provide the Committee with the full report to ensure the scheme was operating at its desired capacity. In Madibeng, the water supply system was stabilised and through assisted intervention, there was no major water supply disruptions and a pre-directive had been issued to the municipality to deal with sewerage spillage if there was a future pipe burst. A full report on this particular case would be given to the Committee.

 

The Chairperson felt this clearly spelt out a challenge for the Committee. The Committee’s work was supposed to be where people stayed and experienced difficulties and challenges. There would have to be a way to talk to the House Chair on the Committee’s programme to find a way to balance a combination of usual Committee work and oversight work. To continue to meet in Parliament did not make sense – it was preferable to meet where South Africans were experiencing difficulties. A water plan was needed from the Department. While there was a Water Resource Plan Strategy, there needed to be a clear sense of what plans there were.   

Ms M Khawula (EFF) asked if the Department had kept things working when it left areas which were in distress. 

Mr Balzer replied that he would check on the progress in these particular areas.

Mr M Shelembe (NFP) wanted to follow up on the issue of uncovered pipes in Jozini. Was the Committee’s oversight function limited to not include certain areas where matters were considered a provincial responsibility? The mandate of the Committee was to ensure people on the ground had access to water. Did the use of MIG funding limit the Committee’s oversight? South Africans relied on national government to ensure the National Development Plan was working for them on the ground. 

Mr Balzer replied that these pipes were part of a contract entered into by the province through MIG funding and there was an investigation in place. These pipes were now being used and installed. 

Ms Z Balindlela (DA) agreed with the Chairperson that a water plan was needed but even more needed to be done. Members needed to be informed that issues were being handled in particular areas visited. The Committee should aim to visit these areas so that the realities could be known.

Mr L Basson (DA) appreciated the Department’s response. Country-wide oversight was a problem, but in particular areas in distress. He asked if the Committee could not summon municipal managers or mayors to appear before it to get progress reports. The Department could not be expected to deal with CoGTA matters. It needed to be investigated if the Committee could go much further in dealing with problematic municipalities so they could be advised on the way further.  

Ms J Maluleke (ANC) thought it would be better for a seminar or summit to be held with municipal managers and water boards. A major challenge was that MIG funding was being used for other purposes so perhaps the Auditor-General should monitor that the funding was used as intended.  

The Chairperson said the Committee had the right to call municipalities. Going through the Committee’s programme, there had been some apparent changes, with 22–26 September set aside for oversight work so Members could think about using today’s discussion to inform this oversight week. There were problems in a number of areas with major challenges experienced in the Category B and C municipalities. 

Briefing on the Water Pricing Strategy and Water Tariffs

Mr Balzer provided some contextual insight on how the current strategy was arrived at. He explained that the raw water pricing was only one element of the entire value chain of charges for water. Today’s presentation would cover what could be charged in terms of the National Water Act (NWA). Currently there was a 2007 strategy in place signed off by the then Minister Lindiwe Hendricks. This strategy made provision for water charges across various sectors and consumptive charges, which in turn covered a number of other charges. Other charges that could be levied included the water research levy which was not determined by the NWA but by the Water Research Act of 1970 where a levy was placed on all water use charges. This levy was then used to fund research through the Water Research Commission. The one charge still being developed and not yet implemented related to polluters but in this case a Money Bill would have to be produced.

 

The strategy on water use charges was now in the process of being refined and it was at a fairly advanced stage in that the Department was able to take it to Cabinet towards the end of last year for initial consideration. It was referred back for further work by the Department. Two new concepts were relayed to Cabinet in this strategy. One, a basic human needs water resource charge at the raw water end to compliment the free basic water policy. National Treasury felt it was inopportune at that time to present such a charge as it would be seen as a double subsidy. Two, there would be a future infrastructure build charge with the intent to deal with infrastructure refurbishment backlogs going forward. The third element introduced in the new strategy was a removal of caps to the tariffs that applied in the agricultural sector. Currently the agricultural sector was not charged the return on assets element. The proposal was to move from an implicit form of subsidy to a more explicit one by removing caps. A task team was put together to consult with National Treasury and the Department of Agriculture, Forestry and Fisheries to look at the impact of water charges on this sector. The next step was to take the strategy back to Cabinet where the proposal on a basic human needs charge would be removed along with the removal of caps in the agricultural sector. It was hoped that Cabinet would reconsider the document in October so that consultation could begin that was required to get a new policy in place. This process should not be confused with the review of the water tariff policy. The Department engaged with water users annually in August and September to put forward proposals for water use charges during the next financial year. This process was currently in place.

Looking at the impact of pricing strategy on user sections, on the domestic/industrial sector, this sector was due to pay full charges and the full cost for recovery on abstraction and waste discharge related use. With resource development charges, there were on-budget Government Water Schemes (GWS) for depreciation, Return on Asset (ROA) and Operations and Maintenance (O&M). The off-budget GWS covered the Capital Unit Charge (CUC), O&M and refurbishment while water management institutions covered full cost recovery. The stream flow reduction activities of commercial growers did not use water directly out of the system but relied on rainfall. For resource management charges, this sector paid for full recovery of allocated costs. The cost of dam safety control and waste discharge related costs were not allocated to the forestry sector. Resource development charges were not applicable to this sector except where negotiated for new development. For irrigation resource to poor farmers, the GWS allowed for O&M to be subsidised for a five year period on existing and new schemes and tariffs applied. The depreciation charge applied from year six onwards   and was capped to 1.5 c/m plus the Producer Price Index (PPI) from 2007/08.

Mr Mpho Mofokeng, CFO, DWS, explained the calculation methodology for how tariffs were calculated. The unit cost was calculated by dividing the costs of Water Resource Management (WRM) activities in the Water Management Areas (WMAs) by the registered volumes/waste load in the WMA.

Mr Balzer turned to look at who paid WRM charges and this was all water users – the WRM waste discharge was calculated by dividing the total registered load of salts by the cost allocated to each activity. This would give one the unit charge of waste. The CUC was for off budget schemes and was repayable based on the loan taking into account the lifespan of the infrastructure. This charge was only paid in terms of the lifespan of the redemption of the loan.

Mr Balzer discussed the rationale behind the revision of the pricing strategy noting there was a possibility of introducing multi-year charges for better predictability for charges going forward. These charges would be based on the performance of the trading entities on water use charges. Currently, the tariffs were calculated annually.

Turning to the principles underpinning the pricing strategy, currently, there were four principles in the pricing strategy and these would remain in this strategy. These included social equity, ecological sustainability, financial sustainability and economic efficiency. The principles to be added to the new pricing strategy included, economic development, polluter pays and user principles and equity and affordability.

Mr Balzer moved on to the proposed charge structure in terms of the hybrid approach, noting the different charges included the national Future Infrastructure Build Charge, the system/scheme O&M and depreciation charge, water management area WRM charge and the water management area charge/levy for the water discharge charge system, which needed a Money Bill. 

There were various implications across a number of sectors, for mining and industry. The national charge (total) would result in a decrease in charges in most schemes in the Eastern Cape and some in Limpopo, an increase in charges in most schemes in the Free State, Mpumalanga and the Western Cape and some in KZN and North West while there would be little change in most charges within the Gauteng province in the irrigation sector, the national charge (total) will result in a decrease in charges in most schemes within Gauteng, KZN, Limpopo and some in the Eastern Cape, an increase in charges in most schemes within the Free State and some in Mpumalanga, North West and the Western Cape while 95% of irrigation water in South Africa was still in the hands of white farmers. 

Section 10 of the Water Services Act 108 of 1997 outlined the norms and standards for tariffs that may differentiate on an equitable basis between different users of water services, different types of water services, different geographic areas (socio-economic and physical attributes of each area), place limitations on surplus or profit, place limitations on the use of income generated by the recovery of water charges and provide for tariffs to be used to promote or achieve water conservation. The shortfall of the current norms and standards, in terms of the existing section 10, included not taking into account the Municipal Fiscal Powers and Functions Act (2007), the Local Government: Municipal Systems Act (2000), the Local Government: Municipal Finance Management Act (MFMA) (2003) and various National Treasury Circulars in terms of the MFMA. A need was identified to separate between Water Services Authorities (WSA) and Water Services Providers (WSP) and to regulate complete water value chain and for as much of the process to be included in Norms and Standards for raw water pricing, Water Boards tariffs and municipality tariffs for water supply and sanitation.

Mr Balzer concluded that the revised pricing strategy would be gazetted for public consultation. The hybrid charge was the preferred charge structure at the moment but one would have to see what came out of the consultations and the revision of the Act would lead to the merge of the pricing strategy and the norms and standards. 

Discussion

The Chairperson noted this was the first proper briefing given to the Committee and there were a number of terms and concepts Members might be grappling with but he looked forward to future engagements. Members were required to do some serious reading especially with economic concepts

 

Mr Basson questioned the treatment tariff implemented and asked if the Department could charge municipalities more if the water going back into the system was of a lesser quality.  

Mr Balzer said salt loading in water was one way of determining waste discharge tariff. Another way would be through biological methods but it was quicker to do a salt loading test than to do one for e-coli culture as a basis. If a municipality kept within the salt loading amount obviously the levy would be low but as the salt loading went up, the levy increased. This also covered the penalties for discharging raw sewerage but additional penalties would be considered during the consultations.   

Ms Khawula wanted to know about the company cleaning water in municipalities and selling it back at a cost per litre. She was concerned that many people were unemployed and did not have money to pay for this water. What must be done for those who could not afford water to get it because it was their basic right? The aim of privatising water was another way of making a profit off poor people and the unemployed. This was the same with electricity – most people did not have electricity because they were unemployed and could not pay for it. We, as the people of SA, did not support the idea of depriving people of water because it was their survival right. There were many sick people who needed water and school children needed water so all people should be provided with water even if they were unemployed.

Ms N Bilankulu (ANC) noticed that charges differed from one municipality to another when looking at water management area charges. An example was Limpopo which was a rural province with a high unemployment rate which meant people could not afford high prices or charges. Was the Department going to find a solution in order to assist people there? Most municipalities in Limpopo had no water and therefore municipalities were not collecting. Residents could not afford such high costs – could the Department intervene to review such high charges? Estimates of meter readings were also a reason why people did not pay at the end of the month – what was the reason for these charges when people were not paying at the end of the day? She questioned the reduction of charges in the mining and industry and irrigation schemes sectors.

Mr Shelembe questioned the issue of the unit cost calculation. He said there were a large number of people regarded as indigents and were meant to pay for water while there were a small number of people regarded as non- indigent – would this not make it difficult for people considered non-indigent carrying the burden of the cost? Most protests arose from people comparing water charges of their own district with those of other districts or provinces. He wanted to know how the Department would convince people and to make the issue of indigents clear to provinces as people would not pay more than they could afford to.

Ms Maluleke asked if public hearings would take place making the price strategies and tariffs known or explained. She asked Ms Khawula if she was aware that there were systems in place to help those who were unemployed but these people needed to be registered. Under which categories did golf courses fall under in terms of pricing strategies?

Ms Khawula clarified that she was talking about the poorest of the poor who needed to be protected because there were a number of them.

Ms Maluleke responded that she was talking about the encouragement of unemployed people to be registered as indigents.

Mr Balzer said that where reference was made to user charges in terms of raw water storage, abstraction, transfer and bulk water treatment and distribution, this was in reference to big industry players like municipalities, water boards or mines. Normal people as users would be charged in terms of reticulation of water and effluent, water and sewerage collection. The costs charged between these different users were then not the same.  

At the municipal level, the Department did not make provision for the poor and unemployed but it was government would do this through the equitable share formulae to determine the indigent percentage of various municipalities across the country. Municipalities then had to implement the basic principles of water supply policies for free basic water. This differed from one municipality to the next. It was important to encourage people to register on the indigent database for audits and formulae reviewing.

Mr Balzer indicated the Department did not have the same type of public hearings as the National Energy Regulator of SA (Nersa) as there were engagements with the major users in sectors and municipalities at a provincial level along with Salga. Municipalities were required, through the Municipal Systems Act, to consult on a ward basis to determine changes. With the golf courses, as they were generally attached to housing estates, fell under the municipal fabric but the Department would licence a golf course if they were taking water from a stream and it would then be subjected to the normal water charges and if not, the courses would be subject to municipal charges. Some golf courses recycled effluent and this would be taken into account for how charges were determined.

Ms Balindlela stated Bushbuckridge had a very big and beautiful dam but it was running out of water for indigents and asked where these people would fit it into the new arrangement discussed today?

Mr Balzer said the Department was working in the Bushbuckridge area to ensure it was fully reticulated by interventions with the province of Mpumalanga and using Rand Water. There was a funding shortfall of about R2 million to finish this scheme in this area.

The Chairperson was interested in water losses and who paid for such. This loss could be due to alien plant species or aging infrastructure. Was there any strategy to deal with the alien plant species? Pricing spoke to the concept of supply and demand and this brought into mind the ownership of water. Clearly water was a commodity while at the same time a human right. Was there a special regime to deal with big industry players and water users and was the pricing strategy different in this regard?

Mr Balzer said the municipalities paid for these water losses and across the country, about 35% of water was lost at an annual cost of about R9 billion to municipalities. Alien vegetation removal programmes were run by the Department of Environmental Affairs and there were great benefits to removing alien plants including restoring the normal water flow and restoring biodiversity in the areas cleared. The element of alien plants removal was not built into the DWS’s pricing strategy.

With water ownership and the rights of water, policy spoke to water entitlements instead of rights. There was no system to determine the value of water when it was traded between users – this was dealt with in terms of relinquishing party to receiving party and the Department was not involved in that pricing negotiation. An emphasis in the policy provisions of the Department was on “use it or lose it” so that if water was given up or not used by an individual, that it defaulted to the state for the state to determine how the water would be allocated as an entitlement to another user.

Mr Balzer stated Eskom and Sasol would be charged differently as these companies were the type of users which would be paying the capital use charge.

The Chairperson was looking for a comment on the big industry players.

Mr Mofokeng responded that where all the big industry players paid the CUC charge, this was where government went off budget and through agreements to pay debt.

Mr Balzer added the grant finances were not taken into account when doing the redemption of schemes. Only O&M used grant finance.

Ms H Kekana (ANC) wanted to know which measures were in place for the Department to raise awareness around water safety. This was especially so given that Spring Day was a week away and many young children in the communities would be playing with water. How did the Department determine the impact or success in community responses from education measures in place? 

Mr Balzer said water safety was done through the Department’s 2020 vision programme to target about 1500 schools. The Department did not have a monitoring and evaluation system in place to monitor the success of these programmes. There was an anecdotal increase in the awareness around water and water stewardship. This was seen in the inputs made by youths at the Department’s summits – there was an elevated knowledge around water matters but there was no current empirical way to monitor this.

Mr T Makondo (ANC) fully understood the briefing in relating to raw water. Members were less worried about this as seen in most of the questions being about the cost of water for consumers. How far could the Department intervene if a municipality purchased water from the Department, treated it and the sold it to the consumer? Did the Department have a strategy to regulate the profits made by water entities? This was what Members were worried about. 

Mr Balzer indicated there was not sufficient regulation of this area at the moment and the Department did not have the responsibility of full regulation. 

Ms Balindlela raised the area of Bushbuckridge and that she could not explain reticulation to the people. Communities simply wanted to know when their access to water would be restored.

Mr Balzer would return with a full response on this issue and the timeframes for reticulation.

Ms Khawula wanted to understand if people were paying for water or for the cost of purifying water because the Department was not supposed to make a profit off water. She felt that mayors, municipal managers and the Human Rights Commission (HRC) should be made to account for problems at municipalities as it was felt hardest at a local level.  

Mr Balzer said no profit was made off water by the Department. Charges were meant to cover costs and were not a profit making exercise.

Ms Bilankulu did not understand some issues because in some instances the municipalities were responsible while in others, the Department was responsible. Since municipalities were paying for the loss of water, was there a specific budget for this? Was the Department intervening in the cases of water losses or was it failing in this challenge?

Mr Balzer admitted that he did not have a full answer in this regard especially around the municipal role in the value chain. This might require further debate to get a clean understanding of the different responsibilities. This was a vexed issue but the Department did intervene where it could. The Department did not have sufficient budget to intervene in every municipality and the emphasis was on municipalities taking on their own responsibilities that they were charged with the budget granted. 

The Chairperson wanted plans in place to deal with water losses granted it was an issue of old infrastructure and capacity in some cases. Connected to this were matters of metering and estimates. 

Mr Blazer stated a richer discussion on water losses would be had if Salga and major municipalities were involved. The Department did budget a small amount for assistance in the start up with water conservation and demand management but it was not enough to cover all municipalities.  

Adoption of Minutes

Minutes Dated 30 July 2014

The Committee went through the minutes dated 30 July 2014 page by page.

 

The minutes dated 30 July 2014 were adopted without amendments.

 

Minutes Dated 20 August 2014

The Committee went through the minutes dated 20 August 2014 page by page.

 

The minutes dated 20 August 2014 were adopted without amendments.

 

The meeting was adjourned.

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