Department of Water and Sanitation and Water Boards on 2016/17 water tariffs

Water and Sanitation

25 May 2016
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

The Portfolio Committee was briefed by the Department of Water and Sanitation DWS) on the process it followed in setting raw and bulk water tariffs. The raw water charges included the funding of water resource management costs by water management institutions and the waste discharge charge system. Registered water use sectors were domestic, industrial, mining and energy. Water resource infrastructure charges were increased by less than, or equal to, the April producer price index (PPI) plus 10%, until full recovery was reached. For established irrigation farmers, Operation and Maintenance (O & M) was increased by less than, or equal to, 50% until full recovery.

The costs of Water Resource Management (WRM) activities in the water management area (WMA) would be divided between abstraction and the waste discharged .The average increase of the capital unit charge was 9.65%. The government and the mining sector would be funding 67% of the cost of Acid Mine Drainage (AMD) remediation, with 33% collected from Vaal River system users through the tariff.

The country faced a drought which disadvantaged everyone, as a shortage of water inflated the prices of food, while water became more expensive as a shortage of water did not reduce the cost of purification. The tariff increases for the period were between 11% and 35%, with Lepelle, Bloem, Umgeni, Magalies and Rand having the highest increases of above 20%. Some Water Service Authorities (WSAs) were heavily indebted to the Water Boards, which risked an escalation of their debts if the bulk tariff increase rates were not properly managed.

Members were concerned about the drought tariffs and questioned the status of the SA Association of Water Utilities (SAAWU) in the process. They asked whether Acid Mine Drainage had the prospect of innovations leading to long term solutions, and wanted to know where the bulk of money owed to the Department was located – the municipalities or the water boards. They questioned the objectivity surrounding the increase of tariffs, the impact of Overberg’s expensive tariffs on agriculture, the comments by the SA Local Government Association (SALGA) and Water Boards on drought tariffs, and whether water rates were charged at the national level. Another issue raised concerned measures to have standard water tariff rates, as the price of water in the Rand Water area was very high, but cheap in Mhlathuze. They stressed the responsibility of the Department to protect water from pollution, warned that an increase in tariffs hindered the provision of free basic water, asked for an audit of the water resources in South Africa, and expressed concern that the DWS might go the route of Eskom with its escalating debt situation.

Meeting report

Opening remarks by Chairperson

The Chairperson said this was the third time the Portfolio Committee had received a presentation or submission by the Department on water tariffs since 2014. This time, the Committee had to be more stringent in terms of its Parliamentary role in order to have a clearer sense of the processes involved, where raw water was processed until consumers could turn on a tap and receive water to drink in their homes. This was the last time the Committee would meet before the local government elections, and one of the areas of concern for local government was water and sanitation.

Department of Water and Sanitation on 2016/17 water tariffs

Ms Nolwazi Gasa, Acting Director General, DWS, said the Department was there to engage the Committee on the process the Department had followed in setting the raw and bulk water tariffs. It was happening at a most opportune time -- when the Department had just tabled its budget vote and the Minister had also made the public aware of what the DWS would do in terms of Acid Mine Drainage (AMD). The Department would welcome feedback on how it could improve going forward and was willing to engage the Committee in a workshop at a time that suited the Committee.

Ms Sizani Moshidi, Acting Chief Director, Economic and Social Regulation, DWS, said raw water charges included the funding of water resource management costs by water management institutions and the waste discharge charge system. Registered water use sectors were domestic, industrial, mining and energy. Water resource infrastructure charges were increased by less than, or equal to, the April producer price index (PPI) plus 10%, until full recovery was reached. For established irrigation farmers, Operation and Maintenance (O & M) was increased by less than, or equal to, 50% until full recovery.

The price setting process for raw water use included budget planning and consultation. Costs of Water Resource Management (WRM) activities in the water management area (WMA) would be divided between abstraction and waste discharged .The average increase of the capital unit charge was 9.65%. The government and the mining sector would be funding 67% of the cost of the Acid Mine Drainage remediation, with 33% collected from Vaal River system users through the tariff.

The process followed for the bulk water tariffs had involved the DWS engaging with all nine Water Boards (WBs) on feedback and consultation sessions to prepare for the 2016/17 WBs’ tariff cycle. The Water Boards consulted with Municipalities, and tariff proposal packages were sent to the South African Local Government Association (SALGA) and National Treasury for inputs and comments.

The country faced a drought which disadvantaged everyone, as a shortage of water inflated the prices of food, while water became more expensive as a shortage of water did not reduce the cost of purification. Amatola Water served Water Service Authorities (WSAs) in the Eastern Cape, and was currently not reflecting a surplus in its financial statements. Rand Water served Gauteng and Mpumalanga, and had good revenue collection and was well positioned with its reserves. Raw water prices were considered affordable in Mhlathuze, and the implementation of drought tariffs would require further clarification. A drought tariff had been proposed to kick in when dam levels were below 40% in Overberg Water. The tariff increases for the period were between 11% and 35%, with Lepelle, Bloem, Umgeni, Magalies and Rand having highest increases of above 20%. Some WSAs were heavily indebted to the Water Boards which risked an escalation of the debts if the bulk tariff increase rates were not properly managed.

Discussion

The Chairperson thanked Ms Gasa and Ms Moshidi for their submission, commenting that some of the areas touched on had been new and out of the ordinary. He was interested in the drought tariffs and questioned the status of the SA Association of Water Utilities (SAAWU) in the equation regarding tariffs. Chairperson said some of the innovations to provide long term solutions for Acid Mine Drainage were very interesting. What role did maintenance play in the equation, as it was a key and fundamental issue in the proposals for tariff restructuring?

Ms Moshidi replied that the process was not standardised, but one issue was that the drought had to be officially declared before the drought tariff could kick in. This was for only this period. Hiking the prices was the quickest way to get the appropriate reduction in use that was needed. Measures would be put in place to make sure that this was not a standard process.

Mr Matshedisho Dikoko, Chairperson: Sedibeng Water, added that SAAWU was an association that had been established to co-ordinate, advocate and lobby on behalf of all the water boards in the country. It had been useful from the period when there had been 24 water boards in the country. The last chief executive officer’s (CEO’s) term had expired in 2012 and since then the SAAWU had not been as functional as it used to be. He urged the Committee to assist in providing a way forward for the Association.

Mr L Basson (DA) asked if money was owed to the municipalities, or if the municipalities owed money to the water boards.

Ms Moshidi replied that both the municipalities and the water boards were owed money that ran into billions of rands. The DWS debtors’ book was sitting at R2.9 billion.

Mr Basson asked where the bulk of this money was located.

Ms Gasa replied that this was very much in line with what had been tabled in the third quarter performance reports. The different water boards had given a breakdown then, and would make it available again at a later date. 

Mr Basson said that on 7 April, the Director General had made a presentation stating that the money owed to the Department was R20 billion, of which R2.9 billion was owed by municipalities. There had been a breakdown of the money owed by each municipality. There had been no mention of the water boards.

Mr D Mnguni (ANC) said the tabling of tariffs had been scheduled for March 2016, but had been presented in May. What had been the challenge, and why was it not presented on time?

Ms Moshidi replied that the DWS had done the best it could to table the tariffs by 15 March, as required by the legislation. The briefing was happening much later, but the tabling had been done on time.

Mr Mnguni asked if there was any objectivity in the increase of the tariffs. Between November and January, comments had been made by most of the water boards and SALGA. What were those comments and how were they dealt with?

Ms Moshidi replied that the water boards had given the necessary attention to the issues, and had in the view of the DWS responded in the best way they could. The Department was also looking at the affordability issues that had been raised. The comments had related to the affordability of the equitable share to cover the costs, and did not necessarily relate to the tariffing or billing approach that the municipalities used in order to recover their costs and pay the water boards. It was thought that the DWS had needed to tread carefully so that it could give a bifocal analysis. The tariffs charged by the municipalities were over 100% higher than those charged by the water boards, so there was a disjuncture that should be resolved.

Mr Mnguni referred to the AMD’s proposed 67% funding by the government and 33% by users, and said he had read an article which reported that some people did not welcome this, as they were of the view  that the mines were responsible for the pollution, and the DWS was giving them the responsibility for cleaning up the mess the mines had made.

Ms Moshidi replied that the AMD was not caused by the current mines that were operating, as they were doing their best to mitigate pollution. AMD had been caused by mines which had closed down long ago.. This was the country’s problem and not necessarily the problem of the current mines, which had not neglected their responsibilities but were rather keen on taking their share of the cost. Being the country’s problem, the question was: should the 33% come from the state, which currently had no funds, or how should that part be dealt with?

Ms T Baker (DA) asked for the impact the Overberg’s unique and expensive tariff structure would have on agriculture. There were concerns that this would provoke protests by the people.

Ms Nthabiseng Fundakubi, Acting Chief Executive, Overberg Water, replied that the major issue regarding the high increase for Overberg water had been to close the imbalance in the increases that had been levied in the previous years . Between 2011/12 until last year, the increase that had been implemented had been an average of 10%. To close the gap, the Department had had to cover the increase. The second issue had been to review the methodology of the target so that it could be broken down into the components of capital and overall charges. The National Treasury had commended Overberg Water for reviewing the structure and had supported the methodology that had been implemented. The drought tariffs had been implemented and there had been consultation with the municipalities in terms of the implementation. No serious objections had been received from the municipalities that could lead to protests. The objections that had been received had been sufficiently responded to.

Ms Baker asked how the drought tariff was managed, and if any of it had been implemented yet. Had there been consultation processes with SALGA and the municipalities to resolve the issue at the municipal level and to assist with billing systems? Which municipalities/areas were most affected by the drought tariff? 

Ms Moshidi replied that there had been attempts by the Department to help the municipalities so that there would be good billing systems at the municipal level. There were guidelines, but because of a lack of capacity, there was no national plan yet to roll them out.

Ms Baker asked what water usage institute charged water rates. How was that implemented? Was it done at the national level? How was it implemented and determined?

Ms Moshidi replied that this was informed by the Water Research Act. It was part of the raw water tariff component.

Mr Basson asked if the DWS had considered the quality of water that the municipalities had to purify. It was the sole responsibility of the DWS to protect the water and the pollution of our rivers, according to the Water Act. How was the Department going to act in the future to apply standard rates for water, just as one had with electricity? A municipality that had to use more chemicals to clean its water would definitely charge more for the water.  A municipality that received polluted water should not be disadvantaged by paying more, because the Department was not doing its job.

Ms Moshidi replied that the problem with this was the implementation of the waste discharge charge system, which would ensure that the cost of purifying water was subsidised. It would take some time to implement it. The DWS was working on the process, and she pleaded with the Committee to bear with the Department.

Ms Baker said that with regard to the irrigation water schemes, there were reports that farmers in Sandveld were charged certain rates which had been reduced as a result of the drought. Despite the drought, the farmers were still being charged the full amount. The farmers had submitted claims which had not yet been dealt with. How would this be managed? Was it possible to have a list of all the areas where the irrigation schemes had been introduced?

Ms Gasa and Ms Moshidi both replied that the DWS did not have the answer, but would provide a written response to the Committee as soon as the Department arrived back at office.

The Chairperson said he was interested in the unaccounted for water. At Rhodes University, people were clearly getting water for free. How did the DWS account for that? What was the audit of our water resources in the country? How much water did the country have that could be accounted for and how much water did the country have that also could not be accounted for?

Mr Percy Sechemane, Chief Executive, Rand Water, replied on the question of unaccounted for water, and said the non-revenue water component was currently 3.8%. Water was needed to clean water. Breaking it down, the operational use was around 2%, the internal use in the office was 0.5%, and losses ranged from 1 to 1.5%. There was over 3 500 km of water networks. As soon as the water got into the municipal systems, that was when there were issues. He was happy that the Department was starting to interrogate the municipal tariff system. Unless this was done, the challenges would be around for a long time. The municipalities had their tariff systems and because they were not accountable the DWS or the Committee, when there were losses, the municipalities just rolled them over to Rand Water and the users. For sustainability, it was necessary for the municipalities to be able to collect the money and pay it over to the Water Board. It was important to have that oversight. He urged the Committee to empower the Department to perform that oversight fully, otherwise there would be a lot of losses of water in the country. The case of Mpumalanga was slightly different, as there were issues that should be settled out of court. A lot of mining activities were going on there and the assets had not been transferred to the Department. As soon as the DWS was able to finalise the asset transfers, Rand Water would be able to give full details. 

Ms Gasa also replied that the DG had given an indication that the initiative was taking longer than anticipated. The Department had a team working on it, but the time frame that had been indicated last year could not be met. She apologised for the time it had taken to table the matter.

The Chairperson said he was interested in the category involving 3.8% of unaccounted for water. This would assist the Committee to deal with the “nitty gritty” details, as it seemed to be sitting in the dark and not having a clear sense of what water resources the country had. There was a need for specific details in the areas mentioned.

Ms Gasa replied that the DWS would bring to the Committee an indication which was as precise as possible, on the water resources that the country had, especially as it was going through a scarcity of water and the resource was not being managed as efficiently as it should be. The time frame to complete this was the end of the year.

The Chairperson said the DWS would still have to come back and give a report on the South African Association of Water Utilities (SAAWU) and the issue of maintenance, which was a topic that talked to the equation when the DWS did its sums.

Mr Mnguni said the DWS had talked about inflation as the reason for tariff increases, and asked if the Department was using the consumer price index (CPI).  The DWS should look at the inconsistencies in the tariffs which were the result of inconsistencies in subsidies. Economically, natural resource water could increase jobs through agriculture. When there were increases in tariffs, there was a negative impact on economic development and the community, and this must be given consideration as the people were poor. Was the Rand Water sweeter than the water in other areas, as the price of water there had sky-rocketed? There had been a 10% average increase in each of the last three years.

Ms Moshidi replied that the Department appreciated the comments, and would take them forward.

Ms Baker said Mhlathuze Water Board had the cheapest water in the country, and considering the severity of drought in that area, there was no balance. This water board was serving industries. What industries were these, and how could they be benefiting so much from this scarce resource? Why had the drought tariff not yet been implemented by this water board?

Mr Swaswa Ntlhoro, Acting Chief Executive, Mhlathuze Water, replied that there were serious water challenges at Mhlathuze Water, and the drought tariff was one of the tools being used to address the challenges. Drought tariffs kicked in when the restricted amount was exceeded. The Board enforced the restrictions. People were given the allocated amount within a period of one week, so they never exceeded the restrictions. The Board was also looking at augmenting the level of water in the area.

Mr T Makondo (ANC) said the Department might be going the way of Eskom. A lot of the Water Boards had debt rates that were very high and there was no cost recovery strategy. With this increase, the Department would move from R2.9 billion to R3.5 billion, taking into consideration that SALGA had not supported most of the tariff increase.  What could be done to reduce the cost of chemicals, as it was very expensive to clean water? There should be no monopoly by the companies who manufactured the chemicals .He heard from the media that there were companies that wanted to assist on the AMD issue at no cost. A company would manufacture fertilizer out of the Acid Mine Drainage. Was the Department aware of this, so that the problem of AMD could be dealt with at no cost? The cost of water in Overberg was too high and something should be done about it so that the Department did not go the Eskom route. When tariffs were increased it had negative impact on the recovery of money owed to the Department. A balance should be struck on this issue.

Ms Moshidi replied that the Water Board did have strategies in place for recovering their costs.  Section 4 of the Water Board Act outlined the process. If the Water Board needed to restrict water as part of the cost recovery, it had to inform the Minister. Since water was a basic right, restriction of water was not a favourable option though it was the most powerful tool that could be used for recovery. Though there were specific outlines of a 20% restriction per time, they could not go below the free basic water portion. The Department was assisting the Water Board so that the municipalities could pay their accounts.

Ms Fundakubi added that Overberg Water was serving nine urban areas which covered an area of 6 000 square kilometers. This made delivering clean water very expensive. There was a need for all Overberg water users to pay equitable tariffs to ensure the sustainability of the scheme.

Ms B Maluleke (ANC) asked how the tariff increase took care of free basic water, since the Constitution guaranteed this.

Ms Moshidi replied that water boards were not subsidised. The cost of water purification from the water boards to the municipalities was considered in the equitable share, to cater for the free basic water. The National Treasury had said there should be a way of getting some reduction or a subsidy at the level of the water board.

Ms Maluleke asked if the DWS considered the high level of unemployment in the environment before increasing the tariffs, as one of the reasons for the debt owed to municipalities was that the rate of unemployment was high.

Ms Gasa replied that when the Minister had spoken about the budget vote, she had highlighted the role of the Department as a transformative agent, where the DWS and its entities were working to ensure that the poor and previously disadvantaged were not only beneficiaries but also meaningful participants in water resource development and the management thereof. She added that the comments were taken with appreciation.

The Chairperson said the Department was supposed well on its way by now to addressing issues like unaccounted for water, and improving the technology for metering. In Limpopo, 82% of water was used for agricultural purposes.  Water was scarce and was being wasted in Limpopo on agriculture, and yet the technology was there to harness rain water for the same purpose.

Ms Gasa replied that there was a need for a workshop and an engagement session to address some of the issues that had been raised.

The Chairperson said there was a need for periodical reports in order for the Portfolio Committee to perform its oversight. Time lines were important as part of the monitoring exercise so that the Committee could see the results of their efforts and work.

The Chairperson said the session remained a work in progress. It was agreed that there was need for a workshop. The issue of the municipalities remained a thorn in the flesh. The issue about proposed tariffs and the disparities was on-going. Timing was also very critical, as there was a need to make a meaningful impact. Next year, the Committee would engage more robustly with the Department.

Mr Basson said as regards the AMD issue, when the first announcement was made on the R10 billion engagement, the Committee had received an undertaking from the Deputy Minister that before the Department signed any agreement, it would engage with the Portfolio Committee. This had never happened. There had been no engagement and now the Committee was hearing on the news that there was a company which was interested in manufacturing fertilizers from AMD. The Committee did not want to dictate to the Minister and the Department on what to do, but would also not want to hear about it through the media.

The Chairperson said if there were institutions which were willing to foot the bill as regards AMD, and add value in terms of fertilizers, the Department should by all means encourage such initiatives.

Ms Baker asked if there were consumers who were being billed unnecessarily in connection with water research tariffs.

Ms Gasa replied that there would be written responses for the last questions and comments, including those involving AMD. The concerns that had been raised about AMD and the costs had been noted. The DWS was cautious about anything that was free. It was leaving no stone unturned in order to have the most efficient AMD remediation.

She thanked the Committee for the opportunity the Department had been given to make its presentations.  When the calendar of the Portfolio Committee permitted, the DWS would come to present on the work it was doing in intervening in specific municipalities where capacity constraints had been identified. It was a more complex matter than simply saying the Minister was responsible, and should be held accountable. There was a sense that the municipalities also had a role to play. The DWS was looking at the inter-ministerial task team on service delivery for guidance on the various avenues that could be taken. It was also looking at the role that water boards had played till now, and was asking them to assist more with the challenges.

The meeting was adjourned

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