Water Boards tariff increases; with Deputy Ministers

Human Settlements, Water and Sanitation

02 June 2020
Chairperson: Ms A Muthambi (ANC) and Ms M Semenya (ANC)
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Meeting Summary

Video: JM: PC on Human Settlements, Water and Sanitation and PC on COGTA, 2 JUNE 2020
Audio: Tariff determinations by water boards     Part 2


The joint virtual meeting of the Portfolio Committee on Human Settlements, Water and Sanitation and the Portfolio Committee on Cooperative Governance and Traditional Affairs received a briefing on the water tariff increases proposed by the water boards. The Water and Sanitation and COGTA Deputy Ministers and the South African Local Government Association (SALGA) were present.

The Department of Water and Sanitation stated that the proposed water tariffs for 2020/21 by the water boards had not yet been approved by the Minister and that approvals have to go through the economic regulator before tariffs could be implemented. The various water boards presented their different tariff increases which had been submitted to stakeholders through consultation processes. The stakeholders included SALGA, National Treasury and members of the communities.

SALGA highlighted that only Rand Water tariff proposal of 6.6% was supported while the other proposals were not supported due to the increased tariff charges being above the set limit. Through observations, SALGA determined that the water boards were unable to account for their operational expenditure.

Members highlighted their concerns about the impact the proposed tariff increases will have on poor consumers especially during the COVID-19 economic challenges facing the country. Members argued that the proposed tariff increases are realistically not affordable by the majority of consumers in the municipalities and this will have an adverse effect on the current debt collection of municipalities. Members raised concerns about the difference in the tariffs. Members proposed that an independent water regulator should be considered by the Department to ensure that water tariffs are effectively managed and benchmarked.

The Chairperson said the water boards, SALGA and National Treasury should present responses at the 9 June meeting. Members had similar concerns about the lack of transparency and consistency in the tariff determinations. Parliament demands transparency to ensure that consumers are protected. Citizen trust and legitimacy must be restored.

Meeting report

Deputy Minister of Water and Sanitation introduction
Mr David Mahlobo, Deputy Minister of Water and Sanitation, said the presentation will explain the determined and signed off tariffs. Tariff determination is based on the National Water Act of 1998 and the Water Services Act of 1997. There are three types of tariffs, but the focus of the presentation is on the bulk water tariffs which were compiled by the Water Boards. The approval of the water tariffs must done by the Minister before the tariffs can be implemented. Some municipalities are involved and contribute to the bulk water charges. Retail prices will not be discussed in depth but the drafted tariffs by the water boards will be shared with the Committee.

Department of Human Settlements, Water and Sanitation briefing
Mr Mbulelo Tshangana, Director General: Department of Human Settlements, briefed the Committees on the progress of determining water value chain tariffs as well as outlining the applicable 2020/21 raw water charges and the proposed water boards tariffs. The whole value chain has to be evaluated. He outlined the legislation used in the determination of raw water charges, bulk water tariffs and the municipal tariffs. He pointed out the raw water legal entitlements to water and the different uses of water, with agriculture being the major water consumption activity at 60%. He highlighted the principles for tariff determination which include transparency, affordability, sustainability, financial viability and cost reflective.

Ms Amanda Sizana, Sanitation Manager: Department of Human Settlements, outlined the different stages of the process as well as the water value chain charges. She explained the economic regulator’s functions and tasks and mentioned that all tariff approvals have to go through the economic regulator before they can be approved by the Minister. A tariff database will be implemented in the future to ensure compliance with the economic regulator. Raw water charges have to be approved before 15 September every year so that the water boards can start with the tariff consultation process.

Ms Sizana noted the capping of charges and subsidies of raw water with an indication of how the different sectors are being charged as well as the budget planning and price setting cycle. She explained that tariffs have not increased steeply over the years and that only municipalities have a rising block tariff that can be levied while DWS and the water boards charge a single amount from the first kilolitre. She outlined a roadmap of how the charges are accumulated.

The Deputy Minister mentioned that some issues evolve around water provision and affordability.  

Amatola Water Board
Mr Luyolo Fokazi, CFO: Amatola Water, said that consultation with stakeholders took place in October 2019. The draft tariff proposals were presented and comments received from SALGA, National Treasury and DWS. The comments from stakeholders were addressed. The proposed tariff increase for the 2020/21 financial year is 8.2%. An approval for the proposal has not yet been received from DWS but a confirmation of the submission has been received and copies have been forwarded to stakeholders. 

Mhlatuze Water Board
A representative said that Mhlatuze has complied with the requirements of the Public Finance Management Act (PFMA) and that comments have been received from SALGA and the National Treasury, and its submission was made to DWS. Approval of the tariff proposal of 8.65% has not been received.

Bloem Water Board
Ms Limakatso Moorosi, CEO: Bloem Water, said that the cost infrastructure and maintenance of water treatment included the repayment of loans used to fund the infrastructure. The distribution of potable water to municipalities requires funding including the salaries and operations of the municipality.

Mr Ockert Stadler, CFO: Bloem Water, said that it is still a challenge to get municipalities to participate in the tariff process. There are still drought restrictions for Bloem Water and municipalities by DWS in the area and that the tariff proposal structure has an operation section which includes loans and capital. A tariff increase of 9% was proposed with a 1.5% provision for expansion. Bloem Water is challenged with non-paying municipalities which affects the budget and the tariffs. Comments from SALGA and National Treasury indicated that Bloem Water tariffs are either too low or too high. The tariff increase is sustainable and will ensure affordability.

Umgeni Water Board
Mr Thami Hlongwa, CEO: Umgeni Water, said that the tariff proposal is informed by the prediction of future demands and the implementation of capital expenditure. There have been energy and chemical cost increases over the years which is a major contributor to the Umgeni water treatment process. Capital expenditure of R17 billion was requested because of the rural environment that Umgeni Water operates in. Mr Hlongwa stated that the consultation process has taken place with stakeholders, and comments from the National Treasury pointed out that the R17 billion was too steep and may not be provided. SALGA was in support of the proposed tariff increase of 9.6% for both rural and urban areas. Schemes in rural areas are generally more expensive than those in urban areas.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Rand Water
The representative said that the consultation process has taken place and that its submission to DWS was made in January. The proposed tariff increase is 6.6% which is the lowest proposal compared to previous years and the proposed tariff’s key contributors were raw water, energy and chemicals. Stakeholders are in support of the proposed tariff.

Magalies Water Board
Ms Matshidiso Tabane, CFO: Magalies Water, said that consultation had taken place with all stakeholders on the new tariff proposal increase of 9%. There have been considerations of the electricity over-recoveries from the previous financial year and that Magalies water is moving to a uniform tariff.

Lepelle Water Board
Ms Sibongile Valoyi, Acting CFO: Lepelle Northern Water, said that consultation processes have been followed and challenges were experienced with municipalities. Municipalities are being serviced with water schemes and tariff proposals have been submitted to SALGA and National Treasury. Comments have been received from the stakeholders and are being addressed. A drought tariff was proposed due to the recent drought in the area. The proposed tariff increase is 8.5% which considered the socio-economic factors. 

Sedibeng Water Board
Ms Thembeka Busakwe, Finance Manager: Sedibeng Water, stated that the proposed tariff increase of 7.5% was presented to the municipalities in all regions. Submissions were made in January to DWS and a letter was received from the Minister on the tabling of the proposed tariff.

South African Local Government Association (SALGA) briefing
Councillor Thami Ngubane, Chairperson: SALGA Water and Sanitation Working Group, stated that the MFMA and Circular No 32 indicate that SALGA is supposed to be consulted in the decision-making process as a representative of municipalities and a key role player in the value chain of water provision. SALGA has a role to play in the final decisions on the water board tariffs. A report was received from all of the water boards on how the tariff adjustments were determined. SALGA has the responsibility of reviewing and evaluating the information received from the water boards to determine if the tariffs are sustainable.

Cllr Ngubane said that SALGA is concerned with the lack of consistency in employee related costs in all the water boards and some water boards have gone beyond the energy limit of 8.1% for the Eskom tariff. There are concerns on how the water boards calculated the chemical costs and repairs and maintenance as well as the raw water costs.

Ms Kgomotso Letsatsi, SALGA Chief Officer: Municipal Finance, Fiscal Policy and Economic Growth, stated that SALGA’s observations showed that water boards failed to provide operational efficiency in their operational expenditure. Not all the water boards demonstrated incorporation of capital expenditure in the tariff proposals.

She stated that Rand Water was the only supported water board. The proposed tariff was lower compared to the other water boards and she outlined the tariff comparisons between municipalities and water boards. She highlighted the costs drivers of the water boards which included staff, energy and chemical costs.

Ms Letsatsi gave an overview of the capital finance considerations for the water boards as well as the drought tariff. She noted the recurring challenges over the five-year submissions made by the water boards as well as the impact of COVID-19 on basic services affordability by consumers. She provided recommendations about the challenges and concerns.

Discussion
Mr C Brink (DA) raised concerns about the inflations by the water boards and the comments by SALGA on the tariff determinations. He asked the Deputy Minister if tariff determinations have been done. He raised concerns about the comments received by the Umgeni Water Board from SALGA. He asked the Deputy Minister if the factors for the Umgeni water tariff have been taken into consideration especially Treasury comments that the Umgeni tariff increase is caused by high executive salaries. He raised concern on the 9.6% tariff increase based on projected increase in electricity input costs of 14.6%. He argued that the 14.6% was above the standard applied for by Eskom which is 8.1%. There are no clear explanations from Umgeni and asked if the Minister has taken note of the criticism of Umgeni by SALGA. 

Mr M Mabika (DA) asked when the consideration for an independent regulator will be made by DWS as recommended by SALGA. He said that the compliance of water boards with Circular No 32 is useless if SALGA has not supported any of the tariff proposals, especially since all the water boards have different tariff proposals. He asked if SALGA has made suggestions on the tariffs.

Mr M Hoosen (DA) highlighted that none of the water boards provided any cost saving mechanisms to reduce tariff costs for consumers. There is a problem with the current system because water boards decide on the tariff increase amounts which are forwarded to municipalities for input and consumers have to suffer the consequences of this process. The tariff increase process needs to be reconsidered and water boards need to be held accountable because they have no contact with consumers who raise complaints to the municipalities. He asked for clarity on the Umgeni executive salary amounts which are beyond the national standard. He highlighted that the increases in executive salaries does not reflect willingness to cut costs. None of the water boards considered the consumers in the tariff increase process. He asked Umgeni Water for an explanation on the tender issue where an awarded company charged R1 billion more than the tenant and said that cost expenditure reduction was not considered. He asked the other water boards on the actions that have been taken to reduce expenditure and costs.

Ms M Mohlala (EFF) said that water use is determined annually and asked for the progress of DWS and local government in implementing a policy that will determine charges set at for three years. She asked about the challenges faced in the reduction of waste and how charges were determined for the different registered water users.

Ms H Mkhaliphi (EFF) stated that the tariffs proposed by water boards are not realistic considering that consumers are facing financial difficulties during COVID-19. She asked if there was a standard method of tariff determination especially as there were inconsistencies in the presentations by the water boards and SALGA on the support of the tariff proposals. She asked who the stakeholders of the water boards were as the high tariff increases do not reflect consumer and public participation as they will not afford the price hikes. She asked if SALGA was biased towards the other water boards except Rand Water because it has more financial capacity. She asked why tariffs proposals were approved if none of them complied with the MFMA and Circular No 32. She suggested that the Deputy Minister and the Portfolio Committees discuss the implementation of an independent water regulator to avoid different tariffs by water boards.

Mr M Mashego (ANC) indicated that the DWS presentation showed that Forestry was not included in the water charge and argued that nature consumes more water. He questioned the agreement of municipalities on the proposed water tariffs by water boards considering that SALGA, a representative of municipalities, did not support the tariff proposals. The consulted stakeholders should have included Members of Parliament. He argued that tariffs should not be increased because the proposed tariff will increase since municipalities have to add their own tariffs on the proposed tariffs which mean consumers will pay more.

Ms N Sihlwayi (ANC) said that DWS should have worked with the water boards in determining the tariff increases because water boards are DWS entities and should have similar responsibilities with DWS. The population of South Africa has to be protected, COVID-19 has crippled the Consumer Price Index (CPI) and consumers should not be punished with tariff price hikes which will increase poverty. The status of Rand Water is understandable but the other water boards went above the limit. She suggested a proposal that would consider pricing to improve consumer living standards. Water tariffs need to be reduced.

Mr K Ceza (EFF) said that the tariff proposals by water boards have serious consequences. He asked for the model that is used by water boards to determine tariffs and requested the public criticism received by water boards on the tariff increases. He asked the Deputy Minister about the penalty measures in place for mining companies that do not comply with environmental law especially because of the many cases of water contamination in areas surrounded by mines. He asked SALGA about the capacity building mechanism in place to persuade water boards to implement and develop more mechanism models.

Ms S Mokgotho (EFF) requested the pricing strategy examples used for natural disasters from DWS and asked if DWS has used the pricing strategies to increase the reserve funds for depreciation and future infrastructure. DWS has to protect citizens from contracting the coronavirus by ensuring the provision of water for the practice of proper hygiene. There is a school and clinic in the North West that have no access to water. How is DWS going to ensure that this matter is addressed? She asked Magalies Water how it planned on increasing tariffs when surrounding communities were still experiencing dirty water challenges and asked how consumers are expected to pay for the increased tariff. She asked Bloem Water on the high staff costs which are higher than the maintenance costs.

Mr M Tseki (ANC) proposed that the Deputy Minister, SALGA and both portfolio committee chairpersons discuss the matter raised. He said that members want the same achievements and proposed that DWS and SALGA return t their respective entities and engage in the issues and present the responses the following week.

Mr L Basson (DA) agreed with Mr Tseki’s proposal and highlighted that entities in the country are trying to cut costs but the water boards are increasing tariffs and that consumers are not being protected. a solution is to stop the tariff increases and implement an independent water regulator where tariff proposals are submitted and negotiated. The Minister cannot be a player and referee.

Ms E Powell (DA) asked the Director General about debt management and continual infrastructure investment. The City of Cape Town is increasing tariffs by 4.5% which is the lowest tariff increase in the country considering that Cape Town is drought stricken. The low tariff is a result of effective debt collection management and continual investments in maintenance and repairs. High tariff increases from water boards will result in municipalities not being able to recover water debts. She asked about COGTA’s plan in assisting municipalities to recover water debts. In 2019 the debt ratio was R14 million owed by municipalities to water boards. She asked how this was going to be resolved considering that consumers owe municipalities R165 million. She asked if water boards had drafted budgets and water tariff increase documents and if there was confirmation that the budget has been reduced to implement affordable tariffs. The Minister has to approve all the tariffs and that the economic regulator is not independent. She proposed that legislative amendments are done to ensure that the economic regulator is independent and asked if the Minister would support the establishment of an independent water regulator as previously proposed by the Minister of Finance.

Chairperson Muthambi supported Mr Tseki’s proposal for the water boards, SALGA and National Treasury to present responses in the next meeting. She pointed out that Members had similar concerns about the lack of transparency and consistency in the tariff determinations. Parliament demands transparency to ensure that consumers are protected. Citizen trust and legitimacy must be restored. All stakeholders have to present their responses on Tuesday 9 June.

Chairperson Semenya supported the proposal and said that SALGA and DWS have to work together with the water boards to fulfil the interests of the consumers.

Chairperson Muthambi thanked everyone for attending the meeting. Upcoming presentations by entities should consider all the questions and concerns raised by the Members.

Meeting adjourned.

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