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Document Name: BI5 Water Tariffs

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This document has been opened: 1 865 times to date.
Date Of Release: 30 Mar 2013
Date Of Expected Review:
Date Last Updated: 15 Feb 2007
Document Type: Reports
Document Level: National
Department: Water & Sanitation
Contact Name: Allestair Wensley
Phone Number: 012 336 8767
Fax Number: 012 336 6609
Email: WensleyA@dws.gov.za
Directorate: Water Macro Planning
Contact Name: Allestair Wensley
Phone Number: 012 336 8767
Fax Number: 012 336 6609
Email: WensleyA@dws.gov.za
Topics covered:
Financials
Document Precis:

BI5 WaterTariffs (2012-2013) FINAL DRAFT

Section Summary

  Section Number Section Heading Section Description
     1 PURPOSE OF DOCUMENT To present the municipal water supply tariffs and related evaluations to check compliance with tariff regulations and broader socio-economic objectives. This is not a compliance audit or regulation check. It primarily presents the status quo with strategic interpretation and directives.
     2 KEY INDICATORS & MESSAGES from this report: ? The real value of water is not fully reflected in the current tariffs and it can be expected that the cost of water services will rise when water resources become limited and/or water quality deteriorates; ? The revenue streams from water services are generally not ring-fenced and limit the use of tariffs as a financial instrument for improved water resources management and service quality; ? Significant progress has been made in the setting of policy, a pricing strategy, regulations, norms and standards for water services tariffs. This report reflects on the progress made in implementing them; ? For the 2012/2013 financial year, water services tariffs have increased by more than the CPI and in some cases also exceeded the PPI. o Raw water tariffs increased by about 7% (12% previous year) o Bulk water tariffs increased by about 5% (14% previous year) o Municipal water tariffs increased by 15% and 40% (8 - 12% prev.year) o Municipal sanitation tariffs increased by about 10% ? Above-average increases are mainly due to the steep rise in electricity tariffs and the cost of water treatment; ? High tariffs increases were noted this year, particular in the lower basic services component (e.g. block-1) and around 15% for the high-end water users: o 41% average increase for block-1 [0 to 6kl] (1% previous year) o 15% increase for block-2 [6 to 20kl] (8% previous year) o 18% increase for block-3 [20 to 60kl] (10% previous year) o 15% increase for block-4 [>60kl] (12% previous year) ? Population- and volume-weighted averages show same trends as above with very high increases (41%) in the low blocks and lower increases in the higher blocks (around 10%). ? Bulk wastewater tariffs have not been included in this report (future addition)
     3 EXECUTIVE SUMMARY & KEY INDICATORS Water services tariffs are an important indicator of the affordability and viability of water supply and sanitation services. This report assesses the water supply and sanitation tariffs along the supply chain from source to tap and along the waste streams from tap to source.
     4 Introduction Water is a scarce resource in South Africa and must be managed carefully to ensure beneficial use for current and future generations. Such water demands include basic domestic water for healthy living and various economic and social uses. The Constitution and the Bill of Rights explicitly note the right to health and wellbeing, access to food and water, and the right to have the environment protected. Water is thus a basic right and all people must have access to at least the basic level of service. Water is also recognized as a key resource to assist in the alleviation of poverty and special legislation has been promulgated to ensure free basic water to all poor households. Water users have a corresponding responsibility, namely, to use water services responsibly and with due care, and to pay for services provided over and above the free basic water and free basic sanitation allocations. To supply water to all people at an acceptable level of assurance, quality and accessibility costs money, both in terms of capital investment into infrastructure and the operation and maintenance costs associated with water treatment, bulk water distribution and reticulation within human settlements. Water supply is also a key resource for effective sanitation services. It is essential for sanitation health and hygiene but also serves to transport domestic and industrial waste (grey water, sewerage and industrial effluent) to wastewater treatment works. To sustain both the water supply and sanitation services it is essential to recover costs and to maintain financial viability. Paying for water is a key principle and a mechanism to ensure that the water is used effectively and sparingly. To achieve above principles, suitable tariffs must be set by all relevant water services institutions involved in the water services cycle. The criteria for the setting of tariffs and the procedures are described in various legislation and regulations, notably the water acts, the Pricing Strategy for Raw Water Use Charges and the Water Services Tariff Regulations. This document evaluates the current water services tariffs against the key principles and objectives of legislation and in support of DWAs role to ensure equitable, effective, affordable and sustainable water services to all people.
     5 Values of Water Tariffs should also consider the value that users attach to the water, specifically if
water is scarce and where demand exceeds supply. The value can be
measurable in financial or economic terms, but mostly is also influenced by
intrinsic and strategic values that are difficult to measure.
The following paragraphs list some of the most important values that can be
associated with water use (reference: WWAP 2005):

? Social value: water is a basic need for healthy living and hence carries a
high social value, particularly for those who do not have access to
effective water supply. These people rank water, together with food and
shelter, as their most important needs. Access to water is recognized as
a basic human right in South Africa and plays an important role in human
dignity, social equality and recreation.

? Scarcity value: if water is scarce, water users are generally prepared to
pay more for it (supply & demand principles). Water scarce areas mostly
also have higher water costs due to extensive water distribution systems.

? Environmental value: the environment is recognized as preferential user
(Reserve) and by default gets the first / assured water. In areas of
endangered animal and plant species or environmental conservation, this
water has a higher value than other users.

? Strategic value: this is evident in the fact that basic domestic water is one
of Government’s strategic development goals. Water is furthermore a
critical resource for power generation and industries that ensure national
independence and international competitiveness.

? Economic value: One of the main goals of water is to support economic
development in the country and to help with the creation of jobs and a
better quality of life for all people.

? Financial value: The financial value of water is essentially the purchasing
cost per unit volume. It however comprises various elements such as
infrastructure costs, operating and maintenance costs, distribution costs,
management and overhead costs, profits and levies.

     6 Cost Elements of Water Services Tariffs One of the financial measurements of water is the cost per cubic meter paid by consumers (e.g. the water tariff). Currently, water tariffs are determined in various ways, seldom reflecting the actual values of water. This document is a step towards better understanding of the tariffs and the driving forces influencing it. The tariff values are mostly based on the production cost (treatment & pumping), sometimes include socio-political objectives (e.g. cross-subsidization), but seldom reflect the full sustainability and conservation aspects (e.g. scarcity, social and environmental values). The water resource management charge (WRM charge) partly addresses the latter. The main cost areas are: ? the raw water cost (WRM charges, water abstraction costs) ? bulk water distribution costs ? water treatment cost ? internal water reticulation costs ? sewerage collection costs ? wastewater treatment costs The cost elements within the above may include: ? establishment costs (plan, construct & commission) ? operating costs ? maintenance costs ? refurbishment costs ? management costs (overheads, cost of cost-recovery, customer service) ? financing costs In addition the following cost influencing factors may apply: ? type of water source (ground water, surface water, recycle water) ? location, distance & topography (bulk supply cost factors) ? raw water quality (influencing water treatment costs) ? economy of scale ? margins to achieve demand management objectives Unfortunately, the costs and revenues of water services are not ringfenced in most municipalities. This report can therefore only do generic analyses, using available data on raw water charges, bulk water supply charges (water boards) and municipal retail tariffs (domestic and other end user tariffs).

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