bulk water tariff for the 2009/10 financial...
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BULK WATER TARIFF
FOR THE
2009/10 FINANCIAL YEAR
01 JULY 2009
1
WATER AND ENVIRONMENTAL AFFAIRS PORTFOLIO COMMITTEE
1. Magalies Water-the Organisation
Established under the Water Services Act, 108 of 1997Originally Vaalkop Water BoardSchedule 3B Public Entity i.t.o PFMA
Primary Activity-Provider of Bulk Water Services
Secondary Activities-Bulk sanitation services, implementing agent, etc
Main sources of Raw Water abstractionPienaars RiverCrocodile River
2. Municipalities served
Municipality Province
• Modimolle Local Municipality (MoLM) Limpopo
• Nokeng Tsa Taemane Local Municipality (NTTLM) Mpumalanga
• Thabazimbi Local Municipality (TLM) Limpopo
• Moses Kotane Local Municipality (MKLM) North West
• Rustenburg Local Municipality (RLM)
• Bela Bela Local Municipality (BBLM)
• City of Tshwane Metro Municipality (CTMM)
North West
Limpopo
Gauteng
• Operational area covers 45 000 km² through two major catchments namely the Crocodile and Olifants.
• The Board operates across four provincial areas of North West, Limpopo, Mpumalanga and Gauteng.
5.Water Board Supply Area 4
Area of supplyArea of supply
Western region
Eastern region
3. Funding Philosophy
Self-funding Entity
No reliance on National Government Grants or Subsidies
Sufficient reserves to be an ongoing Entity
Operating on a commercial basis on business principles
4. Section 42 of MFMA
Consultation process on increase in price of bulk resources withMunicipalities and at intergovernmental level (with SALGA and National Treasury)
Governance point of viewtransparencyaccountability and reportingco-operative governance
5. Considerations in determination of tariffs
National Water Pricing Strategy i.t.o water use charges (raw water costs)
Administered Prices – regulation by National Government
Affordability to end Consumers
Financial sustainabilityrepayment of debtsrecovery of operations and maintenance costsrecovery of capital costs over a period of time
Inflation targeting-reasonable rate of inflation
6. Tariff principles and approach
Tariff StructureFixed charge and operations and maintenance charges
Scheme based tariff-Magalies Water supply from four various schemes across provinces
Computation of costs, benchmarking of data and determination of unit costs
Cash flow projections, computation of pro-forma tariffs and compliance with legislative processes.
Department proposed an increase of 17% on raw water costs (initial proposal of 22%)
Raw water costs is one of the major costs drivers rivers showing impact of raw water costs to tariff
7. Tariffs proposed by the Department and the impact
No Cost component Vaalkop Walmansthal Klipdrift Cullinan
1. Raw Water 0.69 0.34 0.28 0.59
2. Labour and staff costs 0.27 0.49 0.24 0.45
3. Electricity 0.29 0.32 0.27 0.34
4. Chemicals 0.19 0.19 0.21 0.21
5. Maintenance 0.06 0.26 0.18 0.22
6. Refurbishment 0.15 0.31 0.18 0.30
Economic indicators that may change as planning is performed long before the tariffs take effect
Pricing Strategy-PPI+10% component fundamentally drives the increase of raw water costs above inflation
The whole water supply chain is not regulated (e.g.-no regulation at the raw water tariff increases & at retail level)
Cost drivers increased by more than the Government Inflation target of 3%-6% (e.g-Electricity, Chemicals, raw water costs)
Lost Revenue to a minimum of R11m as a result of the Minister’s directive to reduce the bulk water tariff increases by 5%
8. Challenges during the consultation process
Reduction in Revenue of a Water Board in light of decrease in demand by the Industrial Consumer
Increase in the number of Indigents due to downsizing and retrenchments
Reductions in income of Households affecting affordability of water by the end consumers
Recession affects the viability and delay in implementation of intended CAPEX development plans
High input costs due to reduced demand therefore not leading to benefits on the economies of scale
Idle Infrastructure
9. Potential impact of economic recession
Tariffs proposed by Magalies Water still affordable to end consumers-moving from a low base
Bulk water tariffs are a component in the supply chain and impact on the end consumer depends on the costs passed by the Municipalities.
10. Proposed bulk tariff increases and impact to end consumer
No Municipality Water Scheme tariff 08/09 %increase tariff 09/10
1Modimolle Local
Municipality Klipdrift 2.36 10% 2.60
2Bela Bela Local
Municipality Klipdrift 2.36 10% 2.60
3 City of Tshwane Klipdrift 2.28 10% 2.51
4Nokeng tsa Taemane Local
Municipality Walmansthal 2.69 14% 3.07
5Nokeng tsa Taemane Local
Municipality Klipdrift 2.28 10% 2.51
6Nokeng tsa Taemane Local
Municipality Cullinan 2.97 6% 3.15
7Moses Kotane Local
Municipality Vaalkop 2.15 6% 2.28
8Thabazimbi Local
Municipality Vaalkop 2.15 6% 2.28
9Rustenburg Local
Municipality Vaalkop 2.15 6% 2.28Weighted average
increase 7%
11.Questions?Khothamani VilakaziGM: FinanceKhothamaniv@magalieswater.co.za
Letlhogonolo MotlhodiGM: Water ServicesLetlhogonolom@magalieswater.co.za
Lebogo PhatelaManager: Business DevelopmentPhatelal@magalieswater.co.za
Thoane SengfengManagement AccountantThoanes@magalieswater.co.za
14
THANK YOU
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