bulk water tariff for the 2009/10 financial...

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


3 City of Tshwane Klipdrift 2.28 10% 2.51

4Nokeng tsa Taemane Local

Municipality Walmansthal 2.69 14% 3.07




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: [email protected]

Letlhogonolo MotlhodiGM: Water [email protected]

Lebogo PhatelaManager: Business [email protected]

Thoane SengfengManagement [email protected]

14

THANK YOU

bulk water tariff for the 2009/10 financial...

Documents