Framework for Economic Regulation
of Water
Services
in Municipalities
Implementation of Water
Services
Economic
Regulation
DWA WP10540
14 June 2013
1
Index
Water Pricing Chain
Water Revenue Management Process
Economic Regulation of Water Services
Norms & Standards for tariff setting
Water Tariff Models
Debt Management Process
2
Water pricing chain
Waste
discharge
charge
Water resource
management
charge
Water resource
management
1
7
Treatment and return
of water to the
resource
6
Raw water from rivers,
dams, boreholes and
springs
Raw water tariff
(water resource
development
charge)
Bulk waste
water tariff
Waste water collection
Sanitation
charge
2
Bulk water treatment
and bulk water
distribution
5
3
Consumer
Retail water
tariff
4
Reticulation of water to
consumers
Bulk water
tariff
22 May 2013
3
Water pricing chain
Waste
discharge
charge
Water resource
management
charge
Water resource
management
1
7
Treatment and return
of water to the
resource
6
Raw water from rivers,
dams, boreholes and
springs
Raw water tariff
(water resource
development
charge)
Bulk waste
water tariff
Waste water collection
Sanitation
charge
2
Bulk water treatment
and bulk water
distribution
5
3
Consumer
Retail water
tariff
4
Reticulation of water to
consumers
Bulk water
tariff
22 May 2013
4
Problems in water pricing chain – Water Services
Municipal
Debt
(Apr 2013)
Reasons
• Municipalities owed water boards R3.4 billion for bulk water provided
• R28 billion owed to municipalities for water supply (90 days+)
• Invoices submitted in absence of a signed contract
• Different interpretations related to contractual provisions or
disagreements as to validity of an agreement
• Disagreement with quality of service provided and cost of service
• Cash flow constraints
• Personnel changes, loss of institutional memory
• Disagreements over interest charges on overdue accounts
• Municipal problems with revenue collection and effective credit control
• High levels of non-revenue water at municipal level and impact on
revenue collection and cost recovery
5
Water Revenue Management Process
Economic Regulation of Water Services
• No part of the water value chain is subject to formal economic regulation
• Constitution provides for national government to regulate water services
• Minister does not have authority to regulate water tariffs directly
Cannot set or approve tariff levels
Must rely on Norms & Standards for WSIs (Section 10 of the Water Services Act)


• Price or economic regulation is not the only type of water services regulation
Functions:
o
o
o
o
Consumer protection
Service quality regulation
Price or economic regulation
Competition regulation
Tasks:
o
o
o
Set rules & make approvals
Monitor, analyse & publish
Enforce, decisions & intervene
• DWA role: Act as regulator of water services from a national perspective

WSAs and WSPs (municipalities) have a role to play at local government level
7
DWA Functions & Tasks (National level)
DWA Functions & Tasks (National level)
Impact of Economic Regulation on WSAs & WSPs
Impact of Economic Regulation on WSAs & WSPs
Limitations of existing Section 10 Norms & Standards
Limitations
• Do not provide for separation of functions, roles or
responsibilities
• Do not differentiate between Water Services Authorities (WSA)
and Water Services Providers (WSP)
• Do not make provision for Water Boards (Bulk WSP)
• Do not provide for ring fencing of WSPs
• Do not address Water Boards tariffs (only household)
• Do not adequately address sanitation services
• Do not provide for compulsory metering by WSAs
• Do not provide for any geographical differentiation
• Do not provide for drought or seasonal tariffs
• Do not provide for tariff determination or disclosure
New Norms & Standards for WSAs & WSPs
Separation of
functions (WSA/WSP)
Ring fencing
Procedure for tariff
setting
Determination of
tariffs
Disclosure of tariffs
Water supply function
provides for –
Determine required
revenue
Meter all water supply
services
Publish a Consumer
Charter
• Preparing separate
budgets & financial
statements
• Separate setting of
tariffs
Provide for water
resource segmentation
Limited cross
subsidization allowed
• Cost recovery
• Loan repayments
• ROA & net surplus
Establish future water
consumption
Differentiate between:
•
Categories of
services
• Percentage of water
revenues allocated to
other functions
•
Levels of services
Allocate required revenue
to each category
Tariffs for:• Household use
• Industrial & nonhousehold use
• Droughts & seasonal
(Special tariffs)
Transfers & grants for
basic water supply
services to indigent
registers only
Provide for rising block
tariffs, fixed charges
Consult with consumers
Inform stakeholders on
assumptions & tariffs:•
DWA
•
Other (e.g. SALGA,
National Treasury)
Disclose to public:•
Website and/or
Annual Report
•
Consumer invoices
Water Tariff Models (WTM)
DWA legal mandate

Regulate water services; can not set or approve tariffs at municipal level

Monitor and enforce compliance by providing means to set tariffs according to Norms and
Standards
Using a WTM for setting tariffs

Most municipalities fail to manage water services effectively; setting of tariffs a major task

Not advisable to prescribe a WTM for municipalities due to a lack of capacity, competency,
etc. within municipalities to implement and operate a WTM

Progressive approach should be followed whereby municipalities first implement, and
comply with, prescribed Norms and Standards

Norms and Standards contain pro-forma templates or work sheets that will force
municipalities to follow prescribed processes
Role of Water Tariff Models (cont.)
Various WTMs developed or in process of being developed for determining municipal water tariffs
Transparent Tariff
Toolkit
•
•
•
•
Used by National Treasury and SALGA
Provides a guide for local government
Developed to test transparent tariffs over various municipalities
Includes items like Water, Electricity, Sanitation and Solid Waste in
tariff modelling
• Includes a comprehensive guide
Water Services
Financial Model
•
•
•
•
Advanced model currently being developed for DWA
Based on National Treasury described budget process
Model not yet completed; requires refinement and validation
Consulted and tested with major metro’s and also smaller
municipalities
• Aligned with, and support Norms and Standards
Debt Management Process
Debt Management Process (cont.)
THANK YOU
18