Rand Water TARIFF CONSULTATION OCTOBER 2016

DWS / TCTA raw water pricing30 th September 2016 Customer consultation and information sharing Consultation with National Treasury and DWS for input10 th October 2016 Consultation with SALGA11 th October 2016 Consultation with Water Services Forum12 th October 2016 Submission to DWS, Treasury and SALGA for input13 th October 2016 Customer notification8 th December 2016 Submission to DWS for Parliamentary approval25 th January 2017 Parliamentary approval15 th March 2017 Implementation 1 st July 2017 DRIVERS Municipal Finance Management Act: 6 months advance notice National Treasury & SALGA: 40 days for consideration Bulk Water Supply Contract: prior consultation and information sharing PROCESS AND IMPORTANT TIMELINES 2

OVERALL INTERNAL INFLATION The concern with the overall inflation is that it continues to remain very close to the upper limit of the 3% - 6% range. Over the past four years, CPI has continued to remain very close to the upper limit. It therefore becomes difficult to expect the bulk potable water tariff to be within this range. 3 Rand Water’s tariff is determined by the cost of doing business in the year that the tariff will be applicable, that is

CHEMICAL COSTS Exchange Rate (R/US$) Turbidity The erratic rainfall pattern has proved to be a challenge in terms of planning. Heavy downpours over long periods of drought increases the turbidity of the raw water, thus increasing required chemicals. This has been witnessed in the past and is expected to continue into the future, in particular during this drought period. 4 2.Exchange Rate An important component of chemical costs is that some of the chemicals are imported. Therefore, the strength of the Rand with regards to chemical cost projections is important. 3.Poor Monitoring of Effluent Discharge Rand Water has, over the years, expressed its concern with regards to the poor monitoring of effluent discharge in the Vaal River system. This has a direct impact on the cost of purifying the water. At the same time, the raw water that Rand Water purchases from DWS has a Catchment Management Charge.

ALTERNATIVE 2 : APPLYING THE LOWER ENERGY INCREMENT 5 LABOUR COSTS Labour8.75%8.25%8.10%8.35%8.55% In an environment where CPI is expected to remain above the 3% - 6% range, labour costs are also expected to be significantly up. Economic projections show that very difficult salary and wage negotiations will not abate. The water sector including local councils and Rand Water are anticipated to face the same challenge.

ALTERNATIVE 2 : APPLYING THE LOWER ENERGY INCREMENT OTHER EXPENSES Over the years other expenses have always increased by CPI. This trend is expected to continue. The major cost items are as follows: Other ExpensesR m% Maintenance, R & R and general repairs177.2 Ministerial Directives/Rural development75.3 Corporate Social Responsibility projects47.0 Insurance30.1 Transport costs41.6 Rehabilitation and sludge removal21.3 Security services33.7 Laboratory testing equipment13.3 Cleaning contract16.8 Skills development levy10.6 Municipal services11.5 Marketing & stakeholder relations8.0 IT services - software maintenance & licenses21.3 Staff recruitment4.4 Reports and surveys3.5 Sub-total % Other29.25% % 6

PROPOSED TARIFF Rand Water is currently charging 756 cent per kl. Rand Water is also rebating to customers cents per kl arising from the AMD charge, effectively 736 cent per kl. The proposed new price is 833 cents per kl. Therefore, from gazette price to proposed gazetted price, Rand Water is proposing a 10.2% tariff increment. MunicipalitiesCurrent Tariff (1 July 2016 – 30 June 2017) Rebate (1 July 2017 – 30 June 2018) New Tariff (1 July 2017 – 30 June 2018) Tariff Increment ≈ 2.9% 10.2% C/kl Tariff Excluding VAT at 14 per cent cents ≈ Excluding VAT at 14 per cent Excluding VAT at 14 per cent 7

DEMAND-SIDE MANAGEMENT TO ACHIEVE A 15% CURTAILMENT ON URBAN USERS IN RAND WATER’S AREA OF SUPPLY 8

9 JOHANNESBURG WATER (SOC) LTD 05 Sept KL/day 05 Sept KL/day 26 Sept KL/day 26 Sept KL/day KL/day reduced KL KL/day reduced KL % reduced 19 Sept % % reduced 19 Sept % % reduced 26 Sept % % reduced 26 Sept % 15% reduced KL/day 15% reduced KL/day EKURHULENI 05 Sept KL/day 05 Sept KL/day 26 Sept KL/day 26 Sept KL/day KL/day reduced6 303 KL KL/day reduced6 303 KL % reduced 19 Sept % % reduced 19 Sept % % reduced 26 Sept % % reduced 26 Sept % 15% reduced KL/day 15% reduced KL/day

10 TSHWANE 05 Sept KL/day 05 Sept KL/day 26 Sept KL/day 26 Sept KL/day KL/day reduced KL KL/day reduced KL % reduced 19 Sept % % reduced 19 Sept % % reduced 26 Sept % % reduced 26 Sept % 15% reduced KL/day 15% reduced KL/day EMFULENI 05 Sept KL/day 05 Sept KL/day 26 Sept KL/day 26 Sept KL/day KL/day reduced KL KL/day reduced KL % reduced 19 Sept % % reduced 19 Sept % % reduced 26 Sept % % reduced 26 Sept % 15% reduced KL/day 15% reduced KL/day

11 MOGALE 05 Sept KL/day05 Sept KL/day 26 Sept KL/day26 Sept KL/day KL/day reduced KLKL/day reduced KL % reduced 19 Sept % reduced 19 Sept % % reduced 26 Sept % reduced 26 Sept % 15% reduced KL/day15% reduced KL/day

Stepped Tariff The split of allocation between customers is based on the data as presented by COO. In the event that physical water restrictions fail to yield results, Rand Water wants to have an opportunity to impose a stepped tariff The model for the stepped tariff (using collective AADD, but applied to each customer’s relative allocation) is: First step at AADD = 3683 Ml/d, from 3683 Ml/d to 3783 Ml/d.= Normal tariff + 20% Second step at AADD = 3783 Ml/d, from 3783 Ml/d to 3873 Ml/d = Normal tariff + 40% Third step at AADD = 3873 Ml/d, from 3873 Ml/d to 3973 Ml/d = Normal tariff + 60%. Final step at AADD = 4073 Ml/d, from 4073 Ml/d = Normal tariff + 100% EXAMPLE : JOHANNESBURG WATER (SOC) LTD 05 Sept KL/day 05 Sept KL/day 26 Sept KL/day 26 Sept KL/day KL/day reduced KL KL/day reduced KL % reduced 19 Sept % % reduced 19 Sept % % reduced 26 Sept % % reduced 26 Sept % 15% reduced KL/day 15% reduced KL/day Pros: It sends a message that normally works Cons: It implies that there is additional water, as long as it can be paid for, is available when there is none. 12

13 These are the amounts that Rand Water has accumulated and must be paid back to customers Total 2014 – When the Eskom tariff was revised, the tariff was revised downwards. Total 2015 – Municipalities agreed to a Water Demand Management Fund Total AMD – This arose when the AMD charge was not included in the raw water charge by DWS Each municipality is due this amount Therefore, an opportunity exists for each municipality to utilise these funds for the water restriction effort. The concern is that this may not happen Amounts to be paid back to municipalities

14 THANK YOU

PROCESS AND IMPORTANT TIMELINES 15