Public Hearing on Municipal Tariff Guideline Increase for 2007/08 Financial Year

Public Hearing on Municipal Tariff Guideline Increase for 2007/08 Financial Year Background Process / Milestones Guideline for 2007/08 Recommendations

Public Hearing on Municipal Tariff Guideline Increase for 2007/08 Financial Year Background NERSA issue an annual guideline to assist municipal budget process 2006/07 guideline – included indicative 2007/08 (5.4%) Revised views on inflation and other costs Based on Eskom tariffs (purchase cost), labour, maintenance, cost of capital, other operating costs

Public Hearing on Municipal Tariff Guideline Increase for 2007/08 Financial Year Background (contd) Revised inflation views (5.8% for 2007/08 and 6% for 2008/09) Eskom retail tariff structural adjustments – will not have an effect in 2007/08 but in 2008/09 Revised guideline – 5.6% for 2007/08 and 6.1% for 2008/9

Public Hearing on Municipal Tariff Guideline Increase for 2007/08 Financial Year Process / Milestones Guideline for 2007/08 (5.6%) and indicative guideline for 2008/09 (6.1%) submitted to Pricing and Tariffs Subcommittee – 15 November 2006 Concerns / conditions raised and noted/addressed Regulator approval – 30 November 2006 Guideline Letter to all Municipalities – 15 December 2006 Re-sent to all Municipalities mid January 2007

Process / Milestones (contd) Public Hearing on Municipal Tariff Guideline Increase for 2007/08 Financial Year Process / Milestones (contd) NERSA guidelines on the process to consider municipal tariff applications … submitted to Pricing and Tariffs Subcommittee – 14 March 2007 Recommended process: to hold public hearing to discuss municipal tariff guideline – for all municipal applications within guideline To hold separate public hearing for municipalities applying for increase outside of guideline

2007/2008 2008/2009 COST LINE ITEM MUNIC % OF TOTAL COST EXPECTED INCREASE % WEIGHTED AVERAGE EXPECTED INCREASE Purchases 67% 5.6% 3.7% 6.2% 4.2% Salaries and Wages 11% 5.8% 0.5% 6.0% 0.6% Maintenance/ Refurbishment/ Recapitalisation 5.0% 0.2% 0.3% Capital charges in total 7% 0.4% Other charges (including contribution to capital and funds, charges from and to other munic departments and general expenses). 10% % increase without lag effect 6.1%

Public Hearing on Municipal Tariff Guideline Increase for 2007/08 Financial Year Recommendations: a guideline increase of 5.6% be approved for 2007/08 financial year. An indicative guideline increase of 6.1% for 2008/09 be approved and communicated to municipalities. Municipalities should be informed that of the approved revenue at least 5% must be used for normal maintenance Should a municipality request additional funding for abnormal maintenance, the application should contain the following additional information:- A detailed plan should be submitted to NERSA Six monthly reports will then have to be submitted to NERSA on project progress in a ring-fenced format. Where the funds are not utilised appropriately, these should be clawed-back in the next review period Any increase above the guidelines should be appropriately motivated for and ring-fenced for consideration by the Regulator.

Thank you