1. TARIFF CONSULTATION PROCESS
Rand Water
TARIFF CONSULTATION PROCESS 1

2. PROCESS AND IMPORTANT TIMELINES
Involvement of National Parliament’s Portfolio Committee in the Tariff Consultation Process
- Therefore, this becomes a matter for the Board of Rand Water
DWS / TCTA raw water pricing 30th September 2015
Customer consultation and information sharing 12th October 2015
Submission to Treasury and SALGA for input 26th October 2015
Customer notification 11th December 2015
Board Approval of Submission to DWS 24th January 2016
Submission to DWS for Parliamentary approval 25th January 2016
Parliamentary approval 15th March 2016

3. 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
DWS must table tariff increases to Parliament on or before 15th March 2016
Implementation on 1st July 2016

4. OVERALL INTERNAL INFLATION
The projections provided by the Bureau for Economic Research (BER) show that CPI will remain very close to the upper limit of the key CPI range of 3 per cent – 6 per cent.
Over the past three years, CPI has remained very close to the upper limit.
This continues a heavy burden on the economy and in particular, the water sector.
CPI Forecasts By Bureau for Economic Research (BER)
Tariff Consultation Cycle
2016
2017
2018
2019
2020
CPI
5.70%
6.20%
5.60%
5.40%
5.50%
ENERGY
Eskom applied to NERSA in November - December 2014, way outside the normal water tariff consultation cycle.
Another application to increase the tariff to an average 25% was finalised by NERSA in July 2015.
NERSA refused the application, but Eskom have an opportunity to reapply anytime during the year.
Current tariff levels are applicable for the 3 years.

5. REVISION OF RAW WATER TARIFF INCREMENT
On 9th March, 2014, the Department advised Rand Water that the raw water tariff had been adjusted. The following table was attached to demonstrate these changes
In the table above, the revision for Rand Water is highlighted in red. According to this table, Rand Water’s raw water tariff was affected by a change in the CMA charge from 2.49 cents to 2.50 cents. In an engagement with the Department, it was agreed that there was no impact on Rand Water’s tariff. 5

6. REVISION OF RAW WATER TARIFF INCREMENT
This was confirmed by the table below which shows that Rand Water’s raw water tariff remained at cents. Therefore Rand Water’s tariff remained unchanged.

7. RAW WATER TARIFF INCREMENT
The raw water tariff for 2015 / 2016 has been revised by the Department from cents to cents, which impacts the financial year commencing 1st July 2015.
The revision of the raw water tariff after the Gazette has serious impact on the tariff consultation process for water boards. This also creates a high level of uncertainty.

8. RAW WATER TARIFF INCREMENT
Acid Mine Drainage (AMD)
The Honourable Minister has not decided on the cents for AMD.
This presents a significant challenge to Rand Water as the tariff consultation process commences

9. LABOUR COSTS CHEMICAL COSTS
Over the past five years labour costs have been significantly above the inflation target of 3 – 6%. The recently concluded cycle witnessed gruesome labour negotiations almost leading to industrial action.
The tough negotiations are expected to increase as CPI is expected to uptick beyond the 3% - 6% CPI range.
BER Projections
2016
2017
2018
2019
2020
Wage rate (%)
8.45%
8.25%
8.35%
8.15%
8.55%
CHEMICAL COSTS
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.
The following reasons have seen the Rand placed among the top five worst performers against major international currencies over the past year;
The growing strength of the US dollar coupled with increasing pressure on the Chinese economy have negatively affected the Rand.
Declining commodity prices
The significant size of SA exports to China, and the primary goods export nature of South African exports.
Taking into consideration CPI, this will significantly affect chemical costs
BER Forecast Exchange rates
2014
2015
2016
2017
2018
2019
2020
R/$
10.76
11.08
12.63
12.68
12.82
12.95
13.15

10. Proposed Tariff
Therefore, the proposed tariff for 2016/17 is 11.9 per cent.
Municipalities
Current Tariff
(1 July 2015 – 30 June 2016)
New Tariff
(1 July 2016 – 30 June 2017)
% Tariff Increment
13.5%
11.9%
C/kl
Typical Tariff for Municipalities
Excluding VAT at 14 per cent

11. PROPOSED TARIFF Treatment of 23 cents 1st April 2015 1st April 2016
DWA / TCTA
Raw Water
1st July 2014
1st July 2015
1st July 2016
1st July 2017
8.1%
13.5%
11.9%
Rand Water Tariff
1st July 2015
1st July 2016
Treatment of 23 cents
For the remaining 3 months, from 1st April 2016 to 30th June 2016, DWS has indicated that the AMD charge will be 13 cents rather than 23 cents.
Therefore, this amount is then deducted from the 23 cents that was applicable for the full financial year.
In essence, for the three months, the amount set aside as deductible is the difference between 23 cents and 13 cents, that is 10 cents.
In the previous calculation, Rand Water had put in DWS assumptions for its outer 3 months that apply from 1st April 2015 to 30th June 2015.
Given the mismatch in financial years, Rand Water’s last months are estimated by DWS and projected from DWS’s basket of raw water input costs.
The AMD charge of 23 cents does not appear in the prior year’s tariff consultation process.
Rand Water’s tariff increment was calculated based on the 23 cents for AMD charge.
Therefore, this is the calculation and refund that Rand Water then utilised for calculation.

12. PROPOSED TARIFF Current Tariff – 1st July 2015
Rand Water’s current tariff is cents, a 13.5 % increase from the previous year.
Removal of AMD Charge
This current tariff has been impacted by requirement to exclude 23 cents (AMD Charge) in the current 2015/16 financial year.
Process to Adjust a Gazetted Tariff
Rand Water’s current tariff was approved by Portfolio Committee and gazetted.
The change of a gazetted tariff requires a special consultation from the Ministers of Finance; and Water and Sanitation.
Rand Water has to devise a plan to address this anomaly.
Therefore, the proposed tariff for 2016/17 will thus be cents, a 11.9 per cent increase on cents.
Rebate / Setting Aside A Fund for AMD Charge
However, an opportunity still exists to rebate customers
In the proposed tariff for the coming financial year, Rand Water will pay back (average cents) the differential to each municipality on a monthly basis based on volumes sold in the current year.
However there is no guarantee if this AMD charge is implemented again or
DWS and National Treasury believe that the AMD charge should be implemented as originally intended.
Municipalities
Current Tariff
(1 July 2015 – 30 June 2016)
New Tariff
(1 July 2016 – 30 June 2017)
(1 July 2016 – 30 June 2017) (including rebate / set aside)
% Tariff Increment
13.5%
11.9%
(9.0%)
C/kl
Tariff
Excluding VAT at 14 per cent
excluding rebate / set aside cents

13. THE WATER DEMAND MANAGEMENT FUND
Non revenue water among Rand Water’s municipal customers has continued to worsen rather than improve. In 2005, the national average stood at approximately 27%. In Gauteng, the challenge was to improve these water losses to 15%. However, the national average now stands at 36.8%. The table below shows that non revenue water in Gauteng has worsened from 21.8% in 2005 to 35.9% in the 2011.
Name
2005
2011
Joburg Metro
20.6%
38.2%
Ekurhuleni Metro
23.8%
39.8%
Tshwane Metro
14.0%
26.5%
Emfuleni
47.6%
44.4%
Mogale
18.2%
26.0%
Metsimaholo
35.2%
17.2%
Rustenburg
32.3%
39.0%
Midvaal
23.0%
26.2%
Merafong
25.9%
Randfontein
12.5%
21.9%
Westonaria
10.3%
29.7%
Lesedi
14.9%
8.2%
Ngwathe
1.2%
24.9%
Kungwini
28.7%
43.0%
Gauteng
21.80%
35.90%

14. CONCLUSION – PROPOSED TARIFF
In line with a well-established approach, Rand Water’s internal inflation is 11.9 per cent. Rand Water therefore proposes an 11.9 per cent tariff increment for the 2016 / 17 financial year with another 1 per cent allocated to the Water Demand Management Fund.
In total Rand Water proposes a 12.9 per cent tariff increment applicable to ALL customers.
A rebate / set aside is recognised and will be deducted on a monthly basis based on volume sales in the financial year ending 30th June 2016.
Municipalities
Current Tariff
(1 July 2015 – 30 June 2016)
New Tariff
(1 July 2016 – 30 June 2017)
(1 July 2016 – 30 June 2017) (including rebate / set aside)
% Tariff Increment
13.5%
12.9%
10.0%
C/kl
Tariff
Excluding VAT at 14 per cent
excluding rebate / set aside cents

15. CONCLUSION – STEPPED / STAGGERED TARIFF
Important Issues
The exceedingly high and increasing current levels of water demand demonstrate that there is an urgent need to manage water demand by our current municipal customers.
The El-Nino effect and current heat wave has exerted enormous pressure on the whole system.
These growing levels have exerted enormous pressure on Rand Water’s infrastructure.
It is likely that water rationing is an increasing reality.
With this in mind, a stepped tariff, based on exceeding maximum demand by each customer, will be implemented.

16. Thank You

17. Summary of Tariff Utilisation
PROPOSED TARIFF
Rebate / Setting Aside A Fund for AMD Charge
However, an opportunity still exists to rebate customers
In the proposed tariff for the coming financial year, Rand Water will pay back (average cents) the differential to each municipality on a monthly basis based on volumes sold in the current year.
However there is no guarantee if this AMD charge is implemented again or
DWS and National Treasury believe that the AMD charge should be implemented as originally intended.
Summary of Tariff Utilisation
Water purchases, being the greatest individual cost to the organisation utilise R2.75 (36%) of the proposed tariff, followed by capital expenditure R1.51 (20%).
It’s important to note that borrowings of R1.02/kl sold is required to fund the balance of the CAPEX program requiring a further 34c/kl sold, to service the loan.
Energy continues to be an ever increasing cost driver at R1.40 (19%) and Labour at R1.10 (15%). The remaining R0.99 ( 6%) is equally split between chemicals and other costs.
Municipalities
Current Tariff
(1 July 2015 – 30 June 2016)
New Tariff
(1 July 2016 – 30 June 2017)
(1 July 2016 – 30 June 2017) (including rebate / set aside)
% Tariff Increment
13.5%
11.9%
(9.0%)
C/kl
Tariff
Excluding VAT at 14 per cent
excluding rebate / set aside cents