1. 1 WATER BOARDS AND WATER TARIFFS Water boards are established in terms of the Water Services Act, 1997, as organs of State. They are categorised as National Business Enterprises, in terms of Schedule 3B of the Public Finance Management Act, and are therefore subject to the regulations of the relevant legislation. The primary activity of Water Boards is to provide water services to other water services institutions within their respective service areas. They may perform other activities under certain conditions set out in section 30 of the Water Services Act, 1997. The Water Boards are regulated by the Minister in terms of the Water Services Act, 1997 and the PFMA. Water Boards submit to the Minister, on an annual basis, shareholder compacts (business plans) and policy statements a month before the beginning of each financial year. For the planning period 2006/07 to 2010/11, Water Boards complied with this requirement and all the shareholder compacts were submitted on time to the Department. Overview

2. 2 WATER BOARDS AND WATER TARIFFS After the end of apartheid, South Africa’s newly elected Government inherited huge services backlogs with respect to access to water supply and sanitation. Approximately 15 million people were without safe water supply and over 20 million without adequate sanitation services. Since then, the country has made satisfactory progress with regard to improving access to water supply. Certain problems, such as the financial sustainability of investments and the lack of sufficient access to sanitation. Key features that distinguish the South African water and sanitation sector from other countries are the following: The existence of an important institutional tier between the national and local Government in the form of Water Boards. Strong linkages between water supply and sanitation and water resources management through these Water Boards. A strong governmental commitment to high service standards and the high levels of investment subsidies to achieve those standards. A policy of free basic water and sanitation. Relatively stable and successful private sector participation in water supply. A strong water industry with a track record in innovation. Mandate and legislative framework

3. 3 WATER BOARDS AND WATER TARIFFS The water and sanitation sector in South Africa is organised in three different tiers: Municipalities, which provide most retail services and also own some of the bulk supply infrastructure. Water boards, which provide primarily bulk water, but also some retail services and operate some wastewater treatment plants, in addition to playing a role in water resource management. The national Government, represented by the Department of Water Affairs and Forestry as a policy setter. The banks, the private operators, the professional associations, the Water Institute for South Africa (WISA), the Water Research Commission (WRC) and Non- Governmental Organisations (NGOs) also play important roles in the sector. Responsibility for water supply and sanitation

4. 4 WATER BOARDS AND WATER TARIFFS Role of the Water Board Water boards are established in terms of the Water Services Act, 1997 as organs of State. They are categorised as National Government Business Enterprises, in terms of Schedule 3B of the Public Finance Management Act (PFMA), 1 of 1999, and are therefore subject to the regulations of the relevant legislation. Water boards play a key role in the South African water sector. They operate dams, bulk water supply, infrastructure, some retail infrastructure and some wastewater systems. Some also provide technical assistance to municipalities. Through their role in the operation of dams, they also play an important role in water resources management. The Water Boards report to the Department of Water Affairs and Forestry. The following water boards exist in South Africa: Amatola; Botshelo; Bushbuckridge; Ikangala; Lepelle Northern; Magalies; Mhlathuze; Namakwa; Overberg; Pelladrift; Rand; Sedibeng; Umgeni; and Albany Coast. The 15 Water Boards together indirectly served more than 24 million people in 90 municipalities in 2005.

5. 5 WATER BOARDS AND WATER TARIFFS 2009 The three largest Water Boards – Rand, Umgeni and Overberg indirectly serve 10 million, 4 million and 2 million respectively. Rand Water has more than a 100-year history in the Gauteng area, and buys water from DWAF, treats it and sells it to large industries, mines and municipalities. The Water Boards have associated themselves in the South African Association of Water Utilities (SAAWU), which also includes a few municipal water companies. Role of the Water Board

6. 6 WATER BOARDS AND WATER TARIFFS In 1994, the Government published its first White Paper on Water and Sanitation Policy, which led to the Water Services Act of 1997. The act modified the role of Water Boards, providing a clear legal definition of the functions of Water Boards and municipalities. Water boards have historically been the only bulk water providers. Municipalities were obliged to buy water through them. The Act allowed municipalities to develop their own bulk water supply infrastructure or to buy bulk water from providers other than Water Boards. Conversely, it also allowed Water Boards to provide retail water services at the request of municipalities. Since the Act has been passed, the capacity of both Water Boards and many water service providers has increased significantly. Chapter Six of the Water Services Act, No 108 of 1997, provides the legislative framework in which water boards operate. In terms of the Act, the primary activity of a water board is to provide water services to other water services institutions within its service area. Water boards must enter into formal service provision agreements with the water service authorities (municipalities) in their service areas. Legislative mandate

7. 7 WATER BOARDS AND WATER TARIFFS The Act allows water boards to enter into other activities as long as these activities do not affect their ability to perform the primary activity and they should not jeopardise the financial viability of the Water Board and its ability to serve its customers and users in its service area. Members of the Water Board are appointed by and are accountable to the Minister of Water Affairs and Forestry, and they must ensure that the Board performs within the parameters defined by the Act, and according to the Board’s agreed policy statements and business plans. Some difficulty has been experienced where municipalities have not been prepared to enter into service provision agreements with water boards. There has been uncertainty as a result of Section 78 processes being undertaken in terms of the Municipal Structures act. An institutional review of regional water services is currently being undertaken together with the South African Local Government Association (SALGA), the Department of Local Government; and the South African Association for Water Users (SAAWU) in order to clarify the future role of the Water boards in relation to municipalities. Legislative mandate

8. 8 WATER BOARDS AND WATER TARIFFS WATER PRICING AND TARIFFS There are six stages of water tariffs and charges in the water cycle: Raw water tariff (water resources development charge). Bulk water tariff. Retail water tariff. Sanitation charge. Bulk waste-water tariff. Waste water discharge. The charging system is complemented by nationally funded subsidies for infrastructure and ongoing services to poor households. The municipal infrastructure grant (MIG) and equitable share to local government are meant to complement municipal resources to enable municipalities to provide access to water and sanitation services.

9. 9 WATER BOARDS AND WATER TARIFFS The tariff charged by water boards to municipalities is regulated by the Department. Several factors influence the tariffs that water boards charge. These include the actual purchase of the raw water, cost and methods used in the purification of water and financial viability and capital investment requirements to be addressed by the water board. The average bulk price charged by water boards was R4.06 per kl in 2006/07, with the highest bulk tariff charged by Mhlathuze Water Board in Kwazulu- Natal (R7.13 per kl), and the lowest bulk tariff charged by Magalies Water Board, which supplies potable water to parts of the North West, Gauteng, Limpopo and Mpumalanga (R2.09 per kl). This suggests that there is considerable variance in the price of treated bulk water from water boards, which has implications for municipalities’ retail water price setting as bulk forms a large proportion of the overall retail tariff. The Department prescribes norms and standards for water services tariffs as provided for under section 10 of the Water Services act, 1997. These are aimed at promoting socially equitable, financially viable and environmentally sustainable tariffs. Water pricing and tariffs

10. 10 WATER BOARDS AND WATER TARIFFS Although the water services authority will either be setting tariffs or deciding the parameters within which tariffs are ser, water service providers may in some circumstances, also set tariffs within the prescribed parameters. The regulations, however, apply to all water services institutions and no water services institutions may use a tariff, which is substantially different from any prescribed norms and standards. Water pricing and tariffs

11. 11 WATER BOARDS AND WATER TARIFFS The Municipal Finance Management Act requires that water boards submit proposed tariff increases to National Treasury for written comments. The submissions below were analysed by the National Treasury: Asset Management Investment Analysis. The proposed tariff increase is determined for the period 1 July 2009 to 30 June 2010. The following overview highlights the submissions containing the proposed tariff increases for each of the Water Boards (2008/09 and 2009/10): Proposed water tariff increases

12. 12 WATER BOARDS AND WATER TARIFFS Proposed water tariff increases (PER KL.) NamakwaR3.69 to R3.99 Umgeni2 sets of tariffs – eThekwini R3.019 to R3.215 and Water Services Authorities (Umsundisi; Umsundlundlu; Ugu and Siza) at R3.079 to R3.279 RandR3.04 to R3.54 SedibengR4.98 to R5.58 RandR3.04 to R3.54 LepelleR0.92 to R1.14 BotsheloR2.66 to R3.27 BushbuckridgeR2.94 to R3.07 AlbanyR3.85 to R4.10

13. 13 WATER BOARDS AND WATER TARIFFS BloemR3.24 to R3.95 OverbergCaledon – R2.32 per cubic metre to R2.59. Witsand – R5.93 to R6.76 Slangribier – R2.80 to R3.03 Heiderburg – R2.80 to R3.03 Farmers – different categories MagaliesProposed an average increase of 12.75% in the cost of bulk potable water. Increases ranging from 6-19% for the different municiplities. Pelladrift18% for municipalities. 80% for the Black Mountain Mine. MhlathuzeProposed an 18% weighted tariff increase for bulk potable water, bulk raw water and bulk effluent for the period, average weighted tariff increase presented in the corporate plan was 6.3%. AmatolaProposed average increase of 10% for Buffalo city Municipality and 11% for Amathole Municipality.