AGRI SA REPORT: NATIONAL CONSULTATION REGARDING THE DEPARTMENT OF WATER AFFAIRS’ PROPOSED WATER TARIFFS FOR 2010/2011
A consultation meeting of the Department of Water Affairs with stakeholders in the respective water use sectors of the economy took place on 15 September.
The department for the first time released its annual financial statements. According to the department it had received a clean audit report on its financial statements for the year ended 31 March 2009. An asset register was completed in accordance with Generally Accepted Accounting Practice (GAAP). The shortfall (loss) for the year amounted to R1,5 billion. Income for the year compared to the previous year increased by 4.01%, as a result of increased tariffs, while expenditure increased by 1.78% in relation to the previous year. The department continues to experience cash flow problems as a result of outstanding debt and must therefore make use of overdraft facilities. According to the department, shortcomings in the current Pricing Strategy for Raw Water Use gave rise to the loss situation.
The results achieved with the ‘Sakhile Project’ (“to verify and value the department’s infrastructure assets”) indicate that the department’s infrastructure is ageing. A R10 billion backlog is experienced, which indicates that urgent strategic adjustments are needed to the pricing structure (funding model) to ensure the long-term sustainability of this infrastructure. The current income levels are insufficient to allow for proper maintenance and upgrading.
The review of the Pricing Strategy is regarded as an important priority with a view to developing a funding model that would include all users within the value chain. According to the department, the model should steer future price determination and, as a public document, should influence the consumptive use of water. The department therefore believes that all stakeholders should be approached inclusively to make appropriate contributions around the pricing of water.
The process of reviewing the pricing strategy is as follows:
· The establishment of a reference group consisting of representatives of water users and stakeholders;
· Clarification of a project proposal, principles and desired outcome;
· Time frame (which is probably ambitious): The project kicks off in September and will be completed by July 2010 so that the tariffs for 2011/2012 can be calculated according to the new ‘model’.
The proposed tariff adjustments in the irrigation sector for 2010/2011 are as follows:
· Water Resource Management Costs (WRMC) in the respective water management areas amount to between 12.71% and 30%;
· The increase in the water resource infrastructure cost is based on the depreciation charge, which is set at 1.5c per cubic metre for 2007/08 and has since been increased in line with the production price index (PPI); and
· Maintenance and operational costs (O&M) are limited to 50% (tariff increases therefore vary between 0 and 50%).
Last year Agri SA requested the department to conduct a study on the affordability of water tariffs, which will now probably enjoy attention within the department’s proposed study. We have also registered objection to the ‘Head Office cost component’ reflected in this year’s tariffs without prior consultation. This cost has been omitted for next year. We also asked that the O&M for the schemes that are not yet subject to full cost recovery be limited to 20% and that a zero rate should apply to depreciation costs. In response to Agri SA’s request, the department agreed to a 30% limit on O&M for 2009/2010 but, because of the provisions of the Pricing Strategy, it did not approve a zero adjustment to depreciation charges.
Agri SA, in consultation with Johannes Möller, chairman of the Natural Resources Committee, decided that a proposal be motivated for the department to place a ceiling of 25% on the O&M costs for the 2010/2011 financial year while it also requested that the increase in WRMC should as a maximum reflect the inflation rate.
Nic Opperman
Director: Natural Resources
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