JW Tariffs for 2005-2006

Friday 14 September 2007



In terms of the Johannesburg Water Turn-around Strategy (Scenario 2) which was approved by the City of Johannesburg Council on 29 April 2004, the tariff increase will not exceed 9% including the 3% real increase requirement. The proposed tariff structure for 2005/6 will fall within the same parameters. The following guidelines formulated the basis and the rationale for the determination of the proposed tariff for 2005/6:

Ÿ Users of municipal services should be treated equitably in the application of tariffs

Deemed consumption charges are currently not uniform across Johannesburg. Soweto, for example, is billed on a deemed consumption of 20kl per connection per month, whereas Alexandra is billed on a deemed consumption of 10kl per connection per month. As part of its Gcin’amanzi Project, JW is addressing the issues surrounding infrastructure rehabilitation and water consumption in the deemed consumption areas of Johannesburg. A component of the project is the installation of prepayment water meters where after customers will be charged for actual consumption of services.

Ÿ The amount individual users pay for services should generally be in proportion to their use of that service

In the proposed tariffs for 2005/06, no structural changes are motivated. The tariff would continue to be based on a rising block tariff structure. This allows for higher users of water to be charged increasingly higher marginal rates, and for the cross-subsidisation of lower users by higher users. Also, the top marginal rate for domestic consumers is the same as that for commercial and industrial consumers.

The subsidised rising block tariff for ex-deemed consumption areas (introduced in 2003/04) ensures that these customers are now charged proportional to usage following the on-site Gcin’amanzi interventions.

Ÿ Poor households must have access to at least basic services through:

s Tariffs that cover only operating and maintenance costs

s Special tariffs or life-line tariffs for low levels of use or consumption of services or for basic levels of services; or

s Any other direct or indirect method of subsidisation of tariffs for poor households

In facilitating access to basic services by the poor, JW has introduced the following measures to date:

For all households

s Free basic water of 6kl per household s A significantly reduced 20mm domestic connection tariff

For households benefiting from Operation Gcin’amanzi in deemed consumption Areas

s Free basic sanitation of 6kl per household s A subsidised water and sanitation rising block tariff s A consumption based tariff for both water and sanitation s Incentive based debt write-off policy

For households in informal settlements

s Free Service Levels 1 & 2 s Free water tanker services s Free vacuum tanker services

Ÿ Tariffs must reflect the cost reasonably associated with rendering the service, including capital, operating, maintenance, administration and replacement costs, and interest charges

This guideline has not been applied as the 4.7% CPIX price increase is below the 5.3% tariff increase applied by Rand Water for 2005/6.

Ÿ Tariffs must be set at levels that facilitate the financial sustainability of the service, taking into account subsidisation from sources other than the service concerned

Ÿ The economic, efficient and effective use of resources, the recycling of waste and other appropriate environmental objectives may be encouraged

The metering of deemed consumption areas through Operation Gcin’amanzi, in conjunction with the favourable tariff structure, is an important step towards the objective of the economic, efficient and effective use of resources.

With respect to recycling the treated effluent from the Northern Wastewater Treatment Works is delivered for cooling purposes and at no cost to the pump station located next to the works and managed by Kelvin Power Station.

Unfortunately Johannesburg does not have a large number of wet industries as these are typically situated at the coast - owing to lower sanitation treatment standards and charges. Therefore no additional recycling of treated effluent for industrial purposes is viable in the Johannesburg area.

Ÿ The extent of subsidisation of tariffs for poor households and other categories of users should be fully disclosed

Ÿ A new tariff application method for domestic customers conducting commercial activities on their residential premises in areas where prepaid meters have been installed has been proposed

Domestic customers in Soweto benefit from the 6kl/ month free basic water, which is being dispensed as part of Operation Gcin’amanzi and are being charged the associated domestic tariff. It has however been established that some domestic customers also conduct commercial activities on their residential premises. It is the intention of this submission that the application of the tariff in this case is reviewed.

It is there proposed that such customers should be charged a mixed use tariff, as prescribed in the Tariff Structure and continue to benefit from the 6 Kl /month free basic water in acknowledgement of their residential status.

Proposed tariffs for 2005/2006

The proposed 2004/05 water tariffs, listed below, reflect an increase of 7,7%. This increase corresponds to the 4.7 % CPIX inflation plus a 3 % increase as per the Johannesburg Water Turn-around strategy approved by the City Council on 29 April 2004.

Ÿ Proposed Domestic Water Tariff - Metered Areas

Kilolitres(per connection per month 2004/2005(R/kl) 2005/2006 Proposed Tariffs(R/kl) 0-6 Free Free 7-10 R3.60 R3.90 11-15 R4.80 R5.15 16-20 R6.00 R6.45 21-40 R7.19 R7.75 41 + R8.50 R9.15

Ÿ Proposed Domestic Water Tariffs in Previously Deemed Consumption Areas Fitted With Metered Connections as Per the Gcin’amanzi Project

Kilolitres(per connection per month 2004/2005 TariffsSubsidised measured(R/kl) 2005/2006 Proposed TariffsSubsidised measured(R/kl) 0-6 Free Free 7-10 R2.73 R2.95 11-15 R3.27 R3.50 16-20 R5.05 R5.45 21-40 R6.98 R7.50 41 + R8.50 R9.15

Ÿ Proposed Institutional and Industrial Water Tariffs

2004/2005 Tariff(R/kl) 2005/2006 Tariff(R/kl) Institutional R6.23 R6.70 Industrial/Commercial R8.50 R9.15

Ÿ Proposed Private Dwelling Domestic Sanitation Tariffs

ERF Size(m2) 2004/2005 Tariffs(R/erf/month) 2005/2006 Proposed Tariffs(R/erf/month) Up to and including 300m2 R 44.36 R 47.80 From 301m2 to 1000m2 R 86.33 R 93.00 From 1001m2 to 2000m2 R130.69 R140.75 Larger than 2000m2 R188.24 R202.75

Ÿ Proposed Domestic Sanitation Tariffs in Previously Deemed Consumption Areas Fitted With Metered Connections as Per the Gcin’amanzi Project

Kilolitres(per connection per month 2004/2005 TariffsSubsidised measured(R/kl) 2005/2006 Proposed TariffsSubsidised measured(R/kl) 0-6 Free Free 7-10 R1.60 R1.70 11-15 R1.80 R1.95 16-20 R2.88 R3.10 21-40 R3.98 R4.30 41-50 R4.85 R5.20 50 + R1.60 R1.70

Tariff Methodology

The implementation of a tariff methodology incorporating an activity based costing model has been considered for future years, particularly after completion of the turnaround strategy.

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