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www.salga.org.za Water Governance and Economic
Regulation Dialogue
www.salga.org.za
7 STRATEGIC GOALS
1) Accessible, equitable, sustainable services
2) Safe and healthy environment and communities
3) Coherent local planning & economic development
4) Effective, responsive and accountable local governance for communities
5) Human capital development in LG
6) Financially and organizationally capacitated municipalities
7) Effective and efficient SALGA administration.
3 APEX PRIORITIES:
1. Review of legislative & policy framework impacting negatively on LG.
2. Review of LG fiscal & financial management framework.
3. Improved municipal capacity.
Differentiatiated Approach to Managing Local Government
…
…
SALGA MANDATES 1. Representation 2. Employer Body 3. Capacity Building 4. Support and Advisory Role 5. Profiling Role 6. LG Knowledge Hub
SALGA 5 YEAR STRATEGIC PLAN
2012-2017
INTER / NATIONAL CONTEXT 1. MDGs & Global Commitments 2. National Development Plan &
other national plans/policies 3. MTSF 4. LGTAS 5. Electoral Mandate (2011)
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278
Municipalities
NORTHERN
CAPE
WESTERN
CAPE
EASTERN
CAPE
NORTH WEST
FREE STATE
KWAZULU
NATAL
LIMPOPO
PROVINCE
MPUMAL-
ANGA
GP
152
8 Metros
21 DMs
123 LMs
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Agriculture 62% Domestic 27% Urban 23% Rural 4% Mining 2.5% Industrial 3.5% Power generation 2.0% Afforestation 3.0%
CONTEXT
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1st Tier National security and assurance of supply
2nd Tier 11 Regional supply to WSA’s
3rd Tier Local service delivery
DWA
BULK PROVIDERS
MUNICIPALITIES
(WSA’S)
CONTEXT
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‘Easier’ ‘Harder’
Make up of
municipalities
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Context
• Huge backlog of infrastructure assets and lack of sufficient financial and
personnel posed a huge challenge since 1994
– Water is a key issue raised in service delivery protests
– Rehabilitation of infrastructure estimated at about R20 billion a year for
next 20 years
• Many municipalities are struggling with financial viability
• Sustainable water and sanitation provision is critical
– for health and well-being
– for economic development
• There are clearly challenges of governance in water sector
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Financing (Capex and Opex)
Local Government Infrastructure Grants 2000-2012 (adjusted for inflation)
8 Source:NT
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How are operations and maintenance funded?
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Table W1.22 Amounts per basic service allocated
through the local government equitable share
Allocation per household below affordability
threshold (Rands)
Total allocation
per service
(R millions) Operations Maintenance Total
Energy 54.20 6.02 60.22 6 289
Water 83.78 9.31 93.09 9 722
Sanitation 68.40 7.60 76.00 7 937
Refuse 57.34 6.37 63.71 6 654
Total basic services 263.72 29.30 293.03 30 603
Source: NT
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The water services authority (WSA) and water services provider (WSP) functions can be summarised as follows:
WSA FUNCTION (Governance Function)
•Ensuring access to water services •Bylaws and regulation •Policy development •Tariff determination •Allocation of equitable share and financial planning and decision making • Financial management (budget) •Infrastructure development •Prepare water services development plan (WSDP) •Selecting Water Services Provider institutional arrangements •Taking Transfer
WSP FUNCTION (internal or external) (Actual Provision Function)
•Daily operations and repairs •Maintenance •Customer management •Credit control & debt collection •Health and hygiene awareness •Service provision business planning •Providing information
WSA AND WSP
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Who are the players
Sector Leader
Referee “Regulator”
Sector Supporter
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Areas of Regulation
within the municipal
context
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The National Regulatory
Regime
Social regulation
Drinking Water & Technical
regulation
Environmental health
regulation
Water resources regulation
Economic regulation
regulatory domains
Setting rules or standards, granting approvals
Monitor, analyse , publish
Enforce or intervene
Set social policy and allocate
subsidies
Social outcomes Pro - poor tariffs
Withdraw subsidy
Set DWQ standard
Drinking water quality
Fines? Direct
intervention
Define standard Approve
technologies
Construction and operation;
Health practices
Fines? Direct
intervention
Set licence conditions;
Allocate licences
Compliance with licence
conditions
Fines; Withdraw Licence.
Set pricing rules Approve tariffs
Tariffs & performance
Adjust prices. Direct
intervention
Small but potentially significant role
Significant role Key
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Local Regulatory Regime/Domains
Contract management
Economic
regulation
-
Effluent Discharge
of industries
Monitoring Bylaws enforcement
Sound regulatory Relationship with WSP
with clearly defined KPIs
Monitoring of agreed KPIs and having
appropriate systems in place
Infrastructure
investment and appropriate costing
and tariff setting
Compliance with and
enforce bylaws.
Enforcement protocol norms and standards
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Regulatory scope Regulatory Functions
Regulatory Objectives Regulatory inter-dependencies
Retail water tariffs and service standards
Set rules for determination of retail water tariffs. Assess compliance with retail tariff determination rules and make recommendations.
Ensure reasonable charges for retail water to customers.
Sustainability of institutions. Norms and standards complied with.
Monitor costs for compliance with drinking water quality
standards. Costs of compliance with water quality service standards (SANS 241).
Consumer protection.
Health
Monitor reliability of supply (strategic asset management). Specifying asset Conditions.
Norms and standards complied with. Technical/social
Customer protection.
Norms and standards complied with.
Monitor efficiency and serviceability of supply Specifying efficiency and or performance
targets.
Benchmarking.
Technical/social
Service coverage. Service coverage targets met. Social
Dispute resolution/regulatory review. Deal with disputes/appeals.
Contractual/legal 15
Regulatory – Approach
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Local government economic regulation
• Local government is both a price taker and a price fixer
• Price taker
– On water supplied by DWA/TCTA, Water Boards, Water User
Associations
• Price fixer
– For water supply and sanitation services
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Economic
Regulation
• The Strategic Framework for Water Services (SFWS) provides that WSAs
will regulate (1) the investments, (2) tariffs and operating efficiency of
internal and external water services providers (economic regulation).
• Furthermore the Regulation Strategy explains that the objective of
economic regulation is to ensure that services that are provided to
consumers by the WSPs are appropriate, effective and sustainable.
• The six case studies suggests that economic regulation is an area that
needs attention - related to tariff setting, investment and the matters
related thereto.
• Sector - tariffs that are set by WSAs are not cost reflective of the true
costs of providing water services which has the effect of undermining the
financial sustainability of the municipality’s water business.
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Emerging Findings
• The degree of funding adequacy varies substantially between
WSAs.
• Most Cat-C WSAs are ‘almost totally’ grant dependent
- Major maintenance = rehabilitation or refurbishment - Funding amounts sourced from Financial Statements and E-share allocations
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• Notes a as required …..
Assets deteriorating at
alarming rate
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WSA/WSP Contracts
• Having a contract in place is not necessarily an indicator of a
sound regulatory relationship as in many of the case studies,
the contracts have been problematic,
• It has been observed that contracts between WSA’s and Private
sector tend to be more water tight.
• In addition private providers are more thorough about abiding to
contract as they are accountable to shareholders
• Whilst public providers tend to blur this distinction as institutional
lines between the WSA and the WSP are misty
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Case Studies
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WSA Province Delivery Mechanism WSP
Category A Municipalities
1 City of Joburg Gauteng External Joburg Water Pty Ltd
2 City of Cape Town Western Cape
Internal
Category B Municipalities
3 Mangaung Free State Internal and external
Bloem Water
4 Mbombela Mpumulanga External and Internal Silulamanzi
Category C Municipalities
5 Chris Hani DM Eastern Cape External Local Municipalities
6 Ilembe DM KZN Mix of Internal and External
Concession
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Enforcement:
Contracts
• Easier to enforce contract with external WSP
• The problem regarding the enforcement of contracts appears to arise in
instances where there is no real separation between the WSA and the
WSP as in the case of CHDM and the City of Joburg.
• An effective regulator needs to have the capacity and the ability to
monitor compliance with and enforce its water service bylaws as well as
its contracts with its external WSPs.
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Capacity to
Regulate
• Effective regulation requires that the WSA has
dedicated capacity and resources in place so that the
WSA can fulfil its regulatory role.
• It is critical that the WSA has a regulatory unit which
consists of people with the necessary legal, financial
and technical skill as well as those who understand the
intricacies of the water business.
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www.salga.org.za
The regulatory challenge…
Service delivery and management
Asset development and maintenance
Financial requirements (taxes, tariffs,
transfers)
Service quality (quantity, quality,
reliability, affordability)
Water users (raw water and
potable water)
Poor understanding of actual
service provision costs; under-(or
over)-recovery; poor asset
management
Inadequate investment in O&M
refurbishment, development; poor
service management; unaffordable
services; poor billing and revenue
collection; lack of value for money
Poor service delivery; high costs to
government, users, environment
and human health; impacts on
ability to achieve national
development objectives
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Programme Going
forward
• Economic Regulator – evolving within DWA
• Operational Regulatory Standards in place (blue and Green Drop)
• Operational performance – Benchmarking
• Funding - Local Government Infrastructure Funding – under review
• Costing of services
• Tariffs - Pricing Strategy norms and standards
• SALGA championing enhancement of local regulation domains and
enforcement
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