prior consultation and information sharing DWS must

Report
Rand Water
TARIFF CONSULTATION PROCESS
1
PROCESS AND IMPORTANT TIMELINES
DWS / TCTA raw water pricing
9th October 2014
Customer consultation and information sharing
14th October 2014
Submission to Treasury and SALGA for input
14th October 2014
Customer notification
8th December 2014
Submission to DWS for Parliamentary approval
25th January 2015
Parliamentary approval
15th March 2015
2
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 2015
•
Implementation on 1st July 2015
3
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. In 2014,
CPI is projected at 5.9 per cent and 5.7 per cent in 2015, both very close to the upper limit.
Consumer Price Index
12.0%
10.0%
10.0%
8.0%
5.9%
6.0%
5.9%
5.7%
5.6%
5.7%
4.0%
2010
2011
2012
2013
2014
2015
CPI and PPI Forecasts By Bureau for Economic Research (BER)
Financial Year Beginning 1st July
2014
2015
2016
2017
2018
2019
CPI (headline)
5.9
5.6
5.7
5.6
5.6
5.6
PPI
7.7
6.0
5.7
5.5
5.3
5.3
4
RAW WATER TARIFF INCREMENT
Rand Water received an effective raw water tariff increment of 8.77 per cent. This is an increment from
R2.8182 cents per kilolitre to R3.0654 cents per kilolitre for the financial year beginning 1st April 2015. This
is composed of the TCTA component which is decreasing by 1% from R2.32 to R2.29. The DWS
component introduces a new element, i.e. AMD. Therefore this is an increase from R0.5 cents per kilolitre
to R0.77 cents per kilolitre, an effective 55% increment. The raw water charge is 23 cents as shown in the
table below.
Actual R/m 3
2012/13 2013/14 2014/15
TCTA Vaal River tariff
Capital Unit Charge (CUC)
LHWP1 tariff
LHWP2 tariff
Combined CUC (incl LHWP1 & 2, AMD)
Bulk Operating and Royalties (BO&R) charge
Total Augmentation (TCTA) Vaal River tariff
State Schemes
AMD O&M tariff
State schemes O&M
DWS
Total raw water tarif
TCTA Vaal River tariff
DWS
Total raw water tarif
1.98
0.10
2.08
2.08
2.09
0.11
2.20
2.20
2015/16
Proposed R/m 3
2016/17 2017/18
1.69
0.11
1.80
0.5176
2.32
1.69
0.6000
2.29
1.82
0.68
2.50
1.65
0.67
2.33
0.46
0.46
2.67
0.50
0.50
2.81
0.23
0.54
0.77
3.06
0.28
0.58
0.86
3.36
0.65
0.61
1.26
3.59
5.91%
5.21%
6.85%
5.49%
-1.01%
54.93%
8.84%
8.89%
12.06%
9.68%
-6.92%
46.71%
6.81%
5
RAW WATER TARIFF INCREMENT
These projections place a challenging consultation process in front of Rand Water. The
effective tariff increment of 8.77% is way above the inflation range of 3 – 6%. It is important
to remember that raw water constitutes above 47% of Rand Water’s cost structure.
The additional challenge is that over the years, this has varied wildly, as shown below. This
makes any multi-year tariff exercise extremely difficult.
History of DWA Raw Water Tariff Increments
60%
55.93%
50%
40%
30%
28.60%
20%
15.70%
8.67%
10%
8.00%
0%
0%
-10%
-5.30%
-20%
-30%
6.27%
6.50%
3.10%
-24.18%
2005/6
History of DWA Raw Water Tariff Increments -5.30%
6
2006/7
2007/8
2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
0%
3.10%
15.70%
28.60%
6.50%
-24.18%
8.67%
8.00%
6.27%
55.93%
110%
LABOUR COSTS
•
•
•
The increasing capital expenditure
requires that Rand
Water’s labour pool matches this increasing crucial
requirement.
Rand Water is proud that it continues to meet its annual
capital expenditure (in Rand terms and actual work
undertaken).
Rand Water and the water sector are represented by the same
organised unions.
Staff costs
2009
2010
2011
2012
2013
2014 FC
2015 BU
Staff costs excl Inc
827,763
950,782
1,056,891
1,269,889
1,462,072
1,422,365
1,515,197
Project Expenditure (R m)
9. Capital expenditure (as a % of budget) (Stretch is limited to 5% variance from budget)
108.0%
105%
102.6%
100%
Headcount
827,763
872,555
964,909
1,087,336
1,232,162
1,422,365
1,515,197
2990
3029
3030
3153
3214
3284
3551
5%
11%
13%
13%
15%
7%
2014
2015
2016
2017
2018
2019
2,322
2,750
2,766
2,929
2,988
2,306
1%
0%
4%
2%
2%
8%
CHEMICAL COSTS
95%
95%
95%
95.0%
95%
95%
95%
95%
2012
95%
102.6%
2013
95%
108.0%
96.2%
95%
93.0%
90%
90%
85%
2008
Target 95%
Actual 90%
90%
2009
95%
95.0%
2010
95%
93.0%
2011
95%
90%
2014
95%
96.2%
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. There is an expectation that
as the US economy continues to recover, this will put more pressure on the Rand. If the Rand devalues,
this will increase chemical costs. Taking into consideration CPI, chemical costs are expected to increase
by 13%.
BER Forecast Exchange rates
2014
2015
2016
2017
2018
2019
R/$
10.76
11.08
11.29
11.32
11.25
11.30
7
40%
Tariff Versus Input
Cost Inflation
Tariff Versus Input Cost Inflation
Tariff
Energy - Eskom
Energy - Municipalities
35%
Raw Water
Chemicals
Labour
Other
30%
CPI
25%
20%
15%
10%
5%
Tariff
Energy - Eskom
Energy - Municipalities
Raw Water
Chemicals
Labour
Other
CPI
2010
14.10%
35.0%
35.0%
9.2%
11.6%
8.1%
10.0%
10.0%
2011
12.90%
25.2%
37.7%
7.4%
10.0%
10.7%
5.9%
5.9%
2012
11.30%
16.7%
29.2%
8.5%
12.5%
8.2%
5.7%
5.7%
2013
9.82%
15.0%
15.0%
8.7%
8.9%
8.0%
5.9%
5.9%
2014
8.10%
10.1%
10.1%
6.2%
9.4%
8.5%
5.6%
5.6%
2015
17.1%
18.5%
11.1%
13.0%
8.7%
5.7%
5.7%
8
Tariff Versus Input Cost Inflation
Tariff Versus Input Cost Inflation
40%
Tariff Versus Input Cost Inflation
40%
Tariff
Energy - Eskom
Energy - Municipalities
35%
35%
Raw Water
Chemicals
Labour
30%
Other
30%
CPI
25%
25%
20%
20%
15%
15%
10%
10%
5%
- Eskom
- Municipalities
ater
cals
2010
14.10%
35.0%
35.0%
9.2%
11.6%
8.1%
10.0%
10.0%
5%
2011
2012
2013
12.90%Tariff11.30%
9.82%
- Eskom15.0%
25.2%Energy
16.7%
- Municipalities
37.7%Energy
29.2%
15.0%
7.4% Raw Water
8.5%
8.7%
10.0%Chemicals
12.5%
8.9%
10.7%Labour
8.2%
8.0%
5.9% Other 5.7%
5.9%
5.9% CPI
5.7%
5.9%
2014
2010
14.10%
8.10%
10.1%
35.0%
10.1%
35.0%
6.2%
9.2%
11.6%
9.4%
8.5%
8.1%
10.0%
5.6%
10.0%
5.6%
2015
2011
12.90%
17.1%
25.2%
18.5%
37.7%
11.1%
7.4%
13.0%
10.0%
8.7%
10.7%
5.7%
5.9%
5.7%
5.9%
2012
11.30%
16.7%
29.2%
8.5%
12.5%
8.2%
5.7%
5.7%
2013
9.82%
15.0%
15.0%
8.7%
8.9%
8.0%
5.9%
5.9%
2014
8.10%
10.1%
10.1%
6.2%
9.4%
8.5%
9
5.6%
5.6%
COMPARISON BETWEEN RAND WATER AND SALGA
PROPOSED TARIFFS
Tariff Versus Input Cost Inflation
In the previous tariff
cycle, Rand Water
noted that there were
no differences. This
can be attributed to
two
important
points;
• Continuous cycle
of engagements
14.10%
14%
Rand Water Proposed Tariff Increment
13.50%
SALGA Proposed Tariff Increment
12.90%
Difference
12%
11.30%
10%
9.82%
9.49%
8.50%
8%
8.40%
8.00%
8.10%
8.10%
8.00%
6%
5.60%
5.60%
4.50%
5.50%
4.50%
•
This year, SALGA
attended
the
assessment
of
water
boards
session held on
3rd
–
5th
September 2013
4%
3.30%
2%
1.10%
0.33%
0%
Rand Water Proposed Tariff
Increment
SALGA Proposed Tariff Increment
Difference
0.00%
2014
2008
2009
2010
2011
2012
2013
5.60%
11.30%
14.10%
12.90%
13.50%
9.82%
8.10%
4.50%
1.10%
8.00%
3.30%
8.50%
5.60%
8.40%
4.50%
8.00%
5.50%
9.49%
0.33%
8.10%
0.00%
10
Proposed Tariff
Rand Water Tariff = Rand Water Internal Inflation for Financial Year Ending 30th June 2016
Price
Forecast
Percent
Weighted
Year-End ~ 30 June
increase
2016
of total
%
Rm
%
%
DWA
TCTA
Raw Water
Energy - Eskom
Energy - Municipalities
Chemicals
Multi-Partnered Uncontrollable Costs
Labour
Depreciation
Other
Total
43.7%
3.2%
11.1%
17.1%
18.5%
13.0%
13.1%
8.7%
25.5%
5.7%
1122
3306
4428
1057
936
347
6768
1647
353
615
9383
12.0%
35.2%
47.2%
11.3%
10.0%
3.7%
72.1%
17.6%
3.8%
6.6%
100.0%
5.2%
1.1%
6.3%
1.9%
1.8%
0.5%
10.6%
1.5%
1.0%
0.4%
13.5%
Target bulk tariff increase
Bond Raised (R m)
13.5%
11
1340
OVERALL INTERNAL INFLATION
Rand Water is also expected to enter capital markets to raise at least R1.340 billion.
The proposed 2015/16 potable water tariff will thus be as follows:
Municipalities
Current Tariff
New Tariff
(1 July 2014 – 30 June 2015)
Tariff
(1 July 2015 – 30 June 2016)
C/kl
C/kl
595.520224
675.915454
Excluding VAT at 14 per cent
Excluding VAT at 14 per cent
12
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%
26.0%
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%
13
THE WATER DEMAND MANAGEMENT FUND
The 2014 figures are subject to final audit process.
Financial Year Ending 30th June
Ml / d
City of Joburg
1565
Ekurhuleni
967
Tshwane
605
Emfuleni
209
Mogale City
83
Metsimaholo
48
Rustenburg
88
Highveld East
44
Midvaal
36
Merafong
28
Randfontein
26
Westonaria
16
Lesedi
17
Ngwathe
6
Delmas
11
Royal Bafokeng
16
Madibeng
7
Thembisile
36
Total Municipal
3808
•
•
•
•
2014
Rm
30.4
18.8
11.8
4.1
1.6
0.9
1.7
0.9
0.7
0.5
0.5
0.3
0.3
0.1
0.2
0.3
0.1
0.7
74.0
2016
Ml / d
1771
1095
685
237
93
54
100
50
41
31
29
18
19
7
12
18
8
41
4309
Rm
37.1
23.0
14.4
5.0
2.0
1.1
2.1
1.1
0.9
0.7
0.6
0.4
0.4
0.1
0.3
0.4
0.2
0.9
90.4
However, this fund will only
be
applicable
if
all
municipalities agree to it. If
one of the municipalities do
not
agree
to
the
continuation of this fund
then it does not apply at all.
This is because of the interconnectedness, economies
of scale and financial
implications
that
Rand
Water will face by charging
different tariffs to different
municipalities.
The
challenges
of
any
municipality that will not be
part of this fund will be
incorrectly associated with
this fund.
Centralised revenue collection by Rand Water
This has a huge impact on project finance, given that
• Smaller municipalities struggle to raise capital
• Most municipalities have qualified audits
• Most municipalities do not have a positive record with regards to repaying such funds
Available project finance is typically lower than available commercial paper
The Water Management Demand alternatives that have been utilised by municipalities have not
14
been sustainable, given a number of competing needs.
CONCLUSION – PROPOSED TARIFF
A new approach to tariff setting is crucial
• Stepped tariff based on volumes
• Stepped tariff based on non revenue water
In line with a well-established approach, Rand Water’s internal inflation is 13.5 per
cent. Rand Water therefore proposes a 13.5 per cent tariff increment for the 2015 /
16 financial year with another 1 per cent allocated to the establishment of a Water
Demand Management Fund. In total Rand Water proposes a 14.5 per cent tariff
increment.
Municipalities
Current Tariff
New Tariff
(1 July 2014 – 30 June 2015)
Tariff
(1 July 2015 – 30 June 2016)
C/kl
C/kl
595.520224
681.870656
Excluding VAT at 14 per cent
Excluding VAT at 14 per cent
15
Thank You
16

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