National water pricing strategy adds new charges rather than improve debt collection

National water pricing strategy adds new charges rather than improve debt collection

It’s time to link executive pay to the collection of revenue, WaterCAN tells government

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Water entities should focus on strategies for collecting outstanding debt and improving efficiencies – such as linking executive pay to successful collections – before introducing new costs and charges, says the Water Community Action Network (WaterCAN).

WaterCAN, an initiative of OUTA, submitted its comments on the revision of the National Pricing Strategy for Raw Water Use Charges on 2 November 2022. This strategy, issued by the Department of Water and Sanitation (DWS) for public comment in August, provides the framework for the pricing of raw (untreated) water from a water resource or supplied by government waterworks and the discharge of water into a water resource or onto land.

Dr Ferrial Adam, WaterCAN Manager, raised concerns regarding budgetary allocations and duplication of functions.

DWS has a substantial annual budget of R111.256 billion, funded by the taxpayer. DWS has nine provincial or regional offices which carry out most of the catchment management agency (CMA) functions. However, CMAs are due to be established nationally and WaterCAN is concerned that the DWS budget will not proportionally shrink when the CMAs become functional. We need to understand if “new” CMA costs will increase without any corresponding decline in the DWS budget. There must be a clear plan on what happens with regional DWS offices in areas where a functioning CMA operates.

New water use charges  should not be discussed without attention to the current inefficiencies, wasteful expenditure and fraud in government finances. One example is the poor collection of water charges and outstanding debt and inefficiencies in monies collected by DWS. According to Minister Senzo Mchunu’s 2022 budget speech in Parliament, by the end of March 2022, “the Water Trading Entity was owed R24.57 billion by the customers that it sells water to. Municipalities and water boards account for 65% of this debt. Municipalities owed the water boards R13.94 billion, due to non-payment by their water users”. Strategies should first focus on improved efficiencies and better use of existing government funds than on new initiatives to collect more. One simple example would be to impose a condition that top management salaries in state-owned entities be coupled to collection rates in CMAs and water boards.

There is a proposal in the document to change the way the water research Levy is applied based on the registered volumes instead of the volumes of water used (as current practice). We believe this approach may work against water demand management.

The removal of price capping (although being phased out over five to 10 years) will directly impact on irrigation farmers, increasing the production costs of agricultural products and further raising the price of food. How will government mitigate against consumers carrying the cost? A stepped tariff is necessary to charge those who use more accordingly and it would be good for government to put in place measures that can protect the consumer.

The pricing strategy states that the reserve fund for depreciation and income from the Future Infrastructure Build Charge (FIBC) will also fund “Planning and feasibility of future augmentation for social and commercial projects”. Planning of national water resource infrastructure is a national function and should not be narrowed down to certain projects. It should integrate water resource development at strategic, regional and project level.  It must be an ongoing function in a dry country such as SA, not depend on haphazard project needs, and be funded from the National Treasury from tax collections not from water charges.

The concept of a dedicated reserve fund for depreciation and income from the raises concern because the government has a very poor track record for the proper management and care of large reserve funds. The recent history in government, including events in the DWS, provided evidence that such huge amounts of cash are unfortunately easy targets for wasteful expenditure, fraud and corruption.

The National Pricing Strategy for Raw Water Use Charges is here.
WaterCAN’s submission is here.

A soundclip from Dr Ferrial Adam here.

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