http://www.engineeringnews.co.za
  SEARCH
Login
R/€ = 13.76Change: 0.11
R/$ = 10.96Change: 0.10
Au 1193.42 $/ozChange: 4.09
Pt 1213.50 $/ozChange: 10.00
 
 
Note: Search is limited to the most recent 250 articles. Set date range to access earlier articles.
Where? With... When?








Start
 
End
 
 
And must exclude these words...
Close Main Search
Close Main Login
My Profile News Alerts Newsletters Logout Close Main Profile
 
Agriculture   Automotive   Chemicals   Competition Policy   Construction   Defence   Economy   Electricity   Energy   Environment   ICT   Metals   Mining   Science and Technology   Services   Trade   Transport & Logistics   Water  
What's On Press Office Tenders Suppliers Directory Research Jobs Announcements Contact Us
 
 
 
RSS Feed
Article   Comments   Other News   Research   Magazine  
 
 
May 25, 2012

Block tariff structure enjoys widespread support among municipalities

Back
Africa|Design|Resources|System|Water|Africa|South Africa|Building|Municipal Water Services|Service|Services|Water Infrastructure|Water Services|Environmental|Infrastructure|Nelson Mandela|Stephen Hosking|Water|William Moraka
Africa|Design|Resources|System|Water|Africa||Building|Service|Services||Environmental|Infrastructure|Water|
africa-company|design|resources|system|water-company|africa|south-africa|building|municipal-water-services|service|services|water-infrastructure|water-services|environmental|infrastructure|nelson-mandela|stephen-hosking|water|william-moraka
© Reuse this

A recent Water Research Commission study, led by Nelson Mandela Metro- politan University’s Professor Stephen Hosking, looking into the municipal water tariffs of 15 South African municipalities, found that the primary driver of water service tariffs is the quest to balance tariff revenues with explicit financial costs.

Given that the national government requires this balance, and it is a prudent financial practice, the question arises whether this aspect of municipal water service management is in a sound and healthy state.

The water supplied by South African municipalities may be categorised into nontariff water, water charged at average financial cost (the tariff level), and water charged to balance total revenue with total financial cost.

Nontariff water relates to all water losses and water services supplied at no charge or without national government subsidy support.

Water services are charged at their average financial cost of production to government, selected businesses, other municipalities and residents whose tariffs are paid on their behalf by national government.

The remainder of water service users are charged in a way that balances total revenue with total cost, namely full-tariff-paying residents and businesses not qualifying for average cost tariffs. Revenue, and captured consumer surplus from this group, are increased by means of price discrimination. Those who are prepared to pay more for their water are charged more for it, and the latter are targeted in terms of how much they demand. The more service demanded, the higher the unit rate charged.

South African Local Govern-ment Association water services manager William Moraka confirms that the increasing block tariff structure enjoys wide-spread support among municipalities.

Municipalities argue that it works in such a way as to recover their costs, it enables them to cross-subsidise the poor’s low water-service use with extra payments made by the rich owing to their high water-service use, and it curtails demand for water and capital to build new water infrastructure – both scarce resources.

Along with national government subsidies, this cross-subsidisation has contributed to improved water services to those previously excluded from them.

Unfortunately, not all the findings of the survey were as positive. It was also found that the financial information avail- able to calculate the water service tariffs was often inadequate, costs of provision of services were underestimated and important environmental costs were excluded. More seriously, it was found that there was widespread ignorance and, perhaps, even disregard in some cases of the demand for municipal water services.

The study concluded that the primary current influence on municipal tariff design is com-pliance with water and municipal governance law and policy.

For many of South Africa’s municipalities, meeting the compliance goals is challenging to the point of being almost overwhelming.
The net external cost is not included in the calculation of South African municipal water service tariffs. Many municipali-ties use limited (if any) accounting information to determine the availability tariff.

Further, there is uncertainty within South African municipalities as to the underlying economic rationale of the water service tariff structure. The use of increas- ing block tariff structures is appropriate for curtailing individual user demand, but other more targeted instruments are superior for the pursuit of other goals, such as cross-subsidising the cost of providing water services to the poor.

Increasing block tariff structures may redistribute income in unintended ways.

The case studies evaluated show that the municipalities calculate water service tariffs by balancing their tariff revenue and explicit financial costs. It is a cost accounting exercise.

When municipalities pay minimal attention to demand, that is, what residents and business are able and willing to pay for, the link between the supply of and demand for water services is undermined. The main concern that this delinking gives rise to is that there may be unacceptable delays in water supply infrastructure being built, with consumer welfare being compromised as a result.

Hosking’s findings raise the question as to whether the increasing block tariff system is as economically meritorious as is commonly thought. It may well be true that a tariff hike is a cheaper way to solve the problem of excess demand than building a dam, but the question remains whether this gain exceeds the cost of consumer welfare and business opportunities lost through municipalities’ ignorance of the demand they face.

Edited by: Martin Zhuwakinyu
© Reuse this Comment Guidelines (150 word limit)
 
 
 
 
 
 
 
 
Other Water News
Professor John Briscoe receiving the 2014 Stockholm Water Prize from King Carl XVI Gustaf
World-renowned South African water engineer and academic Professor John Briscoe, who was the 2014 recipient of the Stockholm Water Prize, also known as the ‘Nobel prize for water’, has died at the age of 66. Following a two-and-a-half-year battle with cancer, he...
Nearly two-billion people use water contaminated by faeces, posing a global health risk despite-billions of dollars spent on sanitation, said a report published on Wednesday. One in seven people, mostly poor and living in rural areas, still defecates in the open,...
Niger has secured 100 billion CFA francs ($190.39 million) in financing needed to build a dam which is expected to make the country self-sufficient in power and boost agricultural production, the government said. The 130 megawatt Kandadji hydroelectric project, 180...
More
 
 
Latest News
The construction of a new innovation hub in the heart of the Dube TradePort, in Durban, was set to kick off in March 2016, as Dube TradePort Corporation sealed a R160-million lease agreement with Eureka Capital. Eureka Capital planned to develop a seven-storey 21 500...
South Africa will become the first African country to host the Organisation for Economic Cooperation and Development’s (OECD’s) Steel Committee Conference when the committee’s seventy-seventh session takes place in Cape Town between December 11 and 12. The...
A month before it plans to list on the main board of the JSE, property group, the Pivotal Fund has posted a net asset value per share excluding deferred tax (NAVPS) for the six months ended August 31, of R15.55 – a 5.9% increase on the NAVPS at the end of the...
More
 
 
Recent Research Reports
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
 
 
 
 
 
This Week's Magazine
JSE-listed real estate investment trust (REIT) Rebosis Property Fund achieved a distribution growth of 8.1% to 99.45c per linked unit in the financial year ended August 31, despite volatile market conditions.
JAMES ROBERTS The MOM incubator was designed to help babies in developing nations who were dying in conflict-struck nations or who do not receive hospital care
A low-cost, inflatable incubator won this year’s international James Dyson design award, which aims to encourage and inspire the next generation of design engineers.
The World Bank released its ‘Doing Business 2015: Going Beyond Efficiency’ report last month and ranked South Africa 43 out of 189 global economies for its ease of doing business, with Singapore topping the rankings.
Air Products South Africa officially launched its R300-million Eastern Cape air- separation unit (ASU), at its new manufacturing facility in the Coega Industrial Development Zone (IDZ), earlier this month. It is the second facility that Air Products launched in South...
BMW South Africa (SA) has signed a power purchasing agreement with energy company Bio2Watt. The offtake partnership will bring renewable energy to the carmaker’s Rosslyn plant, north of Pretoria.
 
 
 
 
 
 
 
 
 
Alert Close
Embed Code Close
content
Research Reports Close
Research Reports are a product of the
Research Channel Africa. Reports can be bought individually or you can gain full access to all reports as part of a Research Channel Africa subscription.
Find Out More Buy Report
 
 
Close
Engineering News
Completely Re-Engineered
Experience it now. Click here
*website to launch in a few weeks