Water price hike for Dolphin Coast
Umgeni Water won in court the right for a more than 40% levy increase on water
Residents of the ilembe district municipality on the Kwazulu-natal North Coast are likely to face a huge water price increase after Umgeni Water Amanzi won its Constitutional Court battle to charge the private company providing them with water nearly five times more than it charges municipalities.
The Constitutional Court last month ruled in favour of Umgeni Water, which had, along with the minister of water and sanitation, appealed earlier rulings of the supreme court of appeal and the high court, declaring the 41.4% increase imposed on Siza Water unlawful.
Although an agreement between Siza Water and Umgeni Water means this year’s increase is limited to 5%, the 2022 upward revision may be as much as 35%, if Umgeni Water goes ahead with its plan to recoup funds spent “cross-subsidising” Siza Water by maintaining infrastructure in the municipality.
The order has serious implications for residents of Zimbali, Ballito and Shaka’s Rock and in the nearby rural areas, because Siza Water will pass the increase on to them. It may also have implications for water supply to the area when the 30-year deal expires in 2029.
Siza Water took over the provision of water to residents of ilembe from the municipality in January 1999 and holds the 30-year agreement with it and Umgeni Water, which had previously supplied ilembe.
In terms of the agreement, the company would supply water to the area between the Umvoti River and the Tongaat River, which includes Ballito and Zimbali, Umhlali, Shaka’s Kraal, Shaka’s Rock, Salt Rock, Sheffield Beach and Tinley Manor, and the informal settlements and rural areas inland of the coastal belt.
The municipality had assigned to Siza Water its rights under an existing bulk water supply deal it had concluded with Umgeni Water, which supplies municipalities in the province with water.
Umgeni Water charged Siza Water at the same rate as the municipalities until 2014, when the entity adopted a costing model that levied an 8.3% increase on municipalities and 41.4% on Siza Water.
Siza Water objected to what it said was discriminatory pricing. Umgeni Water approached the then minister of water and sanitation, Nomvula Mokonyane, to approve the increase. She reduced the hike to 37.9%.
Siza Water went to the high court, which ruled in its favour and set aside the tariff increase. Umgeni Water and Mokonyane approached the Supreme Court of Appeal, which ruled in favour of Siza Water in 2020.
Mokonyane’s successor, Lindiwe Sisulu, appealed the ruling at the Constitutional Court, which made its judgment on 23 July this year. The court dismissed Sisulu’s appeal, but upheld Umgeni Water’s appeal, saying it had set out to eliminate what amounted to the cross-subsidisation of Siza Water, and save about R10million a year, which it had a right to do.
But the court found that the minister had erred by approving a tariff increase because she had no legal right to do so. The minister’s role, the court said, was to table any amendment to water tariffs in parliament.
“The approval by the minister … relates to the minister of finance, as defined in the Management Act, and not the minister of water and sanitation,” the court said. “It is the minister’s task to present the tariffs to parliament, not to approve them.”
Siza Water’s managing director, Shyam Misra, said the company was “considering our options” on the judgment, which he said had a “material financial impact” on it.
Charging the company a higher rate than Umgeni Water levied on municipalities would affect consumers, Misra said.
Umgeni Water raised the tariff it charged Siza Water by 5% with effect from 1 July because of the court action, which means further increase could only take place in a year’s time.
“Bulk water cost is a direct passthrough cost in our cost reflective tariff formula. We deemed such an increase unreasonable and irrational and hence took to the court for relief as it would have directly impacted on our customers,” Misra said. “We are still exploring options on how to cushion this impact on the end user.”
He said the judgment would not affect the 30-year agreements beyond pushing up the costs: “Siza Water has a 30-year concession contract with the ilembe district municipality. This judgment, save for the severe impact that such could have on the consumers, does not have any other impact on the contract.”
Umgeni Water’s corporate stakeholder manager, Shami Harichunder, said the entity was relieved that the court had ruled that it had the right to differentiate in its tariff structure to address the issues of cross-subsidising Siza Water.
The court agreed with Umgeni Water’s reasoning on the tariff system, which was developed to ensure funding for infrastructure, Harichunder said.
Umgeni Water was studying the court’s finding on the approval of tariff increases, and would ensure this was taken into consideration when increases were set in the future.
“Umgeni Water will continue to maintain its cordial relationship with all of its customers and that it also continues to meet all of its obligations contained in bulk supply and service level agreements,” he said.
Tariffs were structured to include future costs, including operational administrative costs and those to ensure that water is safe to drink.
Water and sanitation department spokesperson Kamogelo Mogotsi had not responded to a request for comment at the time of publication.