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CHIEF DIRECTORATE: ECONOMIC AND SOCIAL REGULATION PRESENTATION TITLE Presented by: Name Surname Directorate ESR CHIEF DIRECTORATE: ECONOMIC AND SOCIAL REGULATION PRESENTATION TITLE Presented by: Name Surname Directorate ESR PROPOSED STRATEGY “Protecting the interest’s of water consumers throughout the water value chain and ensure the sustainability of Date water sector institutions” REGULATION IMBIZO Name Surname: Designation Directorate: Economic and Social Regulation Date: 13 -14 May 2015

PRESENTATION OUTLINE § ESR Domains § Why ESR § Interrelated Drivers § Regulation reality PRESENTATION OUTLINE § ESR Domains § Why ESR § Interrelated Drivers § Regulation reality § Regulation Dilemma § Draft strategy § Five year roadmap § ESR long term wish

ESR DOMAINS 3 ESR DOMAINS 3

WHY ESR Uncertainty of actual costs; under-recovery; major grant funding; Inadequate investment in O&M WHY ESR Uncertainty of actual costs; under-recovery; major grant funding; Inadequate investment in O&M refurbishment, development; poor service management; unaffordable services; poor billing and revenue collection; value for money Poor service quality; high costs to government Impacts on human rights, well being, economic development; achievement of national development objectives; Financial requirements Service delivery Taxes Tariffs Transfers Asset development and maintenance Service quality Quantity Quality Reliability Water users (raw water and potable water) 4

INTERRELATED DRIVERS Availability Affordability Sustainability 5 INTERRELATED DRIVERS Availability Affordability Sustainability 5

REGULATION REALITY Ability to pay Willingness to pay 6 REGULATION REALITY Ability to pay Willingness to pay 6

REGULATION DILEMMA Safe water is the first step in breaking the poverty cycle. Consider REGULATION DILEMMA Safe water is the first step in breaking the poverty cycle. Consider the following scenario: q The walk for water that used to take three hours, now takes 15 minutes – this means: o water is now safe to drink. o the extra time and new water source can be used to start a vegetable garden to feed the family. o they can sell extra food at the market. o children spend more time in school instead of walking to fetch water. o once educated, children can become pilots, medical doctors and business executives. q The reverse of water access could mean amongst others, a different story altogether? o Ballooning poverty gap o No schooling o Health hazard and death fatalities 7

DRAFT STRATEGY VISION To be an independent, credible and transparent regulator who ensures that DRAFT STRATEGY VISION To be an independent, credible and transparent regulator who ensures that water-related goods and services, throughout the water value chain, are provided equitably, efficiently and sustainably, within the context of national socio economic policies. 8

DRAFT STRATEGY MISSION To regulate institutions, including competition regulation, as well as to regulate DRAFT STRATEGY MISSION To regulate institutions, including competition regulation, as well as to regulate water pricing and tariffs, financial sustainability, service quality, social obligations and consumer protection by : § setting rules and putting service standards into place, § implementing regulations and enforcing compliance to ensure transparency and predictability in the water sector. 9

DRAFT STRATEGY MOTTO “Protecting the interest’s of water consumers throughout the water value chain DRAFT STRATEGY MOTTO “Protecting the interest’s of water consumers throughout the water value chain and ensure the sustainability of water sector institutions” 10

DRAFT STRATEGY Mandate: • Ensure sustainable, affordable and safe water in the country • DRAFT STRATEGY Mandate: • Ensure sustainable, affordable and safe water in the country • Make sure the rights of the consumers are protected • Prevent monopoly, wherever possible • Ensure a functional environment in terms of legislation and policies • Empower the SA Citizens (Improving the lives of the ordinary citizens 11

STRATEGIC OBJECTIVES/ PILLARS 12 STRATEGIC OBJECTIVES/ PILLARS 12

 • STRATEGIC OBJECTIVES ORIENTATED TASKS Analyse and monitor WB bulk water tariff determination • STRATEGIC OBJECTIVES ORIENTATED TASKS Analyse and monitor WB bulk water tariff determination process • Analyse and monitor the intermediaries' bulk water tariff determination process • Review of WSA/WB bulk water supply contracts • Analyse and monitor the retail water tariff determination process • Analyse and monitor waste water tariff determination process at retail level • Monitor compliance of WSAs to the regulatory requirements in water services. • Business process for raw water tariff approval • Regulatory model for review of all tariffs and policies (incl. impact studies on Bio-energy, Fracking Water & Quality and IPP) • Finalize dispute resolution framework and manage consumer disputes by conducting technical investigations into disputes • Monitor service quality standards by ensuring quality services are provided to and experienced by consumers • Developing consumer voice and national surveys • Evaluate pro-poor tariff implementation as set by WSA’s 13

STRATEGIC OBJECTIVES Financial Strategic Theme 1: Set regulations for water tariffs and charges, perform STRATEGIC OBJECTIVES Financial Strategic Theme 1: Set regulations for water tariffs and charges, perform financial assessments of WSIs, and enforce equitable and sustainable water tariffs and charges to ensure financial sustainability of WSIs 1. Conclude review of Pricing Strategy • Gazette Public Comment • Conclude Public Consultation process Regulation of pricing and financial sustainability • Revised and consolidated inputs • Promulgation of Pricing Strategy 2. Conclude review of Norms • Gazette Notice for Public Comment and Standard for tariffs • Conclude Public Consultation process Regulation of pricing and financial sustainability • Revised and consolidated inputs • Promulgation of Norms & Standards 14

STRATEGIC OBJECTIVES Strategic Theme 1…. 3. Develop a business processes Enforcing adherence to raw STRATEGIC OBJECTIVES Strategic Theme 1…. 3. Develop a business processes Enforcing adherence to raw water pricing regulation through: for raw water consultation and approval Analysis of tariff inputs cost factors : -Development of water use charges determination standards -Assessment of water use charges determination process - Raw Water Tariff Assessment Review the funding model for raw Framework finalized water infrastructure Charges for different water use categories Raw water tariff assessment report submitted to Minister 4. Analyze and monitor bulk WSP - Report on pre-tariff consultations with Bulk WSPs with nine WBs water tariff determination consulted process Bulk Water Services Tariff Assessment Model developed and implemented - Assessment of WBs tariff proposals - Tariff recommendations submitted to the Minister for approval and tabling to Parliament 15

STRATEGIC OBJECTIVES Strategic Theme 1… 5. Draft bulk WSP intermediary pricing regulation strategy Study STRATEGIC OBJECTIVES Strategic Theme 1… 5. Draft bulk WSP intermediary pricing regulation strategy Study the trends and the mandate -Analyze and monitor the intermediaries' bulk water tariff determination process Clarify definition, legal position and mandate of intermediaries, verify if Water Services Act and Norms and Standards for Bulk WSPs provide for intermediaries Norms and Standards for WSAs 6. Analyze and monitor the retail water Understanding the budgeting processes with special focus on tariff (water supply) -y provides a tariff determination process determination framework and compulsory returns for retail tariff determination Gap analysis report on actual process municipal budget processes 7. Investigate status of sanitation pricing Report on the pricing of sanitation both local and international in the country Refer to Norms & Standards for WSAs (sanitation) for guidelines on aspects to investigate 16

STRATEGIC OBJECTIVES Customer Strategic Theme 2: Define, monitor and publish service quality standards, and STRATEGIC OBJECTIVES Customer Strategic Theme 2: Define, monitor and publish service quality standards, and enforce these standards to ensure that water supply and sanitation services are reliable and that water and wastewater quality is acceptable 1. Monitor service quality standards, Draft Service quality standards for Water Services within the Water by ensuring that the quality of Sector in place: services provided to and - Technical Options available to experienced by consumers the Consumer Regulation of service quality - Standards for different Levels of Service Stakeholder involvement and participation 2. Regulatory model for review of all tariffs and policies on Bio-energy, Fracking, Water & quality and IPP Carry out studies impacting on the Align with government priorities strategy / emerging sectors, e. g. on economic development and job Biofuel, Fracking, IPP, impact of water creation quality on raw water prices 17

STRATEGIC OBJECTIVES Customer Strategic Theme 3 We will ensure service providers are accessible to STRATEGIC OBJECTIVES Customer Strategic Theme 3 We will ensure service providers are accessible to consumers and that consumers are adequately protected by enforcing consumer protection decisions, dispute resolutions and interventions 1. Implementation of water services Consumer Charter by WSAs Compile guidelines for a Consumer Charter Regulation of Social Obligations and Consumer Protection Ensure service delivery and administrative standards are addressed, including FBW Ensure Consumer Charter is approved by WSAs 2. Conduct National consumer survey Service quality standards documents Regulation of Social Obligations finalized and Consumer Protection 3. Implement debt management and model by-laws Inform WSAs (or WSPs) of debt management processes Regulation of Social Obligations and Consumer Protection Ensure Conditions of Supply are in place Ensure FBW and Indigent Policy implemented 18

STRATEGIC OBJECTIVES Customer Strategic Theme 4: We will set rules for water sector competition STRATEGIC OBJECTIVES Customer Strategic Theme 4: We will set rules for water sector competition regulation, implement and enforce equitable water use licensing, review contractual arrangements and facilitate contract dispute resolution 1. Review and issue WULs Number of WUL applications Number of WUL issued and backlogs Competition Regulation and Regulation of Water Institutions % compliance with WUL conditions 2. Review of WSA/Bulk WSP (Water Board) bulk water supply contracts Number of bulk water supply contracts between WB and WSA reviewed (target – 10 contracts in Year 1) Competition Regulation and Regulation of Water Institutions 3. Manage consumer disputes by conducting technical investigations into disputes Debt Management Desk Implementation Plan describes proactive and reactive processes to manage disputes Competition Regulation and Regulation of Water Institutions 19

STRATEGIC OBJECTIVES Internal business process Strategic Theme 6: We will develop and revise regulations STRATEGIC OBJECTIVES Internal business process Strategic Theme 6: We will develop and revise regulations and guidelines, as well as develop Economic Regulation systems and interfaces to establish the regulatory institution 1. Monitor compliance of WSAs to the regulatory requirements in water services Performance assessment of 152 WSAs conducted annual report published Building the institution and the capacity of the Regulator Annual RPMS report published 2. Establish an economic regulatory expert panel Expert panel advertised and appointed Building the institution and the capacity of the Regulator Effective RPMS with reliable outcome Building the institution and the 3. Cost effective way of gathering capacity of the Regulator information and maintain the reliability of on the status of the WSAs in the delivery of water RPMS 20

5 YEAR ROAD MAP • • • Short term (1 -2 years) Developing pricing 5 YEAR ROAD MAP • • • Short term (1 -2 years) Developing pricing policies, regulation and guidelines Developing database and baseline information for WSAs Developing the economic regulatory systems and processes Review raw water tariffs Develop the frameworks for dealing with water disputes Medium term (2 -5 years) • Amend Legislation • Draft ESR act • Regulating water board tariffs • Developing the economic regulatory systems and processes • Develop framework for benchmarking water boards • Undertake socioeconomic studies to understand the impact of tariffs • Regulate raw water pricing • Consumer surveys • Assessment of consumer charters • Contract regulation Long term (5 years and beyond) • Regulating water board tariffs • Review and approve water board corporate plans • Undertake socioeconomic studies to understand the impact of tariffs • Regulate raw water pricing • Regulate retail water tariffs • Regulate sanitation tariffs • Develop the framework for incentive based regulation 21

ESR LONG TERM GOAL Reflect a sophisticated understanding of customer needs Convey a deep ESR LONG TERM GOAL Reflect a sophisticated understanding of customer needs Convey a deep understanding of Sector economic changes Indicate detailed knowledge of competitors • What they value, how to build loyalty, and how to build switching costs • Drivers of operational efficiency / value add • The core of their business models and economics • Differences across customer types and how they should be segmented based on needs • Economic drivers of value creation • Strengths, weaknesses relative to you • Relative position in the market and in the customers’ eyes • Impact of our offer on their value chain • Actual and predicted behaviour and how they could respond to a changing environment Are described in terms of clear and measurable operational outcomes Build on past successful strategies and exploit your competitive advantages Are executable by the organisation • Practical implementation paths • Understand why success was achieved in the past • Skill mix, resources and information • Create value for customers • Explicit performance measurement • Knowing what attributes are better than the competitors • Processes, systems and culture • Improvement in value creation for shareholders Result in increased profitability, sustainability and growth with the sector 22

 • “Protecting the interest’s of water consumers throughout the water value chain and • “Protecting the interest’s of water consumers throughout the water value chain and ensure the sustainability of water sector institutions” 23