MEMORANDUM OF UNDERSTANDING BETWEEN THE NEDLAC CONSTITUENCIES TOWARDS A UNIFORM TARIFF PRICING POLICY FOR BASIC MUNICIPAL SERVICES

1. Introduction

1.1. The aim of this memorandum is to develop a framework of transparent, broadly negotiated and agreed upon principles, which would lead to a nationally consistent basis for all local authorities and other service providers to determine tariffs for basic municipal services such as water, electricity, sewerage and refuse removal.

1.2. These principles are aimed at contributing to sustainable economic development and addressing of basic social needs for all.

2. Financing at a local level

2.1. Services should be self-financing at a local and regional level, as far as is possible. There is a need to take into account the social and economic realities that pertain in different local contexts as not all areas would have the capacity to finance local services.

2.2. Social and economic conditions and service backlogs in different localities will vary considerably. The capacity of local government to provide the basic services (as defined in the Constitution) and to carry all the costs on their own may not be possible in many cases. Mechanisms would need to be developed to address such cases, for example, through the provision of subsidies from the national fiscus, and capacity building programs.

2.3. Mechanisms need to be established at local level to set the minimum standard of service to be provided.

3. Affordability by poor and indigent households

3.1. The setting of these tariffs should take affordability into account, such

3.1.1. Provision of basic services does not exclude the poor and indigent.

3.1.2. It does not automatically reduce the levels of service for the poor and indigent.

3.1.3. It does not become the determinant of the frequency, quality and level of services provided to the poor and indigent.

3.2. Mechanisms should be put in place by government to assist those in need which may inc indigent households, pensioners, and the unemployed.

3.2.1. A variety of mechanisms are needed to assist users that become unemployed and who cannot afford basic services to negotiate the continuation of services. For example, when users become unemployed, they should be able to approach and negotiate with the relevant local authorities to ensure the continuation of such services. This is of particular importance when sole bread winners are unemployed.

3.3. Priority shall be given to lifeline mechanisms directed to the benefit of the indigent. An administratively efficient and effective mechanism is essential to enable all to have access to basic essential services, for example, a progressive block tariff structure.

4. Fairness

Tariff policies should be fair, individuals and groups should not be discriminated against.

5. Payment in proportion to the amount consumed

5.1. In general, and as far as is practically possible, consumers should pay in proportion to the amount of the service that they consume.

5.2. Effective metering systems should be put in place.

5.3. Assistance, including lifeline tariffs should be provided by government to householders who could not afford to pay for the services consumed as referred to in paragraph 3.

6. Full payment of operation and maintenance costs

6.1. In general, all households should pay the full operating and maintenance costs of the services consumed. Exceptions to this should only be made for indigent households.

6.2. In general, subsidies should rather be directed at capital costs. Subsidies to cover operation and maintenance cost should only be provided in extreme cases, and for the categories of end-users identified as requiring assistance.

7. Sustainability

7.1. Tariff policies that are reliant on unsustainable subsidies will mean that essential maintenance of infrastructure is not carried out and that there will be inadequate services in the future.

7.2. Where businesses, such as mines, industries and commercial enterprises which are large service users, are granted service tariff concessions by the local authorities or any other service provider, it is necessary that these concessions are mutually beneficial to both the businesses concerned and local authorities based on the common commitment to economic development in the area concerned.

8. Efficient allocation and usage of resources

8.1. Tariff policies should help to facilitate the efficient usage and allocation of scarce resources (both renewable and non-renewable), taking into account resource quality and degradation.

8.2. The tariff policy should discourage excessive use of resources.

8.3. The tariff-levels should be set at levels which ensure that scarce resources are not used on the provision of unnecessary services and also ensure that provision is made for the maintenance and expansion of services.

9. Economic development

9.1. Tariffs applied to mining, industrial and commercial enterprises should take into account their impact on economic development. Negative impacts could affect employment, lowering overall levels of affordability and increase pressure on the sustainability of urban services. Economic development must also be balanced against the conservation and sustainability of the physical environment.

9.2. The need to invest in people is an integral aspect of economic development, and economic development should be one of the key principles underpinning infrastructure development.

9.3. Within the context of infrastructure investment, it would be necessary to give consideration to the development of small, medium and micro enterprises.

10. Financial viability of the local service agencies

10.1. It is essential that the service agencies remain financially viable, as failure to ensure this will result in the lack of sustainability of the services.

10.2. Service agencies must aim to deliver services in the most cost efficient way and effectively recover costs through their pricing policy.

10.3. Mechanisms to assist local authorities to overcome capacity and resource constraints are required. (It is noted that project viability initiatives directed at capacity building of local authority officials, including the training of councillors, is currently being undertaken by government.)

11. Local determination of tariff levels

In general, tariffs for municipal services should be determined locally.

12. Minimum level of service considerations and financial viability

12.1. The financial viability of the service agency will be highly sensitive to the defined minimum acceptable level of service.

12.2. The principle of a "workable" minimum should apply meaning that services should be affordable for the local authority, for end-users and for the country as a whole. This minimum should also represent a level of services which ensures an acceptable and reasonable quality of life, and which takes health considerations into account.

12.3. Support mechanisms for local and provincial authorities, provided by central government, should be established. Grants that are provided should be targeted at the indigent.

13. Consistent tariff enforcement

13.1. A consistent policy should be implemented whereby failure to pay (correctly) billed amounts for services results in the consumer's service being restricted or suspended.

13.2. Support for this principle was conditional upon it being enforced with sensitivity to the factors that might impede service payments, e.g., inadequate pay points, inadequate metering systems, inadequate billing systems, etc.

14. Provision of subsidies

14.1. Any subsidies which exist must be transparent (visible and understood by all those affected).

14.2. The provision of all subsidies, including cross-subsidies to indigent households and individuals should clearly outline the criteria upon which they are provided and identify the category of end users.

15. Conclusion

This memorandum reflects an understanding between the NEDLAC constituencies on the principles to be incorporated into a service-tariff policy.