Section 56(6)(c) of the Act provides that in setting a pricing strategy for water use charges, the Minister must consider measures necessary to support the establishment of tariffs by water services authorities in terms of section 10 of the Water Services Act, 1997 and the use of lifeline tariffs and progressive block tariffs.

In terms of this pricing strategy for raw water use charges, the above requirement will be accomplished by providing the raw water requirement for basic human needs (defined as the essential needs for drinking, food preparation and personal hygiene which is put at 25 liters per capita per day) free of charge to water services authorities. The main objective of this strategy is to promote the introduction of differential lifeline tariffs at third tier by ensuring that the first step of a progressive block tariff structure to provide for the basic needs component for local government domestic users, will exclude the raw water charge or portion thereof, as determined in terms of Chapter 5 of the Act.

The raw water pricing strategy provides that the cost of water at the resource for meeting basic human needs in the areas of water services authorities be borne by the "economic users" of the relevant water management area, system, or government water storage works. This includes the use of water above the basic needs component in local government areas.

The implication of this provision contained in this raw water pricing strategy is that the cost of water ex source for basic human needs will not be cross-subsidised within the water services authority sector alone, but by all user sectors within a specific water management area, State scheme or system. This will lead to increases of the sectoral raw water charges that will be applicable if the basic needs component is not provided free of charge.

In order to calculate the relevant sectoral raw water charges to be imposed in each water management area, system or scheme, information must be readily available on the annual basic needs requirement of each water service authority. This information can be obtained from water service development plans (WSDP) prepared i.t.o the Water Services Act, 1997, but should also be subject to verification. The prescribed procedure to access free quantities of raw water will ensure that realistic estimates of basic needs requirements are provided and also that no raw water will be supplied free of charge before the relevant local authority has committed itself towards implementing lifeline tariffs.

The following procedure is prescribed for implementing the abstraction I supply of free raw water by/to water services authorities:-

The application must be routed through and supported by the relevant second tier bulk supplier or Water Board where applicable, which must be responsible to coordinate the applications.

The principle of subsidising the basic human needs component of domestic water use in the areas of water services authorities will apply to charges to recover water resource management costs and also charges related to the development and operation of State dams and future dams to be owned by Catchment Management Agencies.

The current method of determining catchment management charges for water supplied from Government water schemes - relating to the estimated proportional activity costs of water conservation (invasive plants and water weeds removal) and water utilisation (abstraction, storage and afforestation permit control) - is consistent with the new strategy and will be continued. However, adaptations will be made after the registration of all water users in the particular catchments has been accomplished and more accurate data on sectoral water use becomes available (currently the extent of water use in the relevant catchments is based on estimates).

Charges for the full recovery of the other allocated water resource management costs in terms of 5.3.1 will be introduced once the majority of the water users in the particular water management area in which the scheme is located have been registered. Water resource management charges for the water services authority sector will also reflect the fact that only the "economic" uses of water from the water management area, scheme or system will contribute towards cost recovery (i.e. excluding basic human needs).

This charge will be based on the method described in 5.3.2. The determination of unit costs for water supplied from Government water schemes, based on the notional loan approach, will be replaced by determining the unit costs through the proposed new approach (depreciation and return on assets) as set out in this strategy. The principle of excluding the water requirements for basic human needs for purposes of setting 1st tier prices will be introduced as described in 1) above. This charge will be introduced from April 2000.

A maximum increase equal to the producer price index (PPI) + 10% over current tariffs for the first number of years of the new pricing strategy will be implemented. In the change-over from current to new water use charges no reduction of charge levels shall take place. The objective is to reach the target charges within ten years. Thereafter, annual tariff increases will be limited to the inflation rate (PPI).