Siza Water forced to pay 41.4% increased tariff by Constitutional Court

After more than 6 years of legal battles, Siza Water’s (Siza) case of irrationality and unfair discrimination against Umgeni Water (Umgeni) has been struck down by the Constitutional Court.

The court handed down the judgment on July 23, confirming a tariff increase of 41.4% on Siza which had previously been denied in the KwaZulu-Natal (KZN) High Court and Supreme Court of Appeal (SCA).

Umgeni is one of the largest water boards in the country and is the primary bulk potable water supplier in KZN, including the Siza concession area.

In 2014, Umgeni increased its tariff on Siza to 41.4% (which was later reduced to 37.9% by the Minister of Water and Sanitation) while giving an increase of only 8.3% on its other bulk customers, which are mostly municipalities.

Umgeni rationalised the decision by claiming that because Siza Water was a private company, it should not be allowed to make profits from its cross-subsidisation.

Cross-subsidisation is when a company artificially raises or lowers rates to a specific group of people.

In this case, Umgeni claims their cross-subsidy was charging Siza artificially low rates when the cost of water supply to the area was higher because of infrastructural issues.

Also read: Supreme Court pulls the plug on Umgeni Water

Removing the cross-subsidy stands to gain Umgeni R10 million a year.

They further said that because Siza was a private company, there was no onus on them to reinvest profits back into state-owned water infrastructure, which municipal water boards would be compelled to do.

This was particularly prevalent in light of the drought which caused water interruptions across the province in 2014.

Siza alleged in court documents that such an increase in tariffs amounted to irrationality and unfair discrimination given the low tariff increase Umgeni charged its other customers.

Siza also argued that they had stepped in to fulfill a function of the iLembe Municipality in an agreement guaranteed by iLembe and that they should have the same rights as a municipality and not be punished for running a functional business.

These arguments were supported by both the High Court and SCA, but leave to appeal was granted by the constitutional court owing to Umgeni’s chance of success.

In the majority judgment the court focused on the question of Umgeni’s rationality to institute tariff increases.

With specific reference to section 31 of the Water Services Act No 108 of 1997, which deals with the power of water boards to set tariffs, the court found that Umgeni had acted both rationally and lawfully.

Also read: From iLembe to eThekwini, this is where you can get your Covid-19 vaccine

The court further found that the tariff increase did not amount to unfair discrimination as per the Promotion of Administrative Justice Act, thus overriding the judgments in Siza’s favour from the lower courts.

Siza was ordered to pay costs for Umgeni’s counsel.

In a concurrent argument heard as part of the same case, it was found the the Minister of Water and Sanitation, Lindiwe Sisulu did not have the power to change tariff rates, which she did by reducing the increase from 41.4% to 37.9%. It was judged to be beyond her legal ambit and she was ordered to pay costs for Siza’s counsel.

Siza Water managing director, Shyam Misra said,

“We are disappointed with the judgement, especially as we had won this matter in the High Court and SCA by unanimous judgement. We fought this battle on behalf of our consumers as this unjustified increase would impact them.

“We are currently weighing our options from the commercial and legal perspectives and will engage with our legal team as well as the iLembe District Municipality.”

The impact that the increased tariff will have on consumers in the Siza concession area remains uncertain.

For breaking news follow The North Coast Courier on Facebook, Twitter, Instagram and YouTube.