The national Water act (NWA) requires that TCTA manages its distinct functions separately. The further emphasised in the notice of Establishment thats states in section 20(1) that TCTA must manage its Treaty functions separately from its non-treaty ones and account for them separately as section 105(1) of NWA requires.
Section 20(2) of the Notice of Establishment further states that the TCTA’s treaty responsibilities are not applicable to its non-treaty ones.
The impact of these provisions TCTA is that for the Lesotho Highlands Water Project(LHWP) mandate and for each directive there are separate:
- Bank account;
- Borrowing Authority from the Department of Water and Sanitation (DWS) / National Treasury, government guarantees and funding arrangements;
- General ledgers; and
- Where TCTA borrows money to finance projects. separate income agreements between DWS and off-takers.
The income agreements determine how costs on each project are charged. To date, DWS has applied the following four principles;
- A tariff structure per project is applied to ensure breakeven of revenue regarding costs over a specified period (key principles applied in determining an appropriate tariff structure for a project includes end user affordability, predictability, and constant in real terms
- No reserves, profit sharing. Therefore, any savings or increased costs therefore are transferred to the end consumers.
- DWS only charges actual costs. TCTA manages the cash-flow risk inherent in the water demand from consumers. DWS transferred the management of this risk to TCTA because when it implemented LHWP it was functioning on a cash basis. It has now set up a Water Trading Entity, but the latter is not yet able to take on the management of this risk.