Water Services Reform – Water Services Reform – the Durban experience : the Durban experience :

successes and challengessuccesses and challenges

Neil MacleodNeil Macleod

DurbanDurban

South AfricaSouth Africa

What makes our business What makes our business differentdifferent• Water is a political issueWater is a political issue

• Sanitation is not ‘sexy’ or understoodSanitation is not ‘sexy’ or understood

• Most of our assets cannot be seenMost of our assets cannot be seen

• We cannot choose our customersWe cannot choose our customers

• Many of our customers are poorMany of our customers are poor

• Effective communication is vital to Effective communication is vital to success in securing funding and success in securing funding and getting projects implementedgetting projects implemented

South African contextSouth African context• National government is the custodian National government is the custodian

of the country’s water resources and of the country’s water resources and acts as the regulator of all water acts as the regulator of all water services providers (WSP’s)services providers (WSP’s)

• The provision of water and sanitation The provision of water and sanitation services at the local level is the services at the local level is the responsibility of municipalities – responsibility of municipalities – water services authoritieswater services authorities

SA before 1995SA before 1995

• More than 800 municipal water More than 800 municipal water supply authorities that were supply authorities that were combined to create 147 authoritiescombined to create 147 authorities

• Water boards had a right to exist Water boards had a right to exist through the national law but this through the national law but this changed to make them water changed to make them water services providers to municipalitiesservices providers to municipalities

Durban Pre 1996Durban Pre 1996• Water and sanitation services were Water and sanitation services were

provided by 38 water services authoritiesprovided by 38 water services authorities

• The capacity of the management varied The capacity of the management varied considerably as the smaller towns found considerably as the smaller towns found it difficult to attract and retain key staffit difficult to attract and retain key staff

• Tariffs in the smaller towns were under Tariffs in the smaller towns were under pressure and maintenance sufferedpressure and maintenance suffered

• Raising loans and the ability to cross Raising loans and the ability to cross subsidise tariffs was difficult for smaller subsidise tariffs was difficult for smaller municipalitiesmunicipalities

Post 1996 to 2000Post 1996 to 2000

• The urban municipal authorities were The urban municipal authorities were combined to from 4 regional sewerage combined to from 4 regional sewerage authorities and one water supply authorities and one water supply authorityauthority

• This soon proved to be unworkable and This soon proved to be unworkable and was changed in 2000 when the was changed in 2000 when the metropolitan boundary was enlargedmetropolitan boundary was enlarged

• We learned that water and sewerage We learned that water and sewerage services do not work well if operated by services do not work well if operated by separate authoritiesseparate authorities

Post 2000Post 2000

• The 4 regional service providers were The 4 regional service providers were joined to form a single ring fenced joined to form a single ring fenced public entity, providing water and public entity, providing water and sanitation services to the whole sanitation services to the whole metropolitan areametropolitan area

• The boundary of the metropolitan area The boundary of the metropolitan area was extended to include largely rural was extended to include largely rural areas surrounding the more developed areas surrounding the more developed corecore

The 3 ‘one millions’The 3 ‘one millions’• The water and sanitation challenges The water and sanitation challenges

faced in 2000 were huge:faced in 2000 were huge:

• 1 million people without municipal 1 million people without municipal water and sanitation serviceswater and sanitation services

• 1 million people with severely run 1 million people with severely run down servicesdown services

• 1 million people with first world 1 million people with first world servicesservices

• Inward migration to the metro has Inward migration to the metro has continued at a high ratecontinued at a high rate

Asset CustomerAsset Customer

Management ManagementManagement Management

Network RevenueNetwork Revenue

Expansion ManagementExpansion Management

Human Resources ManagementHuman Resources Management

Human resources Human resources managementmanagement• Ensuring that the organisation has competent Ensuring that the organisation has competent

key staff in place for now and for the future.key staff in place for now and for the future.

• Standard Operating Procedures to retain Standard Operating Procedures to retain institutional memory an ensure effective institutional memory an ensure effective trainingtraining

• Talent management for succession planning Talent management for succession planning and staff development and staff development

• Regular reviews of the organisational structureRegular reviews of the organisational structure

• Build an organisational culture based on the Build an organisational culture based on the values of integrity and excellencevalues of integrity and excellence

Asset managementAsset management• Maintaining assets which already Maintaining assets which already

exist. Most water services businesses exist. Most water services businesses in developed countries spend over in developed countries spend over 90% of their capital budget on asset 90% of their capital budget on asset replacementreplacement

• We still don’t know exactly what We still don’t know exactly what assets we have or what their assets we have or what their condition is in every case.condition is in every case.

New infrastructureNew infrastructure• We have extended basic water services We have extended basic water services

to more than 1 million people in the past to more than 1 million people in the past 10 years and basic sanitation to more 10 years and basic sanitation to more than 700 000 people in the past 7 yearsthan 700 000 people in the past 7 years

• Infrastructure solutions have to be Infrastructure solutions have to be affordable and sustainable (financially, affordable and sustainable (financially, environmentally and socially)environmentally and socially)

• We have had to strike a balance We have had to strike a balance between funding for new and existing between funding for new and existing assetsassets

• Job creation is an important aspect of Job creation is an important aspect of service deliveryservice delivery

The sanitation The sanitation edgeedge

Revenue managementRevenue management• Our income is approximately $600 Our income is approximately $600

million a year (R5,2billion) for water million a year (R5,2billion) for water and sanitation servicesand sanitation services

• Customers must not have excuses to Customers must not have excuses to not pay for servicesnot pay for services

• Audited accounts are key to attracting Audited accounts are key to attracting loan finance (AA credit rating)loan finance (AA credit rating)

• Capex must be efficiently managedCapex must be efficiently managed• We accommodate those who fall into We accommodate those who fall into

debt through innovative approachesdebt through innovative approaches• Pricing of services is importantPricing of services is important

Pricing policyPricing policy• Water services can be seen as a right Water services can be seen as a right

to be made available at no cost or as to be made available at no cost or as a commodity to be priced using a commodity to be priced using market principlesmarket principles

• We have adopted a combination We have adopted a combination approach – basic water and approach – basic water and sanitation are a right, whereas higher sanitation are a right, whereas higher levels of service are priced using levels of service are priced using market principles (access and usage)market principles (access and usage)

• Only the poor require a subsidy!Only the poor require a subsidy!

Pricing policy continuedPricing policy continued• For customers who are not defined For customers who are not defined

as ‘poor’, the water price is set to as ‘poor’, the water price is set to cover debt, depreciation and cover debt, depreciation and operating and maintenance costs – operating and maintenance costs – the average price is about $1.10 per the average price is about $1.10 per m³. Depreciation is an issue!m³. Depreciation is an issue!

• The price paid for the use of a The price paid for the use of a service increases with the level of service increases with the level of service and with volumeservice and with volume

• Average collection rate exceeds 95% Average collection rate exceeds 95% annuallyannually

Flow limiterFlow limiter

Sanitation as a resourceSanitation as a resource• Certain initiatives such as CLTS portray Certain initiatives such as CLTS portray

sanitation as something dangerous or sanitation as something dangerous or harmful that is to be avoided at all cost.harmful that is to be avoided at all cost.

• Our natural instincts come into play to Our natural instincts come into play to protect us from harm through faecesprotect us from harm through faeces

• The reality is that sanitation has the The reality is that sanitation has the potential to provide a sustainable potential to provide a sustainable source of plant nutrients potable water source of plant nutrients potable water and also energy.and also energy.

• UD sanitation and waterless toilets UD sanitation and waterless toilets must be the technology of the futuremust be the technology of the future

The reform processThe reform process• Reform is a delicate processReform is a delicate process

• The key is to find out what will satisfy The key is to find out what will satisfy the key stakeholders’ expectationsthe key stakeholders’ expectations

• It is essential to take the political It is essential to take the political leadership along in the process and leadership along in the process and ensure that their concerns and ensure that their concerns and expectations are metexpectations are met

Concluding remarksConcluding remarks• We see our operation as a business to We see our operation as a business to

be run according to normal business be run according to normal business principles, particularly a strategic principles, particularly a strategic approach.approach.

• Innovation is key to our growth and Innovation is key to our growth and development as an organisation. If it is development as an organisation. If it is not working then do something not working then do something differentdifferent

• Communication can make or break Communication can make or break any initiativeany initiative

• The support of political leadership has The support of political leadership has been critical for successbeen critical for success