Helping service delivery through Public-Private Partnership

The Vuthela iLembe LED Support Programme has played an extensive role in assessing the performance of South Africa’s first Public-Private Partnership (PPP), highlighting successes of the concession, and identifying challenges to be addressed to deliver efficient water and sewer services in the iLembe district in the future.

A comprehensive formal review of the Siza Water PPP, coupled with informal interactions between parties to the concession, has revealed how the PPP has succeeded in fulfilling many operational obligations in a business-like fashion – but has fallen short on some social mandates advanced by municipalities.

Under the PPP signed 25 years ago, private company Siza Water was contracted to provide water and sewer services to the then Dolphin Coast Municipality. The contract is now managed by the iLembe District Municipality and will expire in 2029. The concession area includes Ballito, Chaka’s Rock, Umhlali, Shakaskraal, Etete, Nkobongo, Shakashead, Tinley Manor and Sheffield Beach.

The review was conducted by the Vuthela iLembe LED Support Programme. Late last year Vuthela also hosted a seminar for stakeholders to share their perspectives on the ground-breaking partnership.

The review and case study which emerged from the seminar has contributed towards a thorough understanding of the PPP’s benefits and challenges, enabling stakeholders to make sustainable decisions around the delivery of essential water and sewer services in the district. The information and insights will also be useful to other municipalities in South Africa who face similar service delivery challenges.

The Vuthela assessment included a comprehensive legal review of the contract and supplementary agreements.

“Most aspects of the contract are not in line with the regulations which have been issued under the Water Services Act, specifically as they related to basic minimum standards and as they relate to certain operational aspects,” according to a report on the review.

There was no reference to the incident management mechanisms set up in the National Environmental Act and the National Water Act.

Exit management strategy

No provision had been made for an exit management strategy in the initial agreement, but a Supplementary Agreement in 2022 introduced a formal undertaking to cater for an exit management strategy.

The financial review included a comprehensive review of the Annual Financial Statement for the last five years, quarterly reports and income reports. The financial model was also assessed to determine when the profit-sharing target will be achieved.

The review found that the financial model was “fairly static”, with no provision for scenarios or sensitivities to be run. Further information has been requested before proceeding with this aspect of the analysis.

The Vuthela Programme assisted the iLembe District Municipality’s technical department to develop an enhanced understanding of the infrastructure asset base within the concession area. The review assessed the condition of pipelines, treatment works, pump stations, reservoirs, and other assets. It also analysed the quality management systems and quality control standards.

The review did not find much evidence of basic sanitation servicing or the desludging of septic tanks and VIP latrines once they reach full capacity. This obligation is stipulated in the concession agreement.

It was found that the current five-year plan (2019-2023) had not been approved during the assessment period, which does not comply with the concession agreement, which requires that the five-year plan be developed and approved at least four months before expiry of the current five-year plan.

An assessment of the demographics within the concession area with regards to socio-economic environment, income and affordability, and the extent of expected growth was conducted.

It was found that the number of households collecting water from standpipes more than 200m from their homes was below the required level of service.

The growth in informal housing had increased the demand at standpipes and on the water infrastructure.

Stakeholder positions

In addition to the formal review of the concession, the Vuthela seminar facilitated a thorough consideration of stakeholder positions and the key issues which required attention.

 The PPP’s strengths included its operational capacity and technical expertise to deliver water services to communities in a significant and highly populated portion of the iLembe district.

Water losses were cut from 50% at inception to 8% and the collection rate for water services was raised to 97% for water services provided. Sewer overflows have been minimised.

 Siza Water had achieved Blue Drop and Green Drop certification for the water services delivered under the concession and its water reuse plant brought environmental and economic benefits.

 Concerns of municipal officials and community representatives included issues around the profit-sharing component – this was taking too long to materialise and the iLembe District Municipality has not yet received any share of profit.

 The concession area included low-income and indigent consumers who have a right to free basic services they cannot afford, but Siza Water did not provide free water services to indigent consumers, or the same level of services in affluent and low-income areas of the concession. Siza Water officials said the company had provided water services in both areas according to the terms and standards specified in the contract.

Low-income consumers found the connection fee was too high and developers complained that the charges imposed by Siza Water for installing new services were also steep.

The seminar identified several opportunities arising from the stakeholder perspectives.

It was widely acknowledged that private sector technical expertise, financial funding and operational models could achieve better service delivery than many municipalities.

However, a cross-subsidisation model in which affluent consumers support services to low-income and indigent users of water may have to be considered.

Shared understanding

Vuthela Programme Manager Richard Clacey said the formal review and informal discussions had contributed towards forging a better shared understanding among private and public sector stakeholders.

“The decision on how to proceed after the contract ends will be made at the appropriate local government forum,” said Clacey.

All the elements were in place for a comprehensive handover plan to be developed, and this will ensure a smooth transition to the next phase of operations once the concession ends.

Clacey indicated that recent shifts in national government policy towards greater participation of PPPs in service delivery, and the Department of Water and Sanitation’s Water Services Improvement Plan, had widened the range of options available for municipalities to improve the delivery of water services.

“Several options for other municipalities who share similar challenges in providing water and sewer services are now emerging, and we hope that the information, perspectives and insights which have come out of the Vuthela Programme will help all municipalities to deliver efficient services to their communities,” said Clacey.