Options flow from water concession seminar

The Vuthela iLembe LED Support Programme recently held a policy and practice dialogue on Public-Private Partnerships with a focus on Siza Water. In discussing the benefits and challenges of the concession, public and private sector participants reflected on lessons learnt to better manage the concession in the remaining six years and to reflect on the options available and implications of those options beyond the concession expiry.

One of South Africa’s first Public-Private Partnerships (PPP), (the other in Mbombela Local Municipality), signed between the Borough of Dolphin Coast and private company Siza Water 24 years ago, has brought many benefits for the affluent KwaZulu-Natal coastal areas of Ballito, Shakasrock and Salt Rock to the east of the N2 highway.

But critics contend that the PPP has not responded to challenges in the poorer and more populous black peri-urban areas of the concession area, such as Etete, Nkobongo, Shayamoya, and Shakaskraal to the west of the N2 highway.

The benefits and challenges related to the PPP concession and its management by the iLembe District Municipality were discussed by public and private sector stakeholders at a seminar held by the Vuthela iLembe LED Support Programme on 2 February 2023.

The Siza Water concession is due to expire in six years (2029) and is being managed by the iLembe District Municipality.

Opportunity for decision makers

Vuthela Programme Manager Richard Clacey stressed that the seminar was not a decision-making forum, but an opportunity for decision makers and those advising decision makers to develop a better understanding of the issues and lessons learnt since the inception of the concession, allowing them to better manage the concession for the remaining six years and to reflect on the options available beyond the concession expiry.

“The seminar succeeded in its aim of airing and sharing the views and perspectives of all stakeholders,” said Clacey.

“Discussions were frank and robust, and all stakeholders were committed to resolving the various issues that have emerged.

“Whatever decisions are made, it is critical that the process is started now to ensure the continuity of water services in this rapidly growing region,” said Clacey.

While there was overall agreement that the PPP had provided efficient and effective water and sanitation services in the concession area’s coastal belt east of the N2 freeway, municipal officials and community representatives expressed concern over the standard of services provided to communities in the under-developed part of the municipality which lies mainly on the west of the N2.

The disparate level of services highlighted the developmental tension between the iLembe District Municipality’s mandate to provide access to water services to all its residents and the private sector’s need to generate profits by serving customers who can afford to pay for them.

Siza Water officials said the company had provided water services in both areas according to the terms and standards specified in the contract. It was not in a position to provide services in areas which did not fall under the original contract, even though these areas are now part of the KwaDukuza Local Municipality.

Innovative technology

Siza Water Managing Director Shyam Misra told the seminar that the company had deployed innovative technology over the years, making it highly efficient. It had received Blue Drop and Green Drop certification for the high quality of its water services. The concessionaire further emphasised the importance of capacity building and ongoing training to meet new challenges and make use of opportunities in the sector.

Seven reservoirs, six sewer pump stations and two sewer treatment works were upgraded, and the company had invested about R500 million in water infrastructure. Water losses in the system were reduced from 33% in 1999 to 8% in 2021.

Municipal officials and ward representatives acknowledged Siza Water’s efficiencies and technical expertise, but expressed grave concern that low-income areas were still being served by shared standpipes spaced far apart and unsatisfactory toilet facilities.

Councillor Collen Mdletshe, who represents Ward 28 in the KwaDukuza Local Municipality and had also been requested to represent the views of two other wards, told the seminar that Siza Water was a very reliable service provider, and the water quality was of a high standard. Faults and complaints were attended to promptly.

Other benefits included bursaries provided by Siza Water to residents of the district, sponsorships to local NGOs and opportunities for young people to gain technical knowledge.

The main challenges were the limited number of standpipes and the long distance between them, posing difficulties for the elderly and people with special needs; inadequate water pressure in some areas; and criminals vandalising standpipes to sell the metal components as scrap.

Expensive for indigent households

The cost of household water meter connections needed to be reviewed, as it was very expensive for disadvantaged communities, said the Councillor. It is expected that the household pay the full amount of such meters and there is no distinction between indigent and non-indigent households.

“Frankly, it makes little sense that Siza Water would charge the same amount of money to connect water to a house at an affluent estate and to a house at Nkobongo or Etete,” said Mdletshe.

“Lowering the cost would mean more houses connected, more revenue for the company and, ultimately, better service to residents of KwaDukuza.”

Executive Director for Economic Development and Planning at KwaDukuza Local Municipality, Sikhumbuzo Hlongwane, said that indigent and affluent communities were not receiving equitable services.

“PPPs perpetuate inequality and under-development,” said Hlongwane.

“Private sector investment tends to go into areas where the company will make money, but we have indigent areas which are a legacy of apartheid. How we address this legacy is a big issue for us,” he said.

Linda Mncube, CEO of the district’s economic development agency, Enterprise iLembe, said PPPs had great potential to provide efficient service delivery. Contracts should set specific targets for capital investment to unlock development.

Equitable profit-sharing models should be created, and the concession’s tariff structure and finance model should cater for redistribution (cross-subsidisation) and the provision of a higher level of service in historically underserviced areas, he added.

Cingisa Mbola, Director: Technical Services at iLembe District Municipality, said Siza Water provided bulk infrastructure that contributed to the development of Ballito, maintained a good collection rate, and kept customers satisfied with good communication.

But Siza Water provided a sub-standard service to the “township” areas within the concession area, and there was no water borne sewerage system in these areas.

The tariff structure was too high for indigent residents and Siza Water did not offer free services, as required by current legislation.

Siza Water was not investing its own funds in critical infrastructure required for future growth but was using developers’ contributions to pay for new infrastructure.

Financial model needs review

Mbola said the financial model should be reviewed and the profit generated by the concession should be shared equally between Siza Water and the iLembe District Municipality. The Vuthela Programme is currently supporting the municipality with a review of this financial model.

A representative of the Dolphin Coast Residents and Ratepayers’ Association, Stephan Marais, said the PPP’s strengths included good maintenance of infrastructure, a simple price structure, cost savings due to efficiencies and the honouring of service level agreements.

The lack of new infrastructure development, illegal connections and non-paying customers posed the main threats. There were opportunities to renegotiate contributions for new infrastructure in the form of developers charges and to expand the reach and scope of services, said Marais.

With many municipalities facing pressure to expand basic services with diminishing resources, new options for service delivery will need to be considered.

Standardised national programmes

The national Department of Water and Sanitation has established an office in partnership with the Development Bank of Southern Africa and the South African Local Government Association to improve the participation of the private sector in providing water services.

The Water Partnerships Office (WPO) is developing standardised national programmes that will make it easier, quicker and cheaper for municipalities to enter into partnerships with the private sector to provide services.

The WPO will support municipalities to prepare bankable projects, undertake feasibility studies and seek funding.

Johann Lubbe, head of the WPO, told the seminar that many municipalities faced financial and technical constraints. But South Africa’s private sector had substantial expertise, and that furthermore banks and pension funds were now eager to invest in public water and sanitation infrastructure.

“The project must be bankable,” said Lubbe.

“There must be a focus on projects with sufficiently large and sustainable revenue streams. The larger the revenue stream in relation to the investment and the more sustainable the revenue stream, the greater the likelihood that the project will be bankable.”

The KwaZulu-Natal government is also poised to assist municipalities to form PPPs to provide water services.

The Acting Chief Director of the PPP Unit in the KwaZulu-Natal Provincial Treasury, Kirsch Bezuidenhout, told the seminar that South Africa faced a “brewing crisis” over water services.

The PPP contract between the iLembe District Municipality and Siza Water was a ground-breaking agreement that demonstrated how collaboration between the public and private sectors could provide basic water services and waste management to communities.

“It remains a shining example of how a well-managed PPP agreement should be, in spite of the difficulties arising along the way, as with any relationship,” said Bezuidenhout.

“This contract has generally been managed quite well and performed at levels that have ensured exceptional services to households within the concession area.

Siza Water PPP a blueprint

“This PPP agreement could serve as a blueprint for water and sanitation services across the country and it is a contract that KwaZulu-Natal should take pride in,” said Bezuidenhout.

While the private sector was better placed to provide services efficiently, the municipality cannot divorce itself from the management of the contract.

“Public-Private Partnerships remain a cogent vehicle to ensure that government at all levels is able to achieve the development required in our country.

“In more recent times, South Africa, generally, has seen an economic downturn, which has meant that the financial resources available to government are evermore dwindling.

“There is a growing need for government to turn to the private sector and leverage its borrowing power to fund the large-scale developmental projects needed to provide real change in the life of the communities we serve, and to jump start the economy.”

The KZN Provincial Treasury provides technical, legal and financial advice on PPPs to municipalities.

The seminar identified issues which required urgent interaction between Siza Water and the iLembe District Municipality, and stakeholders acknowledged the need to start preparing immediately for the end of the contract in six years.

Vuthela is summarising the presentations, perspectives and discussions at the seminar into a case study, which will be available to all stakeholders and other municipalities.

The seminar and the case study, along with the overall support which Vuthela offers the iLembe District Municipality, will help to ensure that the secure delivery of water services will continue to underpin economic development in this region.

The perspectives of stakeholders and the learnings derived from the PPP over the past 24 years will also serve as a valuable guide for other municipalities who are seeking effective solutions to the challenges of delivering water services efficiently.

Pic: Linda Mncube, chief executive officer of Enterprise iLembe Economic Development Agency; Gerhard Pienaar, Deputy Head of the Swiss State Secretariat for Economic Affairs (SECO) and Kirsch Bezuidenhout, Acting Chief Director of the Public-Private Partnership Unit at KZN Provincial Treasury