Many municipalities are in a vicious cycle of increasing non-revenue water and decreasing maintenance and operation budgets for water services. Reforms are under way to ensure revenues from the sale of water are ring-fenced for water services.
Deteriorating municipal water services
The Blue Drop audit report issued by the Department of Water and Sanitation (DWS) in 2023 indicated that the percentage of municipal water supply systems with poor or bad microbiological water quality compliance findings (ie water that is not safe to drink) increased from 5% in 2014 to 46% in 2023.
The 2022 Green Drop report found that the percentage of municipal wastewater systems in a critical state of performance increased from 30% in 2013 to 39% in 2022. Of the 144 water services authorities in South Africa, 90 had at least one wastewater system discharging partially treated or untreated sewage into rivers, resulting in increased risk of diseases such as cholera.
The 2023 No Drop report indicated that the national average for municipal non-revenue water increased from 37% in 2014 to 47% in 2023. Municipalities with high non-revenue water are unable to pay the water boards for the treated water they supply and cannot afford to properly maintain and operate their water infrastructure.
Causes of the deterioration of water services
The main causes of this deterioration are that municipalities are not maintaining their infrastructure and are not adhering to standard operating processes for drinking water treatment and wastewater treatment.
Metering, billing and revenue collection systems are often weak and there is insufficient prioritisation of budgets for the maintenance and operation of water and sanitation infrastructure by municipal councils.
Municipalities often do not hire the necessary staff with the correct qualifications (ie plant managers, technicians, process controllers and scientists). In many cases, the absence of skilled staff is due to municipalities not prioritising the filling of these positions, rather than skills shortages in the labour market.
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The performance of municipalities as water services authorities
The Water Services Act of 1997, Municipal Structures Act of 1998 and Municipal Systems Act of 2000 provide the legislative framework for institutional arrangements for water services in South Africa.
The legislation distinguishes between Water Services Authority (WSA) and Water Services Provider (WSP) functions. It states that a WSA can either provide the WSP function itself through an internal service delivery mechanism, or through an external service delivery mechanism.
External service delivery mechanisms can be any legal entity (including a municipal entity, another municipality, a community-based organisation, a non-government organisation, an organ of state, a private company or a water board). However, almost all municipalities are currently both WSA and WSP (ie municipalities have chosen the internal service delivery mechanism).
The Water Services Act requires municipalities to manage and account for their WSA and WSP roles separately, but very few municipalities are doing this. In addition, WSAs are not performing their primary function of ensuring that their WSP provides services which meet minimum norms and standards.
Water as a financially self-sustaining trading service
Apart from grants from the national government to address infrastructure backlogs and the portion of the equitable share allocation from the fiscus to municipalities, which is intended to cover the cost of providing free basic water to the indigent, water and sanitation services have to be financially self-sustaining, based on revenues from the sale of water.
To be financially sustainable, a WSP must collect sufficient revenue from the sale of water to finance the operation, maintenance, renewal and development of water infrastructure; its expenditure must be efficient; and it must provide a reliable and acceptable level of service for which residents are willing to pay.
Many municipalities are in a vicious cycle of increasing non-revenue water and decreasing maintenance and operation budgets for water services. To break this vicious cycle, it is necessary to ensure that WSPs are well managed and financially sustainable institutions with effective billing and revenue collection systems and the capability to maintain and operate their infrastructure properly.
In general, this is not currently the case. In almost all municipalities, the water and sanitation department is a technical department which is provided with a budget which has no relationship to the amount of revenue collected from the sale of water. The head of the water and sanitation department has little or no control over supply chain management, human resource management and customer relationship management, which are managed elsewhere in the municipality.
This means that the head of water and sanitation cannot be held accountable for service delivery. It also means that the head of water and sanitation has no incentive to manage the service in such a way that revenues are optimised, or to ensure that the service is provided as efficiently as possible.
It is for these reasons that many countries have moved towards a ring-fenced “utility” institutional model for providing financially self-sustaining public services such as electricity and water.
Institutional reforms
To address these issues, two reform processes are under way, ie amendments to the Water Services Act and the Reform of Metropolitan Trading Services Programme. Both of these reform initiatives are aimed at ensuring that revenues from the sale of water are ring-fenced for water services and that there is single-point accountability for all aspects of delivering the water service.
The amendments that DWS has proposed to the Water Services Act will prompt WSAs with poorly performing WSPs to consider appointing alternative WSPs. WSAs will be free to choose their preferred internal or external service delivery mechanism, as long as their choice of mechanism has the required capability to provide services according to minimum norms and standards. DWS will regulate this through an operating license system for WSPs.
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Examples of external service delivery mechanisms
The Council of the Emfuleni Local Municipality in Gauteng has recently approved the creation of a Special Purpose Vehicle (SPV) to be its WSP. The SPV will be jointly owned by Rand Water and the municipality and will enter into a long-term service-level agreement with the WSA.
The municipality’s water and sanitation infrastructure and staff will be transferred to the SPV for the duration of the agreement. The SPV will have single point accountability for all the functions related to providing the service, including metering, billing and revenue collection; investment in infrastructure; and maintenance and operation of the infrastructure.
Rand Water has conducted a detailed feasibility study which indicates that the SPV will be able to reduce non-revenue water and improve revenue collection, as well as sustainably provide reliable water and sanitation services to the residents of the municipality.
Two 30-year water services concessions currently operate in South Africa, namely the Silulumanzi concession in Mbombela Local Municipality in Mpumalanga and the Siza Water Company concession in iLembe District Municipality in KwaZulu Natal.
The concessionaires lease the water infrastructure from the municipality at an agreed rate. The concessionaires collect revenue from the sale of water to residents, at a rate regulated by the municipality, and use the revenue to develop, operate and maintain the infrastructure. They also receive an annual contribution from the equitable share from the municipality, to allow for the provision of free basic water to the indigent.
All Silulumanzi and Siza-operated water supply systems are Blue Drop Certified. Before the implementation of the concession, the Ilembe District Municipality had water losses of above 50% as well as constant sewage spills. The Siza Water Company, which is now the WSP in Ilembe, has a 98% revenue collection rate and water losses have been reduced to 12%. Sewage spillages have become infrequent and are repaired quickly.
In 2000, the City of Johannesburg created a municipal entity (Joburg Water) to be the WSP in Johannesburg, but did not transfer some of the key WSP functions to Joburg Water. As a result, there has been no relationship between the budget allocated to Joburg Water by the city and the amount of revenue which the city collects from the sale of water.
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In addition, there has been no direct relationship between Joburg Water and its customers, because the customer relationship function is centralised in the city. Joburg Water also does not have full control of logistics such as its fleet, which is provided through a centralised fleet contract managed by the city.
These anomalies are now being addressed through the water and sanitation turnaround strategy which was recently approved by the city council. The turnaround strategy was developed with the assistance of the National Treasury’s Reform of Metropolitan Trading Services Programme.
Improving internal service delivery mechanisms
The City of eThekwini has also approved a water and sanitation turnaround strategy with the support of the Reform of Metropolitan Trading Services Programme. In this case, the strategy involves retaining an internal service delivery mechanism, but ringfencing the bulk of revenue collected from the sale of water for the water function; as well as giving the water and sanitation department responsibility for its own supply chain management, human resource management, logistics and customer relationship management.
This will enable the head of the department to have the necessary responsibility and authority to improve its services and to be held accountable in this regard. DM