Recognising and Recognising and managing the key managing the key
challenges in water challenges in water service deliveryservice delivery
Analysis of a sample of WSAsAnalysis of a sample of WSAs
Kevin JacobyKevin Jacoby
14 June 201314 June 2013
Overview of presentation Overview of presentation
The sample!The sample! Standard of water service provisionStandard of water service provision Financial cost estimationFinancial cost estimation Potential consequence of sub-standard water Potential consequence of sub-standard water
service deliveryservice delivery ConclusionsConclusions
Sampled municipalitiesSampled municipalitiesNo. Name of Municipality Category Province
1Nelson Mandela Bay Metropolitan
Municipality (NMBM)A Eastern Cape
2 Ekurhuleni Metropolitan Municipality A Gauteng
3 eThekwini Metropolitan Municipality AKwa-Zulu
Natal
4Cape Town Metropolitan
MunicipalityA Western Cape
5Buffalo City Metropolitan
MunicipalityA Eastern Cape
6 George Municipality B Western Cape
7uMhlathuze (Richards Bay)
MunicipalityB
Kwa-Zulu
Natal
8Steve Tshwete (Middleburg)
MunicipalityB Mpumalanga
9 Kouga Municipality B Eastern Cape
10 Sol Plaatjie (Kimberley) Municipality BNorthern
Cape
11 Polokwane Municipality BNorthern
Cape
12 Stellenbosch Municipality B Western Cape
13 Overstrand Municipality B Western Cape
14 Midvaal Municipality B Gauteng
15 Amathole District Municipality C Eastern Cape
Standard of water service Standard of water service provisionprovision
Backlog of water service infrastructure maint. and Backlog of water service infrastructure maint. and rehab.rehab. For 10 sample municipalities:For 10 sample municipalities:
Water = R 1 163 million (decrease from previous year) R 91k/capitaWater = R 1 163 million (decrease from previous year) R 91k/capita Sanitation = R 5 129 million (increase from previous year) R 400k/capitaSanitation = R 5 129 million (increase from previous year) R 400k/capita Ekurhuleni sanitation requires a R 1 545k/capita investmentEkurhuleni sanitation requires a R 1 545k/capita investment
Capital cost of addressing the service coverage backlogCapital cost of addressing the service coverage backlog For 10 sample municipalities:For 10 sample municipalities:
Water = R 5 060 million (same as previous year) R 503k/capitaWater = R 5 060 million (same as previous year) R 503k/capita Sanitation = R 6 109 million (increase from previous year) R 607k/capitaSanitation = R 6 109 million (increase from previous year) R 607k/capita Polokwane water requires a R 3 042k/capita investment and sanitation a Polokwane water requires a R 3 042k/capita investment and sanitation a
R 1 306k/capita investment.R 1 306k/capita investment.
Standard of water service Standard of water service provision (cont.) provision (cont.)
Potable water service interruptionsPotable water service interruptions 124 324 in 2009/10 – 113 474 recorded in Cape Town124 324 in 2009/10 – 113 474 recorded in Cape Town
Days failed sanitation servicesDays failed sanitation services 24 days in 2009/10 – 15 of these in Ekurhuleni24 days in 2009/10 – 15 of these in Ekurhuleni
DWA blue drop qualityDWA blue drop quality 9 out of 159 out of 15
DWA green drop quality DWA green drop quality 5 out of 155 out of 15
Prioritisation of water services by municipalitiesPrioritisation of water services by municipalities 10/13 incl. water service operational readiness as a risk10/13 incl. water service operational readiness as a risk 3/10 classify this as a high risk3/10 classify this as a high risk
Standard of water service Standard of water service provision (cont.) provision (cont.)
Monitoring effort by municipalitiesMonitoring effort by municipalities Average years since last meter audit for 13/15 is 4 yearsAverage years since last meter audit for 13/15 is 4 years Polokwane last meter audit 15yrs priorPolokwane last meter audit 15yrs prior Metros average years for meter audits is 2 yearsMetros average years for meter audits is 2 years
Skills adequacySkills adequacy 31% of water service posts are vacant31% of water service posts are vacant Skilled staff service 13 602 members of the populationSkilled staff service 13 602 members of the population Engineers service 90 925 members of the populationEngineers service 90 925 members of the population Technologists service 87 405 members of the populationTechnologists service 87 405 members of the population Technicians service 19 578 members of the populationTechnicians service 19 578 members of the population
Standard of water service Standard of water service provision (cont.) provision (cont.)
Planning effortPlanning effort 14/15 had water service development plans14/15 had water service development plans 12/15 had water service master plans12/15 had water service master plans
Management of capexManagement of capex Sources of fundingSources of funding
Internal sources 17%Internal sources 17% Grants 45%Grants 45% Developers contributions 1%Developers contributions 1% External loans 34%External loans 34% Other 4%Other 4% Note – most external loan funding used by metrosNote – most external loan funding used by metros
Overall capex budget allocated to water services =15%Overall capex budget allocated to water services =15%
Standard of water service Standard of water service provision (cont.) provision (cont.)
Per capita investment in water servicesPer capita investment in water services R220R220
Allocation of water service capex budgetAllocation of water service capex budget Rehabilitation of water service infrastructure 32.27%Rehabilitation of water service infrastructure 32.27% New infrastructure assets - networks 26.21%New infrastructure assets - networks 26.21% New capital - sanitation facilities 15.04%New capital - sanitation facilities 15.04% New capital - bulk water and sanitation/sewage 25.95%New capital - bulk water and sanitation/sewage 25.95%
Capital budget spent = 84%Capital budget spent = 84%
Management of opexManagement of opex Budgeted result R 786millionBudgeted result R 786million Actual result R 267 millionActual result R 267 million ? : Variable costs and costs of transfer exceeded the ? : Variable costs and costs of transfer exceeded the
budgetbudget External support optionsExternal support options
Water service consultants (project design) – 14/14Water service consultants (project design) – 14/14 PPPsPPPs - 4/14 - 4/14 Water BoardsWater Boards - 6/14 - 6/14 District MunicipalitiesDistrict Municipalities - 3/14 - 3/14
Standard of water service Standard of water service provision (cont.) provision (cont.)
Ring-fencingRing-fencing 2/15 provide for ring-fenced water service (Metros)2/15 provide for ring-fenced water service (Metros) 11/15 find the cost estimation of the water service easy11/15 find the cost estimation of the water service easy
Internal costing methodologyInternal costing methodology Percentage of total cost of support services – 6/11Percentage of total cost of support services – 6/11 ABC costingABC costing - 4/11 - 4/11 Mixture of the aboveMixture of the above - 1/11 - 1/11
Source and pricing of bulk water provisionSource and pricing of bulk water provision 49% of water self supplied (R0,0385 to R3,02/kl)49% of water self supplied (R0,0385 to R3,02/kl) 23% of water from DWA (R0,4301 to R1,892/kl)23% of water from DWA (R0,4301 to R1,892/kl) 29% of water from water boards (R3,25 to R4,64/kl)29% of water from water boards (R3,25 to R4,64/kl)
Financial cost estimation Financial cost estimation
Fixed and variable cost analysisFixed and variable cost analysis 51% fixed costs51% fixed costs 49% variable costs49% variable costs Varies significantly from authority to authorityVaries significantly from authority to authority
NMBM 30% fixedNMBM 30% fixed Ekurhuleni 90% fixedEkurhuleni 90% fixed
Asset valuation methods and asset registersAsset valuation methods and asset registers 10/15 – Replacement value10/15 – Replacement value 8/15 - Historical value8/15 - Historical value 3/15 – Use both methods3/15 – Use both methods
Most asset registers are detailed and include extent, Most asset registers are detailed and include extent, age, value and state (condition) of an assetage, value and state (condition) of an asset
Financial cost estimation Financial cost estimation
Adequacy of depreciationAdequacy of depreciation A variance of R90m between estimated and actual A variance of R90m between estimated and actual
depreciation for potable water service in 2009/10depreciation for potable water service in 2009/10 DRC R8,204 billionDRC R8,204 billion CRC R9,015 billionCRC R9,015 billion DRC/CRC is 75% : is this cash backed? Impact on DRC/CRC is 75% : is this cash backed? Impact on
accumulated surplus/deficit?accumulated surplus/deficit? Scarcity cost consciousnessScarcity cost consciousness
Few!– strategies vary from demand management to Few!– strategies vary from demand management to additional supplyadditional supply
Environmental cost of waste water management not Environmental cost of waste water management not consideredconsidered
Financial cost estimation Financial cost estimation
The municipal capital budget in 2006 equalled The municipal capital budget in 2006 equalled 75% of the value of buildings completed75% of the value of buildings completed
This percentage was 49% in 2009/10This percentage was 49% in 2009/10
Potential consequences Potential consequences
Per capita cost to address sanitation backlog Per capita cost to address sanitation backlog infrastructure maintenance and rehab. was increasinginfrastructure maintenance and rehab. was increasing
Metros focused more on reducing water coverage Metros focused more on reducing water coverage backlog rather than the sanitation coverage backlogbacklog rather than the sanitation coverage backlog
Potable water service interruptions must be recordedPotable water service interruptions must be recorded Days of failed sanitation are not being recorded, an Days of failed sanitation are not being recorded, an
indicator of munic. not monitoring sanitation servicesindicator of munic. not monitoring sanitation services No negative correlation between quality certificates No negative correlation between quality certificates
and backlogs in maintenance and rehabilitationand backlogs in maintenance and rehabilitation A correlation rather exists with skills and quality of A correlation rather exists with skills and quality of
serviceservice
Conclusions Conclusions
Operational readiness of the water service a risk but Operational readiness of the water service a risk but not the highest risk for municipalitiesnot the highest risk for municipalities
Long period between the audit of water metersLong period between the audit of water meters Municipalities are involved in water service planning. Municipalities are involved in water service planning.
Are these plans being implemented?Are these plans being implemented? Various funding sources are available for capital Various funding sources are available for capital
programmes-high levels of external borrowingprogrammes-high levels of external borrowing 15% of total capital budget to water services15% of total capital budget to water services Municipalities (small) spending more capital on new Municipalities (small) spending more capital on new
infrastructures as opposed to maintenance and infrastructures as opposed to maintenance and rehabilitationrehabilitation
Conclusions Conclusions
Municipalities underspend on capital budgets Municipalities underspend on capital budgets (conditional grants risk?)(conditional grants risk?)
Budget comparisons reveal the cost of service is Budget comparisons reveal the cost of service is recovered by tariffs. Material variations exist if recovered by tariffs. Material variations exist if compared with the actual result. Impact on tariff compared with the actual result. Impact on tariff calculations is significantcalculations is significant
Municipalities make limited use of external supportMunicipalities make limited use of external support The principle of ring-fencing is not implemented by The principle of ring-fencing is not implemented by
mostmost Municipalities know little about consumption trends Municipalities know little about consumption trends
and the nature of demand by usersand the nature of demand by users
Conclusions Conclusions
Municipalities use various costing methodologiesMunicipalities use various costing methodologies The bulk water supply variesThe bulk water supply varies Inconsistent approach applied to the categorisation Inconsistent approach applied to the categorisation
of costs between fixed and variableof costs between fixed and variable Asset registers completeAsset registers complete Depreciation not being recovered by tariffs and not Depreciation not being recovered by tariffs and not
being used to manage the replacement of assetsbeing used to manage the replacement of assets Next water supply is material and not provided forNext water supply is material and not provided for Exogenous environmental costs not consideredExogenous environmental costs not considered Capital expenditure/value of building plans decreasedCapital expenditure/value of building plans decreased
Conclusions Conclusions
The EndThe End
Thank youThank you
Comments/questions?Comments/questions?
