1. Recognising and managing the key challenges in water service delivery Analysis of a sample of WSAs Kevin Jacoby 14 June 2013

2. Overview of presentation The sample! The sample! Standard of water service provision Standard of water service provision Financial cost estimation Financial cost estimation Potential consequence of sub-standard water service delivery Potential consequence of sub-standard water service delivery Conclusions Conclusions

3. Sampled municipalities No.Name of MunicipalityCategoryProvince 1 Nelson Mandela Bay Metropolitan Municipality (NMBM) AEastern Cape 2Ekurhuleni Metropolitan MunicipalityAGauteng 3eThekwini Metropolitan MunicipalityAKwa-Zulu Natal 4Cape Town Metropolitan MunicipalityAWestern Cape 5Buffalo City Metropolitan MunicipalityAEastern Cape 6George MunicipalityBWestern Cape 7uMhlathuze (Richards Bay) MunicipalityBKwa-Zulu Natal 8Steve Tshwete (Middleburg) MunicipalityBMpumalanga 9Kouga MunicipalityBEastern Cape 10Sol Plaatjie (Kimberley) MunicipalityBNorthern Cape 11Polokwane MunicipalityBNorthern Cape 12Stellenbosch MunicipalityBWestern Cape 13Overstrand MunicipalityBWestern Cape 14Midvaal MunicipalityBGauteng 15Amathole District MunicipalityCEastern Cape

4. Standard of water service provision Backlog of water service infrastructure maint. and rehab. Backlog of water service infrastructure maint. and rehab. For 10 sample municipalities: For 10 sample municipalities: Water = R 1 163 million (decrease from previous year) R 91k/capita Water = R 1 163 million (decrease from previous year) R 91k/capita Sanitation = R 5 129 million (increase from previous year) R 400k/capita Sanitation = R 5 129 million (increase from previous year) R 400k/capita Ekurhuleni sanitation requires a R 1 545k/capita investment Ekurhuleni sanitation requires a R 1 545k/capita investment Capital cost of addressing the service coverage backlog Capital 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/capita Water = R 5 060 million (same as previous year) R 503k/capita Sanitation = R 6 109 million (increase from previous year) R 607k/capita Sanitation = R 6 109 million (increase from previous year) R 607k/capita Polokwane water requires a R 3 042k/capita investment and sanitation a R 1 306k/capita investment. Polokwane water requires a R 3 042k/capita investment and sanitation a R 1 306k/capita investment.

5. Standard of water service provision (cont.) Potable water service interruptions Potable water service interruptions 124 324 in 2009/10 – 113 474 recorded in Cape Town 124 324 in 2009/10 – 113 474 recorded in Cape Town Days failed sanitation services Days failed sanitation services 24 days in 2009/10 – 15 of these in Ekurhuleni 24 days in 2009/10 – 15 of these in Ekurhuleni DWA blue drop quality DWA blue drop quality 9 out of 15 9 out of 15 DWA green drop quality DWA green drop quality 5 out of 15 5 out of 15 Prioritisation of water services by municipalities Prioritisation of water services by municipalities 10/13 incl. water service operational readiness as a risk 10/13 incl. water service operational readiness as a risk 3/10 classify this as a high risk 3/10 classify this as a high risk

6. Standard of water service provision (cont.) Monitoring effort by municipalities Monitoring effort by municipalities Average years since last meter audit for 13/15 is 4 years Average years since last meter audit for 13/15 is 4 years Polokwane last meter audit 15yrs prior Polokwane last meter audit 15yrs prior Metros average years for meter audits is 2 years Metros average years for meter audits is 2 years Skills adequacy Skills adequacy 31% of water service posts are vacant 31% of water service posts are vacant Skilled staff service 13 602 members of the population Skilled staff service 13 602 members of the population Engineers service 90 925 members of the population Engineers service 90 925 members of the population Technologists service 87 405 members of the population Technologists service 87 405 members of the population Technicians service 19 578 members of the population Technicians service 19 578 members of the population

7. Standard of water service provision (cont.) Planning effort Planning effort 14/15 had water service development plans 14/15 had water service development plans 12/15 had water service master plans 12/15 had water service master plans Management of capex Management of capex Sources of funding Sources 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 metros Note – most external loan funding used by metros Overall capex budget allocated to water services =15% Overall capex budget allocated to water services =15%

8. Standard of water service provision (cont.) Per capita investment in water services Per capita investment in water services R220 R220 Allocation of water service capex budget Allocation 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%

9. Management of opex Management of opex Budgeted result R 786million Budgeted result R 786million Actual result R 267 million Actual result R 267 million ? : Variable costs and costs of transfer exceeded the budget ? : Variable costs and costs of transfer exceeded the budget External support options External support options Water service consultants (project design) – 14/14 Water service consultants (project design) – 14/14 PPPs - 4/14 PPPs - 4/14 Water Boards - 6/14 Water Boards - 6/14 District Municipalities - 3/14 District Municipalities - 3/14 Standard of water service provision (cont.)

10. Ring-fencing Ring-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 easy 11/15 find the cost estimation of the water service easy Internal costing methodology Internal costing methodology Percentage of total cost of support services – 6/11 Percentage of total cost of support services – 6/11 ABC costing - 4/11 ABC costing - 4/11 Mixture of the above - 1/11 Mixture of the above - 1/11 Source and pricing of bulk water provision Source 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

11. Fixed and variable cost analysis Fixed and variable cost analysis 51% fixed costs 51% fixed costs 49% variable costs 49% variable costs Varies significantly from authority to authority Varies significantly from authority to authority NMBM 30% fixed NMBM 30% fixed Ekurhuleni 90% fixed Ekurhuleni 90% fixed Asset valuation methods and asset registers Asset valuation methods and asset registers 10/15 – Replacement value 10/15 – Replacement value 8/15 - Historical value 8/15 - Historical value 3/15 – Use both methods 3/15 – Use both methods Most asset registers are detailed and include extent, age, value and state (condition) of an asset Most asset registers are detailed and include extent, age, value and state (condition) of an asset Financial cost estimation

12. Adequacy of depreciation Adequacy of depreciation A variance of R90m between estimated and actual depreciation for potable water service in 2009/10 A variance of R90m between estimated and actual depreciation for potable water service in 2009/10 DRC R8,204 billion DRC R8,204 billion CRC R9,015 billion CRC R9,015 billion DRC/CRC is 75% : is this cash backed? Impact on accumulated surplus/deficit? DRC/CRC is 75% : is this cash backed? Impact on accumulated surplus/deficit? Scarcity cost consciousness Scarcity cost consciousness Few!– strategies vary from demand management to additional supply Few!– strategies vary from demand management to additional supply Environmental cost of waste water management not considered Environmental cost of waste water management not considered Financial cost estimation

13. The municipal capital budget in 2006 equalled 75% of the value of buildings completed The municipal capital budget in 2006 equalled 75% of the value of buildings completed This percentage was 49% in 2009/10 This percentage was 49% in 2009/10 Potential consequences

14. Per capita cost to address sanitation backlog infrastructure maintenance and rehab. was increasing Per capita cost to address sanitation backlog infrastructure maintenance and rehab. was increasing Metros focused more on reducing water coverage backlog rather than the sanitation coverage backlog Metros focused more on reducing water coverage backlog rather than the sanitation coverage backlog Potable water service interruptions must be recorded Potable water service interruptions must be recorded Days of failed sanitation are not being recorded, an indicator of munic. not monitoring sanitation services Days of failed sanitation are not being recorded, an indicator of munic. not monitoring sanitation services No negative correlation between quality certificates and backlogs in maintenance and rehabilitation No negative correlation between quality certificates and backlogs in maintenance and rehabilitation A correlation rather exists with skills and quality of service A correlation rather exists with skills and quality of service Conclusions

15. Operational readiness of the water service a risk but not the highest risk for municipalities Operational readiness of the water service a risk but not the highest risk for municipalities Long period between the audit of water meters Long period between the audit of water meters Municipalities are involved in water service planning. Are these plans being implemented? Municipalities are involved in water service planning. Are these plans being implemented? Various funding sources are available for capital programmes-high levels of external borrowing Various funding sources are available for capital programmes-high levels of external borrowing 15% of total capital budget to water services 15% of total capital budget to water services Municipalities (small) spending more capital on new infrastructures as opposed to maintenance and rehabilitation Municipalities (small) spending more capital on new infrastructures as opposed to maintenance and rehabilitation Conclusions

16. Municipalities underspend on capital budgets (conditional grants risk?) Municipalities underspend on capital budgets (conditional grants risk?) Budget comparisons reveal the cost of service is recovered by tariffs. Material variations exist if compared with the actual result. Impact on tariff calculations is significant Budget comparisons reveal the cost of service is recovered by tariffs. Material variations exist if compared with the actual result. Impact on tariff calculations is significant Municipalities make limited use of external support Municipalities make limited use of external support The principle of ring-fencing is not implemented by most The principle of ring-fencing is not implemented by most Municipalities know little about consumption trends and the nature of demand by users Municipalities know little about consumption trends and the nature of demand by users Conclusions

17. Municipalities use various costing methodologies Municipalities use various costing methodologies The bulk water supply varies The bulk water supply varies Inconsistent approach applied to the categorisation of costs between fixed and variable Inconsistent approach applied to the categorisation of costs between fixed and variable Asset registers complete Asset registers complete Depreciation not being recovered by tariffs and not being used to manage the replacement of assets Depreciation not being recovered by tariffs and not being used to manage the replacement of assets Next water supply is material and not provided for Next water supply is material and not provided for Exogenous environmental costs not considered Exogenous environmental costs not considered Capital expenditure/value of building plans decreased Capital expenditure/value of building plans decreased Conclusions

18. The End Thank you Comments/questions?