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!
Standard of water service provision
Financial cost estimation
Potential consequence of sub-standard water service delivery
Conclusions

3. Sampled municipalities
No.
Name of Municipality
Category
Province 1
Nelson Mandela Bay Metropolitan Municipality (NMBM) A
Eastern Cape 2
Ekurhuleni Metropolitan Municipality
Gauteng 3
eThekwini Metropolitan Municipality
Kwa-Zulu Natal 4
Cape Town Metropolitan Municipality
Western Cape 5
Buffalo City Metropolitan Municipality 6
George Municipality B 7
uMhlathuze (Richards Bay) Municipality 8
Steve Tshwete (Middleburg) Municipality
Mpumalanga 9
Kouga Municipality 10
Sol Plaatjie (Kimberley) Municipality
Northern Cape 11
Polokwane Municipality 12
Stellenbosch Municipality 13
Overstrand Municipality 14
Midvaal Municipality 15
Amathole District Municipality C

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

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

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

7. Standard of water service provision (cont.)
Planning effort
14/15 had water service development plans
12/15 had water service master plans
Management of capex
Sources of funding
Internal sources 17%
Grants 45%
Developers contributions 1%
External loans 34%
Other 4%
Note – most external loan funding used by metros
Overall capex budget allocated to water services =15%

8. Standard of water service provision (cont.)
Per capita investment in water services
R220
Allocation of water service capex budget
Rehabilitation of water service infrastructure 32.27%
New infrastructure assets - networks 26.21%
New capital - sanitation facilities 15.04%
New capital - bulk water and sanitation/sewage 25.95%
Capital budget spent = 84%

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

10. Financial cost estimation
Ring-fencing
2/15 provide for ring-fenced water service (Metros)
11/15 find the cost estimation of the water service easy
Internal costing methodology
Percentage of total cost of support services – 6/11
ABC costing /11
Mixture of the above /11
Source and pricing of bulk water provision
49% of water self supplied (R0,0385 to R3,02/kl)
23% of water from DWA (R0,4301 to R1,892/kl)
29% of water from water boards (R3,25 to R4,64/kl)

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

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

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

14. Conclusions
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
Potable water service interruptions must be recorded
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
A correlation rather exists with skills and quality of service

15. Conclusions
Operational readiness of the water service a risk but not the highest risk for municipalities
Long period between the audit of water meters
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
15% of total capital budget to water services
Municipalities (small) spending more capital on new infrastructures as opposed to maintenance and rehabilitation

16. Conclusions
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
Municipalities make limited use of external support
The principle of ring-fencing is not implemented by most
Municipalities know little about consumption trends and the nature of demand by users

17. Conclusions Municipalities use various costing methodologies
The bulk water supply varies
Inconsistent approach applied to the categorisation of costs between fixed and variable
Asset registers complete
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
Exogenous environmental costs not considered
Capital expenditure/value of building plans decreased

18. The End
Thank you
Comments/questions?