Transcript Vhembe District Municipality Backlog Analysis

FINANCING OF THE BUSINESS OF
WATER SUPPLY AND SANITATION
A presentation at the 2nd African Water Week
Gallagher Convention Centre
9 November 2009
Presented by:
Helgard Muller
Fred van Zyl
Department Water Affairs
Republic of South Africa
1
Why talk of water supply and
sanitation as a business? (even if it
is a subsidised business)
• Water is both a Social and Economic
Good
• Ongoing-non stop service- 24/7/365
• A service for -people, mining,
commerce, tourism, industry
• Some clients can pay; others not- their
supply subsidised or free
• BUT – all water supply comes @ a cost
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Why water as a business? (even if
it is a subsidised business)
• Business: product to be treated and
transported and distributed-bulk
systems- distribution- infrastructure-all
needs to be managed
• All these elements come @ a cost
• The books of the business must
balance or else not sustainable- same
cash flow problems as in any other
business
3
Main elements of a water supply
business
• Access to water and sanitation i.e. the infrastructure
(a tap or a toilet)
• The ongoing service from such a facility. (operations)
• The quality of such a service (depends on assets)
• The quantity of such a service – e.g. l/p/day or
kl/hh/month (available resources)
• The free part of such a service (management)
• Funding of such a service/viability of service
• Cost recovery/credit control of service
• Communication between municipality and residents
4
SA Water Supply and Sanitation
Business
• 49 million people served by more than
800 supply schemes/systems
• Municipalities responsible
• National oversight, leadership and
regulation (Department Water Affairs)
• Service Providers (mostly public-water
boards and municipal entities)
5
% HH Coverage as % of HH
SA -% Households with Access to:
Water, Sanitation & Cell Phones
% Households with Access to Water
73%
59%
88%
73%
72.9%
% Households Access to Sanitation
48%
1994
32.2%
% Households with Access to Cell Phones
2001
2008
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Funding of water supply and
sanitation
1. SOCIAL
 Infrastructure- dedicated and committed ring fenced
grants
• Basic services (MDG’s) (MIG, Housing, schools)
• Bulk infrastructure (Grant for regional bulk)
 Sustainable management:
• Equitable share: operating grant for the poor
• Cross subsidisation from paying consumers
 Dedicated leadership and governance
 Donor support for capacity building and support
programs
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Funding of water supply and
sanitation
2. ECONOMICSelf financing
Loan funding
PPP arrangements and services
Cost recovery; tariffs
Cross subsidisation; tariffs
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MUNICIPAL FINANCIAL FRAMEWORK
Operating grants
(Primarily equitable
share)
Capital
grants
(MIG)
OPERATING
CAPITAL
Basic
service
social
Higher service
leveleconomic
Own sources
(user charges;
rates; levies etc.)
Own sources
(capital funds,
loans etc.)
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REGIONAL BULK
INFRASTRUCTURE GRANT
• 1994- date: Massive program to connect
households.
• Initial spare bulk capacity exhausted- bulk
insufficient.
• Not realised by project managers
• Huge gap developed for funding of bulk
infrastructure (between water resources
infrastructure and retail infrastructure)
• New grant developed for regional bulk
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REGIONAL BULK
INFRASTRUCTURE GRANT
• Two components:
 Social for poor people that cannot pay full costs
 Economic for consumers that can pay.
• Insufficient funding for social component.
• Economic component needs loans but
expensive and difficult to put a deal together
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Lessons learned from SA system
• Established a central grant for basic
services- extremely positive--allocated
for Water and Sanitation
• The Equitable Share Grant as an
unconditional grant is substantial but
often not used for its intended purpose;
i.e. operations of basic services
• “Municipalities have become too
dependant on grant funding”- SALGA in
Parliament
12
Lessons learned from SA system
• Good policy but implementation
challenge- lack of capacity at some
municipalities
• Leakage of funds a threat
• Sustainability challenge- short term vs.
life cycle costs
• Interdepartmental co-operation
essential
• Moving targets- rapid urbanization
13
Higher service levels
• What happens after the MDG’s have
been achieved?
• Is there a need for service level> basic?
• What are the needs over and above
basic levels for economic development
• Arguments for more water-over and
above basic-preliminary studieseconomic development- benefits>costs
14
Increased benefits for Consumer:
More healthcare direct and indirect
Time lost due to sickness
Impact of mortality
Human pipes and pumps factor
Crime, property value, food production
Fire damage
8 Aug 2009
DWA Workshop on "The Costs and Benefits of Increasing the Basic Water Services
Standard"
15
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Increased WSS benefits:
Households that have to carry their water home
suffers more due to less hygiene, more illness,
more exposure, shorter life span, time lost to
carry water, more crime, lower property value,
fire risk, unhealthy food and food preparation
8 Aug 2009
DWA Workshop on "The Costs and Benefits of Increasing the Basic Water Services
Standard"
16
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Increased benefits for Employer:
Absenteeism, Productivity, Labor turnover,
Lower returns, increased taxes
Work place safety and accidents
Benefits for Government:
Education – training days,
Health – primary health care
Labor – provisions for unemployed
Treasury – investment and subsidies
8 Aug 2009
DWA Workshop on "The Costs and Benefits of Increasing the Basic Water Services
Standard"
17
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Lessons learned from Soweto
(Mazibuko) Court case
• Free Basic Volume as well as use of pre-paid
meters challenged in court
• High Court-Supreme Court of AppealConstitutional Court.
• A municipality must do the best from its own
resources (water and money)
• The basic volume must be set by government
and not by the courts
• Progressive realisation of Constitutional rights
• Pre-paid meters are not unconstitutional and
can be used
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Cost of the Business
Planning
Design
Procure
Construct
Operate
Maintain
Refurb.
Typical % of Total Cost over the Life of Water Supply Infrastructure
0,2%
2%
17%
44%
37% Financing Cost
Based on actual local government case study (Paul le Roux)
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Conclusions
• Asset management critically importantvalue those assets!
• Water supply and sanitation to be ringfenced as a single business
• Never under-estimate own income
• Tariffs realistic- too low tariffs resulting
in a business that cannot expand and
cope with economic growth.
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Conclusions
• Sustainable Water Supply and
Sanitation= financial viability
• Social component must also be financial
viable- effective and efficient use of
grants
• Minimise misuse and leakages of grants
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Conclusions
Financing planning over total life cycle of
a systemRemember design and build may only be
20% of the total life cycle cost
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Thanks!
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