Establishment and Establishment and Implementation ChallengesImplementation Challenges

Theme 3Theme 3

Based on

Johannesburg Water (JW)

Nelspruit Concession

Emfuleni Local Municipality (ELM)

OBJECTIVEOBJECTIVE Share implementation processes Share implementation processes

– Look at processes that have taken place to dateLook at processes that have taken place to date

– Analyse key success factorsAnalyse key success factors

Highlight key activities which:Highlight key activities which:

– Are required for successful implementation Are required for successful implementation

– Informs the processInforms the process

Address risks and mitigating strategies in Address risks and mitigating strategies in implementing section 78 decisionsimplementing section 78 decisions

Best practice for designing a delivery mechanismBest practice for designing a delivery mechanism

Cases that will be addressed Cases that will be addressed

Johannesburg WaterJohannesburg Water

Nelspruit Concession Nelspruit Concession

Emfuleni Local MunicipalityEmfuleni Local Municipality

Johannesburg WaterJohannesburg Water Presentation Presentation

Background to JWBackground to JW The iGoli solution was to establish a number of wholly owned The iGoli solution was to establish a number of wholly owned

private utility companies, capable of becoming self-sufficient private utility companies, capable of becoming self-sufficient through the raising and retention of user fees on specific through the raising and retention of user fees on specific services sold to individual consumers services sold to individual consumers

The council set up separate, wholly owned utility companiesThe council set up separate, wholly owned utility companies

Utilities are separate legal entities each withUtilities are separate legal entities each with– A board of directors, A board of directors,

– A managing directorA managing director

Service Delivery Agreements were signed with each utilityService Delivery Agreements were signed with each utility

A water and sanitation utility, Johannesburg Water, was A water and sanitation utility, Johannesburg Water, was established in January 2001. established in January 2001.

The Operational Challenges The Operational Challenges faced by the new company (JW)faced by the new company (JW)

UAW was 41.6% on 1999UAW was 41.6% on 1999

Sustainability was threatenedSustainability was threatened

Service Delivery was not taking place as Service Delivery was not taking place as envisagedenvisaged

Lack of capacityLack of capacity

Implementation Challenges Implementation Challenges AnticipatedAnticipated

Was there sufficient Political Was there sufficient Political Support? Support?

It was unclear whether Council was fully It was unclear whether Council was fully committed towards the process committed towards the process

There is insufficient knowledge regarding the There is insufficient knowledge regarding the change from public to private entitychange from public to private entity

Conflict of interests regarding the change from Conflict of interests regarding the change from public to private companypublic to private company

Poor InformationPoor Information

City of Johannesburg resulted from merging of City of Johannesburg resulted from merging of five municipalities to provide servicesfive municipalities to provide services

The Municipality local council data assumptions The Municipality local council data assumptions were insufficient and inaccurate.were insufficient and inaccurate.

There was no asset registerThere was no asset register No accurate record of debtors list or debtors No accurate record of debtors list or debtors

outstandingoutstanding No reliable record of liabilities No reliable record of liabilities Impacts on contracting as well as regulation Impacts on contracting as well as regulation

Other limitationsOther limitations The City of Johannesburg (CoJ) was left with insufficient skills to The City of Johannesburg (CoJ) was left with insufficient skills to

carry out regulator functions as most skills were transferred to the carry out regulator functions as most skills were transferred to the UtilityUtility

Regulator functions carried out by 3 depts:Regulator functions carried out by 3 depts:– WSA managerWSA manager

– Shareholders unitShareholders unit

– Contract management unitContract management unit

Service Delivery Agreement (SDA) deliverables were not Service Delivery Agreement (SDA) deliverables were not sufficiently definedsufficiently defined

CoJ retained meter reading and billing of the majority of CoJ retained meter reading and billing of the majority of customerscustomers

The process was viewed as privatisationThe process was viewed as privatisation

Risk Mitigation StrategiesRisk Mitigation Strategies

Overcome the RisksOvercome the Risks

Continuous communicationContinuous communication

Have a political driver for the processHave a political driver for the process

Clear roles and responsibilitiesClear roles and responsibilities

Build capacity Build capacity

Labour SupportLabour Support

Good governanceGood governance

CommunicationCommunication Develop a participative relationship with stakeholders and Develop a participative relationship with stakeholders and

key role players to ensure that there is a full understanding key role players to ensure that there is a full understanding

Develop an understanding of perceptions and objectives of Develop an understanding of perceptions and objectives of key role playerskey role players

Participate pro-actively in the policy and decision making Participate pro-actively in the policy and decision making processprocess

Participate in community forums and projectsParticipate in community forums and projects

Develop effective awareness and educationDevelop effective awareness and education

Participate in campaigns on the service delivery agreement Participate in campaigns on the service delivery agreement issues to ensure complete stakeholders “buy in”issues to ensure complete stakeholders “buy in”

Identify a Key Political Driver/ Identify a Key Political Driver/ CustodianCustodian

Ensure custodian is aware of all relevant Ensure custodian is aware of all relevant issuesissues

Custodian to interact with stakeholders Custodian to interact with stakeholders to facilitate buy-into facilitate buy-in

Custodian ensures council supportCustodian ensures council support

Ring Fence Roles and Ring Fence Roles and ResponsibilitiesResponsibilities

Utilise performance management clauses Utilise performance management clauses and appropriate penalty mechanismsand appropriate penalty mechanisms

Implement an integrated contract Implement an integrated contract management systemmanagement system

Conduct regular stakeholder meetingsConduct regular stakeholder meetings

Build CapacityBuild Capacity Capacitate regulatorCapacitate regulator

Invest in management developmentInvest in management development

Invest in skills development and capacity buildingInvest in skills development and capacity building

Conduct skills audit and develop strategies to Conduct skills audit and develop strategies to overcome the gapsovercome the gaps

Implement individual performance management Implement individual performance management systemssystems

Invest in team building and strategy sessionsInvest in team building and strategy sessions

Implement and monitor succession planningImplement and monitor succession planning

Organised Labour SupportOrganised Labour Support

Unions were kept informed and had input at Unions were kept informed and had input at all stages of the processall stages of the process

Unions implemented a three year working Unions implemented a three year working contractcontract

Salary bands differed between the various Salary bands differed between the various municipalities and this was dealt with municipalities and this was dealt with successfullysuccessfully

Good GovernanceGood Governance Conduct good governance policies and Conduct good governance policies and

procedure compliance auditsprocedure compliance audits Conduct a critical review of business planning Conduct a critical review of business planning

and executionand execution Segregation of dutiesSegregation of duties Develop full control policies and proceduresDevelop full control policies and procedures Enhance Internal audit function and conduct Enhance Internal audit function and conduct

regular auditsregular audits Hold fraud awareness workshops for Hold fraud awareness workshops for

managementmanagement

Lessons LearntLessons Learnt

Successful implementation Successful implementation supported bysupported by

Increase understanding by continuous Increase understanding by continuous communicationcommunication

Ensuring continuous capacity development Ensuring continuous capacity development (Regulator and operator)(Regulator and operator)

Securing stakeholder participation and Securing stakeholder participation and support support

Ensuring long term commitment Ensuring long term commitment

CommunicationCommunication

Develop a participative relationship with Develop a participative relationship with stakeholders and key role players to stakeholders and key role players to ensure that there is a full understandingensure that there is a full understanding

Understanding of the perceptionsUnderstanding of the perceptions

Participate in community forumsParticipate in community forums

Overall Awareness Overall Awareness

CapacitatingCapacitating

Invest in management developmentInvest in management development

Invest in skills development and capacity Invest in skills development and capacity building – WSA and WSPbuilding – WSA and WSP

Do not forget the capacity required to run Do not forget the capacity required to run the WSA functionthe WSA function

Capacitate regulator, if different from the Capacitate regulator, if different from the WSA WSA

Stakeholder supportStakeholder support

Obtain stakeholder support through Obtain stakeholder support through transparency and interactiontransparency and interaction

– Own CouncilOwn Council

– Organised labourOrganised labour

– National, Provincial and Local GovernmentNational, Provincial and Local Government

CommitmentCommitment

Clear commitment and responsibility Clear commitment and responsibility allocation (key drivers) allocation (key drivers)

– This ensured that all obstacles were bridgedThis ensured that all obstacles were bridged

Operational achievementsOperational achievements

Creation of a state of the art call centre: more than Creation of a state of the art call centre: more than 90% of calls answered in less than 30 seconds90% of calls answered in less than 30 seconds

Robust potable water quality monitoring (number of Robust potable water quality monitoring (number of samples multiplied by 3 and more than 99% samples multiplied by 3 and more than 99% compliance) compliance)

UFW decreased from 42 to 33% (problem of deemed UFW decreased from 42 to 33% (problem of deemed consumption areas)consumption areas)

Environmental compliance (final effluent) increased Environmental compliance (final effluent) increased from 85 to 98% from 85 to 98%

100% of sludge disposed according to national 100% of sludge disposed according to national guidelines (compared to 50%)guidelines (compared to 50%)

Number of annual spills at the WWTW’s has Number of annual spills at the WWTW’s has decreased from more than 700 to less than 150decreased from more than 700 to less than 150

Operational achievements - contOperational achievements - cont

Financial achievementsFinancial achievements Consecutive to crisis due to poor revenue data and poor Consecutive to crisis due to poor revenue data and poor

billing from the City of Johannesburg, financial turnaround billing from the City of Johannesburg, financial turnaround strategy agreed in March 2004strategy agreed in March 2004

Break even projected for 2007/8 but actual results far Break even projected for 2007/8 but actual results far ahead of projections:ahead of projections:

2002/3: (R429) mil2002/3: (R429) mil

2003/4: (R318) mil2003/4: (R318) mil

2004/5: (R77) mil2004/5: (R77) mil

Revenue: R3bil (compared to R1,8 bil in 2001/2)Revenue: R3bil (compared to R1,8 bil in 2001/2)

Revenue collection ratio higher than 100% on accounts Revenue collection ratio higher than 100% on accounts directly managed by JWdirectly managed by JW

Nelspruit ConcessionNelspruit Concession

Nelspruit ConcessionNelspruit Concession

Key driving challengesKey driving challenges

– Capex requirement (R 350 m)Capex requirement (R 350 m)

– Capacity requirementCapacity requirement

– Operational challenges that needed to be met Operational challenges that needed to be met

– UAW – 31%UAW – 31%

– Sustainability Sustainability

Nelspruit ConcessionNelspruit Concession

Reflecting on key success factorsReflecting on key success factors

– Total commitment towards process by CouncilsTotal commitment towards process by Councils

– Staff buy in due to securing jobsStaff buy in due to securing jobs

– Community involvement Community involvement

– Capacitation of stakeholders/ community Capacitation of stakeholders/ community through various programmesthrough various programmes

Nelspruit ConcessionNelspruit Concession Achievements Achievements

– UAW = 14% in urban and 25% in other areasUAW = 14% in urban and 25% in other areas– 25 to 80% increase in collections25 to 80% increase in collections– Extreme customer satisfactionExtreme customer satisfaction– Mammoth capital roll out Mammoth capital roll out – Improved maintenance & Renewal ProgrammeImproved maintenance & Renewal Programme– Efficient communicationEfficient communication– SustainabilitySustainability

Potential extension of ConcessionPotential extension of Concession

Nelspruit ConcessionNelspruit Concession ConclusionConclusion

– Concession was a bold step for MbombelaConcession was a bold step for Mbombela– Success is evident in almost all areas of the Success is evident in almost all areas of the

concession since concession started 5 years concession since concession started 5 years agoago

– Water and sanitation services have been Water and sanitation services have been extended to tens of thousands of previously extended to tens of thousands of previously disadvantaged communitiesdisadvantaged communities

– Operating costs per stand have halvedOperating costs per stand have halved– National Govt, Mbombela and investors happy National Govt, Mbombela and investors happy

with health of the Concessionwith health of the Concession

Emfuleni Local MunicipalityEmfuleni Local Municipality

Category B MunicipalityCategory B Municipality Located within Sedibeng District Located within Sedibeng District MunicipalityMunicipality Fourth Biggest Municipality in GautengFourth Biggest Municipality in Gauteng Project Consolidate SubjectProject Consolidate Subject ± 1 Million Population± 1 Million Population Prominent Historical StatusProminent Historical Status

BACKGROUND TO EMFULENI BACKGROUND TO EMFULENI LOCAL MUNICIPALITYLOCAL MUNICIPALITY

Deterioration of Water Services DeliveryDeterioration of Water Services Delivery

Determination of Best Possible Service Determination of Best Possible Service Delivery MechanismDelivery Mechanism

Focus on Turnaround & Long-term Focus on Turnaround & Long-term SustainabilitySustainability

PURPOSE OF SECTION 78PURPOSE OF SECTION 78

INTERNAL ASSESSMENTINTERNAL ASSESSMENT Business UnitBusiness Unit Effect of lack of finances:Effect of lack of finances:

• Cannot operate at current service levelsCannot operate at current service levels• Cannot improve service provisionCannot improve service provision• Will have cash deficit for the next ten yearsWill have cash deficit for the next ten years• In the absence of financial resources, In the absence of financial resources,

MUST consider External mechanismMUST consider External mechanism

OUTCOMES OF SECTION 78 OUTCOMES OF SECTION 78 PROCESSPROCESS

EXTERNAL ASSESSMENTEXTERNAL ASSESSMENT In terms of the Municipal System ActIn terms of the Municipal System Act

• Explore external options after assessment of internal Explore external options after assessment of internal mechanismmechanism

• Notify the community and consult with labourNotify the community and consult with labour

Primary Issue: FINANCIAL CONSIDERATIONSPrimary Issue: FINANCIAL CONSIDERATIONS Functional AreasFunctional Areas

• Capacity of Service ProviderCapacity of Service Provider• Effective Service DeliveryEffective Service Delivery• Labour RelationsLabour Relations

OUTCOMES OF SECTION 78 OUTCOMES OF SECTION 78 PROCESS (cont.)PROCESS (cont.)

EXTERNAL ASSESSMENTEXTERNAL ASSESSMENT CONCLUSIONCONCLUSION

• Provision of Water Services through an Provision of Water Services through an external mechanism should be consideredexternal mechanism should be considered

• Appears to be the most effective service Appears to be the most effective service delivery mechanismdelivery mechanism

• Rand Water will participate through:Rand Water will participate through:• The provision of financesThe provision of finances• The provision of expertiseThe provision of expertise

OUTCOMES OF SECTION 78 OUTCOMES OF SECTION 78 PROCESS (cont.)PROCESS (cont.)

STRUCTURE OF ARRANGEMENTSTRUCTURE OF ARRANGEMENT

Co-ownership of a company by Co-ownership of a company by Sedibeng, Emfuleni and Rand WaterSedibeng, Emfuleni and Rand Water

Service Delivery Agreement between Service Delivery Agreement between the company and Emfulenithe company and Emfuleni

OUTCOMES OF SECTION 78 OUTCOMES OF SECTION 78 PROCESS (cont.)PROCESS (cont.)

Consultation and Buy-in of Consultation and Buy-in of WHOLEWHOLE Ruling Party Ruling Party

Consultation and Buy-in of Consultation and Buy-in of WHOLEWHOLE Council Council

Consultation and Buy-in of Executive StructuresConsultation and Buy-in of Executive Structures

Consultation of Labour Formations (MOU)Consultation of Labour Formations (MOU)

Consultation of Broad Community & Civil SocietyConsultation of Broad Community & Civil Society

Consultation of BusinessConsultation of Business

KEY PROCESS UNDERTAKENKEY PROCESS UNDERTAKEN

Credible Governance of ProcessCredible Governance of Process

Adequate Resources and AccountabilityAdequate Resources and Accountability

Continuous Communication and reporting to key Continuous Communication and reporting to key stakeholders stakeholders

Rigorous Business Analysis & Plans Rigorous Business Analysis & Plans (Assessment)(Assessment)

Leadership CommitmentLeadership Commitment

Support of DWAFSupport of DWAF

LabourLabour

KEY PROCESS DRIVERSKEY PROCESS DRIVERS

Non-alignment with Provincial DepartmentNon-alignment with Provincial Department

Non-alignment with National TreasuryNon-alignment with National Treasury

Non-alignment with DPLGNon-alignment with DPLG

Organised Labour Dynamics (Internal)Organised Labour Dynamics (Internal)

CHALLENGES TO PROCESSCHALLENGES TO PROCESS

Detailed & Diligent Assessment

Proper Governance of Process

Unconditional Involvement & Participation of Local Stakeholders

Credibility & Commitment of Sponsors and Champions (Political and Executive)

Alignment & Support of Provincial and National Departments

Support of Organised Labour

Adequate Resources and Accountability

Monitoring of Environmental Dynamics

LESSONS LEARNTLESSONS LEARNT

Overall lessons for successful Overall lessons for successful implementationimplementation

Securing stakeholder participation Securing stakeholder participation

Having key drivers of the processHaving key drivers of the process

Ensuring long term commitmentEnsuring long term commitment

Ensuring continuous capacity development Ensuring continuous capacity development (Regulator vs. operator)(Regulator vs. operator)

Ensuring transparencyEnsuring transparency