Involving external organisations in municipal

service provision

Presentation to the MISA conference on ’Accelerating municipal infrastructure delivery through Capacity Enhancement and Strategic

Partnerships’

Ian Palmer25th November 2011

2

Scope of this piece The capacity challenge from an engineering perspective. Overview of partnering options. Overview of contracting options. Some thoughts on how we are doing with partnerships. What needs to be done. And something about funding.

3

Where are we with infrastructure and capacity to manage it?

1200

1300

1400

1500

1600

1996 2001 2006 2011Year

No of engineering professionals

Last and only time we have had good data (SAICE)

0%

20%

40%

60%

1996 2001 2006 2011Year

Condition of assets (% of useful life remaining on all infra in Municipality)

The capacity challenge: engineering professionals in LG

Source: Lawless, 2009

0.8 0.9 0.6

2.2

3.1 2.8

5.04.4

9.5

0.0

2.0

4.0

6.0

8.0

10.0

DistrictsPopulation -

32m Districts(2005)

Typology 1 Population -

4.5m Noestablishedtown (2005)

Typology 2a Population -6m Small

towns -formerTBVC states

(2005)

Typology 2b Population -

10m Districts(2005)

Typology 3 Population -10m Largeurban areas

(2005)

Typology 3 Population -10m Largeurban areas

(2007)

Typology 4 Population -15m Metros

(2005)

Typology 4 Population -15m Metros

(2007)

Major citiesBotswana,Lesotho,Namibia,Swaziland

Gauteng 2009 – 3.2

5

How is lack of capacity playing out in the 21 priority districts – rural areas specifically Infrastructure is failing. Yet we focus on building new infrastructure in situations

where we do not have the systems in place to manage it. Systems are inadequate :

– Information on assets is seldom there (including roads).– Customer databases do not exist. – Metering or volume control systems are not in place.– Water is not accounted, technical losses high; hence bulk water

costs are high.– Revenue is not being raised from those that use above free

basic limits. In order to accelerate and spend capital effectively we need

these systems and the managers to run them.

The capacity challenge: engineering professionals in LG

Source: Lawless, 2009

0.8 0.9 0.6

2.2

3.1 2.8

5.04.4

9.5

0.0

2.0

4.0

6.0

8.0

10.0

DistrictsPopulation -

32m Districts(2005)

Typology 1 Population -

4.5m Noestablishedtown (2005)

Typology 2a Population -6m Small

towns -formerTBVC states

(2005)

Typology 2b Population -

10m Districts(2005)

Typology 3 Population -10m Largeurban areas

(2005)

Typology 3 Population -10m Largeurban areas

(2007)

Typology 4 Population -15m Metros

(2005)

Typology 4 Population -15m Metros

(2007)

Major citiesBotswana,Lesotho,Namibia,Swaziland

Gauteng 2009 – 3.2

Gap – 1000 civil engineering professionals

7

Trends in infrastructure status and technical capacity

0%

20%

40%

60%

80%

1996 2001 2006 2011 2016 2021 2026 2031Year

Condition of assets (% of useful life remaining on all infra in Municipality)

0

1000

2000

3000

4000

5000

1996 2001 2006 2011 2016 2021 2026 2031Year

No of engineering professionals

We have to establish partnerships to fill this gap.

?

8

Partners: a picture of current arrangements

0%10%20%30%40%50%60%70%80%90%

100%

Private

Public entity

Civil society

Government

Mainly DBSA, Eskom & water boards

NGOs and CBOs

9

Structuring relationships with partners

Local government

Provinces

Other National

departmentsMISAPublic entities

(Eskom, DBSA & Water boards)

PrivateSector (incl

Funders)

Civilsociety

Concession

Lease contract

Management Contract

O&M Contract

BOT, BOOT, etc..

Utility Ownership

Utility M

anagement

public private

privatepublic

Private WaterPLC/Ltd

Municipal Entity

MunicipalSupramunicipal

mixed

mixed

Public-private partnership

options

Privatemanagement

options

Public management

options

Partnership options with ‘external’ service providers

Source: Adapted from DCoG

Increasing ris

k taking by

private sector

11

Private partnership status Type of partnership

What have we done Comment

Ownership Midvaal Water – section 21 Company supplying water (NW)

Good track record, financially strong.

Concessions Mbombela and Illembe contracts (30 yrs).

External observers rate them as successful. Some concern that they are too urban focused.

Leases Lukhanji and Amahlathi LMs (quasi leases for 10 yrs)

Lukhanji contract in place for 19 years; stable arrangements.

BOT eThekwini wastewater recycling contract as example

High benefit to the City with funding off budget.

Management contracts

Jo’burg Water and Maluti-a-Phofung (MAP)

Jo’burg contact considered international best practice. MAP contract went through renewals

O&M contracts

Examples of district-wide O&M contracts in N KZN (e.g. uThungulu and Zululand)

uThungulu used as example later in presentation.

12

Management contracts – bringing in capacity fast MISA can only succeed if it facilitates a rapid increase in engineers

working in or with local government, specifically the 22 target districts.

This, in my opinion, can only be done through partnerships with the private sector and public entities who have the engineers ‘in house’ or will be able to contract them.

Management contracts are an internationally recognised way of contracting in expertise.

They can be focused on setting up systems, building an organisation, promoting efficiency and supporting interns.

Management contractors can have contracts with MISA and LG. They are typically 3 to 5 year contracts with 5 years preferable.

13

O&M contracts - uThungulu district example uTungulu District Municipality (Northern KZN) is 80% rural and is

the best performing DM that is a Water Service Authority in the country, according to DCoG criteria.

The DM is well managed financially and collects some revenue from water sales; it is looking at new innovations in this regard.

Private contractor has been running their bulk water supply system for over a decade, based on a service contract renewable every three years.

The contractor employs 500 people. Based on perceptions of external assessors the contracting

arrangements are a success; but there have been proposals by councillors to terminate it with the motivation evidently being to employ the 500 staff, something which will substantially increase expenditure and cut off access to external management expertise.

14

Civil society has a big role to playType of partnership

What have we done Comment

CBO water providers

Well over 100 community based water service providers set up in 1990s, collecting their own revenue

Local and international evaluations found success in most cases; failure in some. They have almost all gone.

CBO undertaking O&M

Chris Hani has the most recent experience with this model. They have been innovative.

Positive evaluations. But concerns over Support Service Agent costs.

Water maintenance officers

Zululand DM uses over 200 village based officers who undertake O&M tasks, paid a stipend.

Evidently works well, gets village-based O&M done effectively and cost efficiently. Income stays in community.

Road & waste O&M

Not widely applied but plenty of opportunity

NGOs supporting communities

NGOs are well placed to bring in expertise in community management.

NGO sector in SA has a good track record but NGOs are treated like private firms now.

15

Partnering with public entitiesType of partnership

What have we done Comment

Eskom Eskom is way the biggest partner with about 50% of the electricity connections in the country

Expanding electricity supply in rural areas involves Eskom.

DBSA With Siyenza Manje shifting to MISA, DBSA role is shifting. Big increase in lending to LG

DBSA position has been presented at MISA conference. They remain a key partner.

SAAWU and water utilities generally

SA Assn of Water Utilities represents most utilities, water boards and others.

There is a major institutional restructuring initiative being undertaken by DWA.

Water boards doing bulk

Primary function of water boards but they have difficulties working in rural areas

Much to be done to expand the role of water boards with better contracting.

Water boards doing retail

Lepelle Northern Water and Sedibeng Water and undertaking interesting retail projects but scale too small.

Water boards realise if the retail water supply system is not working then bulk supply cannot be viable.

16

What needs to be done? A major national drive to set up carefully designed partnership

arrangements in the 21 districts. Focus on management contracts but with full partnership spectrum

considered, including public entity and civil society partners. Regional scale will bring cost efficiencies. MISA is well placed to do this once it has the contracting expertise

in place. But it requires a funding mechanism for the local and regional

activity over a transitional period. Concepts have been developed for this such a mechanism, using

terms such as ‘supplementary operating grant’ or ‘systems improvement grant’. But nothing has happened.

17

Financing: a virtuous cycleFund a major

capacity building initiative

Increased ability to manage

infrastructure

Increased Ability to raise

revenueImproved

financial & assetperformance

Ability to raise capital finance(own & partner)

No further need for capacity

support This has by far the biggest multiplier of any grant funding:

18

Why do these sort of interventions not happen at scale? Our country is faced with what Andrew Boraine has called

‘disaggregation of effort’. There is a lack of trust between public sector, private sector,

civil society and labour. – Trade unions and anti-privatisation groups have effectively

blocked further concession and lease contracts. They even block water board management interventions (OR Tambo).

We have not had the capacity, structure and cooperative arrangements at national level to drive a major intervention based on partnerships. MISA can play this role.

We have not been good enough at getting sound contacts in place, even for quite conventional support interventions.

Funding is not made available at necessary scale (prev slide)

19

To conclude: I believe in local government and we are very fortunate in this

country to have the municipalities we have in most cases. Local government will prevail. But in order to prevail, particularly where capacity is so

lacking, we must build partnerships to accelerate service delivery.

20

Slide on borrowing not used