Sustainability of safe drinking water Sustainability of safe drinking water and the role of competition: and the role of competition:

The case of South AfricaThe case of South Africa

LIZA UECKERMANNLIZA UECKERMANN

Analyst: Competition Commission, South AfricaAnalyst: Competition Commission, South Africa

IntroductionIntroduction

• South Africa is regarded as among the top 12 South Africa is regarded as among the top 12 suppliers of drinking water in metropolitan areassuppliers of drinking water in metropolitan areas

• 9.1 million without access, mostly in rural areas9.1 million without access, mostly in rural areas

• Adverse effects on public healthAdverse effects on public health

• How to introduce more How to introduce more transparency and competition?transparency and competition?

OutlineOutline

The characteristics of the SA water sectorThe characteristics of the SA water sector

Review on the access of safe drinking Review on the access of safe drinking waterwater

Possible role of competition Possible role of competition

ConclusionConclusion

SA water sectorSA water sector

Water stressed countryWater stressed country

• Provision of basic human needs-Provision of basic human needs-25 liters/person/day25 liters/person/day

Water use (12 871 million kiloliters p.a.)Water use (12 871 million kiloliters p.a.)• Urban requirements- 23%Urban requirements- 23%

• Rural requirements- 4%Rural requirements- 4%

Water supplyWater supply

• Limited competitionLimited competition

• Capital intensiveCapital intensive

• Dominated Dominated by public sector monopoliesby public sector monopolies

Metropolitan areasMetropolitan areas

Resource:DamResource:Dam MiningMining

DWAFDWAF1 Raw water tariffRaw water tariff

DWAFDWAF

1

Water Water BoardsBoards

2 Bulk water tariffBulk water tariff

Water Service Water Service ProvidersProviders

3

Retail water tariffRetail water tariff

ConsumersConsumers4&5Sanitation charge Sanitation charge & waste discharge & waste discharge chargecharge

Resource:RiverResource:River

4&5

Non-Metropolitan areasNon-Metropolitan areas

MiningMiningDWAF & some DWAF & some public monopoliespublic monopolies

DWAFDWAF

1Resource:RiverResource:River

4&5"Our main problems "Our main problems in rural communities are the following: in rural communities are the following: walking long distances about 2 to 3 walking long distances about 2 to 3 kilometres daily to public tap; carrying kilometres daily to public tap; carrying heavy containers on our heads 20 to 25 heavy containers on our heads 20 to 25 litres per trips; long queues at the point litres per trips; long queues at the point of taps; should there be contamination of taps; should there be contamination at this common point the whole village at this common point the whole village is at risk." (DWAF, 2005b) is at risk." (DWAF, 2005b)

SA water sectorSA water sector

Limited CompetitionLimited Competition • high transport costs relative to value; high transport costs relative to value;

• health and environmental objectives;health and environmental objectives;

• limited in its understanding of competition.limited in its understanding of competition.

• little attention has been given to competitionlittle attention has been given to competition issues relating to water; andissues relating to water; and

• regulatory environment; regulatory environment;

• foreclosure issues; andforeclosure issues; and• Highly concentrated market.Highly concentrated market.

To date;To date;

AccessAccess

10 10 million additional people have been million additional people have been supplied with access to drinking watersupplied with access to drinking water

• On track to obtain MDG by 2010On track to obtain MDG by 2010

From 1994 to date:From 1994 to date:

• Yet, enourmas backlog-9.1 million and Yet, enourmas backlog-9.1 million and only 24% of rural people have accessonly 24% of rural people have access

AccessAccess

• Local Governments failLocal Governments fail --Quality unacceptable poor in Quality unacceptable poor in

non-metropolitan areasnon-metropolitan areas-Only 37% of metropolitan areas met -Only 37% of metropolitan areas met quality requirements (DWAF 2005)quality requirements (DWAF 2005)

• Tremendous health effectsTremendous health effectsWater-borne diseases caused an annual Water-borne diseases caused an annual

estimated estimated 101 000 deaths & over 6 million 101 000 deaths & over 6 million incidences of illness (DoH 2006)incidences of illness (DoH 2006)

CompetitionCompetition

The role of competition in this sector is not a The role of competition in this sector is not a question of principle, but one of practice. question of principle, but one of practice.

South African government viewSouth African government view::

•Improve the unemployment situationImprove the unemployment situation

•Tremendous increase in water tariffs Tremendous increase in water tariffs

•Mandate cannot be delegated, outsourced or Mandate cannot be delegated, outsourced or privatizedprivatized. .

Theory suggestsTheory suggests::

Competition Competition forfor the market is possible and the market is possible and desirable desirable

CompetitionCompetition

Incentives for sustainabilityIncentives for sustainability

CoverageCoverage InvestInvest QualityQuality

•Proportion of households Proportion of households without accesswithout access•Historical inequalitiesHistorical inequalities•Regimes limits adoption Regimes limits adoption of low-cost solutionsof low-cost solutions•Need to make allowanceNeed to make allowancefor competitionfor competition•ConcessionsConcessions

•Inadequate infrastructure Inadequate infrastructure and investmentand investment•Challenges to maintain Challenges to maintain best practice while best practice while ensuring improvement in ensuring improvement in poor performancepoor performance• Limited competitionLimited competition• Subsidy schemesSubsidy schemes

•Effective Effective treatment facilitiestreatment facilities• Regimes lack Regimes lack competitive entrycompetitive entry•Inability of Inability of consumers to consumers to choose providerchoose provider•Information Information asymmetriesasymmetries• Quality signalingQuality signaling

Resource:DamResource:Dam MiningMining

DWAFDWAF1

DWAFDWAF

1

Water Water BoardsBoards

2 Bulk water tariffBulk water tariff

Water Service Water Service ProvidersProviders

3

ConsumersConsumers4&5

Resource:RiverResource:River

4&5

CompetitionCompetition

ForeclosureForeclosure

CompetitionCompetition

Benefits:Benefits:

• Alternative bulk suppliers- a more competitive Alternative bulk suppliers- a more competitive environmentenvironment

•Accelerating the area of accessAccelerating the area of access

•Improved qualityImproved quality

•Access to skills, expertise & fundingAccess to skills, expertise & funding

• Competitive tariffsCompetitive tariffs

CompetitionCompetition

Some important notes:Some important notes:

• Water supplied remains acceptable to Water supplied remains acceptable to consumers consumers

•Successful implementation will reinforce the Successful implementation will reinforce the other reforms and allow greater gains to be made other reforms and allow greater gains to be made by the whole community by the whole community

• Depends on the government’s willingness to Depends on the government’s willingness to change exclusivitychange exclusivity

CompetitionCompetition

Non-metropolitan areas:Non-metropolitan areas:

• Remains-sole responsibility of the governmentRemains-sole responsibility of the government

•Competition will only provide prerequisites to Competition will only provide prerequisites to access- might not alter the market environmentaccess- might not alter the market environment

• With the introduction of competition, the With the introduction of competition, the following is of concern:following is of concern:

Protection of the poorProtection of the poorLogistics of deliveryLogistics of deliveryQuality of drinking waterQuality of drinking water

CompetitionCompetition

Non-metropolitan areasNon-metropolitan areas

CommunityCommunity ManagementManagement TechnicalTechnical

•Can I drink Can I drink the water?the water?•What’s done What’s done about my about my compliant?compliant?

• Assuring qualityAssuring quality•Enabling budgetEnabling budget

•Optimising technical Optimising technical performanceperformance•Establishing Establishing treatment facilitiestreatment facilities

interactionsinteractions interactionsinteractions

DWAFDWAF

interactionsinteractions

Role of competitionRole of competition

ConclusionConclusion

• Potential role of competition has been neglectedPotential role of competition has been neglected

• Current system not reliable to assure the Current system not reliable to assure the sustainability of safe drinking water sustainability of safe drinking water

•Competition Competition forfor the market is possible and the market is possible and desirable in metropolitan areas desirable in metropolitan areas

•Potential of competition still Potential of competition still limited in the non-metropolitanlimited in the non-metropolitan areas-management contract aareas-management contract a possibilitypossibility

QuestionsQuestions