Dolphin Coast and Nelspruit Concessions by Municipal Infrastructure Investment Unit
Water and Sanitation
30 October 2001
Meeting Summary
A summary of this committee meeting is not yet available.
Meeting report
______________________________________________________________
CONTACT TRUST
Your
experts in natural resource policy and legislation information services
Tel: (021) 426 1411
email: [email protected]
www.contacttrust.org.za
______________________________________________________________
The
aim of this report is to summarise the main events at the meeting and identify
the key role players. This report is
not a verbatim transcript of proceedings.Â
water affairs and forestry Portfolio
Committee
30 October 2001
DOLPHIN COAST AND NELSPRUIT CONCESSIONS BY MUNICIPAL INFRASTRUCTURE INVESTMENT
UNIT
Acting Chairperson: Mr D. Maimane
Documents handed out:
Municipal Infrastructure Investment Unit (MIIU) Annual Report 2001 (MIIU)
MIIU Municipal Service Partnerships in South Africa: Contracts in
Implementation (MIIU)
SUMMARY
The Committee heard presentations from the South African Municipal
Infrastructure Investment Unit (MIIU).Â
The presenters from MIIU were CEO Ms G. Moloi, Municipal Infrastructure
Advisor Mr J. Leigland, and Technical Specialist Mr J. Dohrman. The presentations involved the broader
issues of promoting cost-effective municipal infrastructure investments and the
specifics on the Dolphin Coast, Nelspruit Bay and Uthukela Water projects. Each
presentation was followed by a question and answer session.
MINUTES
The Chairperson of the Committee, Ms B. Sonjica, commenced the meeting by
saying that she was unable to stay and asked Mr D. Maimane (ANC) to take over
as Acting Chair. Mr Maimane agreed and
called the meeting to order. He
introduced the presenters from MIIU, Ms G. Moloi, CEO, Mr J. Leigland,
Municipal Infrastructure Advisor, and Mr J. Dohrman, Technical Specialist.Â
Promoting Cost-Effective Municipal Infrastructure Investments
Ms Moloi began the
presentation, “Promoting Cost-Effective Municipal Infrastructure Investments,�
by saying that she and her colleagues would divide their subject matter into
three parts: (1) the broader issues, (2) specificities of the Dolphin Coast and
Nelspruit projects, and (3) the Uthukela Project, the first project where
municipalities had formed partnerships between themselves to provide
services.Â
Ms Moloi explained that both policy rationale and existing legislative
framework supported the work of MIIU.Â
First, the language of the South African Constitution supported the
unit. In addition, white papers drafted
by local governments laid the foundation for MIIU design and involvement in
municipality coverage. These were the
Local Government Transition Act and Local Government transformation
legislation, including the Demarcation Act, the Structures Act, and the Systems
Act. Ms Moloi added, as pending
legislation, the Municipal Finance
 Management Bill, the Municipal Property
Rates Bill, and the Constitutional Amendment Bills (where they referred to the
ability of municipalities to borrow).Â
She stated that, under the old implementation strategy, sectoral
departments drove municipal investment.Â
These departments included the Department of Water Affairs and Forestry
(DWAF), investing in community water projects, Public Works (also heading
community-based programmes), the Treasury, and the Department of Minerals and
Energy (DME). She asked, if this was
the investment environment, where did the role of the private sector fit
in? Under the new implementation strategy,
there was consolidation to support infrastructure, as well as higher private
sector, intermediary, and rural focuses.       Â
Ms Moloi explained that MIIU was created by Cabinet Memorandum, No. 14, in
1997. In April of 1998, MIIU was
established as a private non-profit company with the objective of representing
and assisting local governments in locating and negotiating deals with service
partners. According to the Cabinet
Memorandum, the guiding principles of MIIU were that it was led by local
government demand and was oriented towards capital investment and management (operation
and maintenance) improvement. It was to
be focused on “municipal functions� as defined by the Constitution, Schedules 4
and 5. Its projects were to involve
local government cost sharing, open competition on all procurement, and
encourage the maximum involvement of South African consultants. In sum, MIIU's task was to “Facilitate
private sector investment and/or management expertise in the provision of
municipal services.�
To this end, Ms Moloi explained, MIIU had to meet certain requirements. Â These included: (1) to locate an innovative
external solution in the broader strategic plan created by local government,
(2) to fully justify external versus internal services provision, (3) to
consult all stakeholders, (4) to protect employee jobs and benefits, (5) to
regulate tariffs and profits, (6) to promote job creation and empowerment, and
(6) to incorporate past lessons.Â
Accordingly, MIIU methodology followed strict design. Broader municipal
reform must be considered first.Â
Comprehensive information was required for all projects, and all options
had to be evaluated (e.g. internal vs. external; public-public,
public-private). The company demanded
best international practice in contracting and had strong criteria for
monitoring and regulating project implementation. Finally, MIIU assisted with adjustments and renegotiations over
the course of the project contract.
Ms Moloi explained the internal versus external provisions and provided project
examples. Internal provisions included
management improvements, with the example of Richards Bay Airport and
on-balance sheet borrowing, as carried out by Jnb & Durban Bonds. External provisions included
corporatisation, like Eastern Cape IT, operation and maintenance (O&M), as
done by Harrismith, O&M plus capital investment, as was the nature of the
Nelspruit contract, and divestiture, as in the case with Metro Gas.   She identified where the external partners
fit into the equations. Nelspruit Water
and Richards Bay Airport were public-private contracts; Harrismith Water and
Maluti a Phofung Water were public-public projects; and Pietermaritzburg Solid
Waste was a public-NGO project. She
pointed out that each of these projects ultimately fell under the jurisdiction of
MIIU.
Ms Moloi continued with MIIU projects that had focused specifically on water
services infrastructure development.Â
These were all projects that had been initiated since 1999 and included
Nelspruit and the Dolphin Coast, Harrismith, Maluti a Phofung, Johannesburg
Water Utility, uMhlathuze, Plettenburg Bay, Kwa Dukuza, and Uthukela
MJMSD. She stated the lessons the
company had learned from South Africa.Â
Foremost, private service provision was “Not a panacea, but can
improve/extend services to all.� The
“playing field� needed to be levelled with respect to local government
assistance. Projects needed to be
driven by good political and administrative leadership. Extensive pre-bid information was essential,
and there was definite need for a strong legal and regulatory framework. Finally, MIIU needed to consult with
organised labour and community groups and anticipate all stakeholder benefits
and costs. Â
Ms Moloi summarised her presentation by saying that MIIU was a solution for
helping local governments gain access to private sector financing and
management expertise. She stated that
the company was demand-driven and user-friendly, it had 50 active projects,
most of which operated in core services, and, to date, the total value of all
concluded contracts was R5 billion.
The Chairperson thanked Ms Moloi and asked the Committee for questions.
Questions and
Comments to Ms Moloi
Mr M. Masala (ANC)
informed Ms Moloi that, as a Member of Parliament, he had not known that MIIU
existed. He wondered whether
municipalities were aware of the company and its activities.Â
Ms M. Ngwenya (ANC) stated that the Committee had listened carefully and that
she, personally, had never been interested in the above issues until the
presentation. She said that she was
most interested in the rural municipalities.Â
R5 billion was an extremely high figure, so she wondered if Ms Moloi
could explain where and how this was spent.Â
An ANC Member asked whether the constitutional amendment that allowed
municipalities to borrow referred to municipalities or metros.Â
Mr J. Van Wyk (ANC) asked what lessons had been learned from projects that had
resulted in job losses and, along a different vein, whether the presenters
thought government under-spent in rural areas.
The Chairperson asked Ms Moloi to clarify where the private sector interest
came from.
Ms Moloi explained that the South African legislation resolved that
municipalities could handle the borrowing issue on their own. She said that she did not want to comment on
job losses. Rather, she wanted to leave
the Committee a pleasant surprise in the next presentation.Â
Ms Ngwenya asked how long municipalities allowed private companies to stay with
them before they said, “Okay, now we are fine.â€?Â
Ms Moloi responded that this depended on the stipulations of contract.
Mr S. Simmons (NNP) asked whether municipalities approached the MIIU for
assistance or if MIIU approached them.
Mr Van Wyk asked what legislation oversaw public-private partnerships.Â
Ms Moloi stated that she did not mention the legislative aspect because it
would be too overwhelming. However,
that did not mean that there was not problematic legislation. She said that MIIU dealt most often with the
Water Services Act, the Environmental Act, and the Systems Act.
Mr Van Wyk suggested that it would be helpful to know what was problematic
about the Water Services Act, since they were the Portfolio Committee on Water
Affairs and Forestry.
The Dolphin Coast and Nelspruit Bay
Projects
Mr Leigland introduced
his presentation by saying that he would focus on the Dolphin Coast and
Nelspruit Bay projects. MIIU had
entered both of these operations in their last phases; however, they felt
ownership over them because of their role in their follow-up. Dolphin Coast had come under contract on 29
January 1999 with Siza Water, sponsored by SAUR International. Nelspruit had entered contract on 21 April
1999 with Biwater.Â
Mr Leigland stated that, following its 1994 amalgamation, Nelspruit Bay
experienced a population increase from 24 000 to 230 000. The residents per pipe length exploded to
over 600%. The total town income, after
enduring a ten-fold population increase, improved by only 38%. At this time, the municipality estimated the
immediate investment need to be R250 million.Â
The situation in Dolphin Coast was similar, though less dramatic. Mr Leigland informed the Committee that,
after Dolphin water was taken over in 1996, the town suffered from poor public
infrastructure, and over 50% of the informal areas had no service at all. Neither technical nor management support
staff had been transferred to the site.Â
The options considered in both cases were (1) the status-quo plus plan,
involving either borrowing or corporitization, and (2) partnership plans involving
either service contracts, management contracts, concession, or sale. Mr Leigland explained that, with the
exception of concession, none of the plans would bring in capital investment,
and all of them would still require operation and maintenance.Â
Concession Contracts were thirty-year terms, and they covered O&M,
investment and customer care. He said
that the assets remained public property, and contract terms identified
performance targets. Sanctions, or tariffs,
were reviewed every five years. Mr
Leigland provided a visual for the Committee, stating that the Nelspruit Bay
contract was 600 pages in length, so thick it resembled a “phonebook.� The most important characteristic of a
concession dealt was that municipalities received revenue from the operations
even though private firms ran them.
Mr Leigland informed the Committee that over time the contribution to Nelspruit
Bay would be R700 million. He stated
that he wanted to correct what he saw as negative press on the projects. He insisted that the Dolphin Coast had
performed well. This statement was
validated by the rapid rate at which underserved areas had been upgraded, and
the fact that no jobs had been lost. In
fact, since the project began, there had been a 36% rise in employment. In Nelspruit Bay, all water and sewerage
treatment in the area had been refurbished, a new treatment works had been
built at Matsula, 4800 people had been connected to water, and 1245 temporary
jobs had been created in the process.
Mr Leigland articulated some of the challenges that MIIU and investors were
facing. Dolphin Coast had experienced a
cash flow problem that analysts attributed to an unexpected slow down in
population growth that was the result of a number of factors. As a result, there had been a tariff
increase. Nelspruit Bay experienced
inconsistent payment practices. There
was confusion over the concept of “free water,� what it was and who was
eligible for it, and there had been public agitation over the issue. The problem was being addressed through
attempts to clarify city policy on free water and launch community
communication programs.
Mr Leigland concluded that there were over 200 public-private partnerships
(PPPs) in the developing world and 100 more in the developed economies. Some failed due to lack proper preparation
and monitoring, but many more succeeded.Â
He emphasized that all long-term contracts faced challenges and needed
amendment over 30-year terms. The
Nelspruit Bay and Dolphin Coast contracts were “state of the art,� in his
opinion, better than the Buenos Aires contract that received much international
attention, and better than most in Latin America and Eastern Europe. He said that MIIU was extremely frustrated
by the bad press and misinformation that had been spread on the contracts. He explained that MIIU projects made
financial sense for South Africa's infrastructure development. What set the private companies that they
recruited apart from the municipalities was their ability to endure losses for
extended periods of time before they made a profit. He said that it was estimated that neither Nelspruit Bay nor
Dolphin Coast would earn a profit before 2012.
Questions and Comments to Mr Leigland
Mr Van Wyk asked how MIIU dealt with local agitation over the free water
issue.
Ms Ngwenya stated that, in reference to the tariff increase that Dolphin Coast
had experienced, people were afraid of projects that were heavily subsidized by
private sector actors. She asked the
presenters if they saw people's real fears and reactions to tariff imposition
where they operated.
Mr Simmons asked the presenters, judging from their experience in the field and
taking into account the poor capacity of many local governments and
municipalities, how long would it take to catch up on the backlog of South
Africans that did not have access to basic water services.
Mr Leigman said that he wanted to address the concerns over the cost of project
water. The water tariffs were designed
to increase annually, in accordance with the rise of inflation. However, they also took into account ability
to pay. Credit controls existed in the
bylaws of the contracts. Moreover,
Nelspruit Bay had not actually cut anyone's water service yet. This was in part because of politics, in
part because of the controversy over free water, however the contracts were
being negotiated. The tariffs imposed
by both projects were very low. He
added that, unfortunately, both areas were served by Mugeni that had recently
increased bulk tariffs. That was
outside of project control. Still, it
was important to note that Dolphin Coast still paid less for water than
residents and industries in nearby Durban.Â
Mr Leigman said, in response to the question about municipality awareness of
MIIU, that MIIU went out and introduced itself to local governments and
communities. In addition, the Unit
provided “diagnoses� for communities at no cost.   He stated that, where they oversaw projects, they ran community
education and outreach programs at R1 million annually. The investment companies also ran literacy
and basic education programmes for employees and enjoyed positive results.Â
In reference to South Africa's backlog, Mr Leigman stated that he wished PPPs
were the answer, but they weren't. The
backlog existed in areas of the country that needed grant funding to overcome
infrastructure needs. These areas were
too rural to attract concession projects.
Uthukela Water
Mr Dohrman said that he would speak briefly on Uthukela Water, a
Multi-Jurisdictional Municipality Service District (MJMSD). Uthukela Water involved three district
partners in KwaZulu-Natal: Amajuba, Umzinyathi, and Uthukela. The creation of the MJMSD came out of a
water board recommendation in 1999 and a stakeholder meeting the same year that
announced that the water board was not a total solution. Analysis showed that 60% of the population
in the above-mentioned area either had no service or fell below RDP standards,
and the situation was recommended for further study. A reference group was organized, made up of fifteen regional
municipalities and key stakeholders, and a working group was put together
consisting of ten of these contributors plus MIIU technical assistance.
The three-district partnership officially formed on 21 September 2001, and Mr
Dohrman said that a more formal ceremony would take place in January 2002. The MJMSD was the first of its kind in South
Africa, and it had drawn ideas from American design models. Because it was a public-public partnership,
it met conditions of the Water Services Act and the Systems Act. It focused on full water services and
service delivery, was locally based and locally controlled, and adhered to
bottom-up processes of design, implementation and O&M. Mr Dohrman showed a spreadsheet that
calculated a water services budget by municipality, district, and, for
comparison, showed the actual budget of the MJMSD. If the municipalities were to run individual projects, the total
cost would be R184 000. The sum of
three individual district budgets would amount to R170 000. In contrast, the total MJMSD budget was only
R143 000. Mr Dohrman stated that the
MJMSD was potentially the institutional answer to municipal capacity
problems.Â
Questions and
Comments to Mr Dohrman
The Chairperson asked who
supplied the funding for the MJMSD.
Mr Dohrman said that DWAF was very interested and was fully supporting the
project.
Mr Van Wyk said he was unclear as to whether the MJMSD was a provider or an
authority. He then asked whether the
creation of something like a MJMSD indicated a movement away from central
control over water services. He asked
if the implication was a lesser role for the Minister and the Department.
Mr Dohrman responded that there was some confusion, but they were creating a
provider, not an authority. He said
that this had not been entirely sorted yet and there was significant debate
over the body's functions and definitions because, while it was a provider, it
performed some of the responsibilities of an authority. In conclusion, Mr Dohrman stated that there
was a movement to decentralize. The
Department was already doing this to some extent, and the MJMSD could be
helpful for gauging the viability and effectiveness of this initiative.
Chairperson Maimane thanked the presenters for educating the Committee on the
role of the MIIU in South African water services development, and the meeting
was adjourned.
The copyright in this material subsists with the Contact Trust. Further distribution or copying of this
material is prohibited without the prior agreement of the Contact Trust.
___________________________________________________________________________________
Audio
No related
Documents
No related documents
Present
- We don't have attendance info for this committee meeting
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.