Build, Operate, Train & Transfer (BoTT): hearings

Water and Sanitation

26 September 2000
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Meeting report

HEARINGS ON BUILD, OPERATE, TRAIN AND TRANSFER (BoTT)

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This Report is a Contact Natural Resource Information Service
Taking Parliament to People, and People to Parliament

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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.

WATER AFFAIRS AND FORESTRY PORTFOLIO COMMITTEE
27 September 2000
HEARINGS ON BUILD, OPERATE, TRAIN AND TRANSFER (BoTT)

Documents handed out:
- CWSS Capital Programme and BoTT Delivery Process: Presentation to Portfolio Committee on Water Affairs on BoTT hearings
- Evidence to the Parliamentary Portfolio Committee on Water: BoTT Hearings
- Accelerated Delivery? Rural Women and Water
- Department of Water Affairs and Forestry: Community Water Supply and Sanitation Programme - Summary of External Consultations.
- DWAF: Strategic Considerations towards ensuring appropriate delivery mechanisms and sustainable water services delivery
[e-mail linden@contacttrust.org.za is you require these documents]

SUMMARY
The Committee held hearings on the viability of the Build, Operate, Train and Transfer programme for water service delivery within the Department of Water Affairs and Forestry (DWAF). The Committee heard from Dr David Hemson from the University of Durban-Westville and the Rural Development Sector Network (RDSN); Mr Martin Rall from the Mvula Trust; Mr Kalinga Pelpola and Sefako Mamabolo from the DWAF and Mr Dempsey Naidoo from the Historically Disadvantaged Companies (HDC) Forum.

The Committee decided after hearing consultations that BoTT is a viable concept for water delivery but that the DWAF should continue to implement the changes that it has commenced and those that it has recommended as necessary for effective, cost efficient water service delivery.

MINUTES
The Chair, Ms. B Sonjica (ANC) began the meeting by outlining the goals that the Committee had set for these hearings. She stated that as the date for the BoTT contract renewal was approaching the Committee needed to evaluate the performance of the programme before deciding whether to continue or not.

Dr David Hemson, from the University of Durban-Westville and a member of the Rural Development Sector Network (RDSN)
Dr Hemson began by giving a brief history of the Build, Operate, Train and Transfer program. Since 1997, the DWAF has begun a process of putting the private sector into rural water delivery. President Mandela asked in 1997 that the process of establishing effective water delivery be sped up, and so BoTT was created. Dr Hemson's research showed that in the first two and a half years, the BoTT program has led to an over-centralization that has actually slowed down water delivery. He also noted that rural communities are required to pay much higher tariffs than urban areas. Dr Hemson stated that while providing water delivery to rural areas is critical, it is not much use to the population if they cannot afford it. The urban areas are provided with 6 kilolitres of fresh water before the tariffs kick in, rural areas must pay for all water at around 10 cents a litre.

From Dr Hemson's research of projects in Kwazulu-Natal (KZN), the BoTT has shown to be much less cost-effective than other methods of water delivery. His study revealed that BoTT projects were on average 2.7 times more expensive than similar projects run by NGO service providers. Another critique of the BoTT program by Dr Hemson was that it did not fulfill the 'Transfer' part of its vision. By using private sector contractors to provide water delivery, the program was not strengthening local government structures who would be responsible once the delivery had been established. Dr Hemson worried about the trend towards "contractual local government" which is backed up in his observations on the lack of any transfer in KZN.

Dr Hemson then moved on to discuss what he felt was the most controversial part of the BoTT program and one that would have to be resolved if the project was to continue and be economically viable. The problem he targeted were the "Preliminary and Generals" or P and G's. Preliminary and Generals are the start up costs paid by the government that are provided in a public-private contract to enable the contractor to startup operations. P and G's are a routine part of contractual arrangements of this type but Dr Hemson's research showed that in the case of BoTT the P and G's are inordinately high. They also account for the increased cost of BoTT projects as compared to not-for-profit organisation run projects. In KZN, one project had a cost of one million Rand and the P and G's could have accounted for between 33% and 51% of the total project cost depending how the money was spent in the contract.

Dr Hemson noted that many NGO's see these P and G's as a subsidy for business, cutting small businesses out of the tendering process. The P and G's, according to Dr Hemson, provide significant advantages to large consortiums at the expense of smaller arrangements. The Doctor noted that the actual spending on P and G's has only been around 21% but that it is possible for it to go as high as 50%.

Dr Hemson argued that when evaluating the BoTT program we must look at the cost effectiveness as well as the quality of service provided. According to the guidelines put forth in the Reconstruction and Development Programme (RDP), the guideline for water service delivery was 270 Rand per capita per project. The variety of projects and geographical challenges often makes this difficult but it is still a good starting point for evaluating the cost-effectiveness of various models of water service delivery. Dr Hemson was also concerned that the level of monitoring was not sufficient to garner the data necessary to come up with meaningful conclusions. This systemic weakness must be rectified in the future.

Dr Hemson used the Mvula Trust, an NGO water service provider as an example of alternative, more cost-effective models of water delivery. In KZN the average BoTT cost per capita was 1022 Rand. Mvula's average was 380 Rand. BoTT counters these stats by saying that they are paying their workers higher wages and are providing better quality projects that will last longer. Dr Hemson answers this claim by pointing to South African Bureau of Standards section 1200 which controls water service delivery projects. Both Mvula and BoTT projects pass the minimum levels required by the SABS. As BoTT costs 2.7 times more than the NGO model, serious questions need to be asked.

Dr Hemson touched on some of the points made by BoTT proponents.
- BoTT projects can cover larger areas.
- Costs are reduced by economies of scale (large projects).
- Faster Delivery.
Dr Hemson countered this claim by noting that while the physical infrastructure can be built faster by a private company, the evolution of the administrative capacities and skills transfer may not follow. Often the company who started the project stays around, providing a mentorship rather than a transfer. The full cycle of the projects, including the transfer, often take much longer in the BoTT projects.
- Innovation promoted.
- Superior Management.
Dr Hemson noted here that while BoTT projects can often provide superior external management, what DWAF should be looking for is an increased capacity for internal management by local communities of the projects at hand.
- Greater Sustainability.
- If BoTT did not exist the DWAF would have to fulfill its role.

Dr Hemson stated to the Committee that BoTT, as they all know, is a management contract, using state funds. As budgets are tight and there are so many problems that the country needs to address, any project that isn't delivering value for money needs to be looked at carefully.

Dr Hemson began his conclusion with the statement that the biggest challenge for democracy in South Africa is in the rural areas. To develop the social capital of the most vulnerable, the rural poor and more specifically the women in those areas, we need implementing agencies that will be inclusive. Often this means using smaller agencies that know the community and realize how the sustainability of water projects depends on the levels of community involvement in all facets of the development and implementation of the project. BoTT was started as an experiment and the time has now come to look at its balance sheet and decide whether or not it should be continued. According to Dr Hemson, the RDSN would recommend DWAF looking at other means for service delivery rather than privileging large private businesses.

The Chair noted that the Committee is concerned with the maintenance and sustainability of water projects and their cost-effectiveness. She also noted that it is important to consider who carries the financial burden at the end of the day? Is it the consumer? If so, what effect does this have on rural communities? As BoTT projects provide 30-50% of all water, the questions raised are critical in the development of a cost-effective, sustainable water supply for South Africans.

Discussion:
Ms M Ngwenya
(ANC) asked Dr Hemson what effect, in his opinion, the new local government bill will have on water service delivery.

Lance Veotte from the South African Municipal Workers Union (SAMWU) asked if the BoTT systems are new or are they replacing old systems.

Dr Hemson responded that in his opinion the new demarcation of local municipalities would improve the local management of water. To answer Mr Veotte's question, by and large the BoTT projects are new projects, or "Greenfield projects", starting from scratch. From his research Dr Hemson concluded that the non-operation rate for projects ranges from around 60 to 70%.

Mr Mathebe (ANC) asked what effect the Growth, Employment and Reconstruction (GEAR) program has had on water service delivery.

Dr Hemson replied that the GEAR's emphasis on public-private partnerships has meant that as the water delivery budget was cut from 1 billion to 500 million Rand, many of the remaining resources were given to BoTT rather than other water service delivery models.

Mr Simmons (NNP) asked what research has been done outside KZN. He also commented that BoTT has been operating for a very short period of time - costs are high on startup, perhaps over the longer term the costs will decline.

Mr Hanekom (ANC) noted that given what Dr Hemson has said about the Mvula Trust and the BoTT, why not expand the Mvula Trust, or at least use its model? If one decides to use BoTT, is there any way to incentivize the contracts to provide the consortiums with a push to transfer or to penalize unsustainable projects?

Dr Hemson replied that his research is focused on KZN, one of the four provinces where BoTT has been used, but he is keen to extend the study. He is currently working with the Department of Finance to work on ways to monitor these projects more accurately. In terms of incentivizing contracts, Dr Hemson noted that the original plan was to include such clauses in the contracts, though this did not materialize. He noted that this was critical for in the current situation there is no incentive for the consortia involved to transfer power as their contracts have been renewed over and over.

Mr D Maimane
(ANC) asked if public-public partnerships would be more beneficial than BoTT.

M Phala (ANC) supported Dr Hemson's call to extend the research programme in this area. He also wanted to know what could be done about the diesel shortages that lead to the disabling of many pumps in rural areas.

Reverend stated that he personally was excited over the President's announcement regarding the provision of 6 kilolitres of water to each South African free of charge. He challenged other departments to come on board so that the president's vision can become a reality.

Dr Hemson said that it should be the DWAF who research nation-wide. He also stated that he believes cut-off dates for projects are needed to ensure the transfer of skills and resources. He concluded by saying that the original language of BoTT was to 'engage and see' and that on his balance sheet BoTT is wanting. Contracting and private sector involvement are necessary but a balance must be maintained - local government needs to take responsibility for the viability and sustainability of water delivery.

Department of Water Affairs and Forestry (DWAF)
Presentation notes are available on the DWAF website http://www-dwaf.pwv.gov.za/
Presented by Kalinga Pelpola, Director: Project Development Support &
Sefako Mamabolo, BoTT Support Manager.

Mr Pelpola began the presentation with a brief overview of BoTT. He noted that 80% of South Africa's water problems are in three provinces: Northern Province, Kwazulu-Natal and the Eastern Cape. The BoTT program operates in these three provinces as well as Mpumalanga which used to be one of the worst areas.

According to the Department the BoTT program is conceptually very strong but needs some improvement. As July 2001 is the renewal date for the BoTT contracts, programs need to be in place to ensure that a 30% shortfall in water delivery does not occur.

The Department feels that it is addressing, or is in the position to address the concerns raised by the Portfolio Committee and by Dr Hemson. It is felt that BoTT is conceptually viable and that the costs are dropping (average of 630 Rand per capita per project) making it a viable part of a multi-faceted solution to water service delivery in South Africa.

Mr Dempsey Naidoo of the HDC Forum
Mr Naidoo made a brief presentation on the HDC component of BoTT. He stated that the first two and a half years did not paint a pretty picture from the perspective of HDC's. The representation and involvement of HDC's in the BoTT process was less than ideal. Yet the last 18 months have seen a turnaround with the new contract that was signed. The statistics for HDC participation, by province, are the following:
· Northern Province - 25% HDC allocation
· Mpumalanga - 39% allocation
· Kwazulu-Natal - 24% allocation
· Eastern Cape - 38% allocation

Mr Martin Rall of the Mvula Trust
Mr Rall made an equally brief presentation from the standpoint of the only NGO service provider in the BoTT program. The Mvula Trust is part of the Eastern Cape consortia and are directly responsible for the ISD provision (transfer portion) of BoTT. Mr Rall noted that the consortia is an odd group as Mvula is the only organisation in the consortia who are not profit oriented. He believes that while needing changes, BoTT has improved tremendously over its lifespan and has the potential to be even more effective.

On the other hand Mr Rall noted that the Mvula model is far cheaper than the profit-driven model, their projects costing in at around 300 Rand per capita. He made the astute point that it is not BoTT that is expensive, it is the BoTT model of using private contractors that is expensive. Yet the contract-based approach is necessary for effective delivery, especially when it comes to large projects. A collaborative approach to water service delivery may therefore be the most effective and cost-efficient.

Chairperson's Summation
The Chair, Ms. B. Sonjica (ANC) concluded the meeting by saying that while there are many concerns about BoTT the Committee, in her view, saw that the DWAF has captured these concerns and is actively working to resolve them. The main concern now for the Committee is addressing the 8 million person backlog for water services. There is also among the Committee a desire to speed up the process while realizing the budget shortages that are part of the current reality. This is why, said the Chair, there is such concern over P and G overhead expenditures. The Portfolio Committee will reflect on the hearings and come up with a report that will contain recommendations for the BoTT program.

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.
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