Reimagining water and sanitation services provision – Rand Water
By Sipho Mosai
In January 2024, the Department of Water and Sanitation, under the leadership of Minister Senzo Mchunu, organised a two-day Water Services Authority Summit. The event was a response to the findings of the Blue and No Drop Reports, as well as the Green Drop Progress Assessment Report, which were published in December 2023.
The Blue Drop certification evaluates the quality of drinking water systems, from purification to delivery to consumers. The Green Drop certification focuses on wastewater treatment systems across the value chain, including municipal, Department of Public Works and private systems. Both certifications assess operations, maintenance, skills, qualifications and the monitoring and control of water and wastewater infrastructure.
The No Drop certification measures water use efficiency in municipal drinking water distribution systems. It uses non-revenue water as a key performance indicator to gauge water wastage. The No Drop evaluation examines physical water losses (leaks), daily per capita water usage, strategies to reduce water losses and the effectiveness of metering, billing and revenue collection systems.
Blue drop Report
The Blue Drop report highlighted a decline in water quality from 2014 to 2023. Specifically, 277 out of 958 (29%) Water Services Systems (WSSs) in 62 Water Services Authorities were found to be critically under-performing, compared to 174 out of 1 036 (17%) WSSs in 33 municipalities in 2014.
Despite this, the report noted that major metropolitan areas generally performed well in the Blue Drop key performance areas. Gauteng, in particular, had the highest percentage (62%) of drinking water systems with excellent or good performance and the lowest shortfall of qualified staff.
Dr Sean Phillips, the director-general of water and sanitation, attributed the success to Rand Water’s management of water treatment and distribution in many Gauteng systems. None of the municipalities in Gauteng supplied by Rand Water were categorised as having poor or critical water supply systems. This supports Rand Water’s consistent assertion that our water meets the South African National Standard 241 Drinking Water Specification, ensuring it is safe for human consumption.
No Drop Report
Regarding the No Drop report, only four Water Services Authorities achieved the certification by scoring 90%, a significant drop from 44 municipalities in 2014. The report also noted an increase in non-revenue water from 37% in 2014 to 47% in 2023 in South Africa. Gauteng’s non-revenue water stands at 49.5%, one of the highest in the country.
Phillips highlighted that the high levels of non-revenue water, including physical losses, in Gauteng contribute to water supply disruptions.
Due to the high physical losses (water leaks) in municipal distribution systems, South Africa’s average per capita water consumption is approximately 218 litres a day, compared to the international average of 173 litres a day. Gauteng’s consumption is particularly high at 279 litres a day.
The report emphasised that Gauteng’s water interruptions are not due to a lack of bulk water provision, but rather high-water consumption driven by significant physical water losses in the distribution system.
However, the challenges can be addressed through better operations and maintenance of water infrastructure and effective implementation of water conservation and demand management measures. The measures include pressure management, reduction of night flows, repairing leaks, metering, billing, revenue collection, debt management and education and awareness.
The report also pointed out that many challenges stem from poor revenue collection, leading to insufficient funds to operate and maintain municipal water services infrastructure. The lack of revenue collection also hampers necessary investments in upgrading and refurbishing water services assets. Consequently, municipalities struggle to cover costs such as bulk water purchases, chemicals and labour associated with water infrastructure operations.
The financial strain has led some municipalities to rely solely on grant funding for water and sanitation services, resulting in significant debt for bulk water purchases and other essential services.
To address the significant water losses in municipal distribution networks, Rand Water, in collaboration with Emfuleni Local Municipality, is piloting an innovative water services delivery model. The model revolves around the creation of a Special Purpose Vehicle (SPV), a legal entity designed to revitalise water and sanitation services in municipalities.
The SPV will include shareholders such as Rand Water, the affected municipality and other third parties willing to invest in upgrading, refurbishing, operating and maintaining water services infrastructure. Profits generated by the SPV will be distributed to investors as dividends, according to the SPV’s dividend policy.
Municipalities will contribute to the SPV by transferring their water services assets, which will be assessed, valued and migrated to the SPV. The Rand Water stake will be determined by its capital injection. The entity will then manage its own assets, liabilities, rights and resources, effectively ring-fencing water services under its umbrella.
The primary benefits of the SPV model include mitigating legal and reputational risks associated with water supply failures and generating independent financial statements. With a standalone balance sheet, the SPV can raise funds in financial markets to progressively upgrade and refurbish infrastructure, thereby strengthening the municipality’s balance sheet through its shareholding.
Private sector institutions can also invest in the SPV, gaining shareholding through their capital contributions. For day-to-day operations, shareholders will appoint non-executive directors, who will then select the CEO or managing director of the SPV.
The SPV will be equipped with a chief operations officer, chief financial officer and a full management team and staff. To ensure proper oversight, governance structures such as Audit, Risk, and Investment subcommittees, composed of professional experts, will be established.
Consumers will pay their water bills directly to the SPV, ensuring that funds are exclusively used for water and sanitation services. Additionally, water and sanitation grants typically directed to municipal accounts will be redirected by the municipality into the SPV to maintain liquidity.
From a regulatory standpoint, compliance with various acts such as the Public Finance Management Act, Municipal Finance Management Act, Water Services Act, National Water Act, Companies Act and Municipal Systems Act will be ensured.
Permissions for transferring municipal assets to the SPV, which is partially owned by municipalities, will be sought from relevant government departments, including the National Treasury, the Department of Water and Sanitation and the Department of Cooperative Governance. Extensive stakeholders’ consultations and change management process will be undertaken before implementation.
The SPV will generate revenue to cover all water provision costs, supported by a robust balance sheet and cash flows. It will be responsible for planning, operating, maintaining, refurbishing and upgrading water and sanitation infrastructure, ensuring reliable, high-quality water supply for consumers.
The reimagined model promises a more sustainable and efficient approach to managing water services, ensuring better infrastructure and service delivery for municipalities.
Sipho Mosai is the group chief executive of Rand Water.
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