Establishment and Implementation Challenges Theme 3

1. Establishment and Implementation Challenges Theme 3 Based on Johannesburg Water (JW) Nelspruit Concession Emfuleni Local Municipality (ELM)

2. OBJECTIVE • Share implementation processes • Look at processes that have taken place to date • Analyse key success factors • Highlight key activities which: • Are required for successful implementation • Informs the process • Address risks and mitigating strategies in implementing section 78 decisions • Best practice for designing a delivery mechanism

3. Cases that will be addressed • Johannesburg Water • Nelspruit Concession • Emfuleni Local Municipality

4. Johannesburg Water Presentation

5. Background to JW • The iGoli solution was to establish a number of wholly owned private utility companies, capable of becoming self-sufficient through the raising and retention of user fees on specific services sold to individual consumers • The council set up separate, wholly owned utility companies • Utilities are separate legal entities each with • A board of directors, • A managing director • Service Delivery Agreements were signed with each utility • A water and sanitation utility, Johannesburg Water, was established in January 2001.

6. The Operational Challenges faced by the new company (JW) • UAW was 41.6% on 1999 • Sustainability was threatened • Service Delivery was not taking place as envisaged • Lack of capacity

7. Implementation Challenges Anticipated

8. Was there sufficient Political Support? • It was unclear whether Council was fully committed towards the process • There is insufficient knowledge regarding the change from public to private entity • Conflict of interests regarding the change from public to private company

9. Poor Information • City of Johannesburg resulted from merging of five municipalities to provide services • The Municipality local council data assumptions were insufficient and inaccurate. • There was no asset register • No accurate record of debtors list or debtors outstanding • No reliable record of liabilities • Impacts on contracting as well as regulation

10. Other limitations • The City of Johannesburg (CoJ) was left with insufficient skills to carry out regulator functions as most skills were transferred to the Utility • Regulator functions carried out by 3 depts: • WSA manager • Shareholders unit • Contract management unit • Service Delivery Agreement (SDA) deliverables were not sufficiently defined • CoJ retained meter reading and billing of the majority of customers • The process was viewed as privatisation

11. Risk Mitigation Strategies

12. Overcome the Risks • Continuous communication • Have a political driver for the process • Clear roles and responsibilities • Build capacity • Labour Support • Good governance

13. Communication • Develop a participative relationship with stakeholders and key role players to ensure that there is a full understanding • Develop an understanding of perceptions and objectives of key role players • Participate pro-actively in the policy and decision making process • Participate in community forums and projects • Develop effective awareness and education • Participate in campaigns on the service delivery agreement issues to ensure complete stakeholders “buy in”

14. Identify a Key Political Driver/ Custodian • Ensure custodian is aware of all relevant issues • Custodian to interact with stakeholders to facilitate buy-in • Custodian ensures council support

15. Ring Fence Roles and Responsibilities • Utilise performance management clauses and appropriate penalty mechanisms • Implement an integrated contract management system • Conduct regular stakeholder meetings

16. Build Capacity • Capacitate regulator • Invest in management development • Invest in skills development and capacity building • Conduct skills audit and develop strategies to overcome the gaps • Implement individual performance management systems • Invest in team building and strategy sessions • Implement and monitor succession planning

17. Organised Labour Support • Unions were kept informed and had input at all stages of the process • Unions implemented a three year working contract • Salary bands differed between the various municipalities and this was dealt with successfully

18. Good Governance • Conduct good governance policies and procedure compliance audits • Conduct a critical review of business planning and execution • Segregation of duties • Develop full control policies and procedures • Enhance Internal audit function and conduct regular audits • Hold fraud awareness workshops for management

19. Lessons Learnt

20. Successful implementation supported by • Increase understanding by continuous communication • Ensuring continuous capacity development (Regulator and operator) • Securing stakeholder participation and support • Ensuring long term commitment

21. Communication • Develop a participative relationship with stakeholders and key role players to ensure that there is a full understanding • Understanding of the perceptions • Participate in community forums • Overall Awareness

22. Capacitating • Invest in management development • Invest in skills development and capacity building – WSA and WSP • Do not forget the capacity required to run the WSA function • Capacitate regulator, if different from the WSA

23. Stakeholder support • Obtain stakeholder support through transparency and interaction • Own Council • Organised labour • National, Provincial and Local Government

24. Commitment • Clear commitment and responsibility allocation (key drivers) • This ensured that all obstacles were bridged

25. Operational achievements • Creation of a state of the art call centre: more than 90% of calls answered in less than 30 seconds • Robust potable water quality monitoring (number of samples multiplied by 3 and more than 99% compliance) • UFW decreased from 42 to 33% (problem of deemed consumption areas) • Environmental compliance (final effluent) increased from 85 to 98%

26. Operational achievements - cont • 100% of sludge disposed according to national guidelines (compared to 50%) • Number of annual spills at the WWTW’s has decreased from more than 700 to less than 150

27. Financial achievements • Consecutive to crisis due to poor revenue data and poor billing from the City of Johannesburg, financial turnaround strategy agreed in March 2004 • Break even projected for 2007/8 but actual results far ahead of projections: 2002/3: (R429) mil 2003/4: (R318) mil 2004/5: (R77) mil • Revenue: R3bil (compared to R1,8 bil in 2001/2) • Revenue collection ratio higher than 100% on accounts directly managed by JW

28. Nelspruit Concession

29. Nelspruit Concession • Key driving challenges • Capex requirement (R 350 m) • Capacity requirement • Operational challenges that needed to be met • UAW – 31% • Sustainability

30. Nelspruit Concession • Reflecting on key success factors • Total commitment towards process by Councils • Staff buy in due to securing jobs • Community involvement • Capacitation of stakeholders/ community through various programmes

31. Nelspruit Concession • Achievements • UAW = 14% in urban and 25% in other areas • 25 to 80% increase in collections • Extreme customer satisfaction • Mammoth capital roll out • Improved maintenance & Renewal Programme • Efficient communication • Sustainability • Potential extension of Concession

32. Nelspruit Concession • Conclusion • Concession was a bold step for Mbombela • Success is evident in almost all areas of the concession since concession started 5 years ago • Water and sanitation services have been extended to tens of thousands of previously disadvantaged communities • Operating costs per stand have halved • National Govt, Mbombela and investors happy with health of the Concession

33. Emfuleni Local Municipality

34. BACKGROUND TO EMFULENI LOCAL MUNICIPALITY Category B Municipality Located within Sedibeng District Municipality Fourth Biggest Municipality in Gauteng Project Consolidate Subject ± 1 Million Population Prominent Historical Status

35. PURPOSE OF SECTION 78 • Deterioration of Water Services Delivery • Determination of Best Possible Service Delivery Mechanism • Focus on Turnaround & Long-term Sustainability

36. OUTCOMES OF SECTION 78 PROCESS INTERNAL ASSESSMENT • Business Unit • Effect of lack of finances: • Cannot operate at current service levels • Cannot improve service provision • Will have cash deficit for the next ten years • In the absence of financial resources, MUST consider External mechanism

37. OUTCOMES OF SECTION 78 PROCESS (cont.) EXTERNAL ASSESSMENT • In terms of the Municipal System Act • Explore external options after assessment of internal mechanism • Notify the community and consult with labour • Primary Issue: FINANCIAL CONSIDERATIONS • Functional Areas • Capacity of Service Provider • Effective Service Delivery • Labour Relations

38. OUTCOMES OF SECTION 78 PROCESS (cont.) EXTERNAL ASSESSMENT • CONCLUSION • Provision of Water Services through an external mechanism should be considered • Appears to be the most effective service delivery mechanism • Rand Water will participate through: • The provision of finances • The provision of expertise

39. OUTCOMES OF SECTION 78 PROCESS (cont.) STRUCTURE OF ARRANGEMENT • Co-ownership of a company by Sedibeng, Emfuleni and Rand Water • Service Delivery Agreement between the company and Emfuleni

40. KEY PROCESS UNDERTAKEN • Consultation and Buy-in of WHOLE Ruling Party • Consultation and Buy-in of WHOLE Council • Consultation and Buy-in of Executive Structures • Consultation of Labour Formations (MOU) • Consultation of Broad Community & Civil Society • Consultation of Business

41. KEY PROCESS DRIVERS • Credible Governance of Process • Adequate Resources and Accountability • Continuous Communication and reporting to key stakeholders • Rigorous Business Analysis & Plans (Assessment) • Leadership Commitment • Support of DWAF • Labour

42. CHALLENGES TO PROCESS • Non-alignment with Provincial Department • Non-alignment with National Treasury • Non-alignment with DPLG • Organised Labour Dynamics (Internal)

43. LESSONS LEARNT • Detailed & Diligent Assessment • Proper Governance of Process • Unconditional Involvement & Participation of Local Stakeholders • Credibility & Commitment of Sponsors and Champions (Political and Executive) • Alignment & Support of Provincial and National Departments • Support of Organised Labour • Adequate Resources and Accountability • Monitoring of Environmental Dynamics

44. Overall lessons for successful implementation • Securing stakeholder participation • Having key drivers of the process • Ensuring long term commitment • Ensuring continuous capacity development (Regulator vs. operator) • Ensuring transparency