Creating Efficiency using Prepayment as a Demand Side Management Tool

1. Creating Efficiency using Prepayment as a Demand Side Management Tool Mike Rabe: Alliance to Save Energy – South Africa Manager: Watergy Programme Nico Singh: Prepayment Manager - JW: NSDD BECAUSE EVERY DROP MATTERS

2. Introduction • Money makes the world go round and market principles govern • Municipalities cannot ignore this economic reality • Although legislation requires municipalities to exercise good monetary policy and financial discipline, many municipalities are in dire financial straits • The need to practice good financial management is great and municipalities should strive to achieve balanced budgets, zero deficits and streamlined operations

3. The Efficiency Opportunity • Deficits = Deficiencies or inefficiencies • Efficiency is a function of management capacity (institutional, financial and technical) • Inefficiencies are often rooted in inefficient service delivery practices • A key to turning municipalities around is to start focusing on efficiency • Inefficiencies = opportunity = need for intervention • Because municipal deficits are common, huge opportunity exists to intervene in the current situation

4. South Africa presents unique opportunities.. • Because of it’s past socio-political disparities • Because of current socio-economic conditions • Because of the layered nature of the economy (so-called 1st nd 2nd economies) Compromised solutions need to be found that are at least partially – politically, socially and technically correct

5. Prepayment water offers a good compromised political, technical and financial solution to most of the problems associated with the delivery of water services in South Africa

6. Prepayment … • Allows for the dispensing of FBW and can accommodate legislative changes • Offers an acceptable political and social solution to the constitutional obligation of providing access to potable water • Allows for the implementation of an indigency policy • Allows water to remain affordable and sustainable • Adds value from a financial point of view

7. The wastage problem… In many residential areas in South Africa on-property wastage of water is high because of failed plumbing fixtures!

8. This can be attributed to… • A lack of ownership of properties traced back to the socio-political history of South Africa • A lack of customer metering • The use of inferior plumbing fixtures • The ‘deemed’ consumption billing method which is still widely used in many municipalities • As examples the average supply per property per month for Soweto is over 60 kℓ and for Sebokeng over 32 kℓ These levels of wastage create the opportunity cost that can be used to justify and motivate for the implementation of prepayment

9. OWNERSHIP The implementation of prepayment water combined with a leak repair/plumbing retrofit type project empowers consumers to take ownership of consumption and also transfers responsibility for consumption onto same. It goes without saying that the political and social issues inherent to this approach need to be managed! Hence wastage is brought under control

10. At the end of the day transfer of ownership of consumption should be aimed for as perhaps the main objective of any planned prepayment project. Without transfer, the municipality by default continues to own consumption

11. The Water–Energy nexus • Energy often represents the single biggest input cost into wet services delivered to customers By addressing inefficiencies and saving water, substantial energy savings can also be achieved • Quantified energy savings can be translated into carbon credits and sold in terms of the Kyoto protocol • Therefore saving water = saving the environment!! • Hence the involvement of the Alliance to Save Energy and the Watergy Programme

12. Efficiencies of Operation Gcin’amanzi in Soweto

13. Why the need for Efficiency - Why Soweto? • Average outstanding bills per month in 2003 were R 35,411,296.00 per month  • Thus total for 2003 was R 424,935,552.00 • Projected total for 2003 & 2004 was R 849,871,104.00 • Total for past two years at an estimated recoup rate 25%  = R 212,467,776.00  Therefore total for SOWETO’s outstanding bill in Rand value  for the past two years only................. R637 MILLION LOST WATER REVENUE 

14. Post UFW for APRIL 2004 (Phiri - Block B) is 6.7%

15. Wastewater Treatment Efficiencies • Unacceptable UFW results is a direct burden on wastewater treatment plants (WWTP). • JW specializes in wastewater treatment – high OPEX as a result of high CAPEX to provide capacity. • Treatment plants are currently running at optimum. UFW reduction will assist in ensuring efficiency of these plants as well as reduce the need for Capital Investment for Capacity Upgrade.

16. Challenges to the creation of efficiencies using prepayment

17. Political, Institutional and Community acceptance • Most difficult challenge involving internal, external and multiple level approvals • Project was strongly opposed by various groups • Mitigated through the successful implementation of a prototype project • Prototype successful with 98%+ support from beneficiary

18. Creation of Institutional Capacity • Institutional capacity created by JW: • Dedicated division within JW to project manage Operation Gcin’amanzi • Dedicated O&M unit to manage installed meter base • External support from Engineering Consultants • Training of staff and contractors • Issuing of large contracts for purchase of meters requiring support from manufacturer • Issuing of large contracts for implementation within each super-block

19. Local Labour Employment Opportunities- Spin Off

20. Return on Investment • Forecast saving of 32 – 35 kℓ/ property/ month • Realized savings of close on 45 kℓ per property per month • Total forecast saving of R158m per/annum after project completion • Saving expected to be closer to R200m per annum after completion Demand Side Management represents a better investment in this instance than Supply Side Management

21. Prepayment Metering Technology • Scale of implementation unprecedented • Industry lags ITO of common standards Platform • Technology greatly improved, although some difficulties still experienced • Improvements in design ongoing in conjunction with manufacturers • Manual reading of prepayment meters on a monthly basis as a physical check and audit measure

22. Conclusion • More efficient service delivery environment is being created through the implementation of OGA Soweto. • Efficiency interventions are a viable alternative to supply-side augmentation projects and in many instances are more cost effective than same. • The opportunity for intervention should be taken in South Africa

23. THANK YOU FOR YOUR ATTENTION