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100.0
90.0
80.0
70.0
60.0
50.0
40.0
30.0
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Required Capital Funding
Budgeted Capital Funding
Sanitation Infrastructure
Water Resources Infrastructure
Reagional Bulk ( non-potable ) infra .
Regional Bulk ( potable ) infra .
Municipal water infrastructure
Actual Capital Expenditure
Figure 1 : Capital funding of water and sanitation in South Africa . ( DWS , 2018 )
collection rates while water boards are owed substantial amounts by municipalities .
• Non-cost reflective tariffs and poor collection rates in many municipalities and water boards in South Africa undermine the creditworthiness of these entities and reduce investment . Less money flowing to the water supply institutions then leads to a lack of refurbishment and maintenance . Poorly maintained infrastructure causes bad service , with interruptions and consumers unwilling to pay more . This is a typical downward spiral with a bad ending .
• Lack of ring fencing of waterrelated revenues by municipalities means that monies paid for water services are used for other purposes , to the detriment of water and sanitation infrastructure .
• It is a reality that smaller rural municipalities have a limited revenue base .
• Underutilisation of the existing government grants by many municipalities . ( See Figure 1 , where money spent is less than budget .)
• Poor credit rating of many municipalities , which limits
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borrowing . Rural municipalities depend mostly on grants ( 70 %) and only 30 % of funds will come from tariffs ( DWS , 2015 ). Metros , on the other hand , use 82 % from tariffs and other sources of own funds for their capital needs , and only 18 % grants . Some of the metros are , however , close to reaching their borrowing limit ( DWS , 2015 ). The NBI proposes a differentiated approach , as South Africa has municipalities ranging from world class down to those that are struggling and on the point of collapse . Some of the proposals include the use of management contracts ( five-year payon-delivery contract ). The training of councillors and technical experts in water financing and investment can go a long way . Provision of anti-corruption training can help . Revenue streams can be grown by improving billing systems , credit control , and customer payment options . Cash flows can even be increased without raising tariffs by running of programmes to reduce inefficiencies and improve collection rates , reduce non-revenue water ( NRW ), and trim down non-labour cost .
Poorly capacitated municipalities with a weak credit rating will face a long uphill battle . They can be supported via the development of protocols , standard procedures , and project management capability . A key step would be to support the separation of powers ( technical managers vs councillors ) to help address political interference . While loans are not accessible , these entities can go a long way through a more effective application of their grant allocations , such as the Municipal Infrastructure Grant ( MIG ) funds for infrastructure development and asset refurbishment . If the management in these municipalities realise that ‘ consumers ’ must be treated as ‘ customers ’, they may become creditworthy and phase in private sector O & M contracts . The ideal would be to be able to borrow money once creditworthy .
For municipalities and water boards that have sufficient capacity and a reasonable credit rating , it is proposed that support be provided for contract management and project preparation capability . Their supply chain management departments must be well resourced . These institutions must push for excellence in relation to energy use , energy production , collections , and so on . These entities must engage with potential funders ( banks , institutional investors , and other funding agencies ) to understand what
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bankable projects are . As a start , they can access project preparation money and commercial loans . Then also draw in grants , soft loans , guarantees , and credit enhancement where possible ( in a typical sensible mixed-finance way ). Well-run entities can be creative and even issue bonds and facilitate PPPs where appropriate . The sector should realise that ‘ wastewater is a business ’ with multiple revenue streams , such as the selling of treated wastewater to industries ( for example , Ethekwini metro and Mondi ).
If the South African water institutions can operate on sound governance principles and keep the basic principle in mind that ‘ If you have good cash flows , you can raise money ’, sufficient funds will be attracted to build and properly maintain the much-needed water and sanitation infrastructure . u
For municipalities and water
boards that have sufficient
capacity and a reasonable
credit rating , it is proposed
that support be provided for
contract management and
project preparation capability .
About the author
Helgard Muller is a regular contributor to Water , Sewage and Effluent ( WSE ). His vast knowledge in policy and regulations while at the Department of Water and Sanitation adds huge value to WSE .
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