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100.0
90.0
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70.0
60.0
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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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