S78 ASSESSMENTS CASE STUDY REPORT MOSES KOTANE LOCAL MUNICIPALITY THEME 3: MULTI-JURISDICTIONAL S78s AND SOLUTIONS & LINKS WITH INSTITUTIONAL REFORM 1. Introduction Moses Kotane Local Municipality (MKLM) – NW 375 – is situated in the North West of the Bojanala District municipal area. It is presently the only WSA of the area that has undertaken its s78 process. The municipal area is characterised by low rainfall, uneven distribution of water resources and is distanced from main economic centres. The 2001 Census reveals a base population of 236, 838. There is a 51% unemployment rate in the area which impacts upon affordability for basic services. Approximately 75% of the households function at below the poverty margin. 36% of the population receives water at below RDP levels and 69% receive sanitation below RDP levels. 40% of the population is concentrated in rural and peri-urban communities, while 55% reside in rural settlements spread throughout the area, the remaining 5% reside in formal urban areas of Mogwase and Madikwe. The water supply infrastructure comprises the Vaalkop Dam Regional Bulk Water Scheme (representing the largest single water source to MKLM); regional bulk surface water schemes utilizing Pella and Madikwe Dams; and individual boreholes and groundwater schemes. MKLM was appointed as WSA in its area in terms of an authorization in January 2003. The LM has completed its s78(1) assessment . The Report has received Council Resolution. MKLM is currently in the process of building capacity to assert its authority as WSA. The transfer process of DWAF assets has been initiated. Currently, water services are governed by interim agreements with Botshelo Water Board and Magalies Water Board. There are also rudimentary community based schemes that are operated by MKLM in the former Madikwe District. 2. Problem statement 1 Service provision had been occurring through an external mechanism where two water boards provided bulk and retail services to MKLM’s jurisdictional area. The trigger to MKLM’s s78 process was the DWAF asset transfer which led to an existing municipal service or part of that service to significantly upgraded , extended or improved, where such upgrade, extension or improvement is not addressed in any existing service delivery agreements, in terms of s77(b)(iii) of the Systems Act, as amended. During MKLM’s formulation of its WSDP, which has been finalized and recommendations have been made to EXCO Council for formal adoption, an internal mechanism was expressed as the preferred option for service delivery. Within this scenario, MKLM will have to reach agreement with Rustenburg LM for the provision of bulk water supplies from the Vaalkop system via regional bulk pipelines crossing MKLM, to Rustenburg communities bordering MKLM. This is discussed in more detail under sections 3.4. and 4. below. Indicative of MKLM’s institutional context, the Status Quo assessment reveals: The WSA has existing arrangements with 2 WSPs: Magalies Water Board provides services in the eastern region of MKLM (Mankwe District), while Botshelo Water Board services the western area (Madikwe District). Within the Madikwe area, MKLM operates community based rudimentary schemes, supplying fuel and electricity for the borehole pumps. The areas serviced by the respective WSPs are distinctly different. The western portion of MKLM comprises mostly rural communities. Majority of the population is served at below RDP levels, there is a high unemployment rate, and there are water shortages due to insufficient water resources. By comparison, the eastern region comprises a mixture of formal urban and peri-urban settlements, and rural communities. The water resources in this area are the Vaalkop Scheme and regional groundwater schemes, and local boreholes operated as community based schemes, supported by Magalies Water. Interim water services agreements are in place between MKLM and the 2 water boards. DWAF is not a signatory to these and they are due to expire in June 2005. New agreements will need to be concluded in the event of adoption of an external option. The following problem areas exist in relation to capacity of Botshelo Water Board: Botshelo provides services to mainly rural population in the western area of MKLM. Its movable assets are more than eight years old, has a zero book value and will have to be replaced. Assets 2 ringfenced for MKLM is estimated at R100 000. The water supply in the area is unsatisfactory due to insufficient water resources and service backlogs. There is ineffective cost recovery and excessive water use in the area. The challenges include difficult access, high poverty, unreliable water resources, low cost recovery and aging infrastructure. Accurate information is not available on the total number of personnel dedicated to MKLM. The total O&M cost for service provision to MKLM is R6.3 million p.a. By contrast, Magalies Water supplies bulk and retail water services to MKLM’s rural and urban consumers in the eastern area, through extensive and sophisticated regional bulk water schemes with considerable material resources and regional technical expertise. It also operates a number of regional groundwater schemes and community based rudimentary schemes for MKLM. The water supply situation is above average with 75% of the population served at or above RDP levels. Most of the movable assets are less than five years old with a current book value after depreciation at approx. R1000 000. In the rural areas, challenges do exist due to the nature of the area. There is a total number of 79 personnel dedicated to MKLM. The total O&M cost for MKLM consumers stands at R33.7 million p.a. 3. How they approached the problem MKLM assessed the options for service delivery and found the following to be available: 3.1. Option 1: Maintaining the status quo 3.1.1. The advantages would be: The required resources and expertise are provided by the existing WSPs (water boards) The WSPs are responsible for providing the necessary support to the WSA 3.1.2. The associated risks are: The current institutional arrangements are complex and fragmented, leading to duplication and inefficiencies 3 The WSA has no direct link to its customers Insufficient financial transparency and control over the WSPs The performance of the current arrangement is also influenced by the competencies of the water boards to provide efficient and adequate water services for all; the terms of the Water Services Agreements; the ability of the WSA to monitor performance of individual WSPs; and enforce contracts. 3.2. Option 2: MKLM performing as WSP (internal mechanism) In terms of the internal option, MKLM would be responsible for managing all aspects of water and sanitation services within its jurisdiction. The model for developing an appropriate management structure would be based on geographic considerations (where management structures are arranged on a regional basis); functional criteria (where similar schemes are grouped together and managed as groups); political considerations (where the services are managed according to political provincial, municipal and ward boundaries); and a combination of the above (where the management structure would be split along a regional basis, differentiating between areas served by the distinct supply infrastructure). The management style and personnel requirements for each management area would be dependant upon type and level of service; water resources; infrastructure; geophysical factors; and the consumer’s socio-economic profile. MKLM’s current initiative is to develop a Spatial Development Framework (SDF) to ensure the most optimal management structure and that individual management areas coincide with defined boundaries. 3.2.1. Advantages WSA has control over financial aspects of service provision Direct interaction with WSA and consumers (closer alignment with municipal goals and vision) Capacity building would support other functions of MKLM Potential financial savings by reducing redundancies and inefficiencies, and decrease in overhead costs 4 3.2.2. Risks Requires sufficient capacity to be built over a short time Negotiations with organized labour must occur urgently Initial establishment costs: acquiring assets and equipment; staff transfers from current WSPs; internal restructuring; and capacity building Need to reach agreement and coordination with consumers outside MKLM that are supplied from the Vaalkop regional water scheme. 3.3. Option 3: Large external organization as single WSP (External mechanism) This option is an enhancement of the status quo by consolidating all functions of the current WSPs into one organisational structure. This is viewed as a more effective option that would lead to savings for MKLM by employing economies of scale, increasing efficiency and reducing administrative costs. The chosen WSP would be responsible for delivering adequate and affordable water and sanitation services to the entire area of MKLM. Within this context, the WSP would be responsible for a wide range of services including regional and local bulk water supplies, O&M of rural groundwater schemes, retail services to individual consumers, implementing WC/WDM measures, metering, billing, revenue collection, and monitoring the water resources. The WSP’s functions and duties would be regulated by a detailed Water Services Provision Agreement. 3.3.1. Advantages Required resources and expertise would be provided by the WSP Reduced costs due to economy of scale Reduced administrative, monitoring, and management burden on WSA over single entity responsible for all aspects of water and sanitation services. 3.3.2. Risks WSA has no direct links with consumers. 5 WSA has lesser control over financial aspects of service provision in comparison to the internal option (Option 2) Negotiations with organized labour must occur in relation to future of applicable personnel currently employed A careful, time-consuming and challenging procurement process for appointment of the WSP. The success of this option is primarily dependant on the WSP’s competency and WSA’s ability to effectively monitor performance and take action in terms of the WS Agreement. 3.4. Option 4: Combined External and Internal WSP functions This option entails a combination of internal and external options for service delivery. The current WSP would retain responsibility for the operation of the regional bulk supply infrastructure serving Vaalkop regional water scheme. MKLM would be responsible for all other aspects of water services, through an internal mechanism, including operation and maintenance of groundwater schemes, functioning as bulk water provider in areas not served by regional water schemes, retail services throughout the municipal area and provision of sanitation services including operation of sewage treatment facilities. There would be three separate management areas (due to uniqueness of each area), managed through the combination of external and internal mechanisms to optimise efficiency. In terms of this option it is proposed that the operation of the Vaalkop Dam WTW and regional bulk water supply infrastructure be managed by the current WSP (Magalies Water) while water distribution, retail and sanitation be undertaken as an internal option by MKLM, with a substantial staff transfers from existing WSPs. The internal option in this case would provide MKLM with control over steady and reliable income from its commercial and industrial consumers. The major advantage of providing water services through internal mechanisms in the area is direct involvement of MKLM and interaction with the individual communities. Also a certain 6 degree of financial savings may be achieved by streamlining various activities currently performed by current the WSP in the area. 3.4.1. Advantages Promotes community empowerment by delivering services through community based schemes WSA has control over financial aspects of service provision Direct interaction between WSA and consumers Builds capacity within MKLM, providing support for other functions and activities as well Potential for savings from reduced duplication and overhead costs Outsourcing function of regional bulk water service provision will reduce administrative burden on MKLM 3.4.2. Risks Need to build sufficient capacity within MKLM over a short time Urgent negotiations with organised labour must be undertaken. Should negotiations be unsuccessful interim arrangements will need to be made. Initial establishment costs include acquiring of assets and equipment, costs associated with staff transfers, internal restructuring and capacity building Negotiations with commercial consumers in MKLM and Rustenburg LM must be concluded. These influence the final outcome of the process An important exercise was undertaken towards determining the direct and indirect costs associated with each option. The outcome was as follows: Option 1 (Status Quo): R40 036 606 Option 2 (Internal): R36 366 909 7 Option 3 (External): R38 668 713 Option 4 (Combination): R37 803 712 The costs represent water services only as sanitation services provided to the majority of the MKLM area was of a rudimentary nature such that it would only have a marginal impact on the cost comparison. From the exercise it is found that maintaining the status quo would be the most expensive option, however the above costs exclude initial establishment costs. This alters the picture, since initial establishment costs would not be applicable to the status quo option. Further, MKLM finds that the appropriate option should not be purely dependant upon financial consideration, but must also take account of legal implications, HR requirements, existing capacity and the needs and expectations of the consumers. Option 4 was expressed as the preferred option, ie bulk supply would occur via a single external WSP (Magalies Water) and MKLM would take be more extensively investigated though the s78(3) process. over all other aspects of service delivery through an internal option. This combination option would Subsequent to an analysis of the specific options available (as set out above), MKLM set about identifying critical issues that have arisen from the exercise that need urgent address. These are: gaps in information regarding the status quo (eg. incomplete HR information from Botshelo Water; inaccurate O&M costs for a number of schemes in Magalies Water area of supply); human, financial and material resource requirements associated with each option needs in-depth evaluation; to fully assume its role as WSA, MKLM must develop the necessary management structures as soon as possible; municipal by-laws and credit control policies need to be finalised; asset transfer agreement with DWAF needs to be concluded; strategy to create community awareness and public participation process; establish and support community based water committees. 4. Issue/theme focus The case study illustrates the complexity of the status quo and the need for a more creative option. Option 4 provides for this. The combination of an internal and external mechanism involves the current external WSP retaining responsibility for the operation of the Vaalkop Dam WTW and regional bulk water supply infrastructure, while MKLM assumes responsibility for operation of all other aspects of distribution and retail water and sanitation service 8 provision. The reasoning behind the envisaged arrangement is that since the complexity and sophistication of the regional bulk supply infrastructure serving MKLM’s area requires experienced personnel to manage and operate such a system and that the regional bulk supply scheme is located outside MKLM’s boundaries, the municipality cannot assume ownership and operation of the scheme without capacity and reaching agreement with all other parties involved. The administrative burden, coordination, frequent negotiations and associated additional responsibilities would not suit MKLM’s capacity context, and falls outside the scope of the municipality’s core functions. The more practical arrangement is to secure an agreement between the various WSAs and Magalies Water, where the water board will be appointed as regional service provider managing operation of bulk water supply from the Vaalkop WTW. By MKLM providing retail services through an internal mechanism, there would be closer interaction between WSA and communities. This would enhance efforts to improve levels of service and it would eradicate the present uncertainty around payment to operators of individual groundwater schemes. It is anticipated that such operators would be drawn from local communities, while the technical and administrative staff will be based at regional offices to be established in central locations with reasonable access for outlying villages. Vigorous capacity building will need to occur within MKLM for success with this option. A more in-depth analysis of this combination option will be undertaken during the s78(3) process. 5. Lessons learnt The s78 process is greatly facilitated by internal commitment. There is a need to have direct involvement and support from political and official levels from inception, more especially in the case of the preferred combination/hybrid option of internal and external mechanism, which includes a regional approach to water services for all WSAs in the area. MKLM has inadequate capacity to undertake water services on a regional basis, thus will maintain retail services within its area by continued functioning of a Department (internal mechanism), while bulk supply would occur via a single external regional WSP, Magalies Water (external mechanism) 9 A practical approach that calls for a regional arrangement is to secure an agreement amongst the various WSAs and Magalies Water, where the water board will be appointed as regional service provider, managing operation of bulk water supply from the Vaalkop WTW. Adequate fore-planning must occur with regard to securing information on the status quo, especially when it involves various institutions from which information is required. Cooperation and co-ordination is essential amongst all relevant WSAs. For further information please contact: Moses Kotane LM on 014 553 2947 Or 1. Rudy Bosman (Legal Advisor to MKLM S78/WSDP) 0832500569 2. Johan Potgieter (S78 Project leader) 014-5556321 / 0828298273 3. Jurie Vorster (Bojanala Municipality PIMSS- Legal Support) 0827840839 4. Mary Mokoena (SALGA WS Co-ordinator) 0829082751 10