Utility Corporatization for Enhanced Efficiency
Summary
To enhance the efficiency of its water and sanitation service provision (and address the challenges associated with privatization), the City of Johannesburg created a corporatized water utility, Johannesburg Water (JW), answering to the City as its sole shareholder yet run by a Board of Directors as though it were a privately-owned company.
In the late 1990s, post-apartheid South African cities struggled to provide efficient and equitable water and sanitation services to their growing populations. The legacy of apartheid rendered many cities segregated spatially and socioeconomically along racial lines, with immense disparities in terms of access to public services (such as water and sanitation) already present between the different areas (Esposto, 2018). Johannesburg, in particular, saw an increasing population that remained divided geographically along racial lines, with poorer, predominantly Black areas (or 'townships') largely lacking clean, safe and affordable access to water (Smith, 2006). Additionally, rezoning that occurred post-apartheid redefined many urban municipal areas, Johannesburg included, as many townships and other previously segregated areas became included into greater municipal boundaries. This posed a unique challenge for municipalities that were charged with the task of including these areas into formal service networks and dealing with limited resources and support from the national government in doing so.
While the urban poor remained largely excluded from access to water in the largely growing metropolis, residents in wealthier areas were also met with relatively inadequate service provision, as a result of decaying infrastructure and other organizational problems that were characteristic of many of the city's utilities (Smith, 2006).
In 1996, South Africa adopted the Growth, Employment and Redistribution program, which effectively re-centralized (on a national level) financing mechanisms for water and sanitation service delivery but decentralized the responsibility, leaving local utilities with more responsibilities and less resources. National funding for essential services (e.g. water and sanitation) was cut by 85% between 1991 and 1997, thereby exacerbating the challenges already present in water and sanitation service provision throughout many South African cities (Smith, 2006). The overarching context of fiscal austerity resulted in a significant effort (both by local and national government actors within South Africa) to seek alternative models for service provision. Privatization was discussed as an option but, ultimately, deemed too politically and socially risky 1 for implementation; corporatization was chosen as a compromise model (Smith, 2006).
Intervention
Faced with a number of organizational, financial and institutional problems in this period, the City of Johannesburg implemented the iGoli 2002 model to address key problem areas in service provision. As part of iGoli 2002, the city corporatized its water and sanitation utility, creating a separate entity, Johannesburg Water (JW), that would be run like a private corporation yet would answer to a single shareholder, the City of Johannesburg (Smith, 2006).
In 1999, Johannesburg appointed a city manager with a mandate to form a team that would help resolve the financial and organizational problems the city's utilities faced in regard to equitable and efficient service provision. The iGoli 2002 model was introduced to address five key problem areas, specifically: financial stability, service delivery, frameworks of accountability, administrative efficiency and political leadership (Smith, 2006). The central theme of iGoli 2002 was creating a new institutional design that would address the factors underlying the city's financial crisis, which stifled the efficiency of public services (Smith, 2006).
The iGoli model centered around a decentralized approach to service delivery, that would ensure financial ring-fencing and institutional autonomy for the utility (Smith, 2006). The model created a dividing line between 'client' and 'contractor': the City of Johannesburg would be considered a 'client' that would determine the service delivery requirements, and 'contractors, or utilities, would be given the mandate to meet these specific requirements (Savage et al., 2003). Fourteen utilities were 'corporatized' and set up as independent companies that would manage larger service functions. Initially, a contract management unit (CMU) was established in 2001 within the Mayor's Office to oversee the operation of the contractors on behalf of the client (city), by ensuring that contractors had the necessary business acumen to fulfill their mandates (Smith, 2006). The CMU also defined tariffs that were in line with the city's policies and retained the authority to apply penalties to non-compliant customers (Smith, 2006). Ultimately, however, the CMU ended up playing more of a facilitator role and less of an overseer role, so an additional Shareholder Unit (SHU) was set up within the CMU to provide a clear distinction between the city's role as both client and overseer (Smith, 2006). The SHU was to be responsible for corporate governance and financial oversight of each of the newly corporatized entities, whereas the CMU was to serve as a monitoring service to ensure that delivery standards of the contractors were in line with municipal and national legislation (Smith, 2006).
Johannesburg Water (JW), one of these newly 'corporatized' utilities, was incorporated in 2000 and commenced business on January 1, 2001 (Johannesburg Water, n.d.). The utility was designed to 'run like a business' with a Board of Directors that would oversee daily operation of the company and ensure its commercial viability. However, the company would have only one shareholder, the City of Johannesburg Metropolitan Municipality, which would safeguard the public's interest (i.e. ensure social viability) (Smith, 2006). In 2001, the City of Johannesburg Metropolitan Municipality and JW signed the Sale of Business Agreement and the Service Delivery Agreement (SDA), thereby transferring the City's water and sanitation assets and 2,500 employees to the utility (Smith, 2006).
Challenges
Although the corporatization of Johannesburg's water utility did result in certain gains in efficiency, the institutional transition was not without its challenges. One of the primary challenges JW has faced since its incorporation has been the ability to retain autonomy over billing and revenue collection functions. Although the Service SDA of 2001 agreed to transfer billing functions from the City to the newly established JW, political unease prevented the transfer of this crucial responsibility. In its first years of operation, Johannesburg Water only had control of revenue collection over the city's top 14,000 customers, which amounted to only 30% of the utility's total revenues. After three years of operation, however, the City transferred 60% of customers to the utility, allowing JW to execute meter-reading, pre-edits of billing, credit control and revenue collection functions, as initially agreed upon in the 2001 Service Delivery Agreement (Smith, 2006).
In its initial stages, the company's lack of autonomy in regard to revenue collection resulted in significant difficulties in ensuring commercial viability, as it rendered JW powerless in addressing significant commercial losses resulting from erroneous billing patterns and high non-payment levels (Smith, 2006). These challenges were resolved as the utility gradually gained the city's trust and the city continued to transfer revenue collection responsibilities for more of the population (Smith, 2006). Today, JW has a revenue collection rate of approximately 82%, which is only slightly below their target of 86% (JW, 2018).
In addition to the institutional challenges faced by Johannesburg Water, critics of the utility have pointed out the utility's inability to address the socioeconomic and racial disparities that propagate inequality of water distribution in Johannesburg (Bond & Dugard, 2008; Smith, 2006).
Equity remains a primary concern for a number of reasons. Although South Africa's block tariff and free water policy exist to make water affordable to the poor, the policy fails to consider the demographic dynamics of urban poverty. Typically, residents in poor urban neighborhoods live in high-density households in townships or informal settlements and share a single water tap. As a result, the rates of water consumption in such dwellings are necessarily higher than those in single-family dwellings in Johannesburg's wealthier areas (Smith, 2006). Furthermore, the forced installation of water-saving technologies in such households may have adverse public health effects, as residents may not receive the daily minimum of water necessitated by public health standards (Smith, 2006).
Ultimately, like most sectors in South Africa, JW is subject to significant debates regarding the utility's capacity to reconcile financial viability with social concerns, such as access and equity. As such, the utility has been the topic of much contention and debate over equality and access to water in Johannesburg in recent years (Smith, 2006; Veriava, 2019).
In 2003, JW initiated the highly contentious Operation Gcin'amanzi (OGA) in Soweto, one of Johannesburg's poorest townships. Soweto was targeted due to its low payment rate of 13% and high rate of water losses (Smith, 2006). JW rolled out various methods for water conservation in the township, including the forcible installation of prepaid meters. Between 2003 and 2007, JW managed to install 98,805 meters and set down 116 kilometers of secondary pipeline through OGA (Veriava, 2019). The installation of prepaid meters, however, remained highly controversial and faced significant public backlash as the initiative was perceived to disproportionately target Johannesburg's poorest residents. In 2007, a High Court ruling deemed it unconstitutional (Veriava, 2019). Although JW quickly appealed the decision, it was too late: the project had been dissolved and staffing suspended in 2007 and water meters were soon bypassed. Shortly thereafter, water losses returned to their pre-OGA levels (Veriava, 2019).
More recently, despite the relative gains in efficiency the corporatized utility has achieved since its initiation in the early 2000s, JW still falls short of many of its annual targets. Response times, compliance with standards of effluent from wastewater treatment plants and provision of basic services to communities in informal settlements fell below their targets 3 for the 2017/18 fiscal year (CoJ, 2019). Furthermore, access to basic services remains an issue in the majority of Johannesburg's informal settlements. Presently, over 60% of households in Johannesburg's informal settlements lack access to basic sanitation (that is to say, only 69,936 of the total 183,895 households in informal settlements have access to basic sanitation), which poses an ongoing issue for both JW and the City of Johannesburg (JW, 2018).
Outcomes
JW continues to operate as a corporatized water utility. The utility has a unitary Board, consisting of Executives and Non-Executive Directors, which meets on a regular basis and retains complete control over the Company. JW's Board of Directors is accountable to JW's sole shareholder, the City of Johannesburg Metropolitan Municipality, and, transitively, to the stakeholders (i.e. citizens of Johannesburg) (Johannesburg Water, n.d.).
Presently, the utility operates on an area of 1,650 square kilometers and over 2 topographical drainage basins for wastewater services. Furthermore, the utility possesses: 127 reservoirs and water towers, 10 network depots, 4 laboratories, 37 water pump stations, 12,069 kilometers of water distribution networks, 11,621 kilometers of wastewater networks, 38 sewer pump stations, 11,576 kilometers of sewer collector networks and 6 wastewater treatment facilities (Johannesburg Water, n.d.). JW procures 1.6 billion liters of potable water per day from Rand Water (the bulk supplier for Gauteng province) and reticulates it to Johannesburg's population (Johannesburg Water, n.d.).
Johannesburg's decision to corporatize their water utility resulted in significant gains in efficiency in terms of water and sanitation service delivery (Smith, 2006). As a result of corporatization, JW has been able to increase service provision and customer satisfaction while minimizing the risks associated with privatization (Smith, 2006). In its first two years of operation (from 2001 to 2003), the utility was able to reduce the rate of non-revenue water from 42% to 35%, increase water supply service coverage from 94% to 97.2% and increase sewer coverage in formal settlements coverage from 86% to 89.3%. From 2001 to 2003, the utility increased the total population served by over 263,000 people in the City of Johannesburg Metropolitan Municipality (USAID, 2006).
Johannesburg Water has continued to improve coverage for both water supply and sanitation services, especially in informal settlements which have historically lacked access to these services Today, nearly 98% of the city, including its informal settlements, has water supply coverage (JW, 2018). In 2017/18, JW also provided 620 households in informal settlements with basic sanitation services, thereby increasing coverage in informal settlements to 38.03% (JW, 2018). Furthermore, the utility boasts some of the highest quality water in South Africa, having achieved 99.9% compliance with drinking water quality and 100% compliance to sludge breakage in wastewater treatment plants in 2017/18 (CoJ, 2019; JW, 2018). JW also over-achieved in terms of its infrastructure upgrade goals, having replaced 45.4 kilometers of sewer pipes, 135.5% more than the replacement target of 33.5 kilometers (JW, 2018). Finally, the water utility was able to increase revenue from R 8.6 million (approximately 513,000 USD) in 2016/17 to over R 10 billion (approximately 5.96 million USD) in 2017/18 (CoJ, 2019).
Ultimately, although Johannesburg Water has been the focal point of controversy since its initiation, the utility has been able to make gains in efficiency in areas in which previous, 'traditional' utilities have struggled. Furthermore, the corporatized model in which the City of Johannesburg Metropolitan Municipality is the utility's sole shareholder, is still indicative of a viable 'compromise', that is, an alternative to privatization that ensures commercial viability while safeguarding public interests.
References
Utility Corporatization for Enhanced Efficiency
Summary
To enhance the efficiency of its water and sanitation service provision (and address the challenges associated with privatization), the City of Johannesburg created a corporatized water utility, Johannesburg Water (JW), answering to the City as its sole shareholder yet run by a Board of Directors as though it were a privately-owned company.
In the late 1990s, post-apartheid South African cities struggled to provide efficient and equitable water and sanitation services to their growing populations. The legacy of apartheid rendered many cities segregated spatially and socioeconomically along racial lines, with immense disparities in terms of access to public services (such as water and sanitation) already present between the different areas (Esposto, 2018). Johannesburg, in particular, saw an increasing population that remained divided geographically along racial lines, with poorer, predominantly Black areas (or 'townships') largely lacking clean, safe and affordable access to water (Smith, 2006). Additionally, rezoning that occurred post-apartheid redefined many urban municipal areas, Johannesburg included, as many townships and other previously segregated areas became included into greater municipal boundaries. This posed a unique challenge for municipalities that were charged with the task of including these areas into formal service networks and dealing with limited resources and support from the national government in doing so.
While the urban poor remained largely excluded from access to water in the largely growing metropolis, residents in wealthier areas were also met with relatively inadequate service provision, as a result of decaying infrastructure and other organizational problems that were characteristic of many of the city's utilities (Smith, 2006).
In 1996, South Africa adopted the Growth, Employment and Redistribution program, which effectively re-centralized (on a national level) financing mechanisms for water and sanitation service delivery but decentralized the responsibility, leaving local utilities with more responsibilities and less resources. National funding for essential services (e.g. water and sanitation) was cut by 85% between 1991 and 1997, thereby exacerbating the challenges already present in water and sanitation service provision throughout many South African cities (Smith, 2006). The overarching context of fiscal austerity resulted in a significant effort (both by local and national government actors within South Africa) to seek alternative models for service provision. Privatization was discussed as an option but, ultimately, deemed too politically and socially risky 1 for implementation; corporatization was chosen as a compromise model (Smith, 2006).
Issue
Intervention
Faced with a number of organizational, financial and institutional problems in this period, the City of Johannesburg implemented the iGoli 2002 model to address key problem areas in service provision. As part of iGoli 2002, the city corporatized its water and sanitation utility, creating a separate entity, Johannesburg Water (JW), that would be run like a private corporation yet would answer to a single shareholder, the City of Johannesburg (Smith, 2006).
In 1999, Johannesburg appointed a city manager with a mandate to form a team that would help resolve the financial and organizational problems the city's utilities faced in regard to equitable and efficient service provision. The iGoli 2002 model was introduced to address five key problem areas, specifically: financial stability, service delivery, frameworks of accountability, administrative efficiency and political leadership (Smith, 2006). The central theme of iGoli 2002 was creating a new institutional design that would address the factors underlying the city's financial crisis, which stifled the efficiency of public services (Smith, 2006).
The iGoli model centered around a decentralized approach to service delivery, that would ensure financial ring-fencing and institutional autonomy for the utility (Smith, 2006). The model created a dividing line between 'client' and 'contractor': the City of Johannesburg would be considered a 'client' that would determine the service delivery requirements, and 'contractors, or utilities, would be given the mandate to meet these specific requirements (Savage et al., 2003). Fourteen utilities were 'corporatized' and set up as independent companies that would manage larger service functions. Initially, a contract management unit (CMU) was established in 2001 within the Mayor's Office to oversee the operation of the contractors on behalf of the client (city), by ensuring that contractors had the necessary business acumen to fulfill their mandates (Smith, 2006). The CMU also defined tariffs that were in line with the city's policies and retained the authority to apply penalties to non-compliant customers (Smith, 2006). Ultimately, however, the CMU ended up playing more of a facilitator role and less of an overseer role, so an additional Shareholder Unit (SHU) was set up within the CMU to provide a clear distinction between the city's role as both client and overseer (Smith, 2006). The SHU was to be responsible for corporate governance and financial oversight of each of the newly corporatized entities, whereas the CMU was to serve as a monitoring service to ensure that delivery standards of the contractors were in line with municipal and national legislation (Smith, 2006).
Johannesburg Water (JW), one of these newly 'corporatized' utilities, was incorporated in 2000 and commenced business on January 1, 2001 (Johannesburg Water, n.d.). The utility was designed to 'run like a business' with a Board of Directors that would oversee daily operation of the company and ensure its commercial viability. However, the company would have only one shareholder, the City of Johannesburg Metropolitan Municipality, which would safeguard the public's interest (i.e. ensure social viability) (Smith, 2006). In 2001, the City of Johannesburg Metropolitan Municipality and JW signed the Sale of Business Agreement and the Service Delivery Agreement (SDA), thereby transferring the City's water and sanitation assets and 2,500 employees to the utility (Smith, 2006).
Challenges
Although the corporatization of Johannesburg's water utility did result in certain gains in efficiency, the institutional transition was not without its challenges. One of the primary challenges JW has faced since its incorporation has been the ability to retain autonomy over billing and revenue collection functions. Although the Service SDA of 2001 agreed to transfer billing functions from the City to the newly established JW, political unease prevented the transfer of this crucial responsibility. In its first years of operation, Johannesburg Water only had control of revenue collection over the city's top 14,000 customers, which amounted to only 30% of the utility's total revenues. After three years of operation, however, the City transferred 60% of customers to the utility, allowing JW to execute meter-reading, pre-edits of billing, credit control and revenue collection functions, as initially agreed upon in the 2001 Service Delivery Agreement (Smith, 2006).
In its initial stages, the company's lack of autonomy in regard to revenue collection resulted in significant difficulties in ensuring commercial viability, as it rendered JW powerless in addressing significant commercial losses resulting from erroneous billing patterns and high non-payment levels (Smith, 2006). These challenges were resolved as the utility gradually gained the city's trust and the city continued to transfer revenue collection responsibilities for more of the population (Smith, 2006). Today, JW has a revenue collection rate of approximately 82%, which is only slightly below their target of 86% (JW, 2018).
In addition to the institutional challenges faced by Johannesburg Water, critics of the utility have pointed out the utility's inability to address the socioeconomic and racial disparities that propagate inequality of water distribution in Johannesburg (Bond & Dugard, 2008; Smith, 2006).
Equity remains a primary concern for a number of reasons. Although South Africa's block tariff and free water policy exist to make water affordable to the poor, the policy fails to consider the demographic dynamics of urban poverty. Typically, residents in poor urban neighborhoods live in high-density households in townships or informal settlements and share a single water tap. As a result, the rates of water consumption in such dwellings are necessarily higher than those in single-family dwellings in Johannesburg's wealthier areas (Smith, 2006). Furthermore, the forced installation of water-saving technologies in such households may have adverse public health effects, as residents may not receive the daily minimum of water necessitated by public health standards (Smith, 2006).
Ultimately, like most sectors in South Africa, JW is subject to significant debates regarding the utility's capacity to reconcile financial viability with social concerns, such as access and equity. As such, the utility has been the topic of much contention and debate over equality and access to water in Johannesburg in recent years (Smith, 2006; Veriava, 2019).
In 2003, JW initiated the highly contentious Operation Gcin'amanzi (OGA) in Soweto, one of Johannesburg's poorest townships. Soweto was targeted due to its low payment rate of 13% and high rate of water losses (Smith, 2006). JW rolled out various methods for water conservation in the township, including the forcible installation of prepaid meters. Between 2003 and 2007, JW managed to install 98,805 meters and set down 116 kilometers of secondary pipeline through OGA (Veriava, 2019). The installation of prepaid meters, however, remained highly controversial and faced significant public backlash as the initiative was perceived to disproportionately target Johannesburg's poorest residents. In 2007, a High Court ruling deemed it unconstitutional (Veriava, 2019). Although JW quickly appealed the decision, it was too late: the project had been dissolved and staffing suspended in 2007 and water meters were soon bypassed. Shortly thereafter, water losses returned to their pre-OGA levels (Veriava, 2019).
More recently, despite the relative gains in efficiency the corporatized utility has achieved since its initiation in the early 2000s, JW still falls short of many of its annual targets. Response times, compliance with standards of effluent from wastewater treatment plants and provision of basic services to communities in informal settlements fell below their targets 3 for the 2017/18 fiscal year (CoJ, 2019). Furthermore, access to basic services remains an issue in the majority of Johannesburg's informal settlements. Presently, over 60% of households in Johannesburg's informal settlements lack access to basic sanitation (that is to say, only 69,936 of the total 183,895 households in informal settlements have access to basic sanitation), which poses an ongoing issue for both JW and the City of Johannesburg (JW, 2018).
Outcomes
JW continues to operate as a corporatized water utility. The utility has a unitary Board, consisting of Executives and Non-Executive Directors, which meets on a regular basis and retains complete control over the Company. JW's Board of Directors is accountable to JW's sole shareholder, the City of Johannesburg Metropolitan Municipality, and, transitively, to the stakeholders (i.e. citizens of Johannesburg) (Johannesburg Water, n.d.).
Presently, the utility operates on an area of 1,650 square kilometers and over 2 topographical drainage basins for wastewater services. Furthermore, the utility possesses: 127 reservoirs and water towers, 10 network depots, 4 laboratories, 37 water pump stations, 12,069 kilometers of water distribution networks, 11,621 kilometers of wastewater networks, 38 sewer pump stations, 11,576 kilometers of sewer collector networks and 6 wastewater treatment facilities (Johannesburg Water, n.d.). JW procures 1.6 billion liters of potable water per day from Rand Water (the bulk supplier for Gauteng province) and reticulates it to Johannesburg's population (Johannesburg Water, n.d.).
Johannesburg's decision to corporatize their water utility resulted in significant gains in efficiency in terms of water and sanitation service delivery (Smith, 2006). As a result of corporatization, JW has been able to increase service provision and customer satisfaction while minimizing the risks associated with privatization (Smith, 2006). In its first two years of operation (from 2001 to 2003), the utility was able to reduce the rate of non-revenue water from 42% to 35%, increase water supply service coverage from 94% to 97.2% and increase sewer coverage in formal settlements coverage from 86% to 89.3%. From 2001 to 2003, the utility increased the total population served by over 263,000 people in the City of Johannesburg Metropolitan Municipality (USAID, 2006).
Johannesburg Water has continued to improve coverage for both water supply and sanitation services, especially in informal settlements which have historically lacked access to these services Today, nearly 98% of the city, including its informal settlements, has water supply coverage (JW, 2018). In 2017/18, JW also provided 620 households in informal settlements with basic sanitation services, thereby increasing coverage in informal settlements to 38.03% (JW, 2018). Furthermore, the utility boasts some of the highest quality water in South Africa, having achieved 99.9% compliance with drinking water quality and 100% compliance to sludge breakage in wastewater treatment plants in 2017/18 (CoJ, 2019; JW, 2018). JW also over-achieved in terms of its infrastructure upgrade goals, having replaced 45.4 kilometers of sewer pipes, 135.5% more than the replacement target of 33.5 kilometers (JW, 2018). Finally, the water utility was able to increase revenue from R 8.6 million (approximately 513,000 USD) in 2016/17 to over R 10 billion (approximately 5.96 million USD) in 2017/18 (CoJ, 2019).
Ultimately, although Johannesburg Water has been the focal point of controversy since its initiation, the utility has been able to make gains in efficiency in areas in which previous, 'traditional' utilities have struggled. Furthermore, the corporatized model in which the City of Johannesburg Metropolitan Municipality is the utility's sole shareholder, is still indicative of a viable 'compromise', that is, an alternative to privatization that ensures commercial viability while safeguarding public interests.
Issues |
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Water Governance and Policy |
Solutions |
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Governance & Accountability |
References
Bond, P., & Dugard, J. (2008). Water, human rights and social conflict: South African experiences. Law, Social Justice & Global Development, 1(2008), 1-21.
City of Johannesburg (CoJ). (2019, January). City of Johannesburg Annual Report: 2017/2018 (South Africa, City of Johannesburg). Retrieved September 11, 2020, from https://www.joburg.org.za/documents_/Documents/Annual Reports/20172018/CoJ Annual Report 2017-18 _24 January 2019.pdf
Esposto, E. (2018). Beyond the Neoliberal Watershed. Johannesburg Water: a Case of Breakdown?
Johannesburg Water. (n.d.). About us: Johannesburg Water. Retrieved September 08, 2020, from https://johannesburgwater.co.za/about-us/
Johannesburg Water (JW). (2018). Integrated Annual Report: 2018 (Rep.). City of Johannesburg, South Africa: Johannesburg Water (JW).
Johannesburg Water. (n.d.). Governance. Retrieved September 08, 2020, from https://johannesburgwater.co.za/about-us/
Savage, D., Gotz, G., Kihato, C., & Parnell, S. (2003). Strategic review of iGoli 2002: Report prepared for the City Manager’s Office. City of Johannesburg, Johannesburg.
Smith, L. (2006). Neither public nor private: Unpacking the Johannesburg water corporatization model. Geneva: UNRISD.
Veriava, Ahmed. "Non-revenue water and non-revenue life: A reflection on the making and mitigating of water losses in Johannesburg." African Studies 78.4 (2019): 590-608.
USAID. (2006). Johannesburg Water, South Africa (Rep.). Retrieved September 11, 2020, from USAID: Good Practice in Corporatization, Case Studies on Key Characteristics of Corporatized Utilities website: http://www.energytoolbox.org/library/water_utility_corporatization/case_studies/JNB_Case_Study.pdf