Getting consumer buyin for prepaid utilities

Getting consumer buyin for prepaid utilities Presenter: Roland Govender Syntell Networks (Pty) Ltd

Overview • Who is Syntell? • Some case studies: • Electricity (Cape Town) • Water (Madlebe, Johannesburg, Kannaland) • Lessons

Background • Syntell among the first companies to develop prepayment systems • Current installed base: • Over 100 municipalities • Over R80m electricity sales per month • 1.5m transactions per month • 400,000 meters in Cape Town alone

Electricity: Cape Town • Early ’90s: Cape Town residents billed for electricity consumption • Issues familiar to most municipalities: • High levels of arrears and bad debt • Cycles of disconnection and reconnection • High administrative costs • Prepayment pilot scheme initiated 1992

Cape Town key factors • Councillors and senior officials got first meters • Rollout to Hanover Park implemented in partnership with a marketing firm • Meters on application only (voluntary) • No charge for meters  • Waiting list of 50,000 by 1993 • 200-250 installations daily

Lessons from Cape Town • Demand for meters closely linked to rollout of vendors • All new houses built with prepayment meters installed • Meters were installed free of charge until 2000: incentive to convert • SMS and Internet purchases offer additional convenience

What consumers like • Monitor and control consumption daily • Buy ahead to cover extended absences • Tenants can’t leave with unpaid bills • No need to admit a meter reader • Accurate readings guaranteed • Easier budgeting • Buy units when there is cash, instead of saving for lump sum payments

Issues • Losses went up by 2% because of tampering • Managed with ad hoc inspection teams – motivates residents to report “faulty” meters • Prepayment discount desirable but not feasible

The picture today • Cape Town metro has around 380,000 meters installed • 65% of all domestic consumers • The reputation of the electricity department has improved – helped by change in truck livery (“Energy Dispenser Response Team”)

Water 1: Madlebe • Semi-rural informal settlement near Richards Bay • Nine public standpipes installed 1982 as a public health measure after cholera outbreaks • Prepayment meters attached starting in 1997 • Residents who couldn’t afford to pay started taking water from a nearby river • The result was SA’s largest outbreak of cholera: • From August 2000 - February 2002 113,966 people were infected • 259 died (compared to 78 in the two decades 1980-2000) • 6,000 l per month free water allowance introduced soon after

Water 2: Johannesburg • Johannesburg Water launched Operation Gcin’amanzi (‘conserve water’) to combat water wastage • Prepayment meters introduced as part of this campaign • First pilot project in Orange Farm; then Phiri in Soweto. • 6,000 kl per month free; then supply is cut off at the meter unless more units are bought. • Vociferous and high profile criticism followed:

From “Nothing for Mahala” – a research report by Public Citizen, the Anti-privatisation Forum and the Coalition Against Water Privatisation

Water 3: Kannaland

“Well received…” • First prepaid electricity meters installed Sept 1995 • Subsequently combined water and electricity meters installed in a new housing development • Currently 1,500 prepaid meters and 4,500 billed accounts • New meters are installed in all new housing, and on request by home owners • Issue: During power failures water is cut off. The municipality can either replace the meter or reinstall a conventional meter within 24 hrs

Lesson 1: Don’t target the poor • Installing first where arrears are highest makes administrative sense – but is a recipe for conflict and rejection • Perception that poorer households get unequal or unfair treatment leads to resistance • There are genuine advantages for wealthy users too -- sell these aggressively • Offer real choice, especially in the beginning. Application for meters should be genuinely voluntary and well-informed

Lesson 2: Don’t start with water • Access to clean water is essential to human health – electricity is a luxury by comparison • There are substitutes for electricity (eg paraffin and wood) – not for water • Some people genuinely can’t afford to pay • Payment for access to water exposes deep moral and ideological conflicts • Water is a bad starting point for prepayment

If you MUST start with water • Sensitivity, consultation and creativity are paramount: be prepared for protest • Some speculative suggestions: • Meter and release 6,000 l free allowance daily rather than monthly • Offer metered access inside people’s homes or yards and unmetered access at communal standpipes

Lesson 3: Get the tech right • Meters should very, very rarely break down • If they do break down, guarantee repairs within 24 hours • Online vending systems should very, very rarely be offline • What about a minimum service level agreement with customers? • Design meters for user friendliness -- especially for the elderly, illiterate, and the disabled

Lesson 4: Deliver on promises

Delivering • Convenience is one of the selling points – make sure you deliver • Vendors should be plentiful, easy to access, open at convenient hours – and always online! • Be creative about offering value added services • Eg 24/7 SMS purchases in Cape Town

Lesson 5: No extra costs • Prepayment shouldn’t cost consumers more • Free installation drove early adoption in Cape Town • Prepaid users should never pay more per unit than billed clients – and ideally less. Why not pass on some of the savings?

Thank You

Getting consumer buyin for prepaid utilities