South African Association of Water Utilities

1. South African Association of Water Utilities SAAWU PARLIAMENTARY PORTFOLIO COMMITTEE OF WATER AFFAIRS AND FORESTRY ON 08 SEPTEMBER 2004 SAAWU COMMENTS ON THE WATER SERVICES AMENDMENT BILL: AMENDMENT OF SECTION 30 OF ACT 108 OF 1977: 06 October 2004

2. South African Association of Water Utilities SAAWU 1. Preamble The Water Services Amendment Bill 2004 seeks to provide the necessary statutory authority for a water board as a statutory body, to operate outside of the borders of the Republic. The principle of parastatals and state-owned-enterprises operating extraterritorially is not something new to South Africa. Many of these entities such as ESKOM, Transnet, DENEL and so on have a long history of extensive business interests outside the borders of the Republic.

3. South African Association of Water Utilities SAAWU Preamble (cont) The need for national government, through the lead department (Executive Authority) and in conjunction with other departments, to provide specific statutory authority for and have oversight over extraterritorial activities is also recognized and acknowledged.

4. South African Association of Water Utilities SAAWU 2. Scope of Extra Territorial Activities • The engagement of water boards in activities outside the borders of the Republic has taken and or could potentially take various forms. The following examples broadly outline the scope of some of these engagements;

5. South African Association of Water Utilities SAAWU 2.1 Commercial/Business Activities (profit motive) • Where a water board acting on its own, or as part of a consortium or as a partner in a joint venture seeks out and engages in a business opportunity outside of the borders of the Republic for the specific reason of generating additional revenue and making a profit. This would typically be based on a solid business case and the utilization of the core competencies and capacity that the water board possesses. It would also typically require the deployment of skills/expertise and related financial resources extraterritorially.

6. South African Association of Water Utilities SAAWU 2.2 Support Activities (cost recovery) • Where a water board provides specific services to another party or agency outside the borders of the Republic with the specific intent of providing support and transferring expertise (skills and knowledge) to address specific needs. In these instances the primary objective is not to make a profit but to provide support on a basis where the full costs incurred by the water board are recovered. This type of engagement would typically be project or consultancy based, would have a limited time frame and would require limited deployment of skills/expertise and related financial resources extra territorially.

7. South African Association of Water Utilities SAAWU 2.3 Capacity Building Activities (no extra territorial financial implications) • Where a water board engages with and develops a relationship with a similar organization or entity outside the borders of the Republic in order to learn and exchange expertise (skills and knowledge) and build capacity (Institutional and people) on an agreed basis. This is typically done through the concept of developing “twinning” agreements and partnerships. The primary focus of this type of engagement would be capacity building and improving the effectiveness and efficiency of both parties.

8. South African Association of Water Utilities SAAWU Capacity Building Activities (no extra territorial financial implications) (cont) • This type of engagement could require limited deployment of skills/expertise (through short term staff transfers etc) but would have no extra territorial financial implications as the related costs are covered locally by the “Twinning” parties.

9. South African Association of Water Utilities SAAWU Capacity Building Activities (no extra territorial financial implications) (cont) It is proposed that the approval process as contemplated in section (3) and (4) of the Water Services Amendment Bill only applies to the activities as broadly outlined in 2.1 and2.2 and excludes “Twinning” partnerships.

10. South African Association of Water Utilities SAAWU • Practical Considerations 3.1 Timing of approvals Where the nature of the potential engagement of a water board extraterritorially is a commercial or business opportunity the ability of the water board to secure a relationship is determined by specific timelines and the ability to respond quickly. This is always the case with contractual opportunities and submission of proposals.

11. South African Association of Water Utilities SAAWU Timing of approvals (cont) The timing of the approval process as contemplated in section (3) and (4) of the Water Services Amendment Bill will therefore directly impact on the practical reality of a water board being able to respond in time to secure specific business opportunities. It is therefore proposed that a specific timeframe should thereforebe setfor the approval process contemplated in section (3) and (4) of the Water Services Amendment Bill

12. South African Association of Water Utilities SAAWU 4. Typical arguments Against Extra Territorial Activities There are sector stakeholders who raise a number of arguments against the engagement of water boards in activities outside the borders of the Republic. These arguments are typically centered on the following issues:

13. South African Association of Water Utilities SAAWU Typical Arguments Against Extra Territorial Activities(cont) • Given the service delivery challenges and massive backlogs for service delivery in South Africa how can a public sector organization justify using capacity and resources outside the country? • Some Water Service Authorities (municipalities) perceive that “their consumers are funding” activities performed outside the borders of the Republic through the water tariff.

14. South African Association of Water Utilities SAAWU Typical Arguments Against Extra Territorial Activities(cont) • Some Water Service Authorities (municipalities) argue that the authority for a water board to perform activities outside the borders of the Republic should be given by the Water Service Authorities (municipalities) served by that water board in the first instance.

15. South African Association of Water Utilities SAAWU 5. Counter Arguments The following counter arguments are raised in regard to those set out in paragraph 4. above; • Some of the more well established and capacitated water boards have built up highly specialized skills and capacity. Where this specialized skills and capacity can be leveraged and easily, cost effectively and quickly deployed to secure viable (profit making) business opportunities for a water board, without a negative impact on its primary activity in SA, this should be permissible as it:

16. South African Association of Water Utilities SAAWU Counter Arguments (Cont) • Enables the water board to secure additional revenue streams and improve business viability. • Contributes to a reduction of overall business risk. • Can generate profits that can be used to buffer tariff increases for consumers. • Ensures the optimal utilization of institutional capacity.

17. South African Association of Water Utilities SAAWU Counter Arguments (Cont) • Builds additional skills capacity and expertise. • Empowers, provides incentives for and motivates staff. • Gives South African institutions an international profile and enhance the image of the water sector and South Africa.

18. South African Association of Water Utilities SAAWU Counter Arguments (Cont) All of the above are important for the water board and are also in the direct interests of the municipalities served by the water board.

19. South African Association of Water Utilities SAAWU Counter Arguments (Cont) • The existing provisions of the WS Act as these relate to ring fencing of other activities and business risks are very specific and these provisions would apply to any business venture activities performed outside the borders of the Republic. • Compliance with these provisions and the regulatory oversight of the Executive Authority are considered more than sufficient to ensure that municipal customers and consumers do not “bankroll” any inappropriate business ventures of a water board, either within or outside of the borders of the Republic.

20. South African Association of Water Utilities SAAWU Counter Arguments (Cont) • The Water Service Authority/s served by a water board should manage the business relationship between the two entities in terms of a formal, balanced and fair contract that is specific to the business relationship between the two entities. SAAWU and SALGA have developed a Model Bulk Water Service Agreement for the sector.

21. South African Association of Water Utilities SAAWU Counter Arguments (Cont) • The responsibility of a Water Service Authority must be to ensure that such a contract is in place and then to specifically focus on managing performance and service delivery as agreed in terms of the contract. Undue influence of a municipality/s on the wider functioning and scope of business of a water board is inappropriate as this is the broader role of the Executive Authority.

22. South African Association of Water Utilities SAAWU Counter Arguments (Cont) • Water boards have substantial capacity, skills and expertise that can and should be deployed to benefit the country, the region, the continent and where appropriate the broader international community. South Africa is considered to be a leader in water services provision and its sector practitioners (managers, engineers, scientists and technologists) are recognized and acknowledged internationally for their achievements.

23. South African Association of Water Utilities SAAWU Counter Arguments (Cont) • It is seen as critically important that this South African expertise is able and prepared to make a meaningful contribution to relevant SADC, NEPAD and AU initiatives and objectives as well as global objectives where appropriate.

24. South African Association of Water Utilities SAAWU 6. Conclusion The South African Association of Water Utilities welcomes with appreciation the steps taken by the Minister to create a statutory mechanism to enable water boards to operate extraterritorially and requests that the proposals made in this submission are given consideration, to include once off exemptions to water utilities seeking such permission.

25. South African Association of Water Utilities SAAWU THANK YOU