WATER STORIES

JOHANNESBURG
MAnAgeMent contrAct

editoriAl

WATER STORIES johAnnesburg

JEAN-lOUIS cHAUSSAdE cEO Of SUEZ ENVIRONNEMENT

The WATER STORIES collection provides valuable insight on the services and contributions made in the contracts managed by SUEZ ENVIRONNEMENT, who have been providing water and wastewater services to local authorities since 1880. When SUEZ ENVIRONNEMENT signs a contract, our involvement goes far beyond the simple supply of services. To back local development, we work with the district's industrial networks in conjunction with regional suppliers, and make a contribution to the economic and social well-being of the community. Our policy of know-how transfer ensures the services are not only improved but also perpetuated.

In this issue of WATER STORIES, we take a closer look at the city of Johannesburg, whose municipal authorities were the first in South Africa to sign a management contract with a private operator, taking the strategic decision to corporatise its water and sanitation utility. When the contract ended, in 2006, Johannesburg Water was ranked the best large municipal water and sanitation utility in the South Africa. In addition to improving technical performance, the private operator transferred the requisite skills to the local management and instilled new corporate values at Johannesburg Water, based on efficiency and customer service, as well as empowerment of line managers. It achieved a complete financial turnaround of the utility. Read on, and learn more about this example of public-private partnership that shows how a management contract can bring significant and measurable benefits to the contracting authority.

bAckground

cHANGES Of A NEW ERA

Employee motivation was weak, with poor customer service as the norm. Capital investment projects ran into recurrent delays and cost overruns, and operational problems of the sewerage system had become a growing environmental concern.
The end of apartheid in South Africa ushered in enormous changes. For Johannesburg, these included a major administrative reorganisation combining multiple municipalities into new ones, and fully incorporating the townships. The fragmentation of responsibility within the municipality had created a culture with little accountability for results. Employee motivation was weak, with poor customer service as the norm. Capital investment projects ran into recurrent delays and cost overruns, and operational problems of the sewerage system had become a growing environmental concern. around a million people: - Middle and high-income households living in traditional urban neighbourhoods, with individual metered household connections - Mostly low-income households living in the townships (the largest being Soweto) who had individual un-metered connections and were billed at a flat rate for 20 m3 of water a month, regardless of their actual consumption - Poor households living in informal settlements, largely rural migrants living below the poverty level. While a minority had individual connections, most obtained water through communal standpipes or tank trucks. neglect as a result of poor staff motivation and the tradition among the population of refusing to pay utility bills as an act of civil disobedience during the apartheid era. There were other problems, due to the insufficient level of annual investment to keep up with population growth and take care of the backlog in service coverage in informal settlements.

fINANcIAl SITUATION
The municipal authorities were unable to properly assess the efficiency of the services because there was no monitoring of critical operational performance indicators. Finally, it was impossible to calculate the level of nonrevenue water (water put into the distribution system but not billed) due to deficiencies in the customer database.

AccESS TO WATER
In 2001 around 85 percent of the population of Johannesburg had access to piped water and sewerage services through a household connection. Another 8 percent had access to water through an communal standpipe. The rest of the population lacked access to adequate services. Residential customers fell into three categories, each representing

QUAlITy ANd EffIcIENcy Of SERVIcES

For the inhabitants with access to the services, the main problem was a lack of customer friendliness and responsiveness. For formal townships like Soweto, the infrastructure and services suffered from

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WATER STORIES johAnnesburg

THE MANAGEMENT cONTRAcT

The municipality of Johannesburg was the first in South Africa to sign a management contract with a private operator. The aim of this PPP was to leverage the expertise of an experienced operator for a few years in order to establish a viable, corporatised public water utility.
A five-year management contract with an international private operator was seen as the best way to meet these challenges. The selection process was launched in February 2000, after a prequalification of 7 consortia; the final choice based on the technical and financial bids was to award the contract to Suez consortium. The private consortium established a dedicated subsidiary, Johannesburg Water Management (JOWAM) to sign the contract, which started in April 2001 and ended in June 2006.

SHARING ROlES ANd RESpONSIBIlITIES

The management contract was based on a tripartite relationship between the municipality, Johannesburg Water and the private operator (JOWAM). The basic allocation of responsibilities was as follows: - Johannesburg Water was accountable for the delivery of water and wastewater services. The utilitys board of directors and its managing director were appointed by and represented the municipal authorities - The day-to-day management of the water and sanitation services was delegated to the private operator JOWAM, making it responsible for the utilitys overall performance - The municipality remained responsible for financing investments, for setting tariff levels, and for funding any potential shortfall due to excessive operating costs or insufficient revenues.

cONTRAcTUAl TARGETS ANd INcENTIVE STRUcTURE

The contract was a Performance-based Management Contract, because the private operators payment was to be linked to its performance. The payment structure had 3 parts: - A fixed management fee - A Part A variable incentive payment linked to contractual targets for improvements in performance (enhanced customer service, compliance with quality standards, better facilities maintenance, annual capital investment programme, development of human resources) - A Part B variable incentive payment linked to the X factor in the financial bid, representing the additional revenue collected during the life of the contract.

custoMer MAnAgeMent

More than of calls answered within less than

90%

30 SEcONdS
of water network repairs and sewer blockages completed within

80%

48 HOURS

"ONE cONTAcT" fOR IMpROVEd SERVIcES

The new customer service strategy was driven by the principles of having a single point of contact for customers and assigning clear accountability for following up on complaints.
Before the management contract, for the inhabitants with access to the services, the main problem was a lack of customer friendliness and responsiveness. Numerous complaints were received due to errors in water and sanitation bills. Frustrated consumers had become used to voicing their complaints in local newspapers. A new customer service plan launched by JOWAM just three months after the start of the contract, was based on the principles of having a single point of contact for customers and assigning clear accountability for following up on complaints: a 24-hour call centre was established to receive all customer complaints, six operational regions were created, with one depot or two, depending on the size of the region. The reorganisation produced good results over the life of the contract, with the response time for solving reported problems being gradually reduced by 30 percent. At the end of the contract, more than 80 percent of repairs on the water network were completed within 48 hours of notification, and more than 80 percent of sewer blockages were resolved within 24 hours.

QuAlitY

WATER STORIES johAnnesburg

BETTER cONTROl Of QUAlITy Of SERVIcE

The new management methods for controlling the quality of drinking water and the operation of wastewater treatment plants were key factors in helping to improve the quality of service.
dRINkING WATER QUAlITy
The quality of bulk water supplied by Rand Water has historically been satisfactory, but the city had a deficient quality control system such that less than 150 water samples a month were collected and analysed, only half the national standard of at least 300 samples a month. As far as water quality in the townships was concerned, there was no monitoring at all. The new management methods included all the townships in the water sampling routine and increased the frequency of the quality analyses. From the very first year of the contract, more than 500 samples a month were analysed, and the bacteriological compliance consistently exceeded 99 percent throughout the contract period.

ENVIRONMENTAl cOMplIANcE Of WASTEWATER TREATMENT plANTS

Before the start of the management contract, the compliance rating for wastewater treatment was only around 80 percent, there were ongoing problems with sludge treatment, and little attention was paid to economic efficiency. The line management was in the hands of technical experts, some of whom lacked adequate people skills. Because of cumbersome line reporting, the line managers, those making daily decisions affecting plant operation and compliance, lacked the means to take full responsibility for their systems and had little incentive to seek more efficient ways of doing things. A new management structure was established, giving more

responsibility to the line managers. The private operator put its worldwide network to good use, and brought in experts for short terms missions, to work closely with the line managers, and identify ways of improving operational efficiency. Agreements were signed with the federation of farmers allowing wastewater treatment plants to spread their sludge on private farms situated within a radius of 90 km. The number of accidental spills recorded at wastewater treatment plants fell from 646 in 2001/2002 to only 244 in 2005/2006. The compliance of the final effluent increased from around 80 percent to more than 95 percent at the end of the management contract, while the environmental compliance rate in terms of sludge disposal rose from 50 percent to 100 percent.

500 samples analysed

per month

Asset MAnAgeMent And inVestMents

A cOMpREHENSIVE INVESTMENT ANd A pREVENTIVE MAINTENANcE pROGRAMME

A modern and sophisticated asset management system, as well as a comprehensive programme of preventive maintenance were implemented, in order to quickly improve the efficiency of asset management.
Efficient asset management is essential for the effective operation of infrastructures. The municipal water and sanitation departments were notably weak in this area, performing little preventive maintenance and failing to properly supervise their subcontractors. This resulted in frequent breakdowns at pumping stations. In addition, civil engineering works were subject to delays and costs overruns. The first step in addressing these problems was to put together an asset register and a modern asset management system. With the support of asset management software, a comprehensive programme of preventive maintenance was implemented. In the last four years of the contract, breakdowns at pumping stations and reservoirs were reduced by 60 percent, down from 80 breakdowns a month to just 29. Although it was not responsible for financing investment, JOWAM was responsible for supervising the capital investment programme implemented by Johannesburg Water. Civil engineering works programmes were fully implemented during the contract. A new strategy for investment planning was also introduced. The private operator insisted that the utility's own staff were better qualified to evaluate its needs in terms of infrastructure expansion and rehabilitation than external consultants.

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WATER STORIES johAnnesburg

TRANSfERRING kNOW-HOW
Over and above improving technical performance, the private operator played an essential role as a driver for cultural change. A new dynamic was created in which the utilitys staff and the private operator truly worked together to turn the utility around.
REAl lOcAl EMpOWERMENT
JOWAM took over operations, mobilizing a team of 13 full-time managers. A strategic choice was made to rapidly transfer skills to Johannesburg Waters new managers so that they could replace the expatriate team as soon as possible. The JOWAM team was reduced to four managers in the third year of the contract, and then to just two in the last two years. In starting up Johannesburg Water, the first task was to transfer all the personnel in charge of water and sanitation services to the new utility. This was done with no layoffs. Greater empowerment of line managers and a reorganisation of work during standby periods (nights and weekends) helped reduce annual overtime by 24 percent. Measures were taken to reduce worker absenteeism, and operational safety was improved thanks to on-the-job training. A comprehensive capacitybuilding programme was implemented. Training targeted every level of employees, from management to field staff. Special emphasis was given to training in customer care, which was made mandatory for all the employees who had contact with customers.

non-reVenue WAter MAnAgeMent

A RElIABlE NETWORk
In the metered districts of Johannesburg, the volume of non-revenue water was only about 20 percent, while in the un-metered districts, the townships, the level of nonrevenue water was calculated to be 67 percent, due to excessive residential consumption and leaks on private property.
To counter physical losses, JOWAM implanted a modern system for monitoring water flows and non-revenue water (NRW) in the network. A complete telemetry system was installed, and continuous monitoring of reservoirs was introduced to prevent night overflows. Nine full-time leak detection teams were created and trained to regularly monitor the network and detect new invisible leaks. The average number of leaks repaired annually increased by 20 percent in relation to the baseline. By the end of the contract an active leak detection programme had been set up and a large part of the distribution network was checked every year. JOWAM, however, had little control over commercial losses, because the responsibility for meter reading, billing and collection were only partially transferred to Johannesburg Water from the municipal authorities. In the last two years of the contract, as the City transferred responsibility, JOWAM was able to set up efforts to reduce commercial losses. The status of accounts in the customer database was reviewed and adjusted when necessary and meters were checked for under-metering.

operAtion gcinAMAnzi
Soweto accounted for 162,000 connections, 90 percent of the water supplied to un-metered districts, and 30 percent of the bulk water purchased by Johannesburg Water. The municipal authorities, Johannesburg Water and JOWAM jointly decided to pursue a demand management programme in Soweto. Set up by Johannesburg Water in partnership with the municipal authorities in Soweto, this initiative was called Operation Gcinamanzi, a Zulu word meaning to conserve water. Sustainable results, however, were only achieved through a holistic approach combining technical, social, revenue collection, and tariff considerations. Individual meters were installed. Prepayment meters were identified by the municipal authorities as the best way of helping the customers to manage their water expenses on a day-to-day basis. In addition to the national free basic water policy (in South Africa the first 6 m3 per month are supplied free of charge) a special rebate of around 20 percent was applied to the general water tariff. The sanitation tariff was also revamped and a free basic sanitation allocation was created (in line with the free basic water allocation). Customers' debts were also written off over a 36 month period. Finally, to support behavioural change among customers, an exhaustive programme of community liaison and social intervention work was implemented. By the end of the management contract in June 2006, some 42,000 households in Soweto had benefitted from the project, representing approximately 20 percent of previously un-metered customers. Half the customers who received prepayment meters consumed less than the free monthly allocation of 6 m3. The other half had consumption rates averaging 13 m3, less than the 20 m3 meters of estimated consumption for which they had previously been billed, but now paid in advance for the portion above 6 m3.

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WATER STORIES johAnnesburg

AN EfIcIENT ANd SUSTAINABlE ENTITy

JOWAM achieved more than 90 percent of compliance with contractual targets every year, with clear improvements in customer service, environmental compliance and cost efficiency.
A MAJOR fINANcIAl TURNAROUNd
The financial situation of Johannesburg Water steadily improved during the management contract. It went from a net loss of around 25 percent of revenue in the first year of the contract to financial equilibrium in the fifth and final year. The largest part of gains was due to improvement in operational efficiency, coming from a combination of actions taken by JOWAM, as the reduction of commercial losses, increasing in the collection rate for large customers, containing the overall operating costs, despite the launching of new activities such as call center, the sludge management programme and the operation GcinAmanzi.

MOTIVATEd ANd QUAlIfIEd STAff

The Johannesburg Water staff became better qualified thanks to on-the-job training. The line managers became able to handle greater responsibilities and their effective empowerment created stronger motivation. The transfer of better operational practices from the international experts to the local staff, like reduction in electricity and chemical consumption in wastewater treatment, preventive maintenance programme, customer relations and asset management, was a key factor in the success of the transformation of the utility into an efficient and sustainable entity.

The most eloquent illustration of its positive impact is the fact that the National Benchmarking Initiative ranked Johannesburg Water as the best metropolitan water and sanitation utility in the country in both 2005 and 2006. Since the end of the contract in June 2006, Johannesburg Water has consistently achieved healthy financial results as well as a good operational performance.

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nAturAl resources Are not infinite. eAch dAY, SUEZ ENVIRONNEMENT (pAris: seV, brussels: seVb) And its subsidiAries deAl With the chAllenge to protect resources bY proViding innoVAtiVe solutions to industries And to Millions of people.

Million people, proVides WAsteWAter treAtMent serVices for 58 Million people, And collects the WAste produced bY 46 Million people. SUEZ ENVIRONNEMENT hAs 65,900 eMploYees And, With its presence on A globAl
scAle, is A Worlds leAder exclusiVelY dedicAted to enVironMentAl serVices. SUEZ ENVIRONNEMENT, A 35.4% Gdf SUEZ AffiliAte, reported sAles turnoVer of 12.3

SUEZ ENVIRONNEMENT supplies drinking WAter to 90

billion euros At the end of finAnciAl YeAr 2009.

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WATER STORIES johAnnesburg

SUEZ ENVIRONNEMENT 1 rue dAstorg 75383 pAris cedex 08 frAnce WWW.SUEZ-ENVIRONNEMENT.cOM

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June 2010

Design & Layout : 63com - Photo credits: Getty images - Gallo Images - Denny Allen, SUEZ ENVIRONNEMENT Photo library