The State-owned Development Bank of Southern Africa (DBSA) is spearheading a programme targeting the creation of a centralised national office to tackle nonrevenue water projects for municipalities while seeking innovative funding solutions.
DBSA product development specialist Johann Lübbe and DBSA infrastructure finance specialist Konstant Bruinette tell Engineering News that the programme is being modelled in a similar way to the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), which has a centralised office through which all projects are funnelled to ensure consistency and accountability.
“There are many lessons to be learned from the REIPPPP, even though water and electricity are very different industries. We want to see if we can replicate some of the successful strategies from the REIPPPP in the water sector,” he says.
Nonrevenue water, also known as water conservation and water demand management, refers to water losses in the system prior to it reaching billable consumers.
Most municipalities rely heavily on water and electricity billing as their primary sources of revenue. However, much of this potential revenue is lost because they cannot bill for nonrevenue water. Broken or nonexistent meters exacerbates this problem.
The official national nonrevenue water figure is about 41%. Bruinette emphasises that the problem goes much further than just physical losses in the reticulation system, and includes other inefficiencies such as excessive consumption and low levels of cost recovery.
Such an environment ultimately leads to financial unsustainability, he explains.
Until now, efforts to rectify the nonrevenue water situation in municipal systems have been handled on a project-by-project basis, with individual municipalities managing the tender process and finances.
Bruinette explains that municipalities often follow a one-dimensional approach when preparing nonrevenue water projects, typically focusing on a single element in the value chain such as pipe replacement or a meter replacement intervention.
He adds that such a one- dimensional approach does not lend itself to adequately identifying, assessing and mitigating associated institutional, financial and technical risks, which is required to render these projects “bankable”.
This has left many private investors reluctant to provide financial support, and many private contractors reluctant to take on work for fear of unknown project risks.
Lübbe explains that the proposed nonrevenue water programme will help alleviate these concerns by creating a centralised office through which funding can be funnelled and contractors directed to the appropriate projects.
“We would like to establish a national office where we can centralise and standardise nonrevenue water management, documentation and processes, creating a centre of excellence,” he says.
He envisions that this central office will have a panel of expert consultants to prepare and manage projects while being home to best-practice technologies so that various municipalities do not need to “reinvent the wheel” with every project.
“If a municipality wants to implement a project, it can approach the centralised office and receive assistance in preparing and implementing it.”
Lübbe explains that the nonrevenue water programme will not only deal with physical water losses but also take a holistic approach towards helping rectify associated problems such as inaccurate billing and inaccurate measuring methods caused by faulty or nonexistent water meters.
He says the programme will also design specific funding solutions that will enable the implementation of nonrevenue water projects in municipalities.
For example, performance- based contracts, developed by the World Bank Group and others, have been successfully used to finance nonrevenue water projects internationally, and will be designed as a standard financing option as part of the programme.
Developing the Programme
The DBSA is in discussions with various partners to design and undersign the programme, which is still at a preparatory design stage.
The terms of reference for the programme design are being compiled.
Lübbe explains that the relevant government departments – such as Human Settlements; Water and Sanitation; and Cooperative Governance, besides others – would also need to sign off on the programme before it can be formalised and implemented.
“We hope to appoint an adviser to help us design the programme by midyear to have the programme design formalised by 2021,” he says, adding that the design will include specifics on the centralised office’s location and operational procedures.
He envisions that the national nonrevenue water central office and the programme will be fully operational by the end of 2021.
Once the design is finalised and the relevant parties have formalised it, the programme will begin to operate and run in perpetuity.
He emphasises that, while the programme is being designed, the preparation, funding and implementation of individual projects will continue in parallel.
For example, the DBSA completed a feasibility study in late 2019 for the City of Tshwane metropolitan municipality, in Gauteng, for a nonrevenue water project. Lübbe says that the aim is to move into the implementation phase this year.
He adds that other municipalities are interested in having the DBSA support them from a project preparation perspective, such as eThekwini metropolitan municipality, in KwaZulu-Natal.
However, Lübbe stresses that the programme should not be viewed merely as a planning exercise.
“Although the programme will assist with detailed project preparation, we want the programme, ultimately, to be about helping municipalities with the practical implementation and financing of nonrevenue water projects.”
Lübbe notes that, while the DBSA is spearheading the initiative at this stage, the ultimate vision is for the nonrevenue water programme to be independent.
The independence of the programme and its office will ensure greater investor confidence, since financing raised for municipal projects will be funnelled through it. Therefore, it cannot be partial to anything but nonrevenue water projects for the upliftment of South Africa’s ageing water infrastructure.
This independence also means that the authority to implement projects would remain with the respective municipalities, with the non revenue water programme office playing a supportive advisory and intermediary role between the municipality and investors and contractors.