Utility works locally to expand business

New water supply contracts and a growing desire to diversify its core business has put Rand Water in buoyant mood for the years ahead, as Sharon Gould reports.

Rand Water, the biggest bulk water supplier in South Africa and one of the largest in the world, provides some 10M people with potable water over an area in excess of 18,000km2.

Purchasing its raw water from the Department of Water Affairs and Forestry (DWAF), Rand pumps water from six storage dams in the Vaal River system prior to filtration and cleaning purification plants, including Zuikerbosch which has one of the largest filtration units in the southern hemisphere.

With less than 1,700m3 available for each person per annum, South Africa is classed as a 'water-stressed' country. During his Presidency of the International Water Association (IWA), Rand Water's chief executive Vincent Bath said: "One of the main preoccupations of the Association should be to help improve the capacity of developing countries to manage their water environment but we will be sorely challenged to make a success of work of this magnitude."

However, in June this year Rand raised its water price by 6.5%. Although still below the country's level of inflation, the price hike is linked to the utility's operational costs, diversification into other water-related activities, and population growth.

South Africa's Water Services Act and the National Water Act regulate Rand Water which is then free to pass on costs to its customers. The utility's 1999 Annual Report shows revenue for the year ending 30 June 1999 standing at just over $265M and S&P has rated Rand's debt at BB+ for foreign investors and BBB+ for local currency.

Public-public signing
Last year saw Rand Water's first formal contract with local government to provide retail water to local authorities north west of Pretoria. The signing of this public-public partnership represents a major advance in the government's drive to equip councils in underdeveloped areas to provide efficient, affordable services to their communities, some receiving basic water services for the very first time.

Previously, Rand had managed and operated the retail water supply in these areas under a 1996 mandate from the DWAF. This followed a governmental review and rationalisation of water boards in the North West of the country and was based on the fact that Rand already supplied bulk water to the area.

The utility was therefore seen to be well-placed to use economies of scale to provide an affordable, efficient retail supply which the newly established local authorities could not do at the time.

The aim is that supply to urban areas will be commercially viable within two years, and to rural areas two years later. Rand will also undertake capacity-building programmes such as management support, marketing, finance and legal expertise, transferring these to local councils on completion in 2002.

Diverse moves
This diversification away from the core business of water supply facilitated by South Africa's 1997 Water Services Act is not a one-off, but has freed Rand to expand its activities into other water related activities.

A notable spin-off has been job creation in terms of providing local employment in a variety of water management projects and training local government in various catchment management projects to prepare them for potential future public-private partnerships.

Provision of adequate sanitation services has also come within the remit of the utility's operations, often in response to the poor quality of local government provision. Community-driven programmes which create local employment and enhance existing management skills are in direct response to legislation enshrined in the Water Services Act.

Community initiatives
For example, Rand has actively participated in South Africa's Working for Water Programmes, training and supporting communities to manage wetlands, monitor water quality in dam catchment areas and to rid dry river beds of alien and water-thirsty plant life.

Earlier this year, Rand scored another first by forming a private-public partnership with Vivendi Water to bid for water and wastewater services in Greater Johannesburg. In addition to operation and maintenance, the five-year contract calls for financial and institutional arrangements and service delivery. This is the first time Rand Water has joined forces with an international company to bid for local government work.

Bidding for pipeline contracts external to its own needs is another activity likely to increase in future.

In the last financial year, Emhlangeni Pipe - Rand's manufacturing plant - produced over 17,000m of 2300mm diameter stiffened pipes for the new $8M Slangfontein-Mapleton pipeline, and was competitively able to meet a significant proportion of the company's other pipe requirements compared to private sector bids.

However, with in excess of 28,000kms of pipe in service, changing circumstances highlighted the fact that the utility's pipe requirements are insufficient to maintain production at an economic rate. To ensure its future, the plant is now tendering for pipe contracts for projects outside Rand Water.

Corruption case
In 1999 Rand saw the first full year of water delivery from three of a final five dams planned for the controversial Lesotho Highlands Water Project (LHWP) - the largest water construction scheme in Africa.

A group of 10 international companies and two consortia associated with the construction of the Katse Dam - the first of five dams in the scheme - have been implicated in a criminal court case which began in June. This arose out of a civil case brought against Masupha Sole, former chief executive of the LHWP, accused of accepting some $2M in bribes and which ended last year with his conviction.

In an unusual move the World Bank, which provided both fiscal management and loans for the project, has pledged financial and other support to Lesotho's Justice Department for the case.

South Africa's former Minister of Water Affairs and Forestry, Professor Kader Asmal, is this year's winner of the Stockholm Water Prize and Chair of the World Commission on Dams. It will be interesting to see what comments he has on the case.



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