April 10, 2003

SOUTH AFRICA: Nelspruit water privatisation deal flounders

South Africa's flagship water privatisation initiative will collapse unless government agrees to a R109 million bail-out. The 30-year deal spearheaded by Britain's BiWater and signed in Mpumalanga's capital Nelspruit amid massive fanfare in 1999 was supposed to rapidly expand basic water services into the region's impoverished villages without placing a financial burden on the taxpayer. Both government and BiWater described the groundbreaking concession as a model for the rest of water stressed South Africa.

But the people supposed to benefit most, 300 000 rural villagers and township residents, weren't convinced and instead embarked on a concerted rates boycott that is costing the consortium R13 million per year.

Infrastructure development, envisioned as the centre-piece of the deal, also slowly ground to a halt just one year later in July 2001 and BiWater's local partners, the Greater Nelspruit Utility Company (GNUC), officially suspended all infrastructure projects in August 2002.

GNUC managing director Brian Sims warned this month that the boycott had effectively crippled the initiative. Sims claims, in a series of leaked letters, that the losses are so great the consortium's foreign shareholders will pull out of the deal unless Nelspruit's umbrella municipality, the Mbombela Council, agrees to an immediate R72 million rescue package over the next seven years. GNUC is also pushing for an additional tariff holiday that will see the taxpayer lose R109 million over the remainder of the concession period.

The proposed relief measures include a dramatic R18 million reduction in GNUC's loan repayments to Mbombela, as well as the scrapping of lease payments to council worth R4 million per year - or a cool R28 million over the next seven years. GNUC is, in addition, demanding that it be charged vastly reduced electricity tariffs to operate infrastructure, translating into a R800 000 annual saving, and that council performance auditing fees be decreased by R750 000 per year. The tariff reductions would mean a R43,4 million loss to taxpayers over the concession contract's remaining 28-years.

But not even these measures will, Sims claims, make the deal viable. GNUC is therefore lobbying for a higher than planned 10% rates increase in Nelspruit's former white suburbs and is also asking for an increase of R700 000 per year in the council's existing R2,2 million annual subsidy to deliver a minimum of 6000 litres per household a month free-of-charge. "All this appears pretty radical, but we're in a critical cash flow situation. Payment levels are as low as 10% in some townships, and we are being forced to pursue pretty draconian measures in addition to the request for tariff adjustments," says Sims. "This will include the seizure and auctioning of homes belonging to prominent residents involved in the boycott. We've been very careful to target only people we know can afford to pay, but who have been refusing." Community leaders targeted for prosecution include local political figures, business leaders, and senior government officials in the justice, health and home affairs administrations.

The grassroots Anti-Privatisation Forum have branded the planned auctions as a provocation and vowed to expand the current boycott to the rest of Nelspruit's 300 000 residents. At the moment, only 120 000 residents in KaNyamazane and Matsulu are refusing to pay. APF spokesman Henry Nkuna said township and village residents had only been required to pay a R14 flat rate per month for water under apartheid. This rose to R88 per month after democracy in 1994, before leaping to an average R500 per month after GNUC took over in 1999. "It's pure profiteering. Almost half township residents are unemployed. How are they expected to pay R500 per month?" Nkuna asked. He added that residents also believed they were being overcharged for supposed usage, and that metres installed in formal townships were incomprehensible to residents.

Sims dismisses the profiteering charges, stressing that GNUC had never expected to make profits in the first five years of the concession. "The rescue package is necessary just to cover operating expenses. This is a long-term investment, and no one realistically expected profits for 10 of the 30 years we plan to be here. But, we've made a substantial investment and cannot be expected to carry these kinds of losses because of a politically inspired boycott," says Sims.

Mbombela's deputy municipal manager Roelf Kotze would meanwhile only confirm the council had agreed to assist GNUC in principle and was considering a "package of things". "We'll reduce costs [for GNUC] where we can, but will not undermine our own financial position. The point I think people are missing is that many people who never had water are now getting a clean and reliable service," said Kotze. The Mbombela council will debate GNUC's proposed tariff reductions on April 15. (African Eye News Service, Nelspruit)


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