Sustainable private sector participation in water supply and sanitation : an investigation of the South African experience with international comparative case studies.
This thesis is a case study investigation of the sustainability of private sector participation in water supply and sanitation in developing countries, with a particular emphasis on South Africa. It is essentially an empirical contribution, which adds to the body of literature pertaining to the privatisation of water supply and sanitation services in developing countries. South Africa, like many developing countries, faces a significant challenge in providing a sustainable water supply and sanitation service to its citizens. It has a vast water supply and sanitation infrastructure backlog, because of the previous apartheid) government's minimal attention to the basic service needs of the African, Indian and Coloured people. This lack of basic services has had a negative effect on people's health and their basic living conditions. The traditional delivery vehicles for water supply and sanitation delivery in South Africa have been its municipalities. After the demise of the apartheid government, the democratic national government restructured these municipalities under various. processes. They merged neighbouring towns and villages, which incorporated former rural areas to achieve economies-of-scale. The intention was to ensure service delivery to the previously disadvantaged, through a mechanism of cross-subsidisation from the affluent to the indigent. However, these newly-demarcated non-metropolitan municipalities, still do not have the finances to extend the water supply and sanitation infrastructure network to rural areas within their jurisdiction. They also lack the good credit ratings to borrow funds from banks to finance new water supply and sanitation infrastructure. The rural population also has low abilities-to-pay for water supply and sanitation services. With total basic infrastructure backlogs estimated to exceed R270 billion in South Africa, the challenge to all tiers of government is considerable. Just rural water supply and sanitation over the next ten years requires R13.5 billion for the financing of new and rehabilitation of old, infrastructure. Faced with this dilemma, national government has attempted to resolve it by following the route taken by other developing nations, that is, by seeking the assistance of the private sector, National,provincial, or access to it. and some local governments argue that it is only the private sector that has the financial resources to fund this infrastructure backlog. To facilitate this change in service delivery vehicles. national government developed legislation to create an enabling environment for the entry of the private sector in the arena of water supply and sanitation provision. This transition has occurred with significant controversy and opposition. Many opponents to any form of privatisation base their argument on privatisation's fundamental drivers not being aligned with the goals of a development state. In the South African situation, these opponents include some organised labour trade unions, researchers, and labour-based research organisations. With firm pressure from this antiprivatisation coalition, private sector participation in water supply and sanitation services has been significantly staggered or impeded. Whilst this study provides evidence that this case of privatisation is not sustainable in the long-term, which is in agreement with this anti-privatisation coalition, the reasons underpinning the conclusion of this study, differ significantly from those of this coalition. The arguments that underpin differences in the opposition's views and this thesis are analysed throughout the rubric of this study. Three elemental constructs underpin the theoretical framework of this study. These constructs are compartmentalised into the nature of public goods and their natural monopoly status, the efficiencies of privatisation and its relation to ethics. and globalisation issues specifically dealing with the roles oftransnational companies. The study will show that the transfer of water supply and sanitation service delivery to the private sector in South Africa has not been sustainable due to various factors. These factors are investigated through the medium of empirical and case study analyses at a national and global comparative scale. Factors investigated include the reasons behind the privatisation, its transition period and procurement of public and other stakeholder buy-in to the change in service delivery, the role that the state has played in providing the enabling environment for privatisation, and the effectiveness of the opposition in delaying or impeding the pace of privatisation. The study also reveals that pilot projects have a special status and access to greater institutional support, which might facilitate its success. This extra attention might not be realisable in successive projects. Factors underpinning a successful privatisation include issues of efficiency, regulation and financial issues. These are also investigated within the rubric of the empirical and case study analyses. The impact of globalisation and the role of transnational companies with apparently "new technologies" and foreign direct investment, which pervade water supply and sanitation privatisation in developing countries, are also discussed. The case study examinations also provide evidence that in the South African situation, these apparent foreign technological innovations have yet to be confirmed. For South Africa and the other developing nations, the foreign direct investment has also been minimal in comparison to the profits that leave these host countries from the water supply and sanitation sector. The primary case study that underpins this research is the pilot project test case for the South African national government, the Dolphin Coast concession in its Kwazulu-Natal province . A comprehensive investigation of this concession provides evidence of the project's commercial failure. However, the concession remains in the hands of a private sector operator, due to the municipality controversially renegotiating the terms of the contract to facilitate the concession's continuity. This "municipal intervention" trend is noticeable in some international case studies. The English privatisation case is also investigated to provide a contrast between privatisation in a developed nation and a developing one. It also provides an insight into the facilitative environment of the English privatisation case, as compared to that of developing nations. The English privatisation, although not without controversy, was a decision taken by the government on efficiency grounds, whilst developing nations have taken the privatisation step based on reasons of infrastructure deficiency and a lack of finance. Essentially, the former is a push factor, whilst the latter has been a pull factor. This thesis includes a case study investigation conducted at the World Bank in New Delhi, India, which provides evidence of the opposition from state bureaucrats to privatisation in India. This serves as a contrast to the organised worker opposition in South Africa, and highlights some of the differing impediments that face privatisation attempts in each respective country. It shows that the reasons underpinning the opposition to privatisation in developing nations facing similar crises are, in fact, dissimilar. The study also investigates the success that can be achieved through the economies-of scale of a public sector utility in South Africa, shown by the Umgeni Water case study. This is essentially a public agency that has corporatised5 along business principles and employed economies-of-scale to become a successful example of public sector water supply and sanitation provision in a developing country. Cumulatively, this study provides evidence that, in South Africa, the transfer of water supply and sanitation services to the private sector is not sustainable without some degree of state intervention. This is especially evident in cases where there are no economies-of-scale to be exploited, and a lack of affluent people to ensure a critical degree of payment of tariffs or cross-subsidisation to the indigent. In effect, by transferring these services to private hands, this would serve only to postpone the eventual lack of sustainability that these services are currently experiencing in public sector hands. The evidence reveals that the privatisation of water supply and sanitation services in South Africa is not a commercially viable option in the long-term, under the normal mechanisms of supply and demand of the market. Concomitantly, the South African national government and its municipalities are faced with a new dilemma. The private sector can provide immediate sources of financing for urgent water supply and sanitation infrastructure development that cannot be similarly procured from limited state funds or other sources. Considering the urgency to provide water supply and sanitation infrastructure, because of the health-related effects that no access creates, privatisation, with strong regulation, may be a more amicable alternative to the current financial restrictions on municipalities, until a more comprehensive and sustainable solution is found.