S utilities Non-payment
S utilities Non-payment for water services is reaching a crisis point TRand Water is growing and investing in infrastructure but its financial viability is threatened by cumulative municipal debt of R5.8-billion. The Rand Water Board is a significant institution in the water sector and the country’s economy. It is a strategic institution that is investing and building formidable infrastructure for water provision to Africa’s largest regional economy. The entity played a significant historical role in helping to make Johannesburg and Gauteng the formidable economic hub that it has become, supplying the early gold mining companies with the water and sound infrastructure they needed to thrive in their time. The entity has grown and has adjusted from one decade to the next, the result of strong leadership and capable management supported by technical professionals that have been nurtured and harnessed over many years. It is also important to note that domestic and commercial water users have always been able to help sustain the running of this great South African entity. As a result, Rand Water in recent years, has been contributing greatly to finding and sharing water and infrastructure solutions on the African continent, as an equal partner and strategic contributor to the knowledge economy. The organisation’s performance indicates that it is currently on solid ground. Over the last three years, Rand Water Board revenue has been growing modestly. The entity also continues to invest in infrastructure expansion and in supplying drinkable water quality to its customers. A CHALLENGING ENVIRONMENT There are challenges in the business environment, which include: • non-payment by users resulting in a huge debt book • failure of municipalities in Gauteng to pay for water delivery • slow payments • National economic slowdown due to global conditions • inability of customers to pay for water services to municipalities. Some of the economic impact outlined above is as a result of job losses due to the economic impact of Covid-19. Despite these issues, Rand Water has continuously shown resilience in its performance, posting excellent results. The critical operational ratios demonstrate that the organisation is doing well. Revenue is growing year on year. In the financial year 2022/23, the entity performed above set targets, income grew by R17-million, which represented 51% growth. Net income was up by R576-million compared to the previous financial year. Irregular expenditure was reduced from R110-million to R3.35-million. The Rand Water Board received an unqualified audit opinion for the year, commendable for an organisation of this kind. Maintaining a clean audit and good credit rating is good for fundraising and in the bond market. On project implementation, the Rand Water Board has performed well. Having set itself a target of achieving 95% project completion by the end of the financial year, the target was exceeded with 115.8%. UPWARD TREND This upward trend in achievement is also seen with other targets such as employment creation and the black empowerment programme of the organisation. The repair and maintenance of assets has also been attended to. This is critical as an assurance to the investors and the citizens of the province and South Africa that the Water Board does look after its assets and the longevity of the investment and assurance of supply is guaranteed. It is important to remember that the policy of the national government is to keep this economy at 99% assurance of water supply. Rand Water is one of the strong water-sector entities that is giving this government and Africa’s biggest economic hub that benefit and a strategic guarantee. Also, the entity has assured the citizens that 24 | Service magazine
utilities S there will be no Day Zero in Gauteng province. Additionally, Rand Water is able to continuously invest in the building of infrastructure. According to its latest annual report, Rand Water has promised to invest R25-billion. This is good news for any investor who wants to build a business in Gauteng. THREATS TO THE GOOD STORY The Rand Water Board has a good story to tell, but this may be threatened, not because of how the entity operates or drives its business but due to the externalities and operational environment beyond the Water Board’s control. For instance, economic forces that are currently at play can present risks. All water boards have municipalities as their main customers. A total 80% of Rand Water’s revenue comes from Gauteng municipalities as they are all supplied by the body. These municipalities currently owe the water board R5.8-billion. This has an adverse impact on the finances of the entity. This could have assisted in alleviating the debt burden on projects. Measures must be put in place to collect outstanding debt. If this is achieved, Rand Water can improve and expand its water infrastructure. If this is not diligently managed, it may pose a huge risk to the body’s liquidity and cause the entity to fail in managing to service its loans. This could cause a mismatch of assets and liabilities resulting in a bad credit rating. The global pandemic had a huge negative economic impact and the Rand Water Board was not spared. The closure of companies, production reduction and retrenchments caused cash flows to stall and this had a ripple impact on downstream clients. In Gauteng, the inability of big municipalities to pay the board on time was noted and this phenomenon has continued despite the reopening of the economy following the end of the pandemic. For instance, Ekurhuleni pays in 59 days with consumption growth of 3% year-on-year. Tshwane payment is in 56 days, its consumption growing by 58%. The City of Johannesburg Municipality must be commended for honouring their invoices on time. Johannesburg must find R61-billion to refurbish its collapsing infrastructure to manage its water losses from old infrastructure. Emfuleni payment is now at 237 days, down from 3 365 days and consumption is growing by 14% year on year. The overdue amount to Rand Water is R676-million and arrangements have been put in place to settle this debt. INFRASTRUCTURE EXPENDITURE CONTINUES Despite these challenges, the Rand Water Board is still able to spend R3-billion per annum to maintain infrastructure and meet its obligations. It is anticipated that in the next five years the Water Board is likely to spend multiple billions on infrastructure investment. This is commendable in that the infrastructure rollout is keeping pace with the province’s demands due to rapid population growth, economic development and other major activities. Rand Water’s strategy aims to ensure that it stays on this path to match the demand of its market. However, the time has come to start to proactively find approaches that protect it from elements that are detrimental to its operations. Gauteng and the country need this entity to keep working continuously to maintain its infrastructure and delivery of water to its consumers. The Water Board aims to have a positive impact on the business environment in which it operates. It must continue to strengthen its work with the municipalities, including joint activities which will encourage a payment culture for water and other services. Rand Water is a catalyst for economic growth. It must succeed. S Weltevreden Reservoir, (interior). Carbonation bay at Zuikerbosch Purification Plant. Service magazine | 25
