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Fiascos: Nelspruit, South Africa

In 1999, the British water multinational, Biwater, was awarded a 30-year water concession in Nelspruit, South Africa. Ever since, the community has complained of rising prices and poor service.

The privatization of water in Nelspruit was initially proposed in 1997, but the South African Municipal Workers Union (SAMWU) challenged the bid and stalled the process for almost two years. In 1998, a compromise was reached. The South African government, led by the African National Congress (ANC), promised to assess the possibility of a public alternative. But, this never happened. Instead the concession was awarded to the Greater Nelspruit Utility Company (GNUC)—a joint venture between Biwater and a black empowerment group, Sivukile.

The ANC argued that the new private concession would be able to attract much-needed sources of private finance. The ANC wanted to depend less on international loans in a period of currency fluctuations. South African municipalities have a limited ability to make large infrastructure investments and are thereby indirectly encouraged to look for private sector solutions. But Biwater had great difficulty in raising the money and has depended on finance from the public sector. In July 2000, nearly two-thirds of the total finance (R195m) for the project was finally obtained in the form of a R125 million loan from the state-owned Development Bank of South Africa (DBSA).

GNUC has been criticized for not increasing access to water. But while access hasn’t been greatly increased, rates have. The concession has nearly tripled service fees and been quick to cut off service for those who can’t afford to pay. The price hikes, and persistent complaints that Biwater is failing to provide service to poor areas, have prompted consumers to boycott paying their skyrocketing water bills. Biwater officials claim that expanded access is being hampered by a lack of revenues and a credit crunch. As a Biwater senior manager explained, "What is the point of pumping money in while we are not sure of cost recovery?"

Even in those areas where water service is available, it is often provided only intermittently and sporadically. The metering system charges people for water even when the water isn’t there, however, with the result that customers have to pay for up to 90 minutes of "air time" while they wait for water to come out of the tap once it’s been turned on. In some townships, Biwater was switching water on only for three hours a day or less—and for a good portion of that time, taps were on but no water came out. "Yet during this period, household meters run, so it seems that people are being charged for air," SAMWU observed. Other problems identified included:

• People cannot use their toilets at night because the water is switched off.
• When communities report broken water pipes, it takes Biwater more than four days to repair them.
• Water bills are grossly inflated and inaccurate.
• White areas in Nelspruit are getting much cheaper water than the townships.
• There has been an increase in disconnections.
• Disconnections are being performed illegally with no notices to households prior to disconnection.
• Communities are not getting the 6000 litres of free water they are entitled to under national law.

Testing the limits of market-based solutions to the delivery of essential services: The Nelspruit Water Concession by Dr Laila Smith, Shauna Mottiar and Fiona White. CPS Research Report no 99, September 2003 Social Policy Series

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