This review of water privatisations in sub Saharan Africa provides a wide-ranging panorama of the difficulties of implementing the World Bank advocated private sector model in the water sector.

The first contract to involve private sector participation in the water sector was awarded in 1960. To date 18 such contracts have been signed, six of which were signed after 1992.Virtually all of these contracts have proved difficult for consumers, workers and for the water companies alike. Indeed, one contract was eventually cancelled in 2001, whilst one was renegotiated after just two years with prices needing to be increased in order to restore profitability, and a third has yet to reap any benefits for consumers.

With increasing numbers of cases of withdrawals and/or cancellations of privatisation in the region, privatisation is by no means unstoppable. In Gambia, Guinea and South Africa, governments have managed to terminate, or not renew, water concessions. In other countries, local opposition has delayed the implementation of privatisation proposals.

Investors in the water sector in Sub-Saharan Africa are finding it increasingly difficult to run and manage their businesses. Incomes in the region are such that the “full cost recovery tariffs” advocated by the World Bank become unaffordable for consumers. Whilst privatisation has been a consistent trend in water as in other infrastructure sectors, there are also successful examples of public provision of water. With full cost recovery difficult to achieve, aid remains critical. However there appears to be a bias in favour of private entities that is undermining development of provision of water by public entities.

The main players in the region are French multinationals, with Saur winning the first contract in Cote d’Ivoire in 1960. The next water contract also went to Saur, in Guinea in 1989. The company now has six contracts in total in sub Saharan Africa. Vivendi has four substantial water supply contracts and other related activities in the region. Suez has surprisingly few, with only two management contracts in South Africa and Uganda.

Table 1 below shows a list of the current contracts within the water sector involving some degree of private sector participation, along with their main characteristics. It is interesting to note the sharp increase in the number of contracts signed during the 1990s and also the relatively large number of them that have been signed in South Africa. For this reason, this article explores the contracts in this South Africa in considerable more depth that in other countries.

Country Review

Burkina Faso - Despite an improving performance record from the public sector water utility ONEA (Office national de l'eau et de l'assainissement), Vivendi -in partnership with Cabinet Mazars and Guerard - was awarded in 2001 a five-year support and service contract backed by World Bank financing.

Additionally, ONEA also awarded a contract to Suez subsidiary, Ondeo, for the construction of a drinking water plant worth Euro 19 million, which is being financed by the French development agency.

Central African Republic - In 1991, Sodeca a subsidiary of SAUR, was awarded a 15 year contract for the management of water services to all urban areas of the country.  

Chad - In January 2000 Vivendi took over responsibility for Chad's state owned power and water company under a 30 year contract for the management of the Societe Tchadienne d'Electricité et de l'Eau (STEE).  STEE is be initially wholly-owned by the Chadian government but privatisation is planned by 2005. During the ‘transition stage’ the company is supposed to improve its financial and technical performance. It is likely that Vivendi will take a majority stake in upon privatisation, although the full financial details of the contract have not been disclosed. Nor is it clear that the contract was competitively tendered. It seems that Vivendi will operate a management contract for a flat fee. The process has been financed by the French aid agency, which provided the government of Chad a grant of around CFA 3.5 billion.

Cote d’Ivoire – the country was the first in the region to award a contract in the water sector that involved private sector participation through a lease contract with a Saur subsidiary in 1960. The contract was renegotiated in 1987 for a further 20 years. In these renegotiations, Saur was not prepared to take on responsibility for investment because the company did not want to take the risk that future revenue would cover debt service requirements. Sodeci –Saur’s subsidiary - therefore does not bear any investment-related risk.

After 1987, the authorities managed to negotiate a 20 percent reduction in the fees paid to the private operator by suggesting that they might allow other companies to bid for the contract. This in itself suggests that there had been a considerable profit margin accruing to SAUR.

While performance has been generally satisfactory, tensions exist between the government and Sodeci. Many public sector customers still refuse to pay their bills and Sodeci does not cut their supply but instead withholds payments to the government’s fund for investment in the water supply. Thus the privatised operation prioritises securing the net revenue of SAUR above the generation of funds for investment.  There are also doubts about the capacity of the water directorate to effectively monitor Sodeci’s investment activities: Sodeci might be able to earn excess profits or might get round competitive tender rules by dividing large investments into a series of smaller ones to be below the cut off.

Gabon - In 1993, a contract for the management of water and electricity utility Societe d'Electricite et d'Eau du Gabon (SEEG) was awarded to a consortium including Suez/HQI/EdF. Then in 1997 SEEG was privatised to a joint venture  51 per cent owned and controlled by Vivendi and Irish utility ESBI (although ESBI no longer has an interest).  The World Bank’s IFC advised on the preparation and the transaction of this contract. By 1999 Vivendi reported that they were making a profit from this Gabonese subsidiary. [1]

Vivendi’s investment seems to have benefited from the policies of French donors. The company is said to have invested 12 billion CFA francs in power generation in Libreville and 1 billion CFA in water. The process has been financed by the French aid agency, which provided the government of Chad a grant of around 3.5bn CFA francs.

Mali - In 2000, a Saur-led consortium won a contract to distribute water in Mali. A JV between Saur (65 per cent) and IPS West Africa - a subsidiary of the Aga Khan Fund for Economic Development (35 per cent)- got a 20-year concession for 60 per cent of Energie de Mali (EDM). EDM produces and transports both water and electricity in Mali.

Mozambique – In September 1999, a JV between Aguas de Portugal (32 per cent), Saur (38 per cent) and several local investors (30 per cent) were awarded a concession to supply water services to 2.5 million people living in the main cities of the country. For the cities of Maputo and Matola the contract is valid for 15 years, whereas for the other cities it will expire in 2004.

Saur withdrew from the consortia –Aguas de Mozambique – this year, selling its stake to one of the remainig share holders, Portugal’s publicly owned Aguas de Portugal. The contract continues to be valid and the parties are currently seeking for a partner to take Saur’s place.

Privatisation programmes in Mozambique have been closely linked, and in fact have been a pre-requisite, to the World Bank-IMF debt relief programme. In 1999 the country received close to US$3.7 billion in debt relief under the Heavily Indebted Poor Countries (HIPC) initiative.

Niger - In January 2001 Vivendi was awarded a EUR 150m renewable lease contract for water services in Niger. Vivendi, in partnership with Cabinet Mazars and Guerard, was awarded a ten year concession contract - beating Saur, who were also short-listed. The contract covers the provision of water services for the country's 10 million people, including Niamey the capital city. 

Vivendi was to create an operating company with ownership of 51 per cent of the equity capital and this company will also be awarded a programme of work worth about EUR 5.5m to install connections and water fountains.  The World Bank will provide most of a Euro 35 million investment finance package devoted to network rehabilitation and extension. Under the lease contract, Vivendi will manage an investment fund financed initially by the World Bank.

Senegal - water utility has been run by Saur since 1996 under a ten-year lease contract. Before privatisation, the performance of the state owned utility, Sonees, was relatively good in terms of operational performance and labour productivity. However, revenues were insufficient to cover costs in part because of non-payment by public authorities.

Since the lease was implemented, the revenue situation has improved as yearly tariff adjustments have been implemented and public entities do pay their bills but tensions exist between the private operator and the state holding company. Progress achieved with respect to access to safe drinking water and level of UFW has remained below performance objectives established in 1995 because of confusion and tensions which persist in the relations between SONES and SDE.

South Africa’s experience

The experience of private sector participation in South Africa can be summarised as follows:

i)                     In the early 1990s Suez-Lyonnaise-Ondeo subsidiary WSSA (a JV with South African construction company) obtained three contracts in the eastern Cape: Stutterheim, Fort Beaufort (Nkonkobe), and Queenstown.  All of these have experienced problems – the Nkonkobe contract has been nullified by a court decision; at Stutterheim relations between the council and WSSA are bad; and there have been strikes at Queenstown.

ii)                   In 1998 two larger municipalities privatised their water services: Nelspruit, capital of Mpumalanga province, to a company led by Biwater-Nuon: and Dolphin Coast, to a joint venture headed by Saur.

iii)                  In 2000, Johannesburg City Council gave a management contract to Suez-Lyonnaise-Ondeo for its water services, as part of the ‘Igoli 2002’ plan to restructure the councils covering greater Johannesburg. 

The Eastern Cape contracts: Fort Beaufort/Nkonkobe

In December 2001 Nkonkobe municipality (Fort Beaufort) in Eastern Cape won a court case against Water and Sanitation Services SA (WSSA), a subsidiary of French water firm Suez Lyonnaise, effectively cancelling its contract with the company. WSSA had won a 10 year contract in 1995 with the former Fort Beaufort transitional local council (TLC) to operate water and waste services for the municipality. 

Problems arouse when the municipality declared it was unable to pay the management fees, in addition, there were high levels of customer dissatissfaction. Eventually, the court found the contract to be invalid under the grounds that the contract had not been subject to comments by the general public and that approval from the local government was never obtained. In addition, major labour disputes arose over pay differentials that ended up in a strike action.

Queenstown: dispute

The first Ondeo contract in South Africa was signed in 1992 with the Queenstown municipality, which was later transferred to WSSA. In 1999 a strike was called in since WSSA had not fulfilled its commitments to the company’s employees.

Stutterheim: breakdown in communication

In 1993, WSSA signed a contract with the municipality of Stutterheim, under the old apartheid structures.  The contract experienced a series of problems, including political differences between the 1993 council and the current council; the inability of the municipality to deal with a water concession run by a multinational; and the lack of clarity over investment.

i)                       Nelspruit: Concession to Biwater-Nuon-Cascal

The plan to privatise the water sector in Nelspruit, the capital of Mpumalanga province, had been proposed in 1997, but was extremely controversial. For nearly two years SAMWU succeed in deferring the privatisation, arguing that it was a breach of the government’s policy of preference for a public sector option. An assessment of a public sector option was promised, but never happened despite a previous national framework agreement that reiterated preference for the public sector and promised a consultation.

The contract was finally awarded in 1999 to Biwater, operating through Metsi a Sechaba, its joint venture with a local group, later renamed Greater Nelspruit Utility Company (GNUC). The concession started in November 1999.

Paradoxically, Biwater had great difficulty in obtaining the necessary funds and has depended on finance from the public sector. Two thirds of the total investment came from the state-owned Development Bank of South Africa (DBSA).

Biwater has also benefited from a new water treatment plant at Matsulu, a suburb of Nelspruit, which the government of Portugal financed, and the South African government constructed.

The project has encountered significant opposition from political and community groups, as well as from trade unions. It has been criticised for failing to extend the network. GNUC was condemned for not implementing the government’s promise to provide 6,000 litres of free water a month to households by July 2001. The company’s contract did not provide for the provision of free water, and continued to cut off defaulters. It only agreed to provide the 25 litres per day free water after a seven-month fight by local campaigners.

The change of policy by GNUC came after local resistance. Consumer disgruntlement about new tariffs, which replaced the old flat rates with a charge by the kilolitre, has resulted in a dramatic decline in payment. Payment dropped from 38 per cent in June to about 27 per cent in December 2001.

Company’s reports show an increase the amount of money collected from users, from R32 million a year to R47 million a year, along with increases in the number of meters and pipes installed. Leakage and waste are reported to have fallen, but this may be because they include unofficial or unpaid consumption as leakage and waste.

Dolphin Coast: Concession hits financial crisis

In 1999, Saur, the water subsidiary of Bouygues, was awarded a 30-year contract to provide water supplies and purification services to the resort of Dolphin Coast, worth FFr/R 33 m per year. The area covers the resorts of Kwazulu-Natal's Dolphin Coast  with a population of 56,000. SAUR formed a local Company, Siza Water Company (SWC) - a consortium of five partners, which has been responsible for the provision of water and sanitation services to the area since 1 April 1999.

The contract was seen as a pioneering example of privatisation, justified by government ministers on the grounds of lack of funds and capabilities at the municipal level. However, it encountered opposition at its first stages largely from the unions, but was finally overcome through political intervention.

Financial crisis and forced re-negotiation

In 2001 the company hit financial problems and successfully demanded a renegotiation of the contract in its favour. In April Siza Water refused to pay the scheduled R3,6m lease payment due to the municipality of KwaDukuza. Instead, Siza asked for relief under the contract, which allows for renegotiation if returns are either above or below a predetermined range. The problem was said to be that the development of middle-income and mass housing has fallen far short of projections. The result was a serious shortfall in Siza's revenues of about R12m a year. The alternative to renegotiation according to Andrew Ferguson, KwaDukuza's acting municipal manager, was "to go off to the contract guarantor (a bank) and take back the performance bond." 

The local authority approved the revised contract in May 2001, modifications included:

•  Water prices were immediately increased by 15 per cent to restore profitability. In addition customers faced an increase of more than 20 per cent imposed by the neighbouring Umgeni Water Board for bulk water supplies together with inflation-driven increases.
• Siza's investment commitment was dropped to R10m from R25m over five years. - Siza will ease the municipality's fiscal burden by taking over its remaining R15m debt (excluding R3,6m in arrears). The loans will be fully redeemed within two years, with funding provided by Siza's shareholders, either in the form of new equity or shareholder loans. This seems to mean that the users of water will be expected to cover the cost of repaying the loan.
• Parties are to ‘examine ways of reducing costs’. Options include a reduction in the management fee paid by Siza to Saur, and the concession fee paid to KwaDukuza. Reducing the concession fee means placing the cost on the municipality. As a result of the restructuring, Siza claims it will just break even over the first five years of the 30-year contract, and make a small profit over the first 10 years - shareholders are unlikely to receive a dividend before the 10-year mark. However SAUR will continue to receive its fixed payment from Siza, as a management fee.