The service provider

WSSA used the French format of "delegated management", meaning the company was a monopoly provider of water services within the municipality, but also undertook defined capital improvements. The town would get 11 percent of its water pipes replaced and 1,000 new meters installed for accurate billing of water usage. The local authority had to pay fixed fees to the WSSA, irrespective of the total water revenue collected by the municipality; a problem compounded by the fact that black areas would remain without meters and continue to pay a flat rate Such an arrangement exposed the municipality to non-payment and demand risks. By the middle of the contract term, WSSA had failed to reduce water losses, leaving the unaccounted for water rate at 34 percent.

An important motivation for the contract was to help "restore community acceptance and regular payment for services provided" in black areas (WSSA 1995a). Explicitly included in this aim was the depoliticization of water, running the service as a standalone business and educating consumers in commercial principles. WSSA insisted that "humane" customer management was possible even with a vigorous level of water disconnections. WSSA, however, was unable to effectively implement this principle because of a lack of political will by council officials to proceed with a rigid "credit control" system. The ANC councillors in the area were unwilling to cut off services to their constituents.

Another key failure in the Fort Beaufort contract was the underestimation of water-use projections. Fort Beaufort's actual water consumed was 28 percent above the WSSA five-year projection. But, because the contract also included volume-based charges, the charges payable to WSSA increased to levels not proportionate with municipal income from water payments. Another crucial limiting aspect of the contract was its short duration: the company had to get its money back in ten years as opposed to the usual 25 years found in a concession model (as in Nelspruit). The relatively limited capital invested by the company in pipe replacement and upgrading ultimately failed to improve the efficiency of the system. This situation was compounded by a lack of political buy-in by the newly elected ANC councillors who feared unpopularity among their constituencies when there was a 300 percent increase in rates for black areas, which were now charged at similar tariffs as former white areas. This situation contributed to a sudden build-up of arrears, exacerbating the non-payment problem.

The service provider's response to the PPP crisis was to cajole the municipality to hand over the entire "customer management" section of the council including billing, cutoffs and legal action to WSSA. On 16 November 1999, WSSA proposed "global customer management" as opposed to merely reading meters, which was the existing arrangement, as a way of resolving the crisis. The new scheme (WSSA 1999c) would require "a new governance" architecture based on updated customer data, surveys, and dividing the town into service zones with service committees in each zone. Each zone would send a representative to a central Fort Beaufort Service Forum, which the mayor, WSSA and councillors would attend. Customer centres would also be established.

The rescue plan for achieving greater efficiency was to first instal meters on all yard taps in black areas and to cut water use by 20 percent. Second, the WSSA wanted to increase the top end of tariffs to discourage excess consumption by 5 percent as it was estimated that lower raw water imports could realize R25,000 savings per month for the council (WSSA 1999c). This proposal led to a special workshop on customer services management, which agreed on a "customer charter whereby a good governance framework could be achieved" (WSSA 2000a). At this stage, the "WSSA had carried the council for several months" by re-scheduling debt, it expected the town to hand over "customer management" as a sign of gratitude and good faith. The central state (DWAF) in the meanwhile had also threatened legal action against Fort Beaufort for non-payment for raw (bulk) water.

The final blows came in August 2000 when WSSA stopped all new work and services to informal areas despite a cholera threat in the Eastern Cape (WSSA 2000b). WSSA also brought legal action against the council for failing to pay its monthly fees to the WSSA. The situation was temporally relieved on 4 October 2000, when the municipality paid an instalment of R386,000 to WSSA. By then, WSSA had more or less taken over the Fort Beaufort Financial Management Committee, which was a highly strategic decisionmaking platform, to "monitor progress and ensure planning was done in terms of WSSA proposal". Council responded to this unwelcome invasion into its decision-making process in 2002 by getting a court ruling to have the contract annulled.

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