Neither Public Nor Private: Unpacking the Johannesburg Water Corporatization Model

Local authorities across South Africa have undergone an enormous transformation in the postapartheid period. Ten years into democracy, most local authorities are contending with the difficulties of providing and improving the quality of water and sanitation services in areas that historically received service of abysmal quality, if any. The national policy guidelines driving local authorities uphold several important equity principles such as a free allocation of basic water services in a “developmental”—that is, inclusive and participatory—manner. Local authorities struggle to put these principles into practice, as the financial and human resource constraints they face often lead them to put efficiency objectives in the forefront, with the hope that the equity issues will be dealt with down the line.

As part of a major restructuring process in the late 1990s that sought to resolve Johannesburg’s financial and organizational problems, a strategy known as iGoli 2002 was implemented to address five key problem areas: financial stability, service delivery, frameworks of accountability, administrative efficiency and political leadership. In terms of service delivery, iGoli 2002 had to address a situation in which, by the late 1990s, 24 per cent of African residents lived in informal dwellings, 17 per cent had no access to electricity, 15 per cent were without flush toilets and 13 per cent were without tapped water.

The first part of the paper provides a brief overview of the service delivery history in Johannesburg during the 1990s in order to understand the reasons it chose the corporatization model in 2001. The second part of the paper focuses on the institutional transformation of the water and sanitation sector, with particular attention to the governance framework that shapes the accountability mechanisms between Johannesburg Water (Pty.) Ltd. (JW) and the city authorities. Third, the paper outlines the main challenges facing JW and the efficiency mechanisms it has put in place to address them. Fourth, the paper looks at the equity challenges facing the utility and how it has chosen to address low-income service users. This section presents the findings from household surveys in four township areas in order to highlight some of the key service delivery issues that low-income households are struggling with.

Corporatization is gaining currency in many countries around the world as an institutional model that promises efficiency gains that are comparable to those of privatization of service delivery, while also permitting greater state involvement that can mitigate the negative social risks inherent in privatization. In South Africa, Johannesburg is the first and only local government in the postapartheid period that has corporatized through the legal establishment of a water and sanitation utility. Johannesburg Water was established in 2001 as the water service provider through a utility company that was mandated to provide water and sanitation services to the residents of Johannesburg. The city remains the owner of JW, while delegating its shareholder responsibilities to an appointed board of directors. A contract management unit (CMU) oversees the service delivery standards of JW.

The teething problems associated with the Johannesburg corporatization model are rooted in the governance of this institutional arrangement. First, the autonomy of JW is limited by the shared services it has had with the city, such as billing, credit control and meter reading functions for the majority of the city’s residents. The inability of JW to take control over these functions undermined its ability to deal with critical areas related to improving the revenues of the company. The city has learned an expensive lesson in retaining functions that it has been unable to improve and as such, is only now beginning to transfer the revenue functions over to JW. Second, the authority of the CMU as a quasi-regulator is limited by remaining within the city council. While the CMU benefits from the proximity to political councillors, it is nevertheless constrained in passing judgement on the behaviour of JW because it must navigate through numerous political and bureaucratic sensitivities. Third, in the first few years of operation, the capacity of the regulator was limited by virtue of the city not placing enough importance on this function. The CMU capacity problems were rooted in a lack of human or financial resources to operate effectively and were compounded by information asymmetries related to the bulk of the sectoral expertise migrating to JW when it was created. The outcome of this situation has left a vacuum of specialized knowledge within the city, which is a necessary feature for providing effective oversight.

The autonomy, authority and capacity issues of the regulator have created a difficult environment for the city to develop enforcement mechanisms for its contractor, JW. A second outcome of these regulatory difficulties is the distance between the city and the board of directors it has appointed to represent it as shareholder. The former has outlined clear equity objectives that are driven by political will, while the latter has interpreted these objectives narrowly because it has prioritized efficiency objectives with the intent of making JW more commercially viable. The public and private sector tension embedded in the distance between the city and the board cuts to the core of the governance difficulties of the corporatization model.

These governance difficulties are part of the growing pains of a very young institutional arrangement between the city and its newly created utilities. There is much promise for twinning these equity and efficiency objectives, as the Johannesburg city council is fortunate to have an array of politicians that are committed to improving the lives of the poor. The challenge that lies ahead is how to translate this good political will into practice, given the private sector operational style of Johannesburg Water.