The SOE Model is the dominant one currently but is coming to the logical end of its useful life. It is central to the Developmental State thinking, in which the economy is subsumed to the State. The conflict against private capital, initiated by Bell Pottinger, is unfinished, but still lingering in the ashes of a moribund but not yet dead economy. The role of business in this model is reduced to one of tax paying only, so the logical outcome is for companies to divest in order to protect their interests. This is evident as FDI outflow and is thus measurable. I therefore see the SOE model as sustaining its attack against the private sector by excluding active involvement in solution-seeking.

Listed companies are hesitant to contract with bankrupt municipalities, and unlisted companies with deep expertise in water treatment and management, are driven into financial distress because of non-payment. Therefore, the role of the mainstream private sector will always remain marginal in this model.

In preparation for this phase, we are likely to see functional SOE’s expanding into the realm of dysfunctional municipalities, most notably in the areas of water services and wastewater management initiatives. Central to all SOE activity will be the desire to control the value chain, most notably becoming the only gatekeeper in the procurement process.  All contracts involving the private sector will be given to approved companies, so the process of tendering will be inherently skewed.  This increases the likelihood of kickbacks and corruption. The sole source of revenue for this model is the Fiscus, so it is unlikely to be sustainable because of diminishing tax flows, but before it crashes, we are likely to see a concerted effort to gain final control.

Corruption cannot be rooted out in this model, because the absence of ring-fencing regulations in the Municipal Financial Management legislation means that capital put into a specific project, can easily be diverted into a different project, with no means of control. It is this mechanism that has been exploited to divert revenues into patronage schemes, which are inherent to this model. In fact, it can safely be concluded that SOE’s have become nothing more than vehicles for the distribution of patronage by a once legitimate developmental state in the hands of corrupt leadership (refer to State Capture and the Zondo Commission).

In all probability this will play itself out wherever major revenues are needed (hundreds of millions to billions of Rand), but specifically where these coincide with substantial municipal failure. From a strategic perspective, defined in terms of the number of multipliers and knock-on effects that are likely to arise, the Emfuleni sewage crisis is probably the most significant.

Consequently, an example of a project to watch is Metsi le Temo, which could be tempted to sink its roots into a portion of the R5 billion flow of cash needed to stabilize the Emfuleni sewage crisis (DWS estimates and likely to grow).

This project has proposed that nutrients should not be removed (i.e. partial treatment of sewage to increase the flow through an overloaded plant) in order to be used as fertilizer on the land. This is justified by referring to the cost of building a new plant with greater capacity and next generation technology. It also proposes a different water use license that enables nutrients to be left in the effluent, but it remains unclear how this will be managed without driving eutrophication of the Vaal. This will require public participation in the licensing process where greater clarity can be obtained.

It is in this light that recent media announcements by the Deputy Minister of Water Mr David Mahlobo could be interpreted. One possible interpretation is that he effectively called for a cessation of debate about culpability, to be replaced by a renewed enthusiasm for this proposed initiative that will use enriched sewage effluent to reduce poverty by stimulating irrigated agriculture on a relatively small piece of land. This is probably incapable of creating the number of livelihoods needed to be measurably effective as a poverty eradication program, but the jury is still out until more facts are publicly available.

This model is probably unable to overcome the fact that our economy is water constrained, because it continues to manage water as a stock in a linear economy, so we will continue to see sluggish job creation. This will increase social pressures as people are driven to desperate measures merely to survive. Poverty reduction will probably be used to legitimise the efforts at gaining control over the financial flows, but no measurable impact will occur, and poverty will grow. Astute questioning during the public participation phase of the integrated water use license application (IWULA) will reveal these inconsistencies, so that process is likely to be sidelined – hence the call for unity of purpose by the Deputy Minister to smooth things over in anticipation.

Bankable Feasibility Studies (BFS) and Cost-Benefit Analyses will always be absent in the SOE Model, because information contained in those instruments will show the extent of inefficiency (conversely the quantum of patronage extorted from the taxpaying public).

The Beneficiation Model is latent, with the best example of success being the Durban South WWTW where effluent is treated to a safe standard and then used as industrial process water in the Natref Refinery and a nearby paper mill. This model is a potential instrument for a reinvigorated circular economy, because the Durban South WWTW case has shown that sewage effluent can be safely treated and used in industry, alleviating pressure on potable water. This has also shown that private capital does not mean the privatization of water resources, which is a sensitive issue.

The Beneficiation Model overcomes the contractual constrains arising from bankrupt municipalities unable to pay their bills, by using a legal instrument known as a Special Purpose Vehicle (SPV). These SPV’s have a robust track record in the Public-Private-Partnership (PPP) sphere globally, so they are tried and trusted. The advantage of this model is that existing expertise in the private sector can be rapidly deployed across the water sector, at a greatly reduced cost. The cost reduction is derived from the efficiency of deploying capital, so corruption is limited.

The taxpayer is protected, because wherever money from the fiscus is used, it is accounted for and leveraged with private capital to achieve greater efficiency. Because of the legal protection inherent to the SPV instrument, private capital can enter the system with confidence. This means that the Fiscus is no longer the sole source of finance for any infrastructure project, so taxes can be used to greater effect elsewhere in the economy (e.g. social grants to indigent families). In effect capital constraints can be overcome by making South Africa more investment friendly. Ratings agency status is a critical variable, because a downgrade to junk status will simply raise the cost of capital.

This model could become a catalyst in the transition from a linear to a circular economy, so it unlocks many multipliers if it is allowed to flourish. In effect waste management could become the nucleus of an invigorated economy, centred on beneficiation. Therefore, we can start to add-value in other sectors such as commodities currently exported in raw low-value form to be beneficiated elsewhere. This model is likely to be relevant in strategically important areas where water constraints are acutely felt. For this reason all coastal cities could see this model being deployed in the beneficiation of sewage for industrial process water – Durban being a prime example of the possibility – but also where utility scale sea water reverse osmosis (SWRO) plant could be erected on a sale large enough to make an impact (bigger than package plant). Technology evolution is now pushing the cost down to a point where it can realistically complete cost-wise with water currently supplied from dams. This fact will become evident in any credible cost-benefit analysis made publicly available.

The emergence of this model will be characterised by the ability of the private sector partners to withstand the onslaught from the gatekeepers in the SOE Model, most of whom feel threatened by the potential loss of control over patronage flows. This will be contested terrain and some corporations might shy away. As a result, this Beneficiation Model will only succeed where it can make a clear case to the broader society about the benefits inherent to their approach. To succeed it therefore needs an Independent Water Regulator (IWR), so the battle space will be manifest in the debates underpinning that process currently underway – those opposing the IWR also probably being those that directly benefit from the SOE Model.

The preferred instrument of the elites in this model will thus be a publicly available Cost-Benefit Analysis that enables different models to be evaluated, along with different technological configurations, to achieve the biggest nett benefit to society. This will be a central element to the Bankable Feasibility Study (BFS) that is needed to raise private capital from any credible financier.

These are the two models that I see playing out over the next year. Some variations are likely to arise, but at the core this is the way I see things panning out over the next year.

At their heart is the issue of poverty. The SOE Model will claim that poor people must be given free services funded by the taxpayer. The Beneficiation Model will be predicated on the dual assumption that in order to achieve the taxes needed to sustain social grants, a healthy economy will be needed. Furthermore, it contends that the best way to eradicate poverty is to give poor people jobs at a fair wage that enables them to pay for services provided by the state. At heart this will be an ideological debate about the role of the state and its relationship with the private sector.  Water will either remain a constraint, or become an enabler, in a binary outcome.

To understand this process, we need to understand what it means to be professional. It means not only to stick to what you are meant to be doing, but to do it well, to the best of your ability. In South Africa at the moment the Local Council has too many fingers in too many pies, which makes for inefficiency at all levels.

The Local Council is accountable to their constituencies and responsible for administering municipal by-laws and policy. They should not be responsible for municipal administration, as this leads to interference with the municipal function.

The target will be to engage ethical, competent, Servant Leaders, that are focused on Community Interest, not Self Interest, but, alas, this will take time, as the political paradigm shift pendulum (that kicked into place on 1 November 2021) swings slowly, but surely.

It will be the task of the Change Agents, Part 2 – Change Intervention Programmes (CIPs) and Part 3 – Stakeholder Forums (SHFs), to pave the way for mobilizing communities to leverage this paradigm shift towards a new and functional political dispensation in South Africa.

The function of the Local Municipality is to provide basic services (Electricity, Water & Sanitation and Refuse Collection), and to professionally maintain and upgrade the infrastructure that delivers these services to the communities they serve. However, its ability to maintain and upgrade these strategic assets have led to a gradual degradation in infrastructure, and ultimately to a state of total disrepair, mainly due to a lack of project management capability. And even where competent project management capability exists, this function is rendered ineffective through political interference and lack of support.

This is where the Change Intervention Programme (CIP) comes in – Non-profit special purpose vehicles of project management professionals that are completely independent, objective and unbiased, focusing only on getting municipal projects implemented and ensuring that operational functions are able to support and maintain the infrastructure (continual process improvement). These CIPs are resourced from local communities and financially supported by local industry (under strict terms and conditions, such that there can never be any issues with conflicts of interest, subjectivity or favoritism), with the sole mandate to assist local municipalities in planning and executing projects successfully

Leaders are like eagles… they don’t flock. You’ll find them one at a time. Knute Rockne

Democracy, by definition, is meant to be government of the people, by the people, for the people. However, the current socio-political dispensation reduces this ideology to one where we see Councillors elected by the people, for a political party, for the benefit of the party, and the people don’t feature anywhere…

The stakeholder Forum (a non-profit company) changes this by putting in place a structure at local government level, whereby citizens, not politicians, will have a say in the day to day affairs of their communities, and, eventually, where local Councillors will be held accountable. This is not only truly democratic, but means that the feelings of all citizens are heard on an equal, inclusive platform, before decisions are made, by spokespersons who have been elected by, and truly represent those citizens

Lessons Learnt

It also rules out a common error that most often shipwrecks any community driven initiative – Avoiding ‘named entities’, or organisations, as members. This can be fatal, as the strongest entity usually usurps the community initiative to push its own agenda, instead of the common agenda of the community. It is mission-critical for the Stakeholder Forum to remain unbiased and objective, periodically (annually) replacing its Directorate through democratic community focus group election process.