Description

In 2004, the growing purchase of water by the utility in Emfuleni Municipality and high water bills raised concern for Rand Water. Rand Water initiated an emergency leak detection procedure by installing a data logger on the bulk water supply line to Sebokong and Evaton residential areas. It showed the Minimum Night Flow (MNF) reading was 2,800 m3/hour in Sebokeng and Evaton, enough to fill two Olympic sized swimming pools every hour. In terms of Non Revenue Water (NRW), 80% of water supplied was lost through leaking household plumbing fixtures, and this water entered the wastewater system, resulting in the outflow of raw sewage into the Vaal River, raising environmental concerns. The water supply project in South Africa’s Emfuleni Municipality consists of a performance contracting arrangement for a new leakage management system for bulk water supply. Innovative pressure management technology was applied to the water supply system of two low-income residential areas, yielding significant savings in water and energy costs for pumping and treating water for distribution. The payback period was only 3 months and financial savings, from both reduced energy use and water losses, was estimated at USD 3.8M per year for a lifetime of 20 years. Under the performance contracting arrangement employed to finance and implement the project, the municipality retains 80% of the water and energy cost savings during the first five years and 100% of the savings thereafter.

Location

Emfuleni Municipality, South Africa

Region

Sub-Saharan Africa

Instrument

Energy performance contract (EPC)

Instrument category

Public-private partnerships (PPP)

Secondary instruments

N/A

Project size (range)

USD 0-5M

Project size (details)

USD 800,000

Implementer

Emfuleni Municipality

Year of financial closure

2005

Client

Emfuleni Municipality

Primary financer

Emfuleni Municipality

Other co-financers

WRP Engineering Consulting Company (WRP)

Other contributors

Alliance to Save Energy (ASE)

Other transaction participants

The project involved a sophisticated and complex PPP involving at least 12 stakeholders: WRP took the lead for project implementation and project performance risk; Metsi-a- Lekoa, a water utility formed by Emfuleni Local Municipality, was the client; WRP received financing from The Standard Bank of South Africa; facilitation of the project contract was done by the Municipal Infrastructure Investment Unit (MIIU); and, ASE undertook auditing/monitoring and verification of savings. WRP’s team included specialist support from DMM, Platinum Consultants, and Coplan. In addition, Wide Bay Water in Australia provided support as a specialist reviewer. Other team members included IRCA, Batho Pele, and WK Construction.

Barriers addressed

Affordability of water supply including lower energy costs associated with water supply.

Mitigating emergency leakages due to poor infrastructure.

Improvements in the municipality’s financial status.

Financing structure

Metsi-a-Leoka signed a water and energy performance contract under a Build-Own-Operate-Transfer (BOOT) arrangement for five years. A consortium led by WRP Engineering Consulting Company was selected as the contractor under a competitive bidding process. WRP acted as an energy service company, or ESCO, providing turnkey services while undertaking all financial and performance risks. WRP was required to provide engineering designs and construction of the bulk water pressure management system and full project financing. WRP was also required to provide a basket of services, including financing, design, implementation, commissioning, and operations and maintenance (O&M) over the contract period and municipal training staff in operations before transferring equipment. This contracting arrangement was deemed the best approach given Metsi-a-Leoka’s and Emfuleni’s limited ability to access capital and their lack of technical capacity regarding advanced pressure management technology. WRP invested about USD 800,000 under a “Shared Savings Agreement.” Under this arrangement, WRP received remuneration for its services based on verified energy and water savings from the project over 5 years. 20% of the project’s savings were accrued by WRP Consulting, and Metsi-a-Lekoa retained 80%. Alliance to Save Energy (ASE) was the principal promoter of the project. It helped procure contracting engineering services, and drafted tender documents, which required bidders to secure financing for investment in the project. In addition, it provided assistance in legal arrangements, negotiations, and the statistical determination of future water supply projections (the baseline). ASE also served as an independent technical auditor to verify monthly savings and payments to the contractor.

Suitability for cities in low-and-middle income countries (detail)

Yes. It provides a suitable technology under a shared savings arrangement that can succeed in low-income communities.

Weblinks

ESMAP. (2009) Good Practices in City Energy Efficiency.

References

Rabe, M. (2006) Alliance to Save Energy.