Box 6.17  Community Shareholding and Empowerment
Nelspruit, South Africa

Links to Boxes
6.18, 12.2

In 1996, when Nelspruit, the capital of Mpumalanga province in South Africa, decided to embark on private sector participation in water supply and sanitation, it faced a number of challenges. The specific developmental purpose was to extend water infrastructure and services to those underserviced, but it was also necessary to empower the local community and ensure their participation in the process of delivery. The municipality came up with a number of innovations in a public-private partnership. These included community shareholding in the concessionaire company, a dedicated development fund that would benefit from the returns on the project and that would focus on local economic development, and systematic attempts to build skills among the labourers involved in the project.

First, a creative arrangement for community shareholding mixes the expertise of the private service provider with local knowledge and interests. At the core of this arrangement is a special-purpose company created by the winning bidder, Biwater, to act as concessionaire. To begin with, 26% of the shares in this company, the Greater Nelspruit Utility Company (GNUC), were owned by Biwater Operations, a South African subsidiary of the British water operator Biwater; 64% were owned by Biwater Capital, the company's Dutch subsidiary; and 10% were owned by SIVUKILE, a community-based consortium of local civic, youth and women's organisations.

But the contract provides for changes - subject to a due process of approval by the municipal council - that would facilitate a growing share for SIVUKILE, as well as for employees. The contract requires that Biwater Operations must, throughout the contract term, hold a significant share of 26%, but the Biwater Capital shareholding can change, especially in the interest of community empowerment. This therefore provides for an organisational structure for community involvement in the short term, with the prospect of majority ownership in the longer term. The aim is for SIVVUKILE to eventually own 51% of the GNUC, with Biwater owning 49%. One of the functions of SIVUKILE is education and training on a large scale, based on the specific opportunities offered by the project.

Biwater's participation in the utility company enables the latter to meet various financial commitments in terms of the contract, such as a substantial performance guarantee, to grow in line with the consumer price index; contract implementation fees paid at the signing of the contract; and concession fees, to be paid annually to the municipality. The company also brings international expertise, gained from its involvement in 55 countries, to the management of water services in the poor areas of Nelspruit. SIVUKILE, in turn, brings a knowledge of the community, and links with key stakeholders, to the project. It provides also a vehicle for gaining skills through the association with Biwater.

GNUC assumed responsibility for operation, management and maintenance, and for obtaining the capital investment necessary for the expansion of services as detailed in the contract. The GNUC then sub-contracted Biwater Operations as an operator, and is able to enter into sub-contracts to ensure the execution of the project. The principles of this sub-contracting are slanted towards empowerment of local small contractors and the use of local labour.

Apart from the shareholding arrangement, local empowerment is also facilitated through a community development fund, to which the consortium must contribute some of its returns. The amount to be contributed by the service provider will rise in line with consumer price inflation. Part of the agreement is that, wherever possible, preference will be given to emerging contractors. The focus is therefore on small, medium and micro-enterprises as vehicles for local economic development. The chairperson of SIVUKILE, Dr Patrick Maduna, emphasised that this fund's activities would be focused on the community as a whole, and not on individual gains. He believed that a community focus would also enhance the empowerment of individuals.

Empowerment also occurs through contract conditions aimed at building local labour skills. The contract covers the interests of municipal employees affected by the arrangement, and seeks to maximise their benefits in the interests of the broader community. Training and staff development feature prominently, and provision is made for equity schemes. The latter will enhance local shareholding automatically as the project grows and continues.

Monitoring functions are the responsibility of the council, and it will have a continuing role (with the GNUC) in setting tariffs, and controlling the quality and the levels of capital investment proposed by the GNUC to meet its performance requirements. As the elected representatives of the local community, this role holds the potential to help ensure optimal local benefit, and adherence to the contract conditions aimed at community shareholding and empowerment. The institutional arrangements are therefore structured so as to engage local stakeholders in the concession company, and to ensure that benefits are derived from the project for the community and workers.

Sources: Kotze, Ferguson and Leigland, 1999; NBI, 2000b