Greater Nelspruit Utility Company (GNUC)

active

In November 1999, a consortium lead by Biwater of the UK was awarded a 30-year concession contract to take control of the water and sewerage services in the Greater Nelspruit area from the Nelspruit local council. The deal was initiated because the municipality reportedly could not afford to upgrade water services in its newly incorporated surrounding townships. The consortium was to manage water services for 260,000 rural villagers and township residents. The joint venture project company was named Greater Nelspruit Utility Company (GNUC) and was composed of a joint venture named Cascal (formed between British multinational water company Biwater and Dutch utility company Nuon) holding 49% and local Nelspruit black empowerment firm Sivukile Investments holding the remainder. In 2005, the project company was renamed Silulumanzi. While the project company was to assume full operating risks, including billing and collections, the municipality was to monitor the contract and retained the right to approve tariffs and was empowered to penalize the concessionaire if service levels were not acceptable. Biwater was committed to investing R150 million (about US$27 million) over the first five years of the project. In July of 2000, most of the total finance for the project was obtained in the form of a R125 million loan over a seven year period from the state-owned Development Bank of South Africa (DBSA). The consortium was to pay the council R1.25 million (US$0.2 million) a year for monitoring the process and R10 million (US$1.6 million) per year to enable it to service existing water and sanitation loans. The concessionaire had also received a grant from the Department of Water and Forestry Affiars (DWAF) in the form of a bulk water discount of R2.28m per annum which was scheduled to be phased out in April 2004. By end 2005, the overall level and quality of service delivery to the surrounding townships incorporated into the Greater Nelspruit Area had improved following the concession. GNUC had laid 655km of new water pipes and 420km of new sewerage pipes, replaced 4,000 water connection points and made 5,200 new water connection points. Water looses in Nelspruit were reduced from 31% to 14%. As a result, most residents in the townships had access to 24-hour services. On September 15, 2008, Cascal announced that its wholly owned South African subsidiary, Cascal Operations (Pty) Limited, had purchased the remaining 10 percent of its Greater Nelspruit Utility Company (Pty) ("Nelspruit") water/wastewater concession project from Sivukile Investments (Pty) Limited. However, beginning in 2001, the Nelspriut project began to experience serious financial problems as rural villagers and township residents embarked on a concerted payment boycott that had put the consortium R17 million into debt by 2002. Tariffs had increased, but there was much dispute over how much as worker's unions were claiming upwards of 400% while Biwater was putting the figure at closer to 10% in real terms. The nonpayment problem had led to a loss in investor confidence that resulted in a moratorium on new investment for extending services within the concession area until payments rates reached 50% in the townships. GNUC had thus narrowed its focus to operations and maintenance of existing infrastructure. GNUC was lobbying for a higher than planned 10% rates increase in Nelspruit's former white suburbs and was also asking for an increase of R700,000 per year in the council's existing R2.2 million annual subsidy to deliver the guaranteed minimum of 6000 litres per household a month free-of-charge. None