While central government and labour squabble over restructuring state assets and privatisation, local authorities are leading the way in contracting out municipal services to the private sector.
As early as 1991, the Benoni Town Council started contracting out its fire and ambulance services to Fire and Emergency Service Holdings, while many townships are also privatising their waste removal in an effort to create employment and provide services that were previously lacking.
According to Philip van den Heever, director of First National Bank’s Local Government and Privatisation Unit, the debate surrounding restructuring of state assets has highlighted two areas of conflict between the government and the unions.
The first is the issue of job security versus improved efficiency. The second concerns broad public ownership versus a commercially accountable management. “Contracting out of government services could satisfy both sides, without removing the responsibility of service provision from the local authority,” said Heever.
The process is simply that the government agency enters into a contract with an agent or service provider to perform the necessary task on its behalf. “In this way, broad public ownership is retained for the right reasons and the maintenance of public interest is ensured. Elected public officials retain accountability for the delivery and quality of service,” he said.
Taxes, rates and tariffs are still paid directly to the government body, which can cancel or replace the services provided by the private sector.
This could mean appropriate levels of service at an affordable rate, with uneconomic areas being subsidised initially and developed areas being run by the service provider at a profit to the council.
Stephen Barber, managing director of Fire and Emergency Service Holdings, says its operation has already resulted in savings topping R16-million for the Benoni authorities and a 25% annual reduction in expenditure on fire and ambulance services.
The Benoni subsidiary achieved a R14-million turnover for the financial year 1995/96. This success has allowed the holding company to start vertically integrating into the manufacture and retail of fire engines, emergency control and rescue ambulance services.
“This allows cost savings to be directly passed on to the local authorities,” Barber said.
According to Barber, local authorities throughout South Africa are increasingly looking at contracting out services as shown by the company’s recently acquired contract for the provision of emergency services in the Natal Midlands region.
The group is expecting to achieve a R50-million turnover at financial year-end. “But we still face opposition from certain quarters to our operation,” Barber says.
He believes this stems from the misconceptions that contracting out is a job destroyer. “We are actually job creators. There were no retrenchments from the 178 personnel at the Benoni emergency services when we took over, in fact the holding company now employs 500 people.”
Barber argues that if the government had to contract out all its emergency services it could achieve savings of R1-billion over the next five years.
According to van den Heever, new efficiencies are evident within the Benoni emergency services as the company strives to ensure the renewal of its contract with the council.
This bid for efficiency is seen in several townships that have employed a private waste-management consultancy for domestic waste removal. “The concept embraces the principles of the Reconstruction and Development Programme by training unemployed people to establish and run privately owned waste management operations in their own communities,” said Billy Hattingh, owner of Billy Hattingh & Associates.
A contractual agreement is negotiated between a newly trained entrepreneur and the local authority, under the terms of which the entrepreneur is expected to carry out waste removal from an agreed area for remuneration.
This contract varies in size from R24 000 to R26 000 and each area is allocated up to a 1 000 houses a day to service. The concept was first introduced in KwaNdebele and has proved so successful it has been implemented in Orange Farm, Ivory Park and Shosanguwe. Port Elizabeth, Welkom and Kimberley are set to follow soon.
“We have seen an increase in the payment of services in the communities where we have been operating,” Hattingh said.