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Welcome to The Executive Exchange, a premier podcast series for on-the-go senior executives. Each episode features short, impactful podcasts where industry leaders share key insights and experiences from the water industry.
[00:00:00] Piers Clark: Welcome to the Exec Exchange; 15 minute podcasts in which a leader from the water sector shares a story to inspire, educate, and inform other water sector leaders from across the globe. My name is Piers Clark and today my guest is Mike Webster, who currently works at the World Bank, but we're talking today because of the role he played in his previous job, where he was the executive director at Cape Town.
Hi Mike, good to see you.
[00:00:25] Mike Webster: Good to see you, Piers. Great to be here.
[00:00:27] Piers Clark: Let's start with a little bit about you and the job you're in now and the job you were in, which is obviously the main topic for today.
[00:00:34] Mike Webster: Thanks, Piers, and greetings to you and your listeners. I'm currently the program manager for the 2030 Water Resources Group in the World Bank. This is a group looking at water security globally and looking particularly at how to increase private sector collaboration within the water security space, which is very relevant to the previous task I had, which was the executive director of the water and sanitation directed within the city of Cape Town, and I did that for five years from 2018 to 2023. And in that position, it was really running the utility responsible for water services and sanitation services in the city of Cape Town. This is a city of about 5 million people, about 10, 000 kilometers of water, 9,000 kilometers of sewer, production of 1, 600 megaliters a day, 23 wastewater treatment plants, as well as the drainage and the stormwater services that go with that.
[00:01:30] Piers Clark: And most people who are in the water sector know Cape Town for being famous for the utility that got right to the precipice of day zero and you were the man at the helm during that time. I'd like you to talk me through how the crisis appeared and what you did to see it through that crisis, and what the subsequent actions have been, because I think the headline here is you achieved a 55 percent reduction in water demand over a three-year period, which is phenomenal. And the sort of thing that just shows what's possible when you're facing that scale of crisis. So how did it appear first of all, could you see this crisis coming from a long way out or did it creep up on you suddenly?
[00:02:07] Mike Webster: I think the first point to make is that the city is almost entirely reliant on surface water; on six large dams near to the city. And these dams are reliant on rainfall, and they're cyclical. So, they use about 20 or 30 percent of the annual demand per year. They fill up in winter.
Three, four years before the crisis, the dams were a hundred percent full. And then between the 2015 to 2017 period, we had the lowest rainfall in almost 600 years. And that cumulative effect of this once in a more than a lifetime drought meant that the levels of the dams cumulatively went below 20%. And it was determined that if that would reach 13. 5%, the city wouldn't be able to extract any water from the dams and would essentially run out of water and run out of the ability to provide the 660,000 customer connections and the city with water. That was deemed as a day zero. So, what happened was, in the midst of the crisis, and I actually only came at the end of that period, but it was seen that there were no supply options really available to address that dramatic deficit in supply. You couldn't suddenly build a desal plant or a reuse plant or drill a hole in the boreholes to supplement it, but really demand management was the only credible alternative.
[00:03:33] Piers Clark: And had those other options been considered and then rejected, or was it just people hadn't put their minds to it quick enough?
[00:03:41] Mike Webster: So, desalination was actually raised as a supply option many years before, and it was projected by the engineers and the planning department that they would be coming up against the supply of the dams. But because of the 100 percent full dams, it was never financed. The cost of desal is so incredible. During the drought there were measures and there were temporary desal plants installed and there was temporary reuse plants installed, but nothing at the scale necessary to avert the crisis. If you look at the relative amount augmented through supply options compared to the demand reduction, it was a fraction what is needed. Coming to the demand management, as you said; a 55 percent reduction in demand. So, from over a thousand megaliters a day to under 500 megaliters a day over a three-year period essentially came from three main measures. From more traditional engineering measures, leak reduction, meters that actually shut off after a certain daily use, called water management devices, pressure management. We actually saved in the peak, 70 megaliters a day from pressure management; dramatically reducing pressure in certain pressure zones. And then on the financial side, tariffs that disincentivized customers from high usage. So, at the very top end, you got charged a thousand rand per cubic meter, which is close to $60 US dollars per cubic meter of water used. It means if you were away for the weekend and you had a leak on your side of the meter, you might come back to a water bill of over a million rand, which obviously didn't make customers, endure them to the municipality.
[00:05:20] Piers Clark: Do you know the respective savings that were made by each of those actions individually or is it too difficult to separate out?
[00:05:25] Mike Webster: Not easy to determine, but if you say if you divide into the sort of physical engineering, the financial, and then the third I was coming to, which is the communication side. This Day Zero campaign, a lot of engagement with companies, with industry, with various stakeholders; they all played a part. We know from pressure management, 70 megaliters a day at the peak. We know from the water management devices, another significant chunk. I would say the single biggest source of that reduction was the tariffs, although quite difficult to really disaggregate that across the board.
[00:05:58] Piers Clark: And did you have to modify the terrace? Did you have to launch them and then tweak them?
[00:06:02] Mike Webster: That was a complicated process. So, the study is always put in restrictions based on previous droughts. And so, there's various restriction levels that say you can't water your garden in certain times of year, or you can't fill a swimming pool, or you have certain projected usage amounts.
And the idea was that it's a public sector utility and it needs to be revenue neutral. So as restriction levels increase, your tariffs can increase commensurately so that your net revenue remains neutral. But what happened during the drought, instead of the traditional levels of restriction of 1, 2, 3, which had been used in the past, we got up to restriction levels 4, 5, 6, 6A, 6B, and all of those kept having to revise the tariff necessary to bring in the necessary revenue. Keep in mind as well that, of the customer base, the 660, 000 customer connections, about 38 percent of the city gets free water based on the national policy of indigent water supply for the country. Um...
[00:07:07] Piers Clark: Irrespective of how much water they use?
[00:07:10] Mike Webster: No, up to 10 and a half thousand liters. It's deemed what is necessary for public health and for domestic use. And beyond that there hasn't been a lot of success in debt management. So, although you are supposed to pay over 10 and a half thousand liters, debt management on indigent properties has not been great. The point I wanted to make really is that, when your tariffs increase for your paying customers because of this significant portion of nonpaying customers at the bottom end, your tariffs have to increase relatively more.
And so, with each of these restriction levels, you had to rejig the tariffs in order to bring in the revenue necessary to manage the utility in real time. And as you got to level 5, level 6, 6A, 6B; each required a different tariff level to be approved by the city council and to be, on the shoulders of the customers and the public writ large.
[00:08:02] Piers Clark: So that's how you dealt with the crisis as it was there. What's the impacts after the crisis had moved? How many of these measures are still in place?
[00:08:10] Mike Webster: So, the key was to develop a strategy that really prevented a future day zero and dealt with this vulnerability. And that had two main components. On the demand side, keeping the demand below a target of about 170 liters per capita per day, which is deemed to be ecologically environmentally sustainable through tariffs through other measures.
But then on the supplier side, to move beyond the surface water sources to actually have additional supply from groundwater; so big aquifer developments in three big aquifers across the city. In desalination, putting up a hundred megaliter a day, new permanent desalination plant. And through water reuse, both increasing industrial reuse, other types of reuse, and potable direct reuse.
[00:08:55] Piers Clark: And did you have any of those direct or indirect reuse going on back in 2018?
[00:09:01] Mike Webster: There was some. I think in 2020, we were using about 6 percent of our effluent for reuse. That figure is now quite a lot more and the direct potable reuse is going to be sizable. This is a 70 megalitre a day direct potable reuse plant, expandable to a hundred megalitres a day. Once the construction is completed, it will be the largest direct potable reuse scheme in the world.
[00:09:25] Piers Clark: I guess maybe there's an argument that says that you wouldn't have been able to launch those reuse schemes if the public hadn't had to go through the day zero event.
[00:09:33] Mike Webster: I think that's very much the case, particularly on the reuse side, which is somewhat controversial. The memory of the drought, because the drought affected every household, every business, you didn't need to remind people right after the drought that they didn't want to go back there. Getting broader public buy in and getting political buy in for the tariffs necessary to implement reforms was essential. I think that also takes me to another element of it. We also used the memory of the drought and the crisis as a crisis to reform the utility itself. We did organizational changes.
We put in a new leadership structure. And most importantly, we developed a commercial services department in the utility that focused much more on the revenue side of the business. Before it had been more like many water departments the world over of an engineering focused organization, this balanced that out with the commercial aspects, looking at the collection rate, which increased significantly over this time, debt management, advanced metering, customer relations, and we ended up increasing our revenues, on average, by about 20%. Which has financed up to a full filled increase in our capital budget.
[00:10:45] Piers Clark: That's absolutely incredible, isn't it? Out of the fires of the crisis, you've been able to instigate some changes and drive an organizational change that enables, hopefully, to be certain that the crisis won't come back. And that 20 percent increase enabling you to quadruple, I think I heard you say that right, you know, fourfold increase in your capital budget, which therefore means you can invest in the infrastructure to hopefully avoid the crisis happening again.
[00:11:08] Mike Webster: Exactly.
[00:11:09] Piers Clark: Incredible. Now, what we're hoping to do is, Leonardo Manus, the man who took over from you, we're hoping to get a response from him telling the story of what it's like in the post day zero world. And that'll come up in a future podcast.
We always finish by asking our podcaster to go back 20, 30 years, and, if you could go back in time, what advice would you give a young Mike Webster?
[00:11:32] Mike Webster: Go with your gut. There's probably two significant decisions I made that were counter to what my peers and various people I respected would have advised. One was doing a master's in the UK, that was very expensive, and when I had a good job that I left. And the second was going back to the city, which was giving up a full-time job at the World Bank and having to resign to do that. Both proved to be pivotal in my career and have helped me align my values, my principles, my identity with my career, and have really put me on a course that's much more mine than one that would have been constructed by someone else.
[00:12:13] Piers Clark: I hadn't realized that you've gone World Bank, Cape Town, and then back to the World Bank.
[00:12:18] Mike Webster: I resigned from a position for something that was a third of the salary and giving up a permanent position, to a career that is possibly the most important thing I've done in my career.
[00:12:30] Piers Clark: Wonderful! Thank you very much, Mike.
You have been listening to The Exec Exchange with Piers Clark and my guest today has been Mike Webster, currently with the World Bank, but formerly was the executive director at Cape Town. Please join us next time. Thank you.