B. A Mixed Capital PPP Company Addressing the Problem of Effluent and Solid Waste Treatment from the Northern Industrial Area ff Windhoek, Namibia

Jan van Harmelen
Multidisciplinary Research Centre, University of Namibia
Namibia

Introduction

This presentation describes how the Public-Private Partnership (PPP) concept, in conjunction with a low technology systemic approach, was used to develop a sustainable, eco-efficient solution to an urban environmental problem for the city of Windhoek, Namibia in southwest Africa. The goal was to develop an approach that not only addressed the urban environmental aspect, but as a result of its replication potential would make a significant contribution towards poverty alleviation, through job creation and capacity building within the country and the region. Despite these rather lofty ideals, our solution still makes good business sense.

The PPP concept was introduced in Windhoek in 1997 by representatives of Sustainable Project Management (SPM), a Geneva-based NGO acting as a facilitator on behalf of the UNDP Public Private Partnerships for the Urban Environment (PPPUE) Programme. SPM was active in the Namibian Programme from the outset through all of the various stages up until the local partner organisations made the decision to establish a PPP company, at which stage SPM, having fulfilled their mandate, formally withdrew. Developments beyond this point have become the responsibility of the local PPP company, the Environmental Project Development Company of Namibia (Propriety) Limited (EPDC), working in close collaboration with, and with considerable funding from, the UNDP Resident Representative and his team in Windhoek and UNDP's PPPUE office in New York.

Identifying The Urban Environmental Problem

Water is an extremely scarce resource throughout Namibia. Twenty-two per cent of the total landmass consists of desert regions with an average annual rainfall of less than 100 mm. Only eight per cent of the country receives more than 500 mm of rain annually. To further exacerbate this situation, 97% of all soils in Namibia have a clay content of less than 5%, meaning that the soils have very poor water retention qualities and are generally unsuitable for crop cultivation. This has profound consequences for the growth of urban centres due to rural-urban migrations and the concomitant urban environmental problems that arise, particularly in informal settlements.

In this context we had already begun discussions with the City of Windhoek with a view to constructing a pilot project at the Ujams Water Treatment Works, situated north of the city.

The existing Ujams Water Treatment Works has been used for the treatment of industrial effluent, primarily from agro-industries, for the past thirty years. It consists of a series of anaerobic and aerobic ponds, culminating in a series of maturation ponds before the runoff flows back into the groundwater system. This same water treatment concept is applied in a variety of designs in the majority of smaller urban areas in Namibia. The proposed system, therefore, represents an opportunity to develop a model project that can be used as a point of departure for replication in other urban centres.

Ninety-seven per cent of the influent flowing into Ujams emanates from Namibia Breweries Ltd., Hartlief Continental Meat Products (Pty) Ltd. (a meat packing and processing plant) and Meatco (a slaughterhouse). In terms of prevailing municipal regulations, all these industries are being charged penalty tariffs based on the quality of effluent discharged (measured in terms of oxygen absorption values). The effluent from the treatment system has high levels of nutrients that organically pollute both soils and aquifers in the immediate vicinity.

A considerable amount of the solid organic waste generated by these industries is classified as "problem waste" due to the hydraulic loading caused by its dumping. At the time we began our investigations, these waste substances were being dumped at a landfill site designated for problem wastes near the northern industrial area. This landfill has since been closed down due to a number of factors, the primary reason being that it had been positioned directly above an aquifer. In addition, this landfill site was located in close proximity to the city's main concentration of informal settlements, and local inhabitants would scavenge for waste meat and food products that had been dumped. The fact that the landfill was also a hazardous waste site where expired drugs and other potentially hazardous pharmaceutical products were dumped provided additional cause for alarm.

Fortunately this site was closed down at the end of 1997. Following the closure, however, industries situated in the northern industrial area faced a considerable increase in their waste removal and dumping costs (an increase of N$80 per 5m3 of waste) due to the increased distance to the alternative site. Combined with the penalty tariff system for effluent discharges, these higher costs provided an ideal entry point for our proposal to establish a PPP coupled with our appropriate technology solution.

Brief Overview Of The Technology

The most appropriate technology solutions we found were presented by the Zero Emissions Research and Initiatives (ZERI) programme, a programme developed under the sponsorship of United Nations University (UNU) that focuses on the elimination of waste and pollution.

In Namibia, we concentrated on applying techniques developed by the ZERI Programme to reduce effluent generated by agro-industries through the implementation of an integrated farming system. This approach had been developed for use in the treatment of effluent with a high organic solids content in conjunction with solid organic waste. This application became known within the UNU as the Integrated Biosystem (IBS).

A pilot implementation of the IBS concept, undertaken as a partnership development between the United Nations University, University of Namibia and Namibia Breweries Ltd. was initiated at a new sorghum brewery 450 km north of Windhoek. This pilot project was designed to treat the effluent and solid waste (spent grain) generated by the brewery within the Integrated Biosystem, using these waste products as input resources. The spent grain is utilised as an additive for pig feed and also as a substrate for mushroom production, while the effluent is used in conjunction with pig waste for biogas production.

The underlying principle in the adoption of this concept is that the only input cost within the application of the system is labour, as all other inputs are either wastes imported into the system or inputs produced within the system. Although the results obtained in our first trials were very promising, refinements are still being carried out to adapt this technology for successful application under Namibian conditions.

Identifying The Potential Partners

The identification of potential partners involved working with the organisations that would be directly affected by development at the Ujams site.

There is a very clear public sector interest in this project. In this instance the City of Windhoek and the Dept. of Water Affairs of the Ministry of Agriculture, Water and Rural Development have to accept responsibility for treatment and discharge of an acceptable quality after treatment.

On the other hand, those private sector industries discharging effluent into the system, that is Namibia Breweries Ltd., Hartlief and Meatco, are also the largest generators of organic solid waste materials in the northern industrial area.

These industries could therefore be considered a captive audience, as common sense compels them to give consideration to any proposal that could result in real savings in their effluent discharge and waste removal. While compiling the Feasibility Study Report for the Ujams Project, we found that the potential annual savings for Namibia Breweries alone would amount to N $242,737 (US $40,456), while Meatco could save N $363,576 (US $60,596).

As the technology provider and the implementing agent for the ZERI initiative in Namibia, the University of Namibia was naturally considered to be an essential founding member of the evolving partnership. In furthering the PPP concept in terms of industrial development, we also considered it essential to secure support from the Ministry of Trade and Industry, which has a directorate dedicated to industrial development.

Early Strategies - Netting The Partners

The first challenge was to find common ground between the partners. A July 1997 workshop was well attended and demonstrated considerable interest in the proposition. On reflection, however, it must be acknowledged that many of the responses were tinged by a healthy dose of skepticism, and even incredulity, because collaboration between the public and private sectors - who have traditionally operated as "sworn enemies" - was not considered workable. This latter perception was based on the fact that the public sector was responsible for enforcing legislation, while the private sector spent their time finding ways of evading this legislation. Following the workshop, it soon became apparent that the only real interest in pursuing this concept rested with those organisations that had the most to gain in terms of real savings in operating expenses.

A Memorandum of Understanding (MOU) required signatories to commit themselves to examining the merits of establishing an EPDC. This document was signed at a meeting of a working group held in November 1997 by the following:

For the Public Sector: City of Windhoek; Ministry of Trade and Industry; and University of Namibia

For the Private Sector:

Hartlief; Meatco; Namibia Beverages; and Namibia Breweries, Ltd.

The Dept. of Water Affairs and the National Planning Commission in the Office of the President came on board later.

Pre-Establishment Infrastructure, Implementation And Budget

An Executive Committee consisting of decision makers drawn from each of the parties to the MOU was formed to ensure that the momentum was maintained. An Interim Project Coordinator (IPC) was also appointed. As proposed by the IPC, an Implementation Strategy with appropriate budget parameters was finalised. This strategy committed us to considering the EPDC in a context broader than just the Ujams Project, and included consideration of potential projects in the water, energy and waste sectors that would allow the possibility of applying a broad spectrum of appropriate technologies.

In this context, the EPDC would operate as a holding company that would enter into additional joint venture agreements with operating partners to establish a variety of operating companies, the idea being that these operating partners would accept the responsibility for daily operations. To address this strategy a series of mini-workshops with our partners and other interested parties were held. Discussion summaries of these workshops were presented to the Executive Committee, and the decision was taken to concentrate our attention on the Ujams Project as the prime demonstration site.

Pre-Feasibility Study

The pre-feasibility study was a desktop projection based on a conceptual design prepared using the experience gained in the previously mentioned Tsumeb project. As a result, this design was in essence an expansion of the Tsumeb concept, taking into account the waste streams at Ujams.

Using conservative operating efficiency projections, this report indicated a likelihood of a sound business with a payback period of just over three years, and as a result it was recommended that a full feasibility study be undertaken. At that point a budget for the feasibility study of US$100,000 was proposed.

Proposal To Conduct The Feasibility Study Setting The Parameters And The Budget

In order to test the viability of the IBS technology, it was proposed to begin with a small-scale pilot phase. Most of the funding for the feasibility study would be reserved for the construction of a pilot operation, and a budget proposal of N$55,000 was accepted, jointly funded by SPM and the private sector partners to conduct a three-day workshop. The University and the City would provide an in-kind contribution by making the services of expert personnel from within their staff available during the workshop. In addition the City would carry out a variety of water quality analyses at their own expense. During this workshop a down-scaled version of the tasks established in the project management plan was to be investigated by mostly resident experts in the various disciplines.

Securing The Financial And Personal Commitments

A comprehensive study on the site was carried out, with particular emphasis on influent flows and quality. This included considerable desk research, making use of the City's records, to observe longer-term trends. In addition, a U.S. Fulbright Scholar sponsored by the Windhoek Municipality contributed approximately 1,200 hours addressing technical issues related to water and solid wastes in the Northern Industrial Area and at Ujams. These assessments were carried out prior to the workshop, and the data was circulated to all workshop participants.

Following a presentation and discussion on the prevailing conditions on site, the participants were divided into expert groupings based on assessments undertaken prior to the workshop. Each group discussed the tasks within their field and presented their findings in a series of plenary sessions. Written summaries of their presentations were submitted for inclusion in the Feasibility Study Report.

Finalising The Report - Is It A Sustainable Business Solution?

The Feasibility Study Report, completed in mid-April 1999, included projections for both pilot and full commercial scale operations. This was presented in a five-year plan, with two years devoted to the pilot phase and projections for a further three years of commercial operation, with a phased scaling-up to full capacity. The projections were based on yield efficiencies of approximately 50% of what would normally be considered achievable.

Despite this level of conservatism, the report indicated that full payback within the five-year period would be achieved with an investment of N$1.9 million in the first two years of the pilot phase for infrastructure, and a further N$16.6 million in the following three years to expand the infrastructure and increase production levels. An annual 48% return on investment would be achievable thereafter, thus creating a viable business, even when achieving only 50% of expectations.

Although some doubts about the IBS technology persist, we remain committed to this application as the most logical approach. When one examines the system's elements it is obvious that there is no "rocket science" involved, as every individual technology has been tried and tested over many centuries. The uncertainty lies in the context of overall system performance in achieving the stated objectives.

Presentation Of The Findings

Uncertainty over the performance of the scaled-up version of IBS technology within the Namibian context continues to be a serious drawback. Added to this is doubt over whether a PPP arrangement can be successfully implemented. This lack of conviction is the primary reason why the partners (particularly the private sector partners) that would be required to provide the greater proportion of the cash investment are hesitant about further financial commitment at this stage.

In lieu of cash, the City's contribution would be made in-kind by providing the project site at no cost. Considering the commercial rental rates that might have been realised by leasing this site, this represents a significant annual contribution. In addition, the City will analyse water quality. Given the financial risks associated with an untested technology and the significant matching requirements established by the in-kind support of the government, it has been difficult for the private partners to convince their boards of directors to invest in something that lies outside their core business.

Recognising the wariness of the private sector, we approached the UNDP Resident Representative in Namibia, Dr. Stephen Adei, to explore the possibility of additional funding for the Ujams Project as part of one of the local country programmes. Dr Adei persuaded the University to commit UNDP funds to the Ujams Pilot Project.

The University's commitment prompted the other partners to agree to the establishment of a limited liability company, with each of the partners as equal share members. Although the government ministries will not be registered members of the company, it is intended that strategic partnership agreements will be drawn up with them. In these partnerships they will continue to participate in the development process and provide valuable support and in-kind contributions in the form of technical advice.

Establishment Of The Company

Because the PPP concept is little known in Namibia, an essential element in proving the viability of the organisation during the pilot phase will be building confidence that such a company can successfully operate in this type of innovative partnership.

During the feasibility study we consulted with auditors and attorneys to obtain advice regarding the most appropriate company structure. Although a number of alternatives were considered, it was finally agreed that a private, limited liability company, in accordance with Namibian Company law, would be most suitable. In addition, it was proposed that the shareholding should be split equally amongst the partners.

In proposing this structure we sought to avoid the possibility of one "cash-rich" partner holding the others to ransom or hijacking the organisation for their own purpose. The partners have accepted these proposals, and the company will be registered on that basis.

Nomination Of Executive And Non-Executive Directors

Each company will nominate a non-executive director who will represent their interests as a member of the Board of Directors. They will also nominate an executive director who will be responsible for day-to-day operations. Nominations have been received from all the partners and registration of the company is at hand.

Shareholders Agreement

A proposed interim shareholders agreement has been circulated, covering only the pilot phase period. The primary aim of the interim shareholders agreement is to protect the interests of the funding agencies and ensure accountability, reporting back, and evaluation within the milestone time frame. It also secures the right of UNDP or any other funding agency to have a representative in attendance at all meetings to ensure transparency at all times.

A new agreement will be drafted at the end of the Pilot Phase once the decision has been taken to proceed with full-scale commercialisation.

Registration Of The Company And Getting Started

It is expected that registration of the company, which normally takes four to six weeks, will be completed by the end of 1999.

The above constitutes another delay of approximately two months because some member organisations needed more time than originally anticipated to obtain final ratification from their respective management committees and Boards of Directors. We nevertheless remain optimistic that construction of the infrastructure will begin on schedule in March 2000, with operations due to begin as planned in July 2000.

Needs Analysis - Identifying PPP Opportunities

No comprehensive review of the Namibian urban environment with the inputs of all key public and private sector stakeholders was undertaken. The stakeholders in this context should have included the following parties:

Public Sector

• Ministries of
  • Local Government and Housing
  • Environment and Tourism
  • Agriculture, Water & Rural Development
• Agronomic Board of Namibia· Ministry of Trade and Industry
• National Planning Commission
• Ministry of Health and Social Services
• Ministry of Fisheries and Marine Resources
• Utility Companies in Water, Energy & Transport Sectors

Private Sector

• Full spectrum from manufacturing sector
• Financial Institutions
• Agricultural Unions
• Fresh Produce distributors

Development NGO's and UN agencies such as UNDP, UNIDO, UNESCO, UNEP, and others, should also have been included in this stakeholder workshop.

This review would be an important precursor to the development of an overall needs analysis, with an appropriate prioritisation of the country's national development strategies. This information is essential for identifying opportunities for PPP implementation.

Project Infrastructure And Management

The project requires at least one full-time expert to assume the role of Project Manager to move the process along at a sufficient pace. Prolonging the implementation plan through lack of manpower reduces momentum and can reduce valuable support.

The process of developing the project, from conceptualisation through publishing a bankable document, should be funded by appropriate development assistance.

The expectation that partners would co-fund this process was unrealistic, given the fact that SPM was not able to bring to the table a comprehensive track record of working examples of PPP's elsewhere as case studies, and given that this is coupled to an as yet unproven technology. The ultimately low levels of funding that the partners were prepared to invest prove this contention.

Is it realistic to expect businesses to invest in an unknown and unproven application that lies outside their normal core of experience? By the same token, is it realistic to expect public sector organisations to invest in a system that lies completely outside of their normal terms of reference, without at least some reassurance of successful implementation?

In view of such questions, it might have been more realistic to obtain financial commitments with a document that focused more on the proposed venture's assessment as a sound business proposition, rather than a series of projections about what should be possible. Under the circumstances, given a total budget of N$155,000 (~US$26,000) for the entire development (including the feasibility study), the latter proposal represented the best possible outcome.

This is particularly relevant in a traditionally divided society like Namibia, a context which faces divisions not only along racial lines, but more significantly from an ever-increasing gap between the "haves" and the "have nots." Unions oppose PPP's because they perceive them as the ugly face of privatisation coming to the fore.

Despite this, partner involvement from the earliest stages of conceptualisation throughout the development process of the project is needed to ensure sufficient understanding of the concept from the outset. The inputs provided are also invaluable from an entrepreneurial, sociological, and technical point of view. Their in-kind contribution, via the input of their executives participating in workshops and meetings, should be accepted as a valuable contribution.

In this context it is also important that the process not be too protracted, or that meetings are held too frequently. Experience from this project has shown that decision-makers may stop attending meetings and delegate this responsibility to lower level personnel who generally do not have the authority to make decisions on behalf of their institutions. This results in even more delays in moving the process forward.

In instances where staff members are selected from within the partner organisations to carry out specialist tasks, it is recommended that these individuals be paid a consultancy fee and granted an appropriate leave of absence for this work. This is of particular relevance to academics as it is standard practice to be paid consultancy fees for any additional work they undertake. Although a large proportion of the work was done on a voluntary basis, this was restricted to a handful of dedicated individuals. As a result, we were not in a position to give full attention to some aspects of the project's technological or business development. Understandably, the feasibility study has several shortcomings, particularly in its failure to assess some of the intended production processes, as well as its lack of an in-depth evaluation of the project's market and business potential.

Concluding Remarks

Tribute should be paid to the few dedicated individuals who brought this project to implementation, especially considering all that they achieved over the two year start-up period - including the successful funding of the company's registration costs - all with a total cash budget of N$155,000 (~US$25,000) and a remaining positive cash balance of more than N$7,000 (US$1,000). This tribute is especially appropriate given that this was achieved using a completely novel approach, working in a vacuum without previous experience as a reference point. This was groundbreaking work for Namibia that will hopefully be used as an example for others to follow. The primary consideration is that despite the many drawbacks, the process is on track to go forward.

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