Holistic strategy and a national regulator will solve water crisis
Political will, capital and regulation needed to devise new system
Service delivery protests are a sign that desperate citizens seek alternatives to taking to the streets to express anger, frustration and even bewilderment as a result of poor service by the administration. Where are the services? Where in particular is the regular and safe supply of water, a basic human right?
Surely with the right political will, regulation, capital and management, it is possible to devise a system better than the chaos that reigns in certain communities? Granted, the water sector in SA is complex. There are a number of interrelated stakeholders, ranging from the Department of Water and Sanitation, to catchment area management, water boards, local municipalities and the end water users.
The National Water Resources Strategy outlines the institutional structure of the water sector and highlights the roles of the various players in the water value chain. However, certain parts of this value chain are showing signs of distress, with severe consequences.
The first signs of concern are the water boards. Water boards construct and manage bulk water infrastructure construction. This infrastructure is financed by bonds issued and capital or funds raised by water boards, which is to be repaid from the supply of bulk water to local municipalities. Yet recent news headlines have revealed that the financially constrained Department of Water and Sanitation and local municipalities owe billions to water boards and water service providers. The water board utilities in turn owe money to service providers, some of whom are threatening to take utilities and the department to court to force payment before resuming critical infrastructure projects aimed at easing water shortages.
Unfortunately, local municipalities have similar problems on a different but equally dire scale. The challenges are multiple: at the municipal level there is often limited long-term financial capital and limited technical expertise; some municipalities do collect water charges from end users but lose up to 80% of their bulk water through leaking infrastructure with limited resources to absorb the losses.
Yet others cannot pay for the water due to nonpayment by some end users. The most important stakeholder of all, the law-abiding end user, is powerless — so service delivery protests will continue.
All this takes place against the backdrop of accursed, prolonged drought conditions in many parts of the country.
The case for investment in water infrastructure has never been greater. Investors and capital are in fact available. Yet the opportunities are as scarce as the resource itself. New and improved public-private partnerships (PPPs) are urgently needed so the necessary skills and resources can be put to work improving and sustaining water provision.
While there is enabling PPP legislation in the country, what is lacking is a robust water stra-tegy framework and a national water regulator. That regulator could start by ensuring that water management charges are maintained at affordable levels and setting targeted outcomes for water service providers.
This will necessitate improved service delivery and a resultant need for infrastructure improvement. There would need to be a new sense of co-operation and municipalities would need to overcome their fears of being usurped by embracing equitable PPPs.
As the sector is so complex, there would need to be different solutions for different problems. The best models are usually centred on performance-based contracts, insofar you only pay for what you get. If investors and capital are potentially available, what will make a water project "bankable"? Some of the conditions and questions to be asked are as follows:
Government support. There needs to be a regulatory framework and there needs to be local authority capacity.
Market economics. Is there a supportive industry? Are the demographics of the concession area favourable for long-term investment? Is the infrastructure robust or are there deteriorating infrastructure and significant system leaks?
Project economics. What are the volume and pricing risks? What will be needed to supply water at a reasonable price to make a concession economical? Debt needs to be guaranteed and equity would require a minimum rate of return.
Contract structure. This will depend on whether one is dealing with a single offtaker or multiple offtakers, or municipal versus industrial offtake. The contract needs to specify the capital expenditure versus the operating and management costs over the term. Termination dates and all other salient terms and conditions need to be clarified and specified.
Security. Are there warranties as applicable? Is there comprehensive risk cover?
Sponsor support. Are the equity investors reputable, committed and experienced? Could the necessary equity capital be sourced or raised and is there sufficient equity available to ensure project completion to achieve effective and efficient operational status?
At the African Utility Week conference held in Cape Town in May, various players, both international and local, discussed and offered solutions to the country’s water problems. Let us sincerely hope that some of the ideas and solutions put forward can urgently flow into firm plans and actions.
• Van Wyk is head of unlisted investments at Mergence Investment Managers.