Why there's a new buoyancy around water and sanitation


South Africa faces an imminent water crisis that bears remarkable similarities to the energy challenges experienced by Eskom. A significant portion of our population still lacks access to fundamental human necessities like clean water and adequate sanitation. Worryingly, 30% of our water supply systems produce water that does not meet basic microbiological safety standards, and 40% of our wastewater treatment plants suffer from severe neglect. This impending crisis highlights a systemic breakdown that requires immediate attention and decisive action.

The investment needed to address the maintenance backlog and maintain water and sanitation infrastructure is more than R30 billion annually, and unlike Eskom, it isn't needed in just one entity. The crisis manifests itself across many water boards and most municipalities. Importantly, it also creates a public health crisis.

The finance minister made it clear in his medium-term budget policy statement that fiscal capacity is under pressure, so it is clear that a multi-stakeholder approach will be needed to address the water and sanitation crisis, including bankable projects that can be delivered by a private-sector participation model with backing from equity investors and funding from banks and development finance institutions. A supportive regulatory and policy framework will be a prerequisite.

It is encouraging, therefore, to see the positive policy response in the form of the Water Partnership Office established by the Department of Water and Sanitation (DWS) and the Development Bank of Southern Africa (DBSA). It has become clear that the water and sanitation crisis can be resolved if decision-makers at the Treasury and in Parliament pull the right levers so that officials at the DWS, DBSA and the Water Partnership Office can start to transform their vision into reality, with the support of investors keen to diversify their portfolios into a vital area of national interest.

The vision is sweeping and impressive, as the director-general of water and sanitation, Dr Sean Phillips, explained at a networking forum in Johannesburg last month (October 20) hosted by Nedbank and the NEPAD Business Foundation. It starts with the creation of the National Water Resource Infrastructure Agency, which will address fragmentation in the DWS by merging the Trans Caledon Tunnel Authority (TCTA), which raises finance on the markets for infrastructure projects; the water trading entity, which collects the revenue from water sales; and the infrastructure branch which maintains and operates dams.

This will create an entity with assets and a balance sheet, unlike TCTA, meaning that in time, it will be able to raise finance in the market without the constraint of needing Treasury guarantees. As it is, a pipeline of DWS infrastructure projects has already been unblocked by water and sanitation minister Senzo Mchunu, and the private sector has committed 60% of their funding.

The role of the Water Partnership Office, led by the DBSA's Johann Lübbe, will be to support municipalities in developing bankable projects. Lübbe told the networking forum the office is developing standardised programmes to create, prepare and structure public-private partnership projects so that municipalities do not constantly have to reinvent the wheel.


"All our initiatives are aimed at private sector participation, creating opportunities for the private sector to come in and support government with the provision of water services," he said.


Priority areas include water reuse, the loss of water and revenue through leaks, involving the private sector in building, operating, and maintaining wastewater treatment plants and introducing "independent water producers" to build and operate desalination plants in coastal cities. The office is also developing a way to give private sector companies management contracts to support municipalities in fixing their water businesses.

It's important to note that the Water Partnership Office cannot force municipalities to accept its help. However, widespread municipal dysfunction is being tackled through amendments to the Water Services Act. A new system will mean services can only be provided by an entity with an operating licence. Licensing requirements will specify minimum competence and performance levels for service providers linked to gazetted norms and standards for water and sanitation services.

Municipalities will have to fulfil licence conditions if they provide the services themselves, and if they persistently fail, the minister will be able to force them to contract with a licensed water services provider. This is a key change with the potential to quickly transform water and sanitation. It provides an objective basis for municipalities to evaluate service providers and opens the door to municipalities using private sector companies, water boards, NGOs, or community organisations as service providers. This should lead to a competitive market in which municipalities have a pool of competent service providers to choose from.

A similar reform in Brazil, which also had a nationwide water and sanitation crisis, saw most of the country adopting private-sector water service providers within only a year, and service-delivery improvements quickly followed.

Phillips said the DWS is pressing the Treasury to issue "simpler and quicker" regulations on public-private partnerships and to strengthen its credit control measures so municipalities with growing debts to water boards can have their equitable share allocations withheld. This will incentivise them to fix the weak billing and revenue-collection systems that leave them with increasing debts that imperil the survival of water boards.

All of this progress is long overdue, although I emphasise that while the existing public-private partnership framework is strong, it falters when it comes to capacity and efficiency. However, minimal investment in water and sanitation infrastructure means institutional knowledge and technical skills have been lost. That's why a critical part of creating momentum will be to rebuild capacity in municipalities and the private sector so that investors' funds are wisely spent on productive and efficient projects.

Fortunately, we have examples of where private sector involvement in providing water services is effective and financially beneficial for a municipality. One example is Siza Water, which has a 30-year concession with Ilembe District Municipality on KwaZulu-Natal's Dolphin Coast and pays half its profits into municipal coffers. Siza has cut water losses from 50% to between 10% and 12%, and managing director Shyam Misra told the forum: "We're basically managing the primary resource for growth and development, and the ripple effect is phenomenal for the whole economy."

I'm not arguing that the private sector has all the answers. It can coexist with the public sector. We simply want models that work. Most importantly, investors in public-private partnerships are looking for active management that squeezes every bit of efficiency out of projects. That will be good for shareholders and even better for water users.