Building on the wins – how to tackle SA’s water crisis

Urbanisation and population growth in South Africa have increased the demand for reliable water, straining systems already weakened by underinvestment and poor maintenance.

Municipalities experience significant levels of Non-Revenue Water, leading to water losses and poor revenue collection which results in major financial setbacks. Meanwhile, consumers and businesses contend with inconsistent water supply and the looming threat of prolonged shortages.

We believe there’s sufficient skill and available capital to tackle this crisis and deliver the water supply to meet South Africa’s growing needs.

We examine different parts of the water supply chain to determine where the most impact can be achieved and how successful areas can serve as blueprints for others.

A model for success – bulk water supply

The Department of Water and Sanitation (DWS) plays a pivotal role in providing bulk water through entities such as the Trans-Caledon Tunnel Authority (TCTA).  The Department of Water and Sanitation (DWS) provides bulk water through entities like the Trans-Caledon Tunnel Authority (TCTA). The Lesotho Highlands Water Project (LHWP), under TCTA, has been instrumental in supplying water to the Vaal River System for Gauteng’s needs.

Since Phase I of the LHWP was completed in 2003, Gauteng has drawn about 780 million m3 of water annually from Lesotho. Phase II, expected to be completed in 2028, will add 465 million m3 to Gauteng’s supply.

Water Boards like Rand Water distribute bulk water and purify it to potable standards before it reaches municipalities. This supply chain functions relatively effectively but relies on timely payments from municipalities, which struggle with financial and infrastructural problems.

Municipal responsibilities and infrastructure challenges

As legislated Water Service Authorities (WSA’s), municipalities distribute water to end users and maintain the infrastructure that supports this. However, due to various reasons many have failed to adequately maintain their systems, leading to significant water losses and low cost recovery rates This stems from several challenges:

Inadequate long-term planning: Holistic long-term planning is required to assess available water resources and augmentation options to meet long-term demand over a 20-year-plus horizon. Protecting the existing resources through improved efficiencies should be the top priority.

An inadequate project pipeline: There’s been a deficiency in the launching, development and implementation of projects aimed at refurbishment of existing infrastructure, improving supply efficiencies and augmenting water supply to meet the growing demand.

Limited financial resources: Many municipalities operate under severe budgetary restraints, making it difficult to allocate sufficient funds for best practice maintenance and development.

Shortages of technical resources: A lack of technical expertise and resources hampers project development and implementation.

Funding limitations: The financial instability of municipalities means that they lack the credit rating needed to raise debt funding for large products.

Creditworthiness of municipalities: There are opportunities for private sector involvement in municipal water management, but bankability issues limit the potential of public-private partnerships.

Poor revenue collection: Many municipalities struggle with inadequate revenue collection, exacerbating their financial and operational challenges.

Exploring solutions

There’s no “one size fits all” solution – a multifaceted approach is essential.  The bulk water sector example shows several potential solutions to stabilise and enhance South Africa's water infrastructure.

Public-private partnerships (PPPs) are key to managing and maintaining existing infrastructure. South Africa has a wealth of skilled professionals and companies able to assist in structuring these partnerships to increase the chances of success. Some key approaches to consider include:

Infrastructure investment and management. This includes build-operate-transfer (BOT) projects, performance-based contracts and bankable water infrastructure concession agreements.

Non-revenue measures. Long-term Performance-Based Contracting models that allow private sector to implement interventions such as smart water management and technology integration, leak detection and water-loss prevention, the enforcement of smart metering and billing and the implementation of stringent wastewater recycling and reuse.

Municipal finance and revenue collection support. This can be achieved through sourcing services of water, tariff structuring, consumer database cleansing and collection services. Optimal revenue collection enables municipalities to raise debt financing for infrastructure and other needs.

Carbon credits and green financing. In this case, clear PPP frameworks are required, with performance indicators to ensure accountability. Public buy-in is crucial for acceptance and sustainability.

Early-stage project preparation funding can improve the bankability of water and infrastructure projects by identifying and mitigating  key risks before seeking large-scale investment. Early-stage funding is crucial for feasibility studies, regulatory approvals, and structuring projects to attract private investment. Municipalities with limited balance sheets should leverage project preparation to secure private funding and accelerate large-scale water infrastructure development. Institutions like WaterConnect Global, DBSA, AWF, PIDG, and the SA Infrastructure Fund offer vital early-stage financing to support this process.

Management strategies: Develop relevant cost recovery and demand management strategies based on the consumer profile and their ability to pay for services.

Ringfencing of project-related revenue streams ensures that funds collected from water services are used exclusively for water-related infrastructure, maintenance, and operations. This improves financial sustainability, attracts private investment, and enhances service delivery.

Conclusion

By addressing the underlying issues related to planning, maintenance, financial management, and private sector involvement, municipalities can create a more sustainable and efficient water supply system. Collaborative efforts between the public and private sectors, along with innovative financing solutions are crucial.