A possible solution to SA’s water problem

Clean, accessible water is arguably a constitutional right. However, a combination of climate change, the decay or lack of water infrastructure and illegal connections means thousands of South Africans are severely impacted by disease associated with inadequate water supply, sanitation, and hygiene.

The outbreak of cholera in Hammanskraal, which has to date claimed the lives of 23 people, is only the start. All stakeholders need to urgently apply their minds.

The World Economic Forum (WEF) has listed access to water as the third-biggest risk of doing business in SA. Despite being among the 30 (most) water-scarce countries in the world, SA’s average consumption of 235 litres per day is higher than the global average – and it is estimated that SA municipalities lose an average of 40% of potable water before it reaches the end user.

Independent water producers

In September last year, at the Water Institute of South Africa 2022 Biennial Conference, Minister of Water and Sanitation Senzo Mchunu mooted the idea of a water Independent Producers Programme (IPP), modelled on the country’s successful Renewable Energy Independent Power Producers Procurement Programme (Reipppp). This is most encouraging as it signals a willingness to harness the power of the private sector and seek a collective solution to the water problem.

It is indeed a holistic solution that is needed and this should be driven by government.

The government should force alignment among local municipalities, national and the provincial authorities. It will not necessarily be easy.

The Municipal Finance Management Act No. 56 of 2003 (MFMA) was enacted specifically to make public procurement at municipalities thorough, and strong political will is necessary to develop and implement a public-private partnerships (PPPs) framework, so that water supply and management can be done by means of private water concessions.

Private water concessions

As proof that private water concessions through PPPs can work, two 30-year private water and sanitation concessions were created in 1999, prior to the MFMA being enacted in 2003, with the result that they are the only two existing private water concessions in SA.

The concessions came about as both areas were struggling financially and could not expand their services. In-house human resource capacity and the ability to source funding were issues and so the PPP route was considered best.

The two PPPs are formed between the local municipality and the concessionaire which is responsible for the operation, repairs and management of the water infrastructure as well as the supply of water, which they either buy from the Water Board or obtain through the production of their own potable water.

The two concessionaires are:

• Siza Water, in Ballito, Kwa-Zulu Natal
• Silulumanzi, in Mbombela, Mpumalanga

As an institutional investment manager, Mergence Investment Managers acquired a majority stake in both Siza Water and Silulumanzi in 2018, and is actively involved in their management via a special purpose vehicle, South African Water Works (SAWW). Our investments are housed in the Mergence Infrastructure & Development Equity Fund, an infrastructure fund invested across various sectors, including affordable housing, renewable energy, water and sanitation and digital infrastructure.

How to go about it?

Much as with the Reipppp, a comprehensive procurement programme stipulating the regulatory, technical and financial requirements, and incorporating the lessons learnt from successful and failed programmes in other markets will set the groundwork.

The right expertise needs to be harnessed from various national, provincial and municipal entities such as National Treasury, Water and Sanitation, the Procurement Office and Environmental Affairs to work with their counterparts to design the programme. The private sector responds well to certainty and predictability.

As with the Reipppp corporates, entrepreneurs, commercial banks, institutional investors and advisors will answer the call and through competition will drive down prices if the rules of engagement are well defined and the programme has a long-term horizon.

Billions of rands are needed to kick-start the process.

Mergence Investment Managers is already starting to engage development finance institutions as it is such bodies that can help to make the initial investment and de-risk projects for other players to step into a more mature market later.

Investors in water infrastructure will only see returns several years after the initial investment. This is inherent in infrastructure programmes where typically the bulk of the capital needs to be deployed upfront to build or refurbish the necessary infrastructure before revenues start flowing. Investors therefore need a predictable long-term investment framework to commit the necessary capital.

Overall impact

The impact of Mergence’s investment via SAWW is significant. Through the two concessions we serve more than 450 000 customers, and manage more than 1 500km of pipeline and 900km of sewage network.

SAWW, through Siza Water, has also commissioned one of SA’s largest direct water recycling plants where we recover 2.7 million litres of potable quality water per day, set to expand by a further 1 million litres per day in the next 12 months, thereby reducing the draw on bulk water supply from rivers and dams.

Environmental safety

There has been a marked improvement in water quality and delivery to all communities.

Technical water losses at the SAWW concessions average 20% compared with a national average of 37%. Unfortunately this excludes the indigent communities where challenges remain.

Green Drop certification, which measures holistic management of a sewer system and must score more than 90% on all metrics to be accredited, has been achieved at Siza Water.

Social benefit

Approximately 300 000 of the 450 000 customers we serve are classified as indigent communities to whom we supply free basic water daily.

Chito Siame is investment principal at Mergence Investment Managers.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.