Water woes expose municipal mismanagement

For clean drinking water to come out of taps, water must be captured, stored, pumped, treated and distributed.

All this costs money and must be paid for from somewhere.

Some of the bulk water infrastructure projects under the department of water and sanitation (DWS) and water boards are funded from the fiscus.

These are social projects for which it is not viable to raise money on the financial markets.

However, most national water resource and water board infrastructure projects are funded by borrowing.

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The loans are paid off using revenue from the sale of water.

Neither DWS, nor the water boards, receive operational subsidies from the fiscus.

National government transfers more than R60 billion per annum to municipalities for water and sanitation. This includes the portion of the equitable share meant to be used to provide free basic water to the indigent, as well as infrastructure grants to address historical infrastructure backlogs.

Municipalities are not allowed to use infrastructure grants for operational expenditure and routine maintenance – these costs must be covered by the equitable share and revenue from the sale of water.

Knowing that grants will be forthcoming, municipalities under-budget for maintenance of their infrastructure.

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This leads to deterioration of the infrastructure and the municipalities then use funding to rehabilitate it.

The grants are therefore creating a perverse incentive for municipalities to neglect maintenance.

The 2023 DWS No Drop audit found that, on average, municipalities had nonrevenue water of 47.4%. This means on average, municipalities do not obtain any revenue from almost half of the treated water that they produce or buy.

One of the consequences of this is that municipalities do not have sufficient funds to operate and maintain their water services.

These in many municipalities are in a downward spiral – a lack of maintenance of the infrastructure leads to declining payment levels and less money for maintenance.

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Municipal debts to water boards are increasing exponentially, resulting in some being at risk of going bankrupt.

The water boards which are worst affected have stopped paying DWS for the untreated water supplied to them, which means that the funds available to DWS to maintain and operate the national dams and related infrastructure are insufficient.

There are debates regarding what should be done to address the funding gap created by high nonrevenue water at municipal level. Some argue that municipalities are underfunded and the equitable share allocation and grants should be increased, so that water services can be subsidized more from the fiscus.

This would require national and provincial budgets to be cut, or government borrowing to be increased, or increases in income tax and/or VAT.

However, there is little room to further cut national and provincial budgets. Increasing government borrowing could result in a ratings downgrade which could increase the cost of borrowing and increase debt repayments which crowd out other expenditure.

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Increases in income tax or VAT could have a negative impact on economic growth and reduce disposable income.

Increasing subsidies to municipalities to address the nonrevenue water funding gap could have unintended consequences. Why should everyone be taxed more to fund the provision of water to those who can afford to pay their bills but do not pay, or to those who steal water through illegal connections?

The counter argument is that municipalities must address the funding gap by reducing nonrevenue water. This would involve ring-fencing revenues from the sale of water and prioritising budgets for maintenance and reducing leaks; closing illegal water connections; and strengthening metering, billing and revenue collection.

Municipalities must also improve their indigent management systems to ensure that a portion of their equitable share allocation is used to provide a basic amount of free water to only those genuinely unable to pay. Reducing nonrevenue water will require decisive action by municipalities.

The Bill of Rights in the constitution states that everyone has the right to have access to sufficient water. However, this is a right that comes with responsibilities and those who can afford to pay for water must pay.

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