How private sector innovations could address nationwide water shortages

SA’s water problem has the makings of a national catastrophe unless urgent action is taken. Two privately-run water concessions, one in KwaZulu-Natal and the other in Mpumalanga, offer a glimmer of hope for the country – if struggling municipalities can be persuaded to relinquish control of water and waste management systems.

Here’s the problem: nearly half the water supplied across the country earns no revenue because of leaks, broken or absent meters, illegal connections and billing problems. 

The number of municipalities piping poor quality water has steadily increased, reaching 46% in 2022, with many parts of the country going without water for days or weeks at a time.

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That’s not counting the vandalism to public infrastructure that has allowed private water mafias to take over supplies in many municipalities via water tankers.

This regression to pre-industrial standards is most evident in smaller municipalities where national government appears to have virtually no control.

These are the terrifying realities facing the country.

The World Economic Forum has listed water as the third largest risk of doing business in SA.

The nine water boards responsible for management of bulk water supply in SA are generally well-run, providing good quality water to the municipal areas they serve.

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The breakdown is happening at the municipal level where water revenues are cannibalised for other purposes, such as paying salaries, perks and corrupt tenders.

The alternative

Now let’s take a look at two privately-run water systems that were granted 30-year concessions in 1999 under a public-private partnership (PPP) scheme – Siza Water in Ballito in Kwa-Zulu Natal, and Silulumanzi in Mbombela, Mpumalanga.

In both cases, the municipalities governing the coverage areas lacked the necessary funds to upgrade infrastructure so it was decided to hand this to the private sector.

These two concessions were granted prior to municipalities being granted control of water through the Municipal Finance Management Act.

Under the Water Services Amendment Bill introduced last year, municipalities risk losing their Water System Provider (WSP) licences if they do not demonstrate the minimum competence and capabilities required for the job.

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That opens the door for many more such PPPs in the future.

Both Siza and Silulumanzi are run by South African Water Works (SAWW), which is majority owned by Mergence Investment Managers.

Water losses at Siza and Silulumanzi range between 15% and 20% against the national average of 47% and the global average of 37%.

Roughly 300 000 of the 450 000 customers supplied by SAWW are classified as indigent, meaning they get supplied free basic water requirements daily.

Debt collection rates range from 95-98%, which is well above what most municipalities are doing. According to National Treasury standards, a 95% debt collection is considered excellent. Debt management is handled through a finely-honed process of sending reminders to pay, followed by restrictions being placed on water meters. AI has been introduced to provide better intelligence on non-paying customers, allowing for proactive engagement.

It’s a system that can easily be replicated across the country’s 257 municipalities, says Shyam Misra, group CEO at SAWW.

Blue Drop certification

Silulumanzi is responsible for four water systems in and around Nelspruit in Mpumalanga. This means that SAWW accounts for five of the 26 water supply systems (out of a total of 958) to receive Blue Drop certification by the Department of Water and Sanitation in 2023.

To receive accreditation, assessments were carried out of the condition of the infrastructure, standard of maintenance, whether the infrastructure is operated correctly, staffing skills, and the standard of monitoring and controls.

Just 26 out of 958 water supply systems in SA received Blue Drop certification, indicating the scale of the problem facing the country.

National Treasury expects municipalities to spend 8% of their property, plant and equipment valuation on maintenance. Very few do. The result is evident in untended water leaks across the country and deteriorating water quality.

“Our top priority from the beginning was targeting water losses and prioritising maintenance on leaks, pipe bursts and preservation of water,” says Misra.

“This means you have to spend capital in the beginning to reap the rewards later on in the form of reduced water losses. We are now nearly 25 years into our 30-year concession, so we have built up a considerable track record in water management and I believe this is the way to solve SA’s water problems.”

The Siza water concession in Ballito serves 70 000 to 80 000 customers a day, rising to more than 200 000 in the holiday season. This means SAWW must cater for a seasonal surge in demand while still supplying its regular customers.

Siza operates one of SA’s largest direct water reuse plants where it recovers and recycles up to three million litres of potable quality water a day. It will expand this by a further one million litres a day over the next year to reduce the draw on bulk water supply from rivers and dams.

“We believe water reuse plants should form a fundamental consideration as waste-water treatment works are expanded or upgraded,” says Kasief Isaacs, head of private markets at Mergence Investment Managers.

“We are assessing other viable projects in the water sector to assist in remedying the current [water] challenges. We have already mobilised and deployed more than R800 million in this sector and are willing to raise and deploy significant amounts of further capital as opportunities arise.

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“We recently received a request for information from a large metro in South Africa,” adds Isaacs.

Institutional investors are now able to allocate up to 45% of assets to infrastructure as a result of changes to Regulation 28 of the Pension Funds Act. From an investment perspective, water investment offers steady returns, diversification and non-correlation with other asset classes.

There are clear signs that the water emergency has the full attention of government, and that the private sector will – as in the case of Eskom and Transnet – once again come the rescue.

This article was republished from Moneyweb. Read the original here