New state-owned company for South Africa is coming
South Africa is pushing towards the formation of a state-owned enterprise (SOE) for water, which is expected to be established in the first half of 2025.
However, experts are approaching the move with scepticism and caution.
In March 2024, Parliament passed the consequential National Water Resources Infrastructure SOC (state-owned company) Bill, which President Cyril Ramaphosa signed into law at the tail-end of August.
The Act was gazetted on 2 September 2024, but is not yet in force.
The bill establishes the National Water Resources Infrastructure Agency (NWRIA) as a significant public entity and state-owned company.
Ramaphosa said in a statement after signing the Bill into law that “over the past few years, there has been an emerging recognition of the need for a stronger public sector in the key area of infrastructure development, effective maintenance, operation and management of existing infrastructure,” particularly when it comes to the provision water.
Across South Africa, recent reports from the Department of Water and Sanitation (DWS) reveal widespread challenges for the critical resource, showing that at a national average:
- 46% of drinking water systems fail to meet microbiological standards;
- 67.6% of wastewater treatments inadequately process sewage and other wastes;
- 40.8% of water is lost due to leaks or remains unaccounted for.
In Coronation’s July 2024 Correspondent, economist Marie Antelme and ESG analyst Leila Joseph say that “water security is arguably one of the most critical risks to South Africa’s social, economic, and political long-term future.”
Recently, Parliament’s Portfolio Committee on Water and Sanitation raised red flags over municipal debt to water boards, which has surged to R22.36 billion, up 151% since 2019, risking bankruptcy for some boards.
SOE to save the day
“The [new] law seeks to address the current fragmentation in water resource management between the DWS, the Trans-Caledon Tunnel Authority (TCTA) and the Water Trading Entity, and to establish an agency that is able to raise funds on its own balance sheet to increase investment in water infrastructure,” said Ramaphosa.
The main mandates of the NWRIA are said to:
- Implement water resource management infrastructure as identified by the department’s water resources planning processes;
- Manage national water resources infrastructure;
- Generate and collect revenue from the sale of water as its primary source of income, and
- Raise commercial funding on the strength of its balance sheet and operational cash flows (actual and projected) for commercially viable projects.
“The Bill creates an opportunity for the national government to address issues relating to water security outside of South Africa’s constrained fiscal environment,” said legal experts at Webber Wentzel, Calvin Nchabeleng and Makgati Makgatho.
“It also creates further opportunities for increased public-private partnerships for the construction, operation and maintenance of national water infrastructure,” in line with the objectives of Operation Vulindlela, they added.
Visiting Professor at the Wits School of Governance, Mike Muller, previously wrote that this new arrangement could ensure that the funds needed are properly applied.
“This will avert the kind of problems that resulted when billions of rands meant for operation, maintenance and loan repayments were irregularly diverted by a previous Minister of Water and Sanitation for a spurious ‘War on Leaks’ project that never fixed a single leak,” said Muller.
DWS Minister Pemmy Majodina said the establishment of the agency will be one of the major focus areas of the Department over the coming year.
According to Majodina, there are currently around R135 billion of national water resource infrastructure projects, which are largely funded by raising money from the financial markets, banks, pension funds and development finance institutions.
DWS’s entity, the TCTA, raises most of this based on guarantees from the National Treasury; however, the value of guarantees is said to be limited.
“It is for this reason that we are establishing the National Water Resource Infrastructure Agency, which will own all the national water resource infrastructure assets and obtain the revenue streams associated with those assets,” said Majodina.
“This will enable the Agency to borrow additional funds on the strength of its balance sheet,” she added.
The National Water Infrastructure Agency will inherit all water resource assets and relevant staff from the Department.
Additionally, the TCTA and the Department’s Water Trading Entity, responsible for water sales revenue to Water Boards, will be consolidated into this agency.
The minister expects to complete the establishment of the agency by May 2025.
Cautious optimism
While some have welcomed the impending establishment of a water SOE, others will wait for results before jumping for joy.
“Amid water service delivery pressures in some parts of the country, this new agency is envisioned to help create a reliable water supply in the country,” said Parliament after the bill was passed.
However, “isn’t that already an objective of the department?” Dr Ferrial Adam, executive manager of water rights advocacy group WaterCAN, recently told BusinessTech.
“It is always a concern adding an additional SOE, given the state of our SOEs in the country,” said Adam.
The water justice activist questioned whether this is rather just a deflection from existing challenges.
“In South Africa, when there is a problem – we either have a commission or now establish an SOE,” said Adam, adding that its effectiveness “really depends on who manages it and the transparent and open manner in which it operates.”
“SOEs can feed corruption if not done properly,” added the expert.
Adam said that the challenge, however, is not about the SOE itself but about the department’s ability to ensure that projects and various actions are rolled out efficiently and effectively.
“A focus on getting our infrastructure up to speed is, of course, what is needed [but it all] depends on how this will work to bypass some of the challenges at a local government level,” said Adam.
Adam highlighted that establishing the agency requires a significant injection of funds, hence the call to the private sector.
However, “the funding model must be made clearer,” she said.
“The close partnership with the private sector and the call for funds from the private sector, of course, raises the question on the direction of our water services and if we are heading towards privatisation – which globally has proven may not always be the best direction for accessibility and affordability,” added Adam.
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