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South Africa to establish state water utility to attract private investment

  • South Africa to establish state water utility to attract private investment

About the entity

In an attempt to attract private investment in infrastructure, South Africa, a country suffering from acute water shortages, is looking to establish a new utility, reports Bloomberg.

The newly appointed Director General of South Africa’s Department of Water and Sanitation, Dr Sean Phillips, told Bloomberg, that the entity plans to submit a bill to the cabinet by the end of the month for the creation of the National Water Resources Agency. The new entity could be running by next year. The utility will be created by combining the department’s Water Trading Entity and the Trans-Caledon Tunnel Authority (TCTA).

Across South Africa, water stress is a major problem; however, each region suffers from different issues like overuse, growing demand, theft and poor infrastructure. It is also one of the world’s driest countries, with rainfall, while variable across the nation, averaging less than 500 millimeters (20 inches) per annum.

In 2019, the country released a national water plan that highlighted the need to spend 900 billion rand ($62 billion) on water-supply and storage infrastructure by 2030.

Dr Phillips said: “We want to create an entity to raise non-fiscus finance and it should have a substantial balance sheet.

“It would use a variety of different approaches, including raising money based on revenue streams from particular projects, loans and other forms of finance that will draw in private companies to provide water.”

He added that the Department of Water and Sanitation is also considering the possibility of concessions, allowing the private operation of water facilities.

Barbara Schreiner, executive director of the Water Integrity Network (WIN), an advocacy group that works towards good governance to help realize the human rights to water and sanitation, believes that a state utility that operates without political oversight could be more efficient at raising finance and running assets. Moreover, the new utility will merge two organizations, reducing bureaucracy and costs.

The replacement value of South Africa’s national water assets is currently between 200 billion rand and 300 billion rand, according to Phillips, when asked about the potential size of the entity’s balance sheet. 

Although the South African government had previously financed most public water, power and transport facilities, President Cyril Ramaphosa recently said the country was aiming to lure private investment to fund necessary infrastructure projects.

The cabinet will need to approve the bill before it is released for public comment. It will then go back to the cabinet, whereupon it will be referred to parliament for approval and the president to sign it into law as an Act. 

According to Bloomberg, the functioning of the agency will most closely mirror the way South Africa finances its national road network through the South African National Roads Agency SOC Ltd. The country’s power also mostly comes from a national electricity utility, Eskom Holdings SOC Ltd.

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