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01
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Context and Motivation of Study
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The Minister of Water Affairs has accepted the proposed Institutional Reform policy that the
scope and area of jurisdiction of water boards will be extended in such a way that the water
boards will fulfil the function of effective Regional Water Utilities (RWUs).
The intention is that effective RWUs could contribute towards addressing the municipal
water service delivery problems.
This report analyses the legal, financial and capacity implications and viability of this policy.
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02
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Overview of the Institutional Reform Policy
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National Water Resource Strategy
Section 8.5.3 of the National Water Resource Strategy discusses RWUs in the following
terms:
• “The 12 existing water boards will be consolidated into nine viable RWUs to
strengthen the development, financing, management, operation and maintenance of
regional bulk water and wastewater infrastructure. The RWUs will be fully established
and operational by 2015.
• The mandate of RWUs will be expanded to include the development and
management of regional water resources, regional bulk water services and regional
wastewater infrastructure. They will be responsible for the financing, development,
management, operation and maintenance of regional bulk water infrastructure in an
efficient and effective manner to meet the social and economic development needs
of current and future users to achieve the objectives of integrated water resources
management. The RWUs will also play a strong secondary role of supporting
municipalities by providing water services on their behalf to users or by providing
services directly to municipalities on a contractual basis, provided this does not
detract from their ability to fulfil their primary functions.
•
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03
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Draft National Water Policy
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The Minister recently gazetted a draft National Water Policy for comment in Government
Gazzette Notice 888 of 30 August 2013. Para 3.2 of this notice sets out a draft policy
position for RWUs in the following terms:
• “The Minister is responsible for Region Bulk Infrastructure, including master planning
and its functioning.
• The functions of the RWUs will be to plan, build, operate, support and maintain
Regional Bulk infrastructure.
• RWU Institutional arrangements will be appropriate to the area of operation.
• RWUs must be established based on clear principles such as financial sustainability
and clear funding mechanism and clarity on requirements for additional fiscal support
to build, operate and maintain Regional Bulk Infrastructure in the area of need.
• The Minister may issue a directive for RWUs to address water infrastructure
development and/or maintenance needs in an area.”
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04
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Institutions for managing the different types of water infrastructure
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The current and envisaged institutional arrangement for managing South Africa’s water
infrastructure is understood to be as follows:
3.1 National
At present, the DWA manages most of the national water resources infrastructure through its
Water Trading Entity, while the TCTA finances and project manages the implementation of
economically viable water projects, as directed by the Minister. The TCTA’s projects are
financed off-budget and the investment costs are repaid through user charges.
DWA recognises that a separate Water Trading Entity for government funded projects and a
separate TCTA for privately funded projects is not the most appropriate or efficient
institutional arrangement for managing national water infrastructure. DWA’s intention is to
establish an alternative and appropriate National Water Resources Infrastructure institutional
model for developing, financing and managing primarily national water infrastructure with the
possible inclusion of regional dams.
National Water Infrastructure has been defined in different ways but essentially comprises
Infrastructure of strategic national importance including inter-basin transfers and large inter-
linked systems.
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05
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Legal and Contractual Implications
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The demarcation of the RWUs boundaries will be done by the Minister.
It is proposed that the mandate for the RWU as a public entity to operate the Regional Water
Infrastructure would be derived from the Minister. Under such a scenario, the Municipality
would not have the discretion of deciding whether or not to contract with the RWU as bulk
water services provider and for how long to contract. The Municipality would not be the
owner of the Regional Water Infrastructure. The Minister would be the owner and as such
would determine who operates it and for how long (generally indefinitely until the Minister
reallocates or reorganises the function).
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06
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Water Pricing Implications
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The Minister will together with Parliament regulate the National Water Pricing and set the
National Water Pricing Strategy. The draft National Water Resource Pricing Strategy
provides that tariff levelling on a system basis for water use charges would be the norm.
Schemes that have already been paid for would contribute towards new still indebted and
underutilised schemes within the system context.
Similarly, the Minister would also regulate the price structure of the RWUs, and set the
Norms and Standards for bulk potable water pricing. The Municipality as customer and
organised local government must continue to be consulted on Regional and National water
pricing. However, it is proposed that the final discretion as to the fairness of the pricing
should rest with the Minister or the Regulator.
Not all RWUs will be supplying bulk water to municipalities with the same density of
population or economic generating capacity. The Minister could to some extent address this
problem by cross subsidisation between RWUs through a tariff levelling fund managed by
DWA and the Regulator. This approach is however not mentioned in the current policy
statement or in the draft Norms and Standards for bulk potable water tariffs.
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07
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Funding of Regional Water Infrastructure
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National Treasury has allocated special funding for Regional Bulk Water Services
Infrastructure amounting to R5 738 billion over six years starting during 2007/2008. This
grant is known as the Regional Bulk Infrastructure Grant (RBIG):
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08
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Municipal service backlogs
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The map below shows the percentages access to RDP water service levels in each
municipality overlain by the water board boundaries. The colour coding of the water service
levels (later referred to as backlogs) is based on the assumption of achieving RDP access to
water services by 2014 (blue could achieve full access).
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09
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Cost Recovery
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Cost recovery in municipalities remains problematic. Most rural municipalities are underrecovering
revenue.
A
RWU
that
invests
in
Regional
Infrastructure
on
the
basis
that
it
would
be
repaid
by
a municipality
that
is
under-recovering
revenue
would
be doing
so
at
an
unacceptable risk.
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10
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Affordability
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There is however a more serious problem related to cost recovery that even the municipality
and the regulator cannot fully address, and that is affordability. It is generally accepted that
households with an income of less than R38 200 per annum (approximately R3 200 per
month) are unable to pay for water. The table below compares the number of households
with income less than R38 200 per annum for each water board.
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11
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Analysis of the potential of Water Boards to be converted into Regional Water Utilities
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It is suggested that the following Water Boards could be converted into RWUs (also
Annexure 1 for a more detailed analysis):
8.1 Rand Water Board
Rand Water primarily operates in Gauteng, but also in North West up to Rustenburg. It
manages infrastructure valued at over R10 bn, shows a profit of R976 million and has cash
(or cash equivalent) resources of R1bn. Debtors days are in the order of 37 days.
There is little doubt that Rand Water is in an excellent financial position, which is not
surprising as it is serving the most economically well off part of South Africa.
Rand Water can easily perform the function of a RWU for the whole of Gauteng Province
with immediate effect.
8.2 Umgeni Water Board
Umgeni Water operates in the area around Pietermaritzburg and Durban as well as South
and North Coasts of KZN. It operates infrastructure of R3,4 bn, shows a profit of R473 million
and has investments of R2 bn. Debtors days are in the order of 40 days. Umgeni Water is
also in an excellent financial position.
Umgeni Water is already operating dams for DWA, is undertaking proper project planning
and could easily perform the function of a RWU for the whole of KZN.
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12
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Conclusions and Considerations
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4.1 The use of the words potable (drinkable) in relation to water supply systems; and
domestic in relation to waste-water and sewage disposal systems in schedule 4
appear to indicate that the role of local government is to provide services primarily to
domestic households and communities within their municipalities.
4.2 That a specific object of a municipality is to provide services to communities in s 152
appears to reinforce that interpretation.
4.3 What water infrastructure would be included in Schedule 4 as a local government
function:
• Reticulation systems supplying water from a municipal reservoir or municipal water
treatment works primarily to households but also to the adjacent businesses and
institutions within a single municipal area would clearly fall within the schedule 4
definition of a municipal function.
• Municipal water treatment works supplying a single municipality would presumably
also clearly fall within the schedule 4 definition of a municipal function.
4.4 What would be excluded from the Schedule 4 of a local government function:
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