Social Equity

Ecological
Sustainability
ACT

Financial
Sustainability
NATIONAL WATER ACT, 1998

Economic
Efficiency
PRINCIPLES OF THE WATER

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THE CHALLENGE MAR/
POPULATION AND GDP

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 HISTORY OF WATER IN
SOUTH AFRICA
 Legislation (including the 1913 Land Act) dispossessed
indigenous people of their major capital asset – LAND
 Land ownership was concentrated in the hands of the white
minority
 Water Act of 1956 tied water rights to land owners, “riparian
rights”
 This dispossessed black South Africans of their water
 Other legislation such as poll tax forced black men to leave the
land for jobs on mines and in cities
 Women were left to till the land in those limited areas set aside
for the black population
 Forced removals concentrated the black population in ever
decreasing land areas
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 WOMEN AND WATER
 Some of the poorest households are those in rural areas
headed by women.
 Mean monthly income per head in female headed household
was R243 in 1993. (US$37)
 Many households in non-urban areas are forced to fetch
water from outside the household. Woman are
predominantly responsible for this task. The median time
spent by woman collecting water is 60 minutes a day.
 Women’s access to socio-economic rights are vital to
ensuring gender equality.
 The impact of a tap within 200 meters on the life of a woman
who previously had to walk several kilometers to
unprotected spring or river is enormous, including freeing up
her time for more productive activities and improved
personal and family health.

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 THE MANDATE OF

GOVERNMENT
The entrenchment of economic and social rights, such as
rights pertaining to food and water is a requirement and
unique feature of our Bill of Rights.
 The inclusion of these rights, largely influenced by social
injustices of the past and the aspiration of our people to
establish a society based on social justice and human rights,
requires the state to meet these obligations, with water
being the most basic of rights.
 As a result the Department in the past decade made water
accessible to 10 million South Africans.
 Structured changes to the South African economy resulted in
sustainable growth rates in our economy, this together with
a more efficient tax collection system, resulted in higher
levels of income tax collection.
 The decreased interest burden as a result of paying off State
loans and a decrease in defence and other spending has
freed up tax revenue for social projects/services.
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 WATER SUPPORT PROGRAMS
 Enhancing food security for the poor:
– National Water Act: Schedule 1: makes water available free of
charge and with no licence requirements for reasonable domestic
use and for food gardens (not for commercial purposes).
 DWAF will provide financial support to Resource Poor Farmers in terms
of section 61 of the National Water Act with funds appropriated by
Parliament for:-
– Capital cost of construction and/or upgrading of irrigation schemes
– Subsidies for a limited period on water charges
– Grants for acquisition of water entitlement
– Socio-Economic Viability Studies to investigate the establishment of
irrigation schemes
– Grant for training of WUA will ensure effective management of
communal water infrastructure
– Funding of rainwater harvest tanks
 The above mentioned support will contribute in promoting economic
development in rural areas where there are few development
opportunities.

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SUPPORT FROM THE DEPARTMENT
OF AGRICULTURE AND LAND
AFFAIRS
 Department of Agriculture has made available R250 million in
the 2005/06 financial year to support small scale infield
agricultural development.
 In addition the Department of Land Affairs is promoting the Land
Redistribution for Agricultural Development Program (LRAD),
which provides grants to previously disadvantaged South
African Citizens to access land for agricultural purposes.
 In order to co-ordinate financial assistance to Resource Poor
Farmers, Land Affairs, Agriculture and DWAF participate in
CCAW (Coordinating Council for Agricultural Water), DWAF have
also began participating in LRAD meetings.
 Participation in these forums ensures structured support to
Resource Poor Farmers, where grants offered by relevant
government departments are packaged to enhance the viability
of supported projects.

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 WATER AND THE ECONOMY
 South Africa is a middle income, emerging market with an abundant supply of
natural resources, well developed financial, legal, communications, energy and
transport sectors; its stock exchange ranks 10 largest in the world with a
modern infrastructure, but a large proportion of the population are extremely
poor.
 GDP stands at $491.4 billion (2004 est.), with current growth rate of
approximately 3.8%.
GDP composition Labour force
 Agriculture 3.6% 30%
 Industry 31.2% 25%
 Services 65.2% 45%
(contribution of agriculture to the labour force is a key issues for policy makers)

 Agricultural products
– maize (corn), wheat, sugarcane, fruit, vegetables, beef, poultry, mutton,
wool, dairy products

 Industries
– Mining (world’s largest producer of platinum, gold, chromium), automobile
assembly, metalworking, machinery, textile, iron and steel, chemicals,
fertilizer foodstuffs.

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 WATER AND THE ECONOMY
 The Gini co-efficient (measures the level of income
inequality in a county) of South Africa is amongst the worst
in the world. The lowest 10% of the population earn 1.1% of
household income while the highest 10% of household earn
45.9% of total household income.
 Of South Africa’s land only 12% is arable and land under
commercial irrigation is estimated at 13 500 sq km.
 Lack of sufficient arterial rivers and lakes requires extensive
water conservation and control measures.

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AGRICULTURAL BACKGROUND
SOUTH AFRICA
 Agriculture contributes a small and declining share of total
economic output.

 Nevertheless the agricultural sector is the major user of the

country’s water resource and also a major employer of the
labour force.

 Water requirement
– Irrigation 62% - Mining & bulk industrial 6%
– Urban 23% - Power generation 2%
– Rural 4% - Forestry 3%

 While the above mentioned trend may be typical of

agriculture worldwide, it bears special importance to South
Africa where water resources are scarce.

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AGRICULTURAL BACKGROUND
SOUTH AFRICA
 Recent trends indicate increased competition for water from
other sectors with development needs, hence a declining
share of water is available for irrigation activities.

 Exports from secondary value added activities and processing

of primary agricultural products contributes an additional
share of more than 15% to total value of exports.

 Total potential irrigable land in South Africa is estimated at

1.57 million ha. According to recent estimates this potential
has been fully exploited.

 Most of the irrigated land is used for large-scale commercial

farming, less then 4% of the land belong to small scale
farmers.
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 FINANCING OF WATER
INFRASTRUCTURE
 DWAF is custodian of some 300 large dams contained in more than
150 Government water schemes throughout South Africa.
 The water sector requires investments in excess of R20 billion over
a period of 20 years for dam and related projects.
 The fiscus cannot afford this large capital outlay.
 While some schemes are financed with state funding the NWA
allows the Minister to direct TCTA to implement and fund
commercially viable schemes with non Governmental funding.
 This allows TCTA to raise loans to finance the development of new
infrastructure on the understanding that the loans will be serviced
through cost recovery from economic water users in terms of
billable water use charges.
 To better manage and protect this huge network of water
infrastructure, Cabinet has given approval for the established of
the National Water Resource Infrastructure Agency (NWRIA) which
will most likely incorporate the activities of the TCTA.
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 Methodology for determining
charges
for state funded (Social) GWSs
FOR NEW INFRASTRUCTURE &
FOR REFURBISHMENT BETTERMENTS

Depreciation component: Return on assets:

– Asset value as determined in 2000
– Depreciate on straight line over
useful life as per table
– Examples: Dams – 10% over 45y
Steel Pipes - 75% over 30y
– Asset values will annually be
indexed by PPI until formal
revaluation (+ every 10 y)
– 4% on completion cost – new infrastructure,
or
– 4% on depreciated replacement cost
(asset value as determined in 2000)
– Asset values will annually be inflated by PPI
until formal revaluation (+
every 10 y)
– Not applicable to existing State
irrigation schemes

Operation and maintenance charge:

- Direct and indirect costs
- Scheme by scheme basis
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 FINANCING OF IRRIGATION
WATER INFRASTRUCTURE
 The fiscus can no longer afford to develop water infrastructure at
discounted rates for the exclusive use of irrigation.
 In terms of the draft 2005 Pricing Strategy a proposed new scheme
could have both a social and commercial component and therefore
a deferential charge system could be applied to make the entire
scheme viable.
 In such a case the commercial component could be financed in the
Capital Markets via the TCTA, while the social/irrigation component
of the proposed infrastructure could be financed by the fiscus.
 The introduction of new irrigation infrastructure usually enhances
the viability of agricultural enterprises.
 As a result commercial banks have recently began looking at
financing communal water infrastructure for commercial agriculture.

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 FINANCING OF IRRIGATION
WATER INFRASTRUCTURE
 In this regard Rand Merchant Bank has financed a dam
project in the Pongola area and a water pipeline in the Blyde
Valley at an estimated investment of R300 million.
 These projects were subsidies by DWAF and in the case of the
Pongola Dam, DWAF has substantially guaranteed a portion
of the loan.
 The bank has experienced difficulty in recovering repayments
because of the following:-
– Cost overruns on projects
– Reduced commodity prices
– Stronger Rand
– Culture on non-payment on the part of some commercial farmers
– Expectation that the State will bail out the farmers
– Poor structuring and gearing of the debt
– Droughts/Floods
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 FINANCING OF IRRIGATION
WATER INFRASTRUCTURE
 DWAF by providing water licence to the Makhatini Flats,
enabled this community to raise a Land Bank loan to
establish irrigation infrastructure that produced cotton and
wheat, sales in one year amounted to 269.3 million. The
project has benefited more than 1000 individual emerging
commercial farmers and created some 5000 permanent and
seasonal job opportunities.

 Issuing of license was only possible by delinking property

rights and land rights.

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 WASTE DISCHARGE CHARGE
SYSTEM
 In the 2005 Water Pricing Strategy, DWAF for the
first time will introduce the Waste Discharge Charge
System (WDCS), which consist of the following key
principles.
– Waste management fee
– Define resource quality objectives (RQO)
– Acknowledge that there must be a pragmatic balance
between the quality of the resource and economic activity.
– In catchments areas the RQO will be set at a higher level
than in industrial areas.
– If the RQO are met there will be no charges.

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 WASTE DISCHARGE CHARGE
SYSTEM
 If the RQO is not met an incentive charge will be
levied, this charge will be set at a rate to influence
behavior.
 The income derived from the incentive charge will
be utilized to mitigate the cost of the impact to
downstream users.
 In addition to an incentive charge, a mitigation
charge could also be levied to all users of a
resource to bring back the resource to an
acceptable quality.

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 Mahomed Vawda

e-mail: vawdam@dwaf.gov.za

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