Funding models for the financing of water infrastructure in South Africa: a framework and comparative analysis of alternatives

Abstract

Following two decades of under-investment, vital elements of South African water infrastructure is in serious disrepair, if not in a crisis. The government is challenged by the cumulative demands of sustained economic growth; as well as the new trade and investment opportunities in the post-financial crisis period. There is a serious backlog in water infrastructure investment, for the development and management of water resources and water services. This under-investment is estimated at more than R110 billion. The three spheres of government – national, provincial and local– which have served South Africa well in past decades now appear unable and ill-equipped to grapple with the present planning and delivery challenge. This research project identified a number of funding models (14) for the financing of water infrastructure development projects. However, the classic public provision model of government planned, installed and financed infrastructure with pricing at marginal cost or on a loss–making basis – with returns recovered through the taxation system – continues to characterise much of South Africa’s publicly provided water infrastructure. Nowadays, water infrastructure is split between fully public, and mixed ownership (water agencies and/or entities); Public-Private Partnerships (PPP) in the water sector is not yet a full reality. Further innovation in water infrastructure investment, including closing the circle between public and private-sector capital, is required. Complex issues of pricing, access, public policy and regulation, risk–sharing, tendering processes, taxation and governance have arisen as key challenges that will influence whether private provision of water infrastructure can grow as a viable new model in South Africa. Sustainability has introduced a further new dimension into the calculus of water infrastructure provision. Thus, a framework that takes account of environmental and social aspects, as well as economic aspects, is now widely accepted as necessary.