South Africa faces a looming water catastrophe unless decisive action is taken. Amidst this dire scenario, two privately-managed water concessions in KwaZulu-Natal and Mpumalanga offer a rare beacon of hope. These systems, Siza Water in Ballito and Silulumanzi in Mbombela, significantly outperform their publicly-run counterparts, and are run by the company South African Water Works.

Water losses at Siza Water and Silulumanzi range between 15% and 20%, starkly contrasted with the national average of 47% and a global average of 37%. This remarkable efficiency underscores the potential benefits of privatizing water and waste management systems.

The country’s water infrastructure is in disrepair, with nearly half of the supplied water earning no revenue due to leaks, faulty meters, illegal connections, and billing issues. The number of municipalities delivering substandard water has risen to 46% in 2022, leading to frequent water shortages in many areas.

Vandalism of public infrastructure has exacerbated the situation, allowing private water mafias to dominate supplies in numerous municipalities through water tankers. This regression to pre-industrial standards is most evident in smaller municipalities, where national government control is minimal.

The World Economic Forum has identified water as the third largest risk to doing business in South Africa. Despite the generally good performance of the nine water boards managing bulk water supply, the breakdown occurs at the municipal level. Here, water revenues are often diverted for other purposes, such as salaries, perks, and corrupt tenders.

Two privately-run water systems, granted 30-year concessions in 1999 under a public-private partnership (PPP) scheme, provide a viable alternative. Siza Water in Ballito and Silulumanzi in Mbombela were established due to the municipalities’ inability to fund infrastructure upgrades.

Both concessions were awarded before municipalities were given control of water management through the Municipal Finance Management Act. The recent Water Services Amendment Bill threatens municipalities with the loss of their Water System Provider (WSP) licenses if they fail to demonstrate adequate competence and capabilities, potentially opening the door for more PPPs.

Siza and Silulumanzi are operated by South African Water Works (SAWW), majority-owned by Mergence Investment Managers. These entities achieve water losses of just 15% to 20%, well below the national average.

SAWW supplies around 450,000 customers, 300,000 of whom are classified as indigent and receive free basic water. Debt collection rates of 95-98% are significantly higher than most municipalities, with efficient processes and AI-enhanced intelligence facilitating proactive engagement with non-paying customers.

This system is replicable across South Africa’s 257 municipalities, according to Shyam Misra, SAWW’s CEO.

Silulumanzi manages four water systems in and around Nelspruit, Mpumalanga, and is responsible for five of the 26 water supply systems that received Blue Drop certification from the Department of Water and Sanitation in 2023. This certification, granted to only 26 out of 958 water supply systems, highlights the scale of the country’s water problem.

National Treasury guidelines recommend that municipalities spend 8% of their property, plant, and equipment valuation on maintenance, a target rarely met. This neglect is evident in widespread water leaks and deteriorating water quality.

“Our top priority from the beginning was targeting water losses and prioritising maintenance on leaks, pipe bursts, and water preservation,” says Misra. “This requires initial capital investment to reap long-term rewards in reduced water losses. With nearly 25 years into our 30-year concession, we have a proven track record in water management.”

The Siza water concession in Ballito serves 70,000 to 80,000 customers daily, rising to over 200,000 during the holiday season. Siza operates one of South Africa’s largest direct water reuse plants, recycling up to three million litres of potable water daily, with plans to expand this capacity by an additional million litres over the next year.

“We believe water reuse plants should be a fundamental consideration as wastewater treatment works are expanded or upgraded,” says Kasief Isaacs, head of private markets at Mergence Investment Managers. “We are assessing other viable projects in the water sector and have already mobilised over R800 million, with more capital available as opportunities arise.”

Institutional investors can now allocate up to 45% of their assets to infrastructure investments, thanks to changes in Regulation 28 of the Pension Funds Act. From an investment perspective, water offers steady returns, diversification, and non-correlation with other asset classes.

There are clear indications that the government recognises the water emergency and that the private sector will play a critical role in addressing the crisis, much like it has with Eskom and Transnet.

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