Economic costs, efficiencies and challenges of investments in the provision of sustainable water infrastructure supply systems in South Africa (original) (raw)
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Emerald Reach Proceedings Series, 2019
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South Africa is a water scarce country with deteriorating water resources quantity, quality and security, infrastructure investment and management. 89 per cent of households have access to water supply, but only 64 per cent or 10.3 million households are estimated to have reliable water supply. The water sector in South Africa is cost-intensive with various monopolistic utilities. The sector is faced with weakening financial viability due to: inefficient operations coupled with inadequate investment, financing and underpricing. As a result, cost recovery is not being achieved. To ensure the use of efficient water purification and distribution production technologies, it is important to benchmark technical efficiency. There is an urgent need for realising operational efficiency through cost reductions and improved revenue generation. In this paper, we make use of a non-parametric method known as Data Envelopment Analysis (DEA) to analyse the technical efficiency of the 9 water boards. We achieve this objective by using data on costs, water losses, bulk sales volumes and tariffs to model the industry's technical efficiency frontiers. The study finds the mean technical efficiency scores of 73.2, 83.7, 85.8 and 92.3 per cent, in the four models respectively. This shows that on average, not all water boards were efficient and some operated below the optimal efficiency frontiers. They needed to improve their efficiency rates by 26.8, 16.3, 14.2 and 7.7 per cent respectively. To be specific, of the 9 sampled water boards, Overberg, Rand and Umgeni water boards were technically efficient in Model 1. In this model, 7 entities are operating under increasing returns to scale (IRS). In Model 2, the same water boards and Mhlathuze Water emerged efficient. Model 2 captured water losses as an input, resulting in technical efficiency scores increasing from 73.2 to 83.7 per cent. Therefore, this water supply infrastructure quality variable has a major impact on the technical efficiency of water boards. In Model 3, Amatola, Overberg, Rand and Umgeni water boards were on the optimal efficiency frontier. They were relatively efficient in maximising water sales volumes and charging bulk water tariffs at prevailing levels of expenditure. Most water boards operated under decreasing returns to scale (DRS) in this frontier. Model 4 excluded Rand and Umgeni water boards, in this model Amatola, Overberg, Magalies and Sedibeng were efficient. 4 water boards were under DRS.
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The Government of South Africa has been the main provider of public infrastructure, particularly in the water sector. Government administration and institutional structures continue to shape and influence infrastructure investment. The South African constitutional system imposes unique complexities and constraints on infrastructure investment. The country experiences a serious backlog in water infrastructure investment for the development and management of water resources and water services. In 2011, this under-investment was estimated at more than R600 billion (600 x 10 9 ZAR: South African Rand). The national Government traditionally had a pivotal role in shaping water infrastructure investment. Government needs to find a solution to this backlog by putting in place new institutional structures and funding models for effective strategies leading to prompt water infrastructure provision. The research identified several funding models for financing water infrastructure development projects. The existing public provision model continues to characterise much of the publicly-provided water infrastructure in South Africa. These models see Government planning, installing and financing infrastructure with pricing at marginal costs or on a loss-making basis, with returns recovered through the taxation system. Nowadays, water infrastructure provision is split between fully-public and mixed ownership by water entities. Public-private partnerships (PPPs) in the water sector are not yet a reality.
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The concept of water neutrality, based on its carbon equivalent, was first coined during the World Summit on Sustainable Development in 2002. Since then the term has been loosely used, with little quantitative validation. Here we present a first quantitative framework for a water-neutral scheme that allows a private water user to balance its water account through both demandand supply-side interventions. Such innovative voluntary mechanisms can provide benefits in a chronically water stressed and developing country, such as South Africa. This scheme seeks to harness private sector investment in water security, by allowing investors to balance quantitatively their water account based on sound scientific rationale. Investors are required to engage in a three-step process of: reviewing their water usage, implementing a reduction strategy, and replenishment of water to hydrological systems through the investment in watershed services, equivalent to their water usage. Initially, the scheme allows participants to replenish quantitatively their water usage through investment in the clearing of water-intensive invasive alien plants. The project, however, encourages the innovation and development of further quantitative mechanisms for investing in watershed services, and proposes an operational model for the promotion of a water-neutral market in South Africa.