Water is the next big challenge

Extensive amendments have recently been proposed to the water services - water supply and sanitation- legislation, which may have significant implications for private supply of such services.

Extensive amendments have recently been proposed to the water services - water supply and sanitation- legislation, which may have significant implications for private supply of such services.

Published Apr 2, 2024


By Sandra Gore

The Water Services Act (WSA) regulates water services, i.e. water supply and sanitation services.

The recent Water Services Amendment Bill, proposed by the Department of Water and Sanitation, may create significant negative national and local socio-economic impacts in relation to the supply of water services by widening the ambit of what constitutes a Water Services Institute (WSI) and increasing the extent of municipalities’ regulation of private WSIs.

This includes the risk of foreign investment loss due to water supply concerns, policy uncertainty and over-regulation in South Africa - despite having a crippled bureaucracy - being one of the most highly regulated countries in the world.

South Africa currently has a water supply crisis with many rural areas and small towns not receiving water services. The Water Resources Strategy 2023 notes more than 3 million and 14 million people have no access to basic water supply services and safe sanitation respectively.

Under the WSA, WSIs include governmental water services authorities - or municipalities - in terms of the Constitution; statutorily appointed water boards and committees; and also private water services providers (WSP) providing: water supply not for industrial use; or sanitation services not for commercial purpose.

Of the 257 municipalities that are water service authorities, 112 lack sufficient funds to meet their expenditure needs.

Extensive amendments have recently been proposed to the water services - water supply and sanitation - legislation, which may have significant implications for private supply of such services due to the excessive proposed regulation of private WSI.

This follows the global benchmark 2023 No Drops report’s findings that national non-revenue water increased from 37% in 2014 to 47% caused by physical losses such as water pipe leakage, illegal connections and issues regarding metering and billing/revenue collection. The international average for non-revenue water is 30%.

The DWS recently published a bill proposing amendments to the WSA, which regulates water services under the competency of municipalities; and draft Compulsory Water Services Norms and Standards under the WSA. The effect of their enactment would be that:

- DWS will have new competencies to regulate water services, which are arguably within municipalities’ competency under the South African Constitution;

- All forms of water services by a private WSI will be regulated under the WSA regardless of the nature; volume and purpose of the water services; and

- Licences must be obtained by all forms of WSP, from both the relevant municipality (as is currently) and also the DWS. Where water services are for industrial use, which includes mining and energy projects, users of the water services are additionally currently required to obtain municipal consent. Three licences/consents for an industrial water service would thus be required.

The licences/consents required under the WSA would be in addition to existing water use licensing under the National Water Act (NWA) and are thus arguably unnecessary.

The draft norms and standards furthermore contain extensive prescriptive and onerous requirements for a WSI, relating to competency and procurement; management; planning; auditing and reporting to the DWS on a new proposed online DWS platform with several detailed reports and management plans. Public reporting is also required. No transitional arrangements for these new requirements are proposed.

Widening of WSA ambit to private Water Services Institutions and implications

The bill maintains and significantly expands parties who constitute WSI and are regulated under the WSA by:

- broadening water supply services and sanitation services to include water supply for industrial use and sanitation services for commercial purposes;

- including a water services intermediary; and

– retaining the current WSP definition as any person who provides water services to widely defined consumers or to another WSI; and

– private extended WSI would be subject to extensive and onerous duties and obligations, including new detailed licensing requirements and the duty to take reasonable measures to realise persons’ constitutional right of access to basic water supply and sanitation.

However, differentiation between various types of WSI as expanded by the Bill and their obligations and duties is not provided for.

This would cause an absurd result in that WSIs that are governmental authorities, or their nominated agents (which provide bulk basic water services under their constitutional and legislative mandate) and private entities (who have as their main commercial purpose basic water services for profit) would have the same duties and obligations as various other entities not providing basic water services as their main commercial purpose or for profit (private extended WSI), including:

- water services intermediaries: being any person who is contractually obliged to provide water services and this obligation is incidental to the contract's main object. These include entities who lease properties for agricultural purposes or rent housing; and an incidental obligation is water services provision;

- temporary voluntary WSPs: who supply basic water services to rural host communities, voluntarily and for no profit, in areas where actual WSI provide no basic water services for example as a corporate social investment project or Social and Labour Plan project; and

- industrial use water services: including: entities supplying water services for industrial purpose as their main purpose (industrial commercial WSPs); and private entities supplying water, including processed water, to third parties for industrial use on an ad hoc basic and not as their main purpose, for example to construct renewable energy facilities for their businesses - some requiring limited water.

Save for industrial commercial WSPs, the water services supply by an extended WSI may occur only on one, or limited, occasions and not involve high volumes of water /waste water, as is the position for actual WSIs. No exemption threshold regarding volumes involved is, however, included in the draft legislation and all extended WSIs are currently proposed to be subject to extensive regulation under the WSA.

Regulations are proposed in the bill which, if published, may hopefully differentiate between classes of WSP to a degree in relation the licensing requirements.

Significant general concerns regarding the bill and draft norms and standards include:

- many private extended WSI may be unable to continue with water services supply due to extensive and onerous proposed regulatory hurdles, causing potential significant negative national socio-economic impacts;

– requiring all private WSP to now obtain both municipal and DWS water services licenses/ consents under the WSA, including retrospectively for existing extended WSP, and comply with the norms and standards does not accord with national public policy, as it creates huge unnecessary administrative burdens, generally unsuited to private extended WSIs.

This contradicts the DWS’ own national Water Resources Strategy 2023, which provides “regulatory intervention should be the minimum necessary” to deal with the matter being addressed and avoid unnecessary administrative burdens on regulatory and regulated bodies, as well as on the water user.

The DWS and municipalities’ administrative and fiscal capacity to assume additional administrative burdens and it creates policy and investor uncertainty as to which current extended WSIs will obtain licences, and when, and be able to comply with the new requirements; and if consumers will have a continued water services supply.

Over-regulation was flagged as a key threat to businesses growth, already in 2019, by PricewaterhouseCoopers Southern Africa CEO Shirley Machaba at a World Economic Forum meeting, based on the results of an opinion survey of more than 170 CEOs in Africa. It can have several negative consequences for businesses, individuals and the economy.

Poorly designed regulations can discourage investment and disrupt market dynamics as businesses may hesitate to invest due to compliance costs and uncertainty.

Cumulative regulatory costs create risks of hindering economic growth as excessive rules slow down business operations and overall economic activity.

Over-regulation is a clear waster of resources as valuable time and effort is diverted to compliance rather than productive activities.

Small businesses bear the brunt and disproportionate impact of regulatory burdens as compliance costs can overwhelm and stifle smaller enterprises, limiting their growth and competitiveness; and creating barriers to innovation and risk-taking.

Written submissions raising these issues have been submitted the DWS in the recently completed public participation for the Bill and Norms and the draft Standards.

Sandra Gore is an ESG Lawyer: Regulatory, Environmental, Mining, Energy, Land Use Law & Project Management.