MALAIKA MAHLATSI: Special Purpose Vehicles must be at the centre of transforming water utilities

This week, South Africa hosted the 14th International Water Association Conference on Water Reclamation and Reuse at the Cape Town International Convention Centre, with delegates from more than 55 countries present. Speaking at the conference's opening session, Pemmy Majodina, the Minister of Water and Sanitation, reaffirmed that water is a fundamental human right while also reflecting on the challenges of water insecurity in South Africa. Majodina’s comments reflect the position of the national and provincial governments. In his State of the Nation Address (SONA) a month ago, President Cyril Ramaphosa declared water as a national priority, contending that it is necessary for economic growth.

The Minister of Finance, Enoch Godongwana, in his Budget Speech tabled just over a week ago, also allocated a significant share of the national budget – a total of R1 trillion over the next three years, to infrastructure spending. At least R156.3 billion, or just over 10% of this budget, has been allocated for water and sanitation. He indicated that the national government is investing in several large-scale dam projects that are entering the construction phase. One of those that will begin shortly is the Berg River-Voëlvlei Augmentation Scheme which is expected to begin construction in July 2026. The aim of the project is to improve the Western Cape’s water supply system, with the objective of providing a reliable supply for agricultural and industrial users.

In his State of the Province Address (SOPA), Gauteng Premier, Panyaza Lesufi, also identified water as one of the 13 key challenges facing the economic-nerve centre of the national economy. While recognising that water is not the competency of the provincial government, he stated that the Gauteng Provincial Government (GPG) would intervene to assist municipalities with the dire water insecurity challenges in the province and that jointly with the Ministry of Water and Sanitation, GPG has established a war room with all Gauteng municipalities to monitor, resolve, and protect water supply in the province.

These commitments by the national and provincial governments indicate a growing appreciation of the vital role of water in growing the economy, as well as the need for investing in water infrastructure. More significantly, Lesufi’s SOPA reflects an appreciation of the direct link between water and energy security, which has been greatly advocated for by the Association of Water and Sanitation Institutions in South Africa (AWSISA). AWSISA is a dynamic organisation dedicated to advancing the interests of water and sanitation institutions across the entire water and sanitation value chain, providing advisory services and ensuring stability in the South African water sector.

AWSISA has historically argued that South Africa’s water security is directly linked to its energy stability, positing that power failures at pumping stations disrupt water supply which in turn affects municipalities and industries. The organisation has been advocating for the development and implementation of the Water-Energy Nexus Master Plan to guide future investments and key priorities. It has defined the key priorities of this intervention as (1) the strengthening of power supply flexibility by securing alternative power sources for critical water infrastructure (2) upgrading and maintaining infrastructure to reduce the impact of power outages (3) enhancing coordination between water and energy sectors to improve efficiency and resilience.

In asserting that the GPG “has taken a drastic decision to allow City Power to take over the electricity supply of the Eikenhof pumping station while Eskom will take over the Emfuleni pumping station to immediately restore power”, Lesufi has demonstrated an appreciation that the water-energy nexus is crucial for ensuring water security in the Gauteng Province. However, the SOPA (and the SONA) fell short of placing the implementation of Special Purpose Vehicles (SPVs) at the centre of transforming water utilities and by extension, improving municipalities’ capacity to facilitate water security.

In the context of water infrastructure, an SPV is a legal entity, often a subsidiary, created to manage and finance specific water projects, like revitalising water and sanitation services, by ring-fencing assets and liabilities. It is a water utility that will be responsible for implementing, managing and carrying out the maintenance of water and sanitation service systems to ensure sustainable basic service delivery to residents, businesses, and industries.

The value of SPVs has been illustrated in South Africa and other parts of the world. In the Emfuleni Local Municipality, which experiences severe water insecurity owing in particular to poor water governance and municipal failures, the SPV has been launched as a pilot project to help manage and finance water infrastructure maintenance. This intervention will allow private sector expertise and funding to be brought in to stabilise and improve water supply networks.

Given the municipality’s failures to manage the water supply networks and to pay for the bulk water that it receives from Rand Water, a situation that could cripple an effective bulk water utility that has demonstrated efficiency and professionalism over the years, the SPV can provide relief, ensuring sustained water access while simultaneously ensuring that the ring-fenced resources go into improving water infrastructure rather than other competing priorities of the municipality as has been the case.

As water governance experts have correctly argued, while they are an important instrument for stabilising water supply in dysfunctional municipalities, SPVs are not a panacea to the problem. They are temporary in nature and cannot resolve the broader issues of poor governance in municipalities. However, they can bring about stability, with their success depending on the appointment of qualified professionals to manage operations effectively as well as the appointment of an experienced and independent board to oversee governance and accountability. Furthermore, municipalities must prioritise the financial ring-fencing of water and sanitation revenue, and also ensure that they develop a coherent and sustainable revenue generation strategy to allow SPVs effective revenue collection management.

Rand Water must be entrusted to spearhead the facilitation of these SPVs as it has the experience and expertise to advise and guide on their structuring. Furthermore, the bulk water utility’s international recognition places it in a unique position to secure public-private partnerships that are needed to facilitate much-needed investments into South Africa’s water infrastructure. This is the most sustainable way of addressing the immediate water insecurity that is threatening to collapse Gauteng which is the nerve centre of the regional economy. The Gauteng Provincial Government and the national government must urgently prioritise the implementation of SPVs in the country and the Gauteng City Region, but recognise that this is not a solution to failing municipalities that still need to be radically transformed.