As South Africa faces an intensifying water crisis, government is placing the spotlight on the water and sanitation sector by shifting from the "business as usual" approach to unlock innovative funding for increased water infrastructure development.

On Tuesday, 27 August 2024, President Cyril Ramaphosa approved the South African National Water Resources Infrastructure Agency SOC Limited Bill (the Bill). The Bill is aimed at establishing the South African National Water Resources Infrastructure Agency (the Agency) as a Schedule 2 major public entity in terms of the Public Finance Management Act, 2000 (PFMA). The Bill also provides that the Agency should be incorporated as a company in terms of the Companies Act, 2008 (Companies Act). Thus, both the PFMA and the Companies Act will apply to the Agency.

The Department of Water and Sanitation (DWS) is the custodian of national water resources. This includes large dams that supply raw water to water boards which in turn treat it and supply it to municipalities. To fund and implement bulk raw water infrastructure, the DWS utilises Trans-Caledon Tunnel Authority (TCTA) which is a state-owned entity charged with financing and implementing bulk raw water infrastructure projects. As TCTA does not have a substantial asset base to leverage the funding required for these bulk raw water infrastructure projects (given that the bulk raw infrastructure is owned by the Government and not TCTA), TCTA raises funding to build bulk raw water infrastructure against the back of guarantees issued by the National Treasury. Given the prevailing economic climate and the National Treasury's intent on reducing Government's exposure from guarantees, DWS saw the need for a new mechanism to unlock funding to address the water crisis in South Africa. On a reading of the Bill, it becomes apparent that DWS, through the establishment of the Agency is providing for a mechanism to further develop and fund national water infrastructure in a manner that is less reliant on the fiscus. The Bill provides an opportunity for the Agency to raise commercial and development finance, which unlocks opportunities for increased infrastructure development and finance in the water and sanitation sector.

According to section 2 of the Bill, the Agency will be able to acquire, dispose of, fund, provide, maintain, operate, manage and secure funding for national resources infrastructure in an efficient and cost-effective manner. This is to enable Government to meet the social and economic developmental needs of current and future water users within amongst others, the framework of national government policy.

The State will be the sole shareholder of the Agency, with the Agency's powers and functions exercised and performed under the Minister of Water and Sanitation (Minister).

Transfer of National Water Resources Infrastructure and Disestablishment of the TCTA

Chapter 6 of the Bill deals with the transfer of national water resources infrastructure to the Agency, and the disestablishment of the TCTA. The provisions in Chapter 6 of the Bill appear to aim to create a healthy balance sheet with substantial assets and revenues for the Agency. This should attract private sector investment in public infrastructure through commercial and development finance and allow the Agency to enter into transactions such as public-private partnerships without complete dependence on allocation by and guarantees from the National Treasury. This becomes apparent when reading Chapter 6 of the Bill, together with the functions of the Agency.

The TCTA is a Schedule 2 major public entity in terms of the PFMA, founded in December 1986. Its initial mandate was to finance and build the South African portion of the Lesotho Highlands Water Project, which delivers water to the Vaal River System in South Africa. The TCTA's mandate was extended in March 2000, to allow the TCTA to engage in other projects, including the Olifants River Water Resources Development, uMzibuvubu River Water and Kriel Off-take projects. Some of the functions and powers of the TCTA are to acquire or dispose of any right in or to movable or immovable property and invest money. As indicated above, notwithstanding TCTA's right to acquire immovable property and invest money, it does not have a substantial asset base to leverage funding for bulk raw water infrastructure.

Section 36 of the Bill provides that 12 months after the incorporation of the Agency, the Minister must transfer the commercial enterprise of the TCTA, including all its assets, rights and obligations to the Agency as a going concern. The treaty functions and non-treaty functions of the TCTA must also be transferred to the Agency. A result of the transfer is that all assets in the asset register of the TCTA that fell under the control or custody of the TCTA, that were possessed, occupied or used by the TCTA and were registered with any registrar of deeds in the name of the TCTA will form part of the balance sheet of the Agency and as such, these will also increase the asset base that can be leveraged for funding purposes.

In addition, section 36(2) of the Bill directs the Minister to, 12 months after the date of incorporation of the Agency, and in consultation with the Agency, determine by notice in the Government Gazette, a date on which the Minister will transfer to the Agency, the national water resources infrastructure, which immediately before that date, vested in the DWS. The subsection vests in the Minister, the power to declare which government waterworks are deemed to be national water resources infrastructure and are to be vested in the Agency.

Functions of the Agency

Section 6(1) of the Bill provides that the Agency must, inter alia:

• secure funding and where necessary, refinancing of national water infrastructure;
• collect water use charges due to it in terms of Chapter 5 of the National Water Act;
• manage an asset inventory and information system associated with the national water resources infrastructure;
• ensure sustainable, equitable and reliable development of national water resources infrastructure;
• enter into agreement with (i) water users, and (ii) other parties for purposes of maintaining and sustaining reliable national water resources infrastructure; 
• acquire or dispose of any right, title or interest in movable or immovable property as may be necessary for the Agency to fulfil its functions; and
• obtain by agreement, in writing, the services of any person, including any organ of state for the performance of any specific act, task or assignment for and on behalf of the Agency.

Section 6(4) of the Bill places an obligation on the Agency to promote the development of projects that meet social needs and facilitate suitable financial arrangements for the funding thereof.

Governance of the Agency

From an overall governance perspective, DWS retains its role as regulator and the Agency assumes the role of developing and implementing national water infrastructure management initiatives.  

According to Chapter 3 of the Bill, the Agency will consist of a board, comprising of:

• 2 executive members;
• not less than 9 and not more than 11 non-executive members, which must include (i) a member designated by the Minister who is a senior officer of DWS; (ii) a member designated by the Minister of Finance and, (iii) a member appointed through public process.

The board must amongst others:

• retain adequate control over the Agency;
• provide effective and transparent corporate governance;
• ensure compliance with all applicable laws, regulations, agreements and codes of best business practice; and
• report to the Minister.

Therefore, functions such as asset management and revenue collection in relation to national water infrastructure will be integrated into the Agency.

The preamble to the Bill acknowledges that the current national water infrastructure asset base and associated revenue stream could be better utilised to procure funding for the development, operation and maintenance of national water resources infrastructure required for meeting social and economic needs. The Bill creates an opportunity for national government to address issues relating to water security outside of South Africa's constrained fiscal environment. It also creates further opportunities for increased public-private partnerships for the construction, operation and maintenance of national water infrastructure.

Written by Calvin Nchabeleng, Partner & Makgati Makgatho, Senior Associate at Webber Wentzel