Deputy Minister David Mahlobo: Water and Sanitation Dept Budget Vote 2025/26

Budget and policy statement on Department of Water and Sanitation, Vote 41 by Hon David Mahlobo, Deputy Minister of Water and Sanitation, Good Hope Chamber, Cape Town

Honourable Speaker. Honourable Deputy Speaker.
His Excellency, President Cyril Ramaphosa.
His Excellency, the Deputy President Paul Mashatile.
Hon Minister Cde. Pemmy Majodina and Cabinet Ministers.
Hon. Dep Minister Sello Seithlolo and Deputy Ministers.
Chairperson of the Portfolio Committee of Water and Sanitation. Honourable Members of Parliament.
Director-General Dr. Sean Philips and Senior Managers of the Department of Water and Sanitation.
Leadership of our Entities: Chairpersons, Members of the Boards, CEOs, and Senior Executives.
Leadership of various stakeholders in the sector and civil society.

1. Introduction

1.1. The world is facing a number of crises simultaneously, each threatening our collective existence. The global economy over the last few years has been struggling to recover due to COVID-19 and security challenges. We have witnessed the rise of unilateralism and protectionism that has significantly impacted on the UN Sustainable Development Goals (SDGs) – our shared developmental perspective. The UN data of 2022 indicates that only 17% of the SDGs are on track, and one-third are either stalled or regressed.

1.2. It is estimated that about 2.2bn people have no access to safely managed drinking water; 3.6bn with no sanitation, and 2.2bn lacking in hygiene. The UN further reports that about 2.4bn people live in water-stressed countries.

1.3. South Africa is of the firm belief that we need to strengthen and defend multilateralism, strive for reforms of the global governance architecture to promote inclusivity and responsiveness to the current global challenges of inequality, poverty, security, economy, and climate change.

1.4. To achieve the SDGs and UN Paris Climate Change commitments, we need united action, avoid fragmentation, undertake deep reforms, avoid top-down approaches, mobilise experts everywhere, and build partnerships for a resilient and sustainable shared future.

1.5. There is a need to upscale investments to bridge the financing gap worth trillions of dollars (USD 7trn) globally and in our continent (the gap is about USD 30bn per annum for water and sanitation).

1.6. These changes won’t happen overnight and will require us to increase our efforts six times for water and five times for sanitation.

1.7. South Africa is amongst the top 25 of the world’s most water-stressed countries. Our country is situated in a region that is predominantly semi-arid with an average rainfall of about 450 mm per annum (mm/a), which is well below the world average of about 860 mm/a, while evaporation is comparatively high.

1.8. The water and sanitation sector are experiencing serious challenges. These challenges vary from lack and adequacy of water supply, physical water losses (water leaks), spillage of sewer in streets and our natural resources. This comes because of poor governance, ineffective and inefficient management of infrastructure (lack of O&M; high financial losses, high cost of inefficiencies including non-payment for services provided). Other external factors that contribute towards these challenges include the weakened economy, national power interruptions, high unemployment, and poverty, all of which hinder progress. In the midst of this, South Africa is one of the highest consumers of water at at least 218 l/c/day compared to the world average of 174 l/c/day and NRW of 45%.

1.9. Our country is water scarce and receives less rainfall compared to the global average, but our water availability is balanced, with some deficits in some of the water management areas facing extreme shortages due to uneven distribution. Our water demands have increased exponentially over the last three decades due to population growth, economic growth, demands from various industries, increased pollution, and climate variability.

1.10. Over the last thirty-one years of freedom and democracy, we have made significant strides with respect to access to water and sanitation, as per Stats SA data 2022, including its benefits.

1.11. Out of 144 municipalities that are water services authorities, 105 are unable to discharge their constitutional and legislative mandate as per the DWS Drop reports, AGSA, COGTA, NT, and experts’ reports. These municipalities are faced with a plethora of challenges like governance instability, corruption and malfeasance, aging infrastructure, water leaks and losses, and financial and operational inefficiencies.

2. Reform of municipal water and sanitation services

2.1. The resolutions of the Indaba affirmed the reforms of municipal water services currently underway through the Water Services Amendment Bill and National Treasury’s Reform of Metropolitan Trading Services Programme.

2.2. Water reforms are also prioritized in the second phase of Operation Vulindlela, which was recently approved by Cabinet.

2.3. All of these reform initiatives involve ensuring the proper separation of the Water Services Authority (WSA) and Water Services Provider (WSP) functions in municipalities; ringfencing of municipal revenues from the sale of water for the water function; and ringfencing of all management functions related to the delivery of water and sanitation services, with single-point accountability for the Water Services Provider.

2.4. The Water Services Amendment Bill is currently in the Cluster system for processing for submission to Cabinet, whereafter it will be submitted to Parliament by June 2025.

2.5. The President stated in his State of the Nation Address that, “Through the Water Services Amendment Bill, we will introduce a licensing system for water service providers and, [as a last resort] remove licenses where providers do not meet the standards for quality drinking water.”

2.6. As part of the reforms, the President indicated in his State of the Nation Address that “Starting this year, we will work with our municipalities to establish professionally managed, ring-fenced utilities for water and electricity services to ensure that there is adequate investment and maintenance.”

2.7. While the reforms in the municipal water and sanitation sector are aimed at turning around the sector in the medium-term, the sector is not waiting for the legal amendments to be passed by Parliament – the Water and Sanitation Indaba agreed that key reforms such as ringfencing of water revenues and water services management functions, as well as considering the appointment of alternative water services providers, should proceed immediately.

2.8. For example, Rand Water and Emfuleni Local Municipality have agreed to establish a Special Purpose Vehicle (SPV) to be the Water Services Provider in Emfuleni. The approval of the Minister of Finance has been obtained as required by the PFMA and MFMA, a detailed business case has been developed, and the SPV should be established during this financial year.

2.9. In addition, the Councils of most metropolitan municipalities have already approved water and sanitation turnaround plans, which include the establishment of the ring-fenced entities for water services mentioned by the President. In some cases, these entities will be external entities such as Johannesburg Water and the Emfuleni SPV, and in other cases, metropolitan municipalities may opt for ring-fenced internal Water Services Providers.

3. Deepening water sector reforms to advance water security and reliability of water and sanitation provision for all

Easing water use licencing to unlock economic growth

3.1. Over the past few years, the Department has made good progress in implementing the water sector reforms that were part of the first phase of Operation Vulindlela.

3.2. The large backlog of applications for water use licenses was removed, and more than 70% of water use licenses are now being processed within 90 days, compared to 35% in the 2022/23 financial year. The Department’s target in this regard is 80% to be processed within 90 days for the current financial year, and the target will increase to 90% in future financial years.

Building and establishment of water resource institutions for water resource planning, financing, development, protection, and management

3.3. As indicated in SONA by the President, the National Water Resource Infrastructure Agency is being established to enable more financing to be raised for national water resource infrastructure. The Act was passed by Parliament last year and was promulgated in September 2024. Following promulgation, the National Treasury raised a concern regarding section 3(2) of the Act, which relates to the listing of the Agency in Schedule 2 of the PFMA. To address this issue, a technical amendment to the Act was submitted to Parliament, and the Portfolio Committee has considered the matter.

3.4. This has resulted in a change to the timeframes for the establishment of the Agency, and it is now envisaged that the Agency will be fully established by April 2026. Work is underway to prepare for the amalgamation of the TCTA, the Department’s infrastructure branch, and the Department’s Water Trading Entity into the new Agency, including the transfer of assets, existing loans, and staff.

3.5. With regard to the establishment of the remaining catchment management agencies, all six have now been gazetted with boards appointed. Processes towards the transfer of certain staff and responsibilities from the Department to the catchment management agencies are underway.

3.6. The establishment of wall-to-wall catchment management agencies will enable local stakeholder involvement in catchment management, with the aim of improving the protection of our water catchments, which is critical for our future water security.

Creating certainty for water use charges and pricing for the entire water value chain

3.7. The revised Raw Water Pricing Strategy was approved by the Minister of Finance in June 2024, and the Department is currently engaging in consultations with water users and water management institutions regarding the implementation of the revised strategy from 1 April 2026. Implementation of the revised raw water pricing strategy will result in more sustainable and equitable tariffing and strengthen the application of the ‘user pays’ and ‘polluter pays’ principles. It will also result in the gradual removal of the subsidies that have been in place for some sectors since the days of apartheid.

3.8. With regard to the establishment of an Independent Economic Regulator for the water sector, the previous Minister put in place an advisory Regulator Commission in August 2022, which has played a valuable role in providing an independent contribution to the Department’s regulatory work. The Regulator Commission’s recommendations have been made public on the Department’s website.

3.9. However, we have since decided to proceed towards the establishment of a fully independent Economic Regulator for the water sector, and the Department is currently preparing a business case in this regard, with the assistance of the Regulator Commission and the Operation Vulindlela team. The business case will be completed during this financial year.

3.10. The Independent Economic Regulator will regulate prices for the whole water value chain, including raw water prices, Water Board prices, and the prices charged by Water Services Authorities or Water Services Providers. The aim will be for prices to be set such that the institutions in the water value chain are financially sustainable, on condition that their costs reflect the efficient provision of services.

Improving performance and functionality of municipal water and sanitation systems

3.11. The Blue, Green and No Drop Reports were reinstated in 2022, and we are currently doing the next round of assessments of the performance of municipal water and wastewater systems, with a view to releasing further reports in December this year and the following two years.

4. Financing and funding for the water sector

4.1. Honourable Members, the state does not have the financial resources to meet all the needs in the water sector. In addition, some parts of the state lack the skills and expertise required to deliver water and sanitation services and to address some of the challenges that we are faced with.

4.2. DWS is using three mechanisms to create opportunities for private sector investment in water and sanitation. The first of these is our partnership with the Infrastructure Fund, which is a ring-fenced entity housed in the DBSA.

4.3. The Infrastructure Fund assists government departments to develop and implement ‘blended finance’ projects, which consist of a combination of public and private sector funding. The public sector funding is used to mitigate risks in order to make projects bankable for private sector investment.

4.4. As stated by the President in his State of the Nation Address, “We are developing innovative ways of funding infrastructure… To date, the Infrastructure Fund has secured R23 billion for seven large water infrastructure projects”. The seven large, blended finance projects referred to by the President are:

a) The R4.6 billion first phase of the Olifantspoort Ebenezer Upgrade Project will provide Polokwane Local Municipality and surrounding areas with additional water, for which R2 billion will be raised in the financial markets. Construction has started and the Infrastructure Fund will soon be going to the market to raise the finance.

b) The R28 billion uMkhomazi Dam and pipeline project will provide additional water to eThekwini and surrounding municipalities, for which R16 billion will be raised in the financial markets. The TCTA is currently finalising designs and is in discussions with potential funders.

c) The R5.2 billion uMoretele North Klipvoor regional bulk water scheme will supply additional water to Moretele North in the North West and Bela-Bela, Modimolle, Mookgophong and Mokopane municipalities in Limpopo, for which R2.6 billion will be raised in the financial markets. Construction of the first phase has started.

d) The R2.9 billion Pilanesberg Bulk Water Supply Scheme Phase will provide additional water to the Rustenburg, Moses Kotane and Thabazimbi municipalities, for which R1.1 billion will be raised in the financial markets. The first phase of construction has been completed, and the remaining construction work is currently underway.

e) The two phases of the R24 billion Olifants Management Model project in partnership with mining houses in Limpopo will provide water to mines and to communities in Sekhukhune and Mokgalakwena municipalities, for which R12 billion will be raised in the financial markets. Construction of the first phase is underway.

f) The R1.1 billion project to reduce non-revenue water in eThekwini Local Municipality, for which R730 million will be raised in the financial markets. The feasibility study is currently being finalised.

4.5. The R23 billion referred to by the President is the government contribution to these projects, which the Infrastructure Fund assisted DWS to obtain from the Budget Facility for Infrastructure in National Treasury.

4.6. We are also working with the Infrastructure Fund to bring additional blended finance projects to the market. For example, the Vaal Gamagara project in collaboration with mining houses in the Northern Cape will result in the extension of a bulk pipeline to enable additional water to be supplied to mines and to communities adjacent to the pipeline.

4.7. The Infrastructure Fund is also working directly with some municipalities to assist them to develop and implement blended finance projects. This includes the Polokwane Regional Wastewater Treatment Works, and water and wastewater projects in the Cities of Tshwane and Cape Town.

4.8. As I mentioned in my budget speech last year, the second mechanism that we are using to create opportunities for private sector investment in water and sanitation is the Water Partnerships Office (WPO) that we have established in partnership with the DBSA and SALGA. The purpose of the WPO is to assist municipalities to develop and implement partnership projects with the private sector, for reducing non-revenue water, water re-use, wastewater treatment, and seawater desalination.

4.9. The WPO is working with various municipalities to prepare projects for private sector participation. The project which is most advanced is a non-revenue water reduction project in eThekwini.

4.10. Similar non-revenue water reduction projects are also being developed for Buffalo City, Tshwane, Mangaung and Nelson Mandela Bay Metropolitan Municipalities, as well as the City of Polokwane.

4.11. The WPO is also supporting eThekwini to develop the Umdloti and uMkomazi wastewater treatment and water reuse partnership projects, which are at procurement stage. Other wastewater reuse projects at preparation stage include the Northern and KwaMashu wastewater reuse projects in eThekwini, the Sebokeng reuse project in Emfuleni, the Olifantsfontein and Waterval reuse projects in Ekurhuleni, and the Rooiwal reuse project in Tshwane.

4.12. The WPO recently issued an Expression of Interest for other municipalities to register water reuse projects with the WPO, for which the WPO has raised project preparation funding. Municipalities are encouraged to respond to this Expression of Interest.

4.13. The third mechanism we are using to create opportunities for private sector investment in water is the TCTA, which will be merged into the NWRIA. Approximately 60% of the funding for new national water resource infrastructure projects is raised on the financial markets by the TCTA. These loans are paid off using revenues from the sale of water.

4.14. The establishment of the NWRIA will enable additional finance to be raised on the strength of the NWRIA’s balance sheet, which will include all the national water resource infrastructure assets, and the revenues associated with them.

4.15. In addition to these three mechanisms, we are exploring Green and Blue Bond financing mechanisms for implementation by Catchment Management Agencies and WSAs.

4.16. An example of such a mechanism is the alien vegetation removal project being implemented by the City of Cape Town together with The Nature Conservancy and Cape Nature in the water catchment areas around Cape Town, which is partly funded by Green Bonds.

4.17. Furthermore, during the current financial year DWS will develop mechanisms to leverage private sector finance using the Regional Bulk Infrastructure Grant and Water Services Infrastructure Grant, to be in place by the 2026/27 financial year.