Note: This article has been written on the basis of documents provided to the media during the 2025 Budget lock-up prior to the cancellation of the Budget Speech on February 19. The National Treasury has lifted the embargo imposed on the information, but a new Budget is now due to be tabled on March 12.

Efforts are under way to introduce an independent economic regulator to ensure fair pricing and sustainable management of water services, Finance Minister Enoch Godongwana said in the 2025 Budget documents issued on February 19.

In his undelivered 2025 Budget speech, Godongwana said, in the water sector, the focus remained on improving municipal water services and promoting private-sector participation.

“We will also focus on strengthening the regulation of water services through the introduction of a licensing regime. These changes enable new financing opportunities for the construction of dams and pipelines, and in the case of distribution services, will require providers to be licensed to retain water in our taps and to stop leaks,” the Minister's prepared speech said.

The municipal turnaround strategy is focused on addressing critical maintenance backlogs, ensuring skilled personnel are in place and fast-tracking infrastructure investments to stabilise service delivery, he explained.

“In terms of local government, reforms to turnaround the water and sanitation, electricity and waste removal businesses in cities include wide-ranging institutional changes. The goal is to create a single point of management accountability and ring-fencing the revenue to increase investment in infrastructure,” he said.

Godongwana said that National Treasury was collaborating with the Department of Water and Sanitation (DWS) and the Department of Cooperative Governance and Traditional Affairs to identify pragmatic and legislatively feasible solutions to get municipalities to prioritise debt repayments to water boards.

As such, the Minister said that National Treasury planned to invoke Section 216 of the Constitution for five defaulting municipalities. This would entail withholding the transfer of funds in the upcoming local government equitable share while negotiating a feasible repayment agreement with the affected water boards.

Godongwana said that National Treasury and the DWS were engaging on a mechanism to facilitate debt recovery, which would allow water boards and debtor municipalities to renegotiate repayment agreements.

This mechanism would involve writing off a portion of the municipal debt following the payment of the current account to water boards, and in turn water board arrears to the DWS will also be written off. However, the mechanism does not include the transfer of fiscal funding to water boards.

WATER INFRASTRUCTURE
A recent report on water-sector investment requirements estimated that R256-billion a year would be required between 2023 and 2050, totalling R7.2-trillion, to achieve water security and access for all.

The National Water Programme is meant to address the many investment gaps, with initial commitments coming from the New Development Bank (NDB) and the City of Cape Town.

Godongwana said that in the current fiscal year, R156.3-billion would be allocated for water and sanitation investment.

Godongwana highlighted 11 strategic projects in the water sector with an estimated value of R139.1-billion. He said that these projects were expected to create about 20 000 jobs during construction and 14 000 jobs during operation. About 8 000 jobs have been created so far.

Among these projects is the second phase of the Lesotho Highlands Water Project, which has an estimated capital investment of R42.1-billion, including the water delivery component for South Africa, which is expected to be completed in 2028.

The Trans-Caledon Tunnel Authority (TCTA) has raised about R24-billion from the Development Bank of Southern Africa (DBSA), the African Development Bank and the NDB, among others, for this project.

Construction is under way for the three main contracts – the Polihali dam, the transfer tunnel from Polihali to Katse dam, and the Senqu bridge. The dam and transfer tunnel are expected to be completed by June 2029. At this stage, the project is estimated to be about 40% complete.

Another project is the second phase of the Mokolo-Crocodile River Water Augmentation Project, which has an estimated capital investment of R12.3-billion. It is expected to be completed in 2030, providing about 75-million cubic meters a year of water to surrounding communities.

The TCTA secured funding for the second phase from five local commercial banks – Investec Bank, Absa, Nedbank Corporate and Investment Banking, FirstRand Bank and Standard Bank – along with the DBSA and the Industrial Development Corporation.

The project was structured around a blended finance portfolio, with an allocation from the fiscus for those components defined as social needs and a commitment from commercial users repaying for individual off-takes.

The uMkhomazi Water Augmentation Project is another strategic priority, with an estimated capital investment of R24-billion, and construction is expected to be completed in 2032.

National Treasury approved an application for R12-billion through the Budget Facility for Infrastructure (BFI) to improve the affordability of the project, while credit enhancement mechanisms are being used to crowd in private-sector investment.

The TCTA is negotiating the final water user agreements and framework agreements with recipient municipalities. Contracts for professional services providers for the 32-km tunnel and the Smithfield dam were awarded in May and September respectively last year. Both aspects of the project have begun.

Godongwana also highlighted the second phase of the Olifants River Water Resources Development Project, which has an estimated capital investment of R25-billion and is expected to be completed in 2030.

The DWS has appointed Lebalelo Water User Association to implement this phase. The BFI provided half of the funding for the pipeline from Flag Boshielo dam to the Sekuruwe water treatment works in Mogalakwena. Through the BFI, Phase 2D and 2F were approved for funding over the medium term.

Another project noted was the Berg River-Voëlvlei Augmentation Scheme, which has an estimated capital investment of R1.1-billion and is expected to be completed in 2027. Water supply agreements between the DWS and municipal and irrigation users have been signed, with the water use licence application being approved in December last year.

Godongwana said that the procurement processes for the scheme would be concluded this year.

Another key project mentioned is the rehabilitation of the Vaalharts-Taung irrigation scheme project, which was put on hold from 2016 until the approval of project preparation support from National Treasury in 2021. This led to the completion of the masterplan in June 2023.

Based on the masterplan, the estimated capital cost for the project is R7.2-billion. The DWS and the DBSA signed the grant agreement on October 17, last year. As such, work has begun on developing a bankable feasibility study. The final overall project costs will be determined once the feasibility studies are concluded.