In a webinar hosted by Agriculture South Africa’s (Agri SA’s) Natural Resource Centre of Excellence, agriculture-water attorney and professional valuer Adriaan Groenewald unpacked some of the pertinent issues related to water-use entitlements in the agriculture sector.

This comes as many water-use licences approved under the prior Water Act of 1956 come up for renewal under the provisions of the National Water Act (NWA) of 1998, as well as increased interest from investors such as banks on the legalities of water use.

Agri SA Disaster Relief Foundation chairperson Laubscher Coetzee said water scarcity was also becoming an increasingly impactful reality, hence the importance of proper water management by large water users.  

Groenewald mentioned that one of the major differences between the Acts was in the wording, with water rights now defined as water-use entitlements.

Notably, Groenewald pointed out that land and water were valued separately. Under the prior Water Act, it was accepted that water rights were attached to the land. Today, water rights and land rights are differentiated, particularly in value.

For example, land may be valued at R40 000/ha, while the water rights range between R100 000/ha and R150 000/ha. There are, however, areas where the values are higher owing to water scarcity and evaporation rates in an area.

Groenewald highlighted the importance of researching the legal status of water rights on a property continuously and in instances where a property is being bought.

He elaborated that, under the prior legislation, the water rights were registered against the title deed or deed of transfer of the property, which is no longer the case. Valuers of water rights cannot rely on the title deed to ascertain the existence of water rights.

There is, however, often a lack of reliable data on the value of water rights. There is no registered database as in the case of property transfers for water-use rights. Rather, this is reliant on the willingness of the parties in a transaction to convey the information.

Moreover, Groenewald often found that people disregard the difference between servitude and water rights, when in fact servitude provides access to a water right. He advised valuers and investors to ensure servitudes are claimed against a lawful water-use licence.

He also suggested that valuers of water rights must have a good understanding of the prior Water Act, since much of the existing lawful water-use cases emanate from the prior Act.

Additionally, water rights that are excluded from the sale of a property need to be dealt with soon after the deed of sale has been signed. The seller must conditionally surrender these water rights to the buyer, or to a third party.

In these instances, the person surrendering the water rights may be entitled to compensation, depending on what the water-use right owner and the third party agree to.

Only when the licence is granted will compensation be allowed to ensure. If the licence is not granted, the status quo remains. “The approval of the Water Minister is the critical factor here. If the Minister approves the application, then compensation can be paid in terms of a lawful agreement between the parties.”

ILLEGAL DAMS

It is also important to know the legal status of dams on a property, Groenewald said. While the structure itself is not governed by the NWA, the storage of water is. Again, storage of water in many instances was granted before 1998 when the new Act became effective.

Groenewald pointed out a common misconception in the industry as being that dams up to 50 000 m³ of storage do not have to be licensed, but it is not true. All water storage, barring those with general authorisations in certain areas, need to be licensed.

Further, the NWA provides for the review and amendment of water-use licences every five years, rather than the 20 years that the prior legislation allowed for. Upon reviewing of the licence, conditions may be amended, but Groenewald finds that the Department of Water and Sanitation (DWS) is generally satisfied with renewing a licence that still adheres to the same conditions as imposed previously, rather, government tends to focus on other sources of potential illegal water use surrounding the main water use that is being applied for.

Groenewald addressed a question on instances where a farm is bought with an illegal dam which the buyer is or is not aware of, explaining that it would be naïve for the buyer to consider paying for the farm when an illegal structure is known of. Either the buyer or the seller of the farm would need to start the process of legalising that dam.

However, he pointed out that the DWS has become more reluctant to legalise these water works, whereas it used to be lenient.

“A purchaser of a farm with an illegal dam can be held liable for it and be issued fines, unless the parties agree that the seller of the property continue to pay the fines.”

Notably, Groenewald said there needs to be differentiation between dams that are permissible for household water use, including a dam collecting run-off water within the carrying capacity of the land – which does not need to be licenced.

Of course, an instream or outstream dam for irrigation purposes needs to be licensed.

Additionally, if a dam is being used as a balancing dam with a river, for example, being used as the extraction point, then the dam does not have to be licensed. A storage dam, however, is a different matter, when the dam itself is the point of extraction for irrigation purposes.

Groenewald highlighted another important issue as being delayed water-use applications or renewals owing to other water-use applications that may be illegal that were not applied for on the property. Often when people apply for renewal of a water-use licence a year before its expiry, the proceeds exceed the time that the licence remains valid, which becomes problematic if the user continues to use water in the meantime.

He encouraged large water users to apply for renewals two years in advance of a licence expiring and to sort out any potential illegal water use beforehand.

Any licensee must scrutinise the conditions of a water-use licence, lest a lengthy and intensive process ensues along the line.

Another factor to consider is the status of registration certificates, Groenewald said, explaining that unless a lawfully marked water certificate is received or possessed by the water user, that certificate has zero value.

“For example, bank valuers have sometimes relied on the existence of a water certificate that is legal, when in fact it could not be acted upon. Groenewald noted that water certificates often state that ‘lawfulness is yet to be determined’, which valuers need to check for.

Moreover, the NWA deals with licence renewals in the same way as with new licence applications – with no guarantee that it will be approved by the Minister.

Groenewald found, however, that the DWS is not reluctant to renew water-use entitlements or licences, unless other illegal water uses are found, particularly if the same conditions are adhered to that secured the licence or water right as per the prior legislation in the first place.

He explained that the most common examples of illegal water use cases relate to pipelines crossing a wetland or water works crossing drainage lines. Rarely does it occur that there are substantial illegal water uses that impede the flow of a river, for example.

The lengthy process of licensing renewal and uncertainty on its approval can definitely influence the confidence of investors buying or financing land for development, Groenewald confirmed.

Again, Groenewald urged stakeholders to scrutinise licence conditions, adherence thereto in case of existing licences and ascertain the legality of all other water works on a site.