The business of water

The business

As a non-profit organisation (NPO) dedicated to increased job creation and investment into green water technologies and services, GreenCape has created the 2021 Water Market Intelligence Report (MIR), that has identified investment opportunities in the municipal water market. Kirsten Kelly interviews two water sector analysts responsible for the 2021 MIR.

(Photo credit: Western Cape Department of Agriculture)

GreenCape’s 2021 MIR has identified the following investment opportunities in the municipal water market: • reducing non-revenue water (NRW) • beneficiation solutions for wastewater sludges • non-sewered sanitation systems (NSSS).

Have you seen any trends regarding the financing of water and sanitation projects?

RB In the past, infrastructure projects have been funded by government grants, and loans to municipalities with a good credit rating.

Currently, many municipalities struggle to access finance at low interest rates for infrastructure projects that have a low capital cost. Big development finance institutions (DFIs) tend to fund projects or a programme of projects with a value of R1 billion or more. It is highly unlikely that a small municipality will need an infrastructure project of that size.

National government is leading the way in creating new and interesting financing mechanisms to address this problem. The Infrastructure Fund is combining a number of bulk water infrastructure projects by packaging them together in one fund. This makes their combined value great enough to be of interest to funders that can offer low interest rates. They are encouraging a blended finance model that uses both public and private finance.

GreenCape was involved in a provincial version of the Infrastructure Fund where the Western Cape Provincial Government and the French Development Bank partnered together and created a mechanism called the Sustainable Infrastructure Development and Financial Facility (Sidaff). Most of the small, creditworthy municipalities are in the Western Cape. Most of the projects that fall within the Western Cape Provincial Government’s priorities and can meet the UN Sustainable Development Goals that attract financing are water and sanitation projects. The next phase of Sidaff is to prepare these projects to bankability and attract additional finance through combining the projects into a higher-value programme of projects. AM A promising development in 2021 is that a third of the Department of Water and Sanitation’s (DWS’s) budget has been allocated towards community development for improving water and sanitation services throughout the country, including in informal settlements.

Ashton Mpofu (AM), senior water sector analyst, GreenCape Rudi Botha (RB), senior water sector analyst, GreenCape

Are there any mechanisms in place to assist with the introduction of new technologies to municipalities?

AM Many technology suppliers simply do not have the capital to sponsor their own trials. There are a number of initiatives that support technology trials.

The Viability and Validation of Innovations for Service Delivery programme is being implemented by the Department of Science and Innovation (DSI) – in partnership with the South African Local Government Association and the Department of Cooperative Governance and Traditional Affairs – with funding from the EU and National Treasury. The programme will help municipalities to pilot technologies and innovations that could assist in improving basic service delivery – namely water resource management, sanitation, waste management, as well as green and renewable energy solutions. We also have the Water Technologies Demonstration Programme, The Water Hub, as well as the Bremen Overseas

“Municipalities keep renewing tenders every three years but it often does not make financial sense for companies to have a three-year contract – they may need a longer-term agreement to recover the costs invested in a project and make a profit.”

OPPORTUNITIES KEY DRIVERS BARRIERS

Non-revenue water (NRW) reduction • Potential savings (due to reduced water loss and wastage, inaccurate metering and billing) • Increasing water scarcity and droughts • Demonstrated short payback period • Increased project preparation support • Lack of municipal technical capacity • Complex contracting and financing models • Lack of locally verified or demonstrated technologies • Acceptance by the public • Financial insolvency of municipalities • 15% reduction in NRW target nationally by 2030, supported by a seed investment of

R676 million by the DWS to realise R7.3 billion per year in savings in bulk water costs nationally (R740 million in WC) • R5.5 million in subsidy for smart metering in WC schools • R1.2 billion in smart meter installation in CCT over eight years

Non-sewered sanitation systems (NSSS) • Covid-19 pandemic reemphasised the need for universal access to sanitation • Housing provision pressure • Need for rapid implementation options • Constraints on development due to lack of bulk infrastructure • SDGs/NDP strategies and government initiatives aimed at providing universal access to sanitation • Some informal settlements are on private land, making it difficult to install permanent infrastructure • Increase in water and sanitation service delivery protests • Lack of availability of potable water to flush toilets and use for waterborne sanitation • Policies, by-laws and regulations that make it onerous to install NSSS • Insufficient grant funding • Financial insolvency of municipalities • Public acceptance • Negative perceptions about cost and maintenance requirements • Footprint size of NSSS, as some informal settlements are densely populated • Lack of locally proven technologies • Lack of appropriate financing models to implement NSSS • R3.4 billion has been allocated to improve sanitation in schools over the next two years • Estimated total capital investment potential of

R41.4 billion in NSSS (R2.44 billion in WC) towards achieving universal access to safe sanitation based on 2018 GHS • R4.7 billion worth of potential

NSSS projects in the metros (R2 billion in CCT) to replace chemical, bucket toilets, and provide sanitation to households without access

Wastewater sludge beneficiation • Increasing landfill disposal fees • Transportation costs • SDGs (7, 11 and 12) • Nitrogen-based fertiliser imports threatened by Covid-19 supply chain risks • Imminent organic waste to landfill reduction plan and existing liquid waste to landfill ban • Current state of policies and regulations (also a potential driver) • Lack of capital • Public and industry perception • Financial insolvency of municipalities • Producer-beneficiator infrastructure gap (potential driver) • Lack of locally verified technologies • Opportunities to transport and beneficiate sludge to the value of R330 million per year across all metros, excluding Tshwane (R86 million in WC)

KEY MARKET SEGMENTS

Research & Development Association that all assist with promoting technologies in the public sector.

Additionally, the City of Cape Town has established a technology committee that seeks to gain an understanding of innovative water and sanitation technologies in the market. It gives technology and service providers the opportunity to present their products and services to the municipality.

While a fair amount of work is happening, it is in silos. The water sector needs a lot more coordination and collaboration. RB The municipal innovation maturity index (MIMI) has been launched by the DSI and it is a platform for enhancing the innovation capabilities of municipalities to stimulate and support innovation for improved service delivery. MIMI will assess a municipality’s willingness to tackle innovation and pilot technologies.

Interestingly, because the private sector is beginning to play a greater role in the financing of water infrastructure projects, there is a different approach to project preparation and project needs. Case studies and business cases are needed to access private finance and so there should be an increased appetite from municipalities to trial different technologies. Did you find anything interesting or surprising when researching and compiling the 2021 MIR?

RB I was surprised by the high NRW numbers. I had thought that they were improving but, when analysing the figures, they are actually getting worse and this is very disheartening. There is a lack of technical capacity to procure and implement NRW projects in smaller municipalities, so I am hoping that a drive from government and help from the Development Bank of Southern Africa to set up a technical expertise centre will assist with tackling NRW projects.

Province Population System input volume (million m3/annum) % NRW NRW (million m3/annum) Per capita consumption (ℓ/c/d)

Northern Cape (NC) 1 263 875

Free State (FS) 2 887 465

Mpumalanga (MP) 4 592 187

North West (NW) 4 027 160

Limpopo (LP) 5 982 584

Eastern Cape (EC) 6 712 276

Western Cape (WC) 6 844 272

KwaZulu-Natal (KZN) 11 289 086

Gauteng (GP) 15 176 115

National 58 775 020 85.80 43.5 37.32

220.27 42.3 93.17

343.61 46.2 158.75

349.84 41.2 144.13

397.42 50.3 199.90

490.00 46.3 226.87

502.13 20.2 101.43

927.12 45.0 417.20

1 689.48 34.7 586.25

4 998.52 39.3 1 965.04

Table 2 Overview of non-revenue water in South African provinces

Source: DWA2019a Based on population (2019 Stats SA) and % NRW (NW&SMP 2019) (page 44 of pdf)

186

209

205

238

182

200

201

225

305

233

Demonstration water reuse plant at Zandvliet Wastewater Treatment Works

How does a private company deal with the public procurement process?

RB The public procurement process is most suited to continuing to procure infrastructure development via consulting engineers and large contractors. So GreenCape recommends in its Industry Brief on Entering the Public Water Market that businesses within the water value chain partner and engage with these types of companies, because tackling the public procurement process for infrastructure alone can be a huge challenge.

There are some upcoming potential changes with procurement legislation. A procurement bill is about to be promulgated. This will simplify many of the procurement processes, as everything will be in a single document.

A draft proposal recommends an increase in thresholds according to inflation for requests for quotations – allowing for municipalities to undergo a simple quotation process for higher values. The thresholds were set in 2008 and have not been adjusted to increase with inflation. As a result, the are currently very low. This means that for a small procurement, a municipality must go through a full tender process, rather than a simpler quotation process.

Do South Africa’s regulations, legislation and policies encourage water sector investment?

AM South Africa has very good legislation. But it needs to be updated over time to keep up with evolution of technology and innovation.

This disconnect is sometimes prohibitive to the adoption of technologies and services in the sector. A lot of legislation has been formed around a linear and not circular economy, and its implementation is poor.

The DWS and municipalities need to be capacitated in order to implement and enforce legislation. Compelling users to comply with legislation can drive investment in water technologies. Two good examples are the national liquidwaste-to-landfill ban and the imminent organic-waste-to-landfill ban in the Western Cape. Producers of such waste (brine, wastewater sludge, oils) must now invest in alternative solutions.

Furthermore, the implementation of policies such as local content may also promote investment in the sector, boost our manufacturing capacity, and create jobs. Regionally, policies such as the African Continental Free Trade Area are promising increased investment in manufacturing, as well as commercialising local water and sanitation technologies for the African market.

Policies around incentivising products manufactured from waste and/or green procurement guidelines may also promote investment in waste beneficiation technology, services and businesses.

There was a historical problem where water-use licences could take over a year to issue; thankfully, the DWS has now committed to a 90-day turnaround time. Short turnaround times promote investment in water projects. RB Municipalities keep renewing tenders every three years but it often does not make financial sense for companies to have a three-year contract – they may need a longer-term agreement to recover the costs invested in a project and make a profit.

A perfect example is wastewater sludge beneficiation. Compost and fertiliser are registered products and need to be certified by government for use in agriculture; this is an expensive process. Therefore, compost and fertiliser companies need a guaranteed source of wastewater sludge for at least 10 years. If the source changes, they have to reregister their product.

That being said, a lot of waste beneficiation red tape has been removed. National norms and standards for waste composting have been promulgated and a second set of norms and standards is due to be promulgated on organic waste treatment.

These regulations allow for waste beneficiators to treat waste without the red tape of acquiring a waste licence, as long as standard procedures are followed. They are progressive and have considered the public’s feedback.

The key is to be engaged and aware of proposed policies and to provide comment wherever possible.

Conclusion

While investing in NRW reduction, NSSS and sludge beneficiation projects make financial sense to municipalities and investors, there are also significant barriers. The public and private sector need to engage with each other and work together to remove these barriers. Some important steps have already been taken. We all need to innovate in order to provide safe water and sanitation for all our citizens. Download the 2021 MIR report here:

New regulations allow for waste beneficiators to treat wastewater sludge without the red tape of acquiring a waste licence, as long as standard procedures are followed. (Photo credit: ©Pxhere)

The costs associated with managing wastewater sludge can represent 40% to 60% of total WWTW costs (Photo credit: Bruce Sutherland, City of Cape Town)