South Africa aims to alleviate water crisis with regulatory and budgetary developments

With this in mind, Enoch Godongwana, South Africa’s minister of finance, outlined in the annual budget speech on 12 March the government’s plan to allocate R1.03 trillion (approx. US$54.7 billion) for public infrastructure projects by state-owned companies over the next three years. 

Included in the plan was R156.3 billion to water and sanitation infrastructure, R402 billion for road infrastructure and R219.2 billion for energy infrastructure. The 2025 Budget further increased the funding for infrastructure projects by R46.7 billion over the next three years. 

It is estimated that 70 million litres of treated potable water is lost daily because of inadequate infrastructure, with the Development Bank of Southern Africa noting that over R900 billion is required to address the existing infrastructure deficit.  

The Department of Water and Sanitation (DWS) highlighted in its 2024 annual report that the water and sanitation sector is facing various challenges which affect and prevent a significant number of South African citizens from accessing their basic constitutional right to water and dignified sanitation. 

Within the water and sanitation sector, the government has prioritised eleven strategic projects with an estimated value of R139.1 billion, including projects like the second phase of the Lesotho Highlands Water Project, the Mokolo-Crocodile River Water Augmentation Project, the uMkomazi Water Augmentation Project, the second phase of the Olifants River Water Resources Development Project, the Berg River-Voëlvlei Augmentation Scheme, and the rehabilitation of the Vaalharts-Taung irrigation scheme project. 

These projects are also considered strategic integrated projects (SIP) in terms of section 7 and 8 of the Infrastructure Development Act 23 of 2014, as per the Presidential Infrastructure Coordinating Commission. SIP designation emphasises these projects’ importance and the need for expedited timeframes to mitigate the ongoing water crisis.  

Other SIPs related to water include the Vaal-Gamagara Project, the Mzimvubu Water Project, the Groot Letaba River Development Project, the Rustfontein Water Treatment Works and the Orange-Riet Canal Project.  

With 22 cents of every Rand going towards servicing South African government debt, the National Treasury has highlighted the government’s determination to create an environment conducive to higher private sector investment, which would allow it to prioritise investment over servicing debt. 

The National Treasury has stated that there are several reforms which the government is considering to encourage more private investment. They include the establishment of a single structure overseen by the National Treasury that aims to coordinate state participation in project preparation and planning, public-private partnerships (PPP), funding, and credit guarantees. The reforms are echoed in the various amendments to the Treasury Regulations under the Public Finance Management Act 1 of 1999 that were passed in February 2025.

The amendments establish a public-private partnership (PPP) advisory unit within the Government Technical Advisory Centre to assist and provide support to institutions on applications to register a project with the relevant treasury as a PPP; the feasibility of PPP and infrastructure projects; and providing guidance on all life-cycle aspects of the PPP process. 

These regulations have been finalised and will take effect on 1 June 2025. The South African government hopes that these regulations will strengthen institutional arrangements and improve the reporting of fiscal risk and contingent liabilities.

The amendments aim to streamline the approval process for projects with a threshold of R2 billion by exempting them from Treasury approvals IIA and IIB. They provide a clear outline of institutional roles and responsibilities to support private institutions in the planning and procurement process, ensuring that projects are fast-tracked. Additionally, the amendments introduce mechanisms to track, report, and manage fiscal commitments and contingent liabilities required by Treasury Approvals I, IIB, and III.

The National Treasury is also working on updating the PPP manual to reflect the new amendments and modules recommended in the PPP review, as well as developing sector-specific toolkits which are expected by the end of 2026. 

Apart from improving the policy framework and reviewing the PPP ecosystem, the National Treasury is working on strengthening the capacity of the regulatory function, which currently approves all PPPs, to ensure that approvals are done timeously and that there is transparency and fiscal oversight.  

Additionally, the National Treasury is exploring financial support mechanisms to bridge the affordability gap for PPP projects to minimise delays in progressing projects from contract to financial close.

In conjunction with the National Treasury developments, the Department of Water and Sanitation has established a Water Partnerships Office within the Development Bank of Southern Africa in collaboration with the South African Local Government Association, with the objective of creating opportunities for the private sector to assist local municipalities with the delivery of water and sanitation services. This is a significant development, akin to the Independent Power Producer Programmes in the energy sector. 

Although the changes to the PPP regulations are a welcome attempt to streamline the PPP procurement process and reach financial close on projects more efficiently, National Treasury’s role as regulator could have been lightened to allow less process oversight and rely more heavily on its technical support role.

Fiscally weakened local government has meant that water PPPs are increasingly more difficult to bank as lenders can no longer take credit risk.

A role exists for national government, like the Department of Water and Sanitation (DWS) and the National Treasury, to consider creative mechanisms for underwriting water PPPs, ranging from extending financial assistance to municipalities as water services authorities to allow them to put in place the security needed by lenders on their water PPPs, to extending CGV products that the National Treasury is currently setting up for transmission infrastructure and water projects.

For any water PPP programme to work, the DWS and National Treasury will need to show local municipalities’ support by looking at credit enhancements to make these projects bankable.

Significant steps to address the challenges in the water and sanitation sector such as prioritising strategic projects, increasing funding for infrastructure and reviewing project policy and regulations is encouraging to see but requires urgent implementation.

The government’s commitment to creating an environment conducive to higher PPP investment and ensuring timely approvals with transparency and oversight, as well as providing guidance and support to institutions interested in pursuing PPP projects, is also encouraging.

As these regulations take effect, it is hoped that they will strengthen institutional arrangements and improve the reporting of fiscal risk and contingent liabilities, bridging the affordability gap for PPP projects and minimising delays in progressing projects from contract to financial close, and, ultimately, helping to achieve the end goal of timeously alleviating and resolving South Africa’s water crisis.

Co-written by Iman Damons of Pinsent Masons.