Water crisis: Look to SA’s renewable
The private sector will offer solutions and money if there is policy certainty and effective guarantees
In seeking solutions for the current water crisis, Cape Town and other drought-prone areas should learn from the experiences of South Africa’s renewable energy programme, which worked with the private sector to produce electricity alongside Eskom.
Although there are countless short-term measures aimed at helping Cape Town avert a Day Zero scenario, when the taps will be turned off and people will have to queue for water at collection points, we need medium- to long-term solutions. Inviting the private sector to invest in the construction and operation of water infrastructure could go a long way to ensure we don’t find ourselves in this situation again.
We don’t have to look further than our Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) for examples of successful collaboration between the public sector and private companies for infrastructure delivery. In fact, the programme has been extolled as the most successful public-private partnership in Africa in the past 20 years.
Partly in response to electricity load shedding, the programme was designed to kickstart private-sector investment in renewable energy. The first bids were received towards the end of 2011 and barely two years later some of the projects were already up and running. So far, more than 6300 megawatts from about 90 renewable energy facilities — mostly wind and solar — have been awarded.
The socioeconomic effect has also been substantial, with projects required to contribute a percentage of revenues to ensure local residents benefit directly from the investments attracted into an area.
The success of the programme is the result of a well-designed and transparent bidding process free of corruption allegations, reasonable profit margins achievable by private operators and the fact that government has put in place measures to address some of the major risks. A specialist independent power producer office, which acts at arm’s length from the department of energy and is managed by a knowledgeable team, further contributed to the programme’s credibility.
Each renewable energy project has an agreement with Eskom whereby the utility is committed to purchase a certain amount power at a fixed, inflation-adjustable rate for 20 years. This electricity is then fed into the national grid. These agreements have an explicit treasury guarantee, which means that, if Eskom fails to pay, the treasury has to settle any outstanding amounts, giving the investments the same risk profile as government bonds.
Confidence in the process has led to investors relaxing their riskreward requirements, resulting in the prices of wind and solar dropping by 68% and 42% respectively since the first bidding round.
The independent power producer programme provides a blueprint for public-private partnerships in water delivery. This typically entails giving a private company the exclusive rights to supply drinking water, and the responsibility of maintaining the associated infrastructure, in an area for 20 years or longer.
An example of such a project that could be implemented in Cape Town is converting sewage into drinking water, as much of the city’s wastewater is not channelled back into the system.
The private company would be responsible for the building and operation of the sewage treatment plant. The municipality would pay it a fixed inflation-adjusted tariff for the delivery of water and the treatment of sewage for the duration of the contract term.
But why engage private companies in the first place? With government budgets under strain, the private sector has the funding to invest in large-