The next investment frontier: Water

But who to contract with?

 

Companies that operate in the water space should get together and engage government on the formation of one central, controlling body with which the private sector can partner to tackle the country’s deepening water problem.

This was the message of Fred Platt, CEO of listed infrastructure group Accéntuate, at a recent Moneyweb Nedbank business breakfast focusing on infrastructure. Ion Exchange Safic (the joint partnership between Accentuate and Ion Exchange India) recently partnered with Stefanutti Stocks to deliver water projects.

The developing water crisis has been well described in local press. Platt pointed out that technical water losses amount to more than 30%. This refers to water lost through leaks that distributors cannot derive any income from.

He said by 2030 there would be a gap between supply and demand of 2.7 billion m3 of water, with the total demand amounting to 17.7 billion m3. Government expenditure on water has dropped. It is currently spending R2.9 billion per year on water infrastructure, but the actual spending need is R58 billion per year, Platt said.

The looming water crisis differs from the electricity crisis that hit the country in 2008 (as energy demand outstripped supply), since there are alternatives to electricity, but not to water. Also, delays in delivering water could be life threatening, whereas the direct result of delays in reconnecting electricity supply is serious, but not at the same level.

Platt said water has always been the single biggest enabler of development and the fact that most cities were established next to water sources such as rivers, is testimony to that. Similarly, water enables business.

He says once one understands that the country won’t have enough water, it is clear that the investment opportunity lies in increasing the efficient use of water and finding alternative sources. The search for alternative sources focuses on ground water and desalinisation.

Government is focusing on ground water utilisation and will be concentrating on desalinisation in future, which would be a good opportunity for the private sector to get involved with.

Platt says the country however needs to change its approach to water. “Currently it is just an item on our income statement, often paired with electricity.” Especially the agricultural sector – which represents 60% of the country’s water usage – has to change its approach, Platt says.

He adds that water should be seen as a national asset and pricing should be conducive to investment. In this regard, government’s pricing strategy and White Paper will give guidance on this as well as the application of principles such as ‘user pays’ and ‘polluter pays’.

In some areas it is currently underpriced, while the mechanisms to charge business for affluent water are lacking. The country further has a single water standard, namely potable water, with no differentiation between different applications.

All of this has to be properly managed to understand the true cost of water, Platt says. Proper management of existing water sources is important in a water strategy, since it would reduce pressure on water sources.

South Africa could take lessons from India on improved water efficiency, since India has the same problems that South Africa faces, Platt says.

He says government cannot fund the necessary investment in water infrastructure on its own and a public private partnership (PPP) type of model is needed. “The solutions are there, the technologies are there. Value is in the integration of technology, to unlock funding, navigate the political maze and the ability to execute,” he says. He further believes that the necessary funding would be available under the right conditions.

Platt says water is politically charged and government wants to own the assets and be part of the drive. It would however be necessary to get clarity on the role of government and the role of the private sector.

The big question is, however, who is the private sector to contract with? He says government should focus on water distribution, but what is missing is the ability for the private sector to contract with one entity.

He says Accéntuate has had some engagement with National Treasury on the matter and there is an understanding of the looming crisis. The private sector should however get together and engage government collectively to establish one controlling entity that would be the link with the private sector.

Platt says there is enough work for all the companies in the water industry, but currently they tend to see each other mainly as competitors.

Click here for article by Antoinette Slabbert, Moneyweb.

 

You have shown interest in this article, you might find this article “GREAT OPPORTUNITIES FOR PARTNERSHIPS IN THE WATER SECTOR” relevant as well. 

By | 2018-03-07T11:54:17+00:00 December 7th, 2016|Finance, General, Investment Banking, Resources|0 Comments