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Published on April 16, 2008

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PRINCIPLES OF THE WATER ACT:  PRINCIPLES OF THE WATER ACT NATIONAL WATER ACT, 1998 Social Equity Ecological Sustainability Financial Sustainability Economic Efficiency THE CHALLENGE MAR/ POPULATION AND GDP:  THE CHALLENGE MAR/ POPULATION AND GDP HISTORY OF WATER IN SOUTH AFRICA:  HISTORY OF WATER IN SOUTH AFRICA Legislation (including the 1913 Land Act) dispossessed indigenous people of their major capital asset – LAND Land ownership was concentrated in the hands of the white minority Water Act of 1956 tied water rights to land owners, “riparian rights” This dispossessed black South Africans of their water Other legislation such as poll tax forced black men to leave the land for jobs on mines and in cities Women were left to till the land in those limited areas set aside for the black population Forced removals concentrated the black population in ever decreasing land areas WOMEN AND WATER:  WOMEN AND WATER Some of the poorest households are those in rural areas headed by women. Mean monthly income per head in female headed household was R243 in 1993. (US$37) Many households in non-urban areas are forced to fetch water from outside the household. Woman are predominantly responsible for this task. The median time spent by woman collecting water is 60 minutes a day. Women’s access to socio-economic rights are vital to ensuring gender equality. The impact of a tap within 200 meters on the life of a woman who previously had to walk several kilometers to unprotected spring or river is enormous, including freeing up her time for more productive activities and improved personal and family health. THE MANDATE OF GOVERNMENT:  THE MANDATE OF GOVERNMENT The entrenchment of economic and social rights, such as rights pertaining to food and water is a requirement and unique feature of our Bill of Rights. The inclusion of these rights, largely influenced by social injustices of the past and the aspiration of our people to establish a society based on social justice and human rights, requires the state to meet these obligations, with water being the most basic of rights. As a result the Department in the past decade made water accessible to 10 million South Africans. Structured changes to the South African economy resulted in sustainable growth rates in our economy, this together with a more efficient tax collection system, resulted in higher levels of income tax collection. The decreased interest burden as a result of paying off State loans and a decrease in defence and other spending has freed up tax revenue for social projects/services. WATER SUPPORT PROGRAMS:  WATER SUPPORT PROGRAMS Enhancing food security for the poor: National Water Act: Schedule 1: makes water available free of charge and with no licence requirements for reasonable domestic use and for food gardens (not for commercial purposes). DWAF will provide financial support to Resource Poor Farmers in terms of section 61 of the National Water Act with funds appropriated by Parliament for:- Capital cost of construction and/or upgrading of irrigation schemes Subsidies for a limited period on water charges Grants for acquisition of water entitlement Socio-Economic Viability Studies to investigate the establishment of irrigation schemes Grant for training of WUA will ensure effective management of communal water infrastructure Funding of rainwater harvest tanks The above mentioned support will contribute in promoting economic development in rural areas where there are few development opportunities. SUPPORT FROM THE DEPARTMENT OF AGRICULTURE AND LAND AFFAIRS:  SUPPORT FROM THE DEPARTMENT OF AGRICULTURE AND LAND AFFAIRS Department of Agriculture has made available R250 million in the 2005/06 financial year to support small scale infield agricultural development. In addition the Department of Land Affairs is promoting the Land Redistribution for Agricultural Development Program (LRAD), which provides grants to previously disadvantaged South African Citizens to access land for agricultural purposes. In order to co-ordinate financial assistance to Resource Poor Farmers, Land Affairs, Agriculture and DWAF participate in CCAW (Coordinating Council for Agricultural Water), DWAF have also began participating in LRAD meetings. Participation in these forums ensures structured support to Resource Poor Farmers, where grants offered by relevant government departments are packaged to enhance the viability of supported projects. WATER AND THE ECONOMY:  WATER AND THE ECONOMY South Africa is a middle income, emerging market with an abundant supply of natural resources, well developed financial, legal, communications, energy and transport sectors; its stock exchange ranks 10 largest in the world with a modern infrastructure, but a large proportion of the population are extremely poor. GDP stands at $491.4 billion (2004 est.), with current growth rate of approximately 3.8%. GDP composition Labour force Agriculture 3.6% 30% Industry 31.2% 25% Services 65.2% 45% (contribution of agriculture to the labour force is a key issues for policy makers) Agricultural products maize (corn), wheat, sugarcane, fruit, vegetables, beef, poultry, mutton, wool, dairy products Industries Mining (world’s largest producer of platinum, gold, chromium), automobile assembly, metalworking, machinery, textile, iron and steel, chemicals, fertilizer foodstuffs. WATER AND THE ECONOMY:  WATER AND THE ECONOMY The Gini co-efficient (measures the level of income inequality in a county) of South Africa is amongst the worst in the world. The lowest 10% of the population earn 1.1% of household income while the highest 10% of household earn 45.9% of total household income. Of South Africa’s land only 12% is arable and land under commercial irrigation is estimated at 13 500 sq km. Lack of sufficient arterial rivers and lakes requires extensive water conservation and control measures. AGRICULTURAL BACKGROUND SOUTH AFRICA:  AGRICULTURAL BACKGROUND SOUTH AFRICA Agriculture contributes a small and declining share of total economic output. Nevertheless the agricultural sector is the major user of the country’s water resource and also a major employer of the labour force. Water requirement Irrigation 62% - Mining & bulk industrial 6% Urban 23% - Power generation 2% Rural 4% - Forestry 3% While the above mentioned trend may be typical of agriculture worldwide, it bears special importance to South Africa where water resources are scarce. AGRICULTURAL BACKGROUND SOUTH AFRICA:  AGRICULTURAL BACKGROUND SOUTH AFRICA Recent trends indicate increased competition for water from other sectors with development needs, hence a declining share of water is available for irrigation activities. Exports from secondary value added activities and processing of primary agricultural products contributes an additional share of more than 15% to total value of exports. Total potential irrigable land in South Africa is estimated at 1.57 million ha. According to recent estimates this potential has been fully exploited. Most of the irrigated land is used for large-scale commercial farming, less then 4% of the land belong to small scale farmers. FINANCING OF WATER INFRASTRUCTURE :  FINANCING OF WATER INFRASTRUCTURE DWAF is custodian of some 300 large dams contained in more than 150 Government water schemes throughout South Africa. The water sector requires investments in excess of R20 billion over a period of 20 years for dam and related projects. The fiscus cannot afford this large capital outlay. While some schemes are financed with state funding the NWA allows the Minister to direct TCTA to implement and fund commercially viable schemes with non Governmental funding. This allows TCTA to raise loans to finance the development of new infrastructure on the understanding that the loans will be serviced through cost recovery from economic water users in terms of billable water use charges. To better manage and protect this huge network of water infrastructure, Cabinet has given approval for the established of the National Water Resource Infrastructure Agency (NWRIA) which will most likely incorporate the activities of the TCTA. Methodology for determining charges for state funded (Social) GWSs:  Methodology for determining charges for state funded (Social) GWSs Depreciation component: Asset value as determined in 2000 Depreciate on straight line over useful life as per table Examples: Dams – 10% over 45y Steel Pipes - 75% over 30y Asset values will annually be indexed by PPI until formal revaluation (+ every 10 y) Return on assets: 4% on completion cost – new infrastructure, or 4% on depreciated replacement cost (asset value as determined in 2000) Asset values will annually be inflated by PPI until formal revaluation (+ every 10 y) Not applicable to existing State irrigation schemes Operation and maintenance charge: Direct and indirect costs Scheme by scheme basis FOR REFURBISHMENT FOR NEW INFRASTRUCTURE & BETTERMENTS FINANCING OF IRRIGATION WATER INFRASTRUCTURE:  FINANCING OF IRRIGATION WATER INFRASTRUCTURE The fiscus can no longer afford to develop water infrastructure at discounted rates for the exclusive use of irrigation. In terms of the draft 2005 Pricing Strategy a proposed new scheme could have both a social and commercial component and therefore a deferential charge system could be applied to make the entire scheme viable. In such a case the commercial component could be financed in the Capital Markets via the TCTA, while the social/irrigation component of the proposed infrastructure could be financed by the fiscus. The introduction of new irrigation infrastructure usually enhances the viability of agricultural enterprises. As a result commercial banks have recently began looking at financing communal water infrastructure for commercial agriculture. FINANCING OF IRRIGATION WATER INFRASTRUCTURE:  FINANCING OF IRRIGATION WATER INFRASTRUCTURE In this regard Rand Merchant Bank has financed a dam project in the Pongola area and a water pipeline in the Blyde Valley at an estimated investment of R300 million. These projects were subsidies by DWAF and in the case of the Pongola Dam, DWAF has substantially guaranteed a portion of the loan. The bank has experienced difficulty in recovering repayments because of the following:- Cost overruns on projects Reduced commodity prices Stronger Rand Culture on non-payment on the part of some commercial farmers Expectation that the State will bail out the farmers Poor structuring and gearing of the debt Droughts/Floods FINANCING OF IRRIGATION WATER INFRASTRUCTURE:  FINANCING OF IRRIGATION WATER INFRASTRUCTURE DWAF by providing water licence to the Makhatini Flats, enabled this community to raise a Land Bank loan to establish irrigation infrastructure that produced cotton and wheat, sales in one year amounted to 269.3 million. The project has benefited more than 1000 individual emerging commercial farmers and created some 5000 permanent and seasonal job opportunities. Issuing of license was only possible by delinking property rights and land rights. WASTE DISCHARGE CHARGE SYSTEM:  WASTE DISCHARGE CHARGE SYSTEM In the 2005 Water Pricing Strategy, DWAF for the first time will introduce the Waste Discharge Charge System (WDCS), which consist of the following key principles. Waste management fee Define resource quality objectives (RQO) Acknowledge that there must be a pragmatic balance between the quality of the resource and economic activity. In catchments areas the RQO will be set at a higher level than in industrial areas. If the RQO are met there will be no charges. WASTE DISCHARGE CHARGE SYSTEM:  WASTE DISCHARGE CHARGE SYSTEM If the RQO is not met an incentive charge will be levied, this charge will be set at a rate to influence behavior. The income derived from the incentive charge will be utilized to mitigate the cost of the impact to downstream users. In addition to an incentive charge, a mitigation charge could also be levied to all users of a resource to bring back the resource to an acceptable quality. Mahomed Vawda e-mail: vawdam@dwaf.gov.za:  Mahomed Vawda e-mail: vawdam@dwaf.gov.za

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