Water use pricing and financing of water infrastructure systems in South Africa

Abstract

This paper investigates water use pricing and financing of water infrastructure, focusing on: (i) the role of water use pricing; (ii) models for setting water use pricing – namely, charges and tariffs; and (iii) the multiplier effects of water use pricing for the financing of the water infrastructure value chain in South Africa. Primary data was collected by quantitative and qualitative methods and secondary data secondary data were collected from reports relating to water infrastructure needs and funding in South Africa. The water infrastructure value chain is hierarchical in South Africa – that is, national, provincial and local governments – based on administrative and political boundaries. Differential water use pricing recognises neither full replacement nor full recovery costs. The mean water use charge for all water-management areas (water basins or catchments) was found to be US$0.185/m3 (standard deviation (SD) = ±0.09); for agriculture (irrigation), <US$0.002/m3; for forestry, <US$0.001/m3 ([Formula: see text] = 0.0006; SD = ±0.0004); and for domestic and industrial, US$0.0553/m3 (SD = ±0.066). The mean year-on-year increases for water use was >20%. The mean annual bulk treated water use tariff was US$0.315/m3 (SD = ±0.242), and increases varied significantly – that is, 14.33% (SD = ±20.57). The national mean domestic water use tariffs varied from US$0.238/m3 (SD = ±0.310) to US$0.988/m3 (SD = ±0.450) for the predetermined water use blocks and increased between 13.6% (SD = ±7.7) and 16.9% (SD = ±0.4). Rural municipalities charged approximately 10% below the equivalent water use tariffs compared with urban areas. Commercial and industrial water use tariffs were higher than domestic water use tariffs in the lower blocks and in line in the higher water use blocks – that is, approximately 178.68% (SD = ±256.99). Water use multipliers varied substantially between 3 and 15 – that is, from raw water to municipal retail.