Invest in Water or face 30% Shortage

South Africa is heading for a water deficit of between 17 percent and 30 percent in 2030 – img1and needs to invest $365-million (R2.8 billion) a year to prevent shortages, according to a global water report released in Washington yesterday.

The Water Resources Group study, a collaboration between the International Finance Corporation, McKinsey consultants and private companies such as SABMiller, says South Africa faces “tough trade-offs” between water use for agriculture, industrial activities such as mining and power generation and domestic consumption in expanding urban centres.

Its best-case scenario projects a water shortfall in two decades of 2.9 billion cubic metres, rising to 3.8 billion cubic metres if moderate climate effects are taken into account and 5.4 billion cubic metres with accelerated economic growth. Currently water supply is about 15 billion cubic metres.

But it says South Africa can close the gap provided it adopts a mix of solutions, chiefly infrastructure investment in water transfer schemes.

Of the required capital outlay, 70 percent is needed for additional water supply measures, 13 percent for interventions in agriculture, another 13 percent for those in industry and 4 percent for domestic and municipal uses.

“We’re definitely not doomsdayers at this stage,” said Marc van Olst, a partner at McKinsey South Africa. “But it will turn into a crisis later if we don’t act on these things very quickly.”

The big question facing South Africa is the sourcing of funding for large infrastructural projects.

State-owned water utility Rand Water said last month that it faced a R5bn funding shortfall between 2010 and 2015, when it would invest R8.6bn to augment infrastructure.

The global water report notes there is wide agreement that water has suffered from chronic underinvestment. “There is good reason to believe that water will be an important investment theme for public, multilateral and private financial institutions in the coming decades,” it says.

The report, which looked at demand and supply in China, India, Brazil and South Africa, found that under an average economic growth scenario, world water requirements would surge to 6.9 trillion cubic metres – or 40 percent more than current accessible, reliable supply.

By far the cheapest and most effective solution to South Africa’s pending water shortages is a blend of infrastructural investment and efficiencies in agriculture (the country’s biggest water user), industry and the domestic sector.

This solution would result in net annual savings of $150m in 2030 as about half of the measures involve significant savings of other input costs, such as fertiliser.

Desalination, the removal of salt from sea water, is listed among South Africa’s most expensive options. Van Olst said many people regarded desalination as a “silver bullet” but its carbon footprint was very high and transport costs restricted its use to coastal areas.

The report calls for strong co-ordination and co-operation between water users.

Van Olst believed water would be “high up” the agenda of National Planning Minister Trevor Manuel’s commission.

Manuel earlier this month noted that while alternatives existed to generate energy, there were none for water.

Africa should resist a course of “water for profit” in favour of water “as a right”, but he cautioned: “We’re living on earth in 2009 with the same amount of water that was available in 1900, meanwhile the global population has quadrupled”.

The water report does not delve into the pricing of water, although it does refer to a possible role for private investors, either as traditional financiers or under build-operate-transfer models. The latter would require private investors to own raw water infrastructure and charge cost-related tariffs.

INGI SALGADO Business Report

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