A decision on the second phase of the Lesotho water project must include the issue of private-sector funding, writes Bronwen Jones
A BATTLE royal is looming between the Zulus and the Basotho over who will supply water to South Africa in the next century. While it may not pitch kings Goodwill and Letsie III assegai to assegai, the potential economic advantages to each region have already triggered the first skirmishes in a war of words and balance sheets.
South Africa needs massive volumes of water soon to slake the thirst of its burgeoning population and the steady growth of industry. There is water due from Katse Dam in 1998, but it is not enough.
Minister of Water Affairs and Forestry Kader Asmal told the Mail & Guardian this week he would decide within six months whether the second phase of the Lesotho Highlands Water Project (LHWP) will proceed or not. He said: “It will be the biggest decision that I take. Indeed, the biggest decision that this government will take.”
While some work has already begun – Phase 1B of the potentially four-phase LHWP – long- term planning and financing are essential for the next bout of engineering, whether it be in the mountain kingdom or within South Africa’s own boundaries.
Already this year the cost of “raw” water has almost doubled, though the figure for delivery of purified water to the consumer has been curbed in the short term to little more than a 10% price increase – you now pay about R2 a kilolitre. This is expected to change markedly by mid-1997.
Lesotho’s most immediate water supply rival is the Tugela area. And while bringing water from the mighty Zambezi and Zaire rivers should not be discounted, it would in some instances be an uphill struggle – literally.
There is great political pressure to ensure more development and employment benefits from massive water projects to help our own citizens directly, but informed sources say KwaZulu-Natal is not keen on sharing its “white gold” with the rest of the republic. It would prefer industry and people to move closer to the water.
When the Cabinet committee met on Wednesday this week, water law reform was on the agenda. Asmal said the legislation that follows from these earlier discussions will be central to the management of all our water resources in the future. One radical change in direction could be the establishment of a National Water Agency (NWA)outside central government and with the ability to raise funds.
Asmal even agreed that the possibility of a share placing at a price level affordable to ordinary citizens could be considered – along the lines of Britain and the United States.
“There is no ideological position on the part of the government that endorses the privatisation of management of water supply,” said Asmal. “However, municipalities have neither the capacity nor the capital necessary for establishing and maintaining water-supply systems. So we are compelled to recognise the good that can come from partnership with the private sector.”
The Trans-Caledon Tunnel Authority (TCTA), which manages the South African half of the LHWP, sees itself as the prototype for the NWA and is already honing its money- gathering mechanisms.
The TCTA issued R642-million worth of “WS01” bonds in 1993, sold through Standard Corporate and Merchant Bank and Rand Merchant Bank. More bonds were issued at a later date, to a total value of R2,2- billion.
And November 27 this year sees the launch of two new loan stocks by TCTA and the Lesotho Highlands Development Authority (LHDA).
WS02 will carry a maturity date of 2002 and have a registered amount of R3-billion but only volumes of R300-million will be issued initially. WS03 will mature in 2010, with a registered amount of R8-billion. The primary issue of WS03 will also be restricted to R300-million as TCTA follows a policy of securing funds it needs, not exceeds.
Other water organisations in South Africa have issued bonds to raise funds, but TCTA does not want to incur the kind of losses triggered by Umgeni Water’s trading activities.
One stumbling block affecting international lending and local financing has been the number of outstanding compensation claims from people who suffered through the project. Asmal has said all these claims will be settled by the end of December.
There are four sponsoring members for the loan stock placing: First National Bank, Investec, Rand Merchant Bank and Standard. The stock will be secured by government guarantee and the entry level starts at some R1-million. As details were sketched at the pre-launch event, Socit Gnrale’s representative nodded approvingly, Eskom pension fund seemed keen, and the Reserve Bank representative astutely kept his reserve.
And while the Americans whined about the lateness of the hour at which they will be informed of the success or failure of their bids, Asmal made clear these are rand- related stock and as much as possible will be placed within the common monetary area.
South Africa is paying for all the elements of phases 1A and 1B of the current project, but Lesotho will fund the 72 megawatt hydro- electric power station component as it will benefit directly from the electricity generated.
The LHWP also established a Water Revenue Development Fund, which has channelled R160- million into 200 projects – from rural roads and footbridges to small dams. The project is vital to Lesotho and is believed to account for some 15% of its gross domestic product.
As people will always drink water, the stock seems an even surer bet than Coca-Cola. Asmal says: “The price of water could be set at a level that reflects its value, and trading in water rights could be formally acknowledged and encouraged.”
Industry uses 18% of water, agriculture 52%, domestic households take 25% and mining up to 5%.
The Department of Water Affairs has 300 water projects planned or under way, scheduled for completion by the end of next year. They will ease the burden of water supply and sanitation for some 3,2-million people.
It is also notable that price increases dramatically reduce water consumption. Rand Water increased prices in 1984, owing to the then-impending Lesotho water scheme, and the existing demand level fell, long term, by 26%. Lesotho receives 56% of the amount of money saved by building the project in Lesotho rather than in South Africa, which will be paid annually as royalties.
The analysts and pension funds are perusing the placing documents this week. As they left the pre-launch, Asmal’s words were ringing in their ears. For the man of many metaphors was not, this time, an “impecunious pine”. He spoke boldly of Asian tigers and the potential of South Africa becoming the Lion of Africa.