Municipalities face financial constraints and a shortage of specialised expertise in managing water supply and quality. In contrast, the private sector has both the necessary expertise and funding. To bridge this gap, the Water Partnership Office (WPO) was formed to facilitate public-private collaboration within municipal water services.

The WPO is one of the outputs from the National Water Partnerships Programme (NWPP), the brainchild of the Department of the Water and Sanitation (DWS), the Development Bank of Southern Africa (DBSA) and the South African Local Government Association (SALGA). It is a ring-fenced entity housed in DBSA (using DBSA corporate infrastructure), owned by DWS.

“Our main focus is to create opportunities for the private sector to support municipalities – specifically looking at water services. We do this through developing standardised programmes and assisting with project preparation,” explains Johann Lübbe, head: Water Partnerships Office, DBSA.

Project preparation

He adds that the WPO supports municipalities in developing and structuring bankable water projects that attract private sector participation.  “The biggest challenge municipalities face is preparing and developing projects that are bankable. Ironically, developing a project to a fundable stage requires money, but municipalities often lack both the necessary expertise and financial resources to prepare and structure bankable projects. They tend to focus primarily on the technical aspects of projects while overlooking the financial side, which leads to unaddressed risks that deter private sector investment.”

The WPO supports municipalities with project preparation work, creating blended finance and public private partnership (PPP) solutions.

“Government alone cannot fund all necessary projects, so it is essential to explore alternative options. Instead of solely financing projects, the government should focus on filling funding gaps while maximising investment from the private sector and development finance institutions (DFIs),” explains Lübbe.

It is important to note that the WPO is not a bank. While it has access to project preparation funding, its role is to prepare projects and make them bankable. Once a project is ready to go to market, funding can be solicited from various private and institutional investors, as well as DFIs, including the DBSA.

Programmatic approach

The WPO’s second focus is standardisation.

“Standardisation, as seen in the energy sector, can lead to efficient tendering, expediting project implementation, cost reduction, and knowledge-sharing among municipalities. We want a programmatic approach as opposed to a fragmented project by project method. Standardised models, contract documentation, terms of reference, templates and contracts have been, and are being developed within 6 standardised programmes of the WPO. This approach allows us to avoid reinventing the wheel for every project while continuously refining best practices. We want to develop a portfolio of projects that we can accelerate and scale,” states Lübbe.

The WPO Has adopted six standardised national programmes for private sector participation in municipal water and sanitation services. This will make it easier, quicker and cheaper for municipalities and water boards to enter into partnerships.

“It will also benefit the private sector, particularly consultants. If they know exactly what the terms of reference will look like for a water reuse project for example, it will simplify the process and allow the private sector to reduce their cost of tendering.  It will also allow project developers and lenders to become more familiar with contract documents, risks, etc. and over time result in more competitive pricing on projects,” adds Lübbe.

The six standardised programmes are:

1. Water reuse
2. Non-revenue water
3. Wastewater treatment
4. Non-sewered sanitation
5. Seawater desalination
6. Management contracts.

Water reuse

“Our water reuse programme is one of our priority programmes and seeks to recover and repurpose valuable water resources that are currently lost in rivers and oceans. In addition to recovering water from wastewater, the opportunity exists to extract maximum value from a “waste” resource by generating energy and processing sludge for beneficial use, thereby creating new revenue streams to help finance these projects.  We focus on resource recovery and assist municipalities in maximising and scaling reuse opportunities in the country. Wastewater can be treated to potable standards or used at a certain quality for industrial and agricultural purposes,” says Lübbe.

The current National Water and Sanitation Master Plan (NW&SMP) aims to fast track the implementation of priority actions such as water reuse, in order to address the current water crisis, as well as future water challenges that may impact sustainable development in the country.

“Water reuse offers a way to diversify our water supply mix. Additionally, from a climate change perspective, establishing a circular water management system that optimises reuse enhances resilience,” maintains Lübbe.

Water reuse funding

Funding for the water reuse program has been secured from the Green Climate Fund (GCF), amounting to $235 million. This includes a grant component to co-fund project preparation and a $200 million concessional loan to enhance bankability within a blended finance structure.

The Council for Scientific and Industrial Research (CSIR) was appointed to conduct primary screenings and detailed climate risk and vulnerability assessments on potential water reuse projects. Since the GCF places strong emphasis on climate impact, it is necessary to demonstrate that water insecurity in specific municipalities is driven by climate vulnerability. To address this requirement, detailed climate risk and vulnerability assessments were carried out in 47 municipalities.

The CSIR was requested to conduct assessments for all metros and intermediate cities, covering eight metros and approximately 39 intermediate cities – 47 municipalities in total. The result of this work is a list of municipalities that qualify for further assistance from the GCF funding. Non-qualifying muniicpalities can still be supported but from sources other than the GCF funding.  Larger cities and towns, where demand and offtake opportunities are higher, are most suitable for water reuse projects. After identifying the qualifying municipalities, the next step will be to build a pipeline of projects for preparation, structuring, and implementation. Over time, this could lead to a strong pipeline of water reuse projects, which will likely be structured as Public-Private Partnerships (PPPs) and may also lead to the creation of a new financial asset class. A workshop has already been held with some municipalities to introduce them to the programme.

According to Lübbe, the aim is to create a new asset class of water reuse infrastructure. “Water reuse projects are often doomed from the start as municipalities do not have the balance sheets to secure funding for implementations. Then there is the technology side, where municipalities are either unaware or unsure of how to use new technologies to upgrade their existing wastewater treatment works and reuse the wastewater they are treating. Another barrier is political will; PPPs often take a long time to prepare, structure and implement, and it requires a strong political will for municipal council that may not see the implementation of a project within its term in office.”

Ultimately, the water reuse programme aims to encourage municipalities to shift away from traditional wastewater treatment works and instead recognise them as water resource centres.

Lübbe notes some significant and exciting developments in terms of policy and regulation. “There is a proposed requirement for all water service providers (WSPs) to have an operating licence, with licensing requirements that focus on the competency and performance levels of service providers, linked to the DWS’s gazetted minimum norms and standards for water and sanitation services. Then Treasury and the DWS are busy with reforms aimed at ring fencing the water and sanitation business within municipalities and this will go a long way to attract private sector funding and expertise as water and sanitation will have a defined and secured revenue stream.”