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Municipalities, companies and water boards collectively owe the Department of Water and Sanitation's (DWS's) Water Trading Entity more than R25-billion for water use.

This emerged during a sector-specific consultation on the raw water use charges for the 2025/26 financial year in Pretoria on Thursday.

During June, the debt had increased to R25.63-billion, with the water custodian recovering 4% or R1.12-billion.

In April, with outstanding debt of R24.94-billion, the DWS managed to collect R1.09-billion, equating to a recovery rate of 4%, while in May, with debt increasing to R25.10-billion, the department collected R1.14-billion, recovery of 5%.

This translated into recovery of just R3.37-billion, or 13%, over the three months to June.

The debt is split by companies at 24%, the municipalities at 37%, of which 24% are local municipalities, and water boards at 27%, collectively accounting for 87% of the debt.

In monetary terms, the DWS noted that municipalities owes the WTE R8.8-billion, water boards owe R6.9-billion and companies owe R4.5-billion, as at June 30, 2024.

The impact is significant, with inadequate investment in infrastructure having an adverse impact in meeting the current and future increased demand for water services and inadequate funds allocated to operations and maintenance, with high risk of unreliable services negatively impacting on water quality, quantity, health and hygiene and the environment.

The debt also results in an inability to maintain positive cash flows from operations, impacting on growth and sustainability in the long term.

Meanwhile, the DWS is undertaking consultations on its proposed new raw water abstraction tariff/charges for the new financial year of 2025/26 for domestic and industry water users, and the irrigation and forestry sectors.

On June 21, 2024, the department published the 'Revised pricing strategy for raw water use charges for 2024/25', with an effective date of implementation of April 2026.

The regional consultation meetings took place from June 28 to July 31, with the sector specific consultation on August 15 enabling the different sectors to make their presentations on the proposed raw water use charges.

The five sector organisations nominated to make presentations during the consultation included Business Unity South Africa, the South African Local Government Association, African Farmers Association of South Africa, AgriSA and the South African Association for Water User Associations.

A national consultation will take place at the end of August, following which the proposals will be presented to the Water and Sanitation Minster for approval.

Proposed raw water charges include a water resource management charge, under which the proposed increases for the domestic and industrial sector ranges from 0% to 5.91%. The proposed charges for the irrigation sector will be capped by April's Producer Price Index

(PPI) of 5.1% for charges that exceed 1.5c/m3 from the previous financial year; while forestry sector's proposed increases will be limited to a maximum of R10/ha plus PPI.

The waste discharge charge system, or WDCS, charges applicable to the domestic and industry sector ranges from a decrease of 4.78% to an increase of 29.25%.

Under water resource infrastructure charges, for domestic and industrial, the tariff increase is proposed from 0% to 15.1%, while irrigation tariffs increases of between 0% and 50% are proposed.

The Water Research Commission is requesting a 4.48% increase for the water research levy. In the 2024/25, the research levy did not increase, while in 2023/24 and 2022/23, the levy increased 5%.

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Government and business are urging Transnet to show greater ambition in its plans to recover freight volumes, describing the current recovery plan as falling well short of what is required to support higher economic growth and job creation.

The State-owned group has set a target to move 170-million tons of freight during the current financial year having achieved 152-million tons in 2023/24, up from the 149-million-tons slump of 2022/23.

The 170-million-ton target remains well below the 226-million tons moved by Transnet in 2017/18 and is also below contracted volumes for key mined commodities.

In a presentation following the first high-level meeting between Cabinet members and business leaders since the formation of the Government of National Unity, the Presidency's Rudi Dicks revealed that Transnet was performing below its own recovery plan.

This was confirmed by Transnet CEO Michelle Phillips, who told participants to a PSG webinar that it was currently two-million tons behind target and that efforts were under way to make up for the deficit during the remainder of its financial year.

However, Dicks also argued that the recovery plan was below the volumes required to support South Africa's economic recovery and cautioned that business' confidence in Transnet's ability to meet its turnaround targets remained low.

In his presentation, Dicks displayed a graph indicating that volumes of between 200-million and 220-million represented the threshold at which Transnet was supportive of economic recovery and job creation, with there being negative employment impacts below that level.

"So, it's important for us to work closely with the Transnet leadership to be able to ensure that we do have a more ambitious target to push up the volumes," Dicks said.

Neither business nor government commented, however, on whether raising the level of ambition would require a government bail-out, with the National Treasury having thus far refrained from making any new allocation, having instead extended a R47-billion guarantee facility.

Dicks said the key priorities agreed to by the National Logistics Crisis Committee included:

finalising governance reporting lines for Transnet following the closure of the Department of Public Enterprises;

commencing 'breakthrough initiatives' with clear lines of accountability between business, the Department of Transport, and the Presidency;

supporting the Transnet board and executives with additional skills and resources;

revising the shareholder compact;

securing additional funding for security;

appointing the Transport Economic Regulator board;

capacitating a private sector partnership unit to accelerate private rail and port investments; and

issuing the final Network Statement to facilitate the opening of rail access to third-party operators.

The Network Statement, including the associated tariff, has been deliberated upon by Interim Rail Economic Regulatory Capacity and is expected to be published in either August or September.

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Amid waning loadshedding, government and business have agreed to begin "repurposing" the National Energy Crisis Committee (Necom) to shift focus from interventions aimed at arresting the operational crisis at Eskom's coal stations to addressing system-wide pressures, including growing concern over electricity affordability.

Speaking following the first meeting between members of the Cabinet and senior business leaders since the formation of the Government of National Unity, Energy Council of South Africa CEO James Mackay said there was agreement that it remained urgent to accelerate the market reforms initiated under the Energy Action Plan to facilitate the competition required for a least-cost system outcome.

"Urgent action is required to ensure a stable transition and to address looming challenges," he said during a briefing following the meeting convened by President Cyril Ramaphosa on August 13.

He listed these challenges as including:

Delayed investment in new generation and grid-expansion projects, which would continue to undermine economic growth if not addressed;

Rising system costs linked to inefficiency, municipal utility service failures and rising debt, which were resulting in unaffordable tariff hikes for communities and businesses; and

The need to implement complex market reforms and decarbonisation to sustain export competitiveness as countries moved to implement carbon border adjustment mechanisms.

It was agreed that business, Eskom and the Presidency should now focus on transmission, market reform, municipal utilities and new energy generation under what Mackay termed 'Necom 2.0', where priority would be given to mobilising the skills and capacity required to accelerate the reforms.

There was no resolution, however, on the approach that should be taken to electricity pricing, with Eskom reportedly preparing an allowable revenue submission that could result in a hike of 36% on April 1 next year.

The meeting did agree, however, that the Electricity Regulation Amendment Bill - which had been approved by both houses of Parliament, but which had not yet been signed - remained a priority.

Trade, Industry and Competition Minister Parks Tau said that the legislation was still being assessed by the Presidency for its constitutionality and no timeframe was provided for its possible signing.

The South African Local Government Association (Salga) and the National Treasury were deliberating on the constitutional concerns raised by Salga to find a way of implementing the legislation, which was regarded as critical for facilitating a transition-aligned electricity supply industry.

Likewise, certainty was also awaited regarding the governance reporting lines for Eskom, given the winding up of the Department of Public Enterprises. Tau indicated that Ramaphosa was in the process of finalising the delineation of governance responsibilities.

In developing a new critical path for Necom, Mackay said that emphasis would on clarifying the rules for the transition plan, the absence of which came to the fore recently when Eskom objected to the licensing on new private energy traders. This, even though the National Energy Regulator of South Africa had already issued six trading licences.

Mackay said a rules-based transition was required for all participants, including Eskom, which needed rules within which they could operate and to avoid placing the entity in a "conflicted position".

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Deputy Finance Minister David Masondo has called on the Development Bank of Southern Africa (DBSA), which is a major lender to local government, to play a leading role in supporting the Government of National Unity's plan to fix municipalities as part of the second phase of Operation Vulindlela.

Addressing the development finance institution's results presentation, Masondo acknowledged that more reform progress was still required to fully address the supply-side problems of electricity and water supply, freight logistics and costly digital infrastructure, which had been prioritised during the first phase of Operation Vulindlela.

He argued, however, that the poor state of municipal infrastructure and finances had emerged as a key constraint to growth and investment and would, thus, be incorporated for priority attention during the scheme's second phase, which would also be broadened to incorporate plans for tackling ongoing spatial inequality and digital transformation.

Masondo, who has political responsibility for Operation Vulindlela, reported that President Cyril Ramaphosa regarded the turnaround of local government as a "pet project", as the President recognised that improvements in the network industries alone would be insufficient for catalysing higher levels of growth.

He indicated that consideration was even being given to taking direct action to ensure that competent municipal managers and accounting officers were appointed, but he did not offer details.

Describing DBSA as a "great partner" to municipalities, he argued that the bank's deep knowledge and understanding of the sector could play a key role in unlocking both public capital, possibly through the Public Investment Corporation, and private capital, for municipal infrastructure.

He also saw the bank playing a more assertive role in helping to deal with the country's apartheid spatial legacy, which had left many of the poorest households spending nearly 40% of their after-tax income on direct transport costs.

This could be addressed, he said, by releasing well-located public land for social housing and potentially by the DBSA becoming more hands on in building human settlements, as it had in the areas of schools and healthcare facilities.

MUNICIPAL FUNDING

DBSA CEO Boitumelo Mosako highlighted that 30% of the bank's R115-billion loan book was currently directed towards municipalities and that the municipal sector remained a core client of the bank, despite the perceived high risk of lending to local government.

In 2023/24, the DBSA made disbursements of R4.6-billion to local government in a year when total disbursements of R17-billion were recorded, up from R13.7-billion in the prior year.

Despite the difficulties of the municipal sector and the weak economic climate generally, the DBSA reported record repayments of R23-billion, representing a 28% increase on the R18-billion reported in the prior year. Cash flow from operations also increased to R5.4-billion, from R5.1-billion.

The bank's gross non-performing loan ratio deteriorated marginally to 3.9% from 3.2%, but remained below policy limits, while its net profit decreased by 11.5% to R4.6-billion, which was attributed primarily to lower foreign currency gains.

GRID PROCUREMENT

Outside of the municipal sector, the DBSA was continuing to support the development of economic infrastructure in the areas of energy, water and sanitation, information and communication technology and transportation, and was also helping to fund and build social infrastructure, such as hospitals, schools and human settlements.

In energy, the bank was seeking to facilitate the procurement of private transmission infrastructure, drawing on learnings from the successful procurement model developed for independent power producers (IPPs) in South Africa.

While no timeframe was prov...

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The property division of Transnet has been given board approval to sell its residential and non-core commercial properties over the coming two years, while moving to package the balance of the group's investment properties into a single entity so as to commercialise the portfolio in a way that contributes to Transnet's financial sustainability.

The properties incorporated into the investment-property entity will not include those buildings and land parcels that remain core to the State-owned company's rail, ports, pipelines and engineering businesses.

It will also exclude properties deemed core to the operations of Transnet, even if leased to third parties such as shipping lines.

However, Transnet Property CEO Advocate Kapei Phahlamohlaka is convinced the remaining portfolio of investment properties could still be substantial, particularly when packaged into a single corporatised entity.

He tells Engineering News that these properties are currently valued at about R10-billion and are spread across the country, "from Musina to Cape Town", and include both land and warehouses, such as the 'goods sheds' that have typically developed in close proximity to railways hubs.

What is eventually included in the portfolio will also be influenced by the review of Transnet's operating model, which is currently under way.

The immediate priority, therefore, relates to the disposal of the residential and non-core commercial properties; a sale process that is being undertaken in line with conditions set by National Treasury when it extended a R47-billion guarantee to stabilise Transnet's finances in late 2023.

Besides implementing reforms to facilitate private-sector participation in the rail and ports businesses, the National Treasury has indicated that it wants Transnet to sell non-core assets, including property assets, to help fund its financial turnaround.

Transnet has indicated that it will finalise the full list of non-core assets for disposal during the current financial year.

Phahlamohlaka reports that the board has already approved a plan to sell Transnet's more than 5 000 residential properties, as well as its 17 hostels located across Johannesburg, Ekurhuleni, Tshwane, eThekwini, Nelson Mandela Bay, Cape Town and Mangaung.

He cautions, however, that the disposal process will be complex as it involves residences that are currently occupied by people who are mostly not employed by Transnet.

Increasing the level of complexity is the fact that more than 4 700 of these housing blocks have not been subdivided, making any sale to residents, which is Transnet's preference, impossible until subdivisions have been implemented.

In some cases, subdivisions may not be feasible and units may have to be sold off as single blocks, with Transnet Property having received permission to auction properties under certain circumstances.

The sale of the hostels presents a range of other challenges and Transnet has, thus, entered into a memorandum of understanding with the Department of Human Settlements in a bid to find socially acceptable solutions.

The department's Housing Development Agency could play a role in facilitating the disposal of the hostels and Transnet Properties is also starting to engage with the metropolitan councils in whose jurisdiction these hostels fall.

The sale of the residential portfolio is not expected to generate much cash for Transnet, but it could result in considerable savings, with Transnet paying R110-million yearly on rates, taxes and municipal services for its hostels alone.

Meanwhile, Phahlamohlaka confirms that Transnet Property is also moving to redevelop and or sell non-core commercial properties, including the mothballed Carlton Hotel, which could be converted into residential units.

It also has a number of other office buildings in various cities that could ...

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Electricity and Energy Minister Dr Kgosientsho Ramokgopa reports that a new pilot project is being prepared to further "stress test" an initiative aimed at ensuring that municipalities settle their accounts with Eskom in a context where municipal arrear debt has grown to about R78-billion.

The initiative is reportedly being supported by the South African Local Government Association (Salga), and has already been piloted in three municipalities, namely the Beyers Naudé local municipality, in the Eastern Cape, as well as at the Kamiesberg and Nama-Khoi municipalities, in the Northern Cape.

Speaking during one of his regular briefings, Ramokgopa reported that the idea was to extend the mechanism to about two municipalities in each province, especially those with large unpaid debts to Eskom.

He reported that it drew on an innovation developed in the private sector and could be deployed both to those municipalities that were participating in the debt-relief programme launched by the National Treasury last year and those that did not apply or qualify for the scheme.

He confirmed that the majority of the municipalities that had signed up to the debt write-off scheme were failing to comply with the 14 conditions set by the National Treasury.

"The latest number we have is that 78% of the municipalities that have entered that programme have defaulted, which means it is not effective. So, you need a different instrument; financing is just one leg, we are resolving a bigger problem," the Minister asserted.

For participants in the National Treasury scheme, it appears that the idea is to help them comply with the conditions for the write-off.

"[But] even if you have not applied for the write-off, it is possible for the municipalities to do two things as a result of this intervention: the first one is to pay your debts and the second one is to ensure that you pay your current account without diminishing the financial viability of the municipality," he said.

While he did not provide any specifics about the nature of the intervention, he stated that the constraints for many municipalities was not only financial and that other "structural" problems also had to be dealt with to ensure payment to Eskom.

He indicated that a key issue was that municipalities were themselves owed large sums by residents, businesses and government departments, estimating these outstanding debts at about R349-billion.

He said that, while households made up the majority of non-payers, businesses and government departments were contributing a significant portion of the value of revenue not being collected by municipalities.

"If we address [non-payment by business and government] you will see that there is going to be significant relief," he said, arguing that municipalities should not be expected to "carry" national and provincial departments.

"We are pulling together with Salga on the best way of ensuring that we protect the interest of the municipalities and safeguard the interests of Eskom."

Ramokgopa again stressed the need to review the country's electricity pricing policy, which provided the foundations for the way tariffs were set.

He argued that ongoing steep increases in tariffs were not only unaffordable for poor households, but were also placing strain on the middle class and business and that alternative solutions should be found to ensure affordability, including by reviewing the Free Basic Electricity allowance for indigent households, and cost-reflectivity.

South Africa's electricity pricing policy is based on the user-pay principle and regulated electricity prices are currently set using an allowable-revenue formula that is divided by projected sales to arrive at a yearly tariff adjustment.

Ramokgopa stressed the importance of the National Energy Regulator of South Africa's independence in determ...

Engineering News editor Terence Creamer discusses the role of the National Transmission Company South Africa (NTCSA) in the country's electricity system; its current trading status; its plans to secure its own allowable revenue during upcoming tariff deliberations; and whether it has the capacity to deliver on the ambitious Transmission Development Plan.

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The Presidency has released new details showing that $613-million of the $821-million in grants pledged to support South Africa's Just Energy Transition Investment Plan (JET-IP) have now been allocated to projects.

The disclosure has been made in the second instalment of the online 'JET Grants Register' covering the first two quarters of 2024, and set up to record the nature of the projects being supported and to name the grant recipients.

The grants form part of the larger $11.7-billion in commitments made to South Africa's JET-IP, including the $8.5-billion pledged in 2021 by the initial International Partners Group (IPG) of France, Germany, the UK, the US and the European Union, as well as those countries that have since joined the IPG (Denmark and Netherlands) and those supporting the JET-IP on a bilateral basis (Canada, Switzerland and Spain).

While the grant component has grown there is still some unhappiness at the relatively low proportion of grant funding, with the bulk of the support to arise in the form of concessional loans, some of which have already flown into the National Treasury in the form of policy loans.

The JET Project Management Unit in the Presidency is overseeing the implementation of the JET-IP. A plan that outlines the need for R1.5-trillion in investment to 2027 to support workers and communities affected by coal mine and power station closures, as well as to facilitate the electricity transition, especially through grid infrastructure, as well as new energy vehicle manufacturing and emerging green hydrogen prospects.

The Presidency reports that Germany has pledged $292-million in grant funding, the European Union $125-million, the US $62-million, Netherlands $61-million, the Climate Investment Funds $50-million, the UK $42-million; Switzerland $39-million, Denmark $21-million, France $4-million, and Canada $1-million.

Of the amounts allocated to date, the Presidency reports that the largest portion ($275-million) has been earmarked for technical assistance programmes, followed by $161-million for capacity development, $98-million for infrastructure and $66-million for community development. It reports that $17-million has also been allocated for research, and $72-million for project preparation.

The beneficiaries include local universities, science councils, industry bodies, municipalities, government departments, research groups and Eskom, but some of the grant funding has also been allocated to international consultancies and development agencies.

Projects on the register range from analysis of the revitalisation of ghost mining towns as part of preparations to support those Mpumalanga towns that will be affected by the closure of coal operations through to green-hydrogen catalyst research and support for Eskom in its preparations for coal plant decommissioning.

Head of the Project Management Office in the Presidency Rudi Dicks says the grants register will be updated quarterly in the interests of "transparency and accountability".

There are also moves under way to develop a full 'JET Projects' Register' to record all projects financed under the auspices of the JET-IP and to showcase the project pipeline.

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Ringfencing revenue for the National Transmission Company South Africa (NTCSA) is regarded as a crucial short-term step for ensuring that the newly operationalised Eskom Holdings subsidiary is placed on a firmer financial footing to begin dealing with the estimated R390-billion grid infrastructure backlog.

However, complete financial and operational unbundling from Eskom, together with further tariff reform, is still required to fully derisk the business and position it to play its central role in facilitating South Africa's transition to an electricity system that does not undermine the country's export competitiveness as key trading partners begin implementing carbon taxes.

This view was expressed by various participants at a Presidential Climate Commission (PCC) roundtable convened at the JSE to deliberate on financial models that could unlock grid investment, including by the private sector.

Eskom has hitherto made a single allowable-revenue application to the National Energy Regulator of South Africa (Nersa) for its generation, transmission and distribution businesses.

Although these applications outline specific requests for the various aspects of the business, there has been a lack of transparency in how that revenue has been apportioned by the vertically integrated utility, which has resulted in revenue allocated to transmission being redirected for other purposes.

NTCSA interim CEO Segomoco Scheppers recently confirmed that while Eskom had been granted R44-billion for its transmission business during the five-year tariff period for the 2018 to 2022 financial years, it had received only R19-billion after a board reprioritisation exercise.

The balance was redirected to Eskom Generation for its much-delayed and over-budget build programme.

Following its operationalisation on July 1, the NTCSA would now be making its own allowable revenue application to Nersa, which is gearing up to begin its adjudication of submissions for the upcoming three-year tariff cycle, which will begin on April 1, 2025.

It has been reported that Eskom will be seeking allowable revenue of R446-billion for 2025/26, which would translate to a hike of more than 36% for direct customers if approved.

However, Nersa is expecting the application - which will continue to be based on the multiyear price determination methodology after the regulator's abortive attempt at overhauling the way tariffs are set - to reflect the unbundling under way at Eskom, which has been led by the separation of NTCSA.

Speaking at the PCC event, Scheppers highlighted the need to ensure that the NTCSA had dedicated revenue for both its operations and to roll-out the Transmission Development Plan (TDP).

The TDP continued to provide the grid-investment roadmap for the country, despite a growing acceptance that it needed updating.

"The question of the tariff is one of the issues that we believe we need to grapple with now," he said, describing it as a difficult problem but also a "precondition" for implementing the grid expansion.

"So, we have to address how we secure these revenue streams that fundamentally underpin the necessary investments."

In a presentation at the PCC event, Meridian Economics MD Grové Steyn argued that there was a need to redesign the current "dysfunctional" transmission tariff structure and increase tariff levels to be cost reflective.

"Eskom's regulated transmission tariff levels currently result in negative returns, and no utility or infrastructure firm is going to finance new assets if that remains the case."

Moving to cost-reflective transmission tariffs was, thus, necessary to support both NTCSA projects, as well as any possible future Independent Power Transmission (IPT) investments by the private sector.

BACKLOG IS TWICE AS BIG

However, Steyn also called for an urgent revision to the TDP, arg...

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Eskom has released the names to Engineering News of the five transformer companies appointed to a panel of suppliers that will compete for upcoming contracts for a total of 101large-scale transformers to be installed as part of the National Transmission Company South Africa's (NTCSA's) Transmission Development Plan (TDP).

Ahead of the NTCSA's operationalisation on July 1, Eskom announced in late June that the suppliers had been selected following an open tender issued in March 2023, but did not immediately identify the companies, saying only that they were "local with an international footprint".

Following the completion of an internal due diligence and a media enquiry, Eskom confirmed with Engineering News that the following companies had been selected to the panel: Hitachi Energy South Africa; Hyosung South Africa; Siemens Energy South Africa; the SPECO & Changzhou Toshiba Joint Venture; and Zest Weg Electric.

A tender for the first 26 power transformers was issued to the suppliers in April and this first batch of large-scale transformers is expected to be delivered to the NTCSA between 12 to 36 months from the placement of orders, which could be valued at R7-billion.

NTCSA interim CEO Segomoco Scheppers reported at a recent industry event that 25 transformer projects would be undertaken at existing substations over the coming five years to unlock 13 000 MW of new generation.

Another 22 expedited projects were also being progressed to unlock 24 000 MW of generation connection capacity by 2033, he told delegates at an event co-hosted by the Powerline and Substation Association (Polasa) and the South African Independent Power Producer Association.

These priority projects are being undertaken in line with the larger TDP, which envisages the roll-out of 170 transformers (105 865 MVA), alongside 40 capacitors (2 700 MVar) and 52 reactors (14 713 MVar), as well as 14 218 km of new powerlines by 2033.

The NTCSA has indicated that the appointment of the panel of original-equipment manufacturers (OEMs) is designed to reduce lead times and promote localisation.

Localisation has also been identified as a priority for the new leadership at the Department of Trade, Industry and Competition, which aims to use the newly signed Public Procurement Act to designate local content in an effort to stimulate industrialisation.

Eskom has already indicated that higher levels of local content will be prescribed as the supply chain becomes more established, but various Polasa members indicated that their expectation was for 100% local content from Eskom and challenged independent power producers to match that pledge.

While Scheppers underlined Eskom's commitment to localisation, he said that there was a lack of local capacity to supply 400/132 kV transformers, and expressed optimism that the five OEMs would help build such capacity over time.

"But we obviously cannot have the country stop because we're waiting for the one existing supplier to work out some challenges," he added.

The NTCSA had also accredited 22 factories globally for various classes of transformers so as to ensure delivery in line with its TDP roll-out schedule.

He also expressed some concern regarding South Africa's current steel fabrication capabilities to make the tower members for the 14 000-km powerline build programme but reported that efforts were under way to "incubate" additional fabricators.

Servitude acquisition also remained a major constraint, and the NTCSA had recently "proof-tested" the use of the expropriation mechanism - where compensation was based on an independent valuation - to tackle cases were land owners were holding out for far higher payments.

"It's not our preference to use this mechanism, but it's an option that we have and we know that it can work.

"And let me make it very clear that it is expropr...