South Africa

New principles were incorporated in the National Water act post 1994, to mandate water management practices more socially just, economically efficient, and environmentally sound than those of the past. A national water pricing strategy was established to enable full cost recovery, setting various charges to:

• Fund costs associated with managing the quality and quantity of water resource (that is, registration and licensing of users, reserve determination, controlling pollution and conservation management, and so on)
• Fund costs associated with development and operating of water supply schemes (dams, canals, tunnels, etc). (Lange and Hassan 2006).

The Orange-Senqu River from Vanderkloof Dam wall.

Source:Kruchem 2011

( click to enlarge )

Free Basic Water

The National Water Act 1998 recognises water as a basic human right and water needed to meet basic human needs is therefore free in South Africa. The Free Basic Water (FBW) subsidy programme was implemented in 2001 to provide 6 000 L/month of water to every household (Metcalf-Wallach 2008).  This FBW averages to 25 L/person/day in a household of 8 and costs the government about R30 million per year to subsidise. Households not connected to a water source are supposed to have access to a pump within 200 meters. Anything above and beyond the required amount to meet basic human needs has a cost associated with it.

Tariffs and Subsidies

Costs are determined on an Increasing Block Rate (IBR) tariff regime (Metcalf-Wallach 2008). The more water consumed the higher the rate. The IBR regime has had mixed results with one negative result being inelasticity in water consumption of the poor. The increased charge becomes a tax on water for the poor because they have no option to decrease their water consumption when rates increase, they must meet their basic needs (Metcalf-Wallach 2008).  

On average, the share of water in total intermediate costs in 2001 was slightly more than 1 % of the national economy (Lange and Hassan 2006). Trade and services sectors paid the highest amount per unit of water at R12/m³, mining paid R3, 76/m³, manufacturing paid R1, 58/m³, domestic use paid R1, 19/m³ and agriculture paid only 2,3 cents/m³. Agriculture pays very little for water and yet it used 80 % of the total water consumed in 2000 and contributed only 3 % to the national income (Lange and Hassan 2006).

Water as a resource is highly subsidised in South Africa and consumers rarely pay the full cost of the resource they are consuming. “Under the NWA 1998, water tariffs were to be increased to reflect the full financial cost of providing water services and to reflect the benefit of water to society.” The new system is based on the concepts of equity, efficiency and ecological and financial sustainability (Lange and Hassan 2006).  As a component of ecological sustainability, the new system considers costs associated with the management and protection of water resources. This cost is assessed on a catchment level basis and as a result costs can be higher for water-scarce water management areas. 

With the water acts principles put into action, direct subsidies dropped from 57 % of the total expenditure in bulk water supply programs in 1998 to 35 % in 2000 (Lange and Hassan 2006). 

Monetary Accounts

Monetary accounts in South Africa have only been compiled for flow accounts, and at the national level because of a lack of corresponding data at individual WMA level. The table below gives a breakdown of charges placed on water for the different sectors and the subsidies in place in 2000.

Table: Cost and Subsidy of Water Supply