SA’s water infrastructure is in crisis. From collapsing sewerage networks to widespread leaks and failing treatment plants, the evidence is overwhelming and increasingly visible.
The national government has acknowledged the scale of the problem and steps are being taken to reform the public-private partnership (PPP) framework. But to fix what is broken the country urgently needs capital, capability and co-operation — and the private sector has an important role to play.
As an institutional fund manager Mergence Investment Managers is already invested in two private water concessions in SA, via a special purpose vehicle, SA Water Works. We have seen first-hand how structured partnerships between the government and experienced private operators can deliver reliable water services, ensure environmental compliance and create long-term affect.
However, for these models to scale three things are needed: national-level policy certainty, municipal buy-in, and asset managers who know how to manage infrastructure investments for both return and impact.
The announcement by the National Treasury earlier in the year of amended PPP regulations, set to take effect in June, is a welcome step. The reforms will exempt infrastructure projects below R2bn from some of the more cumbersome procurement processes, unlocking opportunities at the municipal level. In water, this could support more localised projects such as wastewater upgrades, pipe replacement or alternative water sources in drought-prone areas.
Encouragingly, there is also movement on project preparation and financial structuring, supported by development finance institutions and the Infrastructure Fund. These reforms signal growing alignment between the public sector’s development goals and the private sector’s capacity to deliver at scale.
The municipal challenge
A major barrier to more widespread adoption of PPPs in the water sector is the role water tariffs play in municipal finances. For many municipalities water revenue is one of the largest sources of operating income. It is often used to cross-subsidise other services, such as waste collection or roads maintenance.
This creates a disincentive to enter PPP arrangements, which are seen — sometimes mistakenly — as a loss of revenue control. There may also be fears of political fallout if water tariffs are regularised or enforced more stringently under private operators.
However, this resistance must be balanced against the current reality: non-revenue water in SA exceeds 40% nationally, meaning much of the water produced never generates revenue. In many towns it simply leaks away, untreated and unbilled. In such cases partnering with private operators could actually increase long-term revenue by reducing losses, improving billing systems and enhancing service quality, which improves customer willingness to pay.
Rather than viewing PPPs as a threat to municipal control, we should frame them as enablers: tools to deliver better outcomes, strengthen financial sustainability and ensure that communities receive the reliable services they deserve. Standardised PPP templates, municipal support programmes and ring-fenced revenue models could go a long way to build trust and capability in this space.
Private sector
Fund managers can’t fix failing infrastructure on their own, but they can be part of the solution. As private investors on behalf of large retirement funds they bring capital, experience in deal structuring and the ability to attract technical operators. They can also bring performance discipline and long-term accountability to the table.
Through our investment we have helped ensure reliable service delivery, enabled compliance with water-use licences and aided surrounding communities through job creation and procurement from local SMEs.
Notable achievements include:
- SA Water Works received five out of 26 Blue Drop awards in 2024. KwaZulu-Natal concession Siza Water is rated as the third best water service provider in SA, while Silulumanzi is the only water service provider to achieve Blue Drop accreditation in Mpumalanga.
- About 250,000 of the 500,000 customers SA Water Works serves are classified as indigent communities to whom free basic water is supplied daily.
- Siza Water has commissioned one of SA’s largest water recycling plants, where it recovers 3-million litres of potable quality water per day, thereby reducing the draw on bulk water supply from rivers and dams by 25% a day.
- Technical water losses at the two concessions average 20%, compared with a national average of 37%.
These are not theoretical outcomes, they are measurable results.
SA doesn’t need more plans or more diagnoses. It needs implementation. The water crisis is a multi-stakeholder challenge, but it is also an investable opportunity — provided that the policy, procurement and municipal frameworks align to support effective delivery.
By leveraging blended finance, reducing barriers to project approval and addressing the political economy of municipal finance head-on, SA can create the conditions for private capital to flow where it is most needed — into the pipes, plants and treatment facilities that will secure the country’s water future.
• Siame is head of private equity with Mergence Investment Managers.
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