Projected rise in water tariffs linked to Paarden Eiland desalination plant

A feasibility study presented at a City mayoral committee meeting has indicated that the proposed R5 billion Paarden Eiland Desalination Plant could result in a steep bump in water tariffs for ratepayers.

The study indicates that the plant could significantly increase water bills within the first two years of operating.

The City intends for the plant to produce between 50 million and 70 million litres of potable water per day, with the aim of securing an additional 300 million litres of water from diversified sources.

In the report, it explains that modelling conducted as part of the value assessment found that the impact of the Desalination Project results in an approximate “additional project-specific water tariff increase (over and above the base inflationary increase) of 6.57% and 6.63%” in the first two years of operating.

“It should be noted that the City is also in engagements with the National Treasury to identify options to pursue Grant funding for the project to mitigate the expected tariff impacts. These discussions will continue in the procurement phase of the project to mitigate the cost to the city where feasible.

“The affordability assessment cannot be complete without also considering the economic impact of water restrictions on households and businesses, and their willingness to pay to avoid these water restrictions and therefore absorb the proposed tariff increases,” the report states.

The report also found that the recommended service delivery mechanism for the desalination project is through a public-private partnership (PPP).

“The recommended PPP structure is for the private party to design, finance, build, operate and maintain the plant for a 20-year contract period after which it will be transferred to the City. The City can then either outsource the operation for another duration or elect to operate the plant with internal resources. Ownership of the plant always vests with the City.

“As a mechanism of service delivery, municipal PPP is firmly in line with the intent of the MFMA (Municipal Finance Management Act) and the MSA (Municipal Systems Act).

“One of the primary benefits of the PPP mechanism is that risk is allocated to the party best qualified and suited to manage it. The unique risk profile of desalination projects makes these facilities particularly well-suited to benefit from a PPP,” the report notes.

“This model transfers a significant proportion of the project risks to the private party and has historically proven to offer the greatest opportunity to achieve Value for Money when the procurement documents and risk allocation is structured appropriately. The indications are that the project will be affordable.”

The City said it would respond to questions on affordability for low-income households if the desalination costs affect the tariffs.

STOP CoCT founder Sandra Dickson said the Paarden Eiland desalination plant is planned to provide 50 to 70 million litres of potable water daily by around 2030.

“This project, costing around R5 billion, will be funded through water tariffs, which can cause water to become even more expensive for Capetonians.

“The plant faces severe criticism because it will draw seawater near polluted harbour areas, raising concerns about water quality and treatment challenges. It is also extremely energy-intensive and expensive to operate, which may further lead to significant increases in water tariffs,” Dickson said.

“Past experiences with temporary desalination plants saw high maintenance costs and operational difficulties, prompting calls for the City to consider alternative water sources.”

This comes as the City faces court action from the South African Property Owners Association (SAPOA) and AfriForum over tariffs. 

SAPOA’s membership currently comprises more than 90% of the country’s commercial and retail property industry, including some of the largest property-owning companies in South Africa.

SAPOA is challenging the city’s fixed tariffs and their decision to link certain fixed charges to property values.

The Western Cape High Court is set to hear the matter from Tuesday.

Cape Times