Using data gathered from the National Treasury of South Africa, we examine the structure of water supply costs and tariffs of Water Service Authorities (WSAs) in the Middle Olifants sub-basin of South Africa. Using the translog cost function method, the marginal cost of water supply and economies of scale are estimated. Comparison of tariffs and marginal costs show that the estimated marginal cost is higher than the actual tariff paid by consumers. This implies that WSAs in the Middle Olifants are not charging enough to recover the costs of the water services. Thus, among other things, pricing of water at its marginal cost would partly assist in solving the cost recovery problem. Raised tariffs would in turn contribute to improved efficiency of water use. As evidenced by estimation results of returns to scale (greater than one), merger of WSAs would be economically advantageous. Hence, reversing the process of transferring water services' authority to 'local' municipality level and thus up-scaling WSAs into the 'district' municipality level is an important policy option for improving water services efficiency in the Middle Olifants sub-basin of South Africa.
In South Africa, water is a relative scarce resource that is distributed unevenly geographically and saisonally as well as socially. The Middle Olifants sub-basin of South Africa was chosen as study area, because it is characterized as a very water scarce region -it is counted as the third most stressed basin in South Africa -with a poor and predominantly rural population. Households in former-homeland areas are still disadvantaged and lack access to su?cient and reliable water services. Current water use in the basin leads to overuse of the resource at the expense of domestic and environmental water needs. For an e?ective water management that is able to address the South African policy objectives of e?ciency in water use, equity in access and bene?ts as well as long-term sustainability, economic valuation of the di?erent water uses is required. In order to assist policy-makers in reaching these goals, this study contributes to the existing knowledge by providing information on the economic value of water in domestic uses. For this purpose, two separate choice experiments were designed to detect preferences and ‘Willingness to pay’ for di?erent water service levels and water sources. Results of a household survey of 475 households provide a clear picture of the di?erent water sources and service levels received by households in the Middle Olifants. Sampled households using basic water sources such as Public taps, Yard connections or Boreholes consume on aver¬age only 18.68 liter per person per day, while households with private taps inside their houses consume 78 liter per person per day. To analyze preferences for water services at the house¬hold level and to detect households’ ‘Willingness to pay’ for improved service levels, choice experiments were carried out in four villages and one town. Data analysis indicates the pres¬ence of preference heterogeneity and, hence, a latent class model was applied, readily dividing households into homogeneous groups according to their preferences. Several distinct classes of households could be found di?ering signi?cantly in terms of socio-economic characteristics, particularly household income, current water consumption and service levels as well as atti¬tudes towards pricing of water and satisfaction with current water service levels. ‘Willingness to pay’-estimates of single water service characteristics of all groups indicate that households are willing to pay higher prices for a better and more reliable water provision. But the amount of money households are willing to spend di?ers among groups. Price sensitivity was found to be strongly linked to income. With increasing income, price sensitivity of households decreases. This information is helpful for policy-makers to enable the design of water services in the Mid¬dle Olifants according to preferences of local households. The increase in ‘Willingness to pay’ with increasing income shows that subsidies either as income subsidies or lower water tari?s may be useful tools to allow low-income households to pay water bills.
This paper seeks to determine water demand of the mining sector in the Middle Olifants sub-basin of South Africa. Despite the growing economic importance of mining in the area, only little is known about its water demand and the role of water in the mines ́ extraction process. By means of econometric estimation water price elasticities as well as substitution possibilities between water and other inputs are derived to analyze the response of mines to changes in water tariffs. Using primary data, a translog cost function is estimated for five mines operating in the area. Cost share equations of each input are specified and estimated using Seemingly Unrelated Regression (SUR) method. The mean cost share of water for all five mines, with around 1%, is relatively small, reflecting the low water tariff and results show industrial water demand to be inelastic. Nevertheless, with water price elasticity values ranging from -0.77 to -0.95 for the five mines, there is a potential to influence water use patterns through higher tariffs. As mines are water intensive industries, possible water savings owing to raised water tariffs should not be neglected. Water intake is found to be a substitute for labor and capital for most of the mines, implying that capital investments in water saving technologies might be an alternative means to reduce water intake of the mining sector.
Using household survey data, this study investigates preferences for domestic water services in the Middle Olifants sub-basin of South Africa. Water is a relatively scarce resource in South Africa that is distributed unevenly both geographically and seasonally as well as socio-politically. For a water management addressing the policy objectives of efficiency in use, equity in access and benefits and long-term sustainability, economic valuation of the different water uses is required. In order to detect households' preferences, a choice experiment of the various water services was conducted. Results suggested the presence of preference heterogeneity and therefore, a latent class model was applied, dividing households into homogeneous groups according to their preferences. Four distinct groups of households could be identified which differ significantly in terms of their socio-economic characteristics, their attitudes toward pricing of water and their satisfaction with current water service levels. Willingness to pay (WTP) estimates of different water service characteristics in all groups indicate that households are willing to pay higher prices for a better and more reliable water services provision. But the amount households are willing to pay differs among the groups. This information is helpful for policy-makers to enable the design of water services in the Middle Olifants according to preferences of local households. Besides, WTP estimation can provide a basis for setting water tariffs.
This book presents a valuable new tool for water management water resource accounting which significantly advances the economic analysis of water. Water resource accounts integrate detailed information about water supply and use with national income accounts to show the economic use of water, costs and tariffs paid, and the economic value of water for different economic uses. Based on the UN s handbook for environmental accounting, this book describes the implementation and policy application of water accounts in three African countries Botswana, Namibia and South Africa and discusses how they have been used by water managers. The book compares water use across the three countries, explaining the differences in water resources and water policy. In addition to the comprehensive outline of physical and monetary water accounts for each country, the authors provide an extensive discussion of water valuation as well as addressing a number of issues of regional importance, including water accounting for an international river basin and the impact of trade on each country s water use. By demonstrating the usefulness of water resource accounts, this book makes a major contribution to the literature on water economics and management, sustainable development, and to the development of environmental accounting in general. The Economics of Water Management in Southern Africa will appeal to a wide readership including: environmental and development economists NGOs concerned with sustainable development environmental advocacy groups professionals (economists and environmentalists) working in Africa on water and sustainable development issues water professionals national accounts experts and statisticians.
Water scarcity, whether in the quality or quantity dimension, afflicts most countries. Decisions on water management and allocation over time, space, and among uses and users involve economic considerations. This Handbook assembles research that represents recent thinking and applications in water economics. The book chapters are written by leading scholars in the field who address issues related to its use, management, and value. The topics cover analytical methods, sectoral and intersectoral water issues, and issues associated with different sources of water.
Water pricing (in its broad sense, which means water tariff setting and subsidies), water services sectors organisations and costs generated by infrastructures are key factor for enhancing livelihood in developing countries. Some key objectives of any water pricing policies can be identified : cost-recovery, economise efficiency, economic affordability, equity, justified need, no perverse incentive, low administrative costs. This study explores in what extent water pricing policies implemented in the Olifants River Basin, South African respond to these various objectives. This study is also interested in costs generated by domestic water networks in the same area. The present study introduces the South African context of domestic water services, strongly marked by a decentralisation willing. It also presents the Olifants River Basin in a physical and socio-economic point review. To plant the problem, it also develops water pricing policies related economic issues in developing countries in general, and in South Africa in particular. In the third place, it presents the methodology adopted to answer the research questions. At least, results in term of water sector organisation, of presentation and evaluation of the water pricing policies implemented in the study area and of the conditions of networks in the same area are presented.
Water resource development has played a significant role in the expansion of agriculture and industry in the Olifants River Catchment. However, currently water deficit is one of the major constraints hampering development in the catchment; both the mining and agricultural sectors are producing below optimal levels because of their reliance on insufficient supplies. In this study, the Water Evaluation and Planning (WEAP) model was used to evaluate scenarios of historic, current and future water demand in the catchment. For each scenario, the WEAP model was used to simulate demand in five different sectors (rural, urban, mining, commercial forestry and irrigation) over a 70-year period of varying rainfall and hydrology. Levels of assured supply were estimated for each sector and the economic cost of failing to provide water was predicted. For the future scenarios, the impact of infrastructure development and water conservation measures were assessed. The study illustrates how a relatively simple model can provide useful insight for resource planning and management.
The Olifants catchment is one of 19 Catchment Management Areas in South Africa. Different water users (i.e., rural, urban, mining, subsistence and commercial irrigated agriculture, commercial forestry, industry and power generation) are present in the catchment. Rising population andincreasing water provision in rural areas, in conjunction with the development of the mining industry, the construction of new power generation plants, the implementation of environmental flows andthe need to meet international flow requirements are going to greatly exacerbate the complexity of future water resources management in what is already a water-stressed catchment. Being able to assess the ability of the catchment to satisfy potential water demands is crucial in order to plan for the future and make wise decisions. In this study, a scenario analysis approach was used in conjunction with the Water Evaluation And Planning model, in order to assess the impacts of possible water demands on the water resources of the Olifants catchment in 2025. Foreach scenario, the water resource implications were compared to a 1995 “baseline.” The model enabled analyses of unmet water demands, streamflows and water storage for each scenario. The model results show that for the different scenarios considered in this study the implementation of the Environmental Reserve (an instream requirement to guarantee the health of the riverine ecosystems) will increase the shortages for other sectors. The construction of the main water storage infrastructure proposed by the Department of Water Affairs and Forestry, in conjunction with the application of Water Conservation and Demand Management practices, can reduce the unmet demands and shortfalls to levels lower than, or similar to, those experienced in the 1995 baseline. However, in all cases these interventions will be insufficient to completely meet the demands of all the sectors. A tight control of the growth in future demands is essential, although this may be difficult in a rapidly developing country like South Africa.
