Programme OS6c Water markets and
water sharing approaches
The challenge of agricultural Water Conservation and Water Demand
Management in South Africa.
Author(s): Andrew Pott, Jason Hallowes, Gerhard Backeberg, Max Döckel, L.
Mr Pott, Dr Backeberg, Prof Nieuwoudt, Prof Dockel
Keyword(s): WC & WDM, incentives, defining use entitlements, water metering, information systems,
Session: OS6c Water markets and
water sharing approaches
Water is currently, and will continue to be, a scarce resource in South Africa. More than 50% of South
Africa’s catchments are deemed to be over-allocated. Although new augmentation options will need to be
considered, such as the building of dams, the construction of inter-basin transfers and/or the construction of
desalination plants, the reality of the situation is that these options are very expensive, and often environmentally
unsustainable. There is an increasing recognition that better management of available water resources is required
through improved Water Conservation and Water Demand Management (WC&WDM) policies, institutions and
Inter-related initiatives should be adopted that will incentivise the sustainable uptake of water
conservation and water demand management by water users in South Africa, after the initial round of water use
licenses have been issued. The initiatives include, first, reviewing the way in which the water use licenses are defined.
The paper discusses the merits of moving to a Fractional Water Allocation and Capacity Sharing (FWA-CS) water
apportionment system. It is argued that this initiative will promote WC & WDM for the following reasons: The
property rights are very well defined in this system, thereby enabling improved water audits to be undertaken, which
are required to ensure that water users comply with their water use license conditions. The FWA-CS system
enables water banking to be undertaken in large dams. Water banking provides incentives for the holders of water
licenses to optimize the use of water over time, which is not the case in the currently adopted “use-it-or-lose-it”
Secondly, water resource management systems need to be improved. The key component of such a
management system is a network of abstraction meters, as well as flow gauges. A stage has been reached in the
development of water resources where water metering is absolutely essential. Meters with associated information
management systems are required to uphold the issuing of water use licenses. The improved management of the
water resources will improve investor confidence, which is central to the adoption of WC & WDM. The installation
of water meters will also enable water use charges to be levied on actual water use (or a two-part charging system),
with a component being a flat rate and a component being levied on the actual use.
The third yet critical
mechanism through which WC & WDM is being incentivised is through trade of water use licenses in water markets.
This includes the permanent sale of a water use licenses (in part or in entirely), or the temporary lease of water use
license (in part or in entirety) from one water user to another. It is this process that provides the incentives for users
to continually seek and adopt technologies and practices for the efficient use and transfer of water. It is shown that
by reducing risk and increasing income, water use licenses are transferred from lower to higher valued uses. The key
management challenge is to ensure that water licenses are impartially enforced and to reduce the transaction costs
with market trades.