Here Comes the Water Price Crisis

News today is that the Department of Water Affairs has said it must borrow an additional R380 billion to reach the R700 billion it needs to meet the country’s demand for water over the next decade.

I won’t go into much detail of the problems facing this sector, as I’ve done so on many occasions before.

April 20, 2010: The Water Crisis Cometh

This is a long-term negative trend and once the severity of overconsumption and underinvestment, and capital depletion breaks in the media, the Eskom crisis will look like a picnic.

The dam wall is already starting to crack.  The other day a leaked memo by a South African public official alluded to water prices needing to rise by 18 times.  That would make our estimates look rather tame and would unleash a political firestorm.

South Africa, welcome to the days of higher water prices and more economical water usage.

February 21, 2012. Water Crisis Bubbling Under the Surface.

A water crisis is bubbling just under the surface in South Africa. The government has not maintained –  never mind expanded – the capacity of other State Owned Enterprises such as Transnet, Portnet, Eskom, or the road network to deal with growing demand, and here’s more evidence the water catchment, purification, or distribution utilities have not been managed any better.

Municipal water tariffs are well below a level that would allow the state to maintain and reinvest in water infrastructure. Also,  prices are too low to ration demand for water. There is massive excess demand owing to the relatively low public water prices.

Water tariffs have not kept up with other commodity price increases in recent years. This is set to change in the coming decade or two. Expect a massive reallocation of capital into water catchment, purification, and distribution infrastructure in coming years.

March 15, 2012. Water Prices Are Too Low.

Whichever route this takes, the government will be extracting huge sums of money from the private sector to get their hands on the resources to patch the failing water infrastructure.

March 16. Have Another Glass of Crisis.

The government is going to suck massive amounts of resources from the private sector to pay for the mess it has created after a good 17 year party since the ANC took over. This is going to be a water price crisis, not so much a water shortage crisis. There is a mismatch of supply and demand because water prices are set too low by the government. The increase of water prices is going to be dramatic to make up for this. This has major implications for household spending and corporate factor prices. A big re-allocation of resources is on its way. Be ready for it.

Anyone who is familiar with the teachings of Ludwig von Mises and Murray Rothbard on the problems of socialism should not be surprised by the current water crisis. It was very predictable.