THE ESTABLISHMENT OF LEGAL REQUIREMENTS FOR A FORMAL MARKET IN TRADABLE WATER RIGHTS IN SOUTH AFRICA: Are we there

1. THE ESTABLISHMENT OF LEGAL REQUIREMENTS FOR A FORMAL MARKET IN TRADABLE WATER RIGHTS IN SOUTH AFRICA: Are we there yet? CebileNtombela IUCN Academy of Environmental Law 2011 Colloquium Water and the Law: Towards Sustainability 3-7 July

2. Presentation outline • South African context • What is a water market • Why a market in tradable water rights? • Requirements for an effective water market • Does our legislation encourage water markets? • Concluding remarks • References

3. South African context • South Africa is generally a dry country with relatively minimal water available to meet increasing demands • To augment water supply ,we have develop water infrastructure with over 500 large dams supplying most of our urban, industrial and irrigation needs • Challenge: • Most of the available water supply has been allocated • The supply-side approach (e.g construction of dams) is no longer a viable option. (soci0-economic, environmental factors) • realities of climate change, international obligations and water pollution further exacerbating the problem

4. South African context • We need focus demand-side management approaches (e.g. re-allocation) • Increasingly popular option in this regard is the use of watermarkets • What is it? • Use of market mechanisms to enable water re-allocation when there is no allocable water available • Seller holds a water use right that is surplus to his water demand while the buyer faces a water deficit and is willing to pay to meet his water demand

5. Why a water market Efficiency gains: • Water is transferred from less productive economic activities to more productive activities = increased net benefits from the use of water • Provides incentives for water conservation

6. Requirements for an effective market

7. Requirements for an effective market

8. Does our legislation accommodate a water market?

9. Water rights: enforceable? • Constitutionally protected (S25:Property clause) • Subject to deprivation (e.g. in the public interest) • NWA: Trade decisions may be challenged by way of an appeal to a Water Tribunal • Provision has been made for the enforcement of licence conditions in terms of Section 53 • Compliance and enforcement remain a challenge in the water sector which may affect the functioning of the market

10. Water rights: tradable? • NWA (Section 25) provides a regulatory framework for trade • Section 25(1) : a person authorised to use water for irrigation may on a temporary basis • (i) use some or all of that water for a different purpose or • (ii) use some or all of that water on another property in the same vicinity for a same or a similar purpose. • Section 25(2) provides that a person may surrender all or part of their water use right to facilitate another's application to use water from the same resource in respect of other land

11. Water rights: tradable? • Although water rights are tradable in terms of the NWA, there are no clear ‘guiding rules’ to facilitate efficient and effective trade (contracting mechanisms) • Section 26(l) does however provide for the making of regulations in relation to water rights trade which includes among other things the procedure to deal with transactions. • The regulations are not yet in place • DWA has in the interim developed an internal operational policy and guidelines to steer transactions

12. Water rights: tradable? • DWA’s operational policy outlines: • circumstances under which trade may be permitted • conditions subject to which trade may take place • the process to be followed in approving these transactions • Provides for trade on temporary and permanent basis • Provides for trade within and between sectors • Abolished riparian principle ; Water use rights are now allocated to a specific person and are tradable without change in land ownership

13. Water rights: Reliable supply? • Water supplies are variable in nature making it impractical to grant 100% guarantee of supply • Section 31 which states that: ‘the issue of a licence to use water does not imply a guarantee relating to (a) the statistical probability of supply; (b) the availability of water; or (c) the quality of water’.

14. Water rights: Reliable supply? • Permanent rights are preferable for an efficient market • Rights granted for shorter periods and rights reviewed periodically create uncertainty • However these provisions secure flexibility should changes in priorities occur • Water use licenses are issued, in terms of Section 28, for a period not exceeding 40 years and are subject to review at intervals not exceeding 5 years • Licenses are reviewed in terms of Section 49 under which the conditions of a licence may be revised in response to changing socio-economic and environmental conditions.

15. Information readily available? • Section 139 : establishment of the national information system which includes, among others, a register of water use authorisations • System (WARMS) already in place, administered by DWA • Section 25(3) : authority must, in its annual report, provide details of every trade permission granted in terms of Section 25(1) and (2) • No annual report containing this information could be found

16. Efficient administration? • In principle regulation should be kept to the minimum • Water markets currently operate within a centralised non-market water allocation system • Subjects the water market to high levels of control and regulation • All applications, including trade, must be evaluated in terms of the broader water resources management and social factors outlined in Section 27 • This broadens the scope of third party effects to be considered in trade

17. Concluding remarks • From a legal perspective, minimum requirements have been established to facilitate a formal market in tradable water rights • These requirements are still in the developmental stage in practice as not all the provisions of the NWA are in place • Issues to consider as markets develop • Efficiency of markets in practice • Critical issues of environmental protection and social justice? • If not, what parallel mechanism may help us to secure these?

18. Thank you!