Chito Siame, Head: Private Equity, Mergence Investment Managers
South Africa’s water crisis has emerged as a defining test for both the state and long-term investors. Ageing and leaking infrastructure, tight municipal finances and rising demand have combined to create a systemic risk – but also a compelling investment opportunity. National Treasury’s 2025 amendments to Treasury Regulation 16 (NTR16), issued under the Public Finance Management Act, have made that opportunity significantly more practical to pursue.
Removing a critical bottleneck
While the public-private partnership (PPP) framework is a proven model for institutional investment into infrastructure (for example the Renewable Energy Independent Power Producers Procurement Programme), it is often complex and time-consuming, particularly for smaller projects. A single R100 million project was subject to the same approvals as one costing R5 billion. This burden has discouraged municipalities and private investors alike.
Treasury’s amendments have changed that. PPP projects with a total cost below R2 billion are now exempt from certain Treasury Approvals (11a and 11b) creating a streamlined pathway for smaller, high-impact infrastructure deals, including those in water treatment, reuse, and pipeline rehabilitation. These reforms simplify oversight requirements remove red tape, accelerate timelines, and reduce transaction costs, making water investment more feasible at a local level.
Structuring for impact: the SA Water Works model
The SA Water Works initiative is a case in point, structured as a special purpose vehicle (SPV) to ring-fence capital and accountability.
By aggregating institutional capital into a single SPV, we are able to:
- Isolate risk within a defined portfolio of water projects.
- Channel investment transparently to municipalities and utilities.
- Measure and report impact clearly, reinforcing investor confidence.
The SPV is thus not just a financing mechanism; it is an impact platform that demonstrates measurable outcomes in water security, efficiency, and access.
Mergence has been invested in SA Water Works since 2018, via the Mergence Infrastructure & Development | Equity Fund. SA Water Works operates two water concessions: Sizulumanzi in Mpumalanga and Siza Water in KwaZulu-Natal, serving approximately 500,000 customers daily, and managing more than 1,500 km of water pipeline and close to 1,000 km of sewage network.
The impact of the investment has been significant.
- There has been a marked improvement in water quality and delivery to all communities.
- Non-revenue water (losses) average around 20% across these concessions, compared to a national average of approximately 37% according to the Department of Water and Sanitation (DWS).
- Both concessions include systems that have achieved Blue Drop status – South Africa’s official drinking-water quality certification programme – representing five of the 26 systems nationally that met the programme’s 95% benchmark in the 2023 Blue Drop Report (as reported by DWS).
A new pipeline of sub-R2 billion opportunities
The revised NTR16 framework aligns perfectly with the SA Water Works approach. In essence, the R2 billion threshold creates a lighter regulatory track for municipal PPPs, reframing water not as a public burden but as a viable investment sector for private capital. See our below graphic for a typical PPP in the water sector.
Many of the most critical interventions – from pipe replacement and leak detection to secondary treatment plants – fall below the R2 billion threshold. These are the projects that keep communities running and ecosystems alive.
In our opinion, institutional investors can envisage two main ways to invest under the new regime:
- Scaled-down concessions: Municipalities can still partner with private investors through long-term concession models, now with simplified approval requirements under NTR16.
- Alternative delivery models: For smaller or shorter-term engagements, design-build-operate-maintain (DBOM) contracts or joint ventures offer flexible, bankable structures. In some cases, multiple small projects can be aggregated into a single portfolio within the SPV to achieve scale and diversification.
The broader investment case
Water is critical for almost every other sector, from agriculture to energy and construction. The NTR16 reforms therefore do more than fix process; they enable systemic resilience. For institutional investors, this means access to predictable, inflation-linked cash flows backed by real assets, while directly contributing to service delivery, job creation, and environmental sustainability.
Ultimately, the amended NTR16 does not guarantee capital flows – but it removes a critical bottleneck. By lowering transaction friction and clarifying rules for sub-R2 billion projects, Treasury has made it possible for investors and municipalities to focus on what matters most: delivering safe, reliable water to South African communities.
ENDS
