1. Cebile Ntombela 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 water markets 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 RequirementDescriptionWhy? 1. Water rights well-defined (quantity, quality and reliability of supply) Enforceable right Tradable right not tied to land ownership Secure certainty in what is being traded Secure net benefit for the right holder Less complicated transactions 2. Clear contracting mechanisms Outline procedure to be followed by buyers and sellers and Role of regulatory bodies Understanding of the “rules” governing the market

7. Requirements for an effective market RequirementDescriptionWhy? 3. Access to informationFreely available information on,inter alia, Water rights holders, Prices and volumes of water available for trade, Record of authorised transfers facilitate monitoring and regulation of trade Increased awareness of available the stock 4. Effective administrationAdmin system to : legally sanction trade Ensure compliance with trade formalities Enforce relevant legislation and regulations Resolve disputes Prevention of monopoly development and third party effects resulting from trade

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!