It seems that we’re always confronting something new as we try to grapple with creating a sustainable, environmentally sound economy that can still deliver growth and jobs. Take, for example, water. With all the talk around carbon and fossil fuels and climate change, we sometimes forget that water, too, is a scarce and precious resource that we are using up at a frightening pace.
South Africa is a relatively dry country, yet we use huge amounts of water in our coal-fired power plants and in the cooling systems on our mines. Water used for these purposes is typically polluted by the process to the point where its undrinkable, so much of the water used in SA is effectively lost. Yet, despite its scarcity and the pace at which we’re rendering it undrinkable, we don’t really pay the full costs for our water – households don’t pay that much for water, nor do companies. And so, as a result, we undervalue it. Turning around our thinking on water is a huge task, but a necessary one if we’re to build a sustainable South Africa. – FD
ALEC HOGG: It’s more interesting than that. He’s from Uruguay, you know, those guys who are going to win the world cup because they have Suarez playing for them. We know that if they don’t win the world cup fairly, they’ll win it in other ways (probably through penalties). We also know that Uruguay has the most admired President in the world. He drives an old, beat-up Volkswagen Beetle, and is paid a pittance. What our President earns in a week he probably earns in a year. They also just legalised marijuana. Diego Juan Rodriguez, it’s good to have you in the studio, and you’re wearing the Uruguay colours with your blue. We’re here, not to talk about your country, but about the World Bank (who you work for) and about water. In South Africa, the late Graham Mackay from SABMiller was very involved in the water initiatives. Various South African cabinet ministers have been involved in that too, on a global scale. Water seems to be coming front and centre in the global spotlight nowadays.
DIEGO JUAN RODRIGUEZ: Absolutely. We have many problems in water all around the globe. One of the reasons why we’re here now as part of the Africa Utility Week, is precisely to present one of our initiatives – Thirsty Energy – in which we are trying to ensure that the energy sector properly understands the potential constraints of water in energy generation. This is not only for hydropower, but it also includes coal, which is a big issue here in South Africa. It includes shale gas. It also includes renewable energy, which also uses a lot of water.
DIEGO JUAN RODRIGUEZ: Have you done much work on the shale gas story? For South Africa, this is a huge opportunity as well as a big concern on how much water will be required to get the shale gas out of the wonderful deposits we have.
DIEGO JUAN RODRIGUEZ: Exactly. Shale gas requires a lot of water and there are also issues with potential water quality impacts, not only as a discharge but also when drilling, you can go through [inaudible 0:12:36.1]. There are many good experiences in the U.S. (United States). Some states have very good regulation on this, so there’s a lot to learn from some of these places, and we are trying to bring some of these experiences to other countries. In the particular case of South Africa, what we are doing with the energy sector is trying to understand exactly what the water requirements are, what kind of regulation needs to be in place to ensure that if we start going into this shale gas business, that it’s done in the most sustainable manner.
ALEC HOGG: Well, we’re going into it. We know that we’re doing it in South Africa. I suppose the big question is can you use seawater or do you have to use pure water to liberate the gas.
DIEGO JUAN RODRIGUEZ: In the United States, they’ve done a lot of work on using some of the brackish and seawater. It’s all a matter of cost and location. Some of the sites are very far from the sea, which means that you have to pump the water and transport it, and that increases your financial costs of the investments substantially. It’s a very site-specific issue, so you have to go to each one of the sites and see what can be done. There are also some interesting investments in which some of the discharged wastewater can be used in the shale gas process. This means that in some areas it’s just transmission from the wastewater plant into the shale gas processing facilities.
GUGULETHU MFUPHI: Diego, it’s Gugu here in Johannesburg. Just a moment ago, you touched on regulation. When you look at the South African environment, do you find that perhaps our regulation is holding us back from such opportunities as shale gas?
DIEGO JUAN RODRIGUEZ: I think regulation is a key aspect, particularly if you want to ensure the sustainability of these investments. Regulation requires very strong institutional capacities and enforcement mechanisms, and we always promote that the regulation space has to be done within an appropriate manner. Do not rush, to try to get a regulatory framework in place if you don’t have the capacity to then properly monitor and enforce those mechanisms.
ALEC HOGG: Is it a big story here though, that water is not appropriately priced? Much of water in South Africa is free and people waste things that are free. Isn’t that what we have to get towards? We do know that with climate change and water being scarce everywhere, it has to get a proper price at some point.
DIEGO JUAN RODRIGUEZ: Yes, pricing is essential and as economists we are obviously promoting the price of the resource clearly reflects its economic value. In agriculture, all around the world, almost nobody pays for the resource. If you were paying for that resource, you would be using it much… We try to work very closely with the countries to ensure that there is a pricing mechanism in place to reflect the true cost, as well as the true cost of operating, maintaining, and rehabilitating the infrastructure, which is very costly as well.
ALEC HOGG: Then you think…in the South African context, we have our deep-level gold mines and deep-level mines that have massive refrigeration requirements and big water needs. We have coal-fired power stations that use an enormous amount of water. If the water wasn’t free, it would be interesting to see if the economics would actually stack up.
DIEGO JUAN RODRIGUEZ: Exactly, and that’s one of the points we are trying to say with this Thirsty Energy case here. In the case of dry versus wet cooling technologies for cooling purposes, for example coal, we’re trying to say ‘what happens if you actually incorporate the true price or the true cost of water plus the cost of taking that infrastructure into the coal plants’. If the coal plant has to pay, what happens with the financial equation?
ALEC HOGG: It’s an interesting conundrum. Diego Juan Rodriguez is an economist with the World Bank and as you heard right at the outset, he’s going to be shouting for Uruguay in the World Cup.
Well, from an investment point of view, don’t undersell this either. The correct pricing of water will have an impact on many, many industries. Sometimes we don’t think these things will change and when they do, it makes a big difference to the return you might achieve on that investment. Well, we’ll be talking more about investment and about perhaps, the most spectacular return on investment ever achieved in South Africa. Patrice Motsepe, by my calculations made R8bn on R60m investment, thanks to some very generous pricing of Sanlam shares ten years ago. I’m sure Chief Executive Johan van Zyl, who is in our Johannesburg studio, will be telling us why the pricing was opportune.
