I N V E S T
&
d e v e l O P
What happens when a fire breaks out and there is insufficient
water in the hydrant system to effectively douse the flames? This
happened in Braamfontein on 19 April 2017, when a building
burned down and the fire brigade was unable to pump water
onto it. What happens when water stored on site as backup
to the regular failures becomes contaminated and people get
sick as a result? What happens if someone decides to sabotage
the alternative water supply by putting poison in the tanks?
Who owns this risk? Is it the commercial service provider? Is
it the board of trustees or directors? Is it reasonable to accept
that trustees are elected in an unpaid role but assume the kind
of liabilities that a company director carries, but without the
salary package to offset that risk? Does this increasingly create
the space for a professional MA to assume all these legal roles
for which they are remunerated and held accountable by the
board?
One of the implications of this is growing taxation, in a variety of
forms, to the point where the cost of living in a residential estate
will become prohibitive. This in turn has many ramifications,
with space precluding a detailed assessment of all but the most
obvious – it is a growing possibility that mortgage bond holders
could owe more to the bank than the property is worth on the
open market. This is a serious red flag, because it suggests the
emergence of a property bubble, with the potential of becoming
a contagion if left unmanaged. In conclusion, let us return to the earlier question about the
constitutional crisis that prevents the DWS from intervening
in municipalities when sewage and potable water reticulation
systems start to fail. It is clearly untenable that the Minister of
Water and Sanitation is unable to give effect to the regulatory
role specified for the department as the custodian of a resource
that has been nationalised. Either the constitutional imperative
of cooperative governance is flawed, or the interpretation
of that imperative is flawed. It is simply illogical to accept that
the constitution deliberately prevents regulatory intervention,
because that is an obvious recipe for disaster. We therefore need
to establish an independent water regulator, and this should be
supported by all formal structures that operate in the HOA and
BC environment. It’s in their collective best interest to do this.
A process to initiate the establishment of an independent water
regulator is under way, driven jointly by Water Shortage South
Africa and OUTA. In the interim, it is advisable for all trustees,
directors and MAs to seek legal clarification of their liabilities and
risks in the rapidly changing landscape in which they operate.
The third aspect to consider is that, as municipal services fail,
the HOA or BC, in conjunction with the MA, will be obliged
to replicate those services and provide them from alternative
sources. Here we are likely to see the emergence of companies
that specialise in facilities management, but with an increasingly
wider portfolio. This, in turn, triggers several complications.
Again, space precludes an analysis of all but the most obvious
– legal liability.
N
If we take water as an example, then we see that the government
is legally liable for the provision of six principal elements of
reliable service delivery. These are a given quality, in a given
quantity at a stable pressure, to a specific address, at a precise
moment in time, with a predictable price structure. Collectively
these six elements define the probability of failure, but also
provide legal comeback in the event of loss of life or property
arising from failure. Now, under changing circumstances, the
HOA or BC assumes that responsibility, but this is not clearly
defined in any legal framework that I am aware of. It’s a grey area
of law that needs to be fixed. Let us simply reflect on a few of the
implications that arise when the HOA or BC becomes a water
services provider (WSP).
The second aspect to consider is that, as services fail, so too
do revenue streams. This means that the loss of revenue to
municipalities, typically arising from deteriorating services
for which people are unwilling to pay, accelerates the rate
of final collapse. Before that threshold is reached, however,
municipalities are desperate to claw back revenues and so
they raise taxes relentlessly. This is clearly manifest in the sale
of real estate. Decades ago, municipal evaluations were almost
universally well below actual market rates. Here I define market
rate as the value a willing buyer is prepared to offer a willing
seller for a given property. Over time, municipality-rated values
have increased to the point where they are now on a par with
actual market rates, and in some cases might even exceed those
rates. This is an indicator of the trend I am referring to. As the
gap closes, so too the probability of catastrophic failure creeps
inevitably closer.
Dr Anthony Turton (anthonyturton.com)