Evolving Risk: Water Security and the implications for Risk Managers
By Michael E. Stoker FIISA; FCII
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Stoker Risk and ICT (Pty) Ltd
Sustainable Infrastructure Solutions
Guest speaker, Dave Shackleton of Sustainable Infrastructure Solutions addressed the Institute of Risk Management South Africa‘s (IRMSA) Breakfast meeting at the JCC in Woodmead, Sandton on 21 April 2010.
Dave presented a very thought provoking talk about water. Yes that’s right, water. Initially when the presentation commenced, I wondered where the talk was heading from a risk management perspective, but it didn’t take long for the penny to drop.
Setting the scene, Dave started the presentation by showing us the award winning “Thirst” slide show which can be viewed at www.apolloideas.com/thirst and here’s some interesting general facts from the “Thirst” slide show…
· Only 3% of world supply is fresh water and most of that is ice
· < 1 % is readily available for human use
· To put it another way only 0,007% of all the water on earth is available to drink
· It’s a thirsty world – industry, agriculture and we, are thirsty
So, in looking at the South African scenario, it is acknowledged first, that there is an emerging global fresh water shortage and this is a crisis that is going to affect many countries.
Dave then replayed the Carte Blanche show which was aired in February 2009 on the “water crisis” in South Africa with Bongani as the anchor for the story. I say water crisis in inverted commas because in spite of the revelations made during the show, a spokesperson from the Department of Water Affairs and Forestry said at the time that there is no impending crisis, in so far as the security of water supply in South Africa is concerned.
But the words of Prof Mike Muller (Public & Development Manager: WITS) during the show are hard to ignore: "If you look at the electricity crisis Bongani, the reason we had a month of blackouts was because, five years before, some decisions were taken that were wrong and some decisions weren't taken. And what I am saying is that in the water sector we have similar lead times. If you're not always looking ahead for the next four or five years, the chances are that, by the time you need to do something, it's too late and then you will be in crisis”.
How big is the problem?
It is said that rivers are dying and some dams are under siege from a scourge called blue-green algae which is caused by too many phosphates and nitrates in the water, which creates the perfect environment for it to flourish. This enrichment of the water is called eutrophication. This water is toxic and is mostly caused by sewage effluent flowing into our rivers and dams.
For instance 12 to 16 sewage works empty their effluent into the water that flows into the Hartebeespoort Dam and the case of Hartebeespoort Dam is one of the worst cases of eutrophication of a body of water that size in the world.
It is further said that under 15% of the sewage in Gauteng is treated in accordance with regulations prior to its disposal into surrounding rivers and dams and 0% in the Limpopo Province and EuroGAP are said to be threatening to ban agricultural exports from certain regions in South Africa due to the toxic nature of the water the products are given.
Even without these challenges the burgeoning growth of our major urban areas demands that water resources and the security of water supply should be high on the agenda.
It should be noted that the Department was correct when saying on the Carte Blanche show in February 2009 that there was no impending crisis, because yes, here we are fourteen months down the line and we still have water, a very high percentage of municipal water is said to be safe to drink and even the presenter admitted, to a chuckle from the audience, that he drinks tap water, a distinction which even some first world countries cannot claim.
One should however bear in mind Prof Muller’s comment concerning the lead times with regard to infra-structural programmes and so if action is needed and it is left until there is a crisis, there will not be a quick fix but rather a four to five year lead time.
Should Risk Managers be worried?
Risk Managers should always worry, but with regard to the supply of water, from a risk management perspective, it would certainly behove any enterprise to apply the risk management process specifically to the security of water supply and examine how a failure of supply would impact on them in terms of their business model and their processes.
Here one shouldn’t confine oneself to consideration of running out of water or if the Municipality can no longer supply water, because there could be other reasons for the failure of supply for instance the so called acid mine seepage from disused mines into the water table.
And this is where the presenter’s special skills came to bear. Not in entering the debate about whether water supply is secure or not, but to step back as a Risk Manager and contemplate the consequences of a failure of the water supply to your enterprise or the inability to consume such water, simply on a what if basis.
Dave provided an interesting perspective from which a Risk Manager can view the water issue for their enterprise having regard to economic, environmental and socio political risks which could arise there from, which is summarised in the table below.
SOCIO POLITICAL RISKS
· Cholera, crytospiridium
· Decline in tourism
· Loss of exports
· > in food prices
· > in input costs (cost of water)
· > in capital costs (improved processes)
· Business interruption
· Wellness of labour force
· Mass hospitalisation
· > in rates and taxes
· > in inflation
· > in litigation
· > in claims
· > in credit risk
· > capital requirements
· > in bankruptcies
· Devaluation of property
· Loss of water resources
· Loss flora and fauna
· Clean-up costs
· Food security
o > in food prices
o > in inflation
o > in taxes
Whilst not intended to be exhaustive this approach does provide a good starting point for the risk manager to analyse the possible risks associated with a disruption in the supply of water and could easily be adapted to your own circumstances.
Risk Transfer Options
Business Interruption policies have readily available an optional extension of the cover to include the failure of public utilities, which includes the failure of the public water supply.
Cover can be on a perils only basis, e.g. fire, lightning, explosion, earthquake, storm, tempest, flood, malicious damage or on an “all risks” basis which is referred to as Public Utilities – Extended Cover.
It should be noted that under the Public Utilities – Extended Cover format there are some specific exclusions to cover, such as:
· Pollution of water
· Shortage of water
· The deliberate withholding of supplies by authorities
One should also think about the risks inherent with regard to the premises of suppliers and customers and perhaps carefully scrutinise policy wordings to ascertain whether the business interruption suppliers and customers extensions would include cover for failure of public utilities at the premises of suppliers and customers.
Depending on the exposures there may be a need to seek wider cover than that which is available from the “off the shelf” policies, for this risk.
In closing his talk, Dave looked at some possible long term and short term solutions for South Africa and asked whether IRMSA perhaps has a role to play as a national institute, to lobby around water security issues?
Dave can be contacted on his cell phone at +27 (0)83 300 0000.
Copyright ® 2010 Michael E. Stoker
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