Plan to fix electricity and water in South Africa

South Africa wants to give municipal government officials in charge of water and electricity more power by decentralising the services and ring-fencing their budgets.

According to a Sunday Times report, the proposal to decentralise these systems was contained in an Operation Vulindlela document tabled before Cabinet last week.

It also proposes extending the Public Service Commission’s mandate to professionalise local government.

The move could see some metros establish separate entities for the services, as is the case in Johannesburg.

Metros that don’t follow Johannesburg’s lead could also decentralise the system. This would give the respective head of department complete control over finances, human resources, and supply chain management.

The aim is to ring-fence their electricity and water budgets and prevent them from being diverted to other areas.

The Operation Vulindlela document proposes that the changes are first implemented in metros like Buffalo City, Cape Town, Ekurhuleni, eThekwini, Manguang, Nelson Mandela Bay, and Tshwane.

It wants all metros to establish ring-fenced, professionally managed, independently licenced utilities for their water and electricity within two years.

Municipal mismanagement of electricity and water services in South Africa has resulted in significant debt with the country’s water bards and state-owned power utility, Eskom.

Municipal debt to Eskom has climbed to nearly R110 billion, and according to the head of fixed interest at Coronation, Nishan Maharaj, National Treasury could be forced to announce a further bailout for the utility.

Eskom is unlikely to generate enough revenue to fill the gap, and if municipalities can’t pay back the debt, Maharaj estimates that the utility could require relief in the region of R50 billion.

“This thing can’t sit on the balance sheet forever, it has to be corrected,” he said.

“And if it’s not corrected via collection of the tariff then inevitably someone has to fill the gap, and that someone will have to be the government.”

In July 2024, South African Minister of Electricity and Energy, Kgosientsho Ramokgopa, said municipal debt could reach R3.1 trillion by 2050 if not urgently addressed.

At the time, municipal debt owed to Eskom amounted to more than R78 billion.

“It’s important that we have engagement with municipalities. They are owing Eskom over R78 billion,” he said.

“If the current trend line continues, the collections and payments we are seeing now, if you extrapolate it to 2050, it’s about R3.1 trillion. This is huge.”

Their debts have the added consequence of higher electricity prices for municipal customers as they have to generate revenue to pay back their debts while maintaining their grids.

Municipal debt owed to water boards, while substantially less, has grown in recent years.

In August 2024, the Portfolio Committee on Water and Sanitation revealed that municipal debt owed to water boards had grown to R22.36 billion.

This figure has ballooned in recent years, with an average increase of 151% between 2019 and 2024.

The Portfolio Committee warned that water boards could face constraints due to the debt and, more importantly, that some boards could face bankruptcy in the near future.

These include boards like Vaal Central Water and Magalies Water, which do not have enough capital to pay for their operations and have stopped paying for their raw water.

“If the situation is not urgently resolved, the impact on communities served by these boards will be dire, as the boards may be unable to provide water,” the Portfolio Committee said.

Committee chair, Leon Basson, said “the magnitude of this problem is devastating to the cash flow of water boards and negatively affects the entire water value chain”.