Hidden threat to South Africa’s richest province

Rand Water CEO Sipho Mosai said municipal non-payment for water services is placing serious strain on the bulk supplier’s ability to function.

In the latest episode of PSG’s Think Big Series, Mosai explained that municipal distribution challenges are causing many of the problems South Africans experience with water supply.

This includes issues with the quality of water and, notably, high non-revenue water, which refers to the difference between the amount of water injected into the water supply system and the actual amount of water billed to customers.

The 2023 No Drop Report found that the country’s non-revenue water increased from around 42% in 2014 and 2015 to above 46% between 2021 and 2023.

This means that almost half of all clean and treated water intended for consumers does not generate revenue.

This can be due to physical losses like leaks, apparent losses like meter inaccuracies, illegal connections, or authorised but unbilled consumption like free basic water.

Therefore, South African municipalities are losing significant amounts of money every day, which has far-reaching implications for consumers and water suppliers.

Many of South Africa’s municipalities are financially strained and in significant debt to bulk suppliers of services like electricity and water.

Mosai’s conversation with PSG revealed that municipal debt to Rand Water has risen from R1.5 billion in 2015 to over R8 billion by the third quarter of 2024/25.

Bloomberg reported that Rand Water booked an impairment of R382.3 million in the year to end-June 2024 as net debt owed by municipalities climbed 12% to R4.4 billion.

Mosai told PSG that this debt is putting a serious strain on the bulk supplier’s ability to function going forward.

“I think we’re still fine for now. We are able to raise capital in the marketplace, but in the long term, it’s a matter of serious concern for us,” he said.

The devastating effects of South African municipal debt on a bulk supplier’s finances have been clearly seen with Eskom.

Municipal debt to Eskom is one of the main reasons for the utility’s financial struggles and has cost the national fiscus billions in government bailouts.

In 2023, the National Treasury announced the Municipal Debt Relief Programme to address this problem, but so far, the results have been mixed.

Reforms underway

Mosai explained that the problem with many municipalities is not necessarily a lack of funds to pay their debts to bulk suppliers.

Instead, the problem often lies in municipal fund allocation, as the money generated from basic services intended for bulk suppliers is not ring-fenced.

Therefore, while some municipalities may generate enough revenue to pay bulk suppliers, this money is spent on other expenditure items.

Mosai explained that this is why reforms implemented by the government in collaboration with Rand Water and other bulk suppliers aim to address this problem.

“Part of why we welcome these reforms is precisely because these reforms are geared towards ring-fencing all the funds related to water and sanitation for water and sanitation,” he said. 

“In some of the municipalities, what you find is that the water entities within the municipalities are highly profitable. They generate enough revenue. They are able to pay for the bulk water.” 

“But because money has no colour in the municipality, you’ll find that water and sanitation revenue is used for other services that have nothing to do with water and sanitation.”

To address this, reforms are being implemented that will ring-fence municipal funds related to water and sanitation services.

Mosai said he is “bullish” about these changes and believes they will go a long way in addressing the issue of municipal debt to bulk water suppliers.