Municipal debt pushing water boards towards bankruptcy

Parliament’s portfolio committee on Water and Sanitation has revealed that municipal debt owed to water boards now stands at R22.36 billion—over R1 billion more than the amount recently revealed by the Minister.

The debt owed to water boards has ballooned over the past several years, with an average increase of 151% between 2019 and 2024.

While it was initially outlined that the boards would face constraints to their operations as a result of the debt, the Parliamentary committee outlined that the true extent of its impact is much more dire.

It said that the direct impact is that some boards, such as Vaal Central Water and Magalies Water, face bankruptcy in the next six to 12 months because they do not have sufficient capital to pay for their operating activities and have stopped paying for their raw water.

Additionally, they said that municipalities’ inability to pay their debt also has a negative impact downstream, as water boards are then unable to pay the Department of Water and Sanitation (DWS) for the extraction of 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,” said the portfolio committee.

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

Speaking to the media earlier this month regarding her department’s plans and priorities for 2024/25, DWS Minister Pemmy Majondina said that despite progress in increased access, “the quality and reliability of municipal water and sanitation services across South Africa has deteriorated markedly over the last ten years.” 

Majondina noted that:

• The percentage of water supply systems with poor or bad microbiological water quality compliance went from 5% in 2014 to 46% in 2023;
• The percentage of wastewater treatment systems in a critical state of performance went from 30% in 2013 to over 40% in 2022;
• Municipal non-revenue water increased from 37% in 2014 to 47% in 2023.

The minister said that among other woes, the inability of water boards to properly maintain and operate infrastructure sits at the root of the issue.

“The water boards do not receive money from the fiscus, and this debt is threatening their ongoing financial viability, as well as the financial viability of the whole sector,” which needs to be self-financing through revenues from the sale of water, said Majondina.

This has not gone unnoticed, with South Africa’s water security remaining one of the most pressing issues for households and businesses, and continues to remain at the top of investors’ minds.

In Coronation’s July 2024 Correspondent, economist Marie Antelme and ESG analyst Leila Joseph outlined that “water security is arguably one of the most critical risks to South Africa’s social, economic, and political long-term future.”

The fund manager’s study showed that water security emerged as the most concerning environmental issue for their clients, with 78% of respondents indicating that this should be prioritised by investors in 2024.

“Finding solutions to this unsustainable challenge is urgent [because]… the socio-economic impact of the debt is far-reaching and has the potential of crippling the water value chain, as it will affect the ability to perform necessary maintenance, businesses will be greatly affected and access to water will be made difficult,” said Basson.

The committee said that while it acknowledges the Minister’s proactive engagements with provincial governments, water boards and municipalities, it “believes that engagements without action will spell disaster for communities depending on these water boards for water.”

Additionally, the committee praised municipalities for settling their water board accounts and stressed the need for timely payments to ensure service quality.

It noted efforts to cancel old debts, advising this should be contingent on fulfilling current obligations.

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