Despite the introduction of the municipal Eskom debt relief programme in 2023, municipalities are still battling to address ballooning debt to the power utility.
According to the department’s Medium Term Budget Policy Statement (MTBPS), the debt has grown to some R94 billion as of the end of March this year - up from some R55 billion.
“While 24 municipalities have qualified for the first one-third write-off after 12 consecutive months of payments and 21 have generally maintained payments, as of 7 May 2025, 47 municipalities remain in default.
“This is the combined result of weak collections, excessive electricity and water losses due primarily to a lack of maintenance, and inadequate credit control. Measures are being taken to assist municipalities in raising revenue, including expanding smart prepaid metering,” Treasury said.
As an interim measure, struggling municipalities will “transition, where appropriate, to distribution agency agreements (DAAs)”.
“Under these agreements, Eskom will operate municipal electricity services for a defined period, support cost-reflective tariff setting and loss reduction, and assist with collections.
“During this period, municipalities will be required to select the most appropriate service delivery mechanism, phase in cost-reflective tariffs and limit rebates,” the department said.
Municipalities are urged to direct funding from grants like the Municipal Infrastructure Grant (MIG) to rehabilitating existing water and electricity infrastructure, which are conduits for revenue generation.
“Additional conditions include strict adherence to pro-poor policies to ensure that local governments are providing the required amounts, doing so within national limits and ring-fencing electricity revenues.
“The DAA pathway is intended to stabilise cash flows, improve payment discipline and create a bridge to longer-term structural reforms in the local government fiscal framework.
“The interim measure does not rule out stronger interventions where failures persist,” National Treasury said.
Municipal Infrastructure Grant
At the same time, National Treasury has announced reforms to the Municipal Infrastructure Grant in a bid to cut out underspending, misuse of funds and capacity constraints.
The reforms include a split delivery model aimed at assisting municipalities to accelerate service delivery infrastructure delivery.
“Where municipalities demonstrate proven capacity, funding will continue to be allocated directly. However, in cases of persistent capacity and governance failures, delivery will shift to an indirect model through institutions such as the Municipal Infrastructure Support Agent and the DBSA [Development Bank of South Africa].
“This will be accompanied by time-bound capability plans aimed at restoring municipalities to direct funding. The shift to a split-delivery model balances the urgent need to accelerate service delivery with building resilient, capable local government that can sustainably meet the infrastructure needs of their communities,” Treasury noted.
Added to that, a performance-linked incentive is also being introduced to “reward municipalities that deliver fit for purpose infrastructure on time and budget, at reasonable cost, with funded maintenance plans and climate-resilience measures”.
“The reform will be supported by clearer criteria for determining funding modalities, stronger oversight through annual delivery compacts and embedded technical support to build municipal planning, procurement and asset management capability.
“The necessary conditional grant framework amendments will be tabled in the 2026 Division of Revenue Bill, with pilot implementation commencing in 2026/27,” the department added.
Furthermore, a municipal utility reform programme will also be piloted at the Mbombela, Govan Mbeki, Lekwa and eMalahleni municipalities later this year.
“The National Treasury, working with the African Development Bank [AfDB] and donor partners, is implementing a pilot Municipal Utility Reform Programme, under a results-based AfDB concessional loan of up to US$400 million.
“It aims to stabilise and professionalise core municipal utilities [water and electricity] by reducing losses, introducing cost-reflective tariffs with protections for poor households, ringfencing revenues, improving asset care, and enhancing governance and reporting,” Treasury said.
Lessons drawn from the pilot will be used to expand the programme to “municipalities in other provinces facing severe delivery challenges”.
“The scale-up will align with conditional grant reforms and, where appropriate, will disburse grants linked to independently verified milestones to safeguard delivery and fiscal sustainability,” Treasury said. – SAnews.gov.za
