Treasury defends cutting funds to non-paying municipalities

This intervention, though controversial, has been defended by the Department of Water and Sanitation and the National Treasury as essential to safeguard the sustainability of the country’s water sector.

A briefing to Parliament’s Portfolio Committee on Water and Sanitation on Tuesday painted a stark picture of the crisis.

Deputy Minister of Water and Sanitation Sello Seitlholo warned that municipalities' non-payment continues to undermine the financial stability of water boards.

"As of the end of July 2025, the municipal debt owed to our water boards had escalated to just over R25 billion. This poses a financial threat to the operational sustainability of our water boards and the entire water sector."

He said water boards such as Magalies Water and Vaal Central Water had nearly collapsed under the weight of municipal debt, drawing comparisons with the 2022 collapse of the Sedibeng Water Board — a failure government has vowed to never repeat.

“Year-on-year, water boards continue to face mounting financial strain due to municipal arrears and inconsistent payment behaviour. If left unchecked, this threatens to collapse vital water infrastructure," Seitlholo cautioned.

Seitlholo explained that withholding the equitable share — a constitutionally guaranteed transfer from the national fiscus to municipalities — is a measure used only when all other efforts fail.

"The withholding of the equitable share is a last resort. It is only aimed at ensuring that municipalities pay their current invoices before the release of funds. It is not intended to reduce historical debt."

The department has, however, paired this measure with a debt write-off mechanism, agreed to with National Treasury, to address arrears accumulated over many years.

Municipalities that default on current accounts will not benefit from this debt relief.

Seitlholo stressed that the ministry had engaged extensively with premiers, MECs, mayors and municipal managers through intergovernmental forums and issued numerous reminders and demand letters before resorting to withholding transfers.

Speaking at the same briefing, DWS Director-General Sean Phillips reported that the intervention is beginning to pay off.

"We can summarise that the withholding of equitable share is having a positive impact, particularly on the two water boards that we were most concerned about — Magalies Water and Vaal Central — which were on the verge of bankruptcy before we started this process. They are no longer on the verge of bankruptcy, which is a major step forward."

In some cases, the department has found that the mere threat of withholding has been effective.

"Sometimes just the threat of withholding equitable share results in municipalities entering into payment agreements with the water boards," Phillips said.

He highlighted municipalities such as Tzaneen, Lesedi and Ngwathe as examples of those that have begun to comply, contrasting them with persistently defaulting municipalities like Matjhabeng and Merafong.

'It’s a mixed picture — very good progress in some municipalities, not yet sufficient progress in others. We will be continuing on a quarterly basis to request National Treasury to withhold equitable share allocations as a last resort for the worst non-paying municipalities," he added.

Scope of the Intervention

By June 2025, DWS had submitted 35 requests to the National Treasury to withhold equitable share transfers. 

This after allocations were withheld in December 2024, March 2025, and again in July 2025. 

Several major water boards — including Rand Water, Magalies Water, Vaal Central Water and Lebalelo Water — formally requested Treasury’s intervention, citing mounting arrears that threatened their financial viability.

Phillips confirmed that another round of requests will be submitted by early October, ahead of the December 2025 equitable share transfers.

The department also acknowledged the structural weaknesses in municipal finances, pointing out that local governments have historically relied heavily on surpluses from water and electricity sales to sustain their budgets. This model, officials said, is no longer sustainable.

"The financial modelling of metros and municipalities has been based largely on the surpluses of water and electricity, alongside rates and taxes. But with service entity reforms we are pursuing with National Treasury, the intention is to ensure that a percentage of these surpluses is reinvested into water infrastructure," Seitlholo explained.

He called on communities to use water sparingly, adding that in some areas, such as Coronationville in Johannesburg, supply is being rationed with night closures and morning restorations to balance demand.

Committee Concerns

Members of Parliament welcomed the progress but warned that withholding an equitable share could compromise service delivery to residents, particularly in smaller and financially weaker municipalities. 

Seitlholo responded that the intervention is carefully targeted and limited to municipalities that demonstrate consistent non-payment, even after repeated engagements.

"We want to emphasise, Chairperson, that this is a temporary but necessary intervention. Our focus is on compelling municipalities to pay their current accounts so that water boards remain sustainable and communities continue to receive water."

With municipal arrears still climbing, the department admitted that the road ahead remains difficult. 

However, officials insisted that withholding the equitable share is a critical tool to enforce payment discipline, alongside debt relief programmes and intergovernmental negotiations.

"This mechanism will remain in place until the most non-compliant municipalities demonstrate consistent payment of their current invoices,” Seitlholo said firmly.

Phillips concluded that while the intervention is imperfect, it has already prevented two water boards from financial collapse.

"Without it, we would have been sitting with bankrupt water boards and even more severe service delivery crises. We are determined to sustain this progress."

The committee is expected to continue its oversight, with further reports due before the December equitable share transfers.

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