Magalies Water acts to prevent bankruptcy due to municipalities owing millions

Debt-collection measures are being implemented by the Magalies Water Board to avert expected bankruptcy by June next year due to escalating unpaid debts by municipalities.

Department of water and sanitation director-general Sean Phillips released a report last week highlighting municipal debt to water boards.

It identified two water boards likely to go bankrupt within the next six to 12 months due to outstanding municipal debt running into millions of rand.

Magalies Water Board — which took over some duties of the discontinued Sedibeng Water Board in 2022 to supply some municipalities in the North West, Gauteng and Limpopo — is one of them. 

Inheriting those duties included taking over their geographical areas, staff, assets and liabilities. However, the transfer to Magalies Water Board did not resolve the underlying debt problem that Sedibeng Water faced, said the report. 

“Magalies Water Board has already reached the point where their expenditure exceeds the available bank balance and will not be able to pay their operating costs and have stopped paying for their raw water.

“By paying only essential expenses (salaries, electricity, chemicals and so on), Magalies Water will be able to keep going until approximately June 2025, after which they will be bankrupt and will not be able to deliver any water,” said the report.

Maquassi Hills and Thabazimbi municipalities owe substantial payments to Magalies Water. According to the report, the municipalities indicated a willingness to conclude repayment agreements but had not done so.

Maquassi Hills failed to make regular payments over the past two years. Their debt increased by 32% over the past two years from R266m in 2022 to R352m from end-June 2022 to end-June 2024.

Phillips' report said a payment arrangement was entered into with the municipality, but it had not been honoured. Instead, the municipality was only partially paying its current account.

Magalies Water spokesperson David Magae confirmed that a payment agreement was signed with Maquassi Hills municipality and added there were ongoing issues related to historical debt which were being verified.

“This historical debt originates from services previously provided by erstwhile Sedibeng Water [Board] and the municipality has raised disputes over the accuracy of these charges. A task team has been established to resolve the dispute,” Magae said.

Thabazimbi municipality saw a 61% increase in outstanding debt over the past two years, rising from R123m in 2022 to R198m between end-June 2022 and June 3 2024. The municipality also entered into a payment arrangement that was not honoured.

“If these two municipalities do not start paying their current invoices to Magalies Water in full, then Magalies Water will go bankrupt, even if all the other municipalities start paying their current invoices in full,” said the report.

Magae said Thabazimbi municipality had acknowledged the debt owed but was unable to make payments or adhere to the terms of the signed agreement.

“Due to the inability of Thabazimbi municipality to meet their financial obligations, the issue has now been escalated to the court for resolution,” he said.

Magalies Water plans to go after nonpaying municipalities

Outstanding payments owed by the two municipalities constitute about 20% of the total debt book of Magalies Water.

Both municipalities were flagged in a recent auditor-general report on local government as having had concerning financial positions over consecutive years.

Magalies Water has now implemented a debt-collection strategy to address its precarious financial position.

A key initiative involved targeted engagements with municipal leaders to encourage timely payment of accounts and to negotiate long-term payment arrangements of historical balances, said Magae.

“In addition to these efforts, the minister of water and sanitation has taken an active role by engaging directly with the premiers of the affected municipalities. These high-level discussions have been instrumental in generating support from key stakeholders and we are confident that this collaborative approach will yield positive outcomes.”

The water board has also developed a turnaround strategy to reduce operational costs while improving revenue generation across the organisation to ensure financial sustainability.

Of importance, however, was residents settling debts owed to their municipalities. The failure of municipalities to collect revenue has a direct and negative impact on their ability to settle their financial obligations to water boards.

Should the prediction of bankruptcy materialise, it would have a severe impact on municipalities that rely on Magalies Water.

“The financial collapse would likely result in an inability to properly maintain critical infrastructure and procure essential goods or services necessary to ensure the supply of quality and reliable water for the municipalities.

“This would force the organisation to impose water restrictions within the municipalities we service, disrupting the daily activities of the communities and impacting businesses and the economy,” Magae said.

Municipal debt and nonpayment was an attack on the financial sustainability of the water sector, said executive manager of the Water Community Action Network (WaterCAN) Dr Ferrial Adam.

“Magalies Water has been one of the best-performing water boards. This is a major concern because nonpayment can collapse the whole system. Given our state of water infrastructure, this should not be happening,” she said.

She said this made one question how the new National Water Resources Infrastructure Agency Bill would manage should payments not be made. The bill seeks to ensure a sustainable, equitable and reliable water supply from national water resources infrastructure.

“We can't afford to let our water boards fail,” said Adam.