Water utility Rand Water has warned of a destabilising financial position as several municipalities fail to honour their bulk water purchase agreements and debt settlement arrangements with Rand Water, leading to escalating debts that pose a direct threat to the utility’s medium- and long-term sustainability.

Rand Water, which operates without any allocation from the national fiscus, relying solely on funds collected from its mostly municipal customers, is owed a cumulative overdue amount of more than R3-billion by municipalities.

Some R2-billion of this relates to Gauteng municipalities, R1-billion from Mpumalanga municipalities and at least R63-million from Free State municipalities.

The group has now issued water reduction notices to two municipalities, one in the Free State and one in Gauteng, and will follow similar credit control measures with the remaining municipalities.

Nonperforming municipalities contributing to the long overdue debt include Govan Mbeki municipality and Victor Khanye local municipality, both in Mpumalanga; Ngwathe local municipality in the Free State, and the Lesedi, Randwest City, Emfuleni and Merafong local municipalities in Gauteng.

“The payment patterns of municipalities have deteriorated to concerning levels that threaten the liquidity, financial performance and sustainability of Rand Water. Despite our relentless efforts to accommodate this ongoing pattern of nonpayment through bilateral engagements and participation in Intergovernmental Relations forums, we have regrettably reached a stalemate,” Rand Water said in a statement issued on Friday.

“Several agreements and engagements were held with the aforementioned nonpaying municipalities, and it is evident that these municipalities have taken advantage of these avenues and use them to cause endless and fruitless negotiations when it is clear that they have no intention to pay or enter into amicable arrangements that will afford them an opportunity to pay their account with ease.”

Further, some of the municipal customers take an inordinately long period of time to sign the agreements.

As the magnitude of the outstanding debt from municipalities reaches a critical level and requires urgent attention, Rand Water has invoked the provisions of Section 41(1) of the Intergovernmental Relations Framework Act to declare an intergovernmental financial dispute and seek the intervention of National Treasury and the Department of Cooperative Governance and Traditional Affairs.

In addition, Rand Water alerted the residents of the nonpaying municipalities, in line with the Promotion of Administrative Justice Act 3 of 2000, that it intends to invoke the provisions of Section 4 of the Water Services Act and initiate the curtailment of water flow owing to nonpayment of water services.

The water utility reduced the water flow to Ngwathe and Merafong City local municipalities by 20% on February 26, with plans to reduce it a further 20% should these municipalities fail to pay the overdue amount or enter into amicable payment arrangement by March 25.

Rand Water is also in the process of employing the same credit control measure for the other owing municipalities failing to honour their debt settlement agreements.

“It is important to note that should Rand Water be placed under further ongoing financial risk, the entity will be plunged into a debt crisis which will impact all municipalities currently serviced by Rand Water and curtail the ability of Rand Water to finance the construction and augmentation of bulk water infrastructure and to undertake adequate maintenance of its extensive network,” the utility said, highlighting the dire consequences on the Rand Water entire network.

“We implore the owing municipal customers to treat this matter with the utmost urgency.”