Johannesburg's water crisis has implications far beyond municipal boundaries.
A critical financial discrepancy has emerged in Johannesburg’s water crisis, with auditors and National Treasury confirming that R4 billion attributed to Johannesburg Water exists only as a bookkeeping entry, not as accessible cash, raising serious concerns about the city’s ability to fund essential infrastructure projects.
The revelation came during a portfolio committee on water and sanitation briefing on Tuesday, where the Office of the Auditor General South Africa (AGSA) and National Treasury presented findings on the City of Johannesburg’s controversial cash-sweeping arrangement that has left Johannesburg Water unable to pay contractors on time, despite appearing solvent on paper.
The sweeping arrangement explained
The sweeping arrangement refers to a cash management practice where funds generated by municipal entities like Johannesburg Water are automatically transferred into the City of Johannesburg’s central bank account for redistribution across various municipal services and entities.
Auditor General representatives confirmed that, while Johannesburg Water’s financial statements show a R4 billion surplus, this money has been transferred to the City of Johannesburg’s central account through a sweeping arrangement dating back to 2002.
The entity must now request funds daily to pay suppliers, often experiencing delays or receiving amounts below the required amount.
“The cash balance of the city of Johannesburg is less than the 4 billion,” explained an AGSA representative. “What we know as auditors is that the R4 billion is accounted for correctly. So in the books of the city, they do acknowledge that they owe Johannesburg Water the R4 billion, inasmuch as in the books of Johannesburg Water, there is an acknowledgement that there is a R4 billion that they are being owed by the city.”
The auditor clarified that both entities acknowledge the debt in their financial statements.
National Treasury’s Sydney Maesela confirmed this assessment, stating: “It was not necessarily paid up. It can be accounted for on the books. Joburg Water did not receive that money. That money is sitting with the entity.”
A contentious debate emerged over AGSA’s finding that only 30% of payment delays to suppliers were caused by the sweeping arrangement, with 70% attributed to Johannesburg Water’s internal inefficiencies.
Committee members challenged this characterisation, arguing it misrepresented the scale of the problem.
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The municipal death spiral
National Treasury presented a comprehensive analysis of what it termed a “municipal spiral” affecting entities like Johannesburg Water.
Maesela outlined the problem, explaining that municipalities face “a negative reinforcing loop where we have a long-term underinvestment, which has led to the decline in the services in the case of water”.
“What is equally important is that we are starting to see an identified inefficiency and under-resourced municipal service providers where we are estimating that within the metro space it’s in excess of R25 billion,” Maesela said. “It means that there’s less money for maintenance and investment.”
The presentation identified a fundamental structural problem: municipalities run trading services like Johannesburg Water as departments rather than businesses. “They basically focus on asset creation, asset maintenance and operation, but when it comes to things like customer trust, customer satisfaction, finances and HR or what we call corporate related functions including the finance and those are run at a corporate level and they are not run within the entity itself or within the business unit,” Maesela explained.
Reform pathway and minimum commitments
National Treasury outlined a comprehensive reform programme aligned with the Medium-Term Development Plan 2024-29, focusing on shifting to a utility model for water and electricity services.
The reforms include minimum commitments and performance indicators designed to ensure accountability and operational excellence.
The reforms require the separation of water service authority and water service provider functions, with clear delineation of responsibilities.
“Critical of that is to have a service compact. How does the WSP provide where the service authority basically is able to measure that, and that will be quite critical when the licensing of the WSP kicks in because then you will need to have some sort of measure where you delineate as to what is the service provider and what is the service authority,” Maesela stated.
National Treasury confirmed that consequences for non-compliance would be severe. “If the municipality continues to go on a trajectory that basically leads to the underperformance of its trade and services in simple terms that it’s that they are not going to get the grants, they are not going to get the money.”
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National economic implications
The committee emphasised that Johannesburg’s water crisis has implications far beyond municipal boundaries.
National Treasury’s presentation noted that the decline in service quality is negatively affecting economic growth.
“There’s no reason for investors, basically, to locate in our cities from other parts of the world because the water performance of our water trading entities, such as a Joburg Water, is not at a peak level.”
Committee chairperson Leonard Jones Basson concluded the session with a stark warning: “I told the mayor of Johannesburg that if Joburg fails, South Africa will fail. It is important for us to make sure that we get Johannesburg on the correct track once and for all.”
Basson emphasised the committee’s focus: “This is not to nail Joburg. This is to make sure that the economic hub of South Africa is working. The mere fact is [that] if we continue like this, next year, like City Power, the Joburg Water will also not make money. And then we are in big trouble. You know when you don’t have electricity, you can make a plan. If you don’t have water, you’re in trouble.”
The committee resolved to convene further meetings with Johannesburg Water, National Treasury and the City of Johannesburg to develop a concrete action plan, with implementation timelines expected before the next financial year.
The parliamentary oversight body also requested detailed reports from AGSA on the rand value of invoices delayed due to sweeping arrangements versus internal inefficiencies, and clarification on whether the sweeping arrangement violates Municipal Finance Management Act provisions regarding budget approvals.
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