South Africa Pilots Results-Based Utility Financing to Revive Municipal Services
The African Development Bank has approved a $400 million loan to pilot performance-based financing for municipal water and electricity services in Mpumalanga. Funding will be released only after municipalities achieve independently verified improvements in utility performance. The program could provide a model for tackling South Africa’s worsening municipal infrastructure and. . .
The African Development Bank has approved a $400 million loan to pilot performance-based financing for municipal water and electricity services in Mpumalanga. Funding will be released only after municipalities achieve independently verified improvements in utility performance. The program could provide a model for tackling South Africa’s worsening municipal infrastructure and service delivery challenges. The African Development Bank (AfDB) announced, July 16, the approval of a $400 million loan to pilot a results-based financing model designed to improve municipal electricity and water services in South Africa. The five-year program, which will be implemented in the Mpumalanga municipalities of eMalahleni, Govan Mbeki, Lekwa and Mbombela, will reach an estimated 1. 2 million people and test whether linking funding to measurable performance can accelerate utility reforms. Unlike traditional infrastructure financing, the program will release funds only after participating municipalities achieve independently verified results. These include reducing electricity and water losses, improving revenue collection, rehabilitating critical infrastructure and strengthening utility management. The program will also finance smart metering, pressure management, customer audits, energy-efficient public lighting, alternative energy systems for municipal buildings and governance reforms aimed at improving the financial sustainability of local utilities. The initiative comes as South Africa seeks new approaches to address a deepening municipal service delivery crisis. Many municipalities continue to struggle with ageing infrastructure, weak revenue collection and mounting debt to state-owned utilities such as Eskom and water boards, contributing to recurring electricity interruptions and water shortages. Earlier this month, National Treasury withheld equitable-share transfers to 69 municipalities after identifying persistent financial management failures, including unfunded budgets and unpaid obligations. The pilot also supports South Africa’s broader Just Energy Transition by focusing on municipalities in Mpumalanga, the country’s main coal-producing province, where stronger public services are viewed as essential to supporting economic diversification. By tying financing to verified performance rather than expenditure, the program is intended to strengthen accountability while creating opportunities for private-sector participation through performance-based service contracts. By Cynthia Ebot Takang