National Treasury told Parliament on Wednesday that it cannot write off the debt of 30 municipalities facing possible water cuts next month.
Water and Sanitation Minister Nomvula Mokonyane on Monday said at least 30 municipalities would experience water cuts if they failed to pay their debt before December 8.
The municipalities combined owe just under R7bn to the department's Water Trading Entity and various provincial water boards.
The debt risks ballooning by another R1.5bn if there is no immediate intervention.
Treasury's chief director for local government analysis, Jan Hattingh, told an emergency joint sitting in Parliament on Wednesday that writing off the debt was not an option.
"The Treasury can never support that, never ever. If you don't deal with the root cause of the problem, then the problem will originate the next morning."
Hattingh said the real problem was the complete, systematic mismanagement of various municipalities over several years, as highlighted by the auditor general's annual report.
"Until we deal with that problem decisively, we're not going to go anywhere fast."
The suggestion was made by the South African Local Government Association.
Bleak picture of the debt crisis facing many municipalities
Hattingh painted a bleak picture of the debt crisis facing many municipalities around the country and the cycle of growing payments owed by almost all roleplayers in the chain.
Municipalities owe R43bn to various creditors, of which the Water Trading Entity is owed R6.8bn.
Conversely, debtors owe a whopping R128.4bn to South African municipalities combined which, for the first time, was more than the grants allocated to them by the division of revenue bill.
Of that, households and citizens owe R83bn to their municipalities, while commercial entities owe R27bn and organs of state owe R7.4bn.
"Those last two should actually be zero. There is no reason why, if the municipalities ask for the money, they shouldn't be able to pay tomorrow.
"We understand that some citizens are poor and can't afford to pay immediately."
Despite this, municipalities in total are still underspending their combined budgets by R53bn.
Thirty-seven municipalities have a budget deficit after all their commitments are considered.
'Parliament ignored our advice'
The reasons for the problem include poor leadership at local level, lack of political will, a lack of consequences for poor management and a "culture of non-payment" on the part of both citizens, governments and service providers.
Hattingh said Treasury was always willing to work with counterparts to find solutions, but they had raised red flags on the municipality issue in March 2015 already.
"When we invoked the decision to threaten the municipalities in March 2015 to withhold their equitable share [of the revenue], we lobbied 23 portfolio committees.
"The sad part was not one of the committees supported Treasury's action at that point."
The debt municipalities owed to Eskom was a classic example of what happened as a result, having risen from R4bn at the time, to around R12bn.
Co-operative Governance and Traditional Affairs Deputy Minister Andries Nel said his department supported Treasury's stance on not writing off debt.
"We, like National Treasury, are definitely not in support of a debt write-off. This is a serious matter that affects the lives of millions of South Africans."
'Don't call me, call Cogta'
Mokonyane told MPs that the problems at her department was a result of the larger municipality crises.
There was only so much they could do, they had given enough grace to errant municipalities, and their hands were tied by larger municipal and governance issues.
"Don't call me, call Cogta (Co-operative Governance and Traditional Affairs). We have been humiliated enough and left alone," she said.
Cutting off water, however, was the last resort, she said. Her department was not like Eskom, where electricity can be cut off, as citizens had a Constitutional right to water.
Cogta director general Charles Nwaila expressed various options they could take to avert the crisis, including asking Finance Minister Malusi Gigaba to stop the transfer of funds to non-paying municipalities.
Two week deadline
However, Mokonyane, Nel and Hattingh all said that Cabinet's inter-ministerial committee, led by Cogta, should take the lead on the debt crisis, and use the inter-government relations framework to enact a dispute resolution mechanism.
They will meet within 14 days, effectively extending the December 8 deadline.
Mokonyane also called for Parliament to review the current legislation around the release of emergency funding for national disasters, as the process was "too slow". Nel agreed.
Portfolio committee chairperson Lulu Johnson said it should be a busy festive season for the two ministries and Treasury as they try to find a solution.
The committee will sit again on January 24, 2018, after the Christmas break, where all roleplayers are expected to bring revised plans.
Earlier in the meeting, MPs slammed both Gigaba and Co-operative Governance and Traditional Affairs Minister Des van Rooyen for not appearing at the joint meeting.
Johnson said the lack of an apology was a "gross undermining of Parliament".