The African Development Bank Group has approved a $400 million loan to South Africa to support the Mpumalanga Municipal Utility Reform Programme, a pioneering results-based financing initiative designed to improve the efficiency, reliability and financial sustainability of public electricity and water services in selected municipalities in Mpumalanga Province.
Under the African Development Bank's Results-Based Financing instrument, loan disbursements will be linked to independently verified improvements in utility performance and service delivery, with funds released only after agreed results are achieved. The model aims to strengthen accountability, improve operational efficiency and ensure that investments deliver lasting benefits for communities.
The programme supports South Africa's broader Just Energy Transition by strengthening municipal services in coal-dependent communities affected by the country's shift away from coal-fired power generation. It will focus on reducing water and electricity losses, improving revenue collection, rehabilitating critical infrastructure, strengthening municipal utility management, and creating opportunities for private-sector participation through performance-based contracts.
"Strong municipalities are fundamental to South Africa's long-term development," said Dr Kevin Kariuki, the African Development Bank Group's Vice President for Power, Energy, Climate and Green Growth. "By strengthening the financial sustainability of municipal utilities, this operation will improve the delivery of electricity and water services and build more resilient local institutions while establishing a replicable model for reforms that can strengthen municipalities across South Africa."
Dr Daniel Alexander Schroth, the Bank's Director of Renewable Energy and Energy Efficiency, said the programme shows how innovative financing can accelerate reforms.
"Through this Results-Based Financing operation, backed by the UK's Just Energy Transition Guarantee, the Bank is linking financing to verified results," Schroth said. "By combining performance-based contracts with independent verification, the programme will improve service delivery and support South Africa's Just Energy Transition in coal-dependent communities."
The Bank's $400 million financing is backed by a guarantee from the United Kingdom's Foreign, Commonwealth and Development Office (FCDO) under the Just Energy Transition Partnership guarantee framework. The FCDO also provided technical assistance to support programme preparation.
"The UK welcomes the leadership shown by the South African government in advancing municipal utility reform," said Lisa Weedon, Acting British High Commissioner to South Africa. "MURP represents a practical partnership that demonstrates how innovative financing can help municipalities deliver more reliable services and create the conditions for greater investment and economic growth, while advancing South Africa's Just Energy Transition. We are pleased to support National Treasury and its partners in delivering this important initiative."
Implementation will be led by the Development Bank of Southern Africa through a dedicated Programme Management Office, under the oversight of South Africa's National Treasury and the Department of Cooperative Governance. Participating municipalities are eMalahleni, Lekwa, Govan Mbeki and Mbombela, which will benefit an estimated 1.2 million people. The programme will also support the Inkomati-Usuthu Catchment Management Agency over the five-year implementation period from 2026 to 2031 to strengthen integrated water resource management.
"We view MURP as a strategic intervention to strengthen and stabilise critical municipal services," said Ogalaletseng Gaarekwe, National Treasury Deputy Director-General for Intergovernmental Relations. "The programme will test a scalable support model to improve operations and maintenance, utility management and planning, and infrastructure and municipal capabilities, helping to deliver more reliable and sustainable water and energy services for vulnerable communities across the four municipalities while advancing the Government's Just Energy Transition objectives."
Key interventions include customer and connection audits, smart and bulk metering, rehabilitation of electricity and water networks, reduction of non-revenue water, pressure management, LED street-light retrofitting, installation of alternative energy systems in public buildings, and measures to strengthen municipal revenue collection and improve service reliability.
The programme is expected to improve access to reliable basic services, reduce greenhouse gas emissions, create jobs, strengthen municipal governance, and enhance climate resilience in coal-affected communities. As a national pilot, it is also intended to provide a scalable model for municipal utility reform that can be replicated across South Africa and in other countries facing similar challenges.
The Mpumalanga Municipal Utility Reform Programme reflects the African Development Bank's commitment to supporting South Africa's infrastructure reform agenda, climate-resilient development, and inclusive economic growth through innovative financing and institutional reforms.
About the African Development Bank Group
The African Development Bank Group is Africa's premier development finance institution. It comprises three distinct entities: the African Development Bank (AfDB), the African Development Fund (ADF) and the Nigeria Trust Fund (NTF). On the ground in 41 African countries with an external office in Japan, the Bank contributes to the economic development and the social progress of its 54 regional member states. For more information: www.afdb.org
