AfDB approves $400 million for South Africa utility reforms in Mpumalanga

The initiative forms part of South Africa's broader transition away from coal-fired power generation by helping municipalities adapt while maintaining reliable public services.

The African Development Bank (AfDB) has approved a $400 million loan to help South Africa improve electricity and water services in Mpumalanga Province through a new results-based financing programme that rewards municipalities for delivering measurable improvements. The Mpumalanga Municipal Utility Reform Programme (MURP) will support better utility management, modernise ageing infrastructure and strengthen financial sustainability in four municipalities while contributing to South Africa's Just Energy Transition in coal-dependent communities.

Funding linked to verified results

Unlike traditional infrastructure loans, the financing will be released only after independently verified improvements in utility performance and service delivery have been achieved. The results-based model is designed to improve accountability, strengthen operational efficiency and ensure public investment delivers long-term benefits for residents.

The programme will focus on reducing electricity and water losses, improving revenue collection, rehabilitating critical infrastructure and strengthening municipal management. It also introduces greater opportunities for private sector participation through performance-based contracts.

AfDB Vice President for Power, Energy, Climate and Green Growth, Dr Kevin Kariuki, said that financially stronger municipalities are essential for South Africa's long-term development, adding that the programme could become a model for reforms across the country.

Supporting coal-dependent communities

The initiative forms part of South Africa's broader transition away from coal-fired power generation by helping municipalities adapt while maintaining reliable public services.

The Bank's Director of Renewable Energy and Energy Efficiency, Dr Daniel Alexander Schroth, said the programme demonstrates how innovative financing can accelerate reforms by linking funding directly to proven results. He noted that independent verification and performance-based contracts will strengthen service delivery while supporting communities affected by the energy transition.

The United Kingdom's Foreign, Commonwealth and Development Office (FCDO) is backing the AfDB loan through the Just Energy Transition Partnership guarantee framework and also provided technical assistance during project preparation.

Four municipalities to benefit

The programme will be implemented by the Development Bank of Southern Africa, working under the oversight of National Treasury and the Department of Cooperative Governance.

The participating municipalities are eMalahleni, Lekwa, Govan Mbeki and Mbombela, where around 1.2 million people are expected to benefit over the five-year implementation period running from 2026 to 2031. Support will also be provided to the Inkomati-Usuthu Catchment Management Agency to strengthen integrated water resource management.

National Treasury Deputy Director-General Ogalaletseng Gaarekwe said the programme will test a scalable model to improve utility operations, infrastructure management, and municipal planning while supporting reliable water and electricity services.

Modern infrastructure and greener services

Key projects include customer and connection audits, smart and bulk metering, rehabilitation of electricity and water networks, reducing non-revenue water losses, pressure management, LED street lighting upgrades, alternative energy systems for public buildings and stronger municipal revenue collection.

AfDB expects the reforms to improve access to reliable basic services, reduce greenhouse gas emissions, create jobs, strengthen local governance and increase climate resilience. The programme is also intended to serve as a national pilot that could be expanded to other municipalities in South Africa and countries facing similar infrastructure challenges.