AfDB Approves $400m to Improve Municipal Power, Water Services in South Africa

The African Development Bank (AfDB) has approved a $400 million loan to help South Africa improve electricity and water services in four municipalities in Mpumalanga Province, using a performance-based financing model that ties funding to measurable improvements in service delivery.

The financing will support the Mpumalanga Municipal Utility Reform Programme (MURP), a five-year initiative aimed at improving the efficiency, reliability and financial sustainability of municipal electricity and water utilities in eMalahleni, Lekwa, Govan Mbeki and Mbombela.

Unlike conventional infrastructure loans, the facility will be disbursed under AfDB's Results-Based Financing (RBF) model, where funds are released only after agreed performance targets have been independently verified. The approach is intended to improve accountability and ensure that reforms produce measurable improvements for consumers.

The programme will focus on reducing electricity and water losses, rehabilitating ageing infrastructure, strengthening revenue collection, improving utility management and attracting private-sector participation through performance-based contracts.

Other interventions include smart metering, customer and connection audits, rehabilitation of power and water networks, pressure management, replacement of conventional streetlights with LED systems, installation of renewable energy systems in public buildings and measures to improve municipal revenue generation.

The Development Bank of Southern Africa will oversee implementation through a dedicated Programme Management Office under the supervision of South Africa's National Treasury and the Department of Cooperative Governance. The programme will run from 2026 to 2031 and is expected to benefit about 1.2 million people.

AfDB's Vice-President for Power, Energy, Climate and Green Growth, Kevin Kariuki, noted that financially stable municipalities are essential for improving public services and strengthening local economies.

The loan is backed by a guarantee from the United Kingdom's Foreign, Commonwealth and Development Office under the Just Energy Transition Partnership, which also provided technical support during project preparation.

Supporting South Africa's energy transition

The programme forms part of South Africa's Just Energy Transition strategy, which seeks to reduce dependence on coal while protecting communities whose economies have long relied on coal mining and coal-fired power generation.

Mpumalanga is South Africa's main coal-producing province and hosts many of the country's ageing coal-fired power stations. As several of these facilities are gradually retired, improving municipal infrastructure is seen as essential to maintaining reliable public services, attracting new investment and supporting economic diversification.

The financing also builds on AfDB's long-standing support for South Africa's infrastructure and energy sectors. Over the years, the Bank has funded transmission upgrades, renewable energy projects and climate-resilient infrastructure aimed at improving electricity supply and supporting the country's transition to cleaner energy sources.

Beyond improving municipal services, the programme will reduce greenhouse gas emissions, strengthen climate resilience, improve governance and create a model that could be adopted by other municipalities in South Africa and across Africa facing similar electricity and water service challenges.