The National Treasury has secured €300-million in concessional loan financing, equivalent to R5.6-billion, to support its Metro Trading Services Reform (MTSR) programme, which is aimed at turning around electricity, water and sanitation, and solid waste management in the country’s eight metropolitan municipalities.

The funding has been committed by German and French development finance institutions KfW Development Bank, which has approved €200-million and Agence Française de Développement (AFD), which confirmed a €100-million loan.

Both loans have been extended in line with France and Germany’s Just Energy Transition (JET) mandate, with KfW and AFD arguing that the MTSR will contribute to the implementation of the municipal component of the JET-Investment Plan (JET-IP).

Despite the withdrawal of the US from the JET-IP in 2025, overall commitments still stand at $12.8-billion, with both Germany and France having already disbursed some concessional funding. These have mostly been in the form of policy loans to the National Treasury to support agreed energy sector reforms.

Some grant funding has also been released, but there is ongoing criticism over the relatively small grant component in the JET-IP funding envelope.

In a joint statement with the National Treasury, the development finance institutions said that improving the performance of municipal services was a prerequisite for delivering the JET and would help accelerate the public and private investments needed to address infrastructure backlogs and modernise electricity distribution networks.

Separately, German Cooperation, also through KfW, had approved €350-million for Johannesburg and Cape Town over the last two years to fund investment in grid infrastructure upgrades and renewable-energy integration, while AFD has long-standing funding partnerships with Johannesburg, eThekwini and Cape Town.

There are indications that Johannesburg used the funding in August to settle its accumulated overdue electricity debt to Eskom of R5.3-billion.

Finance Minister Enoch Godongwana said the €300-million would be used to strengthen government’s broader programme of support to improve the governance, financial sustainability and operational performance of trading services in cities where some 22-million people reside.

The MTSR, which was unveiled in his February Budget, forms part of a package of local government reforms that involve a more interventionist approach by the National Treasury, including actions to address capacity constraints to deliver infrastructure.

This stance came into public view earlier this year when Godongwana temporarily withheld the transfer of the July equitable-share funding to 69 municipalities, including Johannesburg, to put pressure on municipalities to address various problems, including the non-payment of bulk suppliers, including water boards and Eskom.

Under the reform, the National Treasury is also starting to link funding to the large cities to a stipulation that revenues generated from specific trading services be reinvested into much needed infrastructure to reduce outages and investment backlogs.

Earlier in the year, a R54-billion performance-based grant was unveiled in a bid to increase investments in water, sanitation, electricity and waste infrastructure services by the country’s eight metros.

The performance-linked incentive aims to mobilise more than R100-billion in infrastructure investment over the coming six years, with recipient municipalities required to match the infrastructure grants with their own revenues and borrowings.

KfW country director for South Africa Cornelia Tittmann argued that the reforms would improve service delivery and living conditions for millions of South Africans, while AFD regional director for Southern Africa Marie-Hélène Loison said the MTSR programme would contribute to ensuring that the necessary investments in essential urban services were protected and sustained over time.