Ratings agency Fitch has affirmed Rand Water’s national long-term rating at stable, but expressed concern about bulk water supplier profitability and surging municipal debt.
Fitch said it could revise its outlook to “negative” if significant water losses at municipalities and the water distribution network contribute to lower profitability and increasing municipal arrears.
“In addition, further delays of infrastructure investments would constrain water supply and remain a key risk without proactive mitigating measures by management and the department of water & sanitation,” it said. The cabinet announced in June it would spend almost R80bn on water infrastructure projects throughout the country.
Rand Water is crucial to the national economy, supplying Gauteng’s metros of Johannesburg, Ekurhuleni and Tshwane, local municipalities and mines, as well as parts of Mpumalanga, the North West and the Free State with an average of 3.653-million litres of potable water daily.
Rand Water’s debtors’ book amounted to R6bn by the end of September, with credit losses increasing by 35% from 2022. Tshwane owes R690m and Ekurhuleni R440m, according to Rand Water.
At the Emfuleni municipality, which was R729m in debt, a dedicated account has been created for water and sanitation revenue.
In its note, Fitch Ratings said Rand Water’s ebitda (earnings before interest, taxes, depreciation and amortisation) fell to R3.3bn in 2022, from R3.7bn the previous year.
“Fitch expects inflationary pressures, notably related to energy prices, chemicals and labour costs, to persist. This pressure, together with rolling electricity outages and significant water losses, could create a more challenging operating environment leading to weaker ebitda margins,” it added.
Rand Water’s key customers, municipalities, face challenges in paying their full bill on time, and “overdue trade receivables for 2022 stood at about R3.4bn. Accordingly, we forecast average working-capital outflows of about R200m per year for [financial years] 2024-2026, due to delays in physical cash collections or agreed extension of credit terms”.
Rand Water said Fitch’s affirmation reflects the trust and confidence in its ability to deliver safe, reliable, and sustainable water services to millions of South Africans.
“As outlined in the Fitch Ratings report, we acknowledge the challenges that lie ahead, particularly in terms of increased capital expenditure rollout and municipal arrear debt that has the potential to impact our financial position negatively,” the utility said in a statement.
“However, we are not daunted by these challenges; instead, we see them as opportunities to grow, innovate, and serve our communities better.”
CEO Sipho Mosai said the affirmation by Fitch energised the water utility to continue on its journey of excellence. “We are confident in our ability to navigate the upcoming challenges and emerge even stronger,” he said.
“Our ongoing investment in water infrastructure, including pipelines, purification plants, as well as alternative energy plants is not just a promise but a celebration of our dedication to sustainable water supply,” Mosai said.
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