Just over a third (38%) of the residents of South Africa’s commercial capital, Johannesburg, reported being satisfied with their electricity services in a survey conducted in 2023/2024. This was down from 77% in 2017/18. The decline reflected years of citizen concerns about the service. In 2026, the auditor general noted that the city had spent only 1% of its operating budget on maintenance in 2024/25, against a national treasury guideline of 8%. As part of a response to these concerns, in May 2026, the City of Johannesburg and the German state-owned development bank Kreditanstalt für Wiederaufbau (KfW) announced agreement on a R3.8 billion (over US$230 million) concessional loan to help fix the city’s electricity utility, City Power.
The announcement came weeks after a letter sent by the finance minister to the city raised concerns about years of unfunded budgets and poor financial management. The Conversation asked urban and economic development scholar and specialist Glen Robbins to reflect on issues related to the loan.
Why do South African cities borrow?
Since the 1994 democratic settlement in South Africa, and as part of the reforms to the country’s local government arrangements, there has been some level of borrowing to support metropolitan budgets. It’s been used alongside national and provincial grants, and its own revenue, to:
- extend services for new developments
- tackle the investment backlogs arising from apartheid urban development patterns.
In the National Treasury’s 2017 update of the Policy Framework for Municipal Borrowing a commitment was made to increase the share of borrowing to finance municipal capital programmes. It was then around one quarter for the larger metros.
The same document indicated concern that most metros had become dependent on national grants for over 50% of their capital spending. Metros were supposed to fund the bulk of their capital programmes.
According to a 2022 report, the five largest metros (Johannesburg, Cape Town, eThekwini, Ekurhuleni, Tshwane) averaged a little under R6 billion (around US$365 million) of total borrowing a year during the 2010s.The
National Treasury has set a guideline ceiling for total borrowing for each of the metros: it should not exceed 45% of total annual revenue. However, the largest South African cities have tended not to push their total borrowing much beyond 30%-35% of total annual revenue.
The KfW loan is one in a long line of medium- to long-term loans that Johannesburg has sought to use for its budgeted programmes.
According to the city’s financial reporting, total loans and borrowings (as part of non-current liabilities) amounted to R19.4 billion (US$1.181 billion) in 2025. This figure refers to the outstanding loans and borrowings beyond the financial year of reporting. Johannesburg has to pay annual interest and also budget for paying down the capital of loans.
What’s this particular loan for?
The city’s leadership says the funds are needed to attend to urgent capital works for the municipal electricity utility, City Power. Municipal electricity utilities are important as generators of revenue for South Africa’s cities. City Power’s electricity sales are projected to generate 30% of Johannesburg’s budgeted revenue for 2026/27.
City Power’s infrastructure has become increasingly prone to failure.
KfW says it is supporting obligations associated with South Africa’s development intentions, including the Just Energy Transition Investment Plan. This was agreed between a number of Western donor countries and South Africa during the 2021 COP26 Climate Summit.
South Africa’s largest cities are among the most significant groupings of customers for power from the country’s state-owned utility, Eskom. They are widely considered to be critical to the country’s complex energy transition.
A City of Johannesburg press release reports the loan as having a term of 15 years. This includes a five-year grace period on capital repayments. For the first five years, the city would only need to pay interest on the loan. Repayments on the capital would only start in 2031.
This has allowed the city to project a lower cost of repayments than has been the case in recent years.
KfW also announced that the loan would be in local currency, thus reducing currency risk.
The interest rate for the loan has been set at 8.56%. Some previous loans were at rates closer to or above 11%. This lower rate has much to do with the fact that the South African Reserve Bank repo rate – the rate at which it lends money to banks – improved in 2025.
A press report in mid-2026 indicated that the electricity infrastructure backlog for City Power is estimated at around R40 billion (US$2.4 billion).
Are there concerns?
Both City Power and the City of Johannesburg have struggled for some time to deliver on their mandates.
The city failed to budget adequately to support City Power’s operational and infrastructure needs. And it allowed outstanding payments to Eskom for bulk electricity supplies to balloon to over R5 billion (US$304 million).
City Power has not fixed its poor revenue collection system. Losses on sales are reported at R5.7 billion in 2024/25. And it has not kept up with maintenance work.
Both have been linked to probes by the Special Investigating Unit, which was set up to look at corruption, malpractice and maladministration. This has earned it rebukes from the auditor general.
These challenges have been compounded by pressures of a growing population, years of power cuts by the state utility and high increases in its bulk supply costs to municipal utilities.
Culpability for many of these issues can be laid at the feet of the City of Johannesburg’s political and administrative leadership. But concerns have also been raised about the years of weak responses from national policymakers.
These circumstances clearly raise public concern that the funds might not deliver improvements.
What can people living in Johannesburg expect?
This loan will be unlikely to change a lot in terms of the experience of citizens of Johannesburg and their electricity services in the short term. There’s likely to be ongoing pressure to increase revenue through electricity price increases above the inflation rate. There will probably be attempts to correct troubled metering and billing systems. Efforts at reducing the very high level of informal connections are also likely.
The backlog on maintenance and major capital works will take time to attend to. Consistent improvements in services are likely to take some time to materialise.
What else can be done about the problems?
Metropolitan utilities do have capacity. Even City Power has shown that it can turn its hand to more innovative service delivery. This was evident in a recent off-grid project in an area that had no municipal grid infrastructure.
Efforts could be made to integrate business and residential rooftop solar and battery storage systems into City Power’s network. Efforts to increase cheaper bulk energy procurement from renewable energy suppliers could also bring benefits.
Workflow planning and contract performance tracking could make a difference relatively quickly.
More support for low-income households could also make a difference.
The combination of the loan and support from the National Treasury’s Metro Trading Services Reform Programme may give the city and City Power the best chance they have had for many years to correct their path.
Progress will also require citizen groups, organised business and other stakeholders to push for transparency and accountability.
But nothing can be taken for granted. A media outlet recently reported that the City of Johannesburg was unable to obtain an additional loan from AFD, the French development bank, because of concerns about inadequate oversight of spending.
City finance figures quoted come, in the main, from annual budget reports for the various cities as well as annual reports and annual financial statements. These can be found on municipal websites and also from the National Treasury’s GoMuni portal. Budgets are subject to change within financial years and there can be a delay in the publication of audited figures.
- is a Research Associate, PRISM, University of Cape Town; Adjunct lecturer, Gordon Institute of Business Science, University of Pretoria, University of the Witwatersrand
- This article first appeared in The Conversation
