South Africa’s municipalities are facing significant challenges, with many underperforming in governance, financial management and service delivery. The Auditor-General’s report indicates that only 16% of municipalities obtained clean audits, with many facing total collapse.

In 2025, as stated by Auditor-General Tsakani Maluleke:

“Our municipalities are at a breaking point. The continued failure to implement our recommendations is not just a governance issue – it is a threat to the very sustainability of local government in South Africa”.

These pervasive failures to provide service delivery require a shift. Municipalities cannot be allowed to act without reference to national and provincial governments and the Courts.

In the recent judgment of the Constitutional Court, involving Merafong City Local Municipality and Golden Core Trade & Invest (which acquired the business of Anglo Gold Ashanti), the Constitutional Court adopted a more interventionalist approach by stipulating that a municipality’s powers need to be interpreted within the broader context of the constitutional vision of providing services to the public.

The Constitution confers powers on different spheres of government. Section 229 of the Constitution provides that a municipality may impose rates on property and surcharges on fees for services provided by or on behalf of the municipality. Section 229(2) regulates this power by providing that the power of the municipality in this regard may not be exercised in a way that materially and unreasonably prejudices national economic policies, economic activities across municipal boundaries, or the national mobility of goods, services, capital or labour, and it may be regulated by national legislation.

The Municipal Fiscal Powers & Functions Act is such national legislation, and according to the short title, it is, inter alia, intended to regulate the exercise by municipalities of their power to impose surcharges or fees for services provided under Section 229 of the Constitution.

For a long time, the courts have been reluctant to interfere with the powers exercised by a municipality. This was seen to be an interference with a municipality’s powers. Courts, for example, were reluctant to interfere in cases where municipalities imposed rates or raised surcharges, but provided very little in the form of services.

As the crisis in municipalities deepens, it would seem that the Courts are now prepared to adopt a more interventionalist approach. This was shown in the Merafong judgment, which was handed down on 15 December 2025.

The Merafong Municipality had imposed a surcharge on Anglo Gold Ashanti in respect of water supplied to Anglo Gold Ashanti by the Rand Water Board. The surcharge had been raised since 1 July 2004 under the provisions of the Water Services Act. Anglo Gold Ashanti has operated since 1958, and Rand Water Board has provided it with bulk water since then, which it used for mining. In 1997, the Water Services Act (the Act) came into operation. It stipulated that the authority to administer the supply of potable water vested with municipalities. The municipality became a water services authority, and the Act stated that water services could only be provided by a municipality that was a water services authority or from an entity approved by the water services authority.

Section 19 of the Act provides that a municipality may perform the functions of a water services provider itself, but that it may also enter into a written contract with a water services provider.

Rand Water Board concluded a written contract with Merafong Municipality, in terms of which it agreed to provide water services within the jurisdiction of the municipality.

Merafong Municipality proceeded to raise a surcharge on the fees charged by Rand Water Board, even though the municipality itself was providing no service.

This resulted in litigation between the municipality, Anglo Gold Ashanti and then later, Golden Core Trade.

The litigation ran from 2011 until 2025. Before the litigation commenced, the Minister of Water Services had concluded that the surcharge raised by Merafong Municipality was unreasonable. Merafong Municipality contended that this decision only applied to the surcharge raised in one year and did not apply to the surcharge raised in every other year. Merafong Municipality contended that it did not have to prove that the charge was reasonable. It derived its powers from the Constitution, the Municipal Powers & Functions Act and from the Act.

In the first decision of the Constitutional Court, handed down in 2017, the Constitutional Court stated that it should be reluctant to interfere with the tariffs imposed by municipalities. In particular, it held:

“It is apparent from this provision (Section 229 of the Constitution) that the Constitution allocates to municipalities the power to impose property rates and surcharges on the fees for services, irrespective of whether those services were provided by the municipality itself or its agent. Barring income tax, value added tax, general sales tax and customs duty, a municipality may also impose other taxes and levies assigned to it by national legislation. However, the power to impose taxes and surcharges on fees for services may not be exercised “in a way that materially and reasonably prejudices national economic policies, economic activities across municipal boundaries or the national mobility of goods, services, capital or labour””.

At paragraph 163 of the judgment, it held:

“The Minister was wrong on both fronts. Section 229 authorises municipalities to levy a surcharge on services provided by it or on its behalf, regardless of whether there is value added or not.”

In the further approach to the Constitutional Court, the Constitutional Court came to a different conclusion. The Constitutional Court concluded that it was necessary to interpret a municipality’s powers within “the broader context of the Constitutional vision”.

It was important to determine what the legislation envisaged and the purpose of the legislative instrument. It was held that the Minister’s power to monitor water services included a power to intervene and control.

Thus, where the Minister had concluded that in one year the surcharge was unreasonable, the municipality was obliged to ensure that this applied equally to other years.

It would therefore seem that where a municipality imposes a tariff on a service provided by another, and where the municipality itself provides no service, that would be unreasonable and unconstitutional.