Rand Water | Integrated Annual Report 2025

Consolidated Annual Financial Statements for the year ended 30 June 2025

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

42.Financial instruments (continued)

Thus, the Group has classified 7 municipalities as non-performing, 5 as under-performing; and 5 as performing. The classification assists the Group with sufficient monitoring of credit risk exposure. Non-performing potable water municipal debtors are an identified high credit risk class subject to specific credit risk management. The collection of revenue from customers in this specific class remains a challenge. The enhancement of credit control strategies and monitoring of payment levels in this area continue to receive management's attention. Progress in the collection process is reviewed on a regular basis and if it is evident that the amount will not be recovered, it is recommended for write off in terms of the Group's policy and delegation of authority. However, the process of recovery continues unless it is confirmed that there is no prospect of recovery or the costs of such action will exceed the benefits to be derived. Amounts written off are determined after taking into account the value of the security held. As part of the effort to recover from the defaulting municipalities in previous years, the Group has implemented numerous measures to manage municipal arrear debt in terms of the debt management strategy. The strategy comprises three key objectives, namely: • To reduce and/or eliminate overdue debt; • Halt non-payment in customer segments where default occurs; and • Prevent future defaulting by the current performing customers. To achieve this, the Group has administered, mapped and augmented existing revenue and debt management processes, and enforcing Rand Water's rights through legal action and legal recovery processes and also accelerating Government interventions despite the latter' slow progress and ensuring compliance to legislative prescripts. Mediations to enhance the revenue and debt management efforts include close monitoring of billing and payments, assisting municipalities in their revenue collection efforts through active partnering, water efficiency initiatives as well as improved customer relationship management to proactively identify and mitigate the likelihood of defaulting. In some instances, the Group has implemented other collection solutions where-in there are agreements with our municipal customers whereby the Group collects payments directly from the customers. The Group has also entered into set-off agreements with bilateral contracts with customers. The Group continues with stakeholder engagement and investigating ways to better enforce payment agreements with municipalities. The Group concluded negotiations and signed a total of five (5) active Debt Settlement Agreements from the defaulting municipalities within the reporting period. The Group is still in consistent negotiations with the other defaulting municipalities for amicable payment agreements. Non-adherence to payment agreements contributes to the increase in municipal arrear debt. In the quest to recover long outstanding debt and where the Debt Settlement Agreements are not honored the Group has taken legal actions against the municipalities and despite the challenges in the process, the Group managed in one case to get a writ of execution and the writ was exercised in the current reporting period with the Group managing to partially recover the old debt.

Non-potable water customers

Transactions related to the abstraction of water from the Vaal River Integrated System by customers, to whom Rand Water has sold part of its water rights. These comprise mainly of industries customers who use non purified water for their business activities. Their payment terms are 30 days from the invoice date and they are individually assessed for impairment.

Non-potable water customers are not required to provide security as they generally represent a low credit risk.

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Rand Water | Integrated Annual Report 2025