Water Research Commission (WRC); Trans Caledon Tunnel Authority (TCTA) Annual Reports 2008/9

Meeting report

Water Research Commission (WRC) Annual Report 2008/9 and Financial Statements presentation
Dr Rivka Kfir, CEO of the Water Research Commission (WRC) together with Ms R Frank, HR Director and Mr K Patel, CFO presented the 2008/9 Annual Report.

The mandate of the WRC was to promote coordination, cooperation and communication in the area of water research and development as well as stimulating funding for and carrying out water research. The organisation received an unqualified audit with no major audit findings. The WRC had a strong balance sheet with no unfunded liabilities. An accounting deficit of R3.3 million was reflected for the year, the deficit was mainly due to increased payments on ‘overdue’ multi-year research projects and non-cash year-end accounting adjustments. An increase in revenue of R11.5 million was mainly due to an increase in Water Research levies. The Water Research levy was the WRC’s main source of revenue (89% of total revenue). Operating expenses increased by 25% mainly due to an increase in research funding and HR-related costs. The organisation’s staff were 56% African and 60% were female.

The main business of the WRC was leading and funding research. The key strategic areas for research were water utilisation in agriculture, water resource management, water use, waste management and water-linked ecosystems. During 2008/9 the WRC supported 294 research projects of which 78% were active projects (ongoing and new) and 22% were finalised. During this year the total investment in the support of knowledge creation, sharing and dissemination was R115.7 million. The WRC continued to support students with special emphasis on historically disadvantaged students.

Highlights from the key areas of research supported or initiated by the WRC, included:
▪ A study on indigenous rainwater harvesting and conservation practices.
▪ The Sanitation and Housing Applied Priorities Enquires (SHAPE) model which aims to help local authorities determine the effective demand for services with a specific focus on sanitation. It allows users to specify their preferences such as for sanitation, and recognises for the poor there were trade-offs between stand size and servicing.
▪ The implementation of the Waste Discharge Charges System (WDCS), which encourages efficient resource utilisation and promotes sustainable water use in industry using upstream cleaner production technologies.
 ▪ A WRC funded study which showed plantations of indigenous trees, particularly the Outeniqua yellowwood may be economically more viable than the commercial counterparts.
▪ The provision of a platform for the research and the development of water resource assessment techniques and assessment of the nation’s available water resources since the late 1970s.
▪ The establishment of a new Technical Assistance Centre which aims to aid small and medium sized water and wastewater treatment plants struggling to comply with national regulations.
▪ An impact assessment into five Quality of Domestic Water Supply Guidelines, based on research by the WRC, which indicated where the guidelines were not used there were reported cases of poor water quality.

Discussion
Ms A Lovemore (DA) congratulated the team on an excellent presentation. She commented that there had been a lot of publicity around the Department of Water and Environmental Affairs lack of management of water and waste. She asked why the WRC’s message was not being heard by the Department.

Ms Kfir answered that the Department did make use of some WRC research, however the WRC was making an effort to use different mechanisms of knowledge dissemination to make a bigger impact. A steering committee was run in which the Department was involved from the beginning, so the link was in existence, but the WRC's mandate did not include implementation and it had no say in how its research was utlilised. She commented that there was not a lack of knowledge but rather a lack of use or misuse of the knowledge and problems with capacity in local government.

Dr Luyenge (ANC) asked for clarity around the level of consultant usage. Also was there a formal working relationship with other institutions and was there funding from these institutions or the Department? Did they have outside sources of funding other than the Department? If there was funding from the Department, did the TWA use the allocated allowance?

Ms Kfir replied that the WRC did not do research itself, but it used the funds from the charge levy on water collected by Department to fund research councils and universities. The consultant fraternity was sometimes required for different technical expertise but it would work with the universities. Some of WRC’s funding came from the Water Boards. The WRC and the Department worked together on some projects. There were some funds from the Department other than the levy, as well as some funding from the Department of Agriculture. Some money also came from Irish Aid for sanitation and some from UNESCO.

The Department assisted the WRC and the WRC assisted them. The Department was a key stakeholder, which meant the WRC needed to understand where they were going and what needed to be done, so there were consultations at various levels with the Department.

Mr J Skosana (ANC) asked about the sanitation in rural areas, the municipalities in those areas were not sufficiently funded to create ‘swampland’ methods. Was there a cheaper alternative? Regarding the reuse of water from industries he asked where the reused water was stored before it was recycled.

Ms Kfir acknowledged that sanitation in rural areas was a major problem. She explained that a lot of research had been done and the WRC was currently doing research on dry sanitation in an ecological way, for example, the composting of sludge and urine separation (urine was separated, stabilised and used as fertilizer). The WRC was also studying the notion of decentralised sanitation projects whereby sanitation was franchised but a head body dictated the quality of the process. The dual peat system was also being considered

Regarding the reuse of water in industry, she said the WRC advocated less water and better use and storage of water. There was a global drive for industry to reduce their water footprint. The problem however was with both the quality and the quantity of the water – and the WRC was grappling with both.

The Chairperson asked for details on which areas the students supported by the WRC come from and asked how often the Department made use of the WRC research on water quality.

Ms Kfir answered that there was a breakdown of where the students were from in the Annual Report. In brief, they come from universities throughout the country including KwaZulu Natal, Limpopo, Cape Town and Venda. She added that there was a need to measure how many students were from other countries and where the students work after they have studied, as it was important to keep them in South Africa.

Regarding the research on water quality, she said the WRC had and was conducting a lot of research on water quality and land degradation and many regional directors were involved in the steering committees on water quality. The WRC constantly strived to make a better impact, however the research was not being fully utilised.

Mr Skosana commented that research advocated a number of sanitation methods however these did not come out in projects implemented on the ground. He said it must be checked whether the methods advised by the research were being followed. He asked to what extent the WRC was involved in research into acid mine water. Did they promote the use of drip irrigation and if not, why?

Ms Kfir agreed that research was not being implemented. She said the WRC hoped that a pilot in the Eastern Cape would provide a model of proper sanitation which would be followed. However, there were also other obstacles to overcome such as cost and legislative obstacles, for example, excreta was not allowed to be reused by law.

Regarding acid mine water, years of research had been done into this and there were good solutions, but the problem with acid mines was that no-one owned them which makes it difficult implement solutions. Effective acid neutralizers had been developed by external companies and were on schedule to be introduced into South Africa soon.

Drip irrigation was amongst the solutions investigated for water conservation. However the WRC was focusing more on in-field rainwater harvesting which allowed the harvesting of water in arid areas, but did not require the infrastructure that drip irrigation systems did.

Dr Luyenge said it was reported that, in the near future, water would become scarcer and asked what was being done to remedy this situation.

Ms Kfir responded that there was not a crisis of a lack of water, but rather a lack of management. She said there was now a different rainfall pattern in the country, so water needed to be stored wisely and land use needed to be managed accordingly. The quality of water also needed to be managed.

Trans Caledon Tunnel Authority (TCTA) briefing presentation
Dr Snowy Khoza, Chairman, Mr J Ndlovu, CEO, Ms H Nazeer, CFO, Ms J Nhlapo, COO, Mr J Claassens, Executive Manager for Project Management and Implementation, and Mr Lebohang Thotanyana, Deputy Chairman, presented a briefing on the TCTA which included an overview, highlights of organisational performance, financial highlights and operations.

The TCTA was created by the Department of Water Affairs (DWA) as a special purpose vehicle for the financing and construction of national water resource infrastructure. It reported to Parliament through the Minister of Water Affairs. It was established in 1986 to finance and build the South African portion of the Lesotho Highlands Water Project. In 2000 the notice of establishment was amended resulting in the TCTA being able to undertake other projects, with each project operating in a ring-fenced environment. Its area of responsibility was project financing, the construction of infrastructure and debt management. It had a good reputation and was able to convince investors to invest and had maintained a top credit rating for projects. It ensured sufficient bulk raw water for South Africa to drive socio-economic development and growth. Its total capital cost of projects was R30.2 billion and the funding requirement for the next three years was R19.8 billion. Projects completed or underway were the Lesotho Highlands Water Project, the Berg Water Project, the Vaal River Eastern Subsystem Augmentation Project (VRESAP), the Mooi-Mgeni Transfer Scheme, Phase 2, the Olifants River Water Resources Development Project, the Komati Water Scheme Augmentation Project and the Mokolo Crocodile Water Augmentation Project (on which work had commenced, but the TCTA was still awaiting a directive).

Organisational performance highlights included continuing transformation in the organisation as well as the maintenance of strong and robust financial systems, evidenced by the TCTA again receiving a clean audit. On the Berg Water Project a total of 4379 person years of job opportunities were created. On VRESAP 1694 jobs were created. The aim was to create jobs and skills on every project. The overall BBBEE score was 68.24 and the organisation hoped to keep this up and improve on it. In 2008/9 the Berg Water River Project was inaugurated and beneficial use of VRESAO was given to Sasol and Eskom. Water sales increased in line with predictions from R2.1 billion to R2.5 billion in 2009.

The financial statements show the TCTA was solvent over the long-term with no risk of being unable to service and repay the debt. Costs were recovered from water sold to end-users. Repayment of debt was within 20 years and tariffs were linked to the Consumer Price Index. Once the debt had been fully paid on each project they were handed back to Water Affairs. The net deficit of R77 million (2008:162 million) related to the shortfall in covering interest costs and was anticipated, the debt was deliberately allowed to grow to allow for affordable tariffs.

Regarding operations, the Lesotho Highlands Water Project had received approval for Phase 2 from Cabinet. Water delivery was planned for 2019. It was an example of good bi-national cooperation. The Berg Water project would increase the City of Cape Town’s water supply by 18% - the project was inaugurated in 2009. VRESAP served Sasol in Secunda and Eskom in Mpumalanga. The system could currently deliver 85% of capacity and the project would be completed in Dec 2010. The Mooi-Mgeni Transfer Scheme – Phase 2 was required for the augmentation of water supply in KwaZulu Natal. It was at the design and tender stage and was scheduled for completion in 2012. The Olifants River Water Resources Development Project – Phase 2 was required for the augmentation of supply to Limpopo. It was at the design and tender stage and the first phase was scheduled for completion by 2012. The Komati Water Scheme Augmentation Project would provide a second supply line to the Duvha Power Station and feed the new Kusile Power Station in Mpumalanga. It was at the design and tender stage and was scheduled for completion in 2011. The Mokolo-Crocodile Water Augmentation Project was required to supply power stations, including Medupi, a synthetic fuel plant and associated mines in Waterberg in Limpopo. Phase 1 was to be delivered in 2012 and Phase 2 in 2015.

Discussion
Ms Lovemore commented that climate change was not mentioned but assumed that it had been taken into account. She said she did not fully understand the funding structure. Did the sale of water fund the TCTA forever or only until the debt was paid off? She asked for clarity on a bill that was tabled regarding a new water resource agency which seems to duplicate the TCTA. She commented that at a SADC conference she had attended, MPs from Lesotho had stated that the people of Lesotho felt they had been displaced and generally badly done by as a result of the Lesotho Highlands Water Project. She was interested to know whether the project was still considered socially friendly and whether more compensation costs would be incurred.

Mr Ndlovu said that regarding climate change, the Department of Water Affairs identified new projects, taking into consideration things like climate change. The TCTA then got mandated to deal with the funding arrangements. The TCTA did not undertake research itself, it took its cue from Water Affairs.

Regarding the funding model each project was ring-fenced, it went to market to raise capital, which it could do on an off-balance sheet basis as there was a sound arrangement between Water Affairs and the end-user. After the construction period, the debt needed to be repaid. Income was necessary to repay loans and the income came from water sales as per prior arrangement with Water Affairs.

Ms Nazeer answered that the revenue of everything related to the project, was reflected until the debt was paid off. When the project was finished it reverted back to the Department of Water Affairs, the revenues and the asset went to the Department. Regarding the Lesotho Highlands Water Project, millions had already been paid in compensation to displaced people, but future compensation payments were also built into the budget.

Mr Ndlovu commented further that there was no alternative land available so if a person was displaced a compensation package was arranged and would ensure that they were no worse off than before, in fact the commitment was to ensure that they were better off. The resettlement policy was developed in conjunction with and signed off by the World Bank. To address complaints, an Ombudsman had been appointed. Lesotho got a royalty from the water which was R300 million last year and South Africa paid for the full water transfer cost, so the R300 million was all profit.

Regarding the bill, it had been withdrawn as process had not been followed properly, but would be considered again. The agency would be partially similar to the TCTA.

Dr Lugenge asked if there was a management policy considering the depreciation of assets. Did the TCTA have savings or a suspense account? How sustainable were the jobs that were created?

Ms Nazeer replied that there was a management policy governing asset management. Assets were depreciated over their useful life which was 45 years for infrastructure, 25% per annum for movables and 50% per annum for IT. A redemption portfolio was set up for the repayment of debt and there was an investment portfolio for this, but there were no savings per se except for the future repayment of debt. There was no suspense account.

Ms Nhlapo answered that for the sustainability of jobs, they were looking at different ways to skill people. Some jobs were temporary but if skills could be created, workers could find further jobs with these skills. There were no easy solutions and it was an area still being looked at.

The Chairperson wanted to know how the TCTA intended to make sure smaller emerging companies were accommodated. He asked why there were only the bigger companies used on these mega projects such as Murray and Roberts but not smaller local companies.

Ms Nhlapo answered that when pre-qualification took place 20 points were allocated for BEE, which went beyond what was strictly provided for in the Act. This encouraged the bigger companies to form joint ventures with the communities. There was also a need to influence the way the contract was executed which was why there was a stipulation that 25% of discretionary spend must go to designated targets, plus 25% of the workforce must be BEE and there was a training target.

Mr Skosana expressed concern that BEE was being theorised and not practically implemented. He did not think 20 points addressed the issue of BEE. He asked that in future the number of contracts capacitated be reported.

Ms Nhlapo answered that the TCTA meant business in terms of its BEE strategy and would report back on the figures requested at the next briefing.

Ms Lovemore said it was good to hear that the organisation had enough engineers as there was normally a shortage. She asked if the TCTA provided bursaries or were those left to the Department?

The TCTA answered that there was a bursary scheme which had ten students to date. There was also an internal internship programme.

The Chairman asked how the TCTA disseminated information about bursary schemes in rural areas.

The TCTA replied that adverts were placed in local papers and aired on local radio stations and students were primarily drawn from universities in disadvantaged areas.

The meeting was adjourned.