The Department of Water Affairs briefed the Committee on the operations of water boards and their annual financial reports for the year 2008/2009. It also gave an overview of the water boards mandate and legislative framework. Water Boards derived their mandate from the Water Services Act 1997 and were required to comply also with the Public Finance Management Act, the Treasury Regulations, the Municipal Finance Management Act, the Division of Revenue Act and the Municipal Structures and Systems Act. Water Boards were established and disestablished in terms of Section 28 of the Water Services Act 1997. Water Boards were separate legal institutions that had their own boards and assets and were required to be self funding. The Minister of Water and Environmental Affairs appointed board members and chairpersons in terms of Section 35(1) of the Water Services Act 1997. Board members’ performance was assessed on an ongoing basis via reports submitted to the Minister. A task team had been established to examine governance problems of water boards, and its work was expected to be completed at the end of May 2010.
The Department also gave a presentation on the increase in water tariffs for 2010. It told the Committee that water tariffs were not proposed by the Department but by the water boards. Extension of infrastructure would require loan funding. A number of water boards experienced water quality problems. Namakwa and Pelladrift had net losses and were not financially sustainable. There were retention and skills shortages at water boards located in remote areas. Not all municipalities had bulk water service provider contracts. The water quality problems and water service agreements would have to be resolved with firm application of legislation and support from the Department of Cooperative Governance and Traditional Affairs. The water boards could consider pooling skills and deploying them to where they were needed. They could seek support of National Treasury and the Department of Cooperative Governance and Traditional Affairs to mediate with municipalities for debt payment. In the long term an amendment to the Division of Revenue Act should allow the Department of Water Affairs to withhold the equitable share from municipalities in arrears.
The Bloem Water, Sedibeng Water, Albany Coast Water, Amatola Water, Lepelle Northern Water and Mhlathuze Water Boards presented their annual reports for 2008/2009. All water boards gave an overview of areas and municipalities served, achievements and challenges. Each water board also submitted a document on tariff increases for 2010 but these were not discussed during the meeting. Bloem Water faced challenges such as outstanding municipal debt, capital expenditure and operational demands, future volume demands; funding to local municipalities, and operation and maintenance. Its audit report was unqualified. Major strategic achievements for Sedibeng Water included financial viability and sustainability. Sedibeng Water faced challenges with cost recovery. Most municipalities were not paying for services rendered. Sedibeng Water had another unqualified financial report for 2008/09. Amatola Water had memoranda of understanding in place with Rhodes and Fort Hare Universities and it was a co-sponsor of the Drinking Water Quality Conference in Port Elizabeth in May 2009. Amatola Water had a 99% Broad Based Black Economic Empowerment procurement spent. Amatola Water had taken over Albany Coast Water Board. Lepelle's external audit report for the financial year 2008/09 was unqualified. Its way forward was to conclude outstanding bulk water services contracts; resolve outstanding debt and late payment for bulk services by municipalities; rehabilitate and maintain infrastructure; support municipalities with regard to cost recovery and water conservation and demand management strategies; build capacity and plan retention and succession; and intensify technical support to municipalities through provincial departments. Mhlathuse had a successful partnership with the Department of Education and the Department of Water Affairs on the School Water Services Programme. Mhlathuze faced adverse operating conditions such as aged infrastructure, low rainfall and the impact of the recession. Its audit report was unqualified. There were no matters of emphasis. A report on an investigation by the Special Investigating Unit (SIU) was awaited. Mhlathuze was to review its pricing strategy and take corrective measures to achieve full recovery. Mhlathuze was confident that with the turnaround intervention approved by the Board, it would return to a surplus position in 2 years.
Members asked the Department why 2008/09 sales had increased yet income had decreased, and how different water boards could operate in the same areas and whether this meant that there was competition between them. They felt the need to gazette the areas in which water boards could operate.
A major concern was the R1.4 billion owed to the water boards by the municipalities. This debt was increasing. Providing water was one of the priorities of Government. The Department continued to rely on municipalities yet at the same time it complained that municipalities did not have sufficient capacity o provide water. Members enquired as to the possibility of amending the legislation that empowered the municipalities to provide water, and asked if water boards could take over other boards which failed to deliver. Members also asked how a water board from one province could take over a board in another province, and if this was under the direction of the Minister of Water and Environmental Affairs. Members suggested that municipalities were not taking water provision seriously and neither was the Department. They felt that the Minister had numerous tools at her disposal. Every municipality which was a water service authority had to develop a water services development plan for the Minister’s approval, and conduct an annual audit. The Minister could issue directives in terms of the legislation. The Blue Scorpions had been established. Members wanted to know how a water board was appointed and municipal councillors were allowed to serve on the water boards.
Department of Water Affairs: overview of water board mandate & legislative framework governing establishment & disestablishment
Ms Thoko Sigwaza, Chief Director: Institutional Oversight, Department of Water Affairs gave an overview of the water boards mandate and legislative framework. Water Boards derived their mandate from the Water Services Act 1997 and were required to comply with the Act, the Public Finance Management Act, the Treasury Regulations, the Municipal Finance Management Act, the Division of Revenue Act and the Municipal Structures and Systems Act.
Water Boards were established and disestablished in terms of Section 28 of the Water Services Act 1997. Water boards were separate legal institutions that had their own boards of governance and assets and were required to be self funding. They were key strategic organisations that primarily provided bulk potable water services to municipalities, other water service institution and major customers within a designated service area. Boards varied considerably in size, activities, customer mix, revenue base and capacity - some had been around for more than 100 years, while others were still considered to be emerging. The older and more established water boards were in areas where there were significant urban development nodes, for example, Rand Water, Umgeni Water, and Bloem Water. Other water boards operated in more demographically diversified areas where there was a considerable urban or rural mix in the customer base. Service areas typically transcended the boundaries of individual municipalities and, in a number of cases, even provincial boundaries. For example, Rand Water supplied services to Gauteng, parts of Mpumalanga, the Free State, and North West province.
The responsibility for water and sanitation provision rested with the municipality as the water services authority. Boards provided bulk treated water to Municipalities. Municipalities had the choice of using the services of water boards as water services providers or not. In some areas there was no alternative, for example, Gauteng. Municipalities determined their capacity to do this by following a process in terms of the Section 78 of the Municipal Systems Act. A municipality decided to use a water board, then a contract had to be signed in terms of Section 19 of the Water Services Act 1997 with regard to quantity, quality and the delivery point of water. A model bulk water service provider contract had been developed between the South African Association of Water Utilities (SAAWU) and the South African Local Government Association (SALGA) for this purpose. In some instances water boards acted as retail water and sanitation providers in the Water and Sanitation Programme (WSP).
The Minister appointed board members and chairpersons in terms of Section 35(1) of the Water Services Act 1997 and the board was accountable to the Minister. The Minister signed a shareholder’s compact with the water boards and raised issues of concern. She then met with new boards and also had meetings during the course of the year with chairpersons of water boards to discuss strategic issues. Board members’ performance was assessed on an ongoing basis via reports submitted to the Minister. A task team had been established to examine governance problems of water boards, and its work was expected to be completed at the end of May 2010.
The Department gave a summary of the water boards annual reports for 2008/09. The Auditor-General gave Botshelo Water a disclaimer as there was insufficient evidence to provide a basis for an audit opinion. The consolidated net profit exceeded the budgeted profit by R68 million. The consolidated financial performance of the water boards was indicated (page 11). Ratios (page 12) and annual surpluses and deficits were indicated (page 12).
The Department also explained the water board capital expenditure (CAPEX) budget for the next five years. Planned CAPEX spending over the next five years was estimated at R10 billion. Short and long term cash reserves were R4.4 billion. Likely borrowing to finance CAPEX was R5.7 billion. Surplus had to be looked at in relationship to the asset management plant, to ensure the effective gearing of debt. If borrowing was excessive future tariffs would be unaffordable.
An overview of the water boards financial components showed that the performance of water boards was appraised through, inter alia, the annual reports. The Department then provided the water boards with written comments and questions regarding the annual reports. Individual meetings were held with those water boards where serious matters required attention or intervention. Non-financial components showed that the bulk potable water volume supplied by water boards was 2.39 billion kilolitres per annum. Boards under spent on CAPEX by an average of 14.5%, except for Rand, Sedibeng and Amatola.
Most water boards had sufficient liquidity to cover short to medium term obligations. Profit at year ended June 2009 was 5.4% in excess of the budgeted profit. State guarantees were issued to support water boards. The municipal debt owed to water boards was R1,395,685,544. The Division of Revenue Act required that the equitable share for water be paid directly to municipalities. Where municipalities faced financial difficulty, they used the water equitable share for other purposes, leaving water debt owed to water boards and the Department unpaid. Changes in legislation would be considered where the equitable share is paid directly to water boards and the Department for water provided.
There were a number of challenges facing the water boards. The extension of infrastructure would require loan funding. A number of water boards experienced water quality problems in the resource. Seven water boards required additional authorisations for abstraction, two water boards had debt/equity ratios exceeding 100% and five water boards had surplus/revenue ratio of under 10%. Namakwa and Pelladrift had net losses and were not financially sustainable. There were retention and skills shortages at water boards located in remote areas. Not all municipalities had bulk water service provider contracts. Trade receivables were generally high due to debt owed to water boards by some municipalities.
The Department had a number of solutions. It was going to follow the CAPEX plan to ensure that service delivery was secured over the medium to long term. The water quality problems would have to be resolved with firm application of legislation and support from the Department of Cooperative Governance and Traditional Affairs (CoGTA) as most of the water quality problems were as a result of municipal sewerage discharge. Water service agreements would have to be resolved with the support of CoGTA. The water boards could consider pooling skills and deploying them to where they were needed. They could try getting support of National Treasury and CoGTA to mediate with municipalities for debt payment. In the long term an amendment to the Division of Revenue Act (DORA) should allow the Department to withhold the equitable share from municipalities in arrears.
Department of Water Affairs: proposed tariffs for water supplied in bulk
Mr Mahomed Vawda, Director: Institutional Oversight, Department of Water Affairs, said that potable bulk water tariffs were not proposed by the Department, but were determined by water boards. They had to consult with municipalities on their proposed tariff increases (Section 42 of Municipal Finance Management (MFMA) Act 2003). Boards must request that National Treasury and SALGA provide written comments. National Treasury and the Department played a monitoring and advisory role. In terms of section 42 of the MFMA, water boards must submit (i) the proposed amendments, (ii) the comments received and (iii) an explanation of how such comments were taken into account. The Minister must table the amendments in Parliament. The increases had to be tabled on or before 15 March 2010, if the increases were to take effect from 01 July 2010.
Challenges posed during the consultation process were that often written comments by SALGA and municipalities were not provided on time. Timelines were very stringent. Municipalities often did not have the capacity to meet the deadlines to provide meaningful comments. A three year tariff cycle would reduce administration burden.
There had been several achievements within the tariff procedure. The water boards met timelines for consultation in terms of MFMA. Documents confirmed evidence of consultation by water boards with municipalities, the customers.
The increase of tariffs would have an impact on water boards. It would enable water boards to finance future CAPEX and be less reliant on loans. Partial funding of CAPEX would allow for smoothing of the tariff especially in the initial years when the newly developed infrastructure would not be fully utilised. Reducing the tariff would result in a higher level of borrowing, which would effectively increase tariffs to unaffordable levels in the future. The increase in energy, chemicals and labour costs required tariff increases to ensure sustainability of water boards.
All water boards, with the exception of Namakwa and Bushbuckridge, were financially viable. Proposed increases were reflective of the actual cost of producing potable bulk water and therefore would ensure sustainability of water boards. Increases not only catered for operational cost, but also for infrastructure development and refurbishment, and allowed for reduced levels of borrowing and the avoidance of steep tariff increases over a short time frame.
In the last financial year many municipalities did not pass on the reduction of tariff increases to the end-users. End users’ tariffs were determined by the cost structures of the municipalities. Equitable share, aimed at subsidising the indigent, was often not used by municipalities for the intended purposes; as a result many municipalities did not pay their water debt on time. Funds at municipalities was often not ring fenced; therefore it was difficult to asses the impact of tariff on end users.
Bloem Water's Annual Report 2008/09: presentation
Mr Ockie Stadler, Acting Chief Executive Officer (CEO), Bloem Water, gave Members an overview of the structure of Bloem Water and its service areas. Its areas of service were the southern and northern Free State. It serviced four local municipalities - Mangaung, Kopanong, Mantsopa and Naledi, and two district municipalities - Motheo and Xhariep.
Bloem Water provided potable water on a continuous basis, proper implementation of preventative programmes and timely implementation of CAPEX plans. It rendered support services to stakeholders, for example, community projects, and rendered water supply chain services to stakeholders through partnerships.
Bloem Water faced a number of challenges such as outstanding municipal debt; CAPEX and operational demands; future volume demands; funding to local municipalities; and operation and maintenance. There was no qualification on Bloem Water's external audit report.
Current assets were marginally higher than the budget as funding was committed for CAPEX projects (current and future). Non current liabilities and current liabilities were aligned with the budget. There was continued solvency and ongoing liquidity. Bloem Water remained a going concern. Cash positions remained stable. Debt ratios remained high due to CAPEX requirements. Water sales were lower than budgeted for. Bloem Water streamlined the pension fund in terms of funding the deficit. There was a net profit of R44.2 million, of which R42.8 million was transferred to capital replacement and development fund as well as the insurance fund.
The Bloem Water board mandated management to consult its municipal clients as required by Section 42 of the MFMA. The consultation resulted in municipalities agreeing to a 10% increase and above. Consultation with National Treasury and the Department resulted in the acceptance of a 10% increase on tariffs. Tariff increase for 2010/11 in Shareholders Compact reflected increase of 7% before the Minister of Water and Environmental Affairs’ directive to reduce tariff for 2009/10 by 5%. Expected increases for inflation were higher, Operational and Maintenance expenditure was higher, for example, electricity, chemicals, and raw water. The proposed tariff resulted in the downscaling of required CAPEX projects in relation to future years. It impacted on National Treasury requirements regarding the debt service ratios – disallowing Bloem Water to obtain foreign funding the debt service ratio of above 25%.
Sedibeng Annual Report 2008/09: presentation
Mr Matumu Ubisi, CEO, Sedibeng Water, said that the performance of the organisation was underpinned by its long term strategies. The Annual Report provided progress on all strategic imperatives. Ongoing strategic reviews were aligned to the performance management system. Short interval business reviews were conducted to focus on key priorities. The presentation was based on performance reviews and audited financial statements.
Service Level Agreements were signed with Matjhabeng Local Municipality, Nala Local Municipality and Maquassi-Hills Local Municipality in the Free State as well as with Dr Ruth Mompati District Municipality, Phokwane Local Municipality, Ga-Segonyane Local Municipality and Moshaweng Local Municipality in the North West region. Service Level Agreements were still under negotiation with Frances Baard District Municipality (Agreement Signed), Tsantsabane Local Municipality (Agreement Signed), John Taolo Gaetsewe District Municipality, Gamagara Local Municipality, Dikgatlong Local Municipality (Agreement Signed) in the Northern Cape region.
Major strategic achievements for Sedibeng Water included financial viability and sustainability. Costs were prudently managed within budgetary limits. The organisation was financially sound and viable at consolidated level. Revenue and surplus targets were exceeded in the Free State and Northern Cape regions. There was an average water loss of 4.1 % in the Free Sate and Northern Cape regions. Water quality met Class 1 or 2 requirements and average expenditure on Black Economic Empowerment was 81 %. A total of R 24 million spent was on refurbishment and maintenance. There was scientific support on water and waste water treatment plants. Sedibeng Water co-ordinated and managed the Free State Drought Relief Project at Petrusburg / Bolokanang. Financial assistance was given to employees, and there were 14 bursary holders. Adult Basic Education and Training (ABET) was given to 77 employees. There were 25 enrolments in learnership in water purification and process operation. About 80% of the unemployed learners who participated in the above programme were absorbed within the organisation. Experiential training was done with 9 students. Training was conducted according to the works skills development plan. Staff turnover was kept at 7.35 %. The Free State region achieved a zero disabling injury rate for three consecutive years. HIV/AIDS awareness campaigns were undertaken throughout the whole organisation. Voluntary counselling and testing were made available for employees. The quality control laboratory maintained its accredited status after being audited by the South African National Accreditation Standards (SANAS) and an international auditor from the International Laboratory Accreditation Co-operation (ILAC).
Sedibeng Water faced challenges with cost recovery. Most municipalities were not paying for services rendered. There was a lack of willingness by WSAs to enter into long term contractual obligations. Insufficient funding was hampering service delivery. High electricity tariff impacted on the high expenditure of the organisation. The quality of raw water from the Vaal River was very poor, resulting in high purification cost. Water supply to Maquassi-Hills local municipality was impacted negatively due to inadequate network capacity. Augmentation of the network had just been completed.
Sedibeng Water had another unqualified financial report for 2008/09.
Amatola Water Board Annual Report 2008/09: presentation
Ms Nothemba Mlonzi, Chairperson, Amatola Water, gave the Committee an overview of the Water Board and its structures and management staff. There were a number of achievements for the Water Board in the financial year 2008/09. Amatola was a state owned water utility established in November 1997 and operational since 1998. Its gazetted area of operation was 45 794 square kilometres and its operational area was 119 000square kilometres. It had growing regional presence with offices in East London, Queenstown, Port Elizabeth, Butterworth, Fort Beaufort & Sterkspruit. It had a production capacity of 102.74 mega-litres potable water per day (own works) (87% utilisation). There were memoranda of understanding (MOUs) in place with Rhodes and Fort Hare Universities and it was a co-sponsor of the Drinking Water Quality Conference in Port Elizabeth in May 2009. There was 99% Broad Based Black Economic Empowerment (BBBEE) procurement spent.
Mr Xola Bomela, Acting CEO, Amatola Water, said that the challenges facing Amatola were a dramatic increase in business growth; a shortage of technical skills; capital funding shortfall; high input costs - raw water and electricity; generally poor, grant dependent municipalities as clients; small, low volume water supply schemes (9 of 12 schemes owned by Amatola Water); and short term operating and maintenance support contracts with municipalities.
There were bulk supply agreements with Buffalo City and Amathole District Municipality. Operating and Maintenance Support agreements were in place with the Amathole, Chris Hani and Joe Gqabi District Municipalities. The Department Operating and Maintenance agreements were in place for state facilities in Cacadu District Municipality. A contract payment dispute had resulted in a qualified audit. A key account management approach was being implemented in the current financial year to strengthen relationships with municipalities. Ongoing marketing and relationship building with all District Municipalities and key local municipalities were under way (guided by the Transformation Process Plan).
Amatola's overall operating conditions were: 24.8% growth in total revenue; 13.2% growth in water sales; 42.3% growth in management contracts; capital expenditure spend achieved R 21 million; and net surplus R 9.72 million. Cash flow had been affected by non-payment of debt resulting in qualification.
Albany Coast Water Board's Annual Report 2008/09: presentation
Mr Craig Step, Chief Financial Officer, Amatola Water, told the Committee that Amatola Water had taken over Albany Coast Water Board. This was because of the challenges that were facing Albany Coast. It was financially non-viable in the current form up to disestablishment. The expenditure had exceeded the income. There was a lack of maintenance and planning. Tariffs did not provide for capital needs. Seasonal demand was not met. There were limited cash reserves. There was a drought impact on operational costs (borehole / desalination water ratio).
In terms of its relationship with municipalities, Albany Coast had no bulk supply agreements in place with Ndlambe Municipality, and Ndlambe Municipality paid accounts in 30 days. Amatola Water was now fostering a new relationship with Ndlambe, and Ndlambe had grudgingly agreed to new tariffs.
Albany Coast's deficit for the year 2008 was R184 125 and for 2009 R1 059 050. Total equity and liabilities amounted to R9 847 301 in 2008 and R10 245 435 in 2009. Its deficit for the year 2008 was R184 125 and for 2009 R1 069 060. Debts amounted to R 124 785 long term and R 420 000 short term.
Lepelle Northern Water's Annual Report 2008/09: presentation
Mr Labane Laballo, CEO, Lepelle Northern Water, reported success with service delivery. Lepelle Northern Water had provided free basic water service provision in Capricorn District Municipality and Greater Sekhukhune District Municipality, reaching 11 949 households. It was successful in water demand management, and continued upgrade of telemetry systems, resulting in water losses averaging 3.5% on bulk. Its turnaround strategy implementation in Phalaborwa Local Municipality and Greater Tubatse Local Municipality was successful on cost recovery. There was billing and meter reading support to Greater Tubatse Local Municipality. Recomissioning of underground water supply in Lepelle Nkumpi Municipality was also successful.
Lepelle's external audit report for the financial year 2008/09 was unqualified.
There were a number of service delivery challenges: ageing infrastructures; exceeding abstraction permits (high demands); over laden treatment plant (upgrades); deteriorating raw water quality; outstanding bulk service contract in Mopani; and outstanding debtors by municipalities. In terms of reticulation there was a lack of effective cost recovery, water conservation and demand management; ageing internal reticulation infrastructure; default on payment by consumers; lack of maintenance; and unauthorized or illegal connections.
The way forward was to conclude outstanding bulk water services contracts; resolve outstanding debt and late payment for bulk services by municipalities; rehabilitate and maintain infrastructure (effective asset management); support municipalities with regard to cost recovery and water conservation and demand management strategies; build capacity and plan retention and succession; and intensify technical support to municipalities through provincial departments.
Mhlathuze Water's Financial Report 2008/09: presentation
Mr Vic Botes, CEO, Mhlathuze Water, addressed Mhlathuse's strategic direction, which was to form strategic partnerships with municipalities, establish strategic networks with all role players and support and assist municipalities to meet their mandates.
Mhlathuse's business objectives were to respect the position of municipalities as responsible for water service delivery in the area of jurisdiction. It also recognised that municipalities could not achieve this on their own. Mhlathuse was going to step into this gap to support and co-operate with the municipalities.
Mhlathuse's operational area covered 4½ municipalities in the Zululand area: Umhlathuze Local Municipality, Umkhanyakude District Municipality, Zululand District Municipality, uThungulu District Municipality and Ilembe District Municipality.
There were achievements and challenges in terms of Mhlathuse's relationship with municipalities. There was a successful partnership with the Department of Education and the Department of Water Affairs on the School Water Services Programme. There was completion of the draft Water Regional Master Plan covering uMhlathuze City, uThungulu District Municipality, Zululand District Municipality and uMkhanyakude District Municipality. A partnership with uThungulu for the Middledrift Scheme project had been established. There were negotiations with municipalities to expand Mhlathuse's services. Tenders were submitted to Zululand District Municipality and to Ilembe District Municipality for the upgrade and maintenance of KwaDukuza Wastewater Treatment Plant.
Challenges were due to debt recovery issues, and contract expiry. Financially challenged municipalities had also become a problem and there was an impact on tariff negotiations.
Ms Nonhlanhla Nyewula, General Manager: Finance, Mhlathuse Water, addressed the financial analysis. In terms of revenue there was a 25% increase attributable to 32% (3.6 mega-litres) increase in raw water volumes and increased off-take by Richards Bay Minerals. Tariff increases were at an average of 10.2% as against 5.8% in 2008. Expenditure saw a 27% increase attributable to increases in staff cost (15% increase in staff complement) and increases in the cost of energy and maintenance. Depreciation also contributed by way of the B-Line Diffuser replacement project. Extraordinary expenditure was due to the Corporate Social Investment (CSI) project. R12 million was used to assist uMgungundlovu District Municipality.
Mhlathuze faced adverse operating conditions such as aged infrastructure, low rainfall and the impact of the recession.
The audit report was unqualified. There were no matters of emphasis.
An investigation by the Special Investigating Unit (SIU) was instituted on the affairs of Mhlathuze Water as per the President’s proclamation: (Proclamation No. R.35, 2008). Mhlathuze Water had fully co-operated with the investigation. A report had not been released yet.
Mhlathuze had a five year turnaround strategy. It was going to review its pricing strategy and take corrective measures to achieve full recovery. There would be a restructuring of the organization to reduce and optimise overhead costs (indirect costs are 51% of total cost). It would re-direct investment into maintenance to prevent future shocks. It would reconstitute the Infrastructure Project Department into a Profit Centre and restructure to ensure retention of skills. Mhlathuze was confident that with the turnaround intervention approved by the Board, it would return to a surplus position in 2 years.
Ms A Lovemore (DA) asked the Department why 2008/09 sales had gone up yet the income had come down (slide 11). She also noted that both Bloem Water and Amatola had said that they had operations in the Eastern Cape, and wanted to know if this meant that the two would be competing in the same municipalities. Also in Bloem Water's presentation one of the challenges indicated was that Water Service Authorities were not being proactive.
Mr Vawda replied that profits went down was because of the increase in energy costs. The Minister had the previous year recommended that water boards should reduce their tariffs because of not spending capital sufficiently. Therefore profitability was reduced.
Mr G Morgan (DA) said that the theme of the water boards’ presentations was the amounts of money owed to water boards by municipalities. Obviously the water boards were struggling to get money out of the municipalities. There was R1.4 billion outstanding, which was up from R1.2 billion last year and R1.1 billion as of July 2009, and the figure was just getting bigger. This was worrying because about R535 million of the R1.4 billion, was more than 120 days outstanding. He wanted National Treasury to explain to the Committee how it engaged with the boards. It was critical that the Committee be told how the issue was going to be resolved. He said the Department also needed to comment on the issue. He pointed out that Lepelle Northern had stated in its presentation that it wanted to help the municipalities with cost recovery. He said that that was admirable but he did not feel that this could be possible as it was not a core function of a water board.
Mr Vawda replied currently the two largest water boards, Rand and Umgeni, did not have this problem of outstanding debts with municipalities. Quoting that figure was not useful since what was needed was to deal with the actual arrears. Altogether six water boards did not have this problem. There had been a misunderstanding on the part of the Committee; he was talking about long term debt.
Dr Z Luyenge (ANC) asked the Department if it had examined the effectiveness of desalination along the Garden Route, as there were water shortages in that area. He wanted to know if it was cost effective for the country to make use of desalination. He also asked which water boards were considering this as an alternative. The provision of water was one of the priorities of Government. The Department continued to rely on municipalities yet at the same time complained that municipalities lacked capacity to provide water. He wanted to know if there was any consideration of the amendment of the legislation that empowered the municipalities to perform that function whether they provided water or not. He also addressed the issue of Amatola’s need to expand so that it could deliver water to the rest of the province. He asked about the conditions for taking over water boards. Another issue was the inclusion of councillors on the water boards. This was not right or fair.
Mr Vawda replied that Albany Coast did use desalination currently. The cost of desalination was exceptionally high. However, on the Garden Route there might not be another option but desalination.
The Chairperson asked if the taking over of unsuccessful water boards by other water boards was a way of assisting them until they had sorted themselves out sufficiently to be independent. She wanted to verify what happened when Bloem Water from the Free State would take over Bushbuckridge in Limpopo. There were other successful water boards in Limpopo who could take over Bushbuckridge.
Mr J Skosana (ANC) said that there were many structures handling water in South Africa and he felt that they should all unite to deliver water to the people. He wanted the Department to answer some questions on the audit disclaimers and qualifications. Lastly, he wanted to know what was the Department's opinion on non-performing water boards who supplied inadequately treated water. All the boards that were presenting spoke about late payments from municipalities, so the Department should explain the mechanism of this programme.
Mr Vawda replied that Botshelo Water had received a disclaimer and would report to the Committee tomorrow, but what was also reported was that their previous audit was like a ‘Mickey Mouse’ operation. The previous auditor was part of the problem and the financials were in a terrible state. There had been an attempt to rehabilitate that water board. It was insolvent and last year the Department thought it would need to disestablish it but a turnaround strategy had been instituted successfully. The other water boards which had qualifications included Amatola Water. Namwaka Water Board was likely to continue to receive a qualified audit. The Department had written off a debt of R8 million and had given R43 million over a three year period for refurbishment. The problem was that it was serving a community of about 50 000 and it needed 180km of pipeline. So the Department had to examine realigning it with another water board. There were serious problems at Bushbuckridge Water and so Rand water was going in to assist it for six months and hopefully would be able to correct the problem.
Ms Lovemore asked whether the task team to examine governance was considering a legislative review. With respect to funding, the Minister was able to issue directives, and had done so with Amatola and O R Thambo, for water boards to take over certain areas. She asked if the Public Protector was involved with the tariff issue and who set the tariffs.
Mr Vawda replied that National Treasury might wish to comment. The task team was considering a legislative review. In terms of the Municipal Finance Management Act the Minister just had to table the tariffs. There were also infrastructure problems. Water boards were under spending on infrastructure and the Department was looking at that very carefully. The Department had told them that if they did not do something about developing infrastructure it would penalise the water boards and that is why the Minister recommended a reduction in tariffs.
The Chairperson said that the Minister should address the Committee on the mandate and the findings of the task team.
Ms J Manganye (ANC) asked what the Department's role was in assisting a water board when a water board tried to work with a municipality whose funds were exhausted, especially in the rural areas. She also wanted to know who regulated prices of raw water.
Mr Vawda replied that a regulator was going to be appointed to regulate the price of raw water.
Dr Luyenge emphasised the power of the Minister and Parliament to reject or accept tariffs. Parliament would never keep quiet when these tariffs were determined for the communities which they were serving. He wanted to know on what basis the tariffs had remained so inconsistent. He wanted to know the function was of the line function manager in relation to the boards.
Mr Skosana wanted to know how the Department accounted for municipalities who were not supplying water through one of the water boards.
Mr Vawda replied that municipalities who were not using water boards to supply water got water directly from the Department and they performed the functions of the water board and purified the water themselves.
Ms Sigwaza replied that the Department was considering a review of the Water Services Act as was stated in the strategic plan. This was because the Department had realised that there were issues regarding the relationships between municipalities and water boards. However the Department would have to engage with all the sectors involved. There were also issues of capacity and water service provision which were critical issues. Eventually it would be Parliament who would decide who became water services providers. The Department was also considering gazetting supply areas for water boards. The Minister had issued the directive for Rand Water to support Bushbuckridge even though it was in a different province because Bushbuckridge did not have the capacity to fulfil the role of a water board. Other water boards could have been considered but because of Rand Water's capacity it was easier for Rand Water to support Bushbuckridge. Other water boards had been helping each other, but this also depended on the network between the water boards. The issue of competition between the water boards happened where boundaries were not gazetted. There were municipalities which were not being serviced by water boards. The Department had started the institutional alignment project where it was trying to arrange a secure supply so that they were all reached through the bulk supply. The Department had to provide funding for the municipalities who were struggling.
Mr Vawda replied that the Department had to make sure that disestablishment made financial sense and that the areas served would continue to be served. In the case of Albany Coast it asked Amatola to take over the service and secure supply to that area.
The Chairperson reiterated Mr Skosana’s question about who was accountable for the municipalities who did not use water boards to supply water.
Ms Sigwaza replied that the municipalities had a licence from the Department. The Department would consider in the legislative review the possibility that municipalities should also be able to provide bulk water. Currently the only thing for which the Department could hold municipalities accountable was the licence they received from the Department.
Mr Skosana said that certain municipalities were providing water to the masses and receiving bulk water from the Department. Therefore if the Department was outlining the operation of all sectors then it had to be asked how and when it was going to account for those municipalities. That was the report that he wanted. He also wanted to know why municipalities did not want to enter into long term contracts with water boards.
The Chairperson said that there were so many structures in water, yet there was no water at the end of the day, and so she agreed with Mr Skosana's concern. She said the report did not reflect the places that were getting water directly from the Department. She wanted the Director-General to respond honestly to the question.
Ms Nobubele Ngele, Acting Director General, the Department of Water Affairs replied that the Department was reviewing the pricing and the funding model for water resources and was going to review water supply and how to extend outreach to the people. She said that the Department was also looking at reviewing the legislation. There were already cases were the Department had to hold municipalities accountable. She said that she did not have a list of the municipalities that were getting water directly from the Department but that she would provide the Committee with that report. The report would show to which municipalities the Department supplied water, which municipalities were paying for water and how those who failed to pay were being punished.
Mr Skosana asked that the list of municipalities be coupled with a performance review on each one.
Dr Luyenge said that some municipalities were receiving money from the Department yet they still failed to provide water to areas and did not account to the Department. The Department needed to deal with the issue and hold those municipalities accountable.
Mr Morgan said that when looking at arrears of some of these water boards the problem seemed to be getting worse, but at the same time there were other water boards that were doing better and he praised them for that. There were six water boards in trouble.
Ms Manganye said a list of municipalities who were getting water directly from the Department would be of assistance to the Committee. What was happening with the municipalities was a disaster. The Department must go to the municipalities and oversee their work. The Department needed to do research because there were some communities that were getting water from unhygienic sources.
Ms Lovemore said that some municipalities failed to take the responsibility of providing water seriously and accused the Department of similar neglect. The Minister had numerous tools at her disposal. Every municipality which was a water service authority had to develop a water services development plan, submit it to the Minister for approval, and submit an audit annually to the Minister for approval. This was not being done and the Minister was taking action. The Minister could issue directives in terms of applicable legislation but hardly did so. The Blue Scorpions had been established and there was a protocol. She strongly recommended that the Department use these tools.
The Chairperson said she agreed with Ms Lovemore. SALGA was invited to the meeting because municipality issues were being raised. She felt someone needed to comment on the issue of Sedibeng's R72 million arrears.
Dr Luyenge wanted to know more about the take over of water boards and the conditions.
Mr Vawda replied that Albany Coast had been disestablished and merged with Amatola. The Department had provided Albany Coast with ground funding so that it was in a good condition for Amatola to take over. Bushbuckridge was not disestablished. It was taken over by Rand Water for six months so that Rand Water could turn it around, but it was not a permanent take over. That was a decision taken by the Minister. He reiterated that Bushbuckridge Water Board had not been disestablished.
The Chairperson said they would have to examine Bushbuckridge's report the next day for clarity.
Mr Vawda replied to the question of councillors on the board and said that when a board was appointed it was done so in accordance with the relevant legislation. The Minister appointed a panel to select members of a water board. The panel consisted of the CEO, the Minister's representative and representatives of each one of the provinces involved, and this panel selected the board. They had to appoint people who had the necessary skills such as financial, technical and engineering skills and also who were members of councils served by that water board.
The Chairperson asked if that meant she could also become a board member because she was a public representative. This did not sound right. She said one could not be a referee and a player at the same time.
The view was expressed that having councillors on the board worked because they came with valuable experience and they added value.
Ms Ngele suggested that these issues be taken to the Minister and that issues regarding debt owed by municipalities to water boards would be discussed as well as the composition of the boards, because there was a governance problem.
The National Treasury said that it needed a detailed presentation and that it would deal with the issue of money owed by the municipalities at the continuation of the meeting the next day.
The meeting was adjourned.
- Mhlathuze Water Financial Report 2008/09 and Tariffs 2010/11
- Sedibeng Water Tariff 2010/2011 Presentation
- Sedibeng Water Annual Report 2008/09 Presentation
- Lepelle Northen 2008/09 Annual Report and 2010/11 Tariff Increases Presentation
- Water Board Tariff Increases for 2010 Presentation
- Amatola Annual Report 2008/09 Presentation
- Water Boards Annual Reports for 2008/2009 Presentation
- Bloem Water Annual Reporting 2008/2009 and 2010/2011 Tariff Increases Presentation
- Albany Coast Water Board Annual Report 2008/09 Presentation
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