Water Boards, SALGA & National Treasury on 2008/09 Annual Reports of Water Boards & Proposed Water Tariffs 2010

Water and Sanitation

04 May 2010
Chairperson: Ms M Sotyu (ANC)
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Meeting Summary

The water boards, the South African Local Government Association and the National Treasury addressed the Committee about the water boards’ 2008/09 Annual Reports and proposed water tariffs for 2010. The water boards present included Umgeni Water, Bushbuckridge Water, Botshelo Water, Pelladrift Water, Namakwa Water, Overberg Water, Rand Water and Mogalies Water. Overberg Water did not present as the printed copies of their presentation had been blank. The Committee would give them another opportunity to present.

The Committee’s questions focused on whether Bushbuckridge Water had been taken over by Rand Water, why Bushbuckridge had exceeded its borrowing limit when it had increased their profit by 10%, what conditions were attached to the agreement between Rand Water and Bushbuckridge, and whether it was a requirement for water boards to come to an agreement with their municipalities about tariff increases. Members noted that the National Treasury’s presentation answered many of their questions. They noted that there was no documentation informing water boards how they could collect money that was owed to them by municipalities. There was no policy for credit control.

The Committee noted that SALGAs presentation touched on corruption, nepotism and bad decisions made by water boards. Members wondered what SALGA was doing to resolve the problem, especially since it affected service delivery. They also asked how SALGA was assisting municipalities with the issue of Free Basic Services. Members noted that many of the boards spoke about water resource inadequacy and the low supply of water. They stated that more information would be useful to the Committee.

The Committee was impressed with the various actions that Botshelo Water had taken to improve its efficiency. Their tariff increase proposal of 16% was one of the highest of all the water boards, yet it did not include costs for the maintenance of infrastructure. Members noted that the National Treasury had not been supplied with the supporting document for the proposal, so an analysis of the proposal could not be made. The Committee saw that municipalities were only using 8% of what the Pelladrift Water Board was producing. They wondered if the Board would be viable once the mines closed down.

Members had heard the same story from Namakwa Water that they had heard the previous year. There was no improvement in the past year. The quality of water that was supplied to that community was exceptionally poor due to crumbling infrastructure. Namakwa Water Board needed help urgently. The Department needed to assist them as their community could not go without water. The Department informed the Committee that Namakwa Water would be giving the Board an additional R48 million to refurbish their infrastructure and it had asked the Development Bank of South Africa (DBSA) to write off Namakwa Water’s debt. The Committee wondered why Namakwa Water did not know this. Members requested that the Department of Water Affairs give the Namakwa Water Board special attention and to report back to the Committee on the Board’s situation in six months.

The Committee noted that tariff increases would affect poor municipalities the most. Members also noted that most of the water boards had said that the ageing of infrastructure was a major issue. The water boards had to consult the municipalities on their proposed tariff increases. The water boards also had to request assistance from the National Treasury and SALGA.

Meeting report

Opening Remarks
The Chairperson stated that the Committee would hear Bushbuckridge Water Board’s presentation and then discuss it as the Chairperson had to leave the meeting early. Thereafter, another discussion would take place after all the other presentations were made.

Briefing by Bushbuckridge
Mr Pat Ngomana, Chairperson of Bushbuckridge Water, said that the water board had its challenges, but given time, the challenges would be resolved.

Mr Mapholoba Letswala, Acting Chief Executive: Bushbuckridge Water (BW), stated that the Blue Drop Certificate indicated 85% drinking water quality at Kanyamazane. The Board improved its organisational development and increased its water supply by 7%.

BW experienced challenges with debt recovery. There was a lack of long term Service Level Agreements (SLAs), a lack of integrated planning between stakeholders within the sector, there were infrastructure challenges as a transfer of infrastructure had not been finalised by the Department of Water Affairs (DWA), and there was a chance that the Board might become insolvent.

The Board was exploring and exploiting strategic ways to achieve organisational financial sustainability and business development. It had strengthened the organisational capacity by filling critical vacancies and increasing efforts in training and educating staff. BW improved on good governance by ensuring that compliance with relevant legislation was observed, and it improved relations with stakeholders and organised labour movements. However, there was a lack of improvement on debt collection. The Board also aimed to provide sustainable water and sanitation services. It increased the volume of potable water by 7% in the Bushbuckridge area and complied with water quality standards.

The Bushbuckridge Water Board was audited by Stabilis Inc, an independent auditor. The Board received a qualified audit report with emphasis of matter. The concern was that there was a lack of service level agreements and recovery of full invoiced amounts. There was emphasis of matter on fixed assets as assets were transferred to BW without the transfer of ownership. A forensic audit report showed that R644 654 had not yet been recovered. BW had also exceeded its borrowing limits by R196 000. A performance audit showed that the Board lacked a performance framework.

In terms of proposed tariffs, input costs that were considered consisted of raw water charges, direct staff and labour costs, direct energy costs, the cost of chemicals and costs related to maintenance. The proposed tariff for 2010/11 was R3.45. This consisted of a fixed cost component, which took into account salaries and administration costs. The variable cost component was made up of costs for raw water, electricity, chemicals and maintenance. There would be a tariff review after 2010/11 because certain waterworks were being upgraded. The Board projected that a tariff increase of 12.46% be imposed for the period July 2010-June 2011. SALGA commented that the tariff was lower than the sector average increase. The National Treasury noted that the tariff increase would lead to a better cost recovery and would result in the Board becoming financially viable. Bushbuckridge Municipality did not comment on the proposed tariff increase.  

The Chairperson noted that it had been said that Bushbuckridge Water had been taken over by Rand Water. She asked BW to clarify this.

Mr Ngomana answered that BW had not been taken over by Rand Water. When the new board started its term at BW, it identified many challenges that needed to be resolved. At first the board did not understand the challenges and subsequently, the board held some meetings with colleagues from Rand Water so the board could clearly understand what support it could get from Rand Water.

Ms Nobulele Ngele, Director-General: Department of Water Affairs, stated that this was an intervention that would enhance the business of BW. At the end of the day would help the board take over BW and improve service delivery.

Mr J Skosana (ANC) noted that there was hope for the BW. The Department had to continue to monitor the operations of the Board. This would make the difference in how successfully the Board would operate. BW had to ensure that it was honest and transparent when it came before the Committee. He noted that BW increased its water supply by 7%. He asked what this meant in terms of household supply. He asked why BW exceeded its borrowing limit when its profit increased by 10%.

Mr Ngomana noted that BW had its challenges and agreed that the Board had to be monitored. It had accepted the support given by Rand Water and the Department.

Mr Letswala added that water supply was still a challenge, as the population for Bushbuckridge amounted to approximately one million people.

He stated that BW had a cash flow challenge. This affected the Board’s viability as it was unable to raise revenue. This also increased the Board’s risk of becoming insolvent. The revenue that was raised by selling water to municipalities would be used to decrease the borrowings. The Board never went back to National Treasury to ask for an increase into the borrowing limit.

Ms A Lovemore (DA) stated that she found the presentation extremely disturbing. She noted that if BW had complied with the National Treasury’s performance framework, then it would not have failed. She asked if the support from Rand Water was as a result of a Ministerial directive. What conditions were attached to the agreement in terms of timeframes and performance? There were assumptions made about the increase in the cost of electricity and raw materials. However, there was no assumption made about the possible increase in the cost of raw water. This was not in the presentation. What was the Board’s view on this? She noted that BW had not come to a consensus with their municipality about the tariff increase. She asked for clarity on this. Was it a requirement for the Board to come to a consensus with its municipality?

Mr Ngomana replied that the proposed timeframe for the support had been decided by the Department. The Department had identified certain areas that needed attention. The Board was addressing these issues and had met with Rand Water to discuss how to resolve the matters. The BW would review the problem after six months to see if matters were being resolved or if more time and support was needed. This would be communicated to the Department. The Board was currently having very positive relations with stakeholders and municipalities. Everyone was assisting in dealing with the challenges.

Mr Ngomana added that municipalities did not comment in writing; however, meetings were held with them in which the tariff increase proposal was discussed. Positive responses were given to the proposal. BW’s proposed tariff increase was still very low compared to those of other water boards.

The Chairperson asked the Board to talk about the employment of a permanent Chief executive for WB.

Mr Ngomana answered that BW had started the process of appointing a permanent Chief Executive. The Board hoped to advertise the position soon so it could move forward.

The Chairperson thanked the Board for its presentation.  

Briefing by Umgeni Water
Mr Mzimkhulu Msiwa, Chief Executive: Umgeni Water, stated that the water board received an unqualified audit report and that all its statutory requirements had been met. There was a robust Risk Management Framework in place and strategic and divisional risk registers were in place and continually reviewed. 228 of 375 wards were covered in 2009/10 by municipalities acting as Water Service Authorities (WSAs). Umgeni hoped to have 259 wards covered by 2014/15.

There were five projects under construction. These consisted of the Ngcebo Bulk Supply Scheme, the Avondale to Honolulu bulk pipeline, the Northern Aquaduct Booster Pump Station, the Western Aquaduct, and the DV Harris to World’s View Pipeline.

The total Capital Expenditure (Capex) for the year amounted to R237 million of which R219 million was spent on projects under the construction phase. R101 million was spent on planned maintenance of infrastructure. Umgeni provided 47 schools with sanitation structures and seven schools were provided with running water. 6300 households were provided with sanitation and 50 people were trained in community health. Capex projects also focused on rural areas. Some of these projects included the Ngcebo Scheme, the Mhlabatshane Bulk Water Scheme and the Ndwedwe Scheme.

Umgeni Water Board also provided strategic support to local government. It worked with OR Tambo District Municipality to develop regional bulk infrastructure plans for local municipalities of Mbizana, Ngquza and Ntabankulu. Some of the challenges that Umgeni experienced revolved around water resource inadequacy, climate change, raw water quality and the sustainable funding of rural development.

In terms of operational performance for 2008/09, Umgeni increased its profit from R393 million in 2008 to R527 million in 2009. This was a 34% increase. There was a 6% increase in bulk water revenue stemming from a 3% growth in volume. Umgeni also implemented a 3% tariff increase on bulk water.

Umgeni Water’s total debt consisted of the UG65 bond of R974 million which would be redeemed on 1 June 2010, as well as Development Bank of South Africa (DBSA) loans of R964 million. Umgeni Water achieved a positive operating performance and improved its financial position, which resulted in an efficient water service delivery at affordable prices.

Umgeni Water complied with and adhered to the tariff setting process as determined in Section 42 of the Municipal Finance Management Act (MFMA). Consultations with all its customers were completed by 30 November 2008. Umgeni presented two tariff proposals. One reflected a high volume growth with a 10.5% tariff increase. The other reflected a low volume growth with an 8.5% tariff increase. The tariff increase of 8.5% was not accepted and a lower tariff was requested. Umgeni Water took into account customers concerns and managed financial risks. Umgeni completed consultations with the South African Local Government Association (SALGA) and the National Treasury about a 6.5% tariff increase. A final submission was given to the Minister of Water and Environmental Affairs on 25 January 2009.

Briefing by Botshelo Water Board
Mr Solly Bokaba, Chief Executive: Botshelo Water Board (BWB), stated that the Board had Water Services Provider Agreements with Dr Ruth Segomotsi Mompati and Ngaka Modiri Molema District Municipalities. They served as Water Service Authorities (WSAs) to seven local municipalities. Botshelo Water's turnaround strategy was accepted by the WSAs and Provincial Government. The municipalities also accepted the new water tariffs.

Botshelo Water Board also experienced some challenges. There were delayed payments by WSAs and local municipalities for water services rendered, non-payment of long outstanding and growing debts, and a failure by municipalities to promulgate bye-laws regarding unauthorised connections.

The Auditor-General's (A-Gs) Audit Report showed that Botshelo Water Board received a disclaimer because of problems with their opening balances; Property Plant and Equipment (PPE) and other inventory could not be accounted for. A correction of errors had to be made. There was insufficient audit confirmation by the A-G to comply with International Financial Reporting Standards (IFRS), Generally Accepted Accounting Principles (GAAP) and Auditing Standards. Botshelo Water Board would address the qualifications in order to make the financial figures acceptable. Verification of PPE was in progress and the necessary adjustments would be made.

The Income Statement showed that turnover and gross profit both increased by 17%. Employee costs decreased by 5% and other expenses decreased by 38%. Botshelo Water Board was solvent and had a cash balance of R26 million. Its debt to the Department of Water Affairs was reduced by R16 million.

Botshelo Water Board achieved the recruitment of qualified technical staff, the successful implementation of its Turnaround Strategy and Plan, and the implementation of the Employee Wellness Programme. Water services were provided despite all challenges. Challenges were the non-ownership of water infrastructure by Botshelo Water Board, insufficient funding to adequately maintain water infrastructure, and a lack of water infrastructure in areas to accommodate population growth.

Botshelo Water Board proposed a tariff of R 3.80, a 16% increase on the proposed tariff for 2009 – 2010 due mainly to electricity, maintenance, security and chemical price increases. BWB incurred a charge of R 1.667 (no increase on last year’s tariff) per kilo litre at the major plants of Mafikeng and Mmabatho. This was perceived by Botshelo Water Board to be high compared with those incurred by other similar Water Boards.

Botshelo Water Board held a consultative meeting with its three bulk water clients, Mafikeng Local Municipality, Ngaka Modiri District Municipality and Ditsobotla Local Municipality on 30 November 2009. Botshelo Water Board had also invited SALGA and the DWA to attend to meeting. SALGA did not attend the meeting nor did it apologise. The outcome of the tariff revision process was submitted to National Treasury for approval. The proposed tariff of R 3.80 would enable Botshelo Water Board to fulfil its functions, obligations and duties. It would ensure security of all the plants and ensure that water resources would be sustainable.

A full appraisal of the operations of the water treatment facilities indicated that security at most of Botshelo Water Board’s facilities was lacking. It had allowed for improved security to prevent any risk of access and potential interference to operational areas. Eskom tariffs have, and will further increase.  As Botshelo Water Board’s operations were dependent on electricity, these increases would need to be accommodated, especially as operations would have to change to use more water from the power dependent plant due to potential drop in supply from the Grootfontein well fields. Maintenance costs would increase as the plant would be fully utilised, and the refurbishment programme was nearing completion.

The majority of end users in Botshelo Water Board‘s jurisdiction had access to 6 kl of Free Basic Water (FBW) per household per month. This would probably remain unchanged. The impacts of the tariff increase would be ameliorated by better control of water losses and improved cost recovery on the part of municipalities, which were currently at an unacceptable level.

Briefing by Pelladrift Water Board
Mr Nathan Williams, Chairperson of Pelladrift Water Board (PWB), said that the water board provided bulk water supply to Black Mountain Mine and the Khai-Ma Municipality. It serviced approximately 8500 people. Pelladrift Water had Service Level Agreements (SLAs) with Khai-Ma Local Municipality and there were good relations with the newly elected Khai-Ma Council. The water board received an unqualified audit report.

The overall operating conditions showed that Pelladrift Waterworks continued to run well and that the maintenance of the existing plant was carried out on a regular basis. PWB did not pan to borrow any money as revenue would increase with the new tariffs. Black Mountain Mine accepted an 80% tariff increase in late 2008 and Khai-Ma Municipality accepted a 7% increase. PWB expected to achieve an accounting breakeven in the current financial year and a positive cash flow by 2012. The tariff set by the board and future tariff increases would include a 26% increase in electricity costs and a 7% increase in raw water tariffs. The tariff was primarily driven by power charges, salaries and maintenance of the aged plant.

Briefing by Namakwa Water Board
Mr Rob Blake, Acting Chairperson of Namakwa Water Board (NWB), stated that the NWB’s area of responsibility was the arid north western part of the Northern Cape where the Orange River was the only sustainable source of water. Pumping water from the Orange River was costly because of the distance and elevation up which it had to be pumped. The board experienced challenges with high Eskom tariffs, a declining consumer base and aged and labour-intensive infrastructure.

The NWB Annual Report recorded a qualification from independent auditors. This was due to the net loss that it incurred 30 June 2009 to the amount of R1 506 461. There was significant doubt about the entity's ability to continue as a going concern. The NWBs creditors’ amount increased due to its inability to pay. The Board was still solvent; however, profitability and liquidity were still issues.

The strategic goal was to disestablish the NWB in terms of Section 28(d) of the Water Services Act. All assts and liabilities would be transferred to a new entity, which would either be Nama Khoi Municipality or another existing water board. Another goal was to secure short term financial assistance to pay suppliers and Eskom.

The NWB sold potable water to Nama Khoi Municipality and De Beers Namaqualand mines. The Water Board was assisted by the O'Kiep Copper Company (OCC), which operated the Nigramoep Mine, with personnel & equipment up to 2004. In 2004/2005 the OCC ceased mining, which led to an increase in the overhead costs of water, and the quantity of water sold decreased. The curtailment of operations by De Beers Namaqualand Mines over the past three years exacerbated the situation. This resulted in the Board not being financially viable, as reported in the Independent Auditors report of 2006/2007, 2007/2008 & 2008/2009. The NWB was in a liquidity crisis and urgent replacement of some infrastructure was needed to prevent the interruption of services.

The NWB requested a 43% increase on tariffs. The tariff would be R9.14 compared to the R9.95 per kl that was needed. There was still a shortfall of 81 cents. During consultation processes, the Nama Khoi Municipality requested a 10% tariff adjustment, the National Treasury requested an adjustment closer to 12% and the Department of Water Affairs approved the 43% tariff increase even though it urged the NWB to bring it closer to 12%.

The NWB warned that the tariff increase would result in less water consumption. This would further hamper the recovery of costs as 53% of the costs were fixed. 

Briefing by Rand Water
Mr Percy Sechemane, Chief Executive of Rand Water Board (RWB), stated that the board's revenue for 2009 amounted to R4 667 billion while total assets amounted to R7.9 billion. The gross margin decreased from 54% to 51% driven by the higher than expected raw water costs in April 2009. The RWB received an unqualified audit report.

The Board had a five-year Capex plan that amounted to R8.6 billion. It would focus mainly on capacity creation and most of the projects were already in creation. Capex approval was based on strategic fit, viability and affordability.

RWB reinvested a considerable amount of money into communities within its service area through its Corporate Social Investment (CSI) programme, which was managed through the Rand Water Foundation and its Corporate Social Responsibility Division. It also spent R2.6 million on donations to various non-profit organisations as part of its social responsibility initiatives this financial year. Rand Water Foundation had supported nineteen Small, Medium and Micro Enterprises (SMMEs) to a combined value of R2.9 million.

Some of the key challenges centred on the new tariff structure, ageing infrastructure, steep increases in input costs such as steel and energy costs, and raining funds effectively in financial markets that were in turmoil.

The RWB proposed a tariff increment of 14.1%, which was based on the cost of raw water, chemicals and other uncontrollable costs. RWB’s tariffs were expected to remain under pressure even though its tariff of 14.1 per cent was approved by National Treasury and DWA. Tough negotiations with customers were expected. The RWB suggested that the situation could be alleviated by having an independent regulator.

Briefing by Overberg Water
The Chairperson noted that there were blank pages in the printed presentations and this was unacceptable.

The Chairperson of the Overberg Water Board stated that he had sent through the presentation. He did not know what the problem was.

The Chairperson stated that she would give the Board an opportunity to complete their presentation another day.

Briefing by Mogalies Water
Mr Letlhogonolo Motlhodi, Acting Chief Executive Officer for Mogalies Water (MW), stated that the Board operated across four provincial areas of North West, Limpopo, Gauteng and Mpumalanga. MW still produced the best quality water despite deteriorating raw water quality in its catchment areas. The Board also achieved an unqualified audit report.

Challenges included insufficient raw water resources, deteriorating raw water and effluent quality in local municipality distribution systems, water demand and water pricing, scarcity of skills, inadequate institutional capacity and ageing infrastructure.

MW did not have any current long term borrowings. Borrowings would be considered where projects were viable and there was a cost recovery mechanism to ensure sustainability. The tariff structure would be used to ensure the recovery of costs.

MW received an unqualified report although there was an issue with its risk assessment programme. This was resolved as the Board was already in the process of implementing a Fraud Prevention Plan hot line.

The Board considered the National Water Pricing Strategy, the affordability to end users, financial sustainability and inflation targeting in its determination of the tariff increase. The operational costs were determined by the costs of raw water, staff and labour costs, electricity costs, cost of chemicals, maintenance costs, refurbishment costs and depreciation. Tariff increases would be different for every bulk water supply scheme and every municipality.

There were challenges during the tariff determination process. Economic indicators could change because planning was performed long before the tariff increase would take effect. The scaling down of activities by consumers had an impact on the intended Capex programmes. Consumers were opposed to the proposed tariff increases and municipalities were unable to afford the tariff associated with the implementation of the Capex programmes.

Briefing by the South African Local Government Association
Mr Mthobeli Kolisa, Executive Director: Municipal Infrastructure Services for SALGA, stated that there were some challenges that local government structures faced when undertaking their water and environmental functions. These included debt repayment by municipalities, the performance of municipalities responsible for water services, and the role of water boards in relation to municipalities.

There were cases of the appointment of incompetent service providers, as well as cases of corruption and nepotism. There were some municipalities which were not viable as WSAs but which were assigned the water services function. There were infrastructure maintenance backlogs and inadequate financial provision for free basic services for the poor.

Bulk services and related tariffs were a key factor in the delivery of water services. The Majority of WSAs already operated their water distribution businesses at a deficit or at break-even. The current environment in which municipalities operated was not favourable to big price increases. SALGA had to undertake a thorough analysis of the proposed Water Board tariffs in order to effectively represent local government. SALGA had received 13 bulk water tariff increase proposals for the financial year 2010/2011 by 9 December 2009. It had not received a proposal from Namakwa Water Board. SALGA had scrutinised each proposal and given comments to the boards by 25 January 2010.

SALGA noted that the Department of Water Affairs had obtained approval for raw water price increases that were significantly higher than those anticipated by the water boards. SALGA recommended that there be a review of the raw water tariff or a phasing in of raw water increases.

The water boards had proposed that their investment in fixed assets would be financed through increased in debt. No plans were made to receive further capitalisation from shareholders. This would result in severe increases in interest costs and would put severe pressure on many Water Boards to service debt repayments going forward. Both of these factors will place upward pressure on Bulk Water Tariffs. SALGA recommended that the funding models of water boards' be reviewed, especially their over-dependence on debt financing and its impact on tariffs.

For 2009/10, the Water Board Sector had projected an above Producer Price Index (PPI) sector average increase in operating expenses per unit (from R2.92 per kilolitre to R3.23 per kilolitre – 10.43%). This suggested that the water boards were operating less efficiently over time, and were passing this reduced efficiency to the WSAs. Consequently, water tariffs would then rise by more than 10% above PPI.

Staff costs were a significant component increasing by 24% from 2008/9 to 2009/10. The chemical price increase was partly due to increased volumes and to ongoing deterioration of raw water. The energy costs were significant. SALGA recommended that the regulator carefully scrutinise the operating expenses of water boards before making decisions on the proposed tariffs.

SALGA also recommended that a PPI plus 3% be allowed for both raw water and bulk potable water increases for the Department of Water Affairs and all water boards that had requested increase that were above this level. The scrutiny proposed in this submission had to be carried out for each water board during the 2010/11 financial year in order to determine appropriate increases for specific water boards in the future. A pricing policy for the whole water services value chain had to be completed during the 2010/11 financial year and the Minster had to move speedily to establish an institutional separation between the water boards shareholder role and the water sector regulator role, which were currently both played by the Department, making the Department both a referee and a player at the same time.

Briefing by the National Treasury
Ms Avril Halstead, Chief Director: Sector Oversight in the National Treasury (NT), stated that the water boards' annual reports showed a declining profitability. Costs seemed to be growing more than revenue because tariffs were not cost reflective, there was an increase in bad debts and there was a modest growth in water volume. This resulted in a lower accumulated surplus to fund capital. There was a high debt ratio due to high creditor’s fees. Declining profitability, low reserves and weak cash flows suggested that the majority of the Water Boards could not sustain high debt levels.

Some of the challenges that were noted were the issues of ageing infrastructure, the increasing demand for water, lack of technical skills and the reduced quality of raw water.

Submissions from water boards asking for tariff increases had to include the reasons for the increase, how inflation targets would be met, steps taken to improve efficiency or reduce costs and other objectives. Submissions by water boards were often not detailed enough. When evaluating a request for a tariff increase, the NT considered the sustainable considerations of the water boards, the affordability considerations of the WSAs, the impact on end users and the alignment with Government priorities.

The NT noted that the Albany Coast Water Board's incorporation with Amatola was supported. It also noted that the Namakwa Water Board's situation was not sustainable and an alternative long term solution needed to be considered. The municipalities were encouraged to review the level and structure of tariffs to ensure that they were fully cost-reflective, reflected basic levels of service and that they encouraged efficient and sustainable consumption.

Mr Skosana stated that the National Treasury’s presentation answered many of the questions that the Committee had for the last two days while discussing water boards. He noted that there was no document that could guide the water boards as to how they could collect money owed to them by municipalities. There was no policy for credit control. It was time for the water boards to consider this issue. He stated that SALGA had made a good presentation. It seemed to criticise water boards; however, it spoke on behalf of municipalities. SALGA touched on corruption, nepotism and bad decisions that were made by water boards and municipalities. He asked what it was doing to address the situation, especially the issue of corruption and bad service delivery. There was inadequate financial provision for Free Basic Services. What was SALGA doing to assist municipalities in this regard?

Ms Lovemore addressed Umgeni Water. She noted that the National Treasury advised it that its original proposed tariff should be implemented. What was the Board considering? The Board spoke of water resource inadequacy. The guarantee of supply was too low. She stated that more information on this issue would be valuable to the Committee. It had said that Spring Grove Dam would have a huge impact on their tariffs, but that it was engaging with the Department on the matter. She asked what this meant and if the Department would be subsidising it. She was very impressed with the various actions that Botshelo Water had taken to improve efficiency. Its tariff increase proposal of 16% was one of the highest of all the water boards, yet it did not include costs for the maintenance of infrastructure. The National Treasury had not been supplied with the supporting document for the proposal, so an analysis of the proposal could not be made. She noted that municipalities were only using 8% of what the Pelladrift Water Board was producing. She wondered if it would be viable once the mines closed down. She stated that the National Treasury also agreed that there seemed to be a lack of information. There seemed to be some sort of “legislative lack” or a lacuna that did not allow the National Treasury the ability to insist on more information or documentation from water boards. She found it alarming that the Committee heard the same story from Namakwa Water that it had heard the previous year. Nothing had happened in the past year. The quality of water that was supplied to that community was exceptionally poor due to crumbling infrastructure. Rand Water had a gazetted operational area and in this area there were private operators. If it wanted to outsource some of its functions, it had to consider entities or organs of the state first. It would be interesting if areas decided to use services from entities other than Rand Water. She stated that it was interesting that there was a R23 billion backlog in Gauteng alone for bulk sanitation. The Minister announced the other day that there was a R23 billion backlog country-wide. She thought that the Minister had grossly under-estimated the backlog. She noted that Mogalies Water had proposed tariff increases that ranged between 11% and 26%. The 26% tariff increase was proposed for the Klipdrift Water Supply Scheme. There was nothing in the presentation to motivate why Klipdrift had to have a 26% tariff increase. She could not believe that this could be viable for the Scheme.

Mr Msiwa from Umgeni Water stated that the Board had agreed on a 6.2% tariff increase. This was being implemented currently.

The issue concerning the low supply of water was a structural matter that needed to be resolved. Category B municipalities did not have the resources to cope with drought and low supply of water. When there are droughts in smaller areas, people start to panic. This had to do with the level of assurance that was given to those people.  

Mr Msiwa stated that the Board was bringing to the Department’s attention the matter of the Spring Grove Dam. Most of the expansion in the Kwazulu-Natal area was part of a rural and urban water supply project. The expansion would contribute towards rural development. The Board hoped that most of the costs would be carried by the state and not the user. This was the point that the Board was trying to make.

Mr Motlhodi addressed the query on the 26% tariff increase for Klipdrift Water Supply Scheme. He replied that the actual increase was 67 cents per kilolitre. Water was being pumped long distances from Klipdrift. The 26% increase was still below average and this was what motivated the increase.  

Mr Sechemane from Rand Water addressed Ms Lovemore’s question concerning entities not using Rand Water’s services. He stated that this problem would have to be addressed through legislation. Municipalities were not obligated under any legislation to use water boards that were situated in their area.

Ms P Bhengu (ANC) noted that most of the water boards had said that the ageing of infrastructure was a major issue. She asked how they incorporated the impact of climate change on infrastructure costs.

Mr Sechemane replied that this was a matter for the Department to resolve.

Mr Skosana stated that Umgeni Water had given the Committee a good presentation; however, it had not mentioned any challenges that the Board experienced. Pelladrift Water had given the Committee a presentation on its audit report, but had not given the Committee an overview of how it operated and what its challenges and achievements were. The Namakwa Water Board needed help urgently. The Department needed to assist it as its community could not go without water.

Mr Msiwa replied that Umgeni had its challenges; however, it did not want to burden the Government with them.

 Ms J Manganye (ANC) stated that the increase in the price of raw water was a serious challenge as it was very expensive.

The Chairperson stated that she agreed with some of the things said by SALGA. She noted that tariff increases would affect poor municipalities the most. During the consultation processes, municipalities and SALGA were the main stakeholders. If municipalities and water boards had agreed with SALGA during the consultation process, there should not be problems now. Water boards had differed with SALGA on the issue of tariff increases. Debt was also going to increase as municipalities would not be able to pay the new tariffs. Even SALGA had not agreed with many of the tariff increases. She referred to the document outlining the tariff setting process. The water boards had to consult the municipalities on their proposed tariff increases. The water boards also had to request assistance from the National Treasury and SALGA to provide written comments on the proposal. SALGA and the National Treasury had to be an advisory and monitoring role. Neither the Minister, nor the Portfolio Committee had the mandate to approve or reject proposed tariff increases. Committee Members, as Members voted into Parliament by the people, could not intervene. SALGA represented the majority of people through municipalities, and had to agree with them. It was out of the Committee’s hands. She requested that the DWA give the Namakwa Water Board special attention and to report back to the Committee on the Board’s situation in six months.

Mr Mohamed Vawda, Director: Institutional Oversight (DWA) answered that the Department had asked the Development Bank of South Africa (DBSA) to write off Namakwa Water’s debt. It seemed that it would react favourably to this request. The Department recognised that the regional infrastructure grant given to Namakwa was not enough and said that it would be giving the Board an additional R48 million to refurbish their infrastructure. The Board could not refurbish the infrastructure and then assume that the tariffs would sustain the operational costs. The Department wanted to do to Namakwa Water what it had done to Albany Coast Water. However, this was not possible at the moment as Namakwa’s infrastructure was inadequate. The Department had given Albany Coast Water a grant to fix its infrastructure and once this was completed the Albany Coast Water Board was presented to Amatola. The R48 million grant would be transferred over a period of three years.

The Chairperson wondered if the Department had given Namakwa Water this information because the Board should have known about it.

Mr Vawda replied that a workshop was held last Friday and Namakwa Water was present when the information was announced.

The Chairperson thought that Members had all understood the situation; however, there seemed to be some misunderstanding or miscommunication.

Mr Blake replied that he was just told that Namakwa Water’s Chief Executive was present at that meeting and there had been mention of the grant. He was not aware of that until today. The Board had not been told officially and formally in writing of the grant. However, it was pleased to hear about it.

The Chairperson noted that Namakwa Water’s Board was not even aware of the grant. This made her wonder if what it was saying was the truth. The Board was supposed to take responsibility. She could not understand how it could not know about the proposed grant and why it had to be revealed at the Committee meeting. She did not want to hear anything more about Namakwa Water, as the Committee was getting confused.

Ms Ngele commented that the Department noted the areas of concerns mentioned. The Department also needed to reflect on issues mentioned by SALGA and the National Treasury in their presentations. There were policy matters that had to be considered such as the issues of sustainable tariff structures, the increase in tariffs, and redefining the sector. The Department had to look at a review if the pricing strategies and the water economic regulator. The Minister wanted this to be done. She also wanted a review of the funding model. These policy issues would be attended to urgently. The Department would also look at the quality of raw water and come up with robust interventions to address the problem. There were issues that required political intervention such as water boards’ relationship with municipalities. This working relationship was a key factor. The Department would come back to the Committee with more information on Namakwa Water. It was committed to fast tracking a review of legislation around water boards. The Department needed to strengthen its institutional oversight and needed regular and sufficient engagement with the Department of Cooperative Governance and Traditional Affairs. The Department wanted to enhance strategic coherence of water boards. This interaction would talk to their strategic plans. The Department and the water boards needed to have an engagement where they could discuss the content of their strategic plans. The Department would ensure that they were aligned to Government’s Programme of Action. The water boards were instrumental in helping the Department to deliver on some of its objectives. They helped to enhance the Department’s ability to deliver services. The Department would continue to work with the water boards and Portfolio Committee, as both contributions were important to the Department.

The Chairperson thanked the water boards, SALGA and the National Treasury for their presentations. She hoped to hear more positive news in the next year when they presented before the Committee.

The meeting was adjourned.

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