De Hoop Dam: Department of Water Affairs progress report

Standing Committee on Appropriations

06 May 2010
Chairperson: Mr E. Sogoni (ANC)
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Meeting Summary

The Committee held a follow up meeting to address issues around the De Hoop dam, following its oversight visits to De Hoop, Nandoni and Inyaka Dams on 13 April 2010. Aside from the Committee expressing its unhappiness that no senior people were on site to answer questions definitively, it was pleased with the overall progress at Nandoni and De Hoop Dams. However, there were outstanding issues at De Hoop. The Department of Water Affairs therefore briefed the Committee on the progress of the De Hoop project, which was first approved in 2005, had commenced in 2007, but had run into difficulties in 2009 with the withdrawal of Eskom and the general economic slow-down. It was reported that this project was still seen as important, as it stood to provide water not only to local mines but to residents in a number of areas. The Department reported that once all funding was received, the projected partial impoundment of the De Hoop Dam was January 2011, and raw water would be available for delivery in April 2012.  The delivery target to the people of the Nebo Plateau, Greater Tubatse, Mooihoek and Jane Furse areas was 2012. The overall projection was R20 billion for the entire project.

Members were unhappy about the change of date for the delivery of water, from April 2011 to 2012. In particular the use of jargon such as “impoundment” instead of “delivery” was criticised, and it was noted that there were some inconsistencies in dates given to the Committee at previous meetings, in the budget speech and in the current presentation. Members also criticised the lack of clarity on how the project would be funded. Some Members felt that this project was doomed to become a white elephant, while others believed it still had merit. Members asked whether the financial viability of the project was certain, noting that National Treasury had declined to fund, and advised the Department to put more effort into coming up with creative ways of enticing private investors such as mines and other key role players in the private sector. Members asked if there was a hydro-electric component and asked for clarity on whether the Department would be able to do reticulation, and noted also that there was a need for the Department and the municipalities to come up with integrated planning and identify what could be done to address lack of capacity at local government level. The Department was asked to explain “off-budget funding” and “off-balance sheet funding”. The Department undertook to follow up the question of deadlines for reticulation with the municipality and provide a report to the Committee by 10 May, after which the Committee would further address the matter.

Meeting report

De Hoop Dam: Progress report by Department of Water Affairs
Dr Cornelius Ruiters, Deputy Director, Department of Water and Environmental Affairs, gave a presentation to the Committee on matters relating to the recent visit that the Committee had made to the De Hoop, Inyaka and Nandoni Dams. He apologised to the Committee for the fact that they had not been able to find a senior person on site during the oversight visit.

Dr Ruiters gave a brief overview of the Olifants River Water Resources Development Project, which was to supply water to areas such as Mokopane, Polokwane, Lebowakgomo and the whole of the Nebo Plateau. He estimated the population of the Nebo Plateau to be approximately 1 million people, which made it urgent for this project to be expedited. Other areas in need of water supply were the Mooihoek and Jane Furse areas, where the existing supply was very limited, which was why the Department of Water and Environmental Affairs and Forestry (DWEA) had initiated this project.

He noted that the withdrawal of Eskom from the Tubatse pump storage scheme had dealt a major blow to the project. This meant that the Department had to redesign the project, resulting in an increase in the operating cost of the project. He believed that this and many other challenges had a negative impact on the project completion date, which he then proceeded to outline (see attached presentation for full details).

Dr Ruiters outlined the relevant dates in the project of De Hoop Dam, from the time that Cabinet had first approved the construction of De Hoppe Dam, to the commencement of the project in 2007. Eskom had withdrawn from the project in 2009, and the global economic downturn between 2008 and 2010 also dramatically altered the situation. During this period, the platinum price and demand for platinum decreased, and the liquidity crisis peaked.

Despite these challenges, the Department came up with Water Supply Agreements which were intended to improve the “bankability” of the project. However, these were also not without challenges. He stated that the total number of Water Use License Applications stood at 21, of which three were from municipalities, while eighteen were from mines, which tallied up to 180 million cubic litres per annum. Of this 180 cubic litres, 16.6% went to mines, while 83.3% went to the municipalities. Dr Ruiters said this was a cause for concern, as the municipalities’ usage of water by far exceeded previous estimates. In fact, this also exceeded available supply by 100 million cubic litres per annum.

Dr Ruiters noted that the shortfall for the entire project was R5 400 billion over the next 6 years, while the total cost of the project was R20 442 billion. Once all funding was received, the projected partial impoundment of the De Hoop Dam was January 2011, and raw water would be available for delivery in April 2012.  The delivery target to the people of the Nebo Plateau, Greater Tubatse, Mooihoek and Jane Furse areas was 2012.

Dr Ruiters then touched on the water tariffs saying that the commercial rate was R10 per kl, whereas for “social users” it was R5. For the Nebo Plateau it was estimated at R20 per kl. National Treasury was approached to amend the equitable share formula.

Mr M Swart (DA) expressed his concern about spending money on building what he feared would ultimately become a white elephant. He felt that the importance of the project only extended as far as its ability to supply water to the community. He noted that the lack of certain financial viability of the project made the sustainability of the project questionable, especially when considering that National Treasury declined a request to fund the project. He was of the opinion that the community members were not in a position to fund the project, resulting in a huge financial loss per kilolitre of water. He asked how the shortfall would be funded.

Mr GT Snell (ANC) talked about a decision in principle that had been taken previously, where private investors would be used as a key source of funding. He was not sure whether the private investors would benefit through the availability of water in their mines, which would enable them to expand their operations, or whether, by investing in the project, they would get a discount on their rate per kilolitre of water. He asked if the Department had thought about putting out a tender in the market in an effort to lure private consortiums that might want to partner with the Department and generate a profit on the water being provided to the mines. He also asked if the dam had a hydro-electric component that would enable it to do reticulation, independent of Eskom.

Dr P Rabie (DA) felt that the dam was an essential piece of infrastructure. He said that allowing an area to become densely populated without a good supply of water constituted a violation of the rights of the residents of the area. He was of the opinion that in the long-run, the investment would be worthwhile. His main concern, however, was that the Department talked about impounding the dam by January 2011. He had recently visited the site, and felt that this deadline was unrealistic, more especially since only 40% of construction on the dam has been completed thus far.
Mr JP Gelderblom (ANC) decried the poor planning by the department. He wanted the Department to explain what exactly it had meant by “unrealistic demand by municipalities”. He was also interested in finding out what the Department was doing about the lack of capacity that it identified at local government levels.

Mr L Ramatlakane (ANC) sought clarity on what had happened to the Department’s initial stance on being able to fund the project, with or without private investors. In a previous meeting, the Department had been adamant that the project would be funded from the budget, so he questioned why now there was a shortfall being shown in the current presentation. He asked the Department to explain two terms it had used in its presentation: namely “off-budget funding” and “off-balance sheet funding”. He emphasised the importance of being absolutely clear about when water would be available to the people.

Ms Nobubele Ngele, Acting Director General, DWEA, emphasised the importance of sharing all the issues and relevant challenges with the Minister to establish where the Minister could intervene to assist. She had set up an appointment with the Minister to discuss the challenges. She said that the Department did need to make trade offs and to engage with National Treasury to establish in which areas the latter would be willing to fund the project. Furthermore, she felt that these physical areas suffered from a serious lack of basic services. She stressed that, although the Minister mentioned that the impounding of the dam would take place in January 2011, this did not necessarily mean that the water would be delivered to the people by January 2011.

The Chairperson was critical of the use of what he termed jargon, which was merely confusing the issue. In the previous meeting, the Department had used the term “delivery to the people”, instead of the new term now being used of “impounding”. He reminded the Department that Parliament, as public representatives, would largely be interested in the delivery date of water to the people.

Dr Ruiters explained what “impounding” meant to the Department. In his explanation, he offered practical examples of how impounding, if not done properly, could affect the delivery date of water to the people. He explained how the withdrawal of Eskom, with its hydro-power component, had affected the delivery date of the project. As a solution to this challenge, the Department was looking at using the Private-Public Partnerships as a means of generating hydro-power, using existing infrastructure. He highlighted that the Department had already tried a number of ways to attract private investors, with no success. With the exception of the farmers, private investors were not interested. In light of these challenges, he believed that, realistically, water would only be delivered to the people in 2012. The Department had forecast the contract completion of the dam to be March 2013.

Dr Rabie explained that the Department was responsible for bulk supply and not the reticulation process. He had his doubts that the municipality would be ready for delivery by 2102. He pointed out that the Department’s plan only talked about impounding, and not about the reticulation process, which was the process that ensured the delivery of water to the people.

Ms R Mashigo (ANC) believed that the Department and the Minister had to work to get more synergy into the process. The Minister had noted, in the budget debate, that water would be “delivered to the people” in April 2011 and not in 2012.

Ms B Ngcobo (ANC) wanted the Department to explain what it meant by unrealistic demands from the municipality.

Dr Ruiters said that he thought that the Minister had actually used the term “impounding” and not “delivery” in the budget speech, saying that he had been instrumental in drafting that section of the speech. He noted that the Department could only be held accountable for impounding as reticulation fell under the municipality.

The Chairperson again strongly criticised the use of confusing jargon. People were interested only in the delivery date of water and should be informed of this.

Ms Ngele said she was aware that the Department and municipalities needed to come up with an integrated plan that would give a better indication of when water would be delivered to the people. She gave an undertaking that the Department would follow-up with the municipality about the deadlines of its reticulation process, and would forward the report to the Committee on Monday 10 May 2010.

Mr Snell suggested that such a report should shed light on whether the Department had made use of any infrastructure grants, and whether these grants would be sufficient for the reticulation process.

Dr Ruiters made it clear that the Department shared the Members’ concerns about the bankability of the project. He reminded the Members that when the project was conceptualised the South African economy was still doing well. For instance, the mining industry was interested in investing in the project, until the price of platinum fell over the past couple of months. This had resulted in a situation where sections of the project were funded, while others were not. He emphasised that the project should not just be seen as an unnecessary expense but also as a social investment. He expressed his displeasure that the Members had levied criticism that politically this was viewed as a white elephant, when, in fact, the opposite was true.  

When reminded to answer the question about the funding, Dr Ruiters then explained “off-budget” as a situation where the project was fully funded by the users, while “off-balance sheet” referred to a situation when, for instance, the commercial investor paid for the project.

Mr Snell said that as long as the Department mentioned to private investors that National Treasury was likely to fund the project, no private investors would be willing to invest in it, as they would obviously want to benefit from it without having to put in any funding.

Mr L Ramatlakane (ANC) wanted to find out if the R20 billion forecast expenditure for the project was a complete picture, and did or did not include the off-balance sheet funding.

Dr Ruiters explained that the R20 billion was an all-inclusive projection. However, the project short-fall was R6.7 billion. He emphasised how important it was to achieve the set target for both the impounding of dams and the reticulation process.

The Chairperson noted that the issues would be revisited on Monday 10 May, when the Department had sent through an integrated plan>

The meeting was adjourned.


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