Various water boards briefed the Committee on their strategic plans and budgets for 2011, supported by their annual financial statements. Mhlathuze Water serviced northern
The financial performance of Amatola was below expectations. Revenue had been affected by the drought and the restrictions placed on tariff increases. Performance bonuses had been withheld as a result, a decision which Members praised. Members felt that too large a proportion of the operating costs went to staff remuneration, even though there had been a decrease. There was also criticism that too much effort was going in to the secondary function of supporting municipalities. The water boards should be finding ways of increasing their capacity to deliver water and thus increasing their customer base. This was their primary function.
Bloem Water was facing challenges caused by outstanding debts from some municipalities. Some could not afford to pay their debts and there were disputes with others. This was hampering capital expansion programmes. Members were not satisfied with the situation in Bloem, stating that writing off the debts was not the answer to the problem. Proper contractual agreements were needed. Municipalities that ignored their obligations should have their supply cut off and face the wrath of ratepayers.
The Chairperson stressed that there needed to be further discussion around the problems of municipalities failing to pay. It may also be necessary to escalate some of the issues to Ministerial level.
Lepelle Northern Water was unable to make its presentation, owing to time constraints.
Mhlathuze Water: Strategic plans and budget 2011
Mr Victor Botes, Chief Executive (CE), Mhlathuze Water, said that Mhlathuze Water covered 37 000 square kilometres of northern KwaZulu-Natal. It offered bulk water and sanitation services to industries and water services authorities (WSAs) within its area of operations. There were six key strategies, namely WSA service provision, continued profitability, risk management, asset management, strengthening stakeholder and customer relationships and improving productivity. There were a number of strategic opportunities. He felt that there could be cooperation with a number of WSAs and government departments. An accredited laboratory could provide cost-effective water testing services. There was an opportunity to supply purified water above SANS 241 Class 1 specification.
Mr Botes said there a number of challenges. These included ageing infrastructure, a huge water supply and sanitation backlog, current and future clients being responsive to international trends, WSAs struggling to retain staff and poor infrastructure resulting from municipalities having a short term focus.
Mr Botes highlighted some aspects of the Annual Report (AR). Two projects were subject to a feasibility study. Four projects were being implemented at a total cost of R506 million. They were at different stages of completion. The funding was being provided by loans, the Department of Water Affairs (DWA) and the clients involved. Another six projects were also being undertaken. Money had been borrowed under the five year business plan. The closing balance of loans in 2011 was R292 million. The National Treasury (NT) had set an approved limit of R329 million. This would be reduced to R69 million by 2015, after several loans were due to have been repaid. The loans were to finance capital projects.
Mr Botes said that the projected gross water demand from its customers for the year 2011/12 was 95 million cubic meters, slightly less than the figure for 2010/11. This would further decrease and stabilise at around 91 million cubic metres over the following three years. The projected consumption for 2011/12 was 68 million cubic metres, increasing slightly in 2012/13 but decreasing to 56 million cubic metres in 2013/14 due to the end of Exxaro Hillendale contract. The number of raw water abstraction licences was 115 million cubic metres and was constant through a six year period. Supply agreements were in place with the City of
Mr Botes said that in the year ending 30 June 2010 the Board had increased its revenue by 26% to R214 million. Expenses were also up by 25% to R171 million. The surplus for the year was R21 million, a decrease of 38%. The volume of raw water supplied had decreased by 11%. There had been a tariff increase of 14%. The DWA had paid a tariff component of R32 million for raw water costs. Expenditure had increased due to higher salaries and executive positions being filled, an increase of 16% in energy costs and losses on the dense waste water pipeline.
Mr Botes said that the financial position was healthy. Non-current assets had increased by 38% but current assets had decreased by 4%. Non-current liabilities had increased by 46% due to new loans. Current liabilities had increased by 12%, but a R20 million loan had been redeemed and a R12 million overdraft cleared on the first day of the current financial year (FY). The financial ratios could all be described as adequate although the quick ratio of short-term liquidity and the interest coverage ratio of long term solvency needed attention.
In terms of human resources (HR), Mr Botes said that, overall, equity targets had been achieved at all levels. There was still a need to improve the representation of females and people with disabilities at management and technical levels. Female representation at executive level was on track. Education schemes were in place. AR highlights included a surplus of R21 million, a loan facility of R250 million being concluded, a new ERP system, own capital projects progressing well and an unqualified audit report.
Mr Botes said that a tariff consultation process had taken place. All deadlines had been met and tariffs had been tabled at Parliament on 15 March 2011.
Sedibeng Water Strategic Plan and budget 2011
Mr R Takalani, Acting CE, Sedibeng Water, apologised that the Chairperson of the Board had not yet arrived. He said that the report had not changed since the previous day. Sedibeng Water covered areas in three provinces namely
Twelve outcomes were included in the Strategic Plan for 2011/12. On five of these outcomes the Minister would have to sign a performance agreement with the President of South Africa. These covered enhanced quality and quantity of water resources, improved access to basic services, the maintenance and supply of bulk water infrastructure, effective institutions to address government outcomes, and co-operative governance mechanisms..
Mr Takalani said that strategies had been developed. He presented a detailed table of outcomes and the associated outputs. A saving of 5% was included as part of the strategy. There would be quarterly assessments. He then presented the budget. Revenue was expected to be R561 million. The cost of sales was R184 million. Other income was R30 million. There were cheaper water sources than the
Mr Takalani presented a list of capital projects. The budget for the Northern Cape (NC) projects was R12 million. The main costs were upgrading of roads. In the Free State (FS), the budget was R27.4 million. The Namaqua region was listed. A pipeline was to be replaced. People were not getting water before, but the problems were now being solved. Vehicle purchases would amount to R18 million, which would be provided by the Department of Water Affairs (DWA).
Mr Takalani said that tariff increases for 2011/12 would be 8.5%. There had been a proper consultation process. This was less than the 13% recommended by the South African Local Government Association (SALGA). The Minister had approved the increase. Sedibeng Water had stayed within the budget for 2009/10. There had been a problem in North West (NW). Extra revenue had been earned in the NC and FS. Water losses were 6.1% compared to a norm of 12%. This must still be reduced to 4 to 5%. Class 1 standards for quality of water were being met in the majority of the regions under its control. Seventeen employees had been awarded bursaries. 16 employees had gone through the Management Development Programme, and all had passed their courses. There were other learnerships in place. Internal training was in place. Staff turnover was 4.1%.
Mr Takalani said the Board was doing well in maintaining safety and health standards. An HIV/AIDS programme was in place. An accredited quality control laboratory was being established.
Mr Takalani said there were some challenges. Cost recovery was a major problem. He suggested that the Equitable Share should go directly to the water board as some municipalities were not paying what was owed to the board. Budget allocations were inadequate in the NW region. Functions were shared which led to problems. As experienced by the other water boards, the supply of electricity was a problem. The quality of the water from the
Mr Takalani said that Sedibeng Water had received an unqualified audit report. He gave a financial overview for the previous five years. Budgeted revenue for 2012 was R561 million and the total projected income was R598. Expenses and operating costs were budgeted at R603 million. The loan from DWA would be paid off in 2012, and the loan from the Development Bank of South Africa (DBSA) would be paid off in 2018. Others would be paid off in June. There were investments to cover the loans. He gave a list of capital projects for 2012 and beyond. The cost of capital projects in NC for 2012 was R12 million, in NW R2 million, in FS R24 million and in the Namaqua region R18 million, a total of R58 million.
Mr Skosana said that all consumers must pay for services rendered. It was a serious problem. Another challenge was the lack of willingness to enter into long term contracts. He liked the way the outcomes had been linked to those of the Minister.
Mr G Morgan (DA) was interested in the status of the Mhlathuze Board. Its period of operation had been extended the previous year. He asked if the Board was in dispute with the Minister. He asked what the status was of the case where a member had spent R1.9 million on a World Cup hospitality package. This person had been relieved of his duties, but he wanted to know what was being done to recover the Board's money.
Mr Botes replied that positions had been advertised. In February the Minister appointed a new board. There were twelve members, who had their first meeting in March 2011. The second meeting was planned for 27 May. There was currently no dispute with the Minister. The various committees had been constituted. There was a settlement with the former CE, who contested the matter in court. The legal route was still being followed. He did not have the final outcome. The matter should have been settled in February.
Mr S Huang (ANC) said that the Boards could not sign short-term contracts with the municipalities. Longer contracts were needed. The water boards needed to sign fifteen year contracts. It was a problem maintaining a balance of income and expenditure.
Mr Takalani replied that the municipalities worked on a five year term, and were reluctant to go into agreements beyond their term.
Ms D Tsotetsi (ANC) asked for the names and profiles of board members. She asked what conditions were attached to bursaries. It was not clear what was meant by outside students. In regard to the outstanding liabilities, she asked in which municipalities these occurred, and what the amount was. She noted statements that pipes of thirty years age were to be replaced, and she asked what was happening in this regard.
Mr Takalani replied that he did not know whether he needed to include the names of board members in his submission to Parliament. The information was, however, in the AR. The board needed to make a submission to Parliament, and he would include the requested information in that submission.
Mr Takalani confirmed that employees of Sedibeng Water were given bursaries for studies within their field of employment. No repayment was expected but beneficiaries had to agree to work for the Board for a certain period. If the studies were not related to that person's field of employment then the bursary was in the form of a loan which had to be repaid. “Outside people” were those outside the board's area, but preference was given to applicants from within the area. Many were absorbed into the company. They did have a better chance of employment.
Mr T Nteo, Chief Financial Officer, Sedibeng Water, said that Matjhabeng municipality in the Welkom area had the highest debt at about R300 million. This municipality’s monthly bill was approximately R21 million, of which only R8 million was being paid. The municipality had declared a dispute over the inclusion of loan interest and insurance in the tariff.
Mr Takalani said that the pipeline questioned by the Committee fell within the area of
Mr Morgan asked for an explanation of what happened to former CE Mr Silas Mbedzi. His contract was not extended. He asked if Sedibeng's financial affairs had been a subject of an external audit. He did not want to react to rumours, but he had massive amounts of correspondence regarding allegations of abuse by members of this board. He asked what course of action had been taken against individuals found guilty of offences in the previous year.
Mr Botes replied that Mr Mbedzi's contract ended in July 2010. It was not extended. The DWA had conducted an investigation. An advocate had led the investigation and had reported to the Minister. From the report there was no indication that other senior management or staff were implicated. One senior manager was on suspension. A disciplinary hearing was to be conducted, but the Minister had directed that this be put on hold until the new board was appointed.
Ms P Bhengu (ANC) asked what Sedibeng's retention strategy was.
Mr Takalani replied that training and bursaries were provided. The board tried to compete with outside companies. He felt that salaries were competitive before considering other benefits such as bursaries. There were no shortages with technical staff.
Mr Skosana asked if there was any mechanism to assist bankrupt or delinquent municipalities.
Mr Huang felt that the water boards were not taking action to recover outstanding fees. Some municipalities in other areas were prepared to sign fifteen year contracts.
Mr Takalani did not know about the example quoted by Mr Huang. This was not the case in their area of responsibility. Perhaps SALGA should assist. He understood the DWA was doing its best. They had approached the Department of Cooperative Governance and Traditional Affairs (COGTA) in the Hartswater problem. He agreed that it was necessary to keep trying to effect improvements. There was a report which his board sent to DWA, containing an analysis of all the municipalities which were in debt.
Mr Skosana said that copies of documents must be provided to the Committee.
Mr Helgard Muller, Acting Deputy Director-General: Policy and Regulation, DWA, wanted to make two points. He agreed that longer term contracts would be ideal. Boards must make investments and appoint people. However, agreements could not be forced on municipalities. The DWA mediated in disputes over outstanding debts. He quoted some examples where DWA had assisted. In the case of
Ms Thoko Sigwasa, Chief Director, DWA, said an apology was needed around the appointment of the Sedibeng board. The Minister was busy with this. The Minister was in discussion with the Auditor-General (AG) on outstanding issues. The Mhlathuze issue was still at court.
Mr J de Lange resumed his duties as Chairperson.
Mr de Lange raised the question again of the hospitality spending.
Mr Botes said the issue was still subject to a legal process. The former CE had spent R1.9 million on a World Cup hospitality package. The match tickets, which would still have cost another R500 000, were not bought and the hospitality package was not used. The board's attorneys and the DWA were dealing with the issue. The Public Finance Management Act (PFMA) did apply to the board. When the board discovered the situation it had been reported.
The Chairperson asked why no internal action was being taken.
Mr Botes said that a Supply Chain Manager had been dismissed, as well as the CE.
The Chairperson said that the situation was totally unacceptable. This was a complete waste of money which should have been used on infrastructure. Even if the money was recovered, most of it would go to legal fees. He instructed the board to report further to the Committee within the week. He accepted that some outreach was needed, but this situation was outrageous. He also wanted a full report once the settlement was made. He would not accept the excuse of confidentiality clauses in responding to Parliament. It might not be the board's fault, but it was up to them to sort the matter out. The DWA must lead the investigation.
Mr Mahomed Pawda, Director Water Finance and Pricing, DWA, said that the Department had taken no action on the R1.9 million.
Mr Botes said there was a court case pending. Both parties were preparing statements.
The Chairperson said that he now understood that the case was only beginning. It could take some years to resolve. He felt that a jail sentence would be appropriate. He felt that money was being stolen from the poor. Such cases were taken too lightly. Decisive action was needed. He was baffled that there were no procedures in place that would have prevented the matter from happening in the first place. The Special Investigating Unit (SIU) had the ability to recover money in such cases.
The Chairperson was generally satisfied with the financial conduct of the two boards.
The Chairperson welcomed a delegation from
Presentation by Amatola Water
Ms Nothema Mlonzi, Chairperson, Amatola Water, said that Amatola Water had experienced a shortfall in revenue due to non-payment by one of its client municipalities. It had also been instructed to reduce tariffs. Three of its eleven purification plants had been awarded Blue Drop status. Other awards had been achieved. There were programmes in place with
Ms Mlonzi said that the board consisted of a Chairperson and eleven non-executive members.
Ms Nomande Mnukwa, Chief Executive Officer (CEO), Amatola Water, said that Amatola Water was now covering new areas. There was a growth strategy in place. Staff retention was a key focus area. A self-assessment had been conducted. The AR had been circulated. 4 500 temporary jobs had been created. Sanitation was provided for several families and rural schools. The board was challenged in finding key staff members. 8% of the pay-roll was spent on development of staff. Staff turnover was 9%. This was less than the national average, but was still unacceptable to the board. Efforts were being made to maximise efficiency. Water losses were 4%. The assurance of supply had exceeded the target. Staff costs had been reduced. There was a transformation process. A lot of time was needed to work on proposals and projects.
Ms Mnukwa said that assets were R437 million, which balanced equities and liabilities. Sales had reduced to R239 million due to the drought. This was R17 million below budget. Financial performance was not as good as expected and the board had resolved not to pay performance bonuses as a result.
The Chairperson applauded this decision.
Ms Mnukwa said that revenue had gone down while operating costs had increased. The net operating deficit was R22 million. Tariffs had been cut by the Minister. One institution owed R12 million, but this was settled after the end of the 2009/10 FY. There were positive indicators. R41.3 million had been invested to improve water security. Staff costs were R103 million. This was an increase on the previous FY, but the number of staff had increased due to expansion. The budget was set for 2011/12 as being 32% of operating costs. She suggested that it was necessary to compare Amatola's situation to other boards. Much of the operation of Amatola was in rural areas, which made it difficult to attract staff.
The Chairperson said that revenue was declining but staff costs were increasing. This was a recipe for disaster.
Mr Craig Step, Chief Financial Officer, Amatola Water, said that Amatola had inherited the systems in the former
The Chairperson reminded Amatola that every cent spent on staff was one less cent for infrastructure and the poor.
Mr Step replied that services were being operated on behalf of municipalities. The board provided high level skills. There were co-funding options.
The Chairperson wanted a breakdown of where money would be spent. It seemed to him that most of the work being done by the board was in the form of municipal functions being done on contract. It was an easier option. The problem with such contract work was that the board was not expanding its capability. He would not hold the board to account on what was being done for municipalities. Its primary job was to create infrastructure and provide water resources.
Mr Mzwandile Goqwana, Director Corporate Services, Amatola Water, said that Amatola was working on a 50/50 balance between primary and secondary functions.
The Chairperson said that a strong income base was needed. He was happy with the honest answers to his questions.
Ms Mnukwa said that the board had an unqualified audit report, as opposed to the previous year.
The Chairperson asked why DWA was giving the incorrect information, as it had indicated that a qualified report was given.
Ms Mnukwa said that the qualified report had been a once-off situation. Municipalities had not acknowledged their debts. 68% of water supply was to
The Chairperson said there would be no sympathy from this Committee for organisations who failed to comply to requirements. A water board was a very technical structure. He urged that matters must always be attended to timeously, and it would be the DWA's responsibility to ensure compliance.
Ms Mnukwa said that Amatola had tried to respond to what SALGA was saying. SALGA had requested a 1% decrease in tariffs. She presented a corporate strategy, as well as a scorecard that the board would follow to monitor its delivery.
The Chairperson said that it would not really help if the scorecard was compiled internally. An external perspective was needed.
Ms Mnukwa said that industry benchmarks were used. It was audited. She presented a growth strategy for 2020.
The Chairperson wanted to see a focus on the primary functions. The secondary functions should only be in support of municipalities. The provision of infrastructure should be financed by tariffs.
Ms Mnukwa said that there had been a separation between primary and secondary functions in the budget. The board was working to eradicate the deficit of R17 million and move towards a surplus of R10 million over a five year period.
Mr Skosana asked about gender equity. He praised the board for recovering some of the bad debt. He had heard the report of what had been done in previous years and future plans. He did not hear much about the current performance and how it was linked to the Minister's outcomes.
Ms Mnukwa said there was a breakdown of the gender balance in the report. The percentages at top management level were quoted. More than 60% of the board were females. At top management level female representation was 100% as there was only one post. In senior management positions, there had been advancements. A position had been vacant for years as the board wanted a black female to fill it but had not found a suitable candidate. The work was being handled by other management staff.
The Chairperson said that it was not fair on the organisation to wait for so long to fill this position. IT would rather be preferable for the Board to take a pro-active stance and head-hunt someone to fill the post.
Ms Mnukwa said that there was a link to the ministerial outcomes. Some matters had not been included in the presentation ,such as the establishment of a learning academy. Some were direct and others indirect.
The Chairperson said that attractive documents had been provided, but information such as salary scales was still needed.
Presentation by Bloem Water
Dr B Malakoane, Chief Executive, Bloem Water, outlined some of the problems caused by silt in water storage facilities in the area. Some dams were so silted that they were hardly usable. Damage was being caused to filtration plants.
Mr O Stadler, Chief Financial Officer, Bloem Water, noted that this institution also had an issue with debtors. He provided a list. There were some agreements in place. Naledi, which owed R20 million, was a serious problem. NT was also trying to help. It acknowledged the debt but did not have the means to pay it. The
Mr Stadler said that revenue for 2009/10 was R226 million. However, an overall loss of R16 million was reported. Interest was being written off on outstanding amounts.
The Chairperson asked on what basis interest was written off.
Mr Stadler say it was not all in Mangaung. The agreed volumes had been exceeded. This had led to related expenses.
Mr T Phitsane, Chairperson, Bloem Water, said that it was often the case that the municipalities were unable to pay for services.
Mr Stadler said there was a contract to supply R16 million worth of water to Mangaung annually. The contract made provision for extra delivery which would be reconciled at the end of the year.
Dr Malakoane said that special circumstances prevailed. The board was tempted to cut off supplies to delinquent municipalities. The law did not allow for this, but only for the restriction of supply.
The Chairperson was not happy with the principle of writing off debts. Every cent written off sent a message to consumers that money would not be spent on infrastructure. If NT had approved this he would take the matter up with them. The money should be given to the board for its operating expenses. A precedent was being created. The capital expenditure (CAPEX) budget was frozen for the year as a result. The Water Board was at a serious disadvantage in servicing the public.
Ms Avril Halstead, Director: Asset Management, NT, said it was a complicated issue. It was not a case just of supplying water, but a balance between supplying raw and potable water. An agreement had been made for the municipality to pay for the raw water and other costs were written off. It would not be a precedent. A new contract had to be put in place.
Dr Malakoane said that Mangaung was a difficult situation. It was the board's business to provide services. The contract had been signed two months previously, but Mangaung had not responded.
The Chairperson asked if there had been any interaction with the Minister. He could not accept that services were provided without a contract. If it came down to cutting off supply, then the municipality must bear the consequences and explain this to its electorate.
Dr Malakoane said that the old contract was still in force. The new one would only become effective in July. Bloem Water was now providing potable water. The Board was not operating to contract in this sense. The Board had agreed to supply more than the original agreement. In future the Board should perhaps supply no more than what was in the contract. However, it took the point that customers should not suffer because of the high-handed actions of municipal officials.
The Chairperson asked if it was NT's understanding that the old contract should continue until July.
Ms Halstead was not aware of any conditions.
Mr Muller said that DWA had recommended a new contract due to serious flaws in the old one. No date was set. The Department was glad to see a settlement of the previous debt.
The Chairperson said that there were different interpretations. He wanted to see that things went as they should. Political intervention might be needed.
Mr Stadler said that total assets were R882 million. There was provision for bad debt. There was no serious impact on cash flow. He agreed that there was a lot of money in short term investments.
The Chairperson could not understand why there was a deficit while R216 million was in short term investments.
Mr Stadler said that the movement in the balance sheet was due to write-offs. The board was paying about R25 million in interest on loans. CAPEX had not been managed well. For at least six months there had been nobody to approve projects. The position around solvency and liquidity was fine, despite the problems. He presented the budget. The board had requested a systems tariff of R3.93. The Minister had only approved R3.50. This would lead to an under-recovery. Increases in various costs would impact on the CAPEX budget. There would be a funding gap in future years. If this was not supported now there would be serious problems in borrowing money in future. Cash flow in future years should be stable but there were many future requirements. Approval had been sought from NT on borrowing limits. This source would be used for CAPEX projects.
The Chairperson was confused over different figures in this presentation and that of DWA.
Mr Phitsane said that the board followed all the processes stipulated by the Act, but customers did not stick to agreements. The Minister had promised to look into the matter but he only expected action after the municipal elections.
Mr Huang noted that there were generally problems between municipalities and water boards. Whatever the length of the contract, the water boards must be paid. He noted that a list had been distributed at the meeting the previous day. It was easy to write off debts, but municipalities were often bankrupt. There were short term investments. He asked what the length of these investments were.
Mr Skosana said that municipalities did not want to enter into long term contracts. Non-payment was an issue. The effects were felt in the communities. The boards would collapse in time, leading to serious challenges for the country, if this situation was allowed to persist. Problems needed to be addressed. There were huge savings that were not addressing the problems.
Ms Bhengu said that something must be done. If municipalities did not pay it would be consumers whose supply was cut off.
Dr Malakoane took note of the comments. Short term investments were for not longer than twelve months.
The Chairperson was getting an understanding of the general problems and where they were leading. He was not getting the same sense with Bloem. There did not seem to be a plan to solve the problems. Serious thought was needed. Political interventions would not get municipalities to pay their dues. CAPEX planning should indicate which communities would benefit from development. There might be a political escalation to the level of the Minister. He did not see any point in continuing the discussion. The board needed to go and reflect on the situation. Many boards had debts. There was some R1.5 billion owed in all areas of the country. They could not blame tariff decreases. That had applied to all the boards.
The Chairperson then noted that there was not sufficient time to hear the presentation of the Lepelle Northern Water Board, for which he apologised. He explained that there was a full programme in Parliament that afternoon. The meeting would continue on the following day.
The meeting was adjourned.
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