Water Boards, SALGA, National Treasury & Department briefings: Water Boards' Annual Reports 2010/11, bulk water tariffs 2012

Water and Sanitation

23 April 2012
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Meeting Summary

Five Water Boards, the South African Local Government Association (SALGA), Department of Water Affairs (DWA) and National Treasury (NT) commented on the annual reports of the Water Boards for 2010/11, and the new bulk water tariffs for 2012/13. The DWA stated that the performance of the Water Boards was generally satisfactory and their level of compliance was improving, although she did note underspending in the last financial year on some areas, and significant amounts of money owed to several by the municipalities. The tariff increase proposals were outlined. Some of the smaller boards were struggling with compliance, although the DWA was monitoring them more closely and most boards had delivered on their mandates, and showed improved financial viability, with new policies approved by the DWA. DWA had revised the shareholder compact, had a new database to record performance, and draft reports on norms and standards. National Treasury was considering how to fund capital water projects, and in the long term it was hoped that some water boards would be able to help build capacity in municipalities in regard to water tariffs and management.    

National Treasury gave an analysis of the performance and tariff increases of the Water Boards, and indicated those who were suffering particular difficulties, either because of the failure of municipalities to pay, or their size. Most of the water boards were delivering quality water but were facing problems with their ageing infrastructure and financing for capital expansion was critical for Water Boards who were operating ‘on the margin’. National Treasury recommended that the Department of Water Affairs needed to clarity the roles and responsibilities on governance and oversight, should review the contracts of management, prioritise assistance to the ailing Water Boards and municipalities with service level agreements, and deal with contractual issues. In addition, the Water Boards needed to structure their tariffs to ensure proper cost recovery, including costs of maintenance. More leadership was needed from the DWA.

SALGA, said the Water Boards must demonstrate effective, efficient and proactive management of expenses especially in the energy and staff areas. A centralized Water Demand Planning function should be established to match water needs with IT infrastructure investment and proposed Capex Projects of Water Boards should be subject to review to enhance productivity. A number of detailed recommendations were set out, which he suggested should be taken into account by DWA in the next cycle. Essentially, these were aimed at standardising and better managing the processes.

Rand Water Board highlighted that the customer-centric approach of his Board had yielded an overall satisfaction rate of 84%, and that it had scored an unqualified audit opinion with all compliance and regulations met. The Board achieved almost R5.9bn in revenue. It had undertaken two forensic investigations, one of which concluded that tender awards were in line with Supply Chain Regulations, whilst the report on the fiduciary compliance of the Board was still awaited from the Minister. It was investigating how to improve water losses and had already achieved improvements. The black empowerment and equity figures were recorded, it anticipated creating 400 jobs by 2013, and the bulk water tariff increases were noted, as well as the rationale. This Board’s main challenges related to delays in finalisation of Environmental Impact Assessments, and Rand Water had requested that it be permitted to undertake the function of a Catchment Management Agency. It was continuing to improve profitability, returns and operational efficiency.

Bloem Water Board had received an unqualified audit with no matter of emphasis, but had underspent by 30%. The figures for 2010/11 and projections for 2012/13 were outlined, noting that it was hoping to achieve 95% Capex spending by end June 2012. It had addressed water supply challenges on raw and treated water systems. Two municipalities owed R30 million, and this was reported to Provincial Treasury. Its bulk water tariff was to be increased by 12, 6%, which was supported by DWA, although SALGA’s comments were awaited. Its priorities for 2012/13 included a focus on organizational capacity, improvement of technology and equipment, existing and new staff training, and improvements in communication, branding and stakeholder satisfaction. Its challenges included deteriorating raw water quality, as a result of inadequate catchment management, delays in issuing of Abstraction Permits, municipal debt, ageing infrastructure and rising input costs.

Umgeni Water Board had increased revenue by 2%, had sufficient cash reserves to allow it to cease borrowing for the next two years, and had therefore reduced its finance costs by 50%. It was anticipating achieving full spending by year end. It had increased the tariff for bulk water by 6,1% for 2012/13, after consideration of the operating risks and shareholder mandate of water service delivery and elimination of backlogs in rural areas. R2.1 billion was allocated for capital spending in the rural areas from 2012 to 2017. Whilst National Treasury and SALGA recognised that the increase far exceeded the tariff increase, there was nonetheless resistance to it from customers, and so UWB would be seeking grant and other national funding for rural water infrastructure, and would pursue water resources planning in the region through a mix of new and renewable options. Its workforce was to be re-energised to enhance operational effectiveness, improve efficiencies, address skills gaps and age in the workforce. Its challenges included the Chief Executive Officer vacancy, customer resistance to increased tariffs, and improve efficiencies, and to address skills gaps and the ageing workforce. Challenges included the vacancy, national government policy for financing rural infrastructure, a bulk supply agreement, and outstanding water resources and abstraction licences.

Amatola Water Board had received an unqualified audit with a matter of emphasis relating to non-compliance with procurement policies and procedures, and deficiencies in performance reporting. It had not spent R4.8 million of the capital expenditure budget, because the acquisition of property, plant and equipment was funded from normal operations and available cash resources. Its deficit had improved, from 17% to 15%. It had presented a turnaround strategy to the DWA and Minister, and high costs of raw water in Eastern Cape had been highlighted. The water tariffs for 2012/13 were set to increase by 6%, and this calculation took account of direct operating cost increases, as well as 7% reduction of volumes purchased by Buffalo City Metro. Amatola needed financial assistance of R617 million to complete projects, including irrigation schemes in the former Ciskei areas. Other challenges included the high costs of raw water and electricity, inability to access grant funding mechanisms, and differing interpretations of the Water Services Act.

Sedibeng Water Board had received an unqualified audit report, and held R136 million in investments, whilst revenue grew gradually, with targets exceeded in Free State and Northern Cape. This Board had received a grant of R44 million in 2010/11 for Capex projects. It had increased its bulk water tariff for 2012/13 by 8.5%, with a 5% efficiency saving. Costs were prudently managed, and this Board was financially sound and viable at consolidated level. Its water met Class 1 and Class 2 requirements, although the poor water quality and high purification costs for water from the Vaal River remained a challenge, whilst some municipalities did not comply with Blue Drop requirements. Sedibeng Water Board outlined its spending on black economic empowerment, training and bursaries. Other challenges included difficulties in recovering R500 million from four municipalities, service delivery challenges through inadequate budgets in North West, and high electricity tariffs.

Members wanted to know the role of SALGA on municipalities regarding service delivery and failure by municipalities to pay their water debts, who was responsible for appointing Board Members of the Water Boards, and if the Water Boards were complying with Municipal Finance Management Act guidelines for submitting reports. National Treasury was asked to clarify its role in non-payment of debts by municipalities. Rand Water was asked if it planned to grow the footprint, was asked to give an update on the Sedibeng plant. Members criticised the Sedibeng Water Board for submitting the same problems to the Committee every year, and asked how exactly it planned to solve the problems. Members asked how Bloem Water would ensure spending on Capex projects, and commented that whilst it had money, it was seemingly fearful of spending. They also asked about bulk water supply to Mangaung Metro. Amatola Water Board was asked to send its turnaround strategy to the Committee.

Meeting report

Water Boards Annual Reports, Financial Statements, and 2012 bulk tariffs
Department of Water Affairs submission

Ms Thoko Sigwaza, Chief Director, Department of Water Affairs, gave a brief presentation on general issues in water boards. She noted that the Department of Water Affairs (DWA)had been allocated a budget of R2.13 billion, and that there was underspending on that, in general, although operating costs, energy costs, chemical and purification costs and maintenance costs were reported to be higher than the budgeted amounts. The operating profits were 21% less than the budgeted amounts.

There were significant amounts of money owed by municipalities to the Water Boards (see attached presentation for a breakdown) and the Minister of Water and Environmental Affairs had organised a meeting with all municipal mayors concerned to discuss these debts.

Proposals for tariff increases had been submitted to Parliament. Sedibeng Water Board had the highest increase of 8,5% and Mhlathuze Water Board presented the lowest increase, at 3,1%. Smaller Boards like Magalies, Botshelo and Bushbuckridge were struggling with compliance.

The financial viability of Water Boards, especially Botshelo and Bushbuckridge, was showing positive improvements. In relation to matters of institutional reform and realignment, a draft report had been presented to the Minister for approval. A new policy for remuneration and bonus schemes by Water Boards had been reviewed by the DWA, and a framework of key principles had been established.

She set out the key initiatives that DWA had put in place in relation to the Water boards, which included revision of the Shareholder Compact and revision of the completed quarterly reports. DWA had developed a new database to document and record information on the performance of Water Boards against targets set. A draft report for norms and standards had been developed by DWA and was being processed for consultation and finalisation with sector stakeholders.

She noted that National Treasury was exploring ways of funding capital water projects in the water value chain,; and finding ways to use Water Boards who had the necessary capacity to give guidance to the municipalities, and give them support where it was necessary. This would have an impact on the end-user tariffs. Water Boards would enter into Service Level Agreements (SLAs) with municipalities. In the long term this would build capacity within the municipalities on matters related to water tariffs and management.

It was concluded that, generally, the performance of the Water Boards was satisfactory and their levels of compliance were improving. Steps were taken to ensure rigorous monitoring, and to ensure that the Boards delivered on their mandates.

National Treasury submission: Analysis of Water Boards
Ms Sarah Haswell, Asset Management Executive, National Treasury, indicated that four Water Boards were owed between 90% and 150% of their total annual sales. These were Botshelo, Bushbuckridge, Lepelle Northern, and Sedibeng. Water Boards who were borrowing from the financial markets to fund their capital projects were Rand, Mhlathuze and Umgeni.

Amatola, Bloem and Magalies Water Boards were stated to be maintaining financial viability but were unable to fund new capital requirements and refurbishments, and as a result, their infrastructure was deteriorating. There was also uncertainty about the future of Overberg and Pelladrift, because of their small size.

Ms Haswell noted that the Boards had proposed new bulk water tariffs for 2012/13. Umgeni Water Board raw water costs had increased sharply, and these charges now included the Capital Unit Charge for the Spring Grove Dam. Demand from its largest client was decreasing due to water conservation initiatives being implemented by e-Thekwini Metro. Umgeni would also have to impair significant investments in rural infrastructure because of shortage of grant funding.

Pelladrift Water Board had recorded the highest increase because the Board had an agreement with the Khai-Ma Municipality to increase the tariff by 20% annually, to bring the tariff in line with costs of delivery of water. Bushbuckridge Water Board registered the lowest increase. The Bushbuckridge Municipality was currently paying a fixed monthly amount, due to the absence of water meters and illegal connections. There was also uncertainty regarding its short-term financial viability.

Generally, Water Boards were able to repay their interest obligations, as indicated by the increase in Interest Cover Ratio. The low current ratio indicated potential cash flow constraints. Because the benefits of infrastructure investments could be derived over a long period, infrastructure investments should be financed primarily through debt rather than current expenditure.

The main weakness of the Water Boards lay in the deteriorating and ageing infrastructure. These Boards were seen to be operating in the ‘middle’ of the water value-chain, which subjected them to external threats and opportunities. Their strength was in producing high quality water. Poor raw water quality and availability, as well as poor contractual agreements with municipalities were identified as threats. Business growth and expansion were providing a great opportunity for the Water Boards.

The National Treasury recommended that the DWA must clarify the roles and responsibility of the Water Boards in respect of governance and oversight. The performance contracts of the Chief Executive Officers and Chief Financial Officers of the Water Boards should be reviewed on an annual basis to address gaps and weaknesses in their operations. The DWA should also prioritise assistance to the ailing Water Boards and municipalities so that there could be Service Level Agreements. It should provide processes for dealing expeditiously and within strict timelines for all contractual issues.

Ms Haswell concluded that debt resolution was primarily the responsibility of the Water Boards. The tariffs of Water Boards needed to be structured in such a way that it was possible to recover operations and maintenance costs, to ensure assets were maintained and rehabilitated. Financing for capital expansion was critical for Water Boards who were operating ‘on the margin’. The sector needed leadership from DWA, particularly on the Pricing Strategy Review, Institutional Realignment and Reform, and Legislative Review.

South African Local Government Association submissions
Mr William Moraka, Director: Water Services, South African Local Government Association (SALGA) outlined six recommendations for the water boards. Firstly, there should be a capital investment programme, for the medium and long term, to improve their asset productivity. It was necessary to balance growth in supply of services with borrowing capacity of Water Boards and affordability of water to customers. Secondly, water boards should manage their expenses more efficiently, effectively and pro-actively, specifically in the staff and energy cost areas. Expense parameters should be set by DWA. Thirdly, it was recommended that there must be a tariff policy to guide the funding of Water Board Assets and the recovery of capital and operating costs, and to standardise funding of assets and expenses. A funding structure, taking into account ratios, debt, cash balances and financial assets, and a rationalisation plan, was needed for each water board.

SALGA further recommended that National Treasury should develop a rational and efficient process to optimise funding of the Water Boards, to access capital funds, provide Government subsidies/grants, and optimise use of funds between Water Boards within the sector. It was also recommended that there be enhanced control over the tariff-determination process. Firstly, SALGA thought that DWA should approve the capital and expense parameters, and ensure that the tariff proposals from the Boards were in line with the Water Boards’ corporate plans. The tariff proposal document should be standardised and include motivations for increases in Expenses and Capex. The Section 42 consultative process should also be documented in a standardised form, and formally approved by DWA. This process must include a capital expenditure plan. Lastly, SALGA said that there should be a managed progression to implementation. A Centralised Water Demand Planning function should be established, to match water needs with Medium Term and Long Term Infrastructure Investment, and to review proposed Capex Projects of Water Boards to enhance productivity. A set of Expense Targets for the medium  and long term should be constructed for the sector, and for each Water Board, with incentives for the water boards. A centralised cash management function should be implemented, to optimise the use of funds within the sector.

He noted that
DWA was considering implementing these recommendations for implementation in the next tariff cycle.

Rand Water Board Presentation
Mr Percy Sechemane, Chief Executive, Rand Water Board, highlighted that his Board had received an unqualified audit opinion with no matters of emphasis. Its customer-centric approach had yielded an overall satisfaction rate of 84%. The entity achieved almost R5.9 billion in revenue. The gross margin improved from 50,96% to 53,56%. Profit from operations moved to R536 million, from the previous R302 million.

Rand Water Board (RWB) recorded irregular expenditure of R8,7 million for the year. Disciplinary measures had been instituted, and criminal and civil cases had been opened against offenders. Two investigations were undertaken during the year. The first, at the request of the Board, was into the tenders for April 2009 to August 2009, in order to ascertain whether tenders were awarded in line with Rand Water Supply Chain Management Policy, National Treasury Regulations and delegations of authority. The findings confirmed that the tender awards were in line with Supply Chain Regulations. The second investigation, at the request of the Minister of Water and Environmental Affairs, was initiated to determine if the Board of Directors acted with due diligence, care and skill in exercising their fiduciary duties. The Minister was still considering the report.

Performance results indicated that cash reserves had been utilised to fund Capex. It was anticipated that the targeted “two times” levels would not be met as RWB rolled out the infrastructure plan. The target was still under pressure, even though the debt collection had improved.

RWB was in the process of investigating and identifying ways to improve water losses. The target of reducing water losses by 4% was based on the assumption that the financial resources, investigations and alignment would be completed. A 4,3% improvement was achieved.

RWB recorded an increase in Broad Based Black Economic Empowerment (BBBEE) spend and noted its employment equity figures, with female recruitment rate in management and technical positions now standing at 46%. It was projected that 400 jobs would be created by 2013.

RWB increased its bulk water tariff by 11,3%, following recommendations from the Minister and National Treasury. The organisation had followed a consistent rationale of assessing its internal rates of inflation, when increasing its tariff over the years.

Some of the challenges noted were in delays in the approval of Environmental Impact Assessments (EIAs), which impacted on its ability to commence, and therefore to complete capital expenditure projects. Rand Water had requested DWA to consider an appointment for Rand Water to undertake the function of a Catchment Management Agency. This Agency would enable Rand Water to contribute towards the improvement of the raw water quality and that would decrease purification costs.

It was concluded that the Rand Water Board was continuing to improve profitability, returns and operational efficiency. Graphs and tables were presented for budget allocation, expenditure and tariff increases.

Bloem Water Board Presentation
Mr OJ Stadler, Chief Financial Officer, Bloem Water Board, received an unqualified audit with no matter of emphasis. However, this Board had under-spent by 30%, and its income was lower than  its contractual obligations and budget, and not all capex projects were concluded, so the non-current assets were also lower than budgeted, although reserves had improved, from retained earnings. Its volumes grew by 2%. It registered an increase of 16% in raw water costs had been registered, whilst chemical costs went up by 20%, electricity costs by 28% and human resources costs by 9% plus additional requirements.

Bloem Water Board had a performance score of 78% in 2010/11, and had achieved 97,19% of Capex implementation. For 2011/12 it had achieved 72,72% of Capex implementation, and projected to achieve 95% by end June 2012, and had already held meetings with municipalities regarding Capex projects up to 2013. Water supply challenges on both raw and treated water supply systems were addressed. An investment plan of R1 billion for Capex was in place for 2012/13 to 2016/17.

Two municipalities were in arrears on payments, to the value of R30 million, and failed to honour agreements signed and witnessed by the Provincial Treasury, and this had been reported to National and Provincial Treasuries.  

Bloem Water Board had increased its bulk water tariff by 12, 6%, supported by DWA. SALGA’s new comments on this were still awaited before the final announcements were made.

For 2012/13, this Board would focus on organisational capacity, to improve access to technology and equipment, would train and retain technical skills, and improve internal and external communication. It planned operational efficiencies and improvements to statutory compliance, as well as improved monitoring and reporting on performance. It also aimed to improve brand awareness and stakeholder satisfaction, increase strategic partnerships and improve financial stewardship and increase corporate prosperity.

Bloem Water Board named its challenges with deteriorating raw water quality as a result of inadequate catchment management, delays in the issuing of Abstraction Permits, municipalities failing to pay their debts, its ageing infrastructure and rising input costs. Graphs and tables were presented for budget allocation, expenditure and tariff increases.

Umgeni Water Board
Ms Nica Gevers, Acting Chief Executive, Umgeni Water Board, noted that the Umgeni Water Board (UWB) had increased its revenue by 2%, although gross profit had been reduced from 62% to 60%. It would not be borrowing in the next two and a half years, and its cash flow was at R1 billion for  infrastructure investment and debt payment. Decreases in borrowing reduced the finance costs by 50%, and the interest cover improved to 3.1% in 2011. It had spent 46% of the budget so far, and the remainder would be spent by year-end.

UWB had  increased the tariff for bulk water by 6,1% for 2012/13, after consideration of the operating risks and shareholder mandate of water service delivery and elimination of backlogs in rural areas. R2.1 billion was allocated for capital spending in the rural areas from 2012 to 2017.

National Treasury and SALGA recognised that the increase in the operating costs for UWB far exceeded the tariff increase proposed. UWB was planning to absorb some of the financial requirements of planned major capital expenditure. However, its customers considered the increases in the raw water to be excessive and unaffordable. For this reason, UWB would in 2012/13 be seeking grant and other national funding for rural water infrastructure, would use a robust procurement strategy to address job creation and poverty, and would pursue water resources planning in the region through a mix of new and renewable options. It aimed to re-energise its workforce to enhance operational effectiveness and improve efficiencies, and to address skills gaps and the ageing workforce.

Challenges highlighted included the vacancy, since September 2011, for Chief Executive Officer, customer resistance to increased tariffs, the national government policy for funding and financing of rural infrastructure, the Msunduzi Bulk Supply Agreement, and outstanding water resources and abstraction licences. Graphs and tables were presented for budget allocation, expenditure and tariff increases.

Amatola Water Board Presentation
Mr Xola Bomela, Operations Director, Amatola Water Board, noted an unqualified audit report for 2011, but a matter of emphasis in that reported performance was deficient against predetermined objectives, and procurement policies and procedures were not followed. It had not spent R4.8 million of the capital expenditure budget, because the acquisition of property, plant and equipment was funded from normal operations and available cash resources. The deficit had improved, from 17% to 15%. The water tariffs for 2012/13 were set to increase by 6%, which was calculated taking into account 7% reductions in volumes purchased by Buffalo City Metro, as well as the increase in direct operating, maintenance and capital costs, and an 8% increase in the cost of employees.

Amatola Water Board had presented a turnaround strategy to the DWA and Minister. The high costs of raw water in Eastern Cape had previously been discussed with the DWA. Five projects needed to be done, and their business plans were presented to the Department, noting that R617 million was needed to fulfil these projects. The majority of Amatola Water Board’s customers were in rural areas and there were challenges in fixing a reasonable charge to them. Projects included the irrigation schemes in the former Ciskei, which were now converted into business schemes, for which Amatola needed assistance. Other challenges included the high costs of raw water and electricity, inability to access grant funding mechanisms, and various interpretations of the Water Services Act that were causing unnecessary competition between Water Boards and Water Service Authorities.  Graphs and tables were presented for budget allocation, expenditure and tariff increases.

Sedibeng Water Board Presentation
Mr Tradewin Takalani, Acting Chief Executive Officer, Sedibeng Water Board, reported that it had received an unqualified audit report, and held R136 million in investments. Revenue continued to grow gradually, with the targets for revenue and surplus exceeded in Free State and Northern Cape. This Board had received a grant of R44 million in 2010/11 for Capex projects, and although it spent R27 million, the projects were not completed because of cash flow problems.

Sedibeng Water Board increased its bulk water tariff for 2012/13 by 8.5%, after consulting stakeholders and the Minister had approved the tariff, which also included a 5% efficiency saving, meaning that its impact was 0.68%, which would result in a reduced operating shortfall and no increase in the surplus. The costs were  
prudently managed within budgetary limits, so the Board was financially sound and viable at consolidated level, despite the total production and distribution of water losses amounting to 5.6% in the Free State and Northern Cape regions. Water quality met Class1 and 2 requirements.

Sedibeng Water Board’s average expenditure on BEE was over 72%, and it had granted financial assistance to 18 bursary holders and 39 Adult Basic Education and Training (ABET) employees, experiential training to 9 students, and kept its staff turnover at 3,66%.

Challenges included the difficulty in recovery of costs of R500 million, from four municipalities, who were also unwilling to enter into long-term contractual obligations. Inadequate budget allocation in the North West region was hampering service delivery. High electricity tariffs impacted heavily, quality of raw water from the Vaal River was very poor, requiring high purification costs, and municipalities’ lack of commitment to the Blue Drop Programme resulted in Water Boards failing to achieve the required status.

Discussion on SALGA and Department’s submissions
Mr P Mathebe (ANC) asked if all Water Boards were complying with the Municipal Finance Management Act guidelines on submitting reports.

Ms Sigwaza replied that regulations had been tightened to ensure compliance with Batho Pele principles. All the Boards had submitted reports to the Department and municipalities in arrears were identified, with municipalities in default also receiving calls from the DWA. Sometimes, issues were hindered by contractual agreements between Water Boards and municipalities. Many times these contracts had expired and not renewed, but DWA was attempting to resolve this.

The Chairperson commented that the DWA had not given the Committee more information on financial management of the Boards.

Ms Sigwaza indicated the financial status of the Boards would be circulated to the Committee. Of the 12 Boards, only 10 were awarded unqualified audits.

Ms M Wenger (DA) wanted to know the reason for the high tariff increases.

Ms Sigwaza explained that the tariff process started last year, with an evaluation of the review of the proposed tariffs from Water Boards. Discussions were held with the institutions, including SALGA. Where there was unhappiness expressed, the Boards were asked to revise their tariff plans. National Treasury was also present at the discussions.

Ms J Manganye (ANC) enquired if the DWA and senior managers of the Water Boards were assisting and responsible for appointing board members of the Water Boards.

Ms Sigwaza explained that the Minister appointed members of the Boards, and a panel looked into issues of expertise and skills. The policy of appointing Board Members was currently being reviewed.

Mr G Morgan (DA) wanted to know more about the study into water bills and water boards. He also asked for an explanation on the high purification and chemical costs.

Ms Sigwaza explained the DWA would not reveal what was in the Draft Report, and it was the Minister who would approve and then publicise the report. Projects were on the final stages and recommendations would be presented by the Minister.


In relation to chemical and purification costs, she said that the important point was to consider where the water was sourced, and the purification point, both of which impacted on the costs.  Individual Water Boards were in a better position to provide the details and costs for purification and chemicals.

Mr K Skosana (ANC), supported by Ms Wenger, asked SALGA to explain its role in regard to municipalities’ failure to settle their water debts, and to meet their obligations of service delivery.

Mr Moraka explained that agreements were in place to regularise matters between the Water Boards and municipalities. SALGA was playing many roles but there was no specific definition as to how municipalities should pay for services being consumed. There was a special unit within SALGA that focused on financial management, and the Committee could make suggestions on how the unit could be of service to municipalities.

Discussion on Rand Water presentation
Ms Wenger wanted to know why Rand Water was no longer interested in the Sedibeng plant.

Mr Sechemane clarified that when it was drawing the plans, Sedibeng had a R1 billion budget, and it was one of the flagship projects. The provincial government had now taken it over, but the scheme, now being run as an inter-government project, was in need of R4.5 billion funding. Already, R500 million had been committed by DWA and another R1 billion had been raised by Rand Water. It was hoped that the private sector would participate in the project, because of its size and the need for water and sanitation infrastructure. Political interventions were needed to speed up the process, and any involvements must be carefully considered.  

Mr Morgan asked what the main drivers of pollution were and the projections for that.

Mr Sechemane explained that the “Polluter Pays” principle was sometimes applied by the municipality, who would then discover that the municipality itself had been the prime polluter. Rand Water preferred to use a certain chemical to treat the problem so as to protect the steel pipelines. Rand Water was able to control the costs, and it was its responsibility. DWA should also be looking into the pollution.

Mr Morgan asked if Rand Water was thinking of growing its footprint, as it was better capacitated than other entities.

Mr Sechemane responded that Rand Water was trying to work with Mpumalanga but a political decision still needed to be taken on the matter. Rand Water was willing to work with other municipalities who needed its services and expertise. Many bodies like Rand Water were needed throughout the country.

Mr Morgan asked if was fair for the taxpayer to pay for projects that were still to come or were incomplete, like the Sedibeng plant.

Mr Sechemane said the reality of the situation was that Rand Water was paying for the feasibility studies undertaken for the Sedibeng project. Contractual obligations were in place between the Department and Rand Water.

Discussion on Sedibeng Presentation
Mr S Huang (ANC) commented, with some concern, that he failed to understand why Sedibeng Water was trying to justify huge salaries, despite this matter having been raised in the previous year, despite the fact that it claimed to have no cash flow, could not get municipalities to pay its debts, and had failed to complete some of the Capex projects.

Mr Skosana added that all the issues that Sedibeng Water raised were not new, but were being raised yet again. It seemed that the Board was running a public entity as if it were a private entity. He recommended that legal processes should be followed, to enforce the agreements in place, and municipalities should start paying for the services rendered by the Water Boards. It was unfair for municipalities to be given money for service delivery yet fail to honour their agreements.

Mr Mathebe asked for clarity from National Treasury regarding these payments.

A National Treasury official indicated that National Treasury would not be able to respond on agreements between the Boards and municipalities regarding the conditional grants. The Equitable Share was given to municipalities and it was up to them how they used the money.

Mr Takalani indicated that if the Boards received a directive from the Committee and DWA the Boards could restrict water supply, which would hopefully persuade business and consumers to pressurise the municipality to pay.

The Chairperson commented that the issue needed urgent attention, as it was outrageous. There was no need to negotiate with the municipalities, because they were misappropriating their unconditional grant. If Sedibeng Water needed to be paid R40 million a month by a municipality, that should be non-negotiable.

Discussion on Amatola Water Board Presentation
The Chairperson asked Amatola Water Board to forward its turnaround strategy to the Committee as a matter of urgency.

Mr Skosana noted that in future, junior officials should not attend the meetings and at least two Board Members of the Water Board should be present.

Discussion on Bloem Water Board Presentation
The Chairperson asked how Bloem Water was planning to ensure it spent the money for Capex projects in this year, noting that money was put aside last year.

Mr Stadler explained that the Mangaung Metro had water problems. There was a need for new capacity, and money would be spent before the end of the year, with projections that more than 75% would be spent.

The Chairperson insisted that the money must be spent. He thought that Bloem Water Board’s report was non-committal; on the one hand, Bloem Water was falling behind whilst on the other hand it had money, but seemed to be fearful to spend it.

Ms Wenger enquired why bulk water supply was not happening at Mangaung Metro.

Mr Stadler said no statement was made on when that would happen. Bloem Water Board was owed no money by Mangaung Metro. The metro was continuing to pay the Water Board when it received the bills.

The meeting was adjourned.

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