Water Boards Annual Reports 2010/11 and 2012 Bulk water increases: 2nd day of briefings
Meeting Summary
On the second day of hearings on the Annual Reports for 2010/11 and the revised bulk water tariff increases for 2012, seven Water Boards briefed the Committee.Overberg Water Board had received an unqualified audit opinion, and there were quarterly reports on compliance. The entity had spent half of the total budget on Capex projects. For the period 2012 – 2017 Overberg Water would need R114 million, of which R36.5m could be generated through certain economic and tariff increase assumptions, but after 2016/17 a further R230 million would still be needed, of which R180 million would be for the replacement of asbestos pipelines. The ability of Overberg Water Board to absorb higher-than-inflation increases in input costs remained a challenge, given its small client base. It had managed to reach only four of the thirteen targets in the previous financial year.
Magalies Water Board had received a qualified audit opinion in 2010/11 because documentation was not submitted on time, expenditure was made contrary to policy and rates different from those approved by the Board were used. Several municipalities owed large sums to the Board and legal action had been taken, although the Board also sought assistance from the Department of Water Affairs. This board had been allocation R264 million for Capex projects, and R1.2 billion was required for new infrastructure but an agreement had been made with the mines for joint funding. This Board proposed a 3% increase on bulk water tariffs. It was not getting sufficient volumes to reach economies of scale. One of the problems was that the Water Service Authority tended to prefer to use private suppliers, despite the fact that the Board was capable. The Board had a strategy to deal with internal inefficiencies, including a review of the structure.
Mhlathuze Water Board received an unqualified audit opinion in 2010/11 financial year, and its revenue increased by 20%. R138 million had been allocated for Capex and 68% of that was spent to date, with full spending expected by the end of the year. It had achieved significant cost savings, although maintenance costs increased by 51% due to offshore waste water pipeline repairs. Most of the capital projects were multi-year and were completed in the 2011/12 financial-year. Some projects could not be implemented due to delays in Environmental Impact Assessments. It had improved its contribution to broad based black economic empowerment, and recorded achievements in biological and chemical parameters. It had signed a new contract with the
Lepelle Northern Water Board had achieved an unqualified audit for the sixth consecutive year, and had made a surplus of R50 million, and increased its revenue by 15% through tariffs and additional sales, as well as taking severe steps against defaulting municipalities, including requiring them to sign acknowledgements of debt and repay set amounts. It proposed a 7.5% bulk water tariff increase. The tariffs were gazetted on time, and asset management systems were in place. It had improved its expenditure on maintenance by 28%, and plants were certified and ISO-accredited. All critical posts were filled and it had a retention and succession strategy in place. Challenges included the deteriorating raw water quality, but Lepelle Water was proposing the upgrading of treatment facilities, and was trying to improve the quality of effluent discharged in the rivers through Green Drop Certification Programme participation in the province. New technologies of conserving water were being explored. It was committed to supporting municipalities on cost recovery, water conservation and management.
Bushbuckridge Water Board told the Committee still was operating on a deficit of R12 million, but had received an unqualified audit report with matters of emphasis around compliance. Of the R26 million allocated for Capex, only R1.8 million had been used, because of cash flow problems, and no money was spent on infrastructure, but only on minor refurbishments. It had recommended an increase on 5% on bulk water tariffs.
Botshelo Water Board had received an audit disclaimer for 2010/11, due to lack of oversight by the accounting authority, failure to establish policies and procedures, non-adherence to regulations and a dysfunctional accounting system. It did not own any assets, so had not spent any Capex budget. It did secondary contractual work, like operation maintenance and installing rural infrastructure on behalf of the municipality. It was owed R79 million by municipalities, who paid only when threatened with cutting of services. Municipalities also had not attended tariff meetings since 2009, although other stakeholders were represented. The water tariff had reduced as a result of the reduction of Eskom tariff increases. It was implementing a turnaround strategy to improve its financial performance, was trying to have assets transferred and to achieve more stability. Challenges included recovery of debt from all bulk and operational maintenance customers, lack of long term Service Level Agreements, and inadequate human, financial, infrastructure and management resources. It would focus on provision of water supply infrastructure services, stakeholder engagement, and business development in the 2012/13 year.
Pelladrift Water Board had received an unqualified audit opinion, and had recorded a profit of R1.64 million, with accumulated reserves of R52 million. However, it needed to increase its income costs by 15% because the main cost drivers, power and staff wages, were increasing. In 2010/11 the Water Board had implemented a 20% bulk water tariff increase, as discussed with the
Members wanted to know why there was under-expenditure and sometimes no expenditure at all on Capex projects. They felt that there was a lack of management on water issues between municipalities and Water Boards, and also remarked that whilst it was clear that some Water Boards had good intentions, they were receiving insufficient support from the Department of Water Affairs. Members asked that the Department provide leadership to the Water Boards and assist them. The Members were particularly critical of Botshelo Water and urged the Department to take stern decisions and action in the rationalisation process.
Meeting report
Overberg Water Board briefing
Mr Joe Emeran, Board Chairman, Overberg Water Board, told the Committee that Overberg Water had a policy of not paying bonuses, and also had a performance management programme in place, which was not influencing any audit opinion. The entity received an unqualified audit report. Internal auditors were reporting quarterly to the Auditor-General on progress regarding compliance.
Of the R12 million allocated for Capex projects, Overberg Water had spent only a half of that amount. Capital available for infrastructure was limited and the organisation had adopted a new system with technologies not budgeted for.
For the period 2012 – 2017 Overberg Water would need R114 million, of which R36.5m could be generated by the entity through certain economic and tariff increase assumptions. After 2016/17 a further R230 million would still be needed, of which R180 million would be for the replacement of asbestos pipelines.
Mr Emeran noted that thirteen objectives were set in the 2010/11 financial year, but only four were achieved.
For the
The challenges were named as the inability to absorb higher-than-inflation increases in input costs into small client base, which increased demand on the workforce to ensure that the staff maintained continuous high service delivery standards and compliance to regulatory, legal and audit requirements.
Graphs and tables were presented for budget allocation and expenditure.
Magalies Water Board briefing
Mr Mboniseni Dlamini, Chief Executive Officer, Magalies Water Board, noted that this Board had received a qualified audit opinion in 2010/11, because documents were not submitted in time for audit purposes, auditors could not rely on the existing system of recording expenditure, expenditure was made contrary to policy and different rates were used from those approved by the Board.
Debtors owed Magalies Water R79 million, and
For the 2010/11 financial-year a sum of R264 million was allocated for Capex projects. An amount of R1.2 billion was required for new infrastructure investment. Plans were on track to borrow R1. 6 billion, in a project with the mines, in which the mines had committed to contribute 55% of total costs and the Board would have to find the renaming 45%. It was envisaged that the money would come from tariffs.
For the 2012/13 financial-year a 3% increase had been proposed for bulk water tariffs. The Water Board was not getting enough volumes to get the desired economies of scale. Costs were ring-fenced per scheme.
The turnaround strategy the Water Board devised was aimed at dealing with inefficiencies identified within the organisation, improving financial controls, increasing monitoring controls on operational matters and undertaking a review and revision of the organisational structure to ensure that resources were aligned and no extra debts were incurred. The board of the Water Board had signed the strategy.
The particular frustration that this Board faced was that municipalities were a Water Services Authority (WSA), and Water Services Supplier, whilst there was also a Water Board. Other challenges were the deteriorating raw water quality, and the fact that the WSA tended to prefer the private sector, despite the Water Board being quite capable.
Graphs and tables were presented for budget allocation and expenditure.
Mhlathuze Water Board briefing
Mr Vic Botes, Chief Executive: Mhlathuze Water Board, noted that the Board had obtained an unqualified audit opinion, and no significant deficiencies in internal controls were identified. Revenue increased by 20% against the 2009/10 financial-year, operating expenses decreased by 7% due to staff and energy costs savings, and maintenance costs increased by 51% due to offshore waste water pipeline repairs.
From the R138 million allocated for Capex, Mhlathuze Water spent 68%. The remaining amount would be spent before the end of the financial year. Most of the capital projects were multi-year and were completed in the 2011/12 financial-year. Some projects could not be implemented due to delays in Environmental Impact Assessments.
The contribution of the entity to BBBEE was at 56.5%, compared to the 39% of the previous year. Mhlathuze Water recorded an achievement in biological and chemical parameters by 99.5% and 99.6% respectively. Water projects progressed in line with the business plans, and this was the reason why the allocation for the school sanitation programme was received late in the financial year.
All quarterly reports had been duly submitted to all stakeholders. Mhlathuze Water had signed a new contract with
For the 2012/13 period, Mhlathuze Water Board proposed a tariff increase of 9.73%. The tariff increase proposal was submitted to the National Treasury and SALGA, and recommendations were received in January 2012. Consumers accepted the proposed increase.
Mhlathuze then outlined the challenges. It had commissioned a study to look at the electricity supply problem. Water shortages were registered in various district municipalities such as
Graphs and tables were presented for budget allocation and expenditure.
Lepelle Northern Water Board briefing
Mr Labane Leballo, Chief Executive Officer, Lepelle Northern Water Board, noted that this Board had, for the sixth year in a row received an unqualified audit certificate. It had made a surplus of R50 million in 2010/11, but was owed R346 million by five municipalities. This Board had taken action against the defaulters, and non-paying municipalities were required to sign agreements and pay set amounts.
It proposed a tariff increase of 7.5% for bulk water in 2012/13. It had increased its revenue by 15% due to tariffs and additional sales. Between 42% and 53% had been recovered on old and current debts for bulk water services. Tariff consultation was completed in time and was gazetted, and there was an asset management system in place. Lepelle Water had improved maintenance expenditure by 28%. All plants were certified on the NOSA system. The introduction of ISO 14001 was completed at Ebenezer System.
Lepelle noted that its employee turnover increased by 13%, but currently all critical posts were filled. A retention and succession strategy was in place, and 96% of employees had passed their Adult Basic Education and Training. A wellness programme had been fully introduced.
Deteriorating raw water quality posed a challenge, but Lepelle Water was proposing the upgrading of treatment facilities, particularly waste water treatment, and was trying to improve the quality of effluent discharged in the rivers through Green Drop Certification Programme participation in the province. New technologies of conserving water were being explored to combat climate change.
Finally, Lepelle Water resolved to support municipalities on matters of cost recovery and water conservation and management strategies, and indicated that the next five years would be spent on infrastructure development.
Graphs and tables were presented for budget allocation and expenditure.
Bushbuckridge Water Board briefing
Mr Nkateko Mashele, Chief Executive Officer, Bushbuckridge Water Board, noted that this Board was still operating with a deficit of R12 million, although it had received an unqualified audit report, with emphases of matter relating to non-compliance with laws and regulations, and the non-finalisation of Property, Plant and Equipment transfers, amounting to R68 million, by the Department of Water Affairs. Of the R26 million allocated for Capex, only R1.8 million had been used, because of cash flow problems, and no money was spent on infrastructure, but only on minor refurbishments.
This Board had grown its revenue by 24%. The
Bushbuckridge Water had proposed a 5% increase in bulk water tariff for the period 2012/13. It had not yet finalised a contract with
The Board indicated an increase of 5,5% on the volumes of water supplied, and unaccounted water was reduced by 3,98%. It achieved 98% on compliance to effluent standards.
Challenges included the ongoing failure of
Graphs and tables were presented for budget allocation and expenditure.
Botshelo Water Board briefing
Mr Godfried Kruger, Chief Financial Officer: Botshelo Water Board, noted that it had an audit disclaimer in 2010/11, due to lack of oversight by the accounting authority for financial and performance reporting, inadequate development and monitoring of action plans to address internal control deficiencies, on adherence to laws and regulations, and a dysfunctional Accounting System.
Botshelo Water did not have any Capex projects because it did not own assets. It merely attended to secondary contractual work, like operation maintenance and installing rural infrastructure on behalf of the municipality. The entity was owed R79 million by municipalities, who had delayed in signing acknowledgements of debt and they paid only when threatened with cutting of services.
Municipalities also had not attended tariff meetings since 2009, although the Department of Water Affairs (DWA), South African Local Government Association (SALGA), Provincial and National Treasury were been well represented in the discussions. The reduction of Eskom tariff increases to 16% had reduced the water tariff of Botshelo Water Board by 4c from R5.07 to R5.03 per kilolitre.
Botshelo Water had now implemented a turnaround strategy plan to remove the disclaimer. It had negotiated long-term Water Services Provider Agreements with its clients, to try to stabilise its situation and attract more staff, and to have assets transferred to the Water Board or implement a more equitable agreement for a better buy-in from all stakeholders on water services. Its challenges were listed as recovery of payments from all bulk and operational maintenance customers, lack of long term Service Level Agreements, due to inadequate human, financial, infrastructure and management resources, and asset acquisition. Presently, it was seen as operating more like a municipality than a Water Board. In the 2012/13 year it would be focusing on provision of water supply infrastructure services, promotion of sound stakeholder engagement, and business development.
Pelladrift Water Board briefing
Mr Nathan Williams, Board Chairperson, Pelladrift Water Board, noted that this Board achieved an unqualified audit in 2010/11, and had recorded a profit of R1.64 million in that year. The accumulated reserves were R52 million. However, he emphasised that the Board had to increase its income, because its operational costs were expected to increase by 15%. Costs were driven up by power and staff wages. Pipeline maintenance costs were reduced in this year, because most of the work was done in 2010.
Pelladrift Water had increased its bulk water tariff by 20%. The
Mr Williams noted that Pelladrift Water Board had insufficient cash to fund the R19 million capital refurbishments, despite making profits for the past two years. Its revenue was based on tariffs and these had to be increased. There were two options; the first that the Black Mountain Mine find most of the capital, or Pelladrift Water Board could merge with Sedibeng Water Board.
Graphs and tables were presented for budget allocation and expenditure.
Discussion
Overberg Water Board
Ms M Wenger (DA) asked the Water Board to explain its under-expenditure on Capex, and the percentage of budget spent on existing infrastructure.
Mr Emeran explained that the Capex budget was initially for refurbishments, not for new projects. Overberg Water was developing a plan to look at issues that needed priority. He added that 60% of the budget went to refurbishments of the existing infrastructure. 50% of the Discretionary Grant went to the Broad Based Black Economic Empowerment.
Mr M Mathebe (ANC) asked if the distribution of water tanks to communities was done by Overberg Water or a sub-contractor, and asked how the Water Board ensured those tanks were reaching disadvantaged communities.
Mr Emeran responded that the tanks were distributed to all areas affected and Overberg Water was making use of communities. People were made aware of the scarcity of water. He further noted that most of the RDP houses did not have gutters and that was making it difficult to install water tanks.
Ms Wenger commented that Overberg Water should improve the water losses and compliance as the current figures were not acceptable.
Mr Emeran said the 3% of water losses resulted from refurbishments and repairs done to pipelines.
Magalies Water Board
Mr Mathebe commented that somebody had to carry responsibility for the irregularities pointed out in the audit report.
Mr Dlamini said the former Chief Financial Officer who had been responsible for the irregularities had been dismissed.
Mr J Skosana (ANC) remarked there seemed to be a lack of management between Water Boards and municipalities on water affairs. He urged the Department of Water Affairs to take the matter seriously and make interventions where necessary.
Ms Wenger noted the comment that
Mr Dlamini explained that Thabazimbi was reporting directly on a monthly basis to the Department of Water Affairs and Provincial and National Treasury.
The Chairperson noted that Magalies Water Board clearly had good intentions, but in the last three years failed to deliver as expected. It had requested R1 billion to ensure that it could carry out its mandate. The DWA had to be more proactive in monitoring and ensuring that Magalies Water Board had the capacity to execute the R1 billion project.
Bushbuckridge Water Board
Mr Skosana, commented that the municipality that took over from the one that was disestablished must surely take over its debts. A political intervention was necessary. He also noted that the lack of management staff was another contributory factor to issues facing Bushbuckridge Water.
Ms Wenger added that if the DWA was not assisting Bushbuckridge Water Board, it was going to be difficult for the Board to move forward.
Mr Mashele elaborated that the whole issue was dependent on agreements the Water Board had with the municipalities. It was going to be a long process to write off the debts, and it was important to look at how to negotiate with the municipalities.
Pelladrift Water Board
Ms Wenger wanted to know what the professional fees were for.
Mr Williams explained those fees were for the third party professional engineers. The engineering company had been the client of Pelladrift Water for the past 15 years and had not asked for an increase in its rates for the past five years.
Botshelo Water Board
The Chairperson remarked that Botshelo Water seemed not to be making any effort to collect revenue.
Mr Kruger replied that out of the eighteen issues raised in the disclaimer, only fifteen have been dealt with directly. The system was being reviewed and a new one was being implemented. In relation to the contracts, he explained that the Board had problems with short-term contracts as it was unused to these. However, it had spoken with the Department of Cooperative Governance and MECs in the province, and they were now responding. Only one municipality was paying regularly, and political intervention had been sought to sort out the matter. Botshelo Water had started to follow all the processes of trying to get debtors to pay.
Ms D Tsotetsi (ANC) enquired if Botshelo Water was recruiting staff by itself or using consultants.
Mr Kruger responded that the Board was doing its own recruiting and no consultants were involved.
The Chairperson commented he was not seeing any improvement in Botshelo Water over the years. The Department had to ensure that it took stern decisions and actions about Botshelo Water, in relation to rationalisation. This situation was utterly unacceptable.
Mr Skosana told the Committee this was a bad example of an institution that did not follow regulations. The Water Board had money but it did nothing correct. If it had ambitions of moving forward it had to correct the laws, then its staff and lastly, its finances.
The Chairperson commented that the Committee understood that Botshelo Water now had new Board Members, and that it was going to take time to turn things around. However, it was up to Botshelo Water to take responsibility, and a failure to comply would be met with stern sanctions.
The Chairperson also told Ms Thoko Sigwaza, Chief Director, Department of Water Affairs, that there had been a huge improvement in the work that was done by her Department. There had been improvements in accountability side, but there were still shortcomings on the financial management system side. He noted that the Auditor-General should be given full access to information about the Water Boards and Department.
The Chairperson also noted that, in general, the DWA was very weak in giving directives to the sector. It was failing to get quarterly reports from the Water Boards, entities were waiting endlessly for money from the Department and had ended up using consultants on how to get money elsewhere. The Department should intervene and lead the process. The better its leadership to the Water Boards, the easier for National Treasury to make allocations.
Mr G Morgan (DA) agreed with the Chairperson and indicated that the twelve Water Boards required guidance from the Department. The revitalisation programme did not mean the Water Boards had to be held back, but the interventions from the Department had to run concurrently with this process.
The meeting was adjourned.
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