Department of Water Affairs submission on Appropriations Bill and response to questions

Standing Committee on Appropriations

21 May 2012
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Chairperson summarised, at the outset, that the Department of Water Affairs (DWA) had been asked to respond to questions raised in relation to its strategic and annual plans, and to answer concerns around projects that the Committee had visited during oversight. The Committee asked for specific comment on the funding challenges, sought an explanation on the role of the Trans-Caledon Tunnel Authority (TCTA), and on tendering and supply chain management that did not comply with the Public Finance Management Act (PFMA). It was also concerned about underspending in the first three quarters, spikes in spending, and wanted specific projects to be identified.

T
he Department of Water Affairs responded that it had been able to spend 91% of its budget by the end of the financial year, and noted that the variance of 9% amounted to R784 million. The inability to spend was ascribed to various unfilled posts, due to difficulties with the Occupation Specific Dispensation, , inability to spend R250 million intended for Acid Mine Drainage (AMD), due to failure to reach agreements, delays in payment of invoices, the fact that one payment had to be recalled for correction, and then was made late, a transfer to Bushbuckridge Municipality, which had been negotiated but not paid, and amounts allocated for the Business Process Review Committee, which had yet to report back t to the Department. Most of the programme had, however, been able to spend substantial amounts of their allocations. The vacancies hampered the Department's operations, but once there was sufficient capacity the spending should improve. The DWA noted that it had received two previous qualifications and was not sure whether it would again get a qualified audit. It had developed remedial action for 2011/12 financial year, including a Memorandum of Understanding with municipalities, had registered assets, which would be capitalised until projects were completed, and was now  conducting spot checks and annual asset verification so as to ensure proper accounting. The lack of proper planning was being addressed by more stringent processes that would put an end to “urgent” outsourcing and deviations from normal procurement processes. The qualification in relation to revenue that had not been declared, received through the Roodeplaat Training Centre, was under discussion with National Treasury. Leases were now being identified and split into capital and interest payments. Monthly reconciliations and proper contract management were in place. Action had been taken against transgressors. In addition to addressing the qualifications, the DWA had also addressed Matters of Emphasis and had, inter alia, established a control unit, undertaken training and skills audits, recovered money, and doing lease reconciiliations The five problematic areas on supply chain management were being addressed. The operating budget for this financial year was R8.8 billion and budget analysts had been appointed, to monitor expenditure trends.

A separate presentation was given to explain the role of the Trans-Caledon Tunnel Authority (TCTA). In addition to the R1.7 billion that DWA received from the fiscus, it received about R6.9 billion from other income streams, including water conveyance and sales, construction projects, and levies. The TCTA had originally been established, as a state owned entity under Schedule 2, for the Lesotho Highlands Water Project, in 1986. No department (other than National Treasury) was entitled to borrow money, but Schedule 2 entities could do so. The DWA was often asked to undertake projects, and it would authorise TCTA, on its behalf, to approach the markets for loans, and TCTA would then manage and oversee projects and maintenance, on the User-Pays principe, ensure that the projects were self-funding, and then, once the loans had expired after 20 years, would hand the projects back to the DWA. TCTA essentially received money not for itself, but to service loans, as all money that the Water Trading Entity collected was ploughed back into upgrading infrastructure. TCTA also helped with identifying scarce skills. The reporting structures, which included representation of the DWA and National Treasury, were explained. Most current projects were geared to providing Eskom projects with water.

Members were not happy with the presentation, commenting that in some places they found it inadequate and imprecise, and questioning if the Department had the capacity to spend properly. Several questions were asked about the filling of vacancies, as well as the extended processes, and it was pointed out that the money unspent by the DWA could have been used for other matters. Members expressed their frustration that despite the call by the State President to fill posts, so many departments were still coming up with various excuses. The Department noted the nee for a collective analysis of the problems with Occupation Specific Dispensation, especially in the engineering and science fields. Members also asked questions on the transfers to provinces, pointing out that although the fact that transfers were made boded well for the final figure of “spending”, there was no proof that the money, once transferred, was actually spent properly. Members asked if there was proper monitoring of spending and demanded a list of the projects, which the DWA undertook to provide. They were critical of what the Committee had discovered on recent oversight visits. Members also asked questions about the expenditure patterns, and said they found it surprising that in the first nine months almost exactly the same amount had been spent as in the last three months. The Chairperson expanded on the problems around expenditure spikes and said that perhaps re-consideration was needed on the Medium term Expenditure Framework principle, which was intended to allow departments to plan, but did not seem to result in them actually doing so. Questions seeking clarity on the TCTA could not be answered, due to shortage of time, but would be answered either in writing or at the next meeting. Members urged the need to reach agreements with the mining sector on water and acid mine drainage. Members also raised questions on the incorrect capturing of figures, irregular expenditure, fruitless and wasteful expenditure,
asked if members had been appointed to the committee on supply chain management, asked about backlogs and plans to de-salinate sea water, and other large projects not reflected on the budget or presentation. Members wondered if the diagnosis of problems by DWA was correct, and if remedial steps would assist the Department, commenting that more oversight was needed in provinces and municipalities.

Meeting report

Chairperson’s opening remarks
The Chairperson reminded Members that the Department of Water Affairs (DWA or the Department) had previously briefed this Committee on its strategic and Annual Performance Plan (APP). However, following visits to some of the projects that had been implemented, it became apparent that the Committee had to receive a further presentation. The Committee wanted to get a better understanding of the funding challenges and the role of the Trans-Caledon Tunnel Authority (TCTA). No report on some of the projects that the Committee had visited had been tabled in Parliament, as there were issues that had been picked up. The Committee also needed clarity on why the Department followed in-house processes when procuring for projects, and not those prescribed in the Public Finance Management Act (PFMA). It was necessary for the DWA to explain the implications of the in-house contracting system, and how this related to the PFMA.

He added that another reason why the DWA was asked to brief the Committee was that National Treasury had informed the Committee that the spending had still not been increased in this Department by the end of the 3rd quarter. It would be difficult for the Committee to approve a budget for the following year if the Department failed to spend, and for this reason the Committee had to try to ascertain, prior to the budget vote on 12 June, whether indeed there was capacity to spend the budget as well as plans in place that would allow that spending to occur.

Department of Water Affairs (DWA) briefing
Mr Maxwell Sirenya, Director General, Department of Water Affairs, explained that the Department of Water Affairs (DWA or the Department) and Department of Environmental Affairs (DEA) were two separate departments that were housed under the same Ministry. He noted that he was not present with a full team of officials, as some were attending another meeting on acid mine drainage in another venue. However, those officials present were adequately equipped to deal with any questions the Committee might have. He noted that there had been some “unpleasant” engagements with the Department in relation to questions on the projects that were being implemented. However, he assured the Committee that the DWA would continue to engage with this Committee and would try to improve on what went wrong previously.

Mr Sirenya noted that officials were also present from the Water Trading Entity (WTE), the unit that had caused the DWA to obtain a negative audit opinion in the last year.

Ms Nthabiseng Fundakubi, Chief Financial Officer, Department of Water Affairs, noted that the DWA had had been able to spend 91% of its budget. The variance of 9% amounted to R784 million. She explained that the chief reason behind the inability to spend resulted from the unfilled vacant posts, as a result of Occupation Specific Dispensation (OSD). It was very difficult to attract suitable candidates for OSD. The portion of underspending attributed to the vacant posts was R179 million. Another portion of the total underspend was R250 million that was budgeted for Acid Mine Drainage (AMD), but a detailed design infrastructure that was needed had taken longer than expected, leading in turn to to delays in the tender bid process. Furthermore, R209 million had been budgeted for water services projects at Nyandoni, Hluhluwe and Inyanda, but the approval process for the service providers took longer than anticipated. She explained that the Department’s Bid Adjudication Committee took a decision to appoint various service providers in order to accelerate water provision. However, the delays in this process meant that some of the projects did not kick off as scheduled.

She then noted that during the process of the payment on the bulk water supply, a sum of R20 million was incorrectly captured as R200 million. This was detected, and the payment was recalled successfully. However, by the time the Department attempted to effect the correct payment, it was already late, and as a result the R20 million rand was assessed as under-expenditure.

Another amount of R18 million had to be transferred to Bushbuckridge Water Board, and although negotiations had taken place, and it was agreed that the money had to be transferred for the refurbishment of the infrastructure in that area, the actual transfer had not happened.

The last aspect that contributed to the underspending was related to the Business Process Review (BPR) Committee, appointed by the Minister in June 2011. An amount of R34 million was budgeted for the work of the Committee, but could not be claimed as there had not been an indication of work done.

Ms Fundakubi said that most programmes had been able to spend substantial amounts of their allocations, and she highlighted the goods and services programme as reflective of the capacity of the Department to spend. However, the vacancies had hampered the Department's operations. Once the operations were running at full capacity there would be better spending.

Ms Fundakubi confirmed that the DWA had received a qualified audit in 2010/11, and she was not sure if the Department was heading for its third consecutive qualification.

Ms Fundakubi then explained the qualifications on the 2010/11 audit certificate. The first qualification related to assets. The Auditor-General (AG) reported poor management of the community infrastructure projects, including the fact that assets were not registered in the bulk water infrastructure. Working for Water (WfW) assets also formed part of the qualification, as there was inadequate recording of Information Technology (IT) equipment relating to the software.

The second qualification related to the revenue generated on the Roodeplaat Training Centre (RTC). This was the plant where DWA undertook training for other public institutions. Income was generated out of this training, but the DWA failed to surrender an amount of R23 million income to the National Revenue Fund.

The third qualification related to inadequate management of goods and services and overpayments to implementing agents, arising out of payments to WfW and leases that were not split into capital and interest.

The fourth qualification resulted from incomplete commitments that were also overstated. Irregular expenditure, due to lack of proper systems, resulted in contravention of delegated approvals, as well as non-compliance to regulations.

The last qualification related to fruitless and wasteful expenditure. The Department paid Value Added Tax (VAT) to non-vendor companies, and those payments amounted to fruitless expenditure.

The Department had developed remedial action for the 2011/12 financial year, and these included entering a Memorandum of Understanding with municipalities. Assets that were not recorded in the Department's asset register had since been registered, and they would be capitalised until projects were completed. WfW assets had been transferred to the Department of Environmental Affairs (DEA).

Currently, DWA conducted spot checks and annual asset verification so as to ensure proper accounting. The money received from the RTC had been surrendered to the Revenue Fund, until the principle on how to deal with the money that was generated was agreed upon between National Treasury and DWA. In relation to commitments, there were now monthly reconciliations being done between LOGIS and BAS accounting systems. The Department was improving on contract management, as this aspect contributed to sluggishness on commitments. It was also strengthening compliance with the regulations to counter irregular expenditure. Actions had been taken against transgressors.

Ms Fundakubi noted that the DWA had, in addition to attending to the qualifications, looked at the Matters of Emphasis raised by the AG. A control unit had been established to improve on documents control. Training was provided to regional staff, and a skills audit would be conducted on finance officials. There were trial balance meetings every month to identify classification. In respect of accruals, the monthly reporting had been strengthened so that they were reported on adequately, without understating the amount. The money had been recovered from the companies that wrongly benefited from the VAT incorrect transaction, and the South African Revenue Services (SARS) had been informed of the transgressors. On the issue of capital and interest for leases, monthly reconciliations were being done on those leases. DWA had met with NT to outline the process to be followed on splitting the capital and the interest. The Department was now budgeting correctly, and teams had been dispersed to regions to conduct lease reconciliations.

Five key problematic areas had been identified on the supply chain, namely: deviations from procurement processes, irregular expenditure, increased number of variation orders, lack of controls in implementing agents, and the inadequacy of the supplier database. Lack of proper planning by project managers and “urgent” outsourcing resulted in deviations from the normal procurement processes. Deviations from the normal processes allowed for utilisation of favourite service providers, and compromised the processes. DWA was working on this deficiency and promised to improve. The lack of contract management and project management skills were identified as the major contributing factors to irregular expenditure. The variation orders were related to the issue of poor planning and bypassing the procurement process. The Department was working on these challenges, together with the BPR.

DWA had originally been unable to procure any system for the contract management, but had since clarified to NT that it could procure for the contract management system and the supplier database. She summarised that other interventions to address the challenges included raising awareness, via departmental circulars, and continuous training of staff at all levels. The Department was now avoiding sundry payments and had strengthened controls around order payments. A Financial Misconduct Board (FMB) had been established to deal with transgressors. Finally, she noted that a project team, comprising staff members from internal audit, had been established to conduct annual verification on financial statements. The process now involved submitting the financial statements to this team.

Ms Fundakubi moved on to the current year’s arrangements. The operating budget for 2012/13 was R8.8 billion. In order to ensure expenditure in this year, DWA had appointed budget analysts linked to each programme manager. These two would monitor expenditure trends monthly. This would feed into the budget committee that had been established, and that was to meet every quarter. A Demand Management Plan had been introduced to ensure that budget was allocated to plans developed by each branch. There was a consolidated Demand Plan for DWA. The Department would endeavour to improve on contract and project management capabilities. She summarised that the Department was operating through six programmes of Administration; Water Sector Management; Water Infrastructure Management; Regional Implementation and Support; Water Sector Regulation; and International Water Cooperation.

Trans-Caledon Tunnel Authority (TCTA) contribution to presentation
Mr Faizel Ismail, Acting Chief Financial Officer, Water Trading Entity (WTE), DWA, explained that the Department had a trading account from which it derive income, in addition to its fiscal allocation from National Treasury.

He noted that DWA received about R1.7 billion from the fiscus. However, the remaining R6.9 billion of the budget was financed by other income streams. These included charges related to the conveyancing of water and sales generated for maintenance cost. Construction income was generated through the in-house construction, which provided services both internally and outside. In the next financial year, this was anticipated as being around R446 million. In addition to this, there was a Process CMA that generated R484 million, which was run from the regions, and which charged levies from the users in addition to receiving an allocation from the fiscus.

Mr Moshito Maphanga, Chief Director: Internal Audit, DWA, said out of the R8,6 billion budget, R3,7 billion was transferred to the Trans Caledon Tunnel Authority (TCTA) annually. This amounted to an average of about R250 million a month. This money was meant to service the loans that would have been taken out by TCTA for infrastructure purposes, so in effect that money was not going to TCTA as such. He noted that the WTE had not explained this process thoroughly enough in the past, which was why there were doubts around the functioning of TCTA.

Mr Maphanga now clarified that TCTA was a special purpose entity of the Department, which assisted with servicing debt on the money market. The revenue that the WTE collected had to be ploughed back for upgrades on the infrastructure. These amounts did not reflect on the appropriation, but only on the R2 billion allocated for infrastructure.

Ms Zodwa Mbele, Executive Manager, TCTA, said the entity focused on sourcing funds from the market in order to implement infrastructure projects. TCTA also project-managed the infrastructure implementation, and managed the debt for 20 years. The rationale was that TCTA was an established State Owned Enterprise (SOE) that had the ability to borrow from the financial markets. TCTA was also  expected to source the right skills for the Department, and in this regard she indicated that it was not easy to attract certain specialised skills into government departments.

Ms Mbele said that no department was able to make loans from the capital markets, other than National Treasury, and only a Schedule 2 State Owned Entity was permitted to make borrowings. She explained that TCTA was a small agency, employing about 100 people, and that it had originally been established in 1986, for the purposes of the Lesotho Water Highlands Project. It had been involved in numerous projects since then, but did not actually undertake projects on its own. DWA had to issue a special directive in order for TCTA to implement a project. That process started from the Planning Directorate at the Department, and involved technical and socio-economic feasibility studies as to whether DWA could undertake the project, or whether TCTA would be used to source funding from the market.

Mr James Ndlovu, Chief Executive Officer, TCTA, explained that DWA had been approached to undertake projects for which it sometimes had not budgeted, and in this case, DWA would request that TCTA undertake the projects on a commercial basis, off the balance sheet, by raising funds from the markets. TCTA would manage the risk on behalf of the DWA. It was attractive to funders, who would more readily make money available to TCTA. All projects were designed to be self-funding, so that once the project was finished, and the debt had been re-paid, the project would then revert back to the DWA.

TCTA undertook projects for DWA on the User-Pay principle. Obviously, the DWA was part of the project and provided oversight, in the sense that it sat on the Project Committee and monitored the projects, together with TCTA staff and the project partners. The reporting structure involved the TCTA executive committee, TCTA Board and the Minister. The National Treasury was represented on the TCTA Assets and Liability Sub-Committee, because it was required to monitor TCTA’s funding, since it was a Schedule 2 Entity.

He added that the role of TCTA did not end with the obtaining of funds, for TCTA would also ensure that projects were properly maintained, once put in place. The debts would be retired, or reduced to nil, over a period of 20 years, and, as previously mentioned, the schemes would then be handed back to the DWA.

He noted that most of the current projects were geared to providing Eskom Projects with water. He detailed the ongoing projects as the Vaal River Eastern Sub-System Augmentation Project (VRESAP), the Komati Water System Augmentation Project (KWSAP), the Mooi Mngeni Transfer Scheme (MMTS-2), the Mokolo and Crocodile River (West) Water Augmentation Project Phase 1 (MCWAP-1), the Olifants River Water Resources Development Project - Phase 2 Bulk Distribution System (ORWRDP-BDS), and the Lesotho Highlands Water Projects Phase 2 (Bi-national Project) (LHWPPH2)

Discussion
Vacancies
Mr S Van Wyk (DA) said he was concerned by the number of unfilled vacant posts. The unspent amount of R69 million was a large amount of money that could have been used for other matters, and it was neither spent, nor returned to the National Revenue Fund. He pointed out that money not spent furthermore resulted in loss of work opportunities. He wanted to know what measures were in place to get the vacancies filled.

Mr S Ramatlakane (COPE) sought clarity on the statement that the Department was the least attractive in terms of skills and filling vacancies. He said he did not know what that meant, and asked what exactly the Department meant, and what problems it was experiencing. He asked if it was possible to fill the vacancies in the short to medium term.

Ms R Mashigo (ANC) queried how the statement about sourcing the right skills boded within other sections at the Department.

The Chairperson said it was frustrating that a well-established department would still be struggling with filling vacancies. The State President gave a directive in his State of the Nation address that posts in the public service needed to be filled, yet DWA was still complaining about lack of staff.

Mr Sirenya replied that the 50% of the managerial senior posts were not filled in the Department and were still being advertised. There were legal processes in Corporate Services, since some former staff were challenging their dismissals, and, although there were not many such cases, they had been critical posts, in relation to the leadership and functionality. Other issues with OSD were also problematic.

Ms Yengeni sought clarity on whether the 50% was the departmental vacancy rate.

Mr Sirenya replied the 50% figure related only to senior staff who reported directly to him, and said that most were currently in an acting capacity. He said there were plans to head-hunt those individuals with critical skills, where the posts could not be filled through the normal recruitment process. A number of these positions had been vacant for over a year, and some had been advertised more than once. However, those with the right skills were not responding. The Human Resources unit at DWA was engaging the Department of Public Service and Administration (DPSA) to re-look the processes involved in hiring.

Mr Sirenya added that flexibility was needed in the public sector, especially around OSD. This would determine the speed at which departments filled posts. Without flexibility, it was easy to lose staff to other departments that were more flexible. He said that OSD seemed to be a generic concern, hence there was a need to sit with DPSA and affected departments to discuss the issues.

Mr Sirenya conceded that there had also been some delays internally; although DWA had a benchmark time for filling of posts, of 90 days, there had been delays. The time taken to advertise was being addressed. The Department was considering training graduates, and had engaged in discussions with professional bodies like the South African Institute of Engineers. DWA wanted to ensure that those whom it trained were qualified and professionally registered, since the nature of the work undertaken by the DWA required a level of professionalism.

Mr Sirenya then noted that there were 46 vacant position at the top management level, and 41 candidates had been short-listed, 15 of whom were interviewed. In the lower ranks there were 649 vacancies and 147 of those were filled. There was a targeted prioritisation based on how critical the post was, the specialisation, and the leadership role. DWA had also approached other departments to seek the capacity it lacked itself, and other institutions who made services available to the Department were the Accountant-General, the National Treasury, and the Development Bank of Southern Africa (DBSA). Whilst the Department worked to have full in-house capacity, it was willing to take the offers of other departments who were willing to assist.

Ms Yengeni interjected and demanded whether departments ever listened to the President. He had made a specific call to fill vacancies in the public service speedily, yet most Directors General were not heeding this imperative. If DWA claimed to have understood that call, then it must say what exactly had been done to address the vacancies, and what adjustments it had made on planning and responses. Parliament did not want to see plans, but implementation. All departments should be aligning their strategic plans to the President’s and ANC’s directives. She complained that opposition parties were attacking government by failing to implement resolutions, and she wanted to know exactly what DWA had done.

Mr Ramatlakane wanted to know if the Department had looked at what it was needed to do in terms of addressing the challenges posed by the OSD, and asked exactly what it was that DWA could not get,  in terms of the skills that it required.

Mr Sirenya said the Department had indeed taken into consideration issues raised in the State of the Nation Address. There had been a lot of work on job creation in many regions, three years back. He reiterated that there was a need for a collective analysis on what was happening in the OSD. Although a departmental task team was working on it, this remained a challenge, especially in the engineering and sciences fields.

Transfers
Ms L Yengeni (ANC) wanted clarity on the transfer payments made to provinces. There were no guarantees that the transferred funds were being spent. She pointed out that those transfer payments were included in order to reach the 91% expenditure figure. However, the DWA should have told Members how exactly those transfers were spent, listing the projects created. She pointed out that there was a difference between making transfers, and ensuring expenditure. She was insistent that the DWA should not be making the transfers without seeing the projects.

Ms Yengeni wanted to know if the DWA could suggest the reasons why its budget was revised downward by NT.

Mr Fundakubi replied that the Department had information on the transfers to the provinces.

Ms Yengeni clarified that the question wanted to establish if there was monitoring on transfers and, by extension, projects that the money was spent on.

Ms Thandeka Mbassa, Deputy Director General: Regions, DWA, noted that the transfers represented money that was transferred to identifiable schemes within municipalities. The Department required plans from municipalities on what they would be doing with the money, as set out in the Division of Revenue Act. The Department did not, however, have capacity to effectively monitor how that money was used and for this reason, DWA relied on consultants. There were weaknesses with that arrangement, and the Department needed to have its own capacity to monitor. There were improvements on the overall project management capability, but she did concede that the Department was failing to monitor municipalities adequately.

Expenditure patterns
Ms Yengeni had other problems around the spending. She observed that the Department had, in nine months, spent 46% of its budget, and yet spent almost the same amount of money in the last quarter, which was essentially one third of the time to spend the same amount. She wanted an explanation of this, and details as to where exactly this money had been spent.

The Chairperson queried the capacity of the Department to spend the budget. He, like Ms Yengeni, thought that the reasons given for the same amount having been spent in the first nine months, and then in the last three months, were not convincing. He said he was tempted to ask for details of the exact projects on which the money was spent.

The Chairperson commented that there were always spikes in expenditure in the last quarter, and most departments failed to say what they had spent the money on, and a closer look at the expenditure in the last quarter would paint an even gloomier picture. The Committee was not convinced that the money was spent on deliverables, and wanted further details on the spending.

Ms Fundakubi responded that the spike in expenditure, from 46% at the end of the 3rd quarter to 91% at the end of the 4th quarter, had resulted from certain projects in regional bulk infrastructure picking up their momentum. The timing of municipalities’ submission of completed invoices also had an effect on the increased expenditure. In some instances, incomplete documentation was submitted for payment, but these documents may be returned and only re-submitted for payment in the 4th quarter. Another programme that contributed to the increase in spending was the Accelerated Community Infrastructure Projects (ACIP).

Ms Mbassa added that instability at the most senior levels of the Department had directly affected expenditure patterns in the past five years. There had been three ministers, for a time there was no Director General, and there had been several vacant positions at senior levels. This, she submitted, would have affected the functioning of any department. However, it was now hoped that the DWA was on the right track. The Business Process Recovery Committee that the Minister had established would help stabilise the Department, and it was also looking at the recruitment process.

Ms Mbassa went on to state that the trend in expenditure patterns was attributable to the lack of project management skills at the Department. Cash flow was provided on a straight line, but the reality was that the projects that the Department implemented did not necessarily follow the same straight line. Some units would start their expenditure very slowly during the planning stages, but would increase their spending as the projects gained momentum. This explained the increased spending in the last quarter of the year.

Ms Mbassa also noted that the DWA had a recovery plan for increasing spending. This was meant to effectively shift funds to those provinces and projects that demonstrated the ability to spend. One such province was KwaZulu-Natal. She said the issue of balances would be rectified. Thinking at the Department was now more lateral, as evidenced by the use of several contractors on projects, instead of only one.

Finally, Ms Mbassa assured the Committee that the funding had been spent on what it was meant for. Information on projects could be made available to the Committee. The Department had sat down with regions and municipalities to ensure that projects were in place.

TCTA
Ms Yengeni sought clarity on the TCTA. She understood the fact that it was an SOE, but said that it was not clear who bore the responsibility of paying the debt. If TCTA paid for the service, she asked what kind of contractual protection it had to cover for itself, in case clients refused to pay. She also wanted to know from what source the budget of TCTA was derived, and what exactly it did with the money.

Mr Ramatlakane wanted to know the total debt that the TCTA had incurred as a result of its projects. He said he was wondering about the similarities between TCTA projects and the e-tolling in Gauteng, where National Treasury had to come in and service debt on behalf of the implementing agent. The weakness with the User-Pays principle was that the user often paid late.

Mr Ramatlakane said the failure to reach agreements in respect of the mining sector had been ongoing for sometime. He asked if TCTA was any closer to reaching an agreement with the mines. There was a need to talk openly about this issue. He asked for specific information on what was currently happening, pointing out that someone had to pay the debt. National Treasury might come in and cushion the debt. There was a claim that mining was the backbone of the economy. He commented that these issues had been dragging on for far too long, and he wanted to know if the Department had come up with any alternative plans, in case the mines did not come on board, as they had been identified as a source of funding for the projects. He said he understood a plan had been submitted to the Minister and was about to come to Parliament.

Mr P Gelderbloom (ANC) commented that the issues of acid mine drainage could no longer wait, especially because owners of the unused mines were staying outside the country.

Audit issues
Ms Yengeni was concerned about the figure of R200 million that was incorrectly captured. She said the explanation provided was not sufficient and wanted to know if it was as a result of incompetency.

Ms Fundakubi replied that the R200 million issue was simply a matter of incorrectly capturing information. The Department had managed to recall the money. She pointed out that the correct figure was R20 million. Had this figure been paid timeously, it would have resulted in the lessening of the R784 million under-expenditure figure.

Mr L Ramatlakane (COPE) wanted to know why the presentation did not reflect on irregular, as well as fruitless and wasteful expenditure. He wanted to know if the Department got a qualification or a disclaimer. Some of the aspects mentioned might warrant a more serious opinion.

Mr Ramatlakane sought clarity on the R209 million not spent on water provision to communities.

Ms Fundakubi replied that the exact figures for irregular expenditure in 2010/11 were R68 million, whilst fruitless and wasteful expenditure was at R369 million. These figures were reflected in the Annual Report. R58 million of the R68 million irregular expenditure had been condoned. The R369 million was largely due to the non-vendored service providers who had a VAT refund and she confirmed that this amount had been recovered.

Mr Ramatlakane wanted to know if DWA had established a committee for supply chain management, pointing out that such a committee did not exist when Members had last engaged with the DWA.

Ms Fundakubi  answered that this was because of the suspension of the departmental staff who had served on the Goods Administration committee. Interim members for that committee had been appointed. New members were to be appointed to the Adjudication Committee for Supply Chain Management.

Mr Gelderbloom wanted to know the state of backlogs in the water sector. He said he understood that R90 million was allocated in the previous year for purification of sea water in Mossel Bay, but had seen nothing on this in the presentation. He also enquired what other large projects were in the pipeline. He further enquired about the progress of a project in the Karoo that was not reflected on the budget.

Ms Mashigo disputed the figure of R784 million that was given for under-expenditure and said that according to her calculations the figure was around R700 million.

Ms Fundakubi replied that R784 million was the correct figure. She explained that, for the purposes of the presentation, the Department had rounded off the amounts, and that was why the figures in the presentation added up to R700 million. The full amounts, totalled together, were R784 million figure.

Ms Mashigo sought clarity on the remedial actions. She wanted to know the criteria used to identify those people who would be visiting regions and conducting training. She also wanted to know where the budget would be spent while training was ongoing.

The Chairperson voiced concern at the remedial steps outlined, wondered how far these would assist the Department, and asked whether the DWA was sure that it had done the right diagnosis. DWA had raised several issues about delays in the tendering processes, and he wondered how that would be remedied. If the DWA followed its current approach, he feared that it would underspend again. He said that in general, although the national departments fared well, provinces were “a disaster”. Although the Division of Revenue Act (DORA) required departments dealing with infrastructure to submit, in one financial year, plans for the projects they would be undertaking in the next financial year, departments continually failed to plan until the start of the new financial year. This was surprising, because the country operated on a rolling budget, so all departments, including DWA, had already known for some time how much money they would be receiving from National Treasury. For instance, DWA already knew what it baseline would be for the next financial year. However, its planning was not in line, and it could not tell the Committee what it was doing for next year. If DWA failed to plan, the country was in faced with serious challenges.

The Chairperson noted that the consistent failure to plan raised questions whether the Medium Term Expenditure Framework (MTEF) was working, or if it needed to be revised. The intention was clearly to let departments know, well in advance, of their budget expectations. Departments, however, acted as if they were ignorant of these allocations. National Treasury needed to assist with the challenges around planning. Referring back to comments by Ms Yengeni, he said that the 91% expenditure was probably not real. He reiterated that he doubted that DWA could point to tangible deliverables in return for the 45% spending in the last quarter.

The Chairperson said the interventions needed to speak to issues of planning for the year ahead. He said it would be difficult to motivate for the approval of the DWA budget without knowing the plan on how the Department would deal with its challenges. He commented that the Committee had recently undertaken an oversight visit to Nandoni Dam, which established that the project had stalled because the Department's engineer ordered the wrong pipes, at a cost of R200 million. This was wrongly reflected under irregular expenditure, with the comment “could not provide water to communities”. He commented that one of the most serious issues was that no officials from the Department were on site to account, and they could not even be reached by phone. He commented that the Department was vital to the delivery of water in the country.

Ms Mbassa assured the Chairperson that the planning for the current financial year had all been completed by March, and all units had provided details of what their projects were. DWA was also improving on its contract management plan. The capacity in the regional bulk infrastructure had picked up. There were, however, challenges with the municipalities, and this had an impact on the expenditure of the Department.

The Chairperson noted that there was no more time for questions, as Members had to go and prepare for the President 'answers to questions in the House. He asked that any outstanding matters be responded to in writing, or arrangements should be made for another session on another day.

The meeting was adjourned.

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