Departments of Water Affairs: 4th Quarter 2011 performance reports

Meeting report

Department of Water Affairs 4^th quarter Expenditure and Performance Report
The Chairperson noted that the purpose of this meeting was for the Department of Water Affairs (DWA or the Department) to present its 4^th quarter expenditure. The DWA should also explain why it only managed to spend 90% of its budget, why projects like the Nandoni Water Provision Project remained behind schedule, and many citizens still did not have clean water at their disposal, which was their Constitutional right. The Committee also wished to know what the DWA planned to do to rectify the under-spending.
 
Ms Ntabiseng Fundakubi, Chief Financial Officer, DWA, said the letter from the Standing Committee had asked the DWA to state its successes and challenges. The Department had done a five-year-analysis and discovered that its spending went from 91%, to 96%, to 97%, and back to 91%. The bulk of the under-spending was on the Water Services projects.

She indicated that slide 6 of the presentation (see attached document) was  titled ‘Appropriations Bill’, and this set out the spending.  Programme 1: Administration spent 89% of its budget, Programme 2: Water Sector Management spent 60%, Programme 3: Water Infrastructure Management had spent in full. Programme 4: Regional Implementation and Support spent 92%, Programme 5: Water Sector Regulation spent 81%, and Programme 6: International Water Cooperation spent 80%, resulting in overall spending of 90%.

The next slide listed the departmental expenditure by economic classification. She summarised that the spending for Compensation of employees was at  84%, Goods and Services at 89%, Interest and Rent on Land at 95%, Payment of Financial Assets at 100%, Transfer and Subsidies at 99%, Payment of Capital Assets at 83%, which again reached a total spending of 90%.

Under-spending on Compensation of Employees was the result of vacant posts and the Occupation Specific Dispensation (OSD). She wanted to highlight the figure for Goods and Services, because in the letter received from the Select Committee, it was alleged that DWA was allocated R1.5 billion for this purpose but spent R1.6 billion. She denied that there had been any overspending on Goods and Services.

She explained that the category of Payment of Financial Assets was related to the capital projects, the augmentation and the R180 million that her colleague would detail later. The  Transfers and Subsidies were related to the municipalities.

Reasons for under-spending
Ms Fundakubi wanted to highlight the reasons for underspending. Under Programme 1: Administration, a Business Process Review Committee was established in the middle of the financial year, and it was accepted that the amount allocated to it would overlap with the next financial year. There had been a total of R96 million variance for Programme 1, of which this BPR Committee accounted for R34 million. R12 million underspending was due to vacant posts. There was a concerted effort to fill these vacant positions. R32 million related to commitments that were made and accruals, but the invoices for these had arrived only after the end of the financial year (FY).

In Programme 2: Water Sector Management, the bulk of the under-spent funds related to Acid Mine Drainage (AMD), due to unforeseen delays in finalising the design concepts of the infrastructure, following due diligence processes. R18 million was supposed to be transferred to Bushbuckridge, but decisions were made on this issue only late in the FY, and this amount could not be processed on time. DWA had requested a roll-over of this amount, but it had not been granted yet. Another contributing factor to under-spending in this programme was unfilled posts and challenges in finding candidates with the requisite skills.

Programme 3’s under-spending was insignificant, but there were challenges with the projects.

In Programme 4, under-spending was due to water services projects that could not spend the budget allocated to them. Some were the critical projects like Nandoni, Hluhluwe, and Inyaka, on which Ms Mathe would elaborate later. In addition, another contributor related to bulk water supply. An incorrect amount was processed, of R200 million, instead of R20 million, but the amount was rejected and the transaction did not go through, with the DWA becoming aware of this only too late to effect the corrected transaction. DWA had requested a roll-over. If it was not granted, it would impact on the current budget. Another contributor to under-spending was R81 million earmarked for material for a bulk infrastructure project in the Eastern Cape, where material was not delivered.

In Programme 5, the under-spending was due to unfilled positions as a result of difficulties in recruitment caused by the OSD. In Programme 6, the under-spending was due to planned international engagements that could not take place, for various reasons.

Successes and challenges of the Department
Ms Fundakubi drew Members’ attention to the successes detailed on slide 16. She emphasised that  approximately 98% of the Acid Mine Drainage decant from the Western Basin was being partially treated at the upgraded Rand Uranium Treatment Plant. The PH of water leaving the Hippo Pool had risen from 3,5 to 6,2.

The Department had completed a  total of nine regional bulk schemes comprising of two Waste Water Treatment Works (WWTW), three Water Treatment Works (WTW) and four Bulk Water Supply Schemes (BWSS).

Good progress had been made in ensuring that various systems and stand-alone dams had robust operating rules, which were annually updated and implemented. Annual system operation runs were done for all systems with the Algoa System, the only one with restrictions on both urban (Port Elizabeth) areas and irrigation water use.

Five catchments were optimally monitored, in Berg, Breede, Gouritz, Olifants, Mhlathuze and Levhuvu/Letaba.

The incentive based regulatory approach had succeeded in raising awareness and providing a positive stimulus for gradual and sustainable improvement, in both water and waste water treatment works. This was evident in both 2011 Blue Drop and Green Drop reports. There had been a 21% improvement on the Blue Drop scores, which had improved from 51.4% in 2009 to 72.9% in 2011, whilst Green Drop scores improved by 8%. In preparation for the 2012 reports, 831 wastewater and 931 water supply systems were assessed.

The Councillors Induction Programme gained momentum, as 1 224 Councillors were inducted, a figure well above the planned target of 166. Water infrastructure status and intervention plans for 22 priority District Municipalities were completed.

The challenges included the fact that data discrepancies delayed the finalisation of the comprehensive reserves. The high water levels in the Vaal River delayed the completion of the Klipplaatdrift monitoring station. The implementation of OSD was impacting on the availability of the technical skills required to ensure service delivery within the Branch. Critical posts were unable to be filled.

AMD underspending
Ms Fundakubi then turned to the specific reasons for underspending on the AMD. The Trans Caledon Tunnel Authority (TCTA) had been appointed by the Minister. However, it was decided that before any solutions were implemented, due diligence reviews had to be undertaken. Collaborative efforts between the Department and the TCTA had resulted in interrogation of existing mine water treatment infrastructure in the Western and Central Basin mining areas, as well as potential arrangements with the mining companies still operational in these Basins. Consultation processes to compile transfer agreements were fruitful, but time consuming.

There had been delays in the implementation of the immediate intervention for the Western Basin. The upgrade of the Rand Uranium Treatment plant, at a cost of R25 million, was only completed in June 2012, rather than its planned completion date of March 2012, because of longer manufacturing times for the electrical and mechanical equipment.

There had also been delays in the awarding of the contract for the construction of the short-term intervention for the three basins, owing to longer tender evaluation periods. The original planned date of award was February 2012, but this was now shifted to August 2012, since the lower rise of water levels in the Central and Eastern Basins allowed for more time. She noted that the critical decisions must be based on good and reliable data, and the extended time frame was due to comparing various data, because of worries about the consistency of data, to allow TCTA to enter into contractual commitments.

Actions taken or planned to avoid recurrence of underexpenditure
Ms Fundakubi emphasised that the DWA had resolved to strengthen its project management, contract management and oversight capacity. It had established a Budget Committee that would do quarterly reviews of the expenditure against the performance and service delivery achieved, in order to improve on the governance structures that would assist with the continuous monitoring of the expenditure. Quarterly review sessions of the Department’s performance would be held with the National Treasury. A CAPEX Committee, under the Chief Operations Officer, was set up to oversee and monitor all capital projects in progress, including spending on these projects. The Department’s financial management capacity was also improving and appointments were being made, to capacitate the units.

Ms Zandi Mathe, Acting Deputy Director General: National Water Resource Infrastructure, DWA, said Programme 3 had spent in full. The Nandoni Project was described in slide 6 under the heading ‘Luvuvhu River Government Water Scheme: Nandoni Steel Pipelines’. The project entailed the construction of five new pipelines to complete the Nandoni bulk distribution system, and to replace problematic GRP pipelines, including the Valdezia Pipeline. The National Water Resource Infrastructure (NWRI) programme of the DWA was the contractor as well as the project manager, which meant that this project’s under-expenditure was directly reflected under Programme 4 as under-expenditure.

Ms Mathe noted that there had initially been delays in procuring the contractor to do the work. The DWA had its own construction unit, but by the time that Ms Mathe took over, in December 2011, the Minister had realised that this unit had not moved fast enough, particularly not in light of the urgency on the ground, and had given the instruction that part of the work must be outsourced. Three contractors came on to the site in March 2012. She hoped that the rollover request would be approved, as there were already commitments. As a result of these changes, the work programme had now been accelerated.

The Lukalo-Lambani, NN20B and NR6 bulk lines to the north of Nandoni Dam and Xikundu Weir respectively would be completed by end of October 2012. Construction of the Vuwani bulk pipeline would be completed by May 2013. The Valdezia bulk pipeline would be completed by April 2013. However, Ms Mathe indicated that she was not happy with the April and May 2013 dates and was negotiating with the contractors to put more working shifts into operation, to try to complete the work within the current FY.

She listed the challenges as including the fact that the updated water demand figures were significantly higher than those previously estimated, requiring larger pipe diameters. The approval for roll-over of R200 million had not yet been received from National Treasury, but was expected around October.
Six weeks were lost due to cash flow problems of emerging contractors involved in the project.

She noted that local water distribution infrastructure would be implemented by the local authorities. The DWA had no control over the progress of the municipal water distribution infrastructure, although oversight Committees from Parliament expected the project to be working. DWA was working with and was urging local authorities to get the infrastructure ready, so that the projects could be completed in March 2013.

Ms Mathe said the litigation process was unfolding around the losses incurred in the pipelines. DWA had been requested to institute disciplinary proceedings to be taken against the people involved, and that was happening, with the matters currently before the courts.

The De Hoop project consisted of the De Hoop dam and the De Hoop bulk distribution infrastructure.  The dam project had spent 100% of its budget, and whereas previously no challenges were apparent, there were now some problems in the Works programmes. A strike had lasted for seven weeks. Union federations ARMCO and COSATU were involved, the strike had been partially resolved, and work was continuing. The DWA was supposed to impound in August, but because of the strike delays it would be impounding in October, and hoped that the rains would not come before then. The budget should be spent before the end of the FY, as the dam construction was nearing completion, and there would be 5% or 10% retention by the end of the FY. The biggest challenge at De Hoop was the bulk distribution system. A directive had been issued to the Trans Caledon Tunnel Authority (TCTA) in 2008. The project had spent all the money, but it transferred R411 million right at the end of the last FY. She explained that this happened because the TCTA was granted a directive over the whole of the distribution system. Some mining houses had repudiated the agreement that was signed in 2008. When TCTA was on the verge of making the contractor appointment, the DWA could give it only a directive for the money allocated in the Medium Term Expenditure Framework (MTEF) for DWA, and not for the remainder that was to come from the co-funders. The directive therefore had to be revised, a lengthy and complex process, down to R411 million, and TCTA had to put the contractor appointment on hold. She distinguished the last-minute payment from fiscal dumping by saying that effectively the contractors were waiting on site, and this money had been paid for site establishment and other preliminary work which preceded construction. DWA had been caught off-guard by TCTA’s inability to raise funding in the capital markets. DWA would transfer the next tranche after TCTA had submitted invoices.

In the meantime, the challenges with the mining houses had worsened, and National Treasury was called in to facilitate the communications. Procurement processes to bring the panel together meant that the panel could be briefed only in the current week, and it had been given one month to look at both designs. DWA wanted to implement the most economic, sustainable, equitable, transformative design suitable for that area, taking into consideration the plight of all the users. By end of September, the panel should have decided what shape the bulk distribution system at De Hoop would take.

Mr Sanele Dlamini, Director: Office of the Director General, DWA, said the Minister had visited the Nandoni Project and requested that companies be instructed to work on both sides of the dam simultaneously, to shorten construction times.

Mr Fazel Ismail, Acting Chief Financial Officer, Water Trading Entity (WTE), DWA, added that the R411 million referred to by Ms Mathe was finally spent in July, with most having been spent by TCTA by 31 March. The projections indicated a cash shortfall of R200 million for this FY.

The Chairperson said that the funds had to be raised to meet this.

Mr Ismail said funders would only invest if water user agreements were signed. However, the DWA was having difficulties persuading the mining houses to sign them, which was why National Treasury was asked to facilitate. In the meantime, the project was moving, being in phase 2C and was being funded by the fiscus. There were sufficient funds over this MTEF period, but the shortage would occur in 2012/13. In the year after that, the project should be finished. He suggested that it was possible that money may have to be shifted from elsewhere in the programme to fund this project.  

Discussion
Ms L Yengeni (ANC) asked what Mr Ismail meant by shifting funds.

Ms Mathe explained that the DWA would, by the end of the third quarter, consider which projects within the programme were not spending properly. DWA would then re-allocate some of those funds to fill in the deficit for the Nandoni Project. She also emphasised that the DWA was still hoping to have the R200 million rollover approved.

Mr M Swart (DA) said between Guyani and Malumalele hundreds of pipes were lying next to the road. He asked if they belonged to the DWA, and, if so, wanted to know why they were lying above ground, what the cost of them were, and why they had been bought so far in advance.

Ms Mathe replied that the pipes along the road at Guyana were old pipes. The matter was still under investigation. She reiterated that the current programme on Nandoni had commenced and was going well. The DWA was trying to recover the losses on the pipelines through litigation.

Mr N Singh (IFP) expressed his concern over AMD and asked what kind of serious interventions the DWA would take to accelerate the progress and ensure that AMD was rectified.

Mr S Mahlangu, Deputy Director General: Corporate Services, DWA, said the DWA understood its full responsibility in leading the resolution of AMD although it must be understood that part of the responsibility also belonged to the mines. The parties were dealing with legacy problems, and AMD was a complex problem that was in the public domain. The solution entailed more than constructing emergency facilities, although most of the money to date had been spent on these. A comprehensive solution would also have medium and long term components. Currently, most of the spending was on preventing some of the short-term issues and concerns. Pollution loading that took place as the water collected had serious implications and had to be addressed. Processes were put in place to optimise the funding currently available, and, as a parallel process, more funding was also requested from National Treasury.

Mr L Ramatlakane (COPE) said the issue of AMD kept on re-surfacing, and there seemed to be no solution. Previously, the DWA had told the Committee that it had other plans in place if the mines did not succeed, which were being placed before Cabinet. He asked what those plans wee, how far they had proceeded, and if there was a budget. National Treasury had been in discussion with the mines for a year. He was worried that the same information was repeated, without reaching finality.

Ms Yengeni agreed that this was now the third time the DWA told the Select Committee about the mining houses possibly co-funding the process. She wondered who was not following up on the issue, saying that by now there should have been confirmation.  She did not see any progress on the funding or the legal process.

Ms Mathe replied that she had not been with the DWA when her colleagues had reported on “Plan B” previously. She had inherited the situation that the DWA was asking the fiscus to fund the R14 billion required, in full. It was possible for the fiscus to do so, but only over a period of ten years, which was not acceptable, given the urgency of providing water to the people in these areas. When she came into the DWA, a decision was taken to reconsider the whole process, and emphasise that all parties, including the mining houses, needed to work together. The mining houses stressed that they could not work without water, and therefore were equally dependent on the DWA. She hoped that a decision could be made, by end September, as to which of the two possible designs would be more cost-effective. Experts from both sides were working on a solution. The likely outcome was that the mining houses would agree that the DWA design, costed at R14 billion, was acceptable, as it was already under way. A further possibility was that the mining houses might come  up with a lower-cost plan, but in this case they would have to approach the capital markets for funding. She emphasised that the project would not stop, and was hopeful that funding would be found. There were oral, but not written commitments.

Mr Ramatlakane said the Nandoni Project needed R200 million for completion. He was worried about the end product if contractors were working on two sides.

Ms Mathe had confidence that the end product would be good. A design and supervision engineer was overseeing the whole project. DWA had revised the scope of the project, so that he was supervising more than the original contract had stipulated, and there was a third party quality assurance contract in place, to make sure the quality of the work was of a high standard.

Mr Ramatlakane asked what Ms Mathe meant by the legal processes “unfolding”. He noted that there were some grey areas; the Department had changed the scope of the project, and another party supplied the substandard pipes. He wanted more clarity.

Ms Mathe replied that the matter was before the High Court at the  moment. DWA was trying to recover the money from the manufacturer, despite the claim that the DWA engineers had changed the scope. The contractors had resigned on 27 August 2012, but the claim was being pursued.

Mr Ramatlakane said Ms Mathe was now in charge of this project, and he asked her specifically when the people in the Nandoni Project area would have water. He noted her concerns about the projected deadlines but emphasised that there was a Constitutional right to access to clean water and people could decide to take class action. He wondered if the DWA was up to the task of delivering on this issue.

Ms Mathe agreed that she was not comfortable with the project stretching through to April or May 2013, and ideally wanted people to have access to the water by December 2012. She had called a meeting with the project managers to see whether they could add extra shift in order to speed up the work.

Mr Singh said Ms Mathe had mentioned De Hoop and the challenges the DWA had with the Green Scorpions. There were allegations of non-compliance, and he asked for more detail on those, and how they might impact on the De Hoop Project.

Ms Mathe said the Green Scorpions had complained about encroachment on their territory by the DWA, but the matter had been resolved through discussion with the relevant officials at the Department of Environmental Affairs.

Mr Singh noted the huge underspending on the filling of vacancies and asked for a progress report on the  filling of critical posts, pointing out that it was impossible to deliver properly if the critical staff were not in place.

Ms T Mfulo (ANC) also noted the mention of vacancies and wanted to know the specifics of the plans to address the filing of posts, how far this had progressed, what positions were vacant, and what skills and capacity was needed.

Ms Mathe replied that systems were clearly not up to speed and DWA had to set up a programme management system in order to monitor progress in the different projects. Her priority was to move on expenditure and to sort out the environment, but she needed programme managers and a system with which to monitor progress. She aimed to have everything in place by the end of the financial year. With the assistance of the Minister, she had concluded that most under-spending was due to a lack of capacity. The department was drawing a shortlist of 50 engineering firms nationally, including women, youth and black-owned firms. Over a period of three years, it would be drawing on expertise from these firms. This would address the skills shortage as well as transformation. DWA was looking at partnerships to assist the young, inexperienced firms. There would be a set rate for engineers, but contractors could negotiate on prices.

Dr S van Dyk (DA) said it must be accepted that the Department dealt with very difficult customers, like mines and municipalities. Water was also a contentious issue in South Africa. He wondered if water sector management and water regulation also dealt with issues around pollution, specifically taking into account the Vaal, Upper Olifants and Crocodile River Irrigation valleys, and what preventative measures it might be taking.

Mr Helgard Muller, Acting Deputy Director General: Pollution and Regulation Pollution Prevention, DWA,  replied that it was correct that municipalities and mines were polluters, but in addition to this diffuse pollution occurred through fertilisers that were used in farming activities entering water systems. At the Hartebeespoort Dam, huge volumes of nutrients were added to the water, although the readings would still comply with the standards. A study by the World Research Commission looked at zero phosphate pollution, and DWA, having considered this study, would be recommending to the Minister that phosphates had to be banned altogether from detergents and washing powders used in South Africa, in order to curb pollution.

Mr Muller added that Programme 5 was the regulatory section, and under this programme, DWA  oversaw municipalities’ waste water treatment works, and had introduced the Green Drop Programmes to make municipalities aware of detergents in the water. There was still a long way to go, but there were substantial successes. Through publication of the Green Drop Report, municipalities became aware of their performance, and the blame and shame process served as motivation to improve. The third Green Drop Report showed a trend that municipalities were actively working towards lessening their pollution.

A special programme under Programme 4 provided for a Regional Bulk Infrastructure Grant, administered by the DWA, which provided grant funding to municipalities for the improvement and refurbishment of the bulk infrastructure for provision of water. This was part of the total estimate of R617 billion that was needed to refurbish dilapidated waste water treatment plants. Many plants had run out of capacity, because of rapid residential developments in areas they serviced. They had to be brought up to standard, in order to handle and treat the additional volumes of waste water.

In view of time constraints, the DWA was asked to respond, in writing to the following additional questions:

Mr Ramatlakane wanted an update on the demand figures and the figure for planning, enquiring if this was still at R1.2 million, or had increased.

Mr Singh asked what would happen pending National Treasury’s response to the request for rollovers. He wondered if there was an alternative plan, also, should that rollover not be approved.

Mr Swart asked what was happened about the backlog of 700 applications for water licenses, and what the current situation was.

Dr van Dyk asked whether the under-expenditure was due to over-budgeting or whether savings were also achieved.

Ms Mfulo addressed the issue of turnaround times, asking when the Department had realised that there was a problem with the R200 million and R20 million discrepancy. She felt that the different programmes of the Department were not planning together, so that the plans did not align, and if one programme experienced problems, this had a ripple effect on all the other programmes. Better planning would make it easier to identify the challenges.

Ms Mfulo also asked whether, in the past, the DWA had met targets, and if so, then what the exact cause was of the slow spending on water projects like Nandoni, and how that underspending would be addressed.

Mr J Gelderbloem (ANC) asked about the legal costs of the Nandoni pipeline case, and wanted quarterly updates on the progress. He thought that the legal representatives should be urged to move forward with due speed, to avoid similar recurrences. He also suggested that the DWA must take a stronger stance  against the mines who were uncooperative, and initiate legal proceedings against them. Those making money out of mining also had to play a part in solving the problems created by their mining activities.

Ms Yengeni noted that she had first met with the DWA on the site of the Nandoni project, when the DWA was asked specifically to identify the people who had ordered the wrong pipes. DWA had appeared twice more, since then, before the Committee, and it was still not clear when this process would be concluded, and what exactly had happened to those responsible.

Ms Yengeni asked how many times the DWA had asked for rollovers on the programmes outlined. She also asked that National Treasury must clarify the contradiction between the DWA’s report of underspending, and the National Treasury report of overspending in relation to Goods and Services.

The Chairperson also referred to the confusion regarding the payment of R200 million instead of R20 million and asked what steps would be take to prevent a recurrence.

Ms Yengeni noted that a decision had been taken previously to have a workshop soon with the DWA. She was not sure who had to organise it.

Ms R Mashigo (ANC) suggested that the Committee’s approach had to change, because it was simply receiving the same responses to the same questions, time after time. She was interested to hear about the recycling programmes but wanted to know what the DWA had done with the budget, how it was spent, as well as instances of underspending. She said that underspending of R58 million was not good in a department that was tasked with supplying clean water to the population.  The DWA had a high vacancy rate, which contributed to the underspending, but she felt that insufficient plans had been presented as to how the vacancies were to be filled, and more details on this must be provided at the next meeting.

Department of Police
The Chairperson informed the Committee that the Department of Police had also been invited to discuss its 4^th  Quarter Expenditure Report for 2011/12. However, it was not aware that the SAPS delegation had been asked, on the same day and time, to report to the Portfolio Committee on Police, and this was not communicated to the Select Committee.

He noted that Lieutenant-General Stefan Schutte, Chief Financial Officer, SAPS, was present.

The Committee decided that another date be arranged, and SAPS and its subsidiaries were asked to return on Tuesday 4 September 2012, with a full delegation, including the National Police Commissioner as accounting officer.

The meeting was adjourned.