Sedibeng, Bloem, Overberg, Umngeni, Magalies and Pelladrift Water Boards on their 2013/14 annual reports; Discussion on water tariff increase

Meeting report

The Chairperson said there were a few apologies from Committee Members who were running late. There was also an apology from the chairperson of the Magalies water board, who was ill. The second apology was from the chief officer (CO) of the Overberg water board, who had not given a reason for his apology. This apology was not accepted, as it had not been accompanied by a reason. After brief introductions from everyone, he handed over to the Deputy Minister to introduce the presentation.

Ms Pam Tshwete, Deputy Minister, Department of Water and Sanitation (DWS) apologised on behalf of the Minister who was absent because he had to attend a Cabinet meeting. The Director General would conduct the presentation. She briefly explained which water boards were going to present and informed the Committee that the briefing of the Botshabelo and Pella draft water boards would be presented by the Sedibeng water board.

Ms Margaret-Ann Diedricks Director Genera, DWS informed the Committee that there were 12 water boards and 11 of them had received unqualified audit. The exception was the Botshabelo water board, which had received a qualified audit. These water boards were facing a challenge of cost recovery, and would affirm this in their presentations.

Sedibeng Water Board
Mr Matshediso Dikoko, Chairperson of Sedibeng water board, introduced himself and handed over to the Chief Executive of Sedibeng water board to start with the presentation.

Mr Tradewin Takalani, Chief Executive of Sedibeng water board. informed the Committee that the board was established through the Water Service Act 108 of 1997. The aim of the board was to provide bulk water to water services and mines. It abstracted water from the Sand Canal and Vaal River, among other sources. The water board had 34 reservoirs and one holding dam. The Sedibeng water service area covered three provinces -- the Free State, North West and Northern Cape. Service agreements had been signed by Sedibeng water and most of the municipalities it was supplying. The geographic area would change now that Botshabelo and Pella Drift had joined Sedibeng.

Some of the feedback on issues that had been raised by the Portfolio Committee previously was the appointment of a board, which had been done on 1 May 2013. The second issue was the recovery of outstanding debt, which the DG had committed to assist. Mr Takalani pointed out that the fact that Botshabelo water had been joined to Sedibeng would add to this challenge, as Botshabelo had a cost recovery of approximately R400 million.

Sedibeng water’s strategic plan was founded on 12 outcomes that were set out in the national government’s Medium Term Strategic Framework. Its performance objectives were to supply water which was of good quality to clients, and to meet the debt collecting target, as it was taking too long for it to recover its costs.

Mr Takalani stated that the main achievement for the water board in 2013/2014 was the fact that costs had been prudently managed within budgetary limits. The board was currently in the process of building a laboratory in the Northern Cape. It has one laboratory which was audited by South African National Accreditation Standard (SANAS) and the International Laboratory Accreditation (ILA). Another achievement was the awarding of bursaries to employees who wanted to further their careers.
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On social investment, the water board had awareness campaigns which took place throughout the organisation. It had adopted some hospices and sponsored NGOs. One of the challenges was the fact that it was in a downstream area, and as a result the Board had to use a lot of chemicals to purify the water, which lead to tariffs being high.

Mr Teboho Nteo, Financial Manager, Sedibeng water board, said that the board had received an unqualified report for the past 12 years. On 1 October 2014, the Minister of Water and Sanitation had issued a Gazette dis-establishing the Botshabelo and Pella Drift water boards by extending the operation of Sedibeng water with the areas that had previously been serviced by them. The revenues for Sedibeng water had increase in the 2013/2014 financial year. Purchasing of raw water in the Vaal River was expensive, as it was in the Lesotho highlands and this led to high tariffs. Financially, 2013/2014 had been a good year for Sedibeng waters.

Mr Nteo informed the Committee that Sedibeng water have long term investments and some of them will mature in 2018. On capital expenditure spend 2013/2014 he explained that the expenditure was not high as North West Province does not have a lot of assets. He also said that the water board had to prioritise some of the projects in order to pay for operational cost. He explained that the water board has exceeded the budget when looking on regions individually but there are regions which are below the budget due to cost covering.

Mr Nteo said that Botshabelo Water Board received a disclaimer in 2011 and 2012 and the Minister had to intervene and the intervention lead to a qualified audit reports in 2013 and 2014. The revenue of Botshabelo has increased as it was area. He also stated that Botshabelo has small assets and have more than R400 millions of cost recovery.

Mr Nteo said that Pella Drift had received an unqualified audit in 2014, with no material findings on the predetermined objectives. The water board had had an increase in revenue, as the water board had abstracted from the lower Orange River at a favourable tariff, and was able to manage the water quite well. There had also been an increase in the cash flow.

Bloem Water Board
Dr L Moorosi, Chief Executive of the Bloem water board, said it was striving to be financially viable and able to repay and service its debts. The board did not receive any funding and had to source its own finances and maintain the water supply. The board’s main client was Mangaung Metro. It was mandated to provide a bucket eradication program in 19 municipalities in the Free State. It had managed to meet its budgeted strategic objectives in the areas through proper servicing.

Mr Ockert Stadler, Chief Financial Officer, stated that the Board had done c well in distributing water even when there was drought. Last year, the new Minister had allowed the Board to extract water from the Lesotho highlands due to drought as it was affecting the community, and this provided temporary relief. The board did not have the funds to maintain its ageing infrastructure. It had also had look at places where it could expand its services, and had handed a proposal to the Department so that it could maintain its financial viability. There were lot of sponsorship activities, but only in places that the board serviced. It had received two awards -- one for leadership and quality in France, and a silver award by PR Africa.

The existing yield was insufficient to meet the future demand. The Department had introduced a reconciliation study, as the yield was under pressure because of the demand. Major intervention studies needed to be done in the years to come. The board was currently heavily involved in some projects to ensure that there was sustainability. Small projects in the Bloom water CAPEX programmes had been completed and jobs had been created. 1 963 jobs had been created in the Free State bucket eradication programme. The board had been involved in research and innovation programmes, like solar-powered boreholes.

Mr Stander said that in the 2013/14 financial statements, raw water purchases were low, and water quality in the river system had improved. There had been a growth in capital reserves. Bloem was still solvent, but the problem it was facing was that the debtors’ position was worsening. The Board was involved in Adult Basic Education and Training (ABET) skills development programmes, where classes were held for a week once a month. The board had provided various short courses, like risk assessment, as well as a school sanitation programme that taught learners about health and hygiene practices. The current challenge the board was facing was the availability of water resources.

Overberg Water Board
Mr Mpumelelo Ncwadi, Overberg Water Board Chairman, introduced himself and handed over to Mr Clint Stewart, Chief Operational Officer. Mr Stewart informed the Committee that on the “low lights” there were particular disputes with Theewaterskloof regarding capital levies, staff turnover and the internal audit function. The highlights were that the board was confident of the water quality compliance and reliability of supply. The board provided training and skills development. The revenue of the Board had gone up as a result of an increase in tariffs. The cost of sales had increased due to raw water, electricity and chemicals. There had been a slight increase in the reserves and assets.

Mr Dawie Pretorius, acting Chief Financial Officer, said that the board had received an unqualified audit report and compliance findings from AGSA. The internal accounting authority function had been established. There was a plan in place to reduce irregular expenditure.

Umgeni Water Board
Mr Andile Mahlalutye, Chairman of Umgeni Water Board, said it had celebrated 40 years of service delivery in 2014. He then handed over to Mr Cyril Gamede, Chief Exective, who said that the Umgeni strategies of the past year had been successful in achieving targeting outcomes. The vision and mission of the Board had been the guidelines to achieve its outcomes. It had focused on four areas -- organisational capacity, financial perspective, customer and stake holder’s perspective, and process perspective. It had measurable strategic objectives that were submitted to the Department quarterly. Water quality at all treatment works had improved, and the board was continuing to invest in the integrity of its structure. The board saw to it that it met the expectations of its clients and had increased its focus on issues of growth and extending access to the rural communities. The Board had all the requirements to fulfil its bulk supply agreements with its customers.

The Board had proposed an extension to the area it services. Its operational area is 21 155 km square, but it would go to 70 701 km square, which would triple the service area and double its customers and households. On operational resilience, the Board was upgrading its IT systems. It believed that water balancing and water loss management measures had enabled Umgeni water to maintain its total water loss level to below 5%. The Board was active in the construction of dams. Fifty-five employees had commenced a leadership and employee development programme in May. There were learnership and apprenticeship programmes that comprise of 32 artisan trainees, employed in mechanical, electrical engineering and instrumentation. The board had ten bursary students that were on track to complete tertiary education in the fields of civil, mechanical and electrical engineering. The Board had a lot of debt, and kept adjusting its chemical costs in order to save water. It had adopted about 20 schools, where it also helped with infrastructure and had donated maths and science kits. The Board had donated a lot of JoJo water tanks and had also conducted water classes.

Magalies Water Board
Mr Sandile Mkhize, General Manager, said that the Magalies water board serviced a number of municipalities in three different provinces. It had received an unqualified audit from the Auditor General of South Africa. The board was sitting at 79% progress in addressing the audit findings. It had a substantial infrastructure backlog. The board was planning to cross borders in order to give service to its customers. The empowerment strategy had seen skills transfers being done where necessary. The capacity building programme was gaining momentum, as the board was recruiting graduates. It had refurbished the entire dysfunctional primary school toilets of Bela-Bela municipality. It had an agreement with Eskom on how to manage the use of electricity. It was at 66% to target on debts that had been handed over to legal channels.

Briefing by Department on water tariff increase for 2015/2016
Deputy Minister Tshwete said that according to the Water Service Act, section 28 water boards were providers of water to other water entities. She had noted all the issues raised in Parliament and the Department was taking them seriously. The Department had plans for issues that were affecting the municipalities and it was taking account of the ageing of the infrastructure and issues of service delivery. Great work had been done in terms of financial management, but the Department now needed to strengthen its planning. Members should keep up their good work in doing oversight visits. She appreciated the Committee for their support through their engagement.

Ms Sizani Moshidi, DWS, said the biggest challenge of the Department was to improve the Municipal Finance Management Act (MFMA). She explained that the board had a duty to submit tariff proposals in order to amend bulk water tariffs every year. The DWS had granted the SA Local Government Association (SALGA) an extension until 31 January 2015 to submit their comments on water board tariff proposals, and SALGA had withheld its approval on one the water boards as it did not agree with that water board’s proposal. SALGA had supported the tariff proposals of five water boards, while two water board’s tariff proposals were not supported due to lack of clarity. Out of 54 water service authorities, only seven had provided written comments. The main reason proposals not being supported was due to affordability, and the percentage increase being higher than the inflation rate. A challenge that was noted during analysis by the Department, in accordance with section 42(5) of the MFMA, was that all water board proposals had to be tabled on or before 15 March, but in 2013/14 SALGA had requested an extension which had caused a delay. Another challenge was the raw water price, which had not yet been approved, but the DWS was working on it.

Reports and outstanding Committee minutes were not considered. The Committee did not have time, as Members and the delegates had to attend a meeting in the House.

Discussion

Sedibeng
The Chairperson wanted to know if the entities had been able to resolve tensions among themselves. He also wanted to know if the water board had a funding model for generating income.

Mr Mpho Mofokeng, CFO of DWS, stated that water boards did not get grants. Their income was generated by buying raw water, purifying it and selling it. Water boards received an income when the Department gave them specific jobs to do on its behalf.

Mr Takalani said that as a water board, they appreciated the jobs they received from the Department.        

Mr T Makondo (ANC) said the municipalities received an equitable share allocation from Treasury. He thought there should be a meeting between the treasury and the Department of Cooperative Governance and Traditional Affairs (COGTA) so that when the municipalities received their share, the Treasury had to give the water boards their own share first, as he believed that some municipalities deliberately did not pay the water boards. He wanted clarity as to why Sedibeng had the highest tariff, while Rand Water Board -- which also abstracted from the Vaal River – had lower tariffs. He said that there was a need for intervention on cost recoveries so debts could be settled before the end of the financial year.

Ms J Maluleke (ANC) requested the Sedibeng Water Board to elaborate on who it was sponsoring and what criteria was it using when giving sponsorship. How was the Board preparing to deal with the challenge of irregular expenditure? She also raised her concern on job creation, as she saw only 269 indirect and direct jobs being created. The target of employing 2% people with disabilities was never met, and this was one of the issues always raised in the State of the Nation Address.

Mr Takalani said that the water board appointed 30 permanent employees out of 259 employees -- the rest were temporary. The r board was looking at employing people with disabilities, and he assured the Committee that it would improve in this area. In terms of sponsorships, it had adopted hospices and also sponsored many Mandela Day activities.

Mr L Basson (DA) saidd that he felt very strongly about the National Treasury deducting the costs of the water board from the funds that municipalities received from Treasury. He had a problem with the tariffs, as the country had water with poor quality as a result of the large amount of chemicals that were being used.

The Deputy Minister thanked Mr Basson for suggesting that National Treasury should be called to help with cost recovery, as this was vital.

Ms N Bilankulu (ANC) wanted to know how water boards evaluated waste in improving efficiency and controlling water loss.

Ms T Baker (DA) said that her main concerns were water policy and the decline in water quality. She also suggested that the Department had to look very carefullly at how it controlled water loss.

Mr Mofokeng stated that the Department was addressing the issue of waste of water with the Deputy Minister and DG, as they had to start charging people who were polluting water.

Mr Anil Singh, Deputy Director General: Regulation, DWS, suggested that the Department had to come back to the Committee and present a plan on how to improve water quality, as it was a countrywide problem. He went further, and requested that the Committee engage with other portfolio committees on the problem of water quality.

Mr D Mnguni (ANC) said that there were challenges that had been emanating since 2005, but he wanted to know why the water board was increasing tariffs while the quality of water was poor. He had never heard any water board saying it was short of money -- all it said was that it was economically viable. However, these water boards were continuously being owed money by the municipalities, and he wanted to know if this was the reason for the charges. Did the Water Board have any plans in place to deal with the ageing infrastructure? The Department should look at the performance bonuses of the CEO and the CFO, and check whether they were doing their jobs.

The DG explained that raw water was the responsibility of the Department, while issuing the water was the responsibility of the municipalities. However, the Department, as the regulator, had to see to it that it supplied quality water.

Mr Mofokeng explained that water from the Vaal River was under the Lesostho Highlands, and extracting from the Vaal River resulted in high tariffs. Another reason for high tariffs were the loans that had high interest rates, as a water board had to repay over a period of time.

Ms M Khawula (EFF) said that every day there were concerns about broken pipes, but nothing indicated that follow ups were conducted. Another painful fact was that people were receiving unclean water, and she wanted to know if there was any way that the municipality’s role could be taken and given to another entity. She showed the Members photographs of broken and rusty pipes.

Mr Takalani informed the Committee that it was using funding to replace aging infrastructure.

The Chairperson said that access to water was a right for every South African. Even the Minister of COGTA, Mr Pravin Gordhan, had said that one in three municipalities was dysfunctional.

Bloem
The Chairperson stated that the presentation had been short and should serve as an example to the other entities which still had to present.

The Deputy Minister thanked the Committee for their interventions through their oversight and said that the Department would be happy to receive the oversight report. The photos which Ms Khawula had showed the Committee were very bad, and all the provinces were experiencing the same problem. She and the Minister had visited various infrastructures and had seen that most of the infrastructure was ageing. Some pipes had been installed before 1994 and it was all a question of budget for the Department to be able to replace them. The Committee’s intervention with Treasurer would help the Department. Vandalism was a big challenge which all the provinces were experiencing. She was happy that Bloem had 24 hour security

Miss Maluleka wanted clarity as to how long the chairperson and vice chairperson had been in an acting capacity. She also wanted to know which community projects they were happy to work with.

The DG stated that Bloem had answered this question, as they were assisting with the underprivileged and with sanitation programs.

Mr T Phitsane, Chairperson of the Bloem Water Board, said all projects made them happy, depending on the particular moment.

The Chairperson wanted to know when a case against a polluter had been implemented

Mr Mofokeng said the DWS was not charging polluters at the moment. The plan was to begin laying charges in 2016/17. This year, the Department would be involved in consultations before it could start charging.

Mr Singh said payment by a polluter was in the Act, but this required amendment so that there could be a standard levy.

Ms Neliswe Mhlongo, AGSA Manager, said that the AG chose which entity to audit because of certain issues, and then gave the other entities over to be audited by private auditors. Factors were taken into consideration when AGSA chose an entity to audit.

The Chairperson asked if projects were standardised when the DWS calculated costs.

Mr Mofokeng said construction standardisation depended on the bill of quantity and the end certificates were awarded. However, in areas where the design structures were not complete, costs would differ from the actual contract. Designs now had to be finished so that the actual costs were known.

Ms Maluleke said that the Department must look at the issue of private auditors.

Overberg

Ms H Kekana (ANC) wanted to know what measures were in place to retain workers at the entity.

Mr Ncwadi said people were joining the board in high positions without qualifications, but this would now be dealt with head on.

Ms Maluleke asked what caused the board’s irregular expenditure.

Mr Ncwadi said employees were despondent and wanted better career opportunities, which resulted in a high staff turnover. This had led to policies being put in place to monitor the situation and decrease expenditure.

The Chairperson wanted a list of areas that were covered by the board.

Mr Ncwadi said for the board’s social intervention on Water Week, it had promoted awareness by going to the elderly communities and given them training and gift packs. The training they had received had been accredited and they had received certificates.

The Chairperson thanked the Overberg delegation.

Umgeni
Mr Makhondo said that most of the projects carried out by the board were not known to the public. He suggested that they be made known in the National Assembly so that praise could be given.

Ms Baker said she understood there was still a drought in KZN. Her concern was in regard to the delay in the construction of a pipe line, as this was a problem of the municipality not complying.

Mr Gamede said that during a drought, the board made integrated transfers from one river to another where a drought existed. He explained that the Board faced a problem when dealing with a municipality, as municipalities always wanted to do the job themselves but did not deliver at the end. Another problem the board was facing was the fact that it supplied a municipality with bulk water and the municipality did the distribution.

Mr Mnguni said when he was checking the Umgeni profile he had noticed that there was a management problem. Had disciplinary measures been taken against people who did not comply? What was the time frame was for those people who had not complied? He had also noticed that there were schools that had been built near a river, but did not have water. He wanted to know if the board had any plans to assist as part of its social responsibility.

Mr Gamede responded that the Board did not entertain requests that were from areas the Board was not servicing.

Mr Maluleka asked if there was a plan to deal with irregular expenditure.

Mr Hlongwane said that the Board had explained the irregular expenditure. There had been instances where work had to be done without proper work requests, as these were emergencies. This was seen as irregular expenditure, as stated in the presentation, and no disciplinary action had been taken.

Magalies
Mr Basson said that the water board extracted from Thabazimbi, which had a borehole from the Crocodile River. Thabazimbi was dumping sewage in the same pipe line the Department was using. He wanted to know if the Department checked water quality.

Mr Roelf le Roux, General Manager, Engineering Services, Magalies Water, said that the Department had monitoring points at all the board’s supply points in Thabazimbi.

Mr Dlamini said the Department was monitoring the quality of the water, and would investigate if there was any impact on the quality of water

Ms Kekana said there was a large dam in Moses Kotana, and asked how it would help the board to use it.

Mr Le Roux said that the yield of the small dams in Moses Kotane was not enough to sustain all the demands.

Mr Makondo said that the Committee had done an oversight in Madibeng and at one stream had been confronted with dead fish. They had been informed that there was an issue of a high alkaline content in the dam, and he wanted the Department to clarify.

The Chairperson said that they were expected to go to the House at 14h00, and suggested that the presentation should go through lunch, as the Committee had a deadline of 15 March for the tariff proposals. He also reminded Members that they would have a meeting for bucket eradication briefing the following week.

Discussion on water tariff increase

The Chairperson wanted to know why the Department was doing the presentation.

Mr Singh explained that the Department had complied with all the requirements

Mr Mguni wanted clarity as to who should approve the tariff increase proposal. He also wanted to know if their deliberation as a Committee would be taken into account when the proposal went to the House.

The Chairperson asked if the role of the Committee was only to rubber stamp the proposal.

Mr Singh said that according to the Water Act, the Committee had to rubber stamp the water increase proposal only after the Department had complied with all the requirements.

Mr Basson wanted to know if the increase was only for raw water, as he was aware that municipalities were going to increase tariffs, and it was only the end users that were going to pay more. He reminded the delegates that the Department had said it has money lying in investments, so why was the Department increasing the water tariffs? The Committee should not accept the proposal.

Mr Makondo wanted to know if the Department exercised any ceiling in terms of a tariff increase when looking at operations. He also wanted to know if the Department would be able to tell how much the community would be paying if the tariff was increased by a certain percentage. He suggested the Committee should re-look at the Act to see what the role of the committee was, and what was expected of it, before it rubber stamped the proposal.

Ms Moshidi informed the Committee that there was no ceiling, but they were looking at this in regard to the actual price that clients would pay. She could not make an estimate, as the municipalities were also going to escalate their tariffs.

Mr Makondo informed the Department it was going to be difficult to approve the proposal, as there was no tariffs ceiling, so the water boards could charge up to R15 per litre, depending on the reasons the Department gave for the increase. He suggested that there should be a standardised process in place.

Mr Mnguni said he does not know how he could rubber stamp if he did not agree with the proposal, and told the Department that not all of the water service authorities had been consulted. He had never seen any legislation that said that the Committee must just rubber stamp.

Mr Basson proposed that the Department be turned back and be asked to bring a mechanism that would deal with his proposal.

The Chairperson said the Committee had a challenge with the legislation, which did not do much for them. He proposed that they should accept the proposal for the last time, and that after this they should go back to the drawing board and have a workshop so that this challenge could be addressed.
Mr Mnguni wanted to know the meaning of “consult extensively”, as the Department had not considered the views of the people and no one had agreed to the tariffs, including the Committee.
Mr Mofokeng explained that the circle of tariff proposals ran from April till September. The Department did their consultation after September, and during consultation they invited all the affected organisations. The process of the water boards started in October.
Mr Makondo seconded the Chairperson’s proposal that they could sit with COGTA and come up with a regulatory mechanism for the sake of progress.
Ms Z Balindlela (DA) said that there were two sides -- one was the Department, the other one the people. As a Committee, they could not side with the Department and then have to explain the tariff increase to the public.
The Chairperson said that the proposal was rubber stamped.

He then thanked the Members and the delegates.

The meeting was adjourned.