Rand Water, Mhlatuze Water Boards on 2014/15 Annual Report; Deputy Minister present

Water and Sanitation

24 February 2016
Chairperson: Ms JM Maluleke (ANC)
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Meeting Summary

Rand Water and Mhlathuze Water, with the Deputy Minister also present for the first part of the meeting, briefed the Committee on their Annual Reports for 2014/15. Both Boards received a clean audit. Rand Water informed the Committee that an increase of tariffs may be crucial as it has to deal with increased demand and ageing infrastructure. It has a problem with pipes in Rustenburg, where it is aware of high night flows that suggest leaks, but this is being monitored. A huge increase in demand meant that Rand Water was using 98% of the combined installed capacity of Rand and Magalies Water and the Rustenburg Water Services during October 2015. It is hoping to increase its supply to Rustenburg by progressively increasing the usable capacity at the Zuikerbosch system. In Bushbuckridge 58% of residents do not have access to water yet. Mpumalanga is new to its area of operations and this had been quite a challenge in this financial year. Rand Water was likely to ask for postponement on the next intake of candidates for the War on Leaks programme. Near to medium term capital expenditure includes the R100 million to be spent in Bushbuckridge and a projected R9.9 billion for augmentation projects in the next five years. Rand Water is almost at the peak of what it plans to spend over the next five years. Rand Water, despite getting a clean audit, had some irregular expenditure in this year, at the bottled water plant, where the relevant authorisation t was not sought, but the authorities have been asked to condone that. A fault in the system, which had been long standing, had been isolated and was being corrected. Rand Water faced legal claims of  R62.9 million, but was told that it had quite a good case.

The Deputy Minister added that  ageing infrastructure leads to water losses which is why the War on Leaks programme was established, but Rand Water was also affected by stolen water, something difficult to measure and public education would be necessary.

Mhlatuze Water had also achieved an unqualified audit opinion, recorded a 44% increase in revenue and a 13% increase in the surplus. Its area of operation had been increased to cover the whole of the KwaZulu Natal province. It had managed to achieve a substantial number of targets, but only managed to achieve 76 out of the planned 144 school sanitation projects, because of cancellations due to budget cuts by the Department of Basic Education. Esikhaleni water supplies had dried up and it had to be supplied with water and there was a huge increase in water requirements for Richards Bay, rising energy costs, 189% increase in maintenance and 65% in increased chemical costs. It had increased its staff numbers. Operating costs of R4.5 million were recovered in relation to the diesel required to pump additional water to the City of Mhlathuze. Borrowing limits up to 2015 were approved, and it was waiting for a response to its latest requests. This board managed to retain its Blue Drop certification, with 100% reliability of supply and no unplanned interruptions.

Members asked about if sufficient numbers of process controllers were trained, how pollution from waste water affected raw water quality, any plans in place to increase storage capacity, and the problems with 58% of residents in Bushbuckridge not having water. Water restrictions and inadequate supply to other areas were also questioned by other Members, with one member being particularly upset that certain people did seem to be getting water, and relating apparent misuse and theft of water by some farmers. Members asked about various dams and projects, and a number of questions were asked about the bad debt, outstanding payments, the problems of municipalities not paying, what municipalities were doing to try to persuade residents to use water more wisely, and how water restrictions were being implemented when imposed. They asked about the effect of drought on the provision of services and the effect also of Acid Mine Drainage. Members also asked about leaks, the transporting of water, the fact that in some areas water would only be made available late at night and in other areas monitoring was implemented that assisted the situation but it was not properly followed up.

Meeting report

The Chairperson welcomed Deputy Minister of Water and Sanitation, Ms Pam Tshwete.

She requested Members to follow the agenda and said she did not want a similar situation as had occurred at the previous week's meeting.

Rand Water on its 2014/15 Annual Report
Adv Matshidiso Hashatshe, Chairperson, Rand Water, noted that in this year the province of Mpumalanga was added to Rand Water's area of operation, and despite the current economic climate Rand Water had a good year. It had managed to spend 96% of the capital expenditure budget, which involved the maintenance and expansion of existing infrastructure. However, the increase in the bad debt was of concern – and this was due to the larger numbers of rural and smaller municipalities that the Rand Water served. Since the gazetting in April 2014 a lot of energy and time, in terms of due diligence exercises and master plans, went into establishing Rand Water as the water board in Mpumalanga.

In that area of operation, non-revenue water,which had risen in this year from 40% to up to 72%, is also a worrying issue. This impacts on the wastage of water and the ability of municipalities to have enough billable water to pay Rand Water as the bulk supplier. The current drought impacted seriously on this. In its own scope of operations Rand Water’s percentage of non-revenue water was under 4%.

Mr Percy Sechemane, Chief Executive, Rand Water, said that it had achieved  89% of its Key Performance Indicators. Four KPIs were not achieved; one of which related to payment and the others related to secondary activities, which he explained as Rand Water going to search for contracts with other municipalities to assist it. The mandate to service Mpumalanga was one of the reasons why Rand Water was unable to achieve in all areas.

As a contribution to Government and the Minister’s Performance Agreement, 40 graduates were enrolled in the Rand Water Academy in 2014/15. Rand Water tries to keep in touch with international trends with its Academy’s connections to UNESCO and the Netherlands. It initiated a project to implement an Academy for Professional Development in Water and Sanitation in Mozambique.
In the financial performance, he noted a 13.12% increase in the audited revenue outcome from 2013/14 to 2014/15.

Near to medium term capital expenditure includes R100 million to be spent in Bushbuckridge and a projected R9.9 billion for augmentation projects in the next five years. Rand Water is almost at the peak of what it plans to spend over the next five years.

Irregular expenditure of R67 687 was found at the bottled water plant. Authorisation was not sought to spend that money. This is in the process of being condoned by the relevant authority. A fault in the system, which has been influencing the payment versus invoice basis of accounting, and which has been in the system for more than ten years, was discovered and will be addressed. Legal claims of  R62.9 million are being claimed from Rand Water. Its legal advisors have assured management that it has a reasonable defence and that the probability of loss will be minimal. Otherwise, he was pleased to report that Rand Water had received a clean and unqualified audit.

The War on Leaks Programme, now a Presidential Programme, had been mentioned in the State of the Nation Address. He said it started September last year with the successful launch of the first phase of the programme, with an intake of 3 000 students. Rand Water was now engaging with the Department of Water and Sanitation (DWS) to move the date for the next intake, of 7 000 students, that was planned for 1 April 2016, because of technical issues. Phase 3, intake of 5 000 students, is planned to roll out on 1 April 2017.

He noted that the Committee had wanted to know about supply challenges in Rustenburg. The water demand in the Rustenburg region had increased to such an extent that 98% of the installed combined capacity of Rand Water, Magalies Water and the Rustenburg Water Services Trust was utilised during October 2015. Other identified challenges include huge water losses and ageing municipal infrastructure.

High night flows are indicative of leaks in the system which lead to planned supply interruptions. The municipality is in the process of improving its own water treatment works in Bospoort. The long-term, but very costly, solution to the problem would be to increase the bulk supply to the region. This is currently unfunded.

Rand Water is hoping to increase its supply by progressively increasing the usable capacity at the Zuikerbosch system.
Mr Sechemane assured the Committee that Rand Water will continue to meet key water quality standards, that it will continue to pursue opportunities on the African continent under the direction of National Government and that it will continue to focus on expanding the capacity of its existing structure as well as the extended area of service. 

Ministerial comment
Ms Tshwete, Deputy Minister, asked to add some comments. She pointed out that ageing infrastructure leads to water losses which is why the War on Leaks programme was established. However there was also water being stolen that Rand Water cannot account for and that is difficult to measure. People needed to be educated to know not to waste water, and on issues of water conservation. She urged Rand Water to keep up its good work.

The Chairperson excused the Deputy Minister to allow her to attend another meeting.

Mhlatuze Water 2014/15 Annual Report briefing
Mr Musa Xulu, Board Member, Mhlatuze Water, introduced Mr Swaswa Ntlhoro, Acting Chief Executive and Mr Brian Mdaba, Chief Financial Officer. Mr Xulu noted that Mhlatuze Water had again achieved an unqualified audit opinion without matters of emphasis. A 44% plus increase in revenue was achieved and the surplus increased by 13%.

Mr Swaswa said there was a good story to tell from this year. The area of operation of Mhlatuze Water had been  increased to cover the whole of the KwaZulu Natal province. On its corporate performance scorecard Mhlatuze Water achieved or exceeded nearly all of its targets. It had not, however, met the
School Sanitation Projects target of 144, for only 76 were achieved. That was due to some projects being cancelled because of budget constraints from the Department of Basic Education.

The main water source for the City of uMhlathuze (Esikhaleni) dried up and it needed new supplies, which the Water Board had managed to do. Due to the drought there is a 584% increase in the water requirements for Richards Bay. Rising energy and maintenance costs are some other challenges faced by Mhlathuze Water. Due to NERSA imposing tariff increases on Eskom, it faced a 90% increase on energy costs. From the previous year, maintenance costs increased by 189%. Increased water demands also led to chemical costs rising by 65%.

Staff costs increased by 35% as result of an increase in staff numbers.

An operating cost increase which was fully recovered was the R4.5 million required for diesel to pump additional water to the City of Mhlathuze.

The borrowing limits for the period 2013 to 2015 had been approved by National Treasury in concurrence with the Minister of Water and Sanitation. R70.7 million was not utilised at the end of 2015. It was still waiting for the response from National Treasury on its new proposal for 2016, 2017 and 2018.

As part of a requested mid-year performance review he said Mhlathuze Water managed to maintain Blue Drop certification. It has 100% reliability of supply and no unplanned interruptions. Also as far as debtor days go, Mhlathuze Water is well within its 45 day target, with 36 days on average. In relation to HR targets it is looking to employ more people with disabilities and increase the female representation at management level. The three projects that it was currently working on are the Nsezi Balancing Reservoir, a second Balancing Reservoir and the Nsezi WTP Empangeni pump station.

Ms T Baker (DA) asked the following questions to Rand Water: Were enough process controllers being trained? She asked for a copy of the Mpumalanga Skills Audit. She wanted to know how pollution from waste water plants was affecting raw water quality. Are there plans in place to increase storage capacity in urban areas?

She was particularly interested to know about the increase in bad debt, and she wanted to know what is being done about outstanding payments and who the biggest defaulters are. She also questioned whether there were any restrictions to supply to them being implemented? She was aware that more than 58% of residents in Bushbuckridge do not have access to water and wanted to know how this will affect Rand Water’s work in the area.

Ms Baker also directed questions to Mhlathuze Water. Firstly, she wanted to know about the water levels of the Hluhluwe Dam. She recently attended another meeting and knew that there were water restrictions imposed that were not implemented yet. This severely impacted on water distribution to communities. She said there was a commitment from the Water Board to assist with the installation of an additional booster pump and wanted to know the progress with that. She asked how declining raw water sources and slow reaction from local government to impose restrictions affected Mhlathuze Water.

Nkosi P Cebekhulu (IFP) asked Rand Water what effect the drought had on the provision of services.
He asked what effect the Acid Mine Drainage (AMD) from the mines had on Rand Water and if it had needed to pay more to counter the effects of AMD. He referred to an outcry in the media from people near Jozini who were using dirty water and wanted to know what efforts were being made for them and if water is perhaps being transported to them by trucks. Lastly he asked who is carrying the burden of those who consume water without paying.

Mr D Mnguni (ANC) asked whether Mhlathuze Water was likely to report at a later stage on overspending, as a result of exceeding its HR targets.

Mr Mnguni asked Rand Water if there are any future plans to build a dam in the Umjindi Municipality where there are a lot of rivers, such as the Queens River, but where people were without water for three weeks recently. He said water from such a dam could be used to provide Bushbuckridge as well. He asked why the intake date for the War on Leaks programme had to be postponed when it had already been outlined in the State of the Nation Address in the previous year. With regard to the leakages in Rustenburg he asked if Rand Water had any access to innovation that would help to speedily access the leaks and address the problem.

Ms M Khawula (EFF) asked, through an interpreter, what stern steps Rand Water was taking in regard to both municipalities and unlicensed mining companies who were lagging behind in payment and misusing water.
Ms B Kekana(ANC) asked Mhlathuze Water about a place that the Committee had visited where water was being delivered at 1am in the morning. She also asked about the state of the Butterworth Dam.

Mr Sechemane replied to the questions directed to Rand Water. He said that the work of Process Controllers is very important. He said most of the Process Controllers whom Rand Water trained are employed in municipalities.

Ms Baker said he misunderstood her question. She said she understood the importance and asked how Rand Water could assist in increasing the numbers of those being trained.

Mr Sechemane said this was budget based and Rand Water can only train more Process Controllers if it gets more funds to do so from National Treasury.

Mr Sechemane said that the Mpumalanga Skills Audit will be made available. He agreed that the pollution of sources is a great problem in the country. He said Rand Water was lucky because most of the water from the Vaal Dam is above where the mining activity happens. Rand Water is aware of the potential problem in the Mpumalanga space as well. Rainfall, especially torrential rain, has a big impact on the quality of water in terms of the levels of tannin and segmentation taking place. As far as storage capacity goes, 7% of the R18 billion that will be spent in the next five years will be to increase storage capacity.

Mr Sechemane said that it was also important to consider the tariffs. The Water Board charges municipalities flat rates, and they charge stepped-up tariffs to users. Therefore, because the municipalities were making money, there was no incentive for them to encourage end-users to use less water.

Mr Sechemane said that the debtor day figures were correct and that Emfuleni was not paying Rand Water on time. This municipality knew the system and would pay at the very last minute in order to avoid being sued. The  biggest challenge with the current drought is in Mpumalanga close to the border of Kwa-Zulu Natal. The Department of Agriculture is assisting the farmers. The side of Mpumalanga closest to Gauteng is being supplied by the Vaal River Scheme. In relation to a possible dam for the Umjindi municipality, he explained that the DWS would determine the need for water, and said that Rand Water would get its directions from DWS, after the latter had completed its hydrological studies. Rand Water was waiting for a direction from the Minister in relation to AMD. Rand Water was monitoring the situation with the night flows in Rustenburg and it is trying to sort the problem out after hours so as not to cause discomfort to the people. 

Mr Sechemane referred Members to section 162 of the Constitution, in relation to what Rand Water would do about non-payment. Although in theory Rand Water was allowed to withhold when municipalities did not pay, there was a very difficult balancing act. It could restrict provision of water but there was a certain process to follow.

Ms Simphiwe Xulu, Chief Operations Officer, Mhlathuze Water, answered the question about the Hluhluwe dam. Mhlathuze Water was in the process of commissioning the plant. She said the pump will be delivered soon and that Mhlathuze Water was just waiting for the structure to be completed. The level 3 restrictions that were gazetted are being reviewed and level 4 will probably start in March. This board is helping the Department of Water and Sanitation to fill around 85 JoJo tanks, which is the best way it can help the people right now. The completion of the Water Treatment Plant in Jozini is expected end of May. Mhlathuze Water was hoping that more people will be serviced after the completion of the plant.

Mr Ntlohoro answered the question of non-payment by saying that most of its clients were industrial, and that this water board t does not have that many problems with payments. In relation to the targets, he said that the Board was meeting and exceeding targets because the targets it put in place were realistic. He said that he could not answer the question on the Butterworth dam because the dam is in the Eastern Cape and thus outside the area of operations of this Board. The Mhlathuze Water will explore whether it can get water from the Amatikulu River.

The Chairperson asked this Board also has the problem of only being able to give people water late at night.

Ms Xulu said it could happen. It depends on the time the JoJo tanks get empty in an area.

Ms Khawula, through an interpreter, asked about reports, in the area of Jozini, about water pipes being thrown in the bushes and JoJo tanks being installed but no water being supplied to them. She was also upset because some areas were supplied, by a white person, with fish, so that he clearly had water when others do not.

Mr Mnguni said he was upset by the statement that water is supplied around 10pm in some of the areas in Mhlathuze. He said that children of school-going age were probably having to wait up late at night to wait for their water. He asked that the boards must monitor the situation and come up with a better plan to deliver water earlier. He asked what type of skills or leadership training Mhlathuze is offering.

Ms Baker referred to Rand Water’s storage capacity challenges, and asked the DWS to strengthen its oversight studies relating to the supply and demand. She then wanted to go back to the issue of the Hluhluwe Dam. She said it was agreed at the meeting on 26 January that intervention measures had to be implemented with immediate effect, because there were only four months supply left. She said it said it would only take two to three weeks for the booster pump to be installed and asked why it had not been done yet. She said that when some Members of the Committee had visited the Dam, they had discovered that only 3% of the water released from the Dam actually made it to the water works. Some of the water was released for agriculture, but only one farmer gained from that whilst 130 000 people were being adversely affected. Ms Baker said that everybody had apparently agreed that restrictions had to be put in place. An hour after the meeting the outflow was reduced, and the pressure went up immediately and phase 1 and phase 2 (a community that did not have water for four months) could be supplied. Today, however, the outflow has apparently been opened again and the problem is back to where it was. She requested urgent intervention and said that deliberately depriving communities downstream of their water is a criminal act.

Mr M Galo (AIC) wanted to check with Rand Water how crucial it was to have increasing water tariffs. He asked Mhlathuze Water why its Annual Report was not received on time.

Mr Makondo pointed out that the water boards had been silent on the issue of water losses due to problems with infrastructure. He commended them on doing well with the debtor days but said they must keep the days at 30 days.

Mr Mnguni raised an issue of a certain farmer building three dams without a license.

Mr Anil Singh, Deputy Director General: Regulation and Water Sector Entities, DWS, said that the performance of the water boards was satisfactory although there is room for improvement. He said the question of debt threatened the future sustainability of the water boards. The debt is currently sitting at R2.7 billion. The reality of the problem is that some people are unable to pay the municipalities, who were then in turn unable to pay the water boards. He said the debt issue, as well as the drought issue, will have to be looked at holistically. DWS would be doing a separate presentation to show the Committee how it calculated the raw water tariffs.

He referred to Ms Khawula's comment upon the white man who had given people fish and said that it was sad that some people still have water while others do not. In relation to the Hluhluwe Dam he said that there would have to be consequences for those who did not do what they were supposed to do. The issue of downstream farmers suffering because of upstream activity is taken very seriously. Farmers under utilising their water would be asked to surrender it to the Minister, so that it could be re-allocated. He noted that the DWS would respond to other questions in writing.

Mr Ntlhoro said that Mhlatuze Water had nothing to do with the pipes that were reported, by the media, to be lying around unused. In answer to question on the skills and development training programme, he said that this was mostly across the board training for internal staff members. However, learnerships are provided for external candidates who have qualifications but who lack experience.

Mr Mdaba said that Mhlatuze Water did submit its report on time.
Mr Sechemane answered the question on the water loss figures for Rand Water, saying that it fluctuated between 3% and 4%. That could be attributed to the distances between plants and the fact that water was needed to treat water. In relation to the debtor days, he said that Rand Water was extremely worried about the economic climate, because it was expecting municipalities to struggle even more. 
Eskom’s increases affected Rand Water greatly for water often had to be pumped far distances from where it was being cleaned. He noted that the size of infrastructure would have to increase as demands increase. Money has to be borrowed in order to do that. Another factor is the issue of historical cost versus replacement cost. Rand Water is valued at R18 billion, but the true figure of what it will cost to build a new Rand Water is about R100 billion. Most of the structures that have to be replaced are underground. AMD remains a problem and it is yet to be decided who will bear the brunt of that. That makes Rand Water's situation even more of a challenge. The issue of tariffs and the increase of tariffs are therefore very crucial.

The Chairperson thanked all involved in the meeting, and asked that written responses be delivered in the next two weeks. She asked Mhlathuze to monitor its trucks that are delivering water.

The meeting was adjourned.

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