Umgeni, Overberg & Magalies Water Boards on their 2014/15 Annual Reports

Water and Sanitation

11 March 2016
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

Documents handed out
Umgeni Water Annual Report for the 2014/15 financial year
Overberg Water Annual Report for the 2014/15 financial year
Magalies Water Annual Report for the 2014/15 financial year [email info@pmg.org.za]

Umgeni Water (UW) said that the water board’s expenditure from 2011 had been sitting at approximately R300 million. It had then moved to R1.9 billion since 2014/15. It had previously been confined to a catchment area however, since the Minister’s authorisation, Umgeni Water had become KwaZulu Natal’s water board such that it was servicing more municipalities such as the uMkhanyakude District. Umgeni Water had also held meetings with other municipalities on how to partner moving forward so as to enhance service delivery. On de-establishment, Umgeni Water (UW) had been quite supportive of the process from the Minister’s office where due diligence was the current undertaking in that regard.

On financial performance, UW said that it had achieved a 14% net profit growth in the 2014/15 FY which was due to its stringent cost containment measures, especially with its main cost drivers, ensuring they were within acceptable norms. UW had a planned CAPEX programme of up to R8 billion going forward. However, its reserves showed that it had some shortfall in terms of what it planned to roll-out in the next five years.  On irregular expenditure, R795.000 had been condoned as it was due to emergencies in the plants where UW had to undergo emergency procurement processes. Typically those emergency works would be after working hours were condonation would be done the next morning as the orders would have been issued after hours.

UW had realised that KZN municipalities had no actionable water plans. Hence, UW was proceeding to engage the Department of Co-operative Governance and Traditional Affairs (COGTA) and all the water services authorities in that province to ensure that there was plan alignment between UW and all those stakeholders. The process was unfolding well however, not at the pace anticipated by UW. UW’s repeat and unresolved audit findings which had been higher than anticipated were not of a serious nature. For example, UW had a waste water works in Pietermaritzburg, which was undersized but UW was currently upgrading it. The audit finding stated that the size of the works was not meeting the effluent quality 100%. However, UW was confident that this would be rectified at the completion of the upgrade.

The Committee asked Umgeni about irregular expenditure caused by after hour emergencies; did UW not have contingency plans to deal with after hour requisitions? How had the current drought affected UW and how instrumental had it been in assisting KZN municipalities in mitigating those effects? The Committee said that municipalities had the responsibility of initiating, financing, maintaining and securing water facilities. Was it not about time DWS and its water boards seriously interrogate that role of municipalities? Why could DWS and its entities not assume the responsibility of supplying water directly to citizens? It would be better for water distribution services to be taken away from municipalities as they simply were not committed.

Magalies Water (MW) said that it had met within the province of Bokone Bophirima (North West) with all the municipalities within its area of supply on the 10 March 2016. On 7 March 2016 it had been addressing the challenges at Thabazimbi and was continuing to engage all stakeholder municipalities on a one-on-one basis.

On its financial performance for 2014/15, there had only been a marginal increase of about 24% in revenue resulting from the water volumes it had sold to its clients. There had been a slight increase in terms of employee benefit costs. The total surplus of R35 million for 2014/15 was a result of cost containment measures as directed by National Treasury and deferred income through the completion of the Pilanesberg scheme. There were three items under irregular expenditure: Construction Industry Development Board regulations were not complied with in awarding the contract of R6.8 million; there was non-compliance with delegations of authority to the value of R25.4 million - it was in the process of taking disciplinary action against implicated employees; non-compliance with section 4 of the Preferential Procurement Regulations (R9.5 million). This related to the implementation of its SAP system. The facts were that when the tender documents were issued, MW had not specified the level of weighting in the scoring criteria in the bid document. The Auditor-General had then found that that exercise had not been fair and transparent to the bidders. However, there had been no fundamental issues with the process of awarding that bid except that the weighting criteria missing in the bid document.


The challenges MW had with achieving its 80% CAPEX target had been influenced by its operations being situated in currently volatile communities. In Madibeng for example, MW’s plant upgrade had been halted for at least two weeks. That trend had been seen in other infrastructure projects where members of the project steering committee would want to have a bigger slice of the cake. Where these members felt that subcontracting work was not coming their way, invariably there had been work stoppages.

Overberg Water had a 6000 kilometre footprint using three schemes. The pipeline network covered 1 320 kms with OW had been sourcing its water from Theewaterskloof Dam and Duiwenhoks Dam. It supplied two municipalities with approximately 850 retail clients.

Bulk supply agreements had not been concluded yet. Thus OW had requested that the South African Local Government Association (SALGA) intervene so the service level agreements (SLAs) could be finalised. Improvement on key financial ratios: The gross profit margin target reported on had not included the cost associated with purification and distribution of potable water. Therefore the achieved percentage in the report was within normal standards of the water sector.

Key vacant posts had affected the achievement of the target for its net profit margin. However, OW had been attending to the filling of those vacancies since the beginning of the 2015/16 FY. In terms of the return on assets target, the forecast percentage had been too ambitious based on the history of the size of business. OW had achieved nothing in its CAPEX programme because the projects due to commence in 2014/15 had not started though they had in the 2015/16. The supply chain management (SCM) policy had been applied only halfway through the year, which was part of the reason behind the irregular expenditure. The irregular expenditure had originated from a R79 000 chemicals contract that had not followed the correct procurement policy. There had also been another R39 000 chemicals contract that had lapsed two years previously but the supplier had still been supplying chemicals. Lastly, the appointed auditors (with fees of R278 000) were commissioned without an existing SCM policy.

The Committee asked Magalies Water about the progress in the Pilanesberg scheme; what was the challenge in Madibeng because MW was also responsible for the upgrade of the 20 megalitres tank at that plant, which was only 23% complete; why were there more water cuts in Madibeng currently than there had been before the appointment of an administrator by the province. Members firmly believed that Madibeng municipality was not supposed to be given authority to run that plant as it had no capacity to run it. What had been causing elevated phosphate levels in the raw water sourced by MW and what was being done about that?

The Committee asked how long Overberg Water had been without SCM personnel and experiencing the other challenges highlighted in its report. The Committee asked what had been the timeline to ensure all governance structures were set up;  whether Overberg Water would have achieved what it had planned in that regard by the beginning of 2016/17.

Meeting report

Mr Anil Singh, Deputy Director General, Water Sector Regulation, Department of Water and Sanitation (DWS) tendered the Director General’s apology and she had delegated him to lead the water board delegations.

What was important about overseeing these entities was seeing what their impact was on service delivery.

Umgeni Water (UW) 2014/15 Annual Report presentation
Ms Gabsie Mathenjwa, Non-Executive Director: Umgeni Water, said that the water board’s expenditure from 2011 had been sitting at approximately R300 million. It had then moved to R1.9 billion since the 2014/15 financial year (FY). In terms of whether UW was making an impact on rural development, she said that its Capital Expenditure (CAPEX) was coupled to improvement of service delivery specifically in rural areas. The Chief Financial Officer would touch on the water board’s key augmentation schemes and it was confident that it had made a visible difference in terms of service delivery. UW had previously been confined to a catchment area however, since the Minister’s gazette, Umgeni Water had become KwaZulu Natal’s water board so it was servicing more municipalities such as uMkhanyakude District. Umgeni Water had also held meetings with other municipalities on how they could partner moving forward so as to enhance service delivery. Regarding de-establishment UW had been quite supportive of the process from the Minister’s office where due diligence was the current undertaking in that regard.
 

Mr Thami Hlongwa, UW CFO, said that the water board had achieved a 14% net profit growth in the 2014/15 FY which was due to its stringent cost containment measures, especially its main cost drivers, ensuring that they were within acceptable norms.

Mr Hlongwa said that UW had a planned CAPEX programme of up to R8 billion going forward. However, its reserves showed that the water board had some shortfall for what it planned to roll out in the following five years. In that regard it would ensure that it adhered to all the correct financial controls to ensure it achieved its roll-out within those reserves and within the borrowing limits that were there. He said that the water board had seen a reduction in its liquidity ratio as a result of spending quite heavily on its CAPEX, especially in rural areas. The shortfall was about R534 million, which the water board covered by using its investments which meant that its cash generation for 2014/15 was short by that amount compared to the 2013/14 FY.

Looking at major capital work projects in progress, Mr Hlongwa said that the Lower Thukela Bulk Water Supply (BWS) scheme would be one of the bigger schemes to supply the north coast of KwaZulu Natal from the north coast of Durban to Stanger and all the way into Mandeni. That scheme would assist with the water supply backlogs as that was mainly a rural area.

On irregular expenditure, he said that R795 000 was condoned as it was due to emergencies in the plants where UW had to undergo emergency procurement processes. Typically those emergency works would be after working hours were the condonation would be done the following morning because the order would have been issued after hours.

Looking at its commitment analysis, Mr Hlongwa said that out of R 1.3 billion of its available borrowing limits which was a remainder from its total borrowing limits of R2.5 billion, UW had about R300 million worth of conditional borrowing limits from National Treasury. The other R2.2 billion from the total borrowing limits was at UW’s discretion.

Mr Cyril Gamede, Umgeni Water Chief Executive, outlined its strategic objectives (SOs) and made comments:
SO 1: UW had realised that KZN municipalities had no actionable water plans so it was proceeding to engage the Department of Co-operative Governance and Traditional Affairs (COGTA) and the water services authorities in that province to ensure that there was plan alignment between UW and all those stakeholders. The process was unfolding well, however, not at the pace anticipated by UW. In the previous two years, the previous Minister had given UW a directive that it could expand to the north western part of KZN as well as part of the Eastern Cape. That work had been very slow as interaction was dependent on municipalities allowing UW to provide them with services. However, UW was in constant engagement with the municipalities.
SO 3: Although UW relied on the Regional Bulk Infrastructure Grant (RBIG) from DWS, the fact that it had not received it as it had projected, was not a big concern as DWS always caught up in terms of that provision.
SO 5: UW sometimes implemented projects on behalf of DWS and had been doing that in the Alfred Nzo District Municipality in the Eastern Cape for the past four years. That had been an R800 million project which had been completed which was why UW’s net and gross profit for secondary activities had decreased.
SO 6: UW’s repeat and unresolved audit findings which had been higher than anticipated were not of a serious nature. For example, UW had a waste water works in Pietermaritzburg, which was undersized but UW was currently upgrading it. The audit finding stated that the size of the works was not meeting the effluent quality 100%. However, UW was confident that this would be rectified at the completion of the upgrade. UW had quite a few litigation matters on tenders as many people litigated after they had not received tenders.

Discussion
The Chairperson said that he had expected UW to say something about its recent merger with Mhlatuze Water because the Committee was always hearing about that on the grapevine.

Mr Singh replied that the process to arrive at a single KZN water board was being driven by Minister Nomvula Mokonyane and that to the best of his knowledge she had written to the Chairperson outlining the process. DWS would want to brief the Committee separately on that. The thinking behind it was in line with DWS rationalisation, its institutional reform and realignment. However, amalgamating those water boards had to be done in a way that would provide wall-to-wall water and sanitation services across the province, especially in the rural areas. DWS had started consulting all the relevant stakeholders and both the boards of both entities had given support for that process.

Ms M Khawula (EFF) said that though UW was financially sound, was it sure about what it was reporting to be actually true? For example at Maphumulo, was UW aware of how many water tankers were actually supplying that community; was it aware of the challenges the drivers of those tankers had? Where there were three trucks operating and if two of them had punctures, there was only the one tanker for the entire Maphumulo community. Secondly, the drivers were employed on temporary contracts so that when they were sick, there was no water supply. Also there was a challenge with the standing pipes, where out of five installed, only one would work.

Mr D Mnguni (ANC) said that it was commendable that UW had unqualified audits for five years running. He asked for more detail on the irregular expenditure for 2014/15. Did UW not have any contingency funding or plans to deal with after hour orders when emergency work was needed at its plants?

What had been the challenges in achieving strategic goal 3 for UW? Could UW elaborate on what the challenges were in achieving strategic objectives 1 and 6 as they were both not achieved?

Ms T Baker (DA) asked if UW was managing well with municipalities with outstanding balances or were there still major defaulters? She quoted from the Annual Report: ‘UW has largely been at the forefront of the consideration of potential climate change impacts and incorporating these into operations planning’. How had the current drought affected UW and how instrumental had UW been in assisting the KZN municipalities in mitigating those effects?

Referring to pages 83 and 84 of the Annual Report where the UW map indicating its water resources followed by a table on its raw water quality for each of those resources, Ms Baker asked UW to clarify what the information was saying.

She knew that the lower Umkhomazi bulk supply scheme was at feasibility study phase, she believed that that project would greatly assist with water shortage challenges in that area. How far was progress on that project?

She asked whether the UW had had any involvement with the Bhobhoyi Water Treatment Works as she had reported to DWS about the challenges there where Ugu municipality had been issued with a directive about this.

Ms Baker said she had referred the Greater Eston area including Ashburton, Mkhambathini and Mpushini farms which had had quite a constrained water supply in the previous week to the DWS Director General. She had been assured that it would be looked into. Did UW have any information on that as the boreholes had dried up and there had been a lot of finger pointing amongst the Mkhambathini, Umlalazi and Msunduzi municipalities?

Mr L Basson (DA) said that UW had declared on 4 March 2016 that there would be water shedding in its supply areas which would affect 6.1 million people. It had proposed to cut water off by 9 hrs a day for two days a week to save 15% of its water volume reserves. Why had UW waited so long to act when it knew in 2015 that there was going to be a drought? He was also concerned that cutting-off and turning-on would allow breeding of microorganism in UW pipes which its chlorine concentration within the water would not be enough to clean the water. Why could UW not use a policy of increased tariffs to force communities to use less water. Alternatively UW could duplicate the system used in the Western Cape where there was a 20% reduction in the tariff if communities saved water so that excessive use of water would result in a higher water bill?

The Chairperson said he had noted from its Annual Report that there had been an audit committee attendance challenge and unresolved audit repeated findings which the Chief Executive had alluded to at UW. Black business promotion was also something the Chairperson was interested in hearing about from UW together with the water board’s funding model.

Ms Mathenjwa replied that UW worked with municipalities in supplying bulk water services. Municipalities were responsible thereafter for reticulation of that bulk water. UW would certainly engage ILembe Municipality where Maphumulo was situated to ensure that the matter raised by Ms Khawula received the necessary attention. In terms of the Imvutshane Dam which UW managed, the water board would inspect it and report back to the Committee.

The Chairperson interjected asking Mr Mathenjwa for a deadline of when a written report on the issues raised by Ms Khawula, would be submitted to the Committee.

Ms Mathenjwa said that in principle it could take UW until the following Thursday 17 March 2016. However, she would consult the rest of her delegation for a specific date for submission of that report. On drought relief, UW said that besides communicating, it had had various emergency schemes where on average it had taken two months to ensure that these schemes were reaching the intended communities. Additionally UW had pumped water to about 45 to 55% of its water levels as testimony in its supply areas because had it not pumped, those water levels would have remained at below 30%.

Mr Hlongwa repeated that expenditure was irregular, not because procurement processes had not been followed, but because UW’s internal processes had not been followed such as when working on an aqueduct one discovers there was problem that needed immediate fixing. UW’s standing contracts with a few of its suppliers allowed its personnel at that aqueduct to call the standing supplier to come on site and fix the problem. By virtue of the work being completed without a requisition, by law that work was deemed to be irregular. Therefore it would have to undergo a proper condonation process to see there was a need to call the supplier on site, that the rates used by the supplier were proper, and that the work completed was according to specifications. UW voluntarily declared such irregularity internally so that proper condonation could be followed.

The Chairperson interjected asking whether there was no policy in Government that allowed this to happen but with a capped amount, since it seemed as UW was reporting that there was no cap.

Mr Hlongwa clarified that the amount was R795 000 was an accumulated amount for separate incidents for the entire 2014/15 FY. The declaration of irregular expenditure for that amount was an interpretation challenge of the legislation. UW could account for that amount. However, depending on the interpretation by AGSA, the amount could be interpreted as irregular, because the founding document of the transaction which was the requisition would have not been logged before the work was commissioned. That accumulation of transactions was happening as part of business requirements and operations.

On potential defaulting municipalities and how UW was coping with municipalities that had outstanding balances, Mr Hlongwa replied that the water board was fortunate that its client municipalities paid on time. Possibly that was because it had a very strict bulk supplier agreement with its clients which allowed the water board to issue a 30 days’ notice to its defaulters about throttling the water to 80% and up to 60% supply however, those extremes had not been needed to date.

On UW’s funding model and the bond market; Mr Hlongwa replied that UW had received favourable overall outcomes because the previous week UW had gone into the bond market looking for a R700 million bond issuance. On its auction UW had received up to R1.6 billion worth of subscribers where UW had set its price guidance, of which R935 million of the issuance was within said price guidance.

Mr Gamede replied that Ms Khawula was raising mostly reticulation issues. Water boards supplied bulk water services to municipalities. Many of UW’s challenges often were that it developed bulk supply but then municipalities would fail to take the water and distribute it to communities. Therefore the problem in Maphumulo was a failure of the municipality not distributing the water which had been supplied. In Maphumulo, UW had a water works and a dam which it had built. However, if one were to inspect the residences within 100 metres of both structures, one would find that they were not connected to the water supply. The connection was a municipal function and unfortunately what then happened when citizens did not get water was that they ended up vandalising the UW bulk pipeline. In Ugu UW had put a bulk water supply but the municipality had not completed the reticulation in Mhlabatshane. More challenging was that sometimes when UW offered to assist with reticulation, municipalities refused assistance.

In response to the strategic objective 6 challenges which Mr Mnguni had asked about, Mr Gamede said that it had to be realized that the 46% was what was achieved together with a partial achievement of 38%. That was the case with strategic objective 1 as well with 33% achievement together with 67% partial achievement.

On the impact of climate change and mitigating drought, UW ran a few models to better understand climate change. A drought notice had been sent to municipalities two years prior to 2015 saying that dam levels and rainfall were below average and therefore municipalities had to start saving water. UW had been running a save water campaign concurrently with that notice. Unfortunately, whilst municipalities had notified citizens, there had been no behaviour change in following the advice to save. UW operated in the North Coast, Central Durban and the South Coast. The North and South Coast systems were designed such that they could withstand one drought cycle in 50 years. They had been hit hard right at the beginning of the drought because they were weak. Before the drought actually bit, UW had asked the municipalities in those schemes to reduce the reticulated water but they had not done that. UW had had to then put restrictions on those schemes since last year where the North Coast restrictions were currently at 50%. In the South Coast the restrictions were at 30% and where there had been no restrictions with the Umgeni system, from Pietermaritzburg to eThekwini. The Umgeni system was designed such that it could withstand one drought cycle in 100 years. UW had also notified the municipality there to ask residents in that region to start saving water, to no avail. The dam levels there were also lowering and UW had informed the municipality that it did not start saving water by 15% or there would be challenges going towards the next rainy season.

In mitigating the drought impact UW had created interbasin transfers where in the North Coast one could find that a river like uThongati had water however, the river where Hazelmere dam was had no water; UW would then do a transfer from where water was to where there was none. There had been one such transfer in the North Coast, Maphumulo, one in the south coast, Mzinto Dam. Recently there had been another at iXopo.

Umkhomazi dam’s development challenges were that the DWS policy said that the user had to pay for the water. Therefore if UW were to build a dam after the feasibility study, it had to develop a system that would pay for the infrastructure. UW had to also ensure that the lower Umkhomazi dam had a water works next to it and to also include the financing of the works within the tariff of lower Umkhomazi. However, UW had to prioritize the upper Umkhomazi dam which was at the environmental assessment stage since by 2022, eThekwini will be having water shortages if the dam had not been built by then. The Bhobhoyi water works was owned by Ugu Municipality which had only allowed UW to operate the upper north coast. UW had bulk lines in the greater Mkhambathini areas between Durban and Pietermaritzburg where it was supplying bulk water. Therefore whatever issues there were in that region would be water distribution related which was the municipality’s responsibility.

On water shedding, Mr Gamede replied that the article published was an eThekwini municipality notice on how it would be reducing water as a water saving measure on the advice of Umgeni Water. UW had not implemented restrictions as a water board. In the North Coast the water had been throttled to approximately 50% by UW and then the water services authority would then distribute the remaining water. The authority would then put restrictors in their pipelines which would reduce the flow of water in the network. Restrictions had been ongoing for the entire 2015 in the North Coast. Mr Gamede did not understand where the lack of clarity was on pages 83 and 84 of the Annual Report as the table spoke to the map.

The Chairperson said that municipalities had the responsibility of initiating, financing, maintaining and securing water facilities. Was it not about time for DWS and its water boards to seriously interrogate that role of municipalities? Why could DWS and its entities not assume the responsibility of supplying water directly to citizens?

Ms Baker said she was a bit concerned by UW response regarding drought management. If UW had notified municipalities in time and made recommendations where no action had been taken such that there was a crisis; someone had to be held responsible.

Ms Khawula said that she had always maintained that municipalities were failing and unfortunately the people being accused of that failure were the Minister, the Department, the Committee and the water boards. It would be better for water distribution services to be taken away from municipalities as they simply were not committed. It would be wonderful to have municipalities come and account to Parliament.

Ms J Maluleke (ANC) proposed that the Committee receive the remaining two presentations before engaging each individually.

Magalies Water Board 2014/15 Annual Report presentation
Mr Mosotho Petlane, Board Chairperson, Magalies Water (MW), said that the water board had met within the province of Bokone Bophirima with all the municipalities within MW’s area of supply on the 10 March 2016. On 7 March 2016 MW had been addressing the challenges at Thabazimbi and was continuing to engage all its stakeholder municipalities on a one-on-one basis. Irregular and wasteful expenditure had been an ongoing pain to the board of MW and it had given its entire senior executive staff warning, such that management had started disciplining its staff in that regard.

Financial performance for the 2014/15 financial year
Mr Charles Mohalaba, Magalies Water Acting Chief Executive, said there was only a marginal increase of about 24% in MW’s revenue resulting from the water volumes it had sold to its clients. There had been a slight increase in employee benefit costs. MW’s total surplus of R35 million for the 2014/15 FY was a result of cost containment measures as directed by National Treasury and deferred income through the completion of the Pilanesberg scheme.

There had been a 48% increase in liabilities driven mostly by the increased electricity costs and chemicals. Irregular expenditure was due to:
- CIDB regulation not complied with in awarding the contract – R6.8 million.
- Non-compliance with Delegations of Authority – R25.4 million. The board had looked into this and MW was in the process of taking disciplinary action against implicated employees.
- Non-compliance with Preferential Procurement Regulations Section 4 – R9.5 million. This related to implementation of MW’s SAP system. The facts were that when the tender documents were issued at the time of the bid going out, MW had not specified the level of weighting in the scoring criteria within the bid document. AGSA had then found that that exercise had not been fair and transparent to the bidders. However, there had been no fundamental issues with the process of awarding that bid except that the weighting criteria had not been indicated in the bid document.

MW had no reservations about supplying the Committee with specific cases of disciplinary action and where the processes were in that regard.

In terms of overall performance, Mr Mohalaba said that MW had achieved 14 indicators which translated to 70% of the total indicators for 2014/15. The Committee had to be cognisant that MW challenges with achieving its 80% CAPEX target had been influenced by its operations being situated in currently volatile communities. In Madibeng, for example, MW’s plant upgrade had been halted for at least two weeks prior to the meeting in Parliament. That trend had been seen in other infrastructure projects where members of the project steering committee would want to have a bigger slice of the cake. Where these members felt that subcontracting work was not coming their way, invariably MW had had stoppages.

Overberg Water Board 2014/15 Annual Report presentation
Ms Nthabiseng Fundakubi, Acting Chief Executive: Overberg Water (OW), said that the water board had a 6 000 km footprint using three schemes. The pipeline network covered 1 320 km where OW had been sourcing its water from Theewaterskloof and Duiwenhoks dams. It supplied two municipalities with just approximately 850 retail clients. Bulk supply agreements had not been concluded yet, such that OW had requested the South African Local Government Association (SALGA) to intervene so the service level agreements (SLAs) could be finalised. Improvement on key financial ratios: The gross profit margin target reported on had not included the cost associated purification and distribution of potable water. Therefore the achieved percentage in the report was within normal standards of the water sector. Key vacant posts had affected the achievement of the target for net profit margin in the year under review however. OW had since been attending to the filling of those vacancies as of the beginning of the 2015/16 FY. In terms of the return on assets target, Ms Fundakubi said that the forecast percentage had been too ambitious based on the history of the size of business. OW had achieved nothing in its CAPEX programme because the projects which had been intended to commence in 2014/15 had never started though they had in the 2015/16 FY.

Ms Annelise Cilliers, Overberg Water CFO, said that the OW supply chain management (SCM) policy had only been applied halfway through the 2015/16 FY, which was part of the reason behind the irregular expenditure. The irregular expenditure had originated from R79 000 from a chemicals contract that had not followed the correct procurement policy. There had also been another R39 000 chemicals contract that had lapsed two years previously but the supplier had still been supplying chemicals. Lastly, auditors (with fees  of R278 000) had been appointed but were commissioned without an existing SCM policy.

Discussion
The Chairperson asked DWS whatever happened to the 104 mining companies that had been operating without water licences.

Mr Singh of DWS reminded the Chairperson that DWS had submitted a written response to his question, to the effect that the 104 was a 2013/14 FY figure. Subsequent to that, DWS had issued a directive for those companies to stop using water. They had since then applied for water use licences and DWS would certainly update the Committee on the progress of those applications as the prohibitions on water use had been still standing.

Mr Singh said that based on all the presentations, DWS felt that there was room for better management of irregular expenditure and litigation matters, which arose as common cross cutting issues emanating from the presentations.

The Chairperson asked how long the Overberg Water Board had been without SCM personnel and experiencing the other challenges highlighted in its report.

Ms Fundakubi replied that it had been a while coming as there had been no SCM personnel at OW ever. The Human Resources (HR) manager position as well as that of the Chief Executive, had been vacant as of the end of the 2014/15 FY.

Mr Mnguni said he was concerned and also quite dissatisfied by the explanation given by the Magalies Water Board about its irregular expenditure. What was the role of its stakeholders according to its social compact and that of monitoring if an incomplete bid document could be accepted? What was the progress in the Pilanesberg scheme?

He asked for clarity from the Overberg Water Board on its job creation target as there were contradictory statements both in the Annual Report and the presentation. He wanted to know where OW was during the poor construction, implementation and installation of the rain water harvesting tanks in Slangrivier, Dysselsdorp, Blikkiesdorp and Bitterfontein. Though Overberg Water had decreased its irregular expenditure, R396 000 was still a lot of money to be irregularly spent; that was also another matter of monitoring. How possible was it for a creditor that had completed work, to not want their money and delay submission of an invoice?

Mr Basson said that there was currently a lot of politics between Magalies Water Board, the administrator and the municipality. MW had been appointed by DWS on 8 April 2015 to take over the water purification plant at Madibeng and that had happened without funding from the Madibeng municipality. Previously the Committee had been informed that MW had needed R4 million from Madibeng municipality for the completion of the work being done at Rietfontein water treatment plant. It had been informed by DWS in July 2015 that that work would be completed by November 2015. The work was still incomplete in the new financial year. What was the challenge in Madibeng because MW was also responsible for the upgrade of the 20 megalitres tank of that plant, which was only 23% complete to that date? That project had also stalled because of infighting amongst councillors, and that had cost the state R354 million thus far, what was MW’s responsibility there? Why were there more water cuts currently than there had been before the appointment of the administrator by the province?

Ms Maluleke asked what had been causing elevated phosphate levels in the raw water quality sourced by MW and what was being done about it? The administrator at Madibeng had informed Ms Maluleke that MW was slow in assisting with the resolution of the challenges at that municipality. Was MW saying the challenges were the problems with the steering committee?

Mr Mnguni commented that it seemed that the water boards seemed to be more focused on secondary activities instead of water delivery at primary service level. What was their core mandate if they could not be active at the community level?

Ms Maluleke interjected and asked what DWS was doing about monitoring the intervention at Madibeng as it had been DWS that had instructed MW to go to Madibeng.

He repeated Ms Maluleke’s question about the phosphate levels and asked how far MW had come in assisting the municipalities using that water to bring down the costs of cleaning the water. One mayor had informed the Chairperson that the municipalities were paying double the amount for cleaning of the water.

The Chairperson was also concerned whether Overberg Water Board had indeed rectified the inefficiencies of the governance structures. He asked how long the CFO had been working at the water board. What had been the timeline to ensure all governance structures had been set up? He asked if by the beginning of the 2016/17 FY, OW would have achieved what it had planned in that regard.

Ms Fundakubi replied that in terms of the job creation target, Overberg Water Board had planned for three but had actually employed 37 people, which had been an over achievement. Of the additional 34 appointments, 28 had been workers employed on the War on Leaks programme implemented in Laingsburg. The other six were water process controllers that had been appointed in 2014/15. In terms of temporary employees, OW had reported non-achievement as it had planned for three but had only managed two.

Ms Fundakubi replied about the Masibambane rain water harvesting projects, saying DWS had alerted OW of the poor workmanship and not the auditors, since DWS was project managing that work. OW had subsequently investigated the causes and the project manager had been suspended and the investigation was ongoing.

Indeed she agreed with the Chairperson on governance inefficiencies at OW since the CE’s contract had been terminated in April 2015, without there being a full time replacement. The appointment of a Chief Operations Officer had only been made in June 2014 as well as the CFO coming on board in June 2015. In terms of operational management, there currently was no HR, SCM nor financial manager. All three posts had since been advertised together with a board secretary as of the beginning of the 2015/16 FY. Ms Fundakubi said when the board discovered all those irregularities in the structure, it had made a temporary arrangement for a financial manager resource, which was the reason that the SCM policy had been applied only mid-year.

The OW CFO, Ms Cilliers, said, as she had explained, that the averaged creditor days was 30 days however; in June 2015 OW had received an invoice two months late for raw water which had been late from the Duiwenhoks Water Association. Additionally it was an annual invoice from July 2014 to June 2015. She repeated Ms Fundakubi’s statement that most of OW’s current senior management were new appointments.

Mr Petlane, Magalies Water Board Chairperson, said that MW tried to avoid politics as a water board. There were community issues at Madibeng indeed which were hampering the work that was being done.

Mr Mohalaba, Magalies Water Acting Chief Executive, replied that in Majakaneng village, MW had ensured that 83% of the population there was receiving water to date. MW had installed Jojo tanks in the remaining 17% of that village as it had no reticulation. These were being refilled by water tankers. MW had engaged the municipality on a long term water distribution agreement there for at least 10 years. However, the request had not been responded to yet. In the same area, MW had drilled four boreholes and was installing a pipeline to connect with its reservoir and that work could be completed by 25 March 2016. In Maboloka village, MW had been drilling 10 boreholes and completing repairs to a steel tank, that would provide about 1 400 households with water. That work was also projected to be completed by 31 March 2016. In Jericho, MW was installing seven boreholes and laying down two pipelines. One was five km and the second one would be 1.9 km, where the projections were that work would be completed by 2 April 2016. In Letlhabile, MW was installing four boreholes, equipping two existing boreholes and also doing condition assessment of the pipeline, water conservation and demand management.

There were different contesting groupings around the plant mentioned by Mr Basson and most of them had been saying they did not want subcontracting work of R500 000 or below. The difficulty then was that DWS had instructed MW to intervene as an implementing agent though at the same time the contractor on site was DWS’s own infrastructure unit. What that meant then was that when there was work above R500 000, MW had to go out on open tender where bigger companies who qualify for the work would also compete with local subcontractors. MW had requested DWS to put in place joint ventures, which DWS had duly done. A four company venture had been submitted to DWS for approval through the Director General as there had to be a deviation. That work was ongoing to try and resolve that impasse.

On irregular expenditure, Mr Mohalaba replied that MW currently had established an SAP system which would assist in avoiding any transgression during the procurement stage. It also had developed an irregular expenditure register which was updated daily after invoices were submitted. The Executive Committee (EXCO) discussed irregular expenditure monthly. MW had also reviewed its procurement organogram such that it was filling new positions to date. Its internal audit would audit all MW tenders going forward to check on compliance matters. On the unresponsive tenders, all had been re-advertised and all appointments had been made. MW was expecting reduced irregular expenditure figures and such matters in the 2015/16 audit.

Mr Petlane asked that before submitting the oral report by Mr Mohalaba in writing, MW would ask permission from the Committee to first table it with DWS as it was MW’s major shareholder.

The Chairperson said that was not problematic, however, when information was presented to Parliament it could not be taken back. What was concerning was what happened after AGSA recommended remedial actions to DWS based on its audit opinion. He had experience of a fraudulent tax clearance certificate that had been submitted for three consecutive years, which was a criminal offence. It was alarming that that was still happening and as such the limit on deviations seemed to be an open ended scenario where there was no policy on how far deviations would be allowed. State coffers had to be protected at all costs, as condoning of wrongdoing resulted in people simply walking away without consequences.

Mr Basson requested that DWS return to the Committee to update it on Madibeng specifically as the municipality was blaming MW with MW doing the reverse in terms of the water purification plant. He firmly believed that the Madibeng municipality was not supposed to be given authority to run that plant as it had no capacity to run it.

The Chairperson said that the issues were quite straightforward and the water boards would have to submit written responses before Parliament rises for recess at the end of the following week.

The meeting was then adjourned.

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