Department of Water and Sanitation on its 3rd Quarter 2015/16 performance: hearing

Meeting report

The Department of Water and Sanitation (DWS) presented its third quarter progress report to the Standing Committee on Appropriations. The National Treasury, Parliamentary Budget Office and Auditor General of South Africa were also in attendance. Ms Nolwazi Gasa, who was  responsible for the Programme Management Unit, Corporate Planning, Strategy, Monitoring and Evaluation in the Department, presented the performance section of the DWS report, particularly analysing matters concerning its five programmes. Mr Sfiso Mkhize, Chief Financial Officer of the Water Trading Entity (WTE), presented the financial performance section of the report.

Programme 1: Administration

The Department had recorded a 14% vacancy rate for engineers and scientists, against the planned 11%. Resignations and exiting of officials, as well as the inability to attract and appoint technical people, had resulted in the higher vacancy rate.  A cumulative 135 of the planned 138 planned catalytic projects and dams had been branded, of which 79 had been achieved in the third quarter. The challenge in achieving catalytic projects entailed the knock-on effects of the delays experienced during the first quarter, and had resulted in the under-performance. The pipelines and electrical installations had been finalised for the short term acid mine drainage (AMD) mitigation measures in the Eastern Basin. Delays had been experienced in inserting the pump, pending the link with Eskom’s power supply. A potential implementing agent had been identified for the AMD long-term project through which a construction constructor may be appointed.  The National Treasury had been advised that an alternative Implementing agent was being considered. The levy concept had been drafted, with the levy costing to be determined. However, the draft levy cost model had not been finalized, as the National Treasury may appoint a service provider to assist with determination of the costing.

Programme 2: Water Sector Management

An inception report had been completed. However, the planned stakeholder consultations had not been convened. That was because of the knock-on effects of the procurement delays experienced during the first quarter, which had resulted in under-performance. The provincial Regional Bulk Water and Sanitation Infrastructure Master Plan for the Eastern Cape had been developed. The lack of funding and technical support had resulted in delays in finalising the first draft national and provincial water services bulk water master plans. The contract to appoint a service provider for the Environmental Impact Assessment (EIA) for the Western Cape’s water supply system augmentation project had been finalised and signed. However, the scoping report had not been achieved as the contract appointments had been finalised on 20 January 2016. The public had been consulted on the proposed water resource classes and Resource Quality Objective (RQO) for the five river systems, but legal notices could not be updated as most issues raised could not be addressed. The internal specialists had delayed providing the required technical guidance to assist with finalising the addressing of the issues raised.

Programme 3: Water Infrastructure Development

A cumulative total of 132 job opportunities of the planned 191 had been created through the dam safety rehabilitation programme, with 41 jobs created during the third quarter. No appointments had been made in December, as the construction sites closed early. A cumulative total of seven of the planned 13 bulk infrastructure schemes were completed, with one completed in Mpumalanga province (Msukaligwa). The Moutse project had had delays in getting approval to appoint labourers and for the procurement of materials. The Implementing Agent (IA) for Mametja Sekororo regional water scheme had delayed finalising the contractor appointments. There had been community unrest in Ngwathe local muinicipality while a contractor was busy finalising the snag list. Although the Worcester bulk water scheme (BWS) had been completed, the municipality was still finalizing the handover manuals, snagging and also the operational acceptance period. A cumulative total of 27 accelerated community infrastructure projects had been implemented. One had been completed and 27 were in progress during quarter 3. The appointment of contractors and the site establishment had taken place in November 2015.

The Olifants River Water Resource Development Project (ORWRDP) had initially been planned to be completed in December, but due to some construction delays and fatal accidents that had occurred on site and community unrest -- where community members who did not even have the correct gradings forcefully wanted to be contractors in the project -- the ORWRDP had not been completed. The Departments was still looking to resolve those problems. The completion date had now been extended to July 2016. The trial operation period was expected to be finished at the end of the current financial year.

The Umzimvubu Water Project involved the two dams that the Department was planning to build in the Eastern Cape -- the Lalini and Ntabelanga dams – which were both at the design stage. The Department was planning to complete Ntabelanga Dam within the second quarter of the current financial year. The reason for the delay of the Umzimvubu Project was that there had been objections over the environmental impact assessments (EIAs).  However, the objections had been rejected by the relevant authorities. The Department was now ready to continue with the implementation of the projects.

Projects 2 D,E and F had not been completed because of the tension between the mining houses on the ground and the Trans Caledon Tunnel Authority (TCTA) which had arisen because of the funding and tariff structure of the projects. This was still a concern for the Department, but measures were still in process to resolve the conflict between the two parties. All the funding would now come from the fiscus as opposed to the proceeds from the capital market and fiscus equal contributions, which was the initial plan. These projects would then resume. The contractor would be appointed in July. The Department hoped to complete all these projects within two years, and the plan would be tabled at the next Committee meeting.

With regard to the Clanwilliam Dam, the Department had established a site and the site handover had been on 27 November  2015. However, the community had wanted the Department to change the delivery model and look into models that included upliftment of community contractors. This had caused delays on the Clanwilliam Dam project.

One dam safety project had been completed. For the Roodekoppies Dam, the procurement of rockfill material had hampered progress to complete the rehabilitation works. At Vaalkop II Dam, there had been damage to 95% of all construction plants at Vaalkop by the local community during unrest which was not even related to the Department’s services. The work at Kalkfontein Dam had to be halted due to the unavailability of the Approved Professional Person on the project, in accordance with the dam safety regulations.

The site assessment for the central cluster was 95% complete (i.e 35 of 37). Critical information was outstanding from the Water Trading Entity (WTE), as financial data for the central operations and maintenance for all the clusters had been combined and needed to be separated for more reliable asset management plan (AMP) to be produced.

Programme 4: Water and Sanitation Services

This section was divided into two: There was a focus on rain water harvesting and support to resource-poor farmers.  Overall, the Department had achieved only 40 percent of its plan in this programme. A total of 142 job opportunities had been created through financially supporting resource-poor farmers and installing rainwater harvesting tanks, with 35 job opportunities created during the third quarter. A cumulative 529 resource-poor farmers had been financially supported to enhance access to water, with 205 supported during the third quarter. A total of 420 rainwater harvesting tanks had been installed during the third quarter.

Part of the challenges was the complexity of what was required in sanitation. A total of 1 197 existing bucket sanitation systems had been replaced, with 57 replaced in Limpopo during the third quarter. A total of 1 796 households had been serviced through the Rural Household Infrastructure Grant (RHIG), with 131 households serviced in quarter 3, all in Limpopo province. The challenges faced in this regard were the availability of bulk infrastructure, low productivity levels of sub-contractors, cash flow challenges by IA’s vs work completed and the inability to report by regional offices.

Programme 5: Water Sector Regulation

100 dams had been evaluated for compliance with dam safety regulations, of which 23 had been in quarter 3. The knock-on effects of the delays which were experienced during the first quarter had resulted in the under-performance. A draft business case on establishing a national water infrastructure agency had been developed. The activity would be fast tracked during the 2016/17 financial year.

The Water Trading Entity monitored the quality of water and was responsible for water allocation to historically disadvantaged individuals. The Department had planned to monitor 98 rivers, but only 65 had been monitored, with 19 monitored in quarter 3. The target for the volume of water allocated to historically disadvantaged individuals was also not met. 

The under-performance in the Annual Performance Plan deliverables was reflected in the financial performance. At the end of quarter three, the Department’s adjusted budget was R15.7 billion, but it had  managed to spend only R10.6 billion, which was 57% of the annual allocated budget. The causes of under-spending included slow procurement procedures and approval of Implementing Agents and projects during the latter part of the financial year, when implementation and disbursements should be on course.

Only 8% of the R837 million that was budgeted for Water Service Projects had been spent. The reason was that it took time for work to get verified, for supporting documents to be considered and to certify invoices for payment processing. Only 33% of the budgeted R241 million for the Accelerated Community Infrastructure Programme had been spent. Provincial offices had been requested to redirect unencumbered funds towards drought relief. Only 61% of the R592 million that had been budgeted for municipal water nfrastructure was spent. On the spending performance of conditional grants, the adjusted budget for the Municipal Infrastructure Grant was R1.8 million, but only 72% had been spent.  The adjusted budget for the Water Services Operating Subsidy budget was R450 000, but only 69% was spent. The budget for the Rural Household Infrastructure Grant was R480 000, and all of it was spent.

Slow spending had implications for the National Development Plan (NDP) and community services. The community becomes impatient with the Department. The National Treasury (NT) tends to reduce the budget allocated, the implementation of projects gets delayed, and it raises social unrest. The Department planned to communicate delays of the projects to communities on time, and to improve on planning and communication for infrastructure projects with NT all the time. It further intended to improve planning for infrastructure projects before implementation, which included an improved beneficiary list upfront, concentrating the project in a few areas and not many wards/villages, and the alignment of bulk infrastructure to sanitation projects. The Department wanted to adopt a “structure completed” approach as opposed to a “project completed” approach in order to start realising completed toilets while other activities were under way. It also wanted to issue a commitment letter prior to allocation transfers so as to commence with procurement, as opposed to waiting for the allocation to be transferred to the municipality. The non-compliance of municipalities to Division of Revenue Act (DORA) grant framework was also a cause of slow spending.

The Department had prepared responses to Committee observations. Regarding lags in spending, the Department planned to put dedicated efforts into collecting outstanding invoices from all suppliers, including municipalities.  It planned to perform an internal expenditure review and provide more realistic cash flow projections. It would devise practical measures to ensure adherence to the cash flow projections at project level, including recovery plans. Rescheduling and re-prioritization within the budget baseline would be performed during the budget adjustment process. Funds would be shifted within and between programmes and sub-programmes, in line with where the highest priorities were. Today, 99% of the budget had been spent.

The Committee had in the past recommended developing coordinated systems and mechanisms for the recruitment and development of technical professionals which would be appropriate for the effective rollout of water services’ infrastructure programmes. The Department had gone on a drive to expedite the recruitment and selection process for the advertised critical positions. From June 2015 to December 2015, 109 critical vacancies had been filled of which 12 had been classified as Occupational Specific Dispensation posts. To date, the vacancy rate had been reduced to 11%.

Some of the challenges facing the Department were non-responsive suppliers, inadequate capacity, delegations not being reviewed timeously, users not responding or implementing timeously, delays in the evaluation of tenders due to the non-availability of some Bid Evaluation Committee (BEC) members, and inadequate training of service providers on the data base. In order to tackle these programmes, the Department would review delegations and policy, and report to a data base to verify details of suppliers. Supply chain management (SCM) would implement a project plan for every bid to be advertised, communicate with line functions to stick to agreed dates, and consult with human resources (HR) and advertise tenders.

Mr Mpho Mofekeng, CFO: Water Trading Entity (WTE) took over to present on its financial performance. He said that the initial budget of the WTE had been R2.59 billion, but this had been cut down to R1.76 billion -- the difference had been used to pay off the previous year’s debt of the water services project.

Virements from the ORWRDP, the Groot Letaba River Water Development Project (GLeWaP), water resource projects, raising of the Clanwilliam Dam wall, the Mokolo and Crocodile River Water Augmentation Project, development of Hazelmere Dam, Mzimvubu, Nooitgedacht Water, National Water Research Institute (NWRI) support, were made for financial management project support.

The budget for refurbishment infrastructure was cut from R1.2 billion to R0.6 billion because the Department was not performing well in refurbishing infrastructure.

From June to December 2015, the Department had filled 25 scientists and engineers posts, and was in the process of filling six posts, with two posts on hold. From January 2016 to date, they had advertised 19 OSD posts, 124 senior management/middle management and support posts, but had filled only nine of them.

(Tables and graphs were shown to illustrate the expenditure for Augmented Projects)

Discussion

Mr A McLoughlin (DA) requested that the Department inform the Committee if it needed anything that may help it to achieve its goals, because it seemed the Department needed help. The report presented did not provide reasons as to why people resigned from the DWS. Time frames and whether the problem had been fixed were not given with regards to the delays that had been experienced in inserting the pump pending the link with Eskom’s power supply. In relation to the cost model that had not been finalised, he said that most of the time National Treasury was very strong on avoiding the appointment of consultants, and asked if the Department could do the determination of costing. With regard to the lack of funding, how could the Department complain about the lack of funding since they were under-spending on all their projects? He asked the Department to explain what the percentages they had given meant. What did they mean by saying that the Worcester bulk water project was completed, but still needed to be finalized? He asked why the Department did not do the duties they did not need external consultants for. Why did the Department not impose penalties in their dealings with district municipalities and suppliers who did not perform? He asked for clarity regarding its involvements with the TCTA.

Mr Mofokeng replied that the Department did strive to deliver on its mandates. The Minister and the Director General had appointed an executive to improve monitoring and evaluation. They had established a database where they could source professionals and contractors. The database would also improve planning and budgeting. They had appointed a Project Management Unit that would ensure that all the problems that were raised by the Committee would be dealt with. He believed that the Department was on course and had improved since the previous year. The measures that had been put in place would take time before they had a significant impact. The Department had received an unqualified financial report in the previous year and it employed a new CFO in the WTE to ensure improvement in this respect. There was consequence management within the Department to deal with transgressions such as irregular expenditure and the wasteful use of resources.

Ms Zandile Mathe, Deputy Director General : Water Resource Infrastructure, DWS, said that the TCTA was a special purpose vehicle that implemented the DWS projects using proceeds from the capital market as opposed to funding from the fiscus.

Ms Babalwa Manyakanyaka, Chief Director: Corporate Planning, said that the percentages related to the number of third quarter milestones.

Mr A Shaik Emam (NFP) expressed his disappointment with regard to the Eastern Cape Nondladla Project.  He asked if the Department had signed the Auditor General’s (AG’s) report. Was the Department expecting any roll-overs from year 2015/16 to 2016/17? Was there really a problem in terms of skills, and if so, what was the Department doing about it? What plans did it have to tackle the AMD challenges and what was the time frame? He commented that the AG was not satisfied with the Department’s financial statements and the record keeping was lacking. What was the Department doing about the unlawful and wasteful expenditure? What was being done to address under-performance? He asked for screening details of the contractors of the VIP toilets. Why was the most of the work done in the last quarter of the financial year? Why did service providers not want to get paid? Why did the Department not anticipate community disruptions? Did the payment system to service providers not need to be revised since they did not perform after being paid? The Department said the work was not done, but they had run out of funds -- where would the money for completion of these projects come from? Would the Department meet the NDP goals? If not, what could be done to reach them? What mechanisms did it have to ensure that its contractors would commit fully to the jobs the Department was giving them?

Ms Mathe replied that the Department would look at the project in the Eastern Cape. She also said that the issues relating it were being adequately dealt with. She acknowledged the increased spending of the Department’s budget in the last quarter on the financial year.

Ms E Louw (EFF) commented that the Department needed help. The presentation had lacked solutions to its problems and she suggested that it should consult the AG’s report for remedial actions. How would the Department fill its vacant posts? What impact did the slow payment and transfer of subsidies have on the duration of the Department’s projects? Did the Department have the capacity to provide water and sanitation for the people of South Africa?

Mr M Figg (DA) commented that the DWS was not good enough, beating around the bush, and looking at their presentation was just trying to be nice to them. Perhaps the Department needed to get people who would do the job instead of those it already had. He showed appreciation for the accuracy of the report. He then asked what the solutions were for the resignations that were taking place. He suggested that the Department should meet the communities up front to resolve unrest. With regards to halted projects, what happened to the people in charge of the projects? The Department had mentioned a cumulative total of 1 197 sanitation buckets that had been replaced, but what was the target? Why did sub-contractors have low productivity? The CFO had mentioned that some of the funds budgeted for the 2015/16 year had been used to pay off the previous years’ debt, so what had happened to the funding that had been budgeted for those projects that had caused the debt? What was the progress on the Nooitgedacht Water project?

Ms Mathe said Department would come in to help the metro only in phase 3 of the Nooitgedacht Water Project. It had been in the design stage, and phase 3 only started now. She projected that contractors may start working on the project around July.

Ms M Manana (ANC) commented that the DWS’s strategy needed to be revised. She asked how the Department planned for projects for which it did not have funding. Had the Department fixed the problems that were discovered on the VIP toilets? She requested more information regarding the Msukaligwa River infrastructure project.

MsMathe replied that the bulk infrastructure had been completed in Msukaligwa River, but Cooperative Government and Traditional Affairs (COPTA) were not done with the distribution of water.

The Chairperson asked that the Department give the Committee a briefing regarding VIP toilets, considering they had indicated that they had a recovery plan in the previous year. He asked if they had a structure dedicated to sanitation. With regard to the Kalkfontein Dam, was the work fixed or did it remain halted. Could the DWS explain the over-spending on the water sector regulations? Was the under-spending in the Accelerated Community Infrastructure Programme, the Water Services Projects and other programmes due to the fact that the funds had been shifted towards drought relief, or was it simply a failure to spend? How were the provincial departments reporting to the DWS regarding the funds that had been shifted to drought relief? The fact that it was only now that the Department planned to outline the important issues in their contracts to contractors implied that the Department had been awarding projects to contractors and not monitoring them. He asked the Department to explain the total number of posts advertised in 2016, because it did not match the claims of the number of filled posts and posts in the process of being filled. The Department had said that the vacancy rate had decreased from 14 to 11 percent, but he wanted it just to specify how many posts remained vacant currently and what the plan to fill those posts was? Based on this slight decrease in vacancy rate, the Chairperson commented that the Department was not aggressive in enough in acquiring skilled workers to achieve its ten-year NDP goal.

Mr Mofokeng acknowledged the sanitation problems that existed in the Department, and assured the Committee that the executives were working toward improving the sanitation concerns.

Mr Mkhize added that as the newly appointed WTE CFO, he had come up with a recovery plan or a turn-around strategy that would improve internal control, to avoid the repetition of the issues that the Committee had raised, including the dealings with contractors and district municipalities, commitments and record keeping. Regarding the financial performance of the Accelerated Community Infrastructure Programme, Water Services Projects and other programmes, the under-performance was due to the shift of funds to drought relief.

Ms Gasa said that although she acknowledged the skills shortage problem and that their information system was not good enough, together with other major problems that had been outlined by the Committee, she was still positive about meeting the NDP goals. She showed appreciation and an acceptance of the support offered by the Committee.

Ms S Shope-Sithole (ANC) suggested the DWS look at the Auditor General’s report and write back to the Committee to inform them on what they were planning to do to get in line with the report.

Mr Shaik Emam asked that, considering the measures that were in place to rectify the problems in the Department, how much time did the Department need to fix all the problems they had. He also asked the Department to give them a list of all the contractors that did not perform well in their dealings with the Department so that they could avoid doing business with them.

The Chairperson asked that the Committee Members send written questions to the Departments since the agenda time had expired. He also emphasised that the Department must look at the AG’s report and give feedback regarding its alignment with it. He also stressed the need to address internal control structure problems, the wasted and fraudulent activities, and compliance by municipalities and contractors.

The meeting was ajourned.