Department of Water and Sanitation on 1 Quarter 2016/17 performance

Water and Sanitation

09 November 2016
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

The Department of Water and Sanitation (DWS) presented a report on its performance against targets in the first quarter of the 2016/17 financial year. At the outset, Members agreed that the report of the Public Protector on this department must be considered and the Minister would be asked to speak to that on 23 November. In addition, the point was made that it would be useful for Members of this Committee to be in attendance when the DWS appeared before the Standing Committee on Public Accounts, where issues were raised that did not always come to the attention of the Committee in the normal course of events. The Department was asked to comment specifically on issues of fruitless and wasteful expenditure.

The Department summarised its performance in the first quarter. The main account recorded overall achievement of 54% of targets, non-achievement of 15% and partial achievement of 15%. In the Water Trading Entity, there was an over achievement of 50%, 25% non-achievement and 25% partial achievement. A breakdown was given of the sub-programmes indicating which had been achieved under each of the five programmes of the Department. DWS will be approaching the National Treasury to request that the National Treasury enables the Department to target Exempted Micro Enterprises, as the Department had planned. Some projects were being implemented later than expected because of delays by suppliers and service providers and there were dedicated efforts to collect outstanding invoices. Internal expenditure assessments were also being performed to provide more realistic cash flow projections. Some of the tenders for bulk water projects and dams were highlighted and the progress was explained. An independent economic regulator strategy was developed. A broader all-inclusive consultation was recommended to consider the independence of the regulator. The financial performance was presented, with explanations for the variances, both over and under spending, being given. DWS had a vacancy rate of 20% .

Members asked if the draft Water Plan had been produced yet, asked about the payment made to KOBWA and whether it was proper. Members kept returning to the issue of sewage spillages at Madibe which affected the dam and community access to water, pointing out that nothing had been done even after visits. Members asked why the underspending occurred and thought that no more funding should be given if the Department was unable to spend what it had already. Members thought that the spillages should be treated as an emergency and enquired why disaster funding was not able to be released, proposing also that perhaps the DWS itself should have its own disaster management fund to cater for such eventualities, and suggested also that closer liaison with other departments who could assist should be taking place. One Member wanted to get comprehensive feedback on all issues being raised now before the quarter 2 report was presented, and another queried specifically why correspondence addressed by him personally to the Director General had not been acknowledged or actioned. 
 

Meeting report

Opening remarks

The Chairperson tendered apologies from the Minister and the Deputy Minister.

The Chairperson noted that the Committee had received a report from the Public Protector. He reminded Members also that in the Budgetary Review and Recommendation Report (BRRR) there was a recommendation that the Department of Water and Sanitation (DWS or the Department) should be reporting quarterly on performance to the Committee.

Mr H Chauke (ANC) proposed that the report of the Public Protector be tabled before the Committee in its next meeting and have the Minister respond to the issues relating to compliance as raised by the Public Protector.

Mr L Basson (DA) asked that whenever the Department appeared before the Standing Committee on Public Accounts (SCOPA) in the future, it would be important for Members of this Committee also to attend as observers. Substantial and important information was given in the SCOPA meetings which otherwise may not come to the notice of the Portfolio Committee.

The Chairperson agreed that a session will be scheduled for the Minister to respond to the issues in the report of the Public Protector, and after discussion, it was agreed to invite the Minister on 23 November 2016.

The Chairperson added that it would be ideal if, when inviting departments to appear before SCOPA, an invitation could also be sent to the relevant portfolio committee. This Committee could in any event look at the resolutions and deliberations in SCOPA, as part of its oversight functions, to ensure that the Department is compliant and that wasteful and fruitless expenditure does not happen. He stressed the need to have proper oversight functions and ensure that the Department adhered to all the recommendations given. He also commented that the Department should be invited to comment specifically on the reports around fruitless and wasteful expenditure, and also stressed that steps should be taken to recover any funds wasted, with people taking full responsibility.

Department of Water and Sanitation (DWS) on 1st Quarter 2016/17 performance

Mr Sifiso Mkhize, Acting Director General, Department of Water and Sanitation, took the Committee through the presentation on the Department's first quarter 2016/17 performance against targets. He assured the Committee that the detailed action plans of the Department in relation to SCOPA recommendations and the resolutions on the comments of the Auditor-General (AG) would be shared  with the Committee on a later date.

He indicated that in the first quarter, DWS operated under five programmes. The analysis of the first quarter preliminary performance showed that the main account recorded an achievement of 54%, a non-achievement of 15% and partial achievement of 15%. In Water Trading, there was an over achievement of 50%, 25% non-achievement and 25% partial achievement.

In relation to the main account, there were in total 75 programmes, out of which 13 showed achievements over targets and 24 showed achievement on target. 11 were partially achieved and 15 were not achieved.

These sub-programmes were broken down, falling under the main programmes that dealt with, in turn, administration, water planning and information management, water infrastructure development, water sanitation services and water sector regulation.

He moved specifically to discuss the Water Trading account, noting that there were four programmes and out of these, targets on two were achieved, one was partially achieved and one was not achieved. These programmes were further broken down into financial management and water resource management. Under the administration programme, 3% of the targeted 15% procurement budget was spent on exempted micro enterprises (EME). He explained that the central supplier database managed by National Treasury (NT) makes it difficult for departments to target procurement by selecting EMEs as planned. The DWS will be approaching the National Treasury to request that the National Treasury enables the Department to target EMEs as the Department had planned.

He noted that there were delays in submitting invoices by service providers, and some of the projects were implemented later than expected. To overcome this, there are dedicated efforts to collect outstanding invoices from all suppliers. An internal expenditure assessment is also performed, to review and provide more realistic cash flow projections in order to then reprioritise funding, Practical measures were put in place to ensure adherence to cash flow projections.

Under the programme dealing with water infrastructure development, Mr Mkhize noted that the draft tender documents for the Nwamitwa Bulk Water project had been developed. Since the tender was not awarded, the contractor procurement could not commence. To overcome this, it was decided to fast track the finalisation of the tender award, in order then to start contractor procurement. In respect of Mzimvubu, the detailed designs for Ntabelanga Dam, BDS and WTW as well as the preliminary design for the Laleni Hydropower scheme had commenced. The sub-consultants for the Black Economic Empowerment (BEE) component have not been appointed because National Treasury approval was not obtained, and there was no agreement with Eskom on the utilisation of power from its hydro-power scheme. Efforts were ongoing, to engage with National Treasury to fast track approval and engage further with Eskom to reach an early agreement.

In respect of the programme dealing with water sector regulation, Mr Mkhize explained that three of the targeted four water management institutions were monitored for effective compliance. As a result of the non-monitoring of one, an appointment could not be secured with the irrigation board. An alternative irrigation board was monitored, but this could not be reported in the first quarter (Q1) because it had not actually been scheduled for this quarter. The remaining institutions will be monitored in Q3.

An independent economic regulator strategy was developed. A broader all-inclusive consultation was recommended to consider the independence of the regulator. Public comments from the pricing strategy consultation processing did not focus much on the independence of the economic regulator, which was the reason why, at the moment, there was a recommendation for a broader and all-inclusive consultation that will focus on this issue. Once the consultation has been completed, the comments will be analysed and the strategy will be refined.

There was a target to finalise 80% of the applications for water use authorisation within a certain time period, but only 62% were finalised within the targeted time. Delays were experienced with making recommendations across the value chain, and that includes outstanding specialist inputs. This was currently being addressed by the DWS now doing ongoing monitoring of adherence to the turnaround times, and taking the appropriate recovery measures timeously.

In regard to the Water Trading Entity (WTE), Mr Mkhize reported that 3%, compared to the targeted 15% of the procurement budget was spent on exempted micro enterprises.

He then presented slides on the financial performance (see attached presentation). The total budget for R15.245 billion. The expenditure of the Department in this quarter was R2.001 billion – or 13% of the total. Between April and June 2016, the planned expenditure  was R1.899 billion, while the actual expenditure was R2.001 billion,with a variance of R101 million.

The appropriation for total transfers and subsidies stood at R7.4 million, and payments for capital assets amounted to R4.445 billion. Expenditure on transfers and subsidies was R539 457 000 and the actual expenditure for capital assets was R839 934 000. For employee compensation, there was a projected spending of R390 594 000 while the actual spending was R351 951 000, resulting in an underspending of R38 643 000. The under spending was mainly due to vacant posts across all five programmes of the Department, outstanding performance bonus and pay progressions and the outstanding salary increases for SMS. In relation to goods and services, there was a projected spending of R334 719 000 and an actual spending of R270 427 000, or an underspend of R64 292 000, mainly due to outstanding invoices for office accommodation and related water and electricity charges. There were also delays in the appointment of Internal Audit service providers, who were now due to be appointed in the second quarter of the financial year. Outstanding invoices related to international travel, and for work done on various projects including Western Cape Water Supply System. On Transfers and subsidies. Projected spending was R492 016 000, but actual spending was R539 457 000 indicating an overspend of R47 441 000. The over spending was mainly due to payments related to employee social benefits which could not have been anticipated, and the transfer of R31 550 000 to Komati River Basin Authority (KOBWA). Payments for capital assets were originally projected at R682 462 000, but the actual spending was R839 934 000, an overspending of R157 472 000 which was due to the previous financial year’s invoices relating to regional bulk infrastructure only being paid during the current financial year. For the Administration programme, there was an appropriation of R1.659 billion, and a planned expenditure of R397.276 million, but actual expenditure was R356 313 000. The reasons for under spending were delayed payment of the employee wellness contract, unpaid information technology operational services for three months and information technology advisory and research fees for two years, and delays in the appointment of a service provider to assist with the internal audit function. The overspending on financial management is mainly due to centralised expenditure relating to audit fees, investigations undertaken by the Special Investigating Unit, telephone expenditure, and the water tanks that had been centrally procured for drought purposes. There were delays in receiving and processing of 2016 invoices due to billing system related challenges in the Department of Public Works.

Under the programme for water planning and information management, there was an appropriation of R841 817 000 and a planned expenditure of R189 776 000 , but the actual expenditure was R140 601 000. The under spending here was due to delays in the implementation of projects in various sub programmes. Invoices for Operating Rules for Stand-alone dams/schemes (North) and Service Level Agreement outsource contract have not yet been paid as planned, and the invoice from  the professional service provider for Foxwood Dam had not been received.

In respect of water infrastructure development, the appropriation was R11.696 billion, and planned expenditure was R904.905 million in this quarter but the actual expenditure was R1.191 billion. The reasons for overspending were the variance between actual and projected expenditure, as a result of payments made that related to 2015/16 invoices. The projects had moved from Schedule 6B to Schedule 5B for both Regional Bulk Infrastructure Grant (RBIG) and Water Services Infrastructure Grant (WSIG), as well as the previous financial year’s invoices relating to Regional Bulk Infrastructure being paid during the current financial year.

For water and sanitation services, there was an appropriation of R701.945 million. The planned expenditure was R350.443 million but the actual expenditure was R250.976 million. The underspending is attributed to a number of factors, including the direct overheads attached to the appointment of new personnel within this sub programme, which has had an impact on the spending patterns. The project relating to the Water Sector Skills Occupations framework would only now start in the second quarter of the 2016/17 financial year.

The total expenditure on payments for capital assets is at 21 % for water sector support. The under spending resulted from the procurement process for payment of capital items, which was only initiated in April 2016. Although the programme was lagging behind on the spending, additional funding of R801 560 000 will be required to address sanitation services programmes, including bucket eradication.

Water sector regulation had an appropriation of R 345.632 million. There was planned expenditure of R 57.391 million, but actual expenditure of R62.714 million.

An analysis of the financial performance in terms of revenue shows that the revenue billing performance for the year to date reflects a favourable variance of 7% against the year-to-date budget and this can be attributed to the efforts that the entity is making to improve on efficient and completeness of the revenue billing. In relation to the expenditure performance, employee costs reflect an under spending of 11% when compared to the year to date budget of 30 June 2016. The Department is currently reviewing the organisation structure. DWS had a vacant rate of 20% (based on the establishment report). The goods and services reflect an under spending of 25%.

Discussions
Mr Mkhize commented on correspondence he read from a stakeholder who was responding to one of the sessions the Committee had held on water planning, and asked if the draft water plan had yet been received by the Committee.

Mr L Basson (DA) asked the Department for an explanation on the payment made to KOBWA, enquiring if this payment was proper.

Ms M Khawula (EFF) talked about the sewage spillage at Madibe which has affected the dam there. She asked how the oversight functions of the Committee could assist, pointing out that even after visiting the area, nothing had been done.

Mr M Shelembe (EFF) speaking on the issues of underspending, asked why the delay in appointment of a service provider was causing an underspend. He was of the view that no more should be given to the Department if it cannot spend what it has already.

Mr Sifiso Mkhize in his response stated that VAT was charged to customers and paid to receivers. The invoicing method is being used for this.

Mr Mpho Mofokeng, Chief Financial Officer, DWS responded to the issues of underspending as a result of delay in the appointment of a service provider. He noted that this issue had already been resolved. On the issue of spillage at Madibe, he noted that there was work ongoing there and the progress will be reported back to the Committee in due course.

Mr Basson (DA) also spoke on the Madibe issue, telling the Committee that fish were dying and this environmental pollution was now receiving national attention. It was unacceptable to him to hear the Department say that “something” was being done about it. He wanted a proper report and said that the matter should be treated as an emergency.

Ms M Khawula (EFF) made a follow up to Mr Basson’s comment. She wanted to know what the Department was doing about it now.  She recommended that trees be planted to help in the purification process and she also asked what the Committee was doing to pursue these matters.

Mr H Chauke (ANC) proposed that the presentation be noted and appreciated and that the issues raised must find expression in actions. All matters would impact on the budgetary allocation of the Department. He asked for a day to be set aside where the Q1 report could be looked into in detail, with a critical overview being done. He also suggested that the Committee should receive a comprehensive report from the DWS, with every issue raised being addressed, prior to the Q2 report being presented.

Ms Khawula spoke again on the issue of spillages, and reiterated the concern that a lot was being said but there was no evidence of any corresponding actions. She proposed that other sister departments should also be brought together to address the sewage spillage.
 

Mr Basson raised a particular concern that the spillages were now regarded as the norm. He also raised a complaint about the fact that Mr Mkhize had failed to acknowledge his correspondence on non -availability of water in certain communities, due to these spillages. He asked for a response to his letters before the end of the day, as well as to furnish a plan as to how the DWS intended to treat these issues.

The Chairperson stressed the need for the Department to liaise closely with its sister departments, noting that it would do no good to attempt to pass the buck as this would not solve the problem.

Mr Mkhize apologised for the lack of a response to the correspondence of Mr Basson and promised to address the issue. He also promised to provide a report on the number of interventions being carried out.

Ms Zandile Mathe,Deputy Director General: Infrastructure, DWS, said that the source of the spills had been identified and attempts ware being made to cut the water from these sources. A team of engineers had been assembled and a preliminary design had been finalised. The Department is already operating within lean budgets in areas where special projects are being carried out.

Ms Mathe noted that part of the Madibe project did not fall under her responsibility. This project had been delayed on so many occasions by the communities in that region, who were asking for more representation in the project. The constraints of the construction team had also been a factor in the delay of the water treatment project.

Ms Khawula proposed that a disaster management fund should be set up for the Department, so that wherever there might be a problem, the Department would be able to access funds that had already been set aside to cater for that eventuality.

The Chairperson asked the Department if it had a slogan or statement which drives it to achieve its objectives.

Mr Mkhize stated there was a fund for such scenarios but it does not sit within the DWS, as it was a national disaster fund. These funds, however, could only be released to areas that had been declared as disaster zones.

The meeting was adjourned.

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