Magalies & Sedibeng Water Boards bulk water tariffs & 2015/16 Annual Report; Kgetlengrivier Municipality water supply: progress report

Water and Sanitation

17 February 2017
Chairperson: Mr P Chauke (ANC) (Acting)
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Meeting Summary

Annual Reports 2015/16 

The Magalies Water Board briefed the Committee on its financial performance for the 2015/16 financial year. The Board’s revenue had increased by 10%. Employee benefits increased by 15%, operating expenditure by 11% and depreciation and ammortisation reduced by 12%. The net effect on the surplus had decreased by 2%. The balance sheet had improved as compared to the previous year and this was due to increases in current assets, receivables from exchange transactions and inventory. There had been in improvement in non-current assets from R1 598 901 to R1 975 332 and that total assets had improved from R2 168 033 to R2 376 205. There had been a 14% total increase in liabilities and the 4% increase in equity. It was also highlighted that the reduction in liquidity due to the increase in the capital expenditure of the board as well as difficulties in collection of monies from debtors. The internal cash was being utilised to fund capital projects. The Board improved its cash flows from operations from R 130 million to R217 million. There had been an improvement in debtors days and creditor’s days. The return on equity had decreased by 1%. Expenditure for the Board was comprised of compensation of employees, which amounted to 30.5% and expenditure on goods and services amounted to 69.5%.

The Magalies Water Board had an unqualified report; however there were 25 matters that were raised within the 2015 assessment, which increased to 45 in the 2016 assessment. With regard to the non-financial performance in terms of strategic objectives, 77% of objectives were achieved, 19% were partially achieved and 4% were not achieved. The board achieved its objectives on a number of key performance areas. The partial achievement of objectives related to increased access to services: 43%, improvement of financial ratios, capital expenditure programme (completion of milestones within targets of 65%. The Board effectiveness in attendance was currently sitting at 96%. The Board did an extensive study on the importation of water from dolomitic areas for the relief of the residents of Swartruggens as a short term measure which found the alternative viable. The alternative has two routes that can be used. The preferred route makes use of the shortest path to Swartruggen.

The North West Department of Local Government and Human Settlement outlined briefed the Committee on how the Kgetleng area had been the most affected area in terms of water issues and that there were several interventions to alleviate the issues of dried dams and malfunctioning sewerage systems. The lack of intervention had been as a result of a lack of funding by organisations responsible for funding. There had been improvements in the area due to the rain. However, the area was still in need of assistance. The Department did not have sufficient resources however they would only be assisting in relation to previous problems faced by the area during the drought season. There was a please with the Department of Water and Sanitation to assist Kgetleng community  with the funds required for new implementation in addition to the drought related issues.

The Mayor of KgetlengRivier Local Municipality said that the municipality was in need of assistance and that they were still sitting with a challenge of providing water to their residents. The study that had been conducted by Magalies Water Board was done from the assistance provided by the municipality and that the municipality still owed money to the consultants who conducted the study. It was pointed out that the entire Kgetleng area was in dire need of assistance for the provision of water regardless of the rainfall received. The dams were drying and that currently the water levels are at 101% and that the previous week the Swartruggen dam was at 102% and that at the status quo of consumption, the Swartruggen dam would have run out of water in the next 100 days. The Mayor stressed out that the intervention was needed immediately as there had been drought in the area for the past two years.

The Department of Water and Sanitation indicated that it had communicated with Magalies Water Board on the issue of water shortage in the area and that the Department was still in the process of sourcing funding for the proposed project. There was protocol to first identify sources of funding within the Department recommendation for a ministerial directive to allow Magalies to implement the project. The Department added that the Chief Financial Officer is busy with this process and that a report would be presented in due course on the matter. The Department is dedicated to supporting with intervention however they may be more inclined to source short term solutions to alleviate the water problems facing Kgetleng whilst they source funding for the long term solution.

Members acknowledged that although there had been good steps taken towards alleviation of the problems of Kgetleng, the measures were not sufficient. It was stressed out that there had been a plea for assistance and the urgency of the matter with a 100 day period needed to be recognized. There is a lack of a clear picture of what is needed in detail on a line-by-line basis. The Department needed to assess the needs of these communities on a long and short term basis. Some Members expressed disappointment at the “mud-slinging” that seemed to be going on between the municipality, Magalies, the Province and the Department of Water and Sanitation. They were disappointed that the province was not assisting in these matters and that the province had to answer to this. The Committee must find out from the municipality whether they actually received any assistance from the province.

Some Members were dismayed about the repetition of information from the previous meeting. They claimed that previously, Magalies presented a plan similar to the one they presented today. It looked like the Department was playing “hide and seek” and that they should clarify today whether they would provide assistance or not. What was the agenda of the Department in regard to the removal of the water tankers without proper consultation of affected parties? One Member asked for an explanation on the absence of the Deputy Director-General (DDG): Water Resource Infrastructure ,Ms Zandile Mathe from the Department of Water and Sanitation.

The Sedibeng Water Board also briefed the Committee on its Annual Performance Plan for the 2015/16 financial year.  The Board highlighted the key achievements for the financial year which included the improvement in the management of costs, the exceeding of revenue and surplus targets and an unqualified audit opinion. Total production and distribution water losses of 4.99% in the Free State and 7.68% in the Northern Cape. The average expenditure on Broad-Based Black Economic Empowerment (BBBEE) expenditure was over 95.2% of the expenditure. The Board also highlighted also that amongst other achievements that their quality control lab had been audited by the South African National Accreditation Standards to have an accredited status and that their revenue had increased for the first time past the R1 billion mark and this increase was 15% at R1 110 938 000.

The Board did not incur any irregular expenditure in the current period but condoned irregular expenditure from the 2013/2014 financial year which related ted to senior employees acting for a longer period of time and procurement using one quotation due to the fact that the suppliers, Motorolla, are the original manufacturers of the items procured. The Board incurred fruitless and wasteful expenditure of R182 000 in the current year as a result of late payment to Eskom. The matter was being investigated by the Accounting Authority. The Board had condoned R471 000 from previous financial periods. The Board had achieved 90% of its strategic objectives with 10% partially achieved and none unachieved.

Members highlighted that the issue of tariffs was important and that there was need to find time to align tariffs and tariff methodologies and that it was important to aside a time to properly discuss the matter at a later time. They also applauded the work of Sedibeng Water Board and their performance in their presentation. The Committee had previously called the municipalities that owed Sedibeng money to understand the challenges they face. Some Members recommended that there was a need for something to be done for all water boards and it was important to call the Department of Cooperative Governance and Traditional Affairs (COGTA) to engage on the recovery of the money. One Member wanted to find out whether it was true that water for the area was only being supplied by a Japanese companies. It would also be important to know why some boards are audited by private companies yet others are being audited by the Auditor General.

Meeting report

Adv Mosotho Petlane, Chairperson of Magalies Water Board greeted the Committee and the delegations from the Department of Water and Sanitation and introduced his delegation to the Committee. He highlighted that the Board was proud of the results that they are going to present. The areas where the Board fell short were beyond the control of the Board and that they would be open to questioning on these issues.

Mr P Chauke (ANC) interjected and asked for the Board to first give a briefing on the state of the Board of directors for the Magalies Water Board. 

Mr Petlane explained that their Board consisted of 14 board members initially but currently stands at thirteen members because one member resigned four months prior to the meeting. Board attendance is currently at 96%. He added that Magalies has a fairly balanced board of directors that performs well.

Mr Petlane elaborated that fruitless and wasteful expenditure as well as irregular expenditure had gone down and that the current levels were as a result of the events from previous year’s tenders. He said that the tenders were currently in their last year so irregular expenditure should not extend further than the current year.

Mr Chauke cautioned that fruitless expenditure cannot be tolerated as it amounts to crime and that the water board must be careful in how they present it, regardless of the amount improving. He said he is looking forward to the water board explain the processes of investigation and recovery of fruitless expenditure. He added that fruitless expenditure is a waste of public money and if processes are not available to recover it the accounting officer would have to be held accountable before the committee and possible criminal charges will be laid if necessary as per the law.

Mr Petlane mentioned that the Board was currently not dealing with recovery because disciplinary processes were on-going. The Board would do its best to recover fruitless and wasteful expenditure.                             

Briefing by the Magalies Water Board

Mr Sandile Mkhize, the Acting Chief Executive Officer of Magalies Water Board; presented the Board’s financial statements. The presentation consisted of four parts; financial performance overview, non-financial performance overview, tariff management and Kgetleng Rivier Local Municipality drought relief measures. The board’s revenue increased their revenue by 10%. The employee benefits had increased by 15%, operating expenditure by 11% and depreciation and ammortisation reduced by 12%. The net effect on the surplus was a decrease of 2%. He added that the balance sheet had improved as compared to the previous year due to increases in current assets, receivables from exchange transactions and inventory. He highlighted the improvement in non-current assets from R1 598 901 to R1 975 332 and that total assets had improved from R2 168 033 to R2 376 205. There was a 14% total increase in liabilities and the 4% increase in equity

Mr Mkhize highlighted the reduction in liquidity due to the increase in the capital expenditure of the Board as well as difficulties in collection of monies from debtors. The internal cash was being utilised to fund capital projects. Magalies improved its cashflows from operations from R 130 million to R217 million. He added that they had improved in their debtors days and creditor’s days. Return on Equity decreased by 1%. Expenditure for the board was comprised of compensation of employees which amounted to 30.5% and expenditure on goods and services amounted to 69.5%.

Irregular expenditure was as follows;

  • Non-compliance with Procurement Policy: R3 million- employees implicated were subjected to disciplinary processes
  • Construction Industry Development Board (CIBD) regulation not complied with in awarding of contracts: R3.4 million first reported in the 2013/2014 financial year. The contract is in its final year and will not be reported in the next period.
  • Non-compliance with delegations of authority: R9 million relating to a contract paid over original value first reported in the 2013/2014 financial year.  Employees implicated have left the organisation
  • Non-compliance with Preferential Procurement Regulations: R50.5 million incurred in current period, originally reported in the 2014/2015 financial year. Auditor-General identified that the evaluation criteria was changed during the process which deemed the process to be irregular. Bid committees subsequently received training on Preferential Procurement regulations
  • No financial losses suffered as a result of these transactions

The issue of fruitless and wasteful expenditure was detected on a number of instances and this included the R4000 that was incurred in the current financial period due to interest levied by a supplier on late payment. Late payment was as a result of cashflow problems within the water board as they had not collected enough from operations. The Magalies Water Board had an unqualified report, however there were 25 matters that were raised within the 2015 assessment, which increased to 45 in the 2016 assessment. In regard to the non-financial performance in terms of strategic objectives, 77% of objectives were achieved, 19% were partially achieved and 4% were not achieved. The board achieved its objectives on a number of key performance areas. The partial achievement of objectives related to increased access to services: 43%, improvement of financial ratios, capital expenditure programme (completion of milestones within targets of 65%. The Board’s effectiveness in attendance was currently sitting at 96%.

Mr Mkhize said that the Board however failed to achieve the set expenditure target of 92% which they only achieved 39% as a result of funding shortfalls on the expenditure budget of R1 billion. The available funding utilized amounted to R395 million. The Magalies has always been a self-funding commercial entity and that it does not rely on Government grants or subsidies thus it has adequate reserves to continue as a going concern. With regard to the determination of tariffs, highlighted that the Board had factored the national water pricing strategy and that any increases are determined by the Department of Water and Sanitation in terms of the Raw Water Pricing Strategy. They also factor in affordability to end users, financial sustainability to recover operational and maintenance costs, capital tariffs to make provision for current and future capital expansion, market forces to determine cost drivers and inflation. Additionally, the tariffs are not uniform but scheme based on the relevant bulk water scheme supplying the area so that consumers may benefit from economies of scale and efficiency of operations. There is a consumer consultation process in compliance with the Municipal Finance Management Act (MFMA) as well as the WSA, National Treasury and relevant stakeholders.

The Board has proposed increases in tariffs per plant scheme for the 2016/2017 financial year as well as the 2017/2018 financial year. The proposed increases are set out below;

  • Vaalkop:  2016/2017- 11.63% to R5.28 per kilolitre, 2017/2018- 9.66% to R5.79 per kilolitre
  • Klipdrift: 2016/2017- 12.08% to R6.33 per kilolitre, 2017/2018- 10.27% to R6.98 per kilolitre
  • Wallmannsthal: 2016/2017- 12.33% to R8.38 per kilolitre, 2017/2018- 9.67% to R9.93 per kilolitre
  • Cullinan: 2016/2017- 9.65% to R6.02 per kilolitre, 2017/2018- 9.14% to R6.57 per kilolitre

Mr Mkhize pointed out that the proposed percentage increases in the 2017/2018 year are lower than the current increases as a result of expectations to increase efficiency in the board’s operations.

With regard to the Kgetleng Rivier Local Municipality drought relief intervention, Mr Mkhize pointed out that Swartruggens and Borolelo were supplied with portable water from the Swartruggens Water Treatment plant which runs out of water every year during the dry season. He added that this was because the demand on the dam exceeds its yield and that slate and mudstone makes up most of the basin hence the dam leaks. The seasonal peak demand was currently 4.5 megalitres per day and that the Department of Water and Sanitation indicated that the all town demand would be 5 megalitres per day by 2030.

The Board has proposed a long term solution that if implemented is expected to eradicate water shortages in the area. They propose that the municipality be supplied by the Vaalkop water scheme. This can be achieved by constructing a direct pipeline to either Masista, Swartruggens, Koster or Derby from Vaalkop. This will enable supply of water to these areas as well as Groot Marico and Zeerust.  However, there is need for a study of the feasibility of these alternatives to be commissioned so that it may be implemented. The Board proposed importing raw water from Lindleyspoort Dam which proved non-viable. They also considered increasing the storage capacity of Swaartruggens Dam under their corporate social responsibility programme and subsequently wrote a letter to the Minister of Water and Sanitation to seek a directive before the rainy season. The intervention was done before the rainy season and was successful. They also proposed the importation of water from dolomite areas. The re-use of sewerage effluent was not viable as it was not socially appealing to the community.

The Board did an extensive study on the importation of water from dolomitic areas for the relief of the residents of Swartruggens as a short term measure which found the alternative viable. The alternative has two routes that can be used. The preferred route makes use of the shortest path to Swartruggen. Within the two routes available there are 4 options whose costs range from R147.5 million(preferred option) to R173 million. A proposal for funding was sent to the Department of Water and Sanitation.

Briefing by the North West Department of Local Government and Human Settlement

Mr Ephraim Motoko, Head of Department North West Department of Local Government and Human Settlement, presented on behalf of the MEC who was not available. He outlined how the Kgetleng area had been the most affected area in terms of water issues and that there were several interventions to alleviate the issues of dried dams and malfunctioning sewerage systems. The lack of intervention had been as a result of a lack of funding by organizations responsible for funding. He added that there had been improvements in the area due to the rain. However, the area was still in need of assistance. He said that the Department did not have sufficient resources however they would only be assisting in relation to previous problems faced by the area during the drought season. It would be important for the Department of Water and Sanitation to assist Kgetleng with the funds required for new implementation in addition to the drought related issues.

Briefing by the Kgetleng Rivier Local Municipality

Ms Kim Medupe, Mayor of Kgetleng, said that the municipality was in need of assistance and that they were still sitting with a challenge of providing water to their residents. She added that the study conducted by Magalies was done from the assistance provided by the municipality and that the municipality still owed money to the consultants who conducted the study.

Mr Thabo Ben Mothogoane, Acting Municipal Manager indicated that the entire Kgetleng area was in dire need of assistance for the provision of water regardless of the rainfall received. It was clear that the dams were drying and that currently the water levels are at 101% and that the previous week the Swartruggen dam was at 102% and that at the status quo of consumption, the Swartruggen dam would have run out of water in the next 100 days. He stressed that the intervention was needed immediately. He added that they have experienced drought in the past two years and that the infrastructure has been idle during this time which has led to increased maintenance procedures and costs which have interrupted water supply. He added that the removal of water tankers by the Department of Water and Sanitation immediately after the rainfall further aggravated the water supply problems they faced. The slow rate of water increase in the Koster dam was a key concern and the increasing numbers of illegal obstructions constructed along the stream have been reported to the regulation unit of the Department of Water and Sanitation for investigation.

Briefing by Department of Water and Sanitation

Mr Anil Singh, Deputy Director General: Regulation, Department of Water and Sanitation; addressed the issue of intervention brought about by Magalies Water Board. Ms Zandile Mathe, the Deputy Director General: Water Resource Infrastructure, Department of Water and Sanitation, had communicated with Magalies Water Board on the issue and that the Department was still in the process of sourcing funding for the proposed project. There was protocol to first identify sources of funding within the Department recommendation for a ministerial directive to allow Magalies to implement the project. The Chief Financial Officer was busy with this process and that a report would be presented in due course on the matter. The Department is dedicated to supporting with intervention however they may be more inclined to source short term solutions to alleviate the water problems facing Kgetleng whilst they source funding for the long term solution.

Discussion

Dr H Volmink (DA) acknowledged that although there had been good steps taken towards alleviation of the problems of Kgetleng, the measures were not sufficient. He stressed that there had been a plea for assistance and the urgency of the matter with a 100 day period needed to be recognised. There is a lack of a clear picture of what is needed in detail on a line-by-line basis. There was need to asses these needs on a long and short term basis. There had been a lack of a situational analysis and that demanded needed to be adequately defined with interruptions clearly indicated and that the frequency of those interruptions. He said that they need an outline of costs as well as plans on the sourcing of funding. He said that this does not mean that the intervention has to be delayed but that the plan is needed as a matter of urgency.

Mr L Basson (DA) expressed disappointment at the “mud-slinging” that seemed to be going on between the municipality, Magalies, the Province and the Department of Water and Sanitation. He was disappointed that the province was not assisting in these matters and that the province had to answer to this. The Committee must find out from the municipality whether they actually received any assistance from the province. The previous meeting the Committee had been informed that the letter of directive had been given to Magalies, yet in today’s meeting there is the impression that the letter is still to be signed and issued to Magalies. Magalies had conducted a study that had not been paid yet and that the following year it would be presented as fruitless expenditure in their annual statements.

Mr Basson noted that the Department had R2.9 Billion that had been unspent but was not prepared to assist Magalies. He said it would be a criminal offence if they did not assist and remained with money unspent at the end of the period. It would be important for the Department of Water and Sanitation why it had withdrawn the water tankers and why there had been no assistance from the province to assist with the water tankers when it is a critical situation. He added that this was unacceptable. He raised questions on the study conducted by Kgetleng that had still not been paid and asked Magalies to explain. The Committee should be provided with details on time frame, current phase and the risk of doing the test on the long term solution presented by Magalies as well as who has the responsibility of implementation of this solution. It was completely unacceptable for the Department to keep delaying processes whilst the people do not have access to water.

Ms H Kekana (ANC) pointed out that the Standing Committee on Public Accounts (SCOPA) in November 2016 highlighted irregular expenditure by Magalies Water Board. Why Magalies was unable to provide contractors with supporting documents as an implementing contractor in specific municipalities relating to the implementation of the RBIG project? The Magalies Board should provide the Committee with further information in respect on finances and impact of implementation.

Ms N Bilankulu (ANC) stressed the need for the presentation of documents before the committee when delegations speak so that the committee can refer to these reports after.

Mr T Makondo (ANC) expressed disappointment at the repetition of information from the previous meeting. The Magalies Water Board had previously presented a plan similar to the one they presented today. It looked like the Department was playing “hide and seek” and that they should clarify today whether they will assist or not. Why was Ms Mathe not present in this important meeting dealing with the issue of water availability?

Ms M Khawula (EFF) questioned the delegations on the effect their inaction will have on the people of Kgetleng. The Committee should be provided with clarity on the justice that would be provided in terms of community safety, housing, crops destroyed by lack of water. It was concerning to see that there is a possibility that some community members could potentially end up unemployed. It was also disappointing to see the province’s reluctance to work with community members  

Mr M Johnson asked for a precise reason for the problem and expressed disappointment at having to deal with the same issue again.

Mr Chauke expressed concerns over the agenda of the Department and the removal of the water tankers without consultation of affected parties. There should be an explanation provided for the absence of Ms Mathe from the Department of Water and Sanitation. The provincial Department should explain which past activities that would be financing as they had noted earlier. The Department had a constitutional mandate to provide water so they were responsible for giving information on the problems of Kgetleng community.

Mr Singh pointed out the main source of the problems was a lack of funding. There was  a suggestion that the Accounting Officer should provide a written response to the Committee by Monday.

Mr Chauke interjected and asked Mr Singh to not continue with that line of response and that he should respond about what he knows on the lack of funding and that he should focus on engaging with Magalies to find solutions. He highlighted the impact of failure results in protests that erupted during local government elections. The Department was not providing the right to water and the Committee should ask if the province and the Department were willing to assist these communities.

Mr Singh said that he cannot say that the Department does not have sufficient funds as he is not the accounting officer of the Department which Mr Chauke refuted saying that Mr Singh is mandated by the Department to represent them so he should know about funding, especially given his position.

Mr Chauke proceeded to request that Mr Singh step outside the meeting to make phone calls to his colleagues to figure out if the Department had funding available to help Kgetleng community.

Mr Makondo observed that it looked like the Department was not aware of the gravity of the problem facing the Kgetleng community.

Mr Basson highlighted that in the previous discussion with Ms Mathe, she had mentioned that Magalies had not presented anything to the Department and was to blame. It was noted that the Department had money to provide assistance to Magalies but Magalies had not been forthcoming with the presentation. Magalies maintained that they had made the presentation. The Committee should be provided with clarity on whether Magalies had received an appointment letter and that the Department should be clear if they can provide the assistance of R147 million. He added that the minister must be called to Parliament if the Department is at fault.

Ms Khawula expressed disappointment at the comments made by Mr Singh

Mr Johnson reiterated that the committee cannot keep dealing with the same issues. He outlined that it was the work of the committee to hold the Department accountable for the funding available to them and that their work was not personal.

Mr Basson pointed out although the province had stated that they did not have the resources to assist Kgetleng they went on to construct a R6 million statue of Jacob Zuma.

Mr Singh indicated that he had made the necessary call to Ms Mathe and that the decision was taken to implement the project proposed directly by the Department’s construction team as it was cheaper as no implementation fee would need to be paid. He said implementation would commence immediately.

Mr Motoko indicated that the province had provided R2.5 million in support to Kgetleng in tankers, the silting of the dam and in equipping boreholes. He also refuted Mr Basson’s claim saying that the provincial Department did not deal with statues as it was not their mandate.

Mr Petlane added that Magalies was a service provider and there are concerns on the expenditure already incurred on the project which was based on the assumption that they would carry out the implementation of the project. He added that the decision by the Department to implement construction internally was concerning.

Mr Chauke expressed concern that the actions of the Department were “arrogant” as there had been no effort to engage with Magalies and with the municipality. The province too had not made sufficient effort. The Minister should be called before Parliament to explain as it looked like the Minister was not aware of the decisions taking place. He vowed to fight for the community of Kgetleng.

Mr Johnson highlighted that the Department seemed to only provide assistance when it suited them. The Department had capacity but it was not clear what was this capacity being utilised. It looked like the Department was instead dealing with its own internal issues. There are clear inefficiencies surrounding the work that had been done by the Department at Clanwilliam dam.

Dr Volmink expressed frustration at how the Committee had presented detailed questions yet they had received vague answers from Ms Mathe who did not show up for the meeting.

Mr Basson pointed out that previously the Department had said that they could not use their internal construction team because it was too expensive and expressed shock at how they had suddenly changed their stance. Magalies had already spent money on the project and that it was unfair that the Department had decided that they would not let Magalies implement. He asked the Department for confirmation by the following week that Magalies has been paid and that the Committee would investigate the Clanwilliam dam work.

Mr D Mnguni (ANC) expressed disappointment at how the discussion in the meeting had shifted to the Department of water and sanitation instead of the agenda to focus on the annual report of Magalies. He said that the Department undermines Parliament and that it was time to take a radical stance on matters with the Department so that if they do not perform, they do not get paid. The province was not forthcoming in their awareness of the issues facing Kgetleng and that they seemed to be as surprised at the events in their province as the rest of the Committee was. The issue of irregular expenditure was a sign of weak leadership and asked Magalies to provide clarity on the actions they would take to avoid this.

Ms Khawula expressed concerns on the millions of rand provided to the Department yet no work has been done to assist the people of Kgetleng. It looked like the public funds were being “squandered” and not spent for what it was meant for and that the Department undermined Parliament. The Department of Cooperative Governance and Traditional Affairs (COGTA) also had a role to play so the issue must be taken seriously.

Mr Johnson recommended that the Committee should call on the Minister to Parliament as agreed upon by other Members.

Mr Basson raised questions on the capital expenditure targets that were not achieved. He pointed out that they only spent 39% as opposed to the 92% target. What was the exact amount that the Department owed to water boards?

Mr Chauke applauded Magalies on their performance. However he raised concerns on the issues of fruitless and wasteful expenditure and asked Magalies for a report on the officials that resigned after the R9 million rand irregular expenditure.

Mr Petlane highlighted that the irregular expenditure was from previous years. He clarified that revenue went up and not down by 10%. With regard to the capital expenditure he said that the board needed to meet with the Department as they budget based on commitments made by the Department. He added that it is a risk when commitments are not honoured when the Department pulls back. The Department had paid R12 million of the R62 million rand owing to Magalies and that R50 million still owed.

Mr Chauke pointed out that the committee needed a report on the fruitless expenditure incurred by Magalies in the next 14 days and emphasized that the state must recover the money if Magalies failed to recover it.

Mr Basson suggested that Magalies indicate on the key performance indicator not achieved on capital expenditure that this was as a result of the Department of Water and Sanitation not honouring their commitment as this was beyong Magalies’ control. He stressed that this was important for future reference.He added that it was unacceptable for the Department to owe water boards.

Mr Mkhize agreed with Mr Basson’s comments and added that they would provide a report on the fruitless expenditure disciplinary processes surrounding the R9million irregular expenditure in 14 days with the Audit Action Plan.

Ms Khawula questioned Magalies on the lack of information on the challenges faced in determination of water tariffs in their presentation.

Mr Petlane added that the main components in determination of tariffs were chemicals, cost of raw water and energy utilized. He added that Magalies would like to respond in writing to the question posed by Ms Khawula and highlighted that they did not mean to hide any information and apologized if it appears that that was the board’s intention.

Briefing by Sedibeng Water Board on the Annual Report for the 2015/2016 financial year

Mr David Dikoko, Chairperson of Sedibeng Water; introduced the report and delegated that the details be presented by the Chief Executive Officer. It looked like water boards had common problems and the Committee would need to create dialogue with the Minister who may not be aware of these issues. There are issues with implementation of projects for the Department of Water and Sanitation where they have to end up using their own funds as boards and this presented problems in the audit report.

Mr Basson interjected and asked that all the water boards come in to detail their common problems with the Department of water and sanitation

Mr Chauke agreed with Mr Basson and said that at the level of the Minister, she may not be aware of as it seems certain decisions are not politically authorized. He added that the Minister must be called into Parliament to be briefed on these findings.

Mr RembuluwamiTakalani, Chief Officer, Sedibeng Water, highlighted the key achievements for the financial year which included the improvement in the management of costs, the exceeding of revenue and surplus targets and an unqualified audit opinion. The Total production and distribution water losses of 4.99% in the Free State and 7.68% in the Northern Cape. The average BBBEE expenditure was over 95.2% of the expenditure. He also mentioned amongst other achievements that their quality control lab had been audited by the South African National Accreditation Standards to have an accredited status. He added that they had embarked on various water conservation awareness campaigns and had extended assistance to 10 special needs and child support centers. The progress on the projects was as follows;

  • Vaal Gamagara: 20%, R18.4 billion project value
  • Namakwa Regional water scheme: 55%, R554 million project value
  • Bucket eradication project: 95%, R40 million
  • Emergency intervention at Maluti-o-Phofung:  12%, R1.5 billion
  • Completion of WWTP Monyakeng- Nala LM: 99%, R28 million
  • Design and construction of Jacobsdal Water treatment works: 12%, R72 million
  • Jacobsdaal/ Ratanang Reticulation Phase 2: 90%, R3.5 million
  • Petrusburg boreholes: 60%, R3.5 million

He also highlighted the projects per municipality and highlighted their estimated value as per the presentation.Mr Johnson highlighted that the committee was challenged because there were only four members remaining and that there were time constraints and asked for Sedibeng Water Board to summarise their presentation and proceed to the financial matters at hand. These sentiments were echoed by Mr Chauke as well and added that the details of the project were excellent.

Mr Takalani invited the Chief Financial Officer of Sedibeng water to speak on the financial matters of the presentation. The CFO highlighted that their revenue had increased for the first time past the R1 billion mark and this increase was 15% at R1 110 938 000. Cost of Sales followed the revenue pattern in volume. Gross profit margin increased by 11%. Other income increased by 3% due to projects received from the Department. Operating costs increased by 7%. Net profit remained the same. The total assets increased by 18.6% to R4 900 129 000. Equity and liabilities increased by 18.6% to the same amount as total assets. In terms of key financial ratios, gross profit margin increased to 66.7% due to higher volumes of sales, the current ratio target was not achieved due to a higher provision for bad debts, return on assets target was achieved due to efficiencies within the organization, debtors days target was not achieved due to defaulting municipalities.

Mr Takalani added that they did not incur any irregular expenditure in the current period but condoned irregular expenditure from the 2013/2014 financial year which related ted to senior employees acting for a longer period of time and procurement using one quotation due to the fact that the suppliers, Motorolla, are the original manufacturers of the items procured. They incurred fruitless and wasteful expenditure of R182 000 in the current year as a result of late payment to Eskom. The matter was being investigated by the Accounting Authority. She said they had condoned R471 000 from previous financial periods.

The Board had achieved 90% of its strategic objectives with 10% partially achieved and none unachieved. The targets that had been achieved included the following

  • Water quality compliance
  • Management of avoidable water losses
  • Reliability of supply
  • Increased access to services: 125%
  • Implementation of ministerial directives: 100%
  • Support rural development: 5 contracts
  • Achieve statutory reporting compliance: 100%
  • Financial reporting compliance: Unqualified opinion
  • Increase BBBEE spend: Free State 91.6%, North West 98.2%, Northern Cape 95.8%
  • Manage costs within targets: 2%
  • Jobs created

In conclusion, Mr Takalani highlighted the determination of tariffs process which considered legislative requirements, consultation with stakeholders and cost drivers. For portable water she highlighted that they took binto account inflation forecast of 7.3%, tariff increase in raw water purchases of 16%, electricity current year adjustment of a 9.4% tariff increase, the maintenance budget increase of 8% and employee salary increases at 8%.

Discussion

Mr Johnson highlighted that the issue of tariffs was important and that there was need to find time to align tariffs and tariff methodologies and that it was important to aside a time to properly discuss the matter at a later time.

Mr Chauke applauded the work of Sedibeng water and their performance in their presentation. The Committee had previously called on all municipalities that owed Sedibeng money to understand the challenges they face and perhaps the Committee would need to do this again. It was important to call COGTA to engage on the recovery of the money. The reports on previous years irregular expenditure was necessary. He questioned the process of condonement for these costs and asked whether treasury has a role in this process.

Mr Mnguni was concerned with the issue of irregular expenditure and the link to national irregular expenditure. He asked what the role of the auditor in checking the explanation of the board in condoning irregular expenditure and what the internal processes on condoning irregular expenditure. It was impressive to see the financial statements of the Board and the achievement of targets.

Mr Chauke questioned why they only purchased from Motorolla and added that there had been need to look for cheaper alternatives and not to prefer Motorolla. It was important to open up opportunity for competition of suppliers. He said he was happy with the leadership of the Board. Why was the Board being audited by PriceWaterhouseCoopers and not the Auditor General?

Ms Khawula questioned why they were only being supplied by Japanese companies. She also asked why some boards are audited by private companies yet others are audited by the Auditor General.

Mr Johnson raised questions on the process of awarding of bursaries and was concerned on the process that is applied employees resign after. With regard to retention rates, he asked about theincentives offered to staff. He asked for the norm on the costs of boreholes as the board had indicated that they spent R92 million on 60 boreholes. He asked the Department to provide clarity on the norms across water boards in relation to these costs. With the project at Gamagara, he was concerned on the progress of the project and asked when they had began with their phases. He added that a mining company had expressed that it had a partnership with the Department to the value of R8 billion on their part. He was concerned about the structure of the project and asked if the processes for awarding of the project.

Mr Dikoko highlighted that the Auditor General had indicated that he would only audit two water boards. The audit by PriceWaterhouseCoopers was the last one and that the Auditor General had begun the handover process to continue auditing the board.

Mr Takalani highlighted that the progress on capital projects follows the funds allocated for that period by the Department. He added that discussions with municipalities and discovered that there are areas facing challenges with water. He said this led to the development of a business plan to the value of R1.9 billion which was presented to the Department which identified key priority areas. The Board had identified “hot spots” to focus on, which were approved by the Department. He added that there was need to recover money owed by municipalities from COGTA. In relation to financial assistance for bursaries for employees, he noted that bursaries are given to employees that would like to advance them to study within the area they are working in. Employees that would like to pursue studies outside their area of work are awarded bursaries. With regard to Vaal Gamagara, he highlighted that the infrastructure that was there could only support 20 million people of the 26 million people that need water.

He highlighted that the structure was weak and they decided to rebuild the pipeline that supplies water. The costs of the pipeline came to R1 billion and advertised. The Department agreed to fund up to R1.2 billion for the first phase and construction is underway. He added that if Botswana was taking part the cost would be R18 billion for the rest of the phases and if they were not the cost would be R14 billion. He added that Botswana would fund up to R4 billion. He added that the mines would assist up to R4 billion, R6 billion would be funded by the Department and an additional R4billion would be sourced from the markets as a loan.

Mr Chauke had questions on the procurement process and the consortium awarded the project. He asked about the factoring in of the economic empowerment of black companies in this project. He asked about the investment in social responsibility programme and how much had been allocated to that effect. He also queried why the Department provided support to Sedibeng and did not give as much support to Magalies.

The CFO of Sedibeng said that auditors would never present their audit report without determining the irregular expenditure process. She said that they first investigate and then recommend condoning of the irregular expenditure. She added that the auditors are well aware of the processes followed up until the condoning by the board. In terms of the Motorolla issue, she said that they preferred this supplier because the systems they built were around Motorolla gadgets and that the taking apart of the system would be difficult as it would be a total overhaul in the Free State. She said that they would try to find an alternative in the future.

Mr Dikoko said that we are not so different to Magalies with the treatment from Department. He said that the only difference was the areas of operation for projects of intervention.

Mr Moses Lebatso, Acting Executive Manager Shared Services, Sedibeng Water, explained that the R92 million spent on boreholes was as a result of a hydrological study that took place in many phases. Geohydrologists sited 255 boreholes to find 60 operational boreholes. He added that they are now drilling the boreholes and that 55 had been drilled so far with 45 to 48 operational ones. He said that the consultant would conduct pump testing to equip the boreholes and pump houses.

Mr Johnson asked for Mr Singh to highlight the cost per unit per borehole in practice as standardised by the Department.

Mr Chauke pointed out that whilst almost R100 million on boreholes, the Lesotho highlands project that passes through QwaQwa was not mentioned. He highlighted that the residents of that community did not have water yet they had a pipeline that passed through them which needs attention before we spend R100 million on boreholes.

Mr Singh highlighted the norm varied with costs of boreholes depending on the depth, equipment to be used, drill rig used and the terrain. He said the Department had not finalized this. On the issue of the Lesotho Highlands he said that he give a written response on the matter.

Ms Khawula asked why black people do not have water yet white people and other groups had water.

Mr Mnguni asked for a detailed report on Vaal Gamagara BBBEE composition in the project. He said that there was need to be radical on what the president said on black empowerment.

Mr Dikoko highlighted that there was a directive from the Committee and later the Minister to ensure that there was an element of black economic empowerment in all their capital projects and that they ensure that they had a 30:70 split on every level

Mr Takalani highlighted that in all their projects that there have been indications on how many people would benefit from their projects in their presentation.

Mr Singh said that the Department would undertake to assist in these matters.

Mr Johnson applauded Sedibeng on the work done and how they addressed the issues brought up by the Committee. He added that they still had a lot of work to do in the North West. He added that he had been notified personally of the problems in QwaQwa and the Lesotho Highland water project and this needed to be addressed. He urged the province, Department and water boards to work together with municipalities and not to undermine Parliament by giving false information.

The meeting was adjourned.

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