The Rand Water Board and Amatola Water Boards briefed the committee on their 2015/16 Annual Reports. The Amatola Water board also briefed the Committee on its interventions into the Makana and Ndambe Local Municipalities .
The Rand Water Board highlighted that operationally, financially and from a performance point of view, it had shown a pleasing set of results. Overall, it achieved 87.5% of shareholder targets and received an unqualified audit opinion, despite the fact that this had been a difficult year with drought. Matters of non-compliance, irregular expenditure, and detection of criminal activities were discussed, as well as the introduction of a consequence management system that aimed to lessen the instances of these occurrences.
The Amatola Water Board highlighted the improvements made in this Board's performance since the previous year, noting that it had achieved 78% of targets, compared to the previous year of 69%, received an unqualified audit opinion, had made a profit of R7 million, a turnaround from its losses in the previous year.
The Eastern Cape Provincial Department of Cooperative Governance had stated its involvement in the coordination of sector support with Makana Municipality. There had been quite substantial improvement in terms of water supply, especially in Grahamstown.
Members asked about the allocation of the Amatola budget, commenting that it provided a high figure for salaries but low amounts for maintenance and chemicals. They asked both entities what they intended to do about municipal debt and how it could be eradicated. The Committee was a little concerned with the formatting of the annual reports given by the Rand Water Board and Amatola Water Board, commenting that there was no consistent terminology, and that there may need to be a formal education. They asked for more detail on the staff component, the debtor days and consistency in paying and what action the Boards were both taking to try to ensure timeous payment. There was some discussion around the possible embarrassing position whether the Director General, as the former municipal manager whose municipality was still owing money to the body, would be in a position to take the question of money owing any further, and assist with recovery of any money now. This led to questions also on who had any responsibility and whether any bonuses are paid by Rand Water. Members noted that certain services in other municipalities were being covered by Rand Water but wanted to know who was footing the bill for some services, who would be handling matters such as lack of readings and accounts. Similarly, in relation to the suggestion that Amatola could be appointed as the implementing agent of Nooitgedacht, questions were asked around its capacity. Further queries related to the rapid response unit, feedback and levels of satisfaction or otherwise, whether there had been protests specifically on water, how much the emergency repairs cost and whether sources of pollution had been identified and dealt with in the Makana Local Municipality, as well as whether the necessary research had been done into the Sandile Dam. Members remained concerned about the debt owing and asked what the result would be of not being able to recover. Amatola Water Board was further questioned about the reduction in its reserve fund and its impact, and it was urged to present a time frame of when its over-spending would cease. Members wanted to know the position with the Royal Bafokeng nation debt, and about condonation and how that related to other matters. Members were not happy that the annual reports were drawn in a format that emphasised the developmental agenda, but Rand Water went on to explain what it was actually doing to deal with other matters.
Chairperson's Opening Remarks
The Chairperson said that when discussing the annual reports of the water boards (the boards) the Committee would like to know about the full complement. He was, for instance, concerned that a Chief Executive Officer served on one entity, yet also sat on another water board.
Mr Dan Mashitisho, Director General, Department of Water and Sanitation (DWS) said that both the Amatola Water Board and Rand Water Board were present.
Rand Water Board Annual Report results 2015/16 briefing
Advocate Matshidiso Hashatse, Chairperson, Rand Water Board, briefly summarised the attached presentation.
Water Boards were asked to speak about other works that they do in relation to the Department of Water and Sanitation (DWS or the Department) and she said that the presentation also set out the “war on problems” as launched in 2015. Rand Water was using the Water Act was one of the key implementing tools. It had also been asked to take over the operations of what used to be the Bushbuckridge Water Board, which was disestablished. It had also been involved in other interventions in Mpumalanga Province.
The Board was happy to report that operationally, financially and from a performance point of view, 2015/16 had been a pleasing set of results. The Board achieved 87.5% of shareholder targets and received an unqualified audit opinion, which was notable in that this year was one of drought when a 50% restriction on water consumption was called for. In recognition that the drought situation was a long term issue from which the country a number of years to recover, the Board made adjustments.
Consequence management had been introduced to combat matters of non-compliance, irregular expenditure, and detection of criminal activities. Part of those consequences involved use of technology to assist in driving control measures like e-procurement process and e-tendering process that would be introduced in phases. The record would be better managed as everything would happen online, making it easier to audit and enhance transparency.
Mr Percy Sechemane, Chief Executive Officer, Rand water presented the integrated results (see attached presentation). The key strategic theme was organisational performance. He highlighted that Rand Water felt it was producing value-added services through:
-Quality management systems
-Reliability of supply
-Occupational safety, health and environment
-Blue drop certification
- Unqualified audit opinion
- Financial capital
- Attained a BEE target of 93.3% against target of 85%
-Customer centric approach satisfaction rate of 83.2 %
-Achieved 87.5% of performance target as set out in shareholders compact
-Internal and external funding obtained
- All certification standards met in terms of the ISO systems.
He noted that the Rand Water was addressing the triple bottom line requirements and Presidential outcomes and was in compliance with the shareholder compact.
He then summarised the key achievements and said he would focus on the areas with red arrows, where Rand Water had not achieved against target. It had a target of paying all debtors within 33 days but had ended up only managing to achieve payment in 38 days. Some of the factors that led to this included influence of activities in the previous year such as local government elections and dealing with new administration, and the fact that shareholders indicated that Rand Water should not switch off customers' water supply especially during elections. Rand Water aimed to achieve 72% on the employee engagement survey but only achieved 71%. However, this was a considerably heightened achievement from the previous year.
Irregular expenditure amounted to R6.066 million due to the following
- Work awarded to supplier in contravention of CIDB regulations: R2.5 million:
- Travel reimbursements claimed by employees in contravention of Income Tax Act: R146 000
- Supply Chain related non-compliance: R3.4 million
- National Treasury and Public Finance Management Act (PFMA) compliance requirement- theft and loss register
- Procurement and contract management
Mr Sechemane indicated that the travel reimbursements (R146 000) and Supply-Chain related non-compliance (R3.4 million) had been picked up by the organisation itself during internal processes, rather than by the auditors. Other irregularities were picked up by the auditors.
In terms of losses recovered through civil litigation or direct recoveries, the organization was making sure that it followed each and every transgressor.
He spoke to the contribution of Rand Water to the Government and Minister's Performance Agreement
Rand Water Academy had trained the following numbers:
- Phase 1: September 2015; 3000 students
- Phase 2: August 2016; 7 000 students
- Phase 3:April 2017; 5 000 students
Phases 1 and 2 had already been completed and Rand Water would shortly embark on Phase 3, with roll out in place.
Rand Water and the Drought Situation
The impact of the 2015-16 El Nino Southern Oscillation (ENSO) was one of the strongest on record, resulting in the highest temperatures and lowest rainfall experienced in this period. Given the uncertainties Rand Water has reviewed its operational and capex plan for the 15% reduction in water supply.
Operational and revenue performance
There was an improvement in operational performance, and that net income had moved up. Revenue analysis showed that there was a broad customer mix. Rand Water had collected more money than was due to them which was because of an ADM charge that the Department initially said it would levy, but did not. Rand Water was therefore giving a rebate to customers.
The Consolidated Income statement and statement of financial position, and the statement of the defaulting debts, were tabled (see attached presentation). One of the main problems was that Rand Water had the same year end as municipalities, some of whom kept the money instead of handing it over but that Rand Water was engaging with the defaulters.
Analysis of Capital Expenditure,Asset Base Analysis and Cost Breakdown
Mr Sechemane noted that the application of the replacement value method has a direct impact on tariffs. This replacement value used is an estimate. Currently, Rand Water was using a historical cost methodology which looked at under-recovery, but in the long term it would have to move to the replacement value method, which would have a direct impact on tariffs.
Institutional Realignment - Recoverable Projects
The presentation outlined some of the secondary activities, including a change in accounting treatment: Because Rand Water had been one of the first of the boards to expand their areas, it was essentially running pilot projects. He outlined the RW Mpumalanga strategic asset takeover and said that the assets were to be accounted for at the end of the 2016 financial year. Rand Water tried to keep its cash flow steady to ensure that it was able to generate money. He presented slides showing the capital budgets for 2016/17, the five year capex plan and the debt profile (see attached slides), which included figures for long-term debt, debt maturity and the total bond issuance to date; some of which would need to be repaid shortly on maturity. He also tabled a slide showing the sources of funding, credit rating and redemption reserve requirements. Value optimisation referred to where the business would be going in the future.
In the coming year, Rand Water would be focusing on audit matters, water restrictions, emerging risks, knowledge management and value optimisation. Rand Water would continue to align its targets and performance to the National government objectives and Annual Performance Plan of DWS
The Chairperson indicated that the Committee had invited the Department of Cooperative Governance and Traditional Affairs (CoGTA) to address the Committee, in an attempt to close any gaps between water institutions and municipalities, and foster good cooperation.
Amatola Water Board 2015/16 Annual Report briefing
Ms Nokulunga Mnqeta, Chairperson, Amatola Water Board said that Amatola Water Board had improved on its performance from its previous year. This was a small rural board which was dependent on clients who were also claiming to be indigent, and as a result had low income. It achieved 78% compliance against targets, compared to the previous year's achievement of 69%. It had received an unqualified audit opinion, made a profit of R7 million as opposed to the loss of R400 000 that it had recorded in the prior year.
Mr Lefadi Makibinyane, Chief Executive Officer, Amatola Water Board, gave a detailed presentation on the report for the 2015/16 financial year (see attached presentation for full details). He started with an overview of the financial performance, describing the liquidity ratio of 1.24: 1 for this year, compared to a ratio of 1.2 : 1 for the previous year. The cash and cash equivalent at the end of the year amounted to R300 Million (compared to 2015 of R120 Million). The ratio on return on assets is 0.79% (compared to 0.55 in 2015). This illustrated the entity’s effectiveness in using its investment in assets. Debtor days
reflected an improvement from 343 days in 2015 to 161 days in 2016. This was due to strengthening of relations with key customers or clients.
Mr Makibinyane explained that Amatola Water was busy with an upgrade of its plants; hence the returns were constrained.
Discussing the cost drivers and expenditure, he noted that the employee costs were high due to the fact that large numbers of employees were needed to turn things around. He then set out the expenditure trends for each programme (see attached presentation) and explained that Programme 1 covered the primary business, or section 29 activities. The Board was constrained, and therefore there was a need also for secondary business activities, carried out under Programme 2 (section 30 activities). Programme 3 covered Administration (support services).
He noted that .Amatola Water did not incur unauthorised expenditure during 2015/2016. However, it had some fruitless and wasteful expenditure. It had incurred interest. As implementing agent, Amatola was in a position of being middlemen and had to take the blame whenever suppliers could not be paid. It also had to pay the interest on whatever was outstanding.
There was a contingent liability claim; a student had been injured on site, during a planned school visit, but this claim was still with the court.
He repeated that Amatola Water Board received a clean audit opinion.
Part 2 of the presentation dealt with the non-financial performance. Amatola Water had exceeded its target on Broad based Black Economic Empowerment (BBBEE) by attaining 107%.
He then outlined the water supply interventions in the Makana Local Municipality (LM), and Ndlambe LM including a dry sanitation solution as the most appropriate solution for the Amathole District Municipality.
. Part A: Makana Local Municipality water supply interventions.
. Part B: Ndalambe Local Municipality water supply interventions
. Part C: Implementation of the dry sanitation appropriate solution for Amathole district Municipality
. Part D: Implementation of the dry sanitation for appropriate solution for Amathole DM
Eastern Cape Department of Cooperative Governance and Traditional Affairs (CoGTA) input
Mr Tshitsho Majavu, Director, Eastern Cape CoGTA, said that this provincial department had been involved in the coordination of sector support with Makana Municipality. He explained that there had been a lot of improvement in terms of water supply, especially in Grahamstown, and as a result fewer protests by communities had been seen. He stated that funds had been redirected to Sarah Baartman Municipality, so that they could administer the payments and ensure the smooth provision of services and payment of service providers.
Sarah Baartman District Municipality input
Ms Eunice Kekana, Executive Mayor, Sarah Baartman District Municipality, applauded the intervention of Amatola Water Board. She acknowledged that there were challenges in Ndlambe and Makana and stated that these would be resolved I time. She noted that the Amatola budget provides for high amounts for salaries and low amounts for maintenance and chemicals. She stated that her municipality was relying on borehole water. She indicated that maintenance and chemicals were not being prioritised well enough. She also sought clarity of the implications of taking a Municipality to court.
The Chairperson raised two points. The first was how municipal debts could best be dealt with. Secondly, he wanted to raise concerns about the area of maintenance. He added that stringent measures had to be taken on theft of cables.
The Chairperson observed that the formatting of the annual reports of the Rand Water Board and Amatola Water Board lacked consistency in terminology, as they referred to themselves intermittently also as “the group”, “the business”. He emphasized that the boards were developmental institutions and could not refer to themselves as businesses.
Mr T Makondo (ANC) asked Ms Kekana, Executive Mayor, why the municipality was not servicing its debts with Amatola Water Board and wanted to find out where that municipality stood in relation to the debts.
Mr Makondo also asked for an explanation on the fruitless and wasteful expenditure of the Amatola Water Board, how this happened, asked how large its staff component was, the number of debtor days and what action it had taken to ensure that the Board was within the 30 debtor days required by law.
Mr Makondo asked the Rand Water Board what work it was doing in Mpumalanga and said that there was an anomaly in regard to the Director General, who happens to be the former Municipal Manager (MM) of Mogale City, which owed Rand Water. He asked whether demands for payment were likely to be made.
Mr L Basson (DA) asked Rand Water Board if it did not think it would be well advised to start using some of its money to assist municipalities. He noted that the profit of Rand Water was R2.4 billion and that Rand Water supplies water to about 12 million people, but there was a loss of 1500 mega liters of water per day. Secondly, he wanted to know about bonuses, asking what was paid, who would determine the amount and who would approve it.
Mr Basson told Amatola Water Board that he had the sense that Amatola wanted to be the service providers in other municipalities. He commented that elsewhere, Chris Hani had taken over from the municipality and there were no meter readings, no accounts, and no payments, and therefore he wanted to know who was carrying that bill.
He also asked what bonuses are paid by Amatola Water, what is the amount, who determines that amount and who approves it? He noted that Amatola was appointed as the implementing agent of Nooitgedacht, a project which was going to cost R450 million. He wondered if it did have the capability to be the implementing agent on that project. He asked if funding had been made available. Given that the budget was R76 million, he also asked how much money they had spent.
Ms T Baker (DA) asked Rand Water Board about its defaulting debtors and whether they had settled their debt, whether there had there been any discussions with Tswane and Johannesburg about their storage capacities. She said that much of the water dissatisfaction experienced there was not so much as a result of the drought, but the inadequate storage capacities.
Ms Baker asked Amatola Water Board about the rapid response unit, and how serious were the protests in Makana local municipality, and whether any of these were related directly to water. She wondered how much had been spent on the emergency repairs. She commented that it might be preferable to have a ? proper infrastructure maintenance, rather than using a fund on emergency repairs? She wondered if the source of pollution in Makana Local Municipality water had been found and whether anyone had taken any action or dealt with any perpetrators? Lastly, she queried whether the Dam had sufficient capacity and if the responsible officials had done the necessary environmental research to make sure they were not over capacitating the supply.
Mr D Mnguni (ANC) asked Rand Water Board about the bad debts, noting that this had been an ongoing occurrence for some time. He wondered if there were any long lasting strategies to force municipalities to pay. He wanted more details of the student who was injured.
Mr Mnguni asked about the issue of indigent consumers, as raised earlier by the Amatola Board Chairperson. He had understood that municipalities kept a register of indigence and wondered if the board had sought any verification on those claiming to be indigent. Adding to Ms Kekana's question around salaries and the budget for maintenance, he asked how the Board would determine the salary scales and bonuses for each year.
Mr H Volmink (DA) asked Rand Water about Emfuleni and noted that there was a ballooning of debt there. He asked what would happen if the money was not recovered, what actions were going to be taken and whether those actions had an impact on the service delivery of water to the municipality. He next asked what systems had been put in place to ensure that fruitless expenditure and fraud does not happen again.
He asked the Amatola Water Board about the reduction in its reserve fund and its impact, and what interventions the Department or Board had put in place to counter the fruitless expenditure.
Lastly, he asked both Amatola and Rand water boards if the Department of Water and Sanitation owed them any money?
Ms M Khawula (EFF) asked Rand Water for further details on the allegations of the theft of cables and fraud, and if anyone had been caught and charged. She referred to a recent media report on Channel 403, in which a person claimed to be taking water, which was not clean, from the river, and asked how the Water Boards would ensure that the communities were indeed receiving water that was purified and of good quality. In relation to job opportunities, she alleged that relatives of managers and people in charge were the only ones who would be employed and this was a matter for serious concern.
Ms Kekana asked Rand Water Board as to why some of the key performance targets were never met.
Ms N Bilankulu (ANC) commented that the report of the Amatola Water Boards was not clear. In regard to the unqualified audit opinion, she asked whether there were any matters of emphasis in that opinion. She said the debtor’s days were 161 and asked exactly how many targets this Board did, or did not, achieve.
Ms Bilankulu asked what had caused the litigation in the first instance, and what had gone wrong. She said that the Rand Water Board report was clear, and encouraged the Board to keep up this standard of reporting.
Mr M Shelembe (NFP) asked the Rand Water Board about Supply Chain related non-compliance, and how this had arisen; whether through lack of policy. He asked Amatola Water Boards about overspending on expired contracts, and he needed a time frame or guarantee a to when the instance of when the overspending would stop.
Mr I Cebekhulu (IFP) asked the Rand Water Board how the Royal Bafokeng Nation's debt was approved.
Mr Cebekhulu observed, to the Amatola Water Board, that Makana Local Municipality consists of fourteen areas, of which three are in the rural areas and he wanted to know exactly how much water was being supplied to the three rural areas.
The Chairperson said the matter of condonation resides in the water board and is subject to National Treasury advice. He sought guidance on this issue.
Mr Anil Singh, Deputy Director General: Regulation and Compliance, Department of Water and Sanitation, responded that the PFMA and National Treasury regulations were the enabling and guiding legislation dealing with condonation. He noted that if an entity incurs irregular or fruitless expenditure, it can make submissions to the accounting authority, who in turn, through its audit committee, may look into the matter. The authority will determine how and why the incident arose, and whether disciplinary action was or should be taken. It may then take a decision whether or not to condone the matter.
He spoke to dry sanitation and stated that the Water Research Commission had conducted some research looking into comparative studies of other countries like India. It had then submitted a report to the effect that South Africa could start looking into dry sanitation where possible. He stated that this use a dry, ventilated, improved latrine system and a basic decent sanitation level.
Adv Hashatse responded to the questions directed to Rand Water Board. In relation to the Chairperson's comment about the format and language of the Annual Report, she said that the mandate was over and above the developmental agenda. In fact, Rand Water was an entity geared to raising money; it did so on the Johannesburg Stock Exchange(JSE), and hence needed to speak the business language that reflects Rand Water as an entity into which businesses can invest, and in a manner likely to resonate with all stakeholders.
Adv Hashatse stated that bonuses are regulated by the Minister and approved by the Board. In case of the seven top officials, they also go through the Ministers approval and board's recommendation before they were to be paid out.
Mr Sechemane, for Rand Water, commented on defaulting debtors and reiterated that Rand Water is not in a position to merely cut off water supply to the debtor’s household. However, one alternative was to , another alternative was to reduce water pressure to the debtor’s household; although it was now no longer doing that, also on the instruction of the shareholder instruction.
Mr Sechemane commented on the reservoir storage capacity for municipalities, and said that plans were in place to spend 7% to increase storage capacity. However, he also highlighted that the longer water was stored, the more the chlorine degradation, and the Board was having to look into the science behind this.
There were many reasons why municipalities were failing to settle debt, and Rand Water was looking into the matter.
In relation to the non-compliance and fraud, he said that the fraud was a one off issue and was not related to Rand Water staff. Rand Water had had a contract with a contractor, who then inflated amounts by R 3 million. A criminal case was opened, and half of the money had already been recovered, but the contractor then agreed to repay the money.
The travelling expenses were related to business trips and claims on transport which can only be made in limited circumstances for travelling from home to business, or business to business and there had been some changes in the process.
He responded, in relation to the Emfuleni debt, that arrangements were in place and it was up to the parties to comply. He complimented Royal Bafokeng Municipality, saying it was not causing any problems. He noted that Mpumalanga owed amounts that were around R215 million; in addition a historical debt outstanding amounted to R10million, payable in March 2017. The current debt so far was R27 million although some parts of this process were under dispute, and the Board was going through a dispute resolution process.
Ms Mnqeta, on behalf of Amatola Water, firstly noted that no bonuses were paid by Amatola water. The process of bonus payment was based on the performance management policy of the organisation, and the shareholder policy, and it had thus not paid anything.
Mr Lefadi responded to the question on the rapid response system and said that currently, the Amatola Water Board was not seeing any protest action and was doing well in the intervention for which it was getting no money. In relation to an assurance that residents would get clean water, he noted that the roles would have to be properly defined. Amatola had no reticulation responsibilities, and that had to be made clear, so he asked for some time before finally answering this question.
In relation to the Sandile Dam, he said that a feasibility study had been done, that concluded that the best option would be to raise the dam further. This was something that could be done. As an implementing agent, Rand Water would need pre-funding and it was serious about the developmental projects. He also commented on the issue of the injured student and said that it was delayed by the courts.
In relation to the Nooitgedacht, Amatola worked very hard to complete the work. It was not able to set aside further money for expansion of the projects and would have to ensure that it was sustainable, for which it might well need the support of South Africans. Makana owed the Board a lot of money, around R32 million, which continued to grow. The ADM owed around R50 million, although it was involved in the dry sanitation in that area. He remarked on the staff complement and said that more staff were ideally required. He clarified that what he had referred to as an “unqualified” audit opinion was a “clean” opinion and the Board would obviously want to maintain that record.
The Chairperson remarked that there should be one water entity in future just as South Africa had only one Eskom.
Mr Basson asked whether the funding at Nooitgedacht had been secured and when the project would start.
Mr Singh clarified that the project had not started and funding had not been secured.
The Chairperson also spoke of the project parliament had started, relating to all media articles concerning the Committee, as well as the questions raised by the media. Part of the concern was that a media statement had appeared suggesting that the Department was bankrupt. The Department was intending to call upon the Minister to respond to the matter.
The meeting was adjourned.