Documents handed out:
Media Reports: Parliament Research [awaited]
The Portfolio Committee met with the Minister and the Chief Financial Officers of the Department of Water and Sanitation and the Water Trading Entity to discuss the interventions in Kgetlengrivier Local Municipality as well as shed light on the media allegations about the Department’s financial status. The Minister refuted all the media allegations. The Minister said that the presentation provided the proof that the Department is indeed neither corrupt nor involved in theft.
Members raised serious concerns about the R6.5 billion debt owed to the Department which was seen as serious dereliction of duty by the accounting officer and proof of poor financial management. Questions were asked about cost escalations for projects that were delayed; the slow payment of invoices and about the disputed invoices, totalling many millions, that might have to be paid. The comment was made that at this rate unpaid companies will not want to assist the country with its plan of inclusive economic growth. Members queried the outsourcing of water tankering, of building of toilets and of debt collection. They asked how the Committee can be certain that the allegations of DWS being bankrupt are not true since on the ground the challenges remain unchanged. Several members believed that the presentation was not a true representation of facts and suggested it was hogwash because water has not been delivered and there is insufficient funding for projects. The role of Mr Luvo Makasi in Department tender allocations was questioned. On reprioritisation, it was noted that the PFMA does provide for virements but no more than 8% - where would the money be found for the 11% over-expenditure on its Water and Sanitation programme as its other programmes have their own targets to meet. However, the point was made by a Member that that Members of Parliament have a culture of thinking that oversight means pointing fingers at who failed to perform their duties while exonerating themselves during a national crisis. Ministers are criticised and expected to be in the House all the time but they are busy working. The Minister must go and check on the ground that the reports given to her are true and the Committee must also do frequent oversight.
The Chairperson welcomed the Minister and noted apologies from the Deputy Minister who had a leg injury. The Committee had invited the Standing Committees on Appropriations and on Public Accounts and National Treasury. He said the reason for the meeting is to provide clarity on media allegations and other standing issues. The Chairperson mentioned that the Committee needs to be wary of media allegations as they sometimes appear to be facts but can be misleading at times and turn out to be fiction. However, there has been a trend over time and these media articles have been consistent in their approach.
Minister of Water and Sanitation, Nomvula Mokonyane, thanked the Chairperson for the opportunity. She said that they had provided full responses to all media houses that had carried articles containing allegations.
Kgetlengrivier is one of the South African municipalities that is a water services authority whose responsibility is to provide water to households. In the course of the drought affecting South Africa for the last three years, Kgetleng had to be assisted again because it is also one of the municipalities that are part of the 27 districts municipalities that require an integrated intervention. The Department asked the Magalies Water Board, a DWS entity, to go and deal with the emergency and urgent matters related to the drought. Water tanks were provided to Kgetleng to mitigate against the drought affecting it in the North West. The Minister said that it needed a cancellation of authority from Kgetleng so that DWS did not incur irregular expenditure. To date, DWS had not received that. On the suggestion that DWS should take over responsibility for Kgetleng, it would be irresponsible of DWS to remove Magalies which has already dealt with drought challenges in Kgetleng. DWS should rather continue to assign Magalies as the implementing agent to not only deal with drought challenges and the refurbishment of boreholes but also to deal with everything that has to do with the incapacity of Kgetleng.
On the allegations of serious maladministration in the awarding of DWS tenders, particularly in Gauteng and Limpopo, she noted the contracts operated under implementing agent Lepele Northern Water Board and the Rand Water R1.1 billion tender award to Fast Move Electrical. The Minister reminded the Committee that Rand Water, together with its board, was summoned by the Portfolio Committee on Water and Sanitation about the tender where the Board was able to explain themselves and the issues. The Chairperson had noted that this issue continues to be rehashed in the media for reasons that the Minister cannot explain. The projects operated under the Lepele Northern Water Board have been provided. We have responded to these faceless media allegations.
On the allegations that DWS is bankrupt to the tune of R4.1 billion with unpaid invoices of R1.7 billion and with a Water Trading Entity (WTE) overdraft of over R2.6 billion, the Minister said that they would to first like to share the DWS financial status up to 28 February 2017. The Minister said she would like to register to the Chairperson that all allegations remain allegations because they have not been proven as facts.
DWS has been allocated a budget of R15.5 billion of which R13.6 billion (88%) has been spent up to end of February 2017, with the remaining budget of R1.9 billion available for use until the end of the financial year on 31 March 2017. All programmes are in line with budget projections and are within budget allocations except the Water and Sanitation programme due to pressures within the Bucket Eradication programme which has resulted in overspending of R83 million. This is one of the projects all of us have come to understand its challenges. The Minister said that they were handed over the Bucket Eradication programme in formal townships. They inherited it without proper detailed planning of how this was going to be resolved. The typology of the land and the capacity of the waste water treatment plants were never taken into consideration and there was not an understanding that not all those areas had sufficient water. In areas such as the Northern Cape, there had to be rock blasting because of the typology and soil conditions.
The DWS Chief Financial Officer, Mr Sifiso Mkhize, spoke on DWS’s expenditure on its five programmes.
• Administration: budget of R1.6 billion and R1.2 billion spent with R326 million remaining.
• Water Planning and Information Management: budget of R 814 million and 74% spent.
• Water and Infrastructure Development R12 billion with R10.6 billion spent.
• Water and Sanitation has a slight overspending: budget R7.3 million; expenditure R8.21 million.
• Water Sector Regulation Programme: budget R346 million with R246 million (71%) spent.
All of the programmes are spending in line with their budget projections except Water and Sanitation.
The Minister spoke on the allegations of unpaid invoices. DWS experienced a delay in the payment of invoices for the Giyani Water Services for the Giyani Project. They were budgeted to be paid over four years in line with the contractual cash projections. However, due to an acceleration in the implementation of the project which was completed, DWS had to reallocate its budget for 2016/17 to be able to pay all invoices and reprioritise the funds allocated to the Giyani Project in future years to other projects. The completion phase is an emergency phase which DWS was instructed to do by a court judgment.
A total of R2.4 billion (including VAT) has been paid towards the Giyani Project against the contract of R2.5 billion. The remaining balance of R100 million is a retention withheld by DWS which will only be paid when the 12 month defects liability period has passed. In the infrastructure sector a certain percentage of money is withheld so that when there is an identification of defects, then one may use those resources for compensation. Additional invoices of R207 million have been received for the Giyani Project. These invoices will not be paid as they are above the contract value and no authorization was provided by DWS to exceed the contract amount. There are no other invoices for the Giyani Project due for payment besides the disputed invoices of R207 million rand.
The Minister reminded the Committee that South Africa has been experiencing drought for the past three years without any new money from government. DWS had to reallocate its budget to attend to the drought crisis which was affecting the country. Several drought interventions were initiated by DWS of which some were performed by implementing agents appointed by DWS and some were performed by DWS directly. This included the dispatching of 110 water tankers and reservoirs to drought stricken areas like KZN, Free State, Limpopo and North West. R128 million has been paid for water tankers and there are currently unpaid invoices of R67 million.
There are additional unpaid invoices for drought interventions from implementing agents amounting to R157 million. Total unpaid drought intervention invoices amount to R224 million which will be paid through a budget reprioritisation process within DWS. Only R50 million was obtained from National Treasury towards the water tanks, which necessitated the withdrawal of all tankers on 10 January 2017 due to the high costs of water tankering. The Minister clarified that in this period of three years, DWS received R50 million to help deal with the drought process and they had to go back and reprioritise.
The allocated budget for Bucket Eradication amounts to R422 million. A request for additional funds has been submitted to the Portfolio Committee as the allocated funds are not sufficient to cover the changes in scope in the ground conditions. The full budget of R422 million has been exhausted. While negotiating for additional funds for the Bucket Eradication programme, additional invoices of R459 million were received and there were delays in payment of these invoices due to unavailability of funds for the Bucket Eradication programme. Currently, R208 million of these invoices have been subsequently paid due to a reprioritisation of DWS funds, leaving R251 million in unpaid invoices for the Bucket Eradication programme which will be paid through a budget reprioritisation process. DWS is currently in the process of costing the full budget requirements to complete the Bucket Eradication programme.
The media has alleged that DWS is bankrupt to the tune of R4.1 billion. The information was compiled from a spreadsheet dated 13 December 2016 which included internal requests from line managers for additional funding – that is not a commitment of the Department. It was also based on invoices on hand at 13 December 2016, budget pressures that were identified during the normal course of business of which by 13 December 2016 a decision had not been made on whether DWS must continue with such activities or not. The figure of R4.1 billion in its entirety does not relate to invoices on hand and contractual commitments which DWS is unable to honour, only a small portion of this is. Invoices still on hand amount to R682 million of which R475 million is for legitimate invoices and R207 million is disputed.
The Water Trading Entity CFO, Mr Mpho Mofokeng, explained that DWS had about R9 billion cut from the WTE budget and most of it was done in one year. The main reason National Treasury gave for the budget cut was that DWS was overspending on capital projects and should use its own accumulated surplus to fund its capital needs. It was also expected that it should collect debt owed to it and use revenue generated through tariff increases as a source of funding. The assumption used as a basis for the budget reduction did not take into account that the accumulated surplus consists of non-cash items which does not translate into cash. This can be seen in the difference between the surplus of R3.5 billion and the cash and cash equivalents of R42 million in the audited financial statements for the year ended 31 March 2016.
The WTE made the following assumptions when compiling the budget:
• Out of total amount of R98 billion of revenue billed, R7.8 billion will be collected from the water users.
• Augmentation of R1.5 billion will be received from National Treasury.
• R2.9 billion of long outstanding debt (over 150 days) was to be received from the Water Boards and municipalities and the R200 million owed by companies would be collected through a debt collector.
The main account receivables relating to water service projects were to be paid in the current financial year.
WTE assumed 100% collection with regards to the Capital Unit Charge, as such taking the bad debt risk of the Trans Caledon Tunnel Authority (TCTA).
The assumptions that were made took into consideration the budget pressures and the fact that the National Treasury budget cut was drastic.
Before December 2016, the Minister requested a meeting with National Treasury to raise the drastic cuts in the DWS budget allocation of R9 billion; the non-payments by municipalities and Water Boards for services rendered by DWS of about R3.1 Billion; the shortfall in the Bucket Eradication programme; and the non-funding by National Treasury on key projects such as Umzimvubu. One of the resolutions of the meeting was that a bilateral should be held in January 2017. Officials met in January and discussions continue.
DWS appointed a debt collector to assist in the recovering of debt older than 60 days. The commission to be paid to the service provider on successful recovery was 12% and DWS has since negotiated it to 11.5%. To date the debt collector has assisted DSW in collecting R2.7 billion and the debt collector has been paid R322 million rand. The debt collector was restricted to focusing on all categories of debt collectors except water boards, irrigation boards and water user associations. The status of the debtor’s book shows that DWS is owed over R9.8 billion.
The Chairperson interrupted to suggest that Committee members read the status report instead of having it explained to them since it also spoke to allegations of DWS’s state of bankruptcy.
The Minister then addressed the Committee on the SAP Roll-out. The business rationale for SAP implementation was necessitated by the 2014/15 audit where DWS received a qualified audit opinion. The commitment made to the Auditor General included “DWS did not have adequate systems in place to maintain record of Regional Bulk Infrastructure Grant (RBIG) projects where procurement of goods and services have been approved and/contracted, but where no delivery has taken place at year end, which resulted in RBIG commitments being misstated by R1.4 billion for the restatement of the corresponding figure for RBIG commitments. The restatement was made in order to rectify a prior year misstatement.”
DWS explored the possibility of creating a seamless reporting mechanism inclusive of all Water Entities. The approved rationale included cost benefit analysis on the sector value chain. The requirements for the subsidiaries of DWS to use SAP are underpinned by the fact that the SAP contract will allow DWS to continue in successfully executing its operations across various functions. Expand aggressive growth across DWS; Water Boards and subsidiaries. Also, through the deployment of the solutions included in the new SAP contract, DWS will be able to execute its newly defined strategies.
The Minister reiterated that DWS still has an available budget of R1.9 billion until 31 March 2017. The available budget is enough to honour the unpaid invoices of R475 million through an internal budget reprioritisation process within DWS. DWS will also be able to pay its salaries and other goods and services invoices as they become due. Additional funds are, however, required to enable DWS to complete the Bucket Eradication programme and a request has been submitted for additional funding.
Ms Ulrike Rwida, National Treasury Chief Director: Urban Development Infrastructure, clarified that legally National Treasury does not allocate money, but Parliament does. The decision to allocate money is based on Cabinet approval and it is then taken to Parliament. In most cases budget reductions are done in response to a deteriorated fiscal framework. The PFMA allows DWS to reprioritise money across goods and services and various items. When those items have to move across main divisions in some cases or they have increases in transfers, there is a limitation up to what National Treasury can approve. There is always an expectation that National Treasury can intervene and directly transfer money in the case of non-payment by municipalities to those that they owe money. However, Section 216 of the Constitution does not allow that. The only thing Treasury can do is to withhold the money as there are limitations for moving money around.
Ms N Bilankulu (ANC) asked Treasury representatives who exactly does the budget cuts as Treasury said that they do not.
Ms M Khawula (EFF), speaking in Zulu, said that there are still complaints regarding access to water in Magalies and asked what it was that the Minister had done to ensure that the set plans to alleviate the water crisis in Magalies had been implemented. She further asked the Minister how the Committee will be certain that the allegations of DWS being bankrupt are merely allegations because on the ground, issues remain unchanged.
Ms T Baker (DA) asked if the R50 million funded to DWS during the drought crisis was specifically for water tankering. How much in total has DWS spent to date on drought interventions for all nine provinces?
The Bucket Eradication programme is a bit problematic as there seemed to be different figures produced by DWS and National Treasury on funds spent on the programme. From the presentations she has calculated an amount of R1.2 billion under-spending on projects. The Committee needs to find out who is responsible and who to hold accountable for the lack of oversight on the spending of grants on projects.
Mr L Basson (DA) said that Kgetlenrivier is a forwards and backwards issue and asked for further clarity. He asked why DWS has to pay a company to collect money from another government entity. Why can DWS not request that the equitable share funds be withheld since DWS is owed by municipalities? DWS is wasting money by hiring a debt collector - that is useless expenditure. From the calculations that he has done, DWS is bankrupt. He asked why water tankers were not bought by DWS instead of being at the mercy of a company who charges a fortune every year. Why not build the toilets instead of having Amathole Dry Sanitation Solution charge R100 000 per toilet.
Dr M Figg (DA), Appropriations Standing Committee member, said that there is a whole lot of inaccurate information in the presentation and it appears to be hogwash because Members are aware that there is no water and insufficient funding for projects. The R207 million that DWS declines to pay because it is in dispute, might have to be paid and that needs to be remembered. There is also the R785 million project that is in dispute. He asked for clarity on the matter. Is it the norm for department to go into overdraft of R2.6 million – how large is the department’s overdraft facility? It is poor financial management that DWS can have an outstanding debt of over R6.5 billion owed to it. DWS should collect the money itself instead of hiring a debt collector. He asked the name of the debt collection company.
Ms H Maxon (EFF) raised concern about underspending over three years. One should see budget cuts in terms of the money be redirected if it is underspent. She asked if Luvo Makasi works for the DWS and asked why he interferes in department tender allocations. DWS will be taken to court very soon for unpaid invoices and she asked why the invoices have not been paid within the prescribed time as per the PFMA. How much does DWS pay for one tanker since one of the findings showed the high cost of water tankers?
The Chairperson commented that the trend thus far in the meeting was that Members were raising questions that are meant to be raised in discussions on quarterly and annual reports. He asked Members to remain focused and ask brief questions.
Mr A McLoughlin (DA), Appropriations Standing Committee member, asked about the 11% over-expenditure on the Water and Sanitation programme – from where would you take that money for the over-expenditure as other programmes have their own targets to meet. He accused the Department of poor control and reckless trading.
Ms M Khawula (EFF) interrupted to plead with the Committee to meet again to discuss the DWS concerns because there was not enough time at the meeting to raise all the issues and this cannot be rushed.
Ms Y Phosa (ANC), Chairperson of the Appropriations Standing Committee, said that it is worrying that money to the tune of R9.2 billion is owed to the Water Trading Entity. The negative impact of this debt suggests that one day South Africa will be told that water will not be supplied just like Eskom. This is very worrying. She asked the Minister what solution they have for these matters. The PFMA does provide for virements but no more than 8%. This debt is a serious dereliction duty of the accounting officer, not the Minister, but the accounting officer. What measures have been put in place to address the slow payment of invoices? Unpaid companies will not want to assist the country with its plan of having inclusive economic growth. If projects are not completed on time, then that means cost escalations. So what mechanisms are being put in place to ensure projects are completed on time without unnecessary cost escalations. Scarce skills have been identified such as project management. Projects are not completed due to a lack of scare skills – do we now have those scarce skills?
Mr H Chauke (ANC) said that Members of Parliament have a culture of thinking that oversight means pointing fingers at who failed to perform their duties while exonerating themselves during a national crisis. Ministers are criticised and expected to be in the House all the time but they are busy working. The final decision on the finances rests with the Auditor-General. The Minister must go and check on the ground to check the reports given and should not be expected to be in the House all the time. And the Committee must also do oversight. There is a problem of not doing frequent oversight. He appealed to the Chairperson of the Standing Committee on Appropriations to call in all levels of DWS and National Treasury to engage.
The Chairperson’s concern was about escalation costs. He said that there is a lot of interest in the work that DWS is doing. The main aim of the meeting was bluntly to establish whether there is corruption as has been painted in the media. He reminded members to respond to her responses and focus on the aim of the meeting rather than raise other issues. He invited the Minister to give a response to the questions.
The Minister indicated that they had come to present on the basis of what the Portfolio Committee had requested and some of the issues raised by the Committee had to do with the current finances which will still be under audit by the Auditor-General and therefore cannot reach a conclusion without having verification against what the AG has alluded to. She challenged National Treasury to confirm what is in the DWS presentation against what other members may perceive as hogwash. She said that it appears National Treasury has updated information which is better than what DWS has.
The Minister explained that under the Municipal Systems Act there are municipalities that are Water Services Authorities and there is the Water Act which directs the role of DWS. People should guard against fudging the roles and responsibilities of these authorities. DWS has a constitutional obligation to provide support and monitor in line with the fiscal policy. She urged members to understand the role and responsibilities of DWS.
Minister Mokonyane said DWS had to withdraw water tankers as the drought situation improved and is now investing in rehabilitation of boreholes, upgrading and maintenance and helping municipalities to reach their operational and maintenance capacity. She reminded Members that there are 27 districts that are a priority for the ‘Back To Basics’ programme and all those districts are affected in terms of water services.
On Bucket Eradication, the Minister clarified that she had never said that they have done away with Bucket Eradication in South Africa but instead they have done away with bucket eradication in the formal townships of Gauteng and North West. It is not the responsibility of DWS to build a toilet as this is a project inherited from the Human Settlements Department. Bucket eradication cannot be about getting rid of the bucket without having a proper sewage system to replace it.
She said the Amathole Dry Sanitation Solution was not their business and was inherited by DWS and she said that Members must get their facts right.
The Minister once again said that Members must present facts. With regards to Luvo Makasi, Members must present facts of when and which official was called and instructed by Luvo because these allegations seem to be political too.
Escalation costs are fixed within a particular percentage and do not actually have to exceed and if they do, regularisation has to be done.
DWS and the Water Trading Entity, which is an entity within DWS, operate on two separate financial systems where DWS operates on the government systems and WTE operates on the SAP system. There are separate bank accounts and there is no confusion of money. The reason for appointing a debt collector is because National Treasury does not like to collect accounts for departments as they tell departments that it is their responsibility to do so. DWS got the legal system involved and had to issue summons to municipalities that owed DWS, as no payments were being done. The name of the debt collector is New Integrated Credit Solutions (NICS).
She replied that the R50 million was used specifically on water tankering. The unit price per tanker is R4 800. To date DWS has used R624 million on drought alleviation. DWS is paying its service providers within 30 days except for the ones that are being disputed.
In many municipalities where the Minister has intervened, the Department has found that the Minister has to go back to the same areas to deal with other problems that come up and intervene on behalf of communities.
Ms M Khawula (EFF) said that there is all this expenditure with nothing to show on the ground. In Jozini residents are getting raped and attacked on their way to fetch water. The issues that were raised in 2014 when she joined the Committee have still not been dealt with such as the issue of people having to relieve themselves in sugarcane plantations in KZN.
Mr L Basson (DA) said that when DWS does not pay or it delays payments to its implementing agents, there will be escalations on the projects and it will be the liability of DWS. The Department is playing a crucial role in going forward with projects.
The Chairperson said that the meeting has ended up dealing mostly with matters that are related to yearly reports. The danger of following media reports without having verified them is that meetings of this nature tend to happen. Out of this meeting, they have not found that DWS is involved in theft activities and is corrupt, It is up to DWS to change that created perspective. The Chairperson said that the silence of one of his Committee members at the meeting has been very loud and that member knows who he is.
Mr L Basson (DA) congratulated the Minister on the work DWS has done in cleaning up areas.
Mr Sifiso Mkhize, DWS CFO, explained that they are reprioritising the budget and ensuring that they honour invoices for sanitation.
The Minister said that she is happy that disaster management is being brought up by the Standing Committee on Finance. She said that the funds for disaster management get released after the disaster and usually take a while to be released. On municipalities, ideally it is easy to hand over responsibilities to the municipality and not have DWS involved. However, it is a constitutional matter. The only time the Minister takes over is when a disaster has been declared. Some municipalities ask for intervention in terms of finance. A municipality sometimes claims the area when the Minister visits to try and intervene and in those instances there is nothing that the Minister can do.
The Minister said DWS is looking to enter into service agreements and not only deal with follow up because that has been one of the gaps that has been picked up.
The Chairperson said that the investigations taking place will be brought forward to the Portfolio Committee. He thanked the Minister for providing clarity. He hoped clarity has been provided and going forward members should present issues with facts.
The meeting was adjourned.