Umgeni Water & Mhlatuze Water 2015/16 Annual Report; suspended CEO

Water and Sanitation

08 March 2017
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

Annual Reports 2015/16 

The meeting commenced after it was announced that the Minister Mokonyane would not be present as she was attending a cabinet meeting. Her absence was felt as no substantial report could be given at the meeting about the progress and the road map for the amalgamation of Mhlathuze and Umgeni Water Boards into a single water board in KwaZulu Natal.

The Committee at large was impressed by the presentations of both Umgeni Water and Mhlathuze Water but proved to be concerned with the increase in energy and employments costs for both entities as a result of efforts geared towards drought intervention. Comments were raised about monitoring the quality of the work of those awarded tenders. Some Members said people in the rural areas are not see any improvements despite the money the Boards are spending. The extension of the expired term of office of the Mhlathuze Water board chairperson by the Minister was noted as illegal and the Committee suggested that the Minister should explain this. Mhlathuze Water was required to give feedback on the state of the suspension of its CEO, Sibusiso Makhanya.

Mhlathuze Water board chairperson, Ms Dudu Myeni, explained that this was a matter for the judiciary and is not for public consumption at present but outlined some of the charges. She took the opportunity to refute the media allegations about her travel costs and spoke about the board’s uncompromised fight against corruption and of their established policies that ensure that compliance is uncompromised. The interim CEO pointed to the board’s clean audit report as providing clarity on the many negative media reports it had received.

Umgeni Water was acknowledged to have done well by spending R575 million on black employees, including women. It was emphasised that the merger process of these two boards had to be prioritised in order to effectively meet their public mandate of providing water for KZN. It was agreed upon by all members that the Minister had to give a written report to the Committee on the amalgamation of the two boards and that further delay would impede the planning of the Umgeni and Mhlathuze Water Boards.

Meeting report

Opening Remarks
The Chairperson noted that apologies were received from Minister Mokonyane who was attending a cabinet meeting, the Deputy Minister who was on sick leave, and from the Director General (DG). He reminded members of the invitation from the Minister to attend the World Water Summit from 22-24 March.

Mr H Chauke (ANC) asked if the Committee would have to apply for their own budget to attend the Summit or whether Department funds would be used to attend such an event. He asked if the costs would be deemed as fruitless expenditure.

The Chairperson noted that the Summit would later culminate in a World Water Week in Sweden. Invitations of this nature typically had to be subjected to Parliament in order to make all arrangements for them.

Department of Water and Sanitation (DWS) Introductory Remarks
Mr Anil Singh, DWS Deputy Director-General: Regulation, said the DWS was satisfied with the performance of Umgeni and Mhlatuze Water Boards in terms of their 2015/16 Annual Reports. DWS had to deal with certain interventions in the uMkhanyakude District for which there was a separate report.

The Chairperson asked Mr Singh to report on the progress in the amalgamation of the two water boards.

Mr Singh explained that the amalgamation of the Umgeni and Mhlatuze Water Boards into a single water board for KwaZulu Natal is a process being handled by the Minister according to the Water Services Act which stipulates that the Department should consult the various role players. They had already consulted the boards, the staff and the Premier. After consultation at a political level they would consult with the funders and the water services. They had a road map that lists the details of this process.

Mr H Chauke (ANC) stated that he had a problem with the information on the amalgamation as it was not presented in black and white. He proposed that DWS present on the merging of these two entities. He asked that this information be relayed in a document as this would be the proper and respectful procedure for Parliament. A formal report is needed concerning this arrangement of raising funds. The last meeting on this matter lacked detailed information. DWS ought to come and report on the progress in the amalgamation of the two water boards so that it could be held accountable. The Committee could not do oversight on the process when details are not provided. He further noted how the mandate of the two water boards had expired and meant that a legal interim arrangement had to be put in place.

Mr D Mguni (ANC) asked whether there was a report or road map available so the Committee could assess the proposed time frames. They wanted to deal with facts and not talk so as not to beat around the bush.

Ms T Baker (DA) clarified that the Committee requested this report from Minister Mokonyane, as the direct stakeholder even though Ms Baker understands the role the Department plays. She asked that the process of the merger be presented by the Minister and not Mr Singh. There are pertinent questions that she would only be able to answer as she is the one who the board members are accountable to according to the Act.

The Chairperson repeated the Members’ comments and said that the Minister had to come and present to the Committee on the amalgamation process of the two boards and other pertinent processes. This raised the question of when one would begin to speak of one water entity for the country. He asked if the country is still too young a democracy for the Department to be thinking in this direction.

Mr Singh replied that these are pertinent questions indeed. He responded to Mr Mguni’s question by mentioning that the Department does have a report which had to be tabled by letter and would be presented by the Minister. On the different categories of water entities, DWS has a water resource management entity that consists of water user services and a utilities management which consists of the water boards. DWS has the Water Research Commission. DWS had been making an effort to rationalize the entities in to one KwaZulu Natal (KZN) water board. DWS has been in the process of establishing an infrastructure agency which will be dealing with water and sanitation infrastructure. The boards however will deal with bulk water supply. He deduced that having a single water entity with the current polices and legislation would not be possible. However, there is a direction shift towards amalgamation in accordance with the recommendations of the Presidential Review Committee. There is a clear distinction between water resource management and utilities.

Mr Ashley Starkey, DWS Head of Operations: KZN, agreed with the Chairperson on how the country does need an integrated plan. DWS was promised a national master water plan and Water and Sanitation Bill which would create an integrated policy framework. He stated that there is a need for timelines and milestones to work towards this.

The Chairperson commented that the DWS said that they had to insist that the report is brought to them in the first term of the year. The Committee would have their need for a master plan and a timeline in mind.

Umgeni Water 2015/16 Annual Report
Mr Andile Mahlalutye, Umgeni Water chairman, said that Umgeni Water has a fully functional board that is working towards meeting the mandate of public service. However, Umgeni Water had a challenge with the severe drought which is evident in the financial figures. The board had been dealing with the drought by providing water restrictions; having partnerships with the Department at national level and with COGTA; media awareness and having joint cooperation in monitoring water usage. There has been an improvement in rains in the North and the South which has led them to reduce the water restrictions. However their largest customer EThekwini is still in dire need of water. The costs of pumping water have increased costs. Nevertheless, he was happy to say that Umgeni Water is high performing based on its predetermined objectives. He was proud of how the board provided rural development.

Umgeni Water Strategy and Overall Performance
Mr Cyril Gamede, Chief Executive at Umgeni Water, noted the map and stated that the gazetted area is the original area in which Umgeni Water used to work. Delivery does not happen by chance as they have a strategy for every aspect of their work. They use a balanced score card to implement their strategy. What ought to be expected of a good water board is water product quality; inclination of overall organisational performance; stakeholder understanding and support; community and environmental sustainability; infrastructure stability and leadership and employee development. The performance of Umgeni Water had improved by 12.8 % over a 5 year period. This resulted in an inclined performance trend. All stakeholder engagement plans were successfully met in the year. A number of initiatives were implemented in order to inform communities, the media, academia and other partners of the state of Umgeni Water. This involved the daily dissemination of data, information and targets and communication campaigns. They were proud of the efforts that Umgeni Water had made in making their procurement accessible to black economic enterprises. There was over R2 billion worth of contracts awarded to black owned enterprises since the start of the Contract Participation Goals (CPG) initiative in 2013. Umgeni Water has three programs geared towards employee training, development and assisted education. The three programmes are: Emerging Management Programme (EMP), Senior Management Development Programme (SMDP) and Management Development Programme (MDP). A total of 103 employees had successfully completed these programmes.

Financial performance
Mr Thamsanqa Hlongwa, Chief Financial Officer: Umgeni Water, noted an increase in bulk water revenue of R155 million (7%). The reason their overall tariff was lower was a result of the reduction in sales per volume because of the drought. There was a 6% increase in costs of chemicals. However, Umgeni Water continues to use as few chemicals as possible. The average increase of 12.7% in energy usage was coupled with the additional pumping of water since February 2014 to assist with alleviating the drought. On raw water sales, there was reduction of 2% as a result of the lower volumes due to the drought. Raw water was used to benefit rural areas that were not economically benefiting in previous years. Other operating and administration expenses had increased by R110 million (18%). This was justified by the increase in consulting fees and licensing costs. Gross borrowings had increased by R857 million as a result of a R935 million worth bond which was issued in March. A shortfall of R610 million was experienced as a result of funded financing activities through the issuance of the Umgeni bond of R935 million. The strategy going forward involves remaining financially sustainable within the difficult operating environment as the drought continues; managing controllable costs; prioritisation of capex projects in this difficult time and increased efforts to secure grant funding.

Progress on the merger of the two water boards
Mr Mahlalutye, Umgeni Water chairman, explained that the Minister of Water and Sanitation had appointed an Independent Transitional Committee (ITC) to oversee the progress that will lead to the establishment of the single Water Board in KwaZulu Natal. The Minister had approved the following members to serve on the ITC: Ms D Myeni, Mr A Mahlalutye, Ms N Magewu, Mr A Singh, Ms T Sigwaza and Ms V Pillay.

Mhlathuze Water/Amanzi Board on their 2015/16 Annual Report
Ms Dudu Myeni, Mhlathuze Water chairperson thanked the Chairperson for remembering that it was International Women’s Day since she was speaking as one of the women most affected due to the controversies that were spread by the media about her role as Mhlathuze board chairperson. She requested that the present board members introduce themselves. The Chief Executive of Mhlathuze Water is Mr Mthokozisi Duze whom the board nominated as interim CEO as a result of the suspension of Mr Sibusiso Makhanya, the CEO of Mhlathuze Water. She acknowledged how Mhlathuze Water Board had performed very well. The board had continued to transform the organisation by navigating through treacherous times and they were consistent as per their mandate to customers and reached out to the unreached. What makes Mhlathuze Water Board a very good story is the increase in procurement and the establishment of a bursary fund which targets mainly women in engineering. The stability of the organisation after the suspension of the CEO was ensured by COGTA who nominated a temporary executive. She clarified that the decision to suspend Mr Makhanya, the CEO, was a corporate decision and not a ‘one-man decision’.

Clarification on Media Allegations
Ms Myeni sought to bring clarity on the media allegations which the board had faced and which she had experienced as the board chairperson. She wanted to reassure the Committee of the board’s uncompromised fight against corruption and of their established policies that ensure that compliance is uncompromised. Concerning media allegations that she had been travelling all over and sleeping at expensive hotels, she said these are all not true since there is a travelling policy and the CEO handles the bookings. The sexual allegations against her are not true and that she felt no need to say more about this. She clarified that the allegations against the former CEO, Mr Makhanya, were independently researched and it was gathered by the board that he be suspended for gross dishonesty, operating outside of his delegation of authority and for signing tender contracts without required processes. This matter was with the judiciary.

Mhlathuze Water Overall Performance
Mr Mthokozisi Duze, Interim CEO: Mhlathuze Water, said he would stick to particular issues so as to save time and avoid repeating what had already been mentioned. He was recruited by the Department of Cooperative Governance and Traditional Affairs (COGTA) to be a member of the Mhlathuze Water Board and that his salary was being paid by COGTA. He reiterated that despite many allegations, Mhlathuze had received a clean audit report and shall continue to do so. The challenges they faced were in regards to not meeting targets set for staff remuneration due to the number of internships and variances in signed memorandum of understandings (MOUs). The Board made the decision not to fill too many vacancies as the merger with Umgeni would provide more staff. KPMG was appointed for the 2015/16 audit. Mhlathuze Water had opted to transition from the Generally Recognised Accounting Practice (GRAP) to the Generally Accepted Accounting Practice (GAAP) for the year. He then led the Committee through page 9 of the presentation. The term “exceeded” meant that the Board had done more than what was expected and had no financial implications. The project target for board member attendance of all board meetings was 80%, this figure was said to represent the board’s foresight into the lack of attendance of one or two members. These meetings did take place nonetheless. Concerning operating performance, Mhlathuze Water experienced a decrease in the operating surplus of 1% from the prior year mainly due to the 32% increase in electricity cost. He explained as part of their income, Mhlathuze Water operates on two levels: Section 29, direct business to clients and Section 30 where they act as an agent for the Department. A surplus of R90 million as from 2014 indicates that the organisation has been in stable operation. This was the money they had in cash at the bank.

Chief Financial Officer, Mr Brian Ndaba, explained that in terms of the Act the company should be viable and sustainable which they are indeed. In terms of bulk waste water, they are one of the unique boards who sell it. Most of the revenue came from the bulk waste water sales. The external auditors showed that they had spent R406 million on secondary projects. Financially, Mhlathuze water is fairly stable as their assets exceed their liabilities and the company has been able to pay its loans.

Mr Duze concluded by explaining that the HR figures were fully viable with the employment equity profile. Mhlathuze Water has an effective consequence management system as they made certain that those who were found to be corrupt faced the necessary consequences.

The Chairperson thanked the boards for their presentations. He called for any comments from Cooperative Governance and Traditional Affairs (COGTA) and the Mayor of uMkhanyakude District.

Mr Jeff Vilane, Mayor of uMkhanyakude District Municipality, commented that as the District Municipality they were pleased to say that they had found support from Mhlathuze Water and uMkhanyakude Water but that they are not yet out of the woods.

Mr Singh gave his thanks to both boards. The Committee had asked DWS to provide a progress report on the grant funding which would be presented by the KZN head of operations.

uMkhanyakude District Municipality water supply and drought interventions
Mr A Starkey, DWS Head of Operations: KZN, explained that DWS had gathered that there are three types of drought: a hydrological, agricultural and metrological drought. These droughts had economic, social and environmental effects. uMkhanyakude was worst hit since 2014 and had suffered all three types of droughts. He confirmed that in Hluhluwe they were unable to draw water when the dam had dropped to a certain level. Bore holes and tank purchases were means of drought interventions. However, only a third of the boreholes produced water so they had to dig deeper which ranged from R250 000. He concluded that COGTA had helped by giving R33 million to finance water intervention projects.

The Chairperson thanked DWS and said that digging boreholes is a concern as it has been be the most prominent intervention which is costly. The Committee takes note of what the Mhlathuze Water board chairperson had said about negative media reports. He raised a question about the legality of the board chairperson. The costs incurred for pumping water by Umgeni could be improved. He asked what the status was of their infrastructure. He asked about the black economic empowerment (BEE) policies of both boards. He asked how Mhlathuze Water retained trained graduates in their system. Matters concerning their corruption prevention policy certainly would resurface in the queries of the members. He asked for clarity from Mhlathuze on the transition from GAAP to GRAAP.

Ms M Khawula (EFF) asked what developments both water boards were making in the undeveloped areas as she had witnessed no changes. She asked this question in view of the boards’ budgets for supporting and developing these areas. She noted how a dam in Ndwedwe was no longer providing water for the locals and as a result the locals started using water from the river. She raised Bhekama Trust farm which has no water and proper sanitation and that the water boards are at fault. Umgeni Water was hiring R575 million worth in black employees, including women. She asked if all these people have the necessary skills to do the work adequately. In Amajuba District a number of the people had struggled because of dying stock and there was poor sanitation at the Itheku Mall. Trucks in rural areas were not supplying water as promised and only passed once in a while to settlers near the main road. The accident in Umlazi was caused by municipalities not doing their work. COGTA was not doing sufficient work.

Ms B Maluleke (ANC) said that she does not understand how people in rural areas are not benefitting from the so called money the boards are giving. Umhlali Dam is no longer operating as people share water with animals in Ward. She asked if they assess the tenders that the boards give such as the tender which was given to Ms Nomusa Dube, COGTA KZN MEC, and it was not reviewed to see if the people are doing their work. In Ward 8 in Umlazi the drains are left dilapidated. She confirmed that COGTA is not doing its work properly.

Mr T Makondo (ANC) welcomed the reports of the two water boards. The uMkhanyakude electricity costs are growing very fast and he asked if other electricity sources cannot be used to reduce costs. He asked how big its staff component is as it has been growing very fast as well.

Mr L Basson (DA) directed a question to both boards. He asked if the Department owes them and if so, how much. He asked for how long the money had been outstanding. He sought clarity from Mhlathuze Water on how they sold assets to the Department if it belonged to the DWS in the first place. He asked if they sold the assets at the current value or at cost value.

Ms Baker asked what was happening at Albert Falls dam. She asked for documents from the department because when looking at the Umgeni Report there was a written approval from the Minister. On the Mhlathuze sales of raw water she asked how it was possible for there to be an increase in sales with the current drought. She asked what restrictions were given to industries in drought stricken areas. She sought progress on the complaint on farmer restrictions. She asked what Mhlathuze Water Board policy states on remuneration of board members. She agreed with Ms Khawulu that there is a lot which Mhlathuze needs to explain. In regards to the office of chairperson, according to the Act, a maximum of four years is permitted which means that the current board chairperson was reappointed unlawfully.

Mr R Cebekhulu (IFP) agreed with Ms Khawulu about the water trucks in uMkhanyakude that do not serve the whole community and it is not mentioned where exactly they go. He sought feedback on the media report of the young women who was raped in the bushes in uMkhanyakude. He expressed his concern about the large water waste in car washes and asked how they handled this. He asked if there is any policy regulating the service of board members in terms of attendance.

Mr Mguni appreciated both reports presented by the leadership of the two entities. Nevertheless, he asked that they research energy reduction from other countries. He asked that they reduce their costs for consultation fees. He asked how they deal with rhino poaching. He asked that it is emphasised to the Minister that she needs to come and present on the progress in the amalgamation road map. He asked how both entities give back in social development and the help government on social issues such as Fees Must Fall since they have the profit. On the topic of employment he was happy. However he asked the entities how they assist the youth and the disabled. He advised that municipalities pay the boards back if they are owing them.

Mr Chauke appreciated the two presentations and said that this confirmed the good leadership of both water boards. He appreciated how the Mhlathuze chairperson clarified the allegations of Mr Makhanya, the suspended CEO. His only concern was with DWS concerning the certainty of the future of the water boards as it impacts on their planning. He suggested that perhaps the district council had to be invited since some of the issues raised by Members were more about service delivery. He asked Mr Singh about the role of National Disaster Management in providing interventions during the drought since they have many resources. He asked both board chairpersons to comment on the impact of the drought on service delivery. He asked what is required to move forward. The boards should implement a non-tolerance for corruption.

Ms B Magabane (ANC) said that both presentations were clear. She commended Umgeni Waterfor having leadership and employment development as one of their projects and asked them to continue with these projects annually. On transferring skills to future leaders of the country, she asked if they were not supposed to set targets of 42 days instead of 32. She asked Mhlathuze Water why they planned for 80% instead of 100% under corporate performance and if they measure the attendance of board members. She noted page 13 on bulk water volumes and asked if this had not changed after receiving a lot of rain

Responses from Mhlathuze Water
Adv Simo Chamane, Mhlathuze Water board member, said that the pipe saga emanated from failures of previous municipalities to provide grant funding. He could not talk further on the award of the tender to the MEC of Durban. However, the board had been involved in an evaluation process regarding this matter. On water tenders, a historical background is required since before the water trucks could not get to some of the areas with poorly developed roads; however the trucks did play an important role in water intervention. Those community members were not satisfied as they wished to come and fetch water at various times of the day which was not yet possible. There has been a high percentage of water loss due to old infrastructure, however Mhlathuze Water was working on this and would in the next financial year record the figures differently due to the recent interventions that aim to improve the water loss percentage. The rape incident could not be attributed to the child fetching water in the area and that this was nevertheless being investigated. Concerning the farmer and community complaint, he agreed that there is indeed an arrogant farmer who has been surpassing water restrictions and leaving none for the other members of the community and that this would be followed up. They were instituting a consequence management process in order to deal with those who had been awarding unaccounted projects.

Ms Myeni, chairperson of Mhlathuze Water, requested that Ms Khawula go with her to the areas she has raised for oversight and that she had noted the queries. On the Department owing Mhlathuze Water, she asked to leave it to the Department to get a direct figure of what it owes to the Board. She explained that remuneration polices and that of board attendance are regulated by the Department. However they have a charter that states what happens to someone who did not attend a board meeting. They set a target of 80% as there are always special meetings that require board attendance in addition to the set four annual meetings; however, not everyone can always be in attendance. She clarified that they do indeed assess board attendance as there are performance measures. Concerning the car wash water wastage, she asked that the Committee looks at it in a positive view as it provides jobs; however, on the negative side this is water that is unaccounted for. At a recent meeting, it was suggested that these car washes are each sponsored a Jojo tank. On rural development, the surplus that Umgeni Water was making was used towards outreach initiatives and it recently sponsored students for their studies who were nominated by the district. She insisted that she did not see any conflict of interest with the arrangement of having an interim CEO as their relationship with COGTA is on a memorandum of understanding basis. In response to Mr Chauke’s question, the shareholder had given both boards the ability to broaden their area of operation. As a result, they have started a new initiative of possibly using water from the ocean in future in order to meet their service delivery mandate despite the drought.

On Ms Baker’s question on the extension of Ms Myeni’s term of office by the Minister and the suspension of the CEO, Mr Chamane explained that this was a matter that remained under judiciary oversight and is not yet for public consumption.

In response to Mr Mguni, Mr Dube explained that the board was doing much work in operating land in Richards Bay. The staff working there are under the Board’s payroll. When the contract gets terminated in June all the contracts will go back to the City and then to whom they appoint to continue with the contract.

In response to Mr Basson, Mr Ndaba explained that Mhlathuze Water had an agreement with the Department in 1995 which resulted in the Department paying a rebate which they then decided to settle so it was regarded as a sale of goods.

Responses by Umgeni Water
Mr Mahlalutye replied that on question of use of the profit, another term is often preferred: “surplus”. The board uses ‘surplus’ in order to repair infrastructure, raise new projects and to help in reducing their rate of borrowing money. In terms of rural development, Umgeni Water planned their infrastructure in connection with the municipalities so the rural development they speak of is the bulk infrastructure they provide. Concerning BEE contracts, they have been requiring big companies to sub-contract. The big companies ensure that sub-contractors do the work and that skills are transferred appropriately. The staff turnover is very low as they have many staff that are now old. However these employees help with transferring practical skills to the younger employees. Umgeni Water trains graduates in order for them to be employed and not necessarily by Umgeni Water since the objective is to improve the net gain of the South African economy. They do not have the problem of being owed by their customer municipalities since they have good working relationships with them and engage them on a regular basis. Concerning water wastage at car washes, they are concerned about the wastage of water but that this was an area municipalities should attend to.

On board attendance, Mr Mahlalutye said that as the chairpersons of the institutions they have the role to ensure that members attend and are prepared for meetings. He clarified that Umgeni Water has continually been looking at technological advancements in order to reduce energy consumption. The droughts are said to indeed have an impact on the service delivery of the water board. Concerning youth development, there is an organised board of “Umgeni Young Professionals” who go out to their communities and educate the community and inform students at institutions of higher learning on various career opportunities within the field. They are given a platform and are supported by the board.

Mr Gamede, Chief Executive: Umgeni Water, replied on the tax returns. There are two water boards and fourteen water service providers, as a result they decided to consolidate all their finances in order to see how much work is needed in bulk water in KwaZulu Natal. This process resulted in an increase in consultation fees. On ‘biological assets’, they refer to the many dams that Umgeni Water is managing because if they are not well managed there are often problems of encroachment. As a result, the board introduced flora and fauna in these areas to attract tourists. They do not have high security but simply work with the community in this regard. On the state of Albert Falls, it was at 24% and is now at 34% so there has not been a substantial difference. Inanda Dam is the last dam in the system, therefore they pump this water to their water systems which is costly but is helpful in providing water.

Mr Singh concluded that they would provide directives in writing on the merger.

The Chairperson stated that this meeting gave a comprehensive view of the two water boards with the help of the Mayor of uMkhanyakude.

Ms Khawula appreciated that the boards had provided Jojos to the carwashes but warned them of theft and opted for the installation of taps instead. Mayors in KZN should become more acquainted with the needs of the community.

Ms Baker commented on the extension of contract of the board chairperson that more information had to be provided in future as this could possibly be an unlawful act. She said the Minister has no authority to extend anyone’s term of office.

The Chairperson said that this indeed is a crucial matter.

Mr Chauke interjected that DWS was supposed to give leadership on such issues regarding appointments. He insisted that this matter should go to the right person and not to the chairperson of water board. The Minister should come and explain the status of each and every board. The Committee should have access to the board in order to do oversight at any point. DWS should deliver a concise report on the drought interventions in KZN with clear timeline of when the merger will be completed. He suggested there should be a closed meeting with Mhlathuze Water Board so Members can know what charges are levelled against the suspended CEO as they have to know as the Committee.

The Chairperson thanked all who attended the meeting and the meeting was adjourned.

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