Water Tariffs: Department of Water and Sanitation & Water Boards briefing

Water and Sanitation

15 March 2017
Chairperson: Mr M Johnson (ANC)

Meeting Summary

Submissions from all the water boards, with an exception of the Overberg and Lepelle Northern water boards, regarding the 2017/2018 water tariffs had been finalised and were presented to the Portfolio Committee. All the water boards except Mhlatuze were represented at the meeting.

The Department of Water and Sanitation (DWS) said it wanted to do the presentation differently this year by looking at how it could involve the Committee in the consultation process and the various factors that went into that process. The purpose of the presentation was for the Committee to approve the 2017/18 bulk water tariffs and note the approved raw water tariffs. The detailed presentation looked at the approved raw water tariffs, the process of determining bulk water tariffs, the relevant legislation and background, the process followed, the 2017/18 tariffs and recommendations.

Members asked which of the water boards was using ozone in their treatment plants and what the cost implications were. They remarked that the tariff plans should have been presented much earlier, when they engaged with the water boards. They were concerned about the 15% increase by Umgeni Water and the additional 2% related to the drought. They requested a forensic audit on the funding going towards drought relief, specifically in KwaZulu-Natal (KZN) as there were massive amounts of money that had gone into the KZN drought relief and they could not see any fruits from this, but were instead receiving complaints.

Members asked about the proposed tariffs of the Umgeni and Rand water boards, which appeared to be a bit excessive, as there was a projected cash surplus. They asked the DWS whether it required water boards to show what operating efficiency they were achieving every year. Were there any plans to assist the Overberg Water Board? They noted that there were situations where boards were running at a loss, hence the tariff increases, and remarked that tariffs should not be increased due to losses incurred. They commented that the municipalities were paying more for water than for irrigation and forestry, and accused the DWS of not monitoring rivers, hence causing these problems. They said that the water that went down the rivers was polluted, making it difficult to clean and that twice as much chemicals were being used. They suggested that there should be a sliding scale used when paying municipalities -- the cleaner the water, the more money that should be paid. They stated that if the water quality was bad, then the water had to be cheaper because end users were the ones bearing the cost of the DWS not monitoring the rivers.

Members noted that the constitution provided for water being a right and talked more about the less privileged, while at the same time some entities were calling for a need to make a profit. This was quite a critical issue, because there was a right to water and a need for development, and at the same time, people were talking of profits.

The DWS responded to the questions and concerns raised by Members. Concerning the strategic issue of an independent regulator, the National Development Plan (NDP) in its chapter on water made various recommendations about the creation of new entities to give effect to water security. One of the new entities being created was called the National Water Resource Infrastructure Agency, which would be dealing with development and new infrastructure.

Concerning the issue of a tariff regulator, the previous Minister had taken the view that they should follow an incremental approach and begin by having an internal in-house regulator and then work progressively towards having an independent or autonomous regulator. They had spoken to the Committee about the various entities they were rationalising and establishing, and were working towards the autonomous regulator.

The Department also responded to the concern about water boards being developmental entities while at the same time seeking to make profits. Water boards had to be sustainable and had fairly indigent water tariffs. It acknowledged the challenges of acid mine drainage (AMD) costs, and said that 67% of the funding came from the fiscus whilst they were busy developing the tariff as a levy for non-compliant parties.

The different water boards took turns to respond to questions directed to them. They spoke on the issue of using ozone and stated that treatment regimens differed from organisation to organisation, depending on the quality of raw water received. Some said they used ozone for water treatment, while others said that they used hypochlorite and chlorine. They also explained the motivation for their tariffs, which included high energy costs, debtors and the cost of chemicals. In trying to find a solution to reduce cost factors, Members asked if there were no companies that produced chemicals in South Africa and wondered why chemicals had to be imported. They also asked if there were alternative forms of energy that could be used.

Meeting report

Chairperson’s opening remarks

The Chairperson noted that submissions from all the water boards had been finalised, with the exception of two boards -- Overberg Water Board and Lepelle Northern Water Board.

Presentation by Department of Water and Sanitation

The Deputy Director General of Water Sector Regulation, Mr Anil Singh said that the Department of Water and Sanitation (DWS) wanted to do the presentation differently this year by looking at how they could involve the Portfolio Committee (PC) in the consultation process and the various factors that went into that process. He added that Rand Water and the DWS had found each other, and would present the product of what they had agreed upon.

The purpose of the presentation was for the PC to approve the 2017/18 bulk water tariffs, and to note the approved raw water tariffs. It contained the approved raw water tariffs, the process of determining bulk water tariffs, legislation and background, the process followed and the recommended 2017/18 tariffs.

Consultation sessions had taken place at the regional level from 6 July to 20 August 2015. The purpose had been to solicit buy-in from the stakeholders and report back on the status of the previous cycle activities and projects. Sector specific consultations had been held on 27 August 2015.

In order to have a sectoral approach and have key issues addressed holistically, national consultations took place on 10 September 2015. The purpose had been to inform the users about the recommended tariffs prior to approval, and to seek final inputs or comments

With regard to Acid Mine Drainage(AMD), the approved cost apportionment ratio for AMD is 67:33, where government and the mining sector covers 67% of the cost, and 33% is collected through tariffs. In 2016/17 the tariff charge was 13.7c/m³ (recovery of 2015/16 together with 2016/17), while in 2017/18 the charge will be 7.9c/m³.

Describing the status of bulk water tariff processes for 2017/2018, Mr Singh said water boards (WBs) were bulk water providers to other water entities and were established by the Minister of Water and Sanitation. The primary activity of a WB was to provide water services to other water service institutions within its area of operations. A WB may perform an activity other than its primary activity, only if it is not likely to limit the WB’s capacity to perform its primary activity. Section 32 (a) of the Water Services Act (WSA) provided for the WB to give priority to its primary activity

Section 10 of the WSA provided for norms and standards for tariff setting, while Section 42 of the Municipal Finance Management Act (MFMA) laid down that any national or provincial organ of state which supplied water to a municipality or municipal entity for the purpose of providing a municipal service must prepare a proposal or a submission for any amendment of their pricing structure. The WB must request the National Treasury (NT) and the South African Local Government Authority (SALGA) to provide written comments on the proposed amendments within stipulated dates in terms of MFMA Circular 23. Either the Water Services Authority or SALGA, or both, had to make written submissions on the bases of the proposed tariffs, with the tabling of the amended pricing structure in Parliament by the Executive Authority (the Minister) on or before 15 March every year.

Mr Singh indicated that the Committee could look at what was tabled, and that it could be revised if need be.

According to Circular 23 of the MFMA, WBs had a duty to submit tariff proposals to amend bulk water tariffs every year and to adhere to timelines in terms of the circular and s42(5) of the MFMA. A WB must consult extensively and in a comprehensive manner on any proposed changes in the tariffs that may impact on the municipal services, especially Water Services Authorities.

The tariff guidelines for WBs were that details of cost drivers, a pro forma statement and financial models had to be prepared, and a proposal package must be submitted to the Minister for approval and tabling to Parliament.

The process followed had seen the DWS engage on 2016/17 tariffs feedback sessions with all nine WBs to prepare for 2017/18 WBs’ tariff cycle in August 2016. The DWS had conducted pre-tariff consultation sessions with the nine WBs just before they consulted any other stakeholder in September/October 2016. The WBs had then consulted with municipalities on the proposed 2017/18 tariffs in October/November 2016, with the DWS observing. Tariff proposal packages had been sent to SALGA and National Treasury for their inputs and comments in December 2016. All WBs had submitted proposals to the Minister by 25 January (in terms of the Circular 23), except for Overberg Water.

The complete proposal was comprised of:

  • A covering letter with proposed tariffs to the DWS;
  • A presentation to support and motivate for the proposal;
  • Notices of consultation with customers (communication with stakeholders and invitations);
  • Actual consultations with customers (confirmation and evidence of consultative sessions having occurred);
  • Comments from customers and the WB’s response (only written comments);
  • Comments from NT and SALGA, and the WB’s response to the comments.
  • A cost break-down schedule, projections and assumptions, as required by the WB tariff guidelines.

The role of the Chief Directorate: Economic Regulation (Internal) was to make a final analysis on the proposal and recommend the final tariffs for the Minister to table in Parliament, striving to maintain a balance between the sustainability of the WBs and the affordability of the tariffs, resolving disputes and recommending a reasonable tariff. The Directorate then monitors compliance with the provisions set for the bulk tariff determination process both in the Municipal Financial Management Act and Water Board guidelines.

Economic Outlook

Mr Singh said the country faced drought, which disadvantaged everyone. The shortage of water inflated the prices of food, and reduced use of water did not reduce the fixed costs of purification, so water becomes expensive. Lower water levels in the dams increased operational costs, such as electricity and chemicals.

The current economic outlook in the country indicated an unstable consumer price index (CPI) figure averaging at a high of 6%, a weaker SA Rand/dollar exchange rate, a possible underestimation of chemicals for water treatment, a possible increase in the repo rate, with most WBs engaged in capital projects through borrowings, and tight budgets and cost-containment in public institutions

2017/2018 Recommended Tariffs

AMATOLA WATER

This water board proposed a tariff increase of 10%, which was an average of R10.45c/m³. Amatola Water was currently operating at a loss, therefore reducing its proposed tariffs would affect its sustainability.

Most of the CAPEX projects that Amatola Water planned were funded from revenue generated from primary and secondary services or grant funding, since the water board did not have the capacity to borrow from the markets.

Amatola Water’s liquidity measure was currently good, but its profitability measure and debt, or gearing measure, was in a bad state, which meant that reducing the tariffs would leave the water board struggling to raise funds to meet its overall targets

RAND WATER

The five-year projections of the water board, beginning in 2016/17, anticipate a continuous growth in the surplus despite declining sales volumes. Over the last five years, Rand Water tariffs had increased by 39.8% at an average of 10.2% p.a. With the trend of costs declining over recent years, the proposed tariffs were yet to yield surpluses more than those anticipated.

The Rand Water surplus had been growing steadily for the years 2014/15, 2015/16, 2016/17 and 2017/18, whilst sales volumes were declining.

Capital expenditure had been funded directly from the tariffs in the form of a capital charge, as had been done in the 2016/17 tariff at R1.51, but had been excluded in the current proposed tariff. Relative to the projected costs for 2017/18, about 20% of the proposed tariff was surplus.

The Rand Water proposed rate is recommended to decrease from 10.2% to 9.5%.

LEPELLE NORTHERN WATER

This water board owns only four of the 15 schemes they operate. While most schemes cannot recover costs of operations, overall it is making a positive surplus. There are scheme-based tariffs, yet signs of cross-subsidisation among the schemes.

Lepelle Northern Water (LNW) had planned capital expenditure (capex) projects of R222 million for 2017/18. Part of this amount will be funded from the tariffs and the rest from borrowings. R100million for directives had been given to LNW by the Department.

The tariff is recommended to be approved as proposed, while LNW is encouraged to improve its debt collection efforts.

UMGENI WATER

Umgeni Water (UW) has a proposed a rate increase of 15% for 2017/18, which is inclusive of the additional 2% for recovering the costs incurred during the drought period going into the 2017/18 financial year. However, these costs should be once-off.

It is also requested that UW should plan to make their water supply systems (new and existing) more resilient to the impact of drought. The WB should manage the decrease in water supply in order to meet the demand and changes in the water quality.

An increase of 15%, as proposed, is recommended, on condition that if drought restrictions are lifted all the revenue on the basis will be rebated to the customers, to deflate the following year’s tariff.

UW’s overheads costs are exorbitantly high at 36%, which is worrisome. It is recommended that the water board documents any cost-saving efforts, and quantify any specific cost savings achieved.

MHLATHUZE WATER

Mhlathuze Water has proposed a rate increase of 10.2%

In terms of the DWS analysis, a 10.2% increase was reasonable, considering the fact that the water board had to remain financially viable. The proposed tariff would enable the board to repay and service its debts, recover operation and maintenance (O & M) costs, provide for depreciation of assets and make provision for the capital expansion programme for the 2017/18 financial year and renewal expenditure.

The water board had made the tariffs as affordable as possible for their WSA customers, since it served poor communities.

MAGALIES WATER

Magalies Water had proposed an average rate increase of 9.7%.

Three of its schemes --Wallmansthal, Klipdrift and Cullinan – had been unable to recover the costs of all operations, and only one scheme – Vaalkop – was making surplus, which was believed to be utilised for cross-subsidies.       

The combined major cost contributors, which increased on average by 9.7% relative to the previous financial year, were raw water, staff and labour, energy and chemicals.

Magalies Water must develop a strategy to contain the exorbitant cost of overheads, especially those attached to the shared services. Using this year’s tariff projection as a benchmark, the calculated weighted average tariff increase of 9.7% was recommended for approval for 2017/18.

SEDIBENG WATER

Sedibeng Water had proposed an average tariff increase of 8.4%.

The DWS had noted the huge cost of electricity, specifically in Namakwa, and the growing labour costs which all added up to an already higher set of tariffs for the water board.

The landscape in the entire Northern Cape relative to sources was a justification for the huge electricity cost, and absorption of labour from the transferred water boards accounted for a noticeable increase in the staff cost.

It was important to realise that Sedibeng did not recover the costs of provision for most of their municipal supply, but was utilising the presence of the mines in some areas to cross-subsidise the shortfalls in the municipal supplies.

The huge debt in the water board’s debtors’ books was a persistent threat to the sustainable existence of Sedibeng Water. However, should the water board be permitted to implement restrictions on those debtors whose dues were long overdue, the situation could improve. Debts settlement agreements were in place, but were not being honoured.

The Sedibeng Water tariff was recommended for approval as proposed.

Mr Singh indicated that the water board was owed more than R2 billion by Matjhabeng Local Municipality, and this remained a matter of concern.

OVERBERG WATER

Overberg Water had proposed a rate increase of 1% above the cpi -- 7.5%.

This increase had been proposed in an incomplete submission. Overberg Water had not consulted the increase as required by law (S42 of the MFMA) with their customers, NT or SALGA, as required. It was therefore recommended that Overberg Water implement the same 2016/17 tariff for 2017/18 as provided for in the Act, when similar circumstances arise.

No increase was approved towards the 2017/18 bulk tariff increase for Overberg Water.

Mr Singh indicated that Overberg Water had not conducted its tariff processes due to challenges it had faced.

The Chairperson commented that the Committee needed to take itself through a cycle that would prevent it from receiving presentations at the “tail end,” so that it could intervene when necessary. He pointed out that it was at the deadline for some of the legislation.

Discussion

The Chairperson asked for a detailed explanation on certain parts of the slides. He sought clarity on the national consultation that had taken place on 10 September 2015, and on the approved cost apportionment ratio for AMD (67:33), where government and mining sector covers 67% of the cost, and 33% is collected through tariffs.

He noted that slide 13 of the presentation contained very important issues, including the consultation process, communications, comments from water boards, customers and government entities, cost breakdowns and projections, and therefore requested a detailed explanation. He asked about the current economic outlook for the country, and the reference to the “unstable” CPI figure averaging at a high of 6%. He asked what was meant by “unstable,” as there was no experience of instability.

He noted that Mr Singh had referred to the import of water chemicals, and asked if there were no chemicals available in South Africa.

Mr L Basson (DA) asked which of the water boards was using ozone in their treatment plants, and what the cost implications were.

Ms T Baker (DA) remarked that she agreed with the Chairperson, that the tariff plans should have been given much earlier when they had engaged with the water boards.

The Chairperson responded that such a request had been made to the water boards, and they had brought in the tariff addendums. However, a decision to have a separate session had been made.

Ms Baker commented that it was a time factor, and there was a need to have one water board per session. She was concerned about the 15% increase by Umgeni Water, and the additional 2% going towards the drought. She requested a forensic audit on the funding going towards drought relief, specifically in KwaZulu Natal (KZN). There were massive amounts of money that had gone into the KZN drought relief, but she could not see the fruits of that. There had in fact been complaints received. She said that the 15% increase was excessive and it was the end user that bore the burden. This was unfair and hence could not be justified.

Mr D Mnguni (ANC) asked about the proposed tariff specifically for Umgeni and Rand Water, which appeared to be a bit excessive as there was a projected cash surplus. He also asked the DWS whether they required water boards to show what operating efficiency they were achieving every year. Were the any plans to assist the Overberg water board?

Mr M Bara (DA) noted that there were situations were boards were running at a loss, hence the tariff increases. He remarked that tariffs could not be increased due to losses. There were situations that caused the losses which were supposed to be looked into and if not looked into, losses would continue being made.

Mr T Makondo (ANC) said that there was a need for changes in some of the legislation. The DWS needed to bring in an independent regulator in the new legislation. He asked if there was anything that could be done in relation to factors that contributed to costs especially in reducing electricity costs.

Mr R Cebekhulu (IFP) noted that the tariffs of Rand Water and Umgeni were too excessive, and called for the DWS to revisit the tariffs.

Mr Basson asked for clarity on raw water tariffs. The municipalities were paying more for water than for irrigation and forestry. He accused the DWS of not monitoring rivers, hence causing these problems. The water that went down the rivers was polluted, making it difficult to clean and requiring twice as much chemicals to be used. There should be a sliding scale used when paying municipalities -- the cleaner the water, the more money that gets paid. If the water quality was bad, then the water had to be cheaper, because end users were the ones bearing the costs of the DWS not monitoring the rivers.

The Chairperson noted that the issue of having an independent regulator had been raised once, and called for more action than listening. He also agreed with Ms Baker’s request to have a forensic audit into how the drought relief money had been spent. It was a serious countrywide issue. The constitution provided for water being a right and talked more about the less privileged communities. On the other hand, water boards like Mhlathuze made propositions and recommendations. At the same time, some entities called for a need to make a profit. It was quite critical, as there was a right, a promotion of development and then, at the same time, the talking about profits.

Department’s response

Mr Singh responded to the questions and concerns raised.

He said that concerning the strategic issue of an independent regulator, the National Development Plan (NDP) in its water chapter made various recommendations about the creation of new entities to give effect to water security, and one of the new entities being created was called the National Water Resource Infrastructure Agency, which would be dealing with development and new infrastructure. Concerning the issue of a tariff regulator, the previous Minister had taken the view that they follow an incremental approach and begin by having an internal in-house regulator and then work progressively towards having an independent or autonomous regulator. They had spoken to the Committee about various entities they were rationalising and establishing and were working toward the autonomous regulator.

He also responded to the Chairperson’s concern about water boards being developmental entities, while at the same time seeking to make profits. He said that water boards had to be sustainable and had fairly indigent water tariffs for communities which were not able to afford high tariffs. He said the acid mine drainage costs were being funded by the government.

He said that the DWS would assist the Overberg water board to recover. They had assisted it in the past.

Mr Mpho Mafokeng, Chief Financial Officer (CFO), Water Trading Entity, acknowledged the challenges of AMD, and said that 67% would come from the fiscus while they were busy developing the tariff as a levy for non-compliant parties. Tariff structures were also affected by factors such as the CPI. There were issues affecting the Umgeni and Rand water boards, resulting in their current tariffs. They needed to establish multi-tariff setting, so that everybody was covered. He agreed that norms and standards needed to be set up in order to get the tariffs into line. He reminded the Members that all raw water charges were based on lost water management activities, divided by registered volumes, but there were also cappings as they were not allowed to charge full costs. They therefore never had a uniform grid when charging for water, due to the different cost implications. He also said that they did not charge in terms of the CPI, but instead charged in terms of the producer price index (PPI).

Responses from the water boards

Rand Water Board

Mr Percy Sechemane, Chief Executive Officer, responded on why the tariffs at Rand Water looked high. He said it was difficult to compare all water boards, because the businesses were significantly different. Rand Water got water from Lesotho. They were already paying for the second phase in terms of the tariffs, hence another portion had been added -- over and above the fact that they were supposed to be paying for 25 years for the first phase, but were currently paying for the beginning of the second phase. There was only one other water board in a similar situation.

He then referred to the AMD, and said that if 67% was coming from the mining sector, 33% happened to be Gauteng province, because this was where the mining activities were taking place. He also noted that Gauteng had more people than anywhere else. The board engaged with municipalities over their demands.

Rand Water did not use ozonation as part of their treatment. They preferred using a lime treatment, because it formed a film around the internal pipes, thus protecting them. As a result, they could last over 50 years.

He also said that it had been raining in Gauteng, so they had had to change their treatment regime as a lot of particles had been agitated, hence the need for more aggressive treatment. A lot of factors had to be looked at.

Magalies Water Board

Mr Sandile Mkhize, Acting Chief Executive Officer, spoke on the issue of using ozone and said that treatment regimens differed from organisation to organisation, depending on the quality of raw water received. Magalies water needed a rigorous oxidising regime before they could start treating it, hence they needed ozone. They were currently using chlorine dioxide as their oxidising agent, but part of their upgrade implemented was to use ozone.

Amatola Water

Mr Kevin Govindsamy, Chief Financial Officer, Amatola Water, addressed the issue of losses that had occurred at the board, and what could be done. He remarked that there were three themes in the value chain -- the Department that owned the dams, the water boards that did the purification and the municipalities. He said that there was need to consolidate bulk water within the water board, as this would bring the unit cost down, and they would be able to supply water at a lower cost. The chemical cost had two components -- the usage and the payment -- as some chemicals were imported and the exchange rate impacted on the chemicals’ cost.

Umgeni Water Board

Thami Hlongwa, General Manager: Finance, Umgeni Water Board, said that they had had drought in KwaZulu-Natal (KZN) for four years and as a result, there were 50% restrictions on water usage. The Umgeni system was resilient for one year, but unfortunately they had had to implement restrictions. When they proposed the last tariffs, they had ensured that they put in a drought tariff as well. Unfortunately, the DWS had approved only one part of the tariff and the other part of the drought tariff came in only in August. As a result, the customers had rejected the drought tariffs. They had therefore had to run without a drought tariff due to a lack of an agreement.

He said that KZN did not have a nice pumping gradient because of the land having too many hills. When water needed to be transferred, it had to be pumped, which was costly. When there was no drought, pumping was manageable, but if there was a drought, pumping would have to be done 24/7 in order to sustain the system downstream. He said that Eskom electricity tariffs were in blocks, and if a certain amount of usage was exceeded, it was costly. Some dams were below the water works and in drought situations, they had to pump continually. They had therefore had to implement inter-basin transfers in some areas where they had to pump water to areas in distress.

Other factors that led to high water costs were, high chemical costs, high energy costs, pollution in the system, and assisting municipalities so that they could be able take over their schemes. He noted that municipalities did not let go off their schemes unless they were in “ICU”. The board was experiencing high expenditure in rural areas but slow income, so it needed a tariff that would help. Without this tariff, they would have to downscale.

He said that Umgeni did not use ozone, but used hypochlorite and chlorine for purification.

Referring to cash generation capability, he said that Umgeni Water generated R 1.1 billion, but the cash outflow was R1.8 billion. There was a shortfall, so they had had to obtain a loan from the private sector. He highlighted that towns were growing quickly. An example was Umkomasi, and that if that town was not built, Ethekwini would have a problem. In order to build that town, which cost about R18 billion, R2.75 to R3.00 per kiloliter had to be added to the tariffs. The DWS position was that the user paid.

Sedibeng Water

Mr Tradewin Takalani, Chief Executive Officer, Sedibeng Water, said that they were not using ozone. The board was experiencing a huge debt because municipalities were owing them, so they had agreed to use debt management by implementing restrictions, as per the Water Services Act. The cost of electricity was high, especially in Namaqua where they had inherited a plant 2km away from the treatment plant, and hence pumped a lot of water and used a lot of electricity which led to a high electricity cost.

Overberg Water Board

Ms Nthabiseng Fundakubi, Chief Financial Officer, Overberg Water Board, said that the board had governance issues and that governance issues could not be separated from accountability. She said that last year when they had tabled the tariffs, they were called the “sweetest water in the country”. She noted that there were internal challenges called negativities, but it still had a good quality of water. The board did not use Ozone.

The chairperson said that it was important to bring all the entities under one roof in order to share experiences and understanding. He said that most entities had a number of similarities and faced similar challenges.

Mhlatuze Water Board

The Mhlatuze Water Board was given an opportunity to present, but no one was available to represent the board.

Bloem Water Board

The official spoke on issues of non-payment affecting Bloem Water, and said that this affected the tariffs. This resulted from the fact that water boards were supposed to be financially viable and if the non-payment continued, the water board would be unable to develop infrastructure. Non-payment should be regarded as a unique issue by the DWS and the Portfolio Committee. She said that water restrictions had already been imposed on its defaulters, Copano, but unfortunately this was an impoverished area. She said that Copano currently owed Bloem Water R170 million and wondered how they were going to raise the debt amount. She called on Treasury to find a way in which the amount could be subsidised.

The Chairperson remarked that Bloem Water was an indigent water board. The issue of municipalities owing water boards had become a serious one. Municipalities dealt with serious issues of capacity in running institutions and that some municipalities were seen running golf tournaments on monies allocated.

Lepelle Northern Water Board

Mr Phineas Legodi, Chief Executive Officer, commented on the point raised regarding the use of alternative means of energy. He said that they were currently piloting one of their schemes and would roll out the plan once satisfied. The board was not using ozone. Regarding debt, they were owed close to R1 billion by municipalities and other entities.

The Chairperson remarked that they had a serious problem with Mhlatuze not being present at the meeting.

Discussion

Ms Baker commented that it was unacceptable that Mhlatuze was not present. She said that at the previous meeting, the Committee had had an unlawful chairperson from the Mhlatuze Water Board, she hoped that it was the last time the Committee was going to see the “unlawful Chairperson’’ from Mhlatuze. At that same meeting, she had raised the issue with Mhlatuze concerning the availability of water supply. The quantity of raw water supplied had quadrupled, and yet they had been told that there was a drought affecting their water supply. She also wanted a response concerning water licence use in the Umfolozi River, because if one looked at that river, one would know that there was something wrong in that area.

She said the issue of municipalities owing had to be looked at seriously. That area was an argument about the indigent communities, yet municipalities budgeted and catered for the indigents. There needed to be a look into the capacities of those defaulting municipalities. She then commented on the 67% of the Acid Mine Drainage costs, and asked what part of the 67% was covered by the government and what part was covered by the mining sector.

Mr Basson said that he had received a response from the DWS stating that the water entity was currently having a cash flow problem. He said that municipalities were clever enough to understand that water was a constitutional right to get water, so one could not cut off water. He said that if no action was taken against such municipalities, then the subject was going to escalate and the water boards would be bankrupt and would not be able to function, or water would be so expensive that the few people that were paying for water would pay for it. He said that he did not understand why National Treasury and the Department of Cooperative Governance and Traditional Affairs (CoGTA) could not take a decision on equitable share. The Act was very clear: if one owed suppliers for more than 30 days, then one had to forfeit the money. Letters of demand should be sent to Treasury, stating which municipality owed money, and that Treasury should withhold their equitable share if that was the only means of collecting money. Another alternative was to collect outstanding amounts owed directly from the debtors, while a third alternative was getting legislation to ‘ring fence’ funds so that the municipalities could not use them for anything else. He highlighted that by cutting off water, people that paid for it were going to get harmed.

Mr Mnguni was concerned that chemicals were being imported and wondered if there were no companies in South Africa from which chemicals could be purchased.

The Chairperson responded by asking how many companies in South African manufactured chemicals. He was told that there were three companies available.

Mr Mnguni continued that since such companies were available, why had chemicals to be imported? Something had to be done. He also wondered why water was being sold at such an expensive price.

The Chairperson noted that the main item on the agenda – the proposed and recommended tariffs -- had not been dealt with. The reason why the entities were present was to put to Parliament the proposal and recommendations and for Parliament to approve such. He said that one of the cost drivers identified by the water boards was electricity, hence there was a need to know what the entities would do about it.  Three companies that manufactured chemicals had been identified, but he had however learnt that there was one company in Kempton Park which was arrogant and did not care about Black Economic Empowerment (BEE), but would literally cut you off on price.

Mr Mafokeng said that there reforms on the procurement side. Upcoming small companies could not be compared to big companies, which already had clients.

The Chairperson asked for details of the drought relief and how the allocated funds had been spent. 

Ms Baker commented that she did not think that they would get any joy from the reports, as last time they were presented, the figures were way off.

Mr Basson said that all the water boards and the DWS must come up with a position regarding debt.  They should produce one strategic document. He also lamented that water was life and wondered why Eskom should be paid inflated prices for electricity, which made water more expensive. He suggested that the water boards, the DWS and Eskom negotiate a fixed tariff for all water boards. He noted that the more expensive water was, the less people would pay as they could not afford it.

Mr Mafokeng responded to the question regarding Acid Mine Drainage, and said that the state was providing for 67%, but the mining industry in the first phase of the project in Gauteng had provided them with assets in the region of R500 billion. He therefore said that 67% was a subsidy from government, and there was going to be levy which would take time, and which was supposed to be paid by the mining sector.

The meeting was adjourned.