The Committee met with officials from the Department of Water and Sanitation, to consider and adopt its report on the 2017/18 Annual Performance Plan (APP) and Budget of the Department and entities supporting the work of the Department. During consideration of the report, the Committee was concerned it was adopting a dishonest budget where some budget items would not be spent because the Department was juggling items to find funds to repay debts and cover financial shortfalls. There was concern that some of the money would be taken from grants meant for municipalities where, in the end, the people on the ground suffered. Members questioned what impact and effect the money needed to pay the debt would have on achieving targets in the APP such as the Bucket Eradication Programme and the effect on the water boards which were the implementing agencies. Members asked the Department to present it with a list of projects which would be affected by the reprioritised funds to pay the debt and agreements on overdrafts and a clear, detailed list of the breakdown of the debt.
The Committee had initially decided to postpone the budget vote debate of the Department due its serious concern about the budget. After it was advised that the debate could not be postponed and the budget could either be supported or not supported at the debate, the Committee decided it was best for the Department to relook at the budget and formulate clear answers on where funds would be found to pay the debt. The Committee would then meet again to resolve the matter with the Executive Authority. Members thought it was wrong to rely on budget allocations to pay the debt. It also discussed whether Treasury should be requested to bail the Department out because the situation was on such a serious scale. Members emphasised the Department was held accountable through a budget the Committee itself was satisfied with. While the APP of the Department was wonderful, the problem was with the budget.
The Committee was also concerned about the cost of debt collectors. It questioned where funds for the artisan training programme, on the war on leaks, came from, service provider appointed for the national water infrastructure agency and when this agency would get off the ground. The Committee requested it be engaged on policies of the Department.
Draft Report of the Portfolio Committee on Water and Sanitation: Consideration of the 2017/18 Annual Performance Plan and Budget Vote 36 of the Department of Water and Sanitation and Annual Performance Plans and Budgets and Annual Performance Plans of Entities Supporting the Work of the Department
The Committee considered its draft report page by page.
Looking at allocations over the medium term, Mr L Basson (DA) noted the figures were written incorrectly.
The Chairperson agreed.
Mr Basson noted that some of the figures under the water trading entities did not quite correlate – he sought an explanation for that. He also asked if the overdraft amount should be reflected as the Auditor-General of SA (AGSA) had stated it. He questioned whether the payment agreement should be reflected in the report as well.
Mr Paul Nel, Department of Water and Sanitation (DWS), confirmed the balance was 2.675 as at 31 March – it was higher but it had been brought down – this would be reflected in the Department’s financial statements. In the water trading entity breakdown table, operations and maintenance was R1 billion and not R1 million. In terms of reducing the overdraft, the agreement was to reduce it by R200 million for first three months and then R748 million.
The Chairperson indicated this would be corrected in the report.
Mr Basson asked if the agreement for the overdraft was to pay R200 million plus R700 million.
Mr Nel explained the total for the year was R748 million with R200 million in the first three months.
Mr Basson said this agreement should then be included in the report.
Mr D Mnguni (ANC) said it should be clearly written and not be ambiguous for oversight purposes of the Committee.
Mr Basson asked where the R748 million would come from.
Mr Nel said the total revenue/income of the Department was R9.7 billion and this excluded any recuperative debt. Expenditure of R9 billion was budgeted for – this was in line with instruction from National Treasury.
Mr Basson asked if any programmes would be cut to get the R2 billion and R1.5 billion which was taken from the water trading entity.
Mr Dan Mashitisho, DG, DWS, responded that cuts would be made on the basic municipal infrastructure programme and water services programme. The Department had the discretion to do so in these areas.
Mr Nel suggested the table in the report detailing the water trading entities expenditure be clear it was referring to millions and not thousands.
Mr Basson was concerned the Committee was adopting a dishonest budget where it knew some budget items would not be spent. He was referring specifically to programme three: water infrastructure development. It was said funds carried over, which could not be paid in the previous financial year, would be taken from the water services infrastructure grant and regional bulk infrastructure grant. He was not comfortable with this. The Department was asked to provide the Committee with a list of projects it would not run so that the report of the Committee could be amended.
Mr H Chauke (ANC) agreed that the current amounts contained in the report would have to be amended as the Department was serving its debts - this debt had an effect on the APP. The Committee needed to know which allocations would be affected before the budget was approved.
Mr Matshitisho explained the rationale behind utilising the grant funds to pay for some of the debt – the grants were managed by the Department and were intended to assist municipalities with infrastructure. The intention was not to create new support projects.
Ms T Baker (DA) asked if the Committee could receive a copy of the agreement the Department submitted to Treasury asking for permission for the overdraft.
The Chairperson said the Committee should continue considering the report and then return to this point.
Mr Basson asked if the allocation to TCTA would have any influence on a water trading entity not receiving revenue. How did the funding of the Department influence the budget of the TCTA? If the amounts displayed in the report were not amended, this would be a problem.
Mr Nel responded that for its budget, TCTA determined how much water it would sell to then determine its income. The model to repay loans was worked out based on the revenue expected. The Department took the brunt of non-payment – TCTA was always paid the full amount it needed to repay the loan.
The Chairperson asked if the Department was part of the process to streamline grants to prevent municipalities “double dipping”. Many stories were heard about municipalities using grants to pay salaries, at times.
Mr Matshitisho said there was the Municipal Infrastructure Grant, under the Department of Cooperative Governance and Traditional Affairs (COGTA), doing all kinds of support in terms of municipal infrastructure. If there was no system in place some municipalities could be “double dipping”. DWS was concerned mainly with regional matters. The principle was for DWS to largely focus on regional and bulk.
Mr Chauke wanted to know what the implication was of having to move funds from the programmes under water infrastructure development. The Committee could not approve a budget when it knew the funds would be shifted. What was the engagement with Treasury on the shortfall/debt? Yesterday the Department discussed involving Treasury as the cuts were quite big. It was important for the Committee to pass a budget it was sure would be implemented as planned. The Department had a problem as it sat with debt of almost R4 billion – it would be wrong for it to rely on allocation to service this debt. The Department ran multi-year programmes which could not be financed in the current financial year alone. In passing the budget it was important to ensure contractors would be paid. It was also important to look at who was being owed.
Mr Sofiso Mkhize, CFO, DWS, clarified that the entire allocation for the water services infrastructure grant was not being taken away – only R587 million would be taken from that allocation of R4 billion. Likewise only R214 million would be reprioritised from the Accelerated Community Infrastructure Grant – this allocation was a programme and so was not entirely project-related. New projects would not be initiated.
Mr Basson thought this made the situation even more difficult – where would the balance come from?
Mr Chauke wanted to understand the effect of shifting funds. If some of the allocations were not programme related, why did they exist? Where would the shortfall come from? There might be a need to begin the process of requesting a bail out from Treasury especially when the funds to service the debt could not be found.
The Chairperson asked if the money, to remain in the grants, was committed.
Mr Mkhize replied that not all of that money was committed. The money from the two grants would be used for the shortfall along with funds from goods and services stemming from cost containment from, for example, travelling and telecommunications. The Department was confident it could meet the shortfall.
Ms M Khawula (EFF) thought the Department was just playing games with the Committee – Members were seeking an answer it would not get soon. The truth was that money was spent on things which could not be accounted for.
The Chairperson clarified that the APP dealt with money still to be spent and not money already spent.
Mr Basson noted that in prior discussion, when asked, the Department said it would not save money from programme one and two. Now the Committee was hearing a different story in terms of goods and services. He suggested the DG and CFO be given ten minutes to present a straight answer to the Committee instead of piecemeal promises – he wanted to know how R3.5 billion would be saved. The Committee could not approve a budget when the Department did not know how its debt would be paid.
Mr Chauke stated the grants in programme three were meant to go directly to municipalities – what effect would tampering with this money have? The Committee needed to adopt a budget that it knew how debt and shortfalls would be paid. Serious intervention with Treasury was required. He then wanted to know who was paying for the artisan training programme – was it the SETAs or the Department? Members were now looking at what could be juggled to produce a saving.
The Chairperson suggested the Committee work on its recommendations in the report on its own whilst the Department worked on the figures.
Mr Basson emphasised that it must be understood the money the Department would be taking away would have a huge effect on the water boards which were the implementing agencies. Some projects would not be able to go ahead as a result. The Department could find itself in the position, in the next financial year, where water boards will be in the red because they did not run projects because the money was used to pay old debt – this created huge problems. He did not think the current budget of the Department could be accepted by the Committee – National Treasury must bail the Department out because it was unacceptable that money for grants was used to pay old debt while the people on the ground suffered. The Department would have to influence Treasury to bail it out, like it was doing the water trading entity, with R1.9 billion.
The Chairperson cautioned Members about pre-empting what was to come or to happen. He allowed the Department to go outside for 10 -15 minutes to provide a concrete response to the Committee while Members continued looking at the observations and recommendations of its report.
Ms Baker wanted to know if the report made mentioned of the percentage of targets achieved last year.
Mr Basson noted that some of the figures under paragraph 7.1.2 were incorrect.
Ms Baker again requested a copy of the agreement for the overdraft for the water trading entity.
The Chairperson said this would form part of the recommendations. The terms of the agreement would also have to be made known.
Mr Basson wanted to know if the SA Reserve Bank charged interest on that overdraft. If so, the reported amounts would not be as reflected and would be much more. This was something for the Department to answer.
The Chairperson assumed that all banks would charge interest.
Mr Mnguni highlighted that “30 March” under paragraph 7.1.2 was meant to be “30 June”.
Ms Baker requested that when policies and other relevant documents were approved, it be made available to the Committee – it was sometimes difficult for Members to find such online. Some of the policies directly influenced the work of the Committee. It was also important that the Committee engage on these policies with the Department.
The Chairperson agreed – engagement with Parliament needed to be part of the Department’s policy processes.
Mr Basson was concerned about the cost of the debt collectors for the water trading entity – to have the debt collection done internally would save money. The Committee and COGTA could intervene in this regard – contracting the work of debt collection for a rate of11% did not make financial sense.
The Chairperson asked what the market norm was for debt collectors.
Mr Basson thought it should be at 3% – 4% for the amount under discussion because the client did not need to be traced – the collectors knew the municipalities and who to speak to.
Mr Basson noted the figures in paragraph 7.1.4 were incorrect – some of the water boards said the Department was owing R200 000 or R300 000. The Minister was speaking on amounts as of end of February and not the end of March. The final figures needed to be verified because the amounts have grown from February to March.
The Chairperson suggested alternative wording for the paragraph. The final amounts can be provided to the Committee.
An official from the Department noted that the outstanding amount was from Sedibeng.
Mr Basson said there should be a concrete answer on the total outstanding amount as of end March. This amount would also need to be paid from the budget for this financial year.
The Chairperson said the matter could be returned to when a final amount was provided by the Department.
Ms Baker said the service level agreements should be to continually monitored especially the escalation of the figures.
Ms Khawula thought the text explanation for money outstanding and money paid was somewhat misleading and suggested it was best in tabular form.
The Chairperson reminded the Member that the Committee would return to that point once the Department presented a solid answer on the outstanding amount as of end March.
Ms Baker was concerned about the effects of taking funds from the grants on the Bucket Eradication Programme especially when there was already a shortfall – the ripple effects were massive and the programme would fall even further behind. Where would the shortfall come from?
Mr Basson added the Bucket Eradication Programme would just stop because there was no funding for it.
The Chairperson said it was like taking from Peter to pay Paul to then pay Simon.
Mr Chauke thought the Committee’s exercise was futile because there was so much confusion.
Mr Mnguni said the Department was spinning the heads of Members.
Mr Basson proposed the Committee did not accept the budget. The Department should be sent back and return with a revised budget which was cash-funded. There should be documented information on how the budget would be funded. There was enough time to do so.
The Chairperson said the budget vote debate was critical because it was there that Parliament declared whether it supported, or did not support, the budget. The debate could be not carried out half-heartedly. He questioned the implications of rescheduling the debate. This was a serious matter everyone was confronted with.
Ms Mahdiyah Solomons, Committee Secretary, was informed that if changes to an APP were not significant, the Committee could note its report. The issues relating to the budget now were quite significant. The Chairperson would have to write to the House Chairperson requesting the debate be postponed and to request that the Minister re-table the budget. The changes being discussed by the Committee would significantly impact the APP and Strategic Plan of the Department. She would seek further guidance on the process.
Mr Chauke emphasised that the Committee needed to follow the Rules on this matter. The above proposal might be the route the Committee needed to take because the changes being discussed were not minor amendments. A shortfall of R2.2 billion was significant and must be paid otherwise it would escalate and have further impact on the budget. Debt could not be paid with money intended for grants. It was also important to involve the Executive Authority at this stage. The Committee could not be rushed into passing a budget it could not account for – the Executive needed to be held accountable through a budget the Committee itself was satisfied with. The APP of the Department was wonderful but the budget itself was problematic. The Committee was trying to forge a partnership with the Department on the budget and APP – this partnership could not be forged if the budget was not clear.
The Chairperson said the Committee would not go ahead with Friday’s budget vote debate. The Committee will investigate the rules to reschedule the debate. There were a number of matters to look into which were not gelling and these issues were significant as it involved the budget. As a result, it was thought best to postpone the debate. It was concerning that shortfalls would have to be offset by reprioritising funds from other programmes and from two grants, in the main. It was best for the Department to do a proper job of relooking at the budget. Members also wanted to know if the money from the Reserve Bank would be charged interest.
Mr Nel responded that the Reserve Bank said it could have charged the Department interest but it would not do so.
The Chairperson said the Committee needed to work with black and white proof of agreements and not word of mouth. There was no bank which would not charge interest – it was how the banks survived. The Committee would need the agreement on the interest, or non-interest, charged in writing so that there was clarity and no confusion moving forward.
Ms Baker highlighted other matters of concern – she wanted to know who the service provider appointed for the national water infrastructure agency was, why they were appointed, who took the decision and when the agency would see the light of day. Timeframes for the internal construction was also required. Closer interrogation was needed on the monthly stipends paid to board members of the catchment management agencies.
Ms Solomons clarified that the Committee could not postpone the budget vote debate – it is at the debate that the budget was either supported or rejected. Concerns could also be raised at the debate regarding the budget, APP or any other issues.
Mr Chauke said this meant the Committee had two options – proceed engaging with the Department or reject the budget at the debate. He suggested the Committee proceed engaging with the Department until Members were satisfied with the response on how the shortfall would be funded and what the implications of reprioritising were and what it meant for meeting targets. The Committee required a clear detailed breakdown of the debt. He thought the Department was shy to say a bailout from Treasury was required. It would not be helpful for the Committee to simply reject the budget of the Department at the debate – a way forward needed to be found. It was not a given that the ANC would simply accept any budget. The Committee needed to do its best to forge a relationship with the Department to resolve the obstacles faced – intervention was required.
The Chairperson asked the Department what it thought about bail out. Money needed to be found somewhere to make up for the shortfall. Whether the Committee liked it or not, the budget debate must continue and the concerns of the Committee would have to be raised at that political platform.
Ms Baker recommended the Committee note its concerns – the entire budget would not be rejected because there were specific programmes which were of concern. Quarterly reports or progress reports were to be provided by the Department on the particular concerns of the Committee.
Mr Basson proposed the meeting be postponed until the Minister was available – the Committee could meet tomorrow afternoon to resume discussion. The alternative option was to reject the budget. Shifting the few funds of the Department around would not work – the Committee could make it clear it would not allow funds be shifted from the grants and a bailout was necessary. Salaries would be paid to employees doing nothing because no projects were being run due to lack of funds. Explanation of the Department was required in tangible black and white form – he was not comfortable accepting the piecemeal answers being provided to the Committee currently. There should be urgent intervention by the Minister and Minister of Finance to ensure a bailout was considered. The Department could not receive a bailout unless it asked for it. The Department needed a R3.5 billion bailout.
Mr Matshitisho said a bailout could be mean different things – the Department spent a lot of money in the provinces for various types of interventions such as for the drought. This money was supposed to have been resourced from the Disaster Management Centre – a bailout could, in this context, be a sort of reimbursement from the Centre under the guidance of COGTA and other departments. The Department was not in the position of being everything being out of control. There were projects in the grants which would continue because there was funding for those projects. The Department required support from the Committee. The Bucket Eradication Programme was not a lost cause because other agencies could contribute to its funding such as COGTA. Through innovation costs could be cut. The current situation was not a train smash – focusing on the core mandate of the Department was what was needed now. The SA Broadcasting Agency and SA Airways were bailed out by Treasury but the Department is not in the situation those entities were. The Department was in communication with Treasury on challenges faced and its advice was to reprioritise funds. Projects under the Regional Bulk Infrastructure Grant would still go ahead as they were funded. The war on leaks programme could be funded through intergovernmental funds together with the private sector and donor funding. The challenge was not an insurmountable one.
Mr Mkhize added a detailed breakdown of the debt could be provided to the Committee, per region, per service provider and to the last cent. Of the R1.5 billion shortfall, R1.3 was for Regional Bulk Infrastructure Grant (RBIG) projects. In the region, some work was already underway. The RBIG was multiyear. Funding pressures of the Department was not yet debt - some projects could be done without while other projects would be small-scaled. In a nutshell, the debts and accruals were covered under RBIG while the rest was covered under normal goods and services. Sedibeng owed the Department about R1.7 billion and this was not factored into the budget – the Department was in an advanced stage of looking at who owed it including Sedibeng. If the money was paid in the financial year it would assist in alleviating some of the funding pressures experienced currently. He gave the Committee the assurance that the multiyear projects under RBIG were covered.
Mr Basson said there were now three versions of where the money would come from and this concerned him even further – the information was not speaking to each other. How could the Department expect to be paid by Sedibeng when the municipalities owed Sedibeng? How could old debt be included in the budget of the Department when it had no guarantee the money would be paid? The Member did not trust the information being received.
Ms N Bilankulu (ANC) thought the Committee had decided it would meet again with the Department in order to get satisfactory answers.
The Chairperson agreed. The Rules stipulated that the Committee must produce a report which would be tabled for debate. Recommendations of the Committee was most important and was to be communicated to the Department. If the Committee’s concerns were serious, its recommendations should be clear and specific in terms of timeframes for reporting back to Parliament. The Executive Authority should meet with the Committee before the report was adopted. The budget vote debate would go ahead.
Mr Chauke agreed. The Department was to provide the Committee with the breakdown of the debt and implication of the shortfall on targets such as under the Bucket Eradication Programme. An urgent meeting should be scheduled for tomorrow for a proper briefing before the Committee adopted its report and recommendations. The Department should also provide a report on the spending for training of individuals deployed to the war on leaks programme – was the funding for this programme coming from the Department’s allocation? If so, where was the money coming from? How much was being spent?
The Chairperson said the Committee would meet tomorrow at 14h00. Further details would be communicated to Members. The Minister would have to be part of the meeting.
The meeting was adjourned.