Lepelle Northern Water Board on its 2015/16 Annual Report

Water and Sanitation

30 May 2017
Chairperson: Mr L Johnson (ANC)
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Meeting Summary

Annual Reports 2015/16 

Lepelle Northern Water Board was established in terms of the Water Services Act 108 0f 1997 to provide water services to other water service institutions within its areas of operations. The Board presented its 2015/16 Annual Report.

It was highlighted that part of the new rules of the House was that the Committee meeting should consist of a third of its members.

Lepelle Northern Water Board reiterated the board’s commitment in doing its work and that in February 2017 the Board could not present its report to the Committee due to a number of reasons but had never intended to undermine the authority of the Committee over the work that they do.

Highlights of the annual report as well as the emergency interventions to bring water to the various communities in Limpopo, which included water supply interventions in Giyani and Nandoni and water supply interventions in Tzaneen Wards were elaborated on. The approach to these interventions were categorised as Critical/Short term emergency projects milestone, Medium /Long term emergency projects milestone and Other projects milestones.

 A history of the projects was shared, beginning in 2009 when the district of Mopani was declared a disaster due to acute water shortage and sanitation services in the area. Giyani was one of the areas hardest hit by this disaster.  A number of interventions were taken by government, both at local and national spheres, many of which could not succeed including the Nandoni and Nsami pipeline which was implemented by Mopani District municipality as an implementing agent of the Department of Water and Sanitation.  This intervention was challenged in the Supreme Court of Appeal in relation to the manner in which the procurement was done.  The service providers could not proceed and the Supreme Court directed the Department to take over. Around August 2014, the President addressed the House on a number of issues including when Giyani would get water.  A commitment was made that by October 2015 the community of Giyani would get water.  Following this commitment an Imbizo was held with the Minister. The Imbizo unearthed the compounding crisis in relation to water and sanitation services.  Lepelle Northern Water Board was directed to restore, on an emergency basis, the water and sanitation services in the area with a major focus on 55 villages.

Some of the critical short-term milestones of the intervention were the 16 priority villages of ground water augmentation, Nkehsani hospital ground water augmentation, Giyani, Morogholo, Kremetart and Khanyisa booster pump station. Nsami water treatment plant and Kremetart high and low reservoirs were all complete as a result of the directive. The progress of all the designs was almost 100% complete and expected completion date was 30 June 2017. Water Supply Interventions in the Wards and progress of water supply projects at wards 24, 25, 26, 27 and 24 villages within the greater Tzaneen Local Municipality included the Tours bulk water supply, Thabina bulk water supply, Lephephane bulk water scheme and Nkambako bulk pipeline designs were 100% complete. Work on Tours bulk line was 10% complete.

Members welcomed the report and remarked that there were two dams in Giyani which did not get any water unless the other dams in the area overflowed. They highlighted that the ZZ2 farm was blocking and denying access to water. Members queried the completion dates of the medium/long term projects milestones regarding the status stated to be confirmed upon finalisation, and shared an experience they had on visiting one of the waste water treatment plants which was fairly new. The plant took the water that had been treated to the river which had some eco-systems to be protected and the quality of water was questionable. They asked if the board could not engage with the farmers in that area in order to include them in the process in order to easily redirect the water and re use it for farming purposes. Members asked about the borehole water which was at 96% in progress and electrification was required to complete the work, and asked who would be responsible for electrification.

The Department and the Board responded to the questions and concerns. In relation to the ZZ2 farm, the report received stated that the farm received water from the mountains and springs and shared water with two private farms. The investigation conducted showed that the farm complied with legislation and did not block or deny access to water. In relation to use of water by agricultural communities for farming and social consumption, Limpopo water was also maintaining a balance for social and economic use of water and that agriculture was one of the biggest water consumers and not less than 54% of water was being consumed, hence that water issues would be resolved by 2035 according to the Limpopo master plan. On completion dates, the Board said construction had not yet started and it would be difficult to state when exactly the construction project would be finalised.

Members commented that every project must have a timeline with dates and these dates could not be determined as you go along but instead, beforehand. They asked if the Board needed funding.

The Board responded that its first mandate was limited to the design and the second phase was subject to the availability of funds.

The 2015/16 annual financial report was presented. The board attained an unqualified audit opinion. Its total liabilities were R 999 629 in 2016 and R 896 179 in 2015. There was no irregular expenditure, no unauthorised expenditure and no fruitless or wasteful expenditure reported during 2015/16 financial year.

Debtors included the Department, municipalities and employees. In terms of legal claims, a service provider was ordered to pay R3.5 million plus interest with legal costs. There was also a land claim concerning the farm purchased in 2003 which became a subject of a successful land claim. The value of the farm was R 2.7 m. The commissioner took possession of the farm in 2005 and did now pay any money to the Lepelle Water Board.  The latter is currently under legal dispute.

Milestones not achieved included the tolerable organisational residual risk, capital projects, debtor days (1102) included Mopani’s old debt, which remains a challenge, and recently the Department. The accounting authority did not take effective steps to collect all money due to Lepelle Northern Water as required in terms of section 51(1)(b)(i) of the Public Finance Management Act, as 80% of total accounts receivable was provided as doubtful debt.

Members said Board members had been making media headlines in relation to negative reporting which included contractors not being paid and mismanagement of funds. They asked how the board dealt with Black Economic Empowerment as it was a revolutionary topic. They asked details of the amount owed by the Department and municipalities.

The Board said a report on the debt owed would be furnished and called for drastic intervention to assist the municipalities in repaying their debt as non-payment would result in a reduction of water supply. In relation to negative media reporting, matters such as interventions attracted a lot of media attention, the Hawks and National Treasury. Concerning non-payment of service providers, an agreement was concluded to pay service providers within 21 days instead of 30 days. The board stated that in terms of the issue of Black Economic Empowerment, it ensured it contracted contractors from previously disadvantaged backgrounds.

The Chairperson said it had been an interesting session and the issues discussed were robust. The board was certainly doing well and its audit opinions reflected as unqualified. 

Meeting report

Opening remarks
The Chairperson noted that apologies were received from the Minister and Deputy Minister.

The Chairperson highlighted that part of the new rules of the house was that the committee meeting should consist of a third of its members.

Mr Anil Singh, Deputy Director-General: Regulation and Oversight, Department of Water and Sanitation (DWS) in his introductory remarks said the briefing would touch on the highlights of the annual report as well as the emergency interventions to bring water to the various communities in Limpopo.

Mr Thovhele Tshivhase, Chairperson: Lepelle Northern Water Board, reiterated the Board’s commitment in doing its work. In February 2017, the Board could not present its report to the Committee due to a number of reasons; the board had never intended to wilfully undermine the authority of the Committee over the work that they do.  He appealed for the reporting arrangements and logistics to be properly made and adhered to in order to avoid hassles.

Lepelle Northern Water Board 2015/16 Annual Report
Mr Phineas Legodi, Chief Executive Officer (CEO) of the board presented the annual report. He said that the following were the (DWS) interventions.

  • Water supply interventions in Giyani and Nandoni
  • Water supply interventions in Tzaneen Wards
  • Approach to Mopani intervention.
  • The intervention was categorised and prioritised as follows
  • Critical/Short term emergency projects milestone
  • Medium /Long term emergency projects milestone
  • Other projects milestones.

Mr Legodi gave a history of the project. In 2009, the district of Mopani was declared a disaster due to an acute water shortage and sanitation services in the area. Giyani was one of the areas hardest hit by this disaster.  There were a number of interventions that were taken by government both at local and national sphere, many of which could not succeed, including the Nandoni and Nsami pipeline implemented by Mopani District municipality as an implementing agent of the Department of Water and Sanitation (DWS).  This intervention was challenged in the Supreme Court of Appeal in relation to the manner in which the procurement was done.  The service providers in charge of the work could not proceed as the Supreme Court directed the DWS to take over.  Around August 2014 the President of the Republic addressed the House on a number of issues, including when Giyani would get water.  A commitment was made that by October 2015 the community of Giyani would get water.  Following this commitment there an Imbizo held with the Minister. The Imbizo unearthed the compounding crisis in relation to water and sanitation services. The community shared sentiments that women were walking a distance to the river to fetch water and some of them were raped as a result.  The local hospital was without water services, patients could not receive proper treatment and some consumed polluted water from the river brought by their relatives during visiting hours.  New-born babies were discharged without bathing.  There was a cholera outbreak and the state infrastructure was too dilapidated.  The resolution of the Imbizo was that Lepelle Northern Water Board be directed on an emergency basis to restore the water and sanitation services in the area with a major focus on 55 villages.

Some of the critical short-term milestones of the intervention which were the 16 priority villages of ground water augmentation, Nkehsani hospital ground water augmentation, Giyani, Morogholo, Kremetart and Khanyisa booster pump station, Nsami water treatment plant and Kremetart high and low reservoirs, were all complete as a result of the directive. They were also working on the pipelines delivering water to the communities and the pipelines were on average 80% complete.

The medium and long-term project milestones that they were working on would impact work in Giyani as well as work outside Giyani, as that would ensure the security of water.  The progress of all the designs was almost 100% complete and expected completion date was 30 June 2017.  The bulk pipelines could not be complete and as a result, the situation worsened hence interventions were currently being implemented. Implementation of bulk pipeline from Nandoni to Giyani would be complete by 30 March 2018. The area normally ran dry in winter. The raising of Tzaneen Dam, new Nwamitwa Dam and Nkambako bulk pipeline were almost 100% complete. The revitalisation of existing 154 boreholes (with package plants) augmentation to the water scheme were in progress. The life span of the pipelines they were working on was expected to be 55 years.

In terms of the village breakdown, the total number of villages was 55. All the villages were receiving water although the communities still had difficulty in accessing water. Work still had to be done to ensure that none of the community members walked more than of 200 meters to access water. Pipeline F1, F2, A, B, C and D were supplying water to these communities but were being repaired as they were dilapidated. New pipelines would be commissioned to replace to old ones.

Water Supply Interventions in the Wards and progress of water supply projects at wards 24, 25, 26, 27 and 24 villages within the greater Tzaneen Local Municipality included the Tours bulk water supply, Thabina bulk water supply, Lephephane bulk water scheme and Nkambako bulk pipeline designs were 100% complete. Work on Tours bulk line was 10% complete.

Discussion
Mr T Makondo (ANC) welcomed the report. He was worried about Mr Anil Singh because in the previous week, he was watching television and he realised that there was a problem in Giyani because of the DWS. There were two Dams in Giyani which did not get any water unless the other dams in the area overflowed. This problem could be attributed to lack of planning. Community members would go without water for two to three weeks. He spoke on the issue of water tinkering in Tzaneen and asked who was conducting work on this dam; and said that the ZZ2 farm was blocking and denying access to water.

Ms T Baker (DA) queried the completion dates of the medium/long term projects milestones regarding the status stated to be confirmed upon finalisation. She thought there was a timeline for all the projects and therefore those time lines must stipulate the completion dates. Completion dates could not be determined after looking at the designs but were in turn supposed to be part of the planning process. She also asked if funds had been sourced for projects awaiting funding.

Mr H Chauke (ANC) said planning was important. Regarding the interventions done by the Board, he hoped that the portfolio Committee was satisfied with the work done and it was value for money.

Mr M Johnson (ANC) said they had in the past visited one of the waste water treatment plants which was fairly new. The plant took the water that had been treated to the river which had some eco-systems to be protected and the quality of water was questionable. He asked if they could not engage with the farmers in that area in order to include them in the process in order to easily redirect the water and re use it for farming purposes.

Mr M Galo (AIC) asked about the borehole water which was at 96% in progress and electrification was required to complete the work; who would be responsible for electrification?

Mr Singh responded to the questions and concerns.
In relation to the ZZ2 farm, the report that they received from the DWS stated that, the farm received water from the mountains and springs and shared water with two private farms. The investigation conducted showed that the farm complied with legislation and did not block or deny access to water. The DWS would have to get back to the Committee after conducting a thorough investigation as the current report did not show any violations and that legal action compelling the farm to grant access would be instituted. He agreed with Mr Makondo that further planning needed to be coordinated.

Mr Legodi said in relation to use of water by agricultural communities for farming and social consumption, Limpopo water was also maintaining a balance for social and economic use of water. Agriculture was one of the biggest water consumers and not less than 54% of water was being consumed. It was found that consumption included using in accordance with immediate need. Water issues would be resolved by 2035 according to the Limpopo master plan. After treatment, use of water had to be reallocated and could not be an automatic move.

Concerning water tinkering in Tzaneen, they established a water steering technical committee to ensure that water tinkering is put to an end as per new Mayor’s request. Tzaneen was set to conclude a water services supply with Lepelle. Such interventions would help the municipality stop the water tinkering. Rising of the Tzaneen dam was done by the construction unit of the DWS and the conclusion was that Lepelle takes over as the construction unit was delaying. Lepelle took over and the work would be completed by July 2017.

Mr Legodi responded to Mrs Baker’s question concerning completion dates; completion was in relation to the construction which they had not yet started and it would be difficult to state when exactly they would finalise the construction project.

Mr Baker commented on Mr Legodi’s response regarding the project and stated that every project must have a timeline with dates and these dates could not be determined as you go along but instead, beforehand.

Mr Chauke asked if Lepelle needed funding. In relation to the projects, the board members must explain the work they do in order to justify their salaries. Interventions needed to be justified.

Mr Legodi responded to Ms Baker’s question. The dates were subject to availability of funds from the DWS. Their first mandate was limited to the design and the second phase subject to the availability of funds.

Ms Baker asked at what stage the funding was supposed to be secured, whether before or after the project.

Mr Johnson added that there was a consultant engineer who had gone through the entire design process and must have known the dates. There was a lack of good planning.

Mr Chauke stated that work had already started and in terms of the timeline, asked Lepelle how much it would cost. He asked how much was needed as there was a shortfall of R2.2 billion in the budget.

Mr Legodi responded that the DWS was faced with a number of competing priorities. A number of projects go through the planning stage and they prioritise projects. The project by Lepelle had been allocated funds but only needed to clarify how to allocate the cash flows for the duration of the projects. They had not yet sat down to look at the cash flows because there had not been a formal handing over of the designs to the DWS.

Mr Chauke requested that the ommittee be furnished a detailed report on the budget so as to clarify any discrepancies.

Ms Baker was not happy with the response to her question. She asked what the core mandate of water boards was because they were continuously being used as implementing agents and one of their biggest debtors was the DWS. This was setting up the water boards for failure as they were being used as implementing agents and at the same time were not being paid, she had a huge problem with that.

Mr Legodi said they had entered into service agreements with all their service providers. They were also happy with their work in Giyani and the project had been able to deliver employment opportunities as follows; 29 interns had been appointed, 165 borehole operators, 78 semi-skilled and skilled labourers.

Eskom would help to complete the boreholes by the end June to complete the phase of the intervention.

The Chairperson said the point raised by Ms Baker about the core mandate of the water boards should not be looked at as an intervention.

Mr Makondo said there was a serious problem in relation to the ZZ2 farm, farmers were farming along the canal area because the ZZ2 farm was denying access. He knew this because he lived in the area. A report to that effect was submitted to the Premier of the province.

Mr Chauke commented on Mr Makondo’s allegation and requested to be furnished with a report to that effect and suggested that an oversight visit to the area be conducted to confirm the allegations in relation to the ZZ2 farm.

Ms L Malamba, a member of the board, said the issue of water was not unique to the water sector and that they had the same challenges as other entities. She gave an example of a mine having electricity throughout the night while the villages surrounding it had no electricity. Most of the farmers that own the boreholes have electricity and the have the right to abstract water thereby denying access to water around them. If water were not properly legislated there would be unequal access to water and the majority who do not have access would be left with anger.

Ms M Mphahlele, a member of the board, said she was happy with the Committee’s contribution when it stated that if the board was having financial challenges, then a certain amount would be allocated to it in order to overcome those financial challenges. She would welcome any reschedules of budgets as this would ensure that the communities were at a better level.

Mr N Motsepe, a member of the board said that “if there was an animal in the room, then it must be removed”, whether politically or socially. If there were any problems with water, then those problems should be dealt directly. The issue of the funding needed to be dealt with thoroughly.

Mr B Sebola, a member of the board, said that in relation to ZZ2 farm, no one was allowed to block water but must in turn allow free flow in order to feed the animals. They needed further engagement in order to find out the reason behind ZZ2 farms actions.

Mr M Tshivhase, Chairperson of the board, said they needed to fast track the promulgation of the National Water Bill because it contains a principle that if you cannot use the water as a farmer, then release it for use by other people.

Mr Makondo said there was a similar situation in Baviaanskloof, where there was no water in the community. There was a servitude registered for a borehole for the town and eventually it became a problem and he wrote to the Minister and the Department was busy with expropriation on that property. Currently, that property belongs to the municipality which was currently busy with its registration.
 In relation to ZZ2 farm, there should be an agreement negotiated by the board. He currently does not know how ZZ2 farm got its rights but there should not be a problem, they were the biggest farmers in South Africa and are BEE company. He raised a concern about the DWS appointing water boards as implementing agents without allocating any funds, and that needed to be taken seriously.

Mr Singh said the DWS was busy with a programme on water allocation reform. Once they completed the process and verified the water use, then they would be able make more water available. He was not disputing the report Mr Makondo referred to and they would investigate. If there was over extraction, it would be stopped. The DWS needed to see what they could do now with existing legislation while awaiting the approval of the new legislation.

The Chairperson commented on Mr Singh’s response, he thought Mr Singh would indicate what was being done about ZZ2 farm instead of speaking of other things.

Mr Singh said they would look into ZZ2 farm, though he was caught off-guard concerning the matter hence he would fully investigate.

2015/16 Annual Report

Overview of the financial performance
Mr Legodi said a comparison between the audited performance between 2011/15, the surplus margin was R 69 490 million and in 2015/16, the surplus was R103 450 million. Total assets in 2016 was R 1 346 251 and it in 205 it was R 1 083 504. The total liabilities were R 999 629 in 2016 and R 896 179 in 2015.

Ratios

Liquidity: The current ratio: 2.4

Cash flow operations: The cash and cash equivalent at the end of the year amounted to R 79.9m

Return on assets: The ratio on return on assets is 12%. This illustrates the entity’s effectiveness in using its investment assets.

Debtor days in sales: During the period under review, the debtor days’ analysis reflected an increase to 625 days. This was due to continuous non-payment by the major customer

Other ratios applicable
. Gross profit margins 53%
. Debt to equity 32%
. Net profit margin 23%

Mr Legodi said there was no irregular expenditure, no unauthorised expenditure and no fruitless or wasteful expenditure reported during 2015/16 financial year.

Their debtors included the DWS municipalities and employees. They ran a skills development programme to upskill their employee’s skills whereby they gave the employee a study loan, if that employee is successful academically, the loan is converted into a bursary and they don’t have to repay it. But if they fail, the full loan has to be repaid.

In terms of legal claims, a service provider was ordered to pay R 3.5 million plus interest with legal costs. There was also a land claim concerning the farm purchased in 2003 which became a subject of a successful land claim. The value of the farm was R 2.7 m. The commissioner took possession of the farm in 2005 and did now pay any money to the LNW.  The latter is currently under legal dispute.

Mr Legodi said the mile stones not achieved included the tolerable organisational residual risk, capital projects, debtor days (1102) included Mopani’s old debt which remains a challenge and recently the DWS.

Matters relating to the audit report per year
The accounting authority did not take effective steps to collect all money due to Lepelle Northern water as required in terms of section 51(1)(b)(i) of the PFMA, as 80% of total accounts receivable was provided as doubtful debt.

Mr S Mkhize, a member of the internal auditing team, said that the municipalities owing were affecting their revenue.

Discussion
Ms Baker requested the report of all outstanding debt owed by municipalities reflecting the full amounts owed.

Mr Chauke said board members had been making media headlines in relation to negative reporting. He requested details surrounding the negative reporting which included contractors not being paid and mismanagement of funds. He asked if the board received salaries and remarked that if they received unlawful earnings, an explanation had to be rendered. He then asked how the board dealt with Black Economic Empowerment as it was a revolutionary topic. He asked if the board had any relationship with the Water Research Commission.

Mr Johnson said that there was an EFF letter that was going viral on WhatsApp chat group demanding payment and money from the President. From this, one could smell a direct interest from the EFF hence such demands were made. He asked if the EFF was contracted by the board as they clearly had a vested interest on the project in Giyani.

Mr Legodi said a report on the debt owed would be furnished. They were owed by Mopani as its biggest debtor. In order to collect the money owed, they concluded a debt repayment agreement and a repayment of R350 million had been received since. Unfortunately, this repayment entails that they are repaying an old debt whilst having a current one, as a result, the current debt continues to accumulate. He called for drastic intervention to assist the municipalities in repaying their debt as non-payment would result in a reduction of water supply.

In relation to negative media reporting, matters such as interventions attracted a lot of media attention, the Hawks and National Treasury.
Concerning non-payment of service providers, an agreement was concluded to pay service providers within 21 days instead of 30 days. Before a payment is made, an onsite visit is conducted to check the amount of work done and a payment is made against such work and this process took time, hence accusations were made that the board were not paying contractors.

He then turned to the issue of BEE and said that the board ensures that they contract contractors from previously disadvantaged backgrounds. The board had its own waters research unit.

Mr Legodi commented on the issue of the farm the board had purchased but later become a subject of a legal claim. The board had conducted some geological studies which found that there was too much water on that farm hence, the board decided to drill some boreholes. Halfway, it was realised that the farm was subject to a land claim hence they decided to have a refund of the purchase price plus interest.

Regarding the viral EFF letter, they did not have details of the EFF having business with any of the subcontractors.

Ms Baker asked for an indication of how much was owed by the DWS and what impact it had with future projects.

Mr Legodi replied that the DWS owed R 250 million which it had since paid and the board had since paid the service providers.

Mr Makondo asked if Lepelle Northern Water board owed any of its service providers.

Mr Legodi responded that the board did not owe its service providers.

The Chairperson said it had been an interesting session and the issues discussed were robust. He said the discussions had started as early as August 2014. The board had achieved its targets. The board had in the past been involved in a programme which was hauled by a court process. The board was certainly doing well and that its audit opinions reflected as unqualified. A situation had occurred in Overberg the full board complement including the suspended CFO and acting CFO would be invited by the Committee

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