Department of Water and Sanitation on Quarter 1 performance; with Minister

Water and Sanitation

23 August 2017
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

The Department of Water and Sanitation briefed the Portfolio Committee on Water and sanitation on its first quarter report for 2017/18. Before the briefing, the Committee discussed the recently concluded oversight visit where a situation between a Department official, Ms Zandile Mathe and the Committee Whip, Mr H Chauke (ANC) developed that negatively affected the oversight trip. Although the Committee decided on a closed session to discuss this matter after which the Minister will be informed, Members were of the opinion that ‘MPs are allowed to raise issues as and when due and the Committee will not accept of attitude from Department staff that undermined MPs’.

Members also lamented the fact that the document to be presented by the Department was only circulated just before the meeting started. The Chairperson proposed that a different day should be set aside for MPs to engage the Department on the document. It was necessary for the Committee to go through the first quarter report and Annual Report (AR) in order to engage properly. The discussion will also take into account previous discussions on the Annual Performance Plan (APP) and the budget.

The Minister explained that the delay in circulating the document was due to additional information arising from issues that needed to be dealt with outside the scope of the quarterly report. The issues include suspensions within the Department and information technology (IT).Three Deputy Director-Generals (DDGs) were suspended but two of them were present at the meeting based on the fact that no charges were served on them within the specific time of suspension. This did not mean that the allegations made against those two DDGs will be overlooked. The DDG responsible for regulations has also been suspended on the basis of his core functions, which centered on regulations, including carrying out oversight on implementing agents.

The Committee will schedule a close session where the Minister and Acting DG can share in confidence the events leading to the suspension of the senior officials. The session will be aimed at addressing the issues that the suspended DG could not address. It would also afford Members of the Committee an opportunity to make helpful contributions to assist in resolving the concerns within the Department.

According to the Department, the total accruals and payables reported as at 31 March 2017 was R1.5 billion. Of the accruals and payables reported at the end of the financial year, R886 million has been paid to date. The outstanding payments were those where the Department still had issues with the service providers and verification was still ongoing.

The sum of R1.5 billion owed to contractors at the end of March 2017 would be settled in the 2017/18 financial year. The impact of this debt on the current budget was a reduction in the budget to take care of the accruals. The Department has therefore reprioritised its Accelerated Community Infrastructure Programme (ACIP) and Water Services Infrastructure Grant (WSIG) for projects that are yet to commence in order to take care of accruals. The Department overspent on its budget by R110 million. Ordinarily, National Treasure does not condone over-expenditure. However, the Department would present details of over-expenditure to Parliament for Parliament to either condone or not condone the over-expenditure.

The Water Trading Entity (WTE) has been using SAP software since 2006, which was updated in 2014 to the latest version. The latest version has been rolled out to the existing cash management agencies (CMAs).

With regard to the financial performance of the main account, R2.2 billion was spent in the first quarter, representing 15% of the allocated budget of R15.1 billion. Indirect transfers of RBIG amounted to R2.7 billion for all provinces. R6.9 million was spent in the first quarter. The total amount for the Regional Bulk Infrastructure Grant (RBIG) for water boards was R1 billion. As for WSIG, no direct transfers were made in the first quarter. However, R240 million was spent out of the sum of R587 million budgeted for indirect transfers. The total budget for ACIP was R214 million. However, only R14 million was spent in the first quarter.

The amount budgeted for revenue was about R3.2 billion. The Department has been able to bill R3.7 billion.. The operating expenditure therefore, amounted to R2.3 billion, of which R2.1 billion was spent.

Members wanted to know if the repriorisation of the ACIP and WSIG was in line with the coming adjustments and the Committee also wanted details on the programmes from which the sum of R886 million for accruals was paid and if the R886 million paid to date meant payment till the current date or the end of the first quarter. The Department was asked to indicate the dates of payment and to whom payments were made. This was particularly necessary because the National Treasury report states that the main reason why an amount of R814 million was yet to be spent was because the Department had not paid contractors for projects; various institutions; as well as water boards.

The Committee wanted to know why the Department could not restrict water use to farmers, coal mines, industries and the likes that owed the Department money whilst making money through the usage of water. There was a request for clarity on the disparity between the 100% achievement recorded for CMAs under analysis per budget programme (as seen on slide 22 of the attached document) and the 28% achievement recorded for the same programme under income and expenditure for proto-CMAs (see slide 90 of the attached document).

Meeting report

The Chairperson noted that a draft programme had been circulated among MPs a while ago. Before now, the Committee has not reflected nor submitted inputs on the draft programme. It was therefore, expected of the Committee to make its input on the circulated programme. He also noted that the Committee was expected to convene in the coming week (on 29 and 30 August 2017) that has been set aside for the celebration of International Women’s Day.

Mr H Chauke (ANC) remarked that the Committee needs to reflect on the documentation of the agenda vis a vis the position that was taken by the Committee at the previous meeting. It was also necessary for the Committee to discuss and reflect on the just concluded oversight trip in anticipation of a report on the trip that would capture urgent matters to be addressed.

The Chairperson said that a communication was released from the Committee secretariat on 28 June 2017 which was a draft programme sent to the Department. The normal procedure was for the Department to respond to such communication, while treating any further communication as a reminder. A report of the oversight visit will be presented and debated in the Committee before subjecting it to the National Assembly for final adoption with all the recommendations. However, an unfortunate situation arose during the oversight visit, where a Department official had an issue with one of the MPs, which bordered on misbehaviour. The matter escalated to the point where it affected the visit and it was agreed that the issue would be discussed in the Committee. The issue was one that should be nipped in the bud so as to avoid a recurrence of such. MPs are allowed to raise issues as and when due. The Committee will not accept an exhibition of attitude from Department staff, especially one that undermines any Member of Parliament. The situation was one that affected Ms Zandile Mathe, and the Committee Whip, Mr Chauke.

Mr Chauke mentioned that he has been involved in oversight visits for many years, and was therefore cognisant of the way MPs carried out oversight functions relating with the staff of the relevant department. He proposed that the Committee should prepare to deal with this issue as it would be captured in the report of the oversight visit. It was therefore necessary for the report of the oversight to be prepared and submitted to the Committee timeously in order to discuss these issues. Whenever a portfolio committee embarks on oversight visit and the relevant department appoints a senior person for the said visit, the committee would expect such person to be one that is knowledgeable on the conduct of oversight visits. He proposed that a closed session of the Committee should be organised to address the matter that arose during the oversight visit. The Committee will deliberate on the issue while informing the Minister of the said issue. Recommendations would then be made after deliberations have been concluded.

Mr L Basson (DA) seconded the proposal. He drew the attention of the Committee to the fact that the document that would be presented by the Department had just been received. The only prior information he had on the document was a summary given to him by the Content Adviser. Recommendations were made by the Committee on the first quarter report during budget meetings and before the approval of the budget. It was impossible to check if the recommendations have been incorporated in the document since it was just received. The Acting Director-General (DG) was reluctant in giving a response on the amounts at the SCOPA meeting held on 22 August 2017, whereas specific amounts have been included in the document before the Committee. He opined that the Department was being untruthful and was hiding information hence the late circulation of the document.

Mr T Makondo (ANC) agreed with Mr Basson’s position on the delay in circulating documents to MPs. It had become a practice for the Department to circulate documents late and the Committee has raised a concern in this regard. The delay in circulating documents and information hindered the oversight functions of the Committee. He emphasised the need for prompt delivery of information to MPs in order to assist the Committee in carrying out its oversight functions effectively.

Mr M Galo (AIC) said that it was unfair on the MPs to engage on a document which has just been received, because it was now impossible for the researchers of the Committee and various political parties to go through the document and revert back to MPs.

The Chairperson proposed that the Committee should not entertain the document. Instead, a different day should be set aside for MPs to engage the Department on the document. It was necessary for the Committee to go through the first quarter report and annual report in order to engage properly. The discussion will also take into account previous discussions on the Annual Performance Plan (APP) and the budget.

Mr Chauke proposed that the Department should be allowed to table the report formally at the current meeting. This would enable the research team of the Committee to follow up issues that may be identified from the report, and in effect, result in a more robust engagement by Members of the Committee on the date set for engagement.

Mr Makondo agreed with Mr Chauke’s proposal. He added that the Department should explain the reason behind the delay in circulating the document.

The Minister, Ms Nomvula Mokonyane, explained that the delay in circulating the document was due to additional information arising from issues that needed to be dealt with outside the scope of the quarterly report. The issues include suspensions within the Department and information technology (IT).  The presentation will be made by the Acting DG. It had been agreed that the senior managers of the Department will present on the eight different areas of responsibility within the Department. The three Deputy Director-Generals (DDGs) responsible for the different branches of the Department, together with the acting DDG in charge of regulations were present at the meeting. Mr Sfiso Mhkize was the current Acting DG, and this was because the DG was currently on suspension after being served with charges and disciplinary processes have commenced.

She informed Members that three DDGs had been suspended but two of them were present at the meeting, because no charges had been served on them within the specific time of suspension. This did not mean that the allegations made against those two DDGs will be overlooked. The DDG responsible for regulations has also been suspended on the basis of his core functions, which centered on regulations, including carrying out oversight on implementing agents.

Mr Chauke proposed that the Committee should schedule a close session where the Minister and Acting DG can share in confidence the issues leading to the suspension of the senior officials. The session will be aimed at addressing the cncerns that the suspended DG could not address. It would also afford Members of the Committee an opportunity to make helpful contributions to assist in resolving the issues within the Department.

Mr Basson seconded the proposal.

The Minister clarified that no charges were brought against the two DDGs within the stipulated time and it was for this reason they were called back. However, the allegations brought against them have not been overlooked.

Presentation of the First Quarter (Q1) Progress Report for the 2017/18 financial year

Mr Sfiso Mhkize, Acting DG, Department of Water and Sanitation (DWS), began by apologising for the delay in circulating the document to the MPs and promised that there will not be a repeat of the situation.

The first matter related to the accruals and how they would be dealt with in the current financial year. The total accruals and payables reported as at 31 March 2017 was R1.5 billion (see slide 3 of the attached document for the breakdown). Of the accruals and payables reported at the end of the financial year, R886 million has been paid to date. The outstanding payments were those where the Department still had issues with the service providers and verification was still ongoing.

The sum of R1.5 billion owed to contractors at the end of March 2017 would be settled in the 2017/18 financial year. The impact of this debt on the current budget was a reduction in the budget to take care of the accruals. The Department has therefore reprioritised its Accelerated Community Infrastructure Programme (ACIP) and Water Services Infrastructure Grant (WSIG) for projects that are yet to commence in order to take care of accruals.

The Department overspent on its budget by R110 million. Ordinarily, National Treasure does not condone over-expenditure. However, the Department would present details of over-expenditure to Parliament for Parliament to either condone or not condone the over-expenditure. Where the over-expenditure is not condoned, it would amount to a charge against the current allocation of the Department.

The suspensions have been covered by the Minister. (See slide 6 of the attached document for details). No reports have been received concerning investigations by the Public Protector and Special Investigation Unit (SIU).

The Water Trading Entity (WTE) has been using SAP software since 2006, which was updated in 2014 to the latest version. The latest version has been rolled out to the existing cash management agencies (CMAs).

In the previous financial year the Department procured unlimited licenses that will be rolled out to all entities and implementing agents. The Auditor General (AG) has raised the issue of the Department managing the funds allocated to its implementing agents. The unlimited licenses were procured to ensure that all entities and implementing agents of the Department were on a similar platform as other water entities. This would result in proper management of the resources allocated to the entities. The rollout of licenses would commence with Rand Water, Lepelle Water, Umgeni Water and Umhlathuze Water.

On the allegation of issuing of water licenses, it was pointed out that the Department was not aware of licenses issued without compliance with due process. The Department usually followed due process in water use license authorisation.

As for the non-financial performance of the Department, the strategic goals, objectives, 2017 budget structure, and programme descriptions were highlighted (see slides 10, 11, and 12 of the attached document).

As far as achievement of targets was concerned, 52% of the target for the main account was achieved, 14% was partially achieved, and 34% was not achieved. In addition, 50% of the target set for WTE was achieved, while 25% was partially achieved and 25% was not achieved.

Programme 1 (corporate services) achieved 75% of its targets and financial management achieved 67% of its target. Departmental management did not record any milestone for the quarter. International cooperation however, achieved 100% of its targets.

Under programme 2 that dealt with water planning and information management, the first sub-programme on integrated planning recorded 50% achievement. The targets for water ecosystem were below 50% and were therefore recorded as unachieved. The targets for water information management; and water services and local water management were fully achieved. The target for sanitation planning and management were partially achieved and 50% of the target for policy and strategy was achieved.

Programme 3 focused on water infrastructure development. The first sub-programme under it (strategic infrastructure development and management) achieved 33% of its target, while 33% was partially achieved and 34% was not achieved. In addition, 25% of the targets set for the Regional Bulk Infrastructure Grant (RBIG) were achieved, while 50% of the targets were partially achieved, and 25% was not achieved. It also showed that 50% of the target set for the WSIG project was achieved and 75% of the target set for ACIP was achieved, while 25% was not achieved.

Under programme 4 that focused on water sector regulation, none of the targets set for economic and social regulation was achieved as the achievement rate was below 50%; 75% of the target for compliance monitoring and enforcement (CME) was achieved while 25% was partially achieved.

The targets set for water services and sanitation regulations were fully achieved; 33% of the target set for institutional oversight was achieved. In terms of the detailed water trading performance, financial management achieved 33% of its target, while 33% was partially achieved. Proto CMAs achieved 100% of the target set for the first quarter.

With regard to the financial performance of the main account, R2.2 billion was spent in the first quarter, representing 15% of the allocated budget of R15.1 billion. Details of the departmental expenditure per programme and economic classification were outlined (see slide 25 of the attached document).

A breakdown of the direct transfers of RBIG was also highlighted (see slide 40 of the attached document). Indirect transfers of RBIG amounted to R2.7 billion for all provinces. R6.9 million was spent in the first quarter.

The total amount of RBIG for water boards was R1 billion. As for WSIG, no direct transfers were made in the first quarter. However, R240 million was spent out of the sum of R587 million budgeted for indirect transfers. The total budget for ACIP was R214 million. However, only R14 million was spent in the first quarter.

The budget set for the bucket eradication programme (BEP) in the Free State, which amounted to R145 million. However, R190 million was spent in the first quarter.

Mr Mpho Mofokeng, Chief Financial Officer (CFO), DWS continued with the overview of the financial performance of WTE. The amount budgeted for revenue was about R3.2 billion. The Department has been able to bill R3.7 billion. The budgeted operating expenditure was less than the income in order to deal with the issue of overdraft. The operating expenditure therefore, amounted to R2.3 billion, of which R2.1 billion was spent.

The projected revenue was R9.8 billion, while the projected expenditure would be R8.2 billion. Overall, the expected surplus would amount to R714 million. Analysis of the financial performance was given (see slide 50 of the attached document).

Analysis of the cash in bank and debtor’s age analysis were highlighted (see slide 53 of the attached document). In terms of the debtor’s age analysis, the categories have been grouped into total companies/individuals; total municipalities; total billing agents; total departments; and total water boards. Details of the analysis for each grouping can be seen on slide 55 of the attached document. Comments on municipalities that were not paying for water but were being supplied are highlighted (see slides 66 and 67 of the attached document). The department was however, looking into this issue.

DWS was still sorting out the collection of money from some national departments (see slide 67 of the attached document for details of the comments in this regard). The agreement made with the debt collector only covered debt collection from companies, individuals, departments and municipalities. Water boards and billing agents were excluded from the agreement. Collection interventions have been introduced in this regard. Interventions have also been introduced with COGTA and provincial treasuries. The Department anticipated a stage where the equitable share of municipalities would be surrendered to it.

The total cash that has been collected as at 30 June 2017 was R2.3 billion. It was only during the month of March that collection was below 100%. The Department was able to collect the sum of R115 billion between the period of April and June 2017. This was achieved not only through the debt collector, but also through a customer relations management company that assisted the Department in tracking customers. Of the 27 000 queries received, 25 000 have been resolved, leaving about 2 148 queries yet to be resolved. Quite a number of queries were received on account closure and it was the only category of query that was not resolved as fast as the others, due to the number of processes required in addressing it.

R43 million was budgeted for the rehabilitation of conveyance systems. However, R35 million of the budgeted amount has been spent, translating to about 81% of the budget. The targeted budget for revenue funded capital projects was R72 million but the department spent an average of R49.8 million. The targeted budget for the CMA projects handled by the department was R128 million. R61 million has been spent so far.

Discussion

The Chairperson asked if the repriorisation of the ACIP and WSIG was in line with the coming adjustments.

Mr Chauke reminded the Chairperson of the proposal made by MPs to receive the report formally from the department, and then set aside a day to engage with the Department on the report.

The Chairperson agreed. He proposed that clarity seeking questions should be asked by MPs in preparation for a proper engagement with the Department at a later date. SAP would still have been able to take care of other areas instead of transferring the water board to a separate IT system as was done with SAP. He sought clarity on the value for money and invoicing in this regard.

Ms T Baker (DA) sought clarity on the budgeted amounts and expenditure reflected under ACIP (see slide 45 of the attached document). She also wanted to know how the amount has been requested to be written off by the Department. She sought clarity on the inclusion of separate accounts of debts owed by Msukaligwa local municipality and Ermelo local municipality, as both municipalities were in the same area. She asked if two separate accounts were created.

Mr Basson asked for details on the programmes from which the sum of R886 million for accruals was paid. If the said sum was paid out of the allocated amount for infrastructure, it would mean that no progress has been recorded in the first quarter, on any of the structures. He also sought clarity on whether the submission of payment of R886 million paid to date meant payment till the current date or the end of the first quarter. The Department was asked to indicate the dates of payment and to whom payments were made. This was particularly necessary because the National Treasury report states that the main reason why an amount of R814 million was yet to be spent was because the Department had not paid contractors for projects; various institutions; as well as water boards.

Ms S Khawula (EFF) raised the issue of invoices that were not paid for. She wanted to know how long such invoices would remain unpaid for. She also raised the issue of black farmers who are willing to work but are unable to do so due to shortage of water. She asked what steps would be taken to alleviate the sufferings of people in such situations.

Mr D Mnguni (ANC) asked for the volume of water used by the ZZ2 what the plan of the Department was on the Middle Letaba dam; and what other means can be adopted to ensure payment of water accounts by municipalities besides the restriction of water to such municipalities which may lead to unrest. He wanted an explanation on the causes of non-payment for goods and services; timeframes for filling vacant posts; and the difference between proto CMAs and actual CMAs.

Minister Monkoyane responded and said that the issues relating policies, regulations around water rights, access to water, and water use licenses were currently under review. The challenge faced with water use licenses was the provision of licenses for farming and land use. These issues have been included in the review of the Water Act to the effect that issues surrounding water use rights should not hinder transformation; neither should it impact the downstream negatively.

The volume of water centered on the conditions under which licenses have been granted. The Department was unable to give a specific answer on this. There was however, a challenge of excessive use of water, which was in relation to the historical ownership and access to water that affected issues of fairness.

The issues around policy related matters were those that concerned debts, some of which were historical debts culminating in a challenge of who is owing the debt and who should pay the said debt.

On individuals still owing water bills, the Minister said it was necessary for poverty to be viewed from the perspective of the beneficiaries of the services offered by the Department, especially those living in the villages and townships that are unable to pay the municipality, which in turn makes it difficult for the municipality to pay the water board. The Department is then left with the challenge of dealing with the impact of poverty on institutions and government. It has been proposed that the Department should comply with the provision that is in line with the Constitution on the requirement of 6 kiloliters of water, educate the people of South Africa on water use, and augment the payment of water for municipalities through the adoption of water metering, use of grey water and recycled water.

The Department will also present the status of irrecoverable debts to the Committee and Appropriations Committee, in order to achieve a way forward, instead of allowing the debt to grow. Policy makers were expected to address these issues to find a lasting solution. The reasons for the delay in payment for goods and services were linked to invoices that could not be paid ordinarily without proper verification. Other invoices yet to be paid were those submitted late. The Department was currently developing service level agreements (SLAs) that would be entered into by itself and implementing agents, as well as with contract managements in order to prevent issues that may impact negatively on the Department’s payment schedule.

She cited the example of a big company that was paid a lot of money. The company got paid because it had effective and efficient systems; its own time schedules; and also because it was implemented directly through the Department. The onus was on the Department to ensure that each service provider submitted invoices that was accompanied by supporting documents. These steps would be included in the Department’s project preparation.

Mr Mhkize added that service providers were usually paid on a monthly basis. He however, undertook to follow up on unpaid claims. The reprioritisation of the budget in relation to the ACIP and the WSIG would be effected in the forthcoming adjusted budget.

On the issue of SAP and BCX, he responded and said BCX’s contract will expire by the end of March 2018. It was only providing network support and not the software for transactions. The Department has submitted a tender through the State Information Technology Agency (SITA) for the contract, in anticipation of a service provider that would replace BCX. Details of the amount paid on accruals, to whom such amounts were paid and the dates of payments would be made available to the Committee secretary.

Mr Mofokeng said the Bushbuckridge debt was about R53 billion before Rand Water took over. Ermelo and Msukaligwa local municipalities shared the same municipal account. He undertook to follow up on ensuring that the names on the municipal account were the same. The Department would revert back to the Committee on the number of volumes of water being used. Water restrictions will not be implemented. Rather, all credit controls will be implemented.

It was clarified that both the CMA and proto-CMAs were cash management agencies. The only difference between them was the governance, as a CMA was usually established on its own while a proto-CMA was still within the Department, and was yet to be fully established as a standing CMA.

Mr Trevor Balzer, DDG, said the issues raised concerning water restrictions was in relation to restrictions due to non-payment for water. This should not be confused with the restrictions due to drought conditions. Restrictions on drought conditions were still applicable, and they did not relate to non-payment.

Mr Basson agreed that water should not be restricted for human consumption. He however, wondered why the Department could not restrict water use to farmers, coal mines, industries and the likes that owed the Department money whilst making money through the usage of water. He proposed that the Department should cut off the water use of such categories of individuals and companies that made money through water usage.

He went on to say that he wrote a letter to the suspended DG concerning the 6 kiloliters of water. It has been discovered that the issuance of 6 kiloliters of free water has been stopped in some municipalities while some other municipalities still distribute the specified quantity of water. The stoppage of this distribution in some municipalities created a huge problem, particularly in regions where municipalities have changed their policies. He asked if it was possible to get a uniform norm that would be applied in relation to the regulation of the 6 kiloliters of free water in the entire country, as well as a stipulation of the category of people that would be entitled to this free water.

Ms Khawula raised an issue relating to the land that is bought without the purchase of the water rights for such land. She asked for the appropriate office to which issues of water rights should be addressed in such instances. She also suggested that more clarification should be sought from the Department of Rural Development and Land Reform (DRDLR).

The Chairperson said the issues raised by Mr Basson and Ms Khawula would be addressed in the engagement of the Committee with the Department. The issues would also be dealt with in the public hearing that would include the farmers and DRDLR.

Ms Baker sought clarity on the disparity between the 100% achievement recorded for CMAs under analysis per budget programme (as seen on slide 22 of the attached document) and the 28% achievement recorded for the same programme under income and expenditure for proto-CMAs (see slide 90 of the attached document).

Mr Mofokeng explained that the first achievement was in relation to non-financial achievements, while the second one that stood at 28% related to the financial performance of the CMAs.

The Chairperson reiterated the formal receipt of the report presented by the Department. The Committee will engage further on the document, alongside the Department’s first quarter and Annual Report. The Committee will request that the Office of the Auditor-General be part of the engagement.

The meeting was adjourned.

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