Department of Water and Sanitation Quarter 4: Performance Hearing; with Deputy Minister

Standing Committee on Appropriations

06 September 2017
Chairperson: Ms Y Phosa (ANC) and Co-chairperson Mr L Johnson (ANC)
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Meeting Summary

The Committee was briefed by the Department of Water and Sanitation (including the Water Trading Entity) on its Fourth Quarter Expenditure Patterns for the 2016/17 financial year.

In 2015 the Department had declared eight provinces as disaster stricken due to the drought and in 2017 had declared the Western Cape disaster stricken, thus making the entire country disaster stricken. The Minister at the Department of Cooperative Governance and Traditional Affairs earmarked R75 million for drought relief in the Western Cape.

Because the Department of Water Affairs and Sanitation was a new Department, having incorporated sanitation, it was still without a master plan, but undertook to develop one. Currently the Department was owed about R3.6 billion by municipalities and R2.9 billion by water boards. That money was in addition to the drought interventions implemented to ensure that South Africans continued accessing clean water. The Department felt it had achieved its mandate of supplying water with the capacity it had been given, but realised also that municipalities’ support had cost it a great deal in terms of its performance.

In planning for the year under review, the Department intended to conclude a master plan for the whole country in terms of delivery of water. The major reason why 39% of the infrastructure programme had been unachieved stemmed from the amount of money the Department spent in assisting Giyani, Limpopo, because the President had promised that part of the country water historically, and unfortunately, the Department found more problems than had been anticipated. 39 villages in that area had water to date because of the Department.  However; the Department was still unhappy with the reticulation in that region as the piping was still made of asbestos. 

The Department of Water and Sanitation had a deficit in its budget of R292 million for sanitation, which was due mainly to a project to eradicate the bucket system of toilets, and though the Department had achieved a lot it had not finished bucket eradication as promised across the country.

The Water Trading Entity supported the Department with water infrastructure as well as its cash management function. It was responsible for construction, conservation of dams, canals, big pipes, raw water as well as management of rivers under the Department of Water and Sanitation. The Water Trading Entity had two income streams: one was augmentation, money received from Government to assist in the development of infrastructure for the social component; and money received from users of services.

The Entity maintained that when looking at its municipalities and waterboards as debtors, the debtor was actually one and the same and not two separate categories of debtors. That was a major problem for the Entity as it affected its liquidity and sustainability. The problem was of such a nature that even if the Entity became a Water Trading Agency without the debt from waterboards and municipalities being addressed, the matter would affect its liquidity. 

The Thabazimbi Municipality funds from the Department had been withheld because the municipality had failed to comply with the Division of Revenue Act conditions. The Department had written to the municipality and National Treasury to withhold the funds however; in the financial year under review the municipality had an allocation set aside but it was hoped that the municipality would be forthcoming with the Division of Revenue Act reports the Department required.

The Department of Water and Sanitation held a joint study group with the Department of Cooperative Governance and Traditional Affairs to establish what the Minister of Cooperative Governance and Traditional Affairs had done to assist the Department of Water and Sanitation.

The Standing Committee asked whether the reason for the Department’s poor performance had been due to the vacancy rate across all its five programmes? What was happening about those posts? It asked for clarity regarding water sector regulation under achievements and what the challenges were.

Members also noticed that the Department had allocated R7.7 billion for operational costs and less for projects by over R1 billion. Why had such a decision been made?

Could the Water Trading Entity explain how far it was from completing the De Hoop Dam; if there were any foreseeable delays, and how much additional funding would be incurred if there were such delays? Could the Entity also do similarly for the Mzimvubu Water Project?

Had there been any consequence management for financial misconduct at the Department?

The Portfolio Committee on Water and Sanitation had not seen any mention of the R1.5 billion accruals for the year under review which had to be paid from the new budget of 2017/18 financial year; why had the amount not been revealed to the Committee whilst it had been announced to the Portfolio Committee on Water and Sanitation and Standing Committee of Public Accounts

The Portfolio Committee on Water and Sanitation had, after an oversight visit to Mount-Ayliff, requested the Department to provide the Committee with all the necessary documentation regarding a project there, from start to finish, for over two years to no avail. Why had the Department been unable to give the Committee the paperwork it required to probe deeper into whom was responsible for the alleged corruption which had taken place with that project in Mount Ayliff?

Could the Department specify where the Bucket Eradication Programme had been implemented in SA?

Meeting report

Opening Remarks
The Chairperson welcomed the Deputy Minister of the Department of Water and Sanitation (DWS), Ms Pamela Tshwete, with her delegation and all those who were in attendance.

She then outlined the Committee’s mandate regarding the DWS; that not only with DWS but with all Departments, the Committee was tasked with checking whether the spending patterns of departments had been in line with their voted respective budgets. Departments had their Medium Term Strategic Framework (MTSF), which was followed by the Medium-Term Expenditure Framework (MTEF) which was followed by the Annual Performance Plan (APP). Therefore, the process was a known across Departments.

The Committee was interested to know whether the DWS budget had been spent accordingly, equitably and efficiently, and to see whether the DWS was making an impact with its limited resources in the lives of South Africans. Furthermore, it wanted to see proposals for speedy realisation of access by all South Africans to clean water, dignified sanitation and effective and efficient management of South Africa’s (SA’s) water resources. There had to be all the necessary controls and capacity at DWS as the approved budget vote was to cater for ensuring that those structures were in place.

Deputy Minister’s Remarks
Deputy Minister Tshwete reiterated the brief given to the DWS by the Committee said that the work of the DWS was effectively implemented with the guidance of the National Water Resources Strategy (NWRS) which supported the transformation of the sector through protecting and conserving water. DWS had been given a budget of R15 107 449 which went into consolidating, expanding and improving infrastructure in SA. Notably the budget had been reduced due to the financial and fiscal constraints faced by SA. That meant that DWS had to do more with less. More challenging was the continuing drought which had made all provinces implement water restriction regulations.

In 2015 the DWS had declared eight provinces as disaster stricken due to the drought and in 2017 the DWS had declared the Western Cape (WC), disaster stricken making the entire country as disaster stricken. To that effect the Minister at the Department of Cooperative Governance and Traditional Affairs (COGTA) had earmarked R75 million for drought relief in the WC.

Because the DWS was a new Department, having incorporated sanitation from originally being Water Affairs, the DWS was still without a master plan, though it had undertaken to develop one. The DWS also felt that speculation about the extent of its debt would be better explained in platforms such as the hearing which was underway. Currently the DWS was owed about R3.6 billion by municipalities and R2.9 billion by water boards. That money was in addition to the drought interventions implemented to ensure that South Africans continued accessing clean water. DWS felt it had achieved its mandate of supplying water with the capacity it had been given but realised also that municipalities’ support had cost it a great deal in terms of its performance.

Fourth Quarter Analysis Report
Mr Squire Mahlangu, Acting DG (ADG), DWS, said the analysis report covered all the matters undertaken by the DWS; though the work was captured cumulatively. The Auditor-General South Africa (AGSA) report would come later. The DWS was divided into two as there was a Chief Financial Officer (CFO) for the Water Trading Entity (WTE) and a CFO for the main account.  
The National Development Plan (NDP) envisaged that the WTE would in future be converted into a Water Trading Agency (WTA) and be removed from DWS which was a matter being looked into, by those appointed to do so.

Analysis per budget programme  
The main account had been divided into the five programmes which had been outlined in the budget vote. He explained ‘not achieved’ meant that performance against the target had been below 50% and not that nothing had been attempted. In the planning for the year under review the DWS intended to conclude a master plan. That plan was a plan for the whole country in terms of delivery of water.
 
The major reason why 39% of the infrastructure programme had been unachieved stemmed from the amount of money DWS spent in assisting Giyani, Limpopo, because the President had promised that part of the country water historically; unfortunately, as DWS descended upon Giyani to ensure the President’s promise was kept it had found more problems than had been anticipated. 39 villages in that area had water to date because of DWS.  However; DWS was still unhappy with the reticulation in that region as the piping was still made of asbestos. 

On sanitation, DWS had a deficit in its budget of R292 million for sanitation which was a project mainly to eradicate the bucket system of toilets and though DWS had achieved a lot it had not finished bucket eradication as promised across the country.

A challenge for DWS had been regulation, which had a lot of other issues within it. One had been ensuring that people operated with licences for water and that it could ensure allocations of water for particular areas would not result in shortages. Additionally, DWS had struggled with monitoring of waste that ran into rivers, such that it felt that the regulation division had to be reviewed.  There were issues like farmers that restricted water going to residential areas around farms since dams would be located within farms.

The 23% partial achievement of the WTE was from the augmentation budget that the WTE normally received from National Treasury (NT) being cut by NT, due to the reasons as had been outlined by the Deputy Minister. The CFO would elaborate further on the issues around the WTE.

Notes:
The fact that WTE had to move out of the DWS and be combined with other State-Owned Entities and the fact that DWS was undergoing restructuring had resulted in the under expenditure in compensation of employees(CoE).

Transfers and subsidies budget vs expenditure as at 31 March 2017
Mr Mahlangu said that some of the unspent monies which would have been savings had been redirected to tinkering of water to indigent municipalities during the drought.

Budget vs expenditure as at 31 March 2017
As there were both direct and indirect Regional Bulk Infrastructure Grants (RBIG) the challenges DWS faced therein would need to be discussed with the Committee on Water and Sanitation first and in detail because DWS allocated money to various municipalities for projects upon request. Problems started when tenders had to be awarded for projects as DWS wanted municipalities to follow the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA) prescripts; but municipalities often struggled with following said prescripts. DWS had in the year under review spent money on water treatment plants which it had not been doing before as part of its assisting municipalities which were unable to maintain their water treatment plants. To that extent the DWS had been summoned to the Public Protector (PP) because of the Zeerust Groot Marico water treatment plant was still pumping dirty water into its surrounding rivers. Even though there was the Water Services Infrastructure Grant (WSIG) the DWS found itself having to go in and assist municipalities for example; the Committee would recall that a child had died in Bloemhof because of treatment plant effluent affecting water quality. Minister Nomvula Mokonyane had had to call a meeting in Bloemhof to get one of the service providers of DWS to deal with the water contamination that had claimed the life of that child.

Water Trading Entity Financial Performance as at 31 March 2017
Mr Mpho Mofokeng, CFO, WTE, said the WTE supported DWS with water infrastructure as well as its cash management function. It was responsible for construction, conservation of dams, canals, big pipes, raw water as well as management of rivers under DWS. Because of that the WTE had two income streams: one was augmentation, that is money received from Government to assist in the development of infrastructure for the social component; and two was the money received from users of services.
 
Summary Age Analysis of Municipalities per Province
Mr Mofokeng said that the WTE used Standards of Generally Recognised Accounting Practice (GRAP) instead of Modified Accrual Accounting Method in Government which established modified accrual accounting standards.

Debtors Age Analysis as at 31 March 2017
The WTE maintained that when looking at its municipalities and waterboards as debtors, the debtor was actually one and the same and not two separate categories of debtors. That was a major problem for the WTE as it affected its liquidity and sustainability. The problem was of such a nature that even if the WTE became a WTA without the debt from waterboards and municipalities being addressed, the matter would affect the WTA’s liquidity.
 
Status on Companies and Individuals Rand Value and Percentage
Mr Mofokeng then explained steps that the WTE had taken in trying to recover the debt from all its debtors.

Mr Mahlangu said that though Mr Mofokeng had noted that the WTE were charging for water use, the DWS understood that there were rural municipalities that simply did not have the money to pay for water services. The DWS was asking for assistance from Parliament as to how it could proceed in such areas as the DWS felt that the matter was needing some legislative response. The problem stemmed from when the Water Acts had been passed historically where it had been estimated that in 20 years the water problems of SA would be sorted out. The estimation was completely wrong and needed correction.

DWS were discussing with NT to return the augmentation money it had taken from the WTE and as Mr Mofokeng had alluded to problems faced by WTE, DWS did not want the problems of WTE to be transferred to a new agency. Mr Mofokeng would still have to supply water where people needed it, the issue was whether municipalities and other debtors would be able to pay the WTE or not.

Though the Committee had requested the DWS to not exceed 20 slides because it had to report on two accounts, it had decided to compress everything onto the two presentations; there were annexures to support what had been presented.

Ms Zandile Mathe, Deputy DG, DWS said that the Thabazimbi Municipality funds from DWS had been withheld because the municipality had failed to comply with the Division of Revenue Act (DORA) conditions. The DWS had written to the municipality and NT to withhold the funds. However; in the financial year under review the municipality had an allocation set-aside but DWS hoped that the municipality would be forthcoming with the DORA reports DWS required.
DWS had applied to NT to move Thabazimbi from category 5b to 6b as it was not performing but the Office of the Auditor General (AGSA) had qualified the DWS for doing that, noting that category changes which affected how grants were allocated could not be done mid project.

Mr Mahlangu said when waterboards bemoaned being owed by municipalities, the DWS’s request was for said waterboards to assist municipalities with water supply. When municipalities failed to pay water boards the waterboards failed to pay the WTE, which had been what Mr Mofokeng had alluded to.

Deputy Minister Tshwete said the Portfolio Committee on Water Affairs and Sanitation had held a joint study group with DWS and COGTA to establish what the Minister at COGTA had done to assist DWS. Her request was for the Standing Committee on Appropriations to also invite COGTA to have a similar discussion including the matter of declaring areas of disaster during the drought. Lastly, the DWS was responsible for bulk water supply but of late it had found itself doing reticulation which was a municipal function but DWS but that municipalities had either no capacity or the money to perform that function.
  
Discussion         
Mr A Mcloughlin (DA) said the WTE had made such a big issue about its inability to collect money due to it. Since households struggled to pay for municipal services that affected municipalities’ ability to pay the WTE; confusing for him was that DWS did not have to pay for water but it charged others to pay for water. It was a bit unfair that DWS received money for water infrastructure but made others pay for what it produced. Was the current structure and model the best, because municipalities would not be indebted if DWS did not sell its water? As the WTE was not raising any revenue it was surprising that DWS was spending 100% of its water infrastructure development programme budget and only achieving 33% of its targets. Even on the DWS’s water sector regulation, the Department had to be able to justify why it had spent 88% of its available money but having achieved only 26% of the targets. Getting more money would not fix what was obviously wrong at DWS.

Annually the DWS told the Committee that the reason for underspending was the number of vacancies; why were the posts not being filled and why was money for funded posts being given back to NT? Was the reason for the DWS’s poor performance due to the vacancy rate across all its five programmes? What was happening about those posts?

Mr Mcloughlin wanted to know who determined whether there was a risk of misappropriation of funds at Thabazimbi; because DWS was making an internal decision to not transfer monies to a rural municipality which was obviously in need of said funds. The municipality could indeed be facing legal issues but if it were a ringfenced amount as WSIG was then surely it would have been used for the right thing.

The bucket eradication programme (BEP) was one of those chestnuts that Parliament was told about annually that it had been finished but it was included annually that it was still ongoing. Where had the overspent 62% for BEP and 14% for WSIG come from as there seemed to have been no savings from other programmes? Had the virement been correctly done if there had been a virement done?

Mr Mcloughlin said he would have liked for the WTE to have expenditure versus achievement ratio given for the table: expenditure for augmentation funded projects, as he was left confused about linking the under expenditure with the overspending.

He noted the Deputy Minister had said the DWS had no master plan but the presentation had noted delays in the implementation of the master plans project. The statements were contradictory and there also could only be one master plan not more. What was the DWS actually saying there? What delays were under programme 2?

Ms D Senokoanyane (ANC) asked for clarity regarding water sector regulation under achievements and what the challenges were.
If the DWS only achieved 33% under water infrastructure, having reticulated water to 33 villages in Giyani; how had they accounted for that work?

Mr N Gcwabaza (ANC) had noticed that DWS had allocated R7.7 billion for operational costs and less for projects by over R1 billion. Why had such a decision been made?

Could the WTE explain how far it was from completing the De Hoop Dam; if there were any foreseeable delays and how much additional funding would it cost if there were such delays? Could the WTE also do similarly for the Mzimvubu Water Project?
He also wanted the WTE to elaborate on the underspending and over spending in the phases of De Hoop and the other listed projects under augmented funded projects as there were some old projects therein.

In 2015 on a Committee oversight visit to the Alfred Nzo municipality it had been told the Mzimvubu Water project work would commence in 2022; he wanted to know how far the preparatory work had reached and why there remained underspending therein given the huge rural area it had it had to supply. 

Ms C Shope-Sithole (ANC) commented that indeed as the DWS motto read; water is life-sanitation is dignity. She appreciated the information as presented by the WTE.  From her experience in Parliament and having been briefed by AGSA the challenge on the Municipal Finance Management Act (MFMA); there was no capacity at local Government level and there was little economic base for rural municipalities to raise revenues from. Therefore, the Committee had to suggest solutions as to how to solve the indebtedness of municipalities for water services.
She was not impressed with the withholding of the WSIG from Thabazimbi because such actions collapsed rural municipalities; rather the DWS had to continue engaging NT to augment the budget of the WTE as water was a basic right.

The Chairperson said that over expenditure was a Department spending money it did not have. That also meant redirecting of funds from other programmes, meaning said programmes would not be implemented. Could the DWS explain under expenditure under International Water Support? What was the impact of such under expenditure?

She asked DWS to elaborate on fruitless and wasteful expenditure which had been incurred as part of the overdraft presented on.

What steps had DWS taken to avoid irregular expenditure in future?

Had there been any consequence management for financial misconduct at DWS?

Mr L Basson (DA) said he had not seen any mention of the R1.5 billion accruals for the year under review which had to be paid from the new budget of 2017/18 financial year; why had the amount not been revealed to the Committee whilst it had been announced to the Portfolio Committee on Water and Sanitation and Standing Committee on Public Accounts?

The WTE had increased its overdraft with the South African Reserve Bank (SARB) since March 2016-March 2017 from R400 million to R2.6 billion; which was where the money seemed to have come from to pay some of the expenses which would have been paid from the WTE debtors.

In the 2014/15 financial year the DWS had underspent R2 billion which DWS had requested to be rolled over which NT had denied; in 2015/16 DWS had underspent R200 billion which it also asked to be rolled over and that was denied as well. That resulted in the knock-on effect of the DWS losing money to NT as it seemed to lack the ability to spend money on projects.  
To date DWS had overspent by R100 billion with only 42% achievement on targets; that gave him the impression that the DWS was not functioning optimally.

Deputy Minister Tshwete replied that her statement had been that the DWS was developing a water and sanitation master plan: that information was new to the Standing Committee on Appropriations and not the Portfolio Committee on Water Affairs and Sanitation.

Ms Mathe replied that the De Hoop Dam project was indeed old but there was historical expenditure being incurred because when the project had been launched the landscaping had not been done. The expenditure was on the aesthetics and the problems with a lift at the project where the tender had gone out twice for a service provider to assist the in-house engineers as they seemed to struggle with the technology and the new specifications. 

Mzimvubu had various work packages which if the DWS could get money from NT; the DWS could go on site and proceed with them. NT was reluctant to proceed with the project and the DG of DWS was in China to finalise commitments for the funding model for the project because Mzimvubu was still under design. The only other delay had been with the Amakhosi on site together with the under expenditure. When the geo-technical analysis had to be done Amakhosi had thought construction was beginning and delayed that phase of work.
NT reluctance had been to do with Mzimvubu being pure social infrastructure at the price tag it would come with. For R20 billion the funding model of DWS was such that a project of that nature would be funded with both debt and fiscus, which was currently strained. The real impasse with NT was that there were no users on the ground when going to capital markets which could give guarantees that they would use the water for a particular period.

Phases 2D, E& F of the De Hoop Dam were the bulk distribution system which would be taking water from the dam to areas like Lebowakgomo and certain parts of Polokwane. The design process had been continuing but because the DWS had taken a contract from the Trans Caledon Tunnel Authority (TCTA), delays had been with processing of payments due to the legal services transfer of contract between DWS and TCTA. Therefore, Phase 2D design was complete but awaiting funding to be put on site. Phases 2E & F the DWS regretted putting them in the 2015/16 work schedule as that would have messed with the sequence of the work and Ms Mathe’s advice to her team had been to finish all of Phase 2D before proceeding with 2E& F.

The Giyani reticulation had been an emergency project from the start but it came out during the treatment works and some bulk pipelines that DWS were worsening the situation. DWS realised late that the packaging of the project had been supposed to be the removal of the asbestos pipelines first, which DWS proceeded to do. Because that R1.6 billion had been irregularly spent on Giyani and if the DWS were to leave the project midway it would be fruitless expenditure as well, therefore DWS had to complete the works. Originally the scope of work had been budgeted for to go up to R2.5 billion with the escalation, some contingency and Operations and Maintenance (O& M) work. The DWS had however curtailed the over expenditure and DWS projected the scope to be R500 million to finish the Giyani work and DWS had put a bid to NT to finish the work of Phase 2 in Giyani. The bigger challenge with not finishing Phase 2 was that residents had started tapping into the new infrastructure illegally if it was not running to the homes. Having taken NT onsite it was unfortunate that the emergency came the way it had, but DWS had discussed whether prioritisation was not supposed to be done like that from the beginning; considering the number of legacy projects Ms Mathe had inherited, they had been ongoing for years. DWS were working together with the Municipal Infrastructure Grants (MIG) team from COGTA to see whether Government could not focus on a particular project; to the extent that they start a project reticulate and finish it and then go to other areas. The challenge of piecemeal funding was that projects were being done in phases without water ever actually ever getting to communities.

NT could attest to the fact that SA policy was that users paid for money used on infrastructure, especially commercial users. The social user would be subsidised by the fiscus. Water was not being sold in SA as it was unconstitutional to do so, DWS simply charged for the services of containing water in dams and conveying it to where it was needed.

Mr Mofokeng said because SA was a water scarce country it used dams which required infrastructure layout first, including piping. WTE’s pricing strategy spoke to ecological, social and economic components which was why water services were charged. That was linked to why DWS had tempered with equitable share because though it understood that it was not fair to do that, within municipalities’ equitable share formula; they were mandated to provide social services. Unfortunately, sometimes municipalities used those monies for other things apart from social services. It was DWS’s contention that municipalities had to first pay their fixed costs before paying for other things; as fixed costs related to water and electricity. Municipalities could then go and determine alone the pool of indigent people that needed support.

WTE had made budget requests even for the year under review through budget bids. The WTE was awaiting responses from NT but the challenge was the shrinking envelope.

To date the WTE was not aware of any interest paid for the overdraft; rather NT had been managing the cash from all departments so that if there were savings the monies could be managed accordingly.

As Mr Mofokeng had presented, when the WTE had planned its budget for the 2016/17 financial year it had planned on its projected income from its debtors in municipalities. Had the WTE planned differently it would not have been able to service its different components because NT then, had told WTE to use its surplus as Government had no more money for WTE. If the Committee went back to the financial years 2014/15 it would find that there was no overdraft because there had been an interface. WTE received money from commercial banks and the money it received from its customers had to do what was called ‘sweeping’ hence the AGSA audit report of 2014/15 for WTE would show positive cash of R41 million. The only overdraft WTE had was for the 2016/17 financial years. If for instance WTE had to write off the R9 billion owed to it, then definitely the overdraft would remain but if it was agreed that WTE was owed R7 billion by municipalities and R2 billion by commercial users and WTE was able to collect the monies it would surpass the overdraft. As presented WTE was trying its utmost to collect what was owed to it. Such were its efforts that even if it were paid 50% or 30% of the R9 billion owed, the overdraft would be wiped-off. Even NT after interacting with WTE and doing its own analysis of municipalities had told WTE that it believed that only R1.7 billion of the R3 billion owed was recoverable from municipalities.

Mr Mahlangu said studies on water availability and the budget that DWS received to service the country had concluded that the country needed far more money than DWS currently received. Perhaps that discussion had to occur between the ministry and the Committee on Water Affairs and Sanitation because otherwise the deliberation centred around the perception that a dam could be built with the R15 billion given to the DWS. To build one dam of De Hoop’s infrastructure one would spend at least R4 billion excluding the reticulation to convey the water to communities. Possibly the DWS had to workshop its Committee on what budgeting for water in SA entailed. As earlier alluded, there had been a wrong assumption in 1994 when the water Acts were passed that they would cost nothing to implement, whilst 50% of the country had no tap water at that time. How the country had determined such was something that had not been discussed; the implications of such decisions were that DWS had to look for money to do things that had been profoundly miscalculated in the beginning. A further miscalculation was that rural municipalities could supply water to their inhabitants because Mr Mahlangu had visited municipalities in Limpopo where people got water once every three days; which was a norm to date. To deal with such required a lot of money and perhaps as public servants such discussions were beyond administrators but such issues were what bedevilled DWS officials. Having worked in the public sector for two decades Mr Mahlangu knew that a lot had to be done to get tapped water to rural communities. The corollary was worse; because one would go into an area like Giyani to assist and two weeks later one would discover the pipes in the area had not been maintained for more than ten years and were all asbestos. What was one then to say? Would the incidences of Vuwani be repeated? The new executive authority of DWS when it came in decided to follow through on the President’s promise to the people of Giyani and to date 39 villages had tapped water. Would the DWS have to each time defend matters where value for money was overlooked because if value for money was achieved then the other issues of irregularity could be engaged on, because if that did not happen the revolving door at senior management of DWS would continue.

Mzimvubu was promised by Former President Mr Nelson Mandela through the Presidents to current President Mr Jacob Zuma and when DWS was to deliver on the promise lenders were telling Government that to borrow Government money for Mzimvubu was not workable as it was not economical to invest in. Therefore, DWS had to go looking for money for Mzimvubu which was one reason the Minister of DWS was absent. Mr Mahlangu thought it important to respond to Mr Gcwabaza’s question on why a commitment had been made to build Mzimvubu when no one knew where the money to build would come from.  He did not want to be accused in future of building Mzimvubu when it was known that it had no commercial prospects because the region required the water.

Regarding the funded vacancies the DWS had explained to its Committee that it was undergoing restructuring of its organogram, it was looking to establishing a WTA for the WTE and making the catchment management areas to be independent from DWS. The decision had then been to restructure the DWS as a whole first rather than filling vacancies, so that when vacancies were to be filled then everything would have been agreed on. For example, currently the DDG for National Water Resources Infrastructure (NWRI) ran a budget of R12 billion which meant she was DWS alone virtually.  Mr Mahlangu felt that was wrong and he was still convincing his bosses that NWRI had to be split such that some of the function under NWRI would have a DDG independently. Additionally, he had always bemoaned the issue of five DDGs running DWS at an almost R20 billion budget was too small a number of warm bodies. Certainly, some changes would require legislative amendments.

When DWS overspent it would have to pay interest on the overdraft but DWS had agreed with NT to pay back a certain amount annually where DWS had reduced the overdraft by that particular amount.

Mr Mahlangu requested that DWS be allowed to submit a written response to the question on expenditure on International water support.

He said that the accruals would be dealt with when DWS had the AGSA annual audit report so that DWS would be able to talk to the numbers that AGSA would have discovered during its audit.

Mr Frans Moatshe, Acting CFO, Main Account, DWS, replied that all the virements that had occurred had been in line with the PFMA. Reflecting on the R110 million overspent overall and the underspending with the CoE the final report of AGSA would reflect the exact amounts of unauthorised expenditure. Added to the restructuring mentioned above, the Committees had to note that Cabinet had approved ceilings on the cost of employees therefore the DWS had to be cognisant of the impact of CoE reductions. In a way the DWS was forced to not fill posts to comply with the ceilings in the outer years.

Regarding operational budget, goods and services spoke to that budget. Under goods and services most of the allocation went to operating leases which were about R400 million for rentals and municipal services. Computer and Infrastructure planning services followed under programme 2. Cost containment items represented a very minimal amount of the entire budget. 

One of the reasons that international water support had been mentioned was because of the transfer which had been supposed to be made to the University of Stellenbosch (US) in 2016/17 but which could not be done due to compliance requirements on the Memorandum of Agreement (MoA) though DWS had engaged US to support it to comply however; the transfer would only occur in the 2017/18 financial year.  

Of the R1.5 billion accruals from 2015/16 DWS had already paid R886 million where the balance had been close to R500 million. That had been also impacted by the reality that overspending affected future appropriations by Parliament and also affected other programmes within DWS so DWS had strove to ensure that it did not make multi-year commitments and indeed redirected the funds to settle invoices without creating future liabilities.

It was true that the roll-overs for 2014/15 & 2015/16 had had an impact.  Previously roll-overs had been provided and work was still in progress but approvals could not be obtained before the financial year closed. Therefore, by the time the sign-offs had been made in the new financial year DWS had been sitting with liabilities carried over from the previous year.

Mr Mahlangu said the issue around regulations were matters around monitoring of acid mine drainage around SA where DWS wanted the principle of ‘polluter pay’ to come into force sooner rather than later. Additionally, an economic regulator for water was supposed to have been established where Mr Mahlangu had fought with his officials that Eskom had an economic regulator which determined tariff prices but they had eventually found each other.    
   
The green and blue drop report was indeed where the regulation unit of DWS had not achieved its target but DWS was working on the unit; hopefully that unit would improve in 2017/18 financial year.

The chairperson asked NT to elaborate on the accruals and overdraft as well.

Mr Victor Ngobeni, Director, Water and Sanitation, NT, said that NT regulation 19.2 was explicit about how trading entities had to conduct themselves regarding overdrafts; they were not allowed. However; as had been alluded, the WTE had found itself in such a position. As had been alluded to by Mr Mofokeng, WTE had always projected in its assumption for revenue that it would recover historical debt. Indeed, in the R10 billion debt owed to the WTE, 92% had been historical debt that meant that there was little prospect of collect from that debt. Therefore, that assumption of projecting current revenue on historical debt had been problematic. That was the first instance which had thrown off WTE, and when there were hard budget constraints NT had been forced to cut budgets across departments and WTE’s budget had been cut by R4.4 billion. That had had an impact as WTE relied heavily on the augmentation from NT to roll-out its augmentation projects. Another challenge had been that when the cuts were issued expenditure, from WTE had not gone down accordingly as it kept increasing on the operations side while revenues went down which created an immediate deficit.
The agreement that NT had with WTE had been that at the start of April 2017 the overdraft had been about R3.2 billion, where WTE were to pay R200 million each year between 2017 and 2018 to bring down the overdraft. NT had observed that WTE had paid around R1 billion in reducing the overdraft in the year under review meaning the overdraft was going down. However; as Government understanding the challenges the WTE faced, NT had not imposed interest on the overdraft as that would have been counterproductive. Realising that WTE was reducing the overdraft NT wanted to know what the source of that income could have been; NT had observed a worrying trend where as WTE had shown that 50% of its total budget went to TCTA. That meant that paying TCTA and paying other suppliers had to be balanced whereby payment of the overdraft had come at the expense of payments to TCTA. That worried NT since TCTA were fiscus guaranteed, that meant that there was a possibility that TCTA could call its guarantees because of failure to pay by WTE. NT was however; discussing with WTE and the TCTA to arrest such a situation unfolding. 

Regarding the accruals, the main account in the last three years had lost about R1.7 billion in the roll-over process mainly because of the supporting documents about commitments. That created a situation where the DWS had to use current year allocations to deal with previous years commitments thereby depleting current year allocations. That created a mismatch between projects on the ground and available funding. That had a knock-on effect on the planning, which also spoke to why funds would have been completely spent with such little performance on targets.
To deal with all the above there had to be a fair assessment of what commitments there were, what the accruals were and what the available budget was and how those variables could be reconciled to bring everything up to speed.               

Regarding unauthorised expenditure, having received R15 billion as DWS, if DWS spent R16 billion that meant the R1 billion came from the fiscus. That amount would sit in a suspense account until processes of condonement were submitted through Parliament so that the overspending could either be defrayed through future appropriation for DWS meaning the 100 million which DWS would have overspent would be offset against future allocations. Alternatively, the over expenditure could be funded directly from the fiscus through the processes of dealing with over expenditure as it was money that had to be contained, as section 38 of the PFMA was clear around such. The reason DWS was in such a situation was the BEP and Mr Ngobeni’s sympathy with DWS was that the funds allocated to BEP had been spent on reticulation infrastructure as DWS had explained that it was implementing water services projects though municipalities were there, which depleted DWS funds.

What created the problem and which was wrong was doing municipal functions projects and the solution was capacitating municipalities to do their own projects as that was double-dipping in terms of funding as funds would have already been allocated to municipalities for projects and DWS was using its own allocation to do the same work which was already funded by COGTA because DWS was forced to do that because of its mandate.
NT had since proposed development of a water services intervention framework at DWS so that interventions could be dealt with systematically rather than on an ad hoc basis. That proper capacity building programme for local Government could be considered for water and sanitation rather than using allocations from the national sphere to defray costs of already allocated funds in the local sphere.

The Chairperson reiterated the last paragraph from Mr Ngobeni that NT had to elaborate later on training of municipalities on how to implement their budgets to avoid the double-dipping and to allow DWS to concentrate on bulk water supply.

Ms T Baker (DA) said the Mzimvubu Dam project had been first announced by the President in 2012 with a budget of R12 billion, the ADG had just announced that the budget had increased to R20 billion. The project had in five years escalated due to delays by R8 billion and no indication was being given as to when the project would actually start. If in the five years to date the project had not even reached the design phase, what would the eventual amount of the project be?

The raising of the wall of the Hazelmere Dam was also way overdue which originally had been budgeted just over R90 million where delays had quadrupled the budget with works still in progress. The trends were concerning as escalating budgets had a negative effect on DWS performance and that had to be stopped as soon as possible.

TCTA was there to procure funding for DWS projects; the ADG could not say there was no money when the WTE was also collecting revenue.

There had been many allegations against the Minister regarding the stoppage of the Lesotho Highlands project that she had wanted to appoint a new contractor.  The same had occurred with Mzimvubu, there had been problems between the Minister of Finance and Minister Mokonyane over the appointment of a contractor for the project. From what Ms Baker had been told, the Chinese Government had made a proposal to fund the construction of Mzimvubu on condition that it was allowed to bring a Chinese company to construct Mzimvubu. That was a serious allegation which had to be investigated as Mzimvubu had initially promised people of the Eastern Cape (EC) 6000 jobs which had not materialised. From past experience it was known that when a Chinese company came into SA to do work it brought its own workers, raw materials and even their own food sometimes and that could not be allowed to happen at the expense of SA jobs.
From the reports she had read DWS could relocate Mzimvubu as its current location was problematic because of the terrain and that pumping of the water to communities would be costly together with the piping as the location was rural, and the people who would be using the water would not be able to afford to pay for said water.

Mr A Shaik Emam (NFP) said the Portfolio Committee on Water and Sanitation, after an oversight visit to Mount-Ayliff, had requested the DWS to provide the Committee with all the necessary documentation regarding a project there, from start to finish for over two years, to no avail. Why had the DWS been unable to give the Committee the paperwork it required to probe deeper into whom was responsible for the alleged corruption which had taken place with that project in Mount Ayliff?

Could DWS at some point provide the DWS Committee with a list of who owned the water services boards across the country?
Could DWS specify where BEP had been implemented in SA?

Mr Basson was not convinced by Mr Mahlangu’s response on why DWS had not disclosed the accruals in the presentation to the Standing Committee seeing that NT had just reported that there was an additional R100 million expenditure, which meant the accruals were actually R1.6 billion. The previous week the Portfolio Committee on Water and Sanitation had asked where the R999 million reductions which DWS had paid had come from; because prior to that Committee approving DWS budget it had told Minister Mokonyane she had wanted to use RBIG funding to pay for goods and services that RBIG, was a ring fenced conditional grant and using that funding for anything else except its intended purpose would be contravening the PFMA.

Indeed, DWS needed at least R800 billion over the next 10 years which Government could never cover with the current structure, but the bigger problem with DWS was that it did not have a water and sanitation master plan for SA. Since 2014 the Committee on DWS had been struggling to get a master plan from DWS. He would appreciate any help the Standing Committee could give in getting DWS to submit that master plan. DWS were planning to develop a new Water Act but he was not convinced it would be done because there could not be a Water Act without a master plan.

The last blue and green drop report had been in 2013/14, the 2014/15 report was reported to have been delayed by late tendering and would be submitted in the 2015/16 but 2016/17 financial years respectively had both gone without a report. He was still awaiting a response to a written question in that regard.

Ms Shope-Sithole requested that a thorough joint discussion be held between NT, the Standing Committee on Appropriations, the Portfolio Committee on Water and Sanitation, and the Committee on COGTA because without water the economy, rural development and women empowerment would never materialise.

Mr Mcloughlin proposed a joint meeting with DWS, its provincial components and all the municipalities to try and get to the bottom of the crux. He said he had heard nothing about infrastructure maintenance; he wanted to know whether that would form part of DWS’s masterplan?

He had noticed in the Estimated National Expenditure (ENE) of budget vote 36 that expenditure on CoE was expected to increase by an average annual rate of 6.3% over the medium term and would remain within the lowered expenditure ceilings as DWS planned to reduce its staff complement of 3682 by 294 non-core posts over the medium term. Could DWS comment on its earlier comment about vacancies being a challenge when it was planning to reduce its staff more? 

Mr Gcwabaza said the Standing Committee had been raising the issue of the minimum set-aside budget for goods and services at 30%; could DWS give the Standing Committee information of how it had implemented that to date and whether it had a breakdown of support it had given to small and medium enterprises (SMMEs) and cooperatives, profiling of women, youth and people with disabilities; geographical spread of those, skills transfer and job creation, together with the monetary value on all of the above. Linked to the above was the 60% set-aside for jobs for youth in infrastructure which he required as a written response.

In SA it was difficult to speak about an ideal situation in a non-ideal reality where one had to chase history. Whilst doing that one would also be expected to be chasing a moving target, which was what DWS was attempting to do. Though not defending DWS, his plea was for the Committees to be cognisant of the historical legacy of water supply was linked to the double-dipping which NT had raised as well. He also pleaded with NT to assist DWS with skills training at local Government and to not only observe and propose and to stop there because DWS could not be observers when people were forced to destroy infrastructure in demand of water at local Government, where municipalities themselves had no revenue base.  It could be wrong in terms of spending monies one did not have but could be perfectly justifiable when one thought of communities still awaiting tapped water, when their neighbours had such water.
It had taken 23 years for Jozini to get reticulation for water to be pumped to its communities from its Dam as there had been resistance from those that had commercial interests even during the former President’s tenure. His hope was that the master plan would include all techniques of harvesting water so that long term budgeting and implementation strategies could realistically talk to such a plan. The plan could take years but in the intervening time, it had to be accepted that emergency situations had to be responded to such that emergency funding had to be a part of planning.

If NT and DWS could not find investors for Mzimvubu Dam because those that had commercial interests could not invest as the project was a social utility; was it fair to reject an investor that was willing to invest for social utility because they were Chinese? Currently no one knew what kind of Memorandum of Understanding (MoU) would be entered into and how that would balance investment and SA jobs.

The Chairperson said for a workable water and sanitation master plan to be finalised, there had to be feasibility studies commissioned and innovation.

The Co-chairperson said what the Chairperson had just mentioned was work that the Water Research Commission and the Council for Scientific & Industrial Research (CSIR) had produced but which had not been used to date. The country had a tendency of importing innovations which it already had whether it was on sanitation or water. Year-end meeting in 2016 had spoken about treating waste water to make new water which was something which was happening in Ballito, KwaZulu-Natal, which was already happening; at Zimbali they also lived on new water with far lesser costs. But Government still found reasons to not use such technologies. NT still had to assist the Portfolio Committee on Water and Sanitation with refusing any budgetary requirements by DWS on projects starting from R500 million to R4 billion like the one in Giyani. On projects like De Hoop, Clan William and Mzimvubu Dams respectively, NT were still to assist the Committee with a legislative framework which would guide DWS regarding those projects.

On Mzimvubu, the financial model and the terms of such funding still needed to be clarified to the Committee. On social utility dams in the area where Mzimvubu was to be situated there originally used to be large tracts of sugar cane plantations which amounted to over 10 000 hectares under irrigation. Over some small dispute within communities all of that had disappeared. What was it that stopped DWS from collaborating with the Department of Agriculture, Forestry and Fisheries (DAFF)? Margate formerly was a thriving logistics hub. All the above examples were practical examples that DWS in collaboration with others could be looking into to make the Dams though for social utility, also generate revenues for the communities.

The Co-chairperson said he had thought Mr Mahlangu would speak to the issue of DWS’s debt collectors finding themselves in plush situation where one debt collector would be appointed to collect R7 billion debts for the WTE.  
He had also expected the DWS to speak about the cost of cleaning the Hartbeespoort dam because the Co-chairperson had been informed that millions had been spent in the clean-up. It was well known that contamination there had resulted from the incapacity of the waste water treatment plant in the Madibeng municipality. Problematic was that DWS continued cleaning the dam instead of the source of the sewerage effluent which fed into the dam.

The late payments of black service providers were destroying those small businesses where providers waited beyond three months for their payments.      

The suspensions of the DG and DDGs impacted quite negatively on the governance of DWS
 
In following the money, precautionary suspensions of staff consumed a lot of money; to date there were four suspensions at DWS in the year under review with an average of 90 days away from work at a cost of R830 745. For 2014/15 DWS had suspended 12 officials with a n average period of suspension of 174 days costing R 1.1 million. In 2013/2014 10 officials had been suspended at an average period of 90 days costing DWS R463 568. That money was not adding value to service delivery, how far was the DWS with those actions. DWS had to challenge itself to cut down on consultants.

The continued accruals and repeat findings on the weak controls at DWS together with management of implementing agents in all contracts by DWS made it difficult for the Standing Committee to plead DWS’s case to NT to increase funding for DWS.

How was the DWS addressing the findings from the AGSA performance audit report of 2015/16 financial year? The internal audit and audit Committee of the DWS was supposed to be assisting with reconciling deviations on a monthly basis. If the officials from that unit were present she requested that they elaborate on those matters.

Any outstanding questions could be submitted in writing.

Deputy Minister Tshwete said DWS was only established in 2014 as a new Department since sanitation formerly had been under the Department of Human Settlements (DHS). As the Portfolio Committee on Water and Sanitation was well aware, the DWS had already requested its Committee to call for a joint meeting with COGTA as DWS was not responsible for training staff at local Government since the budget for that resided with COGTA.   
DHS had taken time to transfer the budget of sanitation to DWS which had affected the finalisation of a master plan for the DWS. Secondly, a master plan had to go via municipalities, provincial Governments and other stakeholders where such workshops were ongoing. DWS could not unilaterally complete a master plan without having consulted everyone involved in water services.
During consultation with the appointed engineers for Mzimvubu, she had been persuaded that the location had not been randomly situated and DWS had consulted all Amakhosi around the area where the Dam would be situated.

Mr Mahlangu conceded that delays to projects indeed escalated project costs Mzimvubu would have to be built where it was planned to be built. Indeed, DWS had to finish the works at Hazelmere Dam.

The questions regarding the Minister would possibly have to be asked directly to her as he was not aware of any such matters.

DWS would provide an answer to the Standing Committee on the issues of Mount-Ayliff at a future meeting.

Water boards were known to everyone as they produced annual reports which detailed the board directors in all of them, but Mr Mahlangu requested more clarity as what Mr Shaik Emam required. 

Mr Shaik Emam said that he had been informed that 70% of all SA water was under the control of a few individuals in different areas.

Mr Mahlangu said when the Water Acts were passed a verification process of people that owned water licences had been ongoing since then.  In the proposed new water Act DWS were saying it would be incumbent on individuals to come within a certain period of time to validate their licences or they would be nullified. Indeed, licenses were owned by municipalities and individuals.

Mr Shaik Emam interjected that he wanted that exact detail of whom the people were, who had licences, how long they had had them and why they still held licenses?

Mr Mahlangu replied the information would be provided.
He was supposed to have represented DWS at a DG cluster meeting to discuss a master plan proposal which his officials had drawn up. The management of DWS had sat and listened to the presentation by his officials where he had decided that the master plan would be withdrawn from going forward as it lacked quite a few things. DWS had then appointed Mr Trevor Balzer to lead that team to ensure that a better proposal could be put forward.

He would follow up on the blue and green drop matter with the water sector regulation division and would submit a response to the Committee on DWS.

He agreed with Ms Shope-Sithole to the extent that he had asked NT to organise a joint meeting with municipal managers and DWS to discuss the issue of reticulation and other issues of common interest. As it was Mr Basson would be accusing DWS of irregular expenditure for fixing water treatment plants in 2016 during the drought, NT and AGSA would be unhappy as well since that was not DWS’s mandate but DWS could not watch as people were going to be living without water. There was a list of water treatments plants that DWS had fixed and would continue doing though that was not DWS’s function.

There was a report on the 30% and 60% set-asides as had been asked by Mr Gcwabaza in the notes and annexures that DWS had submitted to the standing Committee and the progress thereof.

Mr Gcwabaza interjected that it was there as he had seen it but it was incomplete.

Mr Mahlangu replied that DWS would look into the matters.

He concurred with Mr Gcwabaza that Mzimvubu had to be built but certainly the matters raised by Ms Baker would also be considered in that regard.

On collaboration with other departments in getting some commercial returns from the social utility of Mzimvubu he asked that the DWS be allowed to reply in writing in that regard.

If DWS went and cleaned the Madikwe waste water treatment plant instead of the Hartbeespoort Dam DWS would be accused of irregular expenditure and his plea was that the Committee be cognizant of that if it was indeed asking DWS to do that with its money.

Mr Mahlangu said that management of consultants had to be linked to the estimate required to deal with water services in the country for the next 10 years. Moreover, it had to be recognised that DWS would not have the required personnel to do all the jobs which were required in getting water to South Africans. Another issue was that the youth the DWS trained as engineers did not stay with DWS after qualifying because of the salaries, therefore project managers for water works had to be hired from outside and the amounts they charged were sometimes too much. For example, the basic salary of the person who would be managing the building of the dam being built in Verwoerdburg had been steeped at R2.8 million and would be receiving quarterly bonuses for achievements. The individual lived and dreamt the project and if DWS could get experts that ran projects like that then it had no problems paying such monies.

Mr Gcwabaza stopped the ADG and said whatever remained from the questions be submitted in writing as the Standing Committee would hold DWS to account.

Deputy Minister Tshwete said she had just read that Eskom would be switching off electricity of municipalities that were failing to pay for electricity however; DWS could not disconnect citizens’ water like Eskom as there was no substitute for water.

Mr Gcwabaza thanked everyone that had attended and the meeting was adjourned.   
 

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