Department of Water and Sanitation on Quarter 2 performance

Water and Sanitation

15 November 2017
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

The Department of Water and Sanitation (DWS) told the Committee it planned to have a discussion with the Department of Cooperative Governance and Traditional Affairs (COGTA) on strategies on how to recover the money owed to it by the municipalities, because if it was not recovered, it would have an effect on the fiscus.

Under the main account, the Department had achieved 60% of its targets. The reasons for non-achievement were mainly related to inadequate funding. Only 18% of the planned 25% projects were completed as per the annual maintenance plan. The budget was approved only at the end of June 2017 due to on-going negotiations with the National Treasury. The late allocation of the budget meant that implementation of the maintenance plan was delayed by three months.

The Water Trading Entity (WTE) said it had reached an agreement with the National Treasury that it would reduce its overdraft by R748 million, from R2.675 billion as at 31 March 2017, to R1.9 billion as at 31 March 2018. Some of the top ten municipalities that had not been able to honour their payment agreements were Vhembe District Municipality; Lekwa Local Municipality; Mopani District Municipality; Mapube Local Municipality; Oliver Tambo District Municipality and Tlokwe Local Municipality. District and local municipalities continued not to pay their accounts, and they were handed over to the legal department for summonsing. During the process, 59 summonses were issued; 121 were still in the legal collection process, while 74 municipalities were not handed over, as some of them were paying their accounts.

The water boards’ balance had increased from R3.0 billion to R3.5 billion. Some of the water boards that owed money to the Department were Sedibeng Water (R2 billion), Rand Water, Umgeni Water and Magalies Water. The WTE had requested COGTA and National Treasury to intervene, and since then municipalities had made an undertaking to sign payment arrangements.

The Committee asked about the water basins that South Africa was sharing with neighbouring countries; the measures the DWS would implement to recover debt from municipalities; why some projects had been only partially achieved; whether employees were receiving bonuses when the Department had not performed well; the filling of vacant positions; the feasibility of withholding equitable share allocations to defaulting municipalities; and  progress with the eradication of the bucket toilet system.

Meeting report

Department of Water and Sanitation (DWS): Second Quarter Report

Mr Sifiso Mkhize, Acting Director-General, DWS, said the Department was planning on having a discussion with the Department of Cooperative Governance and Traditional Affairs (COGTA) on strategies on how to recover the money owed to it by the municipalities. If the money was not recovered from the municipalities, it would have an effect on the fiscus. The Department had thus far spent only 46% of its budget for the second quarter.

Ms Babalwa Manyakanyaka, Chief Director: Corporate Planning, DWS, said that under the main account, the Department had achieved 60% of its targets, 17% was partially achieved and 23% was not achieved. Under the water trading account, the Department had achieved 75% of its targets and 25% was partially achieved. The main account had four programmes: administration; water planning and information management; water infrastructure development and water sector regulation. The water trading account had only two programmes: financial management and water resource management.

Under the  main account, the plan to complete the comments and response report for the Mokolo Crocodile (West) Water Augmentation Project, Phase 2A, was not achieved due to delays in the signing of the Memorandums of Association (MoAs). The Committee should note that the MoAs had since been signed and the projects were under way. The target to address public comments and compile a comments register for the Crocodile Marico and Mokolo and Matlabass was not achieved. The three were currently responding to the comments on the draft Resource Quality Objectives (RQOs) that took longer than anticipated, and which had an effect on the planned deliverables. In addition, the plan to develop a situational assessment master plan for the 17 district municipalities was not achieved because there was a financial shortfall.

A number of the targets under the water infrastructure development programme were not achieved. Two of the planned milestones for the bulk raw water project were achieved. In Tzaneen, the tender for the projects could not be advertised due to budget constraints. The approved three-year Medium Term Expenditure Framework (MTEF) budget issued for 2017/18 was insufficient for the projects, which were estimated to cost R322 million. In Clanwilliam, the tender evaluation process took longer than was expected, and the budget for the project was also not approved. A Bid Evaluation Committee had been scheduled to convene in October 2017. The Committee had extended the validity of the tender to 31 December 2017, and it was expected that the evaluation would commence and be finalised before this period.

157 of the planned 600 job opportunities had been created, and the Department foresaw that it would not meet this target due to budget constraints. Only 18% of the planned 25% projects were completed as per the annual maintenance plan. The budget was approved only at the end of June 2017 due to on-going negotiations with the National Treasury. The late allocation of the budget meant that implementation of the maintenance plan was delayed by three months. The Department’s recovery plan was to increase the resources through the extension of the term contract in central operations. Ten of the planned 15 mega regional bulk infrastructure project phases were under construction. The designs for module 7 the Sebokeng Wastewater Treatment Works, Phase 2 of 2, had to be reviewed due to the time lapse of the initial designs as a result of budget constraints. The designs would be finalised only by December 2017. The Sedibeng Wastewater Treatment works project was stopped in favour of refurbishing of Rietspruit and Leeuwkuil as a cheaper option. Westonaria Phase 2 (Zuurbekom) designs for the project were approved, but the projects were put on hold owing to uncertainties around funding and linkages to other projects in the immediate vicinity.

The Middelburg Ground Water Supply project was delayed by the procurement processes of the Chris Hani District Municipality. There was a possibility that the project would be advertised again, as the tender validity period had since expired. There were insufficient funds to complete the implementation of Phase 6 of the Sundays River bulk water scheme (BWS). The Makana bulk sewer project was awaiting appointment of a contractor. The Mafube bulk sewer Phase 2 of 2 budget was not approved due to budget constraints within the Department. There were also delays in the finalisation of the tripatite Service Legal Agreement (SLA) for the implementation of the Driekoppies project in the Sibange BWS.

The plan to have concluded the environment impact assessment (EIA) and public participation for the Witwatersrand Acid Mine Drainage (AMD) long-term project was not achieved. A single source procurement of an EIA practitioner was not approved by Treasury. There were delays in incorporating all comments from all the relevant parties involved, hence the plan to have the site for mine water management technologies established was not achieved. A total of 63 % of the planned 80% applications for water use authorisation were finalised within 300 days (i.e. 85 of 136). Recruitment and capacity building of additional officials to provide specialist inputs was currently under way.

Ms Rebecca Nkomo, Acting Chief Financial Officer, DWS: Main Account, said the original budget for the year was R15 billion, and the Department had thus far spent 46%. The Department had under-spent the budget on the compensation of employees, which was mainly due to the vacant posts across all four programmes. The disbursement of the performance bonuses to qualifying employees was under way and implementation of pay progression/salary adjustments for the 2016/17 performance cycle would also increase spending on compensation of employees. The recruitment processes were also under way for the filling of prioritised critical vacant posts across all four programmes. However, since the salaries had a carry-through effect in future years, the filling of posts would therefore be limited to priority posts in order to remain within the MTEF ceiling.

The Department had spent R3.72 billion of the projected R4.138 billion in transfers and subsidies. The under-spending of R418 million was mainly due to outstanding transfer payments to the Komati Basin Water Authority (KOBWA) of R11.32 million, the Umgeni Water Board for R231.650 million, the Water Services Infrastructure Grant (WSIG) for R125.993 million, and the Regional Bulk Infrastructure Grant (RBIG) for R6.469 million due to compliance-related issues.

Ms N Bilankulu (ANC) asked why the transfers were not completed.

Ms Nkomo replied that the Umgeni Water Board had not submitted their business plan and the audit reports showing how much money the Board had spent in the previous year, as per the agreed and signed MoA.

Mr Paul Nel, Acting Chief Financial Officer, DWS: Water Trading Entity (WTE), said revenue of R5.8 billion had been billed for the financial year, and total expenditure had been R5.2 billion. The cash and cash equivalents had an overdraft amount of R1.516 billion as at 30 September 2017. The debtors account balance amounted to R10.609 billion, while the creditors account amounted to R1.798 billion as at 30 September 2017. The employee costs reflected a spending of 87% when compared to the year to date budget. The vacancy rate was currently sitting at 9%. Goods and services reflected a spending of 90% against the year to date budget. The projection indicated that additional funds would be required during the budget review process for goods and services, and this would be mainly to cover the electricity and security costs for the operational clusters. The variance of R109 million on the construction costs was mainly due to the realisation of the uncertified work from the prior financial year. The WTE had made an agreement with the National Treasury that it would reduce the overdraft by R748 million, from R2.675 billion as at 31 March 2017, to R1.9 billion as at 31 March 2018.

Some of the top ten municipalities that had not been able to honour their payment agreements were: Vhembe District Municipality; Lekwa Local Municipality; Mopani District Municipality; Mapube Local Municipality; Oliver Tambo District Municipality and Tlokwe Local Municipality. District and local municipalities continued not to pay their accounts, but they were handed over to the legal department for summonsing. During the process, 59 summonses were issued; 121 were still in the legal collection process, and 74 municipalities were not handed over to the legal department as some of them were paying their accounts. Assessments were currently being done so that those that were not paying could be handed over.

The water boards’ balance had increased from R3.0 billion to R3.5 billion. The increase emanated from Sedibeng Water not servicing their debt. They owed the Department R2 billion. Meetings were arranged to deal with the non-payment and this would include the respective municipalities that owed Sedibeng Water. The first meeting had been held in June 2017, and the respective municipalities were requested to have council resolutions on how they were going to pay the debt. Some of the water boards that owed debt, apart from Sedibeng Water, were Rand Water; Umgeni Water; Magalies Water and Overberg Water, amongst others. Uthukela Water had an outstanding debt of R207 million. The water board had requested the Department to write off 50% of the debt and make payment arrangements for the remaining 50%. The offer had been rejected, as the Department required the money to execute their mandate. Further, a final demand letter had been sent to Uthukela at the beginning of January 2017, and water restriction would be considered if they continued not to pay the accounts.

The WTE had decided to call and arrange meetings with the municipalities. Many municipalities were disputing their accounts, and efforts were being made to try and correct accounts where customers had valid disputes. Municipalities that had their queries resolved had promised to start paying their accounts, but they still continued with the non-payment of the accounts. The WTE, COGTA and the Provincial Treasury had to intervene. Municipalities had made an undertaking to sign the payment arrangements, but those who had signed the payment arrangement were not honouring it. The entity had written to COGTA and the Minister of Finance in the current financial year to intervene, as per the Intergovernmental Relations Act.

Owing to the above, the Department had taken steps to try and recover the money owed to it. Firstly, it had decided to withhold the equitable share. It had requested National Treasury to withhold the equitable share for municipalities that were not paying as prescribed by financial management prescripts. Secondly, it had put restrictions on water supply. The National Water Act allowed the Department to restrict or suspend the flow of water to defaulting water users in order to collect the outstanding debts. The restrictions would be implemented, based on the payment patterns of the municipalities. This strategy would have a direct negative impact on the communities, which may result in unrest as the municipalities would not have enough water to deliver to the communities.

Discussion

The Chairperson asked at what point the Department would realise that paying a large amount for legal fees would not suffice, especially considering the amount of money that was owed to it by the municipalities. He said that the Water Trading Entity had been absent for quite some time, and no one in the Department could respond to the financial questions.

Ms H Kekana (ANC) asked what was meant by saying that the eradication of the bucket system had been partially achieved. How much money had been reprioritised, and what had caused the delay in the signing of the MoA for the Mokolo project?

Mr L Basson (DA) said that municipalities that had debts outstanding for more than the stipulated 30 days payment period should not receive an equitable share of the grant. He made an example, saying that the Madibeng municipality’s equitable share had been reversed five times due to the municipality not honouring its repayments to Eskom. He advised that the DWS should write to the Minister of Finance and the National Treasury asking for guidance as to whether the Department could at any stage follow this process. Nonetheless, the National Treasury had in the past indicated that it was willing to negotiate to extend the money to fix infrastructure.

Ms M Khawula (EFF) said the Committee had never been invited, nor been part of the discussions the Department had with the countries with which South Africa shared water basins. The Committee should be invited to the discussions, because they had an oversight role. She asked about the backlog in the bucket system eradication programme -- how many bucket systems did the Department still need to eradicate, and how far was the Department in reaching their target? She asked about the vacancies that were not filled in the Department, and why it continues to allocate budgets to municipalities if they struggled to pay off their debt.

Mr D Mnguni (ANC) commended the Department on taking further steps to recover the money from the municipalities. He hoped the legal process would put pressure on them to repay the debts. He agreed with Mr Basson that the Department should seek the Minister of Finance’s and Treasury’s assistance in recovering the debt. He advised the Department to implement its performance management system, as employees who were not performing well should not be eligible for salary bonuses. He added that the Parliamentary Monitoring Group had a good performance management system that tracked the attendance of Committee Members. The Department should also do the same, and employees should not be receiving bonuses if the Department was not performing well. The Department had set targets that it was unable to achieve – there had been delays with most of their projects.

The Chairperson said the Department had to take different steps and try to be innovative. It had to do more with a smaller budget. A number of the recovery plans involved the fast tracking of the appointment of the contractor; and he asked it to explain what fast tracking meant.

DWS’s Response

Ms Zandile Mathe, Deputy Director-General: Infrastructure, DWS, said the Department had started with a baseline of 52 000 bucket toilets. It had since eradicated 32 000, and was left with 20 000 buckets to eradicate. The Department could not unfortunately at this time indicate when the bucket system would be eradicated, especially since funds had to be reallocated. Also, the National Treasury had not allocated a budget for the eradication of the bucket system.

The Komati River Basin Water Authority had been established to manage the drip from the Maguga Dam that was built between the two countries that had signed the water basin agreement, South Africa and Swaziland. The other water basin agreement was the Orange-Senqu River Basin, which ran between SA, Namibia and Botswana

Ms Deborah Mochotlhi, Deputy Director-General, DWS, said R18 million had been prioritised for 19 district municipalities. The Department had in the past tried to be innovative, but it had found that requiring certain types of technologies closed doors to a number of tender applicants who were not able to provide new technology. The delay in the signing of some of the MoAs was due to municipalities wanting further advice on the contents of the agreement.

Mr Nel said the Department had not handed any of the water boards over, because the Minister of Water and Sanitation had the right to disband water boards if she believed they were not financially viable.

Mr Mhkize said the costs of the legal applications were a part of the debt that was being collected from the municipalities. The Department could provide information on how much the Department spends on legal applications in writing. The partial achievements pointed to where projects were in the process of being carried out, but were not completed. The salary bonuses were determined by the contracts, and all the employees received different contracts. He added that none of the Department’s employees received bonuses. 

Ms Bilankulu asked who granted the district municipalities the authority to provide water to communities, because they seemed to be failing to repay the Department for the service. What was the reason for not giving the same authority to local municipalities, or did the local municipalities not have the capacity to provide this service? She also asked if the Department had undertaken an analysis of compliance and non-compliance with the Public Finance Management Act and Treasury Regulations. If so, what were some of the challenges it had identified during the analysis? 

Ms Khawula said her question on the filling of vacancies had not been answered. She added that the Department of Human Settlements (DHS) should also consult with the Department before they started building houses, because a large number of the houses that were built by the DHS did not have water and sewer pipes installed, thus causing a further backlog with the bucket system.

Ms Mathe replied that the approach to granting local municipalities the authority to provide water was not uniform. There were some provincial departments which have given local municipalities the authority to be a service provider.

Mr Mhkize said the Department had unfortunately not filled all its vacancies, although it had managed to fill the critical posts. The Department was required by a section 40 regulation to report any non-compliance to the PFMA to the Treasury and the Auditor-General.

The Chairperson said the DWS and the Committee would have a joint meeting with COGTA and Treasury in the next week to discuss which measures the Department could take to recover the money owed to it by the municipalities.

Ms Khawula added that the Department of Human Settlements should also attend the joint meeting.

The meeting was adjourned.

 

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