Outstanding water debt by municipalities, with DWS Minister + Deputy & COGTA Deputy Minister

Meeting report

The Chairperson said that the Finance Committee had been invited, but they could not attend because they had a meeting. However, officials from the Treasury would be in attendance

Mr H Chauke (ANC) asked what level the delegates from the Finance Department were, as it was a high level engagement meeting.

Mr L Basson (DA) asked if the announcement made by the Minister of the Department of Water and Sanitation (DWS) on water cuts had been communicated to other departments

Mr N Masondo (ANC) indicated that there was a meeting of Chairpersons of Committees of Parliament, and many people who were supposed to be at the joint meeting were there. This posed a dilemma, and it was worrying that senior people were not available for such an important joint meeting.

Mr Jan Hattingh, Chief Director: Local Government Budget Analysis, National Treasury, apologised for the absence of the Deputy Minister, as he had a prior engagement. Treasury understood the meeting to have been scheduled for the week before. He said he was the official responsible for municipal budgets and all money flows.

The Chairperson, in response to Mr Chauke, said that there had been no official apology from the Minister or Deputy Minister of Finance.

The Chairperson said that the meeting had been rescheduled to that date at the request of the Minister of the DWS. He had also communicated that the CoGTA and Finance Committee chairpersons had formally communicated their absence, but that there would be a National Treasury delegation.

Mr Chauke expressed his concern on the lack of official response from the Minister or Deputy Minister of Finance to the Committee’s invitation, and said the executive authority needed to be responsible as this amounted to undermining Parliament.

The Chairperson gave a background to the agenda, and highlighted the importance of water as a human right. He asked for a complete picture of the debt situation, and for an analysis of how it was broken down, as well as progress on debt collection.

DWS on municipal debt

Ms Pam Tshwete, Deputy Minister: DWS, said that the Minister was on her way. The Department had requested a joint meeting with key stakeholders on the municipal debt, and was glad a platform had been set so that the crucial issue could be discussed.

Ms Nomvula Mokonyane, Minister of Water and Sanitation, said there had been consultations and interactions with other stakeholders on the issue. 186 municipalities were affected, but 30 were extreme cases. She cited OR Tambo, which had had similar challenges in 2016, and had developed a turnaround strategy. Although consultations had been made, the issue involved those consultations that could yield results. The Department had resorted to what the law required, so the issue had been brought to the National Assembly for intervention. The Acting Director General (DG) of the DWS and the Department of Finance were in talks, and they were awaiting conclusions.

The Mnister highlighted that the Water Trading Entity (WTE) of the DWS had had three budget cuts in the hope that funds would be raised from water sold, but funds had not yet been collected. The Department’s  business was providing water, but it had become a victim so it had to engage with relevant parties or go to the extreme without targeting citizens’ constitutional rights.

She said that there would be a need to review the Water Act and the Water Services Act in the future.

She recommended that there be an interdepartmental team, at the portfolio committee level, to call upon all stakeholders with regard to what they were doing to monitor, evaluate and support local government, and to see what interventions had been adopted in order to make follow-ups.  

Discussion

Mr K Mileham (DA) said he was outraged that the Minister of Cooperative Governance and Traditional Affairs (COGTA) had decided to go campaigning instead of attending the meeting. He asked the DWS if addressing the three municipalities whose debt accounted for over 50% of the total would alleviate the issue around the Water Trading Entity. There was a de facto breach of the constitution that would occur if the water cuts went ahead. He also asked if any action had been taken by the provincial executive, as required by the constitution.

The Chairperson proposed that the Committee should allow the CoGTA Deputy Minister, the South African Local Government Association (SALGA) and Treasury to make presentations, and then they would engage.

Mr Basson said the Minister had raised two critical issues -- about payment and how it would be done, and the way forward where the DWS needed to assist municipalities with infrastructure. These needed to be addressed. He urged National Treasury to take active role and for agreements to be reached.

Mr D Mnguni (ANC) said that there was no need to go through the presentations, as all the stakeholders were aware of situation on the ground. All they needed to know was how SALGA, Treasury and CoGTA would deal with situation at hand.

CoGTA on municipal bulk water debt

Mr Andries Nel, Deputy Minister: CoGTA, stressed the importance of water, and said the Department wanted to ensure cooperative governance, with the issue being tackled from a sound intergovernmental relations standpoint, as well as from the viewpoint of reporting municipalities. The CoGTA presentation was solution-oriented, with six possible courses of action. There were initiatives already under way, as there was an inter-ministerial task team that was dealing with Eskom debt, working groups on debt owed to municipalities and a ‘back to basics’ approach. The debt was focused in the provinces of Free State, North West and Northern Cape, and there had been joint meetings with the municipalities by the ministerial team.

Mr Tebogo Motlashuping, Acting Deputy Director General (DDG): CoGTA, said that the challenges facing the affected municipalities were ageing infrastructure, expenditure being greater than revenue, ineffective governance structures, and vacancies in senior positions, where critical skills were lacking. He said that in 2016, the DWS had declared an intergovernmental relations (IGR) dispute against a handful of municipalities, and in March 2017 it had served 138 districts and local municipalities with legal proceedings rendering the IGR moot. Municipalities had protested the debt history as not being reflective of what they owed.

Some options to deal with the impasse were to convene an informal meeting with the DWS to obtain a detailed background and perspective on the issue, or calling an official meeting at the political level. Writing off debt had also been considered, but this had more disadvantages which came with it. The courts should be the last resort. A comprehensive package of support was required to tackle the massive debt of municipalities to their creditors. The support package would include improving the leadership, governance processes and systems, technical capacity and partnership with the DWS, water boards and the provinces.

Deputy Minister Tshwete made a note of the six options, and placed particular emphasis on the IGR process, the ‘back to basics’ approach, and also reviewing the funding model.

SALGA on non-payment for services

Mr Lance Joel, Acting Chief Executive Officer (CEO): SALGA, said that they understood non-payment of services rendered to municipalities had led to a R10.7 billion debt. Legal action had been taken on defaulting municipalities, with the DWS threatening water cuts to 30 municipalities owing over R50 million, effective 8 December 2017, if some payment arrangements were not made. There was also a proposal to withhold the equitable share allocation as a mechanism to offset the debt.

He highlighted the ageing infrastructure issues, low collection rates, the operation on a deficit or break-even point by water trading bodies, and economic circumstances as default enhancing mechanisms. He said mitigating steps were being taken by the municipalities to address the various challenges.

He said the options of agreements between municipalities and water boards would not be plausible, as well as the withholding of equitable share. The only option that gave space to all parties to realistically seek sustainable solutions and develop a better understanding of the challenges would be for SALGA, NT and the water authorities doing a due diligence study, despite taking time to get results.

The Chairperson said that the Committee’s approach was for the stakeholders to provide solutions, and not to further problematise the issue. He expressed his concern at SALGA’s approach of brainstorming in the joint committee, as the Committee expected the stakeholder to have engaged on a way forward prior to the meeting.

National Treasury on municipal sustainability

Mr Jan Hattingh, Chief Director: Local Government Budget Analysis, NT, said that the problem statement indicated that some municipalities were failing at effectively delivering services, billing for services and collecting the revenue due. He showed the state of municipal finances and expenditure as at 30 June 2017. Collection rates for almost all municipalities were overstated, and most of them presented an operational deficit. He said 37 municipalities presented a deficit after commitments were considered, but analysis could not be conducted in six municipalities due to incomplete documents.

The perceived contributing factors to municipal failures included under-funding. He cited some of the root causes of the municipal liquidity challenges, which included political accountability, bloated municipal organisational structures and political leadership failure, a culture of non-payment and past initiatives, and external and internal contributing factors.

He said that the National Treasury had developed and implemented a budgeting, reporting and grant monitoring and management system for local government. There was a need for a collective and coordinated approach that was consistently applied by all spheres of government to address local government service delivery failures and maladministration. There was also a need to clarify roles and responsibilities, especially between CoGTA and National Treasury. 

Discussion

Mr Chauke said that it was clear there had been no engagement between the Department and SALGA. He suggested all key players should meet and come up with a plan to resolve these issues, and urged the Committee to put a timeline to it. He said agriculture used the most water, and that sector had to be investigated.

Mr Basson expressed concerned over how CoGTA and the DWS was dealing with municipalities. The reason they received an equitable share, and what they used it for, was different and it did not have to be condoned. He requested the Minister to call off the water cuts, and focus on the equitable share for March, and use that money for payment.

Mr Mileham highlighted the first solution in SALGA’s presentation, saying the blame was firmly on SALGA and the municipalities, as they were at fault for the non-payment and bloated salaries. A lack of oversight and monitoring on the ministerial side had also exacerbated the issue. The lack of political will had led to an escalation of these conditions. He asked why in CoGTA’s report, they talked about a financial recovery plan now instead of intervening earlier. He asked Mr Nel if the municipalities that had followed a simple revenue plan were the same with those at risk, or if they overlapped.

Ms M Khawula (EFF) asked what the process of writing off historical debt was, and if it were not the same for municipalities. What steps were being taken on mines operating illegally? She said nobody checked if infrastructure was in place when building took place, and this had to be worked on. She asserted that CoGTA did not want to do its job. The municipalities continued to install water meters even when the people indicated that they did not want them, and this showed disregard. She also asked what was being done regarding the intention to switch off water during strikes.

Mr Mnguni said he thought all the presenters would offer solutions, and not shortcuts like writing off debt. He said SALGA knew there were agreements and had not done anything about their shortcomings until things got tough. He urged that people be billed correctly. He asked if the water service authority was mandated to perform its roles. The presentations showed that the consultations touted by the Minister had been fruitless, and suggested this to be done to achieve a one-time solution to the issues. He requested that all decisions taken must be implemented, because this was the issue that had failed a lot of deliberations.

The Chairperson asked about the cost of refurbishment as opposed to new infrastructure. He had not yet heard of punishments for vandalism affecting water, and the law that had been established to deal with it. There were places where water was unaccounted for it, and which had to be audited, including in the private sector.

Mr Basson said that there had been a CoGTA intervention in the previous month in his municipality, but it had since been vandalized, and both the provincial government and the municipality had overlooked the security aspect. He asked for the view of the Deputy Minister on funds being used by the DWS to assist on infrastructure via the DWS construction unit.

Mr Chauke asked how best the Treasury and the Department could help in recovering the money, rather than using an external debt collector. He asked why water meters were installed inside the yard for white residences and outside the yard for black residences, and why the meter readers estimated instead of giving actual readings. 

Responses

Mr Hattingh said the NT did issue annual budget statements to municipalities and helped them to budget for the repayment of debt. They had recently published a report, and a section dealt with the relationship between new assets and refurbishment, and municipalities were moving in the new channel though at slow pace. The information would be made available to the Committee. The process to get a debt write off was in the Systems Act, and an entity needed to be endorsed for that to be in effect.

Mr Joel said SALGA’s view was that there were broad structural issues going on in different municipalities, so there should not be a blanket approach to the issues. The due diligence proposal must be honored before the equitable share allocation for March. They needed to be holistic in dealing with these issues and the water boards had to have a cutoff point on their tolerance for debt.

SALGA did not write off, but implemented measures to ensure uncollectable debts did not recur. Capacity assessments had to be made to ascertain the other issues in the municipalities. The proposal for a coming together of the relevant entities to conduct due diligence and make resolutions should be championed.

Mr Nel said CoGTA proposed that since quite considerable success was being achieved -- though it was slow -- through the inter-ministerial task team (IMTT), the terms of reference for the IMTT should be broadened to include water boards’ debt. He agreed with coming up with a coherent set of recommendations and actions before March. Oversight over municipalities was not perfect, as there was great unevenness, especially on the part of provincial departments of CoGTA, but this did not mean that they had not made successful interventions.

He said the ‘back to basics’ approach had been more direct in the second phase. They needed to follow an evidence-based and differentiated approach to intervention at municipalities. The use of funds for infrastructure had legal and administrative impediments. He warned there was a danger that if intervention was fragmented, there would be more issues than if there was integrated planning and implementation. He said that Treasury was definitely not in support of a debt write-off, and the disadvantages had been made clear.

The Chairperson said that the DWS had been involved in an emergency programmes during the drought period, despite struggling financially, yet CoGTA had not been making those interventions

Mr Nel said that it could not be correct that CoGTA had underspent when they talked about those funds. The national disaster management system worked at different levels, and the system was slow. CoGTA had been following the requirements of the Act, and had not been sitting on the issue. Money could not be taken to be redirected. What CoGTA could do was to deploy the necessary expertise through the Municipal Infrastructure Support Agency (MISA) in the municipalities to ensure efficient use of the funds. Many of the questions that had been raised would be better dealt in by the IMTT, with all stakeholders

Minister Mokonyane said that one should not assume there was no interaction, but what was missing was a final decision being made. She said CoGTA must take responsibility. For decisions to be made, there must be action. Treasury should work on reprioritising the under-spent money so it could be unlocked to work on the needed interventions. She proposed that Treasury should sit with all the stakeholders and work on the matter before Parliament reopened.

The Minister said that there had been a lot of processes for interaction, but progress has been very limited. There had been 121 legal letters served, and SALGA needed to help. She suggested that all information be provided to SALGA. There had been meetings and progress in some areas due to provincial coordination. She said there was no need for a provincial debt indaba, but they needed to go back and look at their basic strategy. There had to be a reprioritisation of Integrated Development Plans (IDPs). She suggested that if there was a crisis in local government, CoGTA, SALGA and MISA should respond, as they had the capacity and resources. She also proposed a review on disaster funding.

Mr Chauke stressed the use of timelines, and said that within 14 days each department must submit its commitments to the Committee on what it would do with regard to the problem. The executive authorities must have a meeting within 14 days to come up with a plan on the issues raised. A commitment on the use of a debt collector had to be made.

The Chairperson said that correspondence should be sent in the two weeks, including from SALGA, and the issue of the debt collector should also be addressed. The drought intervention was CoGTA’s responsibility, and they had to engage on that issue. He said that they should have no water cuts on 8 December 2017 so that the process could begin in earnest. He stressed collaboration with CoGTA had to be a priority.

He reiterated that the executive authorities must meet within 14 days, and must come up with a plan to resolve the impasse.

Ms Khawula asked for an assurance that the municipalities would not switch off water, even in the event of a strike.

The Minister said she supported the meeting of executive authorities within 14 days, and that the IMTT must be called. The cutting of water supplies would be a last resort. She urged the other municipalities to at least pay their current accounts.

Mr Nel also agreed to the executive authorities meeting. He also reassured Ms Khawula that striking municipalities would not switch off the water.

The meeting was adjourned.