Department of Water and Sanitation report on outstanding issues; Umgeni & Sedibeng Water Boards 2016/17 Annual Report

Meeting report

The Chairperson said the purpose of the meeting was to receive a briefing from the Umgeni and Sedibeng Water Boards on their 2016/17 annual reports and a brief from the Department of Water and Sanitation (DWS) on outstanding issues. However, the Director Generald (DG) of the DWS had called the previous day to say that the two water boards did not have new information to give to the Committee, because the Minister had said he wanted to get familiarised with all the water boards in DWS. He invited the DG to guide the Committee on the proposal for the new tariffs.

Mr Dan Matshitisho, DG: DWS asked Ms Thoko Sigwaza, Chief Director: Institutional Oversight, to brief the Committee on the new tariffs.

Ms Sigwaza said one of her officials was responsible for the tariffs and the presentation was part of the brief.

The Chairperson reminded the DWS that the Committee had requested for a report on the bulk and raw water tariffs. The major concern of the Committee on the Umgeni and Sedibeng water boards was on the tariff propositions of the raw and bulk water supply for both water boards. He had therefore invited the DG to guide the Committee on the tabling of the tariffs.

Bulk and raw water tariffs: DG briefing

Mr Matshitisho said the new Minister had requested 30 days to get familiarised on the composition of the boards in the DWS, and the water boards were part of this process. The process required the input of senior counsel and a declarative. DWS was meeting with senior counsel after the meeting and the process would be finalised soon. The boards’ term would be expiring soon at thr Rand, Bloem and Magalies water boards, so the Minister had started the process of getting new board members for these entities.

The new tariff had been tabled in March, and the annual performance plans (APPs) where supposed to have been tabled in June. However, the new Minister had asked to see if the new tariff was aligned with the APPs, and to check the composition of the boards. This meant the water boards could make presentations to the Committee only after the process has been finalised, which would be during the next term of Parliament.

Discussion

Mr D Mnguni (ANC) said it would not be fair for the water boards to present old information to the Committee. He observed that the Minister was looking at the composition of the boards within the DWS, but remarked that the constitution of the board was not a concern of the Committee. The Committee had only to be sure that the constitution of the board conformed with the law. The Committee accepted the explanation, and he proposed that it continue with the other agenda items of the day. However, the DWS needed to report back on the new tariffs and the boards of water boards as soon as possible.

Mr L Basson (DA) said in the past, the Committee had a concern about the water boards’ tariffs, but he believed that it should not continue, but should wait for the Minister to finalise the process before engaging with the DWS.

The Chairperson said it was quite understandable that Members would not want to engage with the DWS on tariffs until they received documentation on it. The Committee had listened to the same story from the water boards for a long time, so both boards would not be entertained.

The Committee Secretary took Members through the reprioritised programme of the Committee.

The Chairperson said the Committee would engage with the entities during the next term due to the request of the new Minister to get familiarised on the composition of the boards in the DWS and its entities.

Mr H Chauke (ANC) proposed that the Committee continue with the day’s agenda, and asked the DG to speed up the process, as the Committee did not have much time to complete its own processing to ensure that the Committee engaged on the budget of the DWS and its entities.

The Chairperson resolved that the Committee should continue with deliberations on the DWS’s outstanding matters. He invited the DG to brief the Committee on the submission regarding litigation that had been sent to the Committee.

Litigation: DG briefing

Mr Matshitisho said the report included a list of contingent liabilities arising from litigations of DWS and its entities. The DWS was giving the status of the litigations for the Committee to be aware that they were classified as contingent, to show the liabilities that the DWS would incur in case the it did not win the case.

The Chairperson said the Committee would also require a breakdown of litigations that included the costs incurred by the DWS on the management and leadership that were expected to give guidance on what was happening in the DWS and its entities. He observed that an entity like the Amatola Water Board had hired a law firm to write letters, and this had had cost implications. The Committee had also requested briefs on rural water leaks, the Umzimvubu Dam and the SAP software roll out which a media report claimed had cost the DWS about R722 million to procure. He invited the DG to take the Committee through the brief.

Mr Matshitisho said the DWS had started using SAP in 2016 due to the audit finding of the Auditor General (AG) in the 2015/16 financial year about its inability to monitor funds that were transferred to municipalities and water boards as implementing agents. The standardised SAP application platform across the Department had assisted it to deliver effectively on its mandate. SAP had been procured for the finance and procurement functions of the Water Trading Entity (WTE). In 2016, the DWS had procured strategic SAP licences with unlimited access framework for a five-year period to include DWS enterprises under Ms Zandile Makhathini. The amount quoted for the procurement of SAP by the media was incorrect, as it was actually about R285 million, and SAP had been vetted as an asset of DWS. The funds for the procurement were paid in 2017, and the CFO would give more information on the transaction.

Discussion

Mr Chauke asked the Chairperson if DWS should present its brief before Members interrogated the report or asked questions as each section was being presented.

Mr Basson said it was important to engage the DWS only when the Committee had received all the details on SAP. He asked for the full details on SAP.

The Chairperson agreed that Members had to get a detailed report on SAP before they could engage on it. He asked the DG if he had concluded on SAP.

Mr Matshitisho said he would give a full report on SAP as requested by the Committee, after which Members could engage with DWS on the SAP roll out.

Mr Chauke said that the Committee sought clarity on the procurement processes involved on SAP. He mandated the DG to provide a detailed report on SAP and the staff involved in its procurement. He suggested that the SAP procurement should be subjected to an inquiry. The inquiry should be two-fold -- phase one would involve collecting information, and phase two would be the inquiry proper.

The Chairperson said the phases of the inquiry could be discussed later. The Committee would engage the DWS when it had received a detailed report on SAP.

Mr Chauke asked the DWS to give the Committee a time frame of when it would receive the report.

Mr Basson asked the DWS to provide annexures on the bidding and adverts in the SAP report.

The Chairperson asked the DG and his team from the DWS to submit the SAP report to the Committee by 25 April 2018.

Mr Matshitisho asked the Committee to give the DWS more time to submit the SAP report.

The Chairperson then asked the DG and his team from the DWS to submit the SAP report to the Committee by the week starting on 7 May 2018. He said the Committee would discuss the terms of the inquiry later. He invited the DG to respond to the questions raised on 4 April 2018.

Mr Matshitisho said the DWS was facing 135 litigations, with a cost of over R100.7 million if not successfully defended. Similarly, the water boards were facing 23 litigations, with cost implications of over R71.5 million if not successfully defended. The status of the R2.9 billion overdraft showed that National Treasury had set conditions for its repayment during the 2017/18 financial year. The conditions included a reduction of the overdraft by R200 million as at June 2017, by R748 million by the end of March 2018, and a reduction of the remainder of the overdraft during the 2018/19 financial year. The status of the overdraft as at 30 June 2017, had been a balance R2.277 billion, and as at 31 March 2018, R2.007 billion.

The Water and Sanitation Bill had been presented to the Forum of South African Directors-General (FOSAD) cluster group for review and had been submitted for preliminary certification to the Office Chief State Law Adviser (OCSLA). Feedback had been received in October 2017 and matters raised by the OCSLA were being addressed by the DWS.

The Water Research Commission Amendment Bill had been reviewed, due to some developments in the water and sanitation sector, despite the publication of the Bill in the Government Gazette No 36754 of August 2013. The draft would be introduced to the Minister of Water and Sanitation, and would go through internal consultation.

The Water Master Plan was supposed to have been finalised, but the Minister had requested to see it so it had not been finalised in March 2018 as originally planned.

Mr Matshitisho said an instruction had been provided to outsource construction projects in a departmental briefing session held on 6 February 2015, and the DWS still maintained the instruction. He gave a breakdown of the asset register of the construction unit for all provinces in South Africa and highlighted the book value for the construction asset register. He gave a status update on the Umzimvubu Dam, which had a Strategic Integrated Project 3 classification and was expected to contribute to the socio-economic development of the region. It was divided into two phases and the funding model proposed the implementation of phase one. He outlined further progress made on the Umzimvubu Dam and the challenges.

He highlighted the governance issues and status of water boards. The new Minister was looking at the legality of the boards of the Sedibeng and Umgeni water boards. The former Minister had appointed Advocate Motau to find sustainable solutions to procurement issues at the DWS. The Department had a copy of the preliminary report, and the new Minister has requested to be briefed on it. The DWS would provide the Committee with the report after the Minister had been briefed on it.

The Chairperson asked the DG for the overdraft agreement documents between the DWS and National Treasury (NT) or the South African Reserve Bank.

The DG said the Department had only a letter from the NT, but had not reached any agreement on the overdraft with NT.

Mr Paul Nel, Chief Financial Officer (CFO): DWS confirmed that the Department had not signed any agreement with NT, but had a letter.

The Chairperson remarked that whenever any party entered into an overdraft, that party would enter into an agreement with the financial institution and was subject to signing an agreement, because there would be terms involving the percentages to service the interest charges on the overdraft.

Mr Basson said he agreed with the Chairperson’s line of reasoning, and expressed concern that in the future, interest would be charged on the overdraft. Although the DWS had a letter to show that there was no interest on the overdraft, it should request a firm signed agreement.

Mr Matshitisho said the letter was available, and he had asked his team to make copies for the Committee.

Mr Basson requested the DWS to get an agreement on the overdraft for the Committee.

The Chairperson said that the DWS should state for record purposes if it had an overdraft agreement or not.

Mr Chauke asked the CFO to outline the process of the overdraft and disclose what the DWS had discussed with NT, because it was clear that it did not have an agreement. He also asked for the minutes, names of people involved and the time the transaction occurred.

Mr Basson requested that the Committee receive all the documents before it engaged the DWS on the overdraft.

The Chairperson asked the DG to forward the overdraft documents to the Committee within one day, which he said he would do.

The Chairperson insisted that the Committee be given a breakdown of the litigation, as the fees of over R100.7 million were too high.

Mr Basson said the amount presented by DWS was not the legal fees, but the amount that was being contested. He expressed concern about the legal fees.

Mr Mnguni said he was concerned that there was no information yet on the DWS master plan. He asked for clarity on the legal fees and the amount contested.

Mr Chauke said the DWS had not fully addressed the questions on legislation, and said the Committee would be forced to use its own means to get the report if the DWS did not send the report to the Committee. He expressed concern that the Committee was going on recess and the country was entering an election year, and it was obvious that the master plan might not be tabled before the Committee. He therefore asked the DWS to give the Committee its detailed plan for its legislations. The Committee would need to look at the asset register of the DWS construction unit to ensure that it dealt with the transformation of the construction unit, and knew the status of the assets.

The Chairperson said that the construction unit breakdown had been submitted to the Committee, but mandated the DWS to indicate the specific assets it referred to. He also asked for the status of its housing units in East London. This Committee wanted to ensure that public money was protected and used optimally when it carried out its oversight. It was demoralising when the DWS officials failed to prepare documents that needed to be submitted to the Committee and failed the Department. He asked the DG to ensure that such officials were held accountable.

Mr Basson also observed that the construction asset register did not include the R250 million construction projects in King William's Town. He had visited King William's Town, and the DWS needed to include the replacement value of equipment used there in its construction asset register. He asked the Department to give the Committee a breakdown of the construction asset register that included its buildings, equipment, printers, computers and accessories and the replacement value of each item.

Mr Matshitisho said the construction asset register was voluminous, and asked if the DWS could submit a soft copy because it was impractical to read a hard copy. The information on the Umzimvubu Dam was also voluminous, so he also suggested that a soft copy be submitted.

Mr Nel said soft copies would be sent to the Committee. All the assets in question were movable, but the buildings belonged to the Water Trading Entity.

The Chairperson asked Members for comments on the letter from NT.

Mr Basson asked what the Department’s plan was to reduce the overdraft during the 2018/19 financial year. Would it be possible, and how would it impact on service delivery? The DWS needed a clear agreement from NT on how the overdraft would be paid, otherwise it would not have any funds to carry out its annual performance plans for the 2018/19 financial year. He proposed that it get a signed agreement from the NT with longer timeframes on how it would pay the remaining overdraft balance of over R2 billion. The overdraft balance was accruals that had to be paid back, but the DWS would not be able to afford another year in which it paid accruals and there was no service delivery progress, as this would lead to the destruction of Government properties. He also asked the DG to take decisive action against any manager that was not performing.

Mr Nel said the DWS had not spoken to the South African Reserve Bank, but had spoken with a certain individual and the only document that the DWS had was the letter from the NT.

The Chairperson said that in other words, the DWS had taken an overdraft, which was illegal.

Mr Nel agreed that the overdraft was illegal, and the DWS had also spoken with a certain individual at NT.

The Chairperson remarked that an official had done something wrong, and the official had to face the consequences.

Mr Basson said he understood that NT had no choice but to grant the DWS the funds, because it had spent more than had been budgeted for, as the funds should have been received from the water boards and municipalities. Similarly, the Water Trading Entity (WTE) had had to borrow money to pay the Trans Caledon Tunnel Authority (TCTA). He remarked that it was probably the fault of the DWS, as financial agencies were not supposed to grant overdrafts to the DWS. He observed that accruals kept on increasing, and the account of the DWS was presently frozen. He therefore asked the CFO to confirm the current debt of the WTE.

Mrl Nel said the current debt of the WTE was a staggering R11.2 billion, and was an increase of R1.2 billion year-on-year in the debt book from the 2016/17 financial year.

Mr Basson remarked that the debt of the WTE would increase to a higher amount in the next financial year if steps were not taken to address the challenge.

The Chairperson remarked that even though the Committee was aware that the municipalities were not paying their bills, it was unacceptable that the recurring challenge of the debt had continued this long, and there was no resolution in sight. He asked Mr Nel who was responsible for the illegal action.

Mr Nel replied that he would have to say it was the CFO at the time the incident occurred.

The Chairperson asked the DG what should be done, because the former CFO had left the DWS.

He asked the DG for an update on the TCTA overdraft.

Mr Matshitisho said the TCTA overdraft was not on the main account, and the DWS was working with NT to see how the balance on the overdraft could be reduced. It was also taking action against the staff involved, and would keep the Committee updated on both the steps to reduce the overdraft and the disciplinary actions taken against the staff involved.

The Chairperson observed that the amount in contention was too high.

Mr Mnguni said apart from the amount in contention, the DWS had structural challenges. It was apparent that either the official involved had the ability to override the checks and balances, or the official did not have the right qualifications, or had been forced to carry out the illegal transaction. He proposed that the structure of the DWS be addressed and henceforth appoint only qualified staff.

The Chairperson said the accounting authority had to account to ensure that staff did not mess up state funds, as officials would take advantage of the system if they were not held accountable for illegality. However, since the records were available, the official that was involved would not go unpunished. He said the Committee would discuss the overdraft issue in the future and asked the DG to provide the status on debt collection.

Mr Matshitisho said the contract for the debt collector had ended in March 2018, so DWS staff of were dealing with debt collection presently, and consultants were not being engaged. The Department had many senior officials who were not qualified because they had been promoted based on their length of service. The DWS relied on the process of natural attrition, and junior staff that assisted. The previous CFO had not stolen the R2.9 billion -- it had been an issue of over-budgeting. The amount was supposed to have been paid by municipalities and the funds had been committed to DWS projects, but the funds had not been received from the municipalities. As Mr Nel had indicated, the amount had reached about R11.2 billion now. The DWS undertook projects with money budgeted from municipal collections. It had battled with senior staff who were not qualified, and this had affected it for some time. The senior staff knew they would not be able to handle such budgets because they did not have the qualifications or the experience, but they stayed on because of the status accorded.

The Chairperson said it was worrying that despite the procurement of a debt collection service provider, no tangible evidence of its work was noticeable. With the end of the contract of the debt collector, it would be even more difficult to comprehend how the entity would be able to collect the debt. The Committee would maintain its stance that the DWS must use inter-governmental avenues to deal with debt collection. He asked the DG to state how DWS would handle the challenge of senior staff employed wrongly without the requisite qualifications.

Mr Matshitisho said the new Minister, Mr Gugile Nkwinti, had advised him that with the way DWS was structured, it could not achieve its mandates. The Minister had said Deputy DGs would be employed, based on qualifications only, and had therefore had started on a drive recruit qualified personnel. The present CFO, Mr Nel, was a qualified chartered accountant. The DWS knew that this would lead to labour issues, but it had no way of avoiding them so it would forge ahead with its plan.

The Chairperson said he was happy Minister Nkwinti was implementing a review of the structure, and that measures would be taken to resource the Department with adequately skilled employees.

Mr Basson commented that the DG had said the Department had stopped undertaking new projects, based on the non-receipt of projected income that was supposed to have come from municipalities. This showed that the DWS system that failed in the 2015/16 financial year was still failing in the 2018/19 financial year.

Mr Nel said the challenges were a carry-over from the 2015/16 financial year, and if they were not resolved, the Department would keep struggling to pay the TCTA. It was presently making mistakes by using money budgeted for maintenance to pay the TCTA.

The Chairperson expressed concern over the accumulation of accrual funds. He asked the DG for an update on conditional grants.

Mr Matshitisho said the DWS was consolidating its APPs and would put forward only APPs that were in the budget and were aligned with National Development Plan goals.

The Chairperson asked for an update on leaks in rural areas.

Mr Matshitisho said the DWS had given the Committee briefs on rural leaks in the past, but he committed to giving it an updated report after engaging with the Minister.

Mr Mnguni asked DWS a the status report on the Water Master Plan.

Ms Kekana asked for an update on the Department’s internal audit committee.

Mr Matshitisho said the DWS had appointed a qualified internal audit committee chairperson.

The Water Master Plan had gone through the Economic Sectors, Employment and Infrastructure Development (ESEID) cluster, and the report would be presented to the Minister. However the Water Master Plan had to flow with the new vision of the five key pillars of the DWS: adequate water resources; water supply; water quality; water eco-protection; and sanitation and waste water treatment. The Water Master Plan was not a DWS master plan, but a national Water and Sanitation Master Plan, so it had to be stopped to align with the process.

Mr Mnguni said the Committee needed to have timelines for the completion of the Water Master Plan in order for it to carry out its oversight roles.

Mr Matshitisho said the Water Master Plan still needed to be presented to the Minister before the DWS could come up with a road map that could be presented to the Committee.

The Chairperson said the Water Master Plan would be discussed during the next term. He remarked that Mr Mnguni had wanted a report before the Committee went on recess only to ensure that deliberations on the Water Master Plan were built into the Committee’s programme.

He observed that a child had died in Chebeng village in Polokwane, Limpopo. Similarly, in Bizana, Eastern Cape, another child had died due to the state of pit latrines at both primary schools. Although both deaths had occurred due to governance issues that affected the Department of Basic Education (DBE) and Department of Cooperative Governance and Traditional Affairs (COGTA), the Committee had mandated the DWS to work with both departments, because the deaths were linked to water and sanitation challenges. He said the Committee would not overlook such matters, and advised the DWS to engage with the DBE and COGTA to provide checks and balances on governance issues. He asked the DG if he had any comments.

Mr Matshitisho said he was still awaiting reports from the Deputy DG in charge.

The Chairperson reminded the DWS that the Committee had requested a breakdown of the litigations against the DWS and its entities, the reasons behind the cases, as well as a reasonable expectation of success. He also requested that the DWS and NT enter into a repayment plan that would not hamper the rollout of the mandate of the Water Trading Entity. The Committee also called for urgent resolution of the matter while the both DWS and NT were still engaging on a favourable repayment plan. The Committee was concerned about the capacity of management at the DWS, as some of the decisions that had led to failure had been due to a lack of capacity.

The meeting was adjourned.