Water Boards state of governance: Department briefing, with Minister

Water and Sanitation

16 October 2018
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

In the presence of the Minister and Water Boards, the Department reviewed the state of governance of Water Boards. The responsibilities of the Minister as the shareholder for each Water Board included the appointment of board members, the conclusion of a binding shareholder compact, and the approval of the strategic plan and annual performance plan. Practically all the Water Boards experienced debt challenges, mostly due to non-payment by municipalities. At Bloem Water, Cabinet would not approve the appointment of the new board. At Magalies Water, there were complaints about the process followed to appoint a new board. At Mhlatuze Water, the CEO had been suspended for two years. At Sedibeng Water, a board was re-appointed, but the Minister had decided to re-start the appointment process after obtaining a legal opinion. At Umgeni Water, the term of office of the board was terminated in June 2017, and an interim board was appointed. The Minister had written to that board instructing it to put the CEO appointment in abeyance until the board was regularised.

In the discussion, Members asked questions about the Umgeni Water media official who had publicly contested a letter by the Minister about the CEO appointment; debt owed by municipalities; the equitable share; continued salary payment to suspended Mhlatuze Water CEO; conflict between CEOs and boards; whether the Water Services Act or the Public Finance Management Act had precedence in regulating board matters; age and gender composition of water boards; length of a board term; legality of the Umgeni Water interim board; security to protect water infrastructure; the Special Investigating Unit and the South African Local Government Association; the role of the Minister in the appointment of boards, and bucket eradication.
 

Meeting report

Introduction by Chairperson
The Chairperson welcomed the chairpersons and board members of some of the water boards, who were present. Currently the re-appointment of boards had to follow a process of advertising, interviewing, shortlisting, and appointment. There were water boards like Overberg Water that currently did not have a board, and there was an interim board at Umgeni Water. There was a lack of stability which led to a lack of progress. Violent situations involving access to clean water had to be avoided as there would be no development in such situations. People’s lives had to be improved. He noted an apology from the Water and Sanitation Deputy Minister.

Water Boards state of governance: Department of Water and Sanitation (DWS) briefing
Ms Lindiwe Lusenga, DWS Deputy Director General: International Obligations and Integrated Governance, noted that the responsibilities of the Minister were to conclude a shareholder compact annually. Entities had to submit corporate plans and budgets to the Minister and the National Treasury at least one month before the start of the financial year. There were debt challenges in practically all the boards, due mostly to non-payment by municipalities. At Bloem Water, Cabinet would not approve the appointment of a new board. At Magalies Water, there were complaints about the process followed to appoint a new board. At Mhlatuze Water, the CEO had been suspended for two years. At Sedibeng Water, a board was re-appointed, but the Minister decided to re-start the appointment process after obtaining a legal opinion. At Umgeni Water, the term of office of the board was terminated in June 2017. An interim board was appointed. The Minister wrote to the board instructing it to put the CEO appointment process in abeyance until the board was regularised.

Discussion
Minister Gugile Nkwinti commented that there was a Cabinet decision not to concur with the submitted list of board members for the Bloem Water Board. The skills of the nominees were deemed inadequate, given the challenges. There had to be varied skills in the board. Skills were not to be concentrated in a single area. He had met with the CEO and was supplied with a master list. At Sedibeng, the Minister was advised to re-appoint the board as the legal opinion obtained was that even if the same people are appointed, there had to be a normal transparent process. The process had to be public, with nominations allowed.

The Chairperson asked about concerns identified by the boards.

Mr Visvin Reddy, Interim Board member: Umgeni Water Board, responded that when the Umgeni Board was appointed, the mandate was to represent the Minister as shareholder. The relationship developed through the strategic shareholder compact. The board carried out its mandate. The term of office of the board was terminated in June 2017, and an interim board was appointed in September 2017. The Minister wrote to the board on 13 June 2018 to put the CEO appointment in abeyance until the board was regularised. When the letter was received, staff had already been told that an appointment had been made. Investors were concerned that the Umgeni Board did not have a CEO. However, the interim board was in place, and he would advise against trying to fix too many things. A profit of R100 million was made in the previous year. The current interim board understood its mandate.

The Chairperson commented about the unfortunate situation of the Umgeni Board media person being publicly at loggerheads with the Minister about correspondence from the Minister to the board. The media person found fault with and repudiated the Minister’s letter contesting the CEO appointment. An article appeared in the City Press. The Committee viewed the matter in a serious light.

The Chairperson referred to debt owed by municipalities. In the previous year, National Treasury, Departments of Cooperative Governance and Traditional Affairs (CoGTA) and Water and Sanitation (DWS) were called in to discuss the matter and come up with an integrated plan. They were supposed to come back to the Committee. Press reports indicated that Emfuleni owed R400 million for water. An integrated plan had to be developed by 14 November. Concerns were raised concerning the Equitable Share (ES) and the question was whether the ES could be used in favour of the water boards. Rightly, this meeting should have consider Water Board Annual Reports, but governance had to be looked at.

Mr Reddy corrected his statement that the profit made by the Umgeni Board in 2017/18 was R100 million. It was in fact R1 billion.

Mr L Basson (DA) asked if the R1 billion profit was not due to the fact that people were overcharged. The DWS also owed money to the Water Boards. This had been discussed with the previous Minister. R80 million was owed to Bloem Water for bucket eradication. The Committee had asked previous Minister Mokonyane why it was a DWS responsibility, and why it was not filtered down to the municipalities, as it fell within the scope of local government. There were talk shops with CoGTA which was asked to explain why it did not ensure that when municipalities owed raw water bills, these contracts were not adhered to. CoGTA was not taking responsibility for bad management in municipalities. The Minister had to come up with a plan that could be monitored by the Portfolio Committee. Sedibeng Water owed R2 billion to DWS. The Minister of Finance had stated that resorting to using the ES had to be seen as a last resort.

Mr D Mnguni (ANC) commented that Treasury was invited during the term of the former Minister, and asked if it could play a role in addressing debt owed by municipalities to the DWS. The ES might have to be resorted to. Treasury stated that if the DWS could prove that it had taken steps with municipalities and had made recommendations, the ES could be utilised. The Committee had to be led concerning the Umgeni Board. It was in the news that the Umgeni media officer had rebuked the Minister, which was problematic. It implied that the Minister did not know what to do. Steps had to be taken against the media officer. He asked if the suspended Mhlatuze Water CEO was getting a salary for doing nothing for two years. The Magalies Water Board was crying foul about its board appointment process. Whilst continuity was important, new members had to come in. There had to be a balance, as new members could come in with ideologies that could cripple the board. He asked why there was conflict between CEOs and boards, and whether it was a personal matter.

Mr A Botes (ANC) noted that most boards were composed of people who had served for a long time. He asked which of the Public Finance Management Act (PFMA) and the Water Services Act prevailed in regulating board matters. He asked why boards were established in terms of section 49 of the PFMA. It was reported in the media in 2017 that water boards were rendered unstable when departments did not pay them back. He asked if this was still happening.

Mr R Hugo (DA) commented that members of the Magalies Water Board seemed to take it for granted that they were appointed for life.

The Chairperson asked if the Umgeni interim board was legal.

Mr Mnguni asked how far an interim board could go to enforce its position as leader. It seemed that the Umgeni Water interim board was performing well. There were challenges related to legality. The question was how the decision to hold the CEO appointment in abeyance, could be defended against pressure from investors.

Mr M Shelembe (NFP) remarked that employees of the Umgeni Water Board had opened the taps due to employment grievances.

Minister Gugile Nkwinti responded that the press statement was already dealt with by Mr Reddy. Money owed to water boards was cause for concern. Even the DWS owed money to water boards. The CoGTA Minister, Dr Mkhize, established an inter-ministerial task team to deal with municipalities owing money to water boards, which included SALGA. National and provincial departments owed money to municipalities, and municipalities did not have a strong revenue base. Minister Mkhize managed to prevail over SALGA, and some understanding was reached. There was R5.4 billion in the ES budget and infrastructure grants, and the money went through the DWS. There was no requirement from Treasury for programmes to be submitted before money was granted, and hence money went back to the Treasury. Municipalities at local and district level, and provinces were brought together. At Emfuleni, it was agreed to use money to fix a pump. It was a matter of reaching an understanding, rather than system change. Over time there would be improvement, as experience was gained. The CoGTA Minister was cooperative in the matter.

Minister Nkwinti referred to Magalies Water and noted that people were convinced that they were entitled to the maximum of 12 years service, that stretched over three four-year terms. When they were not re-appointed they thought it wrong and challenged it. The selection panel submitted names, and certain people were left out. There would be a report back on the matter. At Overberg Water, the selection panel gave a list of nominees. At Rand Water, the age of board members were considered and gender and skills were also considered. There had to be a good generational mix. There were people in their sixties who went for a third term. People in their forties were brought in to create balance. At Bloem Water, it was not just skills that were considered. In terms of finances, the PFMA had to prevail over the Water Services Act, and the Public Service Act. Treasury regulations were based on the PFMA, and it trumped all other Acts. At Umgeni Water, the appointment of a new board had to be speeded up. As soon as the board situation was finalised, the appointment of a CEO would be considered.

Minister Nkwinti found the letter by the media officer to be irrelevant. He was not interested in it; it was out of order. On the workers who opened taps to protest working conditions, he noted workers who had done damage at the Vaal dam. This had become a general problem nationwide. People complained about wanting a clinic and burnt a school. When the clinic was completed, they wanted the school rebuilt that they had burnt. It was an unfortunate trend. The President had been asked to consider declaring waste water plants as national key points. Water was a serious security area. Workers closed off the water or put something in it. At Sebokeng the community went on strike and were fighting. It would not happen if it were a national key point, guarded by the Defence Force. The area was blocked, electrical engineers could not go in to regulate processes. Pumps were broken because of heavy sediment. Such key points had to be secured.

The Chairperson referred to the matter of age and gender. It would be more prudent for DWS to rather address the terms of boards. There were people in their sixties who were more energetic than younger persons. The policy was that no one could serve for longer than three terms of four years.

The Minister agreed that this was in the law. The law stated that a member could not serve for longer than twelve years, but some members interpreted that as meaning that they were entitled to twelve years' service. There had to be a good generational and gender mix, without loss of skills.

The Chairperson suggested that Umgeni Water had to put a board together, as the interim board was not legal. It had to be known what was to be done in terms of due process, once the board was regularised. Currently at Umgeni and Umhlatuze, CEOs were in charge of putting together their own bosses. It seemed that the CEO was expected to be both referee and player.

Mr Mthokozisi Duze, Interim Chief Executive at Mhlatuze Water, replied that the suspended Mhlatuze CEO was still paid a full salary with benefits, although he was suspended in 2016. The reason for that could be found in the provisions of the law. The suspended CEO ran to the courts to ask for an interdict because he did not want to be disciplined by the board. The matter was at the Supreme Court, and would be heard on 5 November, hence nothing could currently be done because it would amount to contempt of court. He had to be paid until he agreed to face disciplinary allegations against him. He went to the Supreme Court to appeal the court decision that he had to face a disciplinary process. He did everything in the book legally to avoid being disciplined.

Mr David Dikoko, Sedibeng Water board chairperson, answered about conflicts between CEOs and boards. There seemed to be a new league of CEOs. At Umgeni Water, the chairperson extended the term without a decision by the board. When the CEO was removed, he fought using that. At Umhlatuze, the CEO did as the Minister had mentioned. When the necessary disciplinary process was to follow, he checked and saw that the board chairperson had by then served for longer than the maximum term, and then started arguing against the legitimacy of the board. The CEO of Sedibeng also fought the disciplinary process. He started the process of the re-appointment of the board in terms of the law, did wrong, and when the disciplinary process was to start he piggy-backed on what was done at Umhlatuze, which was to question the legitimacy of the board charging him. In terms of the old tradition it was assumed that re-appointment was to be automatic, as long as it was within the 12 year limit. But section 35 of the Water Services Act stated that before a term could be extended, there had to be re-advertisement. It could not be automatic. The Sedibeng Board accepted that after the Minister took it through that process. The rest of the CEOs were not in the same league. It was only at Umgeni, Umhlatuze and Sedibeng where board legitimacy was brought up after wrongs done.

He referred to debt challenges. In one financial year, CoGTA underspent by R10 billion, and in the same year the DWS overspent by R10 billion. When there was a water problem, the DWS stepped in to solve it, at the expense of CoGTA. Section 216 of the Constitution indicated what had to be done about the ES. There was an agreement between the Ministers of Finance and Water and Sanitation and CoGTA, but implementation of the agreement ended up on the paper it was written on. Municipalities were inclined to use their ES on something else, and in the interim the debt grew. It was good to hear that the DWS was reflecting on an approach, going forward.

Mr Reddy commented wryly that libraries and clinics were burnt down, but never taverns. He quoted Ephesians 4:29: “Let no corrupting talk come from your mouth, except when it was good for building each other up”. There were serious challenges in the use of the law. It could be used to protect the bad. According to sections 35 and 36 of the Water Services Act, the Minister had the authority to appoint the board, but the CEO was appointed by the board. The Act later spoke about consultation with the Minister about the salary of the CEO. There was a time when the media were accused of being counter revolutionary. Recently the Sunday Times had to issue an apology because reporters had published incorrect information, motivated by an agenda. The board was not involved on a day to day basis with the operations of the entity, but rather at a policy level. He had never seen the City Press article. The article was unacceptable, as an official spoke out in the public domain against the Minister, who was the shareholder. The water boards were arms of DWS, and were there to assist the Minister. According to the compact, the water boards derived their mandate from the Minister. At Umgeni, the CEO wanted to be CEO for life, and created instability through leaks to the media. The appointment of the interim board by the Minister was not disputed at Umgeni, but the appointment of the CEO was under dispute. Employees were not disgruntled at Umgeni. The country could be destroyed if fuel and water were to be cut off. If poison were to be put in water treatment works, it could have fatal consequences. At Ugu there was regularly no water, because officials shut it off.

The Chairperson remarked that Mr Dikoko had spoken on behalf of all boards, and that Mr Reddy, an ordinary board member, had adopted the role of board chairperson.

Mr Reddy apologised.

Mr Hugo asked if Umgeni Board could make presentations on the appointment of the next chairperson, seeing that it was not legally constituted.

Mr Botes commented that he was not hearing anything about permanent delegation of power. He asked where power came from if there was no board, and whether it was derived from the law.

The Chairperson remarked that there were two water boards that were like twins sitting next to each other, not by accident, but by design. He referred to Overberg and Mhlatuze. There was no board, but there was an accounting officer, they themselves were the accounting officer. There was also an executive authority, but they themselves were that executive authority. They were the executive, they were indunas. He asked about the alignment of the financial year end between the water boards and municipalities. He had done some research on the matter. In terms of accountability, there had to be change over time, given the fact that there were other water entities. It could present a challenge to Ministerial planning. The disjuncture was a factor, as some entities had the year end in March, and some in June.

Mr Basson offered that a possible solution to municipalities not paying debt, would be for the Minister to change financial dates to be the same as that of the DWS. The value of water in a financial year could then be seen.

Mr Shelembe asked if the Minister was responsible for overseeing the appointment of the board, or appointed the board himself. He came into Parliament in 2014, and was surprised to learn that R82 billion was budgeted at Bloem Water for bucket eradication, but it was for black people only. The system did not apply to other races. R10 million was allocated to SALGA, but employees were not doing their work. The SIU was not doing its work. When people were about to be disciplined, they resigned. When Committee Members went to constituencies for oversight, it was heartbreaking. There was no service delivery. In one place, people threw rubbish into manholes which caused blockage of sewage pipes. There had to be security to protect infrastructure.

The Chairperson noted that there would be a closed session on the following day with the Special Investigating Unit, the Hawks and the National Prosecuting Authority (NPA). The DWS would give a briefing about bucket eradication on 24 October. On 14 November there would be a session with Treasury, CoGTA, SALGA and the DWS to develop an integrated plan to deal with debt by municipalities.

Minister Nkwinti replied about bucket eradication, that the reactivation of the construction unit in DWS would help, not only to make things cheaper, but also to save time and to ensure that projects were managed well. Changing of service providers was creating problems. The DWS construction unit would henceforth be in the frontline. There were talks with the Human Settlements Minister, to include water and sanitation matters in human settlement projects. Buckets were only in black areas because there was a lack of an integrated human settlements approach. The MEC for Human Settlements in Gauteng made R100 million available.

Minister Nkwinti referred to the legal status of the Umgeni interim board. He had sought legal opinion, which concluded that the Umgeni interim board could not take executive decisions, only administrative ones. Funders were raising questions about the board. The lack of legal standing impacted on its ability to raise funds. The board was not to be disbanded, because it still had the power to make administrative decisions. He had written a letter to the interim board considering the CEO appointment, stating that the interim board was not legal. But there was no reason to remove the board. The financial year of the water boards ran with that of municipalities, because water boards were in the middle of the value chain, being conveyancers. The municipalities were distributors. The alignment of year ends was appropriate in terms of the value chain. The value chain could be divided into source, transmission and distribution. Water boards were transmitting agents, and municipalities were distributors. It was one of the five points he had made in his budget policy speech, namely that the value chain had to be understood in terms of generation, transmission and distribution, so that if there were blockages, one knew where to go. There were many entities involved in the conveyancing and distribution of water. One had to get to grips with the value chain as a whole to rationalise, to cut costs, and to get the impact of resources used. He answered about the SIU. Adv Motibe had stated that the SIU submitted 686 cases to the NPA, and nothing happened. The fault did not lie with the SIU.

Minister Nkwinti answered about the responsibility of the Minister in appointing a board, that in terms of the Act, as soon as the end of a term approached, the process of appointment had to be kickstarted immediately. The Minister had a critical role to play when the selection panel submitted recommendations to him. It was an executive function. In terms of practice, the concurrence of Cabinet was a must. The Minister was the executive authority, but boards had a role to play in terms of the Act.

The Chairperson commented that the requirement to go through the entire process to appoint a new board, was a first time experience for the Committee. In the past it had merely been a matter of augmentation of people on the board, and the previous Minister could move quickly to fill vacancies. With new legislation coming in, Members could help to craft that new legislation. Water and Sanitation was formed as a new department in 2014, which meant that a new department and a new Portfolio Committee came into being. New legislation coming in would have to be interrogated, with reference to the role of the Portfolio Committee and of Parliament. The Portfolio Committee legacy report would have to deal prominently with the issues of the day, and of the preceding four years. After the elections, new MPs would be facing experienced water board members, who might feel that matters were raised that they had dealt with before. The Committee achieved much over a four year period, and changes were effected through its interventions. The DWS was sometimes found wanting, and had to be motivated to do more. A singular achievement, for instance, was the intervention in favour of Mr Maseko. Mr Maseko was an old man from Mpumalanga, a farm beneficiary who was denied water by adjacent farmers. There had been a number of visits to Madibeng. He recently got a call from a community member in Kopanong, in the Free State, which had been identified as a delinquent municipality.

The Secretary reiterated the Chairperson’s earlier announcement that there would be a meeting with the SIU, the Hawks and the NPA on the following day.

The Chairperson adjourned the meeting.

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