Municipal water debt: Department; COGTA; Treasury; SALGA update with Minister

Water and Sanitation

14 November 2018
Chairperson: Ms Y Phosa (ANC) & Mr M Johnson (ANC)
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Meeting Summary

The Department of Water and Sanitation (DWS) provided details of the municipal debt to water boards, and said an Inter-Ministerial Task Team (IMTT) had been established to devise a plan to resolve the outstanding debt in more structured way. The Committee was told that the municipalities owed a total of R8.6 billion to water boards, who were not able to refurbish the water services infrastructure. Water boards themselves owed a total of R4.5 billion to the DWS. The Department could not maintain, rehabilitate and refurbish the dam infrastructure and deal with pollution and other challenges due to non-payment by the water boards. The debt owed to the water boards was a threat to their financial stability.

The technical team that supported the IMTT had been tasked with finding sustainable solutions to deal with the municipal debt to Eskom, water boards and the Water Trading Entity (WTE). The first step of the plan was to go on provincial visits to renegotiate affordable payment plans backed by financial analysis of the municipalities undertaken by the provincial and national treasuries. The following progress had been reported: 

• The technical team had facilitated payment arrangements for water with Limpopo, Gauteng and North West provinces;

• There had been an ongoing collaborative work to deal with water debt and water related issues, with the national and provincial Departments of COGTA and Treasury playing a pivotal role;

• Through the Ministers and Members of Executive Council (MinMEC), the Minister of COGTA was always encouraging MECs to embark on campaigns to promote a culture of payment for services consumed by communities;

Members asked about the legal costs of the summonses issued by the Department, and wanted more information on the previous proposal on equitable share allocations. They asked for details on the municipalities that had paid, and those that had not. They questioned whether it should not be water boards that should take up the responsibility of providing the service to communities; how the grant money for water was utilised by municipalities; whether the lack of capacity affected the municipalities’ ability to deliver the service effectively; what measures had been taken in order to ensure that the non-payment issue was eradicated; and whether municipalities would face significant problems if responsibility for the supply of water was shifted to water boards. They also suggested that unused funds returned by the provinces to the Treasury could be used to settle the water boards’ debts.  

The South African Local Government Association (SALGA) was interrogated over its role in dealing with the debt challenges. Members asked what it was doing about councillors and municipalities that were not doing their work. It was agreed that most of the money owed to local government was by those receiving municipal services, so SALGA needed to find a way to recover this money so it could stabilise the municipalities

Meeting report

Opening remarks

Co-Chairperson Johnson welcomed everyone present and said that the Committees were now expected to look into long outstanding issues where an integrated plan for debt recovery had been brought to Parliament. Parliament was therefore putting together all the relevant stakeholders to deal with the outstanding , because municipalities owed both the water boards and the Department of Water and Sanitation (DWS). Although municipalities owed other relevant government structures as well, today’s meeting would be exclusively focused on water and sanitation. The Committee had invited the Department of Cooperative Governance and Traditional Affairs (COGTA), National Treasury, and the South African Local Government Association (SALGA).

Minister’s Opening Remarks

Mr Gugile Nkwinti, Minister of Water and Sanitation, said there was no reference to the DWS in terms of the Ministerial task team -- the Department was a member of that team. It requested that payment should be made by municipalities to water boards for water, as well as by departments to municipalities, because there were departments both provincially and nationally that owed municipalities. The task team was therefore working on that. Dr Zweli Mkhize, Minister of COGTA, chaired the team, and they had extended the working relationship to the provinces as well.

He appreciated what Mpumalanga had done by adding the Department of Human Settlements (DHS) to the team at the provincial level, and he was happy about that. Hopefully, as the result of the collective effort, things would begin to happen in North West Province and Emfuleni.

DWS on municipal debt to water boards and Water Trading Entity

Mr Paul Nel, Chief Financial Officer (CFO), DWS, outlined the background of the Inter-Ministerial Task Team (IMTT) on electricity reticulation and distribution which was established to find solutions to the constitutional, systemic and structural challenges in electricity reticulation. It was comprised of the Minister of COGTA (as chairperson); the Minister of Finance; The Minister of Energy; the Minister of Public Enterprises; the President of SALGA; and the chairperson of the Eskom Board and Water board.

Following the Portfolio Committee meeting held on 29 November 2017, the IMTT had resolved to amend the mandate to include water debt issues. This was done in order to devise a plan to resolve the outstanding debt in more structured way. The Minister of Water and Sanitation had then been included as a member of the IMTT.

Providing an update on the water debt situation, he said the municipalities owed a total of R8.6 billion to water boards, who could not refurbish the water services’ infrastructure. Water boards owed a total of R4.5 billion to the DWS. The Department could not maintain and rehabilitate and refurbish the infrastructure dams and deal with pollution etc, due to non-payment by the water boards. Debt owed to water boards was a threat to financial stability.

With regard to the long term plans to resolve the outstanding debt owed by municipalities, the IMTT reported the following:

  • The technical team that supports the IMTT was tasked with finding sustainable solutions to the debt problem for both electricity and water;
  • The technical team needed to devise a plan to deal with the municipal debt to Eskom, water boards and the Water Trading Entity (WTE); and
  • The first step of the plan was to go on provincial visits to renegotiate affordable payment plans backed by financial analysis of the municipalities undertaken by the provincial and national treasuries.

The following progress had been reported:

  • The technical team had facilitated payment arrangements for water with Limpopo, Gauteng and North West provinces;
  • There had been an ongoing collaborative work to deal with water debt and water related issues with the national and provincial Departments of COGTA and Treasury playing a pivotal role;
  • Through the Ministers and Members of Executive Council (MinMEC), the Minister of COGTA was always encouraging MECs to embark on campaigns to promote a culture of payment for services consumed by communities.

The Chairperson of the IMTT took cognisance of the fact that debts owed to the water boards were a threat to their financial viability. Hence, he had issued an instruction for the establishment of the advisory panel as a second step in the plan.

The IMTT was currently drafting the terms of reference (ToRs) and identifying experts in the water sector to be part on the panel. It was envisaged that the panel would start work in the next three months. The report of the IMTT on electricity reticulation and distribution had made recommendations of how to deal with the debts. Because of common deep rooted problems in municipalities, it was no surprise that the municipalities that owed Eskom were the same municipalities that owed money to the water boards.

A concerted effort towards finding lasting solutions was required from all role players, including installing a culture of payment for services rendered by the communities.

Discussion

The Chairperson asked what the legal costs of the summonses issued by the Department were. He also asked the DWS to comment on the equitable share.

Ms M Khawula (EFF) wanted to know about the summit that had been held in Johannesburg last year, or the year before, after it became apparent that the municipalities were failing to pay. The previous Minister had said during the summit that he had to leave suddenly, and had never responded to the question as to which municipalities had managed to pay, and how they had paid. The Committee was supposed to have been told which municipalities did not pay. She was not directing this question to the current Minister, but to those members of the delegation who had worked with the previous Minister.

As for the municipalities that owed large amounts of money, had there been follow up on when they would pay, because the money eventually gets diverted to other programmes? Did people who squandered the money get prosecuted?

Mr L Basson (DA) said the water debt had increased by R1.7 billion, and the Committee had been having this conversation for a long time, so it did not seem like COGTA was really following up on these issues. Cutting off water was not the solution, because areas people start complaining, and tankers in the municipalities drive water to deliver it for free, but the better-off people end up not getting water because it goes only to the poor. The problems were not going to be resolved by cutting the water off, and there was no accountability for municipalities – they only paid salaries and for electricity. The reason they paid for the electricity was because the industrial sector pushes them to do so, otherwise people would lose their jobs in those areas.

He suggested that the money for water must be ring-fenced. Most municipalities ended up having to pay a lot of money because the quality of the water was very bad and they had to pay for chemicals to ensure it was clean. Should it not just be the water boards that took over the responsibility for supplying water, instead of the municipalities?

He was disappointed that COGTA was not present. It was not taking the matter seriously, and not looking at the extent of the problem. There were municipalities that would really like to pay but did not have the money to do so, because they did not make any money from the supply of water. Therefore, they end up not paying. There should be another way of dealing with COGTA on this matter – it was not taking this seriously, and it was about time there was some action.

Dr D Kabini (ANC) sought clarity on the role of the IMTT. In the report, it had been clearly stipulated that they were concentrating on electricity, and they have just started concentrating on water. Clearly they only come in with corrective measures when problems arise. Secondly, as for municipalities owing water boards, how were they using their municipal infrastructure grants (MIGs), as it did not appear that they were being used to pay the debt. Thirdly, in terms of capacity, were the municipalities able to deliver, and what measures had been taken in order to ensure that they eliminated this habit of non-payment. Lastly, in terms of operations -- whether municipalities were capable of supplying water or not – were they going to have significant problems if this function was taken away, or would they be able to deliver if it was not?

Mr D Mnguni (ANC) said this was a systematic issue, but the Committee needed to interrogate where the problem lay. Could it be the policies related to the inflexibility or leniency toward those who were supposed to do the collection, or the lack of advanced technology? They had spoken to Treasury to ask about the methods of ensuring that municipalities pay, and the Committee had proposed that after the DWS had proved that it had spoken to the municipalities, but there were still no payments, Treasury should reserve a percentage of the grant to pay for the amount owed by the municipalities.

Mr N Ngcwabaza (ANC) said that it was not clear what portion of the equitable share could be withheld from the municipalities. Treasury spoke of the root causes of this issue, but it was not clear what the rest of the root causes were that were preventing municipalities from paying. It was not enough to say that root causes must be addressed -- Members had not been made adequately aware of what those root causes were. He suggested that the Department should rather compel the provincial and national departments to pay first, before they could expect municipalities to pay, and then look vigorously into ensuring that municipalities pay. The provinces and national departments make excuses about not knowing who owns the buildings in which departments occupy and make use of the services – this excuse could not be accepted. What steps were being taken to ensure that provincial and national department paid the municipalities.

There were private businesses that owed municipalities for water services – was the IMTT aware of this and if so, what was the plan to mitigate that problem?

Ms M Manana (ANC) asked the Department to describe the deep rooted challenges. Secondly, regarding the dis-establishment of the Bush Buck Ridge and other water boards, what was the arrangement? In most cases, municipalities complain about communities not paying their monthly bills, but the very same communities were often not issued their monthly bills. Why was that the case?

Co-Chairperson Phosa thanked the Minister for his presence. From the discussions and proposals that would emanate from this engagement, the Minister would ensure that he reflected on them and assist in coming up with a solution. She was happy that the IMTT was present.

From the discussion, it appeared that there had been previous proposed resolutions to these problems. Firstly, there was the one where a certain percentage of the grant could be ring-fenced and used to pay for the debt – this could be a possible solution. Secondly, when savings were surrendered by municipalities to the National Treasury, why was that money not utilised to pay the water debts to the water boards, instead of re-directing it to other programmes? In addition, did the debt not attract interest, because there was a need to be sensitive to the fact that that interest formed part of the fruitless expenditure? As soon as these debts were paid, there would be a saving on the interest incurred as well.

Co-Chairperson Johnson said he understood the frustration regarding the R10 billion that had been returned to National Treasury, and asked whether COGTA could address that issue directly, and the amounts that had been returned to the National Treasury.  The Minister had indicated previously that in the Giyane municipality matter, he would ensure that the programme was concluded. The programme was to reticulate, but that was not the mandate of the DWS, but of COGTA, because the Department supplies the bulk and COGTA takes the water and supplies it to the households. While COGTA was not spending on its mandated areas, the DWS ended up spending in those areas. This gave rise to irregular expenditure by the Department. COGTA’s officials were not even present at the meeting and this was concerning, because COGTA was indeed not spending its allocated budget on the areas that it supposed to.

Secondly, regarding maintenance, the Committee had made it  clear that collaboration between COGTA and the Department was key for the maintenance programme. COGTA would be fixing infrastructure that dealt with reticulation for municipalities.

Department’s response

The Minister said that to deal with the problem, there was a five-point plan which addressed the decisions made by the IMTT.  

Ms Lerato Thwane, Executive Manager: Finance, COGTA, said five items that had been agreed on and now implementation plans were being developed. Firstly, with regard to water, pre-paid meters would now be implemented to assist municipalities, so it would no longer be optional for people to pay. However, in some areas it was not practical to install prepaid meters. Secondly, there would be an appointment of independent revenue collectors for municipalities, and the model would be designed in a manner that would minimise legal costs, and the system would be decentralised. This was also linked to consequence management, and municipalities would be required to carry out their duties to recover the money.

Thirdly, there was a dedicated effort to support government to introduce a campaign to encourage citizens to pay for their water bills. The willingness of the citizens plays a critical role as well, hence the campaign. Lastly, there would be strict management of payment defaults which would be designed into the system as a consequence management process, with a self-correcting mechanism where action would be taken as the default happened, instead of waiting up until this point. The IMTT had also given COGTA some technical work streams indicating how this could be implemented.

The Minister said that through the IMTT, they were trying to intervene as government to ensure that going to court to recover payments would be the last resort. The initial composition of the structure of the task team had been to solve the issue of non-payment.  He was pleased with the plans proposed, and the suggestion that a portion of the equitable share (grant) could be used to settle the debts. There was also a lot of money that was returned to Treasury, and the proposal would assist it in ensuring that the debts were paid, and avoiding the fruitless expenditure on accumulated interest.

Ms Thwane said that when assessing the root problems, it had to be recognised that supplying water and electricity was a trading service for municipalities. They needed to sell these services to sustain their ability to supply. The equitable share was to fund only the portion of the service that was for the indigent people who were unable to pay for the service. The entire service in its design was a self-funding model.

There were a lot of infrastructure linkages and inadequacies which translated to substantial losses of water which, when coupled with the non-payments by consumers, exacerbate the problem and lead to a collapse. Other contributing factors were the inefficiencies within municipalities, as well as the capacity to supply water. Some work was being done by COGTA to try and correct the situation, and a lot of investment had gone into skills support and infrastructure. COGTA had employed a lot of capacity that would be providing support to the municipalities.

The MIG expenditure had increased. This was a positive sign because it revealed that municipalities were spending their infrastructure budgets.

Regarding the money returned to the Revenue Fund, the emphasis was to ensure that it was spent, but most of these grants were conditional grants, and they could not be channelled anywhere else unless the conditions changed. COGTA was doing a lot of inter-governmental work to resolve the issue of government debt. Treasury was part of the team, and they had a lot of commitment from the Minister of Finance, which indicated that mechanisms would be employed to reduce government debt owed to municipalities.

A National Treasury official said that the Division of Revenue Act (DORA) process was very clear on what the money could be used for in terms of allocations, and it did not permit the use of grant money that had conditions for operational costs. There was a framework which determined what that money could be spent on. This matter of water debt had gone to the IMTTm and there were systematic and structural changes that needed to be made. Even if there was funding available to pay off the debt, this would not be the answer because the problems would not have been resolved. Until those had been resolved, this would be a recurring problem. That was what the IMTT was seeking to do -- to look at long term solutions that would be sustainable.

With regard to the court cases, this was also a short term measure because it was getting the municipality to pay, but by the same token they were not paying someone else, and this was not dealing with the root cause. The Minister of COGTA had been very clear that the court cases should be the last resort. The R100 million that had been used for the court cases could have been used elsewhere.

Many of the municipalities that owed the water boards and the DWS were those that owed Eskom for electricity. Consideration was not being given tp the impact it had on the small, medium and micro enterprises (SMMEs) that were providing services to municipalities and not getting paid – no one was looking at that component closely. One could not look at the problem of one bulk supplier or both bulk suppliers without looking at the totality of the matter. Hopefully, the resolutions that would come out of the IMTT would prevent the problem from escalating. The Director General of National Treasury (NT) had issued an instruction to all department CFOs giving them the instruction that in the event that the debt was not paid within 30 days, as per the law, there could be an instance of financial mismanagement instituted against that CFO. There had been a process to deal with this effectively from the NT’s side.

On the matter of ownership of properties that was impacting on municipalities being owed, the next cycle of the medium term budget policy statement (MTBPS) had made allocation to resolve this. It was the responsibility of the Department of Public Works (DPW) to deal with the issues of ownership going forward. As much as it was generalised that government departments owe municipalities, and therefore they could not pay the bulk supplier, the research at NT showed that there was very little correlation between municipalities that owed the bulk supplier and the departments that owed the municipalities. Of the R12 billion owed to Eskom, only R1.3 billion was owed to those municipalities by departments. Even though that was the case, NT was trying to eliminate the fact that departments were owing money to municipalities, and stressing that they must be paid within 30 days. NT could respond further in writing to the Committee regarding the surrendering of the funds.

The Minister said that municipalities were not all the same, and some did not have the sources of revenue that others had. Departments must pay municipalities, even though the money was far less than what the municipalities owed for the bulk supplies. There were small municipalities that needed every cent that was owed by national departments.

SALGA comments

Mr William Moroka, Water and Sanitation Specialist: SALGA, referred to the capacity of municipalities to deliver water and sanitation, and said the country had already adopted a decentralised system of how water would be provided, and the vehicle for that was through the municipalities. Over a period of 20 years, they had not necessarily as a sector looked at how municipalities had been providing services – and whether those services were actually delivered. They had not looked at appropriate vehicles in terms of whether municipalities were doing the right thing with the delivery of their services, and that analysis had not yet been done. Therefore, one could not come to the conclusion whether municipalities had the capacity to deliver or not. The sector needed to look at itself and come up with mechanisms to deliver the service properly.

He pointed out that municipalities were different in their make-up and characteristics. If one looked at the metropolitan municipalities, they were capacitated to deliver services, but if one looked at district municipalities one would find that there were problems, and that it was difficult even to attract the necessary skills, hence the deterioration of services. However, SALGA did engage with the councillors to give them appropriate training to make the right decisions and empower them to understand the complexities of the water business.

In addition, on a continuous basis, SALGA conducts pricing and costing for municipalities because there was a lack of a deeper understanding of cost structures -- such as how much it costs to produce a kilolitre of water. Equally important were pricing regimes at the municipal level, some of which pass tariffs which are not cost reflective. If water costs R6 to produce, and they charge a customer R4, there is a R2 deficit. These were some of the challenges that they needed to deal with.

SALGA was working jointly with Treasury to work out solutions regarding the grant systems in the country, and had made strides so that if one looked at the current DORA framework under the MIG, it mentions a component of refurbishment and maintenance. This meant that as municipalities roll out new infrastructure using the MIG there was a component of that money that was used for refurbishment and maintenance.

Co-Chairperson Phosa said that the Standing Committee on Appropriation would be interested in the impact of what SALGA was doing and whether there was value for money in the projects undertaken.

Mr Zanoxolo Futwa, Provincial Executive: SALGA, Free State, said that a discussion on the distribution of the equitable share was warranted, and it needed to be linked to the funding model of local government. If one excluded it from that discussion, a lot of things would not be addressed. He reminded Members that there had been an attempt in 2015 to utilise the remedy in dealing with the challenge between municipalities and Eskom, and it resulted in unintended consequences of heightened inter-governmental conflict and tension. Therefore, one needed to tread carefully regarding this.

SALGA was part of the IMTT and was in agreement with the five point plan. There were areas where it had also started working on exploring solutions to understand the core drivers of the problems. For example, it had taken some of the struggling municipalities to try and develop a water balance, to understand the complete value chain of the problem. Part of what came from this work was that some of the municipalities, particularly the top ten, needed to recognise that notwithstanding the apportionment of fault lines, they may need a special dispensation injection so that they could stand up and be turned around. There was a serious problem of solvency in some of these municipalities. Therefore, there should be a fundamental solution that would address the fundamental drivers to these problems. Municipalities needed to be treated differently, and some of the external structural support that was needed to turn them around had to be identified. They needed more than just the distribution of the equitable share – they needed an injection that would release them from their historic debt. Their collection levels could not meet the current requirements towards meeting their obligations, and that needed to be dealt with in the IMTT in a broader discussion regarding the funding model.

The Minister had visited SALGA this year and had instructed it on improving how things should be done. It had therefore set up a steering joint committee that would assist it in planning, in an integrated way, to assist in dealing with problems broadly. SALGA hoped that as it continued in this format, it would improve the commitment and obligations between municipalities and the water boards.

The debt to municipalities was one of the challenges in 2015 that had made the remedy of withholding the equitable share difficult to justify. The issue had been justice -- and the balance of justice. At that point, municipalities were owed R96 billion, and municipalities owed R11.6 billion as local government. The challenge was that balance. However, it created difficulties in a democracy to ask Treasury to play the role of withholding money from one state entity, and give it to another. It was agreed that most of the money owed to local government was not owed by government, but by those receiving municipal services, so SALGA needed to find a way to recover this money so it could stabilise the municipalities. It was in the process of engaging in the inter-governmental relations (IGR) space to propose a review of the tax laws that would ensure that when consumers were declaring their income taxes to the state and there were refunds due, the state needed to ascertain whether the consumer did not owe anything to the municipality where they came from, and if so, the state could then offset that money. 

Ms Khawula said she was pleased to see all the entities present. She said COGTA should give serious attention to instances where people actually paid their municipal rates, but received multiple letters with different billing rates, even though the date was the same. In municipalities there were meter readings that estimated water usage, and there were people that circulated in some areas issuing water bills. However, those people were not competent to carry out such duties due to the manner they conducted themselves on duty. She had an issue with the people who were awarded the tenders, but did not care about the communities because they continued to employ people without any due processes, and who started working at 11pm in the evening to read peoples’ meters. These people could be ones that were employed to destroy infrastructure. COGTA was not fulfilling its role and she had been communicating with COGTA on this matter.

As for SALGA, the entity met with its councillors and had meetings and issued SALGA gear, but it did not follow due processes to ensure that the councillors actually went out to perform their duties. People were protesting, and this destroyed the infrastructure -- and it was SALGA’s and COGTA’s fault. The entities could come up with all their plans, but until the problems that existed on the ground were addressed, they were playing hide and seek.

People in KZN were struggling to gain access to water. The infrastructure did exist, but one would find that there were people who were almost determined to destroy the infrastructure so that they could get tenders to deliver water with tanker trucks in the rural areas. Councillors were aware of these things, but nothing happens to circumvent these issues and meanwhile it was the communities and the people that continued to struggle on the ground. In Durban, there were street vendors and hawkers that depended on those businesses for their livelihoods, but one found that when they were allocated stands to sell their things, they were required to pay rent of R600 per month but were not even provided with access to public toilets. This was the sad reality of many black South Africans trying to make ends meet. Both SALGA and COGTA needed to seriously look into this. She would be failing dismally in her duties as an elected Member of Parliament for not raising these matters.

On another occasion, near East London, there was a village with a river that had water that people could not consume although the people were in desperate need of water. It was indeed saddening that government was failing to provide the basic and most necessary need – water -- to the people. She emphasised that she was very angry with SALGA and COGTA.

Ms Manana referred to the issue of not paying the money owed to municipalities, and commented that if one was a regular payer of municipal rates, one ended up not being interested in doing so. People got different water bills in the same month – she discovered this personally. The meter readers in Durban were always drunk when performing their duties and people were always hiring people that were not fit for the job. They enriched themselves through tenders.

She asked SALGA what it was doing about councillors and municipalities that were not doing their work. What was the job description of councillors? In all the provinces, people were protesting. There were budgets allocated, but there was no value from them. What was SALGA doing to ensure that councillors were doing their jobs? In Ward 100 in the Engonyameni area, there was no water and the infrastructure had been vandalised. There were women there that sold mealies to truck drivers, but they were made to pay a rent of R900 without the provision of water and ablution facilities.

Mr A Shaik Emam (NFP) said that he had had a query for the last three to four years, and up to now that information had not been provided. The query was about the corruption taking place in the Eastern Cape. He asked SALGA to tell Members about the proposal regarding the grant system. The issue of revenue collection had been discussed extensively so many times before. One of the things that had been introduced in Durban was to get people to get into agreements to pay their current accounts, even if it was in small amounts.

Withholding the supply of water spoke to the issue of capacity and a failure to manage affairs. He was disappointed with the Department in the Western Cape, where there had been so many complaints about water bills of up to R70 000, but no one was willing to assist. The consumption of the water had been reduced, but the debt had doubled up. The Department had not come to assist the people of the Western Cape in this matter.

As for the proposal to work with the South African Revenue Service (SARS), that entity was already over-burdened with its own problems. There was a need to come up with more innovative ways to collect revenue. These matters are talked about at national level but nothing happens, so there was a need to ensure that municipalities become self-sustainable by doing something that would make people want to invest in these rural towns. This has been debated many times but the effort is not being put in to make things work. They were sitting on a ticking time bomb, and it would get worse. Some of the issues here appeared to involve policy matters, and perhaps they should be dealt with at that level.

The Committee had gone on oversight visits and had seen contracts that had been stagnant for a long time, yet nothing continued to be done by the Department about it.

Ms D Senokoanyane (ANC) said that she had missed the part about the dis-establishment of the two boards. She asked for an update on this.

As for non-payment by government departments, both provincially and nationally, this was a vicious circle. The matter of government departments not paying Eskom and municipalities was historical, so had any improvement taken place in this regard?

Were the steps taken to recover money owed new measures, or things that had been done already? With restrictions in water availability and supply, this had significant implications for the poor communities. What was the proportion of debt owed by those who could afford to pay their water bills? Lastly, was the war over the billing system being won?

Co-chairperson Johnson said the whole idea about the session was to get a sense of progress or lack thereof. Now the Committee was clearly getting plans about plans. The situation had been ongoing for a long time, but the challenge regarding the municipal debt on water was increasing. The Committee was not getting any sense of what was being done to address the matter.

There was a need to talk about the debt collection, because the debt continued to increase. On the one hand, one has a Department that cannot meet its commitments, and the challenge of accruals. On the other hand, there is money that is being returned. Some of the Department’s programmes had been stalled due to these issues. Perhaps there was a need to ring-fence some of the grants, and whether SALGA had the capacity in some of its municipalities to ring-fence the grants was something that must be seriously looked into.

Co-chairperson Phosa commented that if one could identify the root causes, one could find a solution. She asked the whether the Committee could be furnished with information regarding the capacity of the water boards. She also asked for an analysis of the cost structure. She asked National Treasury to provide a progress report on what was being done to address the problem. There were reservations about increasing the grant money because there was no certainty that the municipalities were in a position to use the funds effectively. One could not ask Treasury to increase the money when the municipalities lacked the capacity to utilise it effectively.

Ms Thwane responded on Bush Buck Ridge and Botshilo water boards, saying that they had been disestablished in 2014 and the assets transferred to the Rand Water Board.

With regard to the ageing infrastructure, the operating expenses were higher than the revenue, and there was a lack of revenue collection and illegal collections. There were also governance issues that the DWS was currently facing, as well as the challenge of capacity – these summed up the root causes of the problems faced by municipalities. However, parallel to the work done by the IMTT, there was a lot of work currently being undertaken under the “Back to Basics” (B2B) programme which was looking at service delivery, governance and financial management. The programme was very active and was receiving the necessary capacity to ensure that these matters were addressed. Treasury and COGTA were working jointly on issues of revenue collection, as well as addressing the problem of double billing. The DWS was tasked with developing an implementation with time lines, and this would be made available once it had been put together.

The exercise of deploying technical expertise at municipalities was informed by the study, and municipalities had received this expertise in areas where they lacked capacity. There was a lot of work in progress and the DWS was not stopping because of the IMTT – it was coming up with plans to assist the team.

The National Treasury official said it would provide a progress report on the government’s debt. With respect to bad debt, and when the appropriate time to classify bad debt was, there were two issues to bear in mind. Firstly, at the time when municipalities drew up their budgets, there was a component referred to as ‘revenue foregone’ which covers money owed to the municipality, and it was subsidised by the equitable share. Secondly, during the year, where there was debt by a certain account holder, the municipality would decide after a certain period had lapsed whether to write off that long outstanding debt or not. Treasury did not encourage debt to be written off very quickly, but this needed to be looked at case by case, and the Council would make that decision.

Mr Moroka said the concept of ring-fencing had a lot of dependencies, and the unfortunate part of it was that the grants that were targeted were already ring-fenced because they were put together for a particular purpose, and they had conditions. The money that was paid back to Treasury was often money that was ring-fenced. SALGA was engaging with Treasury to look at creative ways to utilize the grant monies, but this was on the capital expenditure (Capex) side. On the operating expenditure (Opex) side, ring-fencing depended on the institutional arrangement.

Regarding the studies, SALGA was proposing that the study should be based not only on the capacity, but also on the delivery mechanism, because capacity was only one aspect. It would work with the Department to look at how it could turn around the delivery mechanism regarding the water business in the country.

Lastly, on the grants, SALGA had made a substantive submission to the Budget Forum as to how the process could unfold, and could make it available to the Committees.

Co-Chairperson Phosa asked about the probable causes, stressing that these needed to be pin-pointed sharply.

Mr Emam asked the Department when he would receive the report that he had been requesting for the last three years. He said areas under traditional leaders struggled to pay for these services. so he wanted to know whether these communities actually paid for the services or not, because this was also a matter that needed to be addressed.

Co-Chairperson Johnson asked the Minister to follow up on this and attempt to make the report available.

Mr Emam said that the Department had been avoiding providing the report, and every time it came before the Committee it had been asked to provide it, but to no avail. It had budgeted R300 000 for a project that the Committee felt would cost only R69 000 during an oversight visit to the Eastern Cape, because the water was available freely. The only thing that was needed was the cement. After requesting this information for a long time, the DWS had come back with a report that from the budgeted amount, it had managed to save R166 000. The Committee had interrogated how this was possible, and had requested for a full report. The Minister may not be aware of this, but the Department definitely was.

Co-Chairperson Johnson asked if the Minister could get the feedback on this report, and submit it by next Wednesday to both Committees.

The Minister asked whether this had happened at a local of district level municipality so that he could request the information from the relevant entity.

Co-Chairperson Johnson suggested that Mr Emam should direct the detailed request through the Committee Secretary, and the Secretary would then correspond with the Minister’s office.

A DWS official referred to the Matjhabeng Municipality debt, and said it was very critical and of a political nature. He would prepare a report that he would take to the Minister so he could prepare a response, because he did not want to blow things out of proportion.

As for Bloem Water, the debt stemmed from not prioritising water as a service. One got the impression that the municipality thought that water could be free. At Kopanong, the debt had started because it was a municipality that was not prioritising water, as well as servicing poor communities. With regard to Mangaung, it was simply not prioritising water, because it could afford it.

The Committee was told that at Mopane municipality, the issue was just not prioritising water, because it was able to provide other services. In most instances, when people were given notice of a reduction in the supply of water, they started paying – it was effective in some instances. It was always the poor people that suffered the most when a municipality cut the water supply.

The matter had resulted in businesses requesting to be serviced by the water board, and not the municipality. They were waiting for a response from the Department, and were saying that they should take over the servicing from Kopanong until it was in a position to provide the service. The implication was that Bloem Water would have to collect the money directly from the communities, as this was something that the municipality did not want to do. The municipality was unable to pay even 60% of its current account. The communities did not trust the municipality, and if Bloem Water provided the service, the communities would receive the water 100%.

Co-Chairperson Johnson said that the Committees needed to look at how best they could make the municipality pay for the service that it rendered. Once again, COGTA came into picture, because it clearly continued not to take a keen interest in these matters. These were municipalities that reported to COGTA, and some of these problems overlapped to the Department of Water and Sanitation.

Mr Basson asked whether Bloem Water was geared up adequately to take over the water service from Kopanong municipality.

The official said it could not do so immediately, especially with the billing system, but with reticulation, the Board could. This would require a meeting with the municipality and SALGA, and it would take about three to four months for the Board to be adequately geared up.

Mr Basson said that the municipality had a licence to provide the service, but if it was not using the licence to provide it, it must be taken away and given to an entity that could provide the service. Surely, if the DWS could issue the licence, it could certainly withdraw it.

An official from the Amathole Water Board said that the municipality was facing the same issue as Bloem Water, and was struggling significantly as a result of non-payment by the municipality. A solution would need to come forth before the entities went under.

The meeting was adjourned.

 

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