Department of Water and Sanitation on outstanding debt owed to entities

Human Settlements, Water and Sanitation

22 October 2019
Chairperson: Ms M Semenya (ANC)
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Meeting Summary

The Department of Water and Sanitation briefed the Committee on the efforts being made to recover funds owed to entities responsible for ensuring a supply of water to South Africa’s urban and rural communities. The municipalities’ water-use debt to the Water Trading Entity (WTE) and water boards had escalated by 14%, from R13.1 billion in September 2018, to R14.9 billion in September 2019.

Challenges faced by the Department included:

  • A culture of non-payment within municipalities;
  • Current laws do not make provision for channelling the equitable share for the purpose of debt reduction;
  • Current laws do not make provision for top slicing grants for the purpose of debt reduction;
  • Resistance to legal steps against delinquent municipalities;
  • Possible going concern qualifications for water boards and the Water Trading Entity (WTE); and
  • Huge impairments of debt, which reduces the reserves of water boards and the WTE.

Proposed solutions to these challenges put forward by the Department were continuous stakeholder engagements, the top-slicing of municipal grants, continuous participation in the inter-ministerial task team (IMTT), and continuous participation in the provincial joint tactical committee.

Members said the simple fact was that municipalities were refusing to pay, and the debt was growing substantially every year. However, the solution was not to go to court, as cutting the water supplies to municipalities would only be an injustice to those people who did pay their rates. It was time to consider the top slicing of the equitable grants to municipalities, because the water services of the country were in danger. There had been municipalities which had lost their equitable shares because they had not followed requirements, so it could be done. It was also proposed that a low flat rate be charged to indigent rural communities to break the non-payment cycle.

The Department acknowledged that there were areas where it could do much better, such as regulation and licensing. It had engaged with several role players with the aim of reaching an agreement regarding debt settlement. It would return with an updated turnaround strategy and more information on the “War on Leaks” project, which was putting a big strain on its finances.

Meeting report

Outstanding debt owed to DWS entities

Mr Frans Moatshe, Chief Financial Officer (CFO), Department of Water and Sanitation (DWS), said the Department appoints implementing agents for projects funded through the Regional Bulk Infrastructure Grant (RBIG) and the Water Services Infrastructure Grant (WSIG). Apart from the normal infrastructure projects, there were also intervention projects where municipalities were experiencing challenges. Some of the interventions had led to budget pressures on the Department’s allocation, and this was being attended to through budget reprioritisations.

There was on-going engagement between the Department, the Department of Cooperative Governance and Traditional Affairs (COGTA) and affected municipalities.

A total of R 803 263 000 was owed to entities supporting the work of the Department -- R725 286 000 in payables, plus R77 995 000 in accruals.

The Water Trading Entity (WTE) and all the Departmental entities had been battling the escalating water-use debts by municipalities over the years. The WTE invoices the water boards (WBs), and the WTE and WBs invoice the municipalities. The municipalities then invoice domestic users and businesses.

The municipalities’ water-use debt to the WTE and water boards had escalated by 14%, from R13.1 billion in September 2018, to R14.9 billion in September 2019. This was after all the debt recovery processes -- customer meetings, inter-governmental relations, implementation of water restrictions, debt collectors being engaged, and the Inter-Ministerial Task Team (IMTT) with COGTA, the SA Local Government Association, Eskom, DWS (IMTT) -- had been implemented in most cases

Common reasons cited for non-payment were the billing accuracy queries (inaccurate meter readings) and non-receipt of invoices and statements, which had mostly been resolved.

The consequences of non-payment include the potential collapse of water services.

As a result of non-payment by municipalities, water boards owe a total of R5 billion to the Department of Water and Sanitation. The Department could not maintain, rehabilitate and refurbish the infrastructure of dams and deal with pollution etc. due to the non-payment by water boards.

The municipalities owe a total of R9.4 billion to water boards, who cannot refurbish the water services infrastructure.

Former Botshelo Water had been disestablished due to, amongst other things, the non-payment by the Ngaka Modiri Molema District Municipality, its local municipalities and other local municipalities. This had also contributed to the disestablishment of Bush Buck Ridge Water.

Challenges faced by the Department include the following:

  • A culture of non-payment within municipalities;
  • Current laws do not make provision for channelling the equitable share for the purpose of debt reduction;
  • Current laws do not make provision for top slicing grants for the purpose of debt reduction;
  • Resistance to legal steps against delinquent municipalities;
  • Possible going concern qualifications for water boards and the Water Trading Entity; and
  • Huge impairments of debt, which reduces the reserves of WBs and the WTE.

To date, the IMTT interventions had not been able to stop the escalating debt, and the total Water debt had increased by R1.7 billion from March 2018 to September 2018, and by a further R1.8 billion from September 2018 to September 2019.

Proposed solutions to these challenges put forward by the Department include:

  • Continuous stakeholder engagement;
  • Top-Slicing of municipal grants;
  • Continuous participation in the IMTT;
  • Continuous participation in the provincial joint tactical committee.

 

Discussion

Mr L Basson (DA) thanked the Department for their presentation, but said the Committee had been hearing these excuses for the last five years. The simple fact was that municipalities were refusing to pay, and the debt was growing substantially every year. This puts stress on Trans Caledon Tunnel Authority (TCTA) and eventually money would have to come from Treasury.

He said that the only way out of this situation was not to go to court. The equitable shares were supposed to be used for services, and the municipalities that owed money were not using these shares to pay for services -- and this was known from the report of the Auditor General. Therefore, it was time to get the top slicing in order, because the water services of the country were in danger. There had been municipalities which had lost their equitable shares because they had not followed requirements, so it could be done. The problem would never be resolved if action was not taken to retrieve these equitable shares, because cutting the water supplies to these municipalities would only be an injustice to those people who did pay their rates.

In light of this, Mr Basson wanted the Department to provide the Committee with better solutions to these problems.

Ms L Arries (EFF) wanted to know if the values in the presentation were a true reflection of the amount that was owed by municipalities. She would also like to know how much water was wasted due to outdated infrastructure and leakages. She asked for details of the method of payment by municipalities that owed money to Rand Water, and questioned why so much money was owed to this entity.

Mr M Tseki (ANC) said that the debt was so high that recovery of these funds was unlikely. If the top slicing of municipal grants took place, there should be a portion of this money allocated to the indebted entities.  He was in favour of court cases, or judicial processes, because it would set a precedent and provides all the parties involved with a template on how to resolve similar issues going forward. He urged that a decision be taken soon on how to enforce the proposed solutions.

Mr M Mashego (ANC) said that aside from the proposed solutions, it was of key importance to find out how much of the debt was as a result of water being wasted due to leaks and outdated infrastructure. Secondly, there was the problem of certain areas such as Bushbuckridge which were using municipal water, but there was no system in place to charge these people for the water usage. He comes from these areas, and knows that people are reluctant to pay for water. Their justification for this was that water comes from God. He suggested that if these areas were required to pay a reduced fee or a flat fee for their water, this would perhaps be the start of the greater solution to defeat this culture of non-payment. The solutions would help, but they would not be effective in these rural areas, where people were not being properly charged for their water. He suggested that the government should visit these rural areas and let the communities know that they needed to pay a small flat fee for their water consumption, and that the proposed solutions be implemented in other areas where they would be more effective.

Mr S August (GOOD) said that there needed to be a change in direction, and agreed with Mr Mashego that there had to be more effective ways to solve this issue. Since these issues have been around for five years, there should to be a mechanism among the Portfolio Committees where outstanding issues could be resolved on a monthly basis, so that there were no issues like this one which go unresolved for years. Finally, he wanted to know why there were still problems with billing systems in 2019, when there were so many technological routes that could be taken to resolve them.

The Chairperson said that the outstanding presentations would take place on 29 October.

DWS response

Mr Nhlanhla Nkosi, Deputy Director General (DDG), DWS, said the solutions suggested concerning the charging to a flat rate for rural communities may not work, because many people who lived in these areas and were referred to as indigent residents, made use of communal stand pipes, and although they could afford to pay a flat rate, they would not. This was because the maintenance and management of these bulk pipelines and communal stand pipes were already taken care of by the relevant municipalities through their equitable shares.

There was a problem with accurately finding out who the indigent families living in these areas were, and who the families were who could afford to pay. Furthermore, this was not only a problem for the DWS -- this was an inter-governmental problem as well.

With regards to the top slicing of municipal grants, the Minister of Finance had been convinced that this was the best solution. However, the DDG recommended that the equitable shares should not be top sliced, because those municipalities which did pay on time would be affected. This would ultimately unfairly affect the delivery of water to paying citizens.

The proposal of encouraging a culture of payment was an important one. There were people who were willing to pay for their water. The DDG therefore agreed that one needed to find a better way to get the people in rural areas who were able to do so, to pay for their water.

Ms M Mohlala (EFF) wanted to know how much money was owed by the Water Trading Entity.

Mr Basson said that he understood the dynamic involved when municipalities failed to pay the water boards. However, the Committee needed to understand why the Department was not paying the water boards, because the Department had an allocated budget which should go towards this, and it was an ongoing problem that the Department was not paying the water boards for being implementing agents.

There was a need to get to back to a “use it or lose it” system when it came to municipalities. If they did have the ability to provide water services, then this responsibility must be transferred to a water board. He understood that the municipalities fell under COGTA, but the appointment of water authorities was being done by the Department, and if they could adhere to the regulations involved, they should forfeit this responsibility. The responsibility of the Committee was not to make sure that the municipalities survived, but rather to ensure that the people on the ground received water and sanitation services, regardless of who delivered it.

Mr Tseki said that the Department was in substantial debt, so it needed to show the Committee a willingness to pay as well. He wanted to know how other departments paid these entities. He did not like the “culture of non-payment” phrase, because it implied that people collectively agreed to not pay, which was not the case since there were payments being made. Some of the reasons why payments had not been made in certain areas like Bushbuckridge, was because most of those residents were indigent. He therefore agreed with the idea of starting a conversation around introducing a small payment fee which would not be too high for these people, and doing research as to just how many people were in fact indigent.

Mr Mashego said the Department had to work together with local government and the local authorities in order to assist with these problems. There also were very wealthy people who lived in areas where the majority of the population was indigent, and they needed to make sure that these people paid for their water usage.

The DDG acknowledged that there were areas where the Department could do much better, such as regulation and licensing. Over the last three months, it had been speaking with the Energy and Water Sector Education and Training Authority (EWSETA) and Rand Water, with the aim of reaching an agreement regarding debt settlement, since these entities were involved with the “War on Leaks” project, which was putting a big strain on the finances of the Department, especially the main account.

When the “War on Leaks” project was started, the focus had been put on young people to do advocacy work around the country to make people aware of the importance of water’s contribution, so there had been efforts to educate people in rural and other areas on why they should pay for their water usage.

Mr Mashego emphasised the importance of finding a way for people who lived in areas like Bushbuckridge to make contributions towards their water usage.

The DDG said that the Department would return with an updated turnaround strategy and more information on the “War on Leaks” project.

The meeting was adjourned.

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