Municipal Water Debt solutions; with Deputy Ministers

Human Settlements, Water and Sanitation

05 November 2019
Chairperson: Ms M Semenya (ANC)
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Meeting Summary

This was a continuation of the 29 October joint meeting of the Portfolio Committee on Human Settlements, Water and Sanitation and Portfolio Committee on Cooperative Governance and Traditional Affairs about resolving municipal debt to water boards which has been increasing at an alarming rate. The Committees interrogated the presentations made by the Departments of Cooperative Governance and Traditional Affairs (COGTA) and Human Settlements, Water and Sanitation (DHSWS), South African Local Government Association (SALGA) and National Treasury.

First, in the first consolidated response by all government stakeholders, a briefing was given on the Inter-Ministerial Task Team (IMTT) recommendations and strategy and initiatives for debt restructuring; initiatives for addressing the culture of non-payment; initiatives for prepaid/smart meters for water pilot funding options; initiatives for accurate data and billing; initiatives for revenue collection; and initiatives for governance, technical and financial support. On the process to deal with defaulting municipalities, 100 municipalities were identified by National and Provincial Treasuries that require support/intervention. This includes 30 of the 40 municipalities currently under intervention. The adopted budgets of these municipalities have been re-assessed independently by National Treasury. Those budgets that were found to be unfunded after the re-assessment were required to correct this by revising the budget and re-tabling it at a special council meeting. This will assist in meeting the current accounts. National Treasury is engaging Water Trading Entity and water boards with a view to re-negotiate the arrear amounts owed to them by municipalities There are efforts to restore a culture of payment of the current account and revise unrealistic and unaffordable payment arrangements.

The Committee was sceptical when SALGA claimed that municipalities were not paying because R165 billion is owed to municipalities by provincial and national spheres of government. SALGA also stated that if top-slicing of the equitable share is used, it would be incorrect if it happened only to local government and not to the departments that owe municipalities – as the problem would not be addressed and municipal voters would suffer. The Committee accepted that this was a fair assertion.

In the discussion, the topics included the ring-fencing of funds to pay for water; top-slicing the equitable share and conditional grants and the lack of consensus on this; tangible financial solutions even if this means amending the Constitution and the PFMA; the cost of independent revenue collectors; the lack of critical skills in municipalities to handle billing; the R7 billion War on Leaks project progress; how municipalities will pay water boards if the national and provincial spheres owe billions to municipalities; the pros and cons of prepaid water meters; how one expects a good outcome when municipalities get only 9% of the fiscus; the water and sanitation function must be removed from dysfunctional municipalities; and the current indigent policy does not adequately cover the end-user and if all municipalities are implementing it; and the campaign to encourage a culture of payment for services.

The Committee pointed out that the Inter-Ministerial Task Team (IMTT) strategy had not been receiving any attention in the Sixth Administration. There were weaknesses in the handing over process from the IMTT to the Executive. The Department had dropped the ball. If the Committee had not pursued this oversight, government stakeholders would not be working as a task team. It was requested that SALGA is on the task team as well. An action plan was needed.en care of.

Meeting report

Opening remarks by Chairpersons
The Chairperson noted that in the last meeting, the Committee received three presentations from relevant departments. Today the two Committees will interact with those presentations. Last week, a meeting was called to discuss the debt that owed to and by municipalities for water provision which is creating challenges to provide services to the South African people. If the debt owed to water boards is not resolved, the Committee cannot deal with other projects in the pipeline as it is the water boards that approve funds to develop projects.

Opening Remarks by Deputy Ministers
COGTA Deputy Minister Parks Tau noted the points raised in the discussion last week and said the departments and stakeholders had an opportunity to meet as that meeting had requested the stakeholders have a consolidated approach. The team worked on a joint presentation, even though not requested by the Committee, which is relevant as a consolidated response to the questions raised. It is important to acknowledge that COGTA itself is seized with this matter and is following up on the work of the IMTT appointed to establish the facts on debt owed by municipalities to both water boards and to Eskom. Many of the recommendations presented stem from the work done by the IMTT. Even though there is no longer a standalone IMTT, this does not suggest that the work is not receiving attention including the array of challenges that results in the debt owed to water boards. There is the reality of non-revenue water and the extent to which this contributes to tight liquidity within municipalities. There are instances where COGTA has had to respond through intervention to ensure that municipalities meet their obligations. Part of the solution has to do with collection of revenue. He hoped that the presentation circulated is a good attempt to respond to the questions. The Department is ready to engage.

Deputy Minister of Human Settlements, Water and Sanitation, David Mahlobo, appreciated that this work needs to be revived and the matter taken seriously because of the difficulties of some municipalities. The principle remains that people should pay for the services that are rendered. It is important that this is respected despite the difficulties. Water is a stressed resource. The water boards require payment from the little resources available. The Department takes into cognisance that municipalities are struggling and a one size fits all approach is insufficient. There are those municipalities that do not pay in spite of money being available. There are various challenges with the billing system and with the assistance of COGTA and Treasury, the billing system should be fixed. Further, there is the matter of non-revenue water which relates to asset and infrastructure management. It needs to be determined at what point there is non-revenue water loss – is it in the bulk system or in the reticulation system? If the assets are properly maintained, there will not be the situation where people pay for water they have not received. The department has a clear view of the concerns raised about tariffs and it is very open to engagement. A key question is whether the departments are participating and engaging at the right level? With the help of the two Committees, a way forward will be found as the impact of the necessary steps not being taken, mean the Department will be unable to guarantee the security of water supply.

Municipal Water Use Debt: consolidated presentation
Mr Ntandazo Vimba, CEO, Municipal Infrastructure Support Agency, stated that over the past few years, municipal debt to Water Boards / Water Trading Entity (WTE) has been increasing at an alarming rate.

Mr Vimba elaborated on the 2015/16 National Water Balance data in terms of percentage of water losses, revenue and non-revenue water. He spoke to the water losses such as illegal connections and vandalism. He outlined the debtors book at the end of the 2018/19 financial year on 30 June 2019. Next, he presented a summary of debt owed to WTE and water boards by municipalities at 30 September 2019.

The Inter-Ministerial Task Team (IMTT) recommendations were noted:
• Installation of prepaid/smart meters for Electricity and Water;
• Appointment of independent revenue collectors for municipalities;
• Government wide campaign to encourage a culture of payment for municipal services;
• Strict management of payment default with firm action by government before court process come to effect;
• Fixing the municipalities to ensure the sustainability of services and finances;
• Restructuring of debts.

The adopted IMTT Strategy for Municipality Sustainability was unpacked.

Mr Vimba elaborated on the initiatives for debt restructuring; initiatives for addressing the culture of non-payment; initiatives for prepaid/smart meters for water pilot funding options; initiatives for accurate data and billing; initiatives for revenue collection; and initiatives for governance, technical and financial support (see document).

On the process to deal with defaulting municipalities, 100 municipalities were identified by National and Provincial Treasuries that require support/intervention. This includes 30 of the 40 municipalities currently under intervention. The adopted budgets of these municipalities have been re-assessed independently by National Treasury, even though the Provincial Treasury has assessed these budgets. There are also efforts to restore a culture of payment of the current account and revise unrealistic and unaffordable payment arrangements.

Mr C Brink (DA) asked how many municipalities that owe money to water boards are in fact implementing indigent policies? While the presentation makes reference to indigent policies, it gives no indication how many municipalities are implementing this. For the simplified revenue plan, there are seemingly nine successes but the plan was implemented in 42 municipalities. Out of 42 cases, were there only nine successes?

Mr M Tseki (ANC) said there is not much change in the consolidated presentation from what was presented in the separate presentations last week. The approach of dealing with certain matters is still problematic. Given that this is about debt, the Committee would like accuracy. Can the Committee be briefed on servicing the current account in terms of the Simplified Revenue Plan? What is the relationship between the Initiatives and servicing the current debt?

Ms G Tseke (ANC) said she would appreciate a pilot project for prepaid meters in Matjhabeng Municipality, which is the second biggest municipal debt culprit. The appointment of independent revenue collectors has already been performed in certain municipalities. How much is going to be paid for independent revenue collectors? Is there a mechanism that provides guidance on this? Previously, independent revenue collectors were appointed and they charged 10% of the money collected. How much does the department envisage paying?

Ms M Tlou (ANC) inquired whether the department has an implementation plan for a community campaign to encourage a culture of payment for services? Are current ratepayers paying their monthly account? What is the plan for indigents who are unemployed and do not qualify for a social grant? Should schools or Public Works pay for the facilities owned by Public Works? Often schools have no electricity or water. What is going to be done to ensure effective implementation in schools?

Ms P Xaba-Ntshaba (ANC) said that the state of the billing system shows that critical skills are lacking. The billing system is killing our people. The municipality does not know how to bill them. When will the debt addressed? The Committee has been speaking about the debt for a very long time. A key reason people are not managing to pay is because of joblessness. The department has a high vacancy rate so hire people so they can pay their debts. South Africa has very good universities. Why does the department not approach these universities and recruit people who have the needed critical skills? Does the department have an induction to ensure that employees understand their duties? She requested a list of the municipalities that the department is assisting so when the Committee conducts oversight it can go straight to those municipalities. Is there a plan to address the shortage of water and critical skills in communities?

Ms N Sihlwayi (ANC) highlighted that there have been a lot of interventions. Prepaid meters have been used for years. It is historic debt that this country continues to suffer from. In terms of long term proposals, one needs to return to the models adopted since 1994 and assess them. Particular models were chosen for local government. Research needs to go into whether or not South Africa adopted a good model for financial viability and organisational structures.

Ms N Mvana (ANC) was disappointed by the consolidated high level presentation. It lacks any new solution on how the problem will be resolved. What the Committee also requires are timelines and a level of detail so the Committee will understand and oversee the department. How will the department carry out the proposed solutions? It will need the support of all these ministries and departments because lots of money is owed.

On initiatives for accurate data and billing, a committee member asked if the department is targeting only low paying municipalities, especially communities where there is a lot of unemployment. The majority of people who queue to make debt arrangements and negotiate are not business people but people from townships. She thought the briefing would also present what has been done about businesses and any achievements so the Committee could have a balanced perspective.

Ms E Powell (DA) asked for clarity on the IMTT. Despite the IMTT being set up since 2017, last year municipal debt accrued to R1.7 billion and this year it reached R1.8 billion. The IMTT came up with a number of recommendations. Apart from the high level objectives, have the implementation plans for the actual work streams been submitted to Cabinet, or only the high level implementation plans? Last week, the Committee heard that they are still being finalised. Today, the Committee heard that IMTT has not been receiving any attention in the Sixth Administration. Moreover, based on the presentations last week, there seemed to be a lack of consensus between the recommendations of SALGA, COGTA, DHSWS and Treasury on the way forward. This is specifically with regards to top slicing of the equitable share and the conditional grants at the national level. What discussions are taking place on reaching a consensus? It is clear that the IMTT implementation plan and the municipal level interventions are not working.

Mr S August (GOOD) referred to the War on Leaks project which both COGTA and DHSWS have. In previous meetings, it was revealed that 1000s of people have been employed to assist in the War on Leaks. The Committee requested a detailed report. To date, the Committee still needs to be updated on the employees of the War on Leaks programme. SALGA reported last week that a certain municipality loses 50-51% of its water before they can charge revenue. The Committee needs to see a detailed pipe-replacement programme and a detailed report on the War on Leaks showing whether DHSWS and COGTA are speaking to each other to ensure that the loss of revenue and water can be stopped.

Ms M Mohlala (EFF) cited that South Africa is experiencing a continual rise in the unemployment rate up to 29.1%. This is the reason people are not paying for services. The government needs to devise a way for people to find jobs. An economic regulatory regime has been seen as an option to regulate pricing and costing of water across the entire water value chain. Is research being undertaking on each component of the water cycle? Can the tariff deficiencies in municipalities be elaborated on? In most cases finances is not the root cause of the problem in municipalities, the problem is often more than just money. Is there a system in place for SALGA and COGTA to assist? How effective are the interventions in municipalities to assist in operational and financial aspects in dysfunctional municipalities, more especially water services?

Mr K Ceza (EFF) referred to government efforts to encourage a culture of payment for municipal services and said he wished the presentation spoke to get to the root causes of why people are not paying. It is important to get the politics right. First and foremost, there is the question of the inequalities confronting South Africans. Secondly, even though municipalities are owing water boards so much, the municipalities are in turn owed by national and provincial departments. How will municipalities pay water boards if the national departments owe R72.4 billion to municipalities? How do municipalities that get only 9% of the fiscus and expect a good outcome? It is important to capacitate municipalities, especially rural municipalities. He spoke of an area where people have not had water for over eight months. They have to clamour for ways to get water from the nearest farms. This must be treated with the urgency that it deserves.

Ms L Arries (EFF) said a lot of water is lost due to alien plants. DHSWS and the Department of Environment Affairs need to speak to each other and find a solution for this. Municipalities fail to adhere to the regulations as there are many councillors that are in arrears. South Africans are already struggling to get prepaid electricity due to unemployment so how will they cope with prepaid water meters. The introduction of prepaid water meters means people will not have access to a basic right just because they do not have money or are unemployed.

Mr I Groenewald (FF+) asked what the water board role in terms of water pollution and the construction of water treatment plants? Can a list be provided on all municipality outstanding debt to water boards and the WTE? This information is not included in this report. Moreover, what is the financial state of those water provision companies?

Mr L Basson (DA) stressed that the presentation is just words on paper. The same meeting was held in previous years and it is not helping. The department cannot force municipalities to pay. Prepaid meters can be installed. It will cost billions of rand for this country. However, the municipalities will still not pay. The only solution to resolve the problem in water and sanitation is taking away their authority to deliver water and their licensing because they are failing to deliver. Dysfunctional, corrupt municipalities need to be prevented from delivering water to our people. SALGA and COGTA are covering up for municipalities’ non-payment. The department can come up with the best plans and debt can be restructured. However, the restructured debt will be restructured again the next month. If bold steps are not taken, South Africa will end up with a worse situation than drought. South Africa has collapsed infrastructure. Waste water treatment and water purification plants are dysfunctional because municipalities do not make money on water. They cannot run these plants and they must be given to water authorities like the water boards to run it on their behalf. In the last financial year, there has been an increase to R1.8 billion in unpaid revenue. It is escalating and will be R2 billion next year. The same meeting will be held next year. How will the department pay the R19 billion in loans that Trans-Caledon Tunnel Authority (TCTA) has taken up if South Africa continues on this basis? The department knows the proposed measures will not assist. Dysfunctional municipalities should not deal with functions they cannot manage.

An EFF MP asked if the department, COGTA and SALGA have a contingency plan to assist the working class and the unemployed who cannot afford to pay high water tariffs. Only a few people are working and can afford to pay for water. Has COGTA started developing the District Development Model? If so, why has it taken them so long to implement this model? After its implementation, is there a consequence-management strategy they will use to assist municipalities to pay their debts? If there are no intervention measures, the escalating debt will continue.

Mr M Mashego (ANC) asked, given the historical nature of the problem, if there is a booklet that speaks to the IMTT decisions. The IMTT was supposed to take the country forward on these matters. The Committee requires the recommendations and resolutions of the IMTT. There should be a set of workable recommendations that all the stakeholders stick to. Public and municipal meetings can be held to communicate these and give it time. Something can come out of this if all stakeholders work together.

The Chairperson indicated that the Committee had applied for an all-day meeting but permission was not granted from the House Chairperson as there is a sitting in the National Assembly this afternoon.

Deputy Minister of Human Settlements, Water and Sanitation response
Deputy Minister Mahlobo stressed that the Committee’s instruction for the stakeholders to work together has been taken. The fact that there is a joint presentation and recommendations is a good step forward. There is a single mindedness and the stakeholders are no longer speaking in different tongues. There are issues where there is still no agreement and these will be discussed. For the first time, there is a joint plan. There is historic debt. While there can be a number of analyses, the reality is that there was a time when there was a culture of non-payment. One of the decisions that have been made is that all public representatives, whether councillors, MPs, or MPLs, should pay their personal municipal accounts as a start. There are people who sit amongst us who do not pay. Those in a position of leadership should lead through their actions. There are matters in the presentation where systems have to be improved going forward. There are systems inefficiencies such as the billing system and a number of concerns around asset management. The concerns raised by Mr Basson are very big policy issues. A lot of work has gone into the functionality of local government. Local government is given the smallest slice yet is expected to succeed despite its weaknesses. The powers and functions need to be discussed. Apart from the debt, there are a number of areas that will require a detailed plan of action. At the end of the day, leadership must walk the talk, not only those in government, but those leading in different capacities.

COGTA Deputy Minister response
Deputy Minister Tau said the IMTT recommendations are being taken forward by a detailed implementation plan that is currently being worked on. Once completed, it will be shared. The presentation states certain things that may not have come across clearly enough. Firstly, there are municipalities with unfunded budgets. They have a budget where revenue does not match expenditure. If the expenditure is higher than revenue, the municipalities are unable to meet their obligations to pay service providers. National Treasury has reviewed those and is requiring provincial treasuries ensure that municipalities fix their budgets so that there can be a resolution to this problem. Secondly, the presentation states that the bulk of water losses are actually technical losses. These are infrastructure-related losses. Resources need to be invested in reducing these technical losses as there are water leakages across the system. The presentation explains that a process is underway to deal with those leakages. The category of losses that are commercial losses are the result of poor collection of money. The presentation argues for a prepaid system where people get tokens to purchase water to deal with the current problem of payment collection after use. It is reflective of processes being put in place to deal with this. On the indigent policy, the equitable share model includes making provision for indigents so the department needs to ensure and facilitate that municipalities are able to provide free basic water and electricity for the poor. It is an inherent part of the policy framework that has been developed so the poor are able to get access to water, sanitation and electricity. This includes tariff systems that allow a block tariff system where the less consumed, the less one needs to pay per kilolitre of water. This ensures that high consumers are billed more that low consumers on the basis that the low consumers are part of the poorer segment of society. The tariff system is designed to address that.

SALGA response
Mr Bhekumzi Stofile, SALGA working group chairperson for councillor welfare, governance and international relations, stressed the need to focus on an extremely problematic challenge – that there is a serious culture of non-payment in South Africa. People tend to build outside of municipal land so they avoid paying for services. For example, in the Eastern Cape, there is no interest in paying for services. It is important to recognise that the challenges faced are historical challenges. Historically, the country was providing water and other services to a tiny segment of citizens. Since 1994, the demand has become much greater than what it was. This should not be brushed aside.

Mr Thami Ngubane, SALGA Water and Sanitation Working Group Chairperson, said that based on the comments, there are guiding principles on which the Committee seems to be dropping the ball. It is making a mistake of looking at matters in isolation. In the process, the interconnectedness of issues is being missed. The first thing is to make a correct diagnosis of the challenge in the value chain of providing water. Water boards provide bulk services. They have an obligation towards the customer, which is in this case the municipality. Municipalities also need to meet the obligations of their customers which are government, business and households. In the context of providing these services, municipalities are using a user-paid mechanism. If municipalities are not paying water boards, it is because those customers – namely, government, business, and households – are not paying municipalities although they have met their obligations of providing the service. What needs to be discussed are the reasons these customers are not paying the municipalities. This is not a municipal problem but a problem for all of government. There is no single intervention that will bring resolution. To overcome the challenge, there must be an intervention in infrastructure, for example, for the leaks. To address this, the whole infrastructure needs to be replaced. That requires funding. Moreover, behavioural change is also necessary. Those who can afford to pay are not paying. Behavioural change also applies to government. Additionally, is it the equitable share that should cover those who cannot afford water services? The municipalities need to be assisted with the billing system. On the withdrawal of water authority licences from municipalities, the Constitution in section 154 states that the higher spheres are there to support and reinforce the municipality to be able to play their role. In terms of revenue collection, SARS collects revenue on behalf of government. If you compare the municipal revenue collection unit to the SARS system and capacity, even SARS failed to collect and fell short by R4 billion. There are some inconsistencies as local councillors and municipal officials by law cannot owe municipal services for more than three months but this does not apply to those in the provincial and national spheres. Interventions are necessary to end some of the deficiencies. In closing, matters should not be looked at in isolation. Municipalities owe water boards and Eskom. It is because municipalities are owed by government, business, and households, some of whom are government officials.

Municipal Infrastructure Support Agency (MISA) response
Mr Vimba replied about the initiatives, explaining that these are recommendations of the IMTT and the implementation plan. The recommendations have been endorsed by Cabinet. The implementation plan, however, has not been given to Cabinet. The next step is to present it to Cabinet. At this point, four municipalities have been selected as pilot projects while the programme will be rolled out to all municipalities once it is adequately funded. On the implementation plan for a community campaign, a communication strategy was developed to roll this out. There is a plan to assist municipalities with the filling of vacancies. The municipalities assisted in KZN to address debt have been indicated in the presentation. Proposals have been made to deal with certain systemic challenges especially on the viability of municipalities. The delegation can come and present on what is being done. The municipalities that have reflected improvements can be shared with the Committee. The presentation has demonstrated, from MISA’s perspective, what has been done on the War on Leaks. Apart from the water boards, there are other entities that loan to municipalities which the team takes note of.

Further discussion
The Chairperson clarified that this meeting was called to find solutions. Let us bring our heads together and see how to resolve these challenges. The delegation has proposed recommendations. The Committee will need the action plan for the recommendations. He acknowledged that it is government policy that if a person is indigent they do not need to pay services but get free services. This discussion is about people who are working and who should pay for services. This is where the discussion should start. SALGA has raised an important point that the current indigent policy does not adequately cover the end-user. Indigents are given R8 but the cost is R10. This should be looked into so that the unemployed are subsidised. Treasury has indicated that not all municipalities that owe water boards are owed money by departments. SALGA should not generalise this problem. To resolve this problem, it must be unpacked and municipalities should be investigated individually. Mr Basson said that there are municipalities that cannot perform their water function. Government should realise that, as per the Constitution, these rights should progressively be realised. If one government stakeholder cannot play its role, the others spheres need to assist. He is not saying municipalities should not exist but that those that have difficulties providing the right to water and are unable to provide services, the second and first tiers should be interveners and should not allow the destabilization caused to the end-user, which are the people that put government in power. Government has put forward recommendations. What should happen to assist this process? In the last meeting, it was agreed that the team would give the Committee an action plan for oversight purposes.

Mr Basson pointed out that the responses characterise the problem. Municipalities are not paying because someone else is not paying the municipalities. It is the municipality’s responsibility to collect money that money. It is not the rest of government’s responsibility. If they are not capable of collecting that money, national government must intervene to ensure that services are delivered to the people on the ground. That is the core business of the municipality. If they get that function to supply, purify water or deal with waste water, they must act on behalf of government that gave that responsibility to them. If they cannot perform this function, it must be taken away from them. If government or the people are not paying the municipality, they should be cut off. The delegation should have come with a solution to prevent people or government from not paying municipalities. Why are municipalities not paying? How is it possible that municipalities that buy water from Rand Water pay for their water? They have the same type of people staying in their area yet they are not complaining like this gentleman from SALGA that government, business and households are not paying. The Committee knows what is going on in local government. They wrongly utilise the money payments they receive from the people to pay for salaries and cars. Money for water should be ring-fenced and go to the institution which provides the water.

Mr Tseki replied to SALGA about "dropping the ball" and emphasized that the department has dropped the ball. The Deputy Minister says that the proposed plan has not yet been presented to the Executive and the government is still brainstorming. These challenges should have been resolved 10 years ago according to SALGA’s presentation. The issue is about urgency. While people are building in the communal land areas and traditional leaders are avoiding payment, it is the responsibility of the municipality to introduce by-laws. If money is running away, run after this money. On how SARS carries out its job, it is the department’s responsibility to make proposals to National Treasury on billing and collection. On the equitable share, it is a challenge. COGTA should mobilise National Treasury on this so that this can be resolved. SALGA's concerns raised last week are what the Committee does oversight on.

Mr Mashego said that it was probably correct that the IMTT recommendations did not go to Cabinet because Cabinet would have asked if the parties involved had been engaged. The procedure is correct. In terms of top slicing, SALGA needs to appreciate that the municipalities have failed in a certain way. It cannot be business as usual. These recommendations need to be taken to Cabinet and a plan needs to be presented to the Committee on how to talk to ratepayers and businesses. A plan is needed to implement this intervention. There is a way forward to deal with this.

Ms Powell stressed that this is the second meeting and all the officials are present at great cost to the taxpayer. Today, the Committee has not heard a single new solution. This country is confronted with a crisis that will bring municipalities to their knees. As Members of Parliament, the Committee sits here demanding answers. The Committee knows what the issues are. Therefore, it does not need responses from SALGA problematizing the issue. The IMTT was set up 2017. Yet, R1.7 billion debt accrued last year and it grew to R1.8 billion this year. What are the various departments doing to stem these losses from a systems perspective? The question on whether there is consensus amongst departments on top slicing the equitable shares and conditional grants has not been answered. The presentation last week indicated that there are divided opinions amongst the departments. As was mentioned by a number of Members, this is a potential solution. This means amending the Constitution and the PFMA. What is needed here are real tangible financial solutions. What enabled the City of Cape Town to derive revenue from their customers was that they had an end-to-end management system that integrated everything from billing to addresses. Municipalities were able to keep track of who their clients were and how much water they were using. It is a suggestion that enterprise resource management systems be piloted at a national level as well as at a municipal level.

Ms Mohala reiterated that the focus needs to be on debt. It is important for the Committee to look what the root causes of this debt are. There was the R7 billion War on Leaks project initiated in 2015. The Committee would like to know what is happening in that project. The project was initiated with a view to employing 15 000 trainees. Those leaks from pipes and taps are part of the debt problem. Projects are initiated and they do not assist. The question on Section 139 interventions had not been answered yet.

The EFF representative said that when she spoke about the working class she was referring to the majority of South African society who are earning little money but would like to pay for their water but are unable to because of the high cost of living and the high tariffs. Do DHSWS, SALGA and COGTA have a contingency plan to deal with that bracket of the working class? While a prepaid system is being devised to get money for water services, most of those people will be unable to afford to pay. As a result, people will start marching to the municipality because their water will be cut off and there will be a problem. This would be a regression. Apart from indigents, would we have solved this problem as the majority of people such as domestic workers, factory workers, labourers and waiters cannot afford the high tariffs?

The Chairperson indicated that domestic workers are part of indigents.

Ms Arries said it is important to revisit the indigent policy. Revenue collectors are not necessarily the solution. It will create less income for the municipalities because the collectors must also get a percentage of the debt collection. Why are not people rather than companies appointed to do that work? Many municipalities do not have a debt collection system in place as there are municipalities where customers do not receive a bill every month. Why do municipalities not cut off those businesses that owe R24.7 billion?

Mr Hadebe agreed with the need to inculcate a culture of the user-pay principle. What is needed, however, is a long lasting solution. On prepaid meters, there is no substitute for experience. The City of Cape Town would be a good case study for how water prepaid meters have failed and how they have succeeded, if at all. There are serious challenges. The programme implemented in Cape Town came with serious challenges. Firstly, after installation there would be faulty meters. There were meters that would cut off water and it would take five days approximately for officials to come and fix those meters. In the process, communities are deprived of a fundamental basic right to access water because that faulty meter is not as a result of their own doing. A good case study ought to be undertaken prior to implementation of this programme to get the pros and cons of the City of Cape Town experience. This resulted in physically removing those meters and taking the City to court to fight the injustices that came with these prepaid meters. It is a good concept only when it is properly implemented and there is an understanding of how to implement a smooth sailing process.

The Chairperson stressed that the way to resolve issues is listen to one another and those given the responsibility to chair the meeting are allowed to do so. When a question is asked that is clouded with many issues and when the respondent does not hear the question, there should not be a complaint that the question was not responded to. Questions should be clear so that the Chairperson can ensure that all questions are answered. There are questions that are still outstanding, especially on the ring-fencing of funds and top-slicing, the way forward on the user-pay principle, and the government’s indigent policy. Those that are not indigent and are not covered. If Parliament has to add another category of people to increase the level, that legislation must be addressed. Government talks about the agreed-upon indigent policy.

On top-slicing the equitable share, Mr Stofile replied that it seems like a lucrative solution but it is not really as lucrative as the Committee may want to believe. The reality is that the voters in the municipality are punished. Members do not agree with his fellow councillor who says that R165 billion is owed to municipalities by government. If top-slicing is used, it would be incorrect if it happened only to local government and not to the departments that owe municipalities – as then the problem would not be addressed. That is why SALGA argued that it would be important for all to look into that. If top-slicing were to take place, it is important that not only one sphere of government is top-sliced but is applicable to other spheres of government as well. But this must be debated. On section 139 interventions, an assessment was made of its effectiveness in getting the desired outcome. It is accepted that the section 139 intervention has not produced the desired outcome in the various municipalities where this was introduced.

Deputy Minister Tau responded that the delegation go back and consider a number of proposals that have been put on the table, including the top-slicing suggestion and the need to be equitable with this. It is agreed that an all-of-society approach is required because, in reality, local government is responsible for the provision of some of the most basic services and needs. It is also important to work on the basis of the progressive realization of the right to water and other socioeconomic rights. Therefore, an all-of-society approach is required. In this instance, an all-of-government approach has also been discussed. When people can afford to pay, they should understand that they have an obligation to ensure that they pay because it is a service provided. When people are poor and the government intervenes by providing free basic services, part of the solutions that have been looked at is an indigent policy that would set the benchmark on not only zero income but lower income. In many of the municipalities is the block tariff system. The consumer that uses lower amounts of water, pays a lesser tariff. It works on the basis that poorer households do not have a geyser, a swimming pool etc. The tariff model recognises that some people are of a lower income. It is also about dis-incentivising high water usage and abuse in South Africa. This is part of the interventions to address the needs of the poor and the working class.

It is important to state that the decision to determine the tariff levied is a decision of the municipality. That municipality has to go to the regulatory authority to explain the tariffs and indigent policy. The regulatory authority would review that and so would DHSWS review water and sanitation tariffs. There are regulatory authorities that govern how tariffs are set. There is not one body that determines all tariffs. The law is not written in such a way that national government can prescribe tariffs throughout the country. The law allows the elected municipal council to set the tariff and for the regulatory body to review and approve the tariff. It is important to keep this fact in mind.

In the presentation, the point was made that there are tariff issues that need to be resolved. There have also been instances where the bulk tariff is higher than the reticulation tariff. The amount at which water is bought is higher than the amount at which water is sold. This causes a disjuncture which requires resolution otherwise the municipality will never revive.

The set of solutions focussed on the budget, the bulk service provider, the tariff structure and the billing system. In a future conversation, the presentation will provide a value-chain point of view, starting from the bulk service provider, what happens along the value chain, and how that impacts on the rest of the value chain. Then the department can make interventions at different points of the value chain to arrive at a solution. The suggestions made are really welcomed. This is the beginning of a process of working together to resolve the problems. The commitment is to work together, find solutions and, at the appropriate times, to periodically report back to the Committee.

Deputy Minister Mahlobo agreed that this should not be the last engagement. The real engagement must happen now. The delegation will return with a detailed plan of action. The high level issues have been mapped out. There are issues that relate to historical debt. There are issues that speak to the need to improve the system because after 25 years of democracy there are policies that have unintended consequences in the tariff system and the management inabilities with the billing system. The delegation would like to return to deal with that. With respect to top-slicing, SALGA's key concern is consistency. The stakeholders will find one another on this. DHSWS prefers to deal with the War on Leaks within the broader management of assets within the value chain. It is one element in conservation and demand management. This is a bigger issue that the delegation would need to come and discuss. On pollution, DHSWS would like to present to the Committee a report on the state of the rivers in South Africa in terms of the department's set of actions and their weaknesses.

Lastly, the leaders have to break the cycle. When the recommendations are made to Cabinet, there will also be a suggestion that those in leadership positions should do the honourable thing. This could mean that some laws need to be changed to bar leaders who are not honourable. Let us not throw stones. We all live in a glass house. Equally so, accountability cannot be ignored. Those that are given responsibility have to live up to the dictum of providing leadership. Cabinet will be re-approached to close the gap which resulted in the IMTT not going back to the Executive. The Executive will be much wiser and enriched having benefitted from the inputs of the Committee. When South Africans are approached, payment will be made for what has been consumed.

The Chairperson concluded that one of the weaknesses picked up is in the handing over process from the IMTT to the Executive. If this meeting never took place, the delegation would not be working as a task team. Please ensure that SALGA is on the task team to ensure that concerns raised by local government are taken care of. The in principle agreement in this meeting is that if top-slicing takes place for local government, those that are owing local government should have the same done to them. There is a challenge whereby it is not known who must pay for municipal services for government buildings. However, if Treasury recognises that a building belongs to government, there should be a mechanism to enable Treasury to assist those municipalities where there are identification challenges about where the payment responsibility vests. Bulk tariffs are higher than the reticulation tariffs. In a previous meeting with water boards, it was explained it is because municipalities themselves are the biggest polluter. Their tariffs are calculated on the basis of what they use to clean water. Waste water should not be left outside the discussion. It should be encompassed so as to be holistic. The reality is that the end-user suffers at the end of the day. There should be efforts to protect the end-user and ensure that tariffs encourage people to pay. When the stakeholders return, the ring-fenced amount and top-sliced amount should be known. However, there should be no debt because this should have been resolved. Government should not encourage people not to pay. A mind-set change is necessary. Further, government officials who are not paying should have harsher punishment.

The meeting was adjourned.

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