The meeting was a follow up to the briefing by the Department of Water and Sanitation (DWS) on 19 November 2019. The Committee noted that it was an improved presentation.
Water sales debt and poor supply chain management were cited as focal issues which were impacting DWS’s overall performance. DWS was actively engaged in interventions such as litigation and top slicing as part of its financial recovery plan. DWS said its irregular spending of R15 billion was in part a result of inefficiencies in supply chain management. It was committed to strengthening its internal capacity and governance structures where there are deficiencies. Other interventions include the strengthening of planning processes, performance management and consequence management for officials and implementing agents.
Members said it was disappointing that DWS was engaged in numerous projects across the country but there was very little impact as many communities had limited supply of water and in some cases, rural communities had no access at all to water. Why were funds continuously being disbursed to municipalities which did not have the capacity to deliver complete projects? DWS was asked to provide status updates on the Mzimbuvu dam and Rooiwal waste water treatment plant. Questions were asked about top slicing to resolve the municipal water debt crisis; desalination progress; when the overdue DWS 2018/19 Annual Report would be published; 30% women contractor quota; DWS oversight of implementing agencies; litigation; and emergency contracts.
The Chairperson asked for a moment of silence for meditation or prayer. Apologies were received from the Minister who was attending an Inter-Ministerial Task Team (IMTT) meeting for district-based service delivery. The meeting was a follow up to the Quarter 2 performance briefing by DWS on 19 November 2019. The Chairperson clarified that the Committee had called DWS back in to present on their turnaround strategy and that it was important that DWS reflect on its progress based on its Annual Performance Plan (APP).
Department of Water and Sanitation response to Committee Questions
Mr Mbulelo Tshangana, DWS Acting Director General, gave the response to questions by the Committee in the previous meeting. The questions were:
- A request for a comprehensive breakdown of the DWS performance by province
- An elaboration on the individual performance of municipalities
- An explanation of Mpumalanga’s 255% performance
- Clarification on the allocation of grants to municipalities
- An explanation of why some projects failed to take off
- The management of the procurement process
- A status report on the audit action plan to resolve the Auditor General (AG) findings
- An explanation for underspending in all programme areas
- The disbursement of performance bonuses to employees despite DWS overall poor performance
- An explanation on why tenders were not being issued and the subsequent impact on communities.
- Current status of Mzimbuvu Water Project, desalination in Western Cape and Water Sales debt.
- DWC overall performance in Quarter 2 of 2019/20.
DWS Financial report
DWS gave a breakdown of its current expenditure for 2019/20 to date. Overall, it had spent R6.121 billion of the total budget of R16.467 billion, representing 37% of spending against a targeted 45%. Underspending was as a result of procurement deficiencies and structural and systemic inefficiencies.
Mr Frans Moatshe, Acting CFO: DWS, gave a summary of the DWS’s financial position since the beginning of the financial year. Overall, there was a decline in liabilities in both the Main Account and Water Trading Entity Account. There was a favourable balance for the bank overdraft, however, the DWS still had several commitments to honour. It had closed the previous 2018/19 financial year with a commitment balance of R4.3 billion for infrastructure projects. These commitments are formal agreements which DWS has entered into with municipalities and water boards which act as implementing agents. To date, it has moved R3.3 million, leaving an outstanding balance of R4 billion at 30 September 2019. Movement has been slow in certain areas as a result of community dissatisfaction with progress and challenges experienced by contractors which DWS would elaborate on.
One of the biggest challenges faced by DWS is accruals and payables. Unpaid invoices total R810 million and accruals where work has been done but invoices have not been received by DWS total R82 million and related in part to Regional Bulk Infrastructure Grant (RBIG) projects.
DWS has made several budget adjustments. It has applied for virement of funds to the National Treasury where infrastructure allocations from underspending projects are reprioritised to those which have the capacity to absorb. It has also received rollovers for R241 million for the Vaal intervention and performed cuts totalling R215 million as mandated by Treasury. Areas that were impacted by these adjustments included compensation of employees (CoE) and payments of capital assets.
Root causes for DWS challenges include:
-Misalignment and lack of planning, monitoring and evaluation
-Inadequate project management
-Inefficiencies caused by lengthy planning and procurement processes
-Irregular processes, fruitless and wasteful expenditure and non-compliance
DWS has undertaken remedial actions such as integrating and streamlining its systems with implementing agents, improving its organisational structure and establishing an Infrastructure Project Management Steering Committee.
Water Sales Debt
Between July and September 2019, the water sales debt increased from R14.8 billion to R15.2 billion. The average time taken by debtors to settle their accounts ranges from 175-180 days, exceeding the target of 150 days as per the APP. This is mainly due to non-payments to Water Boards and municipalities not paying DWS. DWS has recovered a total of R6.1 billion since April, however, historic debt continues to increase.
DWS has embarked on a campaign to recover payments from municipalities. It is in discussion with National Treasury and is awaiting legal opinion from the Accounting General concerning the renegotiation and possibility of writing off interest on overdue accounts. This was a key area raised by the South African Local Government Association (SALGA) and Cooperative Governance and Traditional Affairs (COGTA). An action plan to ring-fence funds to pay water and the deferral of interest payments is under consideration. Other actions include the top slicing of municipal grants.
Municipal grant allocation
DWS clarified that funds are allocated to municipalities through the Regional Bulk Infrastructure Grant (RBIG) and Water Services Infrastructure Grant (WSIG) which carry different allocation criteria. RBIG projects are allocated by DWS in consultation with municipalities following individual assessments. WSIG projects are allocated following the submission of business plans by municipalities to DWS.
Performance bonuses are given to qualifying employees based on formal assessments. The performance of DWS cannot be equated to the individual performance of employees as this is operational. DWS expects to disburse bonuses once assessments have been concluded which will increase overall expenditure.
Audit Action Plan
Following the qualified audit opinion of 2017/18, DWS has implemented specific corrective measures to deal with its challenges. It has curbed its commitments, fruitless and wasteful expenditure and irregular expenditure. It has improved its quality of performance information within its annual financial statements. Procurement and contract management processes remained unchanged as DWS continues to experience internal challenges and between implementing agents across the value chain. Progress has regressed in the area of water sales debt and accruals and payables, however, DWS aims to settle its overdraft bank balance by 31 March 2020.
As of 30 September 2019, DWS had transferred R553 million to provinces for RBIG projects against a planned transfer of R597 million. Municipality spending of grants was R189 million, a 34% expenditure rate. Challenges contributing to the spending rate are the impact of rollovers at municipal level and the timing of the disbursement of funds. WSIG transfers stood at R833 million against a targeted R883 million. Similarly, municipality spending stood at 26%. Allocations had been withheld for the North West, Northern Cape and Free State. Funds were withheld by DWS for material breaches of the Municipal Finance Management Act, significant underspending in previous transfers and no commitment from municipalities to implement current projects. The decision to withhold allocations was done as a last resort on Treasury approval.
Supply Chain Management
Mr Tshangana said that DWS faced the biggest challenges from the 6B grant projects. Procurement processes, verifications and project management inefficiencies were stifling performance in this area. On the contrary, 5B projects which are directly transferred to municipalities and implementing agencies had 71% expenditure, indicating better performance due to functioning procurement processes. The main challenge of 6B grant projects are legacy issues of lengthy verification processes which show a mistrust in the system. Projects managed directly by DWS require improved supply chain management and streamlined procurement processes.
As per the AAP, DWS has to account for approximately R15 billion in irregular expenditure. It is currently undertaking investigations alongside the Special Investigating Unit (SIU) to ensure that those responsible for this irregularity are held to account. The majority of irregular expenditure issues, fruitless expenditure and the overall performance of DWS emanate from inefficient supply chain management. DWS is confident that it will resolve this particular challenge before the end of the year.
Implementing agencies and water boards are performing well. Although municipality spending remains low, DWS is confident that they will recover before the close of the financial year.
DWS believes that it can still reach the project schedule deadlines. It will proceed with advanced infrastructure, particularly the widening of the road to ensure access to the site. It will appoint an environmental control officer and establish a site to accommodate project workers. DWS has completed a full project schedule and 96% of the design planning which it will present soon. Projected cost for Mzimbuvu stands at R14 billion, dam construction is estimated at R2 billion, the bulk of the budget is allocated towards establishing the water distribution network.
Mr M Tseki (ANC) thanked DWS for the improved presentation. He commented on language clarity in the presentation on trade debtors (slide 17). Who is the first to pay in the causal chain between municipalities and water boards? If DWS pay municipalities, municipalities then pay the water boards. He said it was important to identify which entity is the first in the causal chain which creates debt. He commented on the tabulation of the graph illustrating trade debtors and recovery movement (slide 20). He asked if trade debtors were zero in March.
He said that DWS had a multitude of projects which increases opportunities for wrong-doing and the misuse of funds for personal gain. In the past, the ANC government had allowed individuals to collect cheques from the office if they had been owed by Departments in order to identify wrong doers.
He asked, how far does DWS oversight of implementing agencies go? If the implementing agencies have demonstrated that they have the capacity to deliver projects, does DWS perform oversight to see if it can replicate what implementing agencies are doing successfully?
To his knowledge, National Treasury had not received any requests for drought alleviation in the Eastern Cape and other provinces, whereas a budget had been allocated for this purpose. Why were there no requests and what must be done to request money?
He asked if DWS had litigation that "crossed each other". He referred to the reasons funds had been withheld from municipalities such as the failure to comply with conditions of the grant framework. What are examples of the failures that are referenced? Can these failures be attributed to financial wrongdoing?
He noted that the Western Cape had not spent any of its allocated budget.
Ms E Powell (DA) responded by pointing out two of the municipalities in the Western Cape were run by Mr M Tseki’s party. She asked if there was an indication of when the annual report would be tabled because she was concerned that some of the AG’s findings may be impacting progress on the Quarter 2 expenditure.
There was extensive media talk on the recovery of municipal debt for water boards. Top slicing has been suggested as part of the financial recovery plan which would require the Public Finance Management Act coming to Parliament for amendment. A Business Day article had highlighted the positions of the Minister, National Treasury and SALGA on this. Are there ongoing engagements to solve the water debt crisis?
She had been informed that the Minister had had a Ministers and Members of Executive Councils Meeting (MINMEC) to discuss a potential 40% cut in grants disbursed to metros because of under expenditure – this included some that were spending. What was the intention of cutting grants?
At MINMEC it had been tabled that the Minister intended to transfer the reticulation of water from Local to the National Department. She asked for clarity on this matter.
Funds on the Vaal capital infrastructure project had been reprioritised to other areas. She asked what mechanisms were used by National Treasury to process the reprioritisation of grants.
Following visits to Ugu, uMkhanyakude and Alfred Nzo municipalities, she was concerned about the ability of district municipalities who do not fall under the purview of water boards to manage the supply and reticulation of water. She cited various instances where residents in Umtata had only one hour of water supplied, coastal towns which did not have water for up to 17 days and villages in Alfred Nzo which had never been provided with water reticulation services. How can the Committee assist such district municipalities to ensure that they are able to maintain and invest in water infrastructure to provide reticulation services to rural villages where they have never received water before?
Ms S Mokgotho (EFF) referred to the expiry of the Vaal river system maintenance contract and the threat this posed on the infrastructure. Why has DWS ignored its own legal advice to award the tender to a qualified bidder to ensure the infrastructure maintenance? DWS was currently maintaining Vaal system on an emergency basis, resulting in maintenance backlogs and increased pressure on the infrastructure. She asked why DWS continued to use expensive emergency procurement and how soon it would resolve this. Had DWS proceeded in appointing a service provider to maintain the Usutu-Vaal pump station despite being told it fell short of the emergency procurement criteria?
Ms N Sihlwayi (ANC) emphasised the lack of requests for drought assistance in the Eastern Cape. Why was this the case and who should be responsible for putting forward the request?
What bottlenecks was DWS experiencing about desalination?
She asked for the current status of the Rooiwal plant and if there was a link between its challenges and those experienced in Hammanskraal.
She asked how DWS would work together with the Department of Human Settlements following its realignment. What progress had been made in merging the two departments following the President’s proclamation?
She raised concern over the Mzimbuvu dam project which had become a recurring topic of interest. How much time will it take to fully resolve the project?
She commented on low rates of provincial expenditure ranging from 5%-29%. Why has spending remained low when communities are in dire need of water services? What is the DWS recovery plan for assisting these communities?
She asked for an extensive report on Giyani which had spent 25% of its budget.
The Chairperson said it was clear that the DWS was disbursing numerous grants, yet visible impact remained limited and supply and access to water continued to be a challenge across the country. Why are grants continually being disbursed to municipalities yet very little progress is being observed? Numerous boreholes had been drilled yet communities still did not have water. This was the opportune time to evaluate projects which were successful to ensure that necessary planning took place before the commencement of the Sixth Administration.
If municipalities have the capacity to provide water, why are they not receiving funds directly from National Treasury? Where is the blockage? In districts which cannot perform mandated functions, these should either be taken to municipalities, water boards or a qualified implementing agencies. How does the DWS have so many implementing agencies, yet it is failing to provide services to communities?
She acknowledged DWS efforts in building its internal capacity. She noted that construction is a winter programme and asked if DWS planning reflected environmental patterns.
She said that the Department of Human Settlements was clear on its conditional grants to provinces. It was unclear what DWS conditions were for women contractors. Was DWS able to put the 30% women contractors condition in legislation?
She said contractors had lodged complaints about the time it takes for municipalities to deliver payments. How can DWS tighten up procurement and payment processes to ensure they do not stifle project implementation?
Response by Deputy Minister of Human Settlements, Water and Sanitation
Deputy Minister David Mahlobo said Water Services Authorities are assigned functions through the Water Services Act and the Municipal Structures and Systems Act. In the past, DWS managed certain schemes. He said there were problems when districts were given authority but when difficulties arise, local municipalities are left alone. Prior to the allocation of functions, assessments are performed to determine capability. As part of its regulatory role, DWS is mandated to check if institutions that have been given the authority to perform functions still possess the capacity to continue doing so. When institutional assessments are not performed, DWS has no knowledge on if it should intervene in accordance with the Constitution or if it should assume the secondary function of reticulation. However, it is important to keep in mind that DWS is mandated to support provinces before it resolves to intervening.
He said DWS currently had too many projects and instances where infrastructure was developed without confirmation of a viable source of bulk water. This highlights the importance of addressing water security. If a source is not guaranteed, the development of infrastructure is pointless. In cases where a source is not guaranteed, what actions must be taken?
In order for DWS to be responsive, it is crucial that it builds its internal capacity. Expenditure patterns and the AG’s findings indicate that DWS needs to improve its management of contracts and projects. Capacity remains at the centre of the majority of DWS challenges.
Over time, officials have committed DWS to billions of Rands in projects without having confirmed the availability of funds. This has led to the accumulation of accruals, impacting the implementation of numerous projects. This is a challenge which DWS is committed to resolving.
Although implementing agencies had been performing well, it was important that they were continually evaluated. Oftentimes, when implementing agencies are unable to deliver, they contract other agencies to perform on their behalf, ultimately accumulating additional costs. This is why the Director General was making concerted efforts to improve the capacity of DWS.
On top slicing, Deputy Minister Mahlobo said government should always be cautious of communicating with each other through the media. In a previous joint meeting with COGTA, SALGA and two Portfolio Committees, DWS was told that its proposal was good and that it should approach Cabinet once it had finalised its plans. During this meeting SALGA had requested that DWS remain consistent if it was going to pursue top slicing. Ultimately, those who were meant to pay would pay even if this required resolution through the courts. This is crucial if DWS is to deliver on infrastructure projects.
The Deputy Minister said the answer he had given to the Chairperson’s questions was applicable to uMkhanyakude and Ugu. He had met with several municipalities in the previous week and had agreed on a plan on how DWS could provide support.
The Deputy Minister replied that DWS had made a commitment to the condition of enlisting 30% of projects to women contractors and asked that the Committee hold them accountable.
He explained that there is a general existing policy that if funds are not used, they are lost. If entities are performing well, they are incentivised to continue doing so based on their existing capacity.
Mr Tshangana said that although DWS had numerous small projects across the country, the fundamental challenge was about planning. Water services would be meaningless without confirmed water sources. DWS has a qualified team of experts who are able to elaborate on the status of water sources. The Lesotho Highlands project was being pursued to secure reliable water supply, following which reticulation could be addressed. DWS needs to look at all of its projects country wide and ask what problem each project is likely to solve.
On debt management, the Director General replied that there are linkages across all levels from the household level to the municipal level. It is important to establish if households within a municipality will be able to pay for water services, if not, municipalities are still mandated to provide water. In such cases, the gap is paid through the intergovernmental fiscal system. It is crucial to understand how struggling municipalities are managing funds transferred to them before resorting to cutting budgets. An inability to manage finances and service debt is ultimately indicative of capacity. There is a direct correlation between poor servicing of debt and poor management of the municipality. He singled out Madibeng as an example.
The Director General replied that there was no homogenous view on top slicing, even within National Treasury. There are still debates on how best to deal with top slicing and ultimately, how best to service debt.
He acknowledged that Mr Tseki was correct in recommending that the graph on trade debtors and recovery movement be revised. Its purpose was to demonstrate that DWS was not doing well with debt collection.
The Director General replied that the difference between DWS and implementing agencies was the ability to master the art of procurement and timeliness of service delivery. However, DWS cannot use implementing agencies for all projects; it is still mandated to manage 6B grants. The general rule is to conclude procurement processes for projects to be implemented in the next financial year by February to allow enough time to address any objections. He emphasised that the main challenge was supply chain management. A potential solution could be the creation of a panel of experts whose resource skills can be continually used over a long-term period, eliminating the need to procure each year. DWS has identified supply chain as its major challenge.
On litigation and maintenance contracts, he said it would not be wise for DWS to comment because there was a service provider threatening to take DWS to court. He said the bigger issue was the R15 billion in irregularities within the procurement process.
DWS is concerned about emergency maintenance. It is looking to secure three-year contracts which have been vetted by internal audit.
The Director General had recently visited with the leadership of uMkhanyakude and confirmed that a pipeline project between the municipality and Zululand had been concluded. It was now planning the Jozini dam reticulation project which it was discussing with uMkhanyakude. The municipality revealed it may need assistance with running the procurement of this project.
It had been noted that municipalities often rushed into contracting the drilling of boreholes before determining bulk water supply which in some cases was unavailable. This was an example of fruitless and wasteful expenditure.
The Director General said that it was crucial that the condition requiring the contracting of 30% women be documented in the Division of Revenue Act to ensure that it is honoured by Heads of Departments. It must be approached as a policy issue which requires legislative enforcement.
DWS was projecting a decrease in surface water usage and a subsequent increase in desalination and ground water. He acknowledged the initial high capital costs associated with desalination; over time these are expected to taper down. A key challenge is the contractual dispute between the City of Cape Town and a service provider contracted to do desalination. A similar project is being implemented in Richards Bay.
The Deputy Minister suggested that the Committee and DWS agree on the frequency of Rooiwal waste water treatment plant reports. He admitted that there had been challenges with the waste-water treatment works system which was not working. A contract had been issued to fix reactors, but this did not mean water would be clean immediately. Provisions had been made for water tanks in the meantime.
Mr Tshangana said they had met with the Acting City Manager in Tshwane and there were plans to enter into a service level agreement with Magalies Water for water purification. On the waste water side, they planned to utilise East Rand Water Care Company (ERWAT) for treatment. The only challenge was to ensure that funds are not shifted away from Tshwane. His recommendation was to potentially raise the budget by an additional R2 to R3 billion to successfully implement all of these projects.
Ms Powell requested a follow up on when the Committee could expect the DWS annual report.
Mr Tshangana replied that DWS had been called by the Standing Committee on Public Affairs (SCOPA) on when it would finalise its annual report. It had concluded the Main Account audit in August, however the WTE component had not been concluded. This is because the AG is auditing the Trans Caledon Tunnel Authority (TCTA) for the first time which has presented many unanticipated challenges. DWS is positive that the audit will be concluded in two weeks with a clean bill.
The Chairperson stated that she was adjourning the meeting.
Ms Powell interjected to say she had a follow up question. She said that the meeting was listed until one o’clock and that debate should not be stifled in Committees.
The Chairperson continued to insist that the meeting was adjourned.
Ms Powell continued to emphasise that the meeting was listed to run until one o’clock and that she had a follow up question to pose. She said Committee meetings had been cancelled on three consecutive Fridays and that there were National Departments to deal with.
The Chairperson thanked DWS and released them from the meeting.
Ms Powell vehemently stated that she would be escalating the issue to the Chair of Chairs because the Chairperson was choosing to adjourn the meeting before the allocated time. The Committee had two National Departments to deal with and meetings had been consistently cancelled on Fridays. She said as a Member of Parliament she was entitled to ask officials questions.
The Chairperson asked DWS to leave so that the Committee could proceed with the approval of minutes.
Ms Powell responded that it would take only five minutes to approve the minutes. She restated that the Committee had two National Departments it had to oversee and that meetings had been consistently cancelled on Fridays.
The Chairperson interjected and said Ms Powell often left meetings before the agenda was finalised.
Ms Powell interjected and stated that the reason she was not at the previous meeting was because she was in uMkhanyakude.
The Chairperson was vehement that the meeting would proceed whether or not Ms Powell decided to stay.
Ms Powell insisted that the Chairperson could not adjourn a meeting if members had further follow-up questions. She said this was unacceptable. She specifically requested that the Parliamentary Monitoring Group (PMG) record her objection as she would be issuing a national media statement and escalating this to the Chair of Chairs.
The Chairperson demanded that Ms Powell proceed with those actions.
Ms Powell stated that the nation was in crisis and its water services were collapsing. It was unacceptable that the meeting was being adjourned before further questions could be asked. She then left the meeting.
The Chairperson said it was unacceptable for members to leave before the agenda was finalised and to expect the Committee to make accommodation. She invited the Committee to adopt the minutes.
The minutes for the meetings of the 22 and 25 October 2019 and 12 November 2019 were adopted.
The Chairperson declared the meeting adjourned.
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