Department of Water Affairs Annual Report: discussion

Meeting report

WATER AFFAIRS AND FORESTRY PORTFOLIO COMMITTEE
12 November 2003
DEPARTMENT OF WATER AFFAIRS ANNUAL REPORT: DISCUSSION

Chairperson: Mr J van Wyk (ANC)

Documents Handed Out
DWAF Annual Report 2002/2003
Analysis of DWAF Annual Report for 2002/2003
Annual Report presentation of 10 September 2003
BEE and SMME Promotion (Appendix)

SUMMARY
The Committee discussed the Department of Water Affairs Annual Report 2002/2003.The Chairperson pointed out that an annual report of any government Department should be prepared in terms of the Public Service Regulations of 1999 and the Public Finance Management Act. He would link the report to the strategic plan and the budget for that specific financial year and assess how the current report compared with that of the previous year.

MINUTES
Mr Muller (Department Director General) made a preliminary remark about the briefing scheduled for 2003/11/19 on the Strategic Framework for Water Services. He indicated that the analysis of the DWAF Annual Report was substantial because it harboured implications for water delivery. With regards to a response to the Committee's research document, he explained that a comprehensive and careful report could only be forwarded within the context of the Department's Strategic Planning Cycle concerning planning, budgeting implementation and reporting. In this cycle the budget appeared to always be the main factor of constraint.

Mr Muller referred to the additional questions posed by members arising from the Annual Report presentation of 10 September 2003. Please refer to attached document.

Discussion
Mr Muller gave some background information as to why the AG's audit report reflected negatively on the Department's accounts. The Department was saddled with the old Finance Management System (FMS), a very basic accounting system (BAS) that was cash based. Management, for sound economic reasons, made the decision then, not to introduce a completely new financial system with expensive software; rather, they would opt to converge with the new accounting system introduced by Treasury. That process was under way and once completed, it would align the Department with the Public Finance Management Act (PFMA) and offer a complete change in accounting methods and standards. Mr Muller envisaged compliance with PMFA in two years time.

Mr Muller conceded two other points made by the AG. Firstly, that management failed to conduct proper inventory procedures. He blamed it on the fluid management circumstances at the time. Secondly, that it was uncertain if the state would recover loans (R262, 6m) made to various institutions. The Department could not make a formal statement at the time because they were in consultation with Treasury and the other stakeholders. Apparently most of the disputes have now been resolved.

Mr J Arendse (ANC) asked if the R262,6m had been recovered from water user associations (WUA).

Mr Muller was uncertain about the Minister's of Finance announcement of what the adjustment estimates were. Treasury, after full consultation with them, gave the Department some money that would pay off some unrecoverable debts subject to WUAs, who owed the government money, signing agreements confirming that they would pay the balance.

Mr Van Wyk (ANC) commended the Department for much improved performance, generally, but reminded the members that the issue of the management of financial accounts was in the previous two Annual Reports too and that SCOPA made a recommendation in this regard. He urged the DG to address the matter with urgency because it was clouding an otherwise well-organised department.

Mr Muller appreciated the concern expressed by Mr Van Wyk. He said that he would shortly appoint a senior official, specifically to take responsibility for managing the national water infrastructure, the largest operational activity in the trading accounts. That person would set up a ringfenced unit that would be accounting completely separately to the rest.

Mr Muller confirmed a follow-up assertion by Mr Arendse that the outstanding debt was not recovered but that the Department intervened to put mechanisms in place for this purpose.

Chief P Mathebe failed to understand how the Department could extend loans to borrowers.

Mr Muller said it was impossible for government to guarantee repayment, He would not take responsibility for, except for one, agreement reflected that was entered into prior 1994. It was the policy of Treasury not to enter into guaranteed transactions with WUAs any further although Impala was an exception because of facilities put in place prior 1994.

Mr M Phala (ANC) asked if a new/updated or supplementary report was forthcoming.

Mr Muller replied that although this would not be the case, he would agree to keep the Committee advised of progress made.

Explanation on Under-spending
Mr Muller referred said that the unspent amount of R82m members were concerned about, accounted for 2% of the budget. He asked that members took cognisance of the annual reporting system that reflects the situation 31 March annually. In terms of the current financial system, when work had been done but payment not effected because of paperwork issues such as late invoices, the Department would request of treasury to rollover the amount and pay in the next financial year. Mr Muller confirmed that the bulk of that rollover amount reflected as unspent which was R72m had now been spent. The ideal was to spend as close to 100% but to avoid overspending. With R10m in hand - 0,3% of the budget, the spending appeared reasonable, in his opinion.

Mr Maimane asked for two issues to be clarified. He asked where the revenue came from because there was a report at one stage which indicated that Water Boards were unable to repay the Department and problems in Water Boards themselves. Secondly, the extension of contracts of sanitation services providers.

Mr Muller referred where the trading account showed an increase in water sales revenue. He reminded members that the Department was in the business of selling water and could not accurately predict the volume of sales. It could only be established at the end of a financial year how much water was actually sold. Sanitation, he said, was not about building toilets only but entailed a holistic programme that covered factors such as health, skills provision for self-sufficiency. Professional service providers were contracted to implement these programmes that would deal with the broader issues surrounding sanitation.

Mr Van Wyk asked about the Environmental Conservation Act, in particular, the issuing of permits by the Department on waste and landfill sites.

Mr Muller conceded that it was still part of their legislative mandate and this and other pieces of cross- legislation should be noted.

BEE Procurement Targets
Mr Muller referred to a statement (appendix) on the Department's procurement of goods and services to assist the understanding of members as to how BEE and SMME targets had been exceeded.

Mr Arendse expressed appreciation for the progress in this regard and encouraged the Department to do even better.

Catchment Management Agencies (CMA)
Why was the establishment of certain Catchment Management Agencies (CMA) taking so long?
Mr Muller was aware of this regular concern of the Committee, however, he said that the legislation was very carefully written because it never suggested any timelines with the realisation that the establishment of CMAs could take up to as many as twenty years in certain areas. Legislation also provided for not forcing institutions to establish agencies in areas where there was no need for, and, secondly, where they were not ready to manage them. Progress has been made in this regard and the idea was to have a consultative process ongoing to ensure well-established functional CMAs with there own sources of funds in terms of the pricing strategy.

Mr Arendse posed an environmentally related question. He asked how many catchment areas, were existing, and catchment areas were foreseen to exist, would fall within protected areas in terms of the Environmental Management Protected Areas Bill? What interaction existed between the two Departments concerned in this regard?

Mr Muller regarded the environment as an important user of water. As far as he was concerned, the managers of these protected and catchment areas were regarded as another set of water users who would have to negotiate with the CMA on their water supplies. There might be disagreement amongst the various stakeholders as to how water usage should be prioritized. The interaction level between the Departments appeared reasonable.

Mr Van Wyk commented about the slow progress in transformation with regards to the establishment of these and other institutions/associations generally.

Mr Muller said that the Department was weary of imposing propositions. They would prefer communities to become motivated enough to take it upon themselves and realise the need to establish and participate in these institutions/associations.

Mr A Nel (DA) asked what happened with the levies paid to the Department by water users.

Mr Muller said the issue was of critical importance because this question was frequently asked by various entities including Agri SA, where the money was being used. In the current Annual Report it was not reflected but the intention would be to spend the levies collected within the area of the user. This would be a good opportunity for future CMAs to gauge what kind of levies were being collected in their areas of interest.

Access to water rights around dams like Loskop and Georgini
Mr Muller said that there was no shortage of water around Georgini Dam for agricultural use. Agricultural development to use the water was lacking. DWAF could only go to some extent to promote water usage for farming projects but they were not in the position to deal with land tenure, farmer support, financing for farmer project establishment. A new co-ordinating mechanism that flowed from consultation with Land Affairs was now in place to encourage closer co-operation.

The situation around Loskop Dam was very different because all the available water was being used. The challenge appeared to be how to extend access to the water. There were two kinds of access - drinking and secondly, agricultural (existing and emerging farmers). Mr Muller foresaw the implementation of compulsory licences in the next three or four years. However central to the issue was the question of ownership of land for agricultural use because water for agricultural use could not be allocated to a landless applicant.

Chief Mathebe strongly disagreed with Mr Muller on Loskop Dam. He insisted that the dam was always full of water and questioned the engineering sense employed by the Department with the transport of water in the area, a sentiment also expressed by Mr Maimane when he later referred to the problem of interruptive supply in the North West Province.

Mr D Mabuyakhulu (ANC) agreed with Mr Muller that the water in the Georgini Dam for agricultural use was not fully utilised. However, he expressed serious concern about communities living around the dam that has to travel ten kilometers to fetch water for human use.

Mr Muller said that water for human consumption was always a priority. However, the fact that there was lots of water in a dam did not necessarily mean that it was the best source of supply. It would depend on the situation and in this case there seemed to be a history attached to the water supply arrangements he would not entertain during this discussion.

Mr Nel was concerned about the lack of co-ordination between Water Affairs and Agriculture because other things such as land reform and emerging farmers were affected negatively. He called on the Committee to become directly involved with the stakeholders as a catalyst to move matters forward.

Mr Van Wyk, in summarising the above concerns, asked Mr Muller to seriously investigate the problems surrounding water supply in the rural areas, especially Limpopo Province. He acknowledged the request.

Subsidy amounts paid to farmers on DWAF funded irrigation projects
Mr Muller agreed that the matter deserved attention and in he was in consultation with other governmental stakeholders, they agreed that the target be reduced from R80k to R50k to be more reasonable amount that matched the agricultural program very well.

Racial Breakdown of Beneficiaries of the above schemes
In this regard Mr Muller reminded that a submission was made previously and suggested a co-ordinated effort with Agriculture for broader discussion of opportunities and further relevant information. He would welcome guidance in this regard.

Mr Maimane told of his encounter with the National African Farmers Union who complained of being discriminated against. He would prefer the Department to issue a full report on emerging farmers and a breakdown format on subsidy allocations and how emerging black farmers are benefiting from the scheme. This would allow the Committee to form a holistic picture of transformation in the sector.

Working for Water Project in Mpumalanga
Mr Muller presented a breakdown of the Working for Water programme operational in Mpumalanga.

Chief Mathebe was unhappy with the fact that the fourteen programmes were not spread across the province and asked that the Department to investigate the problems communities were experiencing in other areas too.

Mr Muller agreed that it was an ongoing problem that needed attention. He would ensure that the matter was raised with the Working for Water project management and communicate more clearly. Part of the reason for the problem seemed to be one of co-ordination.

Mr Maimane reminded that two questions had consistently been raised in the Committee since his participation in 1999. Firstly, how people could access the Working for Water projects and secondly, the employment situation, in particular, their conditions of employment in the project.

Mr Muller agreed that there was a sense that local government applied for projects but were never sure about the how it was decided whether they got it or not. Greater clarity was needed in this regard. With respect to the employment of people on the project, he needed more preciseness because the same conditions did not apply across the board for the different categories of employees. In fact, the Department was moving away from permanent employment because of the restructuring process underway in government.

Mr M Masala (ANC) asked if Mr Muller could offer a comprehensive evaluation of the Working for Water project.

Mr Muller identified three issues to be addressed: to justify the reason for allocating funds for the 14 Working for Water programmes .How Working for Water funding is prioritised across the country and a presentation of the evaluation of the Working for Water programme to determine its future viability.

Signed Agreements of water supplies in the mining industry in Limpopo
Mr Muller assumed that the concern centred on whether the agreement between DWAF and the mines, the main user of that Water User Associations, made provision for community interests. He confirmed that in terms of the agreement to build a pipeline, the Lepelle WUA was only given permission to do so on condition they made provision for water to communities along the way. Because some of the water was intended for the communities, the government contributed financially for that part of the project.

It appeared that further clarification required by Mr Phala, would be addressed at a forthcoming presentation.

Meeting was adjourned.

Appendix
BEE AND SMME PROMOTION

The Department has implemented the Preferential Procurement Regulations 200 1
pertaining to the Preferential Procurement Policy Framework Act, 2000 (Act no.5 of
2000). The procurement policies have also being brought in line with these
Regulations.

The Department has promoted the appointment of Professional Service Providers
(PSPs) with the inclusion of Historically Disadvantaged Enterprises and Individuals
(HDEs and HDIs), by:

i.) Allocating points for HDI participation on every project;
ii.) Encouraging Joint Ventures between non-HDEs/HDIs and HDEs/HDIs aimed at capacity building and skills transfer;
iii.) Ensuring that work is rotated amongst as many PSPS as possible; and
iv.) Encouraging geographic allocation of work where small contracts are involved.

The Department is also in the process of compiling its own BEE Strategy Document, which will be ready for implementation on 1 April 2004.

For the 2002/2003 Financial Year the Department has awarded 328 contracts to Professional Service Providers (PSPs) at a total cost of R238 750 763, 00.

Fees earned by HDIs were R87 190 184, which represents 36,5% of the total cost. The figure has increased from the 2001/2002 Financial Year of 32,8% and should increase to at least 40% during the 2003/2004 Financial Year.

The total cost of contracts awarded by the Department for normal goods and services for the period 1 April 2002 up to 31 March 2003 were R269 004 044,78. The percentage of the value placed with HDI suppliers on the 80/20 preference point system were 16,14% and 15,38% on the 90/10 preference point system in terms of the Preferential Procurement Regulations (PPR).