Water & Sanitation Portfolio Audit Outcomes; DPME assessment of DWS performance; DWS & Trans-Caledon Tunnel Authority Annual Reports 2021/22; with Ministry

Meeting report

Auditor-General of South Africa (AGSA) on the audit outcomes of the Department of Water and Sanitation (DWS) and its entities for the 2021/22 financial year

Ms Jolene Pillay, Senior Manager, Office of the Auditor-General, outlined the mission and strategic goals of the AGSA. She said the AGSA improved South Africans' quality of life and well-being through facilitating oversight, accountability, and governance in the public sector. The AGSA conducted independent quality audits to assess government's compliance with laws and its use of public resources. This had an impact on the stability and strength of South Africa's constitutional democracy. In addition, the AGSA promoted accountability and good governance by assisting the legislatures and other relevant authorities with oversight in the national, provincial, and local government spheres.

In South Africa, a developing country, the water sector had a significant impact. Sustainable Development Goal 6, Clean Water and Sanitation, required all people to have access to safe drinking water and proper sanitation. This was also supported by the Constitution, which stated that the state must take reasonable measures within its available resources to ensure the goal was met.

Audit Outcomes

For the 2021/22 financial year, the DWS received an unqualified audit opinion with findings. The Water Research Commission (WRC) received an unqualified opinion with no findings - a clean audit. The TCTA and the Water Trading Entity (WTE) received unqualified opinions with findings. 

Findings

The AGSA analysed the National Water and Sanitation Master Plan, the strategic plan and the annual performance plan and linked this to the Medium Term Strategic Framework (MTSF) and the Estimates of National Expenditure. 

The AGSA reported that one key indicator in the MTSF was not included in the Department's annual performance plan - eradication of the bucket sanitation system.

In the 2020/21 financial year, the Department allocated R292 638 000 to the Regional Bulk Infrastructure Grant (RBIG) for bucket eradication in the Free State and Northern Cape. However, only R48 939 000 (17 percent) was spent. There was no indicator in the annual performance plan to measure this key priority of the Department.

The delay in finalising this project meant that a significant part of the South African population continued to experience the hardships of using a bucket system in the 21st century. The lack of a target resulted in inadequate planning for the implementation of the project. There was no monitoring of the implementation.

The reporting on and monitoring of this key government priority was critical to ensure corrective action was taken to achieve the targets set by the government for the overall eradication of the bucket sanitation system. The lack of proper sanitation directly affected the dignity of the citizens. 

The AGSA commended the WRC for maintaining its clean audit opinion. Financial and performance management reporting controls and disciplines should be leveraged to assist the other entities.

The AGSA found that the DWS dealt effectively with the qualification of training expenditure and payables. It should continue strengthening internal controls to prevent material errors in the accounting for various disclosure items. Training of responsible staff members was necessary to prevent irregular expenditure. The AGSA noted the positive change in management of the Department and the priority of finalising investigations. However, it was recommended that irregular expenditure analysis continue to be prioritised and that significant allegations against officials be fast-tracked to ensure that consequence management was effectively and appropriately implemented.

The WTE’s audit outcome remained stagnant from the prior year. It was prevented from progressing to clean audit outcomes by inadequate improvements in the overall control environment and ineffective monitoring of audit action plans. Controls on compliance with legislation must be strengthened. Reviews of the financial statements should be enhanced to ensure that reliable financial statements are produced.

The TCTA remained stagnant from the prior year. Controls on compliance with legislation needed to be strengthened. Audit action plans should be implemented effectively and monitored to prevent repeat findings. There should be proper quality reviews of financial statements prior to submission for audit to prevent material misstatements from being corrected through the audit.

Concerning the Lesotho Highlands Water Project (LHWP) project, there should be continued engagement with the Government of Lesotho, through the Lesotho Highlands Water Commission, to ensure that the issue of overpayment of royalties on the LHWP was concluded and accounted for appropriately. The executive authority and accounting officer must also ensure adequate and timely documentation supporting the LHWP transactions is received monthly. 

The WRC achieved 100 percent of its annual performance targets, the TCTA achieved 75 percent and the DWS achieved 65 percent.

The AGSA said it was highly notable that the DWS had a significant amount of underspending amounting to R2.5 billion. It was recommended that the DWS and the TCTA find the root causes for the non-achievement of targets.

See attached for full presentation

Department of Performance Monitoring and Evaluation (DPME) briefing: DWS performance

The DPME briefing started with an explanation of the approach and methodology used in assessing the performance of the DWS for the 2101/22 financial year. (See slide presentation.)

In terms of the six outcome indicators, the DPME reported that the DWS had made significant strides in the fulfilment of projects for:

• The protection and restoration of ecological infrastructure (outcome 1). This ensured the implementation of interventions to protect water resources and ensure pollution control and rehabilitation.
• Effective management of water and sanitation services (Outcome 4) through the development of strategies and provision of support to water and sanitation services institutions for the provision of sustainable services, the development of new infrastructure, and the refurbishment of ageing infrastructure.
• Enhanced regulation of the water and sanitation sector (Outcome 5).

Interventions that still required attention involved water redistributed for transformation through regional water utilities and water user associations.

Performance against the 2019-2024 MTSF

Delays in implementing the bucket eradication programme were mainly due to the lack of bulk infrastructure to connect waterborne sanitation. However, over the past two years, the Department had invested in the construction of bulk infrastructure which was currently at various levels of completion.

There was also a draft national sanitation integrated plan and draft provincial action plans for all provinces to address sanitation failures.

There were interventions to address delayed implementation of district municipalities’ five-year reliability implementation plans and refurbishment projects.  

Key achievements

The DPME reported that, through the Infrastructure Fund, work had begun on the Water Infrastructure Programme. A total of R78 million had been allocated for project preparation. A project management office would support municipalities with capacity building and expertise to develop their own blended finance water projects. Ongoing support was being provided to the DWS to ensure the right mix of financing resources was adopted.

The Green Drop Programme was relaunched and 995 wastewater treatment works were assessed for compliance with Green Drop regulatory requirements.

Water treatment works were assessed for Blue Drop risk rating in preparation for the Blue Drop assessments to be conducted in the 2022/23 financial year.

There was an increase in monitoring non-compliant water and wastewater systems to improve drinking water quality, effluent control and protection of public health.

Persistent Challenges

The DPME said there was a threat of a water crisis in South Africa due to insufficient investment in water infrastructure; poor maintenance of existing water infrastructure; recurrent droughts driven by climatic variation; inequities in access to water and sanitation; and a lack of skilled water engineers.

As at the end of March 2022, the total allocation for the Municipal Infrastructure Grant (MIG) had been transferred to municipalities. Municipalities reported a total expenditure of R11.8 billion - 75 percent of the total MIG allocation.

Expenditure was inadequate to address huge backlogs in rehabilitating or replacing aged infrastructure. Underinvestment in repairs and maintenance led to ageing infrastructure with high water losses. There was a lack of capacity to deal with technical and non-technical losses. Losses were incurred through tampering with metering equipment and inaccurate metering. The average water loss across the country above the 30 percent norm stood at 50 percent.

Altogether, 84 percent of the 114 municipalities that were water services authorities incurred water distribution losses totalling R9,82 billion.

Some of the challenges resulted from rapid and unplanned urbanisation which was putting a huge strain on the infrastructure.

Effects on citizenry

The DPME said a lack of adequate infrastructure led to poor service delivery and the decline of resources.

Businesses were threatening to close down due to long-standing water and electricity disruptions in municipalities, leading to job losses and overall poor living conditions.

There was a relationship between poor debt management by municipalities and service delivery. Paying residents were indirectly affected by the poor payment culture in communities. Municipal consumer debts increased to R255.2 billion as at 31 March 2022 from R230.7 billion the previous year. Households accounted for 68 percent of this debt.

Dysfunctional water boards

Governance was a major issue at most water boards. Instability at executive and board levels influenced all other key areas of performance.

Municipal debt was one of the primary challenges confronting water boards. Poor governance and debt management within municipalities had a ripple effect on the viability of water boards.

Research showed that only three of the nine water boards - Overberg, Rand and Umgeni - were assessed to be technically efficient after considering four variables: expenditure, bulk water tariffs, water losses and volumes sold.

There were high levels of inefficiency at the six smaller water boards - Amatola, Bloem, Lepelle, Magalies, Mhlathuze and Sedibeng Water. There was wastage in expenditure of R3.7 billion according to the 2018/2019 audited annual reports.

The provision of water and sanitation as a business had for a long time not been feasible. Water resources were severely under-priced and cost recovery was not being achieved. High operating expenditure and poor cash flow resulted in ineffective operations and poor maintenance. Water boards needed to conduct a detailed review of their expenditure and operational costs and benchmark against the efficient water boards.

To achieve efficiency, consideration should be given to merging smaller to medium-sized water boards operating on a less than optimal scale into large regional utilities. In line with this, the DWS initiated the realignment of water boards and proposed the disestablishment of Sedibeng Water.

Recommendations

The DPME recommended that the Portfolio Committee support critical infrastructure investments in the water sector and monitor whether allocated capital expenditure was appropriately spent on identified projects, within the planned project timelines, across the three spheres of government.

The DWS should establish mechanisms to address the backlog in maintaining and refurbishing critical infrastructure across the board. The DWS, in collaboration with other departments, should support the urgent need for municipalities to attend to water leaks and address issues of water pressure.

The DWS should ensure water and sanitation management through continuous Blue Drop and Green Drop Programme monitoring.

The DWS should fast-track the implementation of the National Water and Sanitation Master Plan, which was critical to addressing water security concerns.

It should explore institutional realignment through rationalisation and merging of less optimal water boards into larger regional utilities to unlock expansion of services.

See attached for full presentation

Discussion

Mr G Hendricks (Al Jamah-ah) referred to the recommendation about the need for more investment in infrastructure. He used the example of Bushbuckridge, where he said there was a 60-kilometre asbestos pipe from which people accessed water. It needed to be replaced. The Committee could not allow asbestos pipes to poison South African communities. The Deputy President, Mr David Mabuza, had installed water meters and stands in every yard, yet not a drop of water had been received by the community of Bushbuckridge. As a result of poor infrastructure. Community members extracted water from the asbestos pipe without having to pay for it.

The people of South Africa should pay for services rendered through the infrastructure built for water and sanitation. The municipalities were struggling. The South African Constitution stated that people must have access to water, but Al Jamah-ah sought to change that Constitution. It is believed that people must have a right to water. Every Minister must fall on their sword for violating the Constitution by not carrying out their mandate. Previous portfolio committees must also apologise to the nation for not doing proper oversight. The current Portfolio Committee on Water and Sanitation has shown that it would do proper oversight and give meaning to peoples’ constitutional right to have access to water. 

In South Africa, many villages did not have water. They competed with animals to get water. That was not right. The report was appreciated as it would bring about the necessary changes.

Ms R Mohlala (EFF) asked if the DPME had done any case study on monitoring and evaluating the use of the district development model. This was seen as one of the possible solutions to deal with challenges associated with concurrent functions and intergovernmental relations. Concurrent water and sanitation functions presented huge challenges in service delivery and sustainable infrastructure development.  

Although the DPME maintained that it was assessing performance for the 2021/22 financial year, its presentation had graphs that showed 2020 figures. Where was the quarterly monitoring and assessment of the DWS for the  2021/22 financial year? 

How did the DPME monitor and evaluate information provided to them by the DWS? Based on the report, it seemed that the DPME only reported information provided by different departments without verifying that information. The section on water boards was a generalised input from various sources but not directly from the annual performance plans and annual reports of the affected entities.

The AGSA presentation highlighted that, in many instances, the material irregularities far exceeded the ones reflected in the final audit. The AGSA requested changes to be made after the discovery of discrepancies. How sustainable was this approach as it showed huge internal challenges that needed to be rectified? 

The Chairperson asked the Department to understand that Members’ questions intended to formulate views. Should it feel that the presentations had been misinterpreted, it should engage with Members to correct wrong perceptions. The AGSA’s findings showed that a lot of targets were missed. The Committee would have to engage with the Department about this. 

Ms G Tseke (ANC) commended the work of the Water Research Commission for obtaining a clean audit report. Portfolio Committee members had been struggling with the internal controls and the financial performance of the DWS. The report showed that there was improvement. There were still challenges but there was progress.

The bucket eradication programme had been ongoing for a while. The report showed that there was no significant improvement. The DWS had set a target for March 2023. How feasible did DPME and AGSA think that was, especially in the two provinces mentioned? The DWS had set targets higher than those in MTSF. What was the reason? Was it not setting itself up for failure? Most of the targets had not been reached. The DWS allocated R15 billion to the Umzimvubu Project. It spent only R131 million - which did not even provide value for money. Could the AGSA or the DPME provide more information on that? 

Government had trained a substantial number of students to assist with the War on Leaks programme. The students were still unemployed. How could the government assist municipalities to absorb the students to deal with water losses? It was of no value to train youth and not find suitable positions for them.

The AGSA has noted a need for the DWS to fast-track investigations. However, most investigations within the Department were referred to law enforcement agencies such as the SIU and SAPS. Was there an alternative way to fast-track these investigations? 

Ms N Sihlwayi (ANC) said she appreciated the reports of both institutions. There was a clear assessment of how the Department was progressing. There were also recommendations for the Department and the Portfolio Committee to consider.

Did the AGSA believe the district development model could assist municipalities’ functions and the oversight role of the national Department? The delays and non-implementation of the bucket eradication project were painful. What strategic recommendations could the AGSA present to Members? The DPME and the AGSA had raised concerns about this area. Having analysed the weaknesses of the DWS, what were the recommendations to combat this lack of service delivery?

There was a silo mentality in government structures such as the SA Local Government Association (SALGA), National Treasury, and the Department of Cooperative Governance and Traditional Affairs (COGTA). These structures should be working together to support the DWS.

Value was created in the Umzimvubu project. During the Portfolio Committee’s oversight visit, Members noted that money was spent on road access. The Members asked what road access had to do with the river. There were concerns about how the river developments would unfold as huge money went to road access. Was the overpayment going to the dam development that the Committee wanted to see? 

The DPME had revealed that six Water Boards were ineffective. The Water Boards received huge amounts of money as entities that supported the DWS. It was painful to hear of their ineffectiveness. There was a proposal that the DWS should consider realignment and rationalisation for bigger water boards. How would enlarging them assist if they could not perform as they were? Did the DPME believe that the DWS had internal monitoring structures? Was there a link between those structures and the DPME?

AGSA responses

Ms Pillay stated the AGSA was concerned about the three entities DWS, WTE and TCTA, as material errors were noted, not only in 2021/22, but also in previous years. Many internal challenges needed to be addressed. For the DWS, many issues arose from the disclosure items that supported the financial statements. 

The TCTA had been made aware that one of the issues was the unsupported figures submitted for the Lesotho Highlands Water Project. The information, at times, arrived very late, which affected the financial statements. There should be some intervention to get the information in a timely manner.

The bucket eradication programme was not a specific audit selection for the 2021/22 financial year. When the AGSA conducted an audit, projects were selected. However, the AGSA also noted challenges that might be consistent in all programmes. The recommendations for the RBIG projects would also be relevant to the bucket eradication programme. The onus was on the Portfolio Committee to consider the recommendations as it assessed the other projects the DWS was busy with. The root causes for the delays identified needed to be addressed. Some recommendations were made on projects but were not specific to the bucket eradication project.

The review by the AGSA looked at the requirements of the MTSF. They showed the minimum that needed to be achieved. The higher targets of the DWS were not revealed to the AGSA.

The War on Leaks programme received huge investment. During the audit, it was discovered that the DWS hoped municipalities would employ the learners. However, there was no official agreement with them. That was the weakness of the project. No MOU was signed. There was no formal process to integrate the learners into formal employment at the municipalities.  

It was not necessary for investigations to be carried out by law enforcement agencies. They could be done internally as well. There was an investigation unit within the DWS. This unit handled a lot of irregular expenditure cases. There were, however, delays with these investigations which impacted the AGSA findings. 

The AGSA had noted the silo mentality within government structures. The AGSA intended to look at different levels of government that were responsible for the water sector. Audits of water boards were currently in progress and the challenges faced by them would be revealed soon. The aim was to look at service delivery at all levels of the water sector. The findings would be presented to the supporting departments for their input. 

Mr Tendani Mafunyiswa, Senior Manager: Regulatory Audit, AGSA, responded to questions about the Umzimvubu project.  

The AGSA received an inception report from the DWS. The Inception Report was compared with the progress report of the Umzimvubu Project. It was discovered that the Department had spent more than what was in the inception report. There was overspending of R131 million on the design phase of the project. Management was aware of the issue and had since halted the project and started with an internal investigation to address overpayments before the project could continue.

Mr Mafunyiswa said material irregularities were identified in the Hazelmere Dam project. They were linked to the site establishment costs and time spent on the project. There were delays in procurement of load cells. The delay resulted in time fees and the contract ended and was not extended. The contractor terminated the contract. There were costs associated with reinstating the contract. Again, there were more site establishment costs because the contractor had taken all their construction materials. The time spent waiting for load cells led to more costs.

The Chairperson asked why, if the contractor had terminated the contract and even taken away its construction material, the contractor was being paid for “standing” while working elsewhere.

Mr Mafunyiswa said the time cost was incurred before the contract was terminated.

DPME responses

A DPME representative, Ms Mpho Banda, said the DPME was involved in various projects throughout oversight departments, such as COGTA and National Treasury, which were overseeing the implementation of the district development model (DDM). The DPME found itself in various discussions about the implementation of the DDM. It had units which performed various duties to support the implementation of the DDM. The DPME had been supporting the Deputy Minister in the Presidency, Ms Pinky Kekana, in the district for which she was the DDM champion. A DPME unit had undertaken a study of one of the plans for the district which dealt with projects related to health, waste management, sanitation and electricity.

The steering committees involved contributed to intergovernmental relations. The DPME did

assessments as part of its Local Government Improvement Model to understand the struggles that were faced by local municipalities of that district, particularly around the water and sanitation services. The DPME was therefore able to report and come up with ways to address the challenges and explain the concurrency of functions. 

On the graphs that showed 2020 findings, she said the DPME methodology and approach used various sources of data. It also conducted site visits. The 2020 information was published in the 2021/22 financial year. Stats SA collected data and released it the following year. The 2020 information was therefore relevant to the 2021/22 financial year. 

To answer the question about monitoring of projects, the DPME did get involved in various projects but, due to issues of capacity, not all projects. One of the projects in which the DPME was partly involved was the Olifants River Management Model, which will be launched in Limpopo. The project looked at the provision of potable water and sanitation in areas severely affected by water challenges. The DPME, in collaboration with the DWS, identified water and sanitation projects and monitored whether the projects were indeed implemented. The DPME used various methods of validating the work that it reported on. 

The DPME did not disregard work done by National Treasury or the AGSA on the rising debt municipalities owe to the water boards. This matter even came up in some of the budget steering committees on which the DPME sat. The reports by the DPME included information from the National Treasury. There was a relationship between the National Treasury and the DPME.

Regarding the bucket eradication programme, the DWS had given the DPME information about the towns it would focus on in the next two years. The DWS had reiterated that the focus over the past two years was on bulk infrastructure. In the latest engagement with the DWS in September, the DWS reiterated that bulk structures were in various stages of completion. There would be constant monitoring by the DWS to assess if they were able to meet the two-year target.

The Chairperson said the commitment by DWS was to finish the bucket eradication programme by March 2023, not in two years’ time. The DWS must not be allowed to miss that target.

Ms Banda explained that her answer was based on the MSTF cycle which ended in two years' time. 

The Chairperson warned Ms Banda not to generalise about the bucket eradication programme. The DWS had promised to finish the project in three regions, Free State, Northern Cape and North West by March 2023. When the DPME monitored the programme, it should ensure that the completion date was set for March 2023.

Ms Kefilwe Sethoabane, Acting Head: Local Government and Human Settlements Unit, DPME, said the question about the asbestos pipe had been noted and would be escalated to the Office of the Deputy President to ensure that the matter was attended to.

The departments submitted quarterly reports that were incorporated into the bi-annual reports of the DPME. The DPME worked with the National Treasury to analyse departments' annual performance plans. 

Regarding the War on Leaks, the DWS had said students were trained, but the challenge was placement. The municipalities were supposed to employ the trained students. The DPME would be doing a follow-up with the DWS. There should be talks between the DWS and the municipalities.  

The DPME did have internal monitoring structures. It was a small department with few staff members. It did not have assistance from external organisations. All work reported on was done by the few staff members employed by the DPME.

In 2021, the DPME compiled a report on the water boards that were not performing well. The focus was more on the debt owed by municipalities to those boards.

Ms Tshatsinde said she wanted to add a few responses from a management perspective.

The DPME was part of a Presidential Steering Committee on the DDM. The DPME had participated in case studies done by COGTA. The DPME had worked with the Development Bank of South Africa to evaluate DDM pilot projects. Those lessons would be used when the DDM was institutionalised across the country.

The rapid assessments would add to the principle of integrated monitoring that the DPME was attempting to apply. It used many lenses for looking at the issues. Verification was key.

The cabinet had decided that departments and ministerial clusters must work together to diffuse the silo mentality. Letters were issued to various ministers and cluster leaders to seek more integrated approaches. It was true that one sector could not function on its own. The DPME had submitted an improvement plan to the ministers, the clusters, and the departments. Follow-ups were made.

DWS Annual Report 2021/22

Ms Dikeledi Magadzi, Deputy Minister of Water and Sanitation, said the presentation would be on the annual performance plan (APP) of the DWS and on the progress made in its financial performance and service delivery. She said political oversight must be enhanced to increase service delivery. The DWS was embarking on delivering services that provided value for money and combated socio-economic challenges.

Deputy Minister Magadzi praised the TCTA for the work that it had done. There might be challenges but there was a lot of improvement.

Dr Sean Phillips, Director-General, DWS, said the annual report highlighted achievements and various challenges, including a lack of service delivery; improper expenditure; fraud and corruption; and poor financial performance. 

The Department was implementing a turnaround and financial recovery plan. Matters being addressed included timely submission of financial statements and annual reports; consequence management systems; capacity and transformation; sustainable service delivery; and infrastructure maintenance and development. The plan also included the implementation of a new organisational structure and the filling of critical prioritised posts.

In addition to departmental interventions, attention was focused on addressing systemic challenges within the entire value chain in collaboration with implementing agents, which included water boards and municipalities.

Financial overview

In the 2021/22 financial year, the Department spent 86 percent of its budget. There were invoices in the process of certification and commitments still to be billed. A rollover request was submitted to National Treasury.

The financial recovery plan currently being implemented has resulted in an improved control environment and unqualified audit opinions. This plan included implementation of an infrastructure procurement strategy to improve procurement within the Department and implementing agents.

Measures to improve spending

The key factors contributing to underspending included vacant posts, capacity constraints at implementing agents; contractual disputes; community unrest; and disruption by some business forums.

A new organisational structure was being implemented. Critical posts were being filled within the approved budget ceiling.

The DWS was collaborating with national and provincial treasuries and COGTA in strengthening compliance and service delivery at municipalities.

Community engagement programmes have been facilitated in all the provinces to assist in unlocking projects affected by community unrest. This would unlock the current capital projects commitments.

The Department had implemented early warning systems for timely budget reprioritisation from low spending projects to projects with capacity to spend additional budget allocations.

Contractual disputes in projects were being attended to by the legal services unit.

Audit outcomes

The DWS and the WTE again received unqualified audit opinions with findings.

Detailed audit action plans had been put in place and milestones had been set for achieving clean audits. Measures included staff training and development; strengthening internal controls; and consequence management.

The Department was proactively engaging with the Office of the Accountant-General on matters related to accounting treatment of some transactions.

Forensic investigations

Since 2019/20, a total of 228 cases have been reported to the internal audit unit. It investigated 135 cases; 98 of the allegations were confirmed to be true while 37 were unfounded; 20 cases were currently under investigation; 73 cases had not been investigated yet. Other cases would be investigated by external service providers to expedite them. Some of the 98 finalised cases were referred to the employee relations office for disciplinary action against officials. Others were referred to the SAPS for criminal investigation and to the legal services branch for civil recovery in instances where the Department had suffered financial loss. These cases resulted in an amount of R996 883  being recovered and a judgment of R27 510 067 in favour of the Department.

Seventy-four awareness sessions have been held since 2019/20  and 1 781 officials were trained in anti-fraud and corruption measures.

See attached for full presentation

TCTA Annual Report 2021/22

Mr Gerald Dumas, Chairperson, TCTA Board, said that the board had managed to exercise its oversight role. The audit outcome stood as evidence. The TCTA was confident that it would soon achieve a clean audit. The TCTA had done very well and achieved 70 percent of its targets. It had a plan to deal with irregular, fruitless and wasteful expenditure.

Mr Percy Sechemane, Chief Executive Officer (CEO), TCTA, said the entity continued to fulfil a critical role in the water sector through the raising of funding, the implementation of sound infrastructure and diligent debt management.

Debt management

Mr Sechemane said that TCTA, as a special purpose vehicle, received a mandate to execute certain functions on behalf of the DWS. It relied on borrowing money from the markets to be able to perform its duties. It was therefore important for it to be able to ensure that the money was repaid in time to keep a well-managed relationship with the markets. On all projects, capital and interest payments were made on the due date and the borrowing limits were not breached. 

The most noteworthy achievement was on 28 May 2021, when the repayment of the WSP05 bond and its associated coupon occurred, involving an amount of R9 857 million.

The underlying cash flows on the Vaal River System remained strong, as demonstrated by the fact that as of 31 March 2022, an amount of R5 555 million, in cash, was available in the account for use on phase two of the Lesotho Highlands Water Project (LHWP). This demonstrated to the market the ability to finance national water resource infrastructure and repay the money owed, through the tariffs received from the users.

Irregular expenditure

Most of the reported irregular expenditure related to contracts that were entered into in prior years. There had been an improvement in the procurement control environment, resulting in few incidents of non-compliance being reported in the year under review. A new procedure manual and consequence management guidelines were developed to enhance the management of irregular, fruitless and wasteful expenditure. A loss control committee was in place to quantify the losses and make recommendations to the CEO on actions to be taken.

Going concern

The underlying operating model for the TCTA remained the same as in previous years, and continued to assure the long term solvency of the TCTA, as well as the ability to meet all its obligations as they fell due and to continue to operate as a going concern.

See attached for full presentation

Discussion

Mr Hendricks said it was some discovery to find that that services were not procured in accordance with regulations, but value for money was received. Amounts of almost  R1 billion and half a million were not condoned by Treasury.

An unqualified audit opinion was good. However, people wanted water in their taps. If one visited villages at Harding, Mtubatuba, Bushbuckridge and others, one would find people without water. There were pipe stands in their yards, yet they did not have water. It was important for the DG of the DWS to visit these communities and see what the situation was on the ground. The Committee did not want “sanitised” reports. 

Former Minister Sisulu had fingered many leaders that were corrupt and even laid charges. This prompted the new ministers to appoint people who were better at doing their jobs. The results were visible. The audits were better; The Members understood that one of the presenters complained that the Department of Justice was not doing enough to prosecute. He would take up the matter.

It was not fair that African children continued to die of thirst. In Uitenhage, there was one death because of thirst. Orange trees in Uitenhage got more water than the people. The DWS needed to visit that area. For the first time in 10 years, the Minister, the DWS and the Portfolio Committee would not be asked to fall on their swords. There was a huge improvement. Things had been so bad in the past ten years that they could not get any worse. Whatever improvement had been made, it was appreciated. Line management must push for the investigation cases to be heard.

Ms M Pietersen (ANC) said the Department had a target of implementing the National Digitised Integrated Water and Sanitation Monitoring System and it was not achieved. What was the reason? What impact would this have on the work of the Department?

The presentation showed that 46 percent of targets for water services and local management were not achieved. What was the root cause of the poor performance? What steps had been taken? Had the Department implemented consequence management for the supply chain management officials?

The TCTA reported that running costs were below budget partly due to fewer staff. Did this mean there were vacancies that had not been filled? If so, how had the functioning of the TCTA been affected? In his State of the Nation Address, President Cyril Ramaphosa asked all the departments and their entities to commit to job creation. Would this not go against the President’s instructions?

The report highlighted that even though there were improvements in procurement controls, there were still incidents of non-compliance. What further measures would the TCTA take to ensure no incidents?

Ms Tseke commended the TCTA and DWS for their performance in the 2021/22 financial year. The DWS had been struggling and had had no leadership for a very long time. There was new management and the work done by the Minister and the Deputy Minister was appreciated. The Department was now stable. An unqualified audit with findings was an improvement. Going forward,

the Department would be able to address those findings. There were still challenges alluded to by other Members but the Portfolio Committee trusted the Minister would be able to handle them.

Earlier, the AGSA said that the Umzimvubu project cost inflation on goods amounted to R131 million. The Committee had visited the project and found that work was being done on an access route. Where did the inflated costs come from? Which goods and services were reflected in this R131 million?

The AGSA also spoke about water losses. There was a lack of a national plan to address water leakages. It was the responsibility of the municipalities, but was there something that could be done at a national level? Regarding the War on Leaks, a lot of money has been invested to train students. These students were now at home, without jobs.

Work done on the investigation of cases was appreciated. There were, however, 73 cases not yet investigated. What were the challenges? 

What were the root causes of the DWS failing to achieve its targets for employing youth and people with disabilities? The DWS had achieved 19 percent and two percent, respectively. What measures were in place to improve this?

The DWS reported that it could not achieve four of its targets concerning the transformation of the irrigation boards. What were the challenges? What measures were being taken to ensure transformation took place before 2023?

Ms Sihlwayi said she appreciated the vision and the mission of the TCTA. If it could maintain that, the DWS would flourish. The TCTA said it had injected money into the Vaal River project. This was in addition to other funds that had been injected. There were no fruits from these injections. Why had the money been injected? Which area was it for?

There was an augmentation project amounting to R12.3 billion. The money is not doing anything while additional funding is awaited. Project management involved phases, but what was worrisome was that the community knew about the money. There was a lot of money already. The project should be in motion. Could the money be used for other projects that were already in motion?

Umgeni Water had a raw water deficit. There should be a creative strategy to address the deficit. There was a big population and people wanted water. They could not be made to suffer while there were funds that could be utilised.

Training did not seem to be given the significance it deserved. Training was important for individual development and the overall benefit of the Department.

The Chairperson urged the DWS not to relax. It must continue to strive for better outcomes. It needed to be harsh, if need be, to ensure accountability and high levels of competence.

The targets for previously disadvantaged people were not met, especially those for youth and women. These were very vocal groups if they were not recognised. It did not matter how much progress was made. If they were not included, there would be issues.

The President had said that departments must pay debtors in 90 days. The DWS was still on 105. It is not bad, but the DWS aligned itself with what the President had asked.

Of 128 projects targeted, only 15 were achieved. It was a cause for concern. Elsewhere, 321 projects were set as a target but only 72 were achieved.

The Umgeni River issue was going to result in chaos unless something was done. Did the TCTA have any plan to combat the water deficit? More water was needed in KZN. There was a target of 69 dams, but 52 dams have been achieved. It might look good, but not much time was left before the elections.

Did the money allocated to the LHWP provide value for money? The Umzimvubu Project was a promising one, but the Committee had learned it did not provide value for money.

The TCTA had been assumed to be not value for money, but the report showed it was capable. The unfortunate part was that its mandate would end soon. Would the TCTA be taken over by those who would lead after the elections?

There was progress, as alluded to by other Members. The demise of the Bushbuckridge project was caused by the contractor who was not paid his money. He blocked the water from the Nyaka Dam. The Deputy Minister must contact the contractor and there would be water for the people of Bushbuckridge.

Responses

Dr Phillips said that under the leadership of Minister Senzo Mchunu and the Deputy Ministers, the DWS did a lot of oversight of the conditions facing communities. This was done almost weekly. The DWS was painfully aware that there were still many communities without water or without quality water. Many communities still did not have safe sanitation. The condition of many municipal wastewater treatment works was poor.

One reason why many communities continued to not have reliable water was that, in some areas, there was still a need to develop more bulk supply of water. The DWS was involved in big infrastructure projects. Some work was done by the TCTA, including the LHWP and other projects across the country.

The DWS provided very substantial grants. The Regional Bulk Infrastructure Grant and the Water Services Infrastructure Grant allocated funds to municipalities to improve their distribution infrastructure. The DWS worked closely with the municipalities in planning for those projects and to monitor the expenditure on them. Under the leadership of Minister Mchunu, the DWS had a major new initiative for interventional support for municipalities.

The main reason why people did not have a reliable water supply was poor management and governance at municipal levels. The Constitution and the Water Services Act provided a legal framework which obliged the DWS to intervene and support municipalities. The DWS was currently assisting approximately 30 municipalities. Members could be assured that the issue of reliable water was something that the DWS assisted with on a daily basis.

The digitised monitoring programme had to undergo IT procurement procedures. The procurement process in the State Information Technology Agency had delays, leading to the target not being met.

The DWS’s biggest problem was that the procurement strategy was old-fashioned and very weak. The DWS went out to the market frequently, rather than forming long-term contracts with suppliers and grouping procurements to have a manageable number. The DWS did take necessary steps, including disciplinary action, to address poor performance. There was still a need for a better, smarter procurement strategy. 

The Umzimvubu Project had been allocated money for design and initial site establishment costs such as the access route the Members had seen. The project was substantial and involved more than the R131 million that had been reported. The design work had already been done. A process was still underway to obtain a contractor and a financing partner for the main project. The R131 million might seem substantial but it included money that has been used for design.

The DWS did not have any plans to resuscitate the War on Leaks programme. In the municipal distribution systems, contractors were required to dig up leaking pipes and replace them. That required a different level of sophistication than those trained for the War on Leaks. The municipalities were encouraged to vigorously implement water conservation and demand management and recruit technical staff to fix the leaks where necessary. That would include War on Leaks graduates who had the necessary skills to become municipal employees.

DWS procurement was governed by the Preferential Procurement Policy Framework Act and the National Treasury and Preferential Procurement Regulations. There were 90-10 or 80-20 rules that must be applied, where 90 percent or 80 percent of the points were awarded for price and the rest for preferences, depending on the size of the projects. The DWS must award the tender to the highest point-scoring tenderer. If the DWS did not do that, there would be an audit finding that there had been a  procurement irregularity. The DWS could not always meet the targets regarding the designated groups.

Changes to the regulations did however introduce prequalified criteria to incorporate certain designated groups. The DWS had been under-measuring the contribution from subcontractors and this would improve in future.

The second phase of the LHWP involved the procurement processes. There were very stringent governance processes through the Lesotho Highlands Management Authority to ensure that the process was regular, above board and that the DWS got the best price the market could offer.

The processes were at an advanced stage.

Mr Leonardo Manus, Chief Director: Infrastructure Operations, DWS, said an amount was spent in the Umzimvubu project on the design and construction of the access route. It is not unusual for large projects such as Umzimvubu to be under design for between one and three years. There would be claims coming through the work that had been done and there would be reports supporting those claims that needed to be paid.

Unfortunately, an issue about cost of works led to a dispute that was eventually adjudicated and the DWS was successful in that ruling. The DWS was able to do a fair value determination regarding the work currently being done. The DWS also did receive some of the drawings, but they were not completely in usable format and that was the reason why the DWS was currently going through this fair value determination process.

The next consultancy with the AGSA would have all the deliverables and there would not be any issues with overpayments.

Ms Thoko Sigwaza, Acting DDG: Regulations, said the DWS had not met the target for transforming the irrigation boards into water user associations. The main challenge was around the changes from the 1956 Water Act to the 1998 National Water Act. The issue of transformation was very intensive, and involved a lot of stakeholders. Negotiations must take place. However, the DWS had proceeded with a transformation scorecard with which all the entities would be able to comply. The water user associations were committed to supporting the DWS. A new way of voting was being introduced so that votes did not depend on hectares of land. Even though the DWS did not meet the targets, it was on track to catch up.

The DWS was implementing a Vaal River intervention project due to the sanitation challenges in that area. That project was now progressing much better than before under the leadership of the Minister and Deputy Minister David Mahlobo who had been intervening frequently to ensure that delays were addressed. Contractors were on the ground working on the sanitation challenges. This was managed by Rand Water. Designs had been done for major upgrades of wastewater treatment works in the area. The contractors were fixing pipes and previous sewage spillages had been stopped. Major work to upgrade the wastewater treatment works was still coming. The DWS was close to obtaining value for money there. The river and dam system that supplied Gauteng with water was going to be increased with the new phase of the LHWP. 

Dr Phillips asked Mr Sechemane to answer more questions about the Vaal River system.

Mr Sechemane said it included dams in South Africa and in Lesotho. The distribution side had challenges which included sanitation challenges. The operations were however up to those challenges. Apart from rain, Gauteng did not have any source of water. Its water availability was contingent on the rain. The SA Government and the DWS decided to engage with Lesotho to get water to the Gauteng region and other provinces. The Vaal River System was made up of 14 dams. Some were for balancing and to assist when there was drought.

The Chairperson interrupted the speaker to say in Zulu that he “was hiding something”.

Mr Sechemane asked if he could continue with his responses.

The Chairperson said that he was just saying that the CEO of the TCTA was hiding something. He allowed Mr Sechemane to continue.

Mr Sechemane said the TCTA was working on phase 2. It was to ensure that South Africa did not run into a problem of not having enough water. If there was one project that provided value for money, it was the LHWP.

No money had been allocated yet. The amounts mentioned by the Members were the estimated costs for phase 2. The TCTA was not given money in the national budget. It went to the market to borrow money. Until the money was available, the TCTA could not take the projects forward. The presentation only revealed how much the projects were going to cost. Other procedures still had to take place. The DWS could not directly borrow money from the markets. The TCTA was a special-purpose vehicle. It handled project management and the handover of infrastructure to the DWS. Costs related to administration were kept to a minimum.

Yes, there were vacancies, but they were filled when necessary. The TCTA employed enough people to be able to execute directives. It did want to have a lot of people that were being paid while there were few projects on the ground. 

The TCTA did have contractors in place in case of emergencies. The contractors were paid for spending time only, which led to fruitless and irregular expenditure. The TCTA is improving its system to avoid any further issues.

There were people who had to be assisted with water availability. The issue of spatial justice had not been addressed adequately in South Africa. There were a lot of people in remote areas that were difficult to reach. Costs were determined by how close a project was to the source of water.  

Mr Risimati Mathye, DDG: Water Resource Management, DWS, commented on the Vaal River situation. There were high water losses in the eMfuleni area. There was a plan to address the issue. The DWS had weekly meetings with Rand Water to assess progress. People in the area of the Hoshane water scheme did not have water. Bushbuckridge was one of the areas affected. There were a lot of asbestos and cement pipes and illegal connections. The DWS was assisting the municipality with water conservation management. The municipality was also upgrading the wastewater treatment works, which would supply water to some affected areas. The municipality had taken necessary steps and that was appreciated.

Deputy Minister of Water and Sanitation, Mr David Mahlobo, said the team had responded to most issues. The Ministry appreciated the way the team was able to cover the questions raised. The report from two years ago looked really bad. There had been improvement. The DWS was asked to produce a turnaround plan around the issues of finances and the team was able to deliver. For the first time, there was stability in the management. There were very capable people at the helm of the organisation. The DWS has been able to achieve improvement through the support of the Portfolio Committee and the National Treasury. The DWS had zero tolerance on issues of malfeasance. Major projects that were behind schedule had been prioritised. There were setbacks but the DWS was picking up. There should be transformation and the exclusion of black people and women must come to an end. Overall, the DWS was on track and aware of communities that lacked water and proper sanitation.

The Minister of Water and Sanitation, Mr Senzo Mchunu, said the team had covered a lot of ground. The DWS was programmatic in dealing with issues of transformation. There was a policy stance on providing water to the people. The DWS was not being bossy with the municipalities. It was acting to address issues of water shortages across the country. The municipalities understood that interventions were required to help them pick up speed. By the end of 2022, the DWS would have improved the provision of services.

The Chairperson said that there must be appreciation for the work of the DWS. More work must be done, however. The fact that people were complaining about not having water meant that they could see that others were getting water, which showed progress.

The meeting was adjourned.