DWS Quarter 2 2022/23 performance; with Minister
Water and Sanitation
29 November 2022
Chairperson: Mr M Mashego (ANC)
The Department of Water and Sanitation (DWS) overall achievement for Quarter 2 of 2022/23 was 74%. The Director General said that there is a lot of room for improvement, as a result there are strategies and plans underway to ensure the performance meets the set targets.
DWS was noted as still being on an improvement curve and it is in the process of implementing service delivery improvement measures. Some areas that need strengthening include: supply chain management, project management and spending on multi-year projects. There are also the usual construction challenges experienced in the country such as unforeseen site conditions as well as the disruption of projects by some societal groups such as business forums. Non-achievement of quarterly set targets was mainly on financial management areas.
DWS has prioritised service delivery and resolving the factors contributing to underspending through dedicated interventions at affected water boards and municipalities
Committee members noted that people write to Parliament as the oversight body and recently a letter was received on the Giyani-Limpopo matter where the area has had no water access since the year 1998. Promises are continually made, yet 24 years later there is no water, or any sign of water coming to the area. The Committee warned DWS officials that the work of the Department is being watched, is seen and known about by the public.
Committee members were concerned about DWS performance and it seemed the Department is struggling with policy strategy yet policy and regulation is at the heart of the DWS mandate – especially the Water Amendment Bill. The next concern was the state of irregular expenditure where an amount of R2 billion submitted for condonation. The public was constantly crying at the huge amounts of money being spent irregularly. How can the Committee defend this to the public?
In closing the Minister stated that water tariffs are a huge problem. As such, in 2023/24 there will not be automatic tariff increases. There will have to be submissions on tariffs that will be applied for, tabled and investigated. Municipalities have over the past years exponentially raised the tariff rates on water, electricity and refuse collection and this needs to be looked into.
Minister of Water and Sanitation, Mr Senzo Mchunu, said the presentation will focus on the 2022/23 Quarter 2 performance. He noted that there continues to be glitches and leftovers from previous financial years, that tends to make cleaning up of the financials of DWS longer and it takes more time. Secondly, there will be a report on water resource management.
Department of Water and Sanitation Quarter 2 Performance 2022/23
Dr Sean Phillips, DWS Director General, stated that the Department’s expenditure against budget is not where it ought to be. DWS is still on an improvement curve as it is in the process of implementing service delivery improvement measures.
Some areas that need strengthening include: supply chain management, project management and spending on multi-year projects. This is followed by the normal construction challenges experienced in the country, such as unforeseen site conditions. Another challenge is the disruption of projects by some societal groups such as business forums.
The Department is paying close attention to infrastructure procurement. An infrastructure performance strategy has been recently approved and seeks to improve procurement times.
A Turnaround and Financial Recovery Plan is being implementing to deal with DWS historic challenges and continuous improvement initiatives are aimed at acceleration of service delivery and strategic support of municipalities.
Whilst significant progress has been made to stabilise the Department, our work with law enforcement agencies is also bearing fruit, including successful recovery of funds from previous years’ irregularities by the Special Investigating Unit. This will allow Treasury to condone past irregular expenditure. To date R450 million has been recovered from irregular expenditure and is in the Department’s holding account. It is important to highlight that the recovery of monies spent irregularly does not mean the investigations into the prohibited and irregular conduct will cease to exist.
Ms Babalwa Manyakanyaka, DWS Chief Director: Corporate Planning, outlined the Quarter 2 performance which overall was 74% with 21% non-achieved and 5% partially achieved of the set quarter targets. Administration achieved 81% of its goals, whilst managing to spend 50% of the budget, followed by Water Resources Management achieved 74% against a 67% budget spend, and Water Services Management achieved the lowest at 69% against a 27% budget spend.
The consolidated progress for designated groups is at a 66% achievement from targeted 44% for women representation, the youth at 7% achievement from a targeted 30% for procurement from youth businesses and zero achievement from a target of 7% for procurement from people living with disabilities.
Partial and non-achievement of targets in this quarter were mainly in the financial management areas.
The Chief Director outlined the performance in each of the programmes as well. For example, Water Services Management achieved over 90% on local water services management, 67% of the regional bulk infrastructure grant, 50% on water services infrastructure grant, 0% on water services policy and strategy – signaling a regression, 100% on institutional oversight and 33% on regulation.
Mr Frans Moatshe, DWS Chief Financial Officer, gave the Quarter 2 financial overview. DWS obtained approval for the roll-over of R15,3 million. DWS March to September 2022 expenditure had been R8.683 billion (47%) with an under-expenditure of R1.673 billion. Significant cumulative variations from projected spending were as follows:
• Compensation of employees was below projected spending by R39.711 million. The under spending is affected mainly by reduced rate of filling vacancies consequent to mandatory ceiling for outer years personnel budgets for government departments.
• Goods and services under-spending by R263.684 million is mainly due to moratorium on procurement and savings from implementation of cost containment measures. R130 million was however used to assist Magalies Water and Bloemfontein Water with the Sedibeng Water disestablishment process and approval was obtained from National Treasury.
• Transfers and subsidies under-spending by R464.073 million is mainly due to the outstanding transfers to municipalities which were withheld due to lack of compliance with Division of Revenue Act requirements and Umgeni Water transfer pending National Treasury reallocation of budget approval.
• Payments for capital assets were below by R905.964 million. The significant contributor is the indirect grant allocation to municipalities which includes stagnant projects.
• Grants Infrastructure expenditure has experienced significant underspending. The 2022/23 allocations-in-kind to municipalities for designated special programme grants were R3.470 billion for the Regional Bulk Infrastructure Grant and R771.336 million for the Water Services Infrastructure Grant. The overall spending is 25% and 19% respectively.
Some provinces recorded expenditure in line with projections but others recorded low expenditure due to:
• Termination of contractors due to poor performance.
• Delays in the submission of invoices by implementing agents and payment to the service providers.
• Work stoppages and contractual disputes / community protests.
• Project implementation delayed due to non-responsiveness of bids.
• Tender adjudication delays due to irregularities which include scope change in the tender document without the approval of the Department.
• Bucket Eradication Programme slow moving projects (contractual disputes, changes to designs mid- construction, etc.)
• Instabilities within municipalities affecting the effective implementation of projects.
Whilst acknowledging these challenges, there has been a significant improvement from the midterm expenditure to the year-to-date expenditure. The Department has registered commitments of over R7.250 million, and Provincial Water Departments are currently working with water boards and municipalities to resolve project bottlenecks.
Besides these challenges, there has been a significant expenditure improvement from the midterm expenditure to the year-to- date expenditure. The department has registered commitments amounting to over R7.250 million, and Provincial Offices are currently working with Water Boards and Municipalities to resolve project bottlenecks. Acceleration plans are being implemented. Key projects with capacity to absorb additional funds include Vaal River Intervention Project, Thembisile Water Scheme (Loskop) and Madibeng Bulk Water Supply.
The Department has prioritized service delivery and resolving of factors contributing to underspending through dedicated interventions at affected water boards and municipalities. With these measures in place, budget reallocations supported by acceleration plans, DWS will ensure that material underspending is prevented in 2022/23.
The DWS financial recovery plan is mainly based on four strategies:
(i) funding and budget management – the internal and external audit actions have been developed and are being implemented;
(ii) expenditure control, financial governance and accountability – irregular expenditure condonations and remedial measures have been submitted to National Treasury;
(iii) alignment of strategic intent – the strategy and annual performance plans have been aligned to the estimates of national expenditure and procurement plans;
(iv) Capital budget and asset management – this strategy seeks to do comprehensive reconciliations of assets and liabilities to enable maintenance of proper accounting records for management and reporting purposes.
Of the R16.641 billion irregular expenditure, R8.873 billion is in the process of condonation with R2.036 billion submitted for investigation and R5.732 billion under assessment. A panel of Professional Service Providers (PSPs) Forensic Audit and Investigators, are assisting to accelerate the investigations in progress.
One of the Auditor General’s audit findings was the Department’s failure to make payments within 30 days, which results in interest. A DWS entity entered into a R154 million contract with service provider which required a 10% advance payment. It did not make the advance payment as per the contract provisions. This resulted in the service provider issuing a letter of demand and consequently there were court proceedings. The court ordered the entity to pay the service provider interest of R2,2 million and court costs. The interest expense resulted in a financial loss. The matter was referred to the State Attorney for recovery of funds from former officials. The state attorney will appoint an advocate to assist in the matter. The officials concerned made representations and claimed that the matter has prescribed. The Office of the State Attorney was of the opinion that the matter may not have prescribed and it was instructed to issue summons and claim. The status of the recovery will be followed up during the next audit.
Ms Deborah Mochotlhi, DWS Deputy Director General: Water Resource Management, said that the National Water Act requires that the Minister develops a strategy that will bind all institutions responsible for water management. The Strategy provides the framework for the protection, use, development, management and control of water resources. Whilst providing a framework for water management, the National Water Resource Strategy talks to the water security in South Africa and a few neighbouring countries.
Persistent water concerns and challenges include:
• Implementation of Water Conservation and Water Demand Management
• Transformation (lack of equitable access to water hinders efforts to eradicate poverty and limits sustainable economic growth),
• Water pollution and lack of protection and restoration of ecological infrastructure and vandalism,
• Effectiveness of water sector institutions,
• Illegal water abstraction and illegal discharge of effluent into the water resource
• Skills and capacity
• Increased water demand due to population growth and rapid urbanisation.
Since the promulgation of the Department of Water and Sanitation (DWS) in 2014, the Sanitation function was moved from Department of Human Settlements to DWS. The Strategic Framework for Water Services addressed both water and sanitation services and was incorporated into the National Water Resource System (NWRS). Delays in the finalisation of the review were experienced due to these developments. DWS however continued to protect, use, develop, conserve, manage and control the country’s water resources under the NWRS-2 as the Strategy is still operational and valid legally. DWS gazetted the Draft NWRS-3 on 29 July 2022 for public comments after obtaining approval from Cabinet.
The Department has held 10 external stakeholder consultation sessions in all nine provinces and at a national level to solicit inputs into the draft NWRS-3. It is currently reviewing all the inputs received and will incorporate them into the final draft of the Strategy (NWRS-3). DWS will finalize the review, incorporate all the inputs received and produce a final draft by December 2022. After finalizing, the NWRS-3 will be submitted to the Social Protection, Community and Human Development (SPCHD) cluster and the Economic Sector Investment, Employment and Infrastructure Development (ESIEID) cluster for endorsement for implementation. After approval by the clusters, the NWRS-3 will be submitted to Cabinet for final approval. The Minister will then issue a gazette notice to inform the public of the new NWRS-3 for implementation by March 2023.
The Chairperson noted the progress as reported in the presentation but this is unknown by the public. As an oversight body, people write to the Speaker of Parliament because some areas such as Giyani in Limpopo has had no water access since the year 1998. Promises are continually made, yet 24 years later there is no water, or any signs of water coming to the area. It is important to note that the work of the Department is being watched, seen and known by the public.
For instance, the Committee once went to the Vaal, the Committee was made to believe that the Department does not care about Vaal. Yet upon arrival in the community, it was apparent that those hindering water service supply are members of the community, due to their grievance of the Department not providing jobs to the community that is to benefit from the provision of water services.
The view that everything below 50% achievement is marked as non-performance (red tag) is good for internal review. Yet externally it creates a negative perception of the Department. For instance, a 49% performance rate by the department cannot be seen as a dismal failure. Therefore, it is important for the Department to talk into qualifying these figures as a red tag will give problems from the public.
On the Department’s failure to meet the involvement of youth target, is largely due to a low pool of resources as the youth businesses active in these areas are few and far in between. The Department report should expand on this, so that the reasons for failure to meet performance targets is understood.
The zero achievement in the Water Services Policy and Strategy targets is not acceptable and ought to be addressed.
Ms G Tseke (ANC) noted that the performance of the Department used to be of concern. From the presentation it seems there is slight improvement and it is commendable. Based on the Committee’s visit to Nandoni Dam in Venda, the work of the Department in the area is commendable and encouraging.
On the municipal capacity interventions across the country, can there be an indication to ensure the municipalities identify the linked projects.
Disaster response budget allocation exists, yet it seems service providers have not been paid. This is unacceptable and the process needs to be sped up and the suppliers paid, despite invoice challenges experienced by the Department.
The bucket eradication programme is a long-standing project. The Committee will never rest until it is addressed. The Department must be ready to address the enquires relating to this.
On expenditure, about R7 billion has been spent, with R11 billion still outstanding. Will this budget be expended as allocated?
On bulk water tariffs, the report states the target has not been met. It means there have not been any consultations on tariffs. This year the Committee has not received any presentation on this. Does this mean nothing has been done?
Performance on debtor days admittedly needs a political intervention – it looks as if there is no movement in resolving the performance of debtor days. Failure to prioritise this will affect municipalities and water boards.
Is DWS still on course in recovering debt owed by communities, municipalities and government departments?
The Chairperson again noted the progress reported in the presentation; however, it is unknown by the public.
It seems the Department is struggling with policy strategy, this is concerning as policy and regulation is at the heart of the mandate of the Department – especially the Water Amendment Bill. The parliamentary term is about to finish in early 2024 and it is important that this Bill is processed timeously to allow proposed legislation to be completed before the term is over.
Mr M Tseki (ANC) stressed the need for the inter-ministerial committee to make a decision on the water tariffs. The Committee seeks to call an inter-ministerial meeting on this.
Is there any work on climate change? If not, can it be included going forward, particularly on water resource strategies.
On the funds that were withheld funds from municipalities, Mr Tseki said that municipalities are facing serious challenges. Can there be further elaboration on this.
On the challenge with business forums, can the DWS report be upscaled so the Committee is not given a mere report that there is a problem. More needs to be done.
The Department and Committee need to learn to plan for programmes that have a disconnect between targets achieved and financial expenditure. It seems targets are not achieved, yet the financial spending is at 100%.
Ms N Sihlwayi (ANC) congratulated the Minister on the Director General’s appointment a year before. The improvement of the Department is commendable, particularly considering the dire consequences in the Giyani water scarcity matter. There is currently visible service delivery.
On the consolidated progress on the use of designated groups, this is continually presented to the Committee as a non-achieving area. Where are the weaknesses that are causing this non-achievement? What is the department’s plan as including people with disabilities and youth is part of the service delivery agenda of the country. What is their contribution? Are they merely pushing wheelbarrows? That would not suffice as development. It would be ideal if the Department can expand on this.
Through the ordinary eye, the Department’s strategy and work is noticeable. How has the Department structured itself to address issues that remain problematic and unmet performance targets?
Ms Sihlwayi said that DWS irregular expenditure accounts for 35% of the budget. Does it mean that no value has been created to the value of the irregular expenditure? The irregular expenditure has an amount of R2 billion submitted for condonation. How can the Committee be empowered to understand this? The public is constantly crying out on the huge amounts of money being spent irregularly. How can the Committee as an oversight body be made to understand and defend this to the public?
Ms Sihlwayi noted the payment to a consulting firm without the required progress report. State Capture has taught the Committee and public at large a lot about this. Such figures can and often do qualify as irregular expenditure. The Department must act against such practices. It is pleasing to note that the Department taking action against such acts.
As a member of the Lower Sundays River Water User Association (WUA), it shows no progress has been made on bulk water supply, why is this so? The Ndlambe Municipality is one of the areas that has had many problems as it has shown signs of inability to deal with its infrastructure projects, then Amatola Municipality has encountered its own challenges. Why has the Department taken the infrastructure projects back to Ndlambe Municipality? What was its reasoning behind this decision?
The Committee could not continue its engagements during a site visit in Limpopo due to a language issue and need for interpreter. This is brought to the attention of the Department, so in future it assists with interpretation as the community refused to be addressed by the Committee in English as it is foreign to them.
Director General and Department response
Dr Sean Phillips, DWS Director General, responded that the failure to expand in detail on unmet targets had been noted, and in future this will be considered and effected.
There have been new regulations to be put into effect on 16 January 2023. The Department is working on new departmental policy that will be in line with the new regulations, which will give DWS more room to develop its own policies in how procurement objectives will be achieved. The previous regulations were prescriptive on how procurement should be done. This change will help the Department to achieve its procurement targets.
The Department would like to request the Committee allow a separate meeting to address the bucket eradication programme. Briefly, the bucket eradication programme has unfortunately been very affected by the different moves between entities, such as the Housing Development Agency (HDA), the Water Boards and others. These changes have adversely affected the progress of the Department in ensuring the procurement for targeted groups is achieved.
Northern Cape is proving to be a challenge as some contracts were irregular, and new procurement processes need to be undergone. The HDA also incorrectly reported projects as completed, yet upon site visits the Department found that there was only partial completion.
In an effort to accelerate the projects, the Department has in the Free State contacted contractors to increase the capacity on sites. This has yielded some improvements. It is on this basis that the Department is confident that it will complete the Free State bucket eradication projects in this financial year.
The biggest challenge with debt collection is at municipal level. Municipalities are failing to bill and collect from their customers. These cascade up the system and water value chain. As such the Water Board went bankrupt as it was owed billions by municipalities due to their lack of billing and revenue collection. DWS then bills and collects from the Water Board.
The Department’s billing and revenue collection has room for improvement although it is largely problematic at municipal level. In addressing the billing and revenue collection at departmental level, the Department needs to come together with the Department of Cooperative Governance and Traditional Affairs (COGTA) and National Treasury. More needs to be done to address billing and collection revenue. The three departments need to escalate their interventions, as this problem is affecting the financial stability of the water sector.
There have been a number of reasons the amendments to the Water Services Act and Water Management Act are taking longer than expected. One of these is a lot of interest from stakeholders who need to agree on decisions that affect municipalities. The Department is now almost ready to present the Bills to the technical committee of the Cabinet cluster and to Cabinet. If all goes to plan the hope is to bring the proposed Bills to Parliament by June/July 2023.
On the Umzimvubu project in the Eastern Cape, DWS asked for funding from National Treasury which was declined. On later engagements, National Treasury suggested DWS test the market in advertising the project’s financing. An adjudication committee had proposed a bidder. The bidder wanted the Department to take a loan for doing the project. Treasury did not approve this as it is not going to support DWS taking a loan, rather the Department should revise the project – by doing it in phases – to start with more urgent phases, and it applies for funding from the fiscus in the budgeting process. The Ministers are engaging on this. Phase 1 is currently underway and should be done in the next financial year. For the next financial year DWS has applied for funding and the dam construction.
When groupings disrupt projects by sometimes utilizing threatening methods as they want to be allocated contracts and work, the Department has community engagement people at its regional offices who engage with community stakeholders who are advised on such developments and to make provision for local contractors. However sometimes disruptions occur despite these efforts.
Irregular expenditure unfortunately cannot be defended, rather it needs to be condemned. The Department has made efforts to condemn it by strengthening controls. There has been a significant decrease in the occurrence of irregular expenditure. There has been an increase in implementing consequence management.
A DWS official replied that admittedly the image of the Department in the eyes of the public is strained. The Department does its best to improve visibility. It communicates with communities and media houses to provide feedback on DWS work and programmes. These are accompanied by media house sessions that the Department usually hosts to provide feedback on the Department’s efforts. This has been done throughout the provinces. Projects are communicated and there has been strengthening of staffing in the Department’s communication initiatives.
DWS CFO Moatshe replied that the debt book is sitting at R26.5 billion; only R6 billion has been recovered. With R4.8 billion of the recovered amount being from the Gauteng regional office. The provinces servicing rural communities record low recovery rates. To address these challenges, the ministerial task team is meeting with National Treasury to support the efforts of the Department.
Service providers have been appointed for the recovery of debts; hopefully this will yield positive results.
Turnaround plans have been developed for every Water Board, the challenges is some boards are struggling to recover the debts owed by municipalities for the services offered by the Department.
The impact of withholding funds on municipalities has a ripple effect on communities.
The Division of Revenue Act is followed to ensure the Department can be best supported with the business and recovery plans. The situation is municipalities cannot be separated from the debts.
The KwaZulu Natal disaster invoices was a matter that was raised by the Auditor General. The service provider tariffs came to be far higher than what was given to eThekwini Municipality. The Department has had to go through the process of visiting the municipality and looking at the invoices and the documents providing support to the submitted financials.
Ms Manyakanyaka replied that the Department of Planning, Monitoring and Evaluation (DPME) publishes regulations on performance management. What is seen as performance or underperformance is what has been provided as a guideline by DPME. The difficulty is that the Annual Performance Plan does not track all of the Department’s expenditure, it samples key strategic areas. The Department is trying to ensure the strategic areas with a higher budget are tracked with a lot of indicators, to mitigate the fact that not all factors are tracked.
Bulk water tariffs are ruled by strict reporting requirements for a target to be considered as achieved. Bulk water tariff activities bear the burden of proof to satisfy auditors, which were not satisfied. At the end of this financial year DWS will provide a portfolio of evidence for the activity which will be submitted and the bulk water tariff programme should qualify as achieved.
Mr Masala Mulaudzi, DWS Director, replied about the Amatola Water project. The Amathole Municipality was the implementing agent (IA). The municipality appointed a contractor, which later resulted in the parties having contractual changes and the municipality did not pay the contractor for work done. DWS tried to intervene to no success. The contractor terminated the contract. Amatola Water requested appointing a new contractor and DWS agreed but the municipality did not make an appointment. The Department had been patient with the municipality but as a result it ended Amathole Municipality as the IA. This resulted in Ndlambe Municipality being approached by DWS to complete the outstanding work and was able to satisfy the requirements to be an IA.
Minister Mchunu replied about the under-expenditure and said that the Department is committed to make improvements and ensure no money is returned to Treasury.
Efforts will be made to improve on communication to the public. This is a weakness that needs to be attended to.
Tariffs are a huge problem. Next year there will be no automatic increases. There will have to be submissions for tariffs that will be applied for, tabled and investigated.
Municipalities have over the past years exponentially raised the rates on water, electricity and refuse collection. This needs to be looked into.
On filling posts, the heads have confirmed that the executive positions are filled. There is only one Deputy Director General who is in an acting position due to a long running disciplinary matter. This has caused a complicated and delayed process. It seems some labour practices are no longer applicable.
The Chairperson commented on the essence of the recommendations as contained in the presentation.
Mr Tseki said that pollution needs to be talked about at an inter-government level because the capacity at provincial departmental level contradicts some DWS policies.
Committee minutes were adopted and the meeting was adjourned.
Mashego Mr MR
Mchunu, Mr ES
Pietersen, Ms M L
Sihlwayi, Ms NN
Tseke, Ms GK
Tseki, Mr MA
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