Water Portfolio Audit Outcomes; DWS & TCTA 2022/23 Annual Reports; DPME input on water sector performance

Meeting report

The Chairperson greeted the Committee and welcomed Members back from recess. He mentioned there are bad things currently happening in the country such as the attack in Richards Bay, among other things, destabilising the country. He personally attributed this instability to the state seizure experienced since the looting spree of 2020 and the burning of Parliament. He said if people can attack the army base, they can attack infrastructure, such as Eskom and Transnet. He observed a moment of silence for meditation and prayer. Thanking Members, the Chairperson said the presentations by the Auditor-General of South Africa (AGSA) and the Department of Planning, Monitoring and Evaluation (DPME) will follow directly after one another, after which a discussion will follow. He invited the AGSA to deliver its presentation. 

Budgetary Review and Recommendations Report by AGSA

Improvement Over Administrative Term

This section noted that the submission of financial statements by the legislated date for portfolio remained at 100%. The audit outcomes of the portfolio reflect an overall stagnation in audit outcomes from the prior year. The Department of Water and Sanitation (DWS) received an unqualified audit opinion with material findings on predetermined objectives and compliance. The Waste To Energy (WTE) and Trans- Caledon Tunnel Authority (TCTA) also remained stagnant with an unqualified audit opinion with material findings on matters of compliance. AGSA commended WRC for maintaining its clean audit opinion. The portfolio achieved one improvement since the first year of administration as the Water Research Commission (WRC) moved from unqualified with findings to clean.

Portfolio Performance

No findings on usefulness or completeness of relevant indicators were identified. Failure to properly implement scheduled maintenance projects will result in a deterioration of the lifespan of the identified assets, requiring substantial investments in new infrastructure when it cannot be utilised any longer. In addition, water infrastructure not properly maintained results in the substantial loss of water as leaks occur throughout the water delivery process, i.e. dams, reservoirs, pipelines etc.

Key targets in medium term strategic framework for portfolio

• Water use license application timeframes reduced by 50% by 2020 (150 days). 16 main stem rivers monitored for implementation of Resource Directed Measures (i.e. classification, resource quality objectives and the reserve) by 2024. 12 221 bucket sanitation systems eradicated in formal areas. The number of water treatment works assessed - 1 010 every two years – alternating with Green Drop assessments.
• 53 bulk water infrastructure projects completed.
• No. of wastewater treatment works assessed - 963 every two years alternating with Blue Drop assessments.
• An approved National Sanitation Integrated Plan implemented - 2 implementation reports per annum.
• Number of dam safety rehabilitation projects completed - 9 dam rehabilitation projects.

Delayed RBIG projects

71% of the total Regional Bulk Infrastructure Grant (RBIG) projects are delayed in terms of completion.

Over the years, as the projects were delayed but the initial budget continued to be revised. To date, there is an increase in budget by R9,4 billion.

The spending on these projects is also not always aligned with the initial plan. Variations in scope can be due to poor planning.

If the root causes for poor project management are not corrected, there is a risk that other projects may be similarly delayed.

Significantly delayed projects identified in the prior year audit were still incomplete when followed up with the current year audit.

Reflections on Audit Findings

The bucket eradication programme targeted four Provinces with bucket toilets in formal areas i.e. Eastern Cape, Free State, Northern Cape and the North West. Targets were achieved in two Provinces i.e. Eastern Cape and North West, with outstanding work in the Free State and in the Northern Cape.

During the audit, AGSA noted that the bucket eradication programme has been significantly delayed mainly due to poor project management by the Department, poor performance by appointed contractors and delays in procurement processes by the Department.

Key Observations

The trading entity has been underspending in the augmentation fund, primarily due to delays in major projects. The main causes of the delays include protracted procurement processes, non-performance of contractors, lack of plant maintenance resulting in plant breakdowns, challenges with land acquisition, and poor project management.

The value of significantly delayed projects disclosed in the financial statement is R3,47 billion in the 2022/23 financial year, while the carrying amount of assets under construction is R5,89 billion. 59% of projects are delayed. This is a significant increase compared to 33% in the prior year.

The key root causes for delays, as identified by the entity, mainly relate to:

• Inadequate supervision of contractors
• poor performance of contractors
• Inefficient supply chain management processes.

Repairs and Maintenance

42% of the trading entity’s bulk water infrastructure assets are in poor condition.

Repairs and maintenance costs only amounted to 2.13% of the total infrastructure assets balance, lower than 8% prescribed by National Treasury (NT).

Maintenance budget was severely impacted by financial constraints experienced by the WTE in the 2018/19 financial year when the entity had an overdraft. The entity has since recovered from this however the maintenance budget is still significantly low. Planned targets for maintenance were also significantly reduced, which has further contributed to the backlogs in maintenance.

The entity adequately spent its maintenance budget during the 2022/23 financial year.

The annual assessment of assets performed by management was incomplete. Insufficient conditional assessment of assets may result in unplanned maintenance which often requires deviations from procurement process resulting in increased irregular expenditure and lack of maintenance term contracts.

Management is also not appropriately supervising service providers on the job. An instance was noted where a contractor was paid for repair work not fully performed, which resulted in fruitless and wasteful expenditure and a material irregularity was raised.

Material Irregularities

Consequence management steps are in the process of being implemented. Responsible officials identified and disciplinary action/ hearings are in progress. There was a slow response in implementing recommendations from investigations conducted. While the accounting officer has taken steps, there is still a slow response in implementing some disciplinary actions.  

In some cases, the accounting officer has actively demonstrated willingness to see the processes through by instructing the state attorney to issue summons for recovery from former officials of the entity.

Management has made the award of tenders to service providers to commence Clanwilliam dam project to prevent further losses and delays. The accounting officer implemented some internal controls to strengthen the efficient and effective monitoring of the performance of service providers against set deliverables and the review of appropriate verifiable supporting documents (Internal controls improved to prevent re-occurrence).

Financial Management and Compliance

The financial statements for the WTE and the TCTA were submitted with material errors identified during the audit process. The correction of these material errors was allowed during the audit process. Inadequate financial management controls result in inaccurate information being available to management during the year, based on which critical in-year management decisions are made.

The new framework brought significant changes concerning the disclosure of irregular, fruitless, and wasteful expenditure (IFWE). These changes are as follows:

• Movement in the disclosure note of IFWE has been moved from annual financial statements to the annual report. 
• Public Finance Management Act (PFMA) institutions will only disclose IFWE incurred in the current year, with a one-year comparative analysis.
• Historical balances (i.e., opening balances) have been completely removed from the annual financial statements.

Recommendations

• The executive authority, supported by the accounting officer, to take effective steps to finalise the recalculation of the net benefit rate relating to the royalty payments made to the Government of Lesotho.
• Continuous monitoring of compliance with legal and regulatory provisions to avoid non-compliance findings, especially as it relates to the supply chain management environment to prevent irregular expenditure.
• Timeous monitoring and oversight over the proper implementation of action plans to address both internal and external audit findings to be performed to avoid repeat findings.
• Ensure financial statements are appropriately reviewed and in line with the accounting framework.

See attached for full presentation

Department of Planning, Monitoring and Evaluation on Department of Water and Sanitation Annual Performance and Entities for the 2022/23 Financial Year

Strategic Intent and Problem Statement

The National Development Plan (NDP) recognises water scarcity as a binding constraint to national development and highlights the importance of carefully managing this limited resource. South Africa lacks natural lakes and water supply completely depends on man-made reservoirs and run-of-river abstraction. Chapter 4 of the NDP envisages a South Africa, recognising the importance of secure and equitable access to water and sanitation as catalysts for socio-economic development. South Africa is to prioritise investment in basic services infrastructure including water and sanitation, to support economic growth and social development goals. This is given expression by Priority Two (economic transformation and job creation) and Priority Five (spatial integration, human settlement, and local government) of government’s 2019-2024 Medium Term Strategic Framework (MTSF). In particular, the Department was expected to focus on integrated water resources management, infrastructure planning and development, and regulatory water services.

Performance against the 2019-2024 MTSF for the period 1 April 2022 - 31 March 2023

The percentage of households with access to an improved water supply is 88.5%. Concerning the provision of adequate sanitation, 83.2% of households have access to improved functioning or hygienic sanitation facilities. (StatsSA, 2022). Household access to water and sanitation services has stabilised over the last few years. Approximately one-third (34.9%) of South African households reported some dysfunctional water supply service in 2022. Water reliability and safety is a growing concern in the sector. Problems on water quality including failing sanitation services are in the main associated with failing infrastructure and key amongst these issues are poor operations and maintenance of the water and wastewater.

Environment Authorisation

Ease of doing business progress based on the specified regulated timeframes has improved recently with the following achievements:

• Water Use Licensing Applications (WULAs) are required in terms of Section 21 of the National Water Act, 1998. (Act No. 36 of 1998)
• WULAs (90 days) 100% efficiency
• DWS has reported 100% efficiency on WULAs - backlog cleared.

Performance Analysis of Water and Sanitation Entities

The existence of permanent boards and executive management, particularly in the position of Chief Executive Officer (CEO) and Chief Financial Officers (CFOs), will go a long way in ensuring stability in governance and implementation of water projects in the sector. Although there was improvement in audit outcomes of water boards, there are concerns about the failure of municipalities to pay for water board services:

• Negative impact on the liquidity and ability to implement capital projects such as investment in new water infrastructure and maintenance of existing ones.
• The zero-tariff increase affected the revenue of entities.

Scarce water resources, high rates of indigents and unemployment, and ageing infrastructure have put pressure on the entities to set affordable tariffs.

Challenges were experienced which affected performance such as population growth and the emergence of new settlements.

Key Achievements

98% achievement on completion of bulk water and sanitation supply projects to be implemented. Assessments of Water Service Authorities on compliance with Blue Drop and Green Drop Regulatory requirements. Irrigation schemes contribute to agricultural productivity in Vredendaal and Zebediela.

Persistent Challenges

As with the energy crisis, water security in South Africa is a critical risk predicted to worsen in the coming decade. The performance provides an obscene picture of the country’s water resources, water infrastructure as well and the overall quality of its drinking water.

Poor governance in Water Service Authorities and Waterboards – under- or misspending on water-related budgets, attributed to capacity constraints and mismanagement of funds. Increasing debt – municipalities owing Water Boards. The failure to adequately address strains on the country’s water infrastructure has had disastrous consequences, as demonstrated by the recent cholera outbreak in Tshwane or persistent water shortages in the Greater Giyani local municipality. Continued failure of Water Service Authorities to compile implementation plans to address Blue and Green Drop results. Delays in implementing the Bucket Eradication Programme are mainly due to the lack of bulk infrastructure to connect the waterborne sanitation. Due to rapid rural-urban migration, new informal settlements are arising continuously, and the legislation does not allow for municipal investment in infrastructure development in informal settlements before they are formalised.

Water Supply Vulnerabilities

Households hit by high growth in unemployment and lack of affordability for the consumption of services.

Erosion of surpluses to cross-subsidise other services; and  paying residents indirectly affected by the poor payment culture in communities.Declining municipal finances and debt burdens means infrastructure is not extended, repaired or maintained.

 

Persistent Challenges

• Excessive delays in the investment commitments and staggered economic development.
• Promotion of lawlessness emerging from unauthorised activities or development with limited adherence to the operation requirements.
• Unauthorised operations with unapproved WULA’s may lead to unsustainable use of water resources, destruction of water courses and negatively effects water security access and water quality and quantities.
• Individual applications for VIPs for Human settlement development.

Interventions to Address Challenges in the Water and Sanitation Sector

The DPME held bilateral meetings with the South African Local Government Association (SALGA) and Department of Cooperative Governance (DCoG) to address the state of local government including its impact on infrastructure:

• Dwindling financial resources in municipalities causing strain on the upkeep of infrastructure.
• Inadequacy of the local government funding model to ensure sustainability of services especially in rural municipalities.
• Dysfunctionality of waterboards and debt owed to waterboards and consequential effects on water service provision.
• Understanding of infrastructure grants and poor project management.
• Dilapidation of infrastructure.

See attached for full presentation

Discussion

The Chairperson thanked the Departments for their informative presentations. He then afforded 10 minutes for Members to gather their notes. The Chairperson opened the floor for discussion.

Mr A Tseki (ANC) said he only had two points. The first one concerned the Auditor-General (AG). He said the presentation indicated findings that there were risks concerning a dam wall, and wondered how many dam walls were at risk in the country. Can the AG clarify the risks of this dam wall?

Mr Tseki said that his second point concerned the DPME. He said in the presentation, the Department highlighted irregular expenditure in red and that all of them were in red. He said the Department should advise on the consequences of this because it is recurring. If it is a capacity issue or an issue of any other kind, the Department should let the Committee know, so that consequence management can be applied.

Ms R Mohlala (EFF) said all her questions are directed at the AG. On pages 16-19 of the presentation, the start dates are mentioned for the grant infrastructure projects. Start dates from 2013,2014, and 2018. Overall, this amounts to cost overruns and it appears as if the DWS revised a new budget. Could the AG provide examples of quantifying RBIG projects, with concrete costs and start dates, and intermediary work before finalisation of projects? For a Department dealing with high-value assets, it is rather a simplistic approach to financial accountability by having no updated financial management register. Water and sanitation infrastructure is at the core of the Department and having a single important component of its work not updated should have led to a harsher opinion on asset management.

Ms Mohlala said funding constraints within the operational and maintenance units are worrying. R36 million is required to maintain and refurbish national water resource infrastructure. If the current situation is so bad, how can the Department improve and turn around such a deficit?

Ms N Sihlwayi (ANC) said she will only focus on the DPME’s presentation. The issue of irregular expenditure among entities has provoked the recommendation of urgent intervention. There should have been a programme planned for each entity. The presentation mentions the activity plan on how they do their business processing in terms of trying to achieve performance. Has the DPME managed to make that analysis? What are the difficulties of the internal activity plans of those entities? Are the programme plans not precise or clear enough?

Ms Sihlwayi said her second question is on slide 15 which concerns delays on the dams of Tzaneen, Clanwilliam, and Mzimvubu. When it assesses its performance, the Department goes in depth. Expenditure has gone up on Mzimvubu dam, but the program is still unsatisfactory. What are the findings and what is the real problem? Is it a systematic issue of the Department  and those participating in these projects? They are not coordinated enough to achieve good performance. The other area of concern is access to basic services. We want the in-depth analysis of the DPME to get to the predicaments affecting performance, to be able to make a well-founded correction. Is it the program plan that is imprecise or the activity plan that is uncoordinated?

Mr G Hendricks (Al Jama-ah) said it is encouraging to see the progress made in the period of two or three years. He would have liked to hear about the progress made on the number of disciplinary hearings and criminal cases. Also, whether or not those disciplinary hearings were successful, or whether anyone had been jailed. There has been a massive decline in the need for disciplinary hearings and the laying of criminal charges. This will give an indication of whether the looting and unsavoury behaviour has changed. The Department has gone out of its way to change the behaviour of many of its officials and staff. He said he is sure the auditors did a sample of the line items, and he would have liked to hear what percentage of those line items they deemed to be non-compliant. This would provide the Committee with more oversight of those Departments that deal with the line items.

The Chairperson said he knows there is a big issue between the old Amatola and new Amatola. When the amalgamated amatola was given to the Committee, questions were raised about the status and posture of the old versus the new amatola. What is the Department telling us about the amatola?

The Chairperson said the consequence management in the report by the DPME is red. All of the entities are spending money wrongly. Concerning the water treatment entity, the engineers have signed off on work and were paid for work that was not completed. What are the consequences of this? He noted that 88% of people now have water as compared to 1994. But raised the concern that there was a commitment to do nine dams but only completed one. Also, they committed to eradicate 12 221 bucket sanitation systems, but they only did 1292. What are the consequences of this? He said the findings made must be answered for by the Department, because the Committee is of the view that the Department will help the Committee recommend ways to prevent these mishaps. He asked why there was a work stoppage in Giyani.

Ms Sihlwayi said the AG reports that the entities have improved in terms of their expenditure. Yet, the DPME is saying there is urgent intervention required. Perhaps she did not understand them clearly. The consequence management is slow, but she said she liked the fact that the Department agreed that it does not have capacity and it is going to appoint an external auditing team to augment its capacity. She thanked the Chairperson.

AGSA Responses

Mr Stanley Mafunyiswa, Senior Manager, AGSA, said a dam safety report in 2010 formed the basis for expanding the dam wall. The report indicated that certain deficiencies were identified on the dam wall and that the wall needed to be rehabilitated. The Department opted for increasing the dam wall as there was a need for additional water. They also looked at another dam safety report in 2020 that indicated deficiencies within that dam wall. These reports also include a dam safety assessment which stated that if the dam wall broke, 350 residents of Clanwilliam will be affected and about R2 billion would be lost from farmers.

Mr Mafunyiswa moved on to the question of asset management. He said the question is, why do they not have an audit opinion if they identified these issues of asset management and asset registry? The issues they have identified on the asset registry do not necessarily affect the values included in the asset register. There was improvement in the asset register in the 2021/22 financial year compared to previous years, where the values in the asset register were incorrect because of the incorrect assessment of the impairment of assets in the registry. The condition of assets in the registry is not updated correctly. They have also identified that when the Department does physical verification yearly, it does not perform it on the entire population of assets. It performs a risk-based analysis when it does physical verification. He said the Department needs to perform it on all the assets. It does not affect the values and that is why they do not have material findings in the asset register. He said their recommendation is to improve conditional assessment of assets. This will ensure assets in poor condition are identified timeously. They also recommend the supervising and monitoring of contractors to ensure that the repair work being performed is appropriate. Also, the delays in the procurement of goods and services for the repairs of infrastructure will improve. The majority of irregular expenditure is related to emergency procurement for infrastructure assets. The procurement ends up being delayed which also delays the repairs. The budget for infrastructure repairs should be looked at. The Department only spent 2% of the total asset balance, which is insufficient. Management should consider increasing their budget for asset management to cover the repairs.

Mr Mafunyiswa then addressed the question of consequence management. In particular, the question on material irregularity in repair work. He said the repair work was not completed in these cases and the Department had to return to the repair work after the service provider had left and had been paid. In terms of that specific case, the Department opened a case with the South African Police Services (SAPS) in June 2022 that is still ongoing. The Department also performed internal investigations. The total value of the potential loss was R18 million. The case was also referred to the Special Investigating Unit (SIU) and is still underway. The entity also received legal advice on the matter and is contemplating whether to turn the case over to the state attorney to recover the money. The accounting officer has committed to improving controls to ensure this does not happen in the future. They have also allocated an area manager to supervise the engineers on the ground to ensure they do not sign off invoices for work that was not completed. He thanked the Chairperson and the Committee.

Ms P Rajeswari, AGSA, [name unconfirmed] said she would start on the question raised on the Giyani project. As part of its audit process, AGSA has selected a number of projects that were significantly delayed. This was to ensure the Department was completing these projects and addressing the concerns raised surrounding the projects. Giyani was one of these projects and it is a major concern for the AGSA. She said they have visited both Giyani projects with management. It continues to do additional work on them. She said it would provide more detail on the work it is doing in their next meeting. The presentation is a summary of the root causes identified for the Department to address.

Ms Rajeswari said Members raised a question regarding cost overruns. She said AGSA has provided details as to why these projects have not been completed. Essentially, any project delay will result in cost overruns. In some cases, contracts may be terminated and a new contractor or implementing agent might be hired. Every time contracts are negotiated, there is an increase in costs, and this is a concern. On consequence management, she said the compliance audit that they do looks at irregular expenditure and allegations made by staff. The PFMA requires that all instances of irregular expenditure must be investigated to determine if anyone should be held responsible in terms of those investigations. She said they have identified allegations against officials of the Department where the investigations were not completed. That is reflected in the findings of the audit report. They also identified similar issues at WTE and TCTA, where investigations were not undertaken. The Department has said it will procure the necessary resources to complete those investigations.

The Committee raised concerns that it was claimed the entities have improved, which is contradictory to the DPME report. She clarified that AGSA noted the improvement of the WRC since 2019, and improvements on irregular expenditure. It has also spoken to the performance of the Department against its performance indicators. They are in line with the DPME when they say that various indicators have not been achieved. When it comes to performance planning and reporting, it is in line with the DPME.

DPME responses

Ms Mmakgomo Tshatsinde, Deputy Director-General: Sector Monitoring, DPME, said the Department has a sister monitoring partner that focuses on SOE’s. She said it does not have a representative from them to provide more clarity on the entities than she can. A framework has been provided for how the DPME will monitor these entities. She said it will utilise information from the AG and other organisations. There is a plan of action for how the DPME will monitor SOEs moving forward.

Ms Tshatsinde said on consequence management, the DPME has a Planning Bill which has been in Parliament for a very long time. The Bill could give the DPME more teeth than it has now. She said resources of the government have to be utilised otherwise the performance of Departments or sectors will decline. This forum gives the Department the opportunity to do an in-depth analysis of specific projects, such as the Giyani project, as it does its own sampling. She said the Department has distributed its MTSF report and that many of the issues have been identified. Members can call the Department directly if they need additional information or a more in-depth analysis. She said this will aid the Committee’s oversight role. She said the DPME wants to work closely with the Committee as monitoring is a continuous process. She said the Chief Director’s team will give further insight on the report.

Ms Kefilwe Sethoabane, Chief Director, DPME, said entities are accountable in terms of the PFMA. In terms of the processes of expenditure, she said the DPME presents its findings to the forum of the Directors-General (DGs). The information is also presented to Parliament. The entities are then called by the Standing Committee On Public Accounts (SCOPA) to account for the expenditure irregularities. SCOPA is responsible for consequence management. The boards of the entities also manage them.                    

Ms Sethoabane said entities develop their plans that are monitored by their board as well as the DWS. Procurement, project management, construction mafias, and a lack of skills cause delays in the construction of dams. The main reason for delays is the development of construction infrastructure and maintenance. She said that in bucket system eradication, the main challenge is the construction of the bulk infrastructure. This contributes to the delay in their eradication. She said on the contradictions of the reports, the Department monitors the indicators that are implemented in terms of the project management. She said you may see progress on the indicators but not necessarily the delivery output on the ground. The initial phases might not indicate the actual output of that project. On criminal cases, she said the AG can answer that. Ms Sethoabane said as the DPME, it will get to the issue of the old versus new amatola but it has not had the chance to focus on that yet.

Ms Sihlwayi said the DPME’s role is totally different from others. The Department has managers that have the skills to do the work. Yet, some processes fall away. The DPME presented that it gets to the in-depth analysis of where entities did not perform well. She asked why Clanwilliam dam, after all these years, is still where it is.

The Chairperson said Ms Sihlwayi should have started by saying her view is that the DPME must behave that way. He said until her view is contested, she is adamant this is how it should work.

Mr Tseki said the risk analysis done on Clanwilliam Dam in 2010 and the years after stated that the risk is still there today. It is a matter of concern. He proposed that the Committee must engage the Department regarding the report and how they move forward.

The Chairperson said that comment was irrelevant as the Department was not there. The Department will answer once the Committee has presented the report to Parliament.

Ms Mohlala said the DPME officials are responsible for the monitoring and evaluating water and sanitation across the water value chain with an understanding of the financial challenges.

Ms Tshatsinde said her team cannot analyse everything due to a lack of capacity. That is why they do deep dive exercises on a particular program. She said the DPME is skilled enough to monitor these projects but suffers from a lack of capacity.

The Chairperson asked the AGSA if it would like to add anything.

Mr Mafunyiswa said they have nothing to add; the rest of the questions are for management of water and sanitation.

The Chairperson said they will move on to adopting the Committee programme for the term. He thanked the AGSA and DPME for attending the meeting and providing insightful information.

Ms Sihlwayi moved to adopt the program.

Ms M Matuba (ANC) seconded this.

The Chairperson said the programme is then adopted.    

Department of Water and Sanitation 2022/23 Annual Report

Introduction

The Nandoni-Nsami Pipeline Project reached practical completion to supplement water supply available to communities in Giyani. The Hazelmere Dam Project was also completed in the year under review. The Department continues implementing the Financial Recovery Plan to improve service delivery, financial management, finalisation of historic improper expenditure and audit outcomes. The Department is implementing a Revenue Enhancement Strategy. It has developed a Standard Operating Procedure Strategy on credit control for WTE and waterboards to improve the revenue collection and standardised operating processes (SOP) for debt recovery.

Comparison of non-financial and financial performance

• Administration spent 98% of the budget with an actual achievement of 75%.
• Water Resources Management spent 99% of the budget with an actual achievement of 72%.
• Water Services Management spent 93% of the budget with an actual achievement of 70%.
• Total budget spent was 95% while actual achievement was 72%.

Annual achievements

Departmental Management:

102% compliance with the approved audit action plan

96% implementation of risk management plan

Financial Management

SMME procurement at 51%

Targeted procurement spent on designated groups with ownership of 50% and above:

Women account for 23%

Youth account for 6%

People with disabilities account for 2%

100% implementation of financial and recovery plan

Strategy to overcome areas of under-performance:

Annual budget: implement the financial recovery plan.

Debtor days: the Department has appointed service providers from the National Treasury transversal contract to assist with debt collection. Also, the Department is implementing an incentive scheme that encourages debt repayment agreements and waiver of interest.

Water Resource Management

Strategy to overcome areas of underperformance:

National Water Act Amendment Bill: On 12 April 2023, the Social Protection, Community and Human Development (SPCHD) cluster endorsed the submission of the National Water Amendment Bill to Cabinet.

National Water Resource Strategy Edition 3: Obtain the Executive Authority's approval to submit the draft Cabinet memorandum and Strategy to Cabinet. During the 2023/24 financial year, the Department obtained Cabinet approval to implement the approved NWRS-3.

Water Services Management

Strategy to overcome underperformance:

Regional bulk infrastructure under construction and completed: The Department’s supply chain has also through instruction notes (financial circulars), provided guidance on how municipalities should appoint contractors. The Department will enforce the circular/s and participate in processes that will improve contract or appointment to ensure timeous project implementation and completion.

Cumulative financial overview

The expenditure for the period ended 31 March 2023 amounted to R17.693 billion, representing ninety-five percent (95%) of the total final budget of R18.555 billion, leaving total unspent funds of R861.594 million.

All the unspent funds for the 2022/23 financial year are committed and the Department applied to National Treasury for approval of the unspent funds to be rolled over to the 2023/24 financial year. The 2023/24 budget has been reprioritised to fund these projects whilst awaiting the outcome of the rollover application.

Financial highlights

Advances includes amounts paid as per the Implementation Agreements with Water Boards for Regional Bulk and Water Services Infrastructure projects. Contingent assets includes mainly legal claims by the Department (Joint with Special Investigating Unit) for the Giyani Water Project & claims against Financial Advisory Services firm.

Current liabilities consist mainly of voted funds to be surrendered to the Revenue Fund.

Request for rollovers

The conclusion of the Giyani Water Services Project, which is intended to supply water to 55 villages, is currently underway. The first phase of the project is at an advanced stage with contractors appointed and on site, it is anticipated that the first phase will be completed by the end of the 2023/24 financial year.

The Bucket Eradication Programme was delayed due to inadequate engineering planning and design for the required upgrading of wastewater treatment works to receive additional sewage from the new household waterborne sanitation connections. The projects will be completed during the 2023/24 financial year hence the request for rollover.

Audit Outcomes

Detailed audit action plans have been put in place with specific corrective actions and milestones, with progressive implementation towards achieving a clean audit.

Investigations and condonations processes are underway including matters raised by the Auditor-General of South Africa.

The Department is proactively engaging with the Office of the Accountant-General on technical matters to ensure smooth preparation of annual financial statements and to prevent disagreements during the audit.

Summary of unauthorised, irregular, fruitless and wasteful expenditure

The unauthorised expenditure relates to overspending on Bucket Eradication and War on Leaks programmes in prior years.

Fruitless and wasteful expenditure relates mainly to the Vaal River intervention project and construction costs that could not be recovered from projects (internal and external construction projects).

Irregular expenditure transgressions

Analysis of all the irregular expenditure cases incurred in the prior years and the nature of transgressions revealed the following control deficiencies within the procurement processes: Bid evaluation not done in accordance with the advertise devaluation criteria.

Change of scope of work after bid awarded without approval by the delegated official.

Strengthening credit control in the water sector

DWS and the water boards are putting in place the following measures to strengthen billing and revenue collection: DWS will collaborate with National Treasury to ensure that equitable share allocations are withheld from non-paying municipalities.

DWS will ensure that standardised credit control and debt recovery processes will be put in place across all the water boards. This will include consistent enforcement of water limitations/restrictions on non-paying municipalities and legal processes to attach municipal bank accounts where necessary.

See attached for full presentation

Trans Caledon Tunnel Authority Annual Report 2022/23

Organisational Performance

TCTA continued to play its critical role in the water sector which is supported by its track record of raising funding for the implementation of infrastructure, and infrastructure project delivery within budget, and debt management.

Projects in Preparation

• Berg River Voëlvlei Augmentation Scheme
• Phase 1 of the uMkhomazi Water Project

Berg River Voëlvlei Augmentation Scheme

The project will augment water supply to the Western Cape Water Supply System during winter months.

A weir and pump station at the Berg River with a 6.3 km pipeline discharging water into Voëlvlei Dam.

uMkhomazi Water Project Phase 1 -uMWP-1

uMWP-1 will transfer water from the uMkhomazi River to augment the Mgeni System, which supplies domestic water to approximately 6 million people and industries in Durban and Pietermaritzburg regions.

Dam at Smithfield on the uMkhomazi River, 33km raw water tunnel and 5.1km water pipeline to connect the raw water tunnel to the Baynesfield Water Treatment Works.

Vaal River System

The funding programme on the Vaal River System is used to meet the financial obligation of South Africa to Lesotho to pay for Phase 2 of the Lesotho Highlands Water Project.

The Vaal River System supplies water to 46% of the country’s economy and 33% of the population.

Phase 2A of the Mokolo-Crocodile Water Augmentation Project

The project will augment water supply to Eskom, IPP power generation, associated coal mining, Lephalale Municipality and unlock economic development in the Waterberg Coalfields.

Weir and pumps station at Thabazimbi and 160km steel pipeline to Lephalale in Limpopo.

Acid Mine Drainage Water Treatment Plants

Operation of three plants in Gauteng to treat acid mine drainage to an acceptable quality before discharge into the environment.

All water pumped and treated before discharge into the environment, met the required specification.

Delivery Tunnel North of the Lesotho Highlands Water Project

The tunnel is from the border between Lesotho and South Africa to the Ash River out fall North of Clarens in the Free State.

Repayment of Capital and Interest

On all projects, capital and interest payments were made on the due date and the borrowing limits on the projects were not breached.

Financial Operational Highlights

Tariffs billed–exceeds budget due to volumes billed being higher than budgeted volumes.

Running Expenses–below budget due to Lower staff costs, O&M, Royalties and LHDA operations and maintenance.

Progress Update on Irregular Expenditure Incurred

There has been an improvement in the procurement control environment, resulting in a few incidences of non-compliance being reported in the current financial year.

A Loss Control Committee is in place to quantify the losses and make recommendations to the Chief Executive Officer on the actions to be taken.

Going Concern

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

See attached for full presentation

Discussion

Ms M Pietersen (ANC) said underperformance reoccurs when one looks at the previous financial years’ annual reports. There is a lack of implementation of a risk management plan, the National Water Amendment Bill, scheduled and unscheduled maintenance projects, dam safety rehabilitation projects, etc. What actions has the Department taken on officials who have failed to implement these tasks? If not, why has the Department not taken action? She recommended that in instances of poor performance by Departmental officials, consequence management must take place as a corrective measure. For instance, if Departmental officials need training to perform certain tasks, then training should be provided.

Ms Pietersen said last year, the Department highlighted measures to improve spending. However, there is still an underspending amount of R767 389 million on capital payments. What is the root cause of this underspending? What challenges has the Department faced when implementing the measures identified in the previous annual report? The Department should continue to practice consequence management on underspending of the budget.

Ms Pietersen said the Department has struggled in the year under review to achieve some of its set targets relating to setting aside its procurement spent for designated groups – women, youth, and people with disabilities. What steps should the Department take to ensure that designated groups benefit from Departmental procurement in the future? The procurement spent on designated groups, especially women and youth, has fluctuated compared to previous years. However, procurement for disabled people has stagnated at 2%. She recommended that the Department work with the Department of Women, Youth and Persons with Disabilities and the Department of Small Business Development, with the intention of expanding business opportunities for those designated groups.

Ms Pietersen said the Department has been struggling to complete bucket system eradication programs for a number of years. What is the root cause of the delay of completing these projects? Has the Department taken action against officials and service providers who contributed to the slow implementation of this programme?

Ms Mohlala asked when the DWS will ensure monitoring and reviewing of action plans prepared by water service authorities to address water losses. How will the Department of Water and Sanitation capacitate the operations and maintenance of their work to ensure the shortfall of billions is available for operations and maintenance of critical infrastructure? Did the Department receive any feedback from the National Treasury on rollovers requested by the water trading entity for the Giyani water project? She said in terms of section 40 3(a) of the PFMA, the water trading entity is required to prepare an annual performance report. Why does the water trading entity still fall under the reporting of the Department? Of the 334 municipal water treatment works mentioned in the green drop as being in a critical state, where these municipalities were placed under regulatory surveillance and required to present a detailed corrective plan, how many municipalities complied? What actions were taken in cases of non-compliance?

Ms Matuba appreciated the presentations that were given today. She said there is consistency in the reports of the Department and the AG. She appreciated the clean audit despite some of the issues raised regarding the audit in the discussions. What happens to provinces that do not spend their allocated money? She asked if they should continue with this process or if there is anything the Committee can do to assist such provinces like intervention.

Ms Matuba said there is variation in the budget allocation over the years. What is the budget implication for such variation? She also asked how far the municipalities are with their water plans. There are no timeframes in the report. If the Department can have planned before budgets are allocated, it will reduce irregular expenditure. She said the issue of skills and capacity in municipalities is a challenge. She said she is unsure whether municipalities develop water plans or whether consultants are employed to do this and asked for clarity on the matter. She said they must build capacity as much as they can as this really hampers service delivery.

Ms Sihlwayi said the Department is doing a lot of work and there is a lot of improvement. She said the reports reveal the Department is very dependent on municipalities to perform. The Department has a planned program and budget but is unable to implement the programme, because of challenges in municipalities. She asked how far they have come to make the DDM model work. How do we make sure this district development model works? When municipalities are unable to implement the programs, they blame the national department. She said the Giyani dam has been an issue for many years in the Department and there is no improvement. The one pertinent issue is the unresponsiveness of the Mopani district. The Mopani district did not even show up for meetings two or more times when the Committee wanted to engage them. She said there is a need for a single entity to do consistent monitoring. The Department is there to implement and the AG and DPME are there to monitor. The AG and DPME should make their own in-depth analysis so they can understand why these dam projects are having problems. Is it the program or activity planning that is failing these programmes. If the activity plan does not provide clear business processes, you will not be able to achieve good performance. On the proposed rollover, she asked which programs would be compromised. It is important that promised projects are implemented.

The Chairperson said it was promised in March that the bucket system would be eradicated by August. Now it is said to be by March next year. These projects have been underway since 1994 and should have been completed to date. Irrespective of other challenges, the bucket system needs to be eradicated. However, the Chairperson said there is good progress made on irregular expenditure. He asked what would compel engineers to sign off on work that is not completed. Consequence management is an issue in this regard. These engineers must be investigated. He said he appreciated the fact that 38% of the population has water now. The Department is doing better. He said all the entities have gotten radical regarding their accounting. What is the process moving forward to deal with this radical accounting? Overall, he said the Department is moving forward but there is still a lot of work to be done.

Responses

Mr Senzo Mchunu, Minister of Water and Sanitation, thanked the Chairperson. He invited the presenters to respond so they may pick up the pertinent issues that are relevant.

Dr Sean Phillips, Director-General, Department of Water and Sanitation, said on underperformance, the Department has made progress in certain areas. For instance, regarding the National Water Act provisions, Cabinet has recently appointed that they be gazetted for public comment. On dam safety, he said last year, they put in place a new procurement strategy and also put in place a construction unit efficiency program. Dam safety is determined by the construction unit and therefore they will see improvement. With regard to risk management, he said they are implementing their risk management diligently under the independent risk committee. Their risk reports will indicate the Department is improving on taking actions identified through the risk management process.

Dr Phillips said on under-expenditure, most of it was related to the branch responsible for the municipalities. Most of the under-expenditure is due to the municipalities on the ground. They are taking steps by moving money from municipalities that are spending slowly to municipalities that are spending quicker. Municipalities would not lose money as they will give it back later. Those measures are taking effect, as under-expenditure went from R2 billion last year to R700 million this financial year. On procurement to designated groups, Mr Phillips said they have to follow the prescriptions of the Preferential Procurement Policy Act. The Act states they have to apply the 80/20 rule, which states for projects below a certain size, they are allowed to allocate 20/100 preferential points. The rest has to go to price. For larger projects, they can allocate 10 points. After applying this model, the tender goes to the highest-scoring bidder. They do collaborate with other departments such as the Department of Women and the Presidency, when they conduct workshops, for instance.

Dr Phillips said on capacitation of municipalities, there are several ways they do this. The most important are the blue, green, and no drop assessment reports. They are both a regulatory and a support mechanism for municipalities. When they do these reports, they identify in detail how their water and sanitation systems are not up to scratch. As well as exactly what the municipalities need to do to improve the situation. That includes assessing whether they have the staff with the required skills and qualifications. He said they advise the municipalities on what kind of staff they need to recruit. In addition to that, they have the minimum norms and standards for water and sanitation services in terms of the Water Services Act. This also provides guidance to municipalities as to what are the minimum qualifications and skills required of process controllers. They are currently amending the Act to include managers of water treatment works as well. There is also the MuSSA assessment of municipalities which indicates how they can improve their management. COGTA and MISA provide assistance to municipalities to implement the results of those assessments.

On allocation to provinces, the Department does not allocate money to provinces, only municipalities. Water is a national government function, not a provincial one. To reduce under-expenditure, the Department monitors municipalities that underspend on a project closely. Also, the Department tells municipalities they will give the money over a longer period and give the money to a municipality that can spend it. However, they will receive back that money when they are ready to spend it. The Department is concerned about the budget implications and is putting in a lot of effort to reduce under expenditure. He said there is a risk that Cabinet and Treasury might consider that the Department as unable to spend the money that is allocated and lower their allocation. The fact that they have reduced under-expenditure might give Treasury more confidence in the Department.

Dr Phillips said that if they are provided with information on petitions by the Portfolio Committee, they do engage and provide the Committee with reports. The Department attends meetings with the Committee and communities related to the petitions. He said there are three petitions he is aware of: one in the North West, one in the Northern Cape, and one in Limpopo. He said on the question regarding the DDM, the DDM has helped improve coordination, particularly their provincial offices. Their provincial managers also participate in the DDM structures. That has helped coordinate the work of the Department with municipalities. However, there are certain challenges that the DDM is not addressing. They are attempting to amend the Water Services Act to address those challenges. This includes introducing an operating license system for water service providers. Those proposed amendments were approved by Cabinet to gazette for public comment.

On rollovers, Mr Frans Moatshe, Chief Financial Officer, said they have not received a response from National Treasury, but it should be part of the adjusted estimate of national expenditure. He said no projects will be compromised by the rollovers but will add to the current budget. He said WTE is currently an account within the Department, not necessarily an entity.

Mr Leonardo Manus, Chief Director: Infrastructure Development, Department of Water and Sanitation, said the Mzimvubu project as delayed by unresolved disputes. At this point in time, the disputes have been resolved and they are moving ahead. He said they are appointing DCTA as a project manager to implement the PMO going forward. The engineers do a lot of administrative work to prepare themselves for starting at the end of November this year. On the Clanwilliam project, he said there have been problems with procurement, but the Department has done a lot to improve that. 9/13 of the bids advertised for the Clanwilliam project have been awarded. Three additional sub-contractors are already on site together with the construction unit. The construction of the Clanwialliam project has restarted and is already underway.

Dr Phillips added that the main reason for the delay at Mzimvubu is the lack of funding for the project and the inability of the Department and National Treasury to agree on funding for the project. That was resolved in December last year with the National Treasury. Currently, construction is taking place on site for the access roads.

Mr Risimati Mathye, Deputy Director-General: Water Services Management, said they have made progress in the Free State. In the space of two and a half months, they have moved a margin of about 20%. In Reyes, the Department has also made progress. In Ellington, they are sitting at around 50% at the end of August. He said they have calculated the risk and how much time they still have towards the end of the financial year. He said they are having a weekly progress meeting with all of the contractors. On the issue of water losses in the municipalities, he said the Department is making good progress on the blue and green drop projects.

The Department seeks to paint a picture of how municipalities are operating, specifically when it comes to management of water infrastructure. These reports are helping the Department address the gaps in municipalities. The Department is doing five-year reliability plans, and seeks to assist municipalities to develop a water service development plan. The Water Service Development Plan (WSDP) is linked to the Integrated Development Plan (IDP); in other words, the Department is helping municipalities develop a five-year plan that talks to water and sanitation services. In this way, it is helping municipalities comply with their DORA framework when they have to fund their projects. This is how the Department is capacitating the municipalities. On the Giyani project, he said that water treatment works now sit at over 60% despite the challenges and should be fully functional by the end of December. At least four to five villages are sitting at 80% with the intention that all these projects will be completed by June next year.

Ms Iketletso Lekalake, Head of the DWS Northern Cape Provincial Office, said the petitions had been presented to the petitions committee. The Magareng municipality has had challenges with their water supply to the town. This is due to several challenges: an incomplete water treatment facility project, the tankering services and the distribution of water, and the completion of the bulk line. Fortunately, together with the Deputy Minister, Judith Tshabalala, they visited the site where the municipality is currently procuring the contractor to complete the water treatment facility project. There is significant progress made on the bulk line, and water has been restored to the town. The challenge the municipality faces is pressure in high-lying areas and old asbestos pipes. She said the municipality had given them a breakdown of the pipes addressed over the MTF period.

Ms Lucy Kobe, Director: Water Use and Institutional Establishment, said all the Giyani petitions have been attended to by the Department's top management. The Minister has engaged the MEC and the Mayor. Regarding articulation issues, she said she holds weekly meetings, which is why all 38 contracts have no issues. She said they also have monthly MSTT meetings chaired by the Executive Mayor.

Mr Chadwick Lobakeng, North West Provincial Head, Department of Water Affairs, said on the Rustenburg petition, they have met with the municipality and found a lack of proper operation and maintenance. Of late, they have had several breakdowns in the Bospoort plant and pipeline. There was a case opened with respect to an incomplete project, however, Rustenburg Trust indicated that they do have a budget in place for that project. It is going to employ a contractor for mechanical and electrical aspects to complete the plant. It has the money, but requires procurement of a contractor to complete the project. The Department will have a follow-up meeting next week to find out how far they have gone with the project.

Minister Mchunu thanked the Chairperson. He said the Department notes and shares all of the opinions shared in the meeting. That includes reservations and concerns expressed by the Committee. He said the Department takes these comments very seriously as they constitute a way forward for them. He said there are internal concerns regarding the Department’s lack of progress. Regarding their water service delivery, Nelson Mandela Bay is full, which is a relief for the surrounding communities. The Minister expressed personal concern over the lack of progress regarding the bucket system eradication program. The Department has not done well in terms of the implementation of the program. There is a lack of prioritisation, and everyone needs to be supervised very closely. Some progress has been made in the Free State, but the Department is not where it needs to be. This is mainly an issue in the Northern Cape, the Free State, and the Eastern Cape.

Minister Mchunu acknowledged the public mood on the lack of water provisions in certain areas, and he said they are lucky as a department to reach an understanding with most municipalities in the country. They have also reached a better understanding with National Treasury in terms of working together. Investment in infrastructure is not happening at an ideal speed, considering the age of underground infrastructure. This will also hamper direct losses. Leaks in these pipes contribute to massive water losses. Minister Mchunu said the DDM alone cannot achieve much. No progress will be made if municipalities are not capacitated to deal with matters. There is a current practice where people show up without tender to claim a percentage of the project, which cannot be tolerated. That is why the Department opened a case, and if negotiations fail, they will work under police guard.

The Chairperson said they should name and shame these people, as they cannot succumb to thuggery. He said the Department must correct their numbers, because they express they are at 70-80% on BP but in the document, they are at 21% interest rate. He thanked the Minister and the Department, noting that there has been progress made since 2019. He said they are ready to present the financial report.

The meeting is adjourned.