Budget Vote hearings: Bushbuckridge; Botshelo; & Lepelle Northern Water Boards

Water and Sanitation

21 March 2006
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Meeting Summary

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Meeting report

WATER AFFAIRS AND FORESTRY PORTFOLIO COMMITTEE
22 March 2006
BUDGET VOTE HEARINGS: BUSHBUCKRIDGE; BOTSHELO; & LEPELLE NORTHERN WATER BOARDS
 


Acting Chairperson: Ms S Maine (ANC)

Documents handed out:
Bushbuckridge Water Board presentation: Part

1 & 2
Bushbuckridge Water Board Annual Report [please email
docs@pmg.org.za]
Lepelle Northern Water Board presentation
Lepelle Northern Water Board Annual Report [available shortly at
www.lepellewater.co.za
Botshelo Water Board presentation

SUMMARY
The Bushbuckridge Water Board, the Lepelle Northern Water Board and the Botshelo Water Board made presentations on their financial performance, activities, challenges and action plans to the Committee.

The Committee expressed concerns about budget and operational deficits, long-term financial viability and reduction of maintenance expenditure. It also expressed frustration that the same issues had been raised with the water boards in the past, yet little or no remedial action had been taken.

MINUTES
Ms C September (ANC), the Committee Chairperson, could not attend the meeting because she was out of the country, and Ms S Maine (ANC) filled in for her.

Bushbuckridge Water Board (BWB) Briefing
Mr R Mathebula, Acting Chief Executive Officer, explained to the Committee that the lack of guaranteed operational subsidies was proving to be a serious hinderance to the board’s mission of providing water to communities. However, he pointed out that the board was exploring strategic means of attaining financial sustainability.

Mr Mathebula acknowledged that all South Africans had a right of access to potable water and safe sanitation as enshrined in the Constitution. He added that water has become a key indicator of government’s perfomance on service delivery; hence the target to provide water to all by 2008 and basic sanitation by 2010.

Mr Mathebula explained that a severe drought had affected the board’s areas of supply with two dams drying up completely. This had forced the board to use alternative supply systems. The development of the Inyaka Scheme was fasttracked; abstraction points were cleaned and consumption was rationed in certain areas.

Mr Mathebula pointed out that 67% of the board’s operational costs were funded by the Department of Water Affairs and Forestry (DWAF). Further, the change in accounting policy whereby the inventory had been included at market value increased profits by R1.9 million.

Discussion
Mr J Arendse (ANC) asked how long the BWB thought they could continue operating with a deficit. He pointed out that in 2005/06, the board had a deficit of R8.336 million. He asked if the board had a plan to deal with the deficit, and if it did, how soon such a plan would be implemented. Further, he pointed out that the overall financial position of the board seemed to be dependent on DWAF, because DWAF subsidised 67% of the board’s operating expenditure.

Ms D Van der Walt (DA) remarked that the objections raised so far by Members were largely a repeat of the Committee’s last meeting with the board. However, she pointed out that this time the concerns were more pronounced than previous.

Ms van der Walt expressed the view that the board was not viable, and therefore, should be handed over to another entity. She reiterated that the budget deficit would not disappear overnight or even in two years.

Ms M Manana (ANC) also expressed the view that the board was not viable, and therefore asked the board for its position on this issue.

Mr Mathebula replied that the present board inherited the dependence on the DWAF. He acknowledged that the board was not financially viable. However, the board was investigating its credit control services to improve its financial position.

Ms S Simmons (DA) asked for clarification of the board’s decision to enter into a memorandum of understanding with Bushbuckridge district municipality. She asked how the memorandum was going to be implemented.

Mr Mathebula explained that the memorandum of understanding with Bushbuckridge district municipality was a means to an end. In other words, it was a means to reach water supply agreement. However, this could not be implemented as the district municipality had been disestablished.

Ms van der Walt asked for an explanation of the maintenance of the board’s fixed assets. She explained that the reason she was asking was because if the board’s financial status was anything to go by, it meant that the board’s ability to maintain its fixed assets was questionable.

Mr Mathebula explained that the board was the only institute in the area that was capable of maintaining fixed assets. The board was aware that it was not financially viable. He explained that the board had a different approach to maintenance, because the DWAF provided the board with R5 million per annum to maintain the fixed assets. However, this amount was much too low.

Lepelle Northern Water Board (LNWB) Briefing
Mr I Modisha, Board Chairperson explained that the board had managed to keep its tariff increase to 2.94% which was well below the inflation rate. The board had also concluded a long-term supply contract with Polokwane municipality for 25 years. In addition, the board had repaid the Olifants/Sand loan of R218 million during the first quarter of 2005/06.

Mr Modisha pointed out that the board had received two awards for the year under review. It was also in the top five of the top 500 South African companies.

The board kept water losses below four percent. Mr Modisha added that the board had availed its laboratory services to all municipalities within its area of operation. He explained that the board’s strategic plan was to make the LNWB a leading organisation by implementing a company-wide management information system and a performance management system. The board also aimed to compile and implement an infrastructure investment plan on projects like the De Hoop Dam and Lebalelo Dam. Mr Modisha noted that the board possesed "critical mass" to attract funding from the open market and development agencies.

Discussion
Mr Arendse pointed out that in the previous financial year, the board’s finance charges were reduced by R13 million, but at the same time the amount set aside for bad debt was identical. He asked for a detailed explanation on this issue. He added that the board’s total revenue had grown by an annual average of 9.2% between 2001 and 2005. It grew by 2.7% over the last financial year. At the same time, the board’s average tariff revenue per kilolitre grew by 9.6%, while the inflation rate was 3.5%. He wondered how this was affecting water users and whether the board believed that it was sustainable. How did the board plan to deal with the problem of liquidity in relation to the amount of short term debt.

Mr Sekgololo (Chief Financial Officer) replied that the amounts might be similar, but there was no correlation, rather it was a matter of coincidence. He explained that the finance charges were reduced as the board retired some of its loans during the year under review. Also the money was invested wisely with institutions where the board earned better returns.

Mr Sekgololo further explained that with regards to the tariff increase, the board’s tariff statistic graph shows that the tariffs were increased above inflation rate between 2000 and 2001, but from 2003 onwards, tariff increases were below the inflation rate.

Ms Simmons asked why the board was cutting down on maintenance costs. Further, she asked for an explanation why one of the board members (Mr Makgobi) had not attended six of the board meetings, but continued to receive his remuneration.

Mr Modisha explained that the issue of Mr Makgobi’s attendance was dealt with according to the board’s policies. He would have to check the exact amount that Mr Makgobi was paid. It might be that Mr Makgobi had been paid for only those meetings he attended. He elaborated that Mr Makgobi was retained as a member of the board for political strategic reasons. He pointed out that Mr Makgobi is the executive mayor of the Mopani district council. In Ba-Phalaborwa, he is the water service authority.

Botshelo Water Board (BWB) Briefing

Mr F Janse van Rensburg (Acting Chief Executive Officer) briefed the Committee about the board’s four action plans. Action plan one was to develop and implement a Human Resources Strategy and Plan. Action plan two was to penetrate potential target markets in Africa and other continents. Action plan three was to optimise productivity and upgrade support systems. Action plan four was to develop and re-develop an organisational structure with focus on the board’s strategic priorities.

However, Mr Janse van Rensburg pointed out that the main challenge facing the board was debt collection. The board had to constitute a cost recovery task team to deal with the issue. Further, the board was being restructured. A Chief Executive Officer and other senior staff still had to be appointed.

Mr Janse van Rensburg explained that a major achievement for the board was when the DWAF had accepted BWB’s five-year business plan.

Discussion
Mr Arendse pointed out that the board had an operating deficit that seemed to have grown by 12% in the past financial year. He also stated that there were outstanding amounts of money that were supposed to have been received from the DWAF. If the oustanding amounts of money from DWAF were to be received by the board, would it deal with the problem of the operating deficit? If so, did that indicate that the board was not self-sufficient?

Ms Van der Walt asked for an explanation of the money owed by DWAF to the board. Who, apart from the DWAF, were the other government debtors?

Mr Janse van Rensburg explained that municipalities owed the board a lot of money, with certain municipalities owing the board about R20 million.

Mr Bailey (Botshelo Water Board) pointed out that the R41 million which was shown as outstanding represented the shortfall between the board’s expenditure on maintaining infrastructure and the actual subsidy which was supposed to have been received from DWAF. That accounted for R34 million. The other R7 million went into retrenchment payments which were made at the request of DWAF and has never been reimbursed to the board.

Mr Z Kati (ANC) remarked that it was good that the board aimed to develop women and youth, but wanted to know if the disabled would be included in this.

Mr Janse van Rensburg explained that the board had a training policy in place and that it offered bursaries to deal with these kind of issues.

Ms Simmons pointed out that it appeared the board did not have an internal auditing committee. Had that been rectified? If not, why not?

Mr Janse van Rensburg explained that the board took a decision to hire a chief internal auditor. The appointment process was currently underway.

The Chairperson thanked everyone for attending the meeting, and urged the water boards to pay attention to the concerns raised by Members so that when they made future presentations to the Committee, the same issues would not be raised again.

The meeting was adjourned.




 

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