Rand Water 2005/2006 Annual Report & adoption of Committee Reports

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
7 November 2006
RAND WATER 2005/2006 ANNUAL REPORT & ADOPTION OF COMMITTEE REPORTS

Acting Chairperson: Mr S L Tsenoli (ANC)

Documents handed out
Rand Water Stakeholder 2005/06Annual Report Powerpoint Presentation
Rand Water Annual Report 2005/2006 [available shortly at www.randwater.co.za]

SUMMARY
Rand Water presented its Annual Report to the Committee. This outlined their focus and the achievements and challenges from the last financial year. The area of service had been extended, and there had been changes in management restructuring. A recent pipe burst served as a wake up that Rand Water’s infrastructure needed constant upgrading. Achievements included an increase in sales volume, revenue and net income. Net income amounted to R593 million. There had been redemption of an R860 million debt. There was a steady growth in profitability and the return on total assets stood at 12.5%. They planned to invest R2.9 billion over the next 5 years to renovate and augment schemes. The future projects were listed. The demographics of the organisation were described, and included 50% executive women, and a number of people with disabilities. Social responsibility programmes included learnerships, bursaries, interns and HIV/AIDS programmes. 85% of apprenticeships were female. Rand Water assisted with alien plant removal and domestic leaks, to assist water conservation. Its challenges included attracting and retaining skilled people, improving internal performance management, engaging with government on targets, and meeting New Partnership for Africa's Development (NEPAD) initiatives. It aimed to be the industry leader and partner of choice in sustainable water services in Africa by 2011. Questions by members addressed the link between water sales and rainfall, the assistance by Rand Water to municipalities, the problems of municipalities, plans to address the projected water shortages, performance bonuses listed in the report, the decline in numbers of employees, and management of water services.

The Committee discussed and accepted the Oudtshoorn and Provincial Disaster Management reports The Chairperson requested that amendments be made to the report on India before it could be adopted. The Chairperson dealt with the forthcoming visit to Gauteng and the briefing by the Local Government Association, and announced a walking tour of Cape Town in the following week.

MINUTES
Briefing by Rand Water on 2005/6 Annual Report
Mr Themba Nkabinde, Chief Executive Officer, Rand Water, introduced his delegation and presented the highlights of the 2005/06 financial year. The area of service had been extended to 18 000 square kilometres, covering 11 million consumers, and he tabled the customer sales profile, predominantly metros but also other municipalities and industries. During the year there had been a change in the Minister and Director General as well as management restructuring and debt redemption. The Meredale pipe burst served as a wake up to Rand Water that their infrastructure needed constant upgrading. They had repaired it and had checked other pipelines in densely populated areas.

Rand Water’s achievements included an increase in sales volume, revenue and net income. Net income amounted to R593 million. There had been redemption of an R860 million debt. There was a steady growth in profitability and the return on total assets stood at 12.5%. They planned to invest R2.9 billion over the next 5 years to renovate and augment schemes.

The future projects of Rand Water would include the Vlakfontein Mamelodi pipeline, the Weltevreden Reservoir, the BG3 pipeline and the Zwartkopjes Forest Hill System. Mr Nkabinde described the demographics of the organisation. There were not enough female employees, although management empowerment was now 28% female, and executive had reached 50% female. Commercial equity spending had increased by 29.1%, representing black economic empowerment (BEE) suppliers. The amount spent on training represented 8.5% of payroll. Mr Nkabinde highlighted the social responsibility initiatives including learnerships, bursaries, interns and HIV/AIDS programmes. 85% of apprenticeships were female. He tabled indicators of employee productivity ratios, performance highlights and social responsibility funding. Rand Water assisted with alien plant removal and domestic leaks, to assist water conservation, and were also involved in wetland rehabilitation. They were involved in Ghana and in joint ventures on pipeline integrity.

The major challenges included attracting and retaining skilled people, improving internal performance management, engaging with government on catchment management, water and sanitation targets, and meeting New Partnership for Africa's Development (NEPAD) initiatives. There was a need to engage customers on the full package of water services. Rand Water aimed to be the industry leader and partner of choice in sustainable water services in Africa by 2011.

Discussion
Mr P Smith (IFP) asked why, with the current economic growth, the graph of water being sold had flattened off. He asked how this was linked to rainfall.

Mr Nkabinde replied that demand for water was very high during drought because rain water normally watered the gardens and filled swimming pools. This accounted for a lot of water. Water use was thus directly linked to rainfall.

Mr Smith asked if Rand Water assisted municipalities.

Mr Mashudulu asked whether any independent impact assessments were done. He felt that municipalities were not that reliable, and he asked also whether the impact assessments were linked to housing

Mr Nkabinde replied that the municipalities lost between 15 and 50% of the water they purchased due to leaks. If this problem was addressed it could mitigate the cost of growth. Rand Water was definitely trying to engage with the municipalities to see where the water goes.

Mr Keith Naiker, Chief Operations Officer, Rand Water, said that Rand Water did work with municipalities. Rand Water was precluded from the customer interface. Capacity remained a problem in the municipalities. Rand Water helped the municipalities identify weaknesses and create plans to deal with it, especially sewerage plants. The infrastructure was often old and a lot of water was lost because of it. Rand Water could advise where the problems were. The flatness of sales had also been a result of this problem. There was a Water Services Forum that acted as a vehicle to share information with municipalities, and one had just been completed in Tshwane. Municipalities did not want to be told what to do. Impact studies were done to improve services. Rand Water would try to determine the long term needs with the municipalities, but massive water losses remained a problem. In Soweto in Johannesburg, significant interventions to reduce this had resulted in a decrease in loss from 50% down to14%. This had eased demand and accounted for the flat graph but it was better to avoid having to augment the infrastructure later.

The Chairperson asked if, in light of the Minister’s warning that there would be a water shortage in 20 years, whether there were initiatives other than the Soweto one.

Mr Nkabinde said that there were plans to augment the Lesotho Highlands Water Project phase 2 in 2014. It was necessary that this date be brought forward so it was important to save water now.

Mr Smith noted that the performance bonus shown in the Annual Report for the CEO looked very generous, and asked both for the rationale for it and how performance was measured, especially when profits had fallen.

Ms Jean Ngubane, Chairperson of the Board, Rand Water said that Rand Water had never been too low below their target, but usually fluctuated around it. The performance bonus was set according to Department of Water Affairs and Forestry (DWAF) policies. It looked generous but was not when compared to industry standards. The previous CEO was lost because of another more competitive salary. DWAF had stopped the use of incentive bonuses and the performance of the organisation was not really linked to the bonus.

Mr Smith pointed out that page 106 of the Annual Report called the bonus “a performance incentive” but the board Chairperson had now said that it was not. He asked whether it was part of the package.

Ms Catherine Smith, Chief Financial Officer, Rand Water, added that the annual bonus was paid annually but the figure appeared distorted because the previous CEO had worked for 6 months but received a bonus for an entire year.
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Mr S Mashudulu (ANC) suggested that the Annual Reports be circulated earlier. He commented that Rand Water was doing a good job but the infrastructure in old townships was a major problem. The Committee was concerned with the replacement costs as the life span of any pipe was less than 10 years. He asked whether Rand Water had made any efforts to assist government, especially in instances where the wrong pipes were being used.

Mr M Swathe (DA) asked when the service to the extended area would begin. He is from that area and has an interest in it. He commented that Rand Water was doing well in the cities but it was problematic outside of them.

Ms L M Mashiane (ANC) asked how Rand Water linked the increase in profit with the decrease in employees. She asked whether the employees were replaced, and what Rand Water was doing to make itself sustainable

Mr Mashudulu asked for a breakdown of the training that was done. He commented that natural attrition sounds innocent, but wanted to know if the losses were the result of structural changes.

The Chairperson asked what impact the loss of skilled people had on the other employees of the organisation.

Mr Nkabinde said that in the last five years, Rand Water had stopped using steam for energy and had crossed over to electricity. Steam required more people. The crossover affected 160 people. Most were absorbed into other jobs and some had retired. Natural attrition did not necessarily result in the over stretching of the other employees. Salaries were a problem.

The Chairperson applauded Rand Waters’s efforts with people with disability (PWD). She asked whether their facilities were disabled-friendly. She also asked how many female PWDs were employed and what standard was used to externally monitor.

Mr Nkabinde said that there had been several major changes to make facilities disabled-friendly. He did not know the number of females but he could find it out. There were 169 disabled people in total employed by Rand Water. The ISO standards were checked annually by the Bureau of Standards, who did external audits. The Council for Scientific and Industrial Research would also do some of them.

The Chairperson asked if Rand Water were satisfied with the level of inspections.

Mr Nkabinde said Rand Water believed it was getting value for money and were satisfied.

Mr Mashdulu asked what did local suppliers supply.

Mr Nkabinde said that the extension of service was a backup to the primary source of water. One municipality controlled the process. There were issues, because they would fill their own needs before passing the water on to other municipalities. It should be regionally managed, not by municipalities. Rand Water hoped to resolve the issue with the help of the Committee. There were areas of concern next to their areas where they thought they could play a more constructive role.

The Chairperson commented that Rand Water has an interesting management strategy and it would be useful sector wide. He said that perhaps they should offer a specific presentation at a later date.

Other Committee business
The Chairperson announced that the South African Local Government Association (SALGA) would be making a presentation in the next week.

He hoped that those Members who went to Oudtshoorn had read the report. They should ask the Minister and the Department to understand the initiative before they visited again. The amendments had been made.

Ms M Gumede (ANC) proposed that the report be accepted, Mr I Mogase seconded it.

The Chairperson read through the main points in the Provincial Disaster Management Report and suggested they leave out the internal recommendations and merge the points about funding. Disaster management must be given priority as was required by law. The Committee accepted the report.

The Chairperson announced that there was a visit to Gauteng where tenders were being put out. The law was already two years old but people did not know the requirements and needed to be encouraged to use the new methods. In Ekhuruleni, the staff were stretched and the same problem existed in Cape Town. The stakeholders must prioritise this strategy.

The Chairperson then referred to the report on India and requested for the last time that the points he raised must be included in this report, such as the discussions with the Minister of Finance. The points had been written up but must be included.

Mr Smith said that he agreed with the Chairperson and that section K was essentially verbatim. It must be integrated.

The Chairperson agreed. It was necessary to address the approach to report writing, and he might ask for more time to do it.

The Chairperson announced that there would be a walking tour of Cape Town during the following week with various stakeholders and all Members should attend.

The meeting was adjourned.