Water Boards: Annual Report 2005/6 briefings

Water and Sanitation

19 March 2007
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Meeting Summary

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Meeting report

WATER AFFAIRS AND FORESTRY PORTFOLIO COMMITTEE
20 March 2007
WATER BOARDS: ANNUAL REPORT 2005/6 BRIEFINGS

Acting Chairperson: Ms C September (ANC)

Documents handed out:
Botshelo Water Board Annual Report presentation
Namakwa Water Board Annual Report presentation
Trans Caledon Tunnel Authority Annual Report presentation
Rand Water Annual Report presentation
Bloem Water Annual Report presentation
Ikangala Water Board: presentation
Mhlathuze Water Board: presentation
Albany Water Board: presentation
Magalies Water Board: presentation
South African Local Government Association (SALGA): presentation
Department of Water Affairs and Forestry: Water Board General Issues presentation
Department of Water Affairs and Forestry: Answers to Portfolio Issues presentation

 

Audio Recording of the Meeting Part 1 and Part 2

SUMMARY
The Department of Water Affairs and Forestry presented answers to questions raised at the previous meeting.

Botshelo Water Board reported a large turnover of staff that had created problems. The Board reported on its projects, the sale of water to Botswana, water quality tests, new asset management schemes. A major challenge was debt from municipalities, amounts owed to the Department and a qualified audit report. The Board would rely on Departmental funding to continue in operation. Questions from Members addressed the debt situation, the appointment of the Board, the steps to correct the land registration problems, the water quality failures. Members felt that the Board needed assistance from the Department.

Namakwa Water Board had no CEO and no Board in place. The Board had been able to access loans in the past but this was becoming more difficult. Mines in the area had closed and people were unable to pay for the water. Cash flow was fairly good. There had been a loss of R7.4 million on a loan. There was a need for assistance from the Department. Members asked questions on the position with the
CEO and the Board, whether it was viable, and the impact of the mine closures.

The Trans Caledon Tunnel Authority briefed the Committee on the exit strategy for the Berg Water Project. Its role was in bulk water infrastructure and it was running three major projects. The audit report was unqualified and it was 95% equity compliant. It had many projects in the community. The highlights from the Annual Report were tabled. Members asked about the plans for the deficit decrease, the composition of the Working for Water staff, and the social responsibility programmes.

The Rand Water Board informed the Committee that it had increased its income and redeemed debt in the past year. The detailed presentation included graphs on staff, projects and spending. The audit report was unqualified and the Board complied with Public Finance and Municipal Finance legislation.  The current infrastructure projects and future capital investments were set out. The employment equity needed to be improved at the general level. Questions were asked on the cholera outbreak at Delmas, and capacity problems.

Bloem Water presented the statistics of its services and an overview of the Board. The Audit Report had been unqualified. Major achievements included financial solvency and liquidity. DWAF transfer of assets was proceeding. Bulk water supply agreements were in place with some municipalities, and the Professional Management Review now ranked Bloem Water as one of the top 500 companies. Challenges included debtors, the need to foster intergovernmental relations, the requirements of ASGISA, strengthening local government and youth development. Members raised questions on the steps to fix the financial deficit from the previous years and the debt problems with municipalities.
 
Ikangala Water Board had performed unsatisfactorily for the third consecutive year and struggled to improve its systems and processes. The Department informed the Committee that a decision had been taken to disestablish the Board, but this apparently had not been communicated to it as yet. The Committee urged the Board to build on the recommendations and observations made by the Committee in its previous reports.

Although Mhlathuze, Albany and Magalies Water Boards reported increases in revenue and performance for the financial year ending 30 June 2006, a number of common challenges were highlighted. These included the impact of municipal debt on the work of Boards, the skills shortages, as well as the alignment of work with the plans of municipalities. Commitment was expressed by all entities to lend the necessary support to local authorities in providing water to communities.

The South African Local Government Association highlighted the need for a clear strategy and guidelines for alleviating the debt burden of municipalities.  Concerns were raised over the under pricing of water. A revised tariff model and formula would correctly regulate water prices.  The non-compliance with relevant frameworks also needed to be addressed.

The Department of Water Affairs and Forestry commented on the issues raised in the two-day hearings. A written report containing all comments and observations would be provided to the Committee shortly. It was stressed that DWAF’s capacity to exercise oversight over the work of water boards needed to be improved upon, but that systems were in place to do so. It commented that there were many positive aspects on the performance of Water Boards.

A report on the Chairperson’s observations would be made available to members during the following week.

MINUTES

Responses by Department of Water Affairs and Forestry (DWAF) to questions raised at previous meeting
The Acting Chairperson asked DWAF to complete the answers to questions that the Committee had raised during the previous meeting.

Ms B Schreiner, DDG: Forestry and Water Resource Management, DWAF, said that she hoped to answer all the questions but some might have to be submitted to the Committee in writing. She was not present during the previous meeting and hoped that she had an accurate copy of the questions.

The compliance of the water boards to the Public Finance Management Act (PFMA) and Municipal Finance Management Act (MFMA) was an issue and DWAF did not want problems with the tariffs to be repeated. Only four water boards complied with the quarterly submission of reports to DWAF. Only Ikangala was not complying with Section 41 of the MFMA. National Treasury was responsible for ensuring compliance.

On the question of corporate responsibility, Ms Schreiner said that the water boards should be asked what they were doing. Some very small water boards did not submit 5-year business plans. This would be followed up.

National Treasury (NT) determined borrowing limits and only two boards had asked for more than the limit. Stipends were standard across all the boards.

The demographics of Boards were generally good except for the inclusion of disabled people. Most Boards have good capacity and most support the municipality with capacity, with the notable exception of Ikangala, which had no capacity.

DWAF was trying to make sure that the strategic plans were aligned but more work had to be done to decide on the specific role of the water boards, for example in bucket eradication.

There was not good compliance by the regional offices with compiling reports. There was a new protocol to turn this around. Some water board contracts with other companies were short term, which made it difficult to make long-term plans. They needed the regional offices to be proactive in this regard. Section 78 issues arose because it was taking a long time to be finalised. There were a number of issues relating to the collection of debt. One was that there was no ring-fenced budget for water charges. Money went to the municipality, and rural areas hade issues with income. The staff had been transferred according to the Amatola transfer agreement but the assets were still in contention. The Lepelle financial status was still an outstanding issue. The accounting in the Magalies Water Board was being dealt with by way of a meeting during the previous year and the appointment of a new external auditor, who had identified two qualifications.

The Institutional reform process would be examining whether it made sense to have more than one water board for one municipality. Debt older than 90 days old was the responsibility of the water boards. The Minister had intervened in some cases. DWAF had encouraged the Water Boards reduce the costs so that subsidiaries were not needed but often revenue was an issue. Subsidiaries may always be needed. There had been a decline in subsidiaries and it was hoped to phase them out over the next 3 years as equitable shares made a difference. DWAF would prefer to submit a report on the progress of the Institutional reform programme to the Committee in writing.

The DWAF Project Manager for Institutional Reform added that DWAF had looked at the financial viability of the Water Boards. There were 17 scenarios for regional service providers. The transfer of assets depended on the Water Boards’ capacity. The governor’s review showed three issues; the municipal entity, core ownership and the relationship between the municipality and the Board. Amatola had sub-projects that were investigated by a steering committee. The DG and Minister needed to get a brief from this Committee.

The Acting Chairperson said that this matter needed a separate discussion as it was a large one.

Mr K Moonsamy (ANC) said that Parliament made laws that should be adhered to, and he was thus concerned to hear that the Water Boards were not complying. The Boards must give an explanation, and in particular provide the Committee with a report on what the problem with section 78 was, and who the debtors were.

Ms J A Semple (DA) agreed. She wanted to know the time frames for when the Institutional Report will be given.

Ms D Van der Walt (DA) said that the build up of debt over 90 days was a concern, and asked for an explanation for this.

Ms M Manana (ANC) asked why the water boards did not provide business plans.

The Acting Chairperson noted that they had not complied with a request dating back to May 2006.

Ms Schneider said that the Minister had written to the non-complying boards insisting that they must comply. This had had little effect and must be followed up. She noted that there were four non-compliant boards. DWAF would be working with the Water Boards and Municipalities to help them comply with section 78. The debtors were mentioned in the previous day’s presentation. Debt collection was a problem and was ongoing. DWAF had a process in place to deal with it. She confirmed that DWAF would send the strategic plans through in the next two weeks, and give an analysis of the business plans when they had this available.

The Chairperson asked Members to take into consideration the issue of compliance. The Boards and DWAF must be guided by the Act.

Botshelo Water Board (BWB) Briefing
Mr Placid Fernandez, CEO, Botshelo Water Board, said that 2005/06 was their ‘year of turmoil’ as there had been a very large turnover of staff, leaving them with only a skeleton management. He provided a map of the extent of their services. 75% lay in rural areas. BWB had strategic involvement in various forums and agencies for water management in the area. It had various infrastructure projects including the new reservoir and a drought relief project. BWB undertook both bulk and retail water supplies. It had an international scheme selling water to Botswana as well as sanitation services. These were being transferred to municipalities. It had trained 81 employees. Water quality tests had identified 120 failures. The Board was using the Pragma Asset Management Programme to manage assets. Operations were reduced from the transfers to Water Services Authorities (WSAs). Challenges included debt from municipalities and to DWAF, large shortfalls and a qualified audit report. The continuing operation of the Board depended totally on DWAF funding. The achievements included their 5-year plan being accepted by DWAF and the signing of a memorandum of understanding with the MidVaal Water Company.

Discussion
Ms Semple asked about the Botshelo debt. She noted that it was owed money, some by DWAF, and asked what was being done to turn it around. The Minister had commented that it was not a viable Water Board.

Mr J Arendse (ANC) asked Botshelo if there would be a dramatic change if all the money was paid. He also commented that even viable entities could get qualified audit reports, and that it was an issue of compliance.

Ms S Maine (ANC) also noted that the Audit report was qualified, and asked what was being done to turn it around.
 
Ms Manana asked if Botshelo could explain why they owed the department money even though debt had been written off.

Mr Fernandez said that he was appointed as CEO in December 2006. The appointment of the board was waiting for reply from the Minister. In regard to the debt and the viability of the BWB, he reported that some of the debts were 10 years old. BWB had entered discussions to recover, at least, the last three years worth of debt. The Financial Manager had done a tariff calculation for raw water purchases and found that this had been understated in the books. They reported this to the board and to DWAF, and were told to report fully on the matter. They had to write off the DWAF debt and were thus rendered technically insolvent. DWAF said it would demand the money in the short/medium term and if it was possible to recover it, then BWB should be able to break even. He was sure they could repay the debt and break even in the next 3 to 4 years.

He added that the agreement with MidVaal may help the position as water from the area could be sold to Botswana for profit.

Mr Mosala said that the qualification in the audit report related to DWAF land registered under the municipality. He asked what was being done about this.

Mr Fernandez replied that the fixed property was under Mafikeng municipality, which was an error from 1994 when it was transferred. BWB were trying to find the deeds but had not yet been successful. It was trying to have a full forensic audit on property. There were other compliance issues in property valuation and the going concern concept. BWB could not do business if it was insolvent

Mr M W Sibuyana (IFP) asked what caused the water quality failures.

Ms S Maine asked for a list of rural areas where borehole testing was being done

Mr Fernandez replied that the boreholes were being tested in two rural areas so far. The failures in water quality were due to low chlorine areas in the reservoir. BWB had a recovery strategy for this. He stressed that the water quality in water plants was fine but the reservoir water had failed the test. The chlorine levels had been increased and were now under control.

Mr Mosala felt that transforming was not complete; and there were many gray areas. He suggested that DWAF must go into the matter and assist BWB. He did not think they could get themselves out of the problem on their own.

Mr Sibuyana also asked if it was possible for DWAF to take responsibility for ailing water boards until they could become viable.

Ms M Maine (ANC) said that some water boards existed in the old Transvaal but it was difficult for those transferred from Bophuthatswana. They may find that they had other incorrectly registered land.

The Chairperson said that DWAF must answer the questions about Botshelo during the last year. There had been no difference from the last year.

Namakwa Water Board (NWB) Briefing
Mr Louis Snyders, Regional Director, Northern Cape DWAF, said that he had been appointed by the Minister in a caretaker capacity as there was no Board in place and there had never been a CEO. He had no formal presentation but would highlight certain aspects of the Annual Report. The Orange River was the only source of water for the Board. It had to refurbish some pipelines. At present it was still able to get loans but it was becoming a problem. Some mines had closed and unemployment had thus risen. People were finding it increasingly difficult to pay. There had been no tariff increase in the last two years. The personnel of the Board consisted of 30 people made up of only white and coloured people. There was a 30 day lag in payment but cash flow was good, especially with payment from De Beers. There was a loss of R7.4 million from a loan, and the Board still owed DWAF money. Some debt was written off. There was a need to appoint a new board. DWAF would have to mentor the board substantially to begin with. DWAF was assisting the Namakhoi municipality with section 78, but it would take 8 months for the report on it. He apologised for the unprofessional nature of the presentation.

Discussion
Ms E Lishivha (ANC) asked when the CEO position would be filled. She wanted to know if there were retirement benefits and asked for clarity on the land and building registration.

Ms Semple asked Namakwa Water what was the point of getting a new board was when it appeared that it was not viable.

Mr Arendse also commented that Namakwa did not appear to be viable, but asked who would provide the service if it were to cease to exist.

The Acting Chairperson asked what the economic impacts of mine closures was on the water boards. It seemed that the Boards were needed, and asked what had happened to put the Boards in their current positions.

Mr Snyders responded that the Namakwa Water Board had always been viable but now had to refurbish infrastructure and could not do this with money received only from the public. He hoped that the best model for the section 78 process would shortly become available. The only source of income is selling water. The full economic picture and trends would come out. The water had to be supplied and someone would have to take responsibility until the section 78 process was completed, even if the Board were only to exist for the next 10 months. The mine closures were difficult. It was impossible to predict when they might occur because of fluctuating prices of commodities. The situation in the Northern Cape was that the current equitable shares did not speak to the small number of people.

Trans Caledon Tunnel Authority (TCTA) Briefing
Ms Martie van Rensburg, CEO, TCTA, presented the exit strategy for the Berg Water Project as well as highlights from the Annual Report. She reported that TCTA had not made a future strategy for new projects. Its role was bulk water infrastructure, especially for economic development. It had three projects. It was aligned with Government priorities, specifically with Accelerated Shared Growth Initiative for South Africa (ASGISA). It had received an unqualified Audit Report again, as it had done for the last 20 years, and was fully PFMA and MFMA compliant. It had reached 95% equity in the personnel demographics.

Mr Nigel Rossouw, Financial Strategy Manager, TCTA added that the community was initially hostile to the exit of the Berg Water Project. The community was highly divided, and it was a challenge to change the mindsets here. The TCTA had a health and wellness initiative as well as the Franschoek First Policy that aimed to maximise local resources. It also undertook training in construction skills but the workers were non-unionised, which made relations difficult. TCTA had created an Employment Information Desk to assess the skill levels in the area and to create a large database of people in the area, both employed and unemployed. It was in negotiations with the municipality for the transfer of construction housing. It was trying to learn from the Berg Water Project especially in training and governance.

Ms M van Rensburg presented the tariff composition and further outlined in the presentation the impacts and the highlights of the Annual Report.

Discussion

Ms Semple asked TCTA if they could explain why there was a deficit decrease and if they were sure that this would pay off.

Mr Rossouw said that the deficit was being reduced as TCT reached the peak of the period that was the break-even model. The realities of debt with municipalities were a key element and the debate with the National Treasury about how equity shares could be done differently should take place. TCTA needed to look at the wider regional water delivery.

Ms Lishivha asked TCTA if all the workers in the Working for Water project were temporary workers, and enquired how many were people with disabilities.

Mr Mosala asked TCTA to unpack the social impacts that they had mentioned in the presentation.

Mr Rossouw said that all Working For Water employees were on fixed terms. TCTA had two initiatives for this; one was to rotate contractors and the other was to provide training that was much wider than that needed to do the job, making future employment easier. In respect of the disabilities, he reported that TCTA did monitor and report on the employment of disabled people. There was an NGO in the community committee that was making a concerted effort in this regard. The social relationships related mostly to the 28% of male workers who travelled, which made for many problems with pregnancy and disease, and TCTA was trying to mitigate these problems.

The Chairperson asked what the submissions on debt problems with the municipalities are. What discussions do they have with the real changes in South Africa and how does it influence their work?

Rand Water Board (RWB) Briefing

Ms Maggie Letsoalo, General Manager: Marketing, RWB stated that the presentation would try to incorporate and deal with comments made by Members.

Mr Themba Nkabinde, CEO, RWB said that RWB was focusing on bulk water suppliers. He showed the extent of the Board’s outreach and reported that its focus lay in providing clean and safe water. Significant events included a new Director General, management restructuring, the Meredale flooding incident and the redemption of much debt. The net income last year had been R593 million, and the increase in sales volumes was 9%. The numbers of staff and training were tabled, and graphs presented of the profitability, return on assets, employee productivity and corporate social responsibility programmes. The audit report was unqualified and RWB was fully compliant with the PFMA and MFMA. The rating was good which should make future funding unproblematic. Employment equity was fine at the executive level but poorer on a general level, especially amongst female employees. He outlined the corporate social responsibility figures and programmes. The current and future infrastructure programmes were listed. The future developments would work around water demand management, catchment management, bulk sanitation, New Partnership for African Development (NEPAD) initiatives and government engagements.

Discussion

Ms Manana asked what impact the cholera outbreak at Delmas had had upon the ground water and what had been done about it.

A representative of Rand Water explained that at the time of the incident at Delmas, Rand Water immediately provided water to the affected communities, to ensure, in particular, that schools and pensioners had access to clean water. Several prevention plans had also been developed and had been presented to the affected municipalities. Responses from municipalities were still pending. Rand Water would assist municipalities to implement some of these plans. The prevention and further control of the current outbreak depended on the response from the municipalities.

Ms Letsoalo added that it always tried to assist in emergencies where possible. However Rand Water tried to assist DWAF related entities rather than merely assistance in general emergency situations.

Mr Sibuyana commended Rand Water on their expertise and asked if it was not possible to send some members to ailing municipalities.

Mr Nkabinde answered that Rand Water had regional infrastructure that serviced about five different municipal areas. There was still a Water Board in Ikangala. It was not clear which Water Board was responsible for the administration of the system, and there were problems in ownership and impact of this on water services delivery. There had been some appointment of members of Rand Water Board into Ikangala Water Board. Ownership issues have still not been resolved. DWAF had tried to resolve this matter this year, and had approached the municipalities in the area to allow Magalies Water Board alone or in conjunction with Ikangala Water Board to service the area. Rand Water was not formally appointed but was ready to assist Ikangala with their current supply problems.

Ms Semple asked Rand Water if there were capacity problems in light of their plans for capital expenditure.

Mr Nkabinde said that the expenditure on capital projects was problematic, since it was affected by delayed approvals, delayed completion of environmental impact assessments, compliance with the Construction Industry Development Board (CIDB) Act. Most of the contractors had not yet been rated by CIDB and the ratings approval process took about six to eight months to conclude. Internally, the water board battled to retain those skills and had designed a number of projects as well as attracting other skills from neighbouring countries. It also considered outsourcing some of the work

The Chairperson asked what the submissions on debt problems with the municipalities were. She asked what discussions they had with the real changes in South Africa and how did this influence their work.

Bloem Water Board: Briefing

Ms Nolene Morris, CEO, Bloem Water presented the statistics of Bloem Water’s services and an overview of the Board. She reported that environment policy had been developed. There had been a re-evaluation of assets. The Audit Report had been unqualified. Major achievements included financial solvency and liquidity. DWAF transfer of assets was proceeding and there was funding for refurbishment. There was a bulk water supply agreement with Mangaung Local Municipality, exceeding R80 million and with Ukhahlamba District Municipality, exceeding R40 million. The Professional Management Review now ranked Bloem Water as one of the top 500 companies. She presented a clear list of strategic objectives, which included positioning Bloem Water as the leading service provider, supporting municipal water services delivery objectives, satisfying customers and ensuring financial viability. She identified the challenges as including the debtors, the need to foster intergovernmental relations, the requirements of ASGISA, strengthening local government and youth development. 

Discussion

Ms Maine asked Bloem Water how it had fixed the R13 million deficit and what had been done to correct it after the forensic report.

This question did not appear to have been answered.

Mhlathuze Water Board (MWB): Briefing
Mr Vic Botes, Acting Chief Executive Officer, and Ms Elzette Grierson, Chief Financial Manager, MWB delivered the briefing. They reported that Mhlathuze Water Board operated with four and a half of the Water Services authorities in Zulu land, and focused on providing support to water service authorities (WSAs), advocacy and relationship building at a provincial level, and strengthening regional offices to deal with Water utilities issues and challenges. Key operational achievements included the promotion of the KwaZulu Natal Regional Water Supply projects. It had never received any subsidies or assets from government. Its laboratory maintained International Accreditation ISO 17025.

Although the water demand had stabilised from 2005; the biggest drop in supply was in the transfer of volumes due to favourable water levels in the dams, and due to the environmental measures implemented by customers.

The Board and independent auditors had approved the MWB’s annual financial statements. Revenue had increased from R143.7 million to R166.4 million. This was mainly due to the annual tariff increase and recovery of major maintenance on the B-line. Operating expenditure had also increased by R7 million due to the new pipeline lease, and the subsidy to Umkhanyakude Management Services.

Discussion

A member requested more information regarding the ongoing operations and maintenance, and how these were accommodated within the budget and programmes.

Mr Botes explained that it had a capital refurbishment programme in place to refurbish equipment, pipelines and buildings. A reserve policy was also in place to reserve funds for future use.

A member requested further information on the impact of the programmes designed to develop capacity in service providers.

The Chairperson asked how the issue of debt to municipalities could be addressed.

Mr Vic Botes explained that the collection of debt to municipalities was problematic as these depended on the equitable share. A strategic partnership had been formed with Umhlathuze Local Municipality and some of the funds were allocated to the water board for services rendered.

The Chairperson of the audit committee added that the tariff model needed to be revised to ensure stability of the maintenance reserve as well as the issue of social responsibility. DWAF still needed to be consulted. Hopefully, by the beginning of the 2007/2008 financial year, this revised model could be put into place. It was also in the process of acquiring asset management software to improve efficiency. It would also improve the alignment of capital reserves to the capital replacement costs. All these processes would be put into operation in the following financial year. MWB and Umkhanyakude Municipality had entered into a partnership to ensure that skills transfer continued from the Water board to the municipality. Currently the issues of skills scarcity, lack of knowledge and the rough areas to supply water challenged the efficient provision of water services. Skills such as costing, the development of business plans, project management and technical skills needed to be transferred, to allow municipalities to play the leading role in the provision of services.

Problems had been experienced during the implementation of projects for municipalities. MWB had been financing these projects, but had decided that if debt reached a particular level, the implementation and financing of projects would be discontinued. It was trying to manage debt yet at the same time being aware that compliance is critical. It had received support from both DWAF and NT, but a better relationship with municipalities needed to be fostered. There had been engagements with the Minister and the Department of provincial and local government to try to have partnerships assisted by the Minister to give adequate support to municipalities until they were financially stable.

Ikangala Water Board (IWB): Briefing
The Chairperson requested Ms B Schreiner, Deputy Director-General, DWAF, to explain the status of this Water Board. IWB had for the third consecutive year not performed satisfactorily and had not improved on its past weaknesses. In previous interactions the Committee had highlighted non-compliance with legislation and regulations, as well as the weak functioning of the Board.

Ms Schreiner confirmed that a decision had been taken to disestablish the Board and this process was now under way.

Mr T Mkoana, Chairperson, IWB, expressed his surprise at this decision. The disestablishment of the Board had not been formally communicated to Ikangala.

Mr Arendse believed that this was the incorrect forum to raise this miscommunication between Ikangala and DWAF.

The Chairperson said that the Committee had made a number of recommendations in the Report adopted last year. IWB needed to respond to these recommendations and observations made.

Mr Arendse commented that he was not disputing the observations and recommendations made in the Committee reports.

Mr T Mkoana provided an overview of the work of the IWB. Two board members had been appointed. An external auditor had been appointed to evaluate the financial management and to assess the level of compliance with all relevant financial regulations and legislation. IWB’s situation was not very different from the previous year. There were four permanently employed employees. The activities were limited mostly to billing of the bulk water supply, and the sole income was from one municipality. Information was given on water produced and purification plans at Weltevrede and Bronkhorstspruit. The IWB did not get a subsidy from the Department, but was reliant on the payment by entities. IWB did not have long-term liabilities and reported a 4.2% increase in revenue.

Key priorities included improved revenue collection, improving the viability of the IWB as well as access to affordable and sustainable water services, assisting municipalities in the provision of services and the commitment to the economic empowerment of communities, together with the development of a pool of skills to promote economic growth. The appointment of more board members and senior managers might be needed, as also the transfer of bulk infrastructure, and the establishment of board committees. There was alignment of five-year business plan to municipal IDPs and water services development plans, as well as plans on water services and sanitation.

Discussion
Ms M Manana (ANC) wanted to know why the board did not submit its 2006/2007 Business Plan, the 2006 budget to National Treasury and a fraud prevention plan, as required by NT regulations.

Mr T Mkoana confirmed that the Board had failed to submit these three key policy documents. Due to the internal developments and the ensuing discussions with DWAF, it was decided that this five-year plan could not have been implemented.  The Board had not yet finalised the risk management strategy and accepted full responsibility for this failure.

Mr I Mogase (ANC) expressed his dissatisfaction at Ikangala’s neglect of its constitutional obligation to comply with the legislation and constitution.

The Chairperson expressed her agreement and recalled that at a meeting with Ikangala the previous year Members could not interact with the Board owing to lack of progress on all the challenges. The Committee could not be expected make the same recommendations it had made for the past three years. All bodies must comply with the PFMA, failing which the Committee was compelled to seek a remedy. The Board needed to accept some responsibility to explain to the Committee what should be done.

A member commented that the DWAF needed to accept responsibility also. He recalled that officials from Rand Water had been asked to assist Ikangala. DWAF’s interactions and manner of dealing with the situation should be explained to the committee. The Board was appointed by DWAF and the two entities must act in synergy.
 
Ms Schreiner responded that essentially the situation with IWB remained unchanged but the submissions now made focused on what needed to be done to effect a change. The Board was no longer operating as it should.

The Chairperson asked IWB to explain what had already been done to change the situation, and to detail any remedies that had been considered.

Mr Nkoana said that due to time constraints such remedies could not be submitted.

Albany Coast Water Board (ACWB): Briefing

Dr D Nicoll, reported that Albany Coast Water Board was a very small organization. 513 0000 mega litres of water had been supplied for the financial year ending June 2006. Its main customer was Umhlambi municipality.

Challenges included the lack of access to underground water supply, since it was located in an ecologically dry zone; tidal rivers; surrounding farms’ conversion to game towns, which meant that the indigenous population was moving into towns. Since the building of the last reservoir the population had quadrupled. There was only two to thee days’ water reserves.  The massive influx of seasonal visitors, aging infrastructure and a growing number of retirees moving to this area were further challenges. The majority of the population could not or were unwilling to pay for the water services.  It was working with Umhlambi Municipality to overcome some of these challenges. Finance was needed to give supply to those who could not pay.

Magalies Water Board (MWB): Briefing

Mr Jazz Ngobeni, CEO, MWB noted that the Magalies Water Board operated through Gauteng, Northwest and Limpopo. MWB had been in existence for 38 years and had experienced progressive growth over this period.

54% of total income was due to bulk water savings, as well as 16% revenue from value-added services. 25% of total expenditure was made up of salaries, while 34% percent was due to rollover costs, and 12% percent maintenance and transport.

With regard to operational performance, more than 1500 km pipelines were reported, while there were 40 reservoirs with a total storage capacity in excess of 250 mega litres. Capital expenditure of R70 million was incurred in the 2005/2006 financial years. R149.5 million would be spent on pipeline and infrastructure maintenance over the next five years.

Key achievements included the successful implementation of a R550 million for a Water Services Trust, the implementation of balanced tariff increases between zero and six percent and successful implementation of DWAF projects to the value of R35 million.

South African Local Government Association (SALGA): Briefing
Mr William Moroko, Water Services Unit, SALGA, delivered the presentation and provided an over view of good practices; issues within the water pricing chain; challenges; as well as municipal debt.

 

SALGA made the following suggestion to improve the provision of water services by the Water Boards: municipal debt needed to be resolved with National Treasury by July 207;it would assist to facilitate and resolve the signing of bulk agreements by June 2007. Moreover, DWAF, SALGA and NT needed to rationalised tariff methodologies by March 2008 and the Department needed to finalise regulations of tariffs by 1 April 2008. Debts collection mechanism needed to put in place in the entire value system by 1 April 2008. Water services also needed to be ring fenced by 1 April 2008.

 

A bulk portable agreement model had been developed by SALGA to ensure that municipalities understood the agreements entered into. The three metros in Gauteng had reached this agreement with Rand water. It served as a tool for measuring the implementation of water boards. The key challenge remained in compliance by municipalities, despite the existence of the legislative frameworks.

Water was highly under priced due to the confusion over a tariff model that should correct the price of water. The promotion of corporate governance, and a legislative programme had been tabled. Bulk providers needed to provide municipalities timeously with information as to what was required of those municipalities.

The current R40 billion municipal debt was a cause of concern. Water debt was of particular concern since municipalities were nor easily able to disconnect due to water being constitutionally protected as a basic necessity. Stringent credit control policy needed to be implemented for the indigent and should be enforced without political interference.

 

Discussion

Ms Semple (DA) wondered how, given the high level of municipal debt, an increase in the price of water would not be viable. She acknowledged the concerns over the low price of water, but an increase of these prices would currently not be appropriate.

 

Mr Moraka answered that each municipality had a particular approach. Water boards also used certain approaches to determine prices. There were guidelines in terms of Municipal Services Act. Primarily the key determination is the cost the municipality incurred in terms of the provision of services. NT had said to municipalities that heir increments should be between three and six percent, irrespective of the cost incurred. There were various means and ways to determine prices. A clearer indication needed to be provided on how prices should be determined.

 

Mr Arendse cautioned that the water boards played a crucial role in the provision of basic water services and sanitation to ordinary South Africans.  These entities were often expected to take responsibility for certain municipal functions. The municipal debt therefore, was a serious issues and the relevant officials need to accept responsibility and held accountable.

 

Mr Moraka would report to its principles to ensure that this issue was urgently addressed.

 

A member asked how water prices in especially rural areas were determined. Who was subsidising those communities in rural areas that could not afford to pay for water services.

 

A representative from SALGA answered that most municipalities did not understand the formula. Municipalities needed to be assisted in this regard. This formula included funds to be allocated to the remuneration of councillors, institutionalisation.

 

The Chairperson reminded members that the Municipal Finance Management Act (MFMA) guided the manner in which Members should manage municipal debt. Could the Committee be supplied with information on cases where the MFMA was used to hold municipalities to account?

 

The Chairperson wanted to know what was referred to political interference in the implementation of credit controls, as all actions of government was guided by legislation.

 

The Chairperson said that longer discussions were needed to look at issues around prices and tariffs. The Department needed to indicate how the tariffs referred to in the presentation, would be dealt with. The Committee would also focus on this matter to ensure adequate solution.

 

The Chairperson expressed her concerns over the supply chain and the uncertainty around it. The Committee would make a statement in this regard.

 

Mr Moraka explained that the instititutional reform process was critical as ability to deliver key water services was currently fragmented. Countries such as the Netherlands had reduced the number of water boards and South Africa could consider this example. This was, of course, a matter of further debate.

 

The Chairperson said that the payment and the withholding of water services. Although the constitution obligates, instances where these services were cut. There were no easy remedies, but the halting of such services to poorer communities, it becomes problematic.

 

Mr Moraka explained that this question needed to be addressed by political heads. A SALGA representative added that it was generally difficult for local authorities to deliver and implement key decisions and programmes during the run-up to elections. The cutting of water by municipalities was used as a form of control to ensure compliance and payments for services.

 


Department of Water Affairs and Forestry: Comments
Ms B Schreiner said that the two-day long hearings on the Water Boards was a useful process as it highlighted pertinent issues and questions and would improve the Department’s capacity to exercise oversight over the service providers.

The performance of the Department in terms of its oversight of Water Boards, and the performance of Water Boards were two interrelated yet distinct matters. The Department had improved performance by becoming more structured in its oversight of the Water Boards. It was starting to play a more proactive rather than reactive role. It was now checking in advance that Water Boards were dealing with matters in the right way, especially in regard to tariffs and the establishment of Boards.

DWAF was taking action in relation to non-compliance with the Municipal Finance Management Act (MFMA), and was working with the Water Boards around the debt issues. There had been improvements in building the internal capacity of water boards and the Department and this was emphasised by the Minister. The oversight challenges would only grow within the next five to ten years. The Department’s regulatory functions would be enhanced by the way in which the national and regional offices were structured. 

The functioning of the water boards had been improved upon. However certain challenges were still experienced. Tariffs had been collected on time, most water boards were financially feasible, there was alignment to government guidelines and service targets, and there had been expansion and maintenance of infrastructure and capacity building and training. There were positive developments.

Ms Schreiner noted that there were still key challenges. She confirmed that the decision to disestablish the Ikangala Board had not yet been formally communicated to the service provider. This would be done in due course. DWAF had conducted a study on water provision in the Bushbuckridge area, given the recent turmoil. The findings would be debated in order to develop a viable solution to challenges to water provision in this area. The challenges faced by Mhlathuze Water Board, especially between its CEO and the Board, were noted.

The two-day interactions with Water Boards, highlighted the need for increasing not only the business and revenue functions of these entities, but also their capacity to deliver water services. There must be a focus on more support, with the efficient use of the equitable share, an appropriate formula, as well as increasing the capacity of municipalities. The Committee needed to clarify how many interactions it needed with DWAF and Water Boards. These entities needed to thoroughly prepare the relevant information in a standard format for these discussions, to ensure clear and consistent reporting to all Committees. DWAF would submit a report on the strategic plan of these entities.

The corporate social investments strategies of all entities needed to be detailed and guidelines formed around what financial commitments would be appropriate. A great deal had been done to ensure that Water Boards reported monthly. This was improving and enabled the Department to identify possible problems and to intervene in time. A written report on the specific issues raised during the hearing process would be provided to the Committee.

The issues around an appropriate tariff methodology raised by SALGA were noted, and the Department would communicate with SALGA on this issue. In regard to the level of municipal debt, it must be noted that DWAF was obliged to call for interest as set by the Minister of Water Affairs, in consultation with the Minister of Finance. 

Chairperson’s closing remarks:
The Chairperson thanked the Water Boards and SALGA for their attendance, and noted that continuous discussions would be held on how to improve the reporting. Members would be provided with a summary of the Chairperson’s observations of the two-day hearing process. Given the changed context and nature of the water and forestry sectors, the Committee needed to add its voice to the debates around current DWAF policies. Critical issues for consideration included DWAF’s ability to exercise effective oversight over the work of the Water Boards, the improvement that was needed to DWAF’s internal systems, the need to develop changes around the tariffs and tariff formulas, and the legislation that would be needed to cover these issues. She specifically thanked Ms Schreiner for her input.

The meeting was adjourned.

 

 

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