Department and Water Boards: 2005/2006 Annual Reports

WATER AFFAIRS AND FORESTRY PORTFOLIO COMMITTEE
19 March 2007
DEPARTMENT AND WATER BOARDS: 2005/2006 ANNUAL REPORTS

Chairperson: Ms C September (ANC)

Documents handed out:
Umgeni Water Annual Report 2005/2006
Umgeni Water presentation
Sedibeng Water presentation
Pelladrift Water presentation
Lepelle Northern Water presentation
Bushbuckridge Water presentation
Amatole Water presentation
Overberg Water presentation
Overberg Annual Report
Briefing Document: Bulk Resources for Municipal services

Audio Recording of the Meeting (Part 1)

Audio Recording of the Meeting (Part 2)

Audio Recording of the Meeting (Part 3)

SUMMARY
The Department of Water Affairs and Forestry briefed the Portfolio Committee on their 2005/2006 Annual Report. It commented that there needed to be a debate on whether water utilities should spend so much money on corporate social investment or whether it should rather be using the money to extend services to communities. The introduction of guidelines could assist. It also commented that large spending on marketing and advertising was unnecessary because they had no competition. The Department noted that there was now a cap on borrowing. Water utilities had a role to play in service delivery. Their oversight of water boards had been centralised, which had led to some weaknesses, but the Department was committed to working more closely with the water boards and improving its oversight. Members asked questions on the demographics of the water boards, their compliance with the Public Finance Management Act, the Boards’ financial viability, the amounts spent on advertising and marketing and the amounts owed by municipalities. The Committee expressed its concern that the Department did not seem to have pursued solutions with the necessary urgency and asked it to respond the following day in writing to the recommendations that the Portfolio Committee had made the previous year.

A number of Water Boards presented their 2005/2006 Annual Reports to the Portfolio Committee. Most had received unqualified audit opinions from the Auditor General. They reported on their staffing and composition of their Boards, their participation in Project Consolidate, the achievements in signing service agreements and the key challenges they faced. Members raised questions about the staffing composition, and the Board members, whether there were Memorandums of Understanding with other water boards, the future maintenance of infrastructure, the debts owed by municipalities, the long terms loans, the relationships with municipalities. A number were asked by the Chairperson to submit a comprehensive report on the cumulative utilities to the end users.

MINUTES
Department of Water Affairs and Forestry (DWAF) 2005/2006 Annual Report Briefing
Mr Fuad Moerat, Deputy Director: Institutional Oversight, DWAF, commented that there needed to be a debate on whether water utilities should spend so much money on corporate social investment or whether this money could be better utilised to extend services to communities. Rand Water was cited as a utility that spent a significant amount of money on corporate investment. The Department felt that they should not be spending this money when the retained earnings were considered. This matter needed to be examined further and the introduction of guidelines could assist. Water Boards were accused of spending too much money on marketing and advertising. Such expenditure was deemed unnecessary because they had no competition.

In 2002, the National Treasury determined that Water Boards over-borrowed. This in turn had an adverse impact on the fiscus. Now there was a cap and special permission was needed from the Minister and a Guarantee Commission if a water utility wanted to borrow over its limit.

Ms Thandeka Mbassa, Deputy Director General, DWAF, stated that water utilities had a role to play in service delivery. The oversight of water boards had been centralised and this led to their weakness and limitations. She committed DWAF to working more closely with the water boards and improving its oversight function.

The Chairperson thanked the water boards for furnishing their tariff submissions timeously, which meant that they complied with the Public Finance and Management Act (PFMA).

Discussion
Mr K Moonsamy (ANC) asked about the demographics of the water boards.

Mr Silas Mbedze, Chief Director: Institutional Oversight, DWAF, expressed his satisfaction with the composition of the water boards. The situation had improved. Prior to 2005, there was only one female Chairperson across all the boards, but now the number had risen to six.

The Chairperson queried whether all the water boards had complied with all the requirements of the PFMA.

Mr Mbedze answered that with the exception of one water board, all the others had complied with all the PFMA requirements.

Ms M Manane (ANC) was concerned about the financial viability of some of the water boards. 

Mr Mbedze admitted that approximately five water boards were struggling and dependant on subsidies. He conceded that DWAF was responsible for this situation because it did not transfer assets and staff to them. DWAF was in the process of rectifying this. A study was under way to look into their viability and institute a plan of action. This would include the transfer of assets and its upgrading to operational level.

Mr Moonsamy concurred with the presenter that municipalities spent too much money on advertising and marketing.

Ms Mbassa explained that when the Municipal Infrastructure Grant (MIG) had been introduced, water boards were told to market themselves. Those that were successful managed to establish good relations with municipalities and sign contracts with them.

Mr Mbedze added that some water boards were in untenable positions. Many municipalities owed these water utilities a lot of money.

The Chairperson reminded the Department that the Portfolio Committee had made recommendations in the previous year to resolve these matters. It was disturbing that this had not been pursued and that there was no action from DWAF.

Mr Mbedze disagreed with the accusation that DWAF had done nothing. DWAF had held several meetings with the water boards and their respective municipalities to try and resolve this matter.

Ms Manana was unhappy with the answer given. She appreciated that there were no short-term solutions and that DWAF was trying its best. However, she was not convinced that these matters were treated with the necessary urgency. It was hoped that DWAF could give time frames so that the Committee could measure oversight.

The Chairperson instructed DWAF to respond the following day in writing to the recommendations that the Portfolio Committee had made the previous year.

Ms J van der Walt (DA) took DWAF to task for publishing so many incorrect figures in its report.

Mr Moonsamy voiced concern about municipalities that did not sign contracts and agreements. They were in defiance of the Constitution and other legislative frameworks. He suggested that these municipalities be identified, approached and sanctioned.

The Chairperson warned DWAF that she expected it to respond to all the Committee’s queries the following day.

Umgeni Water (UWB) 2005/2006 Annual Report
Ms Nica Gevers, General Manager: Finance, UWB, briefed the Committee on the Board’s financial results during the 2005/2006 financial year. The Board produced a sound financial performance over this period. It achieved a R137 million surplus and managed to substantially reduce its net debt rate. This platform secured the financial viability of Umgeni Water.

Mr Mzimkulu Msiwa, CEO, UWB, reported on the status of the water utility’s corporate governance and its compliance with statutory regulations. UW had received an unqualified audit opinion from the Auditor General. It had met all the requirements of its 5-year business plan and had achieved 100% compliance with the Water Quality Standards- contractual and statutory standards. UW had good relations with its customers and supported the provincial education department with its programme to extend water and sanitation to schools. The presentation also highlighted the areas that the Board would need to focus on in the 2006/2007 financial year.

Discussion
Mr J Arendse (ANC) asked the water utility what percentage of its 798 staff worked at head office.

Mr Msiwa replied that the location of these people were spread all over. Because human resources, finances and other services had been centralised, the institution would reduce its staff complement.

The chairperson asked about the composition of the Board.

Mr Msiwa answered that the Board was composed of nine males and six females. Their average age was 50 years.

Mr Arendse enquired whether there was a memorandum of understanding between the water boards.

Mr Msiwa replied that there was collaboration and exchange of skills between the water boards.

One of the Members enquired whether the water utility managed to retain skilled staff.

Mr Msiwa answered that it was successful in retaining skilled staff. The quality of work produced, the training provided and growth and development opportunities were factors that contributed to this retention.

The Chairperson asked the Board to formulate a comprehensive report on the cumulative effect of water utilities to the end user. The Board also needed to consider how it could increase its bulk supply of water. The Chairperson thanked the Board for its presentation.

Sedibeng Water (SW):  2005/2006 Annual Report
Mr Makumu Ubisi, Chief Executive, Sedibeng Water, stated that their long-term strategies for sustainability were contained in their annual report and that their progress on all strategic imperatives were highlighted therein. He outlined the area of supply and the Board’s corporate governance structure.

During the past year, several major achievements had been accomplished. Sedibeng maintained water quality at class 1 except for periodic colour and turbidity. Sedibeng’s average BEE expenditure was 40%. This figure complied with the annual targets that were set. The water utility accelerated BEE participation by training SMMEs and encouraging the establishment of BEE companies. It was revealed that Sedibeng had exceeded their Employment Equity targets. Customer satisfaction had been maintained through weekly interaction with ward committees and an improved response time. This had led to a reduction in complaints. The Chief Executive also explained their participation in Project Consolidate. Sedibeng assisted in water and waste-water testing and analysis. They also had an HIV/ Aids awareness campaign and provided anti-retroviral treatment. Their corporate social investments had amounted to R1, 3million and concentrated on special needs and farm schools, youth entrepreneurial ventures and learnerships.

Mr R Takalani, Director: Corporate Services, SW,  focused on the financial performance of the water utility. He explained that it had never defaulted in loan and interest payments. In addition, Sedibeng was on sound footing because it had received an unqualified audit opinion from the Auditor General. 

Discussion
The Chairperson asked about the composition of the Board.

Mr Ubisi answered that the Board was comprised of five women and six men.

Mr B Mosala (ANC) asked the Board to explain the salaries paid to its individual Members.

Mr Ubisi explained that there was a directive on hourly rates paid to the Chair, Deputy-Chair and ordinary members. The amount was limited to the involvement of the Board Member.

Mr M Sibuyana (IFP) and Ms J Semple (DA) congratulated the Board for receiving an unqualified audit report.

Mr Moonsamy asked the water utility about the settlement of its long-term debts.

Mr Ubisi commented that the early settlement of debt would not be to the advantage of the institution. Hence, it was in negotiations with DBSA and busy restructuring.

Mr Arendse enquired whether there was a memorandum of understanding between the water boards.

Mr Ubisi answered in the affirmative.

The Chair asked the Board to formulate a comprehensive report on the cumulative effect of water utilities to the end user. The Board also needed to consider how it could increase its bulk supply of water.

Pelladrift Water (PW) 2005/2006 Annual Report
Mr Nathan Williams, Acting Chairperson, Pelladrift Water Board, explained the objective behind the Board’s initial formation. He also unpacked the composition and structure of the Board. It was highlighted that some of the positions on the Board had been vacant since December 2005. The selection process was still ongoing.

The achievements of the past year were listed. This included, amongst others, the technical assistance that the water utility gave to Pofadder for the installation of their own servitude pumps. Mr Williams also presented an independent consultant’s technical report, the annual financial statements and the key challenges that the water utility faced going forward.

Discussion
Mr Arendse asked the water utility what remedies it had to deal with possible unexpected expenditure in the future.

Mr Williams answered that BM mine had budgeted for future maintenance and would continue to do so for as long as the mine was in existence.

Mr Sibuyana and Ms Semple congratulated the Board for receiving an unqualified audit report.

Mr Moonsamy found it unacceptable that it was taking so long to appoint Board Members.

The Chairperson added in that this was in contravention with the National Water Act.

Mr Williams responded that the positions had been advertised. Also, it was waiting on DWAF regarding CV’s that were sent to it for approval. He advanced that there was a lack of response because the position of Board Member was a non-paying one.

Mr Arendse enquired whether there was a memorandum of understanding between the water boards.

Mr Williams responded in the affirmative.

The Chair asked the Board to formulate a comprehensive report on the cumulative effect of water utilities to the end user. The Board also needed to consider how it could increase its bulk supply of water.

Lepelle Northern Water Board (LNWB) 2005/2006 Annual Report
Mr Motalane Monakedi, Chairperson. LNWB, described its composition. He mentioned that the water utility’s area of supply covered 72% of Limpopo province.

Mr N Bopape, CFO, LNWB, tabled the financial portion of the report. This showed that the water utility’s revenue had improved and there had been a substantial reduction in loans. Also, its debt-equity ratio had moved from 102.5% (in 2005) to 39.9% in the current financial under review.

Dr M Ngoatje, Chief Executive, LNWB, continued with the challenges that the water utility faced. Issues such as the rehabilitation and refurbishment of infrastructure, outstanding debts, capacity constraints and the protracted section 78 process were salient.

Discussion
Mr Arendse was concerned about the huge debts owed by some of the municipalities.

Mr Monakedi answered that this matter was being discussed. He was confident that the debt would be significantly reduced when the water utility next met with the Portfolio Committee.

Dr M Ngoatje asserted that the debtors that were in the current report would not appear in the following year’s annual report.

Mr Moonsamy queried about the status of the institution’s long-term loan. Referring to the report, he also sought to establish in which department the institution experienced capacity constraints.

Mr Monakedi replied that this loan was used for infrastructure development to deliver bulk water. There were capacity constraints at management level.

Mr Moonsamy wanted to know whether the water utility had good relations with their respective municipalities.

Mr Monakedi confirmed that the water utility had sound relations with its respective municipalities.

Mr Moonsamy noticed that the operating expenditure had increased by R10 million.

Mr N Bopape responded that this was attributable to the increase in salaries and the payment of overtime. Money was also invested in the training and development of staff.

Mr Arendse asked whether LNWB had concluded its Service Level Agreements. He also sought comment about an international rating, which placed this water utility in the lowest category.

Mr Monakedi replied that they were busy finalising the Service Level agreements. He was not aware of the institution’s ranking and vowed to reverse this poor rating.

The Chairperson stated that the Committee was only interested in the financial situation and the activities of the Board for the financial year. The Chair asked the Board to formulate a comprehensive report on the cumulative effect of water utilities to the end user. The Board also needed to consider how it could increase its bulk supply of water.

Bushbuckridge Water Board (BWB) 2005/2006 Annual Report
Ms Patience Nyakane-Maluka, Chairperson, BWB articulated BWB’s vision, mission and objectives. She then commented on the make-up as well as governance of the institution. She gave an update on the forensic audit that was commissioned to investigate the qualified opinion that the water utility received in 2003/2004. This process resulted in the suspensions of the previous Chief Executive and CFO and the institution of judicial processes against them.

Mr R Matsebula, Chief Executive,  BWB, spoke about the institution’s background, institutional arrangements, water resources, water quality and production. BWB placed a lot of emphasis on marketing and communication. Hence, it supported and participated in DWAF initiatives during Arbor Week and National Water Week. The water utility received a qualified audit opinion from the Auditor General. This unfavourable opinion was as a result of its failure recover debts and sign Service Level Agreements. BWB identified the lack of ownership of infrastructure as the main concern. His submission included the listing of other challenges, achievements and targets for the 2006/2007 financial year.

Discussion
Ms van der Walt asked BWB to account for the R158 000 and R28 000 spent on advertising and functions respectively. She argued that this was wasteful expenditure.

Ms Nyakane-Maluka answered that the R158 000 used for advertising could not be considered extravagant. She pointed out that this amount was spent on advertisements pursuant to appointment of Board Members. This process was a legal imperative and it was not cheap to advertise in national papers. It was not done every year. She stated that the R28 000 was used during interaction with stakeholders. This figure was attributable to the high cost of venues, catering and other related costs.

Ms van der Walt was unimpressed that the water utility continued to receive qualified audit opinions. She felt that this situation was untenable and that the institution was not viable. Its inability to recover debts was highlighted as a major concern.

Ms Nyakane-Maluka acknowledged that the institution had received qualified audit reports for three years in succession. She maintained that there needed to be a concerted effort between DWAF and the water utility to rectify this situation. She stated that because the institution did not own the infrastructure, this contributed to the negative audit reports. The issue of viability was raised year in and year out. The water utility recognised that that there was a problem and was doing its best to rectify the situation.

Ms van der Walt persisted and wanted to know whether BWB had signed Service Level Agreements with the Bushbuckridge Local Municipality (BLM).

Ms Nyakane-Maluka announced that the necessary commitments were made and that this should occur in the next three weeks.

Ms van der Walt questioned whether the people working for BWB had the correct skills to perform their tasks.

Ms Nyakane-Maluka believed that all the staff had the necessary skills and qualifications. The water utility followed all the national guidelines in their appointment processes.

Mr Moonsamy noted that the report spoke about the improved relationship between the water utility and municipalities. He asked if this implied that there used to be difficulties in this relationship.

Ms Nyakane-Maluka admitted that the institution did not have sound relations with the municipalities in the past. Instead of complementary relations with the service provider, municipalities used to view the water utility as a competitor.

Ms M Manana (ANC) sought clarity whether there was a problem with the quality of water in Mbombela.

Ms Nyakane-Maluka clarified that no such problem existed.

The Chairperson stated that the Committee was only interested in the financial situation and the activities of the Board for the financial year.

The Chairperson asked what measures the water utility had taken to address the qualified audit opinion. She asked the Board to formulate a comprehensive report on the cumulative effect of water utilities to the end user.

Ms Nyakane-Maluka noted the remarks about the technical aspect of the report. She reiterated that the institution was engaging DWAF to transfer assets as part of addressing this matter.

Amatola Water Board (AWB) 2005/2006 Annual Report
Mr Maxwell Sirenya, CEO, Amatola Water Board, provided a description of Amatola’s vision, manda