Water Boards Annual Report Hearings

Water and Sanitation

05 May 2008
Chairperson: Ms C September
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Meeting Summary

The Department of Water Affairs and Forestry made a presentation on its oversight role over water boards. It was followed by presentations by Lepelle, Namakwa, Overburg and Pelladrift Water Boards on their Annual Reports 2007/08. Having had insight into the financials of water boards, members were concerned about their viability.

Meeting report

Mr Silas Mbedzi, Chief Director: Institutional Oversight: DWAF, provided insight into DWAF’s oversight role over water boards. There were four areas on which DWAF evaluated water boards:
▪ evaluation of Shareholder Compacts to determine if five-year plans were viable and sustainable and if appropriate services were provided to the water services authority,
▪ comparison of actual performance to projected performance in the business plan,
▪ appraisal of financial performance through annual reports and financial statements,
▪ tariff processes were in line with Section 42 of the Municipal Finance Management Act and that tariff increases were timeously tabled in Parliament.

The Committee was also provided with figures on the financial performance of water boards. Mr Mbedzi noted that six out of the fifteen water boards had received qualified audits. He outlined certain challenges faced by water boards for example the need for standardisation of reporting. DWAF however suggested a solution for each of the challenges outlined. Mr Mbedzi concluded the presentation by speaking on issues that the Committee had raised in 2007.

Discussion

Mr K Moonsamy (ANC) asked what the obstacles were and why qualified audits were needed. He added that the poor representation of disabled persons on water boards was unacceptable and that it was a matter that needed urgent attention. Mr Moonsamy also brought up the issues of demographics and the youth.

Mr Mbedzi said that water boards themselves would be in a better position to speak on the obstacles faced. The onus of poor representation of disabled persons laid with DWAF itself. Representations of disabled persons would be taken into account in new water board appointments.
 
Mr J Combrinck (ANC) pointed out that everything undertaken by DWAF was always “in process”.
He referred to increases of water tariffs that was said to be between four and nine percent but said that in reality the increase was ten percent. Mr Combrinck asked if the increase in water tariffs was to solve any problems.

Mr Mkhize (DWAF) said that there was a reason for everything being “in process”. He stated that the machinery of government had long processes and that everything was negotiated. DWAF also wished for processes to be complete.

Mr S Simmons (NA) referred to the stipends of board members and asked how successful DWAF was to establish consistency in this regard.

Mr Mbedzi said that DWAF was happy with the process.

The Chair pointed out that it was a problem that the committee was unable to look at the annual reports together with the strategic plans of water boards. A breakdown of the budgets of water boards would have been useful. The Chair requested DWAF to furnish the Committee with summaries of the annual reports and budgets of the various water boards.

Ms September referred to the viability of water boards and made specific reference to long-term contracts and asked how DWAF saw itself assisting in the process. She said that the financial figures presented had shown that water boards were making profits. However positive it might seem she noted that government was there to deliver and not to make profits. The Chair consequently asked what process was there for the progressive developmental path for water boards.

Mr Mbedzi said that perhaps certain issues that had been raised by the Committee could not be covered by DWAF as it was beyond its control. He said that the Section 78 issue was one such issue. Mr Mbedzi noted that legislation needed to be changed. He agreed to furnish the Committee with the summarised documents requested by the Chair.

The DG said that she got the feeling that the Committee thought that the department was not talking directly on the issues. She was up front about the department needing to look for ways on improving itself. The DG said that the distinction needed to be made between what water boards were in fact doing and not doing. She conceded that the department was in need of an efficient information system.

Lapelle Northern Water Board
The Lapelle Northern Water Board presented its annual report 2007/08 to the Committee. The presentation covered its area of supply, its financial performance, the state of its water quality, its infrastructure rollout plan, its challenges and lastly the way forward. The bulk of the presentation set out figures for its financial performance, its market development, service delivery and infrastructure performance and water quality monitoring performance. The presentation also touched on Lapelle’s support to municipalities and the service delivery and infrastructure challenges that it faced. The Committee was also given insight into Lapelle’s infrastructure rollout plan as it applied to capital projects 2007/08 as well as to new projects.  

Discussion

Mr J Arendse (ANC) referred to Lapelle’s debtor days being 265 days and asked how did the board hope to bring the figure down in the future.

A Lapelle Board Member said that the debtor days let the financials of Lapelle look bad. He noted that a credit policy was in place but the difficulty was implementing the policy. It came to light that a subsidy meant for Lapelle was not reaching Lapelle. DWAF was requested to pay the subsidy directly to the Lapelle Board. Such monies could then be put to good use.

Mrs D Van der Walt (DP) asked if it was correct that Lapelle had made a huge profit even though it had written off a large debt. She also felt that Lapelle’s debtor days were quite high and that Lapelle’s financial statements were not quite what the Committee was used to. Mrs Van der Walt asked what the exact amounts were that was owed to Lapelle by which municipalities. Further, how did Lapelle handle infrastructure maintenance?

The Lapelle Board believed that maintenance of infrastructure was a priority.

Mr Combrinck asked why Lapelle had so many board members. In 2007 there were 14 and in 2008 there were 12 members. He also asked whether the senior management members who had retired in 2006 and 2007 had had their posts filled. What were the reasons for writing off huge debt given that profits were high?

A Lapelle Board Member stated that retired officials had been replaced.

Namakwa Water Board
Ms F Beukes made the point that the Namakwa presentation was not in the usual annual report format setting out financial performance etc. In the future Namakwa would follow the usual format for annual reports as was required by the Committee. She stated that the Namakwa Water Board was new and that it had been established in the second quarter of 2007. The mission of the board was to be the leading water supplier in the Northern Cape. The board had no CEO or manager. A manager was to be appointed by June 2008. Namakwa was in dire need of human resources, especially technical persons. Matters were made worse by the fact that there was a great deal of misunderstanding between the board and the Namakwe Municipality. Another concern was the ageing infrastructure, given that the population in the area had increased to 15000 persons. She said that a recent 10% increase in the price of water had been widely objected to by the people.

Discussion

Mr Arendse also asked how the Namakwa Water Board intended to bring its debtor days down from 157 days.

Ms Beukes stated that there were not many debtors. It was not the intention of the board to run a business where profits were the driving force. Attempts were nevertheless made to make the board more cost effective.

Mr Arendse responded that the board should at least try to break even. Having made a loss of R1.7m previously, the question was whether the board would be able to continue in the future.

Ms Beukes stated that the focus was on delivery to the people. She urged the Committee to undertake a visit to the area and agreed to send the Committee a board report that was more comprehensive. 

Mr Combrinck suggested that DWAF and the Namakwa Water Board meet in order to solve the problems plaguing the board.

The Chair asked about the economic viability of the Namakwa Water Board to continue. Ms September also asked why had the water tariffs had been increased when it was clear that the public was against it.

Ms Beukes replied that the board was told to increase the water price and the board complied.
She noted that DWAF was in the process of assisting the Namakwa Water Board with its business plan and in so doing strengthening the board.

Overberg Water Board
The Board Chairman, accompanied by Mr D Potgieter CEO, Ms Truter CFO and Mr S Eldwood COO, gave a concise review of the Annual Report 2007/08. He pointed out that the Minister had commended the board for its work. The Committee was provided with a breakdown of the board’s finances and it was evident from the figures that the board was economically viable. A programme for infrastructure investment was also in place. The board however experienced the same problem as other water boards in getting municipalities to sign long term contracts with them. Municipal contracts were an issue that needed to be resolved and the Chairman felt that the varying legal opinion on Section 78 was another headache. Human resources were a recurring nightmare and skills shortages were alleviated in the short-term with the use of manuals. The Chairman felt that skills that were available were not being used optimally. He stated that quality control was ensured by monitoring, testing and daily inspections being carried out. The Overberg Water Board also had a risk management policy in place and had a sliding scale for its tariffs.

Discussion

Ms Van Der Walt asked if it was correct that demand was exceeding supply by eight percent.

Mr M Sibuyana (IFP) asked if the Overberg Water Board would be funding newly formed boards.

Mr Moonsamy asked why municipalities were reluctant to sign long-term service agreements.
He also asked how many women Overberg had on its board.

The response was that Overberg had two women on its board.

Pelladrift Water Board
Mr Williams stated at the outset that Pelladrift had received an unqualified audit. Revenue and operating costs had both been on the increase and the result was a net operating loss. He gave a breakdown of Pelladrift’s financial performance. He continued with insight into its operating environment and its relationship with its clients. Pelladrift did have contractual agreements. Mr Williams noted that Pelladrift was faced with uncertainties and the need arose for it to come up with scenarios with which to deal with it. A mine was the major client of Pelladrift and the concern was what would happen in the event of a closure if ever it did happen.

Discussion

Mr Arendse pointed out that Pelladrift had asked a municipality for a R60m grant in order to carry out a capital rollout. He asked if it was not more efficient for the municipality to take over the whole process given that they sat with the funds.

Mrs Van Der Walt asked whether consumers were paying their water bills or not.

Mr Williams said that the municipality had been supplementing their water bills from their equitable share.

Mr Sibuyana noted that the Pelladrift’s cash flow was meagre when compared to capital investments. He also asked whether Pelladrift had acquired the R60m grant.

Mr Williams responded that the request for the R60m grant had borne no fruit. After having had discussions with DWAF, Pelladrift had drafted a five-year plan, which had been presented to the Minister.

Mr Moonsamy asked how many women Pelladrift had on its board.

Mr Williams replied that there were two women sitting on the board.

The Chair referred to water boards in general and asked what the role and fate of water boards were. She was also making reference to their viability.

The Chairman of the Overberg Water Board said that there was limited resources and that discussions with DWAF were needed to find a way forward. There was a need for water boards to assist the smaller water boards who were struggling. He reiterated that Section 78 was a problem. The Overberg legal opinion on it was in variance from that of SALGA.

Ms September stated that if Section 78 was problematic, she wished for recommendations to be put forward to fix it.

The meeting was adjourned.

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