The Department of Water Affairs and Forestry, tabled their Annual Report for 2007/08, noting that there were four sub-programmes in the Department, as well as a Water Trading Entity. The financial statements for the 2007/08 year were presented. 92% of the budget had been spent and the underspending was attributed to delays in transfer payments to the Water Trading Entity, for construction of De Hoop Dam. There had been unauthorised expenditure, which was subsequently approved. There was a decrease in revenue due to decreases in the sale of forestry products. The payments were explained, and it was made clear that most of the capital expenditure related to buildings and water services infrastructure. There had been better financial controls. The achievements were summarised, including an increase in access to basic supply of water and sanitation to clinics and schools, and upgraded infrastructure there. An Electronic Water Quality Management System was developed. There had been considerable spending on new and upgraded water resource infrastructure. The Forestry Charter had been signed and 170 000 people were employed in that sector. The Action Plan and progress was then outlined. There had been better disclosure, improvement of the asset register, establishment of a risk management unit and reduction of staff debt and vacancies. The Committee was taken through the Annual Financial Statements and financial improvement plans for 2008/09. Members asked questions on management arrangements, the cost and contract terms for financial services firms, retention of staff, how the water system would be developed and implemented, and plans for recovery of debt. The Department was asked how lack of skills and capacity were tackled, and queries were raised as to the decline in forestry revenue and how transfers to municipalities were handled.
The Human Resources branch of the Department gave a presentation on the strategies being employed to try to eradicate backlogs, improve efficiency and build organisational capacity. The performance management agreements were outlined, and it was noted that all operations were compliant with the Public Service Act. The Human resources achievements were summarised. Questions related to the creation of the International Relations Directorate, the policy formulation, the training institutions used and consultation with employees before transfers.
The Department finally briefed the Committee on the setting of water tariffs. The presentation set out in detail the pricing of water through the value chain, the objectives of the strategy, and the budget. The calculation of charges for waste discharge was different from those of water supply. It was noted that some water schemes were funded off budget and their charging. He explained the situation with municipalities, and noted that there were certain responsibilities under the Water Services Act and Municipal Systems Act. The common problems in the Act approaches to tariff arose from lack of objectivity in calculation of tariffs and ineffective use of subsidies, as well as an increase in the number of indigent households. Members raised queries on recovery of money by the Water Boards, and the respective obligations of municipalities and the Boards,
Department of Water Affairs and Forestry (DWAF) Annual Report 2007/08
Ms Olga Hattingh, Deputy Chief Financial Officer, Department of Water Affairs and Forestry, tabled the Annual Report for 2007/08. She noted that the Department had four subprogrammes of Administration; Water Resource Management, Water Services and Forestry. She said the Department also had a water trading entity made up Integrated Water Resource Management, Integrated Systems and Bulk Water Supply. Ms Hattingh said the management arrangement separated the above. The Department’s financial branch was reorganised at head office and regional level, and policy guidelines existed in respect of the functions of the different branches.
Ms Hattingh presented the Financial Statement for the 2007/08 financial year. She noted that 92% of the budget was spent and said under spending was due to the delay in the transfer payment of R452, 988 million to the Water Trading Entity for the construction of De Hoop Dam. The delay in the approval of the Broad Based Black Economic Empowerment (BBBEE) Forestry Charter resulted in the roll out process being delayed as well.
Ms Hattingh presented a financial overview. She said that unauthorised expenditure of R14.889 million was approved. There was a decrease in departmental revenue because of the decrease in sale of forestry products. She said the current expenditure related to compensation for interns and contract workers, goods and services, and that some of that relating to compensation of employees related also to transfer of staff to municipalities and the Water Trading Entity. Goods and services were affected by 7% inflation, that led to R100 million increases in Procurement Service Adviser payments, and subsistence and travelling. She said there was a decrease in the amount of debt that was being written off, which included R10 million for municipalities. She added that there had been some problems with the invoices. Capital expenditure had mainly focused on buildings and other fixed structures like water services infrastructure. Ms Hattingh said there were increases in intangible assets and decreases in the procurement of movable assets. There were better financial controls being implemented in this year.
She also outlined the major achievements. These included an increase in access to basic supply of water and sanitation to clinics and schools. Upgraded infrastructure in clinics and schools was noted as another achievement. The Department had developed and implemented an Electronic Water Quality Management System. In addition, R1.2 million was spent on new water resources infrastructure and R415 million was spent on the refurbishment of existing infrastructure. The signing of the Forestry Charter led to the employment of 170 000 people.
Ms Hattingh then briefed the Committee on progress in terms of the action plan. She said there was proper separation between the Main Account and Water Trading Entity and the Department had strategic planning alignment initiatives. She said there was better disclosure regarding accruals, commitments and related parties. The Department’s asset register had improved. In terms of the Financial Improvement Projects for 2008/09, Ms Hattingh said a risk management unit was established within the office of the Chief Financial Officer. She said there was a reduction in staff debt. There was improved maintenance of the asset management register. The filling of vacancies had improved and there was an update and development of financial policies and procedures.
Ms Hattingh then briefed the Committee on the Annual Financial Statements for 2007/08 in respect of the Water Trading Entity. In her overview she said there was reduction in revenue and an increase in infrastructure assets, and an increase in depreciation. Regarding progress in terms of the action plan Ms Hattingh said that Project Sakhile had verified and valued infrastructure assets that were captured on the interim asset register. The Department had a land account of R15 million and the servitudes of the Eskom, Sasol and Tugela Vaal schemes were accounted for, and were standing at R63 billion. Ms Hattingh said an asset register for moveable assets was compiled and loaded. The lease and intangible register was also compiled. The Department had developed accounting policies and processes, and these were to be implemented during 2008/09. Unallocated deposits were reduced through Siyanqoba and the accounting system SAP was refined through an ongoing process in the Department.
The department had Financial Improvement Plans for 2008/09. These included the development of asset management plans through Project Sakhile, maintenance of the asset register, filling of vacancies and implementation of financial policies and process through Siyanqoba. Ms Hattingh outlined the current use of the payment service providers (PSPs) per branch of the Department and the core functions of each branch. She said the reasons for increase in the use of PSPs were lack of skills and capacity internally, and the complex and technical nature of assignments that required specialists and experts. She outlined steps to reduce the use of PSPs. These included the finalisation of structures; filling of vacancies with suitable candidates; empowerment and capacitating of staff; a retention strategy, and implementation of computerised systems.
Mr M Swathe (ANC) asked for clarity concerning management arrangements and the cost and duration of appointment of financial services firms.
In response Ms Hattingh said financial services providers were contracted as and when needed. She added that the current firm was contracted from March 2006 until March 2009 and that the firm provided financial support for R30 million. That amount was provided by the European Union.
Mr Swathe asked how the department planned to retain staff.
Ms Nobulele Ngele , Deputy Director: Corporate Services, DWAF, said the Department had a retention strategy that entailed using a Performance Management System. She added that technicians’ salaries were recently raised and that they had a minimum of a two-year contract.
Mr Swathe asked how the development and implementation of the water system and its automatic utilisation in plants was going to be conducted.
Mr Helgard Muller, Acting Deputy Director General, DWAF, said the system was used to assess drinking water quality. He said that municipalities monitored water quality, and 90% of them had submitted reports, and that 94% were compliant. He said non compliance, and those that did not report, would be followed up by DWAF.
Mr Swathe asked if the Department had any plans to recover the debts owing by staff debtors.
Ms L Makhanya, Director: Office of the Director, DWAF, said revenue collection had increased over the years and that there was a cost recovery system in place. The challenge was that not all users were registered and that there was need to revisit management arrangements as the unit responsible had limited capacity.
Ms J Semple (ANC) asked how the lack of skills and capacity were addressed.
Ms Ngele said lack of skills and capacity were tackled through skills transfer and the enrolment of staff into different courses. She said internships were also used to absorb trainees. She added that the Department had post-training assessments to get value for money spent on training. Moreover, the Department had competency assessments to identify gaps and ensure that training was aligned to Departmental needs.
Ms Makhanya said the Department conducted retraining, particularly in finance-related courses and also had learnerships in water purification last year. She noted that the Director General had suggested alternative measures like outsourcing and capacity building. A cost benefit analysis as to which was the cheaper option was in process.
Ms M Manana (ANC) asked why there was reduction in the sale of forestry products.
Ms Ngele said there was nothing to sell from the forests and that trees were still growing.
Ms Semple asked how transfers to municipalities were handled.
Ms Ngele said transfers were operational and added that there were problems with integration of DWAF staff into municipalities. She also said the Department had to consider the Labour Relations Act when dealing with transfers.
Human Resources Presentation
Ms Ngele briefed the Committee on the Human Resource Management of the Department. She outlined the strategic thrusts that included eradication of the backlog, improving efficiency and building organisational capacity
She said that Performance Management Agreements were due on the 30 June 2008 and that a report would be presented to the Committee. She said that DWAF collaborated with the Department of Public Services and Administration (DPSA) Task Team on Occupational Specific Dispensation (OSD) for appropriate salary structures. Ms Ngele said the Water and Forestry Learning Academy implementation was a long term strategy to ensure a reliable skills base and HR pipeline in line with the objectives of the Joint Initiative for Priority Skills Acquisition (JIPSA) and Accelerated Shared Growth Initiative (ASGISA). She said operations were compliant with the Public Service Act as new staff members were given twelve months probation.
Ms Ngele outlined the Department’s HR achievements, including the eradication of backlogs in HR transactions and knowledge management. The focus areas in this regard included pension withdrawal; injury on duty; probations management; a review of the HR filing system; correcting employment status of SMS members; improving compliance with financial disclosures, and employee initiated severance package. The HR department also had a talent management unit which mainly dealt with performance management. Ms Ngele said the HR unit planed to implement revamping and auditing of bursary files and management of the bursaries.
In terms of handling misconduct and grievances, Ms Ngele said the unit had had settled 15 out of 29 misconduct cases. In addition, 17 out of 34 grievances were finalised.
She noted that there was a training and development programme where three hundred and sixty employees were trained.
Ms Ngele tabled the organisational design of DWAF. She said the unit recently implemented an International Relations Directorate and a Risk Management unit. She said a review of the organisational structure was applied by National Water Resources Infrastructure (NWRI). The organisational structure was accurate and aligned to PERSAL.
Mr P Ditshetelo (UCDP) asked why the International Relations Directorate was created instead of using existing government facilities.
Ms Ngele said the Department had a Chief Directorate for Coordination, which could not provide the support the Minister needed. This led to the creation of the entity as it could deal with trans-border water supply issues. She added that every Department had such an entity whose role was around consultation.
Mr Ditshetelo asked if employees were involved in policy formulation.
Ms Ngele said employees were involved in policy formulation for critical posts, particularly those that were involved in finance. She said the finance department was critical in delivering HR support to ensure that posts were filled as soon as possible.
Mr Swathe asked if the institutions used in training were up to the required standards.
Ms Ngele said the Department had partnerships with all institutions that were accredited
Mr J Combrinck asked if the Department had any consultation with employees before transfers.
Ms Ngele said transfers were held until issues raised by employees are dealt with. She added that there was a need for a transfer strategy and consultation with unions. Ms Ngele also said any transfer was in compliance with the Labour Relations Act.
Presentation on Water Tariff Value Chain: Setting of Raw Water, Bulk Water and Retail Water Tariffs
Mr Muller briefed the Committee on the setting of water tariffs. He said the objective of the presentation was to provide the Committee with an understanding of how water was priced through its value chain from raw water to bulk water and retail water tariffs. He said the Department’s objective in the pricing strategy was to provide equitable and affordable access to water supply services and direct access to water for economic efficiency and sustainability.
He said water requirements were not subject to pricing but this was done to meet South Africa’s international water commitments. Mr Muller outlined the contents of the pricing strategy (see attached presentation)
Mr Muller presented the budget for water supply activities and how they determined pricing. He noted that Water Resource Management (WRM) Charges were calculated on an activity cost basis, and the unit cost was calculated by dividing Cost of abstraction WRM and activities in Water Management Areas (WMA) with Registered volumes. Mr Muller said the calculation of charges for waste discharge was different from those of water supply. He said the charge was based on the registered discharge waste load of salt and phosphorus. as these were the most common problems affecting water quality in South Africa.
Mr Muller said some water schemes were funded off budget. He said DWAF was the custodian of three hundred large dams in more than one hundred and fifty Government funded water schemes, adding that this required billions in investment to manage them over a twenty year period. He said the schemes were charged using the Capital Unit Charge (CUC) that comprised of two distinct water use charges, namely mitigation and incentive charges.
Mr Muller said according to the norms for bulk potable water tariffs, municipalities were entitled to a share of national revenue to fulfil functions of water supply. Surpluses may be used to finance future capital expansion for refurbishment, repayment or debt. He outlined the input costs of bulk water and illustrated why charges were in place. In terms of Retail Water Tariff and Sanitation Tariff, DWAF had responsibilities in terms of the Water Services Act 108 of 1997 and the Municipal Systems Act. Mr Muller also briefed the Committee on the functions of the National Water Services Regulator and the Section 10 Regulations that focused on revenue requirements; subsidisation of tariffs; categories and levels of water services; supply of water in a controlled volume; supply of water to an uncontrolled network; sanitation services and fixed charges as well as connection fees.
Mr Muller said the common problems in the Water Services Act approaches to tariff setting were lack of objectivity in calculation of tariffs and ineffective and inefficient use of subsidies. He said a regulation unit was established to deal with the Water Services Act and tariff assessment to determine compliance with Section 10 of the regulations. Mr Muller said challenges facing the Department included an increase in the number of indigent households, which required greater and more efficient use of subsidies.
Ms Manana asked what DWAF’s role was in helping the Water Boards to recover money owed by municipalities.
Mr Muller said that it was a problem that was discussed with National Treasury and Department of Provincial and Local Government. He said the issue had to be dealt with to see if changes could be made in legislation.
Mr Combrinck asked what steps were taken to deal with cases where municipalities did not make their due payments.
Ms Ngele said inter-departmental debt management facilitated the collection of debts.
Mr Ditshetelo asked if steps were taken to recover money that was owed to municipalities.
Ms Ngele said officials were accountable to recover money owed, with the aid of administrative systems
Mr Sibuyana asked what happened when DWAF was owed by another department, such as a school or hospital.
Ms Ngele said the Water Boards must report monthly on debt recovery. He said that each Water Board had to take action if debts were not settled within sixty days. He added that water supply could be reduced so that those in debt could pay.
The meeting was adjourned.
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