Local Government Budget & Expenditure Review 2003 -2010: Departments of Water Affairs & Forestry & of Provincial & Local Government

NCOP Finance

11 November 2008
Chairperson: Mr T S Ralane (ANC)
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Meeting Summary

The Department of Water Affairs and Forestry (DWAF) presented its comments on the Local Government Budget and Expenditure Review 2003/04 to 2009/10. The Department had gone through the questions and concerns as to water security and the potential impacts from the electricity crisis. It presented a response to the challenges and how to address them. There had been a distributed focus on local government that had compromised this Department’s ability to deliver on water security. Support provided to municipalities would now shift from implementation towards ensuring compliance with national water quality norms and standards. In other projects, the Department was working to eradicate the backlog in schools and clinics. There was a capacity problem at local government level. The Department of Provincial and Local Government (DPLG) was reviewing that, together with the DWAF, to address the challenges. Input had also been submitted into the White Paper on the issue. The planned interventions were described. Planning was highlighted as a big problem, and the work with the DPLG would go a long way toward addressing this and integrating planning around basic services.

Members asked if the Department had conducted surveys so that they could know their position, if any effort was being made to encourage people to have water tanks. They queried the delay in integrating the interdepartmental planning, the timeframe for the rationalisation of the Catchment Management Areas, and details on the spending trends. Members recounted various instances of insufficient service delivery and lack of proper water management from their recent constituency visits, as illustrative of the Department’s failings and queried why, after 14 years of funding, why these were still occurring. The Chairperson ruled that the Department must do an in-depth analysis of how sustainable and effective the spending had been, whether there had been value for money, report on the quality of the spending in relation to Free Basic Services, and report also to the development impact, the sustainability, and real improvements in the quality of life of the people, within the next two weeks.

The Department Of Provincial And Local Government (DPLG) gave the Committee its comments on the Local Government Budget And Expenditure Review. It covered financing issues pertaining to the under-pricing of services and the leveraging of private sector financing. A review of local government transfers was taking place, and the need to address the real challenges was noted, as service delivery was not congruent with money spent. Challenges needing attention included the fact of old infrastructure not being maintained, the issue of borrowing, segmentation of those municipalities who had potential to borrow from those who could not, and the problems around municipalities not having business plans. This Department agreed that an analysis of spending was a worthwhile exercise to compare budgets and use of allocations. Value for money was a serious concern. The Department's personnel organograms were being reviewed, as to whether they were relevant to the services provided by local government. The Department endeavoured to enrich the process by integrating the input and data of other departments and to be in touch with other departments through focus groups.

National Treasury commented on both the departmental presentations, indicating serious support for the regulatory focus reported by the Department of Water Affairs and Forestry. When it came to the quality of water Treasury felt that the DWAF should be far more aggressive in response to the crises. It noted the DWAF’s non-mention of water tariff increases, noting that if this was not monitored, it could be a disaster for the country, in light of the electricity crisis. The relationship between tariff increases and the maintenance budget was noted. National Treasury disagreed violently with the new integrated planning regime mentioned by both, saying that the Integrated Development Plan should be at the heart of planning and the Division of Revenue Act was very clear on this. Another planning layer would complicate things.

Members discussed the importance of the macro economic implications of the comments made on the water tariffs. They asked if DPLG had made an analysis of whether Integrated Development Plans were working, or were implementable. Further discussions centred around the delays in awarding of contracts after the allocations for construction, the allocation of grants to municipalities without apparent consideration of the conditions, and the ongoing debates between departments. The Chairperson made the same ruling, in respect of this Department, as he had in respect of DWAF, asking for a full analysis of whether there had been value for money, quality of spending, sustainability and developmental impact. He further pointed to instances where municipalities were not concentrating on their core business of service delivery, the credibility of the indigent register and the salary bill in the reviewed period. He asked how to benchmark an Integrated Development Plan and if there had been analysis of the gaps. The general comment was made that the lack of direction must be addressed, and that there was a need to be more stringent as municipalities must not simply attempt to spend for the sake of compliance but should address the real issues.

The National Treasury made closing comments that the value for money analysis was an enormous challenge and that it would be very complicated in the absence of data, although this was an area on which it was working. The review of the conditional grants would provide another source of information. National Treasury was also looking at the relationship between the tariff, debt and budget related policies. These needed to be aligned to address service delivery, reduce poverty and maintain infrastructure.


Meeting report

The Local Government Budget and Expenditure Review 2003/04 to 2009/10
Department of Water Affairs and Forestry (DWAF) comments
The Chairperson noted that he would be restricting the Departments to making comments in respect of only some of the slides in their presentation, and asked the Department of Water Affairs and Forestry (DWAF) to address slides 4, 12, 13, 14, 16, 18, 19, 20, 21, 22, 23, 24 and 25 (see attached presentation)

Ms Thandeka Mbassa, Deputy Director General: Water Services, DWAF, reported that the Department  had gone through the questions and concerns as to water security and the potential impacts from the electricity crisis. She would also present a response to challenges and how to address them. She noted that in the past DWAF had been supporting local government in providing water and sanitation services. This distribution focus for local government had compromised its ability to deliver on the issues of water security and issues around the poor quality of drinking water.

DWAF had conducted studies to determine the status of the stock of water resources, and had concluded that in general there was enough water available. The problems really lay with the uncertainty around droughts and a lack of infrastructure for water delivery. The Department was ready to support the future economic growth and need for economic uses of water, as well as the growth in the domestic usage of water. Support provided to municipalities would shift from implementation towards ensuring compliance with national norms and standards. The role of local government in the management of water resources was reviewed, but the Department was of the view that the report lacked emphasis on the role of water resources management and its associated financial implications. She added that there was no way to separate entirely their role from that of local government, which must provide efficient water utilisation. The main role of the DWAF was to concentrate on water conservation and demand management.

Ms Mbassa said that the areas of serious challenge for the DWAF were lack of capacity, technical skills and infrastructure, and the insufficient maintenance of existing infrastructure. There were not enough funds for this maintenance. Other issues were the pollution of rivers and quality management of drinking water. The Department’s planned interventions to address water demand management had to be implemented as a matter of urgency in all metropolitan areas. If this did not occur, water restrictions would be inevitable. A huge potential lay in proper use of treated effluent. Ground water as a resource had to be developed more extensively, and further surface resource development and inter-basin transfers would also be required to address the failings on the water resource management. South Africa had taken water availability for granted, and the DWAF would continue to encourage communities to save water and use water more efficiently. The intervention framework outlined would improve efficiency.

Institutional arrangements in the water sector focused on establishing Catchment Management Areas (CMAs. These involved the development of infrastructure accompanied by effective institutions that would ensure proper management on a decentralised level. The initial 19 proposed CMAs had been revised down to a maximum of 9. This rationalisation envisaged a broader role for the water boards at a regional level, to address the capacity issues of the municipalities.

Ms Mbassa summarised the progress of Access to Basic Services. She reported that the trends did not say much, as they did not give a sense of progress. Notably,  bucket eradication would be addressed but the Department was awaiting connections in order to continue. Again the challenge was a lack of bulk infrastructure. In other projects, DWAF had started by working to eradicate the backlog in schools and clinics. Ms Mbassa outlined the use of the extra funds (R950 million) set aside by the National Treasury for the Electricity, Water and Sanitation backlog eradication in clinics. DWAF had been allocated 70% of that sum (amounting to R665 million). She then reviewed the schedule of funds appropriation over the MTEF (2007- 2010). Over the next two years DWAF would focus on water service provision to schools. The funds might not be adequate, but this would be taken up with National Treasury.

The strategy of partnership with the municipalities had led to deterioration of the sustainability of the service, as the real outcomes were that people either had no water or alternatively, in many districts, had water that had made them ill. She reiterated that there was a capacity problem at local government level. Under a policy of decentralization, municipalities had been given powers to perform these functions. The Department of Provincial and Local Government (DPLG) was reviewing that, together with DWAF, to address the challenges. Decisions had to be taken in order to ensure that these functions could work. DWAF had made input into the White Paper on the issue. She added that the National Council of Provinces could influence this because it was a political decision.

Ms Mbassa then briefed the Committee on the interventions and support the DWAF had provided to date (see attached presentation). She noted that broadly speaking, planning was a major problem, and the work with the DPLG around integration and aligning of planning would go a long way toward addressing this.

Ms D Robinson (DA; Western Cape) remarked that she was happy to hear the comments on an integrated planning approach. The initiative concerning the schools and clinics would still need a lot of effort. She highlighted the cases where there might be plenty of water in an area because there were numerous dams, but where communities had no access to irrigation channels or potable water. She asked if the Department had conducted surveys so that they could know the exact position. The Department needed this information to look at what other options may be available.

Ms Robinson also asked if any effort was being made to encourage people to have water tanks and whether people could be assisted with tax incentives or tax subsidies.

Mr D Botha (ANC; Limpopo) referred to the proposed rationalisation of the CMAs down to nine in number, and asked what timeframe was envisaged for implementation of this.

Mr Botha referred to Bushbuckridge, saying that in this area there were reservoirs that were half-built and, as a result, there was no water.  He asked how a situation like that affected bulk water.

Mr Botha referred to the comment made that the Departments of Health and Housing would be brought on board. He questioned why this was only happening now, and what had been happening over the past ten years, as also how long it would take to integrate everyone into the water situation. If there was no water, there would be no life.

Mr Botha queried the spending trends up to now and asked for further detail.

Ms A Mchunu (IFP; Kwazulu-Natal) enquired as to the use of water tanks, and whether people were provided with training to build them.

The Chairperson remarked that the Committee was looking at budgets from 2003/04, through the present allocations in the Medium Term Expenditure Framework (MTEF) and up to 2009/10. He asked if the Department had done an analysis of whether there had been value for money in that period. The Chairperson noted instances where taps were provided to communities but, due to non-delivery, they had since run dry and the taps were then sold for scrap. He wanted to know whether the quality of spending was adequate during the cycle under review. He also questioned the quality of water provided. He asked what this Department could report on the sustainability of the Free Basic Services provided. He wanted to know if a development impact assessment had been done. He gained the impression that the Department was pleading poverty without considering the value gained for the money allocated so far

The Chairperson referred back to Mr Botha’s question on Bushbuckridge, and pointed out that communities did not benefit from these dams. He enquired how DWAF dealt with the whole issue of accessibility. The 6 kilolitres of water given to every household as a free basic service. He stated that those able to pay should not be provided with the Free Basic Water supply of 6 kilolitres of free water to every household, and that if this was not done then the spending was not focused.

Mr M Goeieman (ANC, Northern Cape) pointed out that some of the municipalities were indebted to the DWAF. He asked how far the DWAF could assist those municipalities claiming to have the capacity to deliver

Ms Mbassa responded that these problems would be addressed by the integrated approach. The DWAF was now working on the schools’ problems, and were on track. The Department would be able to spend its allocation. The main problem was that there was not enough infrastructure to get water to the people. Dams that did not supply water to the people were not doing so because the water infrastructure largely reflected apartheid planning.

The Chairperson interrupted Ms Mbassa at this point, and stated that if there had been apartheid planning, then in the last fourteen years the Department itself had been perpetuating that planning. He asked what exactly had been done, or when it would be done, to address this.
Ms Mbassa responded that there was a distinction between water resources and water services. The DWAF was responsible for water resources. The dams under their purview were built for agriculture only, and were not supposed to provide water to the people. The Department was working on a strategy to make sure that the dams were in future used for multiple purposes, to support all economic activity.

The Chairperson responded that the communities were living close to the dams and he questioned whether there was no way that the dams could provide access to water and sanitation to the communities close to them. 

Mr Goeieman added that the Committee was having difficulty in getting a sense of what was actually being done in terms of the infrastructure, so many years after apartheid had ended. 

Mr Botha commented on the water provision from Loskop Dam near Elandskraal. Despite the dam being full, the people in this area, and their animals, were still drawing water from the rivers. He asked if the community would benefit from that dam or if it the water would go only to the platinum mines.

Ms Robinson asked if an audit had been done of what was available by way of water resources. She asked if the DWAF could look at any of its success stories as a way to rectify these problems.

The Chairperson stated that the Committee would continue with the rest of the items on the agenda. The Department had clearly not done its work in a way that would enable it to answer these questions in an analytical way. He questioned, in light of the substantial money spent on the system, how sustainable and effective that spending had been. He did not see that there had been any analysis. He theorised that money had been pumped in purely for the sake of compliance.  He said that this Department would have to go back and look at the allocations from 2003/04, and do a proper analysis of whether there had been value for money. He asked the Department to look at the quality of spending in relation to the Free Basic Services claimed. There was also the problem of water lost due to leaks. Again, this was a case of money being thrown into a problem without proper analysis. He wanted this Department to talk to the development impact, the sustainability questions, and whether quality of life was improving. If this Department raised the hangover from apartheid, it must say what the plan was to address these problems now, and not in the next ten years. He asked in terms whether this Department had been wasting money, and, if so, how it would justify the waste. There were many rural beneficiaries who did not have the basic resources.

Ms Mbassa responded that the Department had not been given a chance to respond

The Chairperson again interrupted to say that the Department had tried to blame apartheid, but apartheid was dead.

Ms Mbassa replied that she and her colleagues felt highly intimidated.

Mr Goeieman responded that it was the practice and the job of this Committee to interrogate the issues thoroughly. The Committee had seen what was happening in these areas. He thought the Chairperson’s ruling fair, and felt that it should be respected.

The Chairperson agreed with Mr Goeieman. It was a source of great concern to him that the resources were not reaching the people. The report presented by the DWAF did not answer the questions. The Committee was not also hearing about the rural beneficiaries, as the Department had concentrated on the urban beneficiaries. What the Committee had seen on its most recent visit was appalling and the Members needed this analysis. He noted that access to water for all seemed to remain a pipe dream. He suggested that perhaps members of the Department should accompany the Committee on one of its visits, to respond to the real issues that it would see.

Department Of Provincial and Local Government (DPLG) response
Mr William Rhampele, Senior Manager: Municipal Finance, Department of Provincial and Local Government, briefed the Committee in regard to the review, as it pertained to his department. He said his comments were segmented according to financial issues.

One of the key issues was that the level of indigent people was increasing, and could often not be accurately established. This led to the situation where it simply became easier to give the free basic services to everybody. In respect of financing, Mr Rhampele reported that the declining user charges affected revenue generation, as revenue transfers had increased. This should be looked at carefully, considering growing levels of poverty and indigents. The underpricing of services was also highlighted, and he said that consideration should be given to consumer debt issues, as correct pricing might also mean an increase in consumer debt.

The review of local government transfers implied that the Municipal Services Improvement Grant (MSIG) was the worst performer. He commented on the role of the National Treasury in being part of the effort to improve grant performance, saying that it was desirable that all department should try to learn from each other in managing grants and curbing fragmentation.

He reviewed the issues surrounding leveraging of private sector financing. There as a slow level of delivery in regard to infrastructure, and it was important to know the level of investments in order to ascertain whether there was enough money in the system, and how this related to the capacity to spend. Funding may not be the main issue, and it was important for the DPLG to address the real challenges, as service delivery did not seem to be congruent with money spent. A major challenge that would need attention was the fact that old infrastructure was not being maintained. The creditworthiness of municipalities was important for the financial management of these municipalities, especially as it related to borrowing. This must be ascertained, to separate out those municipalities that did have the potential to borrow from those who could not borrow. A targeted effort could then be made to boost the funding of the latter.

Mr Rhampele pointed out that an analysis of spending would be worthwhile, to compare budgets and use of allocations. His Department had tried to analyse the budget together with DWAF, but when they had looked at the infrastructure maintenance, they had not seen the funds allocated previously filtering through. The question must still be answered as to where the allocated funds had gone. He noted that the DPLG would follow up with DWAF the issues around municipalities, the service delivery and the next allocations. He agreed that there were serious concerns around whether there had been value for money and whether allocations were being properly spent.

Mr Rhampele said that the legacy backlogs were not being removed, and DPLG would also liaise with DWAF on that. At local government level there were problems when Chief Financial Officers were not appointed in an appropriate timeframe. The personnel organograms were being reviewed, with questions being asked as to whether the current organograms were relevant to the services provided by local government. DPLG attempted to enrich the process by integrating the input and data of other departments, or maintaining contact with them through focus groups. 

Mr Khwathelaui Bologo, Senior Manager: Municipal Development Finance, DPLG, stated that there was disintegration of the built environment at a local level. The Integrated Development Plan (IDP) was a comprehensive infrastructure plan that DPLG was trying to operationalise. There must be planning in an integrated way, and the Department was working hard to get the municipalities to draw these plans. It was also looking at other sources of funding for refurbishment and operational maintenance.

DPLG and National Treasury were discussing and trying to find a way of addressing the instances where money was allocated to municipalities but seemed simply to have been spent on anything at all to satisfy expenditure targets. It also wanted to help the municipalities to deal with legacy backlogs, although perhaps the National Treasury should deal with that,  as it was really frustrating them.

The Chairperson asked for the input of National Treasury on the presentations.

Mr Jan Hattingh, Chief Director: Provincial Budget Analysis, National Treasury, stated that the National Treasury (NT) seriously supported the regulatory focus reported by the Department of Water Affairs and Forestry. When it came to the quality of water, NT felt that DWAF should be far more aggressive in responding to the crises around the quality of drinking water, and must resolve them immediately or within 24 hours, because people's lives were at stake. The two departments  of DPLG and DWAF had to engage more on this.

Mr Hattingh commented that DWAF had been silent on the water tariff increase. If this was not monitored carefully, it could be a disaster for the country, in light of the electricity crisis. He would encourage DWAF to look at that issue as there was a relationship between tariff increases and the maintenance budget.

Mr Hattingh said that NT strongly disagreed with the suggestions around the integrated planning regime mentioned in both presentations. NT agreed with integrated planning and responsibilities. However, it did not necessarily agree with a new planning regime, as it would complicate things even further. The IDP should be at the heart of planning and the collective government had to make the IDP in the municipalities work. NT also did not agree with the Comprehensive Infrastructure Planning (CIP) discussed recently by the Cabinet. Parliament was the custodian of the Division of Revenue Act (DORA) and DORA was very clear on what the planning regime should be. Another planning layer would simply complicate matters. NT did not think that the CIP would address the challenges confronted. Quality management of water was very important, as was the water tariff, and the micro economy must not be compromised. 

The Chairperson responded that this was not just a matter of water and tariffs. This Committee also did not want to compromise the macro-economy, and must also remember the monetary policy of inflation targeting. He stated that part of the problem was the credibility of budgets. The Committee could return to the discussion on the CIP and the IDP.

Mr Goeieman asked the DPLG if it had made an analysis of whether the IDP was working, or how best to ensure that municipalities respected and implemented the IDP. He said that he was not aware that municipalities did not have a proper business plan. This was a source of much concern, and he added that the tariffs the municipalities collected needed to be accounted for somewhere.

Mr Goeieman said that the issue of the indigents was also of concern, as few of the indigents actually seemed to benefit. Money appeared to be given out with no accountability. With respect to the DORA, he asked if there was not a way that stronger municipalities like Ekhuruleni could be grouped with weaker municipalities.

The Chairperson responded that the DPLG did not have the mandate to respond to the last question.

Mr Botha asked if the Integrated Development Plans were regarded as just a consultative document in some of the municipalities, or if they really could be implemented.  He queried the implementation on the ground, when all those funds had been allocated but people still had no water. In the municipalities the Committee  had visited, he had asked the to be shown the IDP, and had found that councilors were changing the plan in their particular wards for what appeared to be purposes of popularity. On the ground, service delivery was not taking place in accordance with the money allocated. The municipalities did not seem to have the capacity to build roads. The allocations were finalised in June, but often contractors were only hired in December, which was the rainy season for most of the country. Value for money was not being seen in the administration.

Mr M Robertsen (ANC; Eastern Cape) stated that the view was generally held that grants should be given to municipalities,  but these grants were abused. Although in terms of DORA the grants were supposed to be conditional, the conditions seemed to be falling away. As to the percentage allocated to salaries and the shortage of personnel, it seemed to him that municipalities did not want to appoint additional personnel.

Mr Robertsen referred to the point by Mr Botha that tenders were often awarded in December and pointed out that the contractors’ holidays ran from mid-December to mid-January, meaning that work actually would begin only in February, almost into the next fiscal year.

Mr Robertsen stated that it was easier to implement the IDP in towns. In regard to the comment about the problems in ascertain who was indigent, he said that some might get jobs and others might die. He agreed that it might be easier to just give those benefits to everyone.

Ms Robinson stated that children’s Early Childhood Development (ECD) would be the baseline for determining how good their matric results would be. The same applied to Councillors. She asked if there could not be some basic training for the councilors before they were elected, as to what the job entailed, to enable them to study to build the proper competence, to enable them to think ahead and to start planning. 

Mr Goeieman referred to the concluding remarks by the DPLG that there was a plan for debate to take place between the departments. He asked how this would be done. He had the impression that this was being referred back to NT, and the departments did not seem to have their own ideas. He asked if they had an idea of what the National Treasury could do.

The Chairperson said that he felt he must make a ruling similar to that made earlier in respect of the Department of Water Affairs and Forestry. He asked the DPLG to go back and look at the allocations from 2003/04 to 2008/09, and to determine whether there had been value for money, quality of spending, sustainability and developmental impact. He wanted an analysis of the grants. He would also like to have an analysis of what the implications of accurately determining the indigent population and registering every indigent would be. If this could be done, then he wanted to know how to allocate and target according to that population. He noted the potential problem with the credibility of the indigent register, as people may find jobs or even die. The DPLG should look at those factors too.

The Chairperson commented that there was a huge problem with the ratio of the operational budget to the investment in service delivery. The Department should answer the question of whether service delivery was commensurate with allocations.

The Chairperson cited the example of the Chris Hani district municipality, who, in his opinion, were acting incorrectly and not focusing on their core business. This municipality had initiated an agricultural project, and he asked if agricultural projects should be initiated by municipalities. He supposed that this could be argued in the context of Local Economic Development (LED). He added that the district had bought 40 cattle for the community. This, to his mind, was an example of a municipality engaging in activity that was not sustainable. There was a problem in that the roads in the district were terrible. The municipality had therefore compromised service delivery by doing what was not their core business. As the Department of Agriculture was not involved, those projects were now falling apart. He wanted an analysis of whether money spent on LED was money well spent.

On the IDP/CIP issue, he asked DPLG how it was possible to benchmark an IDP. He asked how credible would the IDPs be in relation to the content of the IDP document.  He queried the level of involvement of the national and provincial departments, the gaps in the IDPs and how the IDPs could be strengthened as tools to ensure integrated planning.
The Chairperson said that DWAF and the DPLG had to do these analyses on their own but it would be useful to have a joint analysis after both departments had discussions with the National Treasury.

Mr Bologo pointed that section 39 of the Division of Revenue Act talked to the plan. He replied that the DPLG would respond to the requests made within the next two weeks.

Mr Hattingh responded that the departments faced enormous challenges and this task was very complicated, in the absence of data. There were approximately 280 different budget documents to process. Once this data had been processed and aggregated, it would be easier to produce these answers, as this information would then be at their disposal. The review of the conditional grants would also throw up more information. The Minister had not yet authorised the publication of that document, as the signature of the DPLG had not yet been obtained.

Mr Hattingh said that the borrowing issue mentioned by the DPLG was one where the Development Bank's role was essential. The National Treasury advocated that they should look at the economic circumstances to see if the municipalities might potentially explore borrowing.

Mr Hattingh noted that the review stated the budget for tariffs and service charges. The DPLG had assessed the budget in term of the IDP, and their findings were disastrous. There was no apparent relationship between the IDP and the budget. It was fundamental that the document was readable, that the targets were realistic, and that they tie up the budget to the IDP.

Mr Rhampele said that the processes were already in place as to the medium term impact and the value for money. The DPLG would package those reports for the Committee, engage within the Department and work on the issues raised .

Mr Conrad Barberton, Director: Local Government and Budget Analysis,  National Treasury stated that there was a relationship between tariffs and debt. In terms of the Public Finance Management Act (PFMA), there were tariff policies, debt policies and budget related policies. The National Treasury was looking at the relationship between the three policies,  as they needed to be aligned to address the problems in service delivery, reduce poverty and maintain infrastructure.

The Chairperson stated that he wanted to address the apparent lack of direction of the DPLG. The municipalities must not comply purely for the sake of compliance. There was a need to take a stronger stance. The cost of the follow up needed also to form part of the greater costs, as the time spent following up could lead to missed targets. He was further concerned about possible distortion of the information. There was a need to accept responsibility by all. He remained concerned that some institutions were abusing the conditional grants, and were getting away with this. This was not acceptable.

The meeting was adjourned.


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