ATC141023: The Budgetary Review and Recommendation Report of the Portfolio Committee on Water and Sanitation, dated 21 October 2014

The Budgetary Review and Recommendation Report of the Portfolio Committee on Water and Sanitation, dated 21 October 2014

1. Introduction

The Money Bills Procedures and Related Matters Amendment Act (Act No 9 of 2009) (Money Bills Act), sets out the process that allows Parliament to make recommendations to the Minister of Finance to amend the budget of a national Department. In October of each year, Portfolio Committees must compile the Budgetary Review and Recommendation Reports (BRRR) that assess service delivery performance given available resources; evaluate the effective and efficient use and forward allocation of resources; and may make recommendations on forward use of resources. The BRRR also serves as source documents for the Standing Committees on Appropriations when they make recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (MTPBS). The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process. Section 5 of the Money Bills Act requires the National Assembly, through its committees, to annually assess the performance of each national department, with reference to the following:

· The medium term estimates of expenditure of a Department, including its strategic priorities and measurable objectives. These are tabled in the National Assembly together with the national budget;

· The Department’s strategic plans and annual performance plans;

· The expenditure report of a department published by the National Treasury in terms of section 32 of the Public Finance Management Act;

· The Department’s annual reports and financial statements;

· The Committee on Public Accounts’ reports relating to a Department; and

· Any other information requested by or presented to Parliament.

The mandate of the Portfolio Committee on Water and Sanitation (the Portfolio Committee) is to enhance the principles of a developmental state through passing legislation and to facilitate public participation, monitoring and oversight function over the legislative processes relating to the water and sanitation; confer with relevant governmental and civil society organs on the impact of water and sanitation legislation and related matters, enhance and develop the capacity of Committee Members in the exercise of effective oversight over the Executive Authority.

The Portfolio Committee noted the critical factors informing the strategic and business plans, section 32 reports, annual report and financial statements of the Department of Water and Sanitation (the Department) and its Entities. In addition, the Portfolio Committee focused on the way in which the Department aligned and accomplished its work over the medium term in relation to its constitutional imperative, legislative mandates, the Medium-term Strategic Framework of Government, National Development Plan 2030, Outcome 10 Delivery Agreements, obligations and commitments stemming from multilateral and bilateral water and sanitation agreements and other international instruments such as the Millennium Development Declaration and priorities emanating from the 2014 State of the Nation Address.

To effectively undertake the oversight mandate of its work as required by the Money Bills Act, the Portfolio Committee on Water and Sanitation (the Portfolio Committee) having received and considered briefings from the Department of Water and Sanitation and its Entities, as well as the Office of the Auditor-General on 14 and 15 October 2014 on the Annual Report and Financial Statements of the Department of Water (Vote 38) and its Entities for the 2013/14 Financial Statements, reports as follows:

2. Core functions of the Department and its Entities

The Department of Water and Sanitation’s legislative mandate seeks to ensure that the country’s water resources are protected, managed, used developed, conserved and controlled by regulating and supporting the delivery of effective water supply and sanitation. This entails adhering to the requirements of water-related policies and legislation, including constitutional requirements that are critical in delivering on the right of access to sufficient food and water, transforming the economy and eradicating poverty. The mandate is derived from the National Water Act (No 36 of 1998), the Water Services Act, (No 108 of 1997) and the Water Research Act (No 34 of 1971).

The Department of Water and Sanitation fulfils its mandate through formulating, coordinating and monitoring the implementation of national water and sanitation policies, programmes and legislation with the additional support from entities such as the Water Research Commission (WRC), the Trans-Caledon Tunnel Authority (TCTA), Catchment Management Agencies and Water Boards.

2.1 Policy Focus Areas of the Department for the 2013/14 Financial Year

The key policy focus areas over the medium term for the Department in its alignment to government programmes relate to the sector’s contribution to economic growth, rural development, food security and land reform (Outcome 6 – Infrastructure, 7 – Rural Development and 9 – Local Government); to promote sustainable and equitable water resource management (Outcome 10 – Environment); Strengthening the regulation of the water sector (Outcome 6 – Infrastructure, and 10 – Environment); Support local government to deliver water services (Outcome 9 – Local Government)l contribute to improved international relations (Outcome 11 – International) and build capacity to deliver quality services (Outcome 12 – Public service).

Given the changes and recent trends in the service delivery environment, the Department undertook a review of its policy areas, thus refocusing objectives and new commitments to respond to the new environment. For the 2013/14 financial year, the Department identified the following strategic issues and performance targets as critical:

Positioning water as a catalyst for development

The policy area emphasised the point about the centrality of water in the economy. As reflected in the New Growth Path, water runs through various sectors as an enabler and bedrock for all future planning and development. The indicators and performance targets as noted in the Department’s Annual Performance Plan (APP) contribute to a variety of sectors such as energy, mining, agriculture, and social development. The success or failure to achieve these objectives will have a huge impact not only in the water sector but the entire value chain in the economy.

Water governance as a condition for sustained water delivery

One of the main commitments of the Department’s Annual Performance Plan, is the finalisation of the second National Water Resource Strategy (NWRS-2). This strategy forms the cornerstone of water resources management in the country and gives guidance on what future priorities are in the business of water in South Africa. In the 2013/14 financial year, the Department aims to see the final adoption and implementation of this strategy by all sectors along with all the technical and support strategies.

In the same context, the institutional framework to improve water resource management is geared towards finalisation. The Department, notes in its APP commits the establishment of nine catchment management areas within three years and to formalise the nine regional entities to provide regional bulk infrastructure and to support municipalities on bulk water provision.

The need for sector skills development

The sad reality is that the sector is losing its most critical resource, which is its human capital. The implementation of the goals outlined in strategies, frameworks and plans need the technical expertise to be realised and most of these employees within the water and sanitation sectors are either aging or retired. The Department, stresses in its APP for 2013/14 the specific targets for recruitment and training of engineers and scientists to expedite the project of building technical skills in the sector. The sector skills plan also has huge commitments towards achieving the objective of capacity building.

Sound financial management and accountability

The Department emerges from a difficult period of poor audit outcomes from the Office of the Auditor-General which calls for a new way of doing things from a financial management point of view. Though not ideal yet, the last few years have seen the Department improving on its financial management and reporting so as to receive a qualified audit with less matters of emphasis. The Department has a specific target to achieve a clean audit in 2014, and for this a number of actions and undertakings have been prescribed.

Addressing equity and increasing access to water

The recent Census results confirm that a lot of progress has been made to deliver water to the people. The 94.8 per cent access achievement is a welcome development in a democratic state but as the Department noted, this does not remove the reality that many communities, especially in rural areas still lack access to water. The Department, in its APP, sets out targets for increasing access to these vulnerable communities as well. The Department has also initiated programmes such as rain water harvesting and new initiatives to increase access to those who never had water in the first place.

Contributing to the infrastructure build programme

South Africa has unveiled a massive infrastructure programme to build the economy and create jobs. The role of water in this programme is very significant as most projects require a secure source of water availability in the best quality. The water sector itself has its own infrastructure investment plan which has been quantified to cost over R660 billion over the next ten years.

Other critical policy areas under review relate to water governance as a condition for sustained water delivery, legislative review of the current water-related legislation, review of the water pricing strategy, regional bulk water and sanitation infrastructure, dam safety, institutional reform and re-alignment project, bulk water infrastructure, compliance with minimum water quality norms and standards, support for local government and international integration.

2.1.1 Overall performance of key policy focus areas over the medium-term

During the last financial year, the Department has not only learnt from what has been done, but needs to ensure that it does its work better and smarter to achieve their set goals. The ideal of ensuring water security including the supply of and sustainable sanitation cannot only focus on the needs of the moment, but should look beyond and consider the needs of generations to come.

During the last financial year, the Department has taken stock of all those factors that inhibit consistent water supply. To address the inhibiting factors, the Department, together with local government and surrounding communities embarked on programmes directed at facilitating economic growth, social development, skills development and community participation. These programmes include, amongst others, the following – War on Leaks, Adopt-a-River, River Health, Youth Summit, Bursary Schemes, Women in Water Awards, and South African Youth Water Awards.

These remain the Department’s flagship programmes aimed at water conservation, water management, making bursaries available to provide essential engineering skills, job creation, public participation, economic growth and development.

War on Leaks Programme

During the period under review, the programme, War on Leaks has substantially reduced water loss and unaccounted water seepage in most Local Municipalities country wide. This programme targeted women and youth and has generated much enthusiasm which has led to communities developing a strong commitment.

Careers in engineering services and environmental management

More youth, especially from rural areas, have registered with tertiary institutions for careers in engineering services, environmental management and the protecting ecological degradation. The same institutions of higher learning will work in partnerships with the Department of Water and Sanitation to train and develop the youth in these sectors.

Women and young people

Women and young people in the various provinces have been recognised for their efforts and contributions in securing quality water and the fight against water pollution. These efforts continue to draw large numbers of volunteers who have as their objective to ensure sustainable supply of quality water in all communities.

Capacity constraints

The Department has been consistently faced with capacity shortages when it comes to technical skills owing to among other things, aging workforce and the inability to attract and retain young specialists. One of the contributory factors related to capacity constraints is that the Occupational Specific Dispensation (OSD) requirements are stringent. In an effort to mitigating the situation, the Department’s approach for the year under review was to focus on reducing the vacancy rate for the scarce skills, especially in the science and engineering fields. Through the Learning Academy, the Department managed to place the highest number of qualified candidate engineers and scientists into permanent employment in key strategic work areas. These placements serve to increase the current human capacity needs of the Department, more so, in the future. The medium term plan is to increase the intake of graduate trainees by the \learning Academy, with a more bias towards the engineering fields.

Infrastructure planning and infrastructure built programme

Within the water infrastructure planning environment, the Mbombela reconciliation strategy was developed and twelve existing reconciliation strategies were updated. Delays were however experienced in initiating the Vioolsdrift feasibility plan for water resource development. As this is a joint project between South Africa and Namibia, the agreement to initiate the project took longer than expected. Further delays were experienced in completing the Ncwabeni and Western Cape Augmentation feasibility plans. An appeal against the Ncwabeni environmental authorisation was received and had to be considered. In the Western Cape, the augmentation feasibility plan and the environmental authorisation is still outstanding.

Within the infrastructure built programme, the Department achieved its target of impounding the De Hoop Dam and completing the construction of the Spring Grove Dam. The regional bulk infrastructure also managed to complete seven projects, of which three are in the Free State, two are in Mpumalanga and the other two are in KwaZulu-Natal and the Western Cape, respectively. The implementation of Olifants River Water Resource Development Project bulk distribution system in particular was delayed due to the users not signing the off-take agreements as well as challenges encountered in differences in the funding and implementation model between the Department and the commercial users. The Department is negotiating with the commercial users to contribute funds in implementing the project and where they cannot afford to contribute upfront, the Department is considering the option of borrowing the money from the financial market to ensure that the project is implemented on time.

Policy and legislative review

Regarding policy and legislative review, tremendous progress has been made in the last financial year, in that the National Water Resource Strategy – 2 (NWRS2) was finalised and published in June 2013. The Department is currently mapping out the implementation path of this important strategic tool for water management. The National Water Policy Review has been gazetted. The review aims to address the gaps on equity and redistribution of water resources in the country. The process of amalgamating and aligning the various pieces of legislation such as those governing mining and environmental management is at an advanced stage. This process would improve water management and development in the country.

Institutional reform and realignment of water institutions

The implementation of the Institutional Reform and Realignment of water institutions progressed well which resulted in the realignment of the existing Catchment Management Agencies (CMAs) and certain water boards. The Inkomati CMA was realigned into Inkomati- Usuthu CMA and Breede-Overberg CMA was realigned into Breede- Gouritz CMA (currently at 98 per cent). In order to enhance service delivery, the realignment of Bushbuckridge and Botshelo water boards was completed, whilst the completion of the Pelladrift water boards is at 95 per cent.

Progress with regard to the challenge of Acid Mine Drainage

Good progress has been made with regard to the challenge of Acid Mine Drainage (AMD) in the Witwatersrand area. Since the inception of the Inter Ministerial Committee on AMD, the immediate solution in the Western Basin was completed and commissioned in June 2012, and the uncontrolled decant of AMD in the Western Basin effectively stopped in August 2012. The construction of a pump station and a new water treatment plant in the Central Basin has been completed.

Major projects undertaken or completed during the year

A number of water infrastructure projects were constructed with seven projects completed. The water resource infrastructure projects completed during the year include the Mooi-Mgeni River Augmentation (that is, Spring Grove Dam) in KwaZulu-Natal; Phase 2 A of Olifants River Resource Development (that is, the De Hoop Dam) in Limpopo and Komati Water Scheme Augmentation Project in Mpumalanga.

The water services infrastructure projects completed through the regional bulk infrastructure grant during the year include the Middledrift (Nkandla) water treatment works in KwaZulu-Natal; the Bloemendal pipeline in Mpumalanga; the Hermanus bulk water scheme in Western Cape and Acornhoek bulk water scheme in Mpumalanga. Through the implementation of the various water infrastructure projects, the Department created over 22 000 job opportunities.

Dam safety rehabilitation programme

As the bulk of the country’s water resource infrastructure was created in the early 1990s and is thus aging, the dam safety rehabilitation programme was initiated to address dam safety related deficiencies. Since the inception of the programme in 2005, a total of 35 dams have been rehabilitated with a further 8 dams in construction phase. During the period under review, priority was given to the rehabilitation of conveyance systems with 23 sections of canals rehabilitated during the 2013/14 financial year.

3. Overview and assessment of financial and non-financial performance of programme for the 2013/14 financial year of the Department and its entities

3.1 Overview of composition of total available budget 2013/14 (Main Account)

For the 2013/14 financial year, the Department of Water and Sanitation received a total budget of R10.375 billion, payment for capital assets and transfers and subsidies formed the majority of the Department’s budget. Programme 3: Water Infrastructure Management and Programme 4: Regional Implementation and Support combined account for 84 per cent of the total budget. The reason for the large budget allocation to both these programmes is due to the infrastructure projects undertaken by the Department.

3.2 Water Trading Entity (WTE)

The Water Trading Entity (WTE) projected to collect total revenue of R7 billion in 2012/13. As at the fourth quarter, it had collected R6.9 billion due to the concerted effort by the entity to focus on revenue collection and reconciliation of the top 100 customers. There needs to be further improvement in the billing and the entity’s ability to collect its outstanding debts quicker.

Regarding infrastructure expenditure, it projected to spend R2 billion on various projects. At the end of the fourth quarter, it spent R1.9 billion. The under spending of the R100 million, which is lower than the projected expenditure is due to delays in delivery of pipes as well as the industrial action at the De Hoop Dam.

3.3 Financial expenditure trends of the Department and its entities

The Department spent R10.246 billion of the allocated budget of R10.4 billion which represents 98.8% of the total spending. The remaining R129.312 million is attributable to the following:

· Unfilled vacant posts across all programmes - (R29.010 million of the adjusted compensation of employees);

· Funds could not be spent on goods and services (R44.176 million) in respect of the review of pricing strategy, drinking water quality, waste water and water use efficiency due to unfinished work on the projects;

· An amount of R44 thousand could not be disbursed on interest and rent on land due to change in accounting treatment of finance lease;

· Transfer payment of R29.988 million could not be made to various institutions due to administrative and or noncompliance issues (Ngaka Modiri Molema – R1.459 million, Public Sector Education and Training Authority - R2.483 million, Komati River Basin Authority – R6.370 million, other transfer such as payment of leave gratuity – R1.109 million and Several water boards – R18.567 million;

· Delays in invoicing by Water Services Authority for the work done on Regional Bulk Infrastructure grant resulted in invoicing amounting to R9.693 million to be late for payment processing; and lastly;

· A budget of R16.400 million earmarked for the prevention and mitigation of disaster and risks could not be spent due to complicated technical specifications and the nature of instrumentation required. There is no impact on non-financial performance.

According to the Department of Water and Sanitation, the under spending is a small percentage of the budget and thus has an insignificant impact on programme delivery.

The table below reflects an overview of the Department’s financial performance for 2013/14:

The overall variance has reduced substantially in the fourth quarter of 2013/14. The main reason for the reduced variance is that most of the infrastructure projects are completed, which results in the increase in expenditure.

3.4 Programme spending trends aligned to service delivery of the Department and its entities

The Department has six programmes (Administration; Water Sector Management, Water Infrastructure Management, Regional Implementation and Support; Water Sector Regulation and International Water Cooperation) that are positioned to achieve the Department’s strategic policy priorities within its constitutional mandate.

3.4.1 Programme 1: Administration

The purpose of the Administration Programme is to provide policy leadership, advice and core support services, including finance, human resources, legal, information and management services, communication, and corporate planning. The Department spent 97 per cent of its Administration budget for the financial year.

3.4.2 Programme 2: Water Sector Management

The purpose of the Water Sector Management Programme is to ensure that the country’s water resources are protected, used, developed, conserved, managed and controlled in a sustainable manner for the benefit of all our people and the environment by developing and implementing effective policies and integrated planning strategies. Operational expenditure in 2013/14 was R457.1 million, the majority of which was spent on goods and services and compensation of employees. Expenditure under this programme has increased by R42.6 million, or 10.3 per cent, when compared with the previous financial year primarily due to additional spending on these items, with the additional spending under goods and services mainly on infrastructure and planning consultancy services, and computer services. The main cost drivers in this programme are in the Integrated Planning and Water Information Management sub programmes. The increased expenditure on this programme is due to the increased expenditure in respect of the development of the National Integrated Water Information Systems (WINIS).

3.4.3 Programme 3: Water Infrastructure Management

The purpose of the Water Infrastructure Management Programme is to ensure a reliable supply of water from bulk raw water resource infrastructure to meet sustainable demand objectives for South Africa within acceptable risk parameters. The Department is tasked with soliciting and sourcing funding to implement, operate and maintain bulk raw water resource infrastructure in an efficient and effective manner by strategically managing risks and assets. Almost 92.7, which translates to R2.3176 billion of the actual expenditure of R2.558 billion was transferred to the Water Trading Entity (WTE) of which 86.2 per cent, which translated to R2.155 billion was allocated for infrastructure development that the WTE undertakes on behalf of the Department. A further 6.5 per cent, which translated to R162 million is for operational costs of the WTE and the remaining 7.3 per cent, which translated to R182 million is to service the loans of water resources infrastructure in the Komati River Basin for the Driekoppies and Maguga Dams situated on the borders of South Africa (SA) and Swaziland. The transfers are based on claims made by the WTE to the Department.

3.4.4 Programme 4: Regional Implementation and Support

The purpose of this Programme is to coordinate the effective implementation of the Department’s strategic goals and objectives at the regional level, including the establishment of water resource management institutions; facilitate water conservation and demand management and accelerate communities’ access to water infrastructure.

Operational expenditure in 2013/14 was R4.9 billion, the majority of which was spent on compensation of employees and goods and services. Expenditure under this programme has increased by R501.5 million, or 11.5 per cent, when compared with previous financial year primarily due to additional spending on payments for capital assets. The main cost driver in this programme is the Regional Bulk Infrastructure Grant (RBIG) under Payments of Capital Assets and the conditional grant transfers to municipalities for the Water Services Operating Grant and the new Municipal Water Infrastructure Grant for rural communities. The main reason for the increase in expenditure in this current year is as a result of the grant allocation increasing significantly from R2.5 billion in the previous financial year to R3.2 billion in the 2013/14 financial year. This Programme under spent by R91.7 million which is 1.5% of the programme’s budget. The under spending was predominantly in Current Payments of R90.973 million of which Goods and Service under spent R65.5 million, and Compensation of Employees (CoE) under spent R25.5 million. CoE under spending is due to vacancies not being filled. Goods and Services under spending is mainly for project contractors under the sub-programme Water Sector Support mainly due to delays in invoicing and payment processing.

3.4.5 Programme 5: Water Sector Regulation

The purpose of this Programme is to ensure the development, implementation, monitoring and review of regulations across the water value chain in accordance with the provisions of the National Water Act and the Water Services Act. Operational expenditure in 2013/14 was R92 million, the majority of which was spent on compensation of employees and goods and services. Expenditure under this Programme has increased by R4.6 million, or 5.3 per cent, when compared with the previous financial year primarily due to additional spending on these items, with the additional spending under goods and services mainly on infrastructure and planning consultancy services. The main cost drivers are for the appointment of personnel and consultants to strengthen the regulatory function of the Department for water use licences; monitoring and enforcement of unlawful water use, improving the quality of water and waste water treatment works. Within this programme, Compensation of Employees under spending is due to vacancies not being filled including the Deputy Director-General (DDG) position. Under spending on Goods and Services is mainly for computer services under the sub-programme Water Supply Services and Sanitation Regulation where projects and activities are underway, but related invoices will only be processed in 2014/15.

3.4.6 Programme 6: International Water Cooperation

The purpose of this Programme is to strategically develop, promote and manage international relations on water resources between countries through bilateral and multilateral cooperation instruments as well as organisations, and is in line with provisions of the National Water Act. The Department also actively participates at both African multilateral and global multilateral organisations and forums. Operational expenditure in 2013/14 was R26.2 million, the majority of which was spent on compensation of employees and goods and services. Expenditure under this programme has increased by R3.9 million, or 17.2 per cent, when compared with the previous financial year primarily due to additional spending on goods and services (mainly for operating leases) and compensation of employees. The main cost driver in this programme is the Africa Co-operation sub programme. The increased spending is due to filling of vacant posts and the expansion of the organisational structure. The increased expenditure as a result of the expansion of the organisational structure resulted in this Programme spending 100 percent of its budget and therefore; funds to the amount of R1.5 million was shifted from Programme 1 to meet the over expenditure in this Programme.

4. Entities’ Financial and Non-financial Performance

4.1 Trans-Caledon Tunnel Authority (TCTA)

The Trans-Caledon Tunnel Authority (TCTA) was established in 1986, by Notice 2631 in Government Gazette No. 10545, dated 12 December 1986, to finance and build the Delivery Tunnel North of the Lesotho Highlands Water Project (LHWP). In 1994 a directive was received to fulfil the financial obligations of the Government of South Africa, in terms of the Treaty, on the water transfer component in Lesotho. On 24 March 2000, the Notice of Establishment was again amended by Notice 277 in Government Gazette No. 21017, to include the 1994 directive and to allow for the Minister, in terms of Section 24 (d) of the notice, to issue directives to TCTA in terms of Section 103(2) of the National Water Act (Act No. 36 of 1998).

It is categorised as a Major Public Entity and listed in Schedule 2 of the Public Finance Management Act (Act 1of 1999) (PFMA). As the TCTA was originally established as a Special Purpose Vehicle to fulfil South Africa’s Treaty obligations in respect of the Lesotho Highlands Water Project, it has undertaken further work, which varies considerably in nature, on directive from the Minister. The Minister, as the executive authority, has a responsibility to exercise an oversight role in terms of the NWA and the PFMA. The TCTA reports to the Minister of Water and Environmental Affairs on the performance of its functions within three months after the end of its financial year. This report is accompanied by audited financial statements.

The TCTA is involved in the following projects:

· Lesotho Highlands Water Project [LHWP]: The TCTA is responsible for the debt management and funding of the water transfer portion of the project as well as the operation and maintenance of the Delivery Tunnel North. Income is sufficient to repay all water transfer debt over approximately 20 years after completion of each sub-phase of the project.

· The Berg Water Project [BWP] augments the supply of water to the City of Cape Town by 18% and became operational in December 2007. The project was funded on an off-budget basis and the repayment of the long-term loan will be made from the revenue generated from the sale of water to the City of Cape Town.

· The Vaal River Eastern Subsystem Augmentation Project [VRESAP] is one of South Africa’s largest water supply projects. It was declared operational in June 2009 and now delivers water to Eskom power stations and to Sasol in Mpumalanga. The project costs will be recovered from revenue generated from the sale of water to Eskom and Sasol.

· The Mooi-Mgeni Transfer Scheme Phase 2 [MMTS-2] entails the augmentation of the existing transfer scheme into the Mgeni River catchment, which will increase the system yield by 60 million cubic meters per year. The project calls for the construction of the Spring Grove Dam augmentation of the transfer scheme from the Mooi into the Mgeni River Catchment.

· The Olifants River Water Resources Development Project Phase 2 [ORWRDP-2] comprises a 40-km distribution pipeline from De Hoop Dam, which feeds the De Hoop Water Treatment Works at Steel Bridge, and a pump station near Steelpoort, where it will interconnect with the Lebalelo Water User Association infrastructure and to the Mooihoek Treatment Works. The water from the dam is for the mining industry along the eastern Limb of the Bushveld Complex as well as for domestic consumers in the Sekhukhune District Municipality.

· The Komati Water Scheme Augmentation Project [KWSAP] augments the Komati Water Scheme through water transferred from the Vaal River, for the sole benefit t of Eskom. The project entails the supply of approximately 57 Mm3/a, of water to Eskom’s Duvha and Matla power stations in Mpumalanga. The primary purpose of the project was to ensure a secure second feed to Duvha power station, as the original feed from Witbank Dam could no longer be used due to the acidity of the dam water and to provide water for the new Kusile power station.

· The Mokolo Crocodile Water Augmentation Project [MCWAP] comprises a pump station and a 43-km pipeline from Mokolo Dam, parallel to and tying into existing infrastructure supplying Exxaro’s Grootegeluk Mine, Eskom’s Matimba power station, and Lephalale Local Municipality. It is required to increase by 30Mm3/a, the capacity of the scheme to supply water to the new Medupi power station, which is currently under construction.

· The Acid Mine Drainage Project is aimed at implementing the short-term intervention for the Western, Central and Eastern Basins of the Witwatersrand Goldfields, as recommended to the Inter-Ministerial Committee by a panel of experts. The short-term action plan was to stop decant in the Western Basin and to protect the Environmental Critical Level (ECL) in the Central and Eastern Basins. The project entails the implementation of infrastructure comprising water treatment plants, pumps and pipelines to pump, treat and release the treated water into the natural river system for each of the basins.

· The Mooi-Mgeni Transfer Scheme: Phase 1 comprises the refurbishment of the existing transfer scheme from Mearns Weir.

· The third Strategic Infrastructure Project (SIP-3) is both a spatial and a catalytic programme. As a spatial programme, it encompasses the manganese value chain that extends from the Northern Cape to the Eastern Cape and the transport linkages of the latter into KwaZulu-Natal. As a catalytic programme, it seeks to unlock economic opportunities in the Eastern Cape through significant investments in water, energy and transport infrastructure.

· The eighteenth Strategic Infrastructure Programme (SIP-18) is a nationwide programme, and encompasses the entire water supply infrastructure at national, regional, metro, district and local municipality levels. It aims to address the existing backlog of water provision to an estimated 1.4 million households, and basic sanitation to an estimated 2.1 million households. Through a decadal plan of new infrastructure, the rehabilitation and upgrading of existing infrastructure, and a renewed emphasis on the operations and maintenance of the latter, SIP-18 will guide water sector investments towards achieving overall water security, as well as equitable access to water and sanitation services for all South Africans. Water conservation and demand management options will complement the planning framework of new or upgraded infrastructure

Each of these projects is accounted for separately, with no project having cross default implications to another project. The TCTA’s projected cash flow suggests that the business is viable and can continue as a going concern. This is supported by an explicit Government guarantee for the LHWP and implied guarantees on the other projects.

In the 2013/14 financial year the TCTA was audited by Ernst & Young and an unqualified audit opinion was expressed as the TCTA complied with the PFMA and International Financial Reporting Standards. The transactions of the TCTA were in all material respects in accordance with the mandatory functions of the TCTA as determined by law or otherwise.

4.2 Water Research Commission (WRC)

The Water Research Commission (WRC) is a national public entity listed in terms of the Public Finance Management Act, 1999 (Act No.1 of 1999) (PFMA), appointed by the Minister of the Department and reports directly to the Minister. The WRC plays an important role regarding water research by:

· Establishing the needs and priorities for research;

· Stimulating and funding water research according to priority;

· Promoting effective transfer of information and technology; and

· Enhancing the knowledge and capacity building in the water sector.

The WRC mainly derived its income from water research levies amounting to R177 million, but also obtained leverage income of R19.3 million. It managed 295 active research projects, initiated 87 new projects, managed to finalise 87 projects and published 79 research reports and products. A total of 484 students were supported by WRC-funded projects, of whom 46% were female and 401 or 83% of the total number of students were from previously disadvantaged groups.

The WRC initiated and supported a number of national capacity building initiatives, including support to national and local government as well as the development of new training material for different levels of learners and for academic institutions. Additionally, it extended its support of Mini-SASS, the simplified version of the Stream Assessment Scoring System. During 2013/14 the Mini-SASS Web-based data management was finalised and ready for use. The data portal was successfully tested through the participation of a number of schools. Communities will now be able to upload their research and/or monitoring data in this portal. The WRC also published the highly popular Water@Work, a Career Guide for high school learners, which is intended as an overview of career paths available in the world of water.

During the 2013/14 financial year a qualified audit opinion was expressed by the Auditor-General.

5. Report of the Office of the Auditor-General on the Main Account and Water Trading Entity

5.1 Main Account

The Department of Water and Sanitation received a Qualified Audit Opinion on the Main Account with the following findings:

The Department did not have adequate systems in place to maintain records of Regional Bulk Infrastructure Projects (RBIG) commitments where the procurement of goods and services have been approved and/or contracted, but where no delivery has taken place at year end, which resulted in RBIG commitments being misstated by R576 million for the restatement of the corresponding figure for RBIG commitments. The restatement was made in order to rectify a prior year misstatement. The Auditor-General (AG) was unable to confirm the restatement by alternative means. In addition, the AG was unable to obtain sufficient appropriate audit evidence for the corresponding amounts disclosed as RBIG commitments in note 22 to the financial statements and could not confirm the disclosure by alternative means. Consequently the AG was unable to determine whether any further adjustments to prior year RBIG commitments stated at R5.9 billion in the financial statements were necessary.

The Department did not have adequate systems in place to maintain records of RBIG commitments where the procurement of goods and services have been approved and/or contracted, but where no delivery has taken place at year end, which resulted in RBIG commitments being misstated by R630 million. In addition, the AG was unable to obtain sufficient appropriate audit evidence for the amounts disclosed as RBIG commitments in note 22 to the financial statements and could not confirm the disclosure by alternative means. Consequently the AG was unable to determine whether any further adjustments to RBIG commitments stated at R5.4 billion in the financial statements were necessary.

The system of controls to maintain records of goods and services received but not yet paid for at the end of the financial year, relating to RBIG, was inadequate and there were no satisfactory audit procedures that the AG could perform to obtain reasonable assurance that all outstanding invoices for RBIG have been included in accruals. Consequently, the AG was unable to determine whether any further adjustments to accruals stated at R1 billion in note 23 to the financial statements was necessary.

The Department did not have adequate systems in place to maintain records of additions to the buildings and other fixed structures for the current and prior year due to the status of the accounting records, which resulted in additions being misstated by R204 million. In addition, the AG was unable to obtain sufficient appropriate audit evidence due to lack of supporting documents for the amounts disclosed as additions for current year and prior year in note 33 to the financial statements and could not confirm the disclosure by alternative means. Consequently the AG was unable to determine whether any further adjustments to additions stated at R1.5 billion (2013: R358.2 million) in the financial statements were necessary.

The Department also received a qualified audit opinion in 2012/13, but is continuously showing substantial improvement with its financial management system.

5.2 Water Trading Entity

The Department of Water and Sanitation received a Qualified Audit Opinion on the Water Trading Entity (WTE) with the following findings:

The entity did not recognise all revenue relating to water licenses issued, in accordance with GRAP 9 Revenue from exchange transactions. Water use licenses were approved and issued to users in the current and prior period. The approved licenses were not uploaded on the Water Users Allocation and Registration Management System (WARMS), which resulted in the non-billing of lawful water users. The AG was unable to obtain sufficient appropriate audit evidence that all revenue from the sale of water services had been recognised and could not confirm the revenue from the sale of water services through alternative means. Consequently, the AG was unable to determine whether any adjustments to the sale of water services and related trade receivable balance stated at R7 308 824 000 (2013: R6 462 074 000) and R2 420 596 000 (2013: R2 055 117 000), as disclosed in note 3 and 12 to the financial statements was necessary.

Additionally, there was a resultant impact on the surplus for the period and accumulated surplus. The AG was also not able to determine the full extent of the understatement of penalties for late registration of water use, as the Water Trading Entity did not maintain adequate records to indicate whether the users whom were granted licenses in the current and prior year period were unlawfully using water before their license applications were approved.

6. Portfolio Committee findings and specific recommendations regarding the Department, Water Research Commission and Trans Caledon Tunnel Authority Annual Report

This section summarises the Portfolio Committee’s observations and specific recommendations flowing from the engagement with the Department, Water Research Commission and Trans Caledon Tunnel Authority as detailed in the sections above.

6.1 High number of acting positions and potential workforce vacuum as a result of ageing engineers

Concerns were raised regarding the high number of acting senior positions, including that of the Director General. Furthermore, the Department has consistently noted bringing retired engineers and specialists in the technical fields out of retirement to fill the capacity constraints within the Department in respect of those fields. Concerns were raised regarding the potential human resource vacuum left by ageing engineers and technical specialists and the efforts taken to mitigate this challenge. The Department responded that there was a concerted effort to fill the acting positions within the Department. In addition to this initiative, the Department is also training and mentoring young scientists and engineers to fill posts.

The Portfolio Committee recommends that the Department provide quarterly progress reports, with systematic targets, on the way in which it will address these challenges.

6.2 Consultants

Serious concerns were raised regarding the extensive use of consultants within the Department to deliver services, the payment of consultant for the provision of Information Technology Services for the Department amounting to R419 m for the use of 25 consultants over a period of 60 months was cited as an example. The Committee felt that there was an urgent need to build capacity within the Department to reduce spending on consultants.

The Portfolio Committee recommends that the Department provide quarterly progress reports, with systematic targets on the way in which it will address the challenge.

6.3 Foreign staff employed within Department

The Portfolio Committee noted that the annual report reflected 20 foreign nationals employed by the Department. This was not only restricted to the technical professions and extended to administrative workers as well. Concerns were raised regarding the number of unemployed South Africans in the country and whether or not the Department was not able to source skills from within the existing pool of unemployed South Africans.

6.4 Effective functioning of internal audit committee

The Portfolio Committee raised concerns regarding the functioning of the internal audit committee, the extent to which issue of fruitless expenditure was picked up by the internal audit committee before the audit of the Auditor General. This raised questions about the extent of internal control within the Department and the capacity of senior management in respect of implementing the recommendations of the internal audit committee.

The Portfolio Committee recommends that the Department provides feedback of its plans, as well as a progress report on a quarterly basis so that these challenges do not arise in the future.

6.5 Under spending

With specific reference to the under spent funds of R100 million by the WTE, the Portfolio Committee noted with concern that argument made by the Department that this under spending is a small percentage of the budget and thus has an insignificant impact on programme delivery.

The Portfolio Committee recommends that the Department provide a detailed report on the reasons for under spending in the WTE, as well as its plans to ensure that under spending does not happen in the future.

6.6 Disciplinary cases

Concerns were raised regarding the disciplinary cases within the Department particularly with regards to fruitless and irregular expenditure. The Department noted that it had embarked on a programme to finalise outstanding disciplinary cases and that this was only impeded by the death of an employee or when the employee leaves the public service. It was further noted by the Department that when employees go to another Department, they are still held liable and disciplinary action is still taken.

The Portfolio Committee recommends that the Department provide a quarterly report on previous disciplinary cases, the outcome of these, as well as a progress report on when outstanding disciplinary cases will be finalised.

6.7 Loss of revenue and non-issue of water use licenses

The Portfolio Committee raised concerns regarding the backlog in the issuing of water licences which is resulting in loss of revenue. It was reported that there are 104 mines that are operating without water licenses and the extent to which this is going to be addressed by the Department. The Department responded that they moving a new Information Technology system and that these issues are in the process of being addressed. In respect of loss of revenue is respect of water, the Department indicated that it was not the domestic, industrial or agricultural sectors that were the culprits that are not paying. It was the municipalities whose slow payment had an impact on the revenue of the water boards.

The Portfolio Committee recommends that the Department provide a quarterly progress report and plan with specific timeframes on when the licensing backlogs will be completed.

6.8 Under spending within the Regional Bulk Infrastructure Grants (RBIG)

The Portfolio Committee raised concerns regarding the disbursement of Regional Bulk Infrastructure Grants, Members recounted instances where funds were paid to service providers without following the correct tender procedure, and monies paid without the delivery of the service. The Portfolio Committee queried the extent to which this is being monitored and managed by the Department as it seems to be an ongoing issue which has been consistent in the annual reports of the Department over the previous financial years.

The Portfolio Committee recommends that the Department provide a quarterly progress report with detailed plans and timeframes on the way in which it will address the challenges within the RBIG.

6.9 Progress made in respect of 2% disability target

The Portfolio Committee queried the extent to which the Department had met the 2% employment target for disabled persons. The Department responded that they had not met the target and that the information was not clearly indicated in the annual report. The Department further noted that this target was not met by any government department within the public service though the Department was striving to attain this target.

6.10 Vacancies

The Portfolio Committee queried the high number of vacancies within the Department in addition the moratorium which was placed on the appointment of new staff. The Department indicated that the moratorium was as a result of the sanitation component into the new Department, however this moratorium was not cast in stone and new staff could be appointed once approval from the Minister was attained.

The Portfolio Committee recommends that the Department provide a quarterly progress report with detailed plans and timeframes on the way in which it will address the challenges related to vacancies.

7. Conclusions and Recommendations

In further aligning and strengthening the Department and the Entities plans, programmes and goals in line with financial allocations, the Portfolio Committee requested that the Department and the Entities give further consideration to the following:

Financial and performance reporting and compliance with legislation

The Portfolio Committee recommends that the Department strengthen the following controls to create an environment that supports reliable financial and performance reporting and compliance with legislation:

· Increase stability within the portfolio by filling key vacant positions within the Department;

· Increase competence of employees by encouraging continuous learning and training;

· Parliament to oversee the way in which senior officials are held accountable for non-compliance with laws and regulations;

· Implement adequate systems/processes to support accurate and reliable financial and performance information reporting;

· Implement adequate systems/processes to focus on overall compliance and include consequence management, where necessary; and

· With regard to financial and performance management, enhance the ‘checks and balances’ during the year to ensure that all reconciliations are done on a daily/monthly basis.

Human Resources

The Department, in its Human Resource component faced challenges in terms of diversity management with low targets for women and people with disabilities employed. Therefore the Portfolio Committee requests plans and a progress report with regard to the above.

Under spending and irregular

The Department needs to seriously engage with curbing irregular expenditure, financial reconciliations and under spending. The Portfolio Committee recommends that stringent action should be taken against those Department and Entities who are found to have massively under spent, given the disjuncture between the needs of society and the allocated funds not being effectively spent. The Portfolio Committee requests, as a matter of urgency, short, medium and long term interventions in this regard. The Portfolio Committee awaits a report in this regard.

Water infrastructure management

With regard to water infrastructure management, the Portfolio Committee recommends that the Department furnishes the Portfolio Committee with a progress report indicating new time frames for the delayed projects, as well as furnish a progress report on projects delayed by resettlement and land acquisition problems.

Regional implementation and support

With regard to regional implementation and support, the Portfolio Committee resolved that the Department develop a plan to address OSD employment challenges and this plan should have timeframes; as well as provide a progress report on delays in completion of some RBIG projects.

Water sector regulation

With regard to water sector regulation, the Portfolio Committee requests a progress report with respect to delays experienced in completing the compulsory licensing processes in targeted water management areas.

Auditing

With regard to auditing of the Department and entities, there is an inconsistency in that the Office of the Auditor-General does not, in some instances audit the work of a particular entity. This is currently the case with TCTA which is being audited by Ernst and Young. The Portfolio Committee requests from the Department and the Office of the Auditor-General, a report on the way in which auditing of all Departments and Entities, will over time, be audited only by the Office of the Auditor-General.

Audit outcomes of areas raised by the Office of the Auditor-General

In respect of the areas raised by the Auditor General on the audit outcomes of the Department, the Department is expected to provide a quarterly progress report.

The Portfolio Committee on Water and Sanitation recommends the adoption of this Budgetary Review and Recommendation Report (BRRR) for the Department of Water and Sanitation .