ATC140709 Report of the Portfolio Committee on Water and Sanitation on the  Consideration of the 2014-2015 Strategic Plans, Annual Performance Plans and Budget allocation of the Department of Water Affairs, Vote 38  and the Entities, Namely Trans-Caledon Tunnel Authority, the Water Research Commission, Catchment Management Agencies, Water Boards and Komati River Basin Water Authority dated 9 July 2014

REPORT OF THE PORTFOLIO COMMITTEE ON WATER AND SANITATION ON THE CONSIDERATION OF THE 2014-2015 STRATEGIC PLANS, ANNUAL PERFORMANCE PLANS AND BUDGET ALLOCATION OF THE DEPARTMENT OF WATER AFFAIRS, VOTE 38 AND THE ENTITIES, NAMELY TRANS-CALEDON TUNNEL AUTHORITY, THE WATER RESEARCH COMMISSION, CATCHMENT MANAGEMENT AGENCIES, WATER BOARDS AND KOMATI RIVER BASIN WATER AUTHORITY DATED 9 JULY 2014

1. Background

The Portfolio Committee on Water and Sanitation (the Portfolio Committee) having considered the request of the National Assembly to consider and report on the Strategic Plans, Annual Performance Plans (APPs) and budget allocations of the Department of Water Affairs (the Department) and the entities (the entities), tabled by the Minister of Water and Environmental Affairs (the Minister), and in terms of the Public Finance Management Act of 1999 (PFMA), reports as follows:

2. Introduction

The Portfolio Committee considered the Strategic Plans for the period 2014/15 to 2018/19 and the Annual Performance Plans for the 2014-2015 financial year of the Department and the four entities of the Department, namely Trans-Caledon Tunnel Authority (TCTA); The Water Research Commission (WRC); Catchment Management Agencies (CMAs, Water Boards and Komati River Basin Water Authority).

The Portfolio Committee has further also considered the adequacy of financial resources for the implementation of these plans and interrogated the allocation received by the Department and the entities from National Treasury, the trends over the Medium Term Expenditure Framework (MTEF) both in terms of allocations and expenditure and, in the instance of the entities, in term of revenue collected.

This report details the findings and recommendations of the Committee after engaging the Department, and the Entities.

3. Consideration of tabled Strategic Plans, Annual Performance Plans and Budget Allocations –

An Integrated Approach for the Department and the Entities

3.1 Purpose and findings of consideration of tabled Plans and Budgets

On 2 July 2014, the Portfolio Committee engaged the Deputy Minister, Acting Director General, Chief Financial Officer (CFO) and relevant Executive Managers of the Department, as well as the Chief Executive Officers (CEO) and CFOs of the Entities on budget allocations, Strategic Plans and Annual Performance Plans (APPs). The purpose of this interaction was four fold, namely:

· To provide an overview of the projected spending by Departments and the Entities over the medium term;

· To gain an understanding of how performance indicators and targets are derived at and how progress against these targets are tracked and reported on;

· To foster an integrated approach in planning, monitoring of progress and reporting against such progress between the Department and the Entities, whilst giving full effect to the prescripts in terms of roles and responsibilities of the Accounting Officer (Director General of the Department) and the Accounting Authorities (Boards) of the Entities related to those of the Department and the mandate of the Committee; and

· To gain an understanding of the instruments and systems utilised by the Department to exercise governance oversight of the Entities.

The presentations made by the Department and Entities focused on the approach followed in the development of indicators and targets; as well as an attempt to integrate the relevant indicators and targets of the Entities with that of the Department.

3.2 Approach of the Portfolio Committee in consideration of the Budget Allocations, Strategic Plans and Annual Performance Plans

On 2 July 2014, the Portfolio Committee considered the tabled Strategic Plans, Annual Performance Plans and Budget Allocations for 2014-2015 and the financial performance forecasted for 2014-2015. The presentations and documents that form the basis of the deliberations of the Portfolio Committee were considered together with the tabled Plans. In terms of the key performance indicators and targets contained in the Plans, the Portfolio Committee perused the tabled plans. Discussions focused on key strategic priorities relevant to the programmes of the Department and that of the Entities.

3.2.1 Additional sanitation component to the portfolio of water

The Portfolio Committee noted that the Department of Water and Sanitation was a new Department with an additional sanitation component, which currently spread across a range of Departments. The sanitation component of the Department’s work still needs to be integrated to the scope, function and nature of the mission, vision and mandate of the Department. This, the Department noted should be, by way of a Proclamation. The Proclamation to formally merge these functions has not yet been finalised. However, subsequent to the meeting on the 2 July 2014, the Presidential Proclamation to sign the new Department into law was gazetted on the 3 July 2014. The Proclamation officially establishes the Department of Water and Sanitation, as well as to designate such departments and their heads, following the announcement of new portfolios of ministers that the president made on May 25, 2014.

The Department, however, plans to have the restructuring and realignment finalised by 26 September 2014. The Department is currently engaging in a project to assimilate the sanitation function into the water portfolio. The Department is working on six work streams to assimilate sanitation into the water portfolio from the Department of Human Settlements. These work streams include: organisation scoping; infrastructure and assets, finance and budgets, information communication technology communications, legal and policy matters and labour relations and change management and communications.

3.2.2 Department’s core objectives

The interrogation process by the Portfolio Committee was to focus on the Department of Water and the Entities, specifically in relation to Budget Vote 38, as the sanitation component, as mentioned above, is as not yet incorporated into the work of the Department. A central component of the interrogation of the work of the Department and the Entities was the extent to which the Department and the Entities translated its mandate to align it with the prescripts of the Constitution, Act 108 of 1996, Government priorities and its legislative mandate. The Department of Water has set the following core objectives, which are:

· Water supports development and the elimination of poverty and inequality;

· Water contributes to the economy and job creation; and

· Water is protected, used, conserved, managed and controlled sustainably and equitably.

4. Water sector in the country and its engagement with critical government priorities as outlined in the National Development Plan

The work of the Department, through its programmes, comprises Programme1: Administration, Programme 2: Water Sector Management, Programme 3: Water Infrastructure Management, Programme 4: Regional Implementation and Support, Programme 5: Water Sector Regulation and Programme 6: International Water Cooperation. The legislative mandate is underpinned by the National Water Act, 1998, Water Services Act, 1997, Water Research Act, 1971 and the Public Finance Management Act, 1999. The work of the Department is developed within a national context of a developmental state that promotes equity, job creation, growth and development. The following contributions are critical to the work of the Department and the Entities to ensure water service delivery to all citizens in the country, and to this end, water sector programmes and alignment is evidenced in the programmes of the Department through the following areas:

· Economy and employment

The water sector programmes and alignment of this aspect of its work is noted in the following areas – infrastructure development programmes; water conservation and demand management; wastewater treatment turnaround programmes; infrastructure asset management; integrated catchment management and resource protection; ensure water availability for economic sector to create jobs; and recruitment programmes for scientists, technicians engineers, managers and development practitioners.

· Economic infrastructure

The water sector programmes and alignment of this aspect of its work is noted in the following areas – development, operation, maintenance and refurbishment of water resources infrastructure; Accelerated Community Infrastructure Programme (ACIP), Regional Bulk Infrastructure Grant Programme (RBIG) and support to historically disadvantaged individuals (resource poor farmers).

· Transition to a low carbon economy

To stimulate renewable energy and retrofit buildings, the Department of Mineral Resources, Department of Water and ESKOM partnerships have been established and a task team is already considering sites for hydro-power stations.

· Inclusive rural economy

To attain active rural economies through improved infrastructure and service delivery, the Department of Water and the Entities undertake the following – water supply programmes; Accelerated Community Infrastructure Programme; Water allocation reform and regional bulk infrastructure grants.

· South Africa in the region and the world

To develop regional markets for food, energy and water and putting in place water management agreements with neighbouring countries, the water sector programme and alignment comprise – international relations and cooperation and trans-boundary treaties, agreements and institutional arrangements.

· Education and innovation

To improve the system of skills planning and shaping production of skills and develop a set of strong qualification and support for non-formal programmes, the water sector programme and alignment comprise – the Department’s Learning Academy; mentorship programmes and Water Sector Skills Development Strategy, developed to improve skills planning and production of relevant skills for the sector.

· Social protection

To increase the number of public work job opportunities in the water sector, the Department and the Entities are working toward aligning all infrastructure programmes with public works jobs and labour intensive methods; water conservation and water demand management fixing or leaks programme; operation and maintenance and waste water treatment rehabilitation programmes and water supply projects.

· Building a capable State.

The water sector programme and alignment toward this is a formalised graduate recruiting scheme for the public service, skills strategies for managers, technical, professional and local government staff through the Department’s Learning Academy, Mentorship programmes, and occupational specific dispensation (OSD) posts. To develop regional water utilities to deliver some local government services on an agency basis where local or district municipalities lack capacity, the water sector programme and alignment comprise the establishment of regional water utilities.

Notwithstanding the alignment and actions undertaken by the Department and the Entities toward strengthening the water sector in South Africa, the current status of the water context must be taken into consideration, and these include – water scarcity; inadequate or limited water resource infrastructure, floods and droughts, water demand, water quality challenges, inefficient use of water resources and ensuring sound financial management and accountability.

5. Budget allocations aligned to government priorities over the medium-term for Budget Vote 38

Policy developments, legislation and other factors affecting expenditure within the new national budget format – the Estimates of National Expenditure - expand the scope and quality of information on government’s spending plans. Details of measurable objectives, outputs, output performance measures or service delivery indicators are provided as another step forward to setting ‘measurable objectives’ for each expenditure programme, in line with the Public Finance Management Act.

Integrating service delivery and performance information into planning and budgeting processing contributes to better budgeting and enhanced service delivery. Monitoring and measuring service delivery and performance may be viewed as a process of assessing progress towards achieving predetermined goals. The process may be used as a tool for self-assessment, goal-setting, monitoring of progress and to facilitate communication of objectives and service delivery targets and progress. The sections that follow will provide an overview of the strategic objectives and spending focus of the programmes underpinning the work of the Department and the entities.

5.1 Overview of spending focus over the medium-term

The Department of Water has appropriated, over the medium-term, R12 480.3 billion for 2014/15, R16 084.2 billion for 2015/16 and R17 199.9 billion for 2016/17. The medium term projections reflect that the spending focus over medium-term ties in strongly to the government priorities outlined above.

The spending focus over the medium term will be on providing regional bulk infrastructure for water and wastewater treatment works which link water sources to local government infrastructure. This is done through contributions to the infrastructure build programme in the Regional Implementation and Support and the Water Infrastructure Management sub programme. Over the Medium Term Expenditure Framework (MTEF) period, expenditure in the Regional Implementation and Support programme, specifically on payments for capital assets, is expected to increase significantly as a result of an additional allocation of R934 million to implement regional bulk water and wastewater projects. These projects include the construction of the De Hoop Dam’s regional bulk distribution, Sedibeng bulk water supply, and the OR Tambo district municipality regional bulk water and wastewater infrastructure. In addition, spending on the municipal water infrastructure grant, which was introduced in 2013/14, is expected to increase from R603 million in 2013/14 to R2.8 billion in 2016/17. The grant is earmarked for specific projects to eradicate backlogs in water and sanitation infrastructure, particularly within the 24 priority district municipalities identified through Census 2011’s enumeration of backlogs per poor household per municipality.

The Department will also transfer R2.6 billion in 2014/15, R3.7 billion in 2015/16 and R4 billion in 2016/17 to the Water Trading Entity through the Water Infrastructure Management programme. The bulk of this funding will be used on the bulk distribution system of the De Hoop Dam and the dam safety rehabilitation programme. The transfers include additional allocations of R264 million in 2015/16 and R430 million in 2016/17 for the presidential infrastructure coordinating commission project for the construction of a new dam on the Umzimvubu River in Eastern Cape.

The 2014 Budget includes Cabinet approved budget reductions of R55 million in 2014/15, R20 million in 2015/16 and R50 million in 2016/17 to the Department’s allocation. The Department is to effect the reductions mainly in spending on compensation of employees and various items of expenditure on goods and services, such as communication, travel and subsistence, and consultants. These reductions are not expected to have a negative impact on service delivery.

At the end of November 2013, the Department had a funded establishment of 4 261 posts, with 219 additional to the establishment and 491 vacant. The vacancies were due to the difficulty experienced in attracting people with the critical and scarce skills necessary to perform vital tasks, which is why the department uses consultants when required. Thus spending on consultants, which fluctuated between 2010/11 and 2013/14, is expected to increase from R362.3 million in 2014/15 to R477.9 million in 2016/17. The Department expects to reduce vacancies to 115 posts in 2016/17 as it implements the organisational restructuring over the MTEF period.

Table 1 reflects the growth and/or additions in the budget allocations of Vote 38 over the medium term, which are mainly attributed to infrastructure development and regional implementation and support (mainly Programme 3 and 4).

Table 1: Overview of budget allocation per programme (Main)

Programme	2013/14	2014/15	2015/16	2016/17
	R 000	R 000	R 000	R 000
Administration	978.6	1 026.4	1 119.1	1 269.7
Water Sector Management	516.4	597.8	618.9	689.9
Water Infrastructure Management	2 565.2	2 919.4	4 050.8	4 382.5
Regional Implementation and Support	5 982.7	7 782.7	10 135.7	10 668.2
Water Sector Regulation	118.7	121.5	125.8	142.1
International Water Cooperation	25.4	32.5	33.9	47.5
TOTAL	10 187.0	12 480.3	16 084.2	17 199.9

The biggest change in funding allocation is that of Programme 4: Regional Implementation and Support, reflecting a 30 percent nominal percentage increase from the previous financial year's allocation. This is followed by Programme 6: International Water Co-operation, reflecting a 27.9 percent nominal percentage change from the previous financial year. The overall budget reflects a 22.5 percent nominal increase from the previous financial year going from R10.1 billion to R12.2 billion.

5.2. An overview of the strategic objectives and spending focus of the programmes of the Department and the entities over the medium term

Strategic Plans and Annual Performance Plans of the Department and the Entities provide a critical tool for legislative oversight. An engagement with the goals, objectives and targets set for a particular programme on an annual basis, as well as a quarterly basis gives insights into how the “money will follow the function”.

5.2.1 Programme 1: Administration

The Department has as its annual target in this programme the objective of improving and increasing the skills pool and to build competencies in the Department and within the sectors. Over the medium-term, Administration receives an allocation of R1. 026 billion for 2014/15, R1. 119 billion for 2015/16 and R1. 269 billion for 2016/17. The spending focus over the medium term will be on maximising organisational efficiencies and strengthening internal and financial controls by providing administrative and financial management support to the Department and seeing to its office accommodation needs. The bulk of the Administration budget over the MTEF period is allocated to the Corporate Services, Financial Management and Office Accommodation sub-programmes for spending on compensation of employees, operating leases and property payments, computer services, consultants and contractors.

5.2.2 Programme 2: Water sector management

The Department has over the medium term identified a number of key objectives to realise the purpose underpinning this programme. This 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 people and the environment by developing and implementing effective policies and integrated planning strategies, and developing a knowledge base and procedures. Over the medium-term, Water Sector Management receives an allocation of R597. 8 million for 2014/15, R618.9 million for 2015/16 and R689. 9 million for 2016/17.

Some of the key objectives and targets prioritised over the medium term for this programme include the following:

· Ensuring that water resources are managed sustainability and that funding is raised for refurbishing existing infrastructure by gazetting final water pricing strategy in 2014/15;

· Monitoring the national resource strategy implementation and improve monitoring of water resources;

· Ensuring the equitable allocation of water resources for social and economic development by implementing water allocation reform;

· Ensuring that available water is used efficiently by implementing water conservation and demand management programmes including sector awareness and mobilisation on an ongoing basis over the MTEF period; and

· Developing the integrated water quality management strategy.

The spending focus over the medium term will be on ensuring the availability of and access to water for environmental and socioeconomic use through planning, developing policies and maintaining data management systems. Thus the bulk of expenditure in this programme will go towards activities in the Water Information Management at R222 million and Integrated Planning sub programmes at R159 million, which perform these activities. This spending is related to the strategic objectives of improving water resources and water services information and ensuring the effective performance of water management and service institutions.

5.2.3 Departmental Programme 3: Water Infrastructure Management

The Water Infrastructure Management Programme ensures that there is a reliable supply of water from bulk raw water resources infrastructure, within acceptable risk parameters, to meet sustainable demand objectives for South Africa. It also solicits and sources funding to implement, operate and maintain bulk raw water resources infrastructure in an efficient and effective manner by strategically managing risks and assets.

The Programme is allocated R2. 919.4 billion in 2014/15, R4 050.8 billion in 2015/16 and R4 382.5 billion in 2016/17. The key objective prioritised over the medium term for this programme is to ensure the effective and sustainable management of water resources over the medium term by:

· Transferring sufficient funds on a regular basis to the water trading entity for the design, construction, commissioning and rehabilitation of bulk raw water resources infrastructure; and

· Managing and operating existing bulk raw water infrastructure on a continuous basis.

The Infrastructure Development and Rehabilitation sub-programmes receive a higher increase. The increase on this sub-programme is due to the spending over the medium term on funding the water trading entity’s implementation of existing and new infrastructure projects.

The spending focus over the medium term will be on funding the water trading entity’s implementation of existing and new water infrastructure projects, the bulk distribution system of the De Hoop Dam, and the dam safety rehabilitation programme. Over the medium term, the programme expects to transfer R1.4 billion to the water trading entity to upgrade the pipeline from Steelpoort to Mooihoek and build the new pipeline from the Flag Boshielo Dam to Mokopane in phase 2B of the De Hoop Dam’s bulk distribution system project. The programme receives Cabinet approved additional allocations of R264 million in 2015/16 and R430 million in 2016/17 for the development of the Umzimvubu Dam and bulk water scheme. Between 2010/11 and 2013/14, the capital transfers grew as a result of additional allocations for the completion of the construction of the De Hoop dam, its bulk distribution systems, and the Nandoni distribution network and pipeline

5.2.4. Departmental Programme 4: Regional Implementation and Support

In respect of this Departmental programme which is to co-ordinate the effective implementation of the Department's strategic goals and objectives at the regional level. The Programme is allocated R7. 782.7 billion in the 2014/15 financial year, R10. 135.7 billion in the 2015/16 financial year and R10. 668.2 billion in the 2016/17 financial year. The Department has developed the following strategic objectives which include the following:

· Ensure the availability of water supply for domestic and agricultural use;

· Ensure the provision of local government institutional support through the refurbishment of prioritised schemes for municipalities from 59 in 2012/13 to 100 by 2016/17;

· Support the local government water sector over the medium term;

· Improve the protection of water resources and safeguard their sustainability; and

· Improve water use efficiency to previously disadvantaged communities by processing 100 per cent of water use licence applications received and increasing the volume of water allocated to historically disadvantaged individuals from 28 million cubic metres in 2012/13 to 42 million cubic metres of water by 2016/17.

In respect of spending, apart from the two sub programmes, the bulk of the programme’s spending goes towards administering and managing the water and wastewater resources owned by the Department, municipalities and other water management institutions, intervening to protect and conserve water resources, and providing strategic and administrative support to these and the programme’s other activities. Most of these activities are carried out by the personnel on department’s funded establishment of 2 414 posts, with 165 posts additional to the establishment. Over the medium term, personnel numbers are expected to increase to 2 533 in 2015/16, as vacant positions are filled. This is expected to increase spending on compensation of employees. These posts were vacant due to the length of time it takes to finalise the recruitment processes, resignations, promotions, transfers and the difficulty in recruiting posts selected for occupation specific dispensation.

As a result of the vacancies, the programme relies on consultants to provide, as required, the technical, engineering and project management services that staff might otherwise provide. Thus spending on consultants decreased from R184.3 million in 2010/11 to R150.6 million in 2013/14 and is projected to decrease further to R141.1 million in 2016/17 as the vacancies are filled.

5.2.5 Departmental Programme 5: Water Sector Regulation

This programme seeks to ensure the development, implementation, monitoring and review of regulations across the water value chain in accordance with the provisions in the National Water Act and the Water Services Act. The Programme is allocated R121.5 million in the 2014/15 financial year, R125.8 million in the 2015/16 financial year and R142.1 million in the 2016/17 financial year. To give effect to this programme, the Department has developed the following strategic objectives:

· Strengthen the regulatory function of the Department by developing and completing a regulatory framework by 2014/15;

· Ensure the improved monitoring of drinking water quality, using the Blue Drop status an annual performance indicator by assessing 1 084 water supply systems for compliance with drinking water quality standards in 2014/15 and publish the Blue Drop progress report in 2015/16;

· Reduce pollution in water resources throughout South Africa by ensuring that 1 028 wastewater treatment collector systems are assessed for Green Drop status in 2014/15 and publish the full Green Drop report in 2016/17;

· Improve efficiency in water pricing and regulation by developing an economic regulation implementation strategy for the entire water value chain by 2015/16, to be effected through the approved institutional model for implementation in 2016/17;

· Ensure compliance with dam safety regulations for the protection of the population, economy and water resources by monitoring 140 dams per year over the MTEF period;

· Ensure the effective enforcement of compliance with water legislation by finalising the implementation protocol for enforcement, including a compliance and monitoring strategy to curb unlawful use by mining, agriculture, and other industries by 2014/15.

The spending focus over the medium term will be on strengthening the regulatory function of the department by revising the pricing strategy to attain full cost recovery on water schemes and initiating a process for establishing an economic regulator to contribute to ensuring compliance with water legislation. This is to be carried out through the Economic and Social Regulation sub programme.

Over the medium term, the significant increases expected in spending in the Regulation Management and Support and Compliance Monitoring and Enforcement sub programmes are due to increased spending on compliance and enforcement related activities as part of the department’s policy position on protecting South Africa’s natural water resources. The review of the compulsory water licence process for the water management area in Mhlathuze in KwaZulu-Natal, Tosca in North West and Jan Dissel in Western Cape was completed in 2012/13. Over the medium term, the department will implement measures to ensure that 29 percent of the water abstraction allocation is authorised to historically disadvantaged individuals.

Between 2014/15 and 2016/17, spending on goods and services is projected to increase as a result of an increase in spending on consultants for the assessment of drinking water quality and wastewater treatment works under the Water Supply Services and Sanitation Regulation sub programme and related compliance monitoring programmes under the Compliance Monitoring sub programme. At the end of 2013, the programme had a funded establishment of 179 posts, 120 of which were filled. Vacancies were due to the difficulties in filling posts that require scientific, technical and engineering skills to meet the occupation specific dispensation requirements. Consultants are used as required to provide specialised engineering and scientific skills, which they will transfer to the department’s personnel. Between 2010/11 and 2013/14, the department reduced spending on consultants, travel and subsistence, and advertising, to give effect to Cabinet approved budget reductions in previous budget cycles.

5.2.6 Departmental Programme 6: International Water Cooperation

The International Water Co-operation programme, seeks to strategically develop, promote and manage international relations on water resources between countries, through bilateral and multi-lateral co-operation, instruments and organisations in line with the provisions in the National Water Act. The programme further intends to pursue national interests at both African multi-lateral and global multi-lateral organisations and forums. This Programme is allocated R32.4 million in the 2014/15 financial year, R33.9 million for 2015/16 and R47.5 million for 2016/17.

To give effect to this programme, the Department has developed the following strategic objectives:

· Facilitate technical support and capacity development in water sector partnership arrangements at international, African, national, provincial and local levels; and

· Strengthen, implement and facilitate water governance, infrastructure and information management.

The spending focus over the medium term will be on forming and maintaining strategic relations with neighbouring countries and international organisations in line with South African foreign policy and the National Water Act (1998). This is expected to increase spending on travel and subsistence between 2013/14 and 2016/17, particularly due to the rollout of strategic initiatives in the rest of Africa. R23.6 million was reprioritised from the Administration programme to this programme to ensure that the department honours its international commitments, including participating in the activities of international organisations. Participation in these activities will ensure the facilitation of projects, such as the Lesotho Highlands Water Project and various other water infrastructure development programmes. The programme had a funded establishment of 44 posts, all of which were filled at the end of November 2013.

6. Spending focus of entities over the medium term

6.1 Consolidated Water Boards

Water boards derive their mandate from the Water Services Act (1997) and are categorised as national government business enterprises in terms of schedule 3B of the PFMA. Water boards are separate legal entities that have their own governance structures and assets and are required to be self-funding. The Minister of Water appoints board members and chairpersons. The water boards provide bulk potable water services to the municipalities in which they operate, and to other water service institutions and major consumers within designated services areas. Water boards vary considerably in size, activities, customer mix, revenue base and capacity. In support of the Department’s strategic objective of ensuring effective performance of water management and services institutions, the water boards will focus on ensuring quality potable bulk water supply to municipalities, industries and mines as well as to develop infrastructure and contribute to job creation.

The strategic goals for Water Boards over the medium term are to:

· Ensure that they continue to be viable and sustainable bulk water service providers;

· Ensure that all customers and stakeholders are satisfied;

· Improve business efficiencies and quality; and

· Achieve transformation in the water sector.

Revenue collected by the water boards is derived mainly from the sale of bulk water to water service authorities in their areas. Between 2010/11 and 2013/14, total revenue from the sale of bulk water increased, due to increases in the volume of water sold and annual increases in the water tariff. The average annual increases in the bulk water tariff ranged from 10 per cent to 12 per cent over this period. Over the medium term, revenue is expected to increase, due to tariff increases required to cover the cost of operations and capital infrastructure upgrades, and the projected increases in the volumes of water which are sold because of increased demand for water and because the water boards will be expanding their scope of operations into new areas.

The spending focus over the medium term will be on covering the operational costs of the water boards for the provision of bulk treated water, as well as capital spending on the infrastructure capacity required to meet the projected increases in water demand. In providing bulk treated water, the water boards’ largest spending items are energy costs for pumping water, raw water costs, staff costs and chemical costs. Expenditure increased between 2010/11 and 2012/13 as a result of high energy costs related to electricity price increases and pumping requirements related to the volume of water and the distance over which water is pumped.

6.2 Trans-Caledon Tunnel Authority

The Trans-Caledon Tunnel Authority is a specialised liability management entity, it finances and implements bulk raw water infrastructure within an acceptable risk framework and in the most cost-effective way to benefit water consumers. The authority also plays an important role as an advisor in the water sector in the areas of project initiation, the restructuring of treasury activities and the review of water tariff methodologies.

The authority’s strategic goals over the medium term are to:

· Participate in key water sector initiatives, which are focused on the sustainability of the water sector;

· Contribute to the development of knowledge in the sector;

· Implement projects in support of the government’s transformation agenda;

· Raise finance for the construction of infrastructure and manage debt in the most effective way;

· Construct infrastructure on time, within budget and in line with appropriate standards and in a sustainable way; and

· Build and maintain human capital that is fully empowered to deliver on the vision and mission of the organisation.

The Trans-Caledon Tunnel Authority’s revenue increased from R4.1 billion in 2010/11 to R7.3 billion in 2013/14, as a result of increased construction activities on projects, which led to tariff revenue being received from the department for those projects that had been completed. The increase in construction activities over the same period, particularly for the Olifants River water resource development project, the acid mine drainage project, the Mokolo-Crocodile water augmentation project and the Mooi-Mgeni transfer scheme, also increased expenditure, from R4.4 billion in 2010/11 to R7.4 billion in 2013/14. Over the medium term, revenue is expected to increase and will be used to invest in capital infrastructure to increase and expand the provision of bulk water and sanitation services.

The spending focus over the medium term will be on implementing capital projects, servicing current debts, and appointing consultants services to various projects. Expenditure is expected to grow at a slower rate over the medium term as projects near completion.

The authority had an establishment of 192 approved funded posts, all of which were filled at the end of November 2013. Personnel numbers are expected to remain at this level over the medium term. Increases in spending on compensation of employees over this period provide for inflation related adjustments to personnel costs.

6.3 Water trading entity

A water trading account was established in 1983 to ring-fence departmental revenue collected through the sale of bulk water and related services from appropriated funds. The trading account was amended by the Public Finance Management Act (1999), under which it became the Water Trading Entity (WTE) in 2008. The rationale was to create an entity that would manage the recovery of usage costs to ensure the long term sustainability of South Africa’s water resources.

The entity has two components: water resources management and infrastructure management. The water resources management component oversees the management of water quality, conservation and the allocation of water through catchment management agencies. The infrastructure component oversees the operations and maintenance of existing water infrastructure as well as the development of new infrastructure.

The entity’s strategic goals over the medium term are to:

· Establish appropriate governance structures;

· Strengthen financial management; and

· Build organisational capacity to ensure that the entity operates economically and efficiently and provides water in an equitable and sustainable manner

The water trading entity generates revenue from raw water charges and transfers received from the department. Between 2010/11 and 2013/14, revenue increases relate to the annual tariff adjustment, the increase in the sale of raw water and related services, and the significant increase in transfers the entity has received from the department. Over the medium term, total revenue is expected to increase due to the completion of dams and bulk distribution systems, increasing the availability of water and, as a result, the amount of water sold.

The spending focus over the medium term is on the development of new water infrastructure and the operation, maintenance and refurbishment of existing water resources infrastructure. To this end, the entity expects to implement phases 2B, 2C and 2D of the Olifants River water resources development project in the implementation of new water infrastructure and the operations and maintenance programmes. Expenditure on new water infrastructure is expected to be fast track the raising of the Tzaneen, Clanwilliam and Hazelmere dam walls, and phase 1 and 2 of the Mokolo augmentation project, which is set to increase the value of assets on the entity’s balance sheet to R118.8 billion in 2016/17.

The entity also plans to implement a recovery plan to reduce the backlog in the operation and maintenance of the national water infrastructure. This will be done through comprehensive programmes for dam safety, and the rehabilitation and refurbishment of all water related infrastructure, including reservoirs, canals, weirs, pipelines and wastewater treatment works.

Between 2010/11 and 2013/14, spending on goods and services increased mainly due to expenditure on contractors, and repairs and maintenance relating to the provision and the operation of water infrastructure. The decrease in expenditure on goods and services in 2013/14 is as a result of the impairment on financial assets.

Over the medium term, expenditure on interest, dividends and rent on land is expected to increase due to higher royalty fees to be paid to the government of Lesotho for water delivered to South Africa, and the payment of interest on debt not capitalised during construction projects.

The slight decline in spending on compensation of employees between 2011/12 and 2012/13 was due to a delay in the filling of vacant posts as a business engineering review processes was under way. Once the process was completed, expenditure on compensation of employees increased by 47.5 per cent between 2012/13 and 2013/14 as the entity filled vacant technical positions. At the end of November 2013, there were 511 vacancies on the entity’s approved establishment of 4 205 posts. These vacancies are set to be filled over the medium term through in-house training and recruitment. Consultants are mainly used as required for project and contract management, engineering design and services, and construction monitoring.

6.4 Catchment Management Agencies – the Breede-Overberg and Inkomati Catchment Management Agencies

Catchment Management Agencies (CMAs) are established in terms of Chapter 7 of the National Water Act. They are responsible for managing the water resources at a catchment level in collaboration with local stakeholders (with a specific focus on involving local communities in the decision making) regarding meeting of basic human needs, promoting equitable access to water and facilitating social and economic development. The CMAs are listed as schedule 3B entities in the PFMA and to date, the existing CMAs are the Inkomati CMA and the Breede-Overberg CMA.

In contribution to the Department’s strategic objective of improving the protection of water resources and ensure their sustainability, the CMAs will focus on:

· Finalisation of the catchment management strategies;

· Registering water use;

· Building Catchment Management Forums;

· Facilitating transformation of Irrigation Water Boards;

· Supporting verification and validation process; and

· Dealing with pollution incidents.

The CMAs strategic goals over the medium term are to:

· Provide water resource planning and water use management;

· Facilitate institutional engagement;

· Ensure water allocation reform and resource protection; and

· Provide information systems and strategic support in the areas of finance, human resources, public relations, communication and administration.

The Breede-Overberg Catchment Management Agency’s only source of funding is a direct grant from the department. Revenue is currently received from the department as seed funding and this will continue until a billing process is in place. Relevant policies and procedures will be developed as soon as the approval for transfer of the responsibility for the billing process has been given.

The spending focus over the medium term will be on verifying existing lawful water use and allocation plans, monitoring water quality, managing water resources and finalising delayed projects. This expenditure will mainly be incurred on the water projects programme. The number of personnel is expected to increase from 36 in 2013/14 to 43 in 2016/17, mainly due to the filling of critical vacant posts in the operations divisions required to fulfil the agency’s functions. In addition to the projected increasing personnel numbers, growth in expenditure on compensation of employees over the same period will also be driven largely by improvements in conditions of service. Spending on consultants is expected to remain constant in relation to outsourced corporate services and vary with respect to projects undertaken over the medium term.

The Inkomati Catchment Management Agency’s funding is derived in the form of a direct grant from the Department. Revenue is currently received from the department as seed funding and this will continue until a billing process is in place. Relevant policies and procedures will be developed as soon as the department approves the delegation of responsibility for the billing process.

The spending focus over the medium term will be on verifying existing lawful water use and allocation plans, monitoring water quality, managing water resource, and finalising delayed projects. The agency has a funded establishment of 53 posts, of which 46 were filled and 7 were vacant in 2013/14. The vacancies are set to be filled in 2014/15 as the recruitment process is completed. In addition to the projected increase in personnel numbers, growth in expenditure on compensation of employees over the medium term will also be driven largely by improvements to conditions of service.

6.5 The Water Research Commission

The mandate of the Water Research Commission (WRC) is to conduct research on water by determining needs and priorities for research, stimulating and funding water research, promoting the effective transfer of information and technology, and enhancing knowledge and capacity building in the water sector. Research is informed by government policies, needs, and international trends.

The strategic goals over the medium term are to focus on research projects in the following four areas:

· Water resources management, which pays particular attention to research projects on water resources assessments and development, impacts on water resources, the protection of water resources, and policy and institutional arrangements;

· Water linked ecosystems, which focuses on ecosystem processes, ecosystem management and use, and ecosystem rehabilitation;

· Water use and waste management, which investigates water services, water supply and treatment technology, sustainable municipal wastewater management and sanitation, industrial and mine water management and sanitation, and health and hygiene; and

· Water utilisation in agriculture, which pays particular attention to fostering water efficient production methods, wood and timber production, poverty reduction and wealth creation, and resource protection and reclamation.

The WRC has two primary sources of income: the water research levy, receivable in terms of the Water Research Act, 1971; and leverage income, which is from research commissioned by clients. The water research levy accounts for approximately 98.1 per cent of total revenue in 2012/13. Total revenue increased from 2010/11 to 2013/14, at an average annual rate of 6.4 per cent, and is expected to increase at an average annual rate of 5.1 per cent over the medium term due to levy increases.

The spending focus over the medium term will be on funding research activities through expenditure in goods and services and compensation of employees. These activities are multi-year in nature and may take up to three years to complete, which is why expenditure increases at 5.1 per cent across the seven-year period.

Between 2010/11 and 2013/14, spending on compensation of employees decreased from R44.9 million to R37.5 million as the 2010/11 figure included the once-off buy-out of post-retirement medical aid liability of R12.4 million. Over the medium term, spending on compensation of employees is expected to increase, mainly to provide for inflation adjustments as personnel numbers are expected to remain constant over this period. The commission had a funded establishment of 59 posts, all of which were filled as at 30 November 2013.

6.6 Komati River Basin Water Authority

The Komati River Basin Water Authority was established in terms of a treaty between South Africa and Swaziland relating to the water resources of the Komati River Basin. The basin primarily comprises the Driekoppies dam in South Africa, commissioned in 1997, and the Maguga Dam in Swaziland, commissioned in 2002. Water users in South Africa use 54 per cent of the supply, while water users in Swaziland use 46 per cent. The authority is governed by the Joint Water Commission, whose members are officials from the governments of Swaziland and South Africa.

The authority is responsible for financing, developing, operating and maintaining the water resources infrastructure in the Komati River sub basin. With the construction of both dams completed, over the medium term the authority is to focus on operations, including finance and loan administration, and the maintenance of bulk water supply infrastructure. Including capitalised interest on debt, total capital development costs of the two dams under the control of the authority was R3 billion. In 2012/13, the total volume of water distributed to the two countries was 564.4 million cubic metres. The department transferred R180 million in 2012/13 and R188 million in 2013/14 for the repayment of a loan agreement.

7. Portfolio Committee findings, recommendations and decisions regarding the Department and the Entities’ programmes, plans and budgets

This section summarises the Portfolio Committee’s observations, recommendations and resolutions flowing from the engagement with the Department and the Entities as detailed in the sections above.

7.1 Vacancies

The Portfolio Committee noted the high vacancy rate of the Department which currently stands at 13 percent. Concerns were raised regarding this high vacancy rate, particularly given that funding was allocated to these posts and there was underspending by the Department with regards to this function. The Department indicated that they were experiencing challenges, specifically in filling the technical and specialised vacancy fields of engineer and scientists. It was further noted that in terms of the Department of Public Service and Administration (DPSA) Occupational Specific Dispensation programme, there was some unintended consequences as a result of this policy which hampered recruitment. As a result of this the vacancies of scientists and engineers are primarily filled by graduates with little experience. To mitigate this challenge the Department have approached retired scientists and engineers to fill other vacancies.

7.2 Progress on 2 percent employment target of persons with disabilities

The Portfolio Committee noted that Department had not met the 2 percent target of employing persons with disabilities, and concerns were raised that this was a government priority that needed to be taken seriously. The Department indicated that the target had not been met, with employment of persons with disabilities currently standing at 1 percent. It was reported that a proportion of the interns taken on by the Department were persons with disabilities. There are currently plans underway by Human Resources to employ persons with disabilities. Furthermore the Department has also undertaken a project to make their buildings more user friendly for persons with disabilities.

7.3 Consultants

The Portfolio Committee raised concerns regarding the high rate of use of consultants and queried whether the capacity could not be sourced within the Department. It was reported that the Department was trying to build capacity but the use of consultants was strategic to the department, particularly in engineering services. Plans are underway to ensure that previously disadvantaged groups can benefit by trying to include a diverse list of consultants on the procurement list. Furthermore special tools used in engineering services are better bought by a company than by the department. The Department has also hired big consultancy companies with smaller companies to achieve real Black Economic Empowerment (BEE).

7.4. Empowerment of black businesses

Within the water sector, more especially in massive infrastructure projects, the process of empowering black businesses is limited. The Department has noted that within its infrastructure projects the criteria for black empowerment have to be strengthened. There is an insistence that the Big 5 group of construction companies partner and mentor with the emerging black businesses.

7.5 Regulation of Water Tariffs

The Portfolio Committee noted with concern that water tariffs needed to be regulated and that structures need to be explored to regulate these tariffs as they would in the energy sector. The Department indicated that this was being explored.

7.6 Pollution

The Portfolio Committee was concerned about the extent of pollution, particularly of drinking water with toilets being erected near rivers in some areas and the extent to which the Department was monitoring this issue. It was reported that municipalities are experiencing problems with pollution. This is attributed to the fact that some of the infrastructure is aged and overloaded. The Department have sent scientists to assist municipalities, there are monitoring points and the water is sent for analysis. There are currently joint initiatives and joint projects with SALGA in place to address this issue and regular meetings are held to address water quality.

7.7 Metering of water

There is currently no legal framework for metering, and the Department emphasised that the fundamental emphasis of a metering strategy remains the most credible and reliable form of water use volume determination.

7.8 Volumetric calculations in relation to water losses in municipalities

Concerns were raised around water losses in the country. The Department noted that in respect of the volumetric calculations of water losses, the figures given for water losses are unrealistic. This is due in part due to the free basic water supplied not being metered and is considered as losses by the municipalities, which the Department argued is not the case.

7.9 Pollution at Madibeng municipality

The Portfolio Committee raised concerns regarding the monitoring pollution at Madibeng municipality; raw sewerage was running off from Swartspruit into the water supply. The Department reported that was looking at accelerating the incentive based regulation approach. There would be a bigger focus on how the Department can support poorer municipalities, to date, much work has been done. At the Madibeng municipality there has been a co-operative governance approach which led to the investigations.

7.10 Monitoring of compliance of use of Municipal Infrastructure Grants (MIG)

The Portfolio Committee raised concerns that grants allocated to municipalities were not always used for that functions and were reassigned to other projects, and queried the extent to which the Department monitored the compliance of municipalities in spending the grants on water projects. The Department indicated that monitoring was taking place, as funds are transferred to municipalities; the Department has a tool in place through quarterly reports. If the municipality do not meet the requirements funding is withheld from those municipalities.

7.11 Sustainable job creation

The Portfolio Committee noted that job creation was a priority for the Department. However it was noted that the bulk of the jobs created were temporary and Members queried why there was not a move to more permanent employment. The Department responded that the timeframe for major infrastructure projects were 4-8 years. Labour was sourced locally in the area where the project was taking place and that the 42 percent of the labour sourced was under the age of 35. It was also reported that there was a great degree of skills transference during this term.

7.12 Skills Development and Bursaries

The Portfolio Committee queried the extent to which the Department had allocated bursaries, it was responded that the Department has Memorandums of Understanding with eighteen institutions of higher learning. The Department has allocated R73 million to a training centre which is doing very well. It was also reported that since 2007, 648 bursaries had been allocated. A majority of those graduates have been placed within the Department. This programme has run so well that the Department won a prize as the best training institution in the public service.

7.13 Backlog in issuing of water licenses

The Portfolio Committee raised concerns regarding the backlog in the issuing of water licences. The Department reported that it has problem with this issue as 221 licenses backlog predate 2011, 124 licences have outstanding information by applicants, and there are currently 1 041 water license applications in progress.

8. 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:

· Service charges and operational and maintenance costs

South Africa has made good progress in improving access to environmental services (water, sanitation and waste management). However, further investment is necessary to continue this progress and improve access to, and quality of services. A key obstacle is the inadequate level and design of service charges, which do not cover operational and maintenance costs.

Water Tariffs

There has been limited implementation of the increasing block tariffs required by legislation, and the Portfolio Committee recommends that the Department and the Entities provide more detail and progress reports on the regulation of water tariffs.

· Establishment of all 9 Catchment Management Agencies

The Portfolio Committee recommended that the Department establish all outstanding water catchment agencies in line with the second National Water Resource Strategy; and ensure they better integrate water resources management, the provision of water services and land use through enhanced engagement of all government and non-governmental stakeholders, including traditional authorities.

· Water Resources Management

South Africa has adopted a modern, integrated approach to water resources management. However, the institutional barriers to its implementation have seriously limited policy effectiveness. Water resources management – a national responsibility implemented through regional offices is not adequately integrated with the provision of water services, which is a municipal responsibility. The Portfolio Committee recommended that the Department and the Entities engage on the challenges within the broad water value chain to ensure that all citizens have access to water and sanitation services, irrespective of limitations of institutional arrangements.

· Strategic Integrated Projects

As part of the programme of stimulating and creating jobs, government has developed a programme of 18 Strategic Integrated Projects (SIPs) largely focused on infrastructure development. The majority, if not all, have strong implications for water, requiring water availability for economic development, or the availability of potable water. The Portfolio Committee recommended that the Department and the Entities must therefore ensure that the water related elements of the projects are integrated into the project plans and are dealt with effectively. To enable the success of the SIPs programme, the Portfolio Committee recommends that the following issues must be urgently addressed – review of water use rights, implementation of water allocation reform, water build programmes and water pricing.

· Challenges at the municipal level in relation to the delivery of water services

The Department, together with the CMAs and TCTA is responsible for water resources, bulk water services infrastructure and catchment or national water management, while local government has the constitutional obligation to provide water and sanitation services within their areas of jurisdiction. However, there are many challenges at the municipal level in relation to the delivery of water services. These challenges, include poor maintenance and refurbishment of infrastructure resulting in increasing interruptions in supply and high levels of unaccounted for water; poor management of wastewater treatment works resulting in deteriorating raw water quality; slow delivery of sanitation services; and unaffordable technology choices in some areas. The challenges are further compounded by the inadequate cost recovery in the water services sector. If, as the Department maintains that it is assisting local government institutions in improving on this component of its work, could the Department provide a progress report of the efficacy and sustainability of these initiatives?

· Spending of Municipal Infrastructure Grant on water services

Despite the significant funding of water services, inter alia , the equitable share and the Municipal Infrastructure Grant (MIG), there is considerable evidence that a very low proportion of the equitable share is actually spent on water services. In addition, billing and cost recovery are generally poor, with some areas in essence, not being billed at all. As a result, daily operations and especially longer term maintenance of infrastructure are significantly underfunded. The result of poor municipal water management increases the demand of water quantities while decreasing raw water quality, both of which have major implications for water resources management, with associated financial and regulatory implications. The Portfolio Committee recommends that the Department and Entities engage with the Department of Cooperative Governance and Traditional Affairs and National Treasury, as well as local government institutions to address these challenges to ensure that in the long term, the work of the Department in relation to water resources management is not compromised.

· Intergovernmental coordination

The role of both the Department and Water Boards in supporting local government with providing water services has been under the spotlight, and must be enhanced in the coming years. Intergovernmental coordination remains a significant challenge, as is seen through the lack of integration of water into/with other sector plans, and through poor coordination, between Departments. The Portfolio Committee recommends that the Department and Entities give further consideration to these challenges and provide a progress report on how it would assist in this regard.

· Water use licensing

Water use licensing to support sustainable social and economic development is a critical challenge and the Portfolio Committee recommends that the Department provide a progress report on the status of water use licensing.

· Regional bulk infrastructure projects in construction during the 2014/15

In interrogating the list of the regional bulk infrastructure projects in construction during the 2014/15 financial year as contained on page 52 of the Annual Performance Plan of the Department, the Portfolio Committee recommended that the Department supply details around each project. The Portfolio Committee also noted that in relation to these projects, it will undertake oversight to verify the status and stages of identified projects in August 2014.

· Equitable Supply of Water

The Portfolio Committee raised concerns that after 20 years, there are still communities without access to water across the country. Equity issues in terms of water allocation are a serious issue in this country. The Department was requested to submit a detailed water reform strategy to address this matter.

· Breakdown of all infrastructure grants related to the water sector

In relation to the infrastructure breakdown in terms of the grants provided by the Department, the Portfolio Committee required the progress, achievements and challenges and more specifically, the role of the Department as sector leader and regulator on improving some of the challenges.

· Acid Mine Drainage

The Trans Caledon Tunnel Authority (TCTA), was in 2011 mandated by government through the Inter-Ministerial Committee, on Acid Mine Draining (AMD) to provide a short term solution to the AND challenge experienced in the Gauteng region. Significant progress has been made since then. It is therefore imperative that the Department provide a progress report on AMD on a quarterly basis.

· Capital Investment in new water and sanitation infrastructure

Capital investment in new water and infrastructure for the entire value chain, including the refurbishment of existing infrastructure, is projected to require an estimated R670 billion investment over the next ten years. The Portfolio Committee therefore requests the Department and the entities to give a breakdown on the proposed budget and projects for the medium term in this regard.

The Portfolio Committee concluded its deliberation on the Strategic Plans, Annual Performance Plans and budgets of the Department, and its entities and resolved to:

· Support the plans as tabled and noted with appreciation how these plans are aligned with and respond to the National Development Plan and international obligations such as the Millennium Development Goals;

· Support the approval of Budget Vote 38.

Report to be considered.