ATC151106: Budgetary Review and Recommendation Report of the Portfolio Committee on Water and Sanitation, dated 5 November 2015

Water and Sanitation

BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON WATER AND SANITATION, DATED 5 NOVEMBER 2015

 

1.  INTRODUCTION

 

The Money Bills Procedure 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 Report (BRRR) that assesses service delivery performance against available resources; evaluate the effective and efficient use and forward allocation of resources; and may make recommendations on forward use of resources.

 

The Portfolio Committee on Water and Sanitation (the Portfolio Committee), in undertaking oversight of the financial and non-financial performance of the Department of Water and Sanitation (the Department), and Entities, such as the Water Research Commission (WRC), the Trans-Caledon Tunnel Authority (TCTA), and Catchment Management Agencies for the 2014/15 financial year ascertained and analysed the extent to which the Department and Entities:

 

• Complied with its legislative, budgetary, policy and constitutional mandate 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 the Public Finance Management Act (Act No 1 of 1999) and other relevant National Treasury guidelines and regulations; adhering to 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 of the Department is derived from the National Water Act (No 36 of 1998), the Water Services Act (Act No 108 of 1997) and the Water Research Act (Act No 34 of 1971).

 

2.  OVERVIEW OF THE WORK OF THE PORTFOLIO COMMITTEE IN CONSIDERATION OF THE BUDGET ALLOCATIONS, STRATEGIC PLANS AND ANNUAL PERFORMANCE PLANS OF THE DEPARTMENT OF WATER AND SANITATION AND ENTITIES FOR THE 2014/15 FINANCIAL YEAR

 

On 2 July 2014, the Portfolio Committee considered the tabled Strategic Plans, Annual Performance Plans and Budget Allocations for the 2014/15 financial year.  During this session, the Portfolio Committee noted that the Department of Water and Sanitation was a new Department, with an additional sanitation component, which needed to be integrated to the scope, function and nature of the mission, vision and mandate of the Department. 

 

The Presidential Proclamation No 43 of 2014 introduced a number of changes to the previous configuration and work of the new Department of Water and Sanitation.  For the Department of Water Affairs, the functional content of the Department changed to give effect to a new ministerial portfolio, mainly by transferring the sanitation function from the Department of Human Settlements to form the Department of Water and Sanitation.

 

On 14 and 15 October 2015, the Portfolio Committee considered the tabled Annual Report for 2014/2015 and its Entities. The sections below provide a summary of the key aspects of the way in which the Department and Entities spent the requisite funding aligned to the objectives and targets projected in the Annual Performance Plan.

 

The Portfolio Committee recognises that the mandate and the ability of the Department to achieve its mandate is determined by the provision for the rights of access to basic water supply and basic sanitation by setting national standards and norms (Water Services Act), ensuring that South Africa’s water resources are protected, used, developed, conserved, managed and controlled in a sustainable and equitable for the benefit of all persons (National Water Act) and promoting research in connection with water issues (Water Research Act).

 

Six (6) programmes underpin the work of the Department of Water and Sanitation – Programme 1: Administration, Programme 2: Water Sector Management, Programme 3:  Water Infrastructure Management, Programme 4:  Regional Implementation and Support, Programme 5:  Water Regulation and Programme 6: International Water Cooperation. Entities supporting the work of the Department are the Water Research Commission (WRC), Trans-Caledon Tunnel Authority (TCTA), Water Boards and Catchment Management Agencies.

 

2.1 Strategic oriented goals aligned to financial allocations for the 2014/15 financial year

 

The Portfolio Committee, during its deliberations of the alignment of the work of the Department noted the four strategic oriented goals aligned to the financial allocations for the 2014/15 financial year.  To optimally spend its available appropriation of R12.5 billion (reflected in the first and second quarter reports, and the adjusted appropriations available for 2014/15 (reflected in the third and fourth quarter reports), the Department drafted the following strategic oriented goals:

 

• Goal 1: An efficient, effective and development oriented sector leader.  This strategic goal is aligned to Government Outcome 12 (Public Service) and Outcome 4 (Employment) and Chapter 13 of the National Development Plan;
• Goal 2:  Equitable and sustainable provisioning of raw water.  This strategic goal is aligned to Government Outcome 6 (Infrastructure) and in Chapter 4 of the National Development Plan;
• Goal 3:  Provision of equitable and sustainable water services of acceptable quantity and quality.  This goal is aligned to Government Outcome 9 (Local Government) and Chapter 13 of the National Development Plan; and
• Goal 4:  Protection of freshwater ecosystems.  This strategic goal is aligned to Government Outcome 10 (Environment) and Chapter 5 of the National Development Plan.

 

An analysis of the percentage achievement of annual milestones for each of the goals listed above show that for Goal 1, the Department achieved 54 per cent of its strategic objectives; for Goal 2, the Department achieved 51 per cent of its strategic objectives; for Goal 3, the Department achieved 56 per cent of its strategic objectives; and for Goal 4, the Department achieved 50 per cent of its strategic objectives.

 

The Portfolio Committee questioned whether the strategic oriented goals of the Department with its concomitant strategic objectives were too ambitious as the high level analysis of the percentage analysis showed such low percentages in its achievements.  The Portfolio Committee noted with concern the lack of a monitoring and evaluation process and questioned the effectiveness of internal controls.  The Department acknowledged that monitoring and evaluation in respect of ensuring the attainment of strategic objectives, indicators and targets was an area of weakness.  A monitoring and evaluation unit did not exist within the Department until September 2014.  This was despite the promulgation of the Public Finance Management Act, and its resultant mechanisms that call for the establishment of a monitoring and evaluation unit.  The Director-General noted that the absence of this unit resulted in systemic weaknesses for the Department. 

 

Overall, in terms of the monitoring and evaluation of strategic planning in line with the budget, there is a weakness in the Department in that the way the Department allocates budgets for programmes or sub-programmes, is not based on any ‘scientific’ basis.  The Director-General used an example of the appropriated budget of 2014/15, which amounted to R13 billion, and revenue generated by the Water Trading Entity of approximately R12 billion for the 2014/15 financial year. The Director-General explained that the operating budget of approximately R25 billion meant that the monitoring and planning of the plans, programmes and strategies should be sound.  However, what is seen in the Department, is that the budget for programmes, plans and strategies is given without due consideration and analysis of the implementation and completion of the said projects. The Director-General used an example of the way in which the operating expenditure by use of monies being thrown into a ‘black box or black hole’ without due consideration of whether people attached to units will adequately spend the money for the financial year. If in the course of the financial year, money is not spent, this is taken back and used for other functions. Two people are assigned to undertake the allocation of budget for the entire planning of the Department. This poses a risk, and in the absence of a monitoring and evaluation unit, impacts on the planning of the Department, which has serious consequences for service delivery implementation. For the first time in the 2014/15 financial year, the Department has had monthly and quarterly monitoring of its Annual Performance Plan. The Department is optimistic that it will be able to improve on its performance, planning, monitoring and evaluation in the future.

 

3.  OVERVIEW OF OVERALL PERFORMANCE (FINANCIAL AND NON-FINANCIAL) OF THE DEPARTMENT (MAIN ACCOUNT AND WATER TRADING ENTITY)

 

3.1 Overview of Financial Performance of Main Account

 

To effectively optimise its work, the Department has two accounts, under which it operates.  The Main Account is the appropriated funds from the fiscus, and the Water Trading Entity.  Funding for the Water Trading Entity, that of operations and maintenance, as well as development of new infrastructure, comes from revenue that is generated from raw water charges in terms of the pricing strategy.  It also receives augmentation from the fiscus, via the Department through the National Water Resource Infrastructure Programme.  The water resource management charges cover the operational costs of all water management areas.

 

The Department, as mentioned earlier, had in the 2014/15 financial year, an available appropriation of R12.5 billion and an adjusted appropriation of R13.6 billion.  The Department spent R11.6 billion at the end of the 2014/15 financial year, which represented a total spending of 85 per cent.  This left an amount of R2 billion of unspent funds.  This is mainly due to under spending on the Regional Bulk Infrastructure Grant (R637.4 million), and the Sanitation programme (R484.5 million).  The main reasons for the variance on these grants are the slow appointment of contractors, delays due to deliveries, bad weather and poor performance by contractors.

 

The Portfolio Committee questioned whether the under spending has implications for any crucial projects requiring funding from the Regional Bulk Infrastructure Grant, and more specifically delays in sanitation projects, which are of priority.  The Portfolio Committee noted that this represented an issue for the Department, especially in the rollover process as the Department will need to provide strong supporting evidence for committed funds in order for it to qualify for rollovers.

 

In terms of the under expenditure of the Bucket Eradication Programme (BEP), the Portfolio Committee noted with concern that this only represented spending of R281 million or 31 per cent (actual expenditure) against an allocated budget of R899 million.  The Department noted that this function was only transferred from the Department of Human Settlements in November 2014, with less than six months left in the financial year to spend the allocated amount.  The Department acknowledged that there were challenges.  These challenges included lack of norms and standards for the BEP function.

 

The general project challenges had been the appointment of implementing agencies, which was done based on their presence in respective provinces.  However, some of them were slow to deliver because of cash flow challenges, compounded by service delivery protects, resulting in delays for weeks.  There was non-availability of bulk infrastructure to service projects, and lack of capacity of implementing agencies in rolling out projects at this scale.  Notwithstanding this, the Select Committee on Appropriations in 2015, had recommended that public entities should not be used in implementation of indirect grants.  The Department of Water and Sanitation was now exploring an alternative delivery vehicle, to accelerate the programme.

 

A further challenge to the BEP are the long awaited periods for Environmental Impact Assessments (EIAs) for some projects. 

 

The Department indicated that once norms and standards for sanitation were developed, the Department would be able to move with greater speed in respect of implementation.  In terms of developing and using new technologies for sanitation, the Department was working closely with research institutions, such as the Centre for Scientific and Industrial Research (CSIR), an Entity under the Department of Science and Technology, to incorporate into its sanitation work.

 

The Department further acknowledged that poor planning was one of the reasons for under expenditure and endeavoured to ensure that when funding was allocated to projects, the projects would reflect the implementation phases, which could be achieved and not reflected as delays due to the processing of EIAs.

 

3.2 Non-financial performance of the Main Account and Water Trading Entity

 

The analysis of the annual performance of the Main Account shows the percentage achievement of annual milestones, which reflects a target achievement by 59 per cent. The Water Trading Entity achieved its annual milestone, which reflects a target achievement by 27 per cent. 

 

The analysis per budget programme of the Main Account shows that for Programme 1: Administration, the percentage achievement of annual milestone, which reflects a target achievement by 56 per cent. Programme 2: Water Sector Management, the programme achieved a rate of 75 per cent. For Programme 4: Regional Implementation and Support, it achieved the annual milestones at 45 per cent. For Programme 5:  Water Sector Regulation, it achieved 60 per cent. For Programme 6:  International Water Cooperation, it achieved its annual milestone at a rate of 63 per cent.

 

The analysis per budget programmes of the Water Trading Entity shows that for Programme 1: Administration, it achieved the annual milestone by 20 per cent. For Programme 3: Water Infrastructure Management, it achieved the annual milestone by 33 per cent. For Programme 4: Regional Implementation and Support, it did not achieve the annual milestone by -67 per cent, and partially achieved by -33 per cent.

 

4.  PERFORMANCE (FINANCIAL AND NON-FINANCIAL) INFORMATION ON THE MAIN ACCOUNT PROGRAMMES AND WATER TRADING ENTITY PROGRAMMES

 

4.1 Overview of financial performance on the Main Account Programmes

 

The table below reflects the percentage spent on each of the programmes.  The largest element of operational expenditure in 2014/15 was R7.1 billion spent under the Regional Implementation and Support Programme, mainly on payments for capital assets.  The next largest was R888.1 million under the Administration Programme, followed by R468.8 million under the Water Sector Management Programme, primarily for Goods and Services and Compensation of Employees.

 

Programme (R'000)	Budget (R0’000)	Expenditure (R0’000)	Variance (R0’000)	Percentage Spent
Administration	956 283	888 186	68 097	93%
Water Sector Management	503 641	468 638	35 003	93%
Water Infrastructure Management	2 919 422	2 919 422	0	100%
Regional Implementation and Support	9 070 830	7 178 148	1 892 682	79%
Water Sector Regulation	163 099	129 576	33 523	79%
International Water Cooperation	34 126	32 712	1 414	96%
Total	13 647 401	11 616 82	2 030 718	85%

 

At the end of the 2014/15 financial year, the Department had transferred R4.7 billion.  Transfers to provinces and municipalities to the end of the financial year were R1.1 billion.  Transfers to departmental agencies and accounts amounted to R2.7 billion.  Transfers to foreign governments and international organisations amounted to R181.5 million.  Transfers to public corporations and private enterprises amounted to R579.9 million.  Transfers to households amounted to R31.1 million.

 

12.6 per cent of operational expenditure in 2014/15 was on Administration, mainly for Goods and Services and Compensation of Employees.  The main cost drivers within this programme were the Corporate Services sub-programme due to increased spending on computer services.  The other major cost driver in this programme is office accommodation. The reasons for underspending of 7 per cent in Administration (R68.093 million) is due to delayed invoices for office accommodation and municipal services, and the imported equipment relating to Data Storage Infrastructure. 

 

Operational expenditure in the Water Sector Management Programme for 2014/15 was mainly spent on Goods and Services (mainly for infrastructure and planning consultancy services and computer services), and compensation of employees.  Expenditure on this Programme decreased by 0.6 per cent, when compared to the previous financial year, primarily due to lower spending on these items.   The major cost driver in this Programme is the Water Information Management and the Integrated Planning Sub-Programme.  The expenditure is driven by Goods and Services and Compensation of Employees. Underspending in the Water Sector Management reflects a 7 per cent (R35.004 million) due to delayed purchasing of laboratory analyses instruments for national surface water quality programme and Inductively Coupled Plasma Optical Emissions Spectrometer Instrument.  Underspending in the Regional Implementation and Support reflects a 21 per cent (R1.891 billion) due to:

 

• Prolonged signing of Service Level Agreements and the delayed delivery of materials by suppliers (Municipal Water Infrastructure Grant);
• Delays in the finalisation of the implementation plan by the newly appointed Implementing Agent and the delays in the delivery of ordered material needed for implementation of various Regional Bulk Infrastructure Programmes (RBIG); and
• Insufficient infrastructure to support  the Bucket Eradication Programme, cash flow challenges experienced by the Implementing Agents (Sanitation).

 

There is no operational expenditure in the Water Infrastructure Management Programme as 100 per cent of the funds in this Programme are transferred to the Water Trading Entity.  88 per cent is allocated for infrastructure development that the Water Trading Entity undertakes on behalf of the Department; 5.6 per cent is for operation of water resources infrastructure in the Komati River Basin for the Driekoppies and Maguga Dam situated on the borders of South Africa and Swaziland.  There is no under expenditure on this Programme.

 

Operational expenditure in the Regional Implementation and Support was mainly spent on Compensation of Employees and Goods and Services.  Expenditure under this Programme increased by 10 per cent, when compared with the previous financial year.  This is due to additional spending on payments for capital assets.  The main cost drivers in this programme are the Regional Bulk Infrastructure Grant (RBIG); the Municipal Water Infrastructure Grant (MWIG); and the Water Services Operating Subsidy Grant.  Further to this, the Department received a function shift of the Sanitation Programme from the Department of Human Settlements, which subsequently increased the Programme’s overall budget.  Under spending on this Programme amounted to R1.8 billion, and is mainly due to under spending in the Regional Bulk Infrastructure Grant, Municipal Water Infrastructure Grant and Sanitation Grant.  The reason for poor spending on these grants include – slow appointment of implementing agents; delays due to strikes, delays due to bad weather conditions for construction and poor performance by contractors.

 

Operational expenditure in the Water Sector Regulation Programme was mainly spent on Compensation of Employees and Goods and Services (mainly for business and advisory consultancy services, and travel and subsistence).  Expenditure under this Programme has increased by 25 per cent, when compared to the previous financial year due to additional spending on Compensation of Employees, the main cost drivers in this Programme are the Water Resource Regulation, Water Supply Services and Sanitation Regulation sub-programmes. Underspending in the Water Sector Regulation Programme constituted 21 per cent (R33.525 million) due to the delayed implementation of a drinking water quality and wastewater management project, and the prolonged period it took for the draft pricing strategy due additional broader to consultations required by National Treasury.

 

Operational expenditure in 2014/15 in the International Water Cooperation was mainly spent on Compensation of Employees.  Expenditure on this Programme decreased by 2.4 per cent, when compared to the previous financial year, primarily due to lower spending on Goods and Services. 

 

4.1.1 Notes to the financial statements

 

In line with Section 34(1) (b) of the Public Finance Management Act, National Treasury recommended to the Standing Committee on Public Accounts (SCOPA) that the amount of R3 782 in unauthorised expenditure be condoned, and that it be provided for in a Finance Bill as a direct charge against the National Revenue Fund.  This matter still awaits a response.

 

The Department of Water and Sanitation requested a rollover of R1.6 billion from National Treasury.  The largest component of the rollover is located within the Municipal Water Infrastructure Grant, with an amount of R225 million, the Regional Bulk Infrastructure Grant, with an amount of R918 million and for the Bucket Eradication Programme, with an amount of R389 million.

 

The Portfolio Committee raised serious concerns regarding the application of R1.6 billion from National Treasury, and questioned the implications of the rollover not being granted by National Treasury.  This, the Portfolio Committee argued would mean that certain projects and programmes would be reassigned and the budget shifted to accommodate the reprioritised programmes and projects. 

 

 

 

 

 

 

 

4.1.2 Audit opinion for the 2014/15 financial year – Main Account

 

The Main Account received a qualified audit opinion for the 2014/15 financial year.  The basis of the qualifications has improved from three issues in 2013/2014 to only two interrelated issues in 2015/15, which mainly relates to Regional Bulk Infrastructure transactions.  The following are basis of qualification as identified by the Auditor-General:

 

1)  Commitments:  The department did not have adequate systems in place to maintain records of Regional Bulk Infrastructure Projects (RBIG) and Municipal Water Infrastructure Grants (MWIGs), where procurement of goods and services had been approved and/or contracted, but where no delivery has taken place at year end, which resulted in RBIG and MWIG commitments being misstated or regarded as accruals. The root cause of commitments are due to:

 

• Inadequate intervention by the Chief Financial Officer during the year;
• Poor record keeping with regard to Regional Bulk Infrastructure Grant (RBIG) and Municipal Water Infrastructure Grant (MWIG) documents;
• Lack of review and monitoring; and
• Insufficient and inappropriate audit evidence for the corresponding amounts disclosed as RBIG commitments.

 

The recommendations to address the issue of commitments by the Department of Water and Sanitation by the Auditor-General South Africa are:

 

• Ensure that all the grant-related projects supporting documents are properly filed for easy access and reference;
• The Chief Financial Officer and Chief Director for Supply Chain Management must ensure that there are daily/weekly/monthly reviews and monitoring to prevent or detect errors on time;
• Staff should be held accountable when information is not provided for audit purposes; and
• The Department must revisit the commitments population and ensure that the commitments are adequately disclosed in the financial statements.

 

2)  Accruals:  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 Regional Bulk Infrastructure Grant (RBIG), Municipal Water Infrastructure Grant (RWIG) and Regional Household Infrastructure Grant (RHIG) was inadequate.  There were no satisfactory audit procedures that the Auditor-General could perform to obtain reasonable assurance that all outstanding invoices for RBIG, MWIG and RHIG were included in accruals. The root causes of accruals are due to:

 

• Inadequate intervention by the Chief Financial Officer;
• Inadequate review and monitoring to ensure that all RBIG, MWIG and RHIG accruals are recorded;
• Poor record keeping; and
• Inadequate application of applicable accounting standards.

 

The recommendations to address the issue of accruals by the Department of Water and Sanitation by the Auditor-General South Africa are that the:

 

• The Chief Financial Officer should ensure that the process of collecting, recording and reporting for Regional Bulk Infrastructure Grant, Municipal Water Infrastructure Grant and Rural Household Infrastructure Grant invoices at year-end is reviewed and monitored to ensure that the disclosure is complete and accurate;
• The Chief Financial Officer and Chief Director, Supply Chain Management SCM should enforce, through regular review and monitoring, the cut-off internal controls.

 

4.1.3 Overview of non-financial performance in the Main Account Programmes

 

For Programme 1: Administration, the Department projected attendance of training in line with the workplace skills plan at 90%, but only achieved 73 per cent (that is, 7 300 of 10 000 interventions).  The reasons for deviations was the lower than expected attendance of training due to changes in the employees working schedule and not allocating time-off for training.  The vacancy rate for engineers and scientists increased to 17.44 per cent from the baseline of 15 per cent.  Of the 215 posts that were advertised, 99 were filled as the department could not attract the required candidates.  An 85 per cent expenditure of the Department’s budget was achieved versus the planned 100 per cent expenditure.  This is due to the fact that the allocation of the funds was done without the assessment of implementation readiness of the projects.  This led to low spending of the infrastructure grants.  In addition, there was an under expenditure in the sanitation function due to late transfer of funds for the financial year under review, as well as the lack of capacity on the part of implementing agents.  An 89 per cent compliance was achieved versus the planned 100 per cent with the approved audit plan (that is, 73 of 82 projects).  The 9 projects that were in progress could not be completed as a result of capacity constraints.

 

The Portfolio Committee raised concerns at the high vacancy rate within the Department and noted that for 215 funded posts, the Department was only able to fill 99 posts, and noted that these posts could be forfeited in line with National Treasury regulations.  The Portfolio Committee argued that the high vacancy rate could have a negative impact on service delivery and wondered if this was one of the reasons for the Department not having met some of its targets in respect of its Annual Performance Plan.  The Department noted the concerns raised by the Portfolio Committee and reported that the Department of Public Service and Administration had approved a new structure for the Department, which incorporates the sanitation component, with the requisite workforce.

 

For Programme 2: Water Sector Management programme, a 10 per cent completion versus the planned 20 per cent completion of the Environmental Impact Assessment for the Western Cape Water Supply system was achieved.  There were delays in the procurement process. The scope of work to be done needed to be further refined and mobilisation of resources to undertake the work was to be expedited.  A 4 per cent reduction versus planned 6 per cent reduction of projected demand for 8 large water supply systems was achieved.  Lack of water conservation/water demand management funding within municipalities resulted in the under achievement.  Forty percent (40 per cent) (that is, the Draft Bill inclusive of sanitation) versus the planned 50 per cent completion was achieved for the revision of the National Water Amendment Bill.  The publication of the Draft Amendment Bill for public consultation was delayed due to the pronouncement of the new Department of Water and Sanitation in May 2014.

 

None of the planned 4 river systems had determined resource quality objectives as only draft resource quality objectives reports were developed.  During the course of the project, it was realised that the draft numerical limits (specifications of discharges) of the Upper, middle and lower Vaal needed to be aligned.  After gazetting the classes, the stakeholders requested that both the resource classes and resource quality objectives be gazetted simultaneously, thus the delay. A total of 1 382 versus the planned 1 400 national sampling points were monitored.  The sampling points where samples had not been provided were excluded from the national monitoring schedule, which resulted in the reduction of numbers. 

 

None of the planned compulsory licences in Mhlathuze Catchment area were issued as 500 draft licences and record of recommendations were drafted.  Lack of dedicated personnel to undertake the task resulted in the under achievement, but human resources have been availed and the task is to be completed by end June 2015.  The Portfolio Committee was concerned at the retrospective reporting, which should have seen the completion of the task by end-June 2015.  The Portfolio Committee requests a detailed progress report on why the target date was not met, as well as when the Department intended to complete this critical task to ensure socio-economic development in these areas.

 

The finalisation of the Blue Drop Report was delayed as verification audits had to be conducted in Free State, Gauteng, Limpopo, Mpumalanga and Western Cape, which negatively impacted on reaching the target of 300 assessments.  The finalisation of the Green Drop Report was delayed as verification audits had to be conducted in Limpopo, which negatively impacted on reaching the targeted 250 assessments. The Portfolio Committee was concerned at the delay in the finalisation of the Blue and Green Drop reports. 

 

For Programme 4: Regional Implementation and Support, a total of 1 615 versus the planned 2 441 job opportunities were created through the Regional Bulk Infrastructure Grant.  The labour unrests and late issuing of appointment letters to contractors negatively affected the creation of job opportunities.  Seventy six (76) versus the planned 82 bulk infrastructure schemes were under construction.  The Mpumalanga implementing agent delayed in issuing the appointment letters because of a disagreement with the province.  There were persistent labour unrests at Sebokeng Waste Water Treatment Works that halted the project.  Lack of co-funding from the Western Cape also delayed projects.  Eight (8) versus the planned 10 bulk infrastructure schemes were completed.  Swellendam and Grabouw wastewater treatment works could not be completed to land owners objections to the pipeline and delays in the procurement by the implementing agent, respectively.  One (1) versus the planned 2 wastewater treatment works were completed.  Objections from Western Cape land owners delayed the project completion.  One hundred and fifty three (153) versus the planned 295 job opportunities were created through Adopt-A-River programme.  The envisaged budget reallocation was not received by Free State and the budget reallocation was received late by Limpopo.

 

Twenty three percent (23 per cent) versus the planned 100 per cent water use authorisation applications were finalised (that is, 375 of 1 652 applications).  The 2010 backlog was eradicated as a priority.  The licence applications for 2011 to 2013 were consolidated and are in the process of being eradicated in accordance with the new business process.  80 per cent versus the planned 100 per cent interventions were made to prevent water supply, water quality and effluent quality incidents, that if, 74 of 93. 

 

94 859 versus the planned 144 491 households were provided with (interim or basic) water supply in the 24 priority districts.  The loss of implementing agent status for Eastern Cape municipalities as the result of the introduction of schedule 5B and 6B mid-term resulted in the need to deviate from initial planning; stoppage of allocations for Mpumulanga municipalities as a result of non-compliance with signing of service level agreements. 

 

90 per cent versus the planned 100 per cent completion was achieved in the reburbishment of the Rand Uranium treatment plant in the Western Basin (that is, civil works for the new pump station underway).  Further research was to be done in terms of policies, regulation and technology to ensure that the department’s approach for long-term mitigation of Acid Mine Drainage is justifiable with regard to water pricing. 30 per cent versus the planned 50 per cent completion of the proposal of an environmental levy for the mining sector was achieved.

 

20 581 versus the planned 88 127 existing bucket sanitation system in formal settlements were replaced with adequate sanitation. Lack of adequate bulk infrastructure in projects; cash flow challenges by implementing agents; difficult soil or hard rock conditions and service delivery protest in projects.

 

None of the planned 92 000 existing sanitation system in informal settlements were replaced with adequate sanitation services.  The department is focusing on replacing bucket sanitation in formal areas rather than informal areas.  9 347 versus the planned 63 118 households were served through Rural Household Infrastructure Programme.  The late transfer of funds to municipalities did not allow timeous procurement of contractors.

 

For Programme 5: Water Sector Regulation, 60 per cent (that is, stakeholder comments incorporated and draft gazette developed) versus the planned 100 per cent completion of the revised water pricing strategy was achieved.  The pricing strategy was not gazetted for public consultation as the National Treasury raised issues of concern and recommended broader consultation.

 

4.1.4 Findings by the Auditor-General South Africa on predetermined objectives – Main Account

 

The Auditor-General South Africa found a number of findings on the predetermined objectives of the Department of Water and Sanitation, which related to the usefulness (measurability) and reliability within certain programmes of the Main Account.

 

For the Regional Implementation and Support Programme, the usefulness of the programme targets showed that 55 per cent were not specific and a total of 68 per cent of indicator were not well-defined.  The reliability of targets of the programme showed that significantly important targets were not reliable compared to the source information or evidence provided.

 

For the Water Sector Regulation Programme, the Auditor-General South Africa found that aspects relating to usefulness (measurability), a total of 70 per cent of the targets were not specific.  The reliability of significantly important targets were not reliable when compared to the source information or evidence provided. The root causes of the findings for the two programmes mentioned above are:

 

• Some of the findings from the review of the 2014/2015 Annual Performance Plan were not addressed before approval;
• Compliance with the requirements of the National Treasury’s framework was not enforced through regular review and monitoring of the performance information documents;
• Targets were not clearly set during the planning stage, as the Department’s targets could not be supported for measurability;
• Proper assessments were not performed on targets and indicators, and approval was not documented;
• Management did not adhere to the requirements of the Financial Management of Programme Performance Indicators (FMPPI) due to a lack of proper systems, processes and adequate technical indicator descriptions;
• There was a lack of monitoring of the completeness of source documentation in support of actual achievements; and
• There was a lack of frequent review of the validity of reported achievements against source documentation.

 

The recommendations highlighted by the Auditor-General South Africa to the findings of predetermined objectives are:

 

• The Director-General must ensure that findings from the review of Annual Performance Plans are addressed before approval and that the Auditor General South Africa is involved during the planning phase;
• Proper record keeping should be implemented to ensure that all supporting documents are complete, relevant, accurate and available;
• Establish adequate mechanisms to enforce regular review and monitoring of the performance information documents;
• The indicators must be well defined in the technical indicator descriptions; and
• Corporate planning must ensure that there are documented policies and procedures for performance management to ensure compliance with the Public Finance Management Act (PFMA) and Framework for Managing Programme Performance (FMPPI). 

 

4.2 Performance (financial and non-financial) information on the Water Trading Entity Programmes

 

4.2.1 Financial performance of the Water Trading Entity Programmes

 

The table below provides an overview of the financial information on the Water Trading Entity for the financial year 2014/15.  The Water Trading Entity has four sub-programmes – financial management, infrastructure development and rehabilitation, operation of water resources and integrated catchment management.

 

Description	Audited Outcome 2014/15 R’000	Audited Outcome 2013/14 R’000	Percentage Variance   %
Revenue	12 314 228	10 574 208	16%
Revenue from exchange transactions	9 594 288	8 488 855	13%
Revenue from non-exchange transactions	2 720 081	2 085 353	30%
Expenditure	(9 499 470)	(7 594 529)	25%
Employee benefit costs	696 471	678 206	3%
Operating expenditure	3 606 471	3 190 225	13%
Impairment of financial assets	925 385	561 489	65%
Finance cost	2 163 832	1 336 771	62%
Depreciation, amortisation and impairment	2 076 561	1 782 516	16%
Loss on disposal of fixed assets	30 886	45 322	-32%
Surplus/(deficit) from operating activities	2 814 818	2 979 679	-6%

 

• Operating expenditure

 

The table above reflects that the operating income from the revenue from exchange transactions increased by 13 per cent due to increases in volume consumption and annual tariff as well as an increase on interest charged.  The revenue from non-exchange (Main Account) transactions increased from R2. 08 billion to R2. 72 billion due to an increase in augmentation from National Treasury to fund the social portion of capital projects; additional external projects awarded to the internal construction unit and assets received from the Water Users Associations.

 

• Total operating expenditure

 

An overview of the total operating expenditure shows that the operating expenditure increased to R9.49 billion in 2014/15.  This 25 per cent increase is attributed to increases in finance costs, depreciation, impairment and amortization.  The finance cost increases are attributed to timing of the future cash flows and adjustment on the internal rate of return.  The depreciation, amortization and impairment increased to R2 07 billion in 2014/15 due to capitalisation of new assets.

 

 

 

 

• Employee benefits

 

The employee benefits costs increased by 3 per cent to R696 million in 2014/15, as a result of the annual salary increase.

 

• Operating surplus

 

The operating surplus does not translate to cash available as the higher revenue has not all been collected, resulting in the increase in debtors of R1 384 million year on year.

 

• Ratios

 

The liquidity ratios by the Water Trading Entity, reflects whether the entity is sustainable, can pay its creditors, and reflects its liquidity status. The current ratio has increased from 1.31 during 2013/14 to 1.50 in 2014/15.  The improvement of the current ratio is mainly driven by the increase on receivables from exchange transactions.  The cash flow from operations show that the cash and cash equivalent at the end of the year amounted to R1.54 billion.  The ratio on return on assets is 3 per cent and illustrates the entity’s effectiveness in using its investment in assets.

 

• Ratios on debtor days

 

Of concern to the Water Trading Entity are the ratios reflected on debtors’ days in sales, which have regressed.  During the period under review, the debtor days’ analysis reflected a regression from 220 days during 2013/14 to 246 days in 2014/15.  This is due to the interest charged on outstanding accounts and the fact that the entity is still struggling to recover debts from municipalities.  An intergovernmental process has been initiated to recover the outstanding debts payable by municipalities. The increase in debtors’ year on year is due mainly to interest of R626 million being charged during March 2015, which has not been collected.  The increase in revenue from the sale of water is responsible for the balance of the increase in debtors.

 

The Portfolio Committee noted with concern the debt owed by water boards to the Department.  The Department noted that this debt was primarily due to the debt owed by the municipalities, which had a detrimental effect on the financial liquidity of water boards.  The Department reported that the debt owed by municipalities was impossible to ignore but there are many municipalities who are struggling to collect revenue and are thus unable to pay their creditors.  The Department was working together with National Treasury in this regard, as the Department was not privy to the financial status of municipalities.  One of the agreed mechanisms for the recovery of outstanding debt was to get the relevant municipalities to sign debt letters and within these letters, outline how they plan to manage the debt in the future.  Previous National Treasury interventions included withholding of grants, but the Department, in working within the Intergovernmental Relations Framework, would work with municipalities so as to allow municipalities to plan at paying their creditors.

 

• Re-allocation of budget from non-performing projects to fund projects needing additional funding

 

During the financial year under review, the budget was reallocated from non-performing projects in order to fund the projects that required additional funding and the ministerial water intervention projects.  The funds were reallocated from the following under-performing projects:

 

• Mokolo and Crocodile River (West) Water Augmentation Project (Phase 1 and 2A, including river management).  The under spending on the project was mainly driven by the delay in decision-making by the policy-makers such as the Department of Energy (DoE), Department of Public Enterprises (DPE), National Energy Regulator of South Africa (NERSA), FLC and ESKOM paying customers;
• Groot Letaba Water Augmentation Project (Nwamitwa and Tzaneen).  The delay in the approval of the environmental plans for these projects;
• Raising of ClanWilliam Dam.  There were delays in acquiring the land for the dam and also the delays in the appointment of the environmental control officer; and
• Raising of Hazelmere Dam.  There was a delay in appointment of the professional services provider.

 

The under spending on the above-mentioned projects were utilised to fund the following projects:

 

• Olifants River Water Resources Development Project (Phase 2A) – De Hoop Dam.  The project required additional funds due to acceleration of mechanical work and site rehabilitation on project;
• Olifants River Water Resource Development Project (Phase 2B-1) – Bulk distribution (Sub Phases 2B, C and 2D).  R154 million was paid to TCTA to replenish the working capital; and
• Water services projects.  Projects undertaken on behalf of the Main Accounts and funds utilised will be recovered.

 

The Water Trading Entity received an unqualified audit opinion on the financial statements of the Water Trading Entity.  This is an improvement from the audit opinion from Qualified Audit Opinion in 2013/14 to Unqualified Audit Opinion in 2014/15 financial year.

 

4.2.2 Non-financial performance in the Water Trading Entity Programmes

 

An evaluation of the annual milestone not achieved in the Water Trading Entity programmes reflect the following:

 

• The deviation of 89 per cent versus the planned 100 per cent reduction in irregular expenditure is due to non-compliance with procurement and regulations relating to quotations by the provincial/cluster and construction sites;
• The non-payment by both water boards and municipalities resulted in the increase in the number of debtors’ days.  The number of debtors’ days increased to 246 days versus the planned reduction to 60 days.  Water boards also raised the issue of municipalities defaulting in payments.  In addition, some municipalities are not honouring the intergovernmental relations framework.  The non-existence of a Customer Relation Management unit to timeously resolve customer queries also increased the challenge to this important component of work of the Water Trading Entity;
• The delay in the planned 5 per cent completion on project plans for phase 2B and 2D of Olifants River Water Resources Development Project was not achieved, as a result of the funding model not being finalised;
• 1 per cent versus the planned 5 per cent completion on project plan of Phase 2A of Mokolo River augmentation was achieved as the Environmental Impact Assessment process has started.  Feedback on the request for an explicit government guarantee allowing the Trans-Caledon Tunnel Authority to approach financial markets for loan funding was received on 31 March 2015;
• 5 per cent versus the planned 13 per cent completion on the project plan of Mdloti River Development (Raising of Hazelmere Dam) was achieved as designs are under revision.  The study on the stability of the dam wall is underway and 50 per cent of affected properties are valuated.  The design could not be finalised as a result of the delay in the appointment of the contractor.  In addition, the valuation of the affected 50 per cent remaining properties is pending or awaiting the outcome of the dispute between the Department and the valuator;
• 4 per cent versus the planned 7 per cent completion on the project plan of raising the Clanwilliam Dam wall.  The approval of the environmental management programme took longer as a result of complex issues that emerged during the approval process;
• 12 per cent versus the planned 15 per cent completion on the project plan of the Greater Letaba River Water Resources Project (Nwamitwa Dam) as the approved Environmental Management Plans and tender documentation for the engineering geological investigations were achieved.  The appointment of the approved professional person and profession team took longer than expected due to the scarcity of approved professional persons for category 3 dams;
• The proposal to increase the size of the pipe from 300mm to 600mm to the Greater Letaba River Water Resources Project Distribution triggered a listed activity, which required both an environmental authorisation and environmental management plan;
• Delays in three of the dam safety rehabilitation projects were due to environmental authorisations, contractual challenges and supply of material, which prevented the creation of job opportunities of a total of 149 versus the planned 315 job opportunities;
• A cumulative total of 38 versus the planned 39 dam safety rehabilitation projects were completed since the programme started in 2005.  Although the Cata Dam civil works have been completed, there is a contractual dispute on mechanical works, and therefore a commissioning certificate cannot be issued;
• 93 per cent versus the planned 100 per cent metering of domestic and industrial users was achieved (that is, 455 of 489 users).  The manufacturer could not supply the required number of meters;
• The 1 per cent versus the planned 50 per cent metering of agricultural users was achieved (that is, 103 of 20 395 users).  The manufacturer could not supply the required number of meters;
• 4 417 versus the planned 11 510 water users were validated and verified within water management areas.  Although letters were sent to users to apply for the verification, inadequate and slow responses were received from users;
• 780 versus the planned 864 waste discharge points were monitored.  The delay in finalising the national laboratory contracts owing to non-accreditation of certain laboratories for certain tests; and
• 47 per cent versus the planned 100 per cent inspections were conducted in mines with reported incidents (that is, 48 of 103).  The Mpumalanga, North West and Northern Cape provincial offices could not inspect all their reported incidents as there had been staff shortages for pollution inspections.

 

4.2.3 Commentary by the Auditor-General South Africa on predetermined objectives – Water Trading Entity

 

The Auditor-General South Africa found a number of findings on the predetermined objectives of the Department of Water and Sanitation, which related to the usefulness (measurability) and reliability within the Water Trading Entity.

 

The usefulness (measurability) of a total of 61 per cent of the targets could not be measured.  A total of 61 per cent of the indicators were not well defined, and a total of 61 per cent of the indicators were not verifiable.  The reliability of the reported performance information was not valid, accurate and complete when compared to the source information or evidence provided. The root causes of the findings in the Water Trading Entity are due:

 

• Management did not ensure that the targets met the SMART (specific, measurable, attainable, realistic and timely) criteria and that the targets were measurable to ensure that data would be collected consistently to enable the users to track performance;
• There was a lack of proper systems and processes that produced an indicator; and
• There was a lack of standard operating procedures or documented system descriptions for the accurate recordings of actual achievements.

 

 

 

The recommendations highlighted by the Auditor-General South Africa on predetermined objectives for the Water Trading Entity are:

 

• Management should ensure that the Water Trading Entity sets key performance indicators that are properly explained and are verifiable, that source documents have been clearly identified, that how evidence will be gathered is explained and that year-end procedures are conducted to ensure that information reported in the annual performance report has been supported with adequate documentation;
• Proper systems and processes should be defined in order to produce measurable indicators; and
• Standard procedures should be documented by the Entity to ensure the accuracy of the disclosed information.

 

5.  PERFORMANCE (FINANCIAL AND NON-FINANCIAL) INFORMATION ON ENTITIES REPORTING TO THE DEPARTMENT

 

5.1 Financial Performance of Catchment Management Agencies

 

Both Catchment Management Agencies received unqualified audits with no matters of emphasis.  Deficit for both Catchment Management Agencies was funded from cash surplus generated in prior years.  Both Catchment Management Agencies are in a cash positive situation.  The table below provides an overview of the financial performance of both Catchment Management Agencies:

 

Catchment Management Agencies	Revenue	Expenditure	(Deficit)/Surplus (after finance/income costs)
Inkomati-Usuthu Catchment Management Agency	R54 116 905	(R49 458 304)	R5 452 068
Breede-Gouritz Catchment Management Agency	R40 787 311	(R24 384 331)	R16 682 296

 

5.1.2 Analysis of annual milestones for the Catchment Management Agencies

 

The analysis of annual milestones for the Catchment Management Agencies, shows that for the Inkomati-Usuthu Catchment Management Agency, the indicators, targets and achievements for the following sub-programmes reflect:

 

• Water use:  The number of water quality related authorisations were targeted at 8 and all 8 authorisations were processed.  The number of water meters to be installed in priority catchments was 10, but 0 projects were completed in the previous financial year.
• Water quality:  The projected target on the number of samples taken to monitor water quality was 2 268 but achieved 2 175.  The river health status report for the Komati catchment was 1 which was completed.  A 100 per cent of reported/identified pollutions were projected to be attended and the agency attained 100 per cent of the 25 reported pollution incidents attended to.  The Water Quality Systems Assessment Model (WQSAM) model which integrates water quality and quantity was installed.  The pro-active acid mine drainage strategy was finalised.  A total of 36 reports of water quality status reports were to be disseminated but attained 30 reports.
• Water resource protection:  Of the 145 quality inspection reports projected, the agency exceeded its target and achieved 200.  100 per cent of 29 notices were issued to non-compliant users and 100 per cent of 31 directives issued to non-compliant users.
• Water allocation reform:  100 per cent of water users validated.  The number of decision support system for report of recommendation to be developed was projected at 3, of which the agency developed 2.  The agency projected the commencement of the water allocation plan of 30 per cent completion of total project, but 0 per cent completed.  36 existing water management institutions were supported (100 per cent).
• Institutional and stakeholder relations:  The agency projected a total of 28 stakeholder empowerment workshops with Historically Disadvantaged Individuals and attained 38.  The number of stakeholder interactions/consultations were projected at 8 but managed 36 stakeholder interactions/consultations.

The analysis of annual milestones for the Catchment Management Agencies, shows that for the Breede-Gouritz Catchment Management Agency, the indicators, targets and achievements for the following sub-programmes reflect:

 

• Water use:  The number of water use registrations to be finalised were targeted at 500, but only achieved 373.  The projected record of recommendation of water use applications to be completed was 16 but achieved 9.  A projected 26 general authorisations were to be confirmed but achieved 65.  40 water compliance audit reports were targeted and achieved 33.  A projected 800 letters for water use applications for verification and validation were to be issued but the Catchment Management Agency exceeded this and issued 1 428 letters for water use applications for verification and validation.
• Water quality:  The draft catchment management strategy is in the process of being developed.  The agency targeted comments of 140 applications for land use planning and rezoning applications, but managed to exceed this and processed 320 applications.  7 local authorities were engaged on 50 issues (100 per cent).  The 1 report targeted for water quality was completed (Onrus River Plan finalised). 1 salinity management plan was finalised.  The Catchment Management Agency achieved the interaction study report on Onrus surface groundwater.
• Water resource protection:  The projected number of Department of Water and Sanitation water quality monitoring projects sampled were 2 which were achieved.  Projected number of Breede-Gouritz Catchment Management Agency, water quality points monitored were 50 but 64 points were monitored.  Imagery and report on alien clearing areas were projected at the completion of 4 reports which was achieved.  Projected number of riparian/alien clearing projects was at 3 which was attained.  Projected number of 16 targeted pollution incidents, of which 9 pollution incidents attended to.  20 warning letters/directives to non-compliant water users and 13 warning letters/directives issued to non-compliant water users.
• Water allocation reform:  The number of resource poor farmers/Historically Disadvantaged Individuals (HDIs) assisted with water use was projected with 5 but 22 farmers/HDIs assisted with water use.  Number of resource poor farmers/HDIs assisted with financial applications for government subsidies was 5, but 264 resource poor farmers/HDIs were assisted with financial applications for subsidies.
• Institutional and stakeholder relations:  The Catchment Management Agency projected a total of reaching 1 600 persons during water week with information, but managed to reach 6200 persons in this week. 

 

5.1.3 Challenges related to Catchment Management Agencies

 

The challenges relating to the Inkomati-Usuthu Catchment Management Agency (IUCMA) was on the finalisation of long-lasting water resource pollution cases with specific reference to municipalities polluting the water resource with raw sewerage or poorly treated sewerage.  The challenges relating to the Breede-Gouritz Catchment Management Agency (BGCMA) was that the Head Office is located in Worcester, which is a rural setting, and unattractive to scarce and skilled personnel.

 

5.2 Financial performance of the Trans-Caledon Tunnel Authority (TCTA)

 

From a strategic financial perspective, Trans-Caledon Tunnel Authority has a number of roles, which are:

 

• Raising finance for projects, on behalf of the Department of Water and Sanitation, that will be recovered through user tariffs (either partially or fully);
• If implementing the projects on behalf of the Department of Water and Sanitation, ensuring that sufficient funds are available at all times to meet the requirements during construction. Where long-term funds are utilised, Trans-Caledon Tunnel Authority enters into short-term investments to offset the cost of long-term funding; and
• Working with the Department of Water and Sanitation to ensure that the tariff, set in terms of the Pricing Strategy, is sufficient to cover department’s obligations and the obligations that Trans-Caledon Tunnel Authority has incurred on behalf of the Department.  These obligations comprise of interest and capital payable on funding obligations (when projects are not funded from the fiscus), operations and maintenance costs on certain projects, and other obligations of the South African Government in respect of the Lesotho Highlands Water Project.

 

The following main elements are part of TCTA’s financial statements – the tariff receivable[1], cash inflows, utilisation of cash received, sources of funding and distribution of debt across projects. The TCTA saw a decrease in the restated Tariff Receivable from R26 993 million at 31 March 2014 to R26 456 million at 31 March 2015 primarily due to the reduction in Construction Revenue and Other Income earned during the current year, as the majority of the projects have reached final stages of completion.  Currently, construction costs are only actively being incurred on Mokolo-Crocodile Water Augmentation Project (MCWAP) and Mooi-Mgeni Transfer Scheme Phase 2 (MMTS-2).  The decrease is further as a result of the lower interest earned on the Tariff Receivable balance, due to the reduction in the effective interest rate of each project.

 

As a non-profit organisation, the aggregate net cash inflows and outflows will always balance to nil at the end of each project, once all debt has been repaid.  On aggregate, the cash inflows of R7 068 million for the year ended 31 March 2015 are marginally higher than R6 915 million inflows for 31 March 2014.  The tariffs from the department represent the actual cash received from the Department to repay debt.  There has been a decrease in the amounts received from the department due to delays in payments to Trans-Caledon Tunnel Authority. 

 

The decrease of 1 per cent in the Transfers from the Department is due to delays in payments due from the department for the Olifants River Water Resource Development Project (ORWRDP) and Acid Mine Drainage (AMD) projects.  These projects are funded through the Government of South Africa and amounts are therefore not collected through the tariff mechanism.  During 2015, the Acid Mine Drainage project costs were added to the Lesotho Highlands Water Project funding programme.  Future tariffs from the Vaal River System will include cost recovery for all AMD costs to completion, except for what was funded from the fiscus.

 

The most significant decrease in cash outflows related to expenditure incurred on construction of new infrastructure.  A decrease of 11 per cent was noted in such construction spend during the year, due to the winding down of construction activities on the majority of the projects.

 

The Lesotho Highlands Development Agency is responsible for the monthly calculation of the royalty payment due by Trans-Caledon Tunnel Authority to the Government of Lesotho.  In February 2015, Trans-Caledon Tunnel Authority was informed of an error which was identified in the Royalty invoicing model.  The Lesotho Highlands Development Agency auditors confirmed that Lesotho Highlands Development Agency had historically incorrectly invoiced Trans-Caledon tunnel Authority for an amount of R88 million.  It was agreed that the amount will be recouped by Trans-Caledon Tunnel Authority on a monthly basis, starting from March 2015, through the reduction in the amount payable to the Government of Lesotho.  The recoupment resulted in a 2 per cent decrease in the amount of royalties paid to the Government of Lesotho for the year ended 31 March 2015 compared to 2014.  To date, Trans-Caledon Tunnel Authority has recouped R54 million of the amount.

 

The distribution of debt across projects shows that in the current financial year, the overall debt outstanding had increased by R1 billion to a total of R28 billion.  The increase is primarily the net result of an additional drawdown of R700 million on Mooi-Mgeni Transfer Scheme-2, partially offset by a repayment of R250 million on the revolving facility, as well as a R500 million drawdown on long-term debt for Mokolo-Crocodile Water Augmentation Project.  An amount of R101 million was however repaid on the Mokolo-Crocodile Water Augmentation Project-1 bridging facility during the year.  The decrease in Mokolo-Crocodile Water Augmentation Project funding (from 5 per cent in 2014 to 4 per cent in 2015) is due to the relative contribution thereof to total funding at the respective reporting dates.

 

5.2.1 Performance of TCTA on pre-determined objectives on progress of infrastructure projects for the financial year

 

For the 2014/2015 financial year, the Trans-Caledon Tunnel Authority completed the following infrastructure projects:

 

• Limpopo:  The Mokolo-Crocodile Water Augmentation Project comprising pump station and pipeline, the objectives of the project are to manage the funding and debt on the infrastructure projects in a manner that achieves cost-effective funding, taking into account current and projected market conditions as well as managing risks, as well as to construct infrastructure on time, within budget, to the appropriate standards and in a sustainable socio-environmental manner. This project consists of 43 km of 1.1 diameter pipeline supplying Medupi and Matimba Power Stations.  The Olifants River Water Resources Development Project Phase 2C, which comprise a 40km pipeline supplying water to the Nebo Plateau ad the mines around Steelpoort and Burgersfort in Limpopo;
• Lesotho:  Lesotho Highland Water Project, Phase 1, the objectives for the project for the financial year, was to manage the funding and debt on the infrastructure projects in a manner that achieves cost-effective funding, taking into account current and projected market conditions as well as managing risks.  There were no major maintenance undertaken at end-March 2015;
• Mpumalanaga:  The Komati Water Scheme Augmentation Project, the objectives for the project for the financial year was to construct infrastructure on time, within budget, to the appropriate standards and in a sustainable socio-environmental manner and to manage the funding and debt on the infrastructure projects in a manner that achieves cost-effective funding, which took into account current and projected market conditions as well as managing risks. This project comprises 71 km of 1.1 diameter pipeline supplying Matla and Duvha Power Stations. The Vaal River Eastern Subsystem Augmentation Project, the objectives for the project was to manage funding and debt on the infrastructure projects in a manner that achieves cost-effective funding, which takes into account current and projected market conditions, as well as management risks.  The project comprises a 121 km of 1.9 m diameter pipeline from the Vaal Dam to Secunda;
• Kwazulu-Natal:  The Mooi-Mgeni Transfer Scheme-Phase 1 (refurbishment of existing transfer scheme), the objectives for the project for the financial year was to construct infrastructure on time, within budget to the appropriate standards and in a sustainable socio-environmental manner. The objectives of the Mooi-Mgeni Transfer Scheme – Phase 2 was the building of a dam, pump station and pipeline, which was to manage the funding and debt on the infrastructure projects in a manner that achieves cost-effective funding, taking in account current and projected market conditions as well as managing risks.  Construct infrastructure on time, within budget, to the appropriate standards and in a sustainable socio-environmental manner. This comprise the building of the Spring Grove Dam (1/20th the size of the Vaal Dam) and 14.4 km of pipeline taking water from the Mooi to the Umgeni River;
• Western Cape:  Berg River Project: The objectives of the project for the financial year was to manage the funding and debt on the infrastructure projects in a manner that achieves cost-effective funding, taking into account current and projected market conditions as well as managing risks. The Berg River Dam (1/20th of the Vaal Dam) increased the yield of the Western Cape supply system by 18 per cent;
• Contribution to Strategic Integrated Programme 3:  The objectives of the project was the effective coordination of SIP-3 initiative to ensure that individual initiatives are integrated and aligned; and
• Acid Mine Drainage:  Three treatment plants in Randfontein, Germiston and Springs, treating the equivalent of 80 Olympic sized swimming pools of acid mine drainage per day.  The objectives of the project for the financial year is to treat Acid Mine Drainage to the correct standards before discharge to the environment; construct infrastructure on time, within budget, to the appropriate standards and in a sustainable manner; and raise finance for the construction of infrastructure in the most cost effective manner.

 

5.3 Financial performance of the Water Research Commission (WRC)

 

A summary of financial information relating to the Water Research Commission shows that the Water Research Levy is the WRC’s main source of revenue.  It is receivable in terms of the Water Research Act, 1971.  The WRC receives its Water Research Levies from three sources, namely Rand Water Board, Umgeni Water Board and the DWS. 

 

The Water Research Commission’s strategic intent is for knowledge creation and impact in its research, development and innovation portfolio, which covers the following:

 

• Water resource management;
• Water linked ecosystems;
• Water use and waste management;
• Water use and waste management; and
• Water knowledge management, dissemination and impact.

 

During 2014/15, the WRC experienced higher revenue from levies due to higher actual water consumption than anticipated form the two water boards.  Leverage income was lower than expected due to delays in project deliverables and associated expenditure.  The table below reflects a summary of financial information:

 

Revenue Collection

 

Sources of revenue	Estimate (R’000)	Actual amount collected (R’000)	(Over)/Under collection (R’000)
Water Research Levies	184 492	198 719	(14 227)
Leverage	75 410	50 868	24 542
Other Income	6 182	11 480	(5 298)
Total	266 067	261 067	5 017

 

The financial performance objective for 2014/15 was to maintain income leverage growth, which was projected at a rate of 10 per cent of total income.  The target was an amount of R75.4 million, and the actual target amounted to R50.8 million, which reflects a variance of R24.6 million.  The delay in leverage-funded project deliverables and expenditure resulted in lower leverage revenue being recognised.  The objective to maintain high level ration of research funding.  The performance indicator was measured as research funding and research related overheads was reflected as a percentage of total expenditure.  The target was 76.1 per cent and the actual target reached was 73.4 per cent, which reflected a variance of 2.76 per cent.  The delay in project deliverables and associated expenditure resulted in3.4%, which reflected a variance of 2.76%.  The delay in project deliverables and associated expenditure resulted in lower research expenditure.

 

 

 

5.3.1 Audit response

 

In the 2013/14 financial year, the Water Research Commission received a qualification of audit opinion, in respect of accounts receivable reflected as R45.6 million in the Annual Financial Statement.  The Auditor-General South Africa found uncorrected errors in the Annual Financial Statement amounting to R8 390 741 million.  In order to address the matter, the following process was embarked upon:

 

• A full reconciliation going back in some instances to 2001 was conducted of the accrual debtors, revenue and other related accounts in the general ledger.  This process also included the sourcing of relevant supporting documentation and ensuring proper compliance with GRAP.

 

In addition to dealing with the 2013/2014 audit qualification, the Water Research Commission agreed that it would be advisable to perform a detailed reconciliation of current and historical transaction of all other key general ledger accounts such as leverage income, accruals, property plant and equipment.  This resulted in many prior year adjustments to ensure fair presentation.  The above intervention required that the human capacity in the Finance department be increased and strengthened by appointing a technical Chartered Accountant (South Africa) as Finance Manager Reporting; a Supply Chain Manager and two Supply Chain practitioners; a team of three people to perform a physical asset verification, bar-coding and completeness check.  In addition to address the finance staff and skill shortcoming, the WRC is also in the process of implementing internal controls, business processes and assessing the functional adequacy of Information Technology Systems.  The Water Research Commission received an unqualified audit for the 2014/15 financial year.

 

5.3.2 Non-financial performance of the Water Research Commission

 

The table below captures the research portfolio targets for 2014/15 for the Water Research Commission, and the reasons for the variance:

 

Objective	Performance Indicator	Target	Actual	Variance	Notes on variance
To increase water knowledge by initiating new research projects	Number of new research projects addressing water management	95	113	18	The variance arises form accommodating new projects as funds become available either through leverage savings or partnerships.
To provide the country with supportive knowledge via completed projects	Number of completed projects	70	77	7	There have been increase efforts from the Water Research Commission to address outstanding finalisations.
To maintain a minimum number of students supported in water research projects	Minimum number of students supported   Number of students from designated groups (per 100 students)   Number of SMMEs as project leaders	400     60%       26	496     83%       32	96     23%       6	Sustained interest in projects.             The variance arises from accommodation new projects as funds become available
Profile of project leadership as part of the national transformation project to promote the ongoing transformation of the water Research and Development sector	Number of projects with HDI participants.   Number of project leaders from designated groups (per 100 in new projects)	60     50	68     54	8	The variance is due to active encouragement from the institution to ensure transformation and redress of the Water Research and Development sector.
To cumulatively increase the number of policy and ministerial briefs produced and received by relevant government departments	Number of policy and ministerial published and received by respective departments	10	8	(2)	Two policy briefs were developed and signed off for delivery in March.  However, they were only delivered to the relevant department in April 2015.
To promote the development and transfer of WRC research into innovations and new products for economic development	Number of new innovations or products developed	20	22	2	There were two serendipitous innovations emanating from projects.
To improve the dissemination of water research (measured in terms of WIN-SA publication)	Number of WIN-SA publications	18	21	3	The redesign of the WIN strategy and new opportunities enabled an increase in WIN-outputs.
To improve the dissemination of water research (measured as number of issues of Water SA)	Number of issues of Water SA	4	5	1	Special edition published in Quarter 4
To engage in knowledge sharing events through public dialogues and workshops	Number of workshops and dialogues	25	31	6	The variance is due to the increased demand for knowledge sharing events

 

6.  OBSERVATIONS OF THE PORTFOLIO COMMITTEE OF THE PERFORMANCE OF THE DEPARTMENT AND ENTITIES IN THE 2014/15 FINANCIAL YEAR IN RESPECT OF SERVICE DELIVERY

 

The Portfolio Committee, in the 2014/15 financial year, received a number of briefings by the Department and Entities, engaged the Ministry through oral and written questions, detailed progress reports from the Department and Entities, undertook site visits to ascertain the implementation and impact of service delivery of water and sanitation in its entire value chain.  The sections below highlight the findings of the Portfolio Committee for the financial year under review.

 

South Africa underwent a major transition to a democracy in 1994.  The new Government embarked on an ambitious programme to eradicate backlogs in water supply and sanitation, underpinned by development of sound sector policy and legislation.  Initially, the programme was driven by central Government.  In 2003, responsibilities for service provision were devolved to local government in line with the constitutional allocation of functions.  There is a need to build and sustain capacity at the local government level to continue to invest in, operate and maintain services; to innovate and create more effective delivery pathways to reach the ‘hard to reach’; and, to improve the sustainability of services already delivered.

 

A major driver for sector reform has been the national political priority to rapidly provide basic services to households previously disadvantaged under the apartheid Government.  A second driver of reform has been the Constitutional imperative to devolve the responsibility of water services to local government.  A third driver of reform has been the reform of inter-governmental funding, moving from dedicated and project-based funding to an approach of budget support between national and local government, with a stable and predictable medium-term budgeting framework.

 

The enabling environment for facilitating service delivery in South Africa is well developed.  The policies and legislation were developed early in the reform process and provides a sound basis on which to proceed.  Budget reform facilitated delivery too.  Initially, dedicated programme budgets were created at the national level.  Currently, this has devolved to budget support to municipalities, when they became responsible for providing and sustaining services.  The parallel reform of local government budgeting also supports the process.[2]

 

Of primary importance in the South African context is the success of service delivery, and the extent to which institutions of service delivery are accountable to the citizens.  Institutional changes, which ensure that service providers are accountable to all citizens, are a highly political endeavour. Undertaking such changes on a pilot basis is difficult enough; scaling it up across jurisdictions and sustaining it over time, is a daunting challenge.  Yet, it is precisely the scaling up of institutional change that is needed to ensure that the goal of universal access to basic services is realised.[3] 

 

In engaging on the manner in which the institutions tasked with the entire water and sanitation service delivery chain, the Portfolio Committee stressed the importance and of the mandate and obligations of the Department and Entities with regard to the following:

 

Challenges in the water and sanitation sectors

 

Whilst South Africa has had many achievements since 1994 in delivery of water and sanitation services, there is a willingness to seek ongoing improvements and meet new challenges.  There remain three areas of service backlogs that are ‘hard to reach’ – sanitation in informal settlements, water supply in deep rural areas; and rural sanitation.  In 1995, there was a critical drive by Government to supply new infrastructure in the water and sanitation sectors in the three critical areas mentioned above.  Responsibility for investment and operation was later decentralised for investment, and operations and maintenance was later decentralised to local government in 2003.  It is possible, as the African Ministers’ Council on Water (AMCOW) study points out, that a supply-driven and infrastructure focused approach is less suited to addressing the remaining challenges and that delivery pathways that are more demand driven and involve communities more closely may be needed.[4]

 

Although progress with investing in new infrastructure to reduce service backlogs has been impressive, not all poor households experience the benefits of this infrastructure as a result of a large number of poorly functioning systems in rural areas and, in some cases, having access restricted to urban areas as a result of affordability or technical problems.[5]

 

Sustainability and maintenance and operations of water and sanitation infrastructure

 

There are also concerns related to the sustainability and operations of the water and sanitation infrastructure (both the new infrastructure that has been built, as well as the aging infrastructure, which has been neglected in favour of extending services).  The evidence for this comes from multiple sources – a significant number of rural water supply schemes are not functional; maintenance budgets are inadequate; many ventilated improved pit latrines are full and are not being emptied; and many wastewater treatment works are operating over capacity and/or performing poorly.  There are drinking water quality risks in small towns and rural areas.  The full costs of providing services are often not fully accounted for; and insufficient resources are available to the sector from user fees and Government grants to maintain and sustain services over time.

 

 

 

 

Theft and vandalism of water infrastructure in South Africa

 

To broaden the insights and solutions to the increased and new challenge to the water sector, the Portfolio Committee held public hearings on 25 November 2014 with affected and interested stakeholders on finding solutions to address vandalism and theft of water infrastructure in South Africa.  As part of engaging with the issues of vandalism and theft of water infrastructure, the Portfolio Committee on Water and Sanitation, through its public hearings, needed to ascertain the extent to which affected and interested stakeholders can address the following:

• Whether and why South Africa needs a water plan that takes into account ageing energy and water infrastructure;
• The financial and economic model required to create synergies between institutions responsible for energy and those responsible for water; and
• Solutions to address vandalism and theft of water infrastructure in South Africa.

 

During the public hearings and the engagement with various Departments and entities, the Portfolio Committee has prioritised the following key recommendations in relation to addressing theft and vandalism of water infrastructure in South Africa:

• There is a strong need for greater coordination of the law on theft and vandalism of water infrastructure amongst all relevant Departments and stakeholders, such as State-Owned Enterprises (SOEs), the private sector and the scrap metal sector;
• Although the security community and South African Police Services (SAPS), has thus far made strides in fighting theft and vandalism of water infrastructure, there is a greater need and emphasis for increased intelligence work to deal with syndicates;
• The Department of Justice system should consider more effectively if prosecutors charged thieves not only for the scrap metal value of infrastructure, but for the replacement value of the part.  Sentences should be much heavier and being caught would serve as much more of a deterrent;
• There should be increased policing and enforcement within metros to ensure aggressive policing of the scrap metal sector;
• With regard to legislative interventions, it is important to focus on amendments across various sectors to address the issue.  The following legislative amendments are needed:
  • Amendments to the Second Hand Goods Act to extend the power of police as well as industry to keep electronic copies of details of sales of scrap metal, as well as an amendment to Schedule 7 of the Second Hand Goods Acts to ensure minimum sentencing;
  • Amendments to the Electricity Regulatory Act as the theft of electricity cables is a different crime to prosecute;
  • Amendments to the Criminal Procedure Act to those involved in illicit dealing.
• The relevant Ministry should consider a declaration by notice in the Government Gazette for redefining protection officers of security companies to peace officers;
• A strong suggestion was that South Africa should consider a temporary ban on all scrap copper metal and copper must be included as a category in the Precious Metal Act;
• South Africa needs more research to develop the technology to positively identify cables linked to infrastructure;
• Establishment of a centralised place for information gathering and analysis of infrastructure across all sectors; and
• The Department should consider the creation of a national mobilisation and awareness effort and programme.

 

 

Vacancy rate, specifically in relation to Occupational Sector Dispensation positions

 

The Portfolio Committee notes with concern the Human Resource challenges in shortages of technical skills, exacerbated by the ageing workforce and resignations.  In addition, the lack of project and contract management in the organisation threatens to negatively influence the execution of planned projects and programmes that may result in failure or delay of major projects that are critical to the service delivery programme of the Department.

 

Departmental risks identified by National Treasury

 

National Treasury, in its quarterly reports for 2014/15, noted that the Department is one of the poor performers in terms of spending its share of the National Budget.  One of the criticisms levelled at the Department was its spending for transfers and subsidies.  These funds should be transferred to provincial and local authorities to be used for critical water infrastructure to be undertaken within a particular quarter.  Other aspects noted by the National Treasury in its quarterly reports for 2014/15, show that:

 

• The institutional arrangements within the Department conflated the mandates of the Department, which are defined as a policymaker, an implementer and a regulator in various situations.  This added greater pressure on the capacity of the Department to undertake its work.
• In implementing capital projects, the decisions on strategies, finance, project plans, etc. were taken in the Department, whilst the technical capacity was located and sourced outside this process; and
• Inadequate capacity on ongoing operations and maintenance of projects.

 

Improving compliance of waste water treatment works

 

There is a continued deterioration of waste water treatment works, particularly in small municipalities, resulting in untreated effluent being discharged into water courses.  The government’s last Green Drop Report acknowledged that the ‘waste water service business is far from acceptable’.  There is an urgent need for a comprehensive action plan from national government to improve the situation.  Currently, the interventions are haphazard.

 

Instituting the medium-to-long-term solution on Acid Mine Drainage (AMD)

 

Whilst work has been done in this area, the Minister of Water and Sanitation in conjunction with the Minister of Mineral Resources, needs to establish rehabilitation plans for those areas already devastated by AMD.

 

Filling vacancies in the Blue Scorpions

 

The vacancy rate for the Blue Scorpions across the national and regional offices are too high.  These posts need to be filled urgently in order for the Department to enforce compliance and prosecute polluters of water resources.

 

Improving dam management

 

The Department needs to review the dam management during the rainy seasons and improve protocols that manage the overflow from dams.  In addition, dam health needs urgent attention.  The focus to date has been mostly on river health, but the rapidly deteriorating quality of dams through eutrophication needs urgent attention. 

Ensuring that municipalities pay their water bills

 

The debt owed to water boards by municipalities seriously compromises the ability of water boards to invest in new infrastructure.  Engagements with National Treasury should be prioritised

Ensuring that water use is correctly licensed

 

The Department has to improve the rigour of the licensing process.  The Department must take the initiative to decline water licences to mines that wish to operate in sensitive areas.  The use of water by mines must only be approved by the valid granting of licenses, not through ambiguous general authorisations.

 

Impact of under spending of critical grants on water and sanitation service delivery to citizens

 

In the 2014/15 financial year, only 79 per cent of the Regional Implementation and Support Programme was spent.  The main cost drivers are the Regional Bulk Infrastructure Grant (RBIG), the Municipal Water Infrastructure Grant (MWIG), and the Water Services Operating Subsidy Grant.  The reasons given by the Department for the under spending on these grants relate to the slow appointment of implementing agents, delays due to strikes, delays due to bad weather conditions for construction and poor performance of contractors. 

 

Issue of unauthorised expenditure

 

In line with Section 34(1) (b) of the Public Finance Management Act, National Treasury recommended to the Standing Committee on Public Accounts (SCOPA) that the amount of R3 782 in unauthorised expenditure be condoned, and that it be provided for in a Finance Bill as a direct charge against the National Revenue Fund.  This matter still awaits a response.

 

Rollover

 

The Department of Water and Sanitation requested a rollover of R1.6 billion from National Treasury.  The largest component of the rollover is located within the Regional Bulk Infrastructure Grant, with an amount of R918 million, the Bucket Eradication Programme, with an amount of R389 million, and the Municipal Water Infrastructure Grant, with an amount of R225 million.

 

Drought and climate change in South Africa

 

South Africa, in terms of its arid or semi-arid conditions, experiences and is experiencing variations in its climate patterns over the years.  This is evidenced in the frequency of droughts and floods in the country.  Drought is defined as an extended period of abnormally dry weather that causes water shortages and crop damage.  In December 2014, the Provincial Government of Kwazulu-Natal declared a disaster due to the adverse drought condition that the province has been experiencing.  The current drought has been identified as being the worst since 1992. 

 

The already stressed environment could be further exacerbated even with small variations in rainfall or temperature.  The Portfolio Committee in the financial year under review, raised a number of concerns on the drought situation in the country, climate patterns and its implications for limited water supplies.  The Portfolio Committee, highlighted the following on the impact of drought, climate change and resultant lack or limited water supplies to the citizens of the country:

 

• Climate change, with its resultant increased droughts and floods presents a serious obstacle to the realisation of the rights to water and sanitation.  Water is a key medium through which climate change impacts upon human populations and ecosystems, particularly due to predicted changes in water quality and quantity. 
• South Africa is currently experiencing a water crisis given that there are already serious problems in supplying enough water of sufficient quality to meet the country’s social and economic needs.

6.1 Water Research Commission

 

Progress in respect of attaining 2 per cent target of employment for persons with disabilities

 

The Water Research Commission reported that it was currently at 1.6 per cent in terms of employing persons with disabilities.  There are strategies in place to bring the organisation closer to the 2 per cent target, and it is working in partnership with Disabled People South Africa in this regard.

 

The extent to which the Water Research Commission has conducted studies and forward planning and long-term interventions in respect of drought and climate change

 

Heatwaves and drought attributed to the beginning of an El Nino cycle could last for the next five to seven years.  A number of policy development and research has been conducted in this regard, particularly in respect of non-irrigated agriculture and the modification of plants to withstand periods of drought.

 

Studies conducted in respect of water leakages given the national average of 37 per cent

 

The Water Research Commission reported that it was the custodian of the study on water leakages, which was the first of its kind in the world.  The study has resulted in a massive policy response on the side of Government, including the War on Leaks programme, recently launched by the Department.

 

Extent of coordination with other research institutions to avoid duplication

 

In terms of research coordination, there is not much duplication being done as research institutions work in a coordinated manner with one another, as well as with academic institutions.  There are a variety of objectives to avoid duplication and when research is conducted, every effort is made to ensure that there is a programmatic approach followed in respect of value-added research with knowledge partners.

 

Extent to which the Water Research Commission has instituted compulsory service terms for those graduates benefiting with WRC bursaries

 

The Water Research Commission has for the first time attempted to trace those individuals who have benefitted from WRC bursaries. Provisional studies reflect that most of these recipients are working in an academic environment.  Partnerships have also been established with the Rand Water Learning Academy as well as the Energy and Water Sector Education and Training Authority (SETA) with sponsorship from the Italian Government.  The WRC is confident that it would have established smart human capital pipelines in 2016.  The compulsory service requirement to recipient of WRC bursaries requires more comprehensive discussions.

 

 

Reasons for irregular expenditure noted in the audit findings of the Auditor-General

 

The Water Research Commission has grown in terms of its core business, which is research development.  Unfortunately, this growth has not been matched with support structures.  As a result, support in respect of procurement was neglected over the few years, with limited staff to do the necessary work.  Functions such as supply chain management was furthermore limited within the organisation.  Interventions to address this has been with the appointment of a Supply Chain Management team, as well as the training of existing staff in respect of Supply Chain Management and procurement procedures.  There is still much work to be done, but with the support of the Board and Chief Executive Officer, good progress has been made.

 

The WRC also conducted an audit of the irregular expenditure item, there was no fraudulent activity that had taken place.  This finding was largely attributed to limited expertise within the organisation relating to Supply Chain Management and Procurement.

 

Extent to which youth are targeted within programmes

 

The Water Research Commission reported that it did not have many youth employed within the organisation, but had a large number of youth participating in empowerment programmes, as well as internship programmes to develop young researchers within the institution.

 

6.2 Trans-Caledon Tunnel Authority

 

Land acquisition strategy

 

Land acquisition was noted as a challenge in relation to the prescripts of laws specific to buying and selling of land.  There were instances of overpricing, particularly from landowners who are aware that the property concerned was of strategic value.  Expropriation is only used as a last resort.  The organisation acknowledged that there are landowners who worked well with the organisation.

 

Phase 1 of the Mokolo-Crocodile Project is completed, which is the 43km pipeline.  Phase 2 however is experiencing delays regarding a decision in respect of the size of the pipe and the volumes it needs to carry down the line.  There was strategic debate as to whether a 100ml or 75ml diameter pipeline was needed for the volumes of water required in that part of the mining belt area.  The organisation noted that this project with mining houses is extremely attractive for funding of cash flows, which are quite robust, but there is a need for Trans-Caledon Tunnel Authority and the mining houses to come to an agreement regarding the diameter of the pipe, before commencement of work.

 

Acid Mine Drainage (AMD) in respect of strategies and long-term interventions, variance of costs for the Central Basin and AMD plant from R97 million to R122 million and financing of the Germiston plant

 

The Trans-Caledon Tunnel Authority reported that it was given the mandate in terms of the short-term emergency solutions and that one of the biggest challenges in respect of long-term AMD strategies is the slow pace of development of technologies to help manage long-term strategies.  The organisation has submitted proposals to the Minister of Water and Sanitation, and are awaiting a response.

 

TCTA noted that the variance was due to clarifiers (to collect sludge) installed in the pipeline, which were initially not hardy enough to withstand the harsh environment within which AMD water operated.  A new clarifier has since been installed, but these clarifiers need to be assembled overseas as there is no company in South Africa who could provide such a service.

The financing of the Germiston AMD plant was done on a R200 million allocation, and an agreement was subsequently made for the Department to continue to fund this project, with a bridging mechanism being sought from the earnings from the Lesotho Highlands Water Project.

 

 

 

 

Progress in relation to the attainment of 2 per cent target of persons with disabilities in the workforce

 

In the attainment of employing persons with disabilities, the Trans-Caledon Tunnel Authority noted that it had achieved the 2 per cent target.  However, more challenging in this regard, was when a person with a disability left the organisation, which made it more difficult to maintain this target.  The TCTA is working in partnership with the Association of Disabled Persons South Africa to address the challenge.

 

Interventions in respect of the De Hoop Dam impasse with mining companies

 

Although Trans-Caledon Tunnel Authority had no role in the construction of the De Hoop Dam (Department of Water and Sanitation project), the Minister has now given TCTA a directive to get involved with all the Phases of the Olifants River Resources Project, particularly Phase 2B.  This phase is connected to the mining sector and funding for this project is promising.  Phase 2C of the Olifants Project looks at the bulk distribution works.  TCTA hopes to have off-take agreements in place by the end of this year (2015) so that it can start raising finance by next year (2016).

 

Disciplinary action taken in respect of fraud case – 2014/15

 

Trans-Caledon Tunnel Authority reported that the affected person was reported to the South African Police Services, who have instituted criminal proceedings.

 

Due date for the appointment of the Trans-Caledon Tunnel Authority Board

 

The Board has been appointed and are currently undergoing orientation.  Even in the absence of a Board for a while, TCTA had done well under the stewardship of its Chief Executive Office, who was commended for his leadership.

 

Reasons for Auditor General South Africa findings in respect of R200 000 contract

 

The TCTA policy on tendering for anything under R200 000 does not require the tender process.  In this instance, the Auditor-General found that this constituted a conflict in supply chain management policy which requires implementation of the three quote system and delegation of authority.  The conflicting policy issues has since been resolved, and currently, all projects under R200 000 must follow the three quote system.  The organisation is also currently reviewing policy to ensure that there is alignment.

 

6.3 Catchment Management Agencies

 

Duplication of water use licence function between the Department and Catchment Management Agencies

 

The Portfolio Committee in its assessment of the Catchment Management Agencies requested more information on the duplication of water use licence function between the Department and Catchment Management Agencies.  The Department responded that the Minister of Water and Sanitation provided strategic direction on the reform of legislation and policy.  In the past, not much attention was paid to service delivery and the water resources management services were somewhat compromised resulting in backlogs in verification, validation and issuing of water use licences.  New opportunities were explored for the Catchment Management Agencies in terms of water use licencing, given their proximity to services on the ground, and this regard, the smaller allocations that fell within there is no duplication, as the Department still retains its role and mandate in respect of issuing of water use licences.  Catchment Management Agencies are now given an opportunity to process these applications within their areas of operation, after which these applications were sent to the Department’s regional offices, and then transmitted to the Director-General for approval once the verification process has been completed.

 

Progress in respect of attaining the 2 per cent target of employing persons with disabilities – Inkomati-Usuthu Catchment Management Agency (IUCMA) and Breede-Gouritz Catchment Management Agency (BGCMA)

 

On the progress made by Catchment Management Agencies in respect of attaining the 2 per cent target of employment of persons with disabilities, the Portfolio Committee was informed that the Inkomati-Usuthu Catchment Management Agency saw the attainment of this target as a minimum requirement, and was working toward exceeding this target with the appointment of persons with disabilities with the correct skills for the positions.  Attaining this target was in the performance agreement of the Chief Financial Officer of the institution, and this target was cascaded down to managers. 

 

With the Breede-Gouritz Catchment Management Agency, it reported that the organisation had already attained this target as it was currently at 3.4 per cent.  However, given the size of the organisation with a staff component of 29 people, it had only 1 person with disabilities.  The Breede-Gouritz Catchment Management Agency acknowledged that statistics are not a true reflection of the performance in the regard, and it was working toward improving this.  However, successes in terms of gender equity were noted in that of the 29 employees, 18 were women.

 

Changes to measurement of targets from numbers to percentages

 

On the reasons for changing the measurement of targets from numbers to percentages, the Breede-Gouritz reported that these targets were changed as demand driven targets could no longer be reflected through numbers as they were not an adequate reflection of the organisation in this regard.

 

7.  RECOMMENDATIONS

 

In light of the key performance (financial and non-financial) issues raised in this report, the Portfolio Committee recommends the following:

7.1 Financial

In effecting the prescripts of the Money Bills Procedure and Related Matters Amendment Act, 2009, more specifically in relation to recommendation pertaining to the forward use of resources, the Portfolio Committee recommends the following:

7.1.1 The Department must provide detailed plans to prevent unauthorised and under expenditure in future.

7.1.2 The Portfolio Committee recommends strongly that the capacity of the Internal Audit Committee (human and financial resources) be strengthened, as this unit should be the mainstay of evaluating the financial work of the Department, and providing early warning risk reports to the Executive.

7.1.3 The Portfolio Committee recommended that the Department creates monitoring mechanisms and risks assessment strategies to monitor the systematic implementation and expenditure, in respect of the Regional Bulk Infrastructure Grant (RBIG), Municipal Water Infrastructure Grant and the Water Operating Subsidy Grant (WOSG), and other water and sanitation related grants.

7.1.4 The Portfolio Committee further recommends that the Environmental Levy from mining companies and businesses must be compelled to comply with environmental laws and regulations, mooted by National Treasury be given urgent attention so as to ensure funding is available for remediation, rehabilitation and addressing long-term effects of water pollution as a result of the work of mines, either current or retrospective.

7.1.5. The Portfolio Committee recommends that collaborative engagement through the Intergovernmental Relations Framework, between National Treasury, Departments of Cooperative Governance and Traditional Affairs, Water and Sanitation be undertaken to work out a strategy or plan to address the debt owed by municipalities. Furthermore, that debt owed by water boards to the Department requires urgent attention.

7.1.6. The Portfolio Committee recommends that National Treasury allow for the rollover for the Bucket Eradication Programme (BEP) so as to allow the Department to extend the completion date of meeting its targets to June 2016.

7.1.7. In terms of the recommendations highlighted by the Auditor-General, (as reflected on page 7 of the report relating to the Main Account and page 14 of the report relating to the Water Trading Entity), the Portfolio Committee requested quarterly reports from the Department on the remedial measures it intends to take to correct the findings in respect of the work of the Water Trading Entity and Main Account.

7.1.8. The Department must adhere to budgetary variation caps for all infrastructure projects as required by the Public Finance Management Act and Treasury Regulations.

7.1.9. National Treasury has already stated that they would pay 67 per cent of the long-term Acid Mine Drainage (AMD) and that the remaining 33 per cent should be recovered in the tariffs.  A tracking mechanism and progress report to be forwarded and presented to the Portfolio Committee with regard to the spending for AMD over the long-term.

7.1.10. The Department must urgently find money for the construction of Umzimvubu Dam.

 

7.2 Non-financial

7.2.1 The Department must provide a clear tracking system used for revenue collection by the Water Trading Entity so as to provide a mechanism to ensure that all clients are paid for services.  In some instances, debts were written off after a period of time.

7.2.2 The Portfolio Committee recommends that the Department put in place measures, that is, protocols and regulations, to deal proactively with the challenge of water resource management in relation to issues of river health,  dam management and pollution impact on the quality of water.

7.2.3. The remediation project at Hartebeespoort Dam needs to be audited.

7.2.4. The Department, to ensure that all critical vacant positions, specifically in relation to Occupational Sector Dispensation (engineers and scientists) are filled by not later than 31 March 2016.

7.2.5. The Department must fast track the licencing process.  The Department must take the initiative to decline water licences to mines that wish to operate in sensitive areas.  The use of water by mines must only be approved by the valid granting of licences.

7.2.6. The Department, together with its Entities must ensure that strategies are in place to bring the organisation closer to the 2 per cent target to employ persons with disabilities.

7.2.7. The Department, to develop customised national indicators for Entities to ensure that Government strategic goals are met.

7.2.8. In light of the seriousness of the drought situation and impacts of climate change on future water security, it is important that the Department, that is charged with regulation, norms and standards as well as determining water supplies, through reconciliation studies, perform these functions in a scientific way so as to ensure mitigation measures are in place.

 

7.2.9 The Department must fast track norms and standards for the sanitation components of its work as it has direct implications on implementation of dignified sanitation for the citizens of the country.

 

8.  APPRECIATION

The Portfolio Committee thanks the support of the Department and Entities for producing documents that were required to generate this report.

 

 

Report to be considered.

 

 

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[1] The tariff receivable represents TCTA’s right to recover project costs incurred for the funding, construction and implementation of national water infrastructure, as well as the subsequent management of the debt incurred for the implementation of these projects.  The Tariff Receivable reflects the present value of all cash flows that are payable by DWS to TCTA in order to settle construction costs and other expenses incurred for each project.

[2] Water and Sanitation in South Africa – Turning finance into services for 2015 and beyond as cited from: www.amcow.net and www.wsp.org

[3] Backeberg G, (2005), Water Institutional Reforms in South Africa

[4] Water supply and sanitation in South Africa – Turning Finance into Services for 2015 and Beyond, as cited from:  www.amcow.net and www.wsp.org

[5] Water supply and sanitation in South Africa – Turning Finance into Services for 2015 and Beyond, as cited from:  www.amcow.net and www.wsp.org