ATC131021: The Budgetary Review and Recommendation Report of the Portfolio Committee on Water and Environmental Affairs, dated 16 October 2013

The Budgetary Review and Recommendation Report of the Portfolio Committee on Water and Environmental Affairs, dated 16 October 2013

The Portfolio Committee on Water and Environmental Affairs (the Portfolio Committee), having considered the performance and submission to the National Treasury for the medium-term period of the Department of Water Affairs (the Department), reports as follows:

1. Introduction

1.1. Mandate of Committee

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

·         Consider legislation referred to it;

·         Conduct oversight of any organ of state and constitutional institutions falling within its portfolio;

·         Consider international agreements; and

·         Consider the budgets, strategic plans, Annual Performance Plans and related performance reports of the departments and entities falling within its portfolio.

1.2. Core functions of the Department and its Entities

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

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

1.3. Purpose of the Budgetary Review and Recommendation Report

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

1.4. Consideration and assessment of service delivery performance in relation to available resources of the Department and its entities

On 16 October 2013, the Portfolio Committee engaged the Acting Director-General, Chief Operating Officer (COO), Chief Financial Officer (CFO) and relevant Executive Managers as well as the Chief Executive Officers and Chief Financial Officers of the Department and its Entities on the Annual Report and any supplementary documentation.  The purpose of the interaction is for the Portfolio Committee to undertake its constitutional oversight mandate of complying with the Money Bills Act, which is to oversee budget expenditure by government departments, so as to influence budget prioritisation by amending (if necessary) the national budget.

Section 5 of the Money Bills Act requires the National Assembly, through its committees, to annually assess the performance of each national department, with reference to the following:

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

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

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

·         The Department’s annual reports and financial statements;

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

·         Any other information requested by or presented to Parliament.

The Portfolio Committee noted the critical factors informing the strategic and business plans, section 32 reports, annual report and financial statements of the Department and its Entities.  In addition, the Portfolio Committee focused on the way in which the Department aligned and accomplished its work over the medium term in relation to its constitutional imperative, legislative mandates, the Medium-term Strategic Framework of Government, National Development Plan 2030, Outcome 10 Delivery Agreements, obligations and commitments stemming from multilateral and bilateral environmental agreements and other international instruments such as the Millennium Development Declaration and priorities emanating from the 2012 State of the Nation Address.

1.5. Compliance by the Department and its Entities

The Portfolio Committee noted with appreciation that the annual report of the Department and its entities were tabled in full compliance with the relevant prescripts and prior to the stipulated time of 30 September 2013.

2. Policy Areas

The water sector has been in a state of major change since 1994, with substantial new policy and legislative changes which define the framework for water management in the country.  While the policy and legislation have been globally recognised for their progressive response to water management, implementation has been slow, for a number of reasons.  One of the key areas where the aims of the water sector in South Africa have not been effectively achieved is in relation to equity and redress of access to water, especially to the poor and marginalized.  While the provision of safe, domestic water supplies has reached 95 per cent of the population, showing remarkable strides since 1994, the allocation and reallocation of raw water to historically disadvantaged communities for productive purposes has not progressed as it should.

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

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

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

Over the medium term significant progress in dealing with service delivery disruptions has been made. The key to significant progress in this regard is the result of a successful partnership with the Departments of Cooperative Governance; Human Settlements; Municipal Infrastructure Support Agency (MISA) and Water Boards in dealing with the challenges of service delivery in those areas which have experienced service delivery protests. Support was provided through the Department’s Rapid Response Unit (RRU) which is a unit made up of professionals in the water sector who attend to problems when they arise and arrange quick fixes that may relate to water treatment or infrastructure failures. The RRU was decentralised to all provinces and is fully functional in seven Provinces. There were 173 technical interventions during the period under review. Successful interventions have taken place in a number of localities such as Colesburg, Carolina, Sekhukhune, Ngobi Village (North West), Ermelo, Marquard and De Deur Farm.

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

The Institutional Reforms and Realignment process is finalised, consequently the process of consolidating water boards from 12 to 9 is well underway which will extend gazetted areas of these water boards and expand their functions. The process to establish 9 Catchment Management Areas is also progressing smoothly and will be instrumental in managing water resource management into the future.

Good progress has been made with regard to the challenge of Acid Mine Drainage (AMD) in the Witwatersrand area. Since the inception of the Inter Ministerial Committee on AMD, the immediate solution in the Western Basin was completed and commissioned in June 2012, and the uncontrolled decant of AMD in the Western Basin effectively stopped in August 2012. The Department is currently busy with the construction of a pump station and a new water treatment plant in the Central Basin and is on target to ensure that pumping commences before the Environmental Critical Level is breached.

The Business Process Review Committee (BPRC) continues to make a positive impact on the turn-around of the Department and elevating the Department to a much higher trajectory of performance. Evidence of impact of the BPRC, is firstly a significant improvement in the outcomes of the 2013 Audit, including improved performance reporting, oversight of the ongoing review of the water policy and the review of the legislative framework, the review and implementation of the organisational structure, overcoming the challenges in the ICT environment, review of the building leases, infrastructure spend and overall efficiency.

3. Overview and assessment of financial and non-financial performance of programme for the 2012/13 financial year of the Department and its entities

3.1. Overview of composition of total available budget 2012/13 (Main Account)

For the 2012/13 financial year, the Department of Water Affairs received a total budget of R9 billion, payment for capital assets and transfers and subsidies formed the majority of the Department’s budget.  When combined, they account for R6.6 billion or 73.8 per cent of the R9 billion.  Programme 3: Water Infrastructure Management and Programme 4: Regional Implementation and Support combined account for R7.2 billion or 83.4 per cent of the total budget.  The reason for the large budget allocation to both these programmes is due to the infrastructure projects undertaken by the Department.

3.2. Water Trading Entity (WTE)

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

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

3.3. Financial expenditure trends of the Department and its entities

The Department spent R8.6 billion or 96.1 per cent of the total available budget by the end of the financial year.  Planned expenditure by this point in the year was R9 billion – equivalent to 100 per cent of the total available budget.  The Department is therefore behind on total spending by R352 million or 3.9 per cent.  This is mainly due to unfilled Occupational Specific Dispensation (OSD) posts; unspent funds on Regional Bulk Infrastructure projects due to pre-payments made for the supply of steel pipes and material ordered outside the country, which have not yet been delivered.  Acid Mine Drainage and Water Services Projects for which the expenditure could not be charged against the vote as the invoices will only be processed once the work is scheduled to be completed in 2013/14.  The table below reflects an overview of the department’s financial performance for 2012/13:

Programme (R'000)	Budget	Expenditure	Variance	% Spent
Administration	865 180	843 367	21 813	97%
Water Sector Management	501 605	500 538	1 067	100%
Water Infrastructure Management	2 251 496	2 251 496	-	100%
Regional Implementation and Support	5 249 323	4 935 763	313 560	94%
Water Sector Regulation	101 080	87 374	13 706	86%
International Water Cooperation	24 478	22 970	1 508	94%
Total	8 993 162	8 641 508	351 654	96%

The overall variance has reduced substantially from 24.9 per cent in third quarter to 3.9 per cent in the fourth quarter of 2012/13.  The main reason for the reduced variance is that most of the infrastructure projects are completed, which results in the increase in expenditure.

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

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

3.4.1. Programme 1: Administration

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

In building capacity to deliver quality services during the year under review the Department had planned to conduct training interventions to 80 per cent of the employees, 100 per cent of employees signing performance agreements, reducing the annual vacancy rate from 24.88 per cent to 13 per cent, admitting 50 new graduates to the trainee development programme and placing 35 graduate trainees into candidate positions. It also planned on employing 50 per cent of women and 2 per cent of people with disabilities. With regards to financial management, the Department planned to have a 100 per cent complete asset register and 100 per cent compliance with supply chain management (SCM) policies, procedures and framework.

The Department achieved 46.15 per cent of their targets which include conducting training interventions to 82 per cent of employees, reducing the vacancy to 10.7 per cent, admitting 61 graduate trainees to the trainee development programme and placing 66 graduate trainees into candidate positions. It partially achieved 38.46 per cent of its targets which include having 98 per cent of signed performance agreements, having 96 per cent complete asset register and having 99.9 per cent compliance with SCM policies, procedures and framework.

Diversity management (i.e. employment of women and people with disabilities) remains a challenge and thus contributed to the 15.38 per cent non achievement of targets. Over the next medium term, the Department will embark on a campaign to encourage qualifying women and people with disabilities to apply for among others specialist positions.

The Water Trading Entity section of the Department had planned to have a 90 per cent complete asset register, 100% reduction of irregular expenditure and accurately billing 98 per cent of all billable and registered customers as well as reducing the outstanding debt by 35 per cent.

The Department achieved 50 per cent of its planned target which include accurate billing of billable and registered customers and having a 90 per cent complete asset register. It partially achieved 25 per cent of its target which include reducing irregular expenditure by 80 per cent and could not reduce the outstanding debt as the debtors grew. In the medium term, the Department has procured the services of a debt recovery company.

In response to the presentation made by the Department, the Portfolio Committee resolved that:

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

·         The Department needs to seriously engage with curbing irregular expenditure; and the Portfolio Committee request as a matter of urgency short, medium and long-term interventions in this regard. The Portfolio Committee awaits a report in this regard; and

·         Over the years, asset register completion has been an issue in the Department.  The Portfolio Committee is concerned that this compromises service delivery and efficiency of the workings of the Department. In this regard the Portfolio Committee requests a plan of action with time frames from the Department.

3.4.2. Programme 2: Water Sector Management

The purpose of the Water Sector Management Programme is to ensure that the country’s water resources are protected, used, developed, conserved, managed and controlled in a sustainable manner for the benefit of all our people and the environment by developing and implementing effective policies and integrated planning strategies. Expenditure was R500.5 million or 99.8 per cent of the available budget of R501.6 million.  Planned expenditure was R501.6 million. R1.1 million was under spent in this Programme.  This is primarily due to under spending on Goods and Services, non-core items such as catering, venue hiring, travel and subsistence.  These issues have persisted for the past twelve months. Programme 3, expenditure was R2.3 billion or 100 per cent of the available budget.

Under this Programme, the Department committed to setting the strategic framework for water management in the country which entailed among other things revising and gazetting the raw water pricing strategy for consultation, amending water related legislation, gazetting the second edition of the National Water Resources Strategy (NWRS-2) and finalising the institutional realignment framework. It also committed to improving the management of water resources through establishing one catchment management agency and assessing the compliance of the 16 water institutions to corporate governance.

Under this programme, the Department achieved 37.50 per cent of its planned targets which entailed completing one reconciliation strategy and three all towns strategies. It has also developed 25 operating rules of the targeted 12 stand alone schemes. It also partially achieved 37.50 per cent of its planned targets which entailed developing a draft Raw Water Pricing Strategy and the draft business case for the national water resource infrastructure. Some delays were experienced with regards to the amendment of water related legislation as a Ministerial directive required an expansion of the National Water Act, (No 36 of 1998) to include relevant provisions of the Water Services Act, (No 108 of 1997). Also, the gazetting of the NWRS-2 could not be done during the year under review as public consultations took longer than anticipated. However the NWRS-2 was subsequently adopted by Cabinet in June 2013.

This programme did not achieve 25 per cent of its targets which entailed completing two feasibility plans as additional specialist studies were required. In addition, labour unrest delayed the completion of the resource quality objectives.

In response to the presentation made by the Department, the Portfolio Committee noted that two feasibility plans could not be completed due to pending specialist studies. Therefore, the Department must provide a plan of action to address these as a matter of urgency as this would negatively affect service delivery.

3.4.3. Programme 3:  Water Infrastructure Management

The purpose of the Water Infrastructure Management Programme is to ensure a reliable supply of water from bulk raw water resource infrastructure to meet sustainable demand objectives for South Africa within acceptable risk parameters. The Department is tasked with soliciting and sourcing funding to implement, operate and maintain bulk raw water resource infrastructure in an efficient and effective manner by strategically managing risks and assets. Programme 3 expenditure was R2.3 billion or 100 per cent of the available budget.

With regard to the built infrastructure programme, the Department committed to continuing with 11 projects namely De Hoop Dam; the bulk distribution works for the Olifants River Water Resource Development project; the Mokolo and Crocodile West River Augmentation project; the Komati Water Supply Augmentation project; the Raising of Hazelmere Dam; Raising of Clanwilliam Dam; the Mooi-Mgeni Transfer Scheme; N’wamitwa Dam and its distribution phase; Raising of Tzaneen Dam and design completion of the Lesotho Highland Water Project 2. It also committed to complete the rehabilitation of five conveyance systems and seven dams to ensure compliance with the dam safety regulations.

The programme achieved 46.67 per cent of its planned targets which included rehabilitating seven dams as well as completing the Duvha and Matla pipelines for the Komati Water Supply Augmentation project. Some delays were experienced with regards to the completion of the built infrastructure programme resulting in a partial achievement of 40 per cent of its planned targets which included the De Hoop Dam and the Mokolo and Crocodile West Augmentation project. A further 13.33 per cent of the targets were not achieved which entails N’wamitwa Dam. These delays are as a result of industrial action that was experienced for some projects, as well as resettlement and land acquisition challenges experienced for other projects. In addition, inclement weather conditions and long industrial action also resulted in slow overall progress in some projects.

In response to the presentation made by the Department, the Portfolio Committee resolved that:

·         The Department must furnish the Committee with a progress report indicating new time frames for the delayed projects; and

·         The Department must provide a progress report on projects delayed by resettlement and land acquisition problems.

3.4.4. Programme 4: Regional Implementation and Support

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

Expenditure was R4.9 billion or 94 per cent of the available budget of R5.2 billion. R313.6 million was under spent on this programme.   This is primarily due to vacant posts including Occupational Specific Dispensation (OSD) posts, prepayment advances made in respect of Regional Bulk Infrastructure Grant amounting to R101.4 million for the supply of steel pipes and material ordered outside the country.  Delivery is scheduled to take place in the 2013/14 financial year.  A prepayment advance was made to TCTA in respect of Acid Mine Drainage amounting to R103 million for the purchase of abstraction capital equipment for the emergency work in the Western Basin of Witwatersrand gold fields mines. Furthermore, there was under expenditure of R22.3 million on the Hartebeespoort Dam Integrated Biological Remediation Programme.  The Departmental Bid Adjudication Committee approved the appointment of Rand Water as the implementing agent of Phase 2 on 24 August 2012.  Two additional service providers were contracted by Rand Water with training and capacity building to fast track skills transfers related to the project with the result that activities could only be operationalised during January 2013.  Some of these activities are already initiated and cannot be stopped and therefore needs to be continued.  These issues have persisted for the past twelve months.

In contribution to the infrastructure built programme of the Department, the Main Account section of this programme had committed to completing eight regional bulk infrastructure projects. This programme also committed to among other things completing one wastewater treatment works, providing 750 resource poor farmers with access to water, distributing 7000 rainwater harvesting tanks, implementing eleven community infrastructure water projects. In addition this programme planned on supporting 30 municipalities in implementing water conservation and demand management.

During the year under review, the Programme achieved 57.89 per cent of its planned targets which entailed among other things completing three wastewater treatment works within the North West, Northern Cape and Western Cape provinces. A further 1787 resource poor farmers were provided with access to water. This programme partially achieved 36.84 per cent of its planned targets which entails completing three of the regional bulk infrastructure programmes; and distributing 4 068 rainwater harvesting tanks. The regional bulk infrastructure programme experienced delays as technical problems were encountered that required additions to existing scope. The programme did not achieve 5.26 per cent of its planned targets.

The Water Trading Entity of this programme achieved 88.89 per cent of its targets, which entail amongst others, monitoring 1 794 sampling points and 749 waste discharge points and did not achieve 11.11 per cent of its targets.

In response to the presentation made by the Department, the Portfolio Committee resolved that:

·         The Department must develop a plan to address OSD employment challenges and this plan should have time frames; and

·         The Portfolio Committee noted delays in completion of some RBIG projects due to additions to the existing scope of the project and that there are materials ordered from outside the country, which will only be delivered in 2013/14 financial year. The Portfolio Committee requests the Department to specify delivery time of these materials in 2013/14 for accountability purposes.

3.4.5. Programme 5: Water Sector Regulation

The purpose of this Programme is to ensure the development, implementation, monitoring and review of regulations across the water value chain in accordance with the provisions of the National Water Act and the Water Services Act. Expenditure was R87.4 million or 86.4 per cent of the available budget of R101.1 million.  R13.7 million was under spent in this Programme.  This is primarily due to the resolution taken by the Departmental Bid Adjudication Committee that the Draw Down Facility project be implemented within the internal resources of the Department instead of outsourcing services.

During the year under review this programme achieved 60% of its targets which entails developing the institutional options for the establishment of the economic regulation and conducting joint inspections to assess the compliance of mines. Delays were experienced in completing the compulsory licensing processes in targeted water management areas as there were appeal and objections received. These delays resulted in the programme partially achieving 40 per cent of its targets. The Department will engage with water users to negotiate an amicable solution.

In response to the presentation by the Department, the Portfolio Committee resolved that the Department should provide a detailed plan of the process that it would follow to engage water users to negotiate an amicable solution with regard to appeals and objections received.

3.4.6. Programme 6: International Water Cooperation

The purpose of this Programme is to strategically develop, promote and manage international relations on water resources between countries through bilateral and multilateral cooperation instruments and organisations in line with provisions of the National Water Act and pursue national interests at both African multilateral and global multilateral organisations and forums. Expenditure was R23 million or 93.8 per cent of the available budget of R24.5 million.  R1.5 million was under spent in this Programme.  This is primarily due to vacant posts and postponement of overseas trips.  These issues have persisted for the past nine months.

Despite of the reduction in budget from 2011/12 to 2012/13, the Department successfully achieved 100 per cent of their planned targets which entails signing 4 strategic partnerships with Uganda, Botswana, Rwanda and DRC in line with the strategic objective on the coordination of strategic international water cooperation.

In response to the presentation by the Department, the Portfolio Committee resolved to commend the Department for excellent performance with regard to its timeous achievements of the set targets of this Programme.

3.5. Overview and analysis of service delivery performance of the Department and its entities in relation to its economic classification

The sections that follow provide an overview of the total difference between planned expenditure and actual expenditure for the past quarters.  The overall variation from the financial plans of the Department is mainly under Compensation of Employees: Goods and Services and Payment for Capital Assets.  The major reason for the under expenditure in Compensation of Employees is due to vacant OSD posts, which could not be filed.  The major reasons for the under spending on Goods and Services is due to office equipment not being purchased as a result of vacant posts.  The major reason for the under spending in Payments for Capital Assets is due to invoices not being processed in respect of the Accelerated Community Infrastructure Projects and Regional Bulk Infrastructure projects for which pipes purchased overseas have not been processed as yet due to the work not being completed.  These trends have persisted for the past nine months.

Compensation of Employees: expenditure was R1 billion or 98.5 per cent of the available budget of R1 billion. R16 million is under-spent in this programme.  This is primarily within Programme 4:  Regional Implementation and Support and Programme 5: Water Sector Regulation.  The main reason for the under spending is due to vacant posts and delays in the filling of Occupational Specific Dispensation (OSD) posts, and these issues have persisted for the past nine months so far.

Goods and Services: expenditure was R1.3 billion or 97.9 per cent of the available budget of R1.3 billion.  R26.7 million was under spent in this programme.  This is primarily within Programme 1: Administration and Programme 5: Water Sector Regulation where unfilled vacant posts resulted in office equipment and furniture not being purchased.  In Programme 1, funds could not be spent in respect of Office Accommodation as a result of outstanding invoices from the Department of Public Works in relation to municipal services and lease commitments which could not be processed as they belong to the premises leased by the Department of Environmental Affairs.  These issues have persisted for the past nine months.

Interest and Rent on Land: expenditure was R3.5 million or 96.1 per cent of the available budget of R3.6 million. R100 000 was under spent in this programme.  This is primarily within Programme 1: Administration due to over provisioning of the interest portion of the finance lease on fleet cars which are currently being leased.  These issues have persisted for the past twelve months.  This was not adequately provided for at the beginning of the current financial year.

Transfers and Subsidies:  expenditure was R2.9 billion or 100 per cent of the available budget.

Payments for Capital Assets:  expenditure was R3.4 billion or 91.7 per cent of the available budget. R307.9 million was under spent in this programme.  This is primarily within Programme 4 where material and steel pipes purchased out of the country in respect of Regional Bulk Infrastructure projects are only expected to be delivered and processed in 2013/14.  Furthermore, advance payments have been to the Trans Caledon Tunnel Authority (TCTA) in respect of Acid Mine Drainage and the Department has requested a rollover of these funds.

Payments for Financial Assets: expenditure was R300 000 or 100 per cent of the available budget. So the Department’s expenditure is equal to the previous made in the budget to cover for thefts and losses suffered by the Department.

3.6. Entities’ Financial and Non-financial Performance

3.6.1. Trans-Caledon Tunnel Authority (TCTA)

For the 2012/13 financial year, TCTA achieved an unqualified audit opinion, bearing testament to the outstanding work which underpins its business. For the period under review, TCTA’s set objectives were: Raising project finance; Project implementation; and Debt and cash-flow management. It is pleasing to note that TCTA has achieved outstanding results on the above objectives and have delivered in accordance with the Shareholder’s Compact. The organisational score of 3.55 out of 5 is a good indicator of TCTA’s sustained performance.

TCTA has always raised sufficient funding for off–budget projects to enable scheduled and approved infrastructure projects to proceed with implementation, on time. TCTA has also been able to secure the necessary guarantees from National Treasury for new on-budget projects in this era of extremely tight financial markets. TCTA’s policy of extensively consulting with its stakeholders before implementation, has demonstrated its value in that the Department is now able to invoice and collect the Capital Unit Charge (Tariff Receivable) even in the presence of disagreements.

TCTA’s Project Implementation perfection is when a planned project delivers water at the time required by the customers, within budget and to the required specification. The art of project management is managing these often conflicting demands where short-term water delivery requirements can conflict with the long-term design life requirements. On all projects, TCTA has managed these conflicts to the ultimate benefit of the end-consumer. An overview of the current projects is as follows:

·         Vaal River Eastern Subsystem Augmentation Project       (VRESAP) – The project was handed over to the Department for operation and maintenance. The arbitration process on the termination of C-MC’s contract for the construction of the pump stations is still underway;

·         Mokolo-Crocodile Water Augmentation Project Phase 1    (MCWAP-1) – The ready-for-trial operation is expected to commence on 16 May 2014. Although this is later than expected the delay does not impact on the commissioning of Medupi Power Station;

·         Mooi-Mgeni Transfer Scheme Phase 2 (MMTS-2) – Impoundment of the reservoir commenced on 26 March 2013. Also, the refurbishment of the pump station on the existing transfer system has commenced;

·         Olifants River Water Resource Development Project (ORWRDP) – The work is approximately four months behind schedule due to quality problems, land acquisition and resettlement delays. As of 31 March 2013 the delay has not impacted on the commissioning of the water treatment works at Steel Bridge;

·         Komati Water Scheme Augmentation Project (KWSAP) – The three-month trial operation period commenced on 18 February 2013 and an inauguration ceremony was held with the Minister on 19 March 2013; and

·         Acid Mine Drainage (AMD) – Environmental Authorisation was received on 7 January 2013 and construction commenced on 14 January 2013. TCTA was instrumental in obtaining the Environmental Authorisation and negotiating the agreements with the mining companies, giving access to land and infrastructure. These agreements were worth over R400 million and hugely mitigated the cost of the works.

Construction costs of R1 855 million were incurred in the year with only 43% of planned capital expenditure being used due to project delays. These project delays were mainly due to delays in pipe production and the environmental authorisation for AMD being obtained later than anticipated. Management has ensured that the contract project costs are maintained within the approved charter.

3.6.2. Water Research Commission (WRC)

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

·         Establishing the needs and priorities for research;

·         Stimulating and funding water research according to priority;

·         Promoting effective transfer of information and technology; and

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

During the 2012/13 financial year, an unqualified audit opinion was expressed by the Auditor-General. The WRC mainly derived its income from water research levies (R165 million), but also obtained leverage income of R20 million. The WRC managed 305 active research projects, initiated 81 new projects, managed to finalise 85 projects and published 151 research reports and products. A total of 506 students were supported by WRC-funded projects of whom 207 were females and 293 were males from previously disadvantaged groups. 201 students are working on master’s degrees and 142 towards PhD degrees. The WRC initiated and supported a number of national capacity building initiatives, including support to national and local government as well as the development of new training material for different levels of learners and for academic institutions. Overall, WRC’s performance has improved compared to 2011/12 financial year.

3.6.3. Catchment Management Agencies

Catchment Management Agencies (CMAs) are established in terms of Chapter 7 of the National Water Act, (Act No.36 of 1998) and are classified as Schedule 3A public entities in terms of the Public Finance Management Act, (Act No. 1 of 1999) as amended. Catchment Management Agencies manage water resources at a catchment level through continuous engagement with all stakeholders and devolve decision making to the lowest level for the benefit of all water users within their water management area. They ensure that water is used to support equitable and sustainable social and economic transformation and development.

There are currently two operational CMAs in the country, the Inkomati CMA (ICMA) and the Breede-Overberg CMA (BOCMA) and they receive grant funding from the Department. During the 2012/13 financial year, R19 000 000.00 was transferred to the BOCMA and R22 372 186.00 was transferred to the ICMA for the implementation of their functions according to their annual performance plans approved by the Minister. Both BOCMA and ICMA received unqualified audit opinions.

The Department embarked on the Institutional Re-alignment process to review the viability and number of institutions reporting to the Minister. After assessment of the viability of the 19 CMAs, the Minister approved the consolidation of the 19 CMAs into 9 CMAs. The 9 new water management area boundaries were adjusted and gazetted in July 2012 as follows: Limpopo; Olifants; Inkomati-Usuthu; Pongola-UMzimkhulu; Vaal; Orange; Mzimvubu-Tsitsikamma; Breede-Gouritz and Berg-Olifants. The establishment of the Inkomati-Usuthu was approved by the Minister and gazetted for public comment in March 2013.

In response to the presentation made by the Department, the Portfolio Committee resolved that the Department must provide a detailed plan, which must show available resources and required resources in terms of finance and human resources, in light of the proposed reduction of the number of CMAs and expansion of the existing CMAs.

4. Report of the Auditor-General

4.1. Main Account

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

A lack of paperwork or adequate systems to track infrastructure spending totalling billions of rands is among the reasons water affairs received another qualified audit opinion in 2011/13. Such systems were necessary to maintain records of commitments, where the procurement of goods and services had been approved and/or contracted, but where no delivery had taken place by the end of the 2012/13 financial year. This resulted in commitments being misstated by R1.1 billion.

According to financial statements in the annual report, the Department's commitments, totalled R19.7bn in 2012/13, and R21.3bn in 2011/12, the Office of the Auditor-General (OAG) was unable to obtain sufficient appropriate audit evidence due to lack of supporting documents and could not confirm the disclosure by alternative means. Consequently, the AG was unable to determine whether any further adjustments to commitments stated at R19.7 billion in the financial statements were necessary. The restatement referred to is a note inserted in the annual financial statements. According to this the prior year commitments were adjusted by R20.6 billion relating to regional bulk infrastructure grant projects (RBIG). The restatement was made to rectify a prior year misstatement, which the OAG was unable to confirm.

Over and above the Department's paperwork problems, the OAG also implicated the Department for irregular spending. The Department made payments in contravention of the supply chain management regulations amounting to R13.6 million. Systems meant to control this were inadequate. Consequently, the OAG was unable to determine whether any adjustments relating to irregular expenditure disclosed as R1.1billion in 2013 in the financial statements was necessary.

The OAG was also unable to obtain appropriate audit evidence for R326.4 million adjustment to accrual figures in the financial statements, as well as adjustments totalling R358.2 million made to so-called immovable tangible capital assets figures.

The Department also received a qualified audit opinion in 2011/12, but is continuously showing substantial improvement with its financial management system.

4.2. Report of the Office of the Auditor General on Water Trading Entity and its Entities

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

The WTE’s main source of revenue consists of the sale of water services which is recognised when water is consumed by the customer and the recognition criteria in the SA Standards of GRAP, GRAP 9, and Revenue from exchange transactions are met. This revenue is disclosed in note 3 to the financial statements at an amount of R6 605 816 000 (2012: R5 786 918 000), The entity did not have an adequate system of control over the recording of sales of water services on which OAG could rely on for the purposes of the audit, and there were no satisfactory audit procedures that the OAG could perform to obtain reasonable assurance that all the water-related services revenue was recorded accurately. The OAG was unable to confirm the revenue from the sale of water services by alternative means. Consequently, the OAG was unable to determine whether any adjustments to the sales of water services and related trade receivables balance, as disclosed in note 3 and 12 to the financial statements, were necessary. The same limitation reported in the prior year audit report on the corresponding figures has not been corrected by management and consequently the OAG is still unable to determine whether any adjustments to the prior year figures of water sales and trade receivable balances were necessary.

The WTE did not have an adequate system in place to follow up and impair long-outstanding trade receivables. Sufficient and appropriate audit evidence was not available for the amounts disclosed as provision for impairment amounting to R3 262 702 000 (2012: R2 467 410 000) in note 12 to the financial statements. The OAG was unable to confirm the provision for impairment of trade debtors by alternative means. Consequently, the OAG was unable to determine whether any further adjustments to the provision for impairment and the resulting trade receivables impairment figures as disclosed in note 7 and 12 were necessary. The limitation reported in the prior year audit report on the corresponding figures has not been corrected by management and consequently, the OAG is still unable to determine whether any adjustments to the prior year figures for the provision of impairment to trade receivables were necessary.

The OAG was unable to obtain sufficient and appropriate audit evidence about the trade receivable balance reflected as R6 144 075 000 (2012: R5 196 833 000) in note 12 to the financial statements. There were significant differences between the amounts confirmed as outstanding by the individual debtors and the amounts recorded in the accounting records of the entity which management could not substantiate. In addition, the OAG noted that interest on debtor balances was not charged and accrued for. Alternative audit procedures did not render satisfactory results. Due to the inadequate systems in place at the entity the OAG was unable to determine whether any adjustments to the trade receivables figure and interest revenue were necessary. The limitation reported in the prior audit report on the corresponding figures has not been corrected by management and consequently, the OAG is still unable to determine whether any adjustments to the prior year figures for receivables from exchange transactions were necessary.

The WTE could not provide sufficient appropriate audit evidence to support the disclosure made in terms of SA Standards of GRAP, GRAP 104, and Financial Instruments. The OAG was also not able to confirm the financial instrument disclosures by alternative means. Consequently, the OAG was unable to determine whether any adjustments to the financial instrument disclosure in note 23 to the financial statement were necessary. The limitation reported in the prior year audit report on the corresponding figures has not been corrected by management and consequently, the OAG is still unable to determine whether any adjustments to the prior year financial instrument disclosures were necessary.

There is a slight improvement on this account in that there was no qualification on irregular expenditure in 2012/13, as was the case in 2011/12.

Although the Auditor-General’s report still reflects a qualification as far as the finances are concerned, a contextual reflection of where the Department came from in the last three years shows a move from adverse disclaimer opinion with regard to the Water Trading Entity, which now puts it as a qualification for both the Main Account and the Water Trading Entity. The Department received four qualifications under the Main Account and four under the Water Trading Entity. The Department aims to achieve an unqualified audit by 2014 and the work that has been done in the first quarter attests to the efforts that the Department has put in place to achieve the stated objectives.

5. Conclusion and Recommendations

The Portfolio Committee expresses its appreciation of the performance of the Department and Entities in terms of Predetermined Objectives, Service Delivery and Governance. The Portfolio Committee, especially noted the achievement of a qualified audit opinion in this financial year, which is a substantial improvement on the last few years. Furthermore, the Portfolio Committee thanked the Department for its professional and highly skilled workforce that has shown commitment and dedication during the year under review, to improve the Department’s performance, and continuously updating its knowledge base in line with key government policies such as the National Development Plan, and other international and regional agreements and conventions.

The Portfolio Committee notes:

·         With concern the under expenditure recorded by the Department and the subsequent loss and return of funds to the Department of Finance of R 243 000 000. This type of under expenditure needs to be corrected and should not occur in future financial year;

·         That it is unacceptable that only 60% of targets set by the Department are achieved, yet 96% of the total budget has been spent. Targets set need to be SMART and results must be linked to expenditure;

·         With concern the R 5 912 908 of which R 1 250 865, is current, is owed to the Water Trading Entity by water users. The amounts owed under 30 days or more has increased from R 4 438 466 to R 4 662 043. A measurable programme, with targets and dates, needs to be submitted to the Portfolio Committee to monitor progress, on a quarterly basis. The Portfolio Committee further requested the Water Trading Entity to supply a detailed programme of action, with specific time frames and deadlines, dealing with, metering of water volumes to users, where applicable, the challenge facing charging of water consumption by non licensed users, data cleansing of information relating to water users and debtors within the Water Trading Entity; and

·         The critical role of water and sanitation that has been further recognised in terms of the Strategic Integrated Project (SIP 18). The Department in collaboration with the Departments of Human Settlements and Cooperative Governance, and working together with Provinces and relevant Local Government is charged with the responsibility of integrating its work, through infrastructure development, for the eradication of backlogs and sustained delivery of quality services to the people of South Africa. In order to facilitate effective and timely investment in infrastructure and improve operations and maintenance, the Department is developing a comprehensive investment plan. This plan will inform budgeting and integrated planning based on a life-cycle approach, which includes planning and construction costs, operation and maintenance, financing costs and the costs of sustainable water management. Capital investment in new water and sanitation infrastructure for the entire value chain, including the refurbishment of existing infrastructure, is projected to require an estimated R670 billion investment over the next ten years. In light of the above the Portfolio Committee recommends that the Department must, as a matter of urgency, provide a proposed budget for the medium term in this regard.

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