Realignment of Water Boards; Water Boards Corporate Plans 2023/24; with Deputy Ministers

Water and Sanitation

31 October 2023
Chairperson: Mr R Mashego (ANC)
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Meeting Summary

The Department of Water and Sanitation (DWS), led by both Deputy Ministers, presented on the reconfiguration of water boards and their 2023/24 business plans in a virtual meeting.

Before the recent reconfiguration, there were nine water boards, and now there are seven water boards. The review was due to the Auditor General warning that certain water boards cannot be categorized as a going concern. Non payment by municipalities was jeopardizing sustainable water service delivery. There were also underserved areas by water boards as well as overlap in other geographical areas.

Deputy Minister Judith Tshabalala told the Committee that DWS met with South African Local Government Association (SALGA) and the water boards to establish standardized credit control procedures to deal with municipalities' non-payment in response to the Auditor General's warning that some of the water boards would not be able to meet future financial obligations. Some of the actions will include the regular enforcement of water restrictions and the attachment of municipal bank accounts when required. DWS and National Treasury will work together to ensure fair share allocations are deducted from municipalities who fail to pay outstanding water invoices. Water boards will install bulk prepaid meters in municipalities with late payment history. The Vaal Central water board has the largest municipal debt, at R7.6 billion, with R5.5 billion of that owed by Matjhabeng municipality.

The Committee expressed concerns about the Department's plan to realign water boards to improve financial sustainability and extend service coverage to underserved areas. They also wanted to know how institutional overlap is resolved by the reconfiguration of water boards. The Committee expressed concern about the repeated mention of municipal debt to water boards, given South Africa's economic downturn as residents' unpaid municipal debt, is unlikely to improve anytime soon and that the debt to water boards will remain unpaid.

Committee members asked about the impact of dissolving Umhlathuze water board, transferring its liabilities to and expanding the geographical coverage of Umgeni Water. They asked for the legal framework that underpins the Minister's reconfiguration of water boards and if the legal obligations for consultation were followed.

Meeting report

Reconfiguration of water boards
DWS Deputy Director General, Dr Lindiwe Lusenga, presented as requested by Deputy Minister Judith Tshabalala:

Constitutional and Legislative Imperatives
Every person has inherent dignity and the right to have that dignity respected and protected, according to Section 10 of the Constitution. As a result, the government has a duty to step in when the provision of municipal water and sanitation services is causing people's dignity to not be respected and protected. The government must implement reasonable legislative and other measures, within the limits of its resources, to achieve the progressive realization of the right to water, as required by Section 27(2) of the Constitution.

A water board's main responsibility under section 29 of the Water Services Act is to supply bulk and reticulation water services to other water services organizations (water services authorities, water service providers, and water service committees) in its service region to assist local governments in providing water services.

Change drivers for review of water boards
• Municipal performance is weak and compromises effective water services delivery.
 • All geographical areas need to be serviced by water boards.
• Some areas are serviced by multiple water boards, resulting in institutional confusion
• Relationships between water boards and municipalities are poor and not conducive to optimal outcomes for service delivery. Relationships with provincial governments need to be developed further, as part of improving relationships with municipalities
• The financial viability of some water boards is marginal. This is related to underlying structural issues (geography and client base), challenges with billing and revenue collection at municipal level and non-payment by municipalities to water boards.
 • Water boards should be financially sustainable and able to raise capital from the market for infrastructure projects.
 • There have been governance problems in some water boards.

Principles underlying the reconfiguration
• DWS has evaluated water boards based on ability to sustain their finances, ability to serve non-serviced areas, institutional uncertainty of several water boards in same province.
• The water board review objectives are to:
(a) Strengthen the capability of the entity (leveraging on existing technical skills)
(b) Improve efficiency and rationalise number of water institutions for economies of scale
(c) Maintain financial viability and enhance the ability to raise capital from the market.
(d) Enable water boards to better support Water Services Authorities (WSAs). All geographical areas to be serviced by water boards
(e) Ensure transformation and improved governance
(f) To align water board boundaries with provincial boundaries
(g) Reconfiguration must not result in job losses

Dr Lusenga gave the progress on the reconfiguration of the eight water boards:
• Magalies Water and Rand Water assets under consideration
• Summary of assets affected by reconfiguration.
• Disestablishment of Sedibeng Water (incorporation into Magalies and Vaal Central Water)
• Staff Transfer Agreement: Signed in December 2022.
• Final Gazette issued on July 26, 2022.
• Delisting of Sedibeng Water completed (March 28, 2023)
• The 2021/22 Annual Report will be available by November 2023.
• Split of Sedibeng Water Assets and Liabilities
• Extension of Umgeni Water to include Mhlathuze Water from 01 July 2023.
• Name change of Umgeni Water to uMngeni-uThukela Water from 01 July 2023.
• Disestablishment of Mhlathuze Water, transfer of staff, assets and liabilities to uMngeni-uThukela.
• Staff Transfer Agreement was finalised by 30 June 2023
• New Board of uMngeni-uThukela Water appointed from October 2023
• Preparing 2022/23 audits, AFS and annual reports to be completed by 31 December 2023.
• Financial impact on reconfiguration of Umgeni Water and Mhlathuze Water
• Combined debt levels of are within Treasury borrowing limits. Reconfigured entity will exceed its borrowing limit in 2027. Approval will have to be sought from Treasury to increase borrowing limit.

Water Boards Corporate Plans for 2023/24
Ms Thoko Sigwaza, DWS Chief Director: Institutional Oversight, presented:

• Governance protocol for water boards as Schedule 3B entities
• Corporate Plans (tabled in Parliament (July 2023) and Shareholder Compacts
• Strategic objectives in shareholder compact:
- Ensure viability and sustainability
- Stakeholder engagement.
- Appropriate planning for adequate water resources
- Water demand management
- To ensure sustainable growth
- Effective and efficient communications
- Legal and policy compliance
- Financial sustainability
• Indicators for water boards and evaluation
• Water Board MTEF Budget, Capex and Financial Sustainability
• Growth of water sector debt
- Money owed to water boards by municipalities is growing rapidly and unsustainable.
- Money owed to WTE by municipalities and water boards is growing and unsustainable.
- R2,1 billion of debt written off in 2023.

Impact of growing debt on water boards
• Formal letter to begin consultation process sent to stakeholders including 144 Water Services Authorities (WSAs), Department of Cooperative Governance and Traditional Affairs and its provincial MECs and SALGA.
• The increasing municipal debt is a danger to the water boards' ability to remain solvent.
• As municipal debt is not recoverable, Auditor General noted there are certain water boards that may not be regarded as a going concern.
• If water board is not viable, banks will not lend project funds as risk is too great.
• Negative audit findings could be issued to DWS for failing to put in place efficient credit management procedures.
• Vaal Central Water, which has R7.6 billion debt is most at danger financially. Of this R7.6 billion, Matjhabeng Local Municipality owes R5.5 billion.

Proposals for strengthening credit control
DWS has been collaborating with SALGA, National Treasury and water boards to resolve the debt that municipalities owe the water boards:
a) DWS created standardized credit control procedures applicable to all water boards.
Treasury, SALGA, and pertinent parties consulted in their development, and consultation with all Water Service Authorities has now been completed. It will be implemented after consultation with the boards of seven water boards by Minister.
b) Consistent water restriction enforcement against non-paying towns and use of legal procedures to attach bank accounts as required are part of routine operational practices.
c) It has been decided DWS and National Treasury will work together to ensure fair share allocations are deducted from municipalities who fail to pay outstanding water invoices.
d) Water boards will install bulk prepaid meters in municipalities with late payment history.

• Governance Status of Water Boards (see document)

• Innovation by Water Boards
- Accounting for non-revenue water (NRW)
Magalies Water aims to implement an innovation to account for NRW and promptly respond to water leaks in distribution system. NRW levels of 46% reported by DWS for 2022. This technology enables: leaks to be detected in real time; implementation of demand management and prioritization (VSD); maximize revenue collection while minimizing ecological footprint; iImprovement of metering precision; systems digitization: real-time data collection on peak hours, delivery rates, water quality; improvement in pressure management.
- Installation of Chlorine Booster Stations on furthest distribution terminals
- Remediation of Hartbeespoort Dam using nanobubble technology
- Key initiatives by Rand Water
- Umgeni-uThukela Water Research, Technology, Development, and Innovation (RTDI) Plan

Strategic Integrated Projects 2023-24
• The Strategic Integrated Projects (SIP-19) that water boards are implementing are crucial to the development of the water infrastructure as well as the creation of jobs. These projects are overseen by the Presidency and coordinated by Trans-Caledon Tunnel Authority (TCTA).
• Most of these projects are registered with Infrastructure South Africa (ISA) to overcome implementation or budgetary allocation obstacles. Through the Infrastructure Fund, ISA provides support for feasibility studies, project preparation, and packaging in a few other important infrastructure projects.
• These projects are partially funded through a combination of public-private partnerships, internal Water Board funds, Infrastructure Fund, Regional Bulk Infrastructure Grant (RBIG) and other sources. While the annual budget is over R1 billion, the total investment over the next ten years is more than R32 billion.

Deputy Minister’s remarks
Ms Judith Tshabalala, Deputy Minister of Water and Sanitation, said that Minister Senzo Mchunu has created and implemented the reconfiguration of the water boards since his appointment. The rationale for reconfiguration is centred on several factors, including achieving economies of scale, addressing institutional confusion caused by multiple water boards servicing the same areas, including areas not currently serviced by water boards, aligning water board boundaries with provincial boundaries, and addressing institutional sustainability.

The reorganization would address non payment by municipalities – both the inability due to financial distress or the unwillingness to pay what is owing to the water boards. This is one of the symptoms of the general deterioration of the financial situation of many municipalities, as highlighted by the National Treasury report. Water boards had already begun enforcing rigorous credit control procedures, which included limitations that applied to municipalities in their supply areas that were not making payments.

In addition, the Department is working on a better oversight model to improve governance, financial performance, and service delivery for the water boards which answer to the Minister. The Department is dedicated to ensuring that the shareholder compact between the Minister and each Board has distinct performance indicators and the monitoring is well-regulated. The presentation outlines the financial sustainability details and the MTEF budget.

Water boards are facing dire financial difficulties because of non payment by municipalities. This is made worse by the fact that municipalities are not legally required to use the money received from the sale of water services, which means that many will choose to prioritize other expenses with that money. She voiced concern that communities will face difficulties if the water boards lose their financial stability and cease providing clean water.

DWS has been in communication with National Treasury, water boards and SALGA to determine the best course of action for resolving the debt that municipalities owe the water boards. The Department and the water boards are considering several interventions to establish a uniform credit control system for all water boards. Standard operating procedures for water services have been developed in collaboration with SALGA, National Treasury and other pertinent stakeholders. Authorities that have been reached have been consulted, and DWS, acting through the Minister, will now confer with several boards representing seven water boards prior to adoption. These standard operating procedures comprise constant enforcement of water limitations for non-payment of municipalities, legal steps to seize municipal bank accounts where necessary.

The Deputy Minister told the Committee that it has been decided that DWS and National Treasury will work together to ensure that fair share allocations are withheld from municipalities that are delinquent on their water board bills. As part of the intervention, water boards will install bulk prepaid meters in municipalities with a poor payment history. Additionally, water boards will implement innovative measures to guarantee that the Strategic Infrastructure Projects for the fiscal year 2023–2024 are met.

The Deputy Minister said it was crucial for DWS to be able to explain the reasoning for the reconfiguration and the main reasons for the reconfiguration was to guarantee the financial viability of water boards, which has been a challenge for many of them. Financial difficulties, partly brought on by the failure of municipalities to pay levies and charges. Reconfiguration will establish a stronger financial base for these entities. It is also aimed at extending water and sanitation services to areas that are currently underserved to expand coverage so that more communities have access to clean and safe water, contributing to improved public health and well-being.

Reconfiguration was necessary to clear the institutional confusion caused by multiple water boards serving the same geographical areas. Reconfiguration seeks to eliminate this overlap, which will enhance accountability and streamline service provision. The aim is to align boundaries of water boards more effectively with provincial boundaries leading to better and more coordinated cooperation between provincial and local governments. Reconfiguring these water boards will decrease administrative duplication and optimize use of resources.

In conclusion, the Deputy Minister stated that the reconfiguration of the water boards is intended to improve service delivery and ensure that communities have reliable water access. Reconfiguration helps to ensure that these water boards conform with legal and regulatory frameworks and their operations are aligned with national and provincial policies, plans and mandates.

Ms R Mohlala (EFF) requested information on the Department's efforts to diversify South Africa's water resources beyond surface water, including initiatives involving groundwater, sanitation return flows from treated wastewater, and the re-use of other lower quality water sources like acid mine drainage. How does DWS plan to improve financial sustainability and expand service coverage to currently underserved areas through the alignment of water boards? She asked for clarity on dissolution of the Umhlathuze Water Board, the transfer of its assets and liabilities to the Umgeni Water Board, and the expansion of the Umgeni Water Board's geographical authority to include the old Umhlathuze arrear.

Has the Minister ensured compliance with legal obligations to extensively consult with legally mandated stakeholders and appropriately consider the concerns of creditors and consumers when making decisions? What was the legal framework that underpins the Minister's actions in realigning the two water boards? She asked about responses from SALGA and the affected municipalities on the realignment of the water boards.

Ms Mohlala was interested in learning why the reorganization of water boards was required, how it would adequately assist understaffed water service authorities to meet the increasing demand for services from communities, and if there would be enough engineers available with the necessary skills.

The Chairperson asked about the ability of water boards to survive considering the current state of the South African economy. He criticised DWS for only considering money owed by municipalities rather than money owed by residents to municipalities. This implies that neither the status nor the tide will change because the residents involuntarily lack money. He asked for the Department's perspective.

Deputy Ministers' response
Deputy Minister Tshabalala cited Section 28 of the Water Service Act as the source of legal authority granting the Minister the authority to create water boards as well as to decide to realign them. The reason for the extension of the board's operating term is to enable economies of scale to ensure that they have sufficient volume to generate returns on investment. This will enable the boards to truly be financially sustainable, as well as to be able to access the market and obtain loans. Where there are geographical area overlaps, the primary goal of reorganizing water boards is to help resolve these overlaps. By expanding coverage, water boards will enable more communities to have access to clean, safe water, thereby enhancing public health and well being.

On institutional overlap, confusion arises occasionally from multiple water boards servicing the same geographical area and causing confusion. The reconfiguration aims to remove this confusion and clarify which water board is responsible for which region, which will improve accountability and streamline service delivery. As a result, reconfiguration is required, which also affects financial sustainability. The reconfiguration will help align with provincial boundaries for improved coordination and cooperation between local and provincial government, which will improve overall water service delivery.

Deputy Minister Tshabalala stated that Umhlathuze was a liquid company and that its financial strength came from the Richard's Bay industry. As a result, the liabilities will go to Umgeni, and there is a mechanism to guarantee that these liabilities do not result in further financial constraints.

Deputy Minister David Mahlobo said that DWS had successfully lowered the number of water boards as they were excessive and unsuitable for its objectives. DWS had carried out the reconfiguration in accordance with its mandate which had helped the department meet its development objectives. He applauded the Department for drastically cutting the water boards' authority within the Minister's purview and enacting reforms. DWS will be able to handle problems with the water boards' wall-to-wall coverage by doing this.

The reorganization was also concerned with the sustainability of these establishments; consequently, inadequate governance, problems with financial viability due to non payment, and the fact that certain balance sheet asset bases were diminishing or non-existent were among the causes of the realignment.

Another problem is when the operational area is increased. Sedibeng had to be merged with two other water boards due to its demise. Assets and liabilities accompanied the water boards' incorporation of Sedibeng; however, the largest liability was staffing matters as employee numbers were not even proportionate to the work that needs to be done and salary disparities where some institutions are not paying the same as others. For these reasons, it was appropriate that Minister Mchunu carried out the reconfiguration. There had been consultation on the reconfiguration with all premiers, SALGA and the Committee as public representatives. DWS had engaged with traditional leaders, the agricultural sector, particularly farmers and the irrigation industries, among others.

Unions were consulted on the reconfiguration, specifically NEHAWU and SAMWU, whose membership varies depending on the water board, to ensure that any issues that have a negative impact on workers are addressed. The principles were unambiguous that no one must lose their job and no one would have less pay or benefits than the other. The liability of almost 800 Sedibeng employees was divided between the two water boards.

The second risk was one of financial viability. Many institutions owe DWS money but some water users, particularly municipalities, are also owing them money. The largest risk is Vaal Central, as municipalities (like Matjhabeng which owes DWS R5 billion and about to have its bank account attached) will never be able to pay their debt. The Minister is collaborating closely with National Treasury to determine ways to restore the financial viability of the water boards as they receive no financial assistance from the fiscus and are left to fend for themselves. Among the proposals on the table is the possibility of offsetting what Matjhabeng owes Vaal Central and Magalies. The rationale is that DWS will need to adjust with their own funds to balance what is owed to DWS by the water boards in terms of water use charges. However, a large board like Rand Water will not be able to profit because Emfuleni owes them, but they do not owe DWS.

On financial viability, DWS is using the model used by Eskom of writing off debt to a certain extent as they will not use it as an open blanket. DWS had spoken to the sector about the sustainability of the sector. There was nothing more that DWS could do to ensure that the sector is more financially viable. The Minister is looking at revenue enhancement in terms of general DWS standard operating procedures. This will involve fixing assets because many of these institutions experience water leaks which have an impact on finances. As a result, leaks, infrastructure, and correct billing system calibration will all need to be fixed.

On the economic downturn and the inability of water users to pay, the Deputy Minister believes that those who can afford to do so should. He acknowledged that some South Africans are struggling financially but pointed out that people in the country have assets, can purchase airtime, and can pay monthly entertainment subscription fees. For those who are unable to pay for services, the social security net for basic water and the amount allocated to municipalities for this needs to be ring fenced so that money goes directly to water boards.

Deputy Minister Mahlobo said that DWS had given water boards instructions on their ability to reach out to municipalities in danger financially and technically. For instance, DWS intervened in the Rand Water Board v Emfuleni case and made progress. As a result, an agreement was reached where Rand Water will now be the preferred water provider throughout the chain up until the reticulation side. One of the biggest sources of revenue for municipalities is water and electricity, so a certain percentage may need to be discussed to be able to handle various activities. Rand Water will step in and create an entity working with Metsi A Lekoa, and from there they will be able to put new infrastructure, eliminate the losses that are between 62% and 65%, and new assets will be put on the ground. These include new calibration systems, proper billing systems, and Rand Water can bill directly and be able to receive that specific amount. In this way, the water boards are assisting these establishments that are unable to carry out their duties.

Umgeni and uThukela Water had already reached an arrangement with Ethekwini Metro even before there were problems with floods and other calamities. The infrastructure of the many Ethekwini sewer plants had crumbled and the sewage had spilled into the rivers. Ethekwini agreed that Umgeni would operate and maintain at least ten of its wastewater treatment works, which carry two third of the wastewater . It will bring in their technical expertise and financial capabilities to do that and get money. Just sorting out the water wastewater system had cost billions of rands.

Proposals will be made moving forward as DWS is reviewing how all these projects will be paid for because there is not any money in the fiscus. One option is to use build, operate, send, and transfer, where water utilities can enter the picture. Alternatively, there are concessions available where private sector companies enter the picture as a water service provider and are given a certificate of capability from the department indicating their ability to perform specific tasks. To ensure that there are no concerns, the state will oversee handling tariff matters. Additionally, the deputy minister Mahlobo pleaded against politicizing the concessions problem and against any demands that it be privatized.

On acid mine drainage, Deputy Minister Mahlobo stated that it is a component of a demand management and water conservation initiative in which we advocate for the use of every available drop of water. A large amount of the groundwater in our nation is severely contaminated by mining. According to DWS, water needs to be included again. For instance, in Mpumalanga, most mines such as in Steve Tshwete or Emalahleni, treat their water to the highest possible standards, and some of that treated water is sold back to municipalities. However, due to licence requirements, a portion —if from the Oliphant system or the Witbank dam—returns to the water. The premium that must be paid for treated water from acid mine drainage is the only issue facing DWS; it ranges from R7 to R8 per litre and is a very costly expense. However, the price of actual water ranges from R3 to R6. He voiced his concern about sinkholes in these abandoned mines caused by zama zamas and mine flooding during rainy season, which poses an environmental risk.

DWS is always searching for methods to use the Trans-Caledon Tunnel Authority (TCTA) to obtain funding for projects that will enable them to construct more circular ecosystems like the one in Pietermaritzburg. This would assist in collecting and storing the produced wastewater, preventing it from returning to rivers to contaminate them. He saw water boards are demonstrating capacity to recover water from acid mine drainage and to address reuse challenges.

On the housing and infrastructure difficulties in Gauteng, the infrastructure is primarily outdated and Rand Water pumps 5000 mega litres a day or more than 5 billion litres, and there are far too many leaks—between 30% and 45% of the towns on average. It is treated and given to the Gauteng population, but they lose roughly 45% of it. Infrastructure needs to be such that water losses are either acceptable or cannot occur. Second, the populace has increased. Less than ten years ago, there were about 11 000 people living in housing units; as a result, secondary infrastructure such as pump stations and reservoirs should be built. There is also high consumption, with each person using about 300 litres of water per day despite climate change. People use water extremely carelessly during summer, leading to water shortages in Gauteng. He applauded Ekurhuleni Metro for adhering to established goals for demand management and water conservation, given that they are using less water.

Follow up discussion
Ms Mohlala asked if financial difficulties and deteriorating infrastructure make it harder for the government to interact with the private sector and if this ignores the bigger problem of the government's inability to raise money. She asked if this practice of continually creating new entities and dismantling old ones—a response to poor leadership and mismanagement—would turn into a recurring cycle.

Deputy Minister Mahlobo stated that South Africa is not unfamiliar with the universal difficulties that countries face, whether they be financial or social. According to him, South Africa's economy is on a mixed trajectory, meaning that to improve living circumstances for all its citizens—rich or poor—the government must engage the public and private sectors to support its projects. Although privatization is a component of the financial model, the state merely needs to impose a requirement from the perspective of procurement.

Minutes dated 10, 17, 24 October 2023 were adopted.

Meeting adjourned.

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