PORTFOLIO COMMITTEE ON WATER AND ENVIRONMENTAL AFFAIRS 7 JULY 2009 DEPARTMENT OF WATER AFFAIRS DWA RESPONSE TO QUESTIONS RAISED BY PORTFOLIO COMMITTEE DURING DISCUSSION OF WATER BOARDS’ TARIFFS for 2009/2010

2 Questions by PC WHAT IS DWA’s ROLE IN OVERSIGHT OF WB’s? Questions by PC WHAT IS DWA’s ROLE IN OVERSIGHT OF WB’s? Policy StatementsSec 39 of Water Services Act, 1997 Shareholder CompactsTreasury Regulation 29.2 Business Plans: Corporate Plan & projection of revenue, expenditure & borrowings Sec 52 of PFMA, 1999 Treasury Regulation 29.1 Sec 40 of WSA, 1997 Quarterly ReportsTreasury Regulation Annual ReportsSec 44 of WSA, 1997 Sec 55(1)(d) & 65 of PFMA, 1999 Tariff IncreasesSec 42 of MFMA, 2003 Financial misconduct procedures reportTreasury Regulation Appointment of Board membersSec 35 & Schedule 1 of WSA Materiality & Significance FrameworkTreasury Regulation

3 Questions by PC DWA TO DEEPEN ITS ROLE TO EFFECTIVELY SUPPORT WB’s –While DWA cannot engage in micro managing the institutions, there are projects that DWA & WB’s jointly engage in, to enhance service delivery, e.g. Sedibeng Water providing retail services at DWA’s request Overberg Water engaging in the WfW projects –In the past DWA extended once off grants to WB’s in financial distress, however, the principle is that all WB’s must be self funding. –Unviable WB’s will need special measures and evaluation as well as the consideration of alternative arrangements for service delivery.

4 Midvaal Water Limpopo Province

5 Questions by PC HOW DOES DWA PLAN TO SUPPLY WATER TO UN- SERVICED AREAS? (CITED VARIOUS VILLAGES WHERE THERE IS NO WATER SUPPLY) –Providing access to unserved people is the responsibility of municipalities who get substantial allocations from the Municipal Infrastructure Grant (MIG). –Especially rural municipalities lack capacity to plan and implement a major capital program. –WB’s can play a very important role as implementing agents for municipalities, not only for the construction, but also for operating such infrastructure.

6 Questions by PC CONSIDER MOVING THE OVERSIGHT OF WB’s TO THE DEPT OF CO-OPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS, AS DWA HAS NO EFFECTIVE OVERSIGHT ROLE OVER MUNICIPALITIES –DWA has taken note of the comment by Umgeni, set out as an interesting table in the next slide, which gives a fair view on which further discussions can be based. –Regulation of tariffs needs a holistic approach – regulate tariffs throughout the entire supply chain.

7 Questions by PC Assessment of best fit Executive Authority or Ministry made by Umgeni Water: DWACooperative Govrn&Trd Affairs Public Enterprises Water resource adequacy√XX Operational resilience√√X Operational optimization√XX Employee & leadership development ??? Infrastructure viability√?? Financial viability√√√ Product quality√XX Customer satisfaction√√X Stakeholder understanding & support √√X

8 Questions by PC ROLE OF MUNICIPALITIES AND ROLE OF WATER BOARDS IN PROVIDING WATER SERVICES? –Municipalities are water service authorities (WSA) that are, i.t.o. the Constitution, responsible to provide water and sanitation to communities. –Municipalities are then free to outsource the function to a Water Service Provider (WSP), which can be a water board, another WSA with more capacity or even the private sector. –In outsourcing, municipalities must comply with sec 19 of the Water Services Act as well as the Municipal Systems Act.

9 Water Sector Institutions Forest Dam and Inter-basin transfers River Water Treatment Works Bulk distribution Pump stations and pipelines Municipalities Sewers Waste water treatment works Reticulation Catchment TCTA NWRIA Water Boards Water Services Authorities Catchment Management Agencies Water treatment works Agriculture Mines Ground water DWAF WRC Water User Associations

10 Questions by PC A COMMENT WAS MADE THAT A SIGNIFICANT AMOUNT OF SURPLUS WATER IN EC FLOWS INTO THE SEA. HOW DOES DWA PLAN TO PRODUCTIVELY USE THIS WATER? –This will be discussed at the workshop on 13 and 14 July 2009

11 Questions by PC DAMS DO NOT SERVICE THE COMMUNITY THAT THEY ARE LOCATED IN, E.G. JOZINI DAM IN KZN, NYAKA DAM IN MPUMALANGA, UMTATA DAM IN EC AND LOSKOP DAM NEAR SEKHUKUNE –This will be discussed at the workshop on 13 and 14 July 2009

12 Questions by PC THE POSSIBLE DISESTABLISHMENT OF BUSHBUCKRIDGE WATER? –A report is being prepared by DWA and the new Minister will apply her mind. –The Mpumalanga Provincial Cabinet has taken a decision to assist in strengthening the WB to supply Ehlanzeni Municipalities and discussions are underway. Minister will be consulted in due course. DISESTABLISHMENT OF IKANGALA WATER – WHO HAS TAKEN OVER SERVICES? –The WB’s function has been taken over by DWA Regional Office in Nelspruit, incorporating the moveable assets and four staff members who worked at Ikangala. –Rand Water is currently delivering the service based on a short term agreement. Negotiations are underway with municipalities to appoint Rand Water on a long term basis.

13 Questions by PC COMPLAINT BY WATER BOARDS THAT THEY ARE IGNORED BY THE REGIONAL OFFICES –If WB’s complained to senior management at DWA National Office, the issue would surely have been addressed.

14 Questions by PC WHAT SUPPORT IS PROVIDED TO WB’s BY DWA WITH THE COLLECTION OF DEBT OWED BY MUNICIPALITIES? –Outstanding debt is aggravated by: Many service contracts are in place, but several WB’s do not have contracts in place. When there is lack of immediate action by WB’s, it allows debt to grow out of proportion. Below-standard billing and meter readings are a recipe for disputes. Poor management of customers by municipalities. Equitable share not utilised by municipalities for the intented purpose.

15 Questions by PC Outstanding debt is primarily the responsibility of WB’s, not DWA or NT –Sec 41 of the MFMA requires that NT monitor prices and payments for bulk resources –WB’s are required to report monthly to NT for each municipality: The amount to be paid for that month and for the year up to that month The arrears owing and the age profile of the arrears Any actions taken by the WB to recover the outstanding debt –Sec 44 of the MFMA provides for dispute resolution between WB’s and municipalities. The process is dealt with jointly between NT and DWA –DWA successfully facilitated and mediated with NT in two cases: Umgeni Water and Umsunduzi LM Bloem Water and Ukhahlamba DM

16 Questions by PC DWA TO CONSIDER LONG TERM SUSTAINABLE FUNDING TO WB’s –To date most WB’s have been self funding, and where borrowing is needed, they have relied on their balance sheet and their cash generating ability to finance infrastructure development. –DWA’s contribution in the water value chain is the significant investment in dams where trading deficits are substantial. –Most of the larger urban water boards are paid timeously by municipalities, while the municipalities themselves have to wait for payment from individual citizens and run significant arrears on their water trading activities. In this way WB’s are protected to a significant extent. –DWA is constantly reviewing policies and the financial viability of water services is an ongoing priority.

17 Challenges raised by WBs DEBT COLLECTION –Can assist in terms of MFMA, but debtors’ records need to be correct for NT to provide effective support. WHAT SUPPORT WILL BE PROVIDED TO NAMAKWA WATER ? –New Minister has requested a report and will then apply her mind on the future of NW. –Viable method of supply will have to be in place.

18 Challenges raised by WBs WRITE OFF OF OVERBERG WATER’S STATE LOAN –The Board is self funding; –The loan is interest free; –Any write off needs to be motivated i.t.o. PFMA requirements; and –The write off of this loan cannot be justified i.t.o. sec 76(1)(e) & sec 76(4)(a) of the PFMA and Treasury Regulation 11.4.

19 THANK YOU