REPORT OF THE PORTFOLIO
COMMITTEE ON WATER AND ENVIRONMENTAL AFFAIRS ON THE FINANCIAL STATEMENTS AND
ANNUAL REPORT TRANS
The Portfolio Committee on Water and Environmental Affairs, having
considered the 2008/9 annual report, on 20 October 2009 of Trans Caledon Tunnel
Authority (TCTA) and Water Research Commission (WRC) reports as follows:
1. Introduction
The Portfolio Committee on Water and Environmental Affairs received
briefings from Trans Caledon Tunnel Authority and Water Research Commission on
20 October 2009. According to the Public
Finance Management Act (No.1 of 1999), the Trans Caledon Tunnel Authority
(TCTA) is a Schedule 2 public entity, which reports to Parliament through the
Minister of Water Affairs.
The TCTA is governed by Chapter 6 of the Public Finance Management Act
(No. 1 of 1999), and derives its mandate in terms of the National Water Act
(No. 36 of 1998). Trans-Caledon
Tunnel Authority (TCTA) is a state-owned entity mandated by the Minister of
Water Affairs to implement and fund raw bulk water infrastructure.
TCTA
implements projects, from the development of economically sustainable funding
models; to the design and implementation of environmental management and
socio-economic strategies; through to the design of cost-effective and
environmentally-sound infrastructure. In the past year, the Trans-Caledon
Tunnel Authority has performed remarkably well - reaching significant milestones
with two of its flagship projects, the Berg Water Project (BWP) and the Vaal
River Eastern Subsystem Augmentation Project (VRESAP).
TCTA
has also been mandated to undertake four new projects; funding and
implementation of phase two of the Mooi-Mngeni Transfer Scheme (MMTS-2), the
Komati Water Scheme Augmentation Project (KWSAP), phase two of the Olifants
River Water Resource Development Project (ORWRDP-2) and the Mokolo Crocodile
Water Augmentation Project (MCWAP).
The functions of the TCTA are to:
·
Provide integrated treasury management and financial
advisory services, which is provided to the Department of Water Affairs and
Forestry, and water boards.
·
Construct of infrastructure: The two projects
that the TCTA is responsible for are the implementation and funding of is the
Berg Water Project (BWP) and the Vaal River Eastern Subsystem Augmentation
Project (VRESAP). In terms of the National Water Act (No 36 of 1998), TCTA
fulfills a function of being a body that oversees the international treaty
between
·
Assist with debt management.
2. Presentation
of the overview of the Trans
The TCTA was established in 1986 by the Department
of Water Affairs and Forestry with the purpose of constructing and financing
infrastructure of the South African part of the Lesotho Highlands Water
Project. In 2000, there were amendments in the notice of establishment, which
resulted in TCTA undertaking additional projects other than the Lesotho
Highlands Water Project. These included: funding of projects, debt management
and construction of infrastructure. The responsibilities of the Department of
Water Affairs remained that of revenue management, asset management (relating
to operations and maintenance and asset register) and water resource
management.
The TCTA is a special purpose vehicle for the
financing and construction of national water resources infrastructure. It’s
classified as a Schedule 2 entity in terms of the PFMA. As a non-profit making
organisation, the nature of the actual costs charged, has resulted in lowering
tariffs for raw water. The TCTA operates in a very sound ring-fenced financial
environment as required by the National Water Act (No. 36 of 1998) and in full
compliance with the Public Finance Management Act (No.1 of 1999) (PFMA).
The Minister of Water and Environmental Affairs
mandated TCTA to undertake additional directives. This entailed restructuring of the Umgeni
Water balance sheet as well as the funding and implementation of the following
projects – Berg Water Project, Vaal River Eastern Subsystem Augmentations,
Mooi-Mgeni Transfer Scheme Phase 2, Olifants River Water Project and Komati
Water Scheme project to the amount of R30.2 billion. It was awaiting a
directive from the Department of Water Affairs to construct Mokolo Crocodile
Water Project. The authority’s funding requirements for the next three years
was R19.8 billion.
2.1. Overview of organisational performance
With regards to organisational performance, the
authority presented its highlights on the performance of its goals and targets
for 2008/09 period, which included:
·
Strengthening of organisational structure to
ensure separation of roles between operations, finance and assurance.
·
Transforming the organisation to align with
government development agenda.
·
Implementing projects in line with the
Minister’s directives.
·
Maintaining strong financial systems which would
lead to the authority receiving a clean unqualified audit.
Achievements
The authority reported the following achievements:
·
With regards to job creation, 4 379-person
years of jobs were created through the Berg project of which 2 460-person years
were from local communities. On the Vaal River Eastern Augmentation project 1
694 jobs were created, of which 1 319 sourced from local people.
·
As of 31 March 2009, the authority’s overall
BBBEE transformation balance scorecard was sitting at 68. 24.
·
In March 2009 the Berg Water Project was
inaugurated by the then President K Montlante.
·
The Vaal River Eastern Augmentation project
was given to SASOL and Eskom.
·
Tenders for construction of the Mooi-Mgeni
transfer scheme, Olifants River Water Project, Komati Water Scheme and Mokolo
Crocodile Water Project were being finalised.
·
Lastly, increases on water sales from R2.1
billion in 2008 to R 2.5 billion in 2009.
2.2. Overview of Financial Performance
The authority’s financial performance was sound. For
the 2008/9 financial year, it received an unqualified audit. Some of the
financial highlights presented included:
·
The financial statements indicated that the
authority was solvent over the long-term with no risk of being unable to
service or repay its debt.
·
Full cost recovery was obtained through water
sold to consumers.
·
Constant tariffs were maintained in line with
consumer price index.
·
The authority was in a position to repay its debt
within the reasonable period of 20 years.
·
The authority complied fully with PFMA
requirements and in accordance with international financial reporting standards.
·
It also reported a net project .deficit of R77
million that relates to a shortfall in covering interest costs.
The balance sheet as at 31 March 2009 was as follows:
|
Balance
Sheet Summary |
LHWP 2009 |
BWP
2009 |
VRESAP
2009 |
Total
March 2009 |
Total
March 2008 |
|
ASSETS |
|
|
|
|
|
|
Non-current Assets |
16 280 |
1 128 |
2 269 |
21 169 |
19 677 |
|
Current Assets |
2 504 |
195 |
95 |
2 796 |
1 276 |
|
Total Assets |
19 706 |
1 411 |
2 844 |
23 965 |
20 953 |
|
EQUITY
AND LIABILITIES |
|
|
|
|
|
|
Reserves and deficit |
(3 490) |
(27) |
(66) |
(3 629) |
(3 551) |
|
Non Current Liabilities |
20 023 |
993 |
2 621 |
23 637 |
21 966 |
|
Current Liabilities |
3 173 |
445 |
289 |
3 957 |
2 538 |
|
Total |
19 706 |
1 411 |
2 844 |
23 965 |
20 953 |
2.3 Overview
of Operations
The TCTA highlighted that it was currently a highly
skilled organisation with registered engineers and accountants and would most likely
utilise these skills in support of government’s agenda. However, it faced
challenges in that it can only work outside of its mandate of the Lesotho
Highlands project on other projects on a directive from the Minister of Water
and Environmental Affairs. It continued with professional development of its
employees to keep up with latest management practices.
The status of various projects was presented. It
mentioned that the Lesotho Highlands Commission was responsible for the
oversight of the project whilst TCTA remained responsible for the South African
portion of the project and has a right to receive water from the project. To
date, Cabinet has approved the completion of Phase 2 of the project subject to
the amendment of the treaty between
VRESAP supplied mainly Sasol and Eskom in
In reporting on the progress on the Olifants River
Water Resource Development Project, it was stated that the project was
supplying major economic centres and rural areas in
On the Komati Water Scheme, the TCTA mentioned that
the scheme was intended to supply Duvha and Kusile power station. Due to acid
mine drainage, the previous line to Duvha from Witbank could no longer be used.
In reporting on the Mokolo Crocodile Water augmentation project, feasibility
studies were conducted and a service provider appointed. Phase 1 and Phase 2
were scheduled for 2012 and 2015 respectively.
In conclusion, the chairperson assured the committee
that the authority was led by a competent board with capacity to raise funds
for water projects. It would continue to maintain top credit rating and ensure
that sufficient bulk raw water for the country to drive socio economic
development and growth.
3. Discussions and
responses
The committee thanked the TCTA for the presentation
and noted that the annual briefing was a key mechanism to monitor the
performance on service delivery as well as financial statements.
The committee, after receiving the presentation,
raised the following concerns:
·
The committee noted that there was no mention
of climate change in the TCTA presentation, especially its impact on the future
construction of dams and water supply
·
Clarity was sought on the progress on the
tabling of South African National Water Resource Infrastructure Agency
·
There was a view by Members of Parliament in
·
The question of savings (surplus) came up and a
question was asked on whether they had established a suspense account.
·
There was concern over the empowerment of
small and local companies. The trend over the years has been that the TCTA
utilised the services of big companies only for the construction of dams.
·
There was a concern over the sustainability of
jobs, and training of engineers.
·
How did the authority disseminate information?
In response to the above, the following
information was provided:
·
Although the TCTA has not conducted any
research about the future impact of climate change, it was utilising the department’s
planning documents on climate change.
·
The TCTA commented that the South African
National Infrastructure Agency Bill was withdrawn from the parliamentary
process due to non-consultation with Nedlac. However, it envisaged its re-
introduction in the forthcoming year.
·
Concerning savings, the TCTA funding model
entailed ring fencing of all its projects and therefore there was no suspense
account.
·
In addressing the displacement of communities because
of the Lesotho Highlands Project displacement, a compensation package and
resettlement policy was in place. The World Bank was responsible for oversight
and an Ombudsman dealt with complaints. To date,
·
Transformation and empowerment of small
contractors: TCTA had a strategy to maximise BEEE and training on enterprise
development; and has encouraged black small companies especially those owned by
women to form joint ventures. For the VRESPA project, it reported that 10
companies were involved in the construction of the dam.
·
To sustain the employment created, the
authority ran a skills and capacity programme and internships.
·
The TCTA used local newspapers to disseminate
information to the people.
REPORT ON THE WATER RESEARCH
COMMISSION (WRC) ANNUAL REPORT AND FINANCIAL STATEMENTS FOR 2008/9
1. Introduction
The mandate of
the Water Research Commission is derived from the WRC Act of 1971, (last
amended in 1996) and performs the following functions:
·
Promoting
coordination, cooperation and communication in the area of water research and
development.
·
Establishing
water research needs and priorities.
·
Stimulating
and funding water research according to priority.
·
Promoting
effective transfer of information and technology.
·
Enhancing
knowledge and capacity building within the water sector.
The vision of the
Water Research Commission is:
·
To be
a globally recognised leader in providing innovative solutions for sustainable
water management to meet the changing needs of society and of the environment.
The mission of
the Water Research Commission:
·
The
WRC is a dynamic hub for water-centred knowledge, innovation and intellectual
capital.
·
To
provide leadership for research and development through the support of
knowledge creation, transfer and application.
·
To
engage stakeholders and partners in solving water-related problems, which are
critical to
The 2008/9
achievements noted by the Water Research Commission incorporate the following:
·
Managed
its strategic and operational affairs within sound corporate governance
framework.
·
It
facilitated local government understanding of the link between energy and
climate change through research as required by the country such as research
topics on sanitation and assistance to emerging farmers.
·
A new
board was appointed by the Minister of Water Affairs and Forestry.
·
The commission
has adhered to board charter and code of ethics.
·
It
complied with the Water Research Act, PFMA and Treasury regulations.
·
The
Audit Committee operated within clearly defined charter and oversees both
external and internal audit.
2. Overview on organisational
performance
The WRC achieved most of its set financial performance
targets for 2008/9 financial year including;
·
Receiving
an unqualified audit report with no major audit findings.
·
Maintaining
a strong balance sheet with no unfunded liabilities.
·
Increasing
revenue to a total of R 11.5 million as a result of increases of water research
levies.
·
Employing
of African employees increasing to 56 %; and 60 % were female.
·
Increasing
operating expenses by 25% due to increase in research funding and human resources
related costs.
Challenges
In respect to
challenges, a deficit of R3.3 million was reported.,This was due to increased
payments on over-due research projects
and non-cash year end accounting adjustments as well as the net loss of R1
million due to servicing of Water Research Commission loans.
3. Overview on key strategic
areas
The following
achievements under the key strategic areas of knowledge generation, capacity
development, knowledge dissemination and impact, were presented:
3.1. Knowledge Generation
During 2008/9,
the WRC supported the relevant institutions and its partners in the water
sector, including the:
·
Providing
of knowledge for decision making processes.
·
Addressing
of the issue of climate change.
·
Funding
of research on development of mitigation strategies to ensure future
sustainability of the country’s water resources and services.
·
Providing
of sanitation and hygiene education
·
Contributing
towards poverty reduction initiatives and wealth creation.
·
Supporting
the food and fibre production activities.
·
Allocating
of research funds and supporting 294 research projects, of which 78% (230
projects) were active and 22 % (64 projects) were completed.
·
Supporting
of 39 solicited projects which translated to about 17% of active projects.
·
Utilising
R115.7 million towards knowledge creation, sharing and dissemination.
·
Six
hundred and thirty three (633) historically disadvantaged students were
supported.
·
In
building the research capacity in
3.2.
The Water Research
Commission supported a number of capacity building initiatives such as the:
·
Young
Scientists Awards.
·
Joint
venture in developing a framework for Education and Training in Water with
UNESCO.
·
SA
Youth Water Prize.
·
Development
of manuals and training material.
4. Distribution of research
project funds among key strategic areas (KSAs) – planned vs. utilised (cash
paid out) funds (2008/09 date in brackets)
|
KSA |
Planned % allocation of funds |
% of funds utilised for research projects |
|
Water resource
management |
31 (33) |
30 (34) |
|
Water-linked
ecosystems |
14 (14) |
14 (15) |
|
Water use and
waste management |
31 (3) |
31 (25) |
|
Water utilisation
in agriculture |
24 (23) |
25 (26) |
4.1. Number of projects and project distribution
|
Financial year |
2007/08 |
2006/07 |
|
Total number of
projects |
286 |
314 |
|
Number of
active projects |
216 |
243 |
|
Number of new
projects |
67 |
56 |
|
Number of
finalized projects |
70 |
71 |
|
Number of
active solicited projects |
75 |
67 |
4.2. Income indicators
|
Indicator |
Budget |
2007/08 Year
End (actual received) |
|
Levies as
percentage of total income |
87% |
85% |
|
Other sources
of income as percentage of total income |
13% |
15% |
|
Leveraged
income as a percentage of other income.* |
71% |
67% |
·
Leveraged
income includes all other income with the exception of interest received.
4.2.1. Consolidated Annual Financial Statements
·
The
WRC received an unqualified audit report with no emphasis of matter.
·
It
was in full compliance with the PFMA and International Financial Reporting
Standards.
·
The variance
between actual and budgeted income and expenditure is within the set
performance target of 10%.
4.2.2. Statement of
financial position (Balance Sheet)
·
The
financial position in terms of the balance sheet was stronger in the 2008/9
financial period in comparison to 2006/07.
·
There
was growth in investments amounting to R5.8 million due to buoyant equity
market and higher interest rates.
·
Trade
receivables were lower due to levy payment received before year-end.
·
There
were increases in cash and cash equivalents as well as cash held at year-end
are in respect of commitments to research projects that were awarded.
·
Increases
in trade payables totalled R10.5 million due to accruals for research
contractors.
4.2.3. Statement of
financial performance (Income statement)
·
Net
surplus of R15.0 million was recorded.
·
There
was an increase in revenue of R11.2 million, resulting from increases in the
water research charges, which is the WRC’s main source of income (constitutes
89.8% of its total income).
·
The
WRC leveraged additional income of R13.3 million and its operating expenses
increased by 5.0%.
4.2.4. Consolidated annual
financial statement for ERF 706 (Pty) Ltd
·
The
WRC owns a building, which is designated as ERF 706.
·
Although
it obtained an unqualified audit report, it reflected a net loss of R7 million
due to servicing the loans received from the WRC (for building improvements). Its
main source of income is derived from rent.
5. Non-financial aspects of
the work of the WRC
Capacity building
§
During
2008/09, the WRC supported 664 students, 65% of them are from historically
disadvantaged communities.
§
The
WRC supported:
o
Excellence
in water awards.
o
Young
scientists’ awards.
o
Joint
venture in developing a framework for education and training in water with
UNESCO.
o
The women
in water, sanitation and forestry awards initiative.
o
The
South African youth water prize.
o
Education
material focusing on water for school learners (Grades R-10).
o
The
water information network (WIN-SA).
Supporting
§
The
WRC continued to strengthen its role in
§
The
WRC continues to establish strategic relationships with the continent.
Knowledge dissemination
§
Effective
knowledge dissemination using innovative mechanisms and tools are an ongoing
challenge.
§
During
the year under review, the WRC has:
o
Published
108 research reports.
o
Conducted
action research.
o
Published
a book titled Our Water our Culture: a
Glimpse into
o
Organised
an open day focusing on its support to DWAF (for DWAF).
o
Published
Water SA and the Water Wheel (special edition of Water SA, May 2007, was
focused on Nutritional Value and Water Use of Indigenous Crops for Improved
Livelihoods).
o
Held
about 19 technical workshops (for example, climate change, citizen voice, and
sludge guidelines – 9 provinces).
o
Organised
a number of conferences (for example, Integrated Water Resource Management
2008, wastewater management conference) and participated and exhibited in many
local and international conferences.
Innovation and knowledge
application
§
The
WRC supports the development of new applied knowledge and water-related
innovations.
§
The
WRC strives to transfer innovative methodologies and practices to end-users
using different knowledge transfer mechanisms.
§
The
WRC has supported the commercialisation of products (where required).
§
During
2007/08, the WRC undertook a number of impact studies addressing the impact of
water research funded by the WRC.
6. Discussions and responses
In its oversight
of the annual report of the WRC, the committee raised the following issues:
·
Through
its media management initiatives, there was a lack of management in waste water
to custodians of water sources.
·
Clarity
was sought on the level of consultants employed by the WRC.
·
There
was a question on whether the WRC had any relationships with educational
institutions in the country.
·
The committee
wanted to know if the Department of Water Affairs and Forestry provided
adequate parental support to the WRC.
·
Sanitation
was problematic in rural municipalities, as they did not have funds to build
new sewerage plants, and what mechanisms did the commission use to assist
municipalities?
·
What
kind of support did the commission offer to previously disadvantaged students?
·
With
regards to water quality and soil degradation, the committee wanted to know how
often the department uses the WRC research.
·
To
what extent was WRC involved in acid mine drainage?
·
The
WRC was asked to comment on water scarcity.
In response to the above, the following was
detailed:
·
According to the commission, instruments to
relay information to the end user entailed various information dissemination
methods, such as print, electronic, radio, etc.
·
Partnerships with various institutions of
higher learning existed, for example, the WRC concluded a memorandum of understanding
with various tertiary institutions as well as SALGA.
·
The WRC acknowledged the use of its research
by the sector, not only the department.
·
The WRC reported that consultants were only
providing technical advice.
·
Departmental assistance to the WRC was based
on the mutual relationship and consultation to ascertain the needs.
·
The issue of sanitation was now under the
Department of Human Settlements, but the WRC has conducted research on dry
sanitation, composition of sludge, and urine separation. This is based on the
practice in
·
There was also a study conducted on the decentralisation
of sanitation services in the
·
About water quality degradation, a substantial
amount of research was undertaken. DWAF regions were consulted, and steering
committees formed.
·
The WRC noted that there are solutions to acid
mine drainage. This involves closing down the mines that are not in operation. Research
showed that a combination of mine acid and sewage was neutralised, it could
result in good use.
·
The commission remarked that there was no
water crisis for the near future but the problem was water management. Therefore, water usage and rainfall patterns must
be correctly monitored and managed.
Recommendations
The Committee recommends that:
·
TCTA should submit their BEEE strategy the
next time they present before the committee.
·
An oversight visit could be organised to visit
the TCTA projects, as well as the WRC offices.
·
The WRC should appear before the committee at
a later stage to provide a briefing on its views on issues of water scarcity.
Report to be considered.