The Budgetary Review and Recommendation Report of the Portfolio Committee on Water and Environmental Affairs on the Performance of the Department of Environmental Affairs for the 2011/12 Financial Year, dated 18 October 2012

 

The Portfolio Committee on Water and Environmental Affairs (the Committee), having assessed the service delivery performance of the Department of Environmental Affairs (the Department), reports as follows:

 

1. Introduction

 

The Committee, in undertaking the process of compiling this report, has interacted and engaged with the following source documents, and engagements with the Department and other stakeholders:

 

·                   Departmental quarterly expenditure trends briefings, to ascertain expenditure patterns.

·                   Through correspondence and briefings, the committee received progress reports on the departmental programmes and projects on the ground such as pollution and waste           treatment management and infrastructure, Expanded Public Works Programme, public         awareness campaigns and climate change mitigation and adaptation         programmes/projects.

·                   Annual report briefings, in terms of Section 65 of the Public Finance Management Act          of No.1 of 1999, which requires that Ministers table the annual reports and financial          statements for the department and public entities to parliament.

 

2. Department’s Strategic Priorities and Measurable Objectives

 

2.1 Strategic Priorities of the Department

 

The key strategic priorities, in line with the vision and mission of the Department, over the medium-term, comprise the following:

 

·         Support to local government in areas of air quality, waste management, coastal planning and open-space planning;

·         Strengthening compliance and enforcement on rhino poaching and environmental impact assessments;

·         Governance systems alignment with outcome 10 – Mining integrated permitting, environmental management frameworks and land use issues;

·         Draw linkages between climate change, green economy and sustainable development; and

·         Focus on key national and international engagements.

 

2.2 Measurable Objectives of the Department

 

Six (6) critical programmes determine the work of the department.   Within each of the programmes, the department identified a number of measurable objectives, which relate specifically to the purpose:

 

In Programme 1:  Administration and Support, the purpose is to provide strategic leadership, administration, executive support and corporate services.  Within this programme, and for the 2011/12 financial year, the Department achieved the following:

 

·         Achieved 11.5% vacancy rate (Target – 14%);

·         10.6% turnover rate (Target – 14%);

·         56% women representivity (Target – 56%);

·         65% procurement on BEE enterprises (Target – 58%);

·         10 public awareness and participation events (Target – 5);

·         55% share on media voice (Target – 55%);

·         2011/12 unqualified audit report; and

·         98% expenditure of the Department spent (Target – 98%)

 

The challenges encountered in this programme related to a delay in the initiation of the construction phase for the Department’s building.  Key issues that were outstanding have been concluded with the preferred bidder and construction will start in Quarter 1 of 2012/13.

 

The Department was unable to meet its target of employing 2% of people with disabilities due to an insufficient pool of relevant skill available, especially in scarce skills categories.  The strategy to address this is to be finalized for implementation in 2012/13.

 

In Programme 2: Environmental Quality and Protection, the purpose is to improve the quality and safety of the environment in order to give effect to the right of all South Africans to an environment that is not harmful to their health and well-being, the achievements for 2011/12 reflect the following:

 

·         100% (58/58) of all complaints/incidents received and processed (Target – 75%);

·         252 environmental management inspectors attended specialized training courses/capacity building interventions (Target – 60);

·         66 officials trained in environmental impact management (Target – 50);

·         60 ambient air monitoring stations reporting to the SA Air Quality Information System (SAA/QS) (Target – 42).

 

The key challenges noted in this programme focused primarily on: 

 

·         Target of inspections of 70 facilities could not be met due to financial constraints.  The Department only inspected 46 facilities;

·         Decision by industry to review the integrated waste management plans which meant the targets are being reviewed and not yet approved;

·         Baseline established for recovery of waste streams, but consultations and discussions with industry required more time than anticipated;

·         The target of 89% to process environmental authorizations within timeframes were not met due to the Department receiving significantly higher numbers of applications than  anticipated, which placed more strain on available resources; and

·         In relation to the finalization of environmental assessment and management strategy, the project proposals and costing of Theme 3 report exceeded the anticipated amount of R500 000.

 

 

 

In Programme 3:  Marine and Coastal Management, the purpose is to promote the conservation and sustainable use of marine and coastal resources to contribute to economic growth and poverty alleviation.  This is also aimed at facilitating transformation and job creation within the sector towards poverty alleviation in achieving this department.  The Department in this financial year achieved the following:

 

·         Draft Green Paper on Oceans Management policy developed as planned;

·         Draft estuary management protocol reviewed and approved by Cabinet;

·         Three relief voyages undertaken (Marion/Gough/SANAE) as planned;

·         Research on international methodology for shark and whale population estimation completed;

·         Bi-annual State of the Oceans Report compiled; and

·         25 peer review publications made (Target – 23).

 

The key challenges noted in this programme relate to:

 

·         Prince Edward MPA (PEI MPA) declaration – objections were raised during consultations in relation to targeted areas for declaration led to delays as additional time was required to finalise the process;

·         Needs analysis and system design for South African ocean and coastal information system – systems specification completed but the availability of expertise delayed progress in achieving planned annual targets.

 

In Programme 4: Climate Change, the key achievements noted:

 

·         National climate change response white paper approved by Cabinet and gazetted;

·         9 climate change provincial  summits were successfully convened;

·         The climate change response expo successfully hosted alongside the UNFCCC COP 17 conference in Durban in period 28 November – December 2011;

·         Four climate change sector adaptation plans finalized (biodiversity, water, forestry and agriculture).

 

The key challenges in this programme relate to:

 

·         The initiating of the Long Term Adaptation Scenarios (LTAs) process being delayed as the LTAs had to be aligned with National Policy and further consultations needed to be undertaken;

·         SAWS forecasting and South African risk and vulnerability atlas Phase 11 – Finalisation toolkit review is still in process as it required more time than anticipated; and

·         The transport GHG sector study delayed due to human resources constraints.

 

In Programme 5:  Biodiversity and Conservation, the purpose is to promote the conservation and sustainable use of natural resources to contribute to economic growth and poverty alleviation. The department, for the 2011/12 financial year achieved the following:

 

·         7.3 % hectares of land under conservation;

·         Five management plans finalized as planned;

·         100% of GMO applications assessed for environmental compliance;

·         31 398 ha of land rehabilitated and conserved;

·         100% (43) CITES applications received and evaluated;

·         100% (10) TOPS application received and evaluated.

 

In Programme 6:  Sector Services, Environmental Awareness and International Relations, the purpose is to promote a global sustainable developmental agenda, and the department, achieved the following:

 

·         Created 65 182 employment opportunities through the SRP/NRM programmes against a target of 48 084;

·         Used 846 small, micro-medium enterprises as part of DEA commitment to empower emerging businesses against a target of 250;

·         Planted 41 476 indigenous trees against a target of 10 000;

·         32 923 households benefited from collection initiates led by the department against a target of 30 000;

·         National strategy on sustainable development finalized and approved by Cabinet;

·         Facilitated 100 environmental education and awareness workshops; and

·         Created 49 746 accredited person days against a target of 32 675.

 

The key challenges reflected in the programme relate to:

 

·         The National Resource Management programme was transferred from the Department of Water Affairs in April 2011, and that transition contributed to delays in achievement of some of the planned annual targets as there was a need to align the work of the programme to departmental processes and to deal with human resource capacity issues.

 

3. Analysis of the Department’s 2011/12 Annual Report and Financial Statements

 

3.1 Expenditure trends for 2011/12

 

A cursory overview of the final appropriation in Vote 30 and the expenditure trends for 2011/12 reflects the following:

 

Programme

Final

Appropriation

Expenditure

Expenditure as %

Final appropriation

Variance

Administration

            293 995

           293 995

                  100

 

Environmental quality and management

            308 614

           298 016

                 96.6

             10 598

Oceans and coasts

             876 337

           876 337

                  100

 

Climate change

             137 163

           137 163

                  100

 

Biodiversity and conservation

             456 577

           456 577

                  100

 

Sector services, coordination and information management and international relations

          2 128 980

        2 046 461

                 96.1

             82 469

Total

          4 201 626

        4 108 549

                 97.8

             93 067

 

The spending trends in the Department reflected an under spending in Programme 2: Environmental Quality and Protection.  The reasons for under spending of R19 000 million related to the incorporation of Buyisa e Bag into the Department during December 2011 after the approval of the adjusted estimates.  The funds were still under Programme 2.  National Treasury granted approval to move the funds Programme 2 and to increase the transfer payments under the Social Responsibility Policy Programme under Programme 6.  The funds were therefore shifted to fund the waste management projects under the SPPP.

 

An amount of R9 100 million was under spent as the acquisition process and installation of the air quality monitoring stations were slower than anticipated.  Funds will be repriopritised during the 2012/13 financial year to fund the expenditure.

 

Virements

 

In relation to virements for the financial year under review, the Department shifted funds from Environmental Quality and Protection to Administration of an amount of R7 166 million due to administrative expenditure with regard to the hosting of COP 17 by the Department.  Funds from this programme were also shifted to Climate Change and Sector Services Coordination and Information Management and International Relations. The Department shifted funds from Biodiversity and Conservation to Climate Change, Oceans and Coasts. The Department shifted funds from Sector Services Coordination and information management and international relations to Oceans and Coasts to fund the additional cost for the additional voyages to Marion Islands as well as the shortfall as a result of exchange rate for the last instalment of the new polar research vessel.

 

Transfer payments

 

National Treasury granted approval to increase transfer payments for the following and after the adjusted Estimates of National Expenditure:

 

·         Increase in the transfer payment to South African National Parks (SANParks) with 4.5 million for the acquisition of two new machinery items;

·         Increase the transfer payment to SRPPP with R19 million to manage the waste projects incorporating into SRPP as a result of the incorporation of Buyisa e Bag into the Department; and

·         Increase the transfer payment to Working on Fire with R56.3 million to clear invasive alien plants in inaccessible areas and clear areas in risk of veld fires.

 

3.2 Report of the Auditor-General

 

·         The Department received an unqualified audit. 

·         The donor-funding audit for 2011/12 is in progress and will be finalised by end of October 2012.

·         In relation to unauthorised and irregular expenditure: Irregular expenditure was incurred in the current year and condoned by National Treasury during the 2012/13 financial year.

·         Disclosure items in the financial statements:  The Department complied with all disclosure requirements, classifications and policy frameworks as prescribed by Treasury.

·         Transfers to agencies and other organisations:  All transfers made are per prior management and Treasury approval as well as within disclosure requirements.

 

 

 

 

4.       Medium Term Expenditure Framework for Additional Funding Proposals

 

The Department of Environmental Affairs is well governed, compliant with relevant Treasury regulations and achieves satisfactory outcomes against the annual business plan. The department is however not nearly realizing its full potential and is, by admission of its own senior officials, hampered by the inadequate allocation that is appropriated to it each year, in addition to the lack of skilled human resources in some projects/programmes.

 

An overview of the baseline allocation over the MTEF was provided to ascertain the extent to which the Department would effectively undertake its work with the current allocations.  The baseline allocation for 2011/12 is R5 175 321 and over the medium term will increase slightly, reaching an amount of R5 358 739 in 2015/16. If one further breaks down the baseline allocation trends over the MTEF period per programme, money has already been allocated for capital assets or for earmarked funds, and cannot be shifted.

 

The Department argues that there is very little growth in funds, while there is growth in expenditure.  National Treasury has indicated that all departmental budgets will be reduced by 1% in 2013/14, 2% in 2014/15 and 3% for 2015/16.  Treasury also indicated that there may be no additional resource allocation in the first two years of MTEF, as priority will be given to infrastructure development.

 

The strategy adopted by the Department to National Treasury has been packaged according to the three priority areas adopted by Government – infrastructure investment, science-based priorities and job creation.  The table below provides a breakdown of the additional funding requests over the priority areas:

 

Priority Areas

2013/14

2014/15

2015/16

Notes

 

R’000

R’000

R’000

 

Infrastructure Investment

  303 889

      272 582

  477 640

To address the identified challenges related to infrastructure build programmes and lengthy authorization processes.

To develop an integrated permitting system to accommodate any current and future permitting/licensing/authorization requirements of the Department and its provincial/local government partners.

Protected area expansion, high performance computer system for meteorological purposes and waste services infrastructure.

Science Based Priorities

  284 818

      360 200

  387 600

Oceans and coasts hazards risk management, effective management and conservation of biodiversity and implementation of National Climate Change Response Strategy.

Job Creation

  775 020

   1 184 571

1298 210

Green Fund, Environmental Programmes: Working for Waste, Working for Coasts and People and Parks.

Total

1 363 727

   1 817 353

 2163450

 

 

 

 

 

 

 

 

5. Oversight by the Department of its entities

 

The following public entities report to the Minister

 

·         South African National Biodiversity Institute (SANBI)

·         iSimangaliso Wetland Park Authority

·         South African Weather Service (SAWS)

·         South African National Parks (SANParks)

 

All the entities listed above received unqualified annual audit reports.  However, SANBI received an unqualified audit with emphasis of matter on the following:

 

·         Material under spending resulting in a surplus at year end; and on

·         Financial and performance management.

 

6.  Committee’s Observations

 

The committee noted that the Department, at a strategic level, is doing good work, but required further clarity on the following issues:

 

Environmental impact assessment and environmental authorizations

 

There are many activities for which South African law requires an environmental impact assessment (EIA). The extent to which the EIA process is understood by industry is sometimes problematic.  A project requiring an EIA may make business sense but cannot be implemented before the relevant authority issues an authorization. 

 

The issue raised is the extent to which the Department designs mechanisms not only to enhance understanding of the processes to industry, but to citizens of the value of EIAs to sustainable development.

 

Environmental Assessment Practitioners Association of South Africa

 

The Environmental Assessment Practitioners Association of South Africa (ESAPA) was launched on 7 April 2011.  What is the current status of the ESAPA?

 

Access to national parks and conservation areas by more Black communities

 

The Department should begin to look at creative ways of ensuring that more Black people access national parks and conservation areas in South Africa.  Currently, the visitor numbers to parks is disproportionally skewed, and is cause for concern.

 

Integrated permitting

 

Fragmentation of the environmental regulation of air, land and water at national and local government levels.  Integrated permitting may have considerable potential for achieving greater regulatory integration.  

 

 

 

Compliance and enforcement on rhino poaching

 

Rhino poaching affects a number of parks at a national and provincial level. If the Department improves compliance and enforcement and thereafter displaces the function onto provincial parks and private owners. In light of the immense pressure of allocations to the Department, are there any other options being considered by the Department to look at sustainably protecting our rhino species in the future?

 

Green Fund – Working on Waste

 

There is currently a pilot project under the Green Fund for the Working for Waste progamme.  The approach does not only look at certain elements of waste but at the entire value chain.  The Department does not have the capacity to implement the project and therefore the management function is transferred to an implementing agent which receives a management fee of 12%. How is the Department monitoring and evaluating the process and outcomes of this project and when will the project be rolled out to the entire country?

 

Strategy adopted by the Department to motivate for increase allocations in the outer years

 

While excellent in terms of its forward thinking and planning, the broad generic scope of the strategy may hinder the Department receiving additional allocations over the MTEF period within its infrastructure development, job creation and science-based activities.  The reprioritization and structured approach to motivating for year by year allocations for specific projects and programmes would have been a better and more successful approach.  The Committee itself finds it difficult to request additional allocations from National Treasury for the Department in this financial year as the scope is too broad.

 

7.  Conclusion and Recommendations

 

The Department is performing quite well in its activities and programmes, but the Committee recommended that:

 

·         Department oversee the work of SANBI to correct the issues raised by the Office of the Auditor-General;

·         Prior to the Department drafting their strategic plan, the Committee meet with the two Departments, Water and Environmental Affairs and the Office of the Auditor-General to determine realistic indicators and targets;

 

The Committee understood the concerns raised by the Chief Financial Officer with regard to baseline allocations in the outer years, as well as the National Treasury reducing all departmental budgets by 1%, 2% and 3% over the MTEF.  In principle, the Committee supports the generic framework of motivations for additional allocations from National Treasury within the infrastructure development, job creation and science based priorities, but was concerned that the Department did not carefully and strategically limit its prioritization list from year to year. 

 

The Committee supports additional allocations for the conservation, infrastructure, and integrated permitting issues.

 



The Budgetary Review and Recommendation Report of the Portfolio Committee on Water and Environmental Affairs on the Performance of the Department of Water Affairs for the 2011/12 Financial Year, dated 25 October 2012

1.         Background

 

The Money Bills Amendment Procedure and Related Matters Act, 2009, Act No. 9 of 2009 (the Money Bills Act) requires the National Assembly to review the Annual Report and conduct annual assessments of the performance of each national department with regard to the medium-term estimates of expenditure and the strategic priorities and measurable objectives of each National Department of government. 

 

The Portfolio Committee on Water and Environmental Affairs (the Committee) having considered the Annual Report, reviewed and assessed the Strategic Plan, having received a briefing on the attainment of the Millennium Development Goals (MDG) in the water sector, and having assessed the service delivery performance and financial governance of the Department of Water Affairs (the Department), for the 2011/12 financial year, reports as follows:

 

2.  Introduction

 

The governance of water resources management in a water stressed country such as South Africa has had to contend with the legacy of skewed distribution of water that characterised the period prior to 1994.  The emergence of a democratic system has allowed for the reform of the water sector in relation to policy, organisational structure, water rights and regulatory functions including the allocation of water resources, drinking water quality and public health, quality of effluent discharges and protection of the water environment. Important legislation that has been passed includes the National Water Act, No. 36 of 1998 and the Water Services Act, No.108 of 1997.  The vision, mission and values of the Department has come to strongly embody the concept of people-centred service delivery, based on the strong underpinnings of transparency, respect and excellence.

 

Of primary importance in the South African context is the success of service delivery, and the extent to which institutions of service delivery are accountable to the citizens.  Institutional changes, which ensure that service providers are accountable to all citizens, are an important political imperative. Undertaking such changes on a pilot basis is difficult enough, scaling it up across jurisdictions and sustaining it over time, is a daunting challenge.  Yet, it is precisely the scaling up of institutional change that is needed to ensure that the goal of universal access to reliable basic services is realised. Whilst the Department has made immense progress in ensuring access to water to the citizens of South Africa, the financial performance and correlation of indicators to targets during this financial year requires further scrutiny.

 

 

 

 

The Committee, in reviewing the work of the Department in the 2011/2012 financial year placed emphasis on the following aspects:

 

·         An overview and analysis of the Department’s strategic priorities, measurable objectives, indicators and attainment of targets;

·         An overview of the service delivery environment of the Department to contribute to the 12 Government outcomes;

·         An overview of the overall performance of voted funds: Vote 38 and Water Trading Entity;

·         Achievements and challenges in the service delivery environment;

·         Committee observations; and

·         Recommendations.

 

2.  Department’s Strategic Priorities

 

In the course and prior to the 2011/2012 financial year, the Department has grappled with and made some headway in addressing the following:

 

·         Separating the responsibilities for the Main account and the Trading account to address inefficiencies in financial management;

·         Addressing the aging computer network infrastructure;

·         Facilitation of access to water services through the Regional Bulk Infrastructure Grant (RBIG) with a focus on rural communities in Limpopo, Kwazulu-Natal and the Eastern Cape;

·         The implementation of the seven water resources infrastructure augmentation projects and maintenance of the existing national dams and conveyance projects;

·         Policy adjustments related to the legislative review (National Water Act, Water Services Act, and Water Research Act), National Water Resources Strategy and the realignment of institutional arrangements to enhance water resources management and service delivery;

·         Establishment of a rapid response unit for support on technical water-related emergencies for municipalities (for example, floods, droughts and pollution of water); and

·         Implementation of proactive water services interventions.

 

To assist the Department in attaining its key priorities over the medium-term and to strengthen the Department’s ability to carry out its functions, the Minister appointed a committee of experts in June 2011 to review and re-engineer the Department’s business processes to ensure that functions are carried out efficiently.  The Committee is expected to make recommendations on optimal approaches to restructuring the Department to address backlogs in the rehabilitation and refurbishment of national bulk water infrastructure, integrate bulk water infrastructure with reticulation infrastructure at the local level, support improvements in the management of wastewater treatment works within local government, and improve the financial position of the water trading entity. 

 

 

 

3. Overview of the service delivery environment of the Department to contribute to the 12 Government outcomes

 

Within the outcomes-based performance management framework adopted by Government, the Department contributes to two critical outcomes:  the development of an efficient, competitive and responsive economic infrastructure network (outcome 6), and the protection and enhancement of environmental assets and natural resources (outcome 10).  The Department contributes to these outcomes by ensuring the maintenance and supply availability of the country’s bulk water infrastructure, protecting and enhancing environmental assets and natural resources, and improving water quality and quantity of water resources.

 

During the year under review, the Department focused its service delivery programme on the following six strategic priorities, informed by the twelve government outcomes. Within the Main Exchequer Account and Water Trading Entity, the following priorities gave effect to Government outcomes:

 

3.1     Economic growth, rural development, food security and land reform

 

This priority was implemented with consideration of broad objectives outlined in outcomes 6, 7 and 9, which talk to the contribution of infrastructure to economic development, rural development and support to local government.  During the year under review, the Department cumulatively created 4 505 job opportunities through the Regional Bulk Infrastructure Programme (RBIG).  The programme completed five (5) bulk infrastructure schemes for the availability of water supply for domestic use.  A total of 4 174 additional resource poor farmers had access to water while 598 776 additional people, as informed by the Municipal Infrastructure Grant (MIG) allocations, were provided with access to water.  A total of 8 068 rainwater harvesting tanks were distributed, 6 308 of which were for access to water and 1 760 for food production.

 

3.2     To promote sustainable and equitable water resources management

 

This priority is driven by the programme that ensures that the country’s water resources are protected, used, developed, conserved, managed and controlled in a sustainable manner for the benefit of the people and the environment through effective policies, integrated planning strategies, knowledge base and procedures.  It further addresses government outcome ten (10) which ensures that the country maintains environmental assets and natural resources that are well protected and continue to update a range of strategies for water management.  The following frameworks have been on the agenda of the Department during the year under review:

 

·         The National Water Resource Strategy;

·         The Pricing Strategy;

·         Desalination Strategy;

·         Ground Water Strategy; and

·         Re-use Strategy.

 

3.3     Strengthening the regulation of the water sector

 

This priority is to address issues around the regulation, governance and control of the use, development, conservation and management of water throughout the value chain within the context of the relevant legislation.  To facilitate access to water for historically disadvantaged groups a process of compulsory licensing was undertaken in a number of areas including Tosca, Jan Dissel and Mhalthuze. Reports have been completed which will lead to redistribution and final water use authorisations.

In an effort to improve the issuing of water use licenses to various water users, the Department has established a dedicated backlog eradication programme, known as Letsema.  Since the inception of Letsema, 3 358 applications dating from 2001 to 2010 have been finalised, leaving a backlog of 549 applications.

 

The Department also facilitated the improvement of the regulation of drinking water quality through compliance, monitoring and enforcement. The Department of Water Affairs had in a previous financial year introduced incentive-based regulation in the form of the Blue and Green Drop Certification Programmes as a means to improve drinking water quality and wastewater service respectively.  These programmes were designed and developed to inspire managers, specialists, and practitioners alike towards excellence; based on the simple principles of setting stringent criteria; subjecting municipalities to thorough auditing; ensuring improvement through consultative auditing; and revealing performance by means of annual publications.

 

3.4     Support local government to deliver water services

 

To contribute to Government Outcome 9, which facilitates a responsive, accountable, effective and efficient Local Government system; Programme 4 of the Department coordinates the Department’s service delivery plan and strategic objectives at the regional level.  The programme is also charged with supporting service providers to ensure the acceleration of providing water to communities.

 

4.  Overview of attainment of targets to specific indicators

 

There is reasonable progress in some of the key projects and slow progress in other projects, as will be gleaned from below:

 

4.1     Regional bulk infrastructure programme (RBIG)

 

On infrastructure projects, the following progress was achieved:

 

·         91% of the Inyaka Water Treatment Works was completed against a target of 98%;

·         On the Nandoni Water Distribution Network and Water Treatment Works, its achievement is 58% against a target of 79%; and

·         On the construction of the Nandoni Pipeline, its performance is 20% against a target of 27%. For Hluhluwe, the Department’s percentage progress exceeded the targeted percentage by 1% (93% versus the target of 92%). 

 

The Department has also completed five (5) bulk infrastructure schemes out of a target of seven (7) schemes.  The main reasons for the under-achievement vary from the delayed appointment of professional service providers to tender bids being awarded late.

 

4.2     Local government support

 

A total of 68 municipalities have been supported in implementing water conservation and water demand measures to reduce water losses against a target of 62 municipalities.  The higher achievement is due to the interventions that were in place to support municipalities through the Department’s Accelerated Community Infrastructure Programme (ACIP) and donor funding.

 

4.3     Water schemes

 

A total of 52 water schemes have been refurbished against a target of 51 schemes.

 

4.4     Water licenses

 

Although 93 water licenses were issued to Historically Disadvantaged Individuals against a target of 1 088 licenses, this is because licenses are demand driven and insufficient information from applicants delayed the evaluation process.

 

5.  An overview of the overall performance of voted funds: Vote 38 and Water Trading Entity

 

5.1     Overview of financial statements on Vote 38 for the 2011/12 financial year

 

The spending focus over the medium term of the Department will be on developing bulk water infrastructure, to accelerate delivery of water services to households, agriculture and industry.  The Department will also focus on strengthening economic regulation within the water sector.

 

Spending increased from R5.1 billion in 2008/09 to R9 billion in 2011/12, at an average annual rate of 20.6 per cent.  This is driven by the increase in expenditure on the development of the bulk water infrastructure, which includes funds allocated for the construction of new dams and ancillary infrastructure, and rehabilitating and repairing existing bulk infrastructure in line with government's renewed emphasis on infrastructure development.

 

Transfers and subsidies expenditure increased from R2.7 billion in 2008/09 to R3.5 billion in 2011/12, at an average annual rate of 9.2 per cent, as a result of the development of bulk water infrastructure.  These included funds allocated for the construction of the De Hoop Dam and ancillary infrastructure such as distribution pipelines for the Nandoni Dam, and the rehabilitation of repair and existing bulk infrastructure.

 

 

 

The table below reflects the spending trends of the Department over the current financial year.

 

 

Budget 2011/2012

YTD Expenditure

     Variance

% spent

% Variance

Under

Expenditure

Programme

         R 000

           R 000

      R 000

 

 

Administration

     878 379

       781 491

      96 888

      89%

               11%

Water Sector Management

     852 351

       511 807

    340 544

      60%

               40%

Water Infrastructure Management

  2 384 963

    2 384 020

           943

    100%

              0.0%

Regional Implementation and Support

  4 774 145

    4 375 501

    398 644

      92%

              8.4%

Water Sector Regulation

     112 370

         91 153

      21 217

      81%

            18.9%

International Water Cooperation

       26 111

         20 934

        5 177

      80%

            19.8%

Total

  9  028 319

    8 164 906

    863 413

   90.4%

 

 

The Department had spent R8.1 billion of the total allocation of R9 billion, which represented 90.4% of the total expenditure of the Department.  In terms of spending trends within the programmes of the Department, the following Programmes under spent on their allocations for the 2011/12 period. Programme 1: Administration by 11%; 40% on Programme 2: Water Sector Management, 8.4% on Programme 3: Regional Implementation and Support, 18.9% on Programme 4: Water Sector Regulation and 19.8% on Programme 5: International Water Cooperation.

 

The under expenditure in Administration related to an allocation of R34 million that could not be spent in respect of the Business Process Review (BPR) as the BPR Committee was appointed in the middle of the financial year.  Unfilled vacant posts in Administration amounted to R12 million; goods and services amounted to R32 related to accrual and commitments, machinery and equipment amounted to R16 million while funds, in respect of the Learning Academy amounted to R2.3 million.

 

The under expenditure in Water Sector Management related to an allocation of R250 million for the response to Acid Mine Drainage (AMD) in the Witwatersrand, where unforeseen delays in finalising the detailed design for infrastructure resulted in under spending.  A further R18 million could not be transferred to Bushbuckridge Water Board due to a decision taken not to transfer funding.  Subsequent to this decision, the Department reconsidered the decision and a resolution was taken that the funding be transferred in order to refurbish the ailing infrastructure of the water board.  Under this programme, were unfilled posts, including Occupational Specific Dispensation (OSD) posts amounting to R54 million and an under expenditure on goods and services amounting to R18 million due to accrual and commitments.

 

The spending on Programme 3: Water Infrastructure Management was at an acceptable level. The Programme managed to make use of its allocated budget, which reflected an insignificant variance.

 

The under expenditure in Programme 4: Regional Implementation and Support related to an allocation of R209 million not being spent on water services projects such as the Nandoni Pipeline, Hluhluwe and Inyaka.  The approval of service providers took longer than anticipated.  In respect of Moutse Bulk Water Supply, an amount of R20 million could not be spent as the payment could not be captured before the payment cut-off date.  Unfilled vacant posts, including OSD posts amounted to R88 million.  Material ordered for regional bulk infrastructure projects were not delivered at year-end.  This amounted to R81 million.

 

The under expenditure in Programme 5: Water Sector Regulation was due to accruals and commitment amounting to R5 million in the Goods and Services subprogramme.  Unfilled vacant post, including OSD posts amounted to R16 million.

 

The under expenditure in Programme 6: International Water Cooperation reflected an allocation of R3.7 million due to a number of planned international engagements not taking place.  This was mainly attributed to political dynamics and postponements of certain activities in certain countries.  Unfilled vacant posts amounted to R1.4 million in this programme.

 

5.2     Overview of financial statements of the Water Trading Entity for the 2011/12 financial year

 

The Water Trading Entity (WTE) performs two functions: water resource management and infrastructure management.  Water resource management deals with the management of water quality, conservation and allocation of water through the catchment management agencies or proto- catchment management agencies (regional offices).  Infrastructure management deals with the operation and maintenance of existing infrastructure as well as the development of new infrastructure.  To fund the development of new infrastructure, the entity receives an allocation from the Department.  Funding for operation and maintenance comes from revenue generated from raw water charges.  Water resource management charges cover the operational costs of catchment management agencies.

 

The basis used to prepare the WTE financial statements differed from the processes used by the Department.  The WTE changed its accounting framework from the International Financial Reporting Standard’s (IFRS) Generally Accepted Accounting Practices (GAAP) to the Accounting Standards Board’s (ASB) Government Regulated Accounting Practices (GRAP).  The WTE adopted GRAP for the first time in 2011/12, which resulted in the re-classification and re-measurement of certain annual financial statement items. 

 

The increase in revenue (24% compared to 2010/11) resulted primarily from increase in water consumption volumes from some of the Department’s major customers and the annual tariff increase.  There was a decrease in expenditure (11% compared to 2010/11) due to the following:

 

·         Operating expenditure decreased by 6% due to the construction costs, which decreased by R20 million emanating from less spending on Nandoni replacement of GRP pipes due to delays in appointing PSPs.  The pumping cost decreased by R23 million due to less pumping demand on the Vaal river system.  Travelling costs also decreased by R33 million;

·         There was an increase in employee costs (7% increase compared to 2010/11) due to annual salary adjustments; and

·         A decrease in impairment on financial assets of 78% due to the management analysis that the historic plus current impairment provision on debtors is sufficient.  This is perceived as a revenue turnaround plan.

 

There was an increase in total assets (2% compared to 2010/11), due to the following:

 

·         Increase in cash and cash equivalents by 46% due to improvements in cash collections;

·         Receivables from exchange transactions have increased by 30%.  Although revenue from ‘water sales’ has also increased by approximately 30%, much work is still required to ensure that debt collection is improved;

·         Property, plant and equipment increased by 1% (R925 million) primarily due to an increase in Asset under Construction of some R1.1 billion reduced by an increase in depreciation of R269 million compared to 2010/11; and

·         Increase in total liabilities (1% compared to 2010/11, an amount of R236 million) resulted mainly from an increase of R160 million in the provision required for dam safety rehabilitation.  There is still some work required to enhance the processes involved in the formulation of the dam safety rehabilitation.  There was also a marginal increase in TCTA financial liability compared to the previous year.

 

6.  Report of the Auditor-General

 

The Committee has noted with satisfaction that the Water Trading Entity has moved from a disqualification to a qualified audit with emphasis of matters. Based on the audit report of 2010/11, which highlighted 19 audit recommendations, management of the WTE implemented or devised alternative actions to resolve the prior year audit findings.  Fifteen (15) recommendations are still in the process of being implemented.

 

The Department in its Main Account too has begun the process of improving on its financial management, and this may improve in the future years. In relation to the Main Account (Vote 38), the Department received a qualified audit on issues relating to expenditure for tangible assets and prepayments and advances, goods and services, irregular expenditure, commitments, immovable tangible capital assets, movable tangible capital assets, contingent liabilities, and loans. An emphasis of matter was given on material under spending of the vote and financial reporting framework.

 

In relation to the WTE, the Department received a qualified audit with emphasis of matters on the following:

 

·         Inadequate review and monitoring of compliance with applicable laws and regulations;

·         Poor review and monitoring to ensure accurate and complete daily and monthly financial and performance reporting; and

·         No reliable evidence to support regular, complete and accurate financial and performance reports;

 

The WTE has a shared internal audit division with the Main Exchequer Account, the division did not have adequate personnel to carry out its mandate, and as a result, the internal audit function is not effective.  Two audit committee members resigned and they have not been replaced.

 

The Committee was particularly concerned by the overview provided by a representative from the office of the Auditor-General.  The particular emphasis was on the risks posed in the public sector if no effective checks and balances were systematically undertaken in the internal units. A number of issues in the Department should be dealt with proactively instead of reactively and these could be achieved if the Department committed to the submission of quarterly reports. 

 

On Procurement, the Committee was extremely concerned at some of the flaws and risks identified in the procurement system of the Department.  This entailed deviations from the procurement process due to lack of proper planning by project managers which lead to projects being outsourced through deviations from normal procurement processes.  A deviation from procurement processes can facilitate the risk of utilisation of favourite service providers, and compromises the procurement process as the market and value for money is not properly tested.  It can also disadvantage other companies who might want to enter the market.

 

On irregular expenditure, the Department showed a number of cases of irregular expenditure which resulted in poor/bad planning where appropriate approval is not sought.  Lack of contract management skills in the Department and lack of accountability where non-Supply Chain Management practitioners perform Supply-Chain Management function poses major risks to the Department.

 

On the findings of performance against predetermined objectives, compliance with laws and regulations and internal control, the audit reflected the following:

 

·         The reasons for major variances between the planned and reported (actual) targets are not adequately explained;

·         In terms of measurability, the performance indicators are not well-defined;

·         The performance indicators are not verifiable;

·         Targets are not measurable;

·         Performance targets are not specific; and

·         The validity, accuracy and completeness of the actual reported performance relevant to 82% of Programme 1 and 4.

 

7.  Oversight by the Department over its Entities

 

Due to time and other constraints, the Committee could not call each of the entities to the Budgetary Review and Recommendation Review hearings. The Department presented the relevant information to the Committee on the following entities:

 

·         Trans-Caledon Tunnel Authority (TCTA)

·         Water Research Commission (WRC)

·         Catchment Management Agencies: The Breede-Overberg Catchment Management Agency (BOCMA) in the Western Cape and the Inkomati Catchment Management Agency (ICMA) in Mpumalanga

 

7.1     Trans-Caledon Tunnel Authority (TCTA)

 

The TCTA, for the financial year under review funded and implemented the following primary projects – the Lesotho Highlands Water Project (LHWP) in relation to the South African portion of the delivery tunnel, the Berg Water Project (BWP), the Vaal River Eastern Subsystem Augmentation Project (VRESAP), the Mooi-Mgeni Transfer Scheme Phase 2 (MMTS2), the Komati Water Scheme Augmentation Project (KWSAP), the Olifants River Water Resource Development Project Phase 2 (ORWRDP2), the Mokolo-Crocodile River Water Augmentation Project Phase 1 (MCWAP1), the Metsi Bophelo Borehold Project (MBBP) and issues relating to Acid Mine Drainage (AMD), which in the main, focused on the pump station and treatment plant on the West Rand.

 

In terms of the performance of the TCTA, the focus was on the deficit for the 2010/11 and 2011/12 financial years.  The audited results for 2010/11 recorded a R24 million surplus and this had been restated to a deficit of R284 million in the current financial statements.  The overall reason for the restatement was due to a change in accounting policies applied retrospectively to 31 March 2011, in accordance with the International Accounting Standards Presentation and Disclosures, related to construction assets, previously recognised as property, plant and equipment and intangible assets. 

 

In terms of borrowing rates and/or credit rating, the TCTA had gained and maintained market credibility that enabled it to access off-budget funding for projects at excellent rates.  The TCTA obtained a ‘clean’ audit report for the 2011/12 financial year.

 

7.2     Water Research Commission (WRC)

 

The Water Research Commission (WRC) derives its mandate from the Water Research Act, Act No. 34 of 1971.  During the 2011/12 financial year, the WRC continued to leverage levy income by striving to obtain funds from other sources to support water research.  During the year under review, the WRC managed 322 research projects at various stages of project life cycle, of which about 79% (259 projects) were active projects.  In addition, 133 reports were published.

 

The WRC obtained an unqualified audit with matters of emphasis relating to IT systems and procurement.

 

7.3     Overview of Catchment Management Agencies

 

The National Water Act, 1998 mandates the Minister of Water and Environmental Affairs to establish Catchment Management Agencies (CMAs) for the management of water resources at the catchment level.  In March 2012, the Minister of Water and Environmental Affairs approved the establishment of nine CMAs in nine water management areas and these have been gazetted for public comment.  The Breede-Overberg CMA (BOCMA) in the Western Cape and the Inkomati CMA (ICMA) in Mpumalanga are the two operational CMAs in the country.

 

The BOCMA and ICMA have made significant and effective strides in positioning the entities to fulfil the mandate of protecting, using, conserving, managing and controlling water resources in and equitable and sustainable manner while appropriately involving all stakeholders in their WMA.  Key strategic challenges of skills and capacity building are being addressed and overall the performance over the reporting period has been satisfactory. Both CMAs received unqualified audits with no matters of emphasis.

 

8.  Committee’s Observations

 

The Committee has noted a significant improvement, as stated in the report of the Auditor-General, in relation to the financial management of the Water Trading Entity and the Main Account of the Department. The Committee commended the Department’s work towards attaining the Millennium Development Goals in relation to the water sector. The Committee acknowledged that institutional changes are in progress in the Department, and whilst an overview was provided, detailed briefings on an ongoing basis on certain issues would require further scrutiny by the Committee.

 

Variances in attainment of performance indicators/targets against specified indicators/targets

 

Concerns were raised on whether the targeted outcomes of the Department not being attained in the financial year resulted in the Department receiving an adverse, qualified or disclaimer audit.  The methodology and criteria used by the Department on ascertaining specific performance indicators/targets during its planning and drafting of its strategic plan needed further scrutiny to aid in better management and assessment of performance.

 

The criteria and methodology at which the present performance indicators/targets are being arrived at need to be engaged with. A pre-audit is required to look at the usefulness of targets and whether they are meaningful, attainable and time-bound to meet the requirements set by the National Treasury.  There needs to be a linkage between the strategic plan and the budget.

 

Human Resources Issues within the Occupational Sector Dispensation

 

The vacancy rate in the Department across all programmes is quite high, and of concern to the Committee. However, of particular importance is the unavailability of professional specialists (namely engineers, technicians, project managers, amongst others) within the Occupational Sector Dispensation.  This impacts negatively on the implementation of projects, and may compromise the efficacy of attaining the Department’s core objectives, that is, the provisioning of bulk water infrastructure for effective water service delivery.  The Committee requested further details on the way in which the Department would address the issue.

Appropriate infrastructure delivery mechanism

 

The Committee urges further engagements with the Department on the appropriate and optimum mechanism or vehicle through which water infrastructure provisioning should take place.  In this context, questions were raised about the transfer of assets from the Trans-Caledon Tunnel Authority (TCTA) to the Department and the ability of the TCTA, without assets on its books, to borrow from capital markets and financial institutions.  The Committee would like to start a conversation with the Department on optimal funding arrangements for the TCTA.

 

Procurement challenges

 

The Committee noted that one of the principal weaknesses in the Department is in the area of procurement, and maintained that there should be appropriate checks, balances and protocols in place to prevent problems in this regard.  With regard to the WTE, the Auditor-General could not ascertain whether full disclosure was achieved in terms of irregular expenditure.  There were a number of issues that constituted irregular expenditure due to disclosure problems in relation to procurement.

 

The Committee requested a report from the Department on all problems related to procurement and the way in which the Department would handle these critical issues.

 

Financial controls responsibility of Chief Financial Officer (CFO)

 

A number of instances of financial accountability and irregularity in the regions were noted and this required immediate action.  The Committee is of the view that all financial aspects in regions and other branches should have oversight from and be under the control of the national office. Therefore, the regional and other branch officials dealing with financial matters should be reporting to the Chief Financial Officer (CFO). The Committee wanted assurance from the Director-General (DG) that these issues would be addressed, and further requested that by the end of the year an implementation plan be presented to the Committee reflecting the implementation of these changes.

 

Water infrastructure and services for human and economic development

 

In South Africa, a major challenge concerning water infrastructure is to ensure sustainable water security for economic livelihoods, growth and development, as well as environmental protection. In light of the economic climate, the key focus must be on the effective utilisation, maintenance and management of existing infrastructure, as well as timely planning and development of new infrastructure.  A key issue is the need to ensure the effective functionality and management of these schemes and associated infrastructure.

 

The key risk and/or success factors are timely planning, appropriate solutions, new and appropriate technology, skills and capacity (for effective project and operational management), appropriate institutional arrangements, as well as financing and financial management.  In dealing with this, it is important to ensure effective use and management of water resources (water use efficiency), culture and attitude, as well as effective governance.  Water security should cover the water resources management across the full value chain:  from source to tap and tap/waste to source.   This includes effective waste management and associated infrastructure. This approach has major implications on aspects of integrated planning, programme alignment; water services development planning and outcomes based management.

 

To address key risk and/or success factors extended partnerships with municipalities, and the agricultural, industrial (including mining), energy and business sectors is required. A core concern is the way in which some municipalities are managing infrastructure and associated grants. Other challenges faced by municipalities in relation to infrastructure relate to operational budgets for service delivery and funding to maintain the current infrastructure.  In cases where municipalities have taken the additional infrastructure, the requisite skills to function effectively is limited due to limited technical staff. Another concern is the fact that some municipalities, after the demarcation process, are required to deliver, operate and maintain services across much larger areas than previously.

 

To address this, the Department has entered into a collaborative arrangement with COGTA, which includes work streams covering accelerated delivery, high-risk areas, debt recovery, and finance and skills development.   It was noted that functionality of water infrastructure does not at present form part of the mandate of this arrangement.

 

Furthermore, the Department embarked on the development of a national water investment framework and the development of an interim basic service programme focusing on 24 priority district municipalities, mainly in Kwazulu-Natal, Limpopo and Eastern Cape.

 

Relevance of research undertaken by the Water Research Commission

 

On the relevance of the research undertaken by the Water Research Commission (WRC), the Committee requested clarity on whether the research produced was benefiting anyone apart from the academics who researched and published the research.  While there was acknowledgement that the WRC was conducting some work of very high importance to the water sector, the Committee was of the view the WRC needs to increasingly reflect on the overall value of all its research to the South African water sector and determine methods that measure the usefulness of its research outcomes, especially for Government at all levels.

 

The Committee was of the view that the WRC should sit down with the Department to discuss performance indicators in the WRC’s strategic plan. The South African Law Reform Commission may be a good example of the type of strategic research that can be provided to a Department. . The South African Law Reform Commission undertakes research on behalf of the Department of Justice and Constitutional Development. Research is aimed at problems being experienced in the justice system. The Water Research Commission could look at a similar process. This would assist when evaluating performance indicators at the end of the year and would give meaning and value to performance auditing.

9.  Conclusions and Recommendations

 

The Committee acknowledges the successes attained by the Department during this financial year. Most notably, the movement of the financial statements of the Water Trading Entity (WTE) from a disclaimer over the last few years to a qualified audit is praiseworthy.  Although, the financial statements of the main account of the Department remains a qualified audit, the Auditor General’s assessment that the financial affairs of the Department has improved significantly, in some respects, is very encouraging and must be acknowledged. The improvement of the financial management system of both the Main Account of the Department and of the WTE, is a substantial step in the right direction in terms of sound financial management. 

 

In light of the above, the Committee recommends the following:

 

·         It was difficult for the Committee to assess the performance indicators/targets of the Department, as contained in the Annual Strategic Plan of the Department, as the Committee was not part of the process of determining these performance indicators/targets.  The Committee needs to sit down with the Department and the Office of the Auditor-General to agree on the criteria for deciding the annual performance indicators/targets and to assess if performance indicators/targets for the current year were justified and relevant. Two days, in January 2013, will be set aside to deal with these issues and to discuss how best to work towards the determination of realistic performance indicators/targets for the Department;

·         The Committee will convene a workshop, at the beginning of next year, of relevant Portfolio Committees (Human Settlements  and Cooperative Governance and Traditional Affairs), with the Department of Water Affairs and the Department of Environmental Affairs, together with other relevant stakeholders and government Departments, like Departments of Human Settlements, Cooperative Governance and Traditional Affairs and Treasury,  to discuss cross-cutting issues in water and environmental governance and service delivery;

·         With reference to Goal 7 of the MDG relating to water services issues, performance indicators/targets are only made applicable to access to water infrastructure, whereas functionality of such infrastructure does not form part of the performance indicators/targets.  Therefore, specific performance indicators on the functionality of water infrastructure should be developed for South Africa, for all levels of government. Furthermore,  functionality of infrastructure must be reflected in the Department’s strategic plan and reflected as part of the performance indicators/targets;

·         The Department and the Department of Local Government have established a structure to process cross-cutting issues relating to water services and provisioning. The Committee proposes issues of functionality of water infrastructure should be included within the mandate of this structure;

·         The Committee strongly recommends that the Department urgently embark on the drafting of a national water services strategy;

·         The Department should create a facility/database to assess and monitor incidents of vandalism and destruction of water infrastructure and record the losses in each instance, and annually report to the Committee in this regard;

·         The Committee expects a detailed plan on all procurement challenges faced by the Department. as well as the strategies to be followed  by the Department to resolve these problems;

·         A detailed report should be provided to the Committee on the way in which the WRC undertakes research on relevant, current and critical water issues facing South Africa, and how the WRC intends to measure the effectiveness of its research outcomes, including the establishment of relevant performance indicators/targets;

·         The Department and TCTA must engage with the Committee on a possible appropriate infrastructure provisioning mechanism for the Department, including future funding models for the TCTA, and whether TCTA should have some capital assets on its books;

·         A list of pending disciplinary cases involving senior staff needs to be provided to the Committee, along with recently completed disciplinary cases; and

·         The Department in its reporting of oversight of entities next year should also include water boards and water user associations.

 

 

 

 

 

 

Report to be considered.