Water Boards' Annual Reports 2006/07

Meeting report

Botshabelo Water Board
The Botshabelo Water Board was represented by Ms S Lebek–Rathegane (Board Chairperson); Mr M Dikoko (Board member), Ms M Bokgwathile (Director: Corporate Service & Acting CEO), Ms Nellie Baai (Director: Operations) and Mr Solly Bokaba (Incoming CEO).

Ms Rathegane introduced the board members and handed over to the Acting CEO Ms Bokgwathile for the presentation. Ms Bokgwathile said the Botshabelo Water Board was one of those presented by the Department of Water Affairs that was unable to come up with an annual report for 2006/07. She said the previous board’s term of office had ended in December 2006. Afterwards the Botshabelo Water Board was without a board for six months, from January 2007 until June 2007. Between 1 July 2006 and 30 November 2006, she as a senior manager was appointed to act as the chief executive officer and their consultant was appointed as the acting finance manager. The new board was appointed on 1 July 2007. Unfortunately the CEO who was appointed in 2006 decided to resign in October 2007.

Mr J Combrick (ANC) raised a point of order against the Board. He said if the Board was one of those that did not submit annual financial statements to Parliament, how was it going to present to the Committee without having provided its annual financial statements first.

The Chairperson suggested that the Board not make a presentation because of that particular problem. She said the Committee would have to ask legal opinion regarding the problem with the Board. The Committee would liase with the Board afterwards. She ruled that Botshabelo Water Board not present to the Committee.

Albany Coast Water Board presentation
Mr David Nicoll, CEO, said that although the Board was small, it was important to the people to whom they supplied water. He said for the year ending 30 June 2007, Albany Water Board had provided 511 753 megalitres of good quality potable water to approximately 25000 people within a 15km radius of Bushman’s River Mouth. He then highlighted some challenges such as the rapidly growing population of indigenous people.

Bloem Water Board presentation
The Bloem Water Board was represented by Mr Ockie Stadler (Chief Financial Officer); Ms Nolene Morris (Chief Executive Officer) and Ms Mampiti Matsabu (Chairperson of the Board).

Ms Matsabu, the board chairperson, gave the Committee an overview of Bloem Water Board’s performance. She said the board and board committees in place exercised oversight and gave strategic direction to the organisation. This resulted in increased confidence by the board in the management team’s ability to take Bloem Water into the future .

During the latter part of the 2006/7 financial year, a transformation strategy had been developed and then approved in July 2007. The transformation strategy was not merely an adjustment to managerial control, it involved a composite package of adjustments to work organisation and allocations to address operational challenges including addressing under-utilisation of skills. The strategy meant adjustments to grading of positions and consequent wage and benefits adjustments within the context of the financial positioning of Bloem Water. The strategy meant changes to industrial relations spanning the spectrum from relations with organised labour to enforcing team work and consultation to reducing the length of time for processing disciplinary action and the implementation of performance management. This ended the legacy of industrial relations characterised by conflict and confrontation in the interests of all the workers who constitute Bloem Water.

She said the board was of the view that as a water board, Bloem Water was capable of playing a critical role in developing capacity and supporting water services authorities and municipal water service providers. The board anticipated that cognizance would be taken of this ability in the unfolding of the institutional reform process. She handed over to Ms Nolene Morris to present a financial overview.

Ms Morris said from a financial perspective, Bloem Water Board had received no qualifications by external auditors. In terms of major achievements from a financial performance perspective, its debtors position had improved from 86 days to 64 days as there was a proactive debt management process in place. The Board had successfully renegotiated lower interst rates on loans with DBSA, Nedbank and DWAF; its cash flow position had improved; its debt position remained high due to CAPEX requirements; water sales were higher than budgeted for; and there had been a streamlining of the pension fund (See presentation document).

Discussion
The Chairperson congratulated Bloem Water Board for having a balanced gender representation. She thanked the Board for its continued support to the Ukhahlamba District.

Mr J Arendse (ANC) was interested in the final remark made by Mr Nicoll when he said that he “lived within his means”. It was a good statement to make, however, Mr Nicoll’s office had received a qualified audit report and the reason for that was mainly because there had been non-depreciation of land and buildings. This meant that he was not living within his means but above his means. He asked for comment on that.

Mr Nicoll replied that it was the first time the Albany Coast Water Board had came across the question of land and building depreciation. They had not been doing this up until then. The Board hadhad its land and buildings re-evaluated. The Board had asked its auditors this year to depreciate the land and buildings.

On the question of living within their means, Mr Nicoll said he was not an accountant. The Board use outside auditors and the figures thrown at him were a bit confusing. He said living within his means meant expenditure was less than the Board’s income. The Board covered maintenances and repairs without going to the municipality and asking for money or anything. He said the Board operated purely on the money the Board made from water services.

Mr Arendse asked Bloem Water Board how it was dealing with challenges that still existed in the effective reporting on current table expenditure.

Ms Morris replied that the Board was hoping that with the transformation and restructuring process, there was a separation of operations from engineering services with engineering services dedicating itself to managing the capital expenditure programme and projects as well as looking into the future and extending the Bloem Water infrastructure

Mr Arendse said Bloem Water Board had requested and had been approved a 5.9% increase. It was approved by SALGA, by the municipality that the Board was serving, and by Treasury. However Treasury had expressed concern at the projected negligible profits after 2010. He noted that Bloem Water Board was doing quite well in terms of cost recovery. He asked if the Board had ever been requested by the Department to assist it in any particular area.

Ms Matsabu replied that the Board was working well with DWAF. She said the Board was planning a multi stakeholder forum on water quality. She said DWAF was part of this intervention.

Mr Combrick asked Bloem Water Board if they had a policy on the attendance of meetings. He said some of the board members had attended only one meeting out of six meetings while being paid R5000.

Ms Morris replied that the Board was fully compliant with the draft policy on payment of board members since the board came into office in 2005.

Mr Stadler replied on the question of expenditures. He said Bloem Water had a long-term budget plan for a period of 20 years. That had been conducted on a five-year basis. The Board had factored that into its operational expenditure The Board did not look at a one year scenario for tariff increases, but looked at the longer term.

Mr Stadler replied on the question of negligible profit saying that that what was shown was after the Board had transferred profits to reserve funds. He said the Board did not want to have surpluses or excessive profits.

Ms Morris added to the issue of profits, saying that the Board ploughed them directly back into infrastructure development. She noted that in the presentation, she had made the point that 26.5 million was transferred into its capital and development fund.

Bushbuckridge Water (BW) Annual Report Presentation
Rev Jeri Ngomane, Deputy Chairman of Bushbuckridge Water Board, stated that Bushbuckridge Water’s objectives were underpinned by those of the Department of Water Affairs and Forestry (DWAF). BW operated in rural areas characterised by high poverty and unemployment levels, and an unstable socio-political environment. He hinted that the civil and criminal cases against the former CEO and Acting CFO were not yet concluded and that an agreement had been reached to settle the legal battle outside court.

Some of the major institutional challenges faced by BW included poor cost recovery from Bushbuckridge Local Municipality (BLM), and allegations of poor water quality in Mbombela Local Municipality (MLM), which was disputed for lack of any scientific evidence to that effect. Also, drought continued to impact on production in MLM and BLM areas, while there was reluctance by Water Service Authorities to sign long term Service Level Agreements (SLA) due to certain reasons. There was also the problem of high debt level by Bohlabela District Municipality and BLM as a result of disestablishment.

Some of the major institutional achievements recorded during the year under review included the signing of interim service level agreements with BLM, appointment of the CFO and Director for Water Services, and repositioning of the headquarters close to the capital town of the province. Others include improved interaction and compliance reporting to the Executive authority, National Treasury and the Auditor General.

The report of the independent auditors was qualified due to insufficient financial commitment by the client (BLM) for bulk water services. Other matters emphasised in the Auditor’s report included the lack of a debtor write-off policy, and the non-existence of an internal audit unit. These had however been addressed. While the debtor write-off policy was at a developmental stage, the internal audit unit was established after the appointment of an internal auditor. The independent auditor’s report also noted existence of an inefficient internal control environment and safe keeping of files. These issues were also being addressed.

Discussion
Mr J Arendse (ANC) asked what strategies the BW had in place if their creditor began to demand for repayment.

Mr J Combrinck (ANC) noted that according to their report, BW spent a lot of money under the heading ‘other’. He asked what this specifically meant. Also, he asked why the executives of BW received huge salary increases while the staff received only very small increases.

Ms D Van der Walt (DA) noted that there was no reference to quality of water supply in BW’s report. She noted that BW had a lot of challenges that they did not seem to be solving. She stated that spending four years on a case at the CCMA was simply unacceptable.

The Chairperson noted the disestablishment system introduced in BW and DWAF’s report and stated that it must be approved by Parliament. She stated that the objective of the new system should be good service delivery to the people and improved water quality.

Mr R Matsebula, CEO, BW, gave a general response to these questions. He stated that BW did have in place an internal testing system and also an external water quality monitoring system. He noted that BW’s infrastructure was indeed over stressed and the demand on their services was high. He also stated that the process of upgrading the Nyakha Dam was delayed and that DWAF was in charge of the project. He apologised for the non-inclusion of water quality results in BW’s report and assured that this could be made available to the committee.

Mr Ngomane added that the challenges facing BW were enormous as a lot of their assets were deteriorating fast. However, efforts were being made to address these problems, including increased funding and the signing of SLAs. 

Sedibeng Water (SW) Annual Report Presentation
Mr Makumu Ubisi, CEO, Sedibeng Water (SW) stated that SW’s operations covered three provinces; The Free State, North West and Northern Cape, and the existing infrastructure was spread across these three provinces. As to the state of water quality, in the Free State and North West regions, all water treatment plants complied with Class 1 standards for bacteriology, though high iron concentrations affected the water quality aesthetics in all the plants except within the Pudimoe network. Also, microbiological standards were met in 91.6% of samples analysed in boreholes within the North West region.

The infrastructure roll-out and maintenance plan of SW covered a five year period, and the plan was informed by the state of water quality, water demand and capacity needs, and the need for improvement in process equipment efficiency. Some of the major achievements during the year under review included marked improvement in organisational efficiency and revenue generation, improved water quality, meeting standard maintenance requirements, and the acquisition of the Vaal Gamagara scheme.

Some of the major challenges faced during the period included challenges around cost recovery, which remained a barrier to sustainable service delivery, and the problem of electricity load shedding and tariff increases, which negatively impacted on sustainable water supply and quality, considering the high dependence of SW’s operations on electricity as a source of energy. SW received an unqualified audit report during the 2006/2007 financial year.

Discussion
The Chairperson observed that the boards seemed to have challenges regarding their implementation of the Public Finance Management Act. She noted that this was a critical issue that needed to be addressed.

Mr Arendse asked what strategies had been put in place to deal with the backlog in maintenance. He also enquired if there were any plans to upgrade the water treatment plants, and whether SW had observed standard best practices in their activities.

Mr Ubisi stated that SW had put in place a programme to address the issue of planned maintenance. SW also had signed memoranda of understanding with other agencies through which all exchanged information on industry best practices.

Amatola Water Board and Mhlathuze Water Board
No monitor from PMG was present during the briefings and discussions on these Water Boards. Please see attached presentations.

Magalies Water Board Presentation

No monitor from PMG was present for the briefings. Please see attached presentation.

Umgeni Water Board Presentation
Mr Omar Latiff, Chairman of Umgeni Water, set out the strategic objectives and performance indicators. Implementation of key projects in the five-year plan, school and household sanitation, water education, jobs created and compliance to broad based black economic empowerment (BBBEE) were all mentioned. Financial indicators were also given, noting that there had been a reduction in debt, and that Umgeni had made a net profit of 21%, and that their surplus stood at R242 million. Conservation of natural resources was a major aim and they had improved the potable water quality, reached better compliance with microbiological and chemical requirements.

Results from operations were presented in the form of graphs, and further tables showed the access of the population, spread across municipalities, with access to water.

Umgeni claimed to have met 21 out of the 26 indicators on the corporate performance scorecard. In future it pledged a continued commitment to a stable and affordable tariff, a focus on debt reduction, commitment to capital expenditure to support customer services and water delivery. The challenges included coordination within the secotr, uncertainty on institutional reform, the need to make investements in water resources, the need to increase coverage, and the need to have tariffs accepted by municipalities. 
 
Discussion
The Chairperson expressed surprise with the manner in which the Water Boards’ had presented figures and numbers on their surplus, redeeming of debt and curbed spending. She wondered whether these responses were completely correct.

Ms M Manana (ANC) asked about the transference of schemes to rural areas.

Mr Arendse said that credit had to be given where it was due; and he noted that he was aware of the problems that Umgeni faced. He raised a question around the credit, noting that a large accrued debt had to be paid in 30 days.

Ms M Maine (ANC) added that municipalities should follow the prescriptions contained in the Municipal Finance Management Act.

Ms Maine enquired about problems with the Moroleng area, noting that many of those living in that municipality seemed to have stained teeth, and she asked if there was nothing that could be done about the water quality of the area. She asked how the municipalities were linking the comments in the State of the Nation Address to the provision of water to rural communities.

A Member of the Umgeni Water Board responded that the Board was referring to the State of the Nation Address, and was looking at the Municipalities’ Integrated Development Plans to see what needed to be addressed before submitting business plans.

Mr W Mahlangu, Board Member of Magalies Water Board, said the impact of water on the discolouration of teeth needed to be scientifically tested. He mentioned that, unlike at Tshwane and Rustenburg, Magalies Water Board had provided those in rural communities, who amounted to about 70% of those served, with water tanks as part of their drought relief schemes. He added that the mining industries around Skotane had been proven to be beneficial to the surrounding communities, as they assisted with the costs of providing clean water. He also added that the Hartebees Dam was also proving to be beneficial to the rural communities.

Mr Arendse wondered if, given the skills that Umgeni possessed, it was possible to assist water boards like Namaqua that were struggling to acquire skilled people. He added that this would benefit everyone, because if the water boards failed to pull together they would be failing all communities.

The Chairperson added that she was excited with the progress made by both Magalies and Umgeni Water Boards. She was also pleased to note the progress made at Indwedwe, because the last time the Committee had visited the area the situation was dire, with other issues concerning access to water only by supporters of one political party. She added that the fact that people were no longer sharing water with animals was good.  She also said that she was happy that the situation of the Jozini Dam would be turned around. This was the dream of the late Vince Mabuyakhulu, and it was sad that he had passed away before he realised his dream.

The Chairperson added that it was a relief that Umgeni had resolved issues with the eThekwini Municipality. She urged that the bucket system at Magalies had to be resolved soon.

South African Local Government Association (SALGA) Briefing
The presenters from SALGA centred around tariff consultation processes. It was noted that ten out of fifteen boards had consulted with SALGA, and that bulk water increases ranged between 2 and 8 percent. However, increases beyond the 6% mark were of concern. They could jeopardize the sustainability of water institutions. Steps were being taken to increase efficiency as a way to reduce costs, and there must be financial sustainability of infrastructure, development and maintenance, over short and long terms.

SALGA stated that the principles of consultation encompassed recovering the full cost of the undertaking, a reasonable return on investment and a zero-budget based approach. It was suggested that the way forward was that DWAF must address regulation of tariffs, there be ring fencing of water services and tariff methodologies must be discussed by DWAF, SALGA and National Treasury. There must be review of the water pricing and tariff structures and there was suggestion that a multi year tariff model, similar to that used by Eskom, be adopted.

SALGA also questioned the methods used by Municipalities on debt collection. There was an outstanding debt of R40 billion owed to municipalities. Continuous charging of interest on amounts outstanding was increasing the outstanding amounts all the time.  The billing systems needed to be updated, and the system should take into consideration the inequalities that existed between municipalities. The performance of senior managers should be linked to revenue collection and the credit control measures must provide for the indigent. SALGA was already running projects to assist with debt collection.

SALGA worked on the premise that debt owed for more than 90 days was viewed as irrecoverable, making it impossible to collect debt. It was suggested that debt collection chains be put in the entire value chain. The way forward included making of institutional arrangements, re-engineering of service provision, putting more focus on the urban areas for revenue collection, drawing a business case model for rural areas and tariff rationalisation.

Rand Water Briefing
Mr Zvinaiye Manyere, Acting CEO, Rand Water, noted that Revenue over the period amounted to R4,1 billion, that assets were now at R6.2 billion and that all audit reports had been unqualified. Rand Water employed 2 900 staff and was ISO 9001 accredited. All plants were ISO 14001 accredited. Statistics were tabled of performance highlights, including customer satisfaction. Its corporate social involvement programmes were outlined. Rand Water then noted the impact of the energy crisis, stating that since energy usage had been cut by 10%, there had been some impact on the quality of water, and that there had been discussions with Eskom to explore ways of saving electricity.  There had also been consultation with SALGA and National Treasury.

The surplus of Rand Water was being applied to the pipelines, many of which were in excess of 80 years old, and there were significant amounts being spent on refurbishment and augmentation. Reserves would be used to smooth the tariff and for new schemes. There was a planned programme of renovation and analyses had been done on likely future demand. Renovations under way combined a 15-year projection on growth with renovations to maintain existing water quality.

Tables were presented outlining water quality. IT was noted that 85 percent of local municipalities within Rand Water’s catchment area had challenges with meeting DWAF’s effluent management standards, and this was increasing Rand Water’s purification costs, and ultimately putting pressure on the tariffs. Tariff allocations were also affected by high price of steel, and rising costs of electricity and construction.
 
Discussion:
The Chairperson expressed disappointment in the manner that SALGA dealt with the situation, and that there was too much focus on debt on water boards:

Mr. Arendse expressed his disappointment with what he described as the cavalier manner of SALGA’S presentation, relating to monies owed to water boards by municipalities. He asked how exactly they were dealing with the problem, as there seemed to be a precedent. If the 90 days argument were to be accepted, then municipalities would not pay their debts and would in fact continue to run up debts that they had no intention of paying. There seemed to have been no progress since last year. He asked if the surplus could not be used to cut down tariffs.

Ms Maine agreed that municipalities were not doing their part, and believed that they were untouchable while the water boards like Bushbuckridge were bearing the brunt of unpaid debt. She suggested that SALGA needed to be called in front of the Portfolio Committee to explain this. She asked what the correct method of pricing was.

Mr  Combrinck expressed similar sentiments and agreed that SALGA should meet with the Portfolio Committee. SALGA received monies from National Treasury and the Department of Water Affairs and Forestry and must explain what it was doing with this money. He believed that the law must be changed and the funding should be channeled straight to the water boards. The water boards were responsible for payment and water quality. Some, such as Bushbuckridge, received small grants and when they were not paid they were forced to cut water.  He asked about monies generated from factories that did pay for water.

Ms Catherine Smith, CFO, Rand Water, said that she did not understand the query on how to utilise the surplus. She said this year’s surplus would be used for next year’s refurbishments. 

A Board member of Rand Water added that Rand Water was self funding, and that any surplus made had to be invested so that the Board’s resources did not get depleted.  If the suggestion was that tariffs be set according to a percentage of surplus made, then it would be difficult to operate if in a particular year the surplus was really low. She added that the policy used currently was correct, as it helped to save for the benefit of future generations.

A member of SALGA apologised for the comment made on the 90 day debt, and added that it was perhaps misinterpreted. It was not the intention of SALGA to condone non payment. He had taken note of the concerns expressed by the Committee Members that municipalities were adopting an arrogant stance. He also took the suggestion that SALGA appear in front of the Committee, and suggested that debt needed to be looked at holistically.

The Chairperson thanked Rand Water and SALGA for their submissions. She urged DWAF to respond to issues raised during these two days of presentations. She added that the Boards had complied with the Public Finance Management Act in their responses to section 42. However, in relation to section 49 of that Act, it seemed that some Boards must still address issues around staff, lifespan and lack of authority. She added the budgets submitted should comply with section 52.  She added that the technical quality of the reports submitted had improved and she directed the Boards’ attention to what was set out in section 78 of the Act. She asked what steps needed to be taken to support municipalities to fall in line with the Municipal Finance Management Act.

She commended the water boards on the improvements they had made, particularly in water quality and improved infrastructure.  She added that where there had not been compliance, then the water boards would be called upon to explain how they intended to improve the situation. However, she did understand the concerns around the ageing infrastructure.

The Chairperson noted that most water boards complied with the setting of tariffs as set out in Section 42. She said that the content of the reports was sometimes not helpful, and that the Committee had suggested changes, so that the boards could motivate their tariff suggestions, explain how they had arrived at these tariffs and use section 42 as a guideline.

The Committee Members were aware of the debt ratio challenges and should meet with the Department of Provincial and Local Government and with local governments themselves to discuss the issue further.

The meeting was adjourned.