Rand Water Annual Report: briefing

Meeting report

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
7 March 2006
RAND WATER ANNUAL REPORT: BRIEFING

Chairperson: Mr T Tsenoli (ANC)

Documents handed out:
Rand Water presentation
Rand Water Annual Report [available at www.randwater.co.za]
Rand Water Performance Highlights [contained in Annual Report]

SUMMARY
Rand Water provided a briefing on its Annual Report to the Committee. Detail on the balance sheet and social programmes was provided. The group had received various accolades over the past year for their community awareness projects. Water prices had been pressured by an increase in raw water costs. People living with AIDS amongst their staff component would acquire a R25 000 support payment for treatment. Rand Water would provide assistance to any municipality in its area of operation upon request. The group advocated an increase in capital expenditure to curtail water wastage and facilitate efficient water usage.

Members asked numerous questions including plans to secure adequate water supply for the Gauteng region, the outsourcing of service delivery to private sector companies, formulated strategies to address skills shortfalls, the current working relationship between Rand Water and local government, the level of vacancies in the group, the need for an extensive communication campaign to educate the public on proper water usage, whether Rand Water participated in poverty eradication projects, steps to counter water pricing differentials and plans to expand water infrastructure in Gauteng.

MINUTES
Rand Water presentation
Mr K Naicker (Chief Operating Officer) focused on the financial situation at Rand Water and emphasised the improvements in the current balance sheet. Social development advancements were also outlined such as enhanced access to water. Rand Water had reduced debt levels by 50%. The past years corporate achievements were noted including various awards presented for community awareness programmes. Sales had increased by 6% and Black Economic Empowerment procurement totaled 48% of expenditure. An increase in raw water costs had resulted in heightened pressure to contain costs. The group focused on training and development in order to promote sustainability. The medical aid scheme had been restructured to provide R25 000 for beneficiaries living with HIV/Aids. Changes to operating practices had been introduced to address environmental concerns. Municipalities should be encouraged to keep cost increases at a minimum and make use of state organisations to improve service delivery. Poor infrastructure within local government had to be refurbished to reduce the current levels of wastage. Previous interventions by Rand Water into local government were explained. The future strategy of the organisation was outlined (see document).

Discussion
Mr P Smith (IFP) asked what steps would be taken to secure water supply for the Gauteng region and reduce wastage and maintain price increases within acceptable levels. South Africa was regarded as a water-stressed country. Higher prices could encourage measures to reduce wastage. He asked whether municipalities were outsourcing water supply services due to lack of capacity. The Municipal Systems Act stipulated that municipalities should first explore internal options to enhance service delivery and then consider private sector entities. He asked whether Rand Water approached municipalities to suggest ways to improve delivery or waited for tenders to be offered.

Mr M Lekgoro (ANC) asked whether a schedule of renewal of capacities and refurbishment needs was in place. Rand Water should work with tertiary institutions to produce sufficient levels of skills and contribute to the sustainability of water provision.

Mr Naicker responded that a long-term agreement with the Lesotho Highlands Water Project was in place to secure future water supply for the Gauteng region for five years. Recent strong rains had ended a long period of drought but water provision remained a key strategic issue. The third phase of the LHWP would be completed in 2024. Capital investment was required at the local government level to reduce wastage and promote water conservation. Attention should also be placed on the pricing mechanism to avoid variable cost structures and keep prices at reasonable levels. The government continued to emphasise lower prices to reduce the cost of business and attract foreign investment. Bulk water supply remained the core business of Rand Water with municipalities responsible for water delivery. Outsourcing by municipalities to private sector companies tended to result in higher prices. The provisions of the Municipal Systems Act were being ignored by a significant number of municipalities and outsourcing continued unabated. Long-term water demands would be determined in conjunction with the Department of Water Affairs and Forestry (DWAF). An asset management plan was in place to refurbish existing infrastructure. Information would be shared at a national level with Rand Water assuming a leadership role. Rand Water participated in provincial forums and the Water Service Forum. The group sponsored engineering chairs at the Universities of Witwatersrand and Pretoria.

Mr Mshudulu (ANC) noted that Rand Water was involved in the relevant social cluster and that key challenges around implementation had been identified. Clarity was sought on the proper working relationship between Rand Water and local government. Municipalities had the right to take decisions on own affairs in accordance with Chapter Three of the Constitution. He asked whether Rand Water advised municipalities on correct procedures for refurbishing aging infrastructure and eliminating backlogs. Detail was requested on the type of assistance that the group could offer local government institutions.

Mr Smith asked why State Owned Enterprises (SOE) would not qualify for BEE categorisation. The Municipal Investment and Infrastructure Unit (MIIU) had been established to advise local government on service delivery techniques and he asked whether the MIIU maintained a strong relationship with Rand Water.

Mr W Doman (DA) sought clarity on the number of vacancies in Rand Water and, in particular, with respect to engineering positions.

The Chairperson expressed concern at the inadequate number of female staff members and asked why the component was so low. He noted that only two areas had experienced problems with private sector water provision and the scale of the problem should not be exaggerated. He suggested that Rand Water undertake an elaborate communication campaign to educate grassroots communities on water conservation and other related issues. Further detail was sought on debt servicing requirements. He asked whether BEE procurement involved key areas of supply. Extensive capital expenditure was needed to address backlogs and improve service delivery. The exclusion of DWAF from adherence to inflation-related price increases was difficult to understand.

Ms T Sithole (Group Shared Services Executive) acknowledged that further competition had to be facilitated within the areas of chemical procurement and that more BEE activity was needed. The water industry required a strong regulator in order to ensure compliance with policy and regulations. The dual role played by DWAF of player and referee was problematic. The BEE codes were not specific enough in terms of SOEs. Vacancies took on average three to six months to fill due to shortages of engineers and other technical staff. Rand Water struggled to retain staff and many trained individuals tended to migrate to other opportunities. Legislative changes could help to promote staff retention. Rand Water made use of the Water Wise brand to educate people on water issues.

Ms C Smith (CFO) highlighted the distinction between debt service and debt redemption. Debt service involved interest repayments while debt redemption consisted of the repayment of borrowed capital. Rand Water had fixed interest bonds issued when rates were high. Two bonds had recently been redeemed.

Mr Naicker declared that Rand Water had co-operated with certain municipalities on specific water projects in accordance with clear guidelines and based on requests for assistance. Advice was proffered to facilitate the eradication of backlogs and the group could serve as an implementing agent where appropriate. Approximately 79% of the staff complement consisted of engineers and technical employees. The government had indicated a willingness to provide financial resources to support infrastructure development. A total of R900 million would be forwarded in the short term. Foreign investment to expand water provision existed in a number of areas within South Africa. A national communication campaign was urgently needed to educate citizens on efficient water usage. DWAF would be approached to initiate such a campaign. Rand Water maintained a sound working relationship with MIIU.

The Chairperson asked for clarity on the "legislative constraints" hindering the work of Rand Water. He asked whether the group participated in poverty eradication projects such as food gardens and provided financial assistance. Detail was requested on the level of Aids infection amongst the group’s staff and the performance of the Board.

Ms M Gumede (ANC) asked whether Rand Water had approached municipalities to advertise their services and offer assistance.

Mr I Mogase (ANC) asked what role the group had played in attempts to eradicate the bucket system.

Mr Lekgoro referred to the problems associated with water pricing differentials and asked what steps were needed to address the problem.

The Chairperson sought clarity on the envisaged role of Rand Water in relation to local government.

Ms Sithole responded that approximately 200 employees were receiving anti-retro viral treatment. R25 000 would be provided to people living with AIDS from the medical aid scheme. Rand Water did sponsor poverty eradication projects such as food gardens. The group had to compete for skills in the private sector and accept that many trained individuals would seek employment in more lucrative sectors on completion of training.

Mr Naicker stated that municipalities had been approached by Rand Water to provide services and advice but little enthusiasm had been displayed. Local government had also been requested to limit price increases in the interests of the public. The tribal ownership of land in certain regions had not affected the provision of water. The price of water connection into houses would be kept low to facilitate development. Research had shown that most consumers preferred the pre-paid meter system. Rand Water did not seek to assume local government authority but merely wanted to assist municipalities where possible in delivering services and improving capacity. The Board operated in an effective manner with DWAF fulfilling a monitoring role. Performance evaluation was conducted on a regular basis with reports forwarded to the Minister.

The meeting was adjourned.