Water Boards: Lepelle Northern; Mhlathuze & Amatola 2018/19 Annual Reports; with Deputy Minister

Human Settlements, Water and Sanitation

22 May 2020
Chairperson: Ms R Semenya (ANC)
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Meeting Summary

Video: Portfolio Committee on Human Settlements, Water and Sanitation, 22 May 2020
Audio: Water Boards: Lepelle Northern; Mhlathuze & Amatola 2018/19 Annual Reports 

Annual Reports 2018/19

The Committee felt the presentation on Lepelle painted a picture which did not address the problems the Committee knew of. Lepelle said it gave an honest account of the situation at the Water Board. Media reports on the situation at Lepelle were grossly misrepresented and the string of investigations underway took its toll. The hope was for the investigations to close soon.

The Special Investigating Unit (SIU) made proposals for certain officials to face disciplinary charges and there was court action regarding irregular expenditure.

Lepelle was also aware of the other investigations into Giyani, and these were bordering on injustice. These investigations had to be concluded as a matter of urgency as Lepelle cannot afford to continue to operate under these circumstances.

On financial matters, Lepelle has a deficit of R17 million. In 2018 it broke even and in 2019 it managed to record a surplus of R65 million. According to Lepelle, the entity turned a corner.

A lot still had to be done to ensure all South Africans had access to water. This is why the Water Board explored a myriad of sources for water. Lepelle focused on groundwater and wetlands as new sources of water. These new sources were encapsulated in the Limpopo Water Master Plan.

Amatola Water Board’s current finances do not allow for expanded job opportunities at the Board. The Board welcomes additional funding for this purpose. The drought also severely impacted the Board’s cash flow.

Further, Amatola looked into the viability of desalination plants and this is ongoing. At the moment Amatola does not have the finances to fully invest in such an endeavour.

The Mhlathuze Water Board said there was an urgent need to define the roles and mandates of Water Boards. This definition must include the role of municipalities to deliver water to communities.

Water Boards cannot take responsibility for the lack of water delivery to communities, as Water Boards exist to secure water resources, and not for delivery thereof. This was the purview of municipalities. Water Boards could only deliver water directly to communities as part of its corporate social responsibility, but it cannot provide water to whole communities. This is not the mandate.

To date, about R1.4 billion was invested in water infrastructure in the Zululand region, however communities did not benefit because municipalities were not able to address reticulation challenges.

Speaking on the Board’s condonation of an amount of R35 million, the Mhlathuze Water Board said, National Treasury regulations allowed for condonation by a Utility’s Board only after all avenues to communicate with National Treasury were proven unsuccessful. Mhlathuze tried to engage with National treasury for seven months, but this proved futile. A decision was therefore taken to condone the R35 million. National Treasury paid a visit to Mhlathuze to review the decision. No further action was taken as there was no financial loss to the utility.

Meeting report

Briefing: Lepelle Water Board (LWB)

The Interim Acting Board Chairperson of the Lepelle Water Board (LWB) and Chief Executive Officer (CEO), Mr Phineas Legodi, addressed the Committee on the Lepelle Water Board’s 2018/2019 Annual Report and Financial Statements.

LWB’s water quality is consistent and a good quality. The utility received a number of Ministerial Directives from the Department of Water and Sanitation (DWS) to assist with planning, design and implementation of current projects running in Giyani. One of the projects underway at the moment is a drought relief bulk infrastructure project called the Nandoni-Nsami bulk pipeline.

These projects faced difficulties. Service providers received late payments because of late transfers from the Department, and in some cases funds were unavailable to complete projects. The Giyani Phase Two project was one project affected.

The completion date for the Nandoni –Nsami pipeline was revised because of unavailable funds. This resulted in budget overruns. The lack of effective operation and maintenance on completed projects also led to malfunction and vandalism of boreholes, especially the Giyani borehole package. On the financial front, Lepelle recorded an increase in revenue year on year. This is attributed to improved production levels which resulted from reductions in water losses in the system. The increase in electricity was also capped at an average six % increase compared to the previous year. This is because of measures taken to reduce the electricity cost which was experienced in the previous financial year.

Lepelle further recorded a reduction in irregular expenditure incidences from 11 to two in the year under review. According to Lepelle this was a result of measures taken by the Utility, including training and policy induction courses within the entity. All investigations into irregular, fruitless, and wasteful expenditure were conducted and the necessary reports handed to National Treasury.

Amatola Water Board Briefing

The Interim Board Chairperson, the Acting Chief Executive at Amatola and other senior Amatola executives addressed the Committee on the Annual Report and Financial Statements of Amatola for the period 2018/2019.

The performance achieved at Amatola during the financial year under review was a clear indication of how effective the implementation of the Amatola Water Turnaround Plan was. It affirmed the commitment by Amatola Water to ensure communities in the Eastern Cape have access to basic water services.

The Utility recorded an overall performance of 86% in the shareholder compact compared to 58% in the previous financial year.

During the financial year in review various measures were implemented, such as the appointment of key and critical staff, reconnection between internal and external stakeholders, a review of organisational policies, and the stabilisation of the financial environment through implementing a focused ten-pillar financial recovery plan. Implementing the ten-pillar plan resulted in a 21% increase in total assets. Assets rose to R1.4 billion compared to the R1.1 billion in the previous financial year. A positive improvement was realised in the current ratio which improved to 1.52 compared to 1.35 the previous year.

Total expenditure was reduced by 27% or R138 million compared to R191 million for the previous years. Irregular expenditure increased from R18 656 million to R22 665 million. Wasteful and fruitless expenditure increased from R2 665 million to R11 334 million.

Mhlathuze Water Board Briefing

The Mhlathuze Water Board said for the period under review, the utility received an unqualified audit. The Attorney General emphasised two matters. These are, the restatement of fruitless and wasteful expenditure, and the indicator on support to municipalities which are not SMART.

To mitigate these findings, the Utility included the restatement for the 2019/2020 period in the interim financial statements. Training was done on Generally Recognised Accounting Practice (GRAP). Performance reviews and consequence management measures were implemented. 

A revised key performance indicator was developed and submitted as part of 2020-2021 Business Plan and Shareholder’s Agreement. For the period under review, Mhlathuze recorded an overall performance of 71%. This means 110 of 35 identified projects were not achieved. It was somewhat of a downward trend from the previous year’s 86%.

As of April 2020, the Jozini and Umhlabuyalingana Local Municipalities received support related to drilling and equipment for boreholes. To date about R1.4 billion was invested in water infrastructure in the Zululand region. However communities did not benefit because municipalities were not able to address reticulation challenges.

The Department informed the Committee, National Treasury regulations allowed for condonation of R35 million, by a Utility’s Board, only after all avenues to communicate with National Treasury proved unsuccessful. Mhlathuze tried to engage with National treasury for seven months. This proved to be futile. A decision was taken to condone R35 million. National Treasury approved the eventual decision.

Opening remarks by the Deputy Minister of Human Settlements, Water and Sanitation

The Deputy Minister, Mr David Mahlobo, thanked the Committee for the opportunity to engage on the performance by the Amatola, Lepelle and Mhlathuze Water Boards.

He said the term of office of the Lepelle Water Board expired, and a decision was taken by the Minister to extend the Term of Office. At Amatola, an Interim Board was appointed to stabilise the Utility.

Discussion

Mr M Tseki (ANC) thanked the Water Boards for the presentations and said:

  •  it seemed as if the Water Boards overrated itselves when it came to the work conducted.
  • Millions of South African households still have no access to water. It is incumbent on these Water Boards to ensure all households have access to potable water.
  • He said he supports the on-going investigations in malfeasance at Lepelle and Amatola. He called for swift implementation of the investigations findings.
  • He called on the Amatola Water Board for a clear plan of action on how it aims to address the increase in irregular expenditure.
  • He asked if Amatola that it created enough jobs.
  • To Lepelle, he asked if the findings of the Auditor-General investigation into the former Chairperson of the Lepelle Board was released, and what it entailed.
  • He also wanted to ascertain how many boreholes were dug and in operation.
  • He requested the Lepelle Water Board to give more information on the areas the Board provided bulk water to.

Mr M Mashego (ANC) said the following:

  •  Lepelle did not seem to be the entity the Committee heard of, especially since there was an outcry of the Board’s existence. It seemed as if Lepelle glossed over the problems at the Board.
  • He called for a thorough briefing on all the problems at Lepelle, and wanted to know how it was possible the Board suddenly had savings, when all indications were, the Board was in the red.
  • He asked the Amatola Board to explain why it, as an Interim Board gave a six year review.
  • He said the Eastern Cape was bordered by the ocean, yet it experienced a drought. He wanted to know what Amatola did to tap into the ocean economy, and if all the Water Boards met once a while to compare notes.
  • He also questioned why Amatola was so slow to build desalination plants.

Mr L Basson (DA) said the briefing by the Water Boards was meaningless. He would have appreciated a briefing by the Special Investigation Unit (SIU) as it was well known the Water Boards had serious problems. According to Mr Basson, the SIU was the only entity which could provide a clearer understanding of the problems at Lepelle and Amatola.

Ms M Mohlala (EFF) said:

  • Several people in the region covered by the Mhlathuze Water Board did not have access to water. She wanted the Board to explain what it was doing to ensure everyone had access to water.
  • She also wanted the Department to explain why no funding was given to Lepelle and Amatola.
  • She asked for an explanation on why there was no uniform tariff policy.
  • She asked the Amatola Water Board to explain on what basis Minister Lindiwe Sisulu placed the Board under administration.
  • She suggested the Water Services Act must be amended to strip the Minister of the powers enshrined it.
  • Ms Mohlala cautioned against political interference in the water sector and questioned why it was taking so long to appoint a new Board.
  • On Lepelle, she said it seemed the Board had a problem getting debtors to honour its debt.
  • She wanted Lepelle to explain why municipalities did not honour debt.
  • On slide 17, Lepelle referred to the Mopani region’s water woes. Ms Mohlala said this region had to be provided with water since ESKOM turned off electricity to the region. The electricity is used to power boreholes in the region. She suggested applying the District Development Model to the Mopane region.

Ms N Mvana (ANC) asked the Lepelle Water Board to explain if the multidisciplinary committees it set up worked effectively.  She also wanted to know why the Lepelle Water Board had not yet finished the Tzaneen Water Pipeline project. During the presentation, the Department said Mhlathuze Water Board condoned R35 million. She asked for clarity on what the AG’s views are on the condonation. She also called on the Board to implement measures to stem irregular expenditure.

Ms E Powell (DA) made the following statements:

  • She supported calls for an update on SIU investigations, especially on the Giyani investigation.
  • She said the term of office of the Lepelle Interim Board was extended again, and wanted to know if a written instruction to this effect was issued. According to her such an instruction did not meet legislative muster.
  • The Lepelle Board acted for 10 months already, and no substantive reasons were given on when the new Board will be finalised. According to Ms Powell, interim boards lacked authority.
  • She referred back to 7 May 2020, when Minister Sisulu issued a press release suspending Mr Legodi, the CEO of Lepelle, yet the same Mr Legodi presented on behalf of Lepelle at the meeting.
  • Days before, on the 2 of May 2020, the same Minister issued a statement relieving the previous Board of its duties.
  • On 4 May 2020, this specific Board issued a statement welcoming the decision by the Minister, and agreed to relinquish its positions, yet that same Board presented to Parliament on 21 May 2020. She said the Committee needs clarity on these developments.
  • She questioned why the CEO of Amatola was removed when the entity met 86% of its deliverable targets, and why the entity sae two Chief Executives dismissed in recent months.

Ms S Mokgotho (EFF) said:

  • She noted some Water Boards did not raise debt finance. She wanted to know if there was a clear policy on borrowing for Water Boards.
  • She said during an oversight visit to Giyani, the Committee witnessed many communities in the region did not have access to water. The Committee was told maintenance issues were to blame.
  • The Committee engaged with Lepelle and it was agreed Lepelle would address these maintenance issues, yet the problem persisted.
  • She wanted to know what mechanisms Lepelle had in place to deal with the maintenance and infrastructure bottlenecks.

The Chairperson said in 2014, former President Jacob Zuma opened a new waterworks project in Limpopo, and since then the plant was not operational. This was worrying.  During the current Covid-19 pandemic, many villages still had no access to water in Limpopo. This must be addressed.

On Mhlathuze, she said she heard of communities in the region which had to climb mountains to fetch water. This situation is intolerable. The Amathola Water Board’s progress however, lamented the continued challenges. She asked what the plans are going forward to stem the tide.

Replies by the Lepelle Water Board

Lepelle’s Interim Board Chairperson said all matters were investigated and a report handed over to the Department of Human Settlements, Water and Sanitation (DHSWS). Lepelle also met with Minister Sisulu on the matter and thus the matter was now out of Lepelle’s hands.

About Giyani, he said Lepelle received reports of the region being plagued by vandalism. Transformers were stolen. He said he went on a fact finding mission on his own, to look at the state of the boreholes in Giyani. Some of the boreholes were working. Some were vandalised. There are about 36 boreholes in the area he visited.

He met with the Giyani Business Forum, who admitted its complicity with the borehole problems in the Giyani region. The two sides agreed to work together and the Business Forum will no longer be a stumbling block.

Giyani was a problem for a long time now. The region’s woes had to be addressed.

Lepelle established a working relationship with a Kgosi Macia in the region. Lepelle will formally hand over four boreholes to the Kgosi’s community. All communities need access to water.

Mr Legodi said Lepelle gave an honest account of the situation at the Water Board. Media reports on the situation at Lepelle were grossly misrepresented. The string of investigations took its toll. He hoped the investigations would close soon.

He said he was aware the SIU made proposals for certain officials to face disciplinary charges. There was court action regarding irregular expenditure.

Lepelle was also aware of the other investigations into Giyani, and these were bordering on injustice. These investigations had to be concluded as a matter of urgency as Lepelle cannot afford to continue to operate under these circumstances.

On financial matters he said in 2017, Lepelle had a deficit of R17 million. In 2018 it broke even and in 2019 it managed to record a surplus of R65 million. According to Lepelle, the entity turned a corner.

A lot still had to be done to ensure all South Africans had access to water. This is why the Water Board explored a myriad of sources for water. Lepelle focused on groundwater and wetlands as new sources for water. These new sources were encapsulated in the Limpopo Water Master Plan.

On the audited outcomes, he said Lepelle does have an action plan in place to deal with the concerns raised by the AG.  The action plan called for officials’ ongoing training, and for internal audits to vigorously interrogate audit reporting and compliance.

On job creation, Mr Legodi said, Lepelle needs more funds to implement meaningful job creation opportunities. At the moment, Lepelle compelled its service providers to provide employment opportunities.

Lepelle had debt recovery agreements in place with indebted municipalities. Thus far, most honoured its commitments. 

The Tzaneen project was shelved as the appointed contractor could not deliver on the contract. A new service provider was appointed. The project should be finalised within the next three months.

On water sector transformation, he said the sector saw a gradual increase of previously disadvantaged individuals entering in the subject field. Some water treatment plants, and such, already had females as plant operators and managers.

Water sector reform also included transformation of water rights. As it stood, farmers received the bulk of all water rights. There are currently two pieces of legislation to address water sector transformation.

On the Mopani region’s water woes, he said the situation in Mopani was worrying, and a service provider was appointed to attend to the situation. Water tanks were secured for this situation.

Replies by the Amatola Water Board

On employment opportunities, the Board’s current finances do not allow for expanded job opportunities at the Board. The Board welcomes additional funding for this purpose. The drought also severely impacted the Board’s cash flow.

Amatola reported on what was done by the Utility, and everything will be done to improve operations.

Regarding the Eastern Cape’s long coastline, Amatola looked into the viability of desalination plants and this is ongoing. At the moment Amatola does not have the finances to fully invest in such an endeavour.

Replies by the Mhlathuze Water Board

The CEO of Mhlathuze Water Board replied to questions posed to Mhlathuze. He said there was an urgent need to define the roles and mandates of Water Boards. This definition must include the role of municipalities to deliver water to communities.

Water Boards cannot take responsibility for the lack of water delivery to communities, as Water Boards exist to secure water resources, and not for delivery thereof. This was the purview of municipalities.

Water Boards could only deliver water directly to communities as part of its corporate social responsibility, but it cannot provide water to whole communities. This is not the mandate.

To date, about R1.4 billion was invested in water infrastructure in the Zululand region, however communities did not benefit because municipalities were not able to address reticulation challenges.

On the condonation of R35 million, he said National Treasury regulations allowed for condonation by a Utility’s Board only after all avenues to communicate with National Treasury were proven unsuccessful. Mhlathuze tried to engage with National treasury for seven months, but this proved futile. A decision was therefore taken to condone the R35 million.

National Treasury paid a visit to Mhlathuze to review the decision. No further action was taken as there was no financial loss to the utility.

He implored Members to share any information the Member had about communities climbing mountains to fetch water.  

The meeting was adjourned.  

 

 

 

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