DWS Budget: Committee Report

Meeting report

Report of the Portfolio Committee on Water and Sanitation on Budget Vote 41 Annual Performance Plan of the Department of Water and Sanitation and Entities for the 2023/24 Financial Year
The Report was delivered by the Committee Content Advisor, Ms Shereen Dawood.

Background of the Report
The Portfolio Committee on Water and Sanitation (the Committee) met with the Department of Water and Sanitation (the Department) and entities (Water Research Commission (WRC), Trans-Caledon Tunnel Authority, Breede-Gouritz and Inkomati-Usuthu Catchment Management Agencies undertaking work on its behalf on 03 and 04 May 2023, to receive briefings on Budget Vote 41, Strategic Plans and Annual Performance Plans.
Admittedly the country is facing a multitude of challenges when it comes to water security. The external environmental impacts were noted to include:
- Recurrent droughts that are driven by climatic variations,
- Inequities in access to water and sanitation,
- Aging infrastructure, inadequate infrastructure,
- Poor water quality,
- Poor maintenance of water and sanitation infrastructure,
- Increasing water demand, and declining supply,
- Deterioration of water ecosystems,
- Weak regulation of the water and sanitation sector, and
- Inequitable water distribution.

The Department acknowledges the challenges and works with relevant stakeholders to balance addressing the challenges with limited financial resources. To achieve its mandate, the Department has as a result prioritised several priorities and goals, including: ensuring increasing access to essential water and sanitation services to all South Africans, particularly those disadvantaged; upholding the principles of equity, social injustice, and environmental sustainability. To achieve this mandate, the Department implements various programmes, policies and strategies to improve water and sanitation infrastructure, increase access to these services, promote water conservation and management, and enhance the skills and capacity of water and sanitation professionals.

Constitutional Prescripts
Section 27(1) of the Constitution of the Republic of South Africa (1996) guarantees everyone the right of access to sufficient water and requires the state to adopt reasonable legislative and other measures to realise the right within its available resources progressively.

As noted in the revised Strategic Plan 2020/21 to 2024/25, various challenges threaten compliance with constitutional imperatives, and they include, amongst others:
- The poor construction and maintenance of water and sanitation infrastructure in homes and communities lead to the lack of access to services;
- A lack of monitoring of the completion of the quality-of-service delivery projects tasked to external contractors that were paid for their services;
- Poor or lack of maintenance of water treatment and wastewater treatment infrastructure;
- Degraded water-related ecosystems and water scarcity caused by climate change;
- Underinvestment in water and sanitation.

In efforts to address the water and sanitation challenges the 2023 State of the Nation Address water and sanitation imperatives highlighted investment in infrastructure, fast-tracking of the Lesotho Highlands Water Project – Phase Two, the completion of the Umzimvubu Dam, plans to increase the capacity of major dams in the country, and streamlining the process for water use license application. Accordingly, the Department of Water and Sanitation, in responding to the 2023 imperatives, undertook the following:
- The reliable water supply for the well-being of people and the economy’s growth
- Completion of Phase two of the Lesotho Highlands Water Project
- Umzimvubu Water Project
- Projects to increase the capacity of dams
- Streamlining the water use application process

Legislative Mandate and Policy Framework
The Department of Water and Sanitation mandate is set out in the National Water Act (1998), the Water Services Act (1997), and the Water Research Act (1971). The Department's legislative mandate is to ensure that the country's water resources are protected, managed, used, developed, conserved, and controlled by regulating and supporting the delivery of effective water supply and sanitation.

The policy framework underpinning the work of the Department includes the following – the National Water Policy Review (2013), National Sanitation Policy, the White Paper on Water Supply and Sanitation (1994), White Paper on National Water Policy for South Africa (1997), White Paper on Basic Household Sanitation (2001), Strategic Framework for Water Services (2003), National Water Resources Strategy – 3rd edition, and Water and Sanitation Climate Change Policy (2017).

Key Departmental Strategic Priorities for the 2023/24 Financial Year include:
- Strengthening regulatory interventions to address pollution of the environment and communities from wastewater;
- Increasing participation of private sector finance and skills in the water sector;
- Continuing to improve water-use license turnaround times and promote transformation in water use;
- Guiding and leading increase water-use efficiency, demand, and conservation management, including addressing non-revenue water at the municipal level;
- Improving billing and revenue collection across the water value chain;
- Establishing remaining catchment management agencies;
- Transforming Irrigation Boards into Water User Associations;
- Completing reconfiguration of water boards.

The Department will work in strengthening its role in regulating, supporting, and intervening in municipalities where municipal water and sanitation services are deteriorating.

Overview of the 2019/20, 2021/22, and 2022/23 Financial Status of the Department
Several issues have been raised by the Portfolio Committee between 2019 and 2022 regarding the financial status of the Department of Water and Sanitation in terms of accruals and payables, underspending, and fruitless and wasteful expenditures. The Department acknowledged these challenges in strengthening its financial capabilities.

The Department has maintained, as it does in the Annual Performance Plan, that this component of its work has improved since the implementation of the financial recovery plan in 2019 and has since achieved the following: maintained a positive bank balance with the accruals and payables being continuous managed every month to ensure that it does not over-commit available budget.

Presentations by the Department on the 2023/24 Annual Performance Plan and quarterly briefing sessions on the financial and non-financial performance of the Department to the Committee placed significant emphasis on responding to the historical challenges in previous years. Additionally, a timeframe of interventions presented during the quarterly briefings to the Committee, on matters linked to underperformance, allegations of corruption, and investigations by the Special Investigating Unit, reflected the accountability and transparency of the new administration under the current Minister, Mr S Mchunu.

As part of its measures to prevent underspending, the Department has reprioritised budgets between projects with supporting acceleration plans. As a result, acceleration plans are being implemented on critical projects with the capacity to absorb additional funds, which include the Thembisile Water Scheme (Loskop), Madibeng Bulk Water Supply, Giyani Water Reticulation Project and the extension of the George Water Treatment capacity.

Moreover, the Department is implementing a turnaround and financial recovery plan which incorporates stabilisation of the Department (leadership, ethics, organisational culture, staff training, and development), improvement of systems of internal controls, and preventative measures against unauthorised, irregular, fruitless, and wasteful expenditure. As a result, a trend analysis of improper expenditure reflects a decline in irregular, fruitless and wasteful expenditure.

Encouragingly, (i) there are no new incidents of unauthorised expenditure. Preventative control measures are in place to eliminate irregular, fruitless, and wasteful expenditures. (ii) An exit strategy on irregular contracts is also being implemented to ensure that the current incidents of irregular expenditure resulting from prior periods of contracts are terminated. (iii) Progress has been made on disciplinary and investigative matters, including continued engagement with various law enforcement agencies; (iv) The Department is collaborating with the Special Investigating Unit to investigate the old, unauthorised, irregular expenditure. In some cases, this has resulted in the Department recovering substantial amounts of money. For example, R413.121 million was retrieved from the SAP (software license and support agreement) contract. The company, EOH, has agreed to pay back R191.883 million, including interest, over 36 months.

Lastly, the streamlined and integrated water sector value chain support and intervention measures by the Department are also part of service delivery implementation plans.

Expenditure Overview
The Department of Water and Sanitation operates two financial accounts: The Main Account and the Water Trading Entity. The Main Account is funded by the fiscus (Vote 41). The Water Trading Entity account mainly receives voted amounts from the Main Account toward implementing infrastructure and generating revenue through bulk water sales. Over the medium term, the Department will continue to focus on: improving the regulation of water quality; implementing the integrated water resource management approach aimed at the protection, use, development, conservation, management, and control of water resources while supporting the government's developmental priorities; and facilitating the improved management of municipal water services.

Main Account
Expenditure is expected to increase at an average annual rate of 11.7%, from R18.6 billion in 2022/23 to R25.9 billion in 2025/26, mainly due to an additional R12.4 billion over the Medium-Term Expenditure Framework period intended for water resources and bulk water infrastructure projects. The additional allocation of R12.4 billion over the Medium-Term Expenditure Framework (MTEF) period through the Budget Facility for Infrastructure has significantly increased the departmental budget allocations.

The additional allocations will be used as follows: R692 million in 2023/24, R673 million in 2024/25, and R557 million in 2025/26 to Magalies Water Board to implement the Moretele North Klipvoor Bulk Water supply scheme. R608 million annually over the MTEF to Magalies Water to implement Phase 2 of the Pilanesburg Bulk Water Supply Scheme; R150 million in 2023/24, R600 million in 2024/25, and R3.6 billion in 2025/26 to the Water Trading Entity to implement the uMkhomazi Water Project – Raw Water Component (uMWP-1); R305 million in 2023/24, R250 million in 2024/25, and R390 million in 2025/26 to Nelson Mandela Metropolitan Municipality to implement the Water Security Programme; R86 million in 2023/24, R492 million in 2024/25, and R574 million in 2025/26 to Sol Plaatjie Local Municipality to implement the Integrated Bulk Supply System Intervention.

On economic classifications, 63% (R46.6 billion) of the Department's budget over the MTEF period is estimated for transfers and subsidies to municipalities, public corporations, and departmental agencies. Spending on the compensation of employees of the Department's 3 873 employees is expected to increase at an average annual rate of two percent, from R1.8 billion in 2022/23 to R2 billion in 2025/26.

The Department has revised the national priorities to align with the budget programmes as follows:
- Administration: improve billing and revenue collection across the water value chain, increase participation of private sector finance and skills in the water sector, and fight corruption in the water sector at all levels of government.

- Water Resources Management: plan and implement several water resources augmentation infrastructure projects (for example, the Lesotho Highlands Water Project – Phase 2), guide and lead the development of other water resources (for example, groundwater and desalination), establish and transform water resources institutions, strengthen regulatory interventions to address pollution of the environment and communities from wastewater and continue to improve water-use licenses turnaround times and promote transformation in water use.

- Water Services Management: strengthen the Department's role in regulating, supporting, and intervening in municipalities where municipal water and sanitation services linked to the reinstated blue, green, and no drop regulatory monitoring tools; guide and lead increased water use efficiency and demand and conservation management, including addressing non-revenue water at the municipal level; and transform water services institutions (that is, reconfigure or reorient water boards).

Water Trading Entity
The Water Trading Entity was established in 1983 to manage water infrastructure and resources and the sale of raw water. It was converted into a trading entity in 2008 in terms of the Public Finance Management Act of 1999. Over the MTEF period, the entity will continue to focus on maintaining existing water resource infrastructure, supporting the long-term sustainability of water resources, and supplying bulk water to strategic users such as large industrial companies to stimulate and support economic development. The entity is expected to merge with the Trans-Caledon Tunnel Authority (TCTA) to form the National Water Resources Infrastructure Agency by 2024/25. The merger aims to leverage the entity's assets to finance water resource infrastructure more equitably and efficiently.

Expenditure is expected to increase at an average annual rate of 11.1 percent, from R16.4 billion in 2022/23 to R22.5 billion in 2025/26. The entity is expected to generate 78.1 percent (R53.3 billion) of its revenue over the period ahead from the sale of raw water. As a result, revenue is expected to increase at an average annual rate of 9.8 percent, from R19.5 billion in 2022/23 to R25.9 billion in 2025/26.

The entity plans to roll out 22 dam Safety Rehabilitation Projects over the medium term. In addition, an additional R4.4 billion is expected to be transferred from the Department over the period ahead to implement the raw water component of the Umkhomazi Water Project.

The Department has been allocated R72.322 billion over the Medium-Term Expenditure Framework (MTEF) – R22.257 billion in 2023/24, R24.180 billion in 2024/25 and R25.855 billion in 2025/26.

Responses by the Department and Entities to Committee Observations/Questions
On National Water Resource Infrastructure: In response to the Committee’s request for further clarity on the agency, the Department noted that it had closed the extended public consultation process of the draft NWRIA Bill that establishes the agency. The National Economic Development and Labour Council (NEDLAC) has tasked the team to consult on the Bill. Investment partners and lenders to the Trans-Caledon Tunnel Authority (TCTA) requested an independent financial and legal review of the implications of establishing the agency regarding their current loans.

Support to municipalities in respect of financing: In response to the above, the Director-General noted the Department's setting up of the Water Partnership Office, a ring-fenced unit housed within the Development Bank of Southern Africa (DBSA). The office has been set up to support municipalities to partner with the private sector. This is expected to enable more private-public sector investment in water services and to enable municipalities to draw more on the expertise and management capacity in the private sector. Standard partnership programmes are being developed in non-revenue water management, wastewater treatment works, water use, and municipal water and sanitation project management. The DWS, DBSA, and the South African Local Government Association (SALGA) jointly oversee the office. The recruitment process to appoint a CEO is underway, but DBSA officials currently manage the office.

Non-payment of debts to Water Boards by Municipalities: The Committee, once again, expressed concern that municipalities, as of 31 December 2022, still owed water boards R16.1 billion. Although the current financial status of water boards is relatively good, the problem still needs to be addressed. As a result, water boards’ financial stability to undertake their mandate may be compromised in the future. However, the Department is consulting municipalities on measures to improve revenue collection by the boards. Interventions include bulk prepaid meters to be installed by water boards for municipalities and the use of legal processes. In addition, the Department will enforce water limitations/restrictions for non-paying municipalities and collaborate with National Treasury to withhold equitable share allocations for municipalities not paying their current invoices from water boards.

Reliability of supply (which has been raised numerously by the Committee): The disconnect and non-alignment of bulk water and sanitation infrastructure, undertaken by the Department of Water and Sanitation, and the reliability of water supply through municipal water distribution services have deteriorated markedly over the last ten years. Although water services infrastructure may be in place, the functionality of schemes due to poor maintenance and operation by municipalities compromises the ability of communities to receive quality water supply optimally. The Department works closely with water boards and municipalities to extend water distribution infrastructure to all areas that are not supplied.

The Department is working with Lepelle Northern Water Board and the Mopani District Municipality in Limpopo to ensure the installation of distribution of infrastructure to communities in and around Giyani that have never had piped water. The government prioritises these projects through the RBIG and WSIG, which it allocates to municipalities.

Strengthening of the regulatory functions: The Department is working on revised norms and standards for these services to strengthen its regulatory functions over municipal water and sanitation services. It is also standardising its response to non-compliance with these norms and standards across all regional offices.

Proposed amendments to the Water Services Act will enable the Minister to intervene more effectively where there is gross and persistent non-compliance with national norms and standards.

Establishing an Economic Regulator: The review of establishing an economic regulator was mooted in the last couple of years by the Department of Water and Sanitation. However, the Department's strategic plan, specifically the Foreword by Minister Mchunu, maintains that strides have been made in establishing a Regulator Commission to create a degree of independent oversight over the regulation work of the Department and to create a degree of separation between the policy, regulation, and implementation functions of the Department.

The plan further goes on to say that establishing the Regulator Commission aligns with the National Development Plan, 2030, which identified the need to develop an Independent Economic Regulator to oversee all water trading services. The Regulator Commission oversees and guides the regulation work of the Department. Further, it enables a degree of independence and autonomy to be introduced to the setting of the water tariffs, which will ensure that, as a sector, the Department continuously and sustainably equitably provides water.

Role of the national Department in flood management to protect bulk water infrastructure: The country has experienced, in the last two years, more incidences of flooding, mainly affecting water services infrastructure, with considerable damage to water and sanitation services infrastructure in eThekwini, particularly during the Kwazulu-Natal floods in 2022.

National water resource infrastructure such as dams has withstood floods. The Department released water from the dams to protect them as required regarding the hydrological rules governing such releases.

Water-use licenses: The Department has, to date, cleared the backlog in issuing water licenses within 90 days, as highlighted by President Ramaphosa in the 2023 State of the Nation Address. This was achieved through cooperation between the Department and Operation Vulindlela, which provided technical support to implement a plan to grant water-use licenses within reduced timeframes.

The Department is advertising and recruiting more staff for water use licensing, which will enable it to process closer to 100 percent of new applications within 90 days.

Impact of vandalism and criminal activities related to water and sanitation infrastructure: Repairs to water and sanitation infrastructure can be costly and time-consuming, increasing maintenance costs. Vandalism and theft of water infrastructure such as water pumps, pipes, and reservoirs can reduce clean water supply to affected areas. This can have consequences on the health and environment, leading to the contamination of water sources and an increase in the prevalence of water-borne diseases.

Impact of Load-Shedding on Water and Sanitation Infrastructure, with related environmental and health consequences: The Committee stressed the importance of the Department in addressing the impacts of load-shedding on critical water and sanitation infrastructure. The Committee argued that load shedding, the planned power outage implemented by the power supplier, Eskom, due to insufficient electricity supply, significantly impacts water and sanitation infrastructure. Load shedding can pose a significant challenge to the maintenance of infrastructure. The repeated disruptions and stop-start nature of load shedding can cause damage to the mechanical and electrical components of water schemes.

Catchment Management Agencies experience challenges in the validation and verification of water users, as it relates to (i) lack accurate data, (ii) limited resources, (iii) conflicting legal and policy frameworks, (iv) inadequate monitoring and enforcement, and (v) limited public awareness.
The Recommendations to be considered by the Portfolio Committee to the Department of Water and Sanitation are as follows:

1. The Department of Water and Sanitation, the Development Bank of Southern Africa, and the South African Local Government Association should provide briefings or written responses to the Portfolio Committee on its joint initiative, such as the establishment of the Water Partnership Office in supporting municipalities in their undertakings to improve the challenges listed above.

2. The Department should brief the Portfolio Committee on its current initiatives and interventions to implement the guidelines and regulations for groundwater use.

3. The Department of Water and Sanitation, as part of the Inter-Ministerial Task Team, should provide timeframes and action plans, with consequence management strategies, to address serious legal contraventions by non-complying and non-paying municipalities.

4. The Department of Water and Sanitation, the Water Research Commission, and Catchment Management Agencies should undertake detailed studies on implementing departmental strategies to ensure the long-term reliability of water supply in South Africa and provide the findings to the Committee.

5. As part of its quarterly committee briefings, the Department of Water and Sanitation should provide progress reports on challenges and mitigating measures to address challenges confronting Catchment Management Agencies (CMA).
 
6. The Department of Water and Sanitation should increase allocations to the Water Research Commission (WRC) to ensure substantive research and technological innovations are developed to address current challenges such as climate change, floods, and disasters, amongst other issues.

7. The Department of Water and Sanitation, in conjunction with the Department of Cooperative Governance and Traditional Affairs and the South African Local Government Association, should brief the Committee on strategies and plans to mitigate the impact of vandalism, theft, and load-shedding of critical water and sanitation infrastructure.

8. The Department of Water and Sanitation, NEDLAC, and TCTA should provide the Committee with a written report on the current initiatives and foreseeable challenges in establishing the NWRIA.

9. The Department of Water and Sanitation should provide a substantive report on amendments to the National Water Research Act, Water Services Act, and National Water Act, with related timeframes for the tabling of amended legislation in Parliament.

End of Report

Discussion
The Chairperson asked the Content Advisor if the Committee could hold the Department accountable for the figures they have committed to as per allocations made in the Report.

Followed by an administrative matter, bearing in mind the decision to withhold top slice money of the grants to the Boards to pay the money to the boards directly: does the Committee not want to consider doing the same as the boards owe a lot of money to the Department and Eskom? If so, how can the Committee proceed in getting a written resolution?

On recommendations provided, can they be made official Portfolio Committee Recommendations to the Department of Water and Sanitation?

Ms M Matuba (ANC) supported the recommendations put forward by the Chairperson. She further commented on the challenges that the Report raised, raising issues of vandalism as a challenge that should be highlighted in the introduction of the Report, alongside load shedding challenges – as electricity is essential for water pumping exercise. This will allow the Committee to deal with matters holistically when performing its oversight duties.

She commended the good quality of the Report, and highlighted the need for an updated copy of the Report.

Mr A Tseki (ANC) noted during the presentation, particularly in the catchment areas, that the salary budget is more than 50 percent. Considering the specialised skills needed, this concern needs to be further debated so that the Committee has a better understanding.

Ms N Sihlwayi (ANC) expressed sentiment to adopt the Report, as it addressed many relevant aspects and put them into the context of where the Department is.

She further went on to state the lack of municipalities in revenue improvement. The Committee should raise the matter of what municipalities are doing to ensure that people are paying for services. The Department is a regulator and has a constitutional right to oversee and make municipalities play their role. The Report should explicitly state this.

Moreover, irregular expenditures had outstanding reports of previous financial years, and no update has been provided on whether the irregular expenditure cited is historical or that of present years. Where is the Department in terms of investigations and consequence management?

She went on to associate the issue of irregular expenditure with matters surrounding revenue improvement, stating that, on social media, Lepelle is taking the district to court because it is not paying for the water services. What does this mean? How will issues of that nature be cushioned?

On catchment management challenges, does the Department have a database of catchment management areas in provinces holistically, so that there can be a contextualised view during public awareness exercises?

Ms R Mohlala (EFF) asked why the National Water Resource Infrastructure Agency was not mentioned in the Report, although the President, in his State of the Nation Address, mentioned it would be established. How far is this, and when will it come to the Committee?

The Chairperson responded that the political questions may not be answerable, citing the utterances of the President during the State of the Nation Address. He further mentioned the issue of irregular expenditure as the fellow Committee Member raised, saying there is a clause in the Report stating there is no recurrence of fruitless expenditure in the term in question.

Regarding holding the Department accountable as per allocations, Ms Dawood said that this is an ongoing process for interrogation by the Committee, as this is a forward-looking budget. Of importance is how quarterly briefings are used.

On matters of Water Boards owing the Department, she said that this matter needs attention, and the Department can be asked for more information regarding the amounts owed.

The introductory challenges pertaining to criminal activities and load shedding will be placed in the introduction, and all noted oversights, as recommended, will be effected in the Report.

The Department does have a database of the Catchment Management Agency; this will be placed in the recommendations for a briefing by the Department.

Ms Sihlwayi said the Report mentions the mitigation mechanisms by the Department in terms of infrastructure development at water distributions in municipalities, and it is unclear how it relates to the budget. The role of the Minister and Department goes beyond the norms and standards of the Department by the Constitution in terms of interventions made when water is not given to people. Can the recommendations not downplay this role?

The Committee adopted the Report, whilst the Economic Freedom Fighters noted their reservation on the adoption of the Report.

The meeting was adjourned.