Water Boards 2012 Annual Reports- Mhlathuze, Bushbuckridge, Magalies, Bloem, Lepelle Nort, Bothselo & Overberg

Meeting report

The Chairperson stressed the time pressure on the presenters. He would guide them on what information to share with Members during their presentations, and the Members could read the rest of the information in their spare time.

Presentation by Sedibeng Water
Mr Rembuluwani Takalani, Acting Chief Executive, Sedibeng Water, said that Sedibeng Water operated in three provinces, namely the Free State, Northern Cape and North West. He presented a list of municipalities with which they had signed contracts. The Board operated with a number of committees.  Debt had been growing at 50% per annum, but this had been reduced to about 10% after interventions.  Current debts were now up to date, and agreements had been concluded to pay off outstanding amounts, mainly interest, on a quarterly basis.

The Matjhabeng Local Municipality had taken Sedibeng to court. This municipality was one of the top ten in the country regarding outstanding amounts. The court had ruled in Sedibeng's favour, and had ordered the municipality to pay all current debts. Acknowledgements of debt had been signed with this and other municipalities and payment plans were in place. Sedibeng had been forced to go into arbitration with Matjhabeng.

The Chairperson instructed Sedibeng Water to provide the Committee with copies of the acknowledgements, and a report on the arbitration proceedings. 

Mr Takalani briefed the Committee on the employment and black economic empowerment (BEE) status.  Bursaries had been awarded to 34 persons. There was cross-subsidisation for municipalities in the North West. The Board maintained health campaigns. There was collection of debt, but municipalities were reluctant to conclude contracts beyond five years.

Retail sales were done in North West. There was reluctance on the part of municipalities to sign contracts. Chemicals had to be imported, and this impacted on costs. The water in the Vaal River was of poor quality and a lot of treatment was needed. Some municipalities were cooperating and had achieved blue drop status. He suggested that water boards be able to earn blue drop status themselves.

The Chairperson asked how this could be done. 

Mr Takalani said that record keeping was poor in some municipalities. The water boards should be rated on their own.

Mr Helgard Muller, Acting Deputy Director-General (DDG), Department of Water Affairs (DWA), said that the blue drop status was measured at the point where it reached the end user. He did not support Sedibeng's proposal.

The Chairperson said that the good work done by the water boards to deliver pure water should be recognised in some way. He asked Mr Muller to reconsider his opinion.

Mr Takalani said that Sedibeng Water was working with DWA, but was failing to convince the municipalities to do what was necessary. Sedibeng had received another unqualified audit report. Revenue had been R570 million, and the cost of sales was R170 million resulting in a gross profit of R400 million. The net surplus was R60 million. The one worrying aspect was the debt collection ratio. R64 million had been spent on capital expenditure (Capex), which was more than the budget.

Mr Takalani said that the tariff increase for 2013/14 would be 8.5 percent. An agreement had been reached with Eskom to achieve energy savings. He listed the planned Capex projects for the year. The Board served mainly rural municipalities, as Kimberley, the only city in the area, had their own water arrangements.

Discussion
Ms M Wenger (DA) was pleased to see that Sedibeng was taking concerns raised by the Committee seriously. The only remaining concern was the outstanding debt.

The Chairperson instructed Sedibeng to provide short bi-monthly reports on the debt situation. The money from Matjhabeng could only be recovered once the arbitration process was completed.

Ms M Manganye (ANC) had visited Maquassi-Hills. There was a problem with the accumulation of bacteria, which had resulted in the water supply being suspended.

Mr J Skosana (ANC) wanted clarity on some areas with problems. 

Mr Takalani appreciated the accolades given. In Maquassi-Hills it was not just a water quality problem.  There were leakages. Sedibeng supplied bulk water to a reservoir, after which the municipality was responsible for the distribution. The reservoirs were not cleaned, resulting in the alkali build-up. Maquassi had recently been placed under administration. Sedibeng had offered to manage reservoirs and sewerage plants, but this offer had been rejected. Maquassi should not be short of water, but leakages and illegal connections created the problem. There was also a management problem.

Mr Takalani said that there had been shortages in areas in the North West.  The canal to the purification plant had been vandalised.  The problems had now been attended to.

The Chairperson was doing the mathematics on the Capex programme, as the figures were totalled for each region only. The total figure was around R200 million. Huge expansion was needed in the rural areas.

Ms Manganye said this was the challenge being faced together with DWA. The smaller municipalities faced challenges. Municipalities like Maquassi and Dr Ruth Mompati were too poor to provide services.  The Constitution prevented government from taking over municipalities in need. Treasury had to assist.  Some municipalities would not be able to pay their debts, which were accumulating every year. The people were not receiving services.

Mr Takalani said that Sedibeng owed DWA about R400 million. The problem was mainly due to reconciliation differences. Current debts would be paid, and the arrears would be settled in a lump sum when the arbitration was concluded.

The Chairperson instructed Mr Takalani to have a meeting with all the municipalities it served by the end of May. The situation could not be allowed to persist. There was no excuse for any water board not paying its current expenses. The Committee would take this matter seriously. DWA could only be effective if the water boards paid what they owed to the Department. 

Mr Skosana suggested that Sedibeng present a plan on how the reservoirs could be kept clean.

The Chairperson added this to the things he required from Sedibeng. While Rand Water was being asked to assist in other areas, there was a lack of capacity, which needed to be addressed. The strong boards like Sedibeng had to be made even more viable. Large towns needed to be incorporated into their operations.

Presentation by Repellent Water

Ms N Samantha, Chairperson: Finance Committee, Lepelle Northern Water, introduced the presentation.  The board was always enlightened by its visits to the Committee. Expansion in Limpopo was a thorny issue, and Lepelle was looking forward to expanding its services. There were serious problems in the deep rural areas.

Mr Labane Leballo, Chief Executive, Lepelle Northern Water, explained that the water board covered areas in Limpopo. The closure of another water board would see them expand their activities to cover the entire province. Capital investment in rural areas would be intensified. The budget for this purpose for the forthcoming year was R91 million. There were still some challenges to be faced. Some municipalities were still in debt to the board. Some work had been done. The three district municipalities (DM), which owed some R350, million, especially Mopani, had paid off some of their debt. Agreements had been enforced. Mopani had now settled their current debt and there was an agreement was in place to recover the old debt, but Mopani had reneged on this agreement. Legal action had been started. Local municipalities (LM) collected some money from residents but this was not passed on to the DMs.

The Chairperson instructed DWA to foster meetings between the parties to resolve the issue. He wanted to see a full report on this by the end of May, followed by bi-monthly reports.

Mr Leballo said that a surplus of R28 million had been posted. This would be channelled to develop resources. Lepelle Northern Water would be able to manage schemes throughout the province.  Maintenance of assets accounted for 10% of operational expenditure (Opex). The budget for Capex was R75 million and R16 million for maintenance.

Mr Leballo listed a number of projects, including encouraging rainwater harvesting by households.

Mr Leballo said that finances were being managed well. The audit report for 2011/12 was unqualified, but there was a finding on outstanding debts. Lepelle was determined to expand into areas where water supply was non-existent. They would continue to work hard to recover debts. There had been wide consultation on the tariff increase, which amounted to an average of 4.68% across the various districts.

Discussion
Mr Skosana was impressed by the presentation. Efforts would be expanded, but he wanted to advise that expansion must not be confined to certain areas only. He mentioned a small municipality, which bought its water from the larger municipality where he lived. In some areas, there had never been testing of water quality. DWA must empower Lepelle to assist the communities.

Mr F Rodgers (DA) noted a challenge of ageing infrastructure and overburdened treatment plants.  However, expenditure on maintenance and Capex was being reduced. The amount owing from Mopani was nearly 90% of the budget.

Ms Manganye asked what the plan was to meet the challenges listed. She asked if there was a plan in place, and what measures would be taken. On technical skills, she asked if there was any training on offer. 

Mr Leballo replied that in terms of skills development and retention, Lepelle was ensuring that this was done. The Rand Water academy would be used. There was an agreement in place with the Department of Basic Education (DBE) to establish internship and learnership programmes to address the lack of skills. There was also an internal retention strategy. Lepelle was ready to expand into the whole of Limpopo, including towns and all rural areas. The areas mentioned by Mr Skosana were part of this plan.

Mr Leballo said that the budget was constrained by poor debt collection. If all the outstanding money was recovered, and current debts were paid, then there would be enough money for maintenance and upgrading of ageing infrastructure.

The Chairperson felt that the annual sales of 91 million cubic metres of water could expand.

Presentation by Bloem Water
Mr Ockert Stadler, Chief Financial Officer (CFO), Bloem Water, apologised for the absence of the Chairperson of the Board.  Bloem Water serviced the central and southern Free State, including the Mangaung Municipality as well as several LMs and DMs.  There were also some mines that they supplied.

Mr Stadler presented a map of the main dams and supply routes, which they controlled. Bloem Water provided technical support to DWA. They conducted blue drop certification programmes. 73% of the municipalities in the area had blue drop certification. Targets for clean water had been exceeded where tested.

The majority of Capex would be in the Mangaung area. The metro had its own water treatment plant, which contributed about 35% of the city's supply. There would be an increased focus on sewerage treatment in the forthcoming year. Bloem Water was also working towards water conservation.

There had been reasonably good performance achievement in the past year. There had been some issues with revenue collection from the metro during the past year. Revenue for 2012 was R325 million with a surplus of R83 million. Mangaung had now solved the problem and were current with their payments. Total assets were R962 million, although this was misleading as Mangaung had made a payment of R350 million the day after the end of the Financial Year (FY).

Banking problems had impacted on Capex, but these had since been resolved. Water was still being sold and Bloem Water should remain a going concern. There were two municipalities in debt, but the major client was solvent. Debt ratios remained high due to Capex requirements. There had been an unqualified audit report.

The Capex budget for 2011/12 had been R182 million, an increase from R107 million in the previous FY.  The budget for 2012/13 was R189 million, a similar figure to the previous year. Of this, R121 million was for expansion and R67 million for refurbishment.

Volume growth in the smaller towns in the south of their area was low. Approvals had been given for borrowing. A five-year business plan was in place. This would protect the current cash reserves. Reserves would be used for refurbishment and loan payments. A debt service ratio of 25 percent would be maintained. Water consumption was increasing.

Costs were rising in excess of inflation. The proposed tariff increases would still mean a downscaling of Capex projects in future years. He hoped that Bloem Water would be breaking even in the next five years.  Budgeting was in a five-year cycle. Reserve funds would be used to fund Capex, but would eventually begin to rise again in the future. Agreements had been signed with provincial and government departments. Naledi was paying their current account but was batting to pay off their arrears. 

The Chairperson instructed Bloem Water and the DWA to meet with the municipality concerned to plan a way forward. It did not help that agreements were reached but one of the parties reneged on the deal. Harsh steps were needed.

Mr Stadler said that a committee had been established in the province to address debts.

The Chairperson said that talking about the issue was no longer enough. The outstanding R50 million could be put to good use.

Mr Stadler said the current liquidity ratio was declining. This was a concern. While in an under-recovery phase, the board had decided to implement an 11% increase. While this was still an under-recovery, the board had felt it prudent not to opt for a higher increase.

The Chairperson said that at some stage there must be a break-even situation.

Mr Stadler said that Bloem Water faced some current challenges. These included inadequate catchment management and delays in issuing abstraction permits.

Mr Muller said that this issue dealt with the water licences. 

Mr Stadler said that other challenges included payment default risk and sustainable tariff structures. He listed the support requested from DWA.

The Chairperson said that a lot of work was being done through reports, but some more personal interaction was needed.

Ms Thoko Sigwana, Chief Director, DWA, said that annual meetings were held with the water boards.

Mr Stadler said that often when meetings were arranged, the client, as represented by the South African Local Government Association (SALGA), was often not present. He presented some corporate social investment (CSI) projects being undertaken.

The Chairperson was satisfied with what was happening in Bloem Water. They had been a 'black sheep' in the past, but had moved a long way to improve their image. He was also pleased with the quality of the report. The use of informative graphs made it much easier for Members to understand the issues.

Discussion
Mr Skosana wanted some clarification on the turnaround strategy on under-recovery and water losses.  Treasury had raised these issues.

Ms Wenger felt it amiss that SALGA was no longer present in the meeting.

The Chairperson agreed. They had been given the opportunity to listen to the water boards, but had left after making their own presentation.

Ms Wenger was not sure where Brandfort fell under. It seemed that this town was on its own.

The Chairperson was disappointed that Sedibeng Water, Umgeni Water and Rand Water had left after their presentations. The engagement was with the entire sector, and the water boards should also be listening to what their comrades were saying.

Ms B Ferguson (COPE) was also disappointed at SALGA's absence. This body was very vocal when it suited them. She asked if Bloem Water was at risk. A complaint against them had been lodged with the Public Protector.

Mr Stadler replied that the issue had been resolved as far as Bloem Water was concerned.

Ms Ferguson said that there had been some concern over persons disciplined and subsequently dismissed.

Mr Stadler said that labour relations procedures had been followed. Bloem Water was aware of the problem. There had been staff changes. There was no risk, even if a cash award was granted to the complainants.

Mr Stadler said that in October 2011, the metro had spent huge amounts of money to reduce losses.  This had resulted in a drastic saving. The normal trend in increases of 2 to 3% in losses had started in June 2012. There had not been a project department in previous years, and this had impacted on Capex.  The backlog was now being reduced.

Presentation by Magalies Water
Mr Mboniseni Dlamini, Chief Executive, Magalies Water, presented on the area covered by Magalies Water, including the Tshwane municipality. There were particular issues regarding the Pilanesberg issue, and some legal issues. The Sizwe mining group would benefit from the water schemes, and the final draft of the agreement should be signed off by the end of April. Royal Bafokeng also wanted to commit to the scheme.  They had come in at a late stage. The application for funding was being processed. Other applications had been dealt with.

There had been significant movement on resources. An agreement had been signed on the Regional Bulk Infrastructure Grant (RBIG) for Pilanesberg. DWA was committed to fund the implementation of the project. Some more work was still to be done. Magalies Water was waiting confirmation from Treasury before concluding a loan. A grant of R200 million was awaited for the scheme to run from 2013 to 2014.  Over the medium term expenditure framework (MTEF) to 2016 an additional R170 million had been allocated. 

Mr Dlamini presented the Capex programme. The Pilanesberg South scheme was being implemented by the mines. This should be concluded once an agreement was concluded. Magalies Water was busy in the northern part. This had also been implemented by the mines. The infrastructure amounted to R190 million, including a reservoir and a pipeline. There had been upgrades to the treatment plant that would provide water to the Pilanesberg scheme. The first phase was 22% complete. He believed that by March 2014 the first phase should be commissioned. 

The other Capex was responding to the current water treatment facilities. Demand was outstripping capacity. Priorities were Klipdrift, the second largest facility, which was 80 percent on the detailed design.  There was a challenge at Wallmannsthal. A feasibility study had to be conducted. A budget of R120 million was in place. By the end of the FY, 47% would be spent. The bulk of that was expenditure on the upgrade of the water treatment facility.

Mr Dlamini indicated the other areas where expansion was expected. More areas might be reached than had been planned. Many of the areas targeted were the source of complaints about lack of supply or disruptions. There was a budget for some of the areas on the map. Many of these areas were not covered by the municipal water infrastructure grant (MWIG).

Feasibility studies had been conducted in some areas. Water challenges could be alleviated in Moreteli.  This area was reliant on borehole water, which was inadequate. A lot of interventions were made where municipalities lacked capacity, particularly where there was a problem with operations and maintenance. 

Mr Dlamini presented the tariff proposals. There was a different tariff for each scheme. The average increase was 9%. Higher increases were being levied in certain areas due to upgrades needed to treatment facilities. He expected expenses to increase by 7%. Investments would be used to assist with the financing of the Capex.

Reserves were R466 million, which would be used for infrastructure. Magalies water was trying hard to improve on financial performance. Debt to the water board was R109 million, of which R68 million was current. Some of the remaining R41 million was in dispute with the Rustenburg Water Services Trust.  This disputed amount was R12 million. The rest was attributed to Madibeng and to a lesser extent Thabazimbi. All of these were paying their current accounts. There was an agreement with Thabazimbi.  In Madibeng it was a Section 30 account. The outstanding amount was for other services and not bulk supply. Thabazimbi owed R12 million in arrears for bulk water supplies.

The inter-departmental route was being followed to recover the Section 30 debt with Rustenburg. The next step was to engage Treasury. With Madibeng there was constant engagement. The board was now considering trimming their services to the municipality to stay within the budget.

The Chairperson found it unacceptable that the payment for services in terms of Section 30 was not being made.

Mr Dlamini said that this was a long-term arrangement. There was an obligation to pay for services.  Magalies Water had suggested to DWA that they receive payment directly from the equitable share allocation.

The Chairperson instructed DWA to arrange a meeting with the parties concerned before the end of the month. The issue had to be resolved. The points of emphasis on the audit report needed to be dealt with.  Financial management had otherwise been much better. Waters sales were 76 million cubic metres.

Mr Dlamini said that the water supplied to Tshwane was in the more rural areas of the municipality such as Hammanskraal. Rand Water also helped with the supply to Rustenburg.

Discussion
Ms Manganye said that Thabazimbi had to pay for its water.

Mr Rodgers commented that there should be a standard reporting format. Much of the information was subjective and it was hard to make comparisons. 

The Chairperson felt that more regular meetings between DWA and the water boards might lead to a standard format. There were good aspects in each of the presentations made thus far, and could form the basis of best practice.

Ms Wenger was sceptical about the achievement of the target dates for the Pilanesberg project given the number of aspects that had not started yet.

Mr Skosana concurred that every debtor must settle. Members must take this to their constituencies. He asked if contracts had already been signed for all the infrastructure programmes particularly in the Dr JS Moroka municipality.

The Chairperson said that it was the penultimate year of the current government. Strict action could be expected as politicians attempted to entrench their positions before the election.

Dr S Huang (ANC) noted an expected dip in net profits for 2013. At the same time, a 10% increase in revenue was expected against an increase in costs of 7%. He could not understand this discrepancy. He asked what contribution Magalies Water made to the community. There had been no mention of job creation or other support to the community in the presentation.

Ms Ferguson did not think that the project target dates were realistic. 

Mr Dlamini replied that the projects were still in a concept design phase. On JS Moroka and Thembalethu, there had not yet been engagement on what was a concept at present.

Ms Audrey Raphela, General Manager: Finance, Magalies Water, said that there had been huge management income in previous years, which was no longer present. Reserves would be used for projects and hence the decline in profits.

The Chairperson said that the culture of non-payment was no longer relevant in South Africa. This was the only black spot on an otherwise white sheet. For future reports, there should be differentiation between current debts and arrears. An indication was also needed if any agreement was in place, and if such agreements were being honoured.

Mr Dlamini agreed that they had not reported on job creation issues. Contracts include provisions for local content and job creation. Bursaries were provided as part of the board's CSI efforts. Learnerships were provided. There was a Memorandum of Understanding (MoU) with the Tshwane University of Technology for technical candidates.

Presentation by Overberg Water
Dr Yusuf Emeran, Chairperson of the Board, Overberg Water, apologised for the absence of the CFO who was ill.

Mr Richard Edson, Chief Executive Officer (CEO), Overberg Water, described the area of operation. It extended from Botrivier to Heidelberg. The capital plan had been delayed due to the roll-out of an asset management system. This was not yet complete. 

A loan taken from DWA had been written off. He presented a breakdown of income and expenses. Net income for the 2011/12 FY was R31 million, with a surplus of R19 million. The balance sheet reflected an amount of R83 million. There was an unqualified audit report, but there were audit observations on the late submission of documents due to staff shortages. Nine of thirteen key performance indicators had been met with satisfactory performance.

68 percent of the Capex budget had been spent. Most was a rollover from the previous year. The single biggest item was an investment in a filtration plant. There was a five-year plan. Strategic objectives remained the same as in previous years. The proposed tariff increases were an average of 15%.

Current challenges were access to capital, sustainability and staff shortages. Strategic focus areas were the compilation of a regional master plan, securing an income stream, investigating access to capital funding, targeting an increase in staff, completing implementation of the Performance Management System, training and support to DWA.

Discussion
The Chairperson said that Overberg was a small entity. Most of the municipalities in the province were responsible for their own water. The matters of compliance could not be tolerated with such a small body.  The main problem was the constraints on expansion.

Ms Manganye was shocked to hear that Overberg was still using asbestos pipes. She had seen a fifteen-year plan to replace them, and asked how far this had progressed.

Mr Rodgers said that the financial element of this presentation was lacking. He thought there should have been a deputy present to answer financial questions. There were no reports on debtors. He was puzzled that the written off loan was included as income.

The Chairperson chided the delegation for not attending the meeting on the previous days. They would have been much better prepared if they had been present to hear the reports of Treasury and the Auditor-General (AG).

Dr Emeran apologised. The sudden illness of the CFO had forced them to work on the report all of the previous day.

The Chairperson was unhappy with this explanation. There had been plenty of notice. The Committee would not give the delegation the respect of answering further questions.  They must compile a new report and report back to the Committee.

Mr Skosana said that information was needed on what was happening in the rural areas, where the disadvantaged people lived.

The Chairperson ruled that the new report must be presented by the end of April. At this stage the Committee would not express an opinion on the tariff proposals. This was particularly disappointing in that Overberg Water had been exemplary in previous years.

Dr Emeran apologised to the Committee. There had been a change in management, which had hampered the preparations.

The meeting was adjourned for lunch.

Presentation by Pella Drift
Mr Nathan Williams, Pella Drift Water Board, said that Pella Drift Water was a small board on the banks of the Orange River. There were agreements with Khai-Ma LM and the Black Mountain Mine. It serviced towns such as Aggeneys and Pofadder. A profit had been generated but there was some pressure on the reserves. This was not too much of a concern as the board expected to sell higher volumes of water in the future. 

The life of the Black Mountain mine was expected to be eight years, but a new mine in the area would have a twenty-year lifespan. There was an agreement in place and infrastructure would be developed. 

The 33rd successive unqualified audit report had been achieved. Revenue had grown marginally. A 7% increase was predicted for Khai-Ma.

Reserves had declined from R54 million to R48 million. There was some debt, but the customers generally paid on time. The cash reserve had increased from operating activities. Cash paid showed a marginal increase, but there was a nice increase in cash from operations. There was R1.75 million in reserves.

Expenses had grown by R1.5 million. There had been a saving of R300 000 in the use of chemicals.  Higher spending in the previous year had been partly due to floods. There was a good energy plan in place. Pumps were stopped when reservoirs were full, and at peak demand times. A number of valves had been replaced, reducing pressure on the mines. General maintenance had increased.

There had been an increase in the use of consultants and a marginal salary increase. The situation had been turned around nicely. Planned maintenance was running well. There was an element of risk. When mines did the expansion to 24Ml, a new clarifier would have to be built. At present a system of booster pumps was sufficient. The water quality was better than in previous years. Safety was good.

There had been major increases in the past few years. This had secured the viability of the board. There was insufficient cash to fund the Capex programme, hence the need for a loan. The mine would be paying for much of the Capex work and tariffs could be kept affordable for residents. The tariff increase had been kept to about 7%.

Discussion
Ms Wenger observed the difference that the quality of water made. The board had achieved significant savings on the required chemicals.

Presentation by Mhlathuze Water
Mr Brian Rawlins, Board Member, Mhlathuze Water, introduced the presentation.

Mr Sibosiso Makhanya, Acting Chief Executive, Mhlathuze Water, said that his water board supplied a mainly rural area. They had long-term contracts with some municipalities. There was about R500 000 in outstanding debt. Most targets had been met. The board also serviced private companies.

Mr Makhanya said that the board had received an unqualified report. The AG had expressed a concern over predetermined objectives that had not been submitted.  Expenditure in the last FY was at 76% of the budget. Some projects were only completed in the following FY. Key financial ratios were all adequate. 

Mr Makhanya said that there were four tariff structures. Most of its energy came from the city of uMhlathuze, centred on Richards Bay. The proposed tariff increase was 8.6%. There had been a surplus of R52 million. 

Mr Brian Ndaba, CFO, Mhlathuze Water, said that there were loans for R120 million. The Capex budget was R500 000. There were investments of R250 million. This could be used for Capex.

Discussion
The Chairperson noted that the revenue from Mhlathuze was 3 percent of the national total, but their capital spending was 12 percent.

Mr Makhanya said much of the infrastructure was old and was now being replaced. The R500 million was externally funded projects, financed by RBIG. The Capex for the previous year was R61 million. The budget for internal Capex was R138 million. This had come partially from redeeming investments. One project would account for R200 million and a project in rural schools would account for R150 million.

Mr Skosana said the operations were clear. Water and sanitation were needed in the schools. He asked if the communities were also being serviced. There were problems with water losses.

Ms Ferguson looked at the top ten risks. The BEE rating was one of these. She wanted some more information on the risks cited.

Mr Makhanya replied that a five-year contract had been signed that year to address water losses. The work would start in the towns. The CSI programme assisted schools with hygiene issues. Bursaries were awarded and career guidance was given. In some areas the people had never seen a scientist. Small contractors had been targeted with the school sanitation programme. There had, however, been many failures. The board was now looking to match these small contractors with bigger companies. The board had a BEE rating of 6. The board was competing with private sector companies with ratings of 3. Records were not being kept, and he was confident that with better record keeping alone the rating would rise to four. Payments to contractors could act as one yardstick.

Ms Ferguson said that the scorecard rating was a huge risk. If the private sector could achieve a level 3 rating, a parastatal company should have a similar or better rating.

The Chairperson said that the future Capex had not been quoted. The reports from Overberg and Mhlathuze showed the need for better reporting. DWA was instructed to find a solution to this problem. 

Presentation by Amatola Water
Ms Rosette Nothemba Mlonzi, Board Chairperson, Amatola Water, introduced the presentation. There had been a qualified audit due to irregular expenditure. DWA had appointed their own contractor for a certain project, and the discrepancies in the supply chain management (SCM) procedures had resulted in the qualified report. Amatola was a rural board with two smallish towns but no metro. Amatola was moving towards a 90:10 ratio of water supply to other services. This was not a problem.

The Chairperson was concerned that the finances were not in check. This was a worry if Amatola were to extend its operations into areas such as the former Transkei. The financial history was not good. 

Mr Mzimkulu Msiwa, Chief Executive Officer, Amatola Water, had been called out of retirement. The focus had to be on water. Although their offices were in East London, Amatola only supplied 3 percent of the city's water. Most of their operations were in the former Ciskei. Volumes were very low in those areas and there was a lack of skills. There was an overflow of housing into rural areas with greater water needs.  Amatola was responding to this.

The Chairperson asked if the tribal areas were part of the water board's area of responsibility.

Mr Msiwa said that there was extensive coverage by local government. The areas that had fallen under the Ciskei had been handed over to Amatola. They were not present in the towns. The same trends were emerging in KZN. Three blue drop awards had been made. The deficit had been reduced to R8 million in the previous FY. There were still debtors. Better SCM measures were in place and the incident causing the qualification would not recur.

The position regarding liquidity had improved. Current accounts to DWA had been paid. There were agreements over arrears payments. All bulk water accounts were current in 30 days. The problems areas were the Section 30 services. The OR Tambo municipality and Public Works Department both owed R4 million. The water board had been desperate for money and had accepted jobs indiscriminately.

Mr Jabulani Dlamuka, Director: Finance, Amatola Water, said that Amatola was working on collecting the money. Some had been paid in the previous week.

The Chairperson instructed DWA to facilitate meetings between Amatola and the municipalities concerned. The Committee wanted a report by the end of May.

Mr Msiwa said that the board had a strategy of demanding a partial payment before accepting any contract. One of the key challenges on raw water was that pricing strategy was not applied correctly.  Different charges were levied in different areas. Undisputed debts must be paid.

He acknowledged the support from Treasury and DWA. The key capacity was the water treatment works.  Some were small and had to be cross-subsidised. They were operating at 120% capacity. Additional capacity of 40Ml per day would be ensured by an upgrading project. The expected cost was R318 million. Because it was an exceptional case, this would be completely paid out of RBIG. It was impossible to raise a loan for this. There would be no new projects at present.

The Chairperson found this very problematic. 

Mr Msiwa said that the OR Tambo municipality was now starting to play the game. There was support from Mthatha. There was a big project to support the King Sabata Dalindyebo Presidential Intervention, which would provide water for the area within a 50km radius of Mthatha.

The institutional reform process in the Eastern Cape was having unintended consequences. The RBIG allocations were being used by the towns to create their own bulk infrastructure. The water boards should be in the bulk supply sphere.   

Discussion
The Chairperson said that it was clear that there was little growth in the area. The water boards were being drawn more and more into Section 30 services. There should be a clear distinction on funds set aside for Capex. Some of the boards were totally depending on RBIG and other grants. If the grants fell away, the capacity would as well.

Mr Skosana did not know where to start. He had listened attentively, but had not heard any hope of progress in the near future. He knew the Eastern Cape rural areas. Members needed a sense of progress. He was worried about the education within the board. He asked for an explanation of how members could be capacitated, and who was responsible for capacity and skills building within the sector.  Members should read the Annual Report very carefully.

The Chairperson asked how much was owed. He was informed that the figure was R90 million.

Dr Huang queried the amounts of over R2 billion quoted in the presentation. Some 85 000 temporary jobs had been created, but very few of these were permanent. He could not understand how Public Works could owe the board money. He challenged the bonuses awarded to the board despite the poor performance.

Ms Ferguson saw the challenges and the work being done. It appeared that the water boards understood their limitations. She asked how the boards would achieve what had to be done. She asked what the way forward was for recovering the debts. The board was trying, but she was not comfortable about the financial recovery proposals.

Ms Manganye felt that this board would have done better than others. They needed to pull their socks up. 

Mr Msiwa was comfortable with the capacity, but they lacked the tools. There was a problem in that the constraints had encouraged the exodus of skills. This process was now being reversed. Finances were still a major constraint. On the budget, the presidential intervention was a six-year process. The amount in the coming FY was about R500 000. The same applied to the job creation aspect. A sustainability plan was being drawn up with OR Tambo. As the physical components were rolled out, so too would the human skills. They had been caught with their pants down, but he was confident that they would present a much more positive report the following year. There had been no bail out, and the recovery had come from internal sources. No bonuses were paid in the last two years. He had only been at the board for nine months.

The Chairperson said it was clear that there were problems in reclaiming debt. He trusted that the procurement problems would not be repeated. What was revealing was that other agencies were now starting to use Amatola Water. This would not happen if they did not have the capacities claimed.  This would determine the capacity of the water boards.  Twenty years into the democratic South Africa and the Eastern Cape still lagged behind the rest of the country. He challenged Amatola to establish itself as a centre of excellence in the sector. There was a huge opportunity. They needed to expand their operations from Ciskei.

Presentation by Bushbuckridge Water
The Chairperson said that there had been serious problems in Bushbuckridge and hoped to hear an improvement.

Adv Geraldine Khoza, Deputy Chairperson, Bushbuckridge Water (BW), said that her water board controlled the water in the Kruger Park. There had been some improvement in debt recovery. They had received an unqualified report, but concerns had been expressed over their viability. Given all the problems they would welcome realignment.

Mr Nkateko Mashele, Chief Executive, BW, said that this board was one of the most productive in terms of volume.  Debt had been a key component to the turnaround strategy. They were still supplying to the Bushbuckridge LM, and parts of Mbombela. Most of the bigger towns had their own water supplies. The debt as at June 2012 was R240 million and was continuing to escalate. An agreement had been signed with the LM, which had acknowledged a debt of R190 million. This would have paid off in R5 million instalments. There were still disputes over metering. The municipality committed itself to honouring half of the debt while the dispute was being settled. Payments had started, but only R13.8 million had been paid in the last six months of the FY. Nothing was paid since then. The plants had been shut down, as BW could no longer meet its obligations.

Mr Mashele said that there was a subsequent agreement that the balance would be paid, of which R25 million was paid in December 2012. This was a total of R38 million against the agreement of R95 million.  The municipality was paying its current bills of approximately R6 million, but BW had to put a lot of effort into collecting this. Not all accounts were fully paid either.

Mr Mashele said that the current budget by the municipality was well below the actual consumption. Debt collectors had been called in. BW had still not gone to court.

The Chairperson said that debt collectors or the sheriff could only step in to enforce a court order.

Mr Mashele had a different understanding of the term 'debt collector'. The company had lawyers, sheriffs and others. 

The Chairperson was confused, as he had never heard of such an arrangement of lawyers and sheriffs.  They were not there to assess the repayment ability of the defaulter.

Mr Mashele said that in 2006 the Bohlabela DM had been disbanded. The new municipality was no longer a water distribution authority. There was a debt of R26.4 million. In Mbombela a credible debt Collection Company had been reported to recover R14 million. Mbombela had paid their debt in full albeit after the close of the FY. Their current payments were up to date.

Another aspect of the turnaround strategy was developing new business.  A project management fee was being levied for their work on the bulk infrastructure development plan.  BW was working with the Department of Co-Operative Government and Traditional Affairs (COGTA) and DWA at provincial level in Mpumalanga. A three-year contract had been concluded with Bushbuckridge municipality. There had been an agreement with Mbombela. This was also a short-term contract.

BW faced challenges in metering and illegal connections. The bulk pipeline had been assessed and 24 new metering points identified. Rand Water had been appointed as an implementing agent. There had been discussions with the municipality on illegal connections. These would be either formalised or disconnected if they were interfering with the system.  Illegal connections were not metered. Water lost in this way was for the municipality's account. There were other projects being funded through DWA grants.

Mr Mapholoba Letswabo, CFO, BW, said that the annual financial statements showed a revenue growth of 8 percent. Tariffs had increased by 7%. There had been a 1 percent reduction in chemical costs. The recovery of historical debt was 43%. Of the debt of Bushbuckridge, 60% had been recovered. BW had a deficit of R49 million; almost triple that of the previous year. If the debt had been paid they would have declared a profit.

The debt at the start of the 2011/12 FY had been R167 million. This had increased to R208 million. BW had received an unqualified report, but AG was concerned that the level of debt meant that the ability to operate as a going concern was in doubt.

One of the supply chain managers had resigned, impacting on the capacity of BW in that field.

R26.5 million had been spent on Capex in 2011/12. All had been completed within schedule. There were a further eight projects that had overlapped the two FYs. These were funded through grants. There were no Capex projects from BW's own funding. Provision had been made, but the poor cash flow prevented these from being executed. There was one project starting in April 2013, and another was nearing completion.

The Chairperson asked what the staff did, as there were virtually no Capex projects.

Mr Mashele said that there were ongoing activities to keep the staff busy with the supply of bulk water.

Discussion
Mr Muller said that the Minister had approved the reduction in the number of water boards, but there was a process to be followed. 

The Chairperson requested a proper implementation plan to be tabled at the Committee before the Minister approved it. A plan was needed for each of the water boards to be closed. Concerns over jobs had to be addressed. While short cuts must be avoided, some haste was needed. Similar meetings were to be held with the municipalities. He was infuriated by the way the municipality seemed to be doing just as it pleased. A report was needed by the end of May 2013 on how the problems could be resolved. The municipality should be taken to court if this was the last resort. This was a water board that would not spend a cent on Capex. The concept of the water boards was to create infrastructure. While some projects had been completed, external funding had been necessary. BW was not fulfilling its role. If necessary, DWA must sue the municipality. He did not think it worth Members' while to ask any questions. 

The Chairperson said that the rationalisation must proceed without compromising the security of staff members. The debt of the municipality must be sorted out as soon as possible. Unless there was someone with muscle, it seemed that nothing would happen.

Adv Khoza advised the Committee that she had just heard that the Bushbuckridge municipality had been placed under administration.

The Chairperson said that this might be a blessing in disguise. The time was now to tackle this problem. 

Mr Skosana said it was a dry area and the people were suffering. An effort was needed to provide water.  Being put under administration might solve the problem.  It was a given that BW would be merged. DWA still needed to work closely with them in the interim. Since the meetings started on Tuesday, Members had heard continuously that municipalities owed money despite receiving funds from the equitable share and other grants. Political intervention was needed. 

Ms Manganye said that BW was still performing a sterling job. Most of the board members no longer attended meetings. This might be due to a lack of payment. 

Dr Huang noted that the Deputy Chairperson was a lawyer. He could not understand how the debt situation could have been allowed to develop. The salary of some employees had doubled during the 2011/12 FY. Adv Khoza should have a better idea of how to reclaim the debt.

The Chairperson said that the rationalisation would happen in a balanced and sensitive manner.

Presentation by Botshelo Water
Ms Sophia Lebeko-Ratlhakgane, Chairperson of the Board, Botshelo Water, apologised for the late submission of the report.  A management vacuum had been created by the resignation of several senior managers. Botshelo Water was not viable, and the interventions of the Minister were welcomed. The Premier had been enlisted to help recover debts.

Mr Solomon Mathebula, Acting Chief Executive, Botshelo Water, said he and other senior managers had been brought in to close off the financial year. Botshelo Water operated in two DMs in the North West.  The total area services was 50 000 square kilometres, and was home to about 900 000 people. 

Mr Mathebula thought that Botshelo was one of the most diverse boards. Apart from bulk supplies, Botshelo also operated in the retail sector. It operated a number of boreholes, windmills and pipelines. It operated and maintained the TSWASA scheme. Botshelo’s entire infrastructure now belonged to the various district municipalities and water service authorities. 

Botshelo was a highly rural area. The business model was not viable. Botshelo Water stemmed from the homeland era. The water board was expected to maintain and refurbish infrastructure belonging to water service authorities. They then had to wait for payment. Much of the infrastructure was in extremely poor condition.

The acting CFO of Botshelo Water said that there had been a loss of R19 million during the FY. There had been various provisions to be made for bad debt. In the previous year there had been a loss of R35 million. The service level agreement between Botshelo Water and the service authorities dictated that Botshelo would be paid a management fee. This had not been done. There had been a slight increase in the supply of bulk water. There had been a decrease in the gross volume to 44% due to the increase in the raw water cost. This had increased by 37%. Botshelo had analysed this trend, and on average the cost was R2.59 per kilolitre compared to R2.05 the previous year. On energy costs, there had been a 24 percent increase. Additional pumps had been installed.

Botshelo did not own any infrastructure. The purchasing power parity (PPP) values were for the offices.  Liabilities now exceeded assets. There had been support from the executive authority, and a R31 million grant had ensured that Botshelo stayed a going concern.

The acting CFO said that the debtor base had grown in 2012. Botshelo was 742 days in debt to DWA in the current year.

Mr Mathebula said that there was no funding for Capex as it owned no infrastructure. All funding was external.

Discussion
The Chairperson said that Members knew where this board was. He thanked the delegation for trying to steady a sinking ship. Most of the water boards had been created to look after the bantustans, and were never viable options. They had been created as a stopgap. People of the area did not deserve to be treated in this way. He asked that the process with BW should also be followed in this case.

Dr Huang noted that the salaries of the CEO and CFO had been reduced. There had been no bonuses.  He complimented Botshelo on applying financial discipline in their troubled circumstances.

The Chairperson said that on the whole he had seen a marked improvement. At a stage when there had been doubt over the efficacy of the water boards, he was now being reassured. Issues of the previous year had been addressed. He called on the water boards to send the Committee off on a solid note as the current government completed its term of office. Rand Water had not been created overnight. Some scope was needed for the water boards to become organisations of excellence. He really wanted the water sector to lead the way for government. It was possible. Proper systems needed to be in place. He had written down all the tasks he had set. Proper consultation was needed. An ongoing effort was needed.

The Chairperson instructed DWA to submit quarterly reports on the water boards, particularly on the subject of arrears payments and the progress with Capex projects. Any problems DWA encountered should be reported. The rationalisation process should also be covered. This would happen in 2013. The one issue was that the three boards would be rationalised into existing ones. Proper process must be followed. The other issue was on how water boards could be made more viable. Some of these could not go anywhere without being more viable. In each area the possibility of rationalisation should be considered. The location of the Sedibeng office in Bothaville did not sound effective. The boards were criss-crossing provincial boundaries. A proper assessment was needed. With the grants, the water boards were becoming the implementing agents and DWA was being sidelined. A strategy was needed for the ten water boards. Rand Water and Umgeni Water were viable and did not need the same attention. 

The Chairperson said that DWA must spend much more time with the water boards. He thanked Members for their contributions. 

The meeting was adjourned.