KZN floods; Water Board 2022/23 tariffs & SALGA input, with Deputy Ministers

Meeting report

The Chairperson commended Members of Parliament for their groundwork in KwaZulu-Natal and Eastern Cape in the aftermath of the floods and asked for a moment of silence.

The Chairperson remarked that there was not a quorum but the meeting would not be affected by the absence of other members. The meeting had critical matters to cover and he requested time precision from speakers so the members can continue with their groundwork in affected areas. Apologies were noted from the Minister.

Deputy Minister remarks
Deputy Minister of Water and Sanitation, Mr David Mahlobo, stated that His Excellency, President Cyril Ramaphosa, declared a National State of Disaster yesterday in response to floods. This decision came after the realisation that declaration of a state of disaster by the KwaZulu-Natal Provincial Government only was not enough to deal with the many areas affected by floods in KwaZulu-Natal and in the Eastern Cape. The Minister of Cooperative Governance and Traditional Affairs (COGTA) is working on what needs to be done because of this declaration.

Climatologists indicated that from 10 to 12 April, there were unprecedented rains occurring in and around KZN. Some areas experienced rain for 48 hours. This affected the infrastructure in KZN and Eastern Cape. The impact goes beyond eThekwini District. Affected include: Ugu; King Cetshwayo; Harry Gwala; iLembe. Floods have taken the lives of more than 400 people, leaving main supply systems severely damaged. There is a big challenge with the KZN landscape as people settled in areas that are prone to rain disasters. Some of the infrastructure is near river banks. About the flood damage, wastewater treatment plants and networks are gone and the pipes have been severely damaged. As a result, this has created pollution and effluent problems.

Quick Wins
• Tankers made available to areas that need water
• Engineers and plumbers deployed to ensure there is restoration and reconstruction taking place
• More than 152 trucks from eThekwini, 50 trucks from DWS and contributions from organisations.
• More than 450 megalitres provided to eThekwini per day (above 50% of what is needed).

Challenges
• Community members are preventing tankers from going to other areas
• Communication amongst public representatives of all parties in eThekwini, Ugu and iLembe
• Southern Parts of eThekwini do not have water as the augmentation pump station is down
• Inaccessibility to certain areas because of damaged infrastructure
• Inadequate filling stations
• Wastewater treatment plants systems not functional and not receiving effluent.
• Water leaks in some areas.

Deputy Minister Mahlobo said that various teams have been deployed to assess and work together in mitigating infrastructure damage. They are working tirelessly to conduct restoration and reconstruction work. Wastewater treatment plants lacked maintenance even before the floods and some of them were not licensed. He highly commended the call of duty shown by organisations and citizens

KZN floods: Department of Water and Sanitation briefing
Ms Angela Masefield, DWS KZN Regional Office Director: Regulation, reported on the storm damage in eThekwini, Ugu District Municipality, and iLembe District Municipality. The Provincial Disaster Management Committee was activated and a meeting held on 11 April 2022. This was after eThekwini received 200-400 mm of rainfall in a 24-hour period.

Umgeni River burst its banks and flooded the Sea Cow Lake and Springfield area. The Umlaas canal burst its banks and flooded Sapref oil refinery and Mondi factory. However, the pollution impacts are being monitored. The South Coast aqueducts washed away by floods have affected Ugu district as well.

There are action plans in place which include:
• War Room establishment and meetings are held daily.
• Technical capacity mobilised which includes 250 technical staff
• Establishment of teams responsible for management of tankering services, operations management, infrastructure repair/replacement, and materials/procurement

The War Room compromising of eThekwini, Umgeni Water, Department of Water and Sanitation, Human Settlements and Roads – has been tasked to oversee the implementation of actions plans and to ensure smooth operations.

Ms Masefield listed the quick wins some of which included:
• Restoration of washed away aqueducts that led to water insufficiency in areas around eThekwini.
• Water Supply Being Restored
- Inner West Region – Improved by 60%
- Outer West Region – Improved by 60%
- Central Region – Improved by 50%
- South Region – Improved by 20%
- North Region – Improved by 40%

Ms Masefield spoke about how the load shedding is affecting their operations. The Department planned to reach out to Eskom to ask for exemption while operations are underway.

Dr Sean Phillips, DWS Director-General, explained that the Department did not wait for funds from the government. There was reprioritisation of funds already within the DWS budget to allow recovery operations not to be delayed.

Discussion
Mr L Basson (DA) appreciated the report and noted that it will take time to fix the damage. Some wards that have been affected by floods are not yet included in the list receiving help from DWS. He asked that the DWS and the War Room include all the wards.

Ms N Sihlwayi (ANC) thanked the Chairperson and DWS for the role they have played and the media for their coverage and following what government is doing. She was concerned about the infrastructure near river banks. Future infrastructure plans should be looked into as businesses and houses cannot always suffer because of floods. Port Elizabeth has businesses near the sea, yet they have not faced what Durban has been facing. She asked how DWS is going to avoid the tanker challenges that happened during lockdown.

Ms Sihlwayi wanted to know more about the budget reprioritisation and from where the money has been taken. She asked for a clear budget consolidation as many departments end up not meeting targets because of reprioritisation of funds. Every department has funds in place for disasters.

She asked about the involvement of the Department of Social Development as many families have lost their homes, their loved ones and some homes will now be child-headed. Many social ills have been caused by the floods.

Ms G Tseke (ANC) appreciated the intervention. She asked if there will be progress reports on the intervention. She noted the lessons learned from COVID-19 lockdown water tanker corruption. Initiatives are needed to rectify this. In the media, there are worrisome comments from the public about the funds that will be used and corruption fears. It is important to implement plans to ensure that corruption does not take place and that the money is used for a worthy cause.

Ms R Mohlala (EFF) gave accolades to those that have dedicated their resources to help without having to wait for government funds. What has happened in KZN is painful (vernacular language).

Ms Mohlala asked how the repair costs will be ascertained. There must be clear indication of where and how the money is going to be used. Funding shifted through virements from service delivery to meeting damage costs usually end up being used for corruption. She asked that when virements happen that the fund transfers are monitored.

The Chairperson referenced how the Members spoke about corruption. It is important to be aware that there are those who enrich themselves when there is a crisis.

People in KZN must not be allowed to commit crime at the expense of the masses that are suffering. With the recent looting that took place, it is best to stay alert. People were looting while there were floods. There is tendency for stealing and saying that "the supermarkets belong to Rupert". There must be no excuse for criminal activities.

He wondered how fast the road can be fixed when in normal circumstances it takes months to complete. There is an inconsistency in performance, especially under normal conditions.

Ministry & Department responses
The Deputy Minister acknowledged that South Africans have shown solidarity. There are no political agendas pushed when it comes to fixing the damage. This solidarity must be carried over when it comes to procurement of materials as DWS will be appealing for prices not to be escalated. On the question of accountability, there will be no effort spared when it comes to performance. Work must be done effectively. While in the past funds have been misused in South Africa, there will be much-needed monitoring of the money used to provide value for money.

Information is power and government has a significant role in relaying information. All relevant information will be shared with the Portfolio Committee including progress and challenges that DWS faces while fixing the damage in KwaZulu-Natal. There will be timely responses to any questions that may arise from the Committee.

As the effluent is running free in the environment, people might be tempted to think that the water is sanitised – so education about water and sanitation will be implemented. It is important to protect those that are victims of these circumstances. A decision has been made to ensure water deliveries are tracked to avoid false claims. The DG has procured more than 70 tankers and not all these tankers will be going to eThekwini, some will go to other areas including the Eastern Cape.

Cost implications cannot be provided now as people on the ground are still assessing the situation. The presentation content dealt with tankers, stabilisation, pollution, and water waste treatment plants that are malfunctioning. This was even an issue before the floods. The water waste treatment plants were not well maintained, and it is going to be difficult.

Some aqueducts are working to draw water from Inanda Dam to provide at least 100 megalitres.

Deputy Minister Mahlobo acknowledged the Durban landscape and assured the Committee that as reconstruction takes place, buildings will be modified to accommodate the soil type in Durban.

Bulk waste infrastructure belongs to the municipality. There must be full replacement of the infrastructure. All grants available will be used to support eThekwini. There will be a report about how the budget has been reprioritised.

Dr Phillips (DG) replied that on 14 April, DWS realised that more tankers were needed. Names of suppliers were googled as this was the quickest solution for hiring tankers. Quotations were made by calling the suppliers on their cell phone numbers which were made possible by the Durban Chamber of Commerce. The suppliers know that the tankers must be sanitary, have drivers and fuel. Payments will be made per trip taken. Some companies struggled to get drivers as it was the Easter holiday. There were fewer tankers as a result. No payments will be made for tankers that were not used. There is an expectation of more tankers now that the holidays are over and there is not a struggle for drivers. The Chief Executive Officer oversees the procurement procedure as it is not being done according to normal procurement circumstances.

The Chairperson thanked the communities of KwaZulu-Natal and Eastern Cape that assisted where necessary. People who are stealing must be prosecuted to the fullest extent of the law. Criminal activities make the South African government look irresponsible.

Mr A Tseki (ANC) said that in the public domain government is said not to be able to manage money. All funds that are going to be distributed must be properly drafted. They must show commitment that no looting will take place.

The Chairperson welcomed this and said the Committee will draft a media statement.

Ms Tseke asked when hiring tanker services if black business owners were considered as most big companies are owned by a white person.

Dr Phillips replied that all tankers have been hired locally. Three out of four are SMEs. These companies were checked if they are listed as government suppliers.

Ms Mahlala interjected that Dr Phillips did not mention if they were BEE companies.

Dr Phillips replied that some of the businesses that were hired are indeed owned by black small business owners.

The Chairperson noted that the Sedibeng Water Board representative was not supposed to be in the meeting and asked that they leave the virtual platform.

Water Board proposed 2022/23 water tariffs
Ms Sizani Moshidi, DWS Director: Raw Water Pricing Regulation, said the presentation outlined the reasons behind the hike in water tariffs. Legislation has been followed. While the decisions are pending approval, the presentation outlines what informs the decisions. The decisions are based on information provided by water boards. The chemical and labour costs were mentioned as part of the factors that contributed to the decisions. SALGA has raised some matters that have been discussed with DWS. It is not only purified water that will be impacted by the tariffs but also raw water. Last year no increases were made. This year the aim is to balance tariffs with that fact in mind. There is no funding from the government to assist water provision. That has influenced the decisions surrounding tariffs.

Mr Leonardo Manus, DWS Acting Deputy Director-General: Regulation Compliance and Enforcement, explained that the 2022/23 bulk water tariff process began in October 2021 with preliminary consultations between DWS and Water Boards, followed by consumer consultation during October and November 2021 in line with Section 42 of the MFMA.

Water Boards requested written comment from both SALGA and National Treasury on the proposed amendments by 1 December 2021. Submission was made to the executive authority to explain how SALGA and National Treasury comments were considered. The tariffs are approved once a year for it to apply on that same year if tabled on or before 15 March. Failure to comply with this rule may affect the decision to implement the tariff for the following year.

The five major cost drivers ranked from highest to lowest for a water board are raw water, electricity, labour, depreciation, and chemicals. Raw water purchases are demand-driven. Bloem Water and Mhlathuze receive electricity from various sources other than Eskom, making their tariffs higher. Over the past three years, cost increases have been impacted by inflation.

The submissions from SALGA, National Treasury and organisations were noted (see document).

The approved tariff increases for 2022/23 are as follows:
Amatola Water Board
Potable – R13,16 (R/M3); ⬆ 5,71%
Raw – R2, 99 (R/M3); ⬆ 5, 74%
Bloem Water Board
Potable – R10,90 (R/M3) ⬆ 9%
Raw – R8.01 (R/M3) ⬆ 9%
Lepelle Northern Water Board
Potable –R9,11 (R/M3) ⬆ 10%
Magalies Water Board
Potable – R10, 00 (R/M3) ⬆ 6,10%
Mhlathuze Water Board
Potable – R6,02 (R/M3) ⬆ 9,94%
Raw – R2, 48 (R/M3) ⬆ 8,01
Overberg
Potable – R11,22 (R/M3) ⬆ 8%
Rand Water
Potable – R11,62 (R/M3) ⬆ 8,8%
Sedibeng Water Board
Potable – R11,10 (R/M3) ⬆ 6,65%
Umgeni Water Board
Potable – R9,30 (R/m3) ⬆ 3,6%

The Chairperson remarked with concern that the presentation showed no unity as the submissions by the different organisations reflect there is no consolidation of views.

Mr Manus replied that there are certain elements that have been raised on what needs to be looked at. There was the court case that the Department lost which allows the Water Boards to have the final say on the tariff increases and the Minister cannot reduce them as that affects the financial stability of the Water Boards. That is why DWS approved the Water Board tariff increases.

The Chairperson said that he does not understand how the Water Boards can take DWS to court as they were appointed by the Department. He suggested that DWS dismiss them.

SALGA submission on Proposed Bulk Water Tariffs by Water Boards for 2022/23
SALGA chairperson Nikiwe Num said SALGA had made an analysis of the proposed tariffs and a submission was made at the engagement that included the Water Boards. Bulk water increases are necessary to ensure that Water Board remain financially sustainable, however, they must be cognisant of affordability for municipalities and end users. SALGA is for the promotion of affordability and the sustainability of tariffs levied for water provision. There is collaborative work between Water Boards, SALGA and the Department of Water and Sanitation.

The Chairperson (speaking in Zulu) asked if Ms Num wants the Committee to understand the reasons for these tariff increases even though they seem unfair.

Ms Num said the Committee invited SALGA to understand its views on the proposed tariffs. The aim is to reach a solution that is amicable so communities can afford water and one is reassured that the cost drivers have checks and balances.

Mr James Matsie, Director: Municipal Finance, SALGA, continued that the aim of the presentation was to provide the objective analysis conducted by SALGA to ensure that the tariffs proposed by each water board are reasonably justified based on the available information (see presentation).

SALGA takes into consideration that bulk water tariff increases are required to ensure that water boards remain financially stable. However, SALGA is cognisant of the need to balance these increases to ensure that the bulk water remains affordable for all municipalities and ultimately the end-users in communities. SALGA considers both the water board submissions and the comments from municipalities serviced by the water boards.

In capital finance considerations, Mr Matsie said that Rand Water continues to budget for a 20% operating surplus to be able to fund its capital programme through its own resources. Only 3.6% of its R22 billion capital programme is debt funded. The Umgeni Water profit margin is projected to increase to 38% by 2026/27. Mhlathuze Water and Lepelle Northern Water have a more balanced approach to using debt equity to fund capital infrastructure. Amatola Water and Overberg Water have a severe shortage of revenue which limits the capital programme that can be financed sustainably.

According to Section 42(3)(d) of the MFMA, the water boards must show how they have taken into consideration the SALGA comments. Magalies Water, Mhlathuze Water, Bloem Water, Overberg Water and Rand Water did not respond to SALGA before tabling their tariffs.

The eThekwini Affordability Study shows that municipal customers should not pay more than 20% of their household income towards municipal services. This decision was in consideration of current economic data as municipal customer income has declined significantly year-on-year. As a result of the floods, this information might change.

SALGA noted that some water boards continue to motivate above-inflationary tariff increases based on unrealistic and inflated expenditure forecasts. There are inconsistencies between tariffs and business plans. Application of drought tariffs by water boards is still inconsistent. The energy inputs costs are not in line with the approved NERSA increases. Water boards still favour the use of equity for capital financing, most water boards still have low debt-equity ratios. SALGA is also concerned about the constant above-inflation salary increases.

Bloem, Lepelle, Magalies, Mhlathuze, Overberg, and Rand Water Boards show tariffs that are way above the cost required to generate their business.

SALGA's strategic points include:
• Effective and efficient medium-term and long-term capital investment programme
• Effective, efficient and proactive management of expenses within parameters
• Tariff Policy to guide Water Board Funding and Tariff approach
• Rational and effective Treasury management process to optimise funding of Water Boards
• Enhanced control over tariff determination process
• Managed progression towards implementation.

Bloem Water, Lepelle Northern Water, Mhlathuze Water, Overberg Water, Rand Water, and Umgeni water tariffs are not supported by SALGA for the reasons outlined in the submission.

Mr Matsie asked that the Committee notes SALGA’s position on the proposed bulk water tariffs, the concerns raised by SALGA on tariff assumptions and the strategic points proposed by SALGA to improve the water pricing life cycle.

Discussion
The Chairperson asked what Deputy Minister Magadzi recommends in this situation as these tariff increases hit hard on the municipalities. He reminded her that the rates are paid to the municipality and not the water board. He noted that the recommendations from DSW and SALGA are not in sync with one another.

Ms Mohlala said that according to SALGA there are inconsistencies. Has DWS and the relevant stakeholders undertaken studies to improve multiyear tariffs as proposed by the Committee previously? The primary aim of revising the pricing strategy for raw water use charges and the norms and standards for tariffs is to provide an enabling framework for financial assistance and water prices to foster predictability and stability within the water and sanitation sector. As previously requested has DWS made explicit the need to balance debt and equity finance for investments? Has DWS considered a line item that incorporates cash, cash equivalents and short-term investments? Could DWS provide more clarity on the policy for including impairments as an operating expenditure?

Both National Treasury and SALGA are concerned about water boards obtaining economies of scales in their operations. There are constant salary increases as seen in Mhlathuze and Lepelle Northern Water Board. Does DWS assess the external and internal economies of scales in analysing the 2020/21 financial statements? As per the required Public Financial Management Act and Water Service Act of 1997, can the officials elaborate how each of the water boards did in 2020/21 and if the proposed water tariffs are in line with the 2020/21 performance? This spectrum of information will help to figure out if the water boards are justified in their proposed tariffs.

Tariffs increments are based on input costs, raw water, electricity, chemicals, impairments and other expenses. There must be a breakdown to decide if the water boards are justified in using the factors listed in the presentation. How will Amatola be able to finance capital programmes given their current financial predicament? DWS has approved the 9% for Bloem Water, is this feasible? What about the 10% approved for Lepelle Northern Water even though there is a high rate of non-payments? She questioned the formula used to estimate the needed increments for water boards.

Mr Tseki noted that the date to conclude negotiations for tariffs was 15 March. What are the implications as the Committee is convening a month later? As a Member, he feels that he is not capacitated to deal with tariffs where there are contradictory views. He asked why National Treasury, DSW and municipalities did not meet to discuss this and find solutions before presenting the proposed tariffs to the Committee. He sided with SALGA’s point of view. The chemicals are no longer manufactured in South Africa which affects the increases. What has been done to ensure that the chemicals are manufactured again in South Africa to mitigate the costs?

The Chairperson intervened to ask the purpose of the presentation. Are they determined to continue with implementation even though there are disagreements in place? Voters' interests are not considered; voters cannot afford these increases. He felt the meeting was unnecessary as it is not effective.

Ms Sihlwayi said that in 2021 the tariffs were not increased which she deemed as progress. What were the implications of not increasing the tariffs in 2021? What has been learned from that? She acknowledged the huge challenge faced by the Committee. Mhlathuze wants to increase the tariff so it can pay for capital infrastructure. Is Mhlathuze using the funding meant for infrastructure that is issued by national government?

Does SALGA have a programme that addresses the culture of non-payment by “our people”? Considering the difficulties South Africans are facing is there a way forward to address the challenges the Committee has raised.

Ministry & Department responses
Deputy Minister Mahlobo agreed that the matter of the Portfolio Committee having input on the proposed tariffs has not been resolved. The tariffs have already been submitted and approved. This was done accordingly as procedures were followed for their approval. It is important that public representatives find an opportunity to state their views before the tariffs are submitted and approved. That needs to be corrected as it is currently not the case.

Consultations with the relevant stakeholders were done, including the municipalities. Some of the views from stakeholders were considered, while others were not.

A regulator was appointed after institutional mechanisms on regulations about water tariffs were discussed. That however still needs to be incubated in the Department. The DG and his team are looking at how water tariffs are figured out. There must be careful consideration of how things are done. There is a formula that is used to determine the increase of tariffs. “It is important to discuss the formula used for water tariff in an objective manner,” he said.

Municipalities have tariffs that are not regulated. While that is happening, some parts in municipalities such as eThekwini have leaks that cannot be claimed from end-users. However, every drop lost is a cost to the municipality.

He concluded by saying that there is a need for decisions that were taken a while ago to be implemented. This included matters that were made with other departments.

The Chairperson said that the points being raised were raised back in 2019. The Portfolio Committee cannot be turned into a talk show where a problem is discussed with no solutions. The agreement was that there should be no increases, however, others did not comply with that call. Those that did decided to be disruptive.

The water boards were appointed by the Minister. It is unacceptable to say that the boards are independent now. The Minister does have control over them. It is the Minister’s duty to deliver water to the citizens of this country. Water boards cannot continue to survive at the expense of others.

If the Portfolio Committee is not considered when it comes to the decisions made, why must there be meetings about water tariffs? The Chairperson felt that these meetings were a waste of time and emotions. As the tariffs were already approved, there was no need for a meeting to have them discussed again.

Deputy Minister Dikeledi Magadzi noted that there was no convergence. The fact that the Minister cannot have an input on how the tariffs are determined is problematic. The water boards must be brought on board. It is important for all the portfolios to be united in discussing the tariffs so that all items can be factored in. One of the things that must be looked into is communication with National Treasury to allow a more informed decision considering inflation. Percentages from municipalities must be considered as well and not only from the water boards. Discussions should not be one-sided. Some municipalities are losing 40% of water, when DWS visited in Northern Cape, Sol Plaatje Municipality was losing 60%. These losses lead to residents having to pay more to close the gap.

Destruction of water infrastructure is another challenge that needs education to ensure that people are savvy with water and water infrastructure. There are social issues that must be factored in. For instance, water must be available for all South Africans. There must be help to water boards as they will be able to go and assist. This will ensure that water is not a commodity for some but for all in South Africa.

In future, there must be a thorough engagement with the board. Which will include the anticipation of future challenges so that they are tackled. Solutions that were decided on must be implemented and we must assess what is causing delays when it comes to implementation of the solutions.

Dr Phillips mentioned that tariffs will come into effect on 1 July at the start of the municipal fiscal year. Both DWS and COGTA Ministers were reluctant to approve but due to the court case that decided that the minister does not have a right to reduce the tariffs – they had no choice but to welcome the tariffs.

On the input costs including excessive staff costs, Mr Manus referred to the presentation and said if there is a need for further clarity; another time can be allocated to accommodate thorough explanations. The non-increase of tariffs did not help the community as municipalities still raised their own tariffs. This non-increase affected the financials of the water boards.

Ms Sizani Moshidi, DWS Director: Raw Water Pricing Regulation, said that impairments need to be included in the accounting of every institution. It is difficult to work around. However, DWS is looking for help. The legislation is preventing DWS from doing much about the situation. The review of pricing strategies will be looked into. However, the norms and status of the tariffs is already on route pending approval of the Minister. The concurrence of the Minister of Finance will decide it being moved to the approval channels. In addition, she hopes that 2022/23 will be the last year for discussions on document amendments.

Ms Moshidi assured the Committee that the tariffs are not too high and they are for service delivery. The cost of providing the service is mostly fixed. It is variable in terms of volume of water being sold and the chemicals being used. More customers will reduce the tariffs. The Sedibeng tariff is unaffordable as people receiving help from Sedibeng are mostly poor.

The 0% that was granted in the past did not have any impact on debt reduction. There must be interventions for the municipalities so that they can increase their revenue collection strategies. There must also be a comparison of water board tariffs versus municipality tariffs. There is a huge margin of difference between the two. Municipal tariffs are pushed much higher.

Ms Sihlwayi asked DWS to provide the proposal used to determine the tariffs so that the Committee is able to debate this. She asked SALGA to provide a transformation solution for the non-payment of services. Which municipalities are using the funds incorrectly and which are using them correctly? If there is a problem with services not being paid that must be brought to the Portfolio Committee so that amicable solutions can be found.

The Chairperson asked that these questions be responded to in writing due to time constraints.

The Committee programme was discussed with a proposal for future meetings to take place in person.

The meeting was adjourned.