Water Tariffs: DWS, Water Boards & SALGA Input; Housing Consumer Protection Bill: DHS briefing; with Deputy Ministers

Meeting report

The Chairperson made some opening remarks, and invited Mr David Mahlobo, Deputy Minister of Human Settlements, Water and Sanitation (DHSWS), to lead the presentation.

Deputy Minister Mahlobo made some opening remarks, and invited Cllr Thami Ngubane of the South African Local Government Association (SALGA) to make his own remarks. The presentation was then handed over to Ms Sizani Moshidi, Chief Director: Economic and Social Regulation, DHSWS, who presented on the 2021/22 water board tariffs and the Housing Consumer Protection Bill [B10-2021].

Water Tariffs: Briefing by DHSWS

Ms Moshidi took Members through the presentation noting the sources of funding in the sector and the legislative process governing the tariff process and approvals – it was a legislative requirement to brief Parliament on the approved tariffs to municipalities. Members were informed of the water provision costs - over the past three years, the above cost factors increased by above inflation rates. Though the pricing might be aimed at cost recovery and cost recovery tariffs are charged all the time, without sufficient revenue collection the objective is defeated

Next was a presentation on the factors influencing tariff increases for each of the Water Boards, and the specific issues raised by SALGA and National Treasury. Finally, a background on the municipal tariffing process was provided.

The presentation also outlined the management of debt in the water sector and finding sustainable solutions. It was emphasised that a crisis looms: The financial vulnerability of water services (including bulk) is such that if immediate action was not taken, we face the risk of not being able to ensure access to water in certain water board areas. Ongoing deteriorating and deficient infrastructure is stalling SDG progress. Already the impact of COVID-19 on the water and sanitation sector has raised the alarm in terms of our capacity to deliver services during critical times. Now we are under severe stress, with an operating deficit in the sector as a whole which requires urgent attention.

Revenue and tariffs cannot sustain the business. The Water Trading Entity owed R14.7 billion as at 30 April 2021 and rising due to non payment by municipalities. Water Boards owed almost R12.6 billion as at 31 March 2021 and rising due to non payment by municipalities) this includes R2.4 billion under current account. There was also revenue loss of about 7% (R1.9 billion) due to 0% tariff increase during 2020/21 financial year and the risk was the potential collapse of these institutions.

Members were informed of rising water board municipal debt - As at 31 March 2021, municipalities owed water boards over R12.6 billion of which R2.4 billion is under current account. The debt owed by some individual municipalities is considerable where it will not be possible for the municipality to pay it off in the foreseeable future. Four water boards are facing a financial crisis (Amatole Water, Bloem Water, Lepelle Northern Water, and Sedibeng Water). These water boards need urgent financial support to keep afloat between March and June 2021 for operations, maintenance and payment of salaries. DWS proposed a Temporary Relief Facility of R600 million to assist these Water Boards through internal re-prioritisation from RBIG within DWS budget allocation.  Legal advice from NT (on the 26 January 2021) was that this is not possible as the purpose of the RBIG allocation cannot be changed to bail out Water Boards. The Department found itself in a tight spot because if Sedibeng, Amatole, Bloem, Lepelle Northern Water Boards do not receive the financial support requested between March and June 2021, they cannot continue operating. However the Department did not have the residual budget but without intervention, the water boards will collapse and if the Department bailed them out, it would incur irregular expenditure.

The only solution is for the Minister to appeal to Cabinet to request funding for water boards until end of June 2021, outlining the dire consequences if they are not bailed out

Water boards are also losing approximately 7% or R1.9 billion of their revenue as a result of 0% tariff increase during 2020/21

(See presentation for more details)

Discussion

Ms S Mokgotho (EFF) asked the Department to provide a synopsis of public comments made on the norms and standards for tariff setting under water services. What were the challenges encountered by SALGA on the quality of business plans by water boards? Why was the Department content with importing chemicals? Did the Department plan to produce its own chemicals in order to reduce the cost of water to consumers?

Mr M Tseki (ANC) said the Committee had previously requested regular briefs on the Department’s plans to produce its own chemicals. There was a need for other water boards to take lessons from Rand Water. The instability of water tariffs was concerning. What was Rand Water doing to offset energy costs?

The Chairperson said the Department and water boards needed to intervene and address the problematic issue of labour costs. The issue could be addressed through proper budgeting and reaching agreements with the Labour Department. The Amatola District Municipality was reported to have refused to give long-term contracts to Amatola Water owing to reasons to do with office tenure. The Department must intervene to ensure long term contracts were given to Amatola Water.

There were issues in Mogaung and Matjhabeng that required urgent attention. Whereas Mogaung insisted on implementing a 2003 agreement in 2021, Matjhabeng insisted on the removal of the mayor. Did the Department have a plan to address the 18% current deficit in Sedibeng? The National Treasury had complained about expenditure by the Umgeni Water Board. SALGA had appealed to the Committee to assist the municipalities to pay the Water Boards. The Department must call public meetings to encourage payment.

Ms R Mohlala (EFF) asked the Department to provide an overview of the comments made by the National Treasury on the 2021/22 tariff determinations. The findings by SALGA showed inconsistencies in the approach to separate costing of schemes and associated cross-subsidies. Could the Department explain its position on this? Was the Department and its stakeholders considering moving towards the approval of multi-year tariffs? The primary aim of the revision of the raw water pricing strategy and norms and standards for tariffs, was to provide an enabling framework for the provision of financial assistance and the use of water pricing to ensure and foster predictability and stability within the water and sanitation sector.

Had the Department, during the revision process, made explicit the need to balance debt and equity finance for investment? Given more clarity on the diversion of cash into short term investments as applied by water boards, had the Department considered a line item which incorporated cash, cash equivalents and short-term investments? Could the Department provide more clarity on the policy of including payments as an operating expenditure?

There was a board crisis within the Amatola Water, with reports of members fighting each other. How did the Department plan to resolve the matter?

Water boards' responses

Mr Phakamani Buthelezi, Chief Executive Officer, Overberg Water Board, said the Overberg Water Board was positioning itself as a strategic partner in terms of water service provision. It was engaging other municipalities to secure a digital water supply in order to improve water supply and security within and outside the Western Cape.

Ms Lungi Mkhize, Acting Chief Executive Officer (CEO), Umgeni Water Board, said the Umgeni Water Board understood the comments made by the National Treasury on cost curtailment plans. The board was working on a plan, which included a review of the staff establishment process in order to reduce labour costs. High costs also had to do with water treatment volumes and electricity rates. On rates paid to the board, the board adhered to the guidelines provided by the Department.

Mr Mthokozisi Duze, CEO, Mhlathuze Water Board, said the Mhlathuze Water Board had proposed a double-digit tariff increase because in the previous financial year there had been a zero percent tariff increase, which had had a significant impact on the board. However, the Minister had adjusted this to 9%. The increase in the salary bills had to do with the projections made by the Amanzi Bargaining Council. These projections were higher than those made by the water board, which resulted in a deficit in the salary wage bill. The water board had had to go beyond its budget However, the increase was insignificant, as it was still below 28%, and therefore manageable.

Dr Limakatso Moorosi​, CEO, Bloem Water Board, told the Committee that Bloem Water had all its services insourced, which had an influence of the salary bill. However, the board was still monitoring the salary bill and was putting measures in place. For example, it had a new approved organisational structure in place. Under this structure, the board had amalgamated most posts, which was going to reduce the salary bill. The water board had not received payments from the metros, which had an effect on operations. What was more, ratepayer associations had started taking water boards to court in order to stall legal action against non-payment. Finally, short-term contracts with municipalities -- including Kopanong District Municipality -- had an impact on the operations of the water board.

Mr Abe Mbulawa, CEO, Sedibeng Water Board, told the Committee that the problems in Mafikeng area had to do with non-payment for the same reasons mentioned by Dr Moorosi. For example, the water board had tried to cut water in the area due to non-payment, but had been taken to court and forced to re-open services. The cost of electricity in the Northern Cape was very high. In places such as Springbok, where payment of services was not a problem, the cost of operations exceeded the revenue made by the water board due to the fact that the place had a large population. The issue of aging infrastructure was also a big issue in the area. The Department was looking for innovative ways to recover debt. Of all the municipalities, Sedibeng was owed the highest amount of money, which was R4 billion at the last count. It had engaged the National Treasury and the DHSWS for assistance.

The Acting Chief Executive of Amatola Water said there was a board in place. The board had been announced by the Minister and had gone through Parliament. The board was busy electing a chief executive to restore stability within the institution.

Mr Sandile Mkhize, CEO, Magalies Water Board, told the Committee that Magalies Water had four schemes. The first was a 270-mega litre scheme per day. The other three schemes were small and operating in the Pretoria area. Due to the fact that the water business was volume-based, and low operation costs relied on a high volume water supply, communities that were getting water supply through the small water schemes paid higher tariffs. In order for these communities to benefit from the economies of scale from the big scheme, the water board had had to move towards a uniform tariff in order to cross subsidise the schemes and push the tariff lower. The board had already engaged the National Treasury and the Department to approve a uniform tariff. The policy had been approved by the board.

Magalies Water had the lowest labour costs, compared to the other boards. As had been said by the previous speakers, increases in labour costs depended on negotiations with the Amanzi Bargaining Council. The staff complement was informed by the size of the works the water board operated, and the classification of the works and the skills needed in the area. Due to the fact that the water board serviced rural communities, the cost of obtaining skilled workers was high. This had to with the fact that most workers preferred to work in urban, and not rural, areas.

Mr Ahuiwi Netshidaulu, Acting CEO, Lepelle Northern Water, said the Lepelle Water Board faced similar issues to those raised by the other water boards. For example, operational costs for small schemes were high compared to big schemes. Most small schemes serviced rural areas. To provide relief to rural communities, the water board looked to change its business model and adopt a cross subsidisation policy. In terms of labour costs, the water board was not able to fund its capital expenditure (capex) in order to improve sales and its production capacity. The zero-tariff policy the previous year had resulted in a double-digit tariff in the current financial year.

Mr Sipho Mosai, CEO, Rand Water, said the key critical success factor for water boards was to increase water supply in order to reduce tariffs. In addition, there was need to address fragmented infrastructure in order to create a system that allowed for cross-subsidisation. Municipalities were struggling to pay fees due to consumer challenges, which had an impact on operations. If municipalities were going to continue defaulting with their payments, water boards were going to make a provision for impairment of the debt. The debt would go straight into the Department’s operation costs line item, which would affect sustainability.

Ms Thoko Sigwaza, Acting Deputy Director-General, DWS, added that the Department was working with SALGA and the National Treasury on payment recovery. A multi-disciplinary task team had been formed to come up with solutions.

Rand Water had passed a tariff increase of 5.8%, which had been approved by SALGA and National Treasury. It was managing energy costs by pumping bulk water during off-peak hours. In addition, there was a hydro project in place. It planned to install turbines at various water sites.  The Department also had various projects on solar panels. Rand Water had started running a pilot project focused on chemical production. In-house chemical production would benefit the entire water board sector. However, capital remained a concern due to financial constraints. In addition, input costs were high. Capital assistance would go a long way in terms of chemical production. The peak in raw water tariffs had to do with upgrades and refurbishments.

Ms Sigwaza added that this had to do with the pollution of raw water. The Department had brought in environmental specialists to deal with this. The catchment agencies were also contributing towards solutions. Finally, the Water Boards were self-sustainable and the tariffs they charged were supposed to be self-reflective.

The labour issues which Rand Water was facing were related to the zero percent tariff increase in the previous year. The water board had had to contain its labour costs in order to deal with this. Ms Sigwaza said the Minister had addressed the matter, together with the chairpersons of the water boards, and had engaged the Amanzi bargaining council and labour unions.

SALGA's response

Mr James Matsie, SALGA, said the challenges that SALGA had in terms of corporate plans included the misalignment between the information received in the corporate plans and the tariff files. The information included input costs and general administrative costs. The Umgeni Water Board diligently and accurately transferred information from corporate plans to tariff files, but the other water boards had to take lessons.

On public comments made on the norms and standards for tariff setting under water services, Ms Moshidi said the Water Boards that were administering the tariffs had observed the participating institutions engaging with each other on the proposed tariffs. The institutions generally accepted the tariff proposals, and requested to go back and consult with their principals. There was heightened engagement only with Umgeni and Rand Water. Bloem Water appeared to have faced challenges and there was a need to encourage municipalities to co-operate with them.

The Department was in the advanced stage of the revision of the norms and standards for tariff settings, as well as the pricing strategy. The norms and standards were almost complete. However, there were challenges with the pricing strategy. Both the norms and standards and pricing strategy were catering for multi-year tariffing, which would improve predictability and surety for the price takers. The balance of equity was covered under the pricing strategy.

Cash and cash equivalents were accounting practices managed by the accounting board. The current practices constituted the reform process the Department was engaging with the National Treasury.

Mr Andiswa Mosai added that the cash generated in the water business was set aside for infrastructure development and maintenance, and not for generating net income. The cash set aside was also useful for borrowing. Borrowing agents first looked at cash and cash equivalents to assess risk.

Deputy Minister Mahlobo and Cllr Ngubane made some closing remarks.

Housing Consumer Protection Bill: DHS briefing

Ms Pam Tshwete, Deputy Minister, DHSWS, made some opening remarks and invited Mr Kwezi Ngwenya, Head of Legal Services, Human Settlements, to make the presentation.

Mr Ngwenya first provided a background to the Housing Consumer Protection Bill. He then proceeded to provide a comparative analysis of the Housing Consumers Protection Measures Act 95 of 1998 and the Housing Consumers Protection Bill. The analysis looked at definitions of terms, exemptions, appointments of the CEO and CFO, etc.

The Bill repeals the the current Act (National Housing Consumers Protection Measures Amendment Act (Act 95 of 1998).

 

(See presentation for more details)

Discussion

The Chairperson said the presentation was very informative and outcome based.

Ms E Powell (DA) asked for the date on which the public participation process was conducted. When did the Department envisage the first handling of the Bill in Parliament? What were the intended timeframes?

Ms Mohlala said the Bill did not seem to consider small businesses and contractors, and the conditions they had to work under. The Bill had to empower small business contractors in order to facilitate their growth. The Department had to inform the Committee whether the Consumer Protection Bill protected those individuals unable to pay their bonds timeously due to unemployment as a result of unforeseen circumstances -- for example, COVID 19. Prior to COVID 19, these individuals may have paid over 80% of their bonds, and it was unfair for banks to repossess the houses due to non-payment as a result of unforeseen circumstances.

The Chairperson asked whether the Department had attached the public comments and reports when it tabled the Bill to the Parliament.

Ms N Sihlwayi (ANC) asked how homeowners could deal with the issue of house extensions.

Mr Ngwenya said the Department had conducted the public participation process in 2018 and 2019.

Ms Powell asked for reasons for the delay in tabling the Bill?

Mr Ngwenya said this had to do with procedural issues. The Department needed to follow certain procedures to the point where the Bill got tabled to the Parliament. For example, it had to ensure that the Bill received sufficient public participation. Once the Bill was tabled in Parliament it was then processed in accordance with the rules of parliament. Deputy Minister Tswete had proposed a road show to re-publicise the Bill.

He confirmed that the Department had submitted public comments when it tabled the Bill to the Parliament.

Mr Ngwenya said the Department had introduced the Bill to the Parliament on 11 May 2021. The Bill was being dealt with by the Bills Office, and once the process was finalised, the it was going to be tabled.

On small businesses and contractors, he said more reference had been provided on the problems of empowerment in the built environment. For example, it was going to be difficult to provide empowerment to small builders and contractors in rural areas and townships. There was a need for a mechanism to do this. However, there was funding and a surplus for empowerment programmes. The Minister was going to prescribe the rules and guidelines pertaining to these programmes. The Bill had a chapter dealing with them.

Mr Ngwenya said the current provision dealing with structural defects and alterations had been expanded to cover house extensions.

He confirmed that the Bill protected individuals unable to pay their bonds due to unforeseen circumstances. The purpose of the Bill was to protect consumers from all issues affecting and threatening their homes.

The Committee secretary advised the Committee to take a decision on the advertisement of the Bill and inviting public participation.

The Chairperson advised on ensuring that all processes pertaining to the adoption of the Bill were followed. The Bill needed to be adopted by the current administration.

Ms Mohlala said the Committee had raised issues on Bill. She asked whether these issues were going to be put in the Bill before its advertisement.

The Chairperson said Committee Members should attend public hearings for the Bill, and make comments as members of the public.

The meeting was adjourned.