Umgeni, Mhlathuze, Rand Water, Bloem Waters 2021/22 Annual Reports; with Ministry

Meeting report

The Chairperson welcomed the new Deputy Minister Judith Tshabalala while thanking former Deputy Minister Magadzi for her work in the Ministry. An apology was noted from Director General Dr Sean Philips who was out of the country on business.

Minister of Water and Sanitation remarks
Minister Senzo Mchunu congratulated Ms Judith Tshabalala for being appointed as the new Deputy Minister of Water and Sanitation. Four water boards will present their 2021/22 Annual Reports. The Committee will be aware of the major changes happening with the reconfiguration of water boards in the Ministry. After disestablishing Sedibeng Water, Bloem Water will service the whole Free State and the Northern Cape and Magalies Water will take over the entire North West province. The processes are well under way. These changes will not be available in today's reports which are based on the previous financial year. Umgeni and Mhlathuze will incorporate into one board and service the entire KwaZulu Natal. All the reports are in good order for presentation

Umgeni Water Annual Report 2021/22
Dr Sipho Manana, Umgeni Water Acting CEO, noted its financial and non-financial performance; achievements and challenges; current developments; recommendations to improve encountered internal challenges.

Mhlathuze Water Annual Report 2021/22
Dr Simo Lushaba, Interim CEO, outlined its performance and annual financial statements, profile and corporate governance.

Rand Water Annual Report 2021/22
Mr Sipho Mosai, CEO, discussed its alignment to the DWS strategy; operations supply capacity; global and domestic impact; profile; corporate governance; performance; annual financial statements; operational highlights; human resources; financial highlights; corporate social investment and significant changes to legislation.

Bloem Water Annual Report 2021/22
Dr Limakatso Moorosi Chief Executive Officer outlined its financial and non-financial performance;
achievements; current developments; challenges and the way forward

Discussion
The Chairperson thanked the water boards for their presentations.

Ms S Mokgotho (EFF) asked Umgeni Water if the Special Investigating Unit (SIU) had concluded investigation on the recent corruption case at Umgeni Water? What is the status of the current ongoing investigations?

How is Rand Water dealing with malicious damage to their infrastructure?

Why did Mhlathuze Water underspend on its infrastructure maintenance budget?

Why does Bloem Water have bloated irregular expenditure of R79,1 million for 2021/22? Why had irregular expenditure increased year on year? She cited possible reasons for corruption where the water board was not using supply chain laws to curb the challenge of awarding tenders to companies who were not deserving. She asked about the poor performance on BBBEE for their operational projects and asked for their turnaround strategy. Why are they not filling vacant positions and as a result missed achieving the skills and capacity-building key performance indicator?

Ms M Pietersen (ANC) said that municipalities are water boards' largest customers with an 80% contribution to their receivables in 6 of 9 water boards. Water boards are struggling to collect debt due to the worsening financial health of local municipalities as per the 2021 Auditor General Report on Audit Outcomes. In 2021 municipal debt was R14.2 billion, 2019/20 it was R12,5 billion. How much is the total owed to municipal boards and how is it being paid? She requested a report.

How will boards work with non-paying municipalities on the credit drive launched by the Minister to strengthen the credit initiative? How will municipalities put in place the measures given by the Minister?

Ms M Matuba (ANC) asked Bloem Water about its audit findings over many years. What was their plan to deal with this and was consequence management implemented? Why was Mangaung owing R620 million and what was the debt collection recovery plan? She noted its pension fund management statutory reporting KPI was achieved only partly and asked for the reason for not achieving compliance. What was its plan to deal with infrastructure vandalism?

She asked Rand Water how many jobs were created through their CSI. She noted the delayed payments by City of Tshwane, Ekhuruleni and eMfuleni and that City of Joburg was paying on time. How was the City of Tshwane debt of R620 million being serviced? What was happening with the current consequence management as there was litigation? Why was there still ongoing irregular expenditure where previously Rand Water had promised the Committee that there would be no more irregular expenditure except the multi-year projects from previous years?

She asked Mhlathuze Water about the suspension of the CEO and board members. Were they still receiving salaries and if so, how much? What was is the time span of their suspension? She asked if their employment status plan is compliant and included youth, women and people with disabilities? What was happening with the illegal connection challenges in the Mhlathuze area, how is the board dealing with this and are there improvements?

The Auditor General reported irregular expenditure of R20 million which now brings the balance to R49 million. Why was this not reported by Mhlathuze Water?

Why has Umgeni Water depleted the budget which was blamed in its January 2023 report on certain KZN municipalities not paying their bulk water delivery in 2021/22? Were they able to pay their current debt of R1.74 million which now increases overall to R404 million. What was the recovery plan? What was its plan for providing water to water crisis areas due to load shedding in iLembe, uGu, Harry Gwala and eThekwini?

Ms R Mohlala (EFF) asked Umgeni Water about their financial resources and the impact on collecting revenue and how this is being addressed? She asked about the prospect of Umgeni taking over eThekwini water schemes and how the new board will handle the R20 billion financial proposal to service its ageing infrastructure?

Mr A Tseki (ANC) asked about the potential for other business avenues benefiting from the large dams such as fishing and camp lodges? Why was return on revenue showing growth but municipalities struggle to service their debt?

Ms G Tseke (ANC) said that the Ministry has created 7 531 jobs and commended this in reducing unemployment. What was the construction status of the Vaal Intervention programme? Why does Umgeni Water have such alarming irregular expenditure which is higher than all the other water boards at R534 million? Why was their chemical costs high with a 42% increase in the past financial year? Have the boards considered other new technology possibilities for purifying water instead of continued chemical usage? Were the boards utilizing the Water Research Commission research to optimise their operational activities?

She asked the water boards about the current sewage spill challenge and what their plans were to ensure water quality is delivered within their given areas. Was Sedibeng water an issue to the ministry Bloem water financial viability? Why was there so much water loss in the country, what was the cost of these leaks and what were the boards' plans for this?

The Chairperson indicated his view that the boards appear to have the energy and drive to deliver their jobs judging from the presentations and that poor performance and wrongdoing were not deliberate. He commended the boards for their relentless drive and positive consequences thereafter to boost the impact of reducing unemployment in the country.

Since Umgeni is taking on KwaZulu Natal as a whole, what will happen to Mhlathuze's long term plans as a result of the takeover? What are the implications of the takeover? Will they share jurisdiction? When will the transition finalise?

He noted the under-reporting style of the presentations made by the water boards where their good performance was displayed and poor performance was disguised. He urged them to correct this.

Umgeni Water response
Dr Manana replied that the SIU investigations are incomplete. They were cooperating with the SIU and had a good relationship with it and submitted any information or documents requested on time. There are 34 ongoing investigations which vary according to severity – 30% are concluded and ready to be submitted to the audit committee; Human Resources is currently busy with 50% of them which it has targeted to complete by 30 June – that is if all the accused staff comply with meeting appointments and avoid any form of delaying tactics; the other 20% is in the area of scoping by the evidence leaders.

The eThekwini infrastructure takeover was against the backdrop of the city needing R20 billion to repair and reinvigorate the infrastructure. There was a study which took six months that concluded that whoever gets into a formal agreement with the wastewater business would recover their money and eThekwini currently pays on time and is a reliable customer.

There are recreational activities around their major dams such as the fully fledged subsidiaries like Msinsi Resorts which deal with Inanda dam events that take place regularly and Albert Falls has a hotel. They also protect the communities and have other community uplifting initiatives such as training the community in soil usage.

The R534 million irregular expenditure (IE) is a year-on-year accumulation and its currently in litigation. The Auditor General announced that its reports on IE would reflect  the amount on an annual basis and not on a year-on-year accumulation basis.

They do have other water services such a water demand conservation strategy where they promote water use efficiency and use alternatives technologies; for instance, on their dams when they reduce evaporation they have alternative energy generation. They will be working with Mhlathuze and the Department on a research project in the following months where they will be taking the different  items to scale and they expect the research project to yield results in a few months in order to have a mix of other services involving renewable energy and reuse of water. There is a sewage water reuse project in Pietermaritzburg with a capacity of 2 Mℓ per day.

Eskom has exempted the major water plant dams from load shedding. Load shedding does have a negative impact on their infrastructure although they have already invested heavily on power generation. City outskirts of KZN have the most challenges during load shedding.

On the transition programme between Umgeni and Mhlathuze, they engage on a weekly basis to ensure a smooth transition with the relaying of information of each other's infrastructure, operations and customers such as in the Richards Bay area. He emphasized the point of a smooth transition. They are going as far as meeting on the ground to ensure matters were handled with care.

Mhlathuze Water response
Dr Lushaba replied that the underspending was addressed on page 64 of the annual report. They were working in a proactive manner and have taken steps to address this by adopting and implementing IBM Maximo Application Suite as an information technology tool that helps the water board monitor the condition of their equipment to predict and maintain on a proactive basis. This information technology toolkit should reduce if not eliminate the underspending on their infrastructure maintenance budget. 35% is the target for total annual expenditure for maintenance.

The suspension of the board members was addressed on page 134 of the annual report and there it also states the exact figures that are still being paid. They were suspended with precaution pending investigations and they were suspended with pay. When the disciplinary hearings began, the former CEO and CFO both resigned which led to freezing their salaries. The Legal Services Manager has also since resigned. There are now only four board members left and they are still receiving their salaries. Their hearings are expected to draw to a completion at the end of March. One hearing has had the outcome of a guilty verdict. The other three hearings are ongoing but will be completed soon together with their findings.

The youth employment programme is addressed on page 60 of the annual report. 11% or 58 of their total staff complement is made up of people aged younger than 35 years of age and 0.8% or two of their staff complement on people with disabilities. This is expected to double in 2022/23.

The leaks in the system were more specifically in the residential reticulation systems where there were illegal connections. They are now working with the community and water services authorities to deal with this challenge.

Load shedding does affect their operations. Luckily, the Nsezi water plant is connected to Mondi at Richards Bay which has power generation capacity and helps with water distribution and supply during load shedding. There are generators in other systems. However water customers especially industrial customers do get affected such as at the sugar mills and load shedding also caused internal flooding within their water plant systems.

They are working with the youth on the employment development programme. They have 16 internships, five graduates, two artisans, three with bursaries and five learnerships.

Ms Phetsile Magagula, Mhlathuze Water Interim CFO, replied that they disclosed the sum of R20 million on page 139 of their Annual Report. For the companies and officials implicated, the summons has been issued and the matter is with the sheriff of the High Court.

Rand Water response
Mr Mosai replied that the poor performance was disclosed and that the CFO had also addressed areas of concerns and challenges. They had missed their KPIs on the following: cost of sales, chemical costs, number of project days was 77 and not 70 as load shedding meant there was an inability to pump water at times and there was malicious damage to infrastructure. With 8 500kms of water pipeline, it is not easy to secure the entire infrastructure. However, they have increased security patrol via drones. They also have an encroachment problem and are working with municipalities to resolve this. Cases of vandalism have been reported to the South African Police.

On municipal debt, they have tried many strategies – where some work and some do not work. They are working on a one on one basis with their customers and escalate it to legal platforms where necessary. As another solution and act of leniency, they have extended their payment plan for customers. They have involved the Department of Cooperate Governance and Traditional Affairs, National Treasury, South African Local Government Association and the Director General. They have engaged with shareholders. They used an asset swap strategy to no avail.

The Section 63 Vaal River System Intervention in Sedibeng was progressing and they were on site in the previous weeks. The Minister will be invited soon to see the progress made. There were initially about 40 pump stations that were not in operation and these are being refurbished. There are plans to redo the entire pipeline work. However it would take some time to see large scale progress due to the amount of work that was previously neglected. They are also looking into adopting technologies in order to use fewer water treatment chemicals.

They are pleased that Johannesburg Water pays on time. Ekhuruleni and Tshwane are still battling with on-time payments. They have engaged with political bodies on the late payments. They did get paid although it differed from month to month.

Although the Rand Water Foundation employment initiative was not a KPI, he was able to mention that 3 271 jobs have been created through Rand Water Foundation Corporate Social Investment initiatives. Through satellite technology, they are able to pinpoint water loss areas and can respond much more quickly than before. Energy cuts do cause water leaks and losses too.

Ms Matshidiso Nyembe, Rand Water CFO, replied that the litigation concerned former employees of Rand Water whose disciplinary cases were concluded on 2016/17. Criminal cases were opened in 2020 and the matter was with the Hawks.

Bloem Water response
Dr Moorosi replied that Bloem Water did place a moratorium in 2021 on unfilled vacancies due to lack of funding.

Vandalism was addressed by a strategy of partnering with the local mines and it was bearing fruit as no vandalism was reported thereafter. Cameras and security has been adopted to also help reduce vandalism.

Sedibeng was not a liability for Bloem Water and they believe the transition in the long run will be beneficial for Bloem Water. What is needed is funding and proper integration.

Mr OJ Stadler, Bloem Water CFO, replied that the audit findings had to do with the debtors books with municipalities. Previous staff have been reappointed to assist with the matter of supply chain and procurement. External auditing firms have been appointed to help assess Bloem Water audits beforehand before a final submission.

On the irregular expenditure figure, this figure is caused by changed costs due to work that was meant to take two years had now increased to four years. The extra R2 million was due to staff training and a system upgrade. Metro recovery plans include National Treasury 2019/20 and there was a write-off of R350 million. In 2020 a notice was issued about non-payments where services would be limited. Municipalities approached them with payment plans; some were accepted and some offers were declined.

The pension fund programme was partially achieved because filings and submissions were not done on time by the water board.

Minister's response
Minister Mchunu responded that the reconfiguration project between Umgeni and Mhlathuze was being handled with care. In both cases, facilitators were appointed a while ago to deal with matters such as human resources and asset management. The disestablishing of Sedibeng Water was a high risk decision between disestablishing or not doing anything at all. They had to intervene on both sides of the Magaliesberg and on the side of Bloemfontein to assist them in absorbing the financial pressures when they took over the Sedibeng dissolved entity. There are still challenges but the work continues.

On the Mhlathuze transition to Umgeni, they were ensuring a smooth transition and were also incorporating the brand name to 'Umgeni Thukela Water' to accommodate both sides from iLembe to the coastal areas. This transition is now legally incorporated and comes with a new mandate but only with a few changes. He assured the Committee that the transition process will be smooth and all processes are in place. The future of water security is uncertain and requires the Department to work ahead. The long term plans of Mhlathuze Water will be restudied and reconfigured to suit the new vision and strategies of the new water board.

Meeting adjourned.