National Water Resource Infrastructure Bill SOC Limited: DWS briefing; with Deputy Minister

Meeting report

The Chairperson welcomed everyone.

The Chairperson noted that Members had a busy week ahead.

He requested a moment of silence for meditation and prayer.

Apologies were noted.

The Secretariat indicated that DG was attending the SCOPA meeting and another official had been nominated to lead the delegation.

The Chairperson said he would have an issue with the DG choosing to go to SCOPA when his own Portfolio Committee was meeting unless the other engagement was important. Nonetheless, he was satisfied that an arrangement had been for there to be representation.

Briefing by the Department of Water and Sanitation
Ms Judith Tshabalala, The Deputy Minister, said the National Water Resource Infrastructure Agency (NWRIA) legislation process started in 2012. The bill was resuscitated in 2021 by Minister Senzo Nchunu as it was a very important bill. All processes had been followed and the bill was ATC’d and was in the hands of Parliament. She said the national government was responsible for the development and operation of large water resource infrastructure. Currently, there are three institutions for national water infrastructure, the Trans-Caledon Tunnel Authority (TCTA), the Water Trading Entity (WTE), and the Department of Water and Sanitation. She said the NWRIA bill was not there to solve all the water issues, but was aimed at improving the national water resource infrastructure function, water security, and socio-economic growth. The fiscal model in South Africa was that it had to be self-sustaining hence the need for the bill. The water sector had to be self-financing through revenue generation apart from the equitable share, which provided free basic water to the indigent. Water sector institutions should therefore also be self-sustaining and viable and be able to raise funding for water infrastructure which is what the bill seeks to do. The National Development Plan identified the need to establish a national water resource agency that would undertake large investments in water resources infrastructure. The NWRIA would be using the model of the TCTA, where the Department developed policy and regulated the water sector. Precedents that were looked at to come up with this model was SANRAL. Since the SONA of 2021, the President has called for the accelerated establishment of the NWRIA. The bill would not replace any existing legislation of the Department, like the National Water Act or the National Water Services Act nor would it replace any institutions. The bill would create a juristic person that would be state-controlled, so this was in no way a form of privatization and it would be reliant on government appropriations. The agency was intended to fall under Schedule 2 of the PFMA for major public entities. There had been extensive consultation with business, labour, and community constituencies. Labour expressed the view that the bill reflected the “agencyfication” of government. The Presidency and the Cabinet had approved the bill for introduction to Parliament on 21 June 2023 and it was gazetted on 1 August 2023 and certified by the Office of the Chief State Law Advisor. The bill was a section 75 bill which meant it did not affect the NCOP and the House of Traditional Leaders. The bill was forwarded to the Bills Office of Parliament in August. The Department hoped that the bill would be finalised by the 6th Administration.

Ms Bronwyn Naidoo, Legislation Specialist, DWS, said this Bill addresses issues relating to water security as well as socio-economic growth and development, which are highly dependent on the development, operation and maintenance of national water resources infrastructure. The Bill is founding legislation for the lawful establishment of the agency and does not replace or supersede the National Water Act of 36 of 1998 nor the Water Services Act 107 of 1997 but is read with these pieces and all other legislation. The Bill will not cause any of the institutions emanating from the above Acts to be replaced.

The main rationale for the bill is that currently, the Department could not raise capital directly on the financial markets, and was reliant on special-purpose vehicles, such as the TCTA to finance and implement viable economic projects. In addition, the current national water resources infrastructure base, if properly managed and maintained, could be leveraged to fund and develop the infrastructure requirements identified in the National Water Resource Strategy and Master Plan. The agency had the added advantage of separating the policy development and regulatory responsibilities of the Department from the development and implementation responsibilities for infrastructure management. She then gave an overview of the various chapters of the bill.

Chapter 1 dealt with definitions and purpose. Chapter 2 dealt with the establishment of the agency. Chapter 3 dealt with the governance of the agency. Chapter 4 dealt with the appointments and terms of the chief executive officer and chief financial officer. Chapter 5 dealt with financial reporting and accountability and sources of funds and borrowing by the agency were subject to approvals. Chapter 6 dealt with the transfer of national water resources infrastructure and the disestablishment of the TCTA. The Minister would designate the national water resource infrastructure and transfer it to the Agency on a date determined by the Minister and the disposal of national water resources infrastructure by the agency would need Ministerial approval and the concurrence of the Minister of Finance. Chapter 7 dealt with the powers of the Minister. Chapter 8 dealt with miscellaneous provisions. She then spoke to the processing and status of the bill which was currently at Parliament.

(See Presentation)

Discussion
Mr L Basson (DA) wanted clarity on the assets of the Department of between R200-R300 billion which would be transferred to the NWRIA and could be used as security on the balance sheet to borrow money. What would happen to the assets if the agency could not meet the bond repayments? Would the government have to bail them out with a guarantee? The water trading entity had unpaid consumer accounts totaling R24b which would go onto the balance sheet. How would this affect the balance sheet or would the Department take over this liability? Annually unpaid debt totaled R2 billion and this was important to know, with respect to taking the bill forward.

Ms R Mohlala (EFF) said there were calls for hearings on the NWRIA bill but the Department only included the NEDLAC comments. How many submissions were received and were they analysed? Did the Department have a synopsis of the comments received from stakeholders? How would the Committee deal with the bill as it could not just be rubber-stamped as there had to be advertisements for written submissions which then had to be assessed? The public had to be hearings even if it was in the form of written submissions before the process of adopting the bill took place and how would the Committee process the bill? The bill gave widespread responsibility to the Minister regarding appointments of administrators and finances and who would have oversight over the Minister as Parliamentary portfolio committees have shown little political will to oversee and interrogate Ministerial decisions. She said the presentation spoke of modelling the agency on SANRAL, however, SANRAL was viewed as a problematic going concern model with challenges in the functioning of SANRAL. Why would the Department want to emulate SANRAL? To what extent would the new agency increase access to water and sanitation to currently under-served communities? What was the rationale behind the creation of the NWRIA? She said the regulations of the bill grounded the bill and was an important consideration for the Committee.

Mr S Moore (DA) wanted the Department’s specific timeline for the bill to be processed before the end of the sixth Parliament.

Ms N Sihlwayi (ANC) said they had been waiting for some time for the establishment of an agency that would be sustainable. She asked what the views of organized labour were on the bill. She wanted clarification of the presentation’s comment that the agency’s functions would not affect provinces. She said she appreciated the consolidation of the functions of the three agencies.

Mr A Tseki (ANC) said the new entity should not be subjected to the liabilities of the previous entity. He also emphasised that the Department inform the Committee of its timeframe and programme for the bill.

The Chairperson reminded the Committee that this was the work the Committee had mandated the Department to do to move forward on the enactment of the bill. In 2021, the Minister brought notice of this bill having been going on since 2014. The bill was activated and it was now at the final stage and it had to go to public participation. It was a section 75 bill and would therefore not be going before the NCOP. If the bill was passed by the Committee it would go to Parliament and the public participation process would follow. The Committee still needed to know the answers raised by Mr Basson regarding the carryover of debt.

On the issue of the assets, Deputy Minister Tshabalala said the TCTA’s assets and liabilities would be transferred to the agency.

On the security to borrow, she said the balance sheet would give the agency the capacity to borrow using its cash flow and assets.

She said the agency would have to carry the transferred debts and how they would recover the money owed.

On how many submissions were received, she said there was a matrix on the submissions received and this could be made available. Consultations did take place and SALGA for example had commented and sought clarity on the roles and responsibilities of water boards. Water boards also made submissions on how non-payment would affect the agency. If municipalities did not pay the capacity to borrow would be affected and this was why the bill was needed.

On who would oversee the Minister, she said the Minister was accountable to Parliament. The Minister tabled the corporate plan and the annual financial statements and that was how the Minister could be held accountable.

On the rationale behind the NWRIA and on the question of government guarantees, she said the function of the NWRIA was the supply of raw water. The bill would be dealing with issues in terms of the National Water Act. The Minister sets the bulk municipal water tariffs while municipalities set the retail tariffs. The objective of the bill was to ensure sustainable, equitable, and reliable water from national water resources infrastructure to meet its obligations. The asset base and cash flow would be used to raise funds to develop water resource infrastructure for socio-economic purposes as it could not rely on significant fiscal support. The agency would be better positioned than the department to raise funds domestically and internationally without government guarantees.

On the issue of timelines, she said the Minister had been busy with the bill from 2021 to 2023. Parliament had its own public participation processes and she asked if that could be done by December so that the Board processes could ensue in January 2024. The Department needed to up its game to ensure reliable water through the development of infrastructure.

On clarification that the agency’s functions would not affect provinces, she said it was a section 75 bill so would not go through the consultation process of the NCOP.

On the modelling of the agency according to the SANRAL model, Ms Lynette Milne, who worked with the Department to look at the financial viability of the agency, said both the Water Trading entity and the TCTA are audited by the Auditor General and had unqualified audits. It had looked at their figures for the past six years and predicted the figures for the agency up until 2050. Their current asset bases came to R90 billion. Over the next seven years, the TCTA was already in a major build programme totalling R80 billion. Effectively, there was a move away from doing projects according to the TCTA’s project finance model which was limiting to the country. More needed to be done, at least another R100b in assets inclusive of refurbishments. The revenue that was attached to these assets was R15b of which R7b was currently being used. It believed that the size of the build program could be double what was currently being done. Future projects should not only focus on economics, it should also focus on social projects and the best way would be to look at the full revenue streams of the assets to be able to do more by building the assets and operating and maintaining the assets and that the debt was repaid. When talking of the SANRAL model, it was about looking at each project having a procurement model that manages risk and has strong governance. The Department had modelled that the revenue of R24 billion goes onto the balance sheet. The Department over the past five years has improved revenue collection of outstanding debt. Not all the problems could be solved overnight by the agency and there was a systemic risk and the agency would have to rely on the Department to improve governance in water boards and ensure that the quality of the revenue streams improved.  

Ms Naidoo said the Department did not model according to the SANRAL model but used the legislation to draft the Department’s legislation.

Mr Basson rephrased his question. He said that as the transferred assets of the new agency could not be seized or sold, how would the agency deal with a situation where the agency could not repay its loans? Would it ask the government for assistance to pay? Notwithstanding revenue income, the agency would also have R24 billion of outstanding debt that would also be transferred to the new agency. This would not help get the cheapest loan terms. There had been meetings for five years trying to resolve the problem of municipalities not paying their debts resulting in outstanding debt growing by R1 to R2b per annum.

Ms Mohlala said there were two entities, the TCTA and the Water Trading entity. What was the reason for establishing the two entities? Why was the one entity not moved into the other one, rather than establishing a new entity?

The Chairperson said the issue started in 2012 when the Department requested an intervention. The Committee told them to look for a workable solution and they presented a solution and the Committee came to the conclusion that a new start was needed. He asked the Department whether they foresaw the agency facing the same situation as the TCTA where users did not pay for the services rendered. What was the plan to circumvent such a situation?
 
Ms Milne said the revenue collection currently was at 80% and that was the assumption used in the business case and the debt does get repaid for the current new build programme so the model and the business of the agency would work. What was needed was to look at additional measures to recover debt at a level of more than 80% and hence the quality of the revenue stream becomes the most important asset to build more in future. If revenue drops for some reason to 60% then there would not be enough to repay the debt and then look at tariff income or going to Treasury. The key point is the movement from a project finance model to a balance sheet model.

The Deputy Minister said the agency sought to strengthen governance, transparency, the separation of the roles of the player and the referee, water and sanitation retaining the development of policy and regulations. The agency would establish, operate and maintain national water resource infrastructure assets, the integration of entities, and the reduction of fragmentation. In conclusion, she said municipalities and citizens need to pay for water on the other hand access to water was regarded as a constitutional right.
 
The Chairperson said the ATC processes would take place and the Committee had a chance to make an input during the public participation process.

Ms Sihlwayi said her question on organised labour was not answered.

The Chairperson said that the Deputy Minister had given a response and had said that a matrix would be sent to the Committee.
 
Ms Mohlala asked if there was a structured asset base in the Department and why was the TCTA not invited to the meeting. She said the Committee had never proposed the NWRIA in a meeting. The President had announced it; therefore she wanted to know how it was structured.

The Chairperson said the minutes of the meetings where the NWRIA were discussed should be forwarded to Ms Mohlala as she refused to accept that the matter was discussed. A brief heated discussion between the two took place after which the Chairperson asked the secretariat to prepare a public participatory process programme which would allow members to make inputs.

Ms Mohlala asked that another meeting be held where SALGA could be present.

The Chairperson said they could take part through the public participatory process.

The meeting was adjourned.