NEWS & ANALYSIS

Understand water issues and challenges (III)

Michelle Toxopeüs says unpaid debts are severely hindering water boards from performing their functions effectively

Understand water issues and challenges (III)

6 February 2019

INTRODUCTION

The Department of Water and Sanitation has nine state-owned water boards that provide bulk water services across the country. Rand Water in Gauteng, Umgeni Water in KwaZulu-Natal and Overberg Water in the Western Cape are the largest three water boards. Other water boards include Amatola Water, Bloem Water, Lepelle Northern Water, Magalies Water, Mhlathuze Water and Sedibeng Water. Government, represented by the Minister of Water and Sanitation, is the sole shareholder of each water board.

While water boards are separate entities, the effect of poor governance at municipal and departmental level filters through to the management of water boards. They are unable to effectively and efficiently deal with ageing infrastructure, operational costs are hindered by outstanding debt owed to them, and their creditors are rightly demanding payment. Failing governance, financial mismanagement and unpaid debt pose the greatest challenge to water boards.

FAILING GOVERNANCE

Governance in most water boards is failing. Two of South Africa’s three largest water boards, Umgeni Water and Overberg Water, have been acting with little to no formally constituted board oversight for more than a year. Mid-2017 saw the dissolution of both boards by former Minister of Water and Sanitation Nomvula Mokonyane. An interim board was appointed in September 2017 at Umgeni, but the Water Services Act[1] (WSA) which regulates water boards, makes no provision for the establishment of an interim board. Well over a year later, the current Minister is still in the process of concluding permanent appointments. In the meantime, Umgeni’s interim board has appointed a permanent CEO, despite an instruction from the Minister that the appointment of a CEO must be placed on hold until a permanent board is appointed.

Overberg Water, which provides bulk water services to areas of the Western Cape, does not have any oversight structure in place. After its leadership board and CEO were dismissed in June 2017, the former Minister appointed the CEO of Breede-Gouritz catchment management agency as acting CEO of Overberg. The utility continues to act without a formally constituted board. In addition, the term of office of Bloem Water’s board ended in March 2018. However, Cabinet refused to approve the list of board members submitted by the Minister, citing an inadequate variety of skills as the primary reason for its rejection, particularly given the utility’s current challenges. Essentially, the board continues to operate despite its members’ terms having been expired. Sedibeng Water, which supplies bulk water services to about two million people across some of the driest areas of the Free State, North West and Northern Cape provinces, suspended its CEO after allegations of tender fraud.

POOR FINANCIAL AND PERFORMANCE MANAGEMENT IN KEY AREAS

In the Auditor-General’s latest audit opinion on water boards, performance at four utilities remained unchanged while four water boards had regressed. Overberg Water failed to submit its financial statements and therefore the Auditor-General could not report any opinion on it. Only Bloem Water received a clean audit. Magalies, Amatola and Rand Water each received unqualified audit opinions with findings, while Sedibeng, Lepelle Northern and Mhlatuze Water received qualified audits respectively.

The Auditor-General reported R8.4 million in fruitless and wasteful expenditure across all water boards in 2016/2017.[2] This includes expenditure incurred that had no value for money and could have been avoided if reasonable steps had been taken. R298 million was reported as irregular expenditure incurred in contravention of key legislative provisions. The Auditor-General also identified and audited water boards on seven objectives linked to service delivery. These included bulk portable water quality compliance, managing debt, reliability of supply, increased access to services, bulk supply agreements, implementation of ministerial directives, and supporting rural development. Most water boards performed well in managing avoidable water losses and ensuring reliability of water supply. Generally, however, water boards did not achieve key outcomes for increasing access to services and implementing ministerial directives. This impacted negatively on national objectives of extending water services to areas with limited access.

MUNICIPAL AND DEPARTMENTAL DEBT

Water boards generate their own income primarily by providing water services to municipalities and other water service institutions. Additional revenue is sourced through secondary activities, like acting as implementing agents for project developments on behalf of the Department. While water boards also supply water to other consumers, the bulk of their revenue is generated from municipal and departmental accounts. If either is unable to pay, it automatically affects the functioning of water boards.

Municipal debt is one of the foremost challenges confronting water boards. The systemic governance issues within municipalities continue to compromise the viability and sustainability of water boards. The Department recently reported that municipal debt owed to water boards currently stands at R8.6 billion and continues to rise.[3] Bloem Water and Lepelle Northern Water are amongst the hardest hit water boards with high municipal debt levels. Sedibeng Water is the water board with the highest debt from a single municipality: Matjhabeng Local Municipality alone is indebted to Sedibeng for over R2 billion.[4]

An inter-ministerial task team was set up in 2017, chaired by the Department of Cooperative Governance and Traditional Affairs and includes the Departments of Public Enterprises, Finance, Energy and Water and Sanitation, as well as the South African Local Government Association and Eskom, to find solutions for municipal debt arising from electricity and water services provided by water boards. The task team has not yet finalised its report.[5]

While the Department remains accountable for projects that are contracted out to water boards as implementing agents, its precarious financial position often results in non-payment to the respective water boards. At times, water boards are forced to effect payment for the projects from their pockets – placing them in financial distress.

CONCLUDING REMARKS

Governance is a major issue at most water boards. Executive and board-level instability influences all other key areas of performance, as reflected in the Auditor-General’s report. Without proper leadership structures within water boards, internal controls, financial structures, compliance, procurement and contract management are neglected. There is little accountability, strategic planning and effective implementation in such an environment. This is seen in the case of Overberg Water which, without a sitting board, failed to submit its 2016/2017 financial statements to the Auditor-General for auditing purposes. The Minister is responsible for appointing the boards, which in turn are responsible for appointing their respective CEOs. Without bringing stability to core leadership and oversight structures, governance issues in water boards are likely to persist.

This brief forms part of a research project into water in South Africa, financed by the Friedrich Naumann Foundation.

By Michelle Toxopeüs, Legal Researcher, HSF, 6 February 2019

[1] 108 of 1997.

[2] See AGSA report, accessed at http://pmg-assets.s3-website-eu-west-1.amazonaws.com/180228AGSA.pdf.

[3] See https://www.news24.com/SouthAfrica/News/municipalities-unpaid-water-bills-increase-to-a-whopping-r131bn-20181114.

[4] DWS press release of 14 November 2018, accessed at https://www.gov.za/speeches/dws-update-municipal-debt-water-boards-14-nov-2018-0000.

[5] See SCOPA portfolio committee meeting of 14 June 2018, accessed at https://pmg.org.za/committee-meeting/26664/.