Hearings on the FFC recommendations on the Division of Revenue 2010/2011

1. Hearings on the FFC recommendations on the Division of Revenue 2010/2011 Presentation by Department of Water Affairs 19 August 2009

2. The following chapters are relevant to DWA and response is provided accordingly • Chapter 1: Review of the Provincial equitable share formula • Chapter 2: Public Infrastructure Investment • Chapter 7: Assessment of Universal Access to Water and Sanitation Services • Chapter 8: Assessment of the Institutional and Fiscal Capacity Support Mechanisms of Local Government

3. Comments on Chapter 1: Provincial equitable share formula • Option 1: the reform of the PES formula stays within the confines of the current constitutional dispensation. • The PES formula should retain for the most part its current structure, and only be reformed to bring it closer to a conventional equalisation grant, which equalises both expenditure and revenue • Response: • The department fully supports this recommendation. • Comments: • Local economy should be driven through activities by active sectors of the population • Increasing unconditional grants supported

4. Comments on Chapter 1: Provincial equitable share formula • Option 2: the reforms should depart from the realisation that fixing the PES as a pool requires the fixing of other aspects of the current fiscal decentralisation system • Comments: • Provincial governments can use their discretion to add their own funds for improved financing and speeding up service delivery only if users of services are willing and able to pay for services • Macro-economic impact needs consideration

5. Comments on Chapter 2: Public Infrastructure Investment • Recommendation 1: That increased funding be directed towards infrastructure programmes that are linked to basic services including water …. • Response: • The department fully supports this recommendation. • Comments: • The Universal access to Basic services target of 2014 will not be met due to insufficient funding. • Please note: infrastructure requirements include Bulk Infrastructure (serving economic development, service quality e.g. wastewater management, drinking water quality as well as environmental and health impacts which must be minimised) • Present request for bulk infrastructure funding = R80 b. (less than R1.5b/annum available for outer years)

6. Comments on Chapter 2: Public Infrastructure Investment (continues) • The sustainable settlement programme also depends on internal bulk infrastructure to be in place. Very little financial support is available at present for such infrastructure. • Reviewing upward while needed in the case of water, we need to look at ways of delaying new dams through efficient conservation practices.

7. Comments on Chapter 2: Public Infrastructure Investment • Recommendation 2: That the government should improve the quality of targeted outcomes of infrastructure outcomes …….. • Response: • The department fully supports this recommendation • Comments • Efficiency gains should be informed by a change in the mode of delivery. Government should focus on the responsibilities for policy, regulation enforcement and monitoring, and outsource design and construction • There should be a pooling effect – municipalities should be looked at in entirety • In light of the recession, will water conservation and demand management defer building of new dams, if any?

8. Comments on Chapter 2: Public Infrastructure Investment • Recommendation 3: That the government should implement a fully comprehensive national infrastructure maintenance strategy …… with dedicated maintenance objectives ……. The government must improve management of infrastructure investment by building in adequate future life cycle replacement and maintenance provision …….. • Response: • The Department fully agrees with and supports this recommendation.

9. Comments on Chapter 2: Public Infrastructure Investment • Comments: • Serious challenges are being experienced due to project failures and comebacks (basic services), services quality with associated public concerns & frustration, poor drinking water quality, wastewater systems failure, water losses and interruptions with associated health, environmental and economic impacts. • There should be auditable CIP plans that support stated service level standards and not just growth and development strategy.

10. Comments on Chapter 2: Public Infrastructure Investment • Comments: • The Department already initiated various actions to address this: • Water services infrastructure asset management strategy and programme • The bulk infrastructure programme with the associated Bulk Infrastructure Grant (BIG) also demands proactive sustainability planning and asset management as a condition to be met prior to funding • The lack of promoting and enforcement of this principle is evident in the MIG & associated grants • Various other initiatives to promote such action includes the blue and green drop incentives as well as municipal ownership and associated training. Improved regulation is also being implemented.

11. Comments on Chapter 2: Public Infrastructure Investment • Recommendation 4: That the government develops appropriate funding mechanisms …….. to facilitate infrastructure planning and delivery. • Response: • The department fully supports this recommendation. • Comments - The following actions are recommended: • The development of a comprehensive financing model and mechanism must be introduced • Improved financing planning in municipalities must be mandated

12. Comments on Chapter 2: Public Infrastructure Investment (continues) • Water pricing must be used as a public policy tool • Improved sector financial management with associated training and enforcement • Comprehensive infrastructure planning must be mandatory. This must address water services as a business which demands financial planning, sustainability planning, resource planning, viability planning, institutional planning and appropriate solutions taking into account the stretching of existing infrastructure. (This approach is already being implied in the bulk infrastructure programme)

13. Comments on Chapter 2: Public Infrastructure Investment • Recommendation 4: That the government develops appropriate funding mechanisms …….. to facilitate infrastructure planning and delivery. • A complete comprehensive infrastructure and monitoring system. This must be supported by a proper and comprehensive infrastructure information knowledge system. The department has already embarked on the development of such a system. • The should be lifecycle costing and implementation of auditable asset management plans with certain service delivery standards in mind.

14. Comments on Chapter 2: Public Infrastructure Investment (continues) • Reserves accumulated by profitable Water Boards must be used for the improvement or development of infrastructure • There should be policy goals and objectives for each agency involved with infrastructure development and maintenance

15. Comments on Chapter 7: Assessment of Universal Access to Water and Sanitation Services • Recommendation 1: There must be a review of: • The free basic water and sanitation subsidy • Response: Free Basic Services • The department supports the need to review the water and sanitation subsidy • Comments: • At present the subsidy consists of the Municipal Infrastructure Grant (MIG) for capital contribution and the equitable share to support Operation and Maintenance (O&M). At present the MIG fund is insufficient to address the remaining backlogs. There is also a gap in terms of infrastructure funding for informal settlements and poor house holds requiring improved services (Support services).

16. Comments on Chapter 7: Assessment of Universal Access to Water and Sanitation Services • In terms of the equitable share it is at present an unconditional grant and in many cases it is not applied for its intended use. In terms of the guidelines at least R60/hh (46%) of the equitable share should be applied for water services. To ensure effective and appropriate use, it is recommended that the water services component be ring fenced. In many cases the equitable share is also insufficient to ensure viable free basic services

17. Comments on Chapter 7: Assessment of Universal Access to Water and Sanitation Services • Recommendation 1: There must be a review of: • Review of water tariff structures • Response: • The department supports the need to review the water tariff structures and approach. • Comments: • Specific legislation, regulations, policies and guidelines have been developed on water tariffs. • At present Local Government set the tariffs and DWA only oversees and comments on such tariff setting. • The Department agrees and support the need for a more and stronger regulatory role on water tariffs and associated performance.

18. Comments on Chapter 7: Assessment of Universal Access to Water and Sanitation Services (continues) • The need also exists to address the total actual life cycle cost and the alignment with tariff setting. • The Department does oversee and assess the water tariffs in South Africa (report available).

19. Comments on Chapter 7: Assessment of Universal Access to Water and Sanitation Services • Recommendation 1: There must be a review of: • water tariff structures • Comments: • Very few municipalities have ring fenced its water business and are able to report on actual costs. • From this report it is clear that there are many inconsistencies and skewed application of tariffs. Tariff management must go hand in hand and be aligned with actual costing which is not taking place. • Influence water behaviour and raise funds to finance or subsidise those that cannot afford through the pricing strategy

20. Comments on Chapter 7: Assessment of Universal Access to Water and Sanitation Services • Recommendation 2: In order to…….improve sanitary outcomes… • Sanitation strategy should also target behavioural change ……. • Consideration should be given to affordability constraints and sustainability……. • Response: • The department fully supports both these recommendations. • Comments: • When the sanitation programme was initiated, health and hygiene practices was part and parcel of the sanitation programme. This must be reinforced and/or reinstated.

21. Comments on Chapter 7: Assessment of Universal Access to Water and Sanitation Services • The department shares the concern that the high sanitation service levels, as demanded, should be appropriately managed. The cost of water borne sanitation, which is in the order of 3-5 times higher than a basic VIP, must also be assessed against the additional cost and availability of water. Added to this is the additional load on waste water treatment systems with associated management and O&M requirements as well as environmental risks. • The present MIG funding is already insufficient to address the formal sanitation backlog. Higher levels of service adds additional pressure on the funding available and limited water resources.

22. Comments on Chapter 7: Assessment of Universal Access to Water and Sanitation Services • Recommendation 2: In order to…….improve sanitary outcomes… • Sanitation strategy should also target behavioural change ……. • Consideration should be given to affordability constraints and sustainability……. • Response: • The department fully supports both these recommendations.

23. Comments on Chapter 7: Assessment of Universal Access to Water and Sanitation Services (continues) • Comments: • Refocusing of attention to new developments and not just backlogs • Public health outcomes should reside with national government while provinces should focus on curative medical services • Pooling of resources

24. Comments on Chapter 7: Assessment of Universal Access to Water and Sanitation Services • Recommendation 3: That there be a separation of policy function from the regulatory function within the water services sector. • Response: • The Department supports the principle for improved and stronger regulation. • Comments: • The concept of an independent regulator is under debate. Special studies and investigations have been performed to address this issue. This action requires further discussions and investigation.

25. Comments on Chapter 7: Assessment of Universal Access to Water and Sanitation Services (continues) • As a progressive action the Department is considering (in the process of) the establishment of a special regulatory unit within the Department (with the potential to transform such a unit into an independent national regulator, if decided). • Various discussions are underway to align the regulatory business with other departments & programmes e.g. the possibility of environmental regulation to be part of Environmental Affairs regulation, and economic regulation aspects to share capacity with other existing regulators.

26. Comments on Chapter 7: Assessment of Universal Access to Water and Sanitation Services • Recommendation 3: That there be a separation of policy function from the regulatory function within the water services sector. • Response: • The Department supports the principle for improved and stronger regulation.

27. Comments on Chapter 7: Assessment of Universal Access to Water and Sanitation Services (continues) • Comments: • With regards to the proposed functions: • Most are supported, however, some of the proposed functions are part and parcel of the strategic and oversight business of the Department. These include integrated resource planning, infrastructure planning as well as the achievement of Universal access targets. The monitoring of supply and demand trends is also a strategic and planning function and not only a regulatory aspect. • Capital infrastructure programme (CIP) should consider that government should set policy, regulation and monitoring

28. Comments on Chapter 8: Assessment of the Institutional and Fiscal Capacity Support Mechanisms of Local Government • Recommendation: General: • Capacity constraints in Municipalities requires intervention • Response: • The Department agrees with this concern. • Comments: Serious problems are being experienced in terms of: • Poor municipal business planning (IDP & WSDP) • Poor project planning, preparation and management • Ad hoc scheme development • Fund leakage (grants not used for intended purposes) • Project failures and comebacks • Project implementation

29. Comments on Chapter 8: Assessment of the Institutional and Fiscal Capacity Support Mechanisms of Local Government (continues) • Projects and scheme feasibility and viability • Water services quality challenges (Drinking water quality, waste water) • Environmental threats • Achievement of targets? • Disrespect for water resources limitations and effective use • Sector Financial management • Ownership & commitments

30. Comments on Chapter 8: Assessment of the Institutional and Fiscal Capacity Support Mechanisms of Local Government • Recommendation: • Capacity constraints in Municipalities requires intervention • Response: • The Department agrees with the proposals. • Specific Comments: • Capacity building should also be informed by sector business requirements e.g. waste water management and effective water use • Capacity development should be based on NQF registered qualifications offered or facilitated by accredited providers • Agree and support the development approach (1d)

31. Comments on Chapter 8: Assessment of the Institutional and Fiscal Capacity Support Mechanisms of Local Government • Roles and responsibilities need to be properly defined, as well as owned as obligations • Inconsistent recommendation 5….: Grants only be devolved to sector departments once they demonstrate capacity to manage such grants. Principle understood but the need and urgency for sector specific capacity building must not be undermined.

32. Comments on Chapter 8: Assessment of the Institutional and Fiscal Capacity Support Mechanisms of Local Government Recommendation: • Capacity constraints in Municipalities requires intervention • Response: • The Department agrees with the proposals. • Specific Comments: • Stipulate the minimum qualifications and competency levels to hold senior management positions (those reporting to the MM) • Dedicated budgets for training and development

33. Generic comments • Integrated and cooperative management • Response: • The Department is actively engaged with partnering with associated Departments and programmes e.g. National treasury, CGTA (MIG, FBS, IDP, etc.), Sustainable settlements program, rural development and land affairs, Health & Education • Roles and responsibilities need to be confirmed • Integrated management need to be strengthened • Integrated process and approaches need to be agreed, adopted and applied.

34. Thanks!