Public Hearings on the Division of Revenue 2006/07 Department of Water Affairs and Forestry

1. Public Hearings on the Division of Revenue 2006/07Department of Water Affairs and Forestry Trevor Balzer: Acting CFO Helgard Muller : CD Water Services Richard Machaba : Manager National Transfers Lerato Mokoena : National Transfers 8 March 2006

2. Contents • Relevant Grants and areas of impact • Operating and transfer subsidies • Operating expenditure • MIG (conditions, bucket eradication and SMIF) • DWAF Concerns • Conclusion

3. DoRB: Relevant Grants & Areas of Impact • Water services operations & maintenance grant • Equitable share: impact on free basic services and sustainable management • Municipal Infrastructure Grant (MIG): Grant for basic water supply and sanitation infrastructure • Provincial Infrastructure Grant (PIG): Grant for water services infrastructure for schools & clinics • Housing and sustainable settlement grant: Provide associated water services • Capacity building grants.

4. WATER SERVICES OPERATING AND TRANSFER SUBSIDY Progress to date: • Behind our target, still anticipate being able to finalise all transfer agreements by the proposed revised target date of 31 March 2006. • Some municipalities, particularly those with weak administrative and technical capacity, where special arrangements will have to be made.. • Progress can be summarised as follows (to 28 February 2006) : • 39 agreements signed (70%); • 1841 staff transferred (23%); • 544 staff seconded (7%); • 149schemes with a total asset value of approximating R3,246 million transferred (50%), and • Refurbishment total expenditure R340 million (40%).

5. WATER SERVICES OPERATING AND TRANSFER SUBSIDY Division of Revenue Bill 2006: • Allocations for 2006/07 reflected in: • Schedule 6 – Specific Purpose Recurrent Grant allocation, R500 million (where transfer agreements have been concluded) • Schedule 7 – Allocation in kind to Municipalities for designated programmes, R490,5 million (where transfer agreements are still under negotiation and staff still on the payroll of the DWAF ).

6. WATER SERVICES OPERATING AND TRANSFER SUBSIDY

7. 2006 to 2009 DoR Allocations for OPERATION AND MAINTENANCE, HR AND REFURBISHMERNT (By Province)

8. 2006 to 2009 DoRB Allocations for REFURBISHMERNT (By Province)

9. 2006 to 2009 DoRB Allocations for REFURBISHMERNT (By Province)

10. WATER SERVICES OPERATING AND TRANSFER SUBSIDY • Specific provision made in Section 13 of the draft Bill to adjust allocations to Municipalities once transfer agreements are concluded and staff transfers concluded. • Date for conclusion of transfer agreements 31 March 2006, 7Agreements Will not be concluded by this date. • Conditional Grants will be incorporated into Local Government equitable share from 2008/09 onwards • Important condition for transfers : Necessary capacity must be in place in the receiving institution for the implementation of the conditional grant (NT and DPLG will have to assist in this regard).

11. Revised Operating & Transfer Subsidy 20005/06

12. DWAF OPERATING SUBSIDY: OPERATION AND MAINTENANCE EXPENDITURE AS AT 28 February 2006 - 2005/2006

13. DWAF OPERATING SUBSIDY: REFURBISHMENT 28 February 2006 - 2005/2006

14. 2005/06 2006/07 2007/08 2008/09 R 9,64 b R 18,06 b R 20,08 b R 22,78 b 1. Equitable Share allocation * Total Value

15. With infrastructure No Infrastructure Total allocation per poor hh R 130 pm R 45 pm Water supply R 30 pm R 10 pm Sanitation R 30 pm R 10 pm Equitable Share:Water services relevance per householdAllocation per month Note: * Not sufficient to support free waterborne sanitation

16. 2005/06 2006/07 2007/08 2008/09 MIG Total R5436m R6265m R7149m R8053m Water & Sanitation R2758m R3113m R3499m R4322m Buckets R 200 m R 400 m R 600 m - SMIF R 129 m R 72 m R 38 m Bulk services R 28 m R 30 m R 50 m 3. Municipal Infrastructure Grant (MIG) Allocation Purpose: Basic Services Infrastructure support Additional allocation (Potential share in)

17. Available funds (Target allocation) 2006/07 2007/08 2008/09 Water Supply R 1,9 b R 2,1 b R 2,6 b Sanitation R 1,2 b R 1,4 b R 1,7 b MIG Funding Assessment • Actual requirement: • Supply (to achieve 2008 target) requires at least R4 b/a • Sanitation (to achieve 2010 target) requires at least R4 b/a (Waterborne/Dry mix solution) •  Less than 50% of funding requirement available • Exclude refurbishment needs.

18. DoRB 2006/07: DWAF Concerns • DWAF appreciates the grants and associated allocations to support the achievement of sector goals • DWAF supports principle that Water Service Authorities are responsible for providing sustainable & effective water services. • Principle in DoRB sounds fine that MIG is part of municipal capital budget but in practice it is only true for metros and cities. In most of municipalities MIG is only source.

19. DWAF Concerns – Principles • However, this principle should be subject to: • National sector regulation • Cabinet decision that National sector departments are to be held responsible & accountable for sector performance • Critical targets to be achieved between 2007 & 2010 • MIG is a conditional grant which requires conditions adherence • Concern regarding Municipal performance i.t.o. implementation capacity & incorrect allocations. • Concern regarding quality delivery as well as sustainability, viability & appropriateness of projects.

20. DWAF Concerns – Enabling Tools • The MITT (DWAF & partners) through the MIG policy therefore developed and implemented various actions & processes to facilitate & enable sector departments to fulfill its functions, to enable effective MIG management as well as to ensure quality delivery • This is reflected in: • the conditions set • registration process implemented (Objective to strategically monitor progress, to ensure conditions compliance & to facilitate implementation monitoring) • Effective reporting system developed (financial issues, implementation actions and sector outcome performance).

21. DWAF Concerns – Project Registration • The draft DoRB 2006/07, however is restricting many of the initiatives as well as disabling sector departments to fulfill its role • Funds are now directly transferred to Municipalities on a program basis with no reporting or referencing to projects • According to section 16 the framework for Schedule 4 may not include any condition for a national department to approve any specific project or budget. • Although not said in DoRB, Treasury is not keen to allow project registration. This is taking place despite all national departments approval of the policy and consensus between all sector leaders that project registration is an essential and critical element in the MIG business.

22. DWAF Concerns – Monitoring & Reporting • Section 16 of the Bill indicates that no reporting on spending or projects will be allowed other than that required by Treasury. • This is totally unacceptable as this will make it impossible for sector departments to fulfill their national monitoring & leadership role. • It will also disallow the transfer agent (DPLG) to assess & monitor grant compliance (as required by the act) • The present Treasury reporting system is not project focused, it is financially & program focused; sector needs have not been consulted and reporting cycles are not appropriate • Serious problems are at present being experienced regarding incorrect targeting of funds (higher levels of service and not targeting the goals;

23. DWAF – Conclusions • Previous DoRA’s linked capital investment with O&M plans (refer to 3 year capital & O&M plans required), now only capital plans required: Is sustainability of project an outcome that must be supported? • Conflicting statement: National departments to enforce compliance with conditions & to monitor performance, but … • New proposals make such actions difficult or to some interpretations impossible. • Proposal: recommended that Section 16 of the Bill be amended or taken out

24. “Some for all forever”