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

Hearings on the FFC recommendations on the

Division of Revenue 2010/2011

Presentation by

Department of Water Affairs

19 August 2009

1

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

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

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

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 ….


• 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)

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.


• 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?


• 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.


• 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.


• 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.


• Recommendation 4: That the government develops appropriate funding mechanisms …….. to facilitate infrastructure planning and delivery.


• 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


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)


• 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.


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

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).


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


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.


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).


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


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.


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.


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.


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


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.


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.


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.


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

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


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



• 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)


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.



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

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.

Thanks!

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

Documents

infrastructure requirements

infrastructure programmes

bulk infrastructure

sanitation services

internal bulk infrastructure

water quality

pes formula

department of water