1. 1 Department of Water Affairs and Forestry PRESENTATION TO SELECT COMMITTEE ON FINANCE – DoRA & CONDITIONAL GRANTS Presented by DWAF 12 March 2002 Water Services Implementation Programme (CAPEX) & Water Services Operations Subsidy (OPEX)

2. SELECT COMMITTEE ON FINANCE March 2003 2 Presentation Outline  DoRA AND CONDITIONAL GRANTS FOR CAPEX & OPEX  Exposition for Conditional Grants - DoRA  Backlog’s  DWAF’s Monitoring Capacity  DWAF’s Framework on Indirect Grants to Local Government  DWAF’s CWSS-P and “Indirect Grant”  Way Forward  The Presentation is split between CAPEX and OPEX

3. 3 CAPEX Water Services Implementation Programme (CAPEX)

4. SELECT COMMITTEE ON FINANCE March 2003 4 Exposition for Indirect Grants – DoRA (1)  Criteria used for Conditional Grants – per Financial Year & MTEF  Needs based backlog as determined by 1996 Census  Guideline 1 st Order Allocation as Determined by DWAF WS Committee consists of:  Water:75%  Sanitation:10%  Sustainability:10%  Management: 5%  Total 100%

5. SELECT COMMITTEE ON FINANCE March 2003 5 Exposition for Indirect Grants – DoRA (2)  Criteria for Conditional Grants – per Financial Year & MTEF  Needs based backlog ex 1996 Census  Water backlog:  14.3 million require basic level service, 25l/person per day within 200m  7.2 million served by March 2002  7.1 million to be served by 2008  Strategic target to focus local government

6. SELECT COMMITTEE ON FINANCE March 2003 6 Exposition for Indirect Grants – DoRA (3)  Criteria for Conditional Grants – per Financial Year & MTEF  Needs based backlog ex 1996 Census  Sanitation backlog:  18.0 million require basic level service, VIP toilet household , Bucket Eradication, Clinics, etc  0.6 million served by March 2002  Delivery by 2010  Strategic target to focus local government

7. SELECT COMMITTEE ON FINANCE March 2003 7 Exposition for Indirect Grants – DoRA (4)  Compliance with SA Constitution – Section 214  DWAF’s programmes compliant:  Grants target national objectives e.g. MTSO eradicate poverty; sec 214 (a) & (c)  Grants ensure municipalities provide basic water and sanitation.sec 214 (d)  Projects selected and funds allocated in line with developmental needs (Therefore E.Cape, KZN and Limpopo gets the major share of such funds. sec 214 (f))  Programmes is flexible; responds to crises such as cholera outbreaks; sec 214 (j)

8. SELECT COMMITTEE ON FINANCE March 2003 8 Exposition for Indirect Grants – DoRA (5) Emphasis on FBW  Equitable share unconditional grant;  2003/04 will have so -called soft conditions  Free Basic Water (FBW) only possible in poorer municipalities with equitable share  Some municipalities not using it for this purpose (public hear about the money but do not enjoy FBW)  A portion of R 822 million in 2003/04 earmarked for FBW on conditions  DWAF monitors implementation of FBW  DWAF will feed back to DPLG and NT to enforce conditions  Municipalities have duty to meet purposes of sec 214 of Constitution

9. SELECT COMMITTEE ON FINANCE March 2003 9 Allocation Trends from 2000/01 to 2003/04 (1)  Allocation Trends  Example below to Provinces/Regions  From 2001/02 Allocations to DM’s/WSA’s in DoRA  Derived from backlog requirements - allocations to Provinces/Regions  Allocation to DM/WSA’s via agreements with local municipalities  Final allocation published in DoRA Specific Details at the end of Presentation

10. SELECT COMMITTEE ON FINANCE March 2003 10 Allocation Trends from 2000/01 to 2003/04 (2)  Compliance with SA Constitution – Section 214  Allocation based on 1996 backlog – per Province/Region  Investigate people served nationally and per region  Determine cost/capita nationally and per region  Criteria applied to balance, nationally and per region Specific Details at the end of Presentation

11. SELECT COMMITTEE ON FINANCE March 2003 11 DWAF’s Monitoring Capacity (1)  DWAF performs the following monitoring functions:  M&E system tracks expenditures, people served, jobs created, KPIs, etc.  M&E basis evaluation on DoRA allocations to DM/WSA’s  Reports to DWAF’s MANCO, Minister, external stakeholders  PFMA regulated monthly reporting to National Treasury’s  M&E ensures KPIs for water and sanitation infrastructure to local government achieved

12. SELECT COMMITTEE ON FINANCE March 2003 12 JanFebMarAprMayJunJulAugSepOctNovDecJanFebMarAprMayJun Budget Year 1 Budget Year 2 Budget Year 0 DWAF’s Monitoring Capacity (2) Year 1 Commences Regional Monthly Cash Flows DWAF Reports to National Treasury according to PFMA Quarterly Programme Reviews and Reporting to National Treasury Submit allocation adjustments to DoRA based on Quarterly Review DoRA Allocation adjustments approved by NT Implementation of Year 1 Programme and Budget Alignment of Programme adjusted DoRA Reconciliation of Expenditures and Programme Performance (Audit Review)

13. SELECT COMMITTEE ON FINANCE March 2003 13 DWAF’s Framework on Indirect Grants to Local Government (1)  Before indirect grants are made, local government must:  Undertake water service planning (e.g. WSDP) and budgeted for O&M  Be able to implement, operate and maintain the services.  Demonstrate acceptable expertise  Establish mechanisms for reporting  Establish service provision agreements with the DWAF.

14. SELECT COMMITTEE ON FINANCE March 2003 14 DWAF’s Framework on Indirect Grants to Local Government (2)  Contextual issues regarding Indirect Grants:  Projects are managed and monitored internally by DWAF  Build Operate, Train and Transfer (BoTT) was the preferred mechanism  Infrastructure transferred to local government  Local government operates and maintains project  Revenue used to operate, maintain and sustain services

15. SELECT COMMITTEE ON FINANCE March 2003 15 Indirect Grant Continuance  Grant should continue for strategic reasons:  The water backlog needs to be eradicated in 2008  Projects need to be sustainable  The sanitation backlog needs to be eradicated in 2010  Projects need to be sustainable  Existing bucket systems to be eradicated by 2005  Grant helps build Local Government’s capacity to deliver integrated services  multi-year programme approach requires a stable funding arrangement

16. SELECT COMMITTEE ON FINANCE March 2003 16 DWAF’s Framework – Way Forward (1) It is envisaged that: Local Government Service Delivery Capacitated Providing water and sanitation services to the community as part of an integrated service delivery programme Receiving income from the community Sustainable service Delivery DWAF Leadership and Custodianship Policy development Performance measurement Guides compliance with Best Practice Norms and Standards

17. SELECT COMMITTEE ON FINANCE March 2003 17 DWAF’s Framework – Way Forward (2)  Progressive Transformation Local Government Grows Budget Responsibility CAPEX and OPEX n Years Year 1Year 2Year 3 DWAF Phasing Out Transformation and Capacity Building in Sector and Local Government Local Government Grows DWAF

18. 18 OPEX Water Services Operations Subsidy (OPEX)

19. SELECT COMMITTEE ON FINANCE March 2003 19  DEPT OF WATER AFFAIRS AND FORESTRY:  Managing many schemes from former Homelands  Funded schemes as an interim measure until transfers effected  “Water services provider” for 321 water schemes  8094 staff attached to the 321 schemes Background

20. SELECT COMMITTEE ON FINANCE March 2003 20  LOCAL GOVERNMENT:  Constitution : Local Government responsible for water services  Municipal Systems Act, the Water Services Act and the Municipal Structures Act regulate Local Government responsibility for water services.  Local Government is the Water Services Authority (WSA) responsible for ensuring access to Water Services. Background

21. SELECT COMMITTEE ON FINANCE March 2003 21  In 1994 DWAF inherited former Homeland schemes comprising :  321 bulk schemes  3027 rudimentary infrastructure  8094 personnel  Operational finance (Trading Acc4) = R699 mil for 2002/3  Post 1994 DWAF implemented capital projects:  1003 Water, 336 Sanitation and 235 Management projects  375 completed projects form part of the current transfer package  182 completed projects inside existing schemes  193 completed projects outside existing schemes Extent of Transfer Programme

22. SELECT COMMITTEE ON FINANCE March 2003 22  DWAF owned Asset Values  R 9,95 billion Replacement Value  R 7,13 billion Present Value  R 710 million Total Refurbishment Cost  Water Service Authorities  In terms of powers and functions allocation:  84 WSA’s will be affected by transfers (2 Metro’s, 18 District and 64 Local Municipalities Extent of Transfer Programme

23. SELECT COMMITTEE ON FINANCE March 2003 23  Commenced 1 April 2002  Same WSA Transfer Agreements already started  Latest effective date for transfer is 30 June 2005  As of 1 July 2005 DWAF will no longer be operating or maintaining water services works 1 July 200330 June 2005 Effective date of authorisations Latest effective date of transfer 1 July 2006 100% subsidy starts reducing Time-frame for Transfers

24. SELECT COMMITTEE ON FINANCE March 2003 24 Budget for Transfers  Budgets regulated by Division of Revenue Act. Initially a “grant in kind” until transfer agreement is in place Description2002/032003/042004/052005/06 Operating subsidy650 687720 436768 336814 434 Refurbishment45 000116 000 90 000120 000 Capex149 806 93 000 Donor Support33 133 20 00021 00022 000 Total878 626949 436879 334954 434

25. SELECT COMMITTEE ON FINANCE March 2003 25 Estimate of Population Served by DWAF - Operated and Maintained Infrastructure  Estimation of population served regarding Operations and Maintenance Infrastructure

26. SELECT COMMITTEE ON FINANCE March 2003 26 Transfer Migration on Grant Funding Covers DWAF’s costs as interim WSP (operation, maintenance and staff costs related to provision function and refurbishment). Whilst DWAF is the interim WSP the operating subsidy is treated as a GRANT IN KIND utilised by DWAF until the effective date of transfer. Upon the effective date of transfer the operating subsidy is treated as a CONDITIONAL GRANT (direct transfer) which is paid to the WSA to cover the operation and maintenance costs, the staff costs of those staff that have been transferred and agreed transfer related costs. Water Services Operating and Transfer Subsidy (via augmentation to the Water Trading Account) Water Services Operating and Transfer Subsidy (via augmentation to the Water Trading Account) Grant in kind DWAF is interim WSP Commencement date Effective date transfer Termination date WSA or its appointed WSP operates the scheme Conditional Grant phasing out Equitable share

27. SELECT COMMITTEE ON FINANCE March 2003 27  Financial framework within DORA must cover hang-over period 31 March to 30 June  Conditional grant has two components: operating (O) and staff (HR) components Operating Subsidy Grant in Kind utilised by DWAF until effective date of transfer Conditional Grant (direct transfer) to WSA from effective date of transfer Division of Revenue Act - Operating Subsidy

28. SELECT COMMITTEE ON FINANCE March 2003 28  100% O Component from 1 July 2003 until 30 June 2006 - decreases 30% p/a over 3 years until 30 June 2009.  100% HR Component from date of transfer for 3 years (until June 2008) – then decreases 30% p/a.  HR component ONLY for staff transferred  Budget figures indicative. Only converted into conditional grant and in municipal budgets after transfer agreement Conditional Grant: O and HR components (1)

29. SELECT COMMITTEE ON FINANCE March 2003 29 Conditional Grant: O and HR components (2)  Migration of O Component  Migration of HR Component

30. SELECT COMMITTEE ON FINANCE March 2003 30  New component of grant to provide for ‘ once-off costs ’ for transfer:  Refurbishment/rehabilitation  Processes to facilitate and support transfer  Sustainability (functional, financial, HR) assessments  Land and legal issues  Available from 2003/04 financial year for a 3 year period until 2006/07 financial year  Terms will be negotiated in the Transfer Agreement Conditional Grant Transfer Subsidy Component

31. 31 DISCUSSION PRESENTATION TO SELECT COMMITTEE ON FINANCE – DoRA & CONDITIONAL GRANTS

32. SELECT COMMITTEE ON FINANCE March 2003 32 DETAIL CAPEX

33. SELECT COMMITTEE ON FINANCE March 2003 33 DETAIL CAPEX

34. SELECT COMMITTEE ON FINANCE March 2003 34 DWAF’s Framework – Way Forward Detail  Powers & Functions – DWAF’s Role DPLG PIMMS MISP CMIP DPLG PIMMS MISP CMIP SALGA 9X Regions Organisation Local Government SALGA 9X Regions Organisation Local Government Functional/Operational Organisation National Treasury DWAF Regulate/Resolve & Communication of Power & Functions iro WaterServices Institutions DWAF Policy & Regulation 9X Regions & RPM’s DWAF Policy & Regulation Strategy, Monitoring and Leadership 9X Regions & RPM’s