Public Hearings on the Division of Revenue 2006/07 Department 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

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

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.

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%).

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 ).

WATER SERVICES OPERATING AND TRANSFER SUBSIDY SCHEDULE 2006/07 2007/08 2008/09 Schedule 6 500 000 550 000 600 000 Schedule 7 490 500 490 025 530 507 TOTAL 990 500 1 040 025 1 130 507

2006 to 2009 DoR Allocations for OPERATION AND MAINTENANCE, HR AND REFURBISHMERNT (By Province) Region 2006/07 2007/08 2008/09 Western Cape (1%) 6,550 4,341 4,899 Northern Cape (2%) 20,451 17,808 13,244 Eastern Cape (9%) 83,930 85,821 108,904 Free State (3%) 26,615 19,862 27,351 KwaZulu Natal (4%) 37,160 41,880 44,547 Mpumalanga (17%) 172,063 169,836 175,153 Limpopo (54%) 530,573 567,601 599,722 North West (9%) 96,571 113,565 129,386 Gauteng (1%) 16,587 19,611 27,794 Total 990,500 1,040,025 1,131,000

2006 to 2009 DoRB Allocations for REFURBISHMERNT (By Province) Region 2006/07 2007/08 2008/09 Western Cape (1%) 700 Northern Cape (4%) 8,368 5,000 436 Eastern Cape (6%) 2,279 2,086 18,256 Free State (2%) 7,877 KwaZulu Natal (12%) 12,179 15,400 18,000 Mpumalanga (6%) 8,166 3,994 11,602 Limpopo (40%) 39,042 70,364 39,562 North West (24%) 23,145 35,733 29,708 Gauteng (5%) 2,184 3,658 11,000 Total 103,940 136,235 128,564

2006 to 2009 DoRB Allocations for REFURBISHMERNT (By Province) Region 2006/07 2007/08 2008/09 Western Cape (1%) 700 Northern Cape (4%) 8,368 5,000 436 Eastern Cape (6%) 2,279 2,086 18,256 Free State (2%) 7,877 KwaZulu Natal (12%) 12,179 15,400 18,000 Mpumalanga (6%) 8,166 3,994 11,602 Limpopo (40%) 39,042 70,364 39,562 North West (24%) 23,145 35,733 29,708 Gauteng (5%) 2,184 3,658 11,000 Total 103,940 136,235 128,564

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, 7 Agreements 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).

Revised Operating & Transfer Subsidy 20005/06   O&M Refurb Total Region Gazette Revised Western Cape 5,616 5,516 760 6,376 6,276 Northern Cape 17,284 11,399 12,376 10,682 29,660 22,081 Eastern Cape 79,992 74,489 6,772 4,800 86,764 79,289 Free State 17,677 10,202 27,879 KwaZulu Natal 22,438 22,554 12,505 17,488 34,943 40,042 Mpumalanga 119,653 117,921 11,184 11,984 130,837 129,905 Limpopo 476,036 482,804 34,555 36,558 510,591 519,362 North West 69,270 21,931 21,377 91,201 90,647 Gauteng 12,803 3,380 6,150 16,183 18,953 820,769 814,433 113,665 120,001 934,434

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

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

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

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

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

MIG Funding Assessment R 1,9 b R 2,1 b R 2,6 b Water Supply R 1,2 b R 1,4 b R 1,7 b Sanitation Available funds (Target allocation) 2006/07 2007/08 2008/09 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.

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.

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.

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).

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.

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;

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

“Some for all forever”