Public Hearings on the Division of Revenue 2006/07

Department of Water Affairs and Forestry

Trevor Balzer: Acting CFOHelgard Muller : CD Water ServicesRichard Machaba : Manager National TransfersLerato Mokoena : National Transfers8 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 0 0

Northern Cape (4%)

8,368 5,000 436

Eastern Cape (6%)

2,279 2,086 18,256

Free State (2%) 7,877 0 0

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 0 0

Northern Cape (4%) 8,368 5,000 436

Eastern Cape (6%) 2,279 2,086 18,256

Free State (2%) 7,877 0 0

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   Gazette

Revised   Gazette Revised

Western Cape 5,616 5,516   760 760   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 17,677   10,202 10,202   27,879 27,879

KwaZulu Natal 22,438 22,554   12,505 17,488   34,943 40,042

Mpumalanga119,65

3117,921   11,184 11,984   130,837 129,905

Limpopo476,03

6482,804   34,555 36,558   510,591 519,362

North West 69,270 69,270   21,931 21,377   91,201 90,647

Gauteng 12,803 12,803   3,380 6,150   16,183 18,953

Total820,76

9814,433   113,665 120,001   934,434 934,434

DWAF OPERATING SUBSIDY: OPERATION AND MAINTENANCE EXPENDITURE AS AT 28

February 2006 - 2005/2006Month ExpenditureApril’05 49,085May’05 60,831June’05 66,507July’05 61,557Aug’05 75,788Sept’05 61,230Oct’05 81,478Nov’05 80,326Dec’05 75,239Jan’06 68,114Feb’06 (Projection) 84,420March’056(Projection) 102,184TOTAL 866,759

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

Month ExpenditureApril’05 0May’05 0June’05 0July’05 23,197Aug’05 1,050Sept’05 10,497Oct’05 10,700Nov’05 0Dec’05 5,634Jan’06 8,779Feb’06 (Projection) 7,818March’06(Projection) 0TOTAL 67,675

1. Equitable Share allocation

2005/062005/06 2006/072006/07 2007/082007/08 2008/092008/09

R 9,64 bR 9,64 b R 18,06 bR 18,06 b R 20,08 bR 20,08 b R 22,78 bR 22,78 b

* Total Value* Total Value

Equitable Share:Water services relevance per

householdAllocation per month

Note:Note:* Not sufficient to support free waterborne sanitation* Not sufficient to support free waterborne sanitation

Total allocation per poor hhTotal allocation per poor hh

Water supplyWater supply

With With infrastructureinfrastructure

No No InfrastructureInfrastructure

R 130 pmR 130 pm R 45 pmR 45 pm

R 30 pmR 30 pm R 10 pmR 10 pm

R 30 pmR 30 pm R 10 pmR 10 pmSanitationSanitation

3. Municipal Infrastructure Grant (MIG)

AllocationPurpose: Basic Services Infrastructure supportPurpose: Basic Services Infrastructure support

2005/062005/06 2006/072006/07 2007/082007/08 2008/092008/09

R5436mR5436m R6265mR6265m R7149mR7149m R8053mR8053mMIG TotalMIG Total

R2758mR2758m R3113mR3113m R3499mR3499m R4322mR4322mWater & Water & SanitationSanitation

R 200 mR 200 m R 400 mR 400 m R 600 mR 600 m --Buckets Buckets

R 129 mR 129 m R 72 mR 72 m R 38 mR 38 mSMIFSMIF

R 28 mR 28 m R 30 mR 30 m R 50 mR 50 mBulk servicesBulk services

Additional allocation (Potential share in)Additional allocation (Potential share in)

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.

R 1,9 bR 1,9 b R 2,1 bR 2,1 b R 2,6 bR 2,6 bWater SupplyWater Supply

R 1,2 bR 1,2 b R 1,4 bR 1,4 b R 1,7 bR 1,7 bSanitationSanitation

Available funds (Target allocation)Available funds (Target allocation)

2006/072006/07 2007/082007/08 2008/092008/09

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”