Hearings on the FFC recommendations on the Division of Revenue 2010/2011

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

2. Content • Departmental MTEF allocation • Earmarked vs Unearmarked funds • MTEF conditional grants allocations • Historic basic water services challenges • Current situation • specific challenges facing the water sector • DoRB - Background • Issues raised by the Commission • the concerns and complexities relating to the DORB • Principles • DoRB responses • Recommendation

3. Departmental MTEF allocation

4. 2009/10: Earmarked Vs Unearmarked

5. conditional Grants • DWA administers the • Regional Bulk Infrastructure Grant • Water Services Operating Subsidy • Water and Sanitation at schools and clinics 5

6. Regional bulk infrastructure grant • Distinguish between direct service delivery of • Supporting reticulation schemes that MIG is targeting • Water availability & scarcity (Link Water Resource Strategy and planning) • Benefit of scale • Integrated management (multi users) • Institutional aspects & arrangement (ownership, implementation, O&M) • Socio-Economic development • Financial issues (Viability & funding) • Implementation options • Sustainable management (water resources, O & M)

7. Water Services Operating Subsidy Grant The purpose of the Water Services Operating Grant is “To subsidise water schemes owned and/or operated by the Department or by other agencies on behalf of the Department and transfer these to local government.”

8. Water and Sanitation at schools and clinics • Lack of service delivery to schools and clinics in the past has resulted in a situation where many schools do not have any/ adequate water and sanitation facilities. • In line with the Government’s objective to eradicate backlogs, DWA was mandated to assist Dept of Education (DoE) in ensuring that schools have access to adequate services. • The clinics target was effectively met in 2007 and has been officially handed over to the Dept of Health. • DWA and DoE integrated their programmes and the as at end June 2009, 274 schools have been provided with water facilities and 453 schools have been provided with sanitation facilities.

9. MTEF Conditional grants allocations

10. Formal Historic Basic Water Service Challenges • WATER AVAILABILITY CHALLENGE • Extensive water backlogs (villages) • Water stressed areas • Local WR limitations • Water quality challenges • Water demand management need • Requires WR development (De Hoop & others) • Requires major regional bulk infra • High capital and O&M cost • Major funding needs • GROUNDWATER & WATER QUALITY CHALLENGE • Scattered rural settlements (high poverty) • Low economic development potential • Groundwater dependent (with water quality risks) • Limited surface water development potential • Water reticulation needs (with O&M challenges) • CONTEXT of CHALLENGE • water availability and accessibility • topographic and physical challenges impacting on capital and operating costs • bulk infrastructure dependency with associated funding and implementation time frames • total life-cycle management with associated skills and sustainable management • phased approach providing for interim solutions while addressing longer-term sustainable development • WATER DISTRIBUTION CHALLENGE • Extensive water backlogs (scattered) • Within water-rich WMA (but no access) • Requires WR developments • Requires major regional bulk infra • High capital and O&M cost (topography) • Major funding needs

11. Current situation • Households’ access to basic RDP level water is 96% and sanitation is at 76%. • The majority of the remaining backlogs of 4% of basic water supply is due to lack of bulk infrastructure. • An estimated amount of R80 billion is required to address the bulk infrastructure needs in the municipalities.

12. specific challenges facing the water sector • Universal access to basic water services • Extended sustainable settlements programme/housing • Cabinet has granted an extension to the basic water services targets subject to the programme be integrated with the sustainable settlements programme. This requires alignment of policies, conditions and funding within DoRB/A. This has not yet happened and must be addressed. • Bulk water infrastructure • regional bulk as well as internal bulk in terms of waste management, drinking water quality, bulk supply for housing programmes and asset management. • Sustainable management of schemes which includes operations and maintenance

13. DOrb - Background Division of Revenue Bill allocates funds to municipalities (Water Services Authorities) through the Municipal Infrastructure Grant Water Services Authorities have constitutional mandates to provide water services Division of Revenue Bill does not specify usage of funds, this is done through policy DWA through its regulatory and support role influences Water Services Authorities to use funds for Water Services DWA receives conditional grants for special purposes, e.g. Schools & Clinics and Regional Bulk Infrastructure 13

14. The issues raised by the Commission have been noted and as concluded pertain to: Simplifying and refocusing the Division of Revenue Bill to its core essence; Refraining from tendencies leading to proliferation of conditional grants; Intergovernmental loan agreements; Guarding against dangers of delays in policy implementation; Ensuring that capacity building grants remain part of DORA, and; Re-demarcations and addressing the fiscal and financial impacts thereof 14

15. Some of the concerns and complexities relating to the DORB • Transfer of certain water services works (as per agreement from municipalities) to Water Boards • The proposed take-up of the reduction in the Water Services Operating Grant • The continuation of the water services framework will result in a reduced capacity of the Department to monitor the water services function • No provision for the increased cash flow requirements of the refurbishment component of the Water Services Operating Grant • There is a disparity between the intention of the transfer policy and water services framework

16. Principles • Sector departments are accountable and obliged to ensure effective outcome and performance through regulation, oversight and leadership; • Sector roles have been confirmed time-and-again by Cabinet • Acts and systems must enable sector departments to fulfill this responsibility and should not undermine it • Accurate and up-to-date information is required on-time; • Focus on information should be on outcome and not only address financial expenditure. • Proactive, integrated and participatory planning has been acknowledged as a key success factor for service delivery

17. Principles (Cont) • Sufficient funds should be secured to ensure achievement of targets • Allocation of funds are subject to grant purposes and conditions • Consistent principles should be applicable to all grants and applied accordingly • Funding gaps should be identified and appropriate funding must be put in place • Each grant and its applications must be clearly specified to prevent misuse

18. Principles (Cont) • Grant funds must be managed in a consistent and transparent manner • Same rules should be applied by all programmes • Objective of the grants is outcome based and focuses on the user • Allocations must be focused on the actual needs and not the implementation process • Special precautions must be build into DoRB to ensure that poor performance by implementing agents will not result in the users being penalized

19. DoRB response • DoRB focuses on monitoring and not on sector leadership, strategic planning and regulatory responsibilities • All reporting is only through NT approved processes and only limited provision is made for sector requirements • Timeframes for municipal reporting do not allow for effective strategic monitoring and in-time national response.

20. DoRB response (Cont) • Effort on outcome reporting is minimal and not in-line with the reporting requirements on finance • Section 16(6)(b)(1) prohibits national departments to intervene in project that are poorly planned, unsustainable, non-compliant to water management legislation, principles and strategies, as well as non-viable and inappropriate solutions; • Inconsistent policies and conditions in terms of local government compliance vs provincial and schedule-7 conditions; • Despite agreed sector conditions for MIG, these conditions have been unilaterally excluded

21. DoRB response (Cont) • The DoRB applies a differentiated approach to the various grants. • In terms of BIG, detailed sections in the Act and conditions are set i.t.o. planning requirements • Similar conditions apply to other grants (provincial infrastructure grants to provinces) • DWA planning conditions have been excluded despite MITT agreement and approval • It appears that municipalities are exempted from effective planning in the MIG.

22. DoRB response (Cont) • Insufficient funds already exist within the MIG to address the formal historic backlogs. • It is not clear whether the MIG will fund housing related water and sanitation reticulation and on-site services • The housing grant (section 18) does not specify the purpose and the associated application of the grant • DoRB fund allocation is not in line with the new extended needs definition

23. DoRB response (Cont) • Different rules apply (i.t.o. planning) for MIG and BIG. • Housing fund application is unclear • Funding allocations are based on actual needs, • However gaps exist i.t.o. regulating poor performing implementing agents, resulting in users being penalized (funds re-directed to high performing municipalities)

24. General Recommendations • With regards to the Water Services Operating Grant it has been found that there is general lack of communication between finance departments and technical departments to comprehend the responsibilities of local government in terms of the DORA conditional grants. • DWA found it beneficial to refer municipalities to specific clauses in the DORA. Should the applicable clauses be reverted to either the PFMA or MFMA, consideration should be given to clearly ring-fence the processes and procedures attached to conditional allocations for ease of reference; • Although cognizance has been taken in the provision made in the DORA to provide for mechanisms to deal with the implementation of re-demarcations of provincial and municipal boundaries which come into operation during the 2009/10 financial year, it should be noted that where municipal boundaries are re-demarcated and where water services transfers are applicable, Transfer Agreement Addendums would have to be concluded in order to give effect to the re-allocation of the Schedule 6 Water Services Operating Grant.

25. Specific Recommendations • Sector conditions must be re-incorporated. • Shortcomings in reporting to be addressed • Section 11(2)(c) must be amended to be in line with Section 16(5)(a)+(b): quarterly reports on non-financial performance with a 30 day delay and a risk of poor reporting delaying it further, is not acceptable. • Section 16(6)(b)(1) must be amended to allow sector departments to pro-actively intervene in projects which are shown to be non-compliant, poorly planned, unsustainable and inappropriate (especially i.t.o. water resource solution) • Section 15(2)(b) must be amended such that infrastructure performance framework, as required, must include sector departments input and requirement

26. Recommendations (Cont) • Planning conditions must be incorporated into DoRB • Section 16(6)(b)(1) must include control measures to ensure that grant conditions are met and that proper planning takes place • Planning requirements and conditions should also be applied to MIG, • Section 15 (1) (b) must include a statement in terms of addressing on site infrastructure and services. • Section 15 (2) and (4) must be amended to ensure effective outcome of universal access of basic services.

27. Recommendations (Cont) • Purpose and application of funds to be clearly specified (especially between housing and MIG) • Conditions must be consistent between programmes • If the extended programme requirements are to be met, additional funding must be secured • Allocation frameworks and formulas must be adjusted to cater for the extended needs definition, starting 2010/2011. • The application, fund allocation and implementation management (criteria) of MIG must be defined.

28. Recommendations (Cont) • Inconsistencies needs clarification as it will cause confusion in project applications • Additional funding must be secured for universal access, regional bulk and extended municipal services (e.g. asset management). • Clarity to be provided on funding for housing related onsite services as well as internal bulk requirements.

29. Recommendations (Cont) • Purpose and application of specific grants with appropriate definitions (e.g. “backlogs”) must be clearly defined and specified • Consistent conditions must be applied (especially between MIG and BIG) • Housing (Section 18) must: • report to sector departments on non-financial progress against agreed performance indicators. This must happen on a monthly basis as per Section 11 and 16 • cater for integrated sector planning and involvement, as per BIG (section 21) requirements

30. Thanks!