PORTFOLIO COMMITTEE

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PORTFOLIO COMMITTEEPORTFOLIO COMMITTEE

WATER SERVICES

FINANCES & THE

EQUITABLE SHARE

Department: Water Affairs and Forestry

June 2002

CONTENTS

• Legal Framework

• Ministerial ES Committee and DWAF’s Role

• Current Financial Framework

• Local Gov and DWAF Grants and Allocations

• Transfer Programme

• ES Impact on Free Basic Water: An Actual Example

• Issues Requiring Further Attention

• Conclusion

LEGAL FRAMEWORK

THE CONSTITUTION:

Sec. 214: An act of Parliament must provide for: 1 (a) The equitable division of revenue raised

nationally among the national, provincial & local spheres of government.

2 (d) The need to ensure that the provinces and municipalities are able to provide basic services & perform the functions allocated to them.

LEGAL FRAMEWORKTHE CONSTITUTION:

Sec. 156 (i): A municipality has executive authority…. (means also budgets)

Sec. 155 (7): …National government, subject to section 44, and the province …. to see to the effective performance by municipalities.

The Equitable Share is an unconditional grant; but does it mean it can be used for anything?

No; it is meant to be used for the purpose as in section 214(2)(d) i.e. basic services

LEGAL FRAMEWORK

MUNICIPAL SYSTEMS ACT:

Sec. 74 (i): A municipal council must adopt and implement a tariff policy …..to include a indigent policy

Sec. 74 (2): A tariff policy must reflect at least the following principles …..

Sec. 74 (2)(c): poor households must have access to at least

basic services...

LEGAL FRAMEWORK DIVISION OF REVENUE ACT:

• Grant in Kind : During the 2001/02 financial year, the water services operating subsidy (DWAF augmentation of the Water Trading Account) was treated as a “grant-in-kind”.

• Conditional Grant : As a result of reforms to grant funding from 2002/03, the Water Services Operating Subsidy will be converted into a conditional grant up to the year 2004/05.

• Equitable Share: The Conditional Grant is scheduled for consolidation into the “core” Local Government equitable share from the year 2005/06 onwards.

LEGAL FRAMEWORK DIVISION OF REVENUE ACT:

• Operating Subsidy: On a National level, the subsidy for the MTEF is : 2002/03 R699 687 000

2003/04 R776 436 000 2004/05 R768 334 000 (slide 20)

• National Treasury: Has made limited funds available for the 2002/03 (R45 million) and 2003/04 (R56 million) financial years for the rehabilitation of dilapidated water services infrastructure.

• Municipal Infrastructure Grant: Broad agreement reached with NT on using the Municipal Infrastructure Grant (Capital programme) to leverage and support the Asset Transfer Programme (2002/03 : R188 m).

LEGAL FRAMEWORK

DIVISION OF REVENUE ACT:

Water Service Provider agreements : Water Service Authority/Water Service Provider agreements (including provision for the payment of services) in place by 30 September 2002

WSDP’s and IDP’s : Ongoing support to local government to complete their WSDP’s as input to their operating plans, budgets and IDP’s

RECOMMENDATION BY THE FFC

“Litigation and court judgements over the past year underline growing concerns that the current equitable share formula does not adequately address the obligation on all three spheres to fulfil constitutionally mandated basic service obligations as per the Bill of Rights. A review of the current equitable share mechanism should therefor be considered as a matter of urgency.

“A second statement in this report should also be noted (p38); “A principle of public finance is that poverty alleviation should be financed through national tax revenues because the tax incidence on any particular region or group is thereby minimised and economic distortions avoided. For water and electricity, then, national government should fund lifeline tariffs either through the equitable share or through a national conditional grant”

RECOMMENDATION BY THE FFC

MINISTERIAL ES COMMITTEE AND DWAF’S ROLE

•Minister’s Committee formed in 2001

(Chairperson Min. S. Mufamadi)

• Minister Kasrils member of team

•Technical committee of officials to support

The following short term issues were addressed by this committee:

1. Review total equitable share for basic services: substantial increase

2. Allocation to District Municipalities that are also service providers -: now rectified

3. Agreed on a basket of basic services - Water, sanitation, electricity & refuse removal.

DWAF’s Input to Committee:

• Estimated cost to provide basic water

• Estimated cost to provide basket of 4 services

• Information from pilot FBW projects

• List of District Municipalities (Category C) that could not provide services because E.S. went to Local Municipalities (Category B)

CURRENT FINANCIAL FRAMEWORK

• LGs receive Equitable Share (managed through LG Financing) and Conditional Grants (managed through Transferring National Accounting Officers)

• DWAF receives capital & operating grants on behalf of loc. govs.

• These will be phased out as DWAF completes & transfers its schemes to LGs.

Total Allocations to Loc. Gov

2001/2

R6,552 b

2002/3

R8,580 b

2003/4

R10,235 b

2004/5

R10,854 b

Equitable Share Allocations (from DPLG)

2001/2

R2,618 b

2002/3

R3,853 b

2003/4

R5,021 b

2004/5

R5,461 b

NAT. GOV GRANTS TO LOCAL GOV.(Note substantial increase)

CURRENT PROVINCIAL ES ALLOCATIONS (2002/3)

E. Cape R969 m

Free State R461 m

Gauteng R429 m

KwaZulu-Natal R747 m

Mpumalanga R184 m

N. Cape R141 m

Limpopo R462 m

North West R281 m

W. Cape R177 m

TOTAL R3 852 m

DWAF GRANTS (1)

Grant: WS Operating Subsidy

Purpose: Augment WS Trading Acc. to fund O&M of DWAF operated/owned schemes

2002/3 2003/4 2004/5

R699 m R776 m R768 m

DWAF GRANTS (2)

Grant: Implementation of WS Projects

Purpose: Fund bulk, connector & internal infrastructure for basic WS & projects where municipalities lack capacity

2002/3 2003/4 2004/5

R884 m R1 011 m R 817 m

2002/3 DWAF Prov. Allocations

REGION OPERATING(Rm) CAPITAL(Rm)E.Cape 71, 952 226,708Free State 22,264 21,714

Gauteng 0 6,744KwaZulu-Natal 17,925 208,789Mpumalanga 108,881 77,121N.Cape 6,135 23,449Limpopo 345,442 243,813North West 78,935 59,834W.Cape 3,153 15,926Unallocated 45,000 0TOTAL 699,687 884,098

DWAF OPERATING BUDGET ALLOCATIONS (R’000)

Province2002/03 Allocation

2003/04 Allocation

2004/05 Allocation

WC 3 153 3 489 3 721

NC 6 135 6 793 7 245

EC 71 952 79 787 85 091

FS 22 264 24 647 26 285

KZ 17 925 19 837 21 155

MP 108 881 120 533 128 546

LIMPOPO 345 442 377 975 403 105

NW 78 935 87 375 93 186

Unallocated 45 000 56 000 0

Total 699 687 776 436 768 334

TRANSFER PROGRAMME IN CONTEXT

DEPT OF WATER AFFAIRS AND FORESTRY : Manages a large number of WS schemes many of which were transferred from the former Homeland Administrations to the Department in 1994. Since 1994 has continued to fund the operation and

maintenance of these schemes as an interim measure until transfers can be effected to appropriate institutions.

Interim water services provider (WSP) for 334 water services schemes, as well as a substantial number of water services projects completed since 1994.

In the order of 9456 members of staff attached to the 334 schemes

TRANSFER PROGRAMME IN CONTEXT LOCAL GOVERNMENT :

Local Government is responsible for the provision of water services as stated in the Constitution.

The Municipal Systems Act, the Water Services Act and the Municipal Structures Act all address the responsibility that Local Government has regarding the provision of water services.

Water Services Act designates Local Government as the Water Services Authority (WSA) responsible for ensuring access to Water Services.

WSA may appoint WSP’s to perform any function it may not want to, or does not have the capacity to perform, with exception of those functions specifically assigned to the WSA by the WS Act.

TRANSFER NATIONAL PERSPECTIVE

• BUDGET : For O&M of these schemes has been included in the Division of Revenue Act (Act 5 of 2002) for the 2002/03 financial year as a conditional grant.

• DoRA : Also includes a prescribed framework for the transfer of funds.

• PROGRAMME : The Department has initiated a 3 year programme, commencing from 1 April 2002, to transfer all water services schemes and projects to Local Government. In terms of this programme, staff, assets and operating budgets will be transferred to Local Government.

TRANSFER NAT. PERSPECTIVE : TOTAL COUNT OF SCHEMES

Province Grand Total PercentageEC 49 14.67%FS 2 0.60%KZ 63 18.86%MP 19 5.69%NC 1 0.30%NP 154 46.11%NW 43 12.87%WC 3 0.90%Grand Total 334 100.00%

Percentage 100.00%

TRANSFER NATIONAL PERSPECTIVE: PERSONNEL

ProvinceWater Services

PersonnelEC 1 160KZ 376MP 867LIMPOPO 6 650NW 0FS 287WC 0NC 107Total WS Staff 9 456

TARGETS FOR 2002/2003

• 34 Schemes Transferred

• 300 Water service provider agreements by 30 September 2002

• 1000 Staff Transferred

• Functional and financial assessment by 30 June 2002

• 10% Improvement in cost recovery

ES Impact on Free Basic Water: An Actual Example (Ngqushwa E. Cape)

• Ngqushwa: 86% of people earn <R1100/hhold/mth and only 2% have yard connections – a challenge!

• If municipality last year allocated 25% of 2001/2’S Equitable Share to FBW, then still R683 000 deficit…..therefore no FBW.

• Based on current situation with 25% of 2002/3 ES they should get a surplus of about R600 000…..thus FBW is possible!

• Increase in ES allocations is/will make a huge difference.

ISSUES REQUIRING FURTHER ATTENTION

•Cost of a basket of services (refine figures)

•Survey on use within municipality

•Incentives for mun. “constitutional use” of E.S.

•Political ES discussion/engagement at all levels

•Portfolio Committee can engage with FFC

•Communication to the public/consumers

•The poor to see benefit of ES in practical terms

•ES based on outdated census figures

•DWAF incurring debt

2001/2 OUTSTANDING DWAF DEBTORS(R’000)

REGION OUTSTANDING E.Cape 115 083 Free State 1 658 Gauteng 464 Kwazulu-Natal 22 040 Mpumalanga 137 952 N.Cape 6 015 Limpopo 79 876 North West 23 250W.Cape 78 482TOTAL R464 822

CONCLUSION

• ES increases will enable free basic service delivery

• Further political engagement in ES debate is needed

• Local Gov must be encouraged to take on their responsibilities and use the ES appropriately

• The Portfolio Committee should engage with the Financial and Fiscal Commission

THANK YOU

Measurable Outputs for 2002 as per Division of Revenue Act

Operation of water services schemes : Ongoing operation of water services schemes owned and/or operated by the department.

Revenue Collection : Improved revenue collection by 10%.

Billing System : Develop and implement an appropriate billing system to support municipalities with cost recovery systems, including credit control and indigent policies.

Assessment : Functional and financial assessment of all schemes – by June 2002.

Measurable Outputs for 2002 as per Division of Revenue Act

WSP agreements : Water Service Authority/Water Service Provider agreements (including provision for the payment of services) in place by 30 September 2002

WSDP’s and IDP’s : Ongoing support to local government to complete their WSDP’s as input to their operating plans, budgets and IDP’s

Transfers 2002/3 : Successful transfer of 10% (34) of schemes to municipalities and/or water boards

Reward/Incentive System : Develop and implement, by 1 July 2002, an appropriate reward/incentive system for those municipalities who take early transfer of schemes.

Conditions

• Operating Budgets : By 1 April 2003, operating budgets will fall away unless there is a formal water service provision agreement between the department and the relevant municipality.

• Operating Costs : Operating costs will be recovered from the municipalities and if necessary the interception of the equitable share where appropriate.

• Appropriate Support : CBO’s, NGO’s and Water Boards will also recover operating costs from municipalities with DWAF, DPLG and National Treasury providing them with appropriate support in this regard.

Conditions

The grant will be used to facilitate the transfer of schemes and will be converted into a conditional grant in terms of the following programme:

2002/03 – transfer agreements in place 30 June 02, schemes transferred with remaining 3 year operating budget.

2003/04 – transfer agreements in place 30 June 03, schemes transferred with remaining 2 year operating budget.

2004/05 – trans. agreements in place 30 June 04, schemes transferred with remaining ops. budget.

2005/06 - Operating “conditional grants” for water schemes transferred to municipalities will be included in the equitable share allocation administered by DPLG.

PROGRAMME FOR 2002/03

Province2002/03 Expend

2002/03 MIG

2002/03 Transfers

WC 3 153 0 3NC 6 135 1 262 0EC 71 952 29 373 6FS 22 264 0 2KZ 17 925 5 138 3MP 108 881 9 400 14LIMPOPO 341 442 120 598 43NW 78 935 22 294 15Gauteng 0 0 1Total 650 687 188 065 87

DWAF OPERATING EXPENDITURE/REVENUE

REGION

EXPENDITURE RECOVERY EXPENDITURE RECOVERY ALLOCATION REVENUE

E.Cape 71 313 309 74 712 717 71 952 1 353

Free State 32 659 261 23 570 0 22 264 0

Gauteng 14 0 7 0 0 0

KZN 20 233 320 22 275 14 17 925 0

Mpu 147 433 421 125 671 6 214 108 881 4 000

N.Cape 0 0 37 0 6 135 0

Limpopo 459 052 1 657 423 721 1 162 345 442 1 036

North West 92 581 14 398 71 570 1 472 78 935 5 694

W.Cape 2 809 2 050 4 103 260 3 153 4 023

Unallocated 0 0 0 0 45 000 0

TOTAL 826 094 19 416 745 666 9 839 699 687 16 106

2000/01 2001/02 2002/03

Water ServicesAuthority

Water ServicesProvider

National government

user charges

financialcontract

Regulatory oversight

MIG (conditional)CG (conditional)ES (unconditional)

directsubsidies

Customers

Proposed Financial Framework

INDICATIVE MONTHLY HHOLD O&M COSTS

Cost per unit

Water R/kl 3.00 - 10.00

Electricity c/kWh 0.36 - 1.20

Solid waste R/kg 0.42 - 1.00

Cost (R) for 6kl, 50 kWh, 30kg, VIP

18.00 - 60.00

18.00 - 43.20

12.60 - 30.00

55 - 139

(Versus ES of R140-150)

FBW EXAMPLE: Ngqushwa:

4% 2% 1% 1%7%

0 <1000 <1501 <2501 <3501 <4501 >6001

Income

Ngqushwa: Service Levels

010203040506070

service level

PORTFOLIO COMMITTEE

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