portfolio committee
DESCRIPTION
PORTFOLIO 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 - PowerPoint PPT PresentationTRANSCRIPT
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PORTFOLIO COMMITTEEPORTFOLIO COMMITTEE
WATER SERVICES
FINANCES & THE
EQUITABLE SHARE
Department: Water Affairs and Forestry
June 2002
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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
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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.
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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
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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...
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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.
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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).
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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
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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.
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“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
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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
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MINISTERIAL ES COMMITTEE AND DWAF’S ROLE
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.
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MINISTERIAL ES COMMITTEE AND DWAF’S ROLE
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)
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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.
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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)
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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
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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
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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
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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
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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
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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
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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.
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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.
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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%
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TRANSFER NATIONAL PERSPECTIVE: PERSONNEL
ProvinceWater Services
PersonnelEC 1 160KZ 376MP 867LIMPOPO 6 650NW 0FS 287WC 0NC 107Total WS Staff 9 456
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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
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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.
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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
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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
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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
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THANK YOU
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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.
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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.
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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.
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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.
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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
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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
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Water ServicesAuthority
Water ServicesProvider
National government
rates
user charges
financialcontract
Regulatory oversight
MIG (conditional)CG (conditional)ES (unconditional)
DWAF
directsubsidies
Customers
Proposed Financial Framework
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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
n/a
Cost (R) for 6kl, 50 kWh, 30kg, VIP
VIP
TOTAL
6.00
18.00 - 60.00
18.00 - 43.20
12.60 - 30.00
55 - 139
(Versus ES of R140-150)
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FBW EXAMPLE: Ngqushwa:
22%
4% 2% 1% 1%7%
64%
0%
10%
20%
30%
40%
50%
60%
70%
0 <1000 <1501 <2501 <3501 <4501 >6001
Income
% H
ouse
hold
s
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Ngqushwa: Service Levels
010203040506070
Yar
d co
n.
Stan
dpip
es
Bore
hole
s
No s
uppl
y
No d
ata
service level
%