For discussion PWSC(95-96)94
on 7 February 1996

ITEM FOR PUBLIC WORKS SUBCOMMITTEE
OF FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND
HEAD 709 - WATERWORKS
Block allocations

Members are invited to recommend to the Finance Committee to approve the allocation of $301.00 million for block allocations under Head 709 for 1996-97 together with the creation of a new block allocation Subhead 9100WX, and to delegate to the Financial Secretary the power to authorise expenditure from the new block allocation.

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PROBLEM
PROPOSAL
JUSTIFICATION
FINANCIAL IMPLICATIONS
BACKGROUND
Block allocations under Head 709 Key expenditure items in 1996-97
Ambits of the current block allocations for 1995 - 96

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PROBLEM

Various block allocations under Head 709 need funding in 1996-97 for existing and new projects to proceed on schedule. The present system of block allocations is administratively cumbersome and leads to underspending.

PROPOSAL

2. We propose a single block allocation, 9100WX, Waterworks, studies and investigations for items selected in Category D of the Public Works Programme with a total allocation of $301.00 million for 1996-97 under Head 709. The new subhead, which replaces existing block allocation subheads 9001WX to 9004WX, and 7009WX, is for minor works, feasibility studies and site investigations in respect of waterworks items, subject to a maximum ceiling of expenditure of not more than $15 million per Category D item. Items may also be included in Category D to cover the costs of preliminary feasibility studies and investigations to enable waterworks projects to be included in Category C of the Public Works Programme, and consultants’ fees and charges for feasibility investigations and design (including preparation of tender documents) of waterworks projects in Category B or (subject to the Secretary for the Treasury’s approval) Category C of the Public Works Programme. Urgent payments in respect of minor outstanding works to a value not exceeding $100,000 on any waterworks projects that have been substantially completed and for which there is no subhead in the Fund estimates may also be charged to this subhead. Approval will be sought from the Financial Secretary to reinstate such projects in the Fund estimates during the year and, once this approval has been obtained, expenditure will be transferred to the original project. We will also fund from the subhead all new projects previously funded under Head 707, Subhead 7009WX, fresh and salt water distribution systems contingent upon new towns and urban area development works.

3. In addition, we propose to expand the scope of the new block allocation slightly to provide for capital expenditure on minor works such as slope protection/improvement works; reconstruction and rehabilitation of waterworks access roads; refurbishment of and improvements to waterworks buildings, pumping stations, treatment plants, service and impounding reservoirs, and equipment therein; and replacement and improvement of watermains. Previously we have funded these works as items of recurrent expenditure under the General Revenue Account, Head 194, Subheads 120 and 121. We believe however, that given the nature of such works, which are similar (other than in terms of scale) to those which we currently fund under Head 709, they are more appropriately a charge to the Capital Works Reserve Fund (CWRF) than to the General Revenue Account.

4. Enclosure 1sets out the allocation for each existing block allocation in 1995-96 as compared to the amount proposed under the new block allocation for 1996-97. As with other block allocations under the CWRF, we also propose that the Finance Committee delegate to the Financial Secretary the power to authorise expenditure under the new subhead¹ .

JUSTIFICATION

5. The Finance Committee approves expenditure under block allocations on the basis of the forecast of total expenditure required for the next financial year, not the total estimated cost of the works to be carried out, the implementation of which can extend beyond the financial year in question. It is necessary for the Finance Committee to approve funds for each of the block allocations under Head 709 for 1996-97 in order to enable the government to undertake various waterworks projects in the next financial year, including meeting payments carried forward from the present and earlier financial years².

6. The proposed total allocation for the Head 709 block allocations for 1996-97 at $301.00 million is 368% higher than the allocation of $64.30 million for the existing subheads in 1995-96. We have drawn up the allocation proposed for 1996-97 on the basis of expenditure patterns, existing commitments and projects expected to be undertaken in the coming financial year. Enclosure 2 sets out the key expenditure items in 1996-97. The reason for the large increase in expenditure is due to the inclusion of the minor works items previously funded under the General Revenue Account, Head 194 and the transfer of block allocation subhead 7009WX previously put under Head 707.

7. We have also taken the opportunity in this year's block allocation exercise to reduce the number of block allocations under Head 709. The creation of new block allocations has usually taken place on an ad hoc basis in response to a particular need at the time. The procedures governing expenditure under the CWRF prevent us from automatically transferring readily available funds under one block allocation to another block allocation where additional funds are urgently required and then, if necessary, subsequently seeking additional funds from the Finance Committee via PWSC should total expenditure for the financial year in respect of all block allocations look likely to be exceeded. Total expenditure on block allocations under Head 709, excluding the minor works items to be transferred from Head 194, since 1992-93, is shown below -

Total expenditure on Head 709 block allocations
excluding minor works transferred from Head 194

# Forecast outturn for 1995-96

8. We usually find ourselves only being able to apply to the Finance Committee via the PWSC to increase the permitted level of expenditure under the block allocation requiring the additional funds, leaving the amounts available under other block allocations unchanged. This is particularly true in the early part of the financial year when we are still uncertain of the likely total year expenditure under each block allocation. By combining the block allocations into one, we can overcome these problems.

9. In addition, the present variety of financial controls on maximum levels of expenditure on any single item depend on the individual scopes of each block allocation. This is confusing. We propose to introduce only one limit for the new block allocation, that being a maximum expenditure ceiling of not more than $15 million per item³. Above that ceiling we will seek the specific approval of the Finance Committee via the PWSC in the form of a separate project for upgrading to Category A in the Public Works Programme. We will also place all items funded under the new block allocation in Category D of the Public Works Programme so as to be able to impose uniform administrative procedures.

FINANCIAL IMPLICATIONS

10. The total proposed allocation for the new block allocation for 1996-97 under Head 709 is $301.00 million. There are no additional annually recurrent expenditure implications arising as a result of the proposals.

BACKGROUND

11. The CWRF finances eleven different heads of expenditure covering the Public Works Programme, the acquisition of land, capital subventions and major systems and equipment, and computerisation. The block allocations under Head 709 provide for expenditure on minor waterworks and consultants’ design fees and charges, including site investigations and consultancy fees for larger projects in the capital works programme. The ambits of the current block allocations for 1995-96 are set out in Enclosure 3. We allow for a certain level of over-commitment on the sums approved by the Finance Committee in order to cater for expenditure on items which can only start towards the end of the financial year and part of the expenditure must carry forward to the next financial year or for items where we forecast the full amount of expenditure to be spread over several financial years.

1 -- As provided for under the Resolution establishing the CWRF, the Financial Secretary may delegate his power of administration to other officers.
2 -- Even relatively small projects can take more than one year to complete. Most works contracts for example require a one year's maintenance period on completed works. Only after the maintenance period is completed do we release the final amount of money due to the contractor.
3 -- We do not allow larger projects, costing more than $15 million each, to be broken down into phases or stages so as to circumvent the need to seek Finance Committee's approval. Finance Committee has previously delegated to the Secretary for the Treasury the power to authorize expenditure on Category D items up to a maximum ceiling of $15 million per item.

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Enclosure 1

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Enclosure 2 to PWSC(95-96)94

Block allocations under Head 709 Key expenditure items in 1996-97

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Enclosure 3 to PWSC (95-96)94

Ambits of the current block allocations for 1995 - 96

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