PRESENTATION TO PORTFOLIO COMMITTEE ON WATER AFFAIRS AND FORESTRY

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PRESENTATION TO PORTFOLIO COMMITTEE ON WATER
AFFAIRS AND FORESTRY
WATER BOARDS ANNUAL REPORT HEARINGS 6-7 May
2008

• Silas Mbedzi
• Chief Director Institutional Oversight

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DWAFs OVERSIGHT ROLE OVER WATER BOARDS

• Evaluated Shareholder Compacts to determine if
  five-year plans are viable sustainable if
  appropriate services are provided to WSA
  followed by individual appraisal sessions, which
  provide guidance
• Compare actual performance to projected
  performance in the business plan
• Appraise financial performance through the annual
  reports financial statements - individual
  meetings with boards to discuss DWAF comments
  concerns
• Ensure that tariff processes in terms of sec 42
  of MFMA are complied with tariff increases are
  timeously tabled in Parliament

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PROGRESS WITH OVERSIGHT OVER WATER BOARDS
Shareholder Compacts Eleven WBs submitted 5-year BPs to Minister - appraisal workshops held from 9 to 12 Oct 2007 Albany Coast-, Ikangala-, Namakwa-, Pelladrift did not submit being small WBs delays due to non-completion of sec 78 processes of municipalities reviewing of future institutional options in regions
Annual Reports Financial Statements 2006/07 All annual reports were submitted to Minister tabled in Parliament, except Botshelo Water
Quarterly Reports A template has been simplified and a system has been developed to enable boards to report in an easier format and in less detail on KPIs it was recently provided to boards as part of the Oversight Guidelines
Tariff increases All tariffs were approved tabled in Parliament before 15/03/08, except Ikangala Water which only exist in name
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REASON FOR BOTSHELOs NON-SUBMISSION OF AR FS

• The former acting Financial Manager former
  Chief Executive left BW in Nov 2007 and Dec 2007
  respectively, without ensuring that the AR FS
  were ready for auditing
• Compilation of FS has been outsourced
  completion expected end Feb 08
• Auditing by Auditor General expected to be
  finalized end April 08
• AR FS expected to be ready end May 08

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CONSOLIDATED FINANCIAL PERFORMANCE OF WATER
BOARDS Botshelo Waters 2005/06 figures
included
Total 07 Total 06 age
Sales Volumes 2 161 299 016 kl 2 084 421 917 kl 3.6
Total Revenue R6,5 billion R5,9 billion 10.1
Income before interest R1,4 billion R1,1 billion 27.2
Operating Expenditure R3,1 billion R2,8 billion 10.7
Finance Cost R523 million R727 million -28.1
Net Income R1,2 billion R854 million 40.5
Fixed Assets R9,3 billion R9,0 billion 0
Investment R626 million R562 million 11.4
Current Assets R3,3 billion R2,4 billion 37.5
Current Liabilities R1,7 billion R1,6 billion 6.2
Long term debt R3,9 billion R4 billion -2.5
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CONSOLIDATED RATIOS
2007 2006
Gross profit 65.08 65.59 Unchanged
Net profit 18.05 14.50 Improved
Return on assets 8.82 7.11 Improved
Return on equity 15.40 13.23 Improved
Debtors days 61 days 58 days Worse
Creditors days 161 days 157 days Worse
Current ratio 1.92 1.55 Improved
Debt to asset 45 49 Improved
Debt to equity 78 91 Improved
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SIZE OF BOARDS IN TERMS OF SALES
Sales (R000 000) age
Rand Water 4 119 63
Umgeni Water 1 188 18
Sedibeng Water 277 4
Lepelle Northern Water 220 3
Bloem Water 190 3
Magalies Water 145 2
Mhlathuze Water 130 2
Amatola Water 100 2
Bushbuckridge Water 60 1
Botshelo Water 52 1
Overberg Water 18 1
Namakwa Water 10 1
Pelladrift Water 7 1
Albany Coast Water 3 1
Inkangala Water Insignificant 1
TOTAL 6 520 100
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PROFIT / LOSS MAKING BOARDS
Profit Loss
Albany Coast Water x
Amatola Water X
Bushbuckridge Water X
Bloem Water X
Botshelo Water Unknown
Lepelle Northern Water X
Magalies Water X
Mhlathuze Water X
Namakwa Water X
Overberg Water X
Rand Water X
Sedibeng Water X
Umgeni Water X
Ikangala Water X
Pelladrift Water X
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QUALIFIED AUDITS

• SIX OUT OF FIFTEEN QUALIFIED
• QUALIFIED AUDITS
• Albany Coast Water
• Magalies Water
• Mhlathuze Water
• Sedibeng (North West Region)
• QUALIFIED WITH EMPHASIS OF MATTER
• Bushbuckridge Water
• Ikangala Water

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CHALLENGES SOLUTIONS
Standardization of reporting necessary Templates have been finalized
Quarterly reporting Some WBs complied by submitting quarterly reports. However, it was difficult to analyze KPIs as not all WBs reported on the same basis Template will assist in more effective reporting enable DWAF to synthesize the information
Poor Representation of persons with disability in WBs Encouraged WBs to headhunt
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CHALLENGES SOLUTIONS
Institutional Reform Impact on WBs Institutional re-alignment in DWAF, led by Project Manager IR, is currently taking precedence over external reform
Stipends of board members DWAF policy ensures consistency equal treatment of board members
Debtor days of more than 90 days Minister to intervene when necessary
Long term Contracts need to be in place to ensure viability of WBs This depends on municipalities signing long-term contracts , Sec 78 processes concluded in favour of WBs - intervention of DPLG DWAF necessary
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ISSUES RAISED BY PC IN 2007

• ALBANY COAST WATER
• Low book value of assets a re-valuation of
  property was performed reflected in 2007/08 FS
• AMATOLA WATER
• Transfer of assets to AW- Once results from study
  on institutional models for water services
  provision are known, transfer of asset will be
  fast-tracked
• BUSHBUCKRIDGE WATE
• Bohlabela DM has been disestablished debt taken
  over by Bushbuckridge LM
• Debt owed by Bushbuckridge LM not yet fully
  recovered new billing meters installed credit
  control measures put in place to ensure recovery

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ISSUES RAISED BY PC IN 2007

• BOTSHELO WATER
• Internal audit committee appointed in July 2007
• Forensic auditors are investigating the assets
  reflected as not owned by BW
• New board endeavours to get buy-in from
  Municipalities to pay their accounts in order to
  ensure future financial viability of BW
• IKANGALA WATER
• A consultation process determined whether Board
  should be disestablished or not a report was
  submitted to the Minister during Oct 07
  awaiting her final decision (decision imminent)

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ISSUES RAISED BY PC IN 2007

• LEPELLE NORTHERN WATER
• Rehabilitation refurbishment of existing
  infrastructure is being addressed Board
  budgeted R66m for 2007/08 secured R92m from
  DWAF Anglo Platinum
• Upgrading of projects are in progress to increase
  capacity of schemes to address continuous
  increase in demand for water
• Ba-Phalaborwa LM paid R18 million of outstanding
  debt LNW will write-off interest of R27m when
  principal debt is serviced
• Protracted sec 78 process prevents LNW from
  entering into SLA with WSAs
• Capacity constraints are being addressed (i) by
  enrolling employees in learner ships,
  apprenticeships skills programmes
• (ii) With respect to recruitment strategy only
  qualified skilled people are targeted for
  appointment
• (iii) Incentive Policy with retention clause
  will ensure scarce skills are retained

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ISSUES RAISED BY PC IN 2007

• MAGALIES WATER
• Retail debtors not included in the FS have been
  addressed
• Fixed assets were re-valued auditors provided
  their opinion in 2006/07 financial year audit
• An actuary re-evaluated the endowment policy in
  2007
• SARS confirmed registration of MW as an entity
  exempt from income tax
• MHLATHUZE WATER
• Debt collection has improved slightly is
  continually monitored for improvement
• NAMAKWA WATER
• Process to appoint a Manager (not CEO) is
  underway
• Nama Khoi Municipality cannot take over function
  of NW as they are struggling financially
• Sec 78 process is nearly completed will resolve
  uncertainties concerning viability future of NW

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ISSUES RAISED BY PC IN 2007

• OVERBERG WATER
• Staff retention remains a challenge
• Long term contracts with Municipalities not yet
  concluded, although several meetings were held
  between DWAF respective municipalities
• Disclosure of board meeting attendance
  remuneration was done in 2006/07 Annual Report
• PELLADRIFT WATER
• DWAF provided support with strategic planning
  session development of BP Shareholder Compact
• SEDIBENG WATER
• Interest rate on long-term debt was renegotiated
  with DBSA, but higher penalties will be charged
  if loans are redeemed earlier than their maturity
  dates

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THE END

• THANK YOU