2012 Medium term budget policy statement

Presentation byMs O N V Fundakubi

Chief Financial Officer07 November 2012

Standing Committee on Appropriations

Outline

• Expenditure outcome as at 31September 2012• Reasons for major variances• Declaration of saving• Unfilled vacant posts• Infrastructure Projects• Progress on Nandoni pipeline and project

performance• Way forward

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Total departmental expenditure as at 30 September 2012

3

Expenditure as at 30 September 2012: Per programme

4

Expenditure as at 30 September 2012: Per economic classification

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Budget and actual expenditure per programme

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CONSOLIDATED DEPARTMENTAL EXPENDITUREProgramme Original

Budget Rollovers Virements

and Shifts Function Shift

Declared Savings

Adjusted Budget

YTD Exp 30 Sept 2012

Variance % Spent

R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 %

Administration 883,128 30,376 (6,266)

(8,544) (33,692)

865,002 432,091 432,911 50%Water Sector Management 618,859 18,000 -

(110,000)

(72,572) 454,287 203,227 415,632 48%

Water Infrastructure Management 2,273,496 - -

-

(22,000) 2,251,496 777,931 1,495,565 35%

Regional Implementation & Support 4,896,682 368,181 2,500

110,000

(93,707) 5,283,656 1,273,758 3,622,924 24%

Water Sector Regulation 114,683 - -

-

(4,440) 110,243 43,535 71,148 39%

International Water Cooperation 25,813 - 3,766

-

(1,101) 28,478 11,270 14,543 40%

Total 8,812,661 416,557 -

(8,544)

(227,512) 8,993,162 2,741,812 6,251,350 30%

Budget and actual expenditure per economic classification

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Current payment Original Budget

Rollovers Virements and Shifts

Function Shift Declared Savings Adjusted Budget

YTD Exp 30 September 2012

Variance % Spent

Current payment 2,636,027 31,962 (18,572) - (169 664) 2,471,209 1,068,414 1,402,795 43% Compensation of employees 1,084,183 - (10,073) - (15,846) 1,058,264 502,983 555,281 48% Goods and services 1,549,939 31,962 (9,035) (8,544) (153,818) 1,410,504 563,710 846,794 40% Interest and Rent on land 1,905 - 536 - - 2,441 1,452 989 60%

Financial transaction in assets & liabilities - - - - - - 269

(269) 0% Unauthorised expenditure - - - - - - - - 0%

Transfer and Subsidies 2,913,420 18,000 11 -

(22,000) 2,471,209 969,972 1,501,237 39% Province and Municipalities 562,556 - - - - 562,556 168,338 394,218 30%

Departmental agencies and accounts 2,144,442 18,000 - -

(22,000) 2,140,442 668,425 1,472,017 31% Universities and Technikons - - - - - - - - 0% Foreign Govt & International Organisations 180,625 - - - - 180,625 120,010 60,615 66%

Public Co-operations & Private Enterprises - - - - - - 4,804

(4,804) 0% Non-Profit Institutions - - - - - - - - 0% Households 25,797 - 11 - - 25,808 8,395 17,413 33%

Payment of Capital Assets 3,263,214 366,595 18,561 -

(35,848) 3,648,370 703,426 2,944,944 19% Building & Other fixed structures 3,171,454 355,818 2,472 - (17,086) 3,512,658 674,729 2,837,929 19% Machinery &Equipment 68,557 10,777 15,455 - (10,120) 84,669 25,842 58,827 31% Cultivated assets - - - - - - - - 0% Software & and other intangible assets 23,203 - 634 - (8,642) 15,195 2,855 12,340 19% Land and subsoil assets - - - - - - - - 0%Total 8,812,661 416,557 - (8,544) (227,512) 8,993,162 2,741,812 6,070,849 30%

REASONS FOR UNDER EXPENDITURE

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Programme 1: AdministrationsThe programmes’ spending is at 49% and is within the acceptable spending level although the following issues needs to be addressed as matter of urgency:

•The Ministry’s expenditure is currently at 82% of its total allocation, and it is anticipated that its budget will be exhausted in the coming two months as a result of the expansion of the organisational structure. Additional funding which amounts to R15 million (R7,6 million on Compensation of Employees and R7,5 million on Goods and Services) is needed.•Over expenditure in Internal Audit is anticipated due to the rollout of special investigations.•The implementation of Business Re-Engineering Process Project is underway and was not adequately budgeted for. Even though the rollover has been approved there will still be a shortfall.

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Programme 2: Water Sector Management

• Unfilled vacant posts as result of strict requirements for appointments of Occupational Specific Dispensation (OSD)

• The National Water Resource Strategy has been gazetted and is currently being rolled out to the public, and workshops are being conducted

• Transfer of funds to Inkomati and Breede-Overberg Catchment Management Agencies will be done later in the financial year

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Programme 4: Regional implementation and Support

• The Department has not yet spent funds earmarked for Acid Mine Drainage (AMD), and hence the under expenditure. The reasons are as follows:– TCTA is awaiting approval/authorization from the Department to

proceed with the implementation of the short-term intervention;– TCTA is awaiting confirmation that sufficient budgetary provision is

available to proceed with the awarding of the contract for the construction of the works;

– Awaiting approval to proceed with the conclusion and signing of relevant agreements with the mines to allow implementation of the works;

– Awaiting authorisation by the Minister for TCTA to proceed with the construction pending the issuance of an environmental authorisation or exemption;

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Programme 4: Regional implementation and Support (Continued)

– TCTA is reluctant to award the contract for implementation of the short term solution given the funding uncertainty for 2013/2014. In this regard, a proposal to use the LHWP borrowing programme to provide bridging finance for the implementation of the short term intervention is pending the outcome of the Minister's meeting with the Minister of Finance.

– Some of the short-term intervention (e.g. the Eastern Basin) will be deferred for implementation pending the outcome of the Long Term Feasibility study.(TCTA is ready to implement once the contract has been awarded and the budget will be spent as planned).

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Programme 4: Regional implementation and Support

• Water Services Projects spent R60 million against the budget of R620 million, which includes rollover funds of R176 million. These projects are implemented by Infrastructure Branch (in Water Trading Entity) on behalf of the Main Account. Water Trading Entity financial system indicates that an amount of R228 million has already been spent and they are in the process of invoicing Main Account for the work done. These invoices are expected to be processed in the coming months . Over and above, the Water Trading Entity has projected that R827 million will be required to finalise all these project in the current financial year, which translates to over R200 million budget shortfall it is anticipated that the budget will be spent as planned.

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Programme 4: Regional implementation and Support (Continued)

• Delayed and/or slow procurement processes in Municipalities;• Legal implications on the cancellation of one contractor part of the

Greytown BWS have delayed the progress of the project and the contractor has taken the WSA to court;

• Progress on some contracts has been delayed due to financial instability of appointed contractors. For example, 9CE company (Sanyati Civils) is in litigation and yet was appointed on three schemes; namely, Hlabisa, Mthonjaneni and Jozini. Another contractor (Amanzi) has financial problems and was issued notice of cancellation. It is also responsible for two schemes, (such as Hlabisa and Greater Eston);

• Lack of Project Management capacity in implementing agencies.

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Programme 5: Water Sector Regulations

• Unfilled vacant posts

• Late submission of invoices in respect of Compulsory Licensing, Framework for monitoring and auditing as well as Water Research Commission has contributed to under spending

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Programme 6: International Water Co-operation

• As result of the appointment of the Director and cost incurred to acquire resources for him only from the 2nd quarter

• In the 3rd Quarter cost will be incurred for the JICA Seminar, Donor Round table • The Expenditure for the trip to Japan which took place in the 2nd Quarter and still

awaiting the DIRCO expenditure• Delays in the procurement of assets and stationery• A strategic session to be conducted in the 3rd quarter only.• Two Bilateral to China and Malaysia was planned for but have not been approved• Delays in the procurement of assets and stationery• Payment for the rental of ORASECOM office to be processed by the end of 2nd

quarter,• Transfer payment for membership fees for AMCOW only payable upon receipt of

the invoice for the AMCOW Secretariat

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Programme 6: International Water Co-operation

• The expenditure incurred for delegates who attended International Water Week in Stockholm is still to be submitted by DIRCO

• Official trips planned for Bonn & Bangkok by the end of the 2nd quarter have not been approved yet.

• There is under expenditure in COE as a result of slow filling of vacant posts

• All training courses have been scheduled to be undertaken during the 2nd and 3rd Quarter

• Computer Software(MS Projects) to be procured in the 3rd Quarter• Payment of Registration fees for WWC & OECD Membership submitted

to be processed• Membership for IWA only to be paid be the end of the 2nd quarter upon

receipt of the invoice

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DETAILS OF ADJUSTMENTS ESTIMATES

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Requests and approval of rollover for 2012/13 financial year

Description of a project Rollover requested

Rollover approved

Variance

Upgrading of video conferencing 7,000 7,000 -

Procurement of office furniture 740 - 740

Acquisition of Water Drilling Equipment 3,777 3,777 -

Construction of Moutse Bulk Water Supply Scheme 20,018 20,018 -

Construction of Nandoni Pipeline 182,000 175,800 6,200

Acid Mine Drainage 150,000 150,000 -

Construction of Metsi Bophelo Borehole Project 10,000 10,000 -

Business Process Review Committee (BPR) 34,000 16,000 18,000

Adopt a River Project 2,075 2,075 -

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Requests and approval of rollover for 2012/13 financial year

Description of a project Rollover requested

Rollover approved

Variance

Accelerated Development Programmes 1,591 1,591 -

Enterprise Monitoring and Evaluation Tool 3,710 3,710 -

Management and Coaching Support 986 986 -

River Health Project 1,400 - 1,400

Rain Water Harvesting Tanks 2,947 2,000 947

Validation and Verification 5,700 5,600 100

Financial Assistance to Bushbuckridge Water Board 18,000 18,000 -

Total 443,944 416,557 27,387

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Reasons for rollover requestsDescription of a project Reasons why funds are requiredUpgrading of video conferencing To finalise upgrading of video conference infrastructure

Acquisition of Water Drilling Equipment

To enable department to honour a payment in respect of water drilling machines which were delivered and invoices were processed on BAS System 30 March 2012, however the payment was rejected due to incorrect banking details.

Construction of Moutse Bulk Water Supply Scheme

To enable the department to honour the payment for services already rendered in respect of Moutse Bulk Water Supply.

Construction of Nandoni Pipeline To finalize construction of Nandoni Pipeline

Acid Mine DrainageImplementation of immediate and short-term measures addressing Acid Mine Drainage in Witwatersrand mining Basins

Construction of Metsi Bophelo Borehole Project

To finalise the Borehole project which is currently underway and pay TCTA .

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Reasons for rollover requestsDescription of a project Reasons why funds are requiredBusiness Process Review Committee (BPR)

To review the current business systems and to align the strategy of the Department

Adopt a River Project To successfully complete the implementation of the project.

Accelerated Development Programmes To successfully complete the implementation of the project.

Enterprise Monitoring and Evaluation Tool

To roll out the Balanced Scorecard to be linked to the implementation of Strategic Plans, Annual performance plans and Business plans of the Department.

Management and Coaching Support To finalise training/coaching of MMS and SMS officials

River Health ProjectThe allocation will be used for monitoring of aquatic invertebrates, diatoms and riparian vegetation at Jukskei River Catchment.

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Reasons for rollover requestsDescription of a project Reasons why funds are requiredRain Water Harvesting Tanks

The funds are already committed and the service Providers are already doing the work on the ground. The project is at an advanced stage.

Validation and Verification To continue to finalise the implementation of the project.

Financial Assistance to Bushbuckridge Water Board

To assist in ensuring capacity development, water losses and metering and infrastructure refurbishment related issues financial viability, operations and stability of the board

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Progress report: rollover spending by 31 October 2012Description of a project Rollover

approvedActual

expenditureR ‘000 R’ 000

Upgrading of video conferencing 7,000 -

Acquisition of Water Drilling Equipment 3,777 3,777

Construction of Moutse Bulk Water Supply Scheme 20,018 20,018

Construction of Nandoni Pipeline 175,800 -

Acid Mine Drainage 150,000 -

Construction of Metsi Bophelo Borehole Project 10,000 -

Business Process Review Committee (BPR) 16,000 -

Adopt a River Project 2,075 -

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Progress report on rollover spending as at 31 October 2012

Description of a project Rollover approved

Actual expenditure

R ‘000 R’ 000

Accelerated Development Programmes 1,591 -

Enterprise Monitoring and Evaluation Tool 3,710 -

Management and Coaching Support 986 -

Rain Water Harvesting Tanks 2,000 -

Validation and Verification 5,600 -

Financial Assistance to Bushbuckridge Water Board 18,000 -

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Virement (Shifting of funds in terms of section 43 of PFMA)

Programmes From To Increase or (Decrease)

R’000 R’000 R’000

Administration (6,266)

Regional Implementation and Support

2,500

International Water Co-operation 3,766

Total Net Effect (6,266) 6,266

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Reasons for virementProgramme1: AdministrationFunds have been shifted to implement Women in Water Programme as well

as to newly created structure as well as procurement of computers and furniture for newly appointed personnel.

Programme 4: Regional Implementation & SupportFunds have been shifted to this programme for the

implementation of 2012 Women in Water Programme

Programme 6: International Water Co-operationFunds have been shifted to fund newly created structure as well

as procurement of computers and furniture for newly appointed personnel

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Declaration of savings: per programmeProgramme Declared

savingsR’000

Administration 33,692 Water Sector Management 72,572 Water Infrastructure Management 22,000 Regional Implementation & Support 93,707 Water Sector Regulation 4,440 International Water Cooperation 1,101 Total 227,512

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Declaration of savings: per economic classification

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Current payment Declared Savings

R’000Current payment (169 664) Compensation of employees (15,846) Goods and services (153,818)

Transfer and Subsidies (22,000)

Departmental agencies and accounts (22,000)

Payment of Capital Assets (35,848) Building & Other fixed structures (17,086) Machinery &Equipment (10,120) Software & and other intangible assets (8,642) Total (227,512)

Reasons: declarations of savingsCompensation of Employees• Unfilled vacant posts as result of strict requirements for appointments

of OSDs• Savings have been declared due to higher vacancy rate, however the

department is in the process of fast tracking recruitment processesGoods and Services• Cost saving measures implemented on the following goods and services

spending line items Catering Consultants Venues and Facilities Travel and Subsistence Machinery and Equipment

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Reasons: declarations of savingsInfrastructure projects – R 22 million

NB: The project expenditure is not measured on straight basis but measured based on the monthly cash flow projection.

Savings have been declared on Infrastructure projects due to the following:

• The Industrial action – De Hoop Dam• Slow delivery of the pipes for Bulk Distribution System

(BDS), due to poor quality.• Delay in the appointment of PSP for DSRP Projects.• Cost optimisation measures implemented in respect of

infrastructure projects of the Water Trading Entity

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Reasons: declarations of savingsMachinery and equipmentSavings have been declared on Machinery and

Equipment due to: • Funds have been budgeted for procurement of

laptops, computers and office furniture, as result of unfilled vacant posts the allocation of budget was declared as savings.

• Delays in delivery of procured office furniture and IT Equipments

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CAPITAL PROJECTS EXPENDITURE REPORT AS AT 30 SEPTEMBER 2012

Water Trading Entity

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Infrastructure development

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Programme

YTD Annual

% Forecast

vs Budget

R'000

% Actual vs.

Budget

R'000

Budget Actual Original budget Saving

Adjusted Budget Projection

Infrastructure Development 631 879 506 055 80% 1 696 494 (19 298) 1 677 196 1 677 196 100%

VAT 88 463 70 848 80% 237 509 (2 702) 234 807 234 807 100%

TOTAL 720 342 576 902 80% 1 934 003 (22 000) 1 912 003 1 912 003 100%

Nandoni water treatment works , distribution & pipes

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Project NameOriginal Budget Roll-Over

Revised Budget

Forecast 2012/13 Shortfall

YTD Expenditur

e

%YTD

Expenditurevs.

Original Budget

%YTD

Expenditurevs.

Revised Budget

Nandoni WTW, Distribution (including Valdezia) and GRP Pipes 366 991 175 200

542 191 644 005 101 814 175 959 48% 32%

The Shortfall amounting to R101 million will be funded through reprioritisation and saving from other projects. The business is currently reviewing the annual budget.

Reasons for under expenditure• The project expenditure is not measured on straight-line basis but measured based on

the monthly cash flow projection. The YTD budget and YTD actual indicates an under

expenditure of 20%, the straight-line measurement requires WTE to be on 50% of the

total budget.

• The under spending of 20% for the 2nd quarter is due to the following:

The Industrial action – DeHoop Dam

Slow delivery of the pipes for Bulk Distribution System (BDS), due to poor quality.

Delay in the appointment of PSP’s for Dam Safety Rehabilitation Programme

(DSRP) Projects.

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Reasons for under expenditure• An estimated amount of R22 million was declared as saving under Programme 3 for

financial year 2012/13 due to the following:

WTE is required to pay 25% as a social contribution on Mokolo Crocodile Water

Augmentation Project (MCWAP). The budget for 2012/13 is R87 million.

During the financial year end 2011/12 WTE paid TCTA 25% social component and

as a results the R87 million budgeted for is no longer required by the project.

The allocation of R87 million has been reprioritised as follows:

R65 million has been transferred to other projects

R22 million has been declared as a savings.

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Plan of action to address under spending on projects• Recovery plan has been drafted in order to recover the man hours lost during the industrial

action at De Hoop Dam.

• WTE is in the processes of establishing a database of PSPs that has various engineering skills

needed.

• The acquisition of BDS pipes and power supply has been prioritized and is estimated to cost R600

million. The delivery of pipes and payment of power supply are anticipated from the 3rd quarter.

• The PSPs to upgrade and configure ERP system has been appointed and expenditure will be

incurred during the 4th Quarter.

• Detailed project plans have been developed

• Project scheduling per activity

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Plan of action to address under spending on projects

• Demand plans have been developed

• Speed up procurement process without deviating from the PFMA and National

Treasury regulation

• Ensuring that contractors invoice WTE on time

• Regular progress meeting reviews with the Minister and the DG

• Establishment of CAPEX Committee

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Progress on the performance of the Nandoni Distribution and Pipeline

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Name of the Project

AnnualTarget

2nd QuarterTarget

Actual

Reasons for variance

Proposed Solution

Nandoni Distribution (Percentage of project completed as per project plan)

98% 89% 69% • NR6, Lukalo-Lambani and NN 20 B pipeline projects are behind schedule due to delayed appointment of PSP and Contractor.

• Due to delays for completion of the above pipelines; NR6 and NN 20 B reservoirs are affected as water from the pipelines is required for testing and commissioning,

• Gumbani Pump Station is already commissioned and handed over, the paving & landscaping is behind schedule due to delays in receipt of designs/drawings

• Vuwani pipeline is behind schedule due to delays in the finalization of tender documents and Water Use licence approval

• Approval of additional funding to fast-track the projects

• A plan is in place to accelerate the

project spending and completion.

Nandoni replacement of GRP pipes with steel pipes (Percentage of project completed as per project plan)

80%

48% 29% • Three pipelines: The H & H Civils side of the JV is still experiencing serious resource and financial problems .

• Valdezia pipeline: Construction North urgently require additional skilled human resources and plant

• Three pipelines: The Engineer gave the JV notice to improve their non-performance and they have reacted positively in writing. They are monitored daily for compliance.

• Posts have been advertised and appointments to be made and the required plant were identified and are being procured.

• A plan is in place to accelerate the project spending and completion.

END

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