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Presented by:Mr. PS Ngomana ChairpersonMr. NA Mashele Chief Executive

OVERVIEWEstablished in 1997 by the Minister of Water Affairs and Forestry in terms of the Water Services Act (Act. No. 108 of 1997)Mandated to provide water services to other water service institutions.Currently operates in the Bushbuckridge Local Municipality and part of the Mbombela Local Municipality in Nsikazi area within the Ehlanzeni District Municipality.

Area Ml/day Population Bushbuckridge Local Municipality Area (BLM) (8 PWTW) 96 ±900 000• Two Plants owned by DWA and Six plants owned by BLM

Mbombela Local Municipality Area (MLM) (6 PWTW) 71 ±800 000( MLM) (1WWTW) 3.5

• All Plants owned by MLM

BOARD OF DIRECTOR – appointed 01 February 2010Appointed – 01 Feb 2010Mr. P Ngomana (Chairperson)Adv. G Khoza (Deputy Chairperson)Adv. H MbathaMs. C Van Rensburg (CA. SA)Ms. C MakwelaMs. S KhozaRev. R NgomaneMr. M VilakaziM C P d h

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FEEDBACK ON ISSUES RAISED BY

PCWEA IN 2011

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Issues Raised By PCWEA -20111. Turnaround Strategy

BW developed a Turn Around Strategy to respond to the challenges it facesThe Strategy focused on the following issues:• Long Outstanding debts by WSAs• Lack of Long Term Supply Contracts with customers• Capital Infrastructure Invest Plan• Internal Capacity • Illegal connections

BW established Task teams comprising of Board members and officialsSought intervention from National and Provincial Departments wherever necessary (Treasury ,Cogta, DWA etc)Task teams met BLM and MLM representatives(Political leadership, MMs and officials).

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2. Debt ManagementBushbuckridge Local Municipality• R208,4 mil – June 2011• Escalated by R41 mil since June 2010 – due to flat rate payment against total invoiced• BLM signed acknowledgement of debt of R190 mil and agreed to be pay R95 mil on instalments• Instalments of R5 mil per month ring-fenced debt starting January 2012• Instalments to be revised in June 2012• Only R13 mil of R20 mil due paid to date• Engagements continuing with WSA to find sustainable solution

Disestablished Bohlabela District municipality• R26,4 mil – June 2011• Debt collectors engaged

Mbombela Local Municipality• R10,4 mil – June 2011• Debt settled in full in July 2011(late payment)

Issues Raised By PCWEA -2011 Cont....

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3. Contract – Service level agreements

Bushbuckridge Local Municipality

•A three year Bulk supply contract has been signed, annually reviewable•A possible extension to a five year contract•A committee of officials established to jointly manage the contract

Mbombela Local Municipality• Passed a resolution to cancel the month to month contract and sign a five years supply contract• Parties to agree on key deliverables before end of financial year• A draft contract agreed to and to be considered by BW Board in May 2012• DWA – Institutional Oversight consulted during the formulation of the draft contract

Issues Raised By PCWEA -2011 Cont....

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4. Infrastructure ImplementationsBW in the process of compiling a 20 year Capital Infrastructure Plan through funding from

DWA

Cotga-MP

• BW signed an agreement to implement projects on behalf of Cogta-MP to the value of R23 mil

• Projects completed as agreed with Cogta-MP and the receiving Municipalities• 5% agency fee was paid to BW for the implementation of the projects

DWA-MP

• BW signed an agreement to implement projects on behalf of DWA-MP to the value of R4,5 mil

• Projects completed as agreed with DWA-MP and the receiving Municipalities• 5% agency fee to be paid to BW for the implementation of the projects

Issues Raised By PCWEA -2011 Cont....

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5. Internal Capacity

All vacancies filled at Management levelAreas highlighted as critical to be addressed were:

• Director : Water Services• Director : Engineering & Planning Services• Company Secretary• Manager: Business Development• Manager: Supply Chain Management• Manager Scientific Services

Issues Raised By PCWEA -2011 Cont....

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5. Illegal/Unauthorized Connections/Metering project

BW commissioned a project to investigate all connections in bulk supply pipelineInclude bulk pipelines operated by WSA and water lossesSo far 80% completed pipelines operated by BW are clear of illegal connections, have

losses within acceptable limits <5%Losses in pipelines operated by WSA reported as and when detected, addressed by WSAMeters of BW pipelines ordered and to be completed by June 2012 subject to the

finalization of the funding by DWAFlat rate payment to be discontinued as soon as new meters are operational

Issues Raised By PCWEA -2011 Cont....

ANNUAL FINANCIAL STATEMENTS

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Annual Financial StatementStatement of Financial Position as at 30 June 2011

2011 2010 % ChangeAssets R RNon- Current 57 142 070 55 420 725 3.11%Current Assets 118 160 662 118 074 382 0.07%

Total Assets 175 302 732 173 495 107 1.04%

Equity 115 989 634 128 323 569 -9.61%Capital Contribution 68 355 117 68 355 117 0.00%Retained Income 47 634 517 59 968 452 -20.57%

Liabilities 59 313 098 45 171 538 31.31%Non-Current

Liability 3 070 427 3 014 643 1.85%Current Liability 56 242 671 42 156 895 33.41%

Total Equity and Liabilities 175 302 732 173 495 107 1.04%

Contingent Liabilities• DWA – Raw Water Charges R16 920 373• Legal Cost – CE dispute R250 000• Provident fund administrators - 9.989% Claiming R1 381 554

*BLM – Bushbuckridge Local Municipality**Bohlabela District Municipality (Disestablished)***Mbombela Local Municipality------------------------

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2010/11 Annual Financial Statement Cont...

Statement of Comprehensive Income – Year Ending 30 June 2011

2011 2010 % ChangeR R %

Water Sales 93 308 244 78 881 154 18%Operating and Maintenance 34 442 465 27 978 505 23%

Discounting of revenue 6 208 000 8 679 789 -28%Revenue 121 542 709 98 179 870 24%Other operating income 371 659 376 418 -1%Direct operating cost -81 045 210 -60 940 920 33%Other operating expenses -14 452 170 -11 297 280 28%

EBITDA 26 416 988 26 318 088 0.4%Depreciation -2 227 823 -2 189 892 2%Investment Revenue 5 179 945 5 790 166 -11%Finance Cost -321 669 -371 657 -13%

Provision for Doubtful debt -41 381 376 -15 427 720 168%Surplus/Deficit -12 333 935 14 118 985 -187%Operating profit -17 192 211 8 700 476 -298%Gross Profit 40 497 499 37 238 950 9%

Profit/ Earning Margins (%)EBITDA margin (%) 22% 27% -19%Gross Profit margin (%) 33% 38% -12%Operating profit margin (%) -14% 9% -260% 12

AUDIT REPORT

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2010/11 Audit Report

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PERFORMANCE AGAINST STRATEGIC

OBJECTIVES

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2010/11 Annual Performance Information1. Provide bulk water and sanitation services

1.1 Reliability of supply- Increase the volumes of water supplied by 5.5%-Reduced unaccounted for water by 3.98%

1.2 Water quality- 100% compliance to SANS 0241 for potable water- 98% compliance to effluent standards

2. Entrench sound financial management and corporate governance2.1. Financial Management

- Increased revenue by 18% and 23% in BLM and MLM respectively- 70% collection of revenue on invoiced in both BLM and MLM~ based on flat rate payment agreement- Unqualified audit report

2.2. Corporate governance- 90% attendance of planned Board and Board committee meetings - Improve stakeholder relations engagements

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2010/11 Annual Performance Information Cont…

3. Optimize stakeholder interaction and engagement

3.1 Stakeholder relations - Improve stakeholder relations engagements

3.2. Business Development- 2 draft long term agreements completed( Bushbuckridge and

Mbombela Local Municipalities)

4. Optimise human capital investment

4.1. Human resources- 0.5% staff leaving the institution- 45% implementation of Employment Equity plans-

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CAPEX

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2011/12 Capital Infrastructure Expenditure82% under-spent on capital budget for movable assets – cash flow constraintsThe following projects were implemented during 2011/12:

Project Description Ownership of assets

Total Project Value Funder Status

Abstraction Sabie River - Cork Desilting facilities (Sand to be trapped)

Bushbuckrid ge Local Municipality

1 000 000 Department of Corporative Governance and Traditional Affairs: Mpumalanga (CoGTA)

CompleteAbstraction Mutlumuvi River Desilting facilities (Sand to be trapped) 1 000 000 CompleteAbstraction Motlamogale River Desilting facilities (Sand to be trapped) 1 000 000 CompleteTreatment Dingledale Package Plant (Villages, Dingledale only) Refurbishment of Package Plant 1 500 000 Complete

Abstraction Thulamahashe WTW : Upgrading of Plant components 3 000 000 CompleteBooster Pump Station Dwarsloop WTW: Pump & Panel 2 500 000 Complete

Subtotal 10 000 000Kanyamazane WTW - Clear water sump- Treatment Purification Plant Inadequate storage

Mbombela Local Municipality

4 000 000

CoGTA

Complete

Kanyamazane WTW Refurbishment - Treatment Purification Plant dilapidated infrastructure 1 000 000 Complete

Water Tankers : Nsikazi North & South Scheme: 2 x 16000litre tankers 2 800 000 CompleteKanyamazane Regional Scheme Raw Water Pump Station) Packed High Lift pumps 2 500 000 Complete

Nsikazi South Scheme Boreholes & Jojo tanks 3 079 000

Department of Water Affairs

CompleteNsikazi North Scheme: Drill, Equip, Electrification, Securing & Supply & Install Jojo Tanks 2 821 000 Complete

Nsikazi North Scheme: Ground water investigation & borehole siting (56 Sites) 300 000 Complete

Subtotal 16 500 000Grand Total R 26 500 000

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2011/12 Strategic objectives

Strategic ObjectivesThe organisation’s objectives are articulated as:

To provide bulk water supply and sanitation servicesReliability of Water supplyWater Quality ComplianceReduction of Water losses

To entrench sound corporate governance and financial managementFinancial ManagementCo-operate Governance

To optimise stakeholder interaction and engagementStakeholder relationshipBusiness Development

To acquire, develop and manage infrastructure for bulk water and sanitation servicesInfrastructure developmentOperation and Maintenance

To promote effective water resource managementEnvironmental Management

Optimize human capital investmentHumana resourceOrganizational Transformation

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SUMMARY of Progress Against Strategic objectives…….

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To provide bulk water supply and sanitation servicesReliability of Water supply

•10% water supply volume increaseWater Quality Compliance

• 100% compliance with SANS 241Reduction of Water losses

• Reduce unaccounted for water to 5%

To entrench sound corporate governance and financial managementFinancial Management

• Improved financial ratios•27% Historic debt recovery (agreed R30 million for 2011/12)

Cooperate Governance• 100% Board performance assessment• 74% Board attendance•80% high level risks addressed

To optimise stakeholder interaction and engagementStakeholder relationship & Business Development

• 1 Contract signed with Bushbuckridge Local Municipality (Debt collection and water supply)• 1 Draft Service level agreement with Mbombela – to be approved by Board in May • Projection implementation contracts will DWA and CoGTA• 3 forums attended and resolution implemented

To acquire, develop and manage infrastructure for bulk water and sanitation services• 100% implementation of planned Infrastructure projects

Optimize human capital investmentHuman resource

• 0.1% staff leaving the institutionOrganizational Transformation

•46% Employment Equity

Alignment Water board Strategy to Gov.

Outcomes

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2012/13 Tariff StructurePro-Forma Tariff Table

Year Proposed Tariff for

2012/2013F Year 1

(R/Kl)DWA / charge 0.183Direct scheme operations costs 2.252

Overheads 0.845Depreciation 0.303Income statement surplus 0.295Sub-Total 3.9

Projected water sales (kl) 36 135 000 Projected revenue (R ) 140 384 475.00 Projected costs (R ) 132 477 787.36 Projected surplus (R ) 7 906 687.64 Reserves (R ) 42 796 267.47 Projected surplus as a percentage of Reserves 18.48%

Debt service cost 10.58%Debt / (Debt + Equity) ratio 0.02

Capex and Refurbishment (R ) 11 870 619.00

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2012/13 Tariff Structure Cont...

Consideration of Eskom IncreasesNo material impact on the tariffInitial BW estimate was 18% 16% increases was effected but no material changes

Complied with Regulatory frameworksWater Services Act, 108 of 1997 s10 Norms and standards for tariffsMunicipal Finance Management Act No. 56 of 2003 Section 42

Comments from StakeholdersBushbuckridge Local Municipality – Accepted the 5% increase National Treasury – Commented on 5% increase; Raised concerned on debt recoverySALGA – Commented on 5% increase; Raised issues of low raw water rates, low tariff in terms of the

industryMbombela Local Municipality Tariff

Charging rates per management contract –Tariff based contract is being finalized with MLM

Recommendation 5% increase on the Tariff

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Alignment Water board Strategy to Gov.

Outcomes

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STRATEGIC GOALS AND OBJECTIVES FRAMEWORKMinisters OutcomeAlignment

DWA strategic objectives alignment

To provide water serviceso Water volumes (production, distribution)o Water qualityo Sanitation (treatment, discharge of effluent)

Outcome A, D SO 1.1, SO 1.2, SO 1.3, SO 2.2, SO 2.6, SO 3.2SO 3.4,

To provide water supply infrastructure serviceso Infrastructure installations (water infrastructure assets, bulk

pipelines, connections, metering)o Infrastructure maintenance (pipelines, reservoirs, pump stations,

metering, water pressure systems, boreholes)

Outcome B, D, E SO 1.1, SO 1.2, SO 1.3, SO 2.2, SO 2.6,

To optimise stakeholder interactiono Education / Awareness creation (campaigns, events, information

sharing, outreach programmes)o Stakeholder relations management (advocacy, knowledge

sharing, stakeholder establishment maintenance)o Input into external regulatory instruments

Outcome D SO 3.1, SO 3.4 SO 4.1, SO 5.1, SO 5.2

To ensure business development (existing and new business)o Product / service developmento Market development

Outcome D, E SO 4.1, SO 5.1 SO 5.3

To promote effective water resource managemento Water usage (sourcing, discharging)o Environmental management

Outcome A, SO 2.5, SO 2.7

Alignment to Government Priorities

Key Strategic Focus for 2012/13

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2012/13 Key Strategic FocusGoal 1: To provide water services Water volumes (Production, Distribution)

Increase production by 5%Manage water losses below 10%

Water qualityAchieve blue drop status (drinking water quality)100% compliance with SANS 241 and ISO 9001

Goal 2: To provide water supply infrastructure services Infrastructure Installations100% completion of the infrastructure projectsMinimum 70% of planned job creation is achieved100% implementation of infrastructure maintenance plans

Goal 3: To optimise stakeholder interaction Education / awareness creation (Campaigns, Events, Information sharing, Outreach programmes)Education / awareness creation programmes conductedStakeholder relations management (Advocacy, Knowledge sharing, Stakeholder establishment maintenance)Stakeholder forums / working groups / service delivery partnerships

Goal 4: To ensure business development (existing and new business)Product / service developmentAlternative service delivery mechanisms (Private partnerships)Market developmentNew market opportunities (PIA, Service areas)

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2012/13 Key Strategic Focus Cont....

Goal 5: To promote effective water resource management Environmental management•80% of planned environmental management programmes achieved

Goal 6: To ensure internal business excellenceBusiness management / leadership•100% Compliance to materiality and significance framework•100% Corporate governance issues detected versus corrected •70% Board performance rating

Human resource management•<3% Staff turnover•35% Employment equity targets planned versus achieved

Financial management•40% of historic debt to be recovered•80% BBBEE discretional use•Unqualified audit opinion

Information / communication technology management (ICT)•55% ICT master plan implementation progress

Current Challenges

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Challenges-Debt recovery

• Bushbuckridge Local Municipality – not adequately budgeting for water services • Insufficient information on current demand• Insufficient support offered by other government departments in persuading WSAs to pay for rendered services• Unwillingness by EDM & BLM to settle the debt for the disestablished Bohlabela DM

- Infrastructure challenges•Transfer of assets (Inyaka and Hoxani water schemes)•Aged and inadequate capacity of infrastructure

- Risk of technical insolvency•Going concern •Debt recovery •Cash flow constrains

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