BLOEM WATER REPORTING STRATEGIC (BUSINESS) PLAN, ANNUAL REPORT 2009/2010, BUDGET AND 2011/2012 TARIFF INCREASES PRESENTATION TO THE PORTFOLIO COMMITTEE

BLOEM WATER REPORTINGSTRATEGIC (BUSINESS) PLAN,

ANNUAL REPORT 2009/2010, BUDGET AND 2011/2012 TARIFF INCREASES

PRESENTATION TO THE PORTFOLIO COMMITTEE ON

WATER & ENVIRONMENTAL AFFAIRS

25 May 2011

Presented by: Chairperson: Mr TB Phitsane Chief Executive: Dr B Malakoane Chief Financial Officer: Mr O

Stadler

Contents1. Service Area2. Overview of Bloem Water 3. Strategic (Business) Plan4. Performance and Priorities5. Annual Financial Statements: 2009/106. Budget 2011/127. Water Tariff increases: 2011/128. Conclusion

Service Area

Overview of Bloem Water Vision

Assuring sustainable provision of quality water services, for life!

MissionBy creating a leading, value-driven, effective and responsive Institution using adaptive best practice methods in anticipating tomorrow’s problems today

Overview of Bloem Water Areas of service – Central and Southern

Free State

Local Municipalities- Mangaung- Kopanong- Mantsopa- Naledi

Strategic (Business) PlanStrategic Goals Aligned to SONA, SOPA and DWAE goals, projects and

outcomes are summarised as follows:

1. Ensure universal access to safe and affordable basic water2. To manage financial affairs to meet current and future

obligations3. Build, operate and maintain infrastructure4. Ensuring sustainable and equitable water resources

management5. Transformation6. Aligned and effective institution7. Pursuing African advancement

Strategic (Business) Plan Bloem Water has a fully functional Board as well as

Board Committees. Operational effectiveness: Achieved by focus on

quality assurance, cost management, delivery systems, continuous improvement and the constant evaluation thereof.

Commitment to water quality management, supporting DWA , assisting municipalities and social investment initiatives.

A change management program has been developed and is currently being implemented.

Click to edit Master subtitle style

Strategic (Business) PlanStrategic Plan development linked to the already submitted Business Plan.Operational Plan development and costing alignment shall follow in the month of June 2011.Strategic Plan is aligned to SONA, SOPA, DWAE objectives, outcomes and relevant projects.

Performance and Priorities Provide potable water on a continuous basis. Implementation of preventative maintenance

programs. Implementation of demand and CAPEX plans. Improve the ratio of assets to water provision Render support services to stakeholders, e.g. IA

projects, Community projects. Render water supply chain services to/with

stakeholders through partnerships. Skills development initiatives internally and

externally. Change management process/Transformation.

Major risks that requires urgent attention by Shareholder (Shareholders Compact)- Operation and Maintenance

- Welbedacht Dam Siltation and Tienfontein Pump station (Water Quality)

Threat to water supply to the whole area of Mangaung

Major risks that requires urgent attention by Shareholder (Shareholders Compact)- Operation and Maintenance- Welbedacht Dam Siltation and Tienfontein Pump station (Water Quality)

Threat to water supply to the whole area of Mangaung

Major risks that requires urgent attention by Shareholder (Shareholders Compact)

- Modder river catchment (Pollution)- Contracts and Service level agreements (Raw water and Municipalities)- Municipal Intervention (Water losses)

Major risks that requires urgent attention by Shareholder (Shareholders Compact)

- Modder river catchment (Pollution)- Contracts and Service level agreements (Raw water and Municipalities)- Municipal Intervention (Water losses)

Performance and Priorities Consultation process as required by

section 42 of MFMA on increase in future tariffs.

Non-attendance by municipalities. Unilateral determination and imposition

of tariffs by DWA.

Performance and Priorities Outstanding Municipal Debt

- Mangaung Local Municipality (R8 mil)- Naledi Local Municipality (R20 mil)- Kopanong Local Municipality (R4 mil)

CAPEX and Operational Demands- Directive to reduce tariff increase by 5% during 09/10 and 13% during 11/12 impacts on future requirements- result in continuous under recovery

Future Volume Demands- WSA not pro active and limited consultation

Annual Financial Statements: 2009/10

STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 30 June 2010






External Audit Report

- No Qualification- Opinion that financial statements presents the financial position

Overview of financial performance for period 1 July 2009 to 30 June 2010:

Income Statement- Income lower than contractual requirements and budget- Expenditure aligned to treated volumes and budget- Provision for bad debt of R39.4 mil- Finance revenue inflated by interest charges on debtors. - Finance cost aligned to budget.

Balance Sheet- Non current assets marginally lower than budget as not all CAPEX projects were concluded- Current assets marginally higher than budget as funding is committed for CAPEX projects (current and future)- Non current liabilities aligned with budget- Current liabilities aligned with budget


Indicators and Financial Actions- Refurbishment - R10,3 mil- New infrastructure – R nil- Continued Solvency- Ongoing Liquidity- Remain a Going Concern- Debtors position worsened - Cash position remained stable - Debt ratios remained high due to CAPEX requirements - Treated water volumes lower and raw water volumes higher than budgeted for- Streamlining of the pension fund in terms of Funding the deficit

Net loss of R16.6 million, mainly due to provision for bad debt of R39.4 mil

Budget: 2011/12R'000 R'000 R'000 % %

Description 2011/12 2011/12 2011/12 Distribution Distribution

Chemicals 14.1 3.9%Electricity 52.0 14.3%Human Resources 75.1 20.7%Operation and maintenance 21.9 6.0%Raw water charges 22.0 6.0%CAPEX requirements 102.7 28.3% Loan obligations 57.9 15.9% Capital expenditure 36.4 10.0% Movable assets 8.4 2.3%Other 75.5 20.8% Depreciation 39.8 11.0% HR, labour relations, payroll and HCD 6.1 1.7% IT and systems 4.5 1.2% Corporate services, liaison and marketing 6.4 1.8% Administration, finance, supply chain and fleet 11.1 3.1% Engineering services and projects 3.1 0.9% Board related matters 4.5 1.2%

TOTAL EXPENDITURE 363.3 100%

TOTAL VOLUMES FOR SALE ( Mil kub Meters) 92.5

SYSTEMS TARIFF APPROVED BY BOARD 3.93

SYSTEMS TARIFF DIRECTIVE BY MINISTER OF WATER AFFAIRS 3.5UNDER RECOVERY

SYSTEMS TARIFF INCOME FROM DIRECTIVE 323.75 -39.569

Water Tariff increases: 2011/12

Consult with its municipal clients required by Section 42 of the MFMA.

Change from diversified tariff to Systems tariff approved by the Board.

The implication of the above incorporates and encapsulates inter alia the following:- Billing at a systems rate for bulk treated and raw water- An increase in the raw water cost from 10.3 to 15.5%- An increase in chemical cost: 16%- An increase in electricity cost: 30%- An increase in human resources cost: 10% plus additional requirementsCAPEX: The proposed and imposed tariff(s) are to result in the downscaling of required CAPEX projects in relation to future years. It impacts on National Treasury requirements regarding debt service ratios–disallowing Bloem Water to obtain foreign funding the debt service ratio of above 25%




FINANCIAL FUNDING REQUIREMENTS

For the year ended June 30, 2012 2013 2014 2015 2016 2017Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 TOTAL

R Mil R Mil R Mil R Mil R Mil R Mil R Mil

External funding (Borrowings)

Capex requirements 26.8 134.5 131.1 294.0 211.5 102.5 900.4

TOTAL 26.8 134.5 131.1 294.0 211.5 102.5 900.4

Internal funding

Capex requirements 36.4 43.8 42.2 24.6 74.1 49.4 221.1Movable assets 8.4 8.8 9.3 9.7 10.2 10.7 46.4

TOTAL 44.8 52.6 51.5 34.3 84.3 60.1 267.5

TOTAL FUNDING REQUIREMENTS 71.6 187.1 182.6 328.3 295.8 162.6 1 167.9


The consultation process resulted in most municipalities agreeing to a 10% increase in cost and systems rate of R3.93.

Following the above, consultation with National Treasury, SALGA and DWA- Supported Systems tariff rate- Expressed different views on the recovering of cost and tariff- Minister of Water and Environmental Affairs issued directive to reduce tariff for 2011/12 proposed systems tariff from R3.93 to R3.50

Impact – Under recovery of 13% (R39.6 mil) for the 2011/12 year

Conclusion In the year under review Bloem Water has become even more

responsive to municipal needs with regional offices becoming more proactive in problem resolution and improving support and services to Municipalities as well as extensive customer service and satisfaction. In many instances we are going beyond our mandate of being a bulk services provider only to also playing a role in supporting municipalities with operational issues from a reticulation perspective as the sustainability of municipal services is key to our functioning as well as being essential to the communities we serve.

Bloem Water’s future remains contingent both on the willingness of actors within and outside to continue to search for better ways of working together and on the availability of resources upon which these agents of change are able to draw- both financial and human – thus the continued efforts at ensuring financial viability and the introduction of extensive learnership and on the job training programmes to ensure the continued development of human resources both within Bloem Water and at municipal level.

There are exciting possibilities which all our stakeholders ought to embrace and unite in the realisation of our public service mandate.

Documents

BLOEM WATER REPORTING STRATEGIC (BUSINESS) PLAN, ANNUAL REPORT 2009/2010, BUDGET AND 2011/2012 TARIFF INCREASES PRESENTATION TO THE PORTFOLIO COMMITTEE