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PRESENTATION TO PARLIAMENTARY
PORTFOLIO COMMITTEE ON WATER AND
ENVIRONMENTAL AFFAIRS
04th May 2010
2008/09 ANNUAL REPORT and
2010/11 TARIFF INCREASES
OverviewRelationship with Municipalities Served
Achievements and Challenges
2008/09 Performance AnalysisFinancial Performance
Non Financial Performance
Financial AnalysisIncome Statement
Balance Sheet
Financial Ratios/ Indicators
Water Sales / Revenue
Expenditure / Profitability
Debt / Capital Structure
Overall Operating Conditions
Audit Analysis
Tariff Adjustments
Scheme Source Customer / Municipality Type of service
Phalaborwa (150Ml/day)
Olifants river baPhalaborwa and Industrial Mines
Potable bulk water Industrial Bulk water
Modjadji (12Ml/day)
Modjadji dam Greater Letaba Potable bulk water (Management Contract)
Politsi (7Ml/day) Magoebaskloof dam
Greater Letaba and Tzaneen Potable bulk water
Nkowankowa (24Ml/day)
Letaba river Tzaneen Potable bulk water (Management Contract)
Ebenezer (48Ml/day)
Ebenezer dam Tzaneen and Polokwane Potable bulk water (25 yr)
Olifantspoort (60Ml/day)
Olifants river Polokwane and Lepelle Nkumpi Potable bulk water (25 yr)
Flag Boshielo (12Ml/day)
Olifants river Marble Hall, Makhuduthamaga, Fetakgomo
Potable bulk and internal reticulation water (5 yr)
Burgersfort (4Ml/day)
Spekboom River Greater Tubatse Bulk and internal reticulation water and sewage(5 yr)
Mapodile (0.5Ml/day)
Steelpoort river Greater Tubatse Potable bulk and internal reticulation water (5 yr)
Doorndraai (12Ml/day)
Doorndraai dam Mogalakwena Potable bulk water (30 yr)
329.5 Ml/day TOTAL CAPACITY
Organizational Development
Research Development and Planning
Sustainable, High Quality and Efficient Supply of
Bulk Water and Water Services
Ensure Financial Viability and Sustainability
Effective Corporate Governance
Effective Development and Maintenance of LNW’s
corporate image and stakeholder relations
• Free Basic Water Service Provision in Capricorn District Municipality
and GSDM (11 949 households)
• Water Demand Management (continued upgrade of telemetry
systems) resulting in water losses averaging 3.5% on bulk
• Water Quality compliance with SANS241:2006 (95% Class 1 and 100%
Class 2)
• Yard Connections installations in rural Greater Sekhukhune DM
• Turnaround Strategy Implementation in Phalaborwa LM and Greater
Tubatse LM on Cost Recovery
• Billing and Meter Reading Support to Greater Tubatse LM
• Recomissioning of underground water supply in Lepelle Nkumpi
Municipality
Year of Audit
Opinion Major Findings
2005/06 Unqualified •None
2006/07 Unqualified •Outstanding debts
2007/08 Unqualified •Materiality Framework; Outstanding Debts•Water Balances
2008/09 Unqualified •Outstanding Debts
Financial Performance
2005R’000
2006R’000
2007R’000
2008R’000
2009R’000
Revenue 159,761 179,656 200,154 203,284 226,900
Cost of Sales 26,789 41,684 24,519 15,743 21,223
Gross Profit 132,972 127,972 175,635 187,541 205,576
Operating expenditure (excluding Impairement)
75,102 91,312 97,544 127,266 169,072
Operating Profit 57,870 36,662 78,091 60,275 36,504
Surplus for the year
45,314 73,942 94,280 18,370 40,283
Financial Performance
2005R’000
2006R’000
2007R’000
2008R’000
2009R’000
Net interest paid
7,113 (15,804) 539 (27,214) (26,925)
Accumulated reserves
(5,064) 36,709 111,046 125,373 160,624
Long term loans
274,478 44,491 40,361 36,073 31,270
Average tariffR/kl
2,05 2,165.4%
2,316.9%
2,372.6%
2,609.7%
Business Performanc e Area
2005Actual
2006Actual
2007Actual
2008Actual
2009Actual
Gross Margin %
83% 77% 88% 92% 91%
Current Ratio
1.74 1.83 2.67 2,49 2.46
Return on Assets %
9.0% 8.4% 13% 3,5% 2.46%
Debt-equity ratio
101.9% 45.8% 33.3% 35% 38%
Asset turnover
0.20 0.28 0.28 0.27 0.26
Debt ratio 5.06% 3.14% 2.49% 2.57% 2.7%
Source June 2007 June 2008 June 2009
Ebenezer 53% 70% 88%
Tzaneen 67% 66% 90%
Magoebaskloof 100% 100% 100%
Blyderivierpoort 97% 100% 100%
Loskop 76% 101% 102%
Flag Boshielo 76% 101% 100%
Doorndraai 81% 98% 100%
Water Sources Sufficiency
•Below average rainfall in the reporting period than previous
•No major interruptions in water production and supply
•Negative impact due to high temperatures and below average rainfall (possible effect of climate change)
Scheme Performance (2009)
Raw WaterAbstracted (Ml/annum)
Pumped(Ml / annum)
Plant Loss%
Distribution Loss %
Ebenezer 19 854 18 979 4.4 9.7
Doorndraai 4 919 4 641 5.7 3.1
Phalaborwa 46 090 44 963 2.4 5.4
Politsi 2 007 1 981 1.3 1.0
Olifantspoort 15 273 14 472 5.2 2.2
Flag Boshielo 3 945 3 812 3.4 12.3
Modjadji 2 583 2 165 16.8 11.0
Nkowankowa 7 788 7 885 0.63 0.0
TOTAL 102 459 98 898 Average 3.5%
Average 4.87%
Description Period Amount Beneficiaries
COMPLETED PROJECTS
Flag Boshielo West Water Supply Phase 2 2007 - 2008 R 6.0 m 5 470
Premier Emergency Water Projects (Greater Tubatse) 2006 – 2008 R 19 m 19 000
Nkadimeng Water Supply Phase 3 2008/09 R 5.4m 6 257
Olifantspoort South NS7 Phase 4 2006/07 R 0.6m 6 900
Sekhukhune Deep Rural Schemes 2006- 2007/08 R 12 m 19 269
CURRENT PROJECTS
Nkadimeng Water Supply Phase 4 2007/08 – 2009/10 R 5.8 m 9 299
Flag Boshielo West Water Supply Phase 3 2008/09 – 2009/10 R 6.5 m 6 500
Olifantspoort Treatment Plant Upgrade Phase 2 to 60Ml/day
2007/08 – 2009/10 R 218 m 250 000
TOTAL R 273.3m
Capital Projects
• Internal Production Control•DWAE monthly monitoring•External Laboratory Monthly
Monitoring (Wastewater)
ParameterPerformance (2008/09)
Prescribed Minimum Maximum Compliance
pH 5-9 7.8 9.2 Class 1
Turbidity (NTU) <1.0 0.3 2.0 Class 1
Chlorides (mg/l) 200 13.0 70 Class 1
Total Alkalinity (mg/l as CaCO3)
30 30 62 Class 1
Total Hardness (mg/l as CaCO3)
60 34 70 Class 1
Calcium Hardness (mg/l as CaCO3)
250 24 89 Class 1
Conductivity (mS/m) 150 7 16 Class 1
Total Dissolved Solids (mg/l) 1 000 46 106 Class 1
Aluminium (g/l) 300 0.08 290 Class 1
ParameterPerformance (2008/09)
Prescribed Minimum Maximum Compliance
Magnesium Hardness (mS/m) 10 45 Class 1
Ammonia (mg/l) 1.0 0.09 120 Class 1
Cadnium (g/l) 5.0 3.0 8.0 Class 1
Cyanide (g/l) 50 0 5.0 Class 1
Flouride (mg/l) 1 0 0.59 Class 1
Iron (g/l) 200 0.14 150 Class 1
Lead (g/l) 20 12.0 78.0 Class 1
Manganese (g/l) 100 0.01 2.8 Class 1
Zinc (mg/l) 5 0.13 0.23 Class 1
Sulphate (mg/l) 400 0.0 8.0 Class 1
Seledium (g/l) 20 12.0 130 Class 1
Phenols (g/l) 10 9.0 49.0 Class 1
Nitrates (mg/l) 10 0.6 1.3 Class 1
-
100,000.00
200,000.00
300,000.00
400,000.00
500,000.00
600,000.00
700,000.00
800,000.00
900,000.00
2006/07 2007/08 2008/09 2009/10 2010/11
Budget (R'000) Spent (R'000) Budgeted Trainees
Performance Criteria Target Actual Challenges and Remedial Action
Recruitment Placement, Retention and Succession
Retention and Succession planning strategies to be developed and approved by the Board
99% of the vacant posts have been filled.Existing work force have been placed according to the organisation re-design. Average staff turnover of 0.3% experienced during the year under review.Retention and Succession Plan developed and approved.
•Turnaround time in recruitment.•Non implementation of retention strategy.•Matching existing staff to job requirements and training.•Inadequate staff for office administration.
Review of Policies and Procedures in line with legislative changes
Annual Reviews of all HR policies and procedures.
Policies and procedures in place.Effective workplace forums established in all our plants.
Orientation of new recruits and refresher workshops for existing employees on policies and procedures.
Ensure Staff Development Implement Management Programme
90% of staff / employees to have achieved ABET level 1
Management and Leadership Development programme in place.76.5% have already achieved ABET level
Eight (8) Middle management staff enrolled for MDP.
Performance Criteria Target Actual Challenges and Remedial Action
Performance Management System
Implement Performance Management System
The first phase of PMS implemented for 2007/08.
•Understanding of the system by lower levels of staff.•Non alignment of contracts with strategic objectives
Change Management Review Annual climate survey and change management programme report compiled in 2006.
Climate survey results partially implemented.Organisational redesign completed. HR Policies and Procedures reviewed
Comprehensive and intensive stakeholder involvement in the assessment of the changes made in LNW.
Employee Assistance / Wellness Programme
Implement Wellness Programme on HIV and Aids
EAP Officer appointed in April 2009.Awareness and Road Shows on HIV/Aids and Eyesight conducted.
Negative impact of HIV/Aids campaign on the overall wellness programmes through perceptions
Performance Criteria
Target Actual Challenges and Remedial Action
Increasing Income Streams
Negotiates retail contracts with CDM and SDM. Finalise of bulk contracts with SDM, MDM and CDM. Introduction of cost recovery for Flag Boshielo West.Finalise the bulk contracts with Mookgopong, Lephalale, Makhado and VDM
Negotiations with SDM on Tubatse concluded and continuing on Flag Boshielo Scheme. CDM has appointed LM as retail WSPs. Bulk water supply agreements with SDM and CDM finalised
•Negotiations with MDM in progress on bulk contract.•Non implementation of the Quarterly perform ance management meetings as provided for in the contracts with WSAs.
Expansion of existing Services
Develop strategy to leverage the economic growth of the province.Finalise retail contracts with SDM and CDMFinalisation of the Social Responsibility Policy
Draft Social Responsibility Policy concluded and due for presentation to Board in April 2009.
•Discontinued negotiations with CDM on retail services.•Negotiations with MDM in progress.•Non implementation of quarterly performance review meetings as provided for in the contracts.
Expansion into new areas
Negotiations with Lephalale, Makhado and Mookgopong LM’s for bulk water provision.Negotiations with VDM for bulk provision.Negotiatites with SDM for being PIA of their capital projects. Negotiations with both the Blyde and Lebalelo Water Users Associations in getting raw water from their system or utilising them for Tubatse and Maruleng LM’s. Conduct Feasibility studies in the new areas of operations prior involvement.
Bulk water supply contracts with SDM and CDM finalised
Development of lacking skills within Business Development
Performance Criteria Target Actual Challenges and Remedial Action
Support to Water Service Authorities
Advocate for the implementation of the turnaround strategy for Water Service Authority. Promote the support to municipalities with the implementation of capital projects.
Turnaround strategy implemented in Phalaborwa and Tubatse Municiplaities.
LNW involved in the development of WDM strategy in Mogalakwena Municipality.
Retail operations discussions discontinued with some WSA’s
Planning for Water Demand Management in Limpopo
Initiate and implement water demand management programme in LNW’s service areas.
Initiate Water Demand Management and Cost Recovery Program for all LNW Schemes.
Turnaround strategy implemented in Phalaborwa and Tubatse Municiplaities.
LNW involved in the development of WDM strategy in Mogalakwena Municipality
Partnership initiated in Lepelle Nkumpi Municipality for the enhancement of Cost Recovery in Lebowakgomo.
Development for the 2010 World Cup
Participate in the host city, Provincial and National Steering Committees on 2010
LNW appointed as Project Manager for the National co-ordination of 2010 by DWAE through SAAWU. Provincial and Municipal involvement on local activities for 2010 by LNW to be improved.
Performance Criteria Target Actual Challenges and Remedial Action
Water Quality and Environmental Management
Ensuring water quality compliance with SANS241:2006 on all our plants.
All potable water plants complying 95% with SANS241 on class 1 and the 5% fully complying with Class 2.Sewage Plants complying 85% with DWAE effluent standards.Implementation of the pilot project for Sodium Hypochlorite for disinfection continuing.Water quality programme implemented in all the plants
•Insufficiently trained and skilled process controllers on the sewage works.•Raw water quality in the rivers e.g. during floods.•Treatment capacity and process design on the plants.
Replacement and rehabilitation of ageing infrastructure
Conduct hydraulic network analysis of Phalaborwa bulk pipeline , prepare a flow model and start with refurbishmentConduct Functional Assessment of existing schemes.Phase 1 replacement of substandard bulk lines in Modjadji and Flag BoshieloSurvey internal condition of bulk lines with CCTV (>450mm Internal Diameter)
Service Providers on site for hydraulic analysis of Phalaborwa pipeline. Pipeline replacement in Modjadji completed. Flag Boshielo ongoing as part of normal maintenance programme.Functional assessments not completed service providers to be appointed. Survey of pipelines 60% completed in Phalaborwa and Olifantspoort Schemes.
•Lack of staff in the new projects unit of the department.•Lack of appreciation for the importance of capital, maintenance and refurbishment projects
Operation and Maintenance of infrastructure
Install Cathodic Protection on pipelines on Olifantspoort , old Doorndraai pipeline and Ebenezer pipelines.Clean Sl dge Ponds cleaning at
Cathodic Protection completed at Olifantspoort, Doorndraai and Ebenezer. Cleaning of Sludge ponds to be done as part of Phase2 Upgrading project at Olifantspoort
Lack of staff in the new projects unit of the department for projects monitoring and implementation
Performance Criteria Target Actual Challenges and Remedial Action
Ring fencing of projects to ensure sustainability
Revise and Implement Tubatse and Phalaborwa turnaround Strategy
Both Strategies revised and implemented.
Commitment from the WSA’s on ring-fencing of water services.
Expansion of infrastructure
Finalise the custodianship of Olifantspoort SchemeDevelop Bulk Infrastructure Plan for Greater Tubatse MunicipalityDevelop Bulk Infrastructure Plan for Sekhukhune District MunicipalityCompletion of Upgrading of Ebenezer Sand Filters to 30 Ml/dayInstall standby generators at Olifantspoort and Doorndraai Plants
Olifantspoort custodianship not completed. Submission made to DWAE for the transfer of all infrastructure systems that are above 30Ml/day in capacity and R100million in asset value.Bulk infrastructure Plan for GTLM and GSDM completed. Standby Doorndraai electricity generator has been ordered for installation. Designs and Specifications for the filter upgrading at Ebenezer completed
Infrastructure funding insufficient.
Health and Safety Environment
Initiate Development of the Health and Safety Environment Programme
NOSA system on health and safety implemented in all the plants. Safety audit conducted and NOSA grading issued for all the plants.
Performance Criteria Target Actual Challenges and Remedial Action
Financial Policies and Procedures
Review policies and procedures and ensure alignment with legislative requirements. Ensure compliance of policies and procedures by all departments.
Finance policies reviewed in line with legislative requirements and approved by the board.
Some policies outstanding.
Budgeting and Controls Organisational budget in line with strategic prioritiesFive year projections in alignment with strategy prioritiesMonitor effectiveness and efficiency of organisation against set budget
Budget for 2008/09 compiled and submitted on time.Draft budget for 2009/10 already prepared in line with the strategic objectives of the organisation and submitted to DWA.Monitoring and Control of budget ongoing through monthly and quarterly performance reviews on the budget. The budgeting process and alignment with strategic objectivesare in process.
Alignment of budget with strategic objectives.
Revenue Management Ensure that valid contracts with Water Service Authorities are in place
Contracts concluded with SDM and CDM. MDM contract still being negotiated. Industrial clients contracts reviewed and being concluded
Challenges with MDM requirements on the bulk agreement.
Performance Criteria Target Actual Challenges and Remedial Action
Tariff Determination Approval of tariffs by National Treasury and DWAF.
Tariff’s submitted to the Minister for approval.
Consultation process on the tariffs with WSA. Non response by WSAs.
Asset Management Develop effective and efficient Asset Register
The update of asset register in process with completion target by end June 09
Incorporation of underground infrastructure in the asset register
Introduction of Controls Investments being done according to the policy of the Board.
Control effectiveness and efficiency of the finance department.
Investments being made according to board decision and policy.
Instability in the investment industry
Performance Criteria Target Actual Challenges and Remedial Action
Supply Chain Management Establish Supply Chain Management Unit
SCM Unit established and fully staffed.All committees for SCM instituted and functional.
Quarterly reporting on procurement and progress on BBEEE targets achievement
Development and Management of IT Infrastructure
Procurement of Enterprise Resource Planning (ERP) System
Service Provider for ERP appointed and on site. Scheduled to go live with SAP system by the 01st July 2009.
•Training of staff on the new system.•Speedy and smooth conversion of current system to SAP.
Treasury Management Review of the Petty Cash Policy /ProceduresReview of Investment PolicyReview of the Cash Management Systems
Not Completed. All finance policies being reviewed .
Performance Criteria Target Actual Challenges and Remedial Action
Development of the communication and Marketing Strategy
Finalisation, approval and implementation of the strategy
The Strategy approved in October 2008 and communicated to employees through workshops in December 2008 and created awareness continuing.
Improved Stakeholder Relations
To develop a strategy to Support WSA’s on their mandate. Finalise the business model for new areas of Lephalale and Mookgophong Local Municipalities and Vhembe District MunicipalityFormalisation of bulk water supply agreements with SDM, CDM & MDMAwareness Campaigns on Water Demand Mgt
•Strategy not completed.•Bulk Service contracts formalised for CDM, GSDM.•MDM contracts still outstanding.•Bulk Water Demand Management Strategy implemented on all LNW schemes.•Assistance on WDM provided to BaPhalaborwa and Greater Tubatse as part of Turnaround Strategy.•LNW involved in the development of the WDM Strategy for Mogalakwena Municipality
Negotiations on the MDM Bulk water supply agreement continuing. Persistence by the municipality for LNW to pay levies as part of the contract remains stumbling block in concluding the contract.
Risk Management Development of the Risk Profiles, Strategy and Implementation Plan
Risk profile developed and approved by the board. Implementation and monitoring of the profile ongoing.
Improved Governance Induction and training of new Board members to execute governance responsibilities.Ensure full adherence to code
Code of Ethics encompassing code of conduct communicated to board members and implemented throughout the orgainsation.
Bulk
Ageing InfrastructureExceeding abstraction Permits (high demands) > Permits Over laden treatment plant (upgrades)Deteriorating raw water qualityOutstanding Bulk Service Contract in Mopani
Outstanding debtors by Municipalities
Reticulation
Lack of effective cost recovery, water conservation and demand managementAgeing internal reticulation infrastructureDefault on payment by consumersLack of maintenanceUnauthorized / illegal connections
Technical skills capacity retention
0
100
200
300
400
500
600Raw Water Purification Pumping Distribution Storage Total Demand
Treatment CapacityChallenge
Increase in Raw Water Charges
Increase in electricity costs
Labour Costs
Capital Investments
>Consumer Price Index ( 13.6% - 7.5%)
•
South African Local Government Association
•
National Treasury
•
Industrial Clients (PMC, Sasol Nitro etc)
•
Water Service Authorities
▫
Mopani District
▫
Capricorn District
▫
Polokwane Municipality
▫
Greater Sekhukhune District
▫
Mogalakwena Municipality
WATER SCHEME 2007/08
R/kl
2008/09
R/kl
2009/10
R/kl
2010/11
R/kl (Proposed)
2011/12
R/kl (proposed)
Phalabora Foskor 0.9217 0.9517 1.128 1.409 1.903
Phalabora Mining 0.8728 0.9013 1.068 1.378 1.874
Sasol Nitro 0.8793 0.9080 1.076 1.388 1.888
New Mining Co - - 2.181 2.334 2.496
Phalaborwa Scheme
(Potable)
2.1286 2.198 2.282 2.494 2.656
Ebenezer 3.7332 3.855 4.002 4.331 4.615
Politsi 2.2651 2.339 2.428 2.654 2.826
Olifantspoort 3.8824 4.009 4.161 4.419 4.613
Doorndraai 3.3982 3.509 3.642 3.981 4.239
Flag Boshielo 3.0351 3.134 3.253 3.555 3.786
Modjadji 2.2651 2.339 2.428 2.654 2.826
Average Tariff 2.342 2.42 2.514 2.878 3.218
Average % Increase - 3.26 4.22 7.36 11.85
•
Bulk
▫
Ageing Infrastructure
▫
Exceeding abstraction Permits (high demands)
▫
Over laden treatment plant (upgrades)
▫
Deteriorating raw water quality
▫
Non payment of services by WSAs
•
Reticulation
▫
Poor cost recovery and water demand management
▫
Ageing internal reticulation infrastructure
▫
Default on payment by consumers
▫
Lack of maintenance
▫
Unauthorized / illegal connections
▫
Insufficient Water Demand Management
- Conclusion of outstanding Bulk Water Services Contracts
- Resolve outstanding debt and late payment for bulk services by WSAs
- Rehabilitation and maintenance of infrastructure (effective asset management)
- Support municipalities with regard to cost recovery and water conservation and demand management strategies
- Capacity building, retention and succession planning
- Intensify technical support to municipalities through Provincial Departments
THANK YOU