PRESENTATION TO PCWEAPRESENTATION TO PCWEA18 APRIL 201318 APRIL 2013

Presenters: Adv. G KhozaMr. NA Mashele

OVERVIEW

Established in 1997 by the Minister of Water Affairs and Forestry in accordance with the Water Services Act. 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) 96 454 817Two Plants owned by DWA and Six plants owned by BLM

Mbombela Local Municipality Area (MLM) (6 PWTW) 71 568 647

BOARD OF DIRECTOR The term of the current board of directors is from February 1, 2010 – March 31, 2014.

Appointed – 02 Feb 2010

Mr. P Ngomana (Chairperson)

Adv. G Khoza (Deputy Chairperson)

Adv. H Mbatha – Resigned June 2012

Ms. C Van Rensburg (CA. SA)

Ms. C Makwela

Ms. S Khoza – Resigned June 2012

Rev. R Ngomane

Mr. M Vilakazi

Mr. C Padayachee

TURN AROUND STRATEGY PROGRESS

Debt owed by WSAs to BW Bushbuckridge Local Municipality• R240,2 mil – June 2012 No interests included)• Escalated by R31,8 mil since June 2011 and R40.8 mil since July 2010 to June 2011

• 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• Only R13,8 mil of R30 mil historic debt paid - (2011/12 )

• Additional R25 mil paid in December 2012 towards historical debt (2012/13)

• Payment of R6.3 mil towards the current invoice – per agreement• The 2013/14 municipal budget is equated to the proposed tariff• Credit control measures put in place including appointment Debt collectors

Disestablished Bohlabela District municipality• R26,4 mil – From July 2006 to June 2012 (No interests included)

• Debt collectors appointed to collect this debt

Mbombela Local Municipality• R14 mil – June 2012

• Debt settled in full (late payment)

Capital Infrastructure ProjectsBULK INFRASTRUCTURE DEVELOPMENT PLAN•A 20 years Capital Infrastructure Plan being compiled, to be completed June 2013•Challenges faced due to short term contracts with WSAs.

COGTA-MP & DWA -MP•BW entered into agreement to implement projects on behalf of Cogta-MP and DWA – MP for R23 mil and R3.5 mil respectively•Projects completed in record time•5% PIA fees

DWA-MP•RRU agreement for R18 mil over a period of three years•7.5% PIA fees•Infrastructure assessment (refurbishment and new plants) in municipalities – MP•Completed in record time

Supply ContractsBLM•A three years Bulk supply contract signed and to be reviewed in 2014•A possible extension to a longer period•A committee of officials established to jointly manage the contract

MLM•Parties to agree on Key deliverables before end of financial year•A draft contract offer made by MLM, being discussed by BW•To be finalised April 2014 for implementation by July 2013

Metering/Illegal connectionsMETERING

Bulk pipeline assessment for none revenue water completed November 1224 new metering points identified Rand Water appointed as implementing agent by DWAFunding is through DWA to Rand Water ( R18 million)The project will be completed in September 2013

ILLEGAL CONNECTIONS

The study Identified the existing illegal connections Agreement is concluded with BLM to address illegal connection and metering pointsBLM to fund the metering/formalization of illegal connectionsThe project will be completed in September 2013

OTHER PROJECTS FUNDED THROUGH DWA GRANT

Telemetry and Scada systemBlue Drop certificationRefurbishment and pumps replacementThe projects will be completed in February 2014

ANNUAL FINANCIAL STATEMENTS

2011/12 Annual Financial Statement 2011/12 Annual Financial Statement

8%

Growth in revenue to R131.5 million

11%

Increase in EBITDA to R22.8 million

1%

reduction of direct operating cost

7%

increase of the tariff to 3.70

46%

recovery of the historic debt of R30 million as per agreement

recovery of invoiced amount in Mbombela Local Municipality -

87%

60%

recovery of the invoice in Bushbuckridge Local Municipality

Statement of Comprehensive Income Year ended 30 June 12

2012 2011 Change R R %

Water Sales 101,085,561

93,308,244 8%

Services Rendered 33,267,520

34,442,465 -3%

Discounting of revenue 2,844,166

6,208,000 -54% Revenue 131,508,915 121,542,709 8% Other operating income 613,406 371,659 65% Direct operating cost -85,594,351 -86,465,660 -1%

Other operating expenses -23,699,435 -

14,805,549 60% EBITDA 22,828,535 20,643,159 11%

Deprecation -2,342,703 -2,229,560 5% Investment Revenue 11,234,394 5,179,944 117% Finance Cost -328,816 -321,670 2% Provision for Doubtful debt -81,357,686 -41,381,376 97%

Surplus/Deficit -49,966,276 -18,109,503 176% Operating Loss -60,871,854 -22,967,777 165% Gross Profit 45,914,564 35,077,049 31% Profit/ Earning Margins (%) Gross Profit margin (%) 35% 29%

Operating profit margin (%) -46% -19%

2011/12 Annual Financial Statement2011/12 Annual Financial Statement Continues…………. Continues…………. Statement of Financial Position as at 30 June 2012 % Change

2012 2011Assets R R Non- Current 56,385,467 57,142,070 -1.32%Current Assets 85,256,197 118,160,660 -27.85%Total Assets 141,641,664 175,302,730 -19.20%

   Equity 60,247,790 110,214,066 -45.34%Capital Contribution 68,355,117 68,355,117 0.00%Retained Income -8,107,327 41,858,949 -119.37%Liabilities 81,393,874 65,088,664 25.05%Non-Current Liability 2,885,308 3,070,427 -6.03%Current Liability 78,508,566 62,018,237 26.59%Total Equity and Liabilities 141,641,664 175,302,730 -19.20%

The amounts owing by BLM from the start of 2011 to the end of 2012 have increased as follows: 30 June 2012 30 June 2011 R ROutstanding debt at the beginning of the year 208 401 925 167 630 525Invoices raised with regard to current water supplied 115 237 540 106 371 399Repayments received by BLM in respect of current invoices raised 69 489 323 65 600 300Repayments received by BLM in respect of historical debt due 13 906 233 Outstanding balance at the end of the financial year 240 243 904 208 401 925Provision for doubtful debts in relation to the amount outstanding 178 660 827 97 303 141

In order to ensure that sufficient cash is collected to cover its budgeted expenses, the board will•Increase the minimum monthly payments owing by BLM from R6.3 million to R8.5 million.•Reduce the water pressure to the BLM when the municipality fails to pay agreed amounts.•Employ the services of debt collectors in order to recover the amounts outstanding by the BLM.

AUDIT REPORT

PERFORMANCE AGAINST PRE-DETERMINED

OBJECTIVES

2011/12 Annual Performance Results1. Provide bulk water and sanitation services

1.1 Reliability of supply- Increase the volumes of water supplied by 1.66%-Managed to achieved average unaccounted for water of 6.2%

1.2 Water quality- Compliance to SANS 0241 -No out break of water-borne diseases reported

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

- Increased revenue by 8% in BLM- 60% recovery of revenue on invoices in BLM~ based on flat rate payment agreement-87% recovery of revenue on invoices in MLM-46% recovery of R30 million historic debt per contract- Unqualified audit report

2.2. Corporate governance- 87% attendance of planned Board and Board committee meetings - 100% board performance assessment

• Optimize stakeholder interaction and engagement3.1 Stakeholder relations - Improve stakeholder relations engagements3.2. Business Development-SLA signed with BLM

2010/11 Annual Performance Results….

4. Optimise human capital investment4.1. Human resources- 1.5% staff leaving the institution- 29% implementation of Employment Equity plans

5. Acquire, develop and manage infrastructure5.1. Project management- 100% implementation of DWA and CoGTA infrastructure projects- 71 temporary jobs created

CAPITAL INFRASTRUCTURE

EXPENDITURE

2011/12 Capital Infrastructure Expenditure

Grant funding from Cogta-MP and DWA100% of projects completed within schedule:71 no. of temporary jobs created through these projects

Project Description Municipal Area

Total Project Value

Funder Status

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

Bushbuckridge 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 Dwarloop 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

95% 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 16 500 000  Grand Total R 26 500 000  

2011/12/13 Capital Infrastructure ExpenditureGrant funding for RRU/ACIP programme95% of projects completed within schedule:72 no. of jobs created through these projects

Project DescriptionTotal Project Value

Status

Chief Albert Luthuli LM(Carolina Town) Acid Water challenges R1 100 000Completed - August 2012

Chief Albert Luthuli LM(eMpuluzi Township / Mayflower) 2 ML package plant R3 300 000 Started April 2013Lekwa LM ( Standerton) Refurbishment – WWTW R1 500 000 Completed - March 2013Victor Khanye LM (Delmas) Refurbishment – WWTW R1 000 000 Completed - March 2013Govan Mbeki LM ( Bethal) Refurbishment – WWTW R1 700 000 Completed – March 2013Mkhondo LM (Piet Retief ) Refurbishment – WWTW R3 400 000 Completed – March 2013Mkhondo LM (Amsterdam ) Refurbishment – WWTW R2 600 000 Completed – March 2013Emalahleni LM ( Ferrobank) Refurbishment – WWTW R5 000 000 Completed – March 2013

Total to date R19 600 000

ANALYSIS OF 2011/12 BUDGET ANALYSIS

2011/12 Budget AnalysisAnalysis to the Budget 2011/12

Actual Budgeted %

Revenue 131,508,915

164,756,838 -20%

Cost of Sale (85,594,351)

(35,080,721) 144%

Gross profit 45,914,564

129,676,117 -65%

Other Income 613,406 374,000 64%

Operating Expenditure (107,399,824)

(139,234,121) -23%

Operating profit (60,871,854)

(9,184,004)

Investment revenue 11,234,394 173,485 6376%

Finance cost (328,816) (136,000) 142%

Surplus/ (deficit) (49,966,276)

(9,146,519)

Revenue discounted = R2 millionProvision for doubtful debt = R81 million – Budget = R36 million

2013/14 Tariff Structure

2013/14 TARIFF STRUCTUREConsideration of Eskom Increases No material impact on the tariff Initial BW estimates was 16% 9.6% increases was effected but no material changes

Complied with Regulatory frameworks Water Services Act, 108 of 1997 s10 Norms and standards for tariffs Municipal Finance Management Act No. 56 of 2003 Section 42

Comments from Stakeholders Bushbuckridge Local Municipality – Accepted the 12.5% increase National Treasury – Commented on 12.5% increase; Raised concerns on debt recovery SALGA – Commented on 12.5% increase;

Mbombela Local Municipality Tariff Charging rates per management contract Tariff based contract is being finalized with MLM Charge within BLM rate for the first year of the contract

{{

2013/14 TARIFF STRUCTURE Continues

Initial Tariff prior the NERSA – Energy Approval = 12.5%

Year Proposed Tariff for

Tariff anticipated in

Tariff anticipated in

2014 2015 2016Fy Year 1 Fy Year 2 Fy Year 3

(R/Kl) (R/Kl) (R/Kl)DWA / CMA charge 0.497 0.525 0.554Direct scheme operations costs 2.181 2.418 2.723Overheads 0.976 0.980 0.979Depreciation 0.065 0.074 0.078Income statement surplus 0.669 0.699 0.692Sub-Total 4.39 4.70 5.03 Projected water sales (kl) 38,507,500 40,432,875 42,454,519 Projected revenue (R ) 169,103,280 189,987,535 213,450,995 Projected costs (R ) 143,331,853 161,727,088 184,084,887 Projected surplus (R ) 25,771,427 28,260,447 29,366,108 Reserves (R ) 86,331,064 116,556,769 164,550,742 Projected surplus as a % of Reserves 29.85% 24.25% 18%Debt service cost 10.58% 10.58% 11.00%Debt / (Debt + Equity) ratio 0.01 0.01 0.00Capex and Refurbishment (R ) 16,009,845 16,874,377 17,701,221

2013/14 TARIFF STRUCTURE Continues

Year Proposed Tariff for Tariff anticipated in Tariff anticipated in2014 2015 2016

Fy Year 1 Fy Year 2 Fy Year 3(R/Kl) (R/Kl) (R/Kl)

DWA / CMA charge 0.497 0.525 0.554Direct scheme operations costs 2.162 2.398 2.700Overheads 0.976 0.980 0.979Depreciation 0.065 0.074 0.078Income statement surplus 0.668 0.698 0.692Sub-Total 4.37 4.68 5.00 Projected water sales (kl) 38,507,500 40,432,875 42,454,519 Projected revenue (R ) 168,351,709 189,143,146 212,502,324 Projected costs (R ) 142,613,157 160,904,937 183,107,967 Projected surplus (R ) 25,738,552 28,238,208 29,394,357 Reserves (R ) 86,331,064 116,556,769 164,550,742 Projected surplus as a percentage of Reserves 29.81% 24.23% 18%Debt service cost 10.58% 10.58% 11.00%Debt / (Debt + Equity) ratio 0.01 0.01 0.00Capex and Refurbishment (R ) 16,009,845 16,874,377 17,701,221

Item Fy Year 1 Fy Year 2 Fy Year 3 2014 2015 2016ASSUMPTIONS CPI 6.0% 5.6% 5.5%Increase in water sales (percentage)

5.0% 5.0% 5.0%

Volume of water billed (kl) 38,507,500 40,432,875 42,454,519 Proposed tariff increase 12.0% 7.0% 7.0%Proposed Tariff (c/kl) 437.19 467.80 500.54Volume raw water purchases (kl) 42,358,250 44,476,163 46,699,971

Assumed raw water tariff (c/kl) 0.452 0.478 0.504

Final Tariff after consideration of Eskom 12% increase

Propose 12%

COST DRIVERS•Energy•Chemical cost•Labour cost •Refurbishment •Maintenance

2013/14 Key Strategic Focus for 2013/14

Strategy Alignment to Government PrioritiesSTRATEGIC GOALS AND OBJECTIVES FRAMEWORK

Ministers 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

2013/14 Key Strategic FocusGoal 1: To provide water services Water volumes (Production, Distribution)oIncrease production by 5%oManage water losses below 10%oAbstraction licenses

Water qualityo Improve on blue drop status 80%o 100% compliance with SANS 241 and ISO 9001

Goal 2: To provide water supply infrastructure services

Infrastructure Installationso 100% completion of the infrastructure projects ( upgrading & Construction of pipelines)o Minimum 70% of planned temporary job creation as per projecto 100% implementation of infrastructure maintenance plans

Goal 3: To optimise stakeholder interaction

Education / awareness creation (Campaigns, Events, Information sharing, Outreach programmes)oEducation / awareness creation programmes conducted

Stakeholder relations management (Advocacy, Knowledge sharing, Stakeholder establishment maintenance)oStakeholder forums / working groups / service delivery partnerships Goal 4: To ensure business development (existing and new business)

Product / service developmentoAlternative service delivery mechanisms (Private partnerships)

Market developmentoNew market opportunities (PIA, Service areas)

2013/14 Key Strategic Focus Cont.……..

Goal 5: To promote effective water resource management Environmental managemento80% of planned environmental management programmes achieved

Goal 6: To ensure internal business excellenceBusiness management / leadershipo100% Compliance to materiality and significance frameworko100% Corporate governance issues detected versus corrected o70% Board performance rating

Human resource managemento<3% Staff turnovero35% Employment equity targets planned versus achieved

Financial managemento40% of historic debt to be recoveredo80% BBBEE discretional useoUnqualified audit opinion

Information / communication technology management (ICT)o55% ICT master plan implementation progress

2013/14 Key Strategic Focus Cont.……..

Challenges

Continually deteriorating financial condition of BLM impacting on financial viability of BW. Escalating debt for Bushbuckridge local municipality The ability of BW to continue operating as a Going Concern Backlog in refurbishment and maintenance due to cash flow constraints Existing short term contracts with WSAs which impact on long term planning and capital investment Finalization of the transfer of assets Uncertainty due to re-alignment process Board vacancies hampers smooth operations of Board committees Ageing infrastructure

{{