Overview on wOverview on water boards annual reports and tabled tariffs

Presentation to the Portfolio Committee: Water & Environment

Ms Thoko SigwazaChief Director: Institutional Oversight

Policy and legislative mandate Legislative• Water Services Act, Act 108

of 1997• Public Finance Management

Act (PFMA), Act 1 of 1999, as Schedule 3(B): National Government Business Enterprises

Policy• White Paper on Water

Supply and Sanitation, 1994– Strategic Framework for

Water Services, 2003

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Oversight role of DWA

Compliance imperatives Legislation mandating the compliance

Policy Statements Sec 39 of Water Services Act, 1997

Shareholder Compacts Treasury Regulation 29.2

Corporate Plan & projection of revenue, expenditure & borrowings

• Sec 52 of PFMA, 1999• Treasury Regulation 29.1

Business Plans Sec 40 of Water Services Act, 1997

Quarterly Reports Treasury Regulation 29.3.1

Annual Reports • Sec 44 of Water Services Act, 1997• Sec 55(1)(d) & 65 of PFMA, 1999

Tariff Increases Sec 42 of MFMA, 2003

Financial misconduct procedures report Treasury Regulation 33.3.1

Materiality & Significance Framework Treasury Regulation 28.3.1 3

Minister of Water and Environmental Affairs is the only shareholder

Top management in water boards

Name of water board Name of Chairperson Name of Chief Executive

Amatola Ms RN Mlonzi Ms N Gwabeni

Bloem Mr TB Phitsane (Acting) Dr B Malakoane

Botshelo Ms GS Lebeko-Ratlhagane Mr S Bokaba

Bushbuckridge Mr P Ngomana Mr NA Mashele

Lepelle Northern Mr MJR Mpai Mr LA Leballo

Magalies Prof MI Jahed Mr M Dlamini

Mhlathuze Ms D Myeni Mr V Botes

Overberg Mr Y Emeran Mr AP Potgieter

Pelladrift Mr NR Williams Vacant

Rand Adv MM Petlane (Acting) Mr P Sechemane

Sedibeng Mr TB Phitsane (Acting) Mr RT Takalani (Acting)

Umgeni Mr A Mahlalutye Mr M Msiwa 4

Establishment datesName of water board Province Year Age

Amatola Eastern Cape (EC) 1997 13 years

Bloem Free State (FS) 1991 19 years

Botshelo North West (NW) 1998 12 years

Bushbuckridge Mpumalanga (MP) 1997 13 years

Lepelle Northern Limpopo 1997 13 years

Magalies Gauteng (GP), NW 1969 41 years

Mhlathuze KwaZulu-Natal (KZN) 1980 30 years

Namakwa [Disestablished in 2011] Northern Cape 1978 32 years

Overberg Western Cape 1993 17 years

Pelladrift Northern Cape 1997 13 years

Rand GP, NW, MP, FS 1904 106 years

Sedibeng FS, NW 1979 31 years

Umgeni KZN 1974 36 years

Ikangala (MP) was disestablished in 2009Albany Coast EC was disestablished in 2010 and operations merged with Amatola

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Alignment with government prioritiesNo Abridged outcome DWA priority Water board contribution

4 Employment 1. Economic, rural development, food security, land reform

3. Strengthening regulation

• R8 billion water sales for 09/10• 6 322 existing jobs• 116 new jobs created

6 Infrastructure R2.3 billion budget for CAPEX 2010

7 Rural development Limited success, but moving to ensure bulk services are accessible for rural municipalities

9 Local government 4. Local government to deliver water services

Provide bulk services to local government and secondary support on retail activities

10 Environment 2. Promote sustainable and equitable WRM

• DWA water resource management (WRM)

• O & M of DWA infrastructure

12 Public service 6. Build capacity to deliver quality services

Some WBs support municipalities to develop water related infrastructure

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Audited reports Name of water board 2009/10 2008/09 Comment

Albany Unqualified Unqualified No change

Amatola Unqualified Qualified Improvement

Bloem Unqualified Unqualified No change

Botshelo Disclaimer Disclaimer No change

Bushbuckridge Qualified Qualified No change

Lepelle Northern Unqualified Unqualified No change

Magalies Qualified Unqualified Regressed

Mhlathuze Unqualified Unqualified No change

Namakwa Qualified Regressed

Overberg Unqualified Unqualified No change

Pelladrift Unqualified Unqualified No change

Rand Unqualified Unqualified No change

Sedibeng Unqualified Unqualified No change

Umgeni Unqualified Unqualified No change 7

Consolidated Financial PerformanceTotal ’10 Total ‘09 % change

Volumes (kl) 2 303 649 769 2 308 972 211 -0,2%

Sales R8 billion R7,7 billion 4,4%

Operating expenses R4,9 billion R4,3 billion 15,4%

Net income R886 million R1,3 billion -31,8%

Fixed Assets R12,4 billion R11 billion 12,7%

Investment R402 million R608 million -33.8%

Current Assets R5,4 billion R5,3 billion 0.9%

Current Liabilities R2,9 billion R3,4 billion -13.4%

Long term debt R2,7 billion R2,3 billion 14.0%

Cash on Hand R3,4 billion R3,8 billion -10,5%

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Consolidated Ratios 2009/102010 2009

Gross profit percentage of sales 64,38% 66.41%

Net profit percentage of sales 10,87% 16.99%

Return on Asset (Net income/total assets) 4,84% 7,69%

Return on Equity (Net income/equity) 7,45% 12,3%

Current Ratio 1,85 1,56

Debtors days 84 69

Creditors days 176 173

Debt to assets (total debt / total asset) 35% 38%

Debt to equity (total debt / total equity) 54% 60%

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Annual Surplus/Deficit in R’000WATER BOARD SURPLUS DEFICIT

Albany Coast (9 months) 630

Amatola 17 584

Bushbuckridge 10 956

Bloem 16 619

Botshelo 9 894

Lepelle Northern 5 383

Magalies 4 121

Mhlathuze 21 160

Namakwa Annual Report outstanding

Overberg 391

Pelladrift 2 075

Rand 301 634

Sedibeng 44 265

Umgeni 540 712 10

Budget vs Actual• Surplus was budgeted at R1 billion• Actual surplus was R886 million mainly due to the

following:– Under achievement in sales volume due to

implementation of WC/DM and better than expected rainfalls

– Overruns in operating cost, especially for energy and chemical cost

– Higher than expected impairment of asset value – Increased provisions for doubtful debt– Higher than expected raw water cost

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CAPEX budget for next 5 years (1)

• Planned spending is estimated at R 12 billion• Short and long term cash reserves are R 3.8 billion• Likely borrowing to finance CAPEX is R 8.5 billion• Surplus must be viewed in relation to asset

management plan to ensure effect gearing of debt

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CAPEX budget for next 5 years (2) Water board 2011 2012 2013 2014 2015 Total

R000 R000 R000 R000 R000 R000

Amatola 71 511 106 890 177 000 155 499 101 499 612 399

Bloem 116 600 104 300 35 600 92 800 158 000 507 300

Botshelo 0 0 0 0 0 0

Bushbuckridge 10 721 5 569 4 950 9 660 6 400 37 300

Lepelle Northern 58 795 47 230 46 775 45 355 33 000 231 155

Mhlathuze 185 408 90 144 23 586 0 20 532 319 670

Magalies 402 505 287 741 110 030 30 612 0 830 888

Overberg 10 815 3 800 1 850 1 850 2 400 20 715

Pelladrift 1 450 5 000 5 010 2 150 5 400 19 010

Rand 1 000 000 1 000 000 1 700 000 1 761 000 1 688 000 7 149 000

Sedibeng 20 844 16 700 15 800 10 800 11 000 75 144

Umgeni 774 017 615 262 409 210 371 798 351 924 2 522 211

Total 2 652 666 2 282 636 2 529 811 2 481 524 2 378 155 12 324 792

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Oversight of WBs of WBs• Total bulk potable water volume supplied by WBs:

2.3 billion kiloliters per annum• Total authorised abstraction: 2.36 billion cubic

meters per annum• WBs under spent on CAPEX by an average of 13.4%

(previous year 14.5%). Total CAPEX spending for the current year was R1.5 billion

• Rand Water contributes 60% to consolidated turnover, Umgeni 20% and other 11 WBs 20%

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Municipal debt to water boards – Jun 2010Water board Outstanding

balanceCurrent 30 days 60 days 90 days 120 days

and overTotal arrears

Albany Coast 286 709 286 709 0 0 0 0 0

Amatola 14 095 860 13 689 994 405 866 0 0 0 405 866

Bloem 77 638 247 25 387 562 2 276 998 2 346 659 1 999 112 45 627 917 52 250 685

Botshelo 52 512 625 4 646 717 4 314 148 3 933 156 4 752 913 34 865 691 47 865 908

Bushbuckridge 194 108 644 7 561 349 7 815 778 8 824 424 7 455 683 162 451 410

186 547 295

Lepelle Northern

268 853 588 19 928 774 13 098 575 7 567 913 10 470 503 217 787 823

248 924 814

Magalies 15 791 741 6 878 245 6 060 618 2 065 766 455 845 331 267 8 913 496

Mhlathuze 5 975 680 865 050 1 316 908 667 860 906 482 2 219 380 5 110 630

Namakwa 2 529 415 1 234 266 1 295 149 0 0 0 1 295 149

Overberg 585 190 585 190 0 0 0 0 0

Pelladrift 309 137 93 011 97 438 118 688 0 0 216 126

Sedibeng 252 173 461 27 048 959 23 418 955 23 450 458 25 778 684 152 476 406

225 124 503

Rand 505 860 876 456 074 922 20 945 589 19 718 576 9 121 788 0 49 785 954

Umgeni 171 384 092 144 481 882 26 418 984 483 226 0 0 26 902 210

Total 1 562 105 266

708 762 630 107 465 006 69 176 726 60 941 010 615 759 894

853 342 636

Debtors age analysis

100% 45.37% 6.88% 4.43% 3.90% 39.42% 54.63%

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Municipal debt to water boards• Total arrears is 10.6% of total sales. • Division of Revenue Act requires that the equitable

share for water be paid directly to municipalities. • Where municipalities face financial difficulty, they

use the water equitable share for other purposes, leaving water debt owed to WBs unpaid.

• Changes in legislation should be considered where the equitable share is paid directly to WBs for water provided.

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Achievements• The current ratio suggests a positive cash flow• No State guarantees issued to support water boards• No significant demand on Government to finance

expansion of WB’s bulk infrastructure• Water Boards provided bulk water in 11 of the systems

where Blue Drop Certificates were achieved• Positive contribution to National imperatives• Technical and engineering support provided to local

government

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Challenges and way forwardChallenge Proposed way forward

Refurbishment and extension of infrastructure

Obtain external loan funding

Raw water quality Firm application of legislation and support from CoGTA

Staff retention and skills shortages at remote WBs

WBs to consider pooling skills and deploying them to where needed

Lack of bulk water service provider contracts

Resolve with support of CoGTA

Security of service delivery over medium to long term

Monitor CAPEX plans

Debt payment by municipalities Ongoing mediation support of NT and CoGTA

Equitable share paid to municipalities Amendment of DORA to allow NT to withhold equitable share from municipalities in arrears and pay WBs directly 18

TABLED TARIFFS INCREASES

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Background in tariff setting process• Potable bulk water tariffs are not proposed by the Department, but are

determined by WBs• WBs must consult with municipalities on their proposed tariff increases (Sec 42

of MFMA, 2003)• WBs must request NT & SALGA to provide written comments• NT and DWA plays a monitoring and advisory role• I.t.o. sec 42 of the MFMA, WBs must submit (i) the proposed amendments, (ii)

the comments received & (iii) an explanation of how such comments were taken into account to the Minister ,

• Minister must table the amendments in Parliament• Tariff increases must be tabled on or before 15 March 2011, if the increases are

to take effect from 1 July 2011

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Tabled tariffs for 2011/12Name of water board % increaseAmatola 8.65% Buffalo City

8% Amatola DM

10% Ndlambe LM

Bloem Systems tariff of R3.50 [from multiple to single tariff system]

Botshelo 18%

Bushbuckridge 7,27%

Lepelle Northern 10.22%

Magalies 16% Modimole, Bela Bela, Rustenburg, Tshwane

28% Wallmanstal

6% Nokeng tsa Taemane

Mhlathuze 14%

Namakwa 10,2%

Overberg 15%

Pelladrift 20%

Rand 12,9%

Sedibeng 8,5%

Umgeni 6,1% 21

Impact of tariff increases• Enable WBs to finance future CAPEX thereby reducing

reliance on loans.• Borrowing to finance CAPEX is estimated at R8.5 billion,

partial funding of CAPEX will allow for smoothing of tariff especially in the initial years when the newly developed infrastructure will not be fully utilised.

• Pressure to reduce tariffs will result in a higher level of borrowing for infrastructure development, which will effectively increase tariffs to unaffordable levels in the future.

• From an operational point of view, the increase in energy, chemicals, labour and other cost resulted in higher than inflationary tariff increases.

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Challenges and way forwardChallenge Way forward

Insufficient engagements during consultation process

Align business plans and tariff increases

NT, SALGA and municipalities do not provide meaningful written comments in all instances

This is due to stringent timelines that will require legislative review

Consultation processes does not require consent, concurrence or agreement

Conflicting legal opinions

Fragmented tariff regime for the entire water value chain

Establish Economic Regulator that will require new legislation. Target date: 2014

DWA both player and referee in tariff setting process

Establish Economic Regulator that will require new legislation. Target date: 2014

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ConclusionFOR WBs TO REMAIN SUSTAINABLE::• There must be an ability to attract and retain the necessary skills

to operate and maintain the service effectively.• There must be a secure and adequate financial base &

economies of scale.• There must be the management capability to translate human

and financial resources into effective service delivery.• The governance environment must support good management.• There must be accountability for performance.• Tariff regime for the entire water sector [Independent

Regulator].

THANK YOU

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