Rand Water

12 November 2010

Strategic Plan and Budget and Annual Financial Statements

Parliament 24 - 27 May 2011

1

Strategic Plan 

2

The Architecture

National ParliamentDWANational Treasury Auditor General

Shareholder Compact

Honourable Minister, Edna Molewa

Corporate Business Plan

Rand Water Strategy

Vision

Mission

Strategic Objectives

KPAs

KPIs

Annual Report

Quarterly Reports

Annual 

Assessment 

of 

Water 

Boards

Reporting Formats

Page 3

Our Strategy

4

Strategic challenges1.

Sustainable tariff structure ‐

the new tariff structure/methodology

2.

Ageing infrastructure ‐rollout of Capex program within resource constraints

3.

Experiencing steep increases in input costs, i.e.. chemicals and

energy and fluctuations in steel prices

4.

Maintain and improve Rand Water’s credit profile

5.

Default risk by major municipalities

6.

Deteriorating raw water quality as a result of poor catchment management

7.

According to DWA – Gauteng, a gap in the supply of water between Phase 1 and Phase

2 of the LHWP is 

expected.

– Strategic decisions by DWA with regards to these likely water shortages will require to be 

communicated so that Rand Water can play a meaningful role.

8.

Rand Water is also looking forward to DWA providing direction with regards to the following

– Independent regulator:  It is important for the regulator to assess and verify the current asset base 

and future infrastructure requirements. 

9.

Water Use licenses: Rand Water has experienced delays in the issuing of water licenses e.g. BG3 pipeline. 

10.

There have been delays in issuing of results of Environmental Impact Assessments by Department of  the 

Environment.Page 5

Rand Water Budget 

2011 / 2012

6

Salient Features1.

Compound revenue growth of 10% over the past 5‐

years;

2.

Volume growth of 2%;

3.

Accelerating input costs faster than tariffs increases

4.

Capex  and Investment plan of R10bn

• Capex –

Bulk Water of R8bn

• Growth Investments of R2bn

5.

Improving profitability but returns still under 

pressure;

6.

Borrowing costs capitalized to assets;

7.

Reducing cash reserves

Page 7

Budget Income Statement

Income Statement % Forecast % Budget2010 Growth 2011 Growth 2012

R’000 R’000 R’000 Sales - water sales 4,960,705 19% 5,914,079 13% 6,699,309 Cost of Sales - water purchases 2,435,412 14% 2,765,361 10% 3,030,894 Gross Profit 2,525,293 25% 3,148,718 17% 3,668,415 Other Revenue 77,106 -29% 54,505 50% 81,563

Variable Costs 857,867 32% 1,134,848 28% 1,458,249 Energy 687,543 30% 890,876 31% 1,164,474 Chemicals 170,324 43% 243,972 20% 293,775 Marginal Profit 1,744,532 19% 2,068,375 11% 2,291,729 Fixed Costs 1,395,956 2% 1,423,112 11% 1,585,536 Labour 911,643 2% 930,845 15% 1,067,098 Depreciation 165,671 11% 183,169 5% 191,967 Other Expenditure 318,642 -3% 309,098 6% 326,471

Total Operating Costs 2,253,823 13% 2,557,960 19% 3,043,785 Income from Operations 348,576 85% 645,263 9% 706,193 Post Retirement Benefit 25,583 7% 27,273 -6% 25,583 Income Before Net Interest 322,993 91% 617,990 10% 680,610 Net Interest (7,871) 125% (17,686) -100% 0 Net income/(loss) from Primary Activities 315,122 90% 600,304 13% 680,610 Other Activities - (Profit)/Loss (1,920) 337% (8,395) 177% (23,238)Net income/(loss) 317,042 92% 608,699 16% 703,848

Page 8

Customer Historical demand Projected Demand Growth

Code Name 1995 2000 2006 2010 2015 2020 2025 2006 to 2025

Ml/d Ml/d Ml/d Ml/d Ml/d Ml/d Ml/d %

9000 Johannesburg Water 852 1061 1295 1427 1623 1795 1922 2.10%9001 Ekurhuleni 599 631 782 866 972 1072 1162 2.11%9002 City of Tshwane 399 414 499 553 615 679 738 2.08%9003 Emfuleni 159 182 182 197 216 235 253 1.75%9004 Mogale City 60 53 64 68 73 79 85 1.50%9005 Metsimaholo 48 46 51 53 55 58 61 1.00%9006 Rustenburg 34 45 66 75 87 100 116 3.00%9007 Govan Mbeki 45 40 50 54 60 66 73 2.00%9008 Midvaal 12 30 23 34 46 48 50 4.25%9009 Merafong 23 21 23 24 26 27 28 1.00%9010 Randfontein 21 26 22 23 24 25 27 1.00%9011 Westonaria 12 11 14 15 16 16 17 1.00%9012 Lesedi 11 11 13 13 14 16 17 1.50%9013 Ngwathe 0 3 5 5 6 7 8 3.00%9014 Kungwini 0 0 9 19 30 48 69 11.36%9015 Delmas 0 2 2 12 14 16 19 12.82%9016 Tshwane 0 54 64 68 73 78 83 1.40%9017 Royal Bafokeng 0 0 7 8 9 11 14 4.00%9019 Thembisile 0 0 2 25 28 30 34 16.30%

Mining 219 209 229 242 261 281 303 1.50%All other users 34 34 44 49 57 66 76 3.00%Meters < 100 mm 13 13 13 14 14 15 16 1.00%Total 2540 2886 3457 3843 4318 4769 5172 2.14%

9

Projected peak day demands to 2035

Station Available capacity

Add capacity

Year to augment

Projected peak day demands

2015 2020 2025 2030 2035

Zuikerbosch 3900 1200 2016 3910 4500 4030 4550 4080

Vereeniging 1400 Nil 1400 1400 1400 1400 1400

Clarens P/line

Nil 1000 2025 1000 1000 2000

Eikenhof 2000 Nil 1400 1550 1700 1840 1980

Zwartkopjes 800 200 2013 700 760 820 880 930

Palmiet 1870 600 2015 1880 2100 2300 2500 2700

Mapleton 960 300 2016 920 1040 1140 1240 1340

10

• Continuing business –

R8.4bn (2011: 

R8.1bn)

• Growth investments –

R1.5bn  (2011: 

R1.9bn)

Pipeline41%

Co‐generation

4%

Plant25%

Resevoirs1%

Pumping15%

Bulk sanitation

4% Other10%

Capital Expenditure over rolling 5‐year period

Growth Investments & Green Agendas

Bulk Sanitation

Co‐Generation

Page 11

5‐year Capital Expenditure Plan (R9.9 bn)

Column1 2012 2013 2014 2015 2016Augmentation 852  1273 1405 1498 1493

Rehabilitation 536 330 275 230 238Movable assets 55  50 50 50 50Gowth 105 405 340 295 335

1,548                 2,058  2,070  2,073  2,116 

2012 Budget

12

Cash On Hand (2010 – 2011)

• Redemption Reserve for  RW02 (Maturing in 2012) 

R203m

• Liquidity Buffer (Credit rating requirement ) 

R500m

• Finance Capex

R100 m

Total 

R803 million

13

Funding Sources

14

SUMMARY OF RAND WATER FORECAST CAPITAL EXPENDITURE FOR THE PERIOD 2011 TO 2016 INCLUDING GROWTH PROJECTSMotivation

IDR Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16A Augment infrastructure1 Brakfontein - Madibeng system Palmiet 2005 76 8 0 0 0 04 Vlakfontein - Mamelodi pipeline Mapleton 2005 82 67 50 50 0 06 BG3 pipeline Primary 2005 166 165 0 0 0 0

15 H14 pipeline partial re-route Palmiet 2007/8 44 1 0 0 0 019 Upgrade N7, N8 pipelines Mapleton 63 55 60 0 0 0

Subtotal existing augmentation projects 431 296 110 50 0 02 Klipfontein to Brakfontein pipeline Palmiet 2009 0 1 0 50 100 1003 Palmiet - Klipfontein augmentation Palmiet 2009 1 2 13 100 188 1505 L17 Van Dyk's Park - Brakpan Res Mapleton 2007 30 29 20 20 0 07 Sedimentation tanks at Zuikerbosch Primary 2008/9 3 42 105 100 100 1008 Palmiet Engine Room 3b Palmiet 2009 1 3 90 90 90 769 Weltevreden - Cosmo City pipeline Eikenhof 2009 2 3 20 20 20 0

10 Kwagaspoort - Gomsand pipeline Palmiet 2007 1 1 30 30 30 811 Zuikerbosch to Palmiet pipeline Palmiet 2008 25 276 250 150 150 4912 Zuikerbosch filter blocks Primary 2008/9 0 20 130 130 120 10013 Variable speed drives All 0 0 0 0 0 014 B11 duplication & associated works Primary 2009 5 52 40 40 30 3016 Van Dyk Park - Rynfield duplication Mapleton 2009 0 1 75 75 50 2517 Zuikerbosch scheme Primary 2009 0 20 200 400 400 50018 Mapleton station upgrade Mapleton 2009 0 0 0 0 70 10020 Upgrade Zwartkopjes - Meyer's Hill system Zwartkopjes 2009 1 5 70 50 50 021 Zuikerbosch - Slangfontein pipeline Mapleton 2009 0 1 0 0 0 12522 Waterval to Weltevreden pipeline Eikenhof 0 0 0 0 0 3023 Amanzimtoti expansion - phase 1 & 2 Primary 0 20 20 0 0 024 Other augmentation projects All 60 80 100 100 100 100

Subtotal new augmentation projects 129 556 1163 1355 1498 1493Total for new and existing augmentation projects 560 852 1273 1405 1498 1493

Project (1) System (2) Forecast cashflow (Rm) as at 21 April 2011

15

B Rehabilitation1 Cathodic Protection All 30 32 20 20 20 02 Zwartkopjes Forest Hill system Zwartkopjes 2005 2 0 20 20 0 05 Roodepoort booster system upgrade Eikenhof 0 0 0 0 0 06 O2 pipeline + O1/G25 pipeline Palmiet 2006 10 7 10 0 0 07 Zwartkopjes pipework upgrade Zwartkopjes 34 6 0 0 0 08 Central sludge 2 at Zb upgrade Primary 35 16 20 0 0 0

15 Zk disinfection plant upgrade Zwartkopjes 25 11 0 0 0 0Subtotal existing rehabilitation projects 136 72 70 40 20 0

3 Zwartkopjes - East Rand system Zwartkopjes 2007 100 45 40 40 40 404 B7 pipeline Eikenhof 47 120 0 0 0 09 Vereeniging upgrade Primary 1 1 50 50 50 48

10 Vereeniging - Zwartkopjes system Zwartkopjes 0 0 0 0 0 011 B6 pipeline Palmiet 0 5 50 25 0 012 Bitumen replacement All 0 0 20 20 20 2013 BG1, BG2 pipelines Primary 0 0 0 0 0 014 B1, B2 pipelines Zwartkopjes 0 1 0 0 0 3017 Zuikerbosch filter house 1 upgrade Primary 2008 0 0 0 0 0 018 Other rehabilitation projects All 275 292 100 100 100 100

Subtotal new rehabilitation projects 423 464 260 235 210 238Total for new and existing rehabilitation projects 559 536 330 275 230 238Total for RW bulk water supply system 1119 1388 1603 1680 1728 1731

C GROWTH PROJECTSInvestments

1 Emfuleni bulk sanitation scheme Sebokeng WWTW upgrade 0 75 75 75 75Upgrade selected sewage pump stations 15 25 30 20 20New regional WWTW scheme 0 75 75 100 100

2 Mpumalanga municipal support Upgrade bulk water systems 0 15 30 50 70Upgrade bulk sanitation systems 0 15 30 50 70

CAPEX4 Co-generation 90 200 100

Total for growth projects 105 405 340 295 335

D Movable assets 60 55 50 50 50 50Total 1179 1548 2058 2070 2073 2116

16

Key Performance Areas

17

Performance results 2010Performance objective Key performance indicator Target Result

Financial performance Net profit margin >6.3% 7.7%

Financial performance Gross margin >51.3% 50.96%

Financial performance Asset turnover >76.4% 74.91%

Financial performance Return on assets >4.0% 4.63%

Financial performance Debt Equity <14.9% 14.0%

Financial performance Current ratio >1.72 times 1.53 times

Financial performance Manage costs within budget <5.0% 4.9%

Financial performance Surplus targets met <10.0% 4.37%

Operational performanceWater lost as a % of total water produced <4.0% 3.2%

Operational performanceNo of days supply disrupted divided by total supply days 0% 0%

Operational performance Capital expenditure R1 billionR935

millionPage 18

Performance results 2010

Performance objective Key performance indicator Target Result

Internal audit report No of repeat findings 0 11

Bulk supply agreements% of customers with bulk supply agreements 100% 100%

Product quality Compliance with SANS 241 Class 1 >95% 99.27%

Product quality Compliance with SANS 241 Class 2 >97% 99.96%

Compliance Unqualified audit report Unqualified Unqualified

Compliance Statutory submissions made on time Deadlines metDeadlines

met

Board performance Annual performance assessment >75% 94.58%

Optimal staff retention % of staff leaving <5% 3.06%

Commercial equity Increase BBBEE spend >75% 81%

Employment equity ACI in management positions 80% 93.62%

Employment equity Women in management positions >45% 36.17%Page 19

Priority Areas

2011 / 2012

20

21

Priority Areas

Presidential Outcomes

Quality and 

quantity of 

Raw Water

Bulk Sanitation

Growth Initiatives Top 10

Risk

Organizational Preparedness

RAND WATER 2030

RAND WATER STRATEGY

RW Academy

21

Annual Report  and 

Financial Statement

22

for the year ended30 June 2010

R million

Restated2009

R million

Restated2008

R million

Revenue 4 997 4 648 4 274

Net operating expenses 4 511 3 955 3 299

EBITDA 486 693 975

Depreciation and amortization 168 180 176

Profit from operations before net finance costs 318 513 799

Net investment income (11) 74 39

Taxation (5) (5) 2

Net Profit for the year

302 582 840

Consolidated income statement

‐

2,000 

4,000 

6,000 

48%

50%

52%

54%

56%

2006 2007 2008 2009 2010Revenue GP%

582387

195

84 1

302

0100200300400500600700

2009 NP Energy Net interest

Other 2010 NP

Page 23

Page 24

for the year ended 30 June2010

R million

Restated2009

R million

Restated2008

R million

EQUITY AND LIABILITIES

Capital and Reserves 6 222 5 925 5 339

Non-current liabilities 948 860 946

Borrowings 630 728 729

Post-retirement benefit obligation 254 229 229

Statement of financial position

Post-retirement Medical Benefits

Pensioners 113 94 127

Rand Water employees 162 135 120

Financial Results 2010Financial Results 2010

• The post retirement medical aid benefit actuarial loss for 2010 year is R26m (2009: R13m)

• The post retirement medical aid benefit actuarial loss for 2010 year is R26m (2009: R13m)

Analysis of capex spending for 2009/10

• Augmentation

R386m

• Refurbishment

R488m

• Moveable assets R31m

• Intangible assets  R5m

25

Rand Water Tariff

2011 / 2012

26

Rationale for tariff increment

11.2%

• Rand Water has followed a consistent rationale for increasing its tariff over the years.

• This rationale has been based on assessing the Rand Water internal rate of inflation.

• This is a projection of the expected increase in total costs.

• A breakdown of the total costs and their overall expected rate of price increase is then proposed as the proposed tariff increment.

9.7%

6.1%

5.1%

5.8%4.6%

7.9%

9.8%

8.7%9.0%

5.7%5.3%

5.0%

4.5%

5.6%

8.3%

14.1%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2004 2005 2006 2007 2008 2009 2010 2011

HistoricalTariff Increment (2004 - 2011)

Cost of Raw Water (Ex 1 April)

Rand Water Tariff

Page 27

11.2%

Energy Costs

Rand 

Water 

has 

to 

take 

into 

consideration tariff increments of 24.8 per cent 

:

201125.2 per cent

:

201226.1 per cent 

:

2013 This 

is 

a 

huge 

imposition 

on 

Rand 

Water 

input 

costs 

which 

many 

customers 

struggle to understand. 

Rand 

Water 

receives 

its 

energy 

from 

Eskom 

as 

well 

as 

three 

other 

municipalities.  This therefore means that 

Rand 

Water 

still 

has 

to 

pay 

an 

additional 

energy 

tariff 

increase 

from 

the 

three 

municipalities 

over 

and 

above 

the 

25.2 

per 

cent 

energy 

increase.    A 

historical 

trend 

analysis 

shows 

that 

these 

municipalities 

have 

increased 

an 

additional 

12.5 

per 

cent 

over 

the 

tariff 

imposed by Eskom. 

Page 28

~ 2011 / 12Price Forecast Percent Weighted

Year-End ~ 30 June increase ~ 2011 / 12 of total% R m % %

TCTA 11.3% 2420 38.9% 2.9%DWA -8.6% 494 7.9% 0.6%Raw Water 7.4% 2913 46.8% 3.4%Energy - Eskom 25.2% 620 10.0% 2.5%Energy - Municipalities 37.7% 558 9.0% 3.4%Chemicals 10.0% 269 4.3% 0.4%Multi-Partnered Uncontrollable Costs 4360 70.1% 9.8%Labour 10.7% 1058 17.0% 1.8%Interest 11.0% 133 2.1% 0.2%Other 10.0% 672 10.8% 1.1%Total 6223 100.0% 12.9%

Target bulk tariff increase 12.9%

Bond Raised (R m) 963

Rand Water Tariff = Rand Water Internal Inflation

Page 29Therefore Rand Water’s tariff for 2011 – 12 is 12.9%

11.2%

SALGA Comments

1.

Methodology applied in the Corporate 

Business 

Plan 

is 

not 

the 

same 

as 

the 

methodology applied in tariff setting

Page 30

1.

On 

the 

contrary, 

the 

same 

methodology 

has 

been 

applied consistently. 

Rand Water Response

2.

Rand Water cost increments are not in 

line 

with 

inflation 

and 

do 

not 

demonstrate cost efficiencies

2.

Energy 

increments 

(in 

particular 

from 

local 

councils) 

exceed inflation.  In fact, total cost increments are lower 

than 

price 

increments, 

i.e.. 

efficiency. 

SALGA’s

comments 

acknowledge 

the 

increasing 

poor 

quality 

of 

raw water. Compliance with effluent standards is a direct 

local 

council 

responsibility, 

which 

approximately 

85 

per 

cent of local municipalities are failing to monitor.

3.

Chemicals 

inflation 

for 

Rand 

curiously 

doubles 

from 

2009 

to 

2010 

and 

then 

remains 

constant 

and 

this 

anomaly 

is 

suspected to be an error. 

3.

Erratic 

rainfall 

patterns 

and 

increasing 

poor 

quality 

of 

raw 

water 

are 

projected 

to 

affect 

chemical 

costs. 

Local 

councils 

need 

to 

play 

a 

more 

active 

role 

in 

monitoring 

effluent discharge.

4.

Rand Water does not avoid the capital 

expenditure 

for 

new 

augmentation 

schemes 

by 

spearheading 

initiatives 

to 

incur 

the 

relatively 

low 

cost 

water 

loss 

management 

activities. 

Control 

and coordination 

4.

Rand 

Water 

actively 

pursues 

technologies 

which 

reduce 

water 

loss. 

Therefore, 

Rand 

Water’s 

water 

losses 

are 

below 

4 

per 

cent. 

International 

targets 

are 

btn

12 

– 15 

percent. 

Water 

losses 

at 

local 

municipal 

level 

are 

about 

30 

per 

cent. 

Rand 

Water 

has 

offered 

to 

assist 

municipalities, 

but 

they 

are 

at 

liberty 

to 

refuse 

this 

assistance.

After extensive consultation and review with Rand Water, National Treasury and 

DWA recommended Rand Water’s tariff of 12.9 per cent. 

These 

are 

some 

of 

SALGA’s

comments. 

The 

remaining 

comments 

have 

been 

addressed 

in 

the 

presentation

Thank You

P

ag

e