BRIEFING THE PORTFOLIO COMMITTEE ON WATER AND SANITATION WATER TRADING ENTITY Presented by: Mr D Mashitisho Director-General 23 May 2017 PRESENTATION TITLE Presented by: Name Surname Directorate Date

CONTENTS Detailed explanation of the WTE overdraft WTE 2017/18 budget and impact of overdraft on 2017/18 financial year Debt owed to WTE by Municipalities and Water Boards Challenges in respect to debt collection  

DETAILED EXPLANATION ON THE WTE OVERDRAFT

NATIONAL TREASURY BUDGET ALLOCATION OVER MTEF National Treasury allocations MEDIUM TERM EXPENDITURE FRAMEWORK  2016/17 2017/18 2018/19 Total R’000 Original allocation per published ENE 4 211 796 4 472 386 4 696 005 13 380 187 National Treasury reduction 28 January 2015 -1 340 243 -1 248 590 -1 311 020 -3 899 853 MTEF allocation received on 28 January 2015 2 871 553 3 223 796 3 384 985 9 480 334 National Treasury reduction 2 November 2015 -1 327 091 -1 898 811 -1 993 752 -5 219 654 MTEF allocation received on 2 November 2015 1 544 462 1 324 985 1 391 233 4 260 680 National Treasury increase/(reduction) 31 October 2016   -415 104 -234 621 -649 725 MTEF allocation received on 31 October 2016 - excluding AMD 909 881 1 156 612 2 066 493 TOTAL CUTS BY NATIONAL TREASURY   2 667 334 3 562 505 3 539 393 9 769 232

COMMENTS ON THE BUDGET ALLOCATION-NATIONAL TREASURY The main reasons that National Treasury indicated to the Entity for the budget cuts were that the Entity was under spending on capital projects and can use its accumulated surpluses to fund its capital needs. It was expected that the Entity should collect debts owed to it and use revenue generated through increase in tariffs as a source of funding.  The assumptions used as a basis of budget reduction did not take into account the following factors:  The assertion of accumulated surplus indicated by National Treasury consists of non-cash items and therefore did not take into account that accumulated surplus does not translate into cash as it can be seen from the difference between the surplus of R3.5 billion and the cash and cash equivalents of R42 million in the audited financial statements for the year ended 31 March 2016.

WTE BUDGET ALLOCATION FOR 2016/17 AND ASSUMPTIONS MADE REGARDING DEBTORS COLLECTIONS

ASSUMPTION MADE DURING THE BUDGET ALLOCATION-2016/17 In compiling the budget mentioned above the WTE made the following assumptions; Out of total amount of R9.8 billion of revenue billed, R7.8 billion will be collected from the water users. Augmentation of R1.5 billion will be received from National Treasury. The amount of R2.9 billion of long outstanding debt (over 150 days) was to be received from the Water Boards and Municipalities and the R200 million owed by companies will be collected through the debt collector. The Main Account receivables relating to water services projects were to be paid in the current financial year. The WTE assumed 100% collection with regards to the Capital Unit Charge – as such taking the bad debt risk of the Trans Caledon Tunnel Authority (TCTA). The assumptions that were made took into consideration the budget pressures and the fact that National Treasury budget cut was drastic.

Budget allocation 2016/17 The 2016/17 approved budget was very specific that: “The budget allocation was made on the assumption that the projected revenue will be collected from accounts receivable” and “The intervention of Cooperative Governance and Traditional Affairs (COGTA) AND National Treasury (NT) will be required for the collection of this long outstanding debt.” Clearly this intervention by COGTA and NT did not happen, hence the current overdraft of R2.9 billion as at 22 February 2017

WTE 2017/18 budget and impact of overdraft on 2017/18 financial year

SOURCE OF REVENUE -2017/18 Source of Funding R9.7 billion Augmentation Allocation R1,410 million CMA’s R173 million Exchange Revenue TCTA R4,439 million CMA’s R376 million NWRI R 3,153 million Construction Revenue R200 million

Expenditure breakdown Augmentation Fund NWRI support R320 million Finance branch R259 million Capital Infrastructure projects R500 million Acid Mine Drainage Exchange Revenue Operations & Maintenance R1,000 million Rehabilitation & Betterment Catchment Management Agencies R556 million Rehabilitation of Conveyance Systems R126 million TCTA payments R4,512 million Operational projects R530 million Construction R200 million Total Expenditure Budget = R9 billion

INFRASTRUCTURE PROJECTS -2017/18 Olifants River Water Resources Development Project (Phase 2A): De Hoop Dam 9 404 Groot Letaba River Development Project (GLeWAP): Nwamitwa Dam 40 000 Groot Letaba River Development Project (GLeWAP): Raising of Tzaneen Dam 50 000 Dam Safety Rehabilitation Programme (DSRP) 120 851 Olifants-Doorn River Water Resources Project: Raising of Clanwilliam Dam 13 025 Mdloti River Development Project: Raising of Hazelmere Dam 140 000 Mzimvubu Water Project 75 000 Olifants River Water Resources Development Project (Phase 2D): Bulk Distribution Scheme 52 093 SUB-TOTAL INFRASTRUCTURE PROJECTS 500 373 Acid Mine Drainage 500 000 TOTAL 1 000 373

Amounts to be paid from Main Account EXISTING AUGMENTATION PROJECTS 2017/18 R'000 Mzimvubu Water Project (In total R250 million has been budgeted for this project) 175 000 Olifants River Water Resources Development Project (Phase 2B): Bulk Distribution Scheme 30 000 Goedetrouw Transfer Scheme (An amount of R250 million will be claimed from the national drought disaster fund) 50 000 TOTAL 255 000

2017/18 Budget surplus The 2017/18 budget reflects a surplus of R748 million which will go towards reducing the overdraft as at 31 March 2017. This is negatively affecting the 2017/18 financial year as this money could have been used to fund projects.

COLLECTION OF DEBT INCLUDED IN 2017/18 BUDGET No collection of debt has been included in the 2017/18 budget.

DEBT OWED TO WTE BY MUNICIPALITIES AND WATER BOARDS

Municipalities Age analysis as at the 31 March 2017

Comments Municipalities continue not to pay the accounts, however they were handed over to legal for summoning. 45 summons issued ( 3 court judgment granted) 138 still in legal collection process 74 municipalities not handed-over as some of them were paying their accounts. Assessment is being done so that those that are not paying can be handed-over.

Water Boards Age analysis as at the 31 March 2017

AMOUNT OWED TO WATER BOARDS AMOUNTING OWING @ 31 MARCH 2017 BALANCE AS AT 19 MAY 2017 R'000 UMGENI WATER - SEDIBENG 5 112 RAND WATER PELLA DRIFT WATER BOARD OVERBERG WATER NAMAKWA WATER BOARD MHLATHUZE WATER 11 000 MAGALIES WATER LEPELLE NORTHERN WATER 52 447 IKANGALA WATER BOARD BOTSHELO WATER (PART OF SEDIBENG WATER) BLOEM WATER AMATOLA WATER BOARD ALBANY COAST WATER BOARD TOTAL 68 559

Comments……..cont. Most of Water Boards are paying with the exception of Sedibeng Water Final demand letter will be sent to Sedibeng Water. Water restriction will be considered if they continued not to pay the accounts. Rand Water is not paying for old debt on Bushbuckridge. They have promise to pay the current debt. Lepelle not paying due to the fact that DWS is owing them.

Strategies undertaken/to be taken to collect outstanding debt. Restricting water supply National Water Act allows the DWS to restrict or suspend the flow of water to defaulting water users. This strategy will have a negative impact on the communities which may result to un-rest as the municipalities will not have enough water to deliver to the communities. Restriction or suspension of water supply will affect will also affect economic activities that are happening at local level.

CHALLENGES IN RESPECT TO DEBT COLLECTION

Challenges Municipalities not budgeting for raw water charges. Refusal by municipalities to pay for raw water without valid reasons. Changes in municipal boundaries ( amalgamation). The receiving municipality refuse to pay the debt transferred to them. Municipalities claims that most of the residents are indigent. Municipalities not billing their users due to poor revenue management Changes in leadership. Customer disputes. Inability to implement credit control mechanism ( i.e. restricting the supply of water). Water Boards are being owed by municipalities. Intergovernmental process take long to conclude. Legal processes takes long as DWS must wait for the courts date.

THANK YOU