AND REGIONAL WATER UTILITIES BRIEFING BY THE DEPARTMENT OF WATER AND SANITATION TOWARDS THE ESTABLISHMENT OF THE NATIONAL WATER INFRASTRUCTURE AGENCY AND REGIONAL WATER UTILITIES Presented by the Director General: Mr Sifiso Mkhize 8 November 2017 PRESENTATION TITLE Presented by: Name Surname Directorate Date

Policy drivers of Institutional Reform National Development Plan Regional Water Utilities 2012-2018, CMAs (2012-2017) and National Water Resource Agency supported(2017) National Water Resources Strategy Regional Water Utilities Investigate the arrangements for managing WR infrastructure Assess the institutional arrangements for the Economic Regulator National Policy Review New Policy Position establishing Regional Water Utilities and confirming CMAs in 2013. Institutional Reforms and Realignment (IRR) IRR cabinet approval in 2013. Cabinet Lekgotla February 2015 Resolutions (Presidential Review Committee) In February 2015, Cabinet Lekgotla endorsed recommendations on the strengthening of SOE. The recommendations are focused on : RATIONALISATION creating an INSTITUTIONAL FRAMEWORK that will support the advancement of the NATIONAL DEVELOPMENT PLAN OUTCOMES

CASE FOR CHANGE :RWU Creating fewer, stronger water boards with larger geographic footprints and strong economic base will enable the following: urban areas to be linked to rural areas more effectively and equitably will improve service delivery and cross subsidisation. Management of regional water resources and water services infrastructure and improve the integration of water systems from source to tap and from waste back to source. Improve economies of scale and make better use of scarce human and capital resources. For technically complex systems it can be more efficient if technical capacity is shared across a number of schemes. Make much better use of scarce financial resources by enabling each water board to be financially viable and to raise debt finance, releasing scarce government funding for other important purposes in the water sector. Wall to wall coverage of the province in terms of bulk provision.

NAWASIA The Case for Change Need to build massive amount of infrastructure over the next 20 years which requires capital investments not available from the national fiscus. National infrastructure implementation, operations and maintenance and investments fragmented between DWS, TCTA and Water User Associations. Limited strategic asset management leads to sub-optimal leverage of assets. Need for integrated risk management for infrastructure.

Legislative Mandate According to Section 28(1) Subject to subsection (2) the Minister may by notice in the Gazette (a) Establish a water board: (b) Give it a name or approve a change of its name (c) Determine or change its service area: or (d) Disestablish it. Section 28(2) of the Water Services Act, Act 108 of 1997: “The Minister may only act in terms of subsection (1) after consultation with: (a) every Province concerned; (b) the water board concerned, if in existence; (c) every water services authority having jurisdiction in the service area or proposed service area.

Status on the establishment of Regional Water Utilities No Activities Timelines 1. Minister took a decision to establish a single KZN Water Board 09 July 2015 : Submission signed 2. Minister visited both Water Boards and staff and Unions 14 Aug 2015 3. Formal letters to Chairpersons of both Umgeni and Mhlathuze. 03 Sept 2015 4. Formal letters to all Municipalities and Province in KZN. 09 Sept 2015 5. Minister of Finance informed 11 Nov 2015 6. KZN Cabinet Meeting 7. Procurement process started but not successful . 2016 8. Transitional Committee disbanded 2017 9. New thinking on the Project June –Sept 2017 10. Umgeni Water Board Resolution on the issue received .

Profiles of KZN Water Boards KEY INDICATORS UMGENI MHLATHUZE   Volumes supplied 429 209 (kl000) 131 295 (kl000) Annual Revenue from water sales R2,8bn R545m Capex Expenditure R1,7bn R138m Annual Budget Borrowing limit R2,5bn R430m Loans /covenants R1,9 bn R146m No of staff 1121 235 Assets R10 bn R2,1bn

Roadmap for disestablishment of Mhlathuze Water No Activities Timelines 1. Minister has approved disestablishment of Mhlathuze Water and incorporating its assets, staff and liabilities into Umgeni Water and to change the name of Umgeni Water into KZN Water Board . 08 Sept 2017 2. Minister has sent letters to both Umgeni and Mhlathuze Water indicating her intention to disestablish Mhlathuze Water. Minister has signed letters to all Municipalities and Province but Umgeni requested that letters be put on hold until release of the Audit Report. As part of the letter to Umgeni Water a directive was given that Umgeni Water should procure a Consultant to undertake due diligence for incorporating Mhlathuze Water (Section 54 of PFMA). Umgeni Water to inform National Treasury accordingly . Letters dated 10 Sept 2017

Roadmap for disestablishment of Mhlathuze Water No Activities Timelines 3. Minister to publish Gazette Notice for disestablishment of Mhlathuze and to allow 60 days comments. Oct 2017 4. Act DG has set up Technical Steering Committee to include National Treasury –Letters have been received from Treasury confirming names to participate on the Steering Committee. Sept 2017 5. Disestablish Mhlathuze by end of the financial year . Gazette Notice could be issued earlier and effected on 01 July 2018. Before next financial year

Risks Risks Mitigation Measures Investors reaction to disestablishment Bilateral meetings to be held between investors and Mhlathuze and Umgeni (transparency) Delay in the establishment will have implications on service delivery due to prolonged transitional arrangements Establish the RWU within the specified timeframe Buy-in the process of establishment of one RWU The communication strategy and change management plan implemented

Roadmap and Timelines for both Entities Technical Steering Committee established Due Diligence consultants procured Operating Model & Migration Plan Readiness for Disestablishment of Mhlathuze...........April –May 2018 Parallel activities Change management Assuring investors of certainty Communicating messages to all stakeholders Political buy in Engagement with Unions 1 2 3 4

Progress on NAWASIA

Current terms of reference approved by the Minister The Due Diligence project is required to ensure comprehensive coverage and independent review of all aspects impacting the establishment of NAWASIA Current terms of reference approved by the Minister Deloitte Consulting (PTY) Ltd appointed to conduct the due diligence Project duration: 10 months Project commenced in February 2017 and will conclude in November 2017 Current State Assessment or Due Diligence study of TCTA, NWRI and WTE investigating the following aspects of the organisations: Operational and technical Financial Human resources Business processes and systems Legal Project outcome: Due diligence report Options analysis and recommendations for the establishment of NAWASIA

Business case and Bill for NAWASIA establishment Milestones within larger programme: Preparation Conduct due diligence Develop business case Stakeholder management Governance Submit BC to Joint Committee Publish BC for public comment Draft Bill Approve Bill Implement Agency PHASE 1 Due Diligence project for NAWASIA establishment PHASE 2 Business case and Bill for NAWASIA establishment

Progress to Date The Executive Task Team (ETT) to assist with the collecting, validating and first level screening of required data/information were nominated to enable Deliotte to perform the due diligence. The ETT members serve under the following functional streams: • Operational and Technical • Financial • Human Resources • Business Processes and Systems • Legal Deloitte team is finalising the draft due diligence report. The due diligence report (on the Water Trading Entity and the NWRI) will be finalised by end November

Thank You