Overview on water boards annual reports and tabled tariffs Presentation to the Portfolio Committee: Water & Environment Overview on water boards annual reports and tabled tariffs Ms Thoko Sigwaza Chief Director: Institutional Oversight 1

Policy and legislative mandate Water Services Act, Act 108 of 1997 Public Finance Management Act (PFMA), Act 1 of 1999, as Schedule 3(B): National Government Business Enterprises White Paper on Water Supply and Sanitation, 1994 Strategic Framework for Water Services, 2003

Minister of Water and Environmental Affairs is the only shareholder Oversight role of DWA Minister of Water and Environmental Affairs is the only shareholder 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

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 RT Takalani (Acting) Umgeni Mr A Mahlalutye Mr M Msiwa

Establishment dates Name 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) Lepelle Northern Limpopo 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 Rand GP, NW, MP, FS 1904 106 years Sedibeng FS, NW 1979 31 years Umgeni KZN 1974 36 years Ikangala (MP) was disestablished in 2009 Albany Coast EC was disestablished in 2010 and operations merged with Amatola

Alignment with government priorities No Abridged outcome DWA priority Water board contribution 4 Employment 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 Local government to deliver water services Provide bulk services to local government and secondary support on retail activities 10 Environment Promote sustainable and equitable WRM DWA water resource management (WRM) O & M of DWA infrastructure 12 Public service Build capacity to deliver quality services Some WBs support municipalities to develop water related infrastructure

Audited reports Name of water board 2009/10 2008/09 Comment Albany Unqualified No change Amatola Qualified Improvement Bloem Botshelo Disclaimer Bushbuckridge Lepelle Northern Magalies Regressed Mhlathuze Namakwa Overberg Pelladrift Rand Sedibeng Umgeni Namakwa Water is yet to submit their annual report Magalies and Botshelo submitted their annual reports after due date

Consolidated Financial Performance Total ’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 R3,8 billion -10,5%

Consolidated Ratios 2009/10 2010 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%

Annual Surplus/Deficit in R’000 WATER 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

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

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

CAPEX budget for next 5 years (2) Water board 2011 2012 2013 2014 2015 Total 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 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 20 532 319 670 Magalies 402 505 287 741 110 030 30 612 830 888 Overberg 10 815 3 800 1 850 2 400 20 715 Pelladrift 1 450 5 000 5 010 2 150 5 400 19 010 Rand 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 2 652 666 2 282 636 2 529 811 2 481 524 2 378 155 12 324 792

Oversight 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% 14

Municipal debt to water boards – Jun 2010 Outstanding balance Current 30 days 60 days 90 days 120 days and over Total arrears Albany Coast 286 709 Amatola 14 095 860 13 689 994 405 866 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 Overberg 585 190 Pelladrift 309 137 93 011 97 438 118 688 216 126 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 49 785 954 Umgeni 171 384 092 144 481 882 26 418 984 483 226 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%

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. 16

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 17

Challenges and way forward 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

Tabled Tariffs increases

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 20

Tabled tariffs for 2011/12 Name of water board % increase Amatola 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%

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. 22

Challenges and 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

Conclusion FOR 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]. 24 24

THANK YOU