LEPELLE NORTHERN WATER BOARD ANNUAL REPORT 2017/18 12 March 2019

Contents ANNUAL REPORT 2017/18 Part 1: Overview of financial performance Part 2: Overview of non-financial performance

annual report 2017/18 Part 1: overview of financial performance

FINANCIAL PERFORMANCE FINANCIAL PERFORMANCE as at 31 June 2018 Audited outcome 2017/18 2016/17 % variance Revenue from exchange transactions R626 537 R548 953 14% Cost of sales (R325 250) (R265 286) -23% Gross profit R301 287 R283 667 6 % Other income R66 706 R106 498 -37% Operating expenses (R 398 006) (R415 363) 4 % Net operating deficit (R30 013) (R 25 198) -19 % Interest Revenue R4 804 R6 609 -27% Fair value adjustments R6 451 R 623 935% Finance cost (R6 780) (R6 066) -12% Deficit for the year (R27 241) (R17 197) -58 %

STATEMENT OF FINANCIAL POSITION 2018 2017 % Variance Current Assets R936 362 R1 031 629 -9% Inventories R8 886 R 6 097 46 % Receivables from exchange transactions R 845 033 R 833 148 1% VAT receivable R45 353 R40 065 13 % Cash and cash equivalents R37 090 R152 319 -76% Non –current assets R 2 577 075 R 2 605 212 -1% PPE R 2 498 599 R 2 533 069 -1 % Other financial assets R78 476 R 72 143 9% TOTAL ASSETS 3 513 437 3 636 841 -3.39% Current Liabilities R 561 151 R667 168 -19 % Payables R542 812 R647 044 -16% Provisions R18 339 R20 124 -10% Non current Liabilities R77 382 R 67 528 Accumulated surplus R 2 874 904 R 2 902 145

Ratios 2018 2017 Gross Profit Margin 48% 52% Current ratio 1.7 1.5 Assets turnover 18% 15% Average water tariff 6.06 5.52 Debtors days 492 554 Cash ratio 0.1 0.2 The Gross profit margin decrease to 48% during the year under review. Collection of outstanding debt still remain a challenge due to non- payments of account by WSA and DWS The cash flow projection made until June 2019 reflects a cash balance of R80m. These is achievable as a results of the organisation appetite to reduce cost and collect all outstanding debt. Implementation of strategies that are geared towards safeguarding of the safety margin of 1.2 liquidity status on a month to month basis

Expenditure outcome: 31 June 2017 Programme Budget Expenditure % var Administration R 695 723 R 727 438 -2% Compensation of employees 35% Goods & services on operating expenses 65% Analysis of current payments Over expenditure of 2% due to increase in cost of sales which is mainly attributed from the electricity cost 35% of the cost attributed to employee cost

Irregular and Unauthorised expenditure DESCRIPTION 2016/17 2017/18 Variance % Variance R'000 Unauthorised expenditure 0.00 0% Irregular expenditure R21 175 R 31 213 R10 038 47% 0% overspend 0% not within purpose of vote

Irregular expenditure Extension of expired contract Non-compliance with panel selection criteria Deviations not in line with treasury guidelines Non-compliance with local content treasury procurement guideline

Fruitless and wasteful expenditure 2017/18 2016/17 R'000 Opening balance 383 36 Fruitless and wasteful expenditure – relating to current year 2 071 347 Fruitless and wasteful expenditure awaiting resolution 0.00 Recovery Closing Balance 2 454

Reduction of fruitless & wasteful expenditure Late payments to suppliers mainly SARS resulted in Interest and penalties. This is a results of cash flow constraints because of significant portion of debtors not settling their accounts timely as well as pre funding of projects implemented on behalf of DWS.

Commitment analysis

Accruals 30 days 30 days + Total Goods and services 445 0.00 Capital Assets 121 382

CONTIGENT LIABILITIES AND ASSETS A claim of R500 000.00 was received for alleged damages to the claimant`s house flooded due to underground pipe burst A service provider was ordered to pay R100 000.00 due to loss of assets A claim of R2.5m from land claim commissioner on a farm subjected to land claim A claim of R2.8 from service provider resulting from contractual obligation Contingent Liabilities Contingent assets

Analysis: matters relating the audit report per year 2013/14 2014/15 2015/16 2016/17 2017/18 Unqualified Qualified The accounting authority did not take effective steps to collect all money due to the Lepelle Northern Water, as required in terms of section 51(1)(b)(i) of the PFMA, as 80% of total accounts receivable was provided as doubtful debt. The accounting authority did not take effective steps to ensure infrastructure assets are unbundled in order to depreciate them separately

Trend analysis: Matters related to audit report

Comparative analysis Findings per component 2013/14 2014/15 2015/16 2016/17 2017/18   Financial accounting 4 6 16 20 19 SCM 2 1 7 5 HR 3 Governance 17 15 IT 14 10 35 59 51

Action plan Major Finding Root Cause Action Assets register was not unbundled as per standards The exercise already started , however, could not be finalized within a year A service provider has been appointed to assist with the exercise Performance information did not meet the SMART criteria for certain objectives The entity didn`t have a guiding tool that clearly defined its objectives and measurements A guiding tool has been developed Poor Payment history of debtors Non Payment of outstanding debt by WSA and DWS Continuous engagement are happening with respective municipalities in an attempt to improve collection No processes to avoid or detect irregular , wasteful and fruitless expenditure Lack of understanding on SCM processes with respect to Deviation procedure The board is improving on SCM processes and has conducted SCM training through National Treasury

Part 2: OVERVIEW OF NON- FINANCIAL PERFORMANCE

Milestones that were not achieved Comments on deviations Explanatory notes PPI no Milestones that were not achieved Comments on deviations 1 Tolerable organisational Residual Risk Certain risks identified during the review required budget and was not available at the point in time but allocated for next financial year. 2 Capital projects (Internal & Directives) Financial constraints negatively affected the rollout of the capital projects. Directives that were not funded 3 Debtors day (492) Mopani’s and DWS old debt still a challenge 4 Water Quality Changes in the chemical composition of raw water – working with Tshwane University Technology (TUT) to resolve the challenges. 5 Wastewater Quality All the infrastructure has reached design capacity & the municipality concerned continually engaged to approve the budget for upgrading the treatment plants. Strategy to overcome under performance PPI no 1 on attendance of planned training : The strategy to overcome under performance will be to develop a pre-selection of institutions to ensure that training works better. PPI no 2 on vacancy rate for engineers and scientists: PPI no 5b on expenditure of departmental budget: PPI no 6 internal audit plan:

Construction progress LNW INTERNAL PROJECTS Project Summary scope Design Progress Construction progress Completion date UPGRADING OF FLAG BOSHIELO WATER SCHEMES Upgrading of the Flag Boshileo WTP from 8Ml/day to 16Ml/day and refurbishment of the existing plant. 100% 14% (Civil works Phase 3 contractor is progressing well.) Electro-Mech Works Phase 2 (89% completed) High lift Phase 1(100% completed June 2020 UPGRADE OF OLIFANTSPOORT AND EBENEZER SCHEMES Upgrade and refurbishment of the schemes 95% (Olifantspoort 10Ml/day packaged plant) 53% (Olifantspoort Specon Pipeline Replacement Phase 1) June 2019 POLITSI WATER SCHEME UPGRADE – POLITSI ELECTRICAL AND MECHAICAL WORKS Upgrade of the Pump Station at Politsi Plant 100% (Package plant) 5% (Phase 2 - raw water pipeline (Terminated) 0% (Phase 3 - rising main pipeline (Suspended) Phase 4 - HLPS: mechanical, electrical, control and instrumentation Await resolution on the license dispute.

DWS INTERVENTION PROJECTS Summary scope Design Progress Construction progress Completion date PIPELINE (NANDONI- NSAMI PROJECT) Construction of the pipeline from Nandoni to Nsami 100% 23% (12.35km pipeline laid to date) October 2019 (subject to funding availability) GIYANI INTERVENTION

WATER TARIFF 2019/20 Consultation process Increase in raw water costs by the Department of Water and sanitation of 14.4% Increase in purification costs relating to contractual annual increase by 5.3% Increase in electricity costs as proposed by Eskom to the national energy regulator (Electricity not solely from Eskom, also Municipalities by 15% Fixed costs anticipated to increase by 6.5% In consideration for affordability and ability of the consumer to pay, the proposed increase will maintain sustainability of the water board Consultation with all WSA were held during the month of November 2018 Inputs and comments on the tariffs were receive from SALGA , National Treasury and WSA response on comments were made to all respective stakeholders mentioned above The 2019/20 tariff proposal documents was submitted to DWS for finalization of the process Concerns on increased water tariff were raised by all WSA during consultation Factors considered in the proposed tariff increase Consultation process

Proposed tariff (R/Kl) Scheme 2017/18 Audited outcome 2018/19 Current TARIFF SUMMARY (R/Kl) Scheme 2017/18 Audited outcome 2018/19 Current tariff 2019/20 Proposed 2020/21 proposed tariff 2020/22 proposed tariff Percentage Increase 8.5% 8% Capricorn & Polokwane Muicipality - Olifantspoort 6.86 7.42 8.05 8.74 9.48 Polokwane Municipality - Ebenezer scheme Mogalakwena Municipality - Doorndraai 6.75 7.29 7.91 8.58 9.31 Mopani DM - Politsi 6.93 7.49 8.12 8.77 Mopani DM - Phalaborwa 4.25 4.58 4.97 5.40 5.86 Mopani DM - Modjadji 5.82 6.29 6.82 7.37 7.96 Mopani DM - Nkowankowa 4.40 4.75 5.16 5.59 6.07 Sekhukhune DM - Flag Boshielo 7.46 8.06 8.75 9.49 10.30 Sekhukhune DM - Burgersfort 6.48 7.00 7.59 8.20 8.85 Sekhukhune DM - Marble Hall 7.45 8.73 9.43 10.19 Sekhukhune DM - Steelpoort WTW 8.24 8.94 Sekhukhune DM - Malekane 5.34 5.77 6.26 6.76 7.30 Sekhukhune DM - Nkadimeng Vhembe - Nandoni 7.31 7.90 5.10 5.51 5.95

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