1. Presentation to the Portfolio Committee: Water & Environmental Affairs
Briefing on Current Expenditure and their Performance Trends
Presentation by Mr Onesmus Ayaya Chief Financial Officer 04 August 2010 1

2. EXPENDITURE OUTCOME FOR THE FIRST QUARTER ENDED 30 JUNE 2010
Programme
Original budget
2010/11
R’000
Actual Exp
30 June 2010
% spent
Available budget
Administration
13%
Water Management
50 859
14%
National Water Resource Infrastructure Programme
22%
Regional Management
Water Sector Regulations
17 641 9%
Total
15.94% 2

3. EXPENDITURE OUTCOME FOR THE FIRST QUARTER ENDED 30 JUNE 2010
Economic classification
Programme
Original budget
2010/11
R’000
Actual Exp
30 June 2010
% spent
Available budget
Compensation of Employees (CoE)
20%
Goods and Services
11%
Interest and Rent on land - 13
(13)
Transfers and Subsidies
22%
Payments for Capital Assets
9 509 1%
Total
15.94%
Reason for under spending
Unfilled vacant posts throughout the department contributed to under – expenditure, it is anticipated approximately R70 million will not be spend in this current financial year
Late submission of invoices in respect of services already rendered such as Fleet management Services (Phakisa) and IT Services (Arivia.)
Projects such as backlogs in sanitation at schools and clinics and Regional Bulk Infrastructure are still at the construction phase, the expenditure is anticipated to increase in the following months of the last quarter of this financial year.
Direct transfers to municipalities in respect of Water Services Operating Subsidy could not be transferred to municipalities as result of non-compliance with DORA, these funds are anticipated to be transferred in following months.
A close of business in construction industries during December 2009 holidays had an impact towards the infrastructure expenditure trends as it has been halted during that period. The infrastructure branch indicated that the entire infrastructure budget will be spend before the end of the year. 3

4. Monthly Forecast vs. Monthly Actual4

5. Reason for under spending
Challenges
Interventions
Unfilled vacant posts, however post are being filled and the expenditure on CoE is improving as compared with last year.
The Department has committed to develop a roadmap in filling of all posts up to deputy director level by 31 August 2010.
Backlog with regard to processing of unpaid invoices which emanates from previous financial year because BAS structure was not ready as at 1 April 2010
All invoices prior to 31 March 2010 are to be paid by 15 August 2010.
Late submission of invoices in respect of services already rendered such as Fleet management Services (Phakisa) and IT Services (T-Systems).
There is a process in-place to stream line the receipt of invoices to ensure efficient distribution and timely administration.
The bulk of the budget under payments for Capital Assets is mainly as a result of delays in signing of contracts between DWA and Service providers in Regional Bulk Infrastructure grant and other capital projects were only commissioned in the month under review.
The Department has engaged with all service Providers and 13 Annual contracts have now been signed. 5

6. MAIN ACCOUNT ALLOCATION (INCLUDING EARMARKED FUNDING)
Programme
2010/2011
R’ 000
2011/2012
2012/2013
Administration
Water management
National water resources infrastructure
Regional management
Water sector regulation
Total allocation 6

7. DROUGHT RELIEF ALLOCATION – 2010/11
Province
Budget Allocation
R’000
Western Cape
Eastern Cape
86 857
Limpopo
54 000
Total 7

8. DROUGHT RELIEF ALLOCATION – 2010/11 Expenditure Report as at 29 July 2010
Municipalities
Budget Allocation(‘000)
Transferred to date
(‘000)
Available Budget
Eastern Cape:
86 857
31 335
55 522
Alfred Nzo Municipality
8 447
5 380
Amathole Municipality
12 264 -
Cacadu Municipality
33 505
3 200
30 505
Chris Hani Municipality
9 695
2 242
7 271
Ukhahlamba Municipality
7 756
3 000
4 756
OR Tambo Municipality
15 190
5 067
Limpopo:
54 00
54 000
Vhembe Municipality
Municipal Drought payment made in July 2010 – R 8

9. DROUGHT RELIEF ALLOCATION – 2010/11 cont..
Municipalities
Budget Allocation
(‘000)
Transferred to date
Available Budget
Western Cape:
74 300
67 200
George Municipality
75 000
50 000
25 000
Knysna Municipality
17 900
10 000
7 900
Bitou Municipality
20 000 -
Beaufort West Municipality
28 600
14 300
TOTAL
176722
Notes
The payment of R10 million to Bitou Municipality is in the processes of being transferred.
The transfer to Vhembe is awaiting finalisation of the process on the pipeline to Giyani.
All the transfers above were made against the old payment schedule
According to the new approved payment schedule received from Sello Mashaba of NT, the next transfer date for EC is 29/09/2010, and 01/09/2010 for WC.
Expenditure to date: Municipal Drought payment made in July 2010 – R 9

10. EARMARKED FUNDING Description of Earmarked Projects 2010/11 R’000
Q1 Expenditure
Learning Academy
20 000 -
Property Management - Rental of Buildings
1 774
Additional Capacity – Human Resources
7 000
3 097
Working for Water
54 515
Working on Fire
73 774
Funding to replace donor funding
Bulk infrastructure
85 667
Water Services Operating Subsidy
Construction of Water Services Scheme
Compliance Monitoring & Enforcement
5 000
Total R 10

11. UN-EARMARKED FUNDING Economic classification 2010/11 (R ’000)
Compensation of Employees
Goods and Services
Transfers of subsidies
Payment for Capital
98 863
Total 11

12. PART B
Water Trading Entity (WTE) Management Accounts Period ending 3 June 2010 12

13. PART B
Water Trading Entity (WTE) Management Accounts Period ending 30 June 2010 13

14. PURPOSE Contents Statement of financial performance
Statement of Financial position
Cash flow statement
Expenditure and Revenue per Branch
Concluding remarks
Contents 14

15. INCOME STATEMENT FOR TRADING ACCOUNT: 2010/11
FOR THE PERIOD ENDED 30 JUNE 2010
1ST QUARTER ACTUAL
1st QUARTER BUDGET
BUDGET 2010\11
% UTILISATION
REVENUE
R’000 
 R’000
NWRI
288,849
410,451
1,706,406
70%
CMA
45,204
54,439
240,832
83%
Augmentation
78,368
109,681
438,722
71%
Other
14,179
46,697
186,865
30%
TOTAL EXPENDITURE
426,600
621,268
2,572,825
69%
Compensation of employees
116,747
155,985
736,261
75%
Goods and services
215,505
322,773
947,775
67%
Depreciation
500,000 0%
832,252
478,758
1,684,036
174%
SURPLUS\(DEFICIT)
(405,652)
142,510
888,789 15

16. FINANCIAL PERFORMANCE ANALYSIS
Revenue is below budget due to the challenges that we have on SAP billing systems. The challenges are being addressed to ensure that hand billings are automated.
The operating surplus of R98 million before depreciation is due to the slow spending on salaries and goods and services.
COE is 25% below budget due to the unfilled vacant positions. The situation will improve during the year as most of the position are currently being advertised and filled.
Goods and services is 33% below budget due to the fact that there is a link between unfilled vacancies and traveling costs as well as services to be rendered to WTE. The situation is bound to improve during the next quarter.
The operating deficit of R405 million is due to the fact that the pricing strategy allows for the capping of tariffs and exemption of ROA to water users and has resulted in ROA not covering the depreciation of R500 million. The exemption of ROA is not covered by revenue generated. 16

17. INCOME AND EXPENDITURE17

18. INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: 2010/11
FOR THE PERIOD ENDED 30 JUNE 2010
TOTAL FUNCTIONAL SUPPORT
ACTUAL YTD
R’000
1ST QUARTER BUDGET R’000
PLAN R’000
% ACTUAL
%NORM
INCOME
Augmentation received
48,982
80,725
322,901
61%
100%
EXPENDITURE
47,662
69,349
330,897
69%
Compensation of employees
23,783
34,261
165,884
Goods and services
23,879
35,089
165,013
68%
NET INCOME/EXPENDITURE
1,320
11,376
-7,996
Movable Assets
3,121
7,004
42% 18

19. INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: 2010/11
FOR THE PERIOD ENDED 30 JUNE 2010
DDG: INFRASTRUCTURE OPERATIONS
ACTUAL YTD
R’000
1ST QUARTER BUDGET R’000
PLAN R’000
% ACTUAL
%NORM
INCOME
Augmentation Receivables
1,180
3,679
14,716
32%
100%
EXPENDITURE
1,135
3,457
14,683
33%
Compensation of employees
803
876
4,356
92%
Goods and services
332
2,581
10,327
13%
EXCESS INCOME/EXPENDITURE 45
222 33
Movable Asset 8
563% 19

20. INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: 2010/11
FOR THE PERIOD ENDED 30 JUNE 2010
CD: OPERATIONS
ACTUAL YTD
R’000
1ST QUARTER BUDGET R’000
PLAN R’000
% ACTUAL
%NORM
INCOME
Augmentation receivable
8,494
9,035
36,139
94%
100%
Other income
3,750
15,000
EXPENDITURE
12,782
51,129
66%
Compensation of employees
4,142
5,851
23,403
71%
Goods and services
4,352
6,932
27,726
63%
NET INCOME/EXPENDITURE 3 10
Movable Asset
731
138
530% 20

21. INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: 2010/11
FOR THE PERIOD ENDED 30 JUNE 2010
CD:BUSINESS DEVELOPMENT
ACTUAL YTD
R’000
1ST QUARTER BUDGET R’000
PLAN R’000
% ACTUAL
%NORM
INCOME
Augmentation receivable
3,405
5,042
20,168
68%
100%
EXPENDITURE
3,230
3,188
19,318
101%
Compensation of employees
2,550
2,611
14,791
98%
Goods and services
680
577
4,527
118%
NET INCOME/EXPENDITURE
175
1,854
850
Movable Asset
147
119% 21

22. INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: 2010/11
FOR THE PERIOD ENDED 30 JUNE 2010
CD: ENGINEERING SERVICES
ACTUAL YTD
R’000
1ST QUARTER BUDGET R’000
PLAN R’000
% ACTUAL
%NORM
INCOME
Augmentation receivable
9,251
15,055
60,218
61%
100%
EXPENDITURE
9,146
10,082
58,173
91%
Compensation of employees
7,204
7,822
47,618
92%
Goods and services
1,942
2,260
10,555
86%
NET INCOME/EXPENDITURE
105
4,973
2,045
Movable Asset
352
30% 22

23. INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: 2010/11
FOR THE PERIOD ENDED 30 JUNE 2010
CD: CONSTRUCTION MANAGEMENT
ACTUAL YTD
R’000
1ST QUARTER BUDGET R’000
PLAN R’000
% ACTUAL
%NORM
INCOME
Augmentation receivable
2,542
3,749
14,995
68%
100%
EXPENDITURE
2,433
3,824
14,114
64%
Compensation of employees
1,431
2,351
8,621
61%
Goods and services
1,002
1,473
5,493
NET INCOME/EXPENDITURE
109
-75
881
Movable Asset
137
80% 23

24. ACTUAL YTD R’000 1ST QUARTER BUDGET R’000 PLAN R’000 % ACTUAL %NORM
INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: 2010/11
FOR THE PERIOD ENDED 30 JUNE 2010
INFRASTRUCTURE DEVELOPMENT
ACTUAL YTD
R’000
1ST QUARTER BUDGET R’000
PLAN R’000
% ACTUAL
%NORM
INCOME
Augmentation receivable
288,193
340,634
1,362,535
85%
100%
Other income
14,179
46,697
186,865
30%
EXPENDITURE
294,569
420,416
1,447,341
70%
Compensation of employees
68,001
67,220
246,474
101%
Goods and services
199,866
278,750
904,011
72%
Movable Asset
26,618
2,794
10,248
953%
Design 84
71,652
286,609 0%
NET INCOME/EXPENDITURE
7,803
-33,085
102,059 24

25. INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: 2010/11
FOR THE PERIOD ENDED 30 JUNE 2010
CD: FINANCIAL MANAGEMENT
ACTUAL YTD
R’000
1ST QUARTER BUDGET R’000
PLAN R’000
% ACTUAL
%NORM
INCOME
Augmentation receivable
23,379
44,166
176,665
53%
100%
EXPENDITURE
23,224
36,016
173,480
64%
Compensation of employees
7,653
14,750
67,095
52%
Goods and services
15,571
21,266
106,385
73%
NET INCOME/EXPENDITURE
155
8,150
3,185
Movable Asset
2,339 7% 25

26. INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: 2010/11
FOR THE PERIOD ENDED 30 JUNE 2010
TOTAL OPERATIONAL CLUSTERS
ACTUAL YTD
1ST QUARTER BUDGET
PLAN
% ACTUAL
%NORM
INCOME
288,849
410,451
1,706,406
70%
100%
EXPENDITURE
251,385
266,670
1,049,301
94%
Compensation of employees
64,598
90,392
409,470
71%
Goods and services
186,787
176,278
639,831
106%
NET INCOME/EXPENDITURE
37,464
143,781
657,105
Movable Asset
2,350
7,420
20,586
32%
Refurbishment
159,130
636,519 0% 26

27. INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: 2010/11
FOR THE PERIOD ENDED 30 JUNE 2010
TOTAL CMAS
ACTUAL YTD
1ST QUARTER BUDGET
PLAN
% ACTUAL
%NORM
INCOME
75,909
85,145
363,327
89%
100%
Water Resource Management
45,203
54,439
240,502
83%
Augmentation
30,706
122,825
EXPENDITURE
51,666
81,496
336,645
63%
Compensation of employees
29,798
35,308
172,728
84%
Goods and services
21,868
46,188
163,917
47%
NET INCOME/EXPENDITURE
24,243
3,649
26,682
Movable Asset
499
8,006
14,212 6% 27

28. ANALYSIS
No expenditure on refurbishment and betterment due to the fact that SAP internal order system not implemented, spending is currently happening on OPEX, cost will be moved to CAPEX once the internal order system is fully implemented.
Under expenditure on cost of employee on all Chief Directorate is attributable to vacant positions. The situation will improve during the financial year as posts are filled via the Departmental Roadmap.
Analysis 28

29. STATEMENT OF FINANCIAL POSITION
FOR THE PERIOD 1 APRIL 2010 TO 30 JUNE 2010
  JUNE ‘10
MARCH ‘10
ASSETS
R’000
Non current assets
64,491,300
64,628,584
Current assets
2,673,786
2,339,733
TOTAL
67,165,086
66,968,316
EQUITY & LIABILITIES
Capital & reserves
62,827,846
Non current liabilities
25,664
Current liabilities
4,341,580
4,114,810
67,195,090 29

30. DEBTS SITUATION Debts situation Challenges
The huge debt book (R3,7billion) is affecting our cash flow and is due to slow payments by major customers ie Municipalities (Owing R1,12billion) and Water Boards.
There was an impairment of R1.1 billion which reduces our debtors to R2.5 billion.
WTE has R1.2 billion debtors more than 120 days and R2.5 billion less that 120 days.
We have an obligation to pay TCTA whether we have collected or not from their customers and this is also affecting cash flow.
The cash collection is very low due to the delay in sending out April and May invoices, we had system problems and as results billing did not take place as scheduled.
Debts situation 30

31. Action Plan to address the challenges
Identify / Implement efficient debt collection methods.
Reconciliation on individual debtors are done to confirm outstanding balance in accordance with our policy.
The review of funding model and pricing strategy to be prioritised.
An exercise is underway to clean the debtors book.
Action Plan to address the challenges 31

32. STATEMENT OF CASH FLOWS FOR THE PERIOD 1 APRIL 2009 TO 31 MARCH 2010
ACTUAL
JUNE ‘10  
ACTUAL MARCH ‘10
R’000
Operating activities
(127,867)
1,767,227
Investing activities
(323,090)
(1,307,003)
Financing activities
(0)
(1,055)
Decrease in cash
(450,957)
459,169
Opening cash & cash equivalent
400,859
(58,309)
Closing cash & cash equivalent
(50,088) 32

33. CASH FLOW POSITION Challenges
Net cash position is a negative balance of R50million.
WTE has the budget but no cash in bank due to long outstanding debts.
However, WTE conversion cycle of Debts into cash takes us 178 days instead of 60 days.
The spending on refurbishment and betterment will be restricted to cash collected by WTE. 33

34. Cash Flow Position ..cont
Solutions
The review of pricing strategy and funding model should be a priority of the department. This will assist in addressing the financing gaps we have between the pricing strategy and the funding model.
System of budget monitoring is already in place to make sure that no unauthorised expenditure is incurred this financial year.
Strategy to improve debtors collections should be implemented.
Revisit the agreement between TCTA and DWA. More questions that beg answers from policy makers.
Cash Flow Position ..cont 34

35. CONCLUDING REMARKS
The backlog on maintenance and refurbishment of infrastructure of assets is estimated at R13billion.
Cash generated from operating activities is not enough to fund refurbishment and betterment of infrastructure assets and this is arising from capping provisions in the Pricing Strategy.
Revision of Pricing Strategy is the long term solution to financial stability within the Water Trading Entity to enable it to clear the above backlog.
Concluding remarks 35

36. THANK YOU 36