1. MHLATHUZE WATER Presentation of the 2007/2008 Annual Report to the Honourable Portfolio Committee on Water Presented by: Mr. Bonginkosi Mshengu (Vice Chair of the Board) Mr Silas Mbedzi (Chief Executive) Mr. Sibusiso Makhanya (General Manager: Engineering Services) Ms Lindy Dhlamini (Acting General Manager:Finance) 1 July 2009

2. 2 Table of Contents Background Overview of service provided and areas served Achievement and challenges Audit Report Financial Analysis - Income Statement, balance sheet etc. Performance summary: Water Quality Load Shedding Risk Management Service Delivery and Infrastructure Corporate Social Investment initiatives Conclusion

3. 3 Background Statutory information Established on 23 May 1980 in terms of Water Act, 1956 Deemed to be a water board ito Water Services Act, 1997 (s 84(2)) Compliance to all applicable legislation and best practice (eg PFMA, BBBEE, King II Report)

4. 4 Background Operating Areas and Services Provided Area of Operation Bulk Water supply Effluent Disposal Operations & Management Scientific Services Implementing Agent: School Water Services Implementing Agent: Working for Water. IIembe DM (Northern area) uMkhanyakude DM xxx uThungulu DM x Zululand DM xxx uMhlathuze LM xxxx

5. 5 Background Profile of Board & Executive BOARD EXECUTIVE EQUITY GENDER AFRICANWHITEINDIAN 6 1 1 FEMALEMALE 5 3 AFRICANWHITEINDIAN 3 2 0 FEMALEMALE 0 5 EQUITY GENDER

6. 6 Background Map of Service Areas

7. 7 Achievements Unqualified Audit Report for 2007/08 Increased area of operation to cater for the outlying poor municipalities Remained financially sound – going concern Complied with all applicable legislation Have maintained being one of the top water laboratories in the country and is the only ISO17025 accredited water laboratory in the region with a scope of analyses. Sampling and analyses of water and wastewater are carried out daily.

8. 8 Challenges Inability to secure long term contract with water services authorities especially the ones that need our services most. Non-payment from some of our municipalities The current world recession having an impact on some of the industries that we supply water to in Richards Bay

9. 9 Audit Report Audit Issues oUnqualified Audit Opinion for FY2007/08; No Matters of Emphasis; Financial statements were prepared in accordance with SA GAAP, Water Services Act and the PFMA.

10. 10 Finance Report Income Statement Actual 2007/8 R’000 Actual 2006/7 R’000 % increase/ (decrease) Revenue135 556130 2754.05% Other Revenue9 5972 445292.52% Total Revenue145 153132 7209.37% Operating, General & Admin Costs(108 263)(97 119)11.47% Operating Income before finance costs36 89035 6013.62 Net Finance Costs(8 493)(11 535)(26.37%) Net income for the year28 39724 06618.00% Kilolitres Volume of Bulk Water – Raw11 2769 42719.61% Volume of Bulk Water - purified36 81439 193(6.07%) Volume of Bulk Effluent43 20544 084(1.99%)

11. 11 Finance Report Income Statement Operating Income (before finance costs) by 3.62% (R35 601 million ⇒ R 36 890 million) Net Finance Costs reduced by 26.37% due to:  The redemption of loans (R45,1 million) in FY2006/07  The renegotiation of interest rates with the loan providers. o All indications are that Mhlathuze water is a going concern

12. 12 Finance Report Finance Ratios TargetFY2007/08FY2006/07FY2005/06 Debtors’ days 45 days37.5 days40.4 days53.0days Current ratio 2:11.6:1 1.4:1 Quick ratio 1:11.5:11.6:11.3:1 Debt /Equity ratio 1<1<1.51.661.86 Return on Assets 10%8.4%8.9%9.6%

13. 13 Finance Report Special Investigation Unit Subsequent to the year end, an investigation by the Special Investigating Unit was instituted on the affairs of Mhlathuze Water. The investigation was to cover the period from 1 January 2004 to the date of the publication of the proclamation (4 September 2008). Mhlathuze Water has fully co-operated with the investigation.

14. 14 Water Quality Issues Mhlathuze Water – Has a SANAS 17025 accredited laboratory (accreditation since 2002); Logs its data to the National Water Quality Reporting System to comply with 2010 water quality measures; Does water quality testing and analysis for municipalities, industry and private individuals; Is involved in the National Microbial analyses program for bacteriological quality and participates in 14 sites in its area of operation; Maintained a 98% and 100% compliance with respect to physical and bacteriological water quality, in respect of the Nsezi Water Treatment Plant.

15. 15 Mhlathuze Water Quality Nsezi Water Treatment Plant NSEZI WATER TREATMENT PLANT Purified Water Quality  July 2007 - June 2008 SANS 241 - 2006 Specification Mhlathuze Water Specification Limit for Nsezi WTP Class I (Acceptable)Class II (Max. Allowable) ConstituentLimit% Within LimitLimit% Within LimitLimit% Within Limit PHYSICAL REQUIREMENTS Turbidity (NTU)19751000,590.7 Colour (Pt/Co)2099.25099.5532.8 Total suspended solids (mg/l -1 )No Spec 0,591 CHEMICAL REQUIREMENTS Conductivity at 25 °C (mS/m -1 )1501003701008999.7 pH5,0 - 9,599.74,0 - 10,01007,3 - 9,098.1 Total dissolved solids (mg/l -1 )10001002400100500100 MACRO DETERMINANTS (in mg.l -1 ) Total hardness as CaCO3No Spec 300100 Calcium as Ca150100300100No Spec Magnesium as Mg70100 70100 Sodium as Na200100400100150100 Chloride as Cl200100600100200100 Sulphate as SO4400100600100200100 Nitrate as N10100201006 Fluoride as F1,083.11,594.8183.1 MACRO DETERMINANTS (in µg.l -1 ) Iron as Fe20097.32000100 92.6 Manganese as Mn10097.810001005095.6 OTHER CONSTITUENTS Silica as SiO2No Spec 1527.6 Chemical oxygen demand as O2No Spec 2088.5 BACTERIOLOGICAL REQUIREMENTS Faecal coliform count per 100ml sampleNil100Nil100

16. 16 MHLATHUZE WATER Energy Attached is a schedule of Mhlathuze Water’s power supply at the various installations. Mhlathuze Water has agreed with the power suppliers that supply to critical installations would not be load shed, unless a total “blackout” occurs at Eskom. Mhlathuze Water has also advised its customers of the electricity increases from Eskom and that these would be passed on to them if effected.

17. 17 Load Shedding Readiness Own Installations

18. 18 Service Delivery and Infrastructure Development Projects Mhlathuze Water’s Area of Operations Largely rural and poverty stricken; Few large businesses within most Municipalities; Difficulty for Municipalities to attract skills; Compliance with S19(2) (Priority use of water boards); Lack of infrastructure and development; Poor access to water; Inability to pay for water and infrastructure cost; Low concentration of people add to cost; Poor water availability – (Except Pongola-poort); Poor raw water quality (e.g. manganese, turbidity)

19. 19 Infrastructure Development Projects Mhlathuze Water’s strategic direction involves – Forming strategic partnerships with Water Services Authorities (“WSA’s”); Supporting and assisting WSA’s in meeting their mandates; Assisting DWEA in water and sanitation provision; Establishing strategic networks with all role players (e.g. Industry, WSA’s, DWEA, Province); Supplying any new industries and bulk users in the area (AmaZulu World, Alfluorco, Umbani Power, Pulp United).

20. 20 Service delivery and Infrastructure Development Projects Internally funded projects PurposeAmount 1 Nsezi upgradeIncrease capacity from 134 000 to 204 000 m 3 /day R185 million 2 Empangeni Phase IIIncrease capacity from 26 000 to 60 000 m 3 /day R59 million 3 B Line Diffuser Replacement Effluent disposal pipeline for Foskor R10 million 4 Exxaro FairbreezeProvide water for new mining operation R210 miilion 5 Pulp UnitedWater SupplyR22 million 6 AlflourcoPipeline for waterR160 million Total value of internally funded projects R 646 million

21. 21 Service Delivery and Infrastructure Development Projects Externally Funded Projects: DWEA PurposeAmount R 1 Hlabisa BulkBulk water supplyR89 million 2 Hluhluwe Phase 4Pipe line for water supply R290 million 3 Schools SanitationSchools in the KZN northern region R 55 million 4 Working for WaterWater saving & job creation R 3,5 million Externally Funded: Province 1 Jozini /Ingwavuma Bulk Water Supply Bulk water supplyR276 million 2 KwangwanaseBulk water supplyR 76 million Total Externally funded projects R 789,5 million

22. 22 Service Delivery and Infrastructure Development Projects The Working for Water contract with DWEA is for a period of 3 years. Benefits to Communities include  Job Creation;  Skills Transfer and Development;  Enterprise Development. o Total value of proposed projects amounts to R 1,435 billion. o This excludes the drawing of water from the Pongola-poort Dam to supply surrounding communities, which will cost about R1,6 billion.

23. 23 Corporate Social Investment Mhlathuze Water believes that the aforesaid regional bulk water scheme is the solution in the medium to long term and is funding feasibility studies with regard to this scheme. Immediate water scarcity also has to be addressed. To address this, Mhlathuze Water approved an amount of R12 million to assist with the drought and water challenges faced by uMkhanyakhude District Municipality (UDM). This is being spent on, ie:  Drilling and equipping boreholes at Jozini, which were identified by UDM and the DWEA, to the value of R5 million;  Drilling and equipping boreholes at Ingwavuma Municipality to the value of R1.5 million. The sites were identified by the Department of Local Government and Traditional Affairs;  Rehabilitation of three water pump stations serving Ingwavuma Town, to the value of R1.5 million.

24. 24 Tariffs for the FY2009/10 period A tariff increase of 18% was recommended by the Board for the period FY2009/10 but this was reduced by 4 % by DWEA. This will have an effect on the magnitude of future tariff increases. Capital upgrades and refurbishment were key considerations in the determination of the proposed tariff increase.

25. 25 CONCLUSION The financial position of Mhlathuze Water continues to be healthy and it remains sustainable; The Board and Management jointly continue to strive to achieve the entity’s vision of providing world class water and related services to all stakeholders in its service area.

26. 26 THANK YOU RO LIVHUWA SI YA BONGA

27. 27 Reviewed and Released by: Silas Mbedzi. ___________