1. Presentation to the Portfolio Committee: Water & Environmental Affairs Presentation by Mr Onesmus Ayaya Chief Financial Officer 26 May 2010 1 Briefing on current expenditure trends and their impact on implementation

2. Part A Main Account 2

3. 33 Presentation Outline Departmental Expenditure Trends Departmental Actual Expenditure for fourth Quarter Reasons for underspending Rollover of Funds 2010/11 Final Virements Reason for virement Earmarked Funding Transfer of function 3

4. 4 Departmental expenditure trends YearActual R‘000 Budget R‘000 % Expend 2004/053,776,9463,823,11299 2005/063,717,0883,935,63694 2006/074,305,6504,660,30392 2007/085,385,4615,862,51392 2008/096,511,3007,036,61693 2009/107,586,8297,774,00298 4

5. 55 Departmental Actual Expenditure Fourth Quarter Ending – 31 March 2010 after transfer of functions ProgrammeAdjusted Budget 2009/10 2009/10 Actual R’000 % spent Available Budget Administration847,255846,1851001,070 Water resource management 4,112,6034,072,0909940,513 Water Services2,814,1442,668,55695145,588 Total7,774,0027,586,83198187,171 5

6. 66 ProgrammeAdjusted Budget 2009/10 2009/10 Actual R’000 % spentAvailable Budget Compensation of Employees916,832910,572996,260 Goods and Services2,219,4062,095,50694123,900 Interest and Rent on land1,133 100- Theft and Losses50,277 100- Transfers and Subsidies4,099,6584,045,7389953,920 Payments for Capital Assets486,696483,605993,091 Total7,774,0027,586,83198187,171 Economic Classification 6 Departmental Actual Expenditure Fourth Quarter Ending – 31 March 2010 after transfer of functions

7. 77 Reason for under spending The department has realised a saving due to: The fact that Accelerated Community Infrastructure Project has under spend it’s budget. This was as a result of the fact that the projects are linked to municipal financial year which end in June 2010. The funding of this project is committed and work has started in MP, LP, EC, KZN and NC. Saving in Water Service Grant to Mopani District Municipality was withheld as they have failed to finalise their business plan and their failure to submit 2008/09 close out report on how the 2008/09 funds were spend. Unspent funds on Social Component of Downstream Project. This was as a result of delays by commercial users (mining) to commit to the commercial components of the project during the recessionary conditions prevailing throughout the global market. It should also be noted that this funds are earmarked and will be returned back to National Treasury. 7

8. 88 Rollover requests from 2009/10 - 2010/11 Description of ServiceAmount New Office space in Limpopo3,547 Water Allocation Reform7,800 Water Service Operating Subsidy Grant10,000 Safcol Claim against the Department4,127 National Youth Service3,200 Hartbeespoort Dam Remediation Project9,500 Revision of National Water Resource Strategy (NWRS)4,100 Rain Water Harvesting Tanks in EC and NC6,368 Accelerated Community Infrastructure Programme (ACIP)74,964 Total123,606 8

9. 99 Final Virement (Shifting of Funds in terms of Section 43 of PFMA Virement – 2009/10 financial year ProgrammesVirement Administration34,714 Water Resource Management(8,400) Water Services(26,314) Net Effect0 9

10. 10 Reason for Virement Programme 1 (ADMINISTRATION) has overspent it’s allocated budget by R33 million on IT services, write offs and office accommodation, hence funds were shifted to the programme. A total of R8,400 and R26,314 were shifted from Programme 2: Water Resource Management and Programme 3: Water Services respectively as a result of savings that was realised under personnel budget due to departmental restructuring and high staff turn- over. 10

11. 11 EARMARKED FUNDING 1.Earmarked funding are allocations earmarked by National Treasury for a specific purpose and may not be used for other purposes. Below are earmarked allocations for 2009/10 financial year. Total of earmarked funds amount to R2 698 166 000  Rent of buildings 138 331 000  Working for Water 477 851 000  Working on Fire 123 608 000  Refurbishment of water scheme 30 000 000  De Hoop Dam (Phases 2B to 2G) 98 000 000  Additional capacity: Internal Audit and Finance 6 000 000  Sanitation at school and clinics 350 000 000  Regional Bulk infrastructure 616 753 000  Operating subsidy (Water Services) 857 623 000  Total earmarked funding2,698,166,000 11

12. 12 TRANSFER OF FUNCTIONS 1.The president of Republic of South Africa has announced during his state of the nation address that functions of Sanitation services and Forestry will reside with the Dept. of Human Settlement and the Dept. of Agriculture, Forestry and Fisheries (DAFF) respectively. 2.A total budget of R 529.922 million was shifted to DAFF as a result of shifting of forestry function during the financial year. 3.The expenditure to the amount of R554.076 million was claimed from the DAFF as a result of the expenditure that the Department of Water Affairs has incurred on their behalf. 12

13. 13 Water Trading Entity Management Accounts Period ending 31 March 2010 Part B

14. 14 Contents 1.Statement of financial performance 2.Statement of Financial position 3.Cash flow statement 4.Expenditure and Revenue per Branch 5.Concluding remarks 14

15. 15 STATEMENT OF FINANCIAL PERFORMANCE FOR THE PERIOD 1 APRIL 2009 TO 31 MARCH 2010 ACTUAL MARCH '10 BUDGET 2009\10% UTILISATION REVENUER 000 NWRI1,671,3971,589,113105% CMA208,676200,977104% Augmentation201,700238,32085% Interest receivable from customers607,018-- Other201,86736,000558% TOTAL2,890,6582,064,410140% EXPENDITURE Compensation of employees (431,708) (560,053)77% Goods and services (922,398) (910,667)101% Doubtful debts131,61400% Depreciation (1,481,553) TOTAL EXPENDITURE (2,704,045) (1,470,720) SURPLUS\(DEFICIT) 186,613593,690

16. 16 Income Statement Analysis Revenue is favourable due to the fact that interests on overdue accounts were calculated for the first time via SAP Revenue billed is above budget due to interest receivable from customers R608 million. Favourable variance is due to the measures that are in place to assist WTE in improving the cash flow. COE is 23% below budget mainly due to moratorium on filling vacant positions and as a result there was a delay in advertising some positions. The fact that WTE needed engineering and other related skills that are very scarce resulted in a delay in filling some vacant positions. The operating surplus of R140 million is mainly due to interest receivable from customers otherwise the entity would have reported a deficit. However, due to the fact that the pricing strategy allows for the capping of tariffs and exemption of ROA to water users has resulted in ROA not covering the depreciation of R1.5 billion. The exemption of ROA is not covered by revenue generated. 16

17. 17 Financial Performance Analysis Current levels of funding are not nearly sufficient to enable adequate maintenance, renewal and upgrading of infrastructure. The R2.6 billion shortfall in revenue per year is as a result of capping (10% plus PPI) and Exemption of ROA. 17

18. 18 Income and Expenditure per branch. 18

19. 19 INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: FOR THE PERIOD 1 APRIL 2009 TO 31 MARCH 2010 TOTAL OPERATIONAL CLUSTERS ACTUAL YTDPLAN% ACTUAL %NORM R 000 INCOME1,671,3971,589,113105%100% EXPENDITURE1,002,2121,072,97993%100% Compensation of employees236,749321,76974%100% Goods and services646,682609,458106%100% CD:Financial Management118,781141,75284%100% NET INCOME/EXPENDITURE669,185516,134 Refurbishment and Betterment202,750521,12339%100%

20. 20 INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: FOR THE PERIOD 1 APRIL 2009 TO 31 MARCH 2010 INFRASTRUCTURE DEVELOPMENT ACTUAL YTDPLAN% ACTUAL %NORM R 000 INCOME Augmentation receivable1,881,9711,846,883102%100% EXPENDITURE1,432,3861,590,36490%100% Compensation of employees411,292254,090162%100% Goods and services812,1231,119,59373%100% Capital expenditure141,271130,716108%100% Earmarked fund67,70085,96579%100% NET INCOME/EXPENDITURE449,585256,591

21. 21 INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: 2009/10 FOR THE PERIOD 1 APRIL 2009 TO 31 MARCH 2010 TOTAL FUNCTIONAL SUPPORT ACTUAL YTDPLAN% ACTUAL %NORM R 000 INCOME Augmentation received97,152 100% EXPENDITURE94,60097,15297%100% Compensation of employees61,04164,22095%100% Goods and services33,55932,932102%100% NET INCOME/EXPENDITURE2,5520

22. 22 INCOME AND EXPENDITURE STATEMENT FOR TRADING ACCOUNT: FOR THE PERIOD 1 APRIL 2009 TO 31 MARCH 2010 TOTAL CMAS ACTUAL YTDPLAN% ACTUAL %NORM R 000 INCOME316,753309,053101%100% Water Resource Management208,676200,976102%100% Augmentation108,077 100% EXPENDITURE267,223310,64386%100% Compensation of employees109,658140,06778%100% Goods and services157,565170,57692%100% NET INCOME/EXPENDITURE49,530(1,590)

23. 23 Analysis Refurbishment and betterment below budget due to the fact that WTE had a budget but no cash in bank due to less collections from debtors. Surplus under infrastructure development is due to prior year receipts in relation to water services projects. The surplus of R449million includes the R300million of prior year water service projects. The financial management branch (R120million) has been funded by the savings from Infrastructure Development and operational clusters. This is due to the fact that the pricing strategy doesn’t allow for this costs to be recovered from the water users. 23

24. 24 STATEMENT OF FINANCIAL POSITION FOR THE PERIOD 1 APRIL 2009 TO 31 MARCH 2010 ACTUAL MARCH '09 ASSETSR 000 Non current assets87,538,35587,112,361 Current assets3,767,5782,144,563 TOTAL91,305,93389,256,924 EQUITY & LIABILITIES Capital & reserves86,319,55886,132,945 Non current liabilities28,86329,408 current liabilities4,957,5123,094,571 TOTAL91,305,93389,256,924

25. 25 Debts situation  Challenges The huge debt book (R3.7billion) is affecting our cash flow and is due to slow payments by major customers i.e. Municipalities, Water Boards. There was an impairment of R1.2 billion which reduces our debtors to R2.5 billion. WTE has R1.4 billion debtors more than 120 days and R2.3 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. WTE managed to collect R1.6 billion from water users for the current year, this was not enough to enabled us to do major maintenance of our schemes. 25

26. 26 Action Plan to address the challenges Employ efficient debt collection methods Revisit the TCTA contract i.e. entity responsible for all bad debt risks from its customers. The review of funding model and pricing strategy to be prioritised. Reconciliation on individual debtors are done to confirm outstanding balance. Efficient debt collection methods are being implemented to reduce the debtors book. An exercise is underway to clean the debtors book. The agreement between TCTA and DWA needs to be revisited as the entity is assuming all bad debt risks. 26

27. 27 STATEMENT OF CASH FLOWS FOR THE PERIOD 1 APRIL 2009 TO 31 MARCH 2010 ACTUAL MARCH '09 R 000 Operating activities2,098,8391,064,105 Investing activities(1,907,548)(1,240,824) Financing activities(1,556)86 Increase in cash189.736(176,633) Opening cash & cash equivalent(51,679)124,954 Closing cash & cash equivalent138,057(51,679)

28. 28 Cash Flow position  Challenges Net cash position is a positive balance of R138million We have generated R2,1billion from our operating activities which is sufficient to cover R1,9 billion from investing activities (CAPEX). This is mainly augmentation funding. The improvement in the cash position at the bank is mainly due to savings on compensation of employees. Vacant positions were not filled in order to improve cash flow. However WTE conversion cycle of Debts into cash takes us 214 days instead of 60 days. The cash generated by operations does not cover costs in relation to Betterment and refurbishments. 28

29. 29 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. 29

30. 30 Concluding remarks 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. The backlog on maintenance and refurbishment of infrastructure of assets is estimated at R13billion. 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. 30

31. 31 I thank you 31