1. 1 Water Boards Annual Reports for 2008/2009 Presentation to the Portfolio Committee: Water & Environment Presentation by Ms Thoko Sigwaza Chief Director: Institutional Oversight 03-04 May 2010

2. OVERVIEW of WBs (1) Mandate and legislative framework OVERVIEW of WBs (1) Mandate and legislative framework WBs derive their mandate from the Water Services Act, 1997 WBs have to act within the following legislative framework:  Water Services Act  PFMA & Treasury Regulations  Municipal Finance Management Act  Division of Revenue Act  Municipal Structures & Systems Act 2

3. OVERVIEW of WBs (2) Establishment and disestablishment OVERVIEW of WBs (2) Establishment and disestablishment WBs are established and disestablished in terms of section 28 of the Water Services Act, 1997 List of Established WBs AmatolaNamakwa BloemOverberg BotsheloPelladrift BushbuckridgeRand Lepelle NorthernSedibeng MagaliesUmgeni Mhlathuze List of Disestablished WBs Albany CoastIkangala 3

4. OVERVIEW of WBs (3) DWA’s oversight role over WBs List of Documents submitted to the MinisterLegislation Policy StatementsSec 39 of Water Services Act, 1997 Shareholder CompactsTreasury Regulation 29.2 Corporate Plan & projection of revenue, expenditure & borrowings Sec 52 of PFMA, 1999 Treasury Regulation 29.1 Business PlansSec 40 of Water Services Act, 1997 Quarterly ReportsTreasury Regulation 29.3.1 Annual ReportsSec 44 of Water Services Act, 1997 Sec 55(1)(d) & 65 of PFMA, 1999 Tariff IncreasesSec 42 of MFMA, 2003 Financial misconduct procedures reportTreasury Regulation 33.3.1 Materiality & Significance FrameworkTreasury Regulation 28.3.1 4

5. OVERVIEW of WATER BOARDS (4) WB’s are separate legal institutions that have their own boards of governance, own assets and are required to be self funding They are key strategic organisations that primarily provide bulk potable water services to water service authorities (municipalities), other water service institutions and major customers within a designated service area The WB’s vary considerably in size, activities, customer mix, revenue base and capacity - some have been around for more than 100 years, others are still considered to be new/emerging 5

6. OVERVIEW of WATER BOARDS (5) Most of the older and more established WB’s are centered on areas where there are significant urban development nodes (e.g. Rand Water, Umgeni Water, Bloem Water etc.) Some WB’s operate in more demographically diversified areas where there is a considerable urban or rural mix in the customer base WB’s service areas typically transcend the boundaries of individual WSA’s and in a number of cases even provincial boundaries (e.g. Rand Water supplies services to Gauteng, parts of Mpumalanga, the Free State and North West province) 6

7. OVERVIEW of WBs (6) Chairpersons and Chief Executives WATER BOARDCHAIRPERSONCHIEF EXECUTIVE AmatolaMs RN MlonziMs N Mnukwa BloemDr B MalakoaneActing: Mr O Stadler BotsheloMs GS Lebeko-RatlhaganeMr S Bokaba BushbuckridgeMr P NgomanaActing: Mr M Letswalo Lepelle NorthernCllr MD MonakediMr LA Leballo MagaliesProf MI JahedActing: Mr LM Motlhodi MhlathuzeMs D MyeniActing: Mr V Botes NamakwaActing: Mr R BlakeActing: Mr C Carstens OverbergMr Y EmeranMr AP Potgieter PelladriftMr NR WilliamsVacant RandVacantMr P Sechemane SedibengVacantMr MF Ubisi UmgeniMr A MahlalutyeMr M Msiwa 7

8. RESPONSIBILITY FOR WATER SUPPLY: WBs vis-à-vis MUNICIPALITIES The responsibility for water & sanitation provision rests with the Municipality as the Water Services Authority WB’s provide bulk treated water to Municipalities (WSA’s) WSA’s have a prerogative to either use the services of WBs as Water Services Provider or not. In some areas there is no alternative e.g. Gauteng WSA’s determine their capacity to do this by following a process i.t.o. sec 78 of the Municipal Systems Act If a WSA decides to use a WB, then a contract must be signed (section 19 of the WSAct) w.r.t. quantity, quality & the delivery point of water A Model Bulk Water Service Provider Contract (fair and balanced) was developed between SAAWU and SALGA for this purpose In some instances WB's act as retail water & sanitation WSP 8

9. RELATIONSHIP WITH THE MINISTER Minister appoints Board members & Chairpersons i.t.o. sec 35(1) of WSA The Board is accountable to the Minister Minister signs a Shareholder’s Compact with WB’s & raises issues of concern Minister meets with new Boards, when appointed and also meeting during the course of the year with Chairpersons of WB’s to discuss strategic issues Board members’ performance are assessed on an ongoing basis via reports submitted to the Minister (annual report, shareholder compact, quarterly report, business plans etc) Minister appointed a task team to look at governance problems at water boards, their work is expected to be completed at the end of May 2010 9

10. SUMMATION of ANNUAL REPORTS (AR) 2008/09 (1) QUALIFIED AUDITSQUALIFIED AUDITS Amatola Water Bushbuckridge Water (with emphasis of matter) Namakwa (with emphasis of matter) UNQUALIFIED AUDITSUNQUALIFIED AUDITS Albany CoastOverberg Water Bloem WaterPelladrift Water Lepelle Northern WaterRand Water Magalies WaterSedibeng Water Mhlathuze WaterUmgeni Water Botshelo WaterBotshelo Water – The auditor-general provided a disclaimer of opinion as they were unable to obtain sufficient evidence to provide a basis for an audit opinion. Consolidated net profitConsolidated net profit – Exceeded budgeted profit by R68 million 10

11. SUMMATION OF ARs 2008/09 (2) Consolidated financial performance Total ’09Total ‘08% difference Volumes (kl)2 397 825 4432 311 264 4643,7% SalesR7,7 billionR6,8 billion12.5% Net incomeR1,3 billionR1,4 billion-5.1% Fixed AssetsR11 billionR10,1 billion9.5% InvestmentR607 millionR1,1 billion-47.2% Current AssetsR5,3 billionR4 billion31.5% Current LiabilitiesR3,3 billionR1,9 billion74.5% Long term debtR2,7 billionR3,9 billion-30.7% Cash on HandR1,9 billion 0.4% 11

12. SUMMATION OF ARs 2008/09 (3) Ratios 20092008 Gross profit percentage of sales66.42%67.58% Net profit percentage of sales17.21%20.41% Return on Asset (Net income/total assets)7.79%9.12% Return on Equity (Net income/equity)12.47%15.05% Current Ratio1.592.11 Debtors days6961 Creditors days173184 Debt to assets (total debt / total asset)38%39% Debt to equity (total debt / total equity)60%65% 12

13. SUMMATION OF ARs 2008/09 (4) ANNUAL SURPLUS/DEFICIT IN R’000 SURPLUSDEFICIT Albany Coast Water1 069 Amatola Water9 720 Bushbuckridge Water6 013 Bloem Water44 162 Botshelo Water7 936 Lepelle Northern Water40 283 Magalies Water31 306 Mhlathuze Water34 282 Namakwa Water10 796 Overberg Water2 404 Pelladrift Water992 Rand Water599 641 Sedibeng Water40 679 Umgeni Water527 014 CONSOLIDATED1 343 44012 857 13

14. WATER BOARD CAPEX BUDGET FOR NEXT 5 YEARS PLANNED CAPEX SPENDING OVER THE NEXT 5 YEARS IS ESTIMATED AT R10 BILLION SHORT AND LONG TERM CASH RESERVES IS R4.4 BILLION LIKELY BORROWING TO FINANCE CAPEX IS R5.7 BILLION SURPLUS MUST BE LOOKED AT IN RELATIONSHIP TO THE ASSET MANAGEMENT PLAN, TO ENSURE EFFECTIVE GEARING OF DEBT, IF BORROWING IS EXCESSIVE, FUTURE TARIFFS WILL BE UNAFFORABLE

15. 15 BENCHMARKING OF WATER BOARDS COST

16. OVERSIGHT of WBs: Financial components Financial performance of WBs are appraised through, inter alia, the ARs DWA provides the Minister with comments on the ARs Minister notes content of ARs and approves tabling of ARs in Parliament DWA provides WB’s with written comments & questions re ARs Individual meetings are held with those WBs where serious matters require attention or intervention 16

17. OVERSIGHT of WBs: Non-financial components Total bulk potable water volume supplied by WBs: 2.39 billion kiloliters per annum Total capacity of 3.16 billion kiloliters per annum is available Total authorised abstraction: 2.36 billion cubic meters per annum WBs under spent on CAPEX by an average of 14.5%, except for Rand, Sedibeng and Amatola Rand Water contributes 60% to consolidated turnover, Umgeni 20% and other 11 WBs 20% 17

18. ACHIEVEMENTS Most WB’s have sufficient liquidity to cover short to medium term obligations Consolidated profit at year ended June 2009 was 5.4% in excess of budgeted profit No State guarantees issued to support water boards No significant demand on Government to finance expansion of bulk infrastructure Blue Drop Certificates achieved by most WBs on Drinking Water Quality 18

19. MUNICIPAL DEBT OWNED TO WATER BOARD DORA (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 water boards and DWA unpaid. Changes in legislation should be considered where the equitable share is paid directly to water boards and DWA for water provided.

20. CHALLENGES Refurbishment & extension of infrastructure will require loan funding A number of WBs experience water quality problems in the resource 7 WBs require additional authorisations for abstraction 2 WBs have debt/equity ratios exceeding 100% 5 WBs have surplus/revenue ratio of under 10% Namakwa and Pelladrift have net losses and are not financially sustainable - require solutions Staff retention & skills shortages at remotely located WBs Not all WSAs have Bulk Water Service Provider Contracts Trade receivables are generally high due to debt owed to WBs by some municipalities  Failure of debtor’s collection in weaker WBs affects viability  Poor municipalities use equitable share for other purposes, even after water services are provided 20

21. SOLUTIONS Audit the CAPEX plan to ensure that service delivery is secured over the medium to long term. Intake water quality problems will have to be resolved with firm application of legislation and support from CoGTA as most of the water quality problem are as a result of municipal discharge Namakwa will be provided with grant funding of R40 million (over three years from the current financial year) to refurbish infrastructure, once this is done consideration will be given to merged Namakwa with another water board to benefit from economies of scale Outstanding water service agreement will have to be resolved with the support of CoGTA With regards to skills shortages at remotely located water boards, the water boards could consider pooling skills and deploying them to where needed As a short term measure get support of National Treasury and CoGTA to mediate with municipalities for debt payment In the long term an amendment to DORA should allow for DWA to withhold equitable share from municipalities in arrears 21

22. THANK YOU 22