1. PRESENTATION TO PCWEA 18 APRIL 2013 1 Presenters: Adv. G Khoza Mr. NA Mashele

2. OVERVIEW  Established in 1997 by the Minister of Water Affairs and Forestry in accordance with the Water Services Act.  Mandated to provide water services to other water service institutions.  Currently operates in the Bushbuckridge Local Municipality and part of the Mbombela Local Municipality in Nsikazi area within the Ehlanzeni District Municipality. AreaMl/dayPopulation Bushbuckridge Local Municipality Area (BLM) (8 PWTW)96 454 817 Two Plants owned by DWA and Six plants owned by BLM Mbombela Local Municipality Area (MLM) (6 PWTW) 71568 647 BOARD OF DIRECTOR  The term of the current board of directors is from February 1, 2010 – March 31, 2014. Appointed – 02 Feb 2010 Mr. P Ngomana (Chairperson) Adv. G Khoza (Deputy Chairperson) Adv. H Mbatha – Resigned June 2012 Ms. C Van Rensburg (CA. SA) Ms. C Makwela Ms. S Khoza – Resigned June 2012 Rev. R Ngomane Mr. M Vilakazi Mr. C Padayachee 2

3. TURN AROUND STRATEGY PROGRESS 3

4. 4 Debt owed by WSAs to BW  Bushbuckridge Local Municipality R240,2 mil – June 2012 No interests included) Escalated by R31,8 mil since June 2011 and R40.8 mil since July 2010 to June 2011 BLM signed acknowledgement of debt of R190 mil and agreed to be pay R95 mil on instalments Instalments of R5 mil per month ring-fenced debt starting January 2012 Only R13,8 mil of R30 mil historic debt paid - (2011/12 ) Additional R25 mil paid in December 2012 towards historical debt (2012/13) Payment of R6.3 mil towards the current invoice – per agreement The 2013/14 municipal budget is equated to the proposed tariff Credit control measures put in place including appointment Debt collectors  Disestablished Bohlabela District municipality R26,4 mil – From July 2006 to June 2012 (No interests included) Debt collectors appointed to collect this debt  Mbombela Local Municipality R14 mil – June 2012 Debt settled in full (late payment)

5. 5 Capital Infrastructure Projects BULK INFRASTRUCTURE DEVELOPMENT PLAN A 20 years Capital Infrastructure Plan being compiled, to be completed June 2013 Challenges faced due to short term contracts with WSAs. COGTA-MP & DWA -MP BW entered into agreement to implement projects on behalf of Cogta-MP and DWA – MP for R23 mil and R3.5 mil respectively Projects completed in record time 5% PIA fees DWA-MP RRU agreement for R18 mil over a period of three years 7.5% PIA fees Infrastructure assessment (refurbishment and new plants) in municipalities – MP Completed in record time

6. 6 Supply Contracts  BLM A three years Bulk supply contract signed and to be reviewed in 2014 A possible extension to a longer period A committee of officials established to jointly manage the contract  MLM Parties to agree on Key deliverables before end of financial year A draft contract offer made by MLM, being discussed by BW To be finalised April 2014 for implementation by July 2013

7. 7 Metering/Illegal connections METERING  Bulk pipeline assessment for none revenue water completed November 12  24 new metering points identified  Rand Water appointed as implementing agent by DWA  Funding is through DWA to Rand Water ( R18 million)  The project will be completed in September 2013 ILLEGAL CONNECTIONS  The study Identified the existing illegal connections  Agreement is concluded with BLM to address illegal connection and metering points  BLM to fund the metering/formalization of illegal connections  The project will be completed in September 2013 OTHER PROJECTS FUNDED THROUGH DWA GRANT  Telemetry and Scada system  Blue Drop certification  Refurbishment and pumps replacement  The projects will be completed in February 2014

8. ANNUAL FINANCIAL STATEMENTS 8

9. 2011/12 Annual Financial Statement 8% Growth in revenue to R131.5 million 11% Increase in EBITDA to R22.8 million 1% reduction of direct operating cost 7% increase of the tariff to 3.70 46% recovery of the historic debt of R30 million as per agreement recovery of invoiced amount in Mbombela Local Municipality - 87% 60% recovery of the invoice in Bushbuckridge Local Municipality Statement of Comprehensive Income Year ended 30 June 12 2012 2011Change R R% Water Sales 101,085,561 93,308,2448% Services Rendered 33,267,520 34,442,465-3% Discounting of revenue 2,844,166 6,208,000-54% Revenue131,508,915 121,542,7098% Other operating income613,406 371,65965% Direct operating cost-85,594,351 -86,465,660-1% Other operating expenses -23,699,435 - 14,805,54960% EBITDA22,828,535 20,643,15911% Deprecation-2,342,703 -2,229,5605% Investment Revenue11,234,394 5,179,944117% Finance Cost-328,816 -321,6702% Provision for Doubtful debt-81,357,686 -41,381,37697% Surplus/Deficit-49,966,276 -18,109,503176% Operating Loss-60,871,854 -22,967,777165% Gross Profit45,914,564 35,077,04931% Profit/ Earning Margins (%) Gross Profit margin (%)35% 29% Operating profit margin (%)-46% -19%

10. 2011/12 Annual Financial Statement Continues…………. Statement of Financial Position as at 30 June 2012 % Change 20122011 AssetsRR Non- Current56,385,46757,142,070-1.32% Current Assets85,256,197118,160,660-27.85% Total Assets 141,641,664175,302,730 -19.20% Equity60,247,790110,214,066 -45.34% Capital Contribution68,355,117 0.00% Retained Income-8,107,32741,858,949-119.37% Liabilities81,393,87465,088,664 25.05% Non-Current Liability2,885,3083,070,427-6.03% Current Liability78,508,56662,018,23726.59% Total Equity and Liabilities 141,641,664175,302,730 -19.20% The amounts owing by BLM from the start of 2011 to the end of 2012 have increased as follows: 30 June 201230 June 2011 RR Outstanding debt at the beginning of the year 208 401 925167 630 525 Invoices raised with regard to current water supplied 115 237 540106 371 399 Repayments received by BLM in respect of current invoices raised 69 489 32365 600 300 Repayments received by BLM in respect of historical debt due 13 906 233 Outstanding balance at the end of the financial year 240 243 904208 401 925 Provision for doubtful debts in relation to the amount outstanding 178 660 82797 303 141 In order to ensure that sufficient cash is collected to cover its budgeted expenses, the board will Increase the minimum monthly payments owing by BLM from R6.3 million to R8.5 million. Reduce the water pressure to the BLM when the municipality fails to pay agreed amounts. Employ the services of debt collectors in order to recover the amounts outstanding by the BLM.

11. AUDIT REPORT 11

13. PERFORMANCE AGAINST PRE-DETERMINED OBJECTIVES 13

14. 2011/12 Annual Performance Results 1.Provide bulk water and sanitation services 1.1 Reliability of supply - Increase the volumes of water supplied by 1.66% -Managed to achieved average unaccounted for water of 6.2% 1.2 Water quality - Compliance to SANS 0241 -No out break of water-borne diseases reported 2.Entrench sound financial management and corporate governance 2.1. Financial Management - Increased revenue by 8% in BLM - 60% recovery of revenue on invoices in BLM~ based on flat rate payment agreement -87% recovery of revenue on invoices in MLM -46% recovery of R30 million historic debt per contract - Unqualified audit report 2.2. Corporate governance - 87% attendance of planned Board and Board committee meetings - 100% board performance assessment 3.Optimize stakeholder interaction and engagement 3.1 Stakeholder relations - Improve stakeholder relations engagements 3.2. Business Development -SLA signed with BLM

15. 2010/11 Annual Performance Results…. 4. Optimise human capital investment 4.1. Human resources - 1.5% staff leaving the institution - 29% implementation of Employment Equity plans 5. Acquire, develop and manage infrastructure 5.1. Project management - 100% implementation of DWA and CoGTA infrastructure projects - 71 temporary jobs created

16. CAPITAL INFRASTRUCTURE EXPENDITURE 16

17. 2011/12 Capital Infrastructure Expenditure  Grant funding from Cogta-MP and DWA  100% of projects completed within schedule:  71 no. of temporary jobs created through these projects Project Description Municipal Area Total Project Value FunderStatus Abstraction Sabie River - Cork Desilting facilities (Sand to be trapped) Bushbuckrid ge Local Municipality 1 000 000 Department of Corporative Governance and Traditional Affairs: Mpumalanga (CoGTA) Complete Abstraction Mutlumuvi River Desilting facilities (Sand to be trapped)1 000 000Complete Abstraction Motlamogale River Desilting facilities (Sand to be trapped)1 000 000Complete Treatment Dingledale Package Plant (Villages, Dingledale only) Refurbishment of Package Plant 1 500 000Complete Abstraction Thulamahashe WTW : Upgrading of Plant components3 000 000Complete Booster Pump Station Dwarloop WTW: Pump & Panel2 500 000Complete Subtotal 10 000 000 Kanyamazane WTW - Clear water sump- Treatment Purification Plant Inadequate storage Mbombela Local Municipality 4 000 000 CoGTA 95% Complete Kanyamazane WTW Refurbishment - Treatment Purification Plant dilapidated infrastructure 1 000 000Complete Water Tankers : Nsikazi North & South Scheme: 2 x 16000litre tankers2 800 000Complete Kanyamazane Regional Scheme Raw Water Pump Station) Packed High Lift pumps 2 500 000Complete Nsikazi South Scheme Boreholes & Jojo tanks3 079 000 Department of Water Affairs Complete Nsikazi North Scheme: Drill, Equip, Electrification, Securing & Supply & Install Jojo Tanks 2 821 000Complete Nsikazi North Scheme: Ground water investigation & borehole siting (56 Sites) 300 000Complete Subtotal 16 500 000 Grand TotalR 26 500 000

18. 18 2011/12/13 Capital Infrastructure Expenditure  Grant funding for RRU/ACIP programme  95% of projects completed within schedule:  72 no. of jobs created through these projects Project Description Total Project Value Status Chief Albert Luthuli LM(Carolina Town) Acid Water challengesR1 100 000Completed - August 2012 Chief Albert Luthuli LM(eMpuluzi Township / Mayflower) 2 ML package plantR3 300 000Started April 2013 Lekwa LM ( Standerton) Refurbishment – WWTW R1 500 000Completed - March 2013 Victor Khanye LM (Delmas) Refurbishment – WWTWR1 000 000Completed - March 2013 Govan Mbeki LM ( Bethal) Refurbishment – WWTW R1 700 000Completed – March 2013 Mkhondo LM (Piet Retief ) Refurbishment – WWTW R3 400 000Completed – March 2013 Mkhondo LM (Amsterdam ) Refurbishment – WWTW R2 600 000Completed – March 2013 Emalahleni LM ( Ferrobank) Refurbishment – WWTWR5 000 000Completed – March 2013 Total to dateR19 600 000

19. 19 ANALYSIS OF 2011/12 BUDGET ANALYSIS

20. 20 2011/12 Budget Analysis Analysis to the Budget 2011/12 ActualBudgeted% Revenue 131,508,915 164,756,838-20% Cost of Sale (85,594,351) (35,080,721)144% Gross profit 45,914,564 129,676,117-65% Other Income 613,406 374,00064% Operating Expenditure (107,399,824) (139,234,121)-23% Operating profit (60,871,854) (9,184,004) Investment revenue 11,234,394 173,4856376% Finance cost (328,816) (136,000)142% Surplus/ (deficit) (49,966,276) (9,146,519) Revenue discounted = R2 million Provision for doubtful debt = R81 million – Budget = R36 million

21. 2013/14 Tariff Structure 21

22. 2013/14 TARIFF STRUCTURE Consideration of Eskom Increases  No material impact on the tariff  Initial BW estimates was 16%  9.6% increases was effected but no material changes Complied with Regulatory frameworks  Water Services Act, 108 of 1997 s10 Norms and standards for tariffs  Municipal Finance Management Act No. 56 of 2003 Section 42 Comments from Stakeholders  Bushbuckridge Local Municipality – Accepted the 12.5% increase  National Treasury – Commented on 12.5% increase; Raised concerns on debt recovery  SALGA – Commented on 12.5% increase; Mbombela Local Municipality Tariff  Charging rates per management contract  Tariff based contract is being finalized with MLM  Charge within BLM rate for the first year of the contract

23. { 2013/14 TARIFF STRUCTURE Continues Initial Tariff prior the NERSA – Energy Approval = 12.5% Year Proposed Tariff for Tariff anticipated in 201420152016 Fy Year 1Fy Year 2Fy Year 3 (R/Kl) DWA / CMA charge 0.4970.5250.554 Direct scheme operations costs 2.1812.4182.723 Overheads 0.9760.9800.979 Depreciation 0.0650.0740.078 Income statement surplus 0.6690.6990.692 Sub-Total 4.394.705.03 Projected water sales (kl) 38,507,500 40,432,875 42,454,519 Projected revenue (R ) 169,103,280189,987,535213,450,995 Projected costs (R ) 143,331,853 161,727,088184,084,887 Projected surplus (R ) 25,771,42728,260,44729,366,108 Reserves (R ) 86,331,064 116,556,769 164,550,742 Projected surplus as a % of Reserves 29.85%24.25%18% Debt service cost 10.58% 11.00% Debt / (Debt + Equity) ratio 0.01 0.00 Capex and Refurbishment (R ) 16,009,84516,874,377 17,701,221

24. 2013/14 TARIFF STRUCTURE Continues YearProposed Tariff forTariff anticipated in 201420152016 Fy Year 1Fy Year 2Fy Year 3 (R/Kl) DWA / CMA charge0.4970.5250.554 Direct scheme operations costs2.1622.3982.700 Overheads0.9760.9800.979 Depreciation0.0650.0740.078 Income statement surplus0.6680.6980.692 Sub-Total4.374.685.00 Projected water sales (kl) 38,507,500 40,432,875 42,454,519 Projected revenue (R ) 168,351,709 189,143,146 212,502,324 Projected costs (R ) 142,613,157 160,904,937 183,107,967 Projected surplus (R ) 25,738,552 28,238,208 29,394,357 Reserves (R ) 86,331,064 116,556,769 164,550,742 Projected surplus as a percentage of Reserves29.81%24.23%18% Debt service cost10.58% 11.00% Debt / (Debt + Equity) ratio0.01 0.00 Capex and Refurbishment (R ) 16,009,845 16,874,377 17,701,221 ItemFy Year 1Fy Year 2Fy Year 3 201420152016 ASSUMPTIONS CPI6.0%5.6%5.5% Increase in water sales (percentage) 5.0% Volume of water billed (kl) 38,507,500 40,432,875 42,454,519 Proposed tariff increase12.0%7.0% Proposed Tariff (c/kl)437.19467.80500.54 Volume raw water purchases (kl) 42,358,250 44,476,163 46,699,971 Assumed raw water tariff (c/kl)0.4520.478 0.504 Final Tariff after consideration of Eskom 12% increase Propose 12% COST DRIVERS Energy Chemical cost Labour cost Refurbishment Maintenance

25. 25 2013/14 Key Strategic Focus for 2013/14

26. 26 Strategy Alignment to Government Priorities STRATEGIC GOALS AND OBJECTIVES FRAMEWORK Ministers Outcome Alignment DWA strategic objectives alignment To provide water services o Water volumes (production, distribution) o Water quality o Sanitation (treatment, discharge of effluent) Outcome A, DSO 1.1, SO 1.2, SO 1.3, SO 2.2, SO 2.6, SO 3.2 SO 3.4, To provide water supply infrastructure services o Infrastructure installations (water infrastructure assets, bulk pipelines, connections, metering) o Infrastructure maintenance (pipelines, reservoirs, pump stations, metering, water pressure systems, boreholes) Outcome B, D, ESO 1.1, SO 1.2, SO 1.3, SO 2.2, SO 2.6, To optimise stakeholder interaction o Education / Awareness creation (campaigns, events, information sharing, outreach programmes) o Stakeholder relations management (advocacy, knowledge sharing, stakeholder establishment maintenance) o Input into external regulatory instruments Outcome DSO 3.1, SO 3.4 SO 4.1, SO 5.1, SO 5.2 To ensure business development (existing and new business) o Product / service development o Market development Outcome D, ESO 4.1, SO 5.1 SO 5.3 To promote effective water resource management o Water usage (sourcing, discharging) o Environmental management Outcome A,SO 2.5, SO 2.7

27. 27 2013/14 Key Strategic Focus Goal 1: To provide water services  Water volumes (Production, Distribution) o Increase production by 5% o Manage water losses below 10% o Abstraction licenses  Water quality o Improve on blue drop status 80% o 100% compliance with SANS 241 and ISO 9001 Goal 2: To provide water supply infrastructure services  Infrastructure Installations o 100% completion of the infrastructure projects ( upgrading & Construction of pipelines) o Minimum 70% of planned temporary job creation as per project o 100% implementation of infrastructure maintenance plans

28. 28 Goal 3: To optimise stakeholder interaction  Education / awareness creation (Campaigns, Events, Information sharing, Outreach programmes) o Education / awareness creation programmes conducted  Stakeholder relations management (Advocacy, Knowledge sharing, Stakeholder establishment maintenance) o Stakeholder forums / working groups / service delivery partnerships Goal 4: To ensure business development (existing and new business)  Product / service development o Alternative service delivery mechanisms (Private partnerships)  Market development o New market opportunities (PIA, Service areas) 2013/14 Key Strategic Focus Cont. ……..

29. 29 Goal 5: To promote effective water resource management  Environmental management o 80% of planned environmental management programmes achieved Goal 6:To ensure internal business excellence  Business management / leadership o 100% Compliance to materiality and significance framework o 100% Corporate governance issues detected versus corrected o 70% Board performance rating  Human resource management o <3% Staff turnover o 35% Employment equity targets planned versus achieved  Financial management o 40% of historic debt to be recovered o 80% BBBEE discretional use o Unqualified audit opinion  Information / communication technology management (ICT) o 55% ICT master plan implementation progress 2013/14 Key Strategic Focus Cont. ……..

30. Challenges  Continually deteriorating financial condition of BLM impacting on financial viability of BW.  Escalating debt for Bushbuckridge local municipality  The ability of BW to continue operating as a Going Concern  Backlog in refurbishment and maintenance due to cash flow constraints  Existing short term contracts with WSAs which impact on long term planning and capital investment  Finalization of the transfer of assets  Uncertainty due to re-alignment process  Board vacancies hampers smooth operations of Board committees  Ageing infrastructure 30

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