Overview on wOverview on water boards annual reports and tabled tariffs
Presentation to the Portfolio Committee: Water & Environment
Ms Thoko SigwazaChief Director: Institutional Oversight
Policy and legislative mandate Legislative• Water Services Act, Act 108
of 1997• Public Finance Management
Act (PFMA), Act 1 of 1999, as Schedule 3(B): National Government Business Enterprises
Policy• White Paper on Water
Supply and Sanitation, 1994– Strategic Framework for
Water Services, 2003
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Oversight role of DWA
Compliance imperatives Legislation mandating the compliance
Policy Statements Sec 39 of Water Services Act, 1997
Shareholder Compacts Treasury Regulation 29.2
Corporate Plan & projection of revenue, expenditure & borrowings
• Sec 52 of PFMA, 1999• Treasury Regulation 29.1
Business Plans Sec 40 of Water Services Act, 1997
Quarterly Reports Treasury Regulation 29.3.1
Annual Reports • Sec 44 of Water Services Act, 1997• Sec 55(1)(d) & 65 of PFMA, 1999
Tariff Increases Sec 42 of MFMA, 2003
Financial misconduct procedures report Treasury Regulation 33.3.1
Materiality & Significance Framework Treasury Regulation 28.3.1 3
Minister of Water and Environmental Affairs is the only shareholder
Top management in water boards
Name of water board Name of Chairperson Name of Chief Executive
Amatola Ms RN Mlonzi Ms N Gwabeni
Bloem Mr TB Phitsane (Acting) Dr B Malakoane
Botshelo Ms GS Lebeko-Ratlhagane Mr S Bokaba
Bushbuckridge Mr P Ngomana Mr NA Mashele
Lepelle Northern Mr MJR Mpai Mr LA Leballo
Magalies Prof MI Jahed Mr M Dlamini
Mhlathuze Ms D Myeni Mr V Botes
Overberg Mr Y Emeran Mr AP Potgieter
Pelladrift Mr NR Williams Vacant
Rand Adv MM Petlane (Acting) Mr P Sechemane
Sedibeng Mr TB Phitsane (Acting) Mr RT Takalani (Acting)
Umgeni Mr A Mahlalutye Mr M Msiwa 4
Establishment datesName of water board Province Year Age
Amatola Eastern Cape (EC) 1997 13 years
Bloem Free State (FS) 1991 19 years
Botshelo North West (NW) 1998 12 years
Bushbuckridge Mpumalanga (MP) 1997 13 years
Lepelle Northern Limpopo 1997 13 years
Magalies Gauteng (GP), NW 1969 41 years
Mhlathuze KwaZulu-Natal (KZN) 1980 30 years
Namakwa [Disestablished in 2011] Northern Cape 1978 32 years
Overberg Western Cape 1993 17 years
Pelladrift Northern Cape 1997 13 years
Rand GP, NW, MP, FS 1904 106 years
Sedibeng FS, NW 1979 31 years
Umgeni KZN 1974 36 years
Ikangala (MP) was disestablished in 2009Albany Coast EC was disestablished in 2010 and operations merged with Amatola
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Alignment with government prioritiesNo Abridged outcome DWA priority Water board contribution
4 Employment 1. Economic, rural development, food security, land reform
3. Strengthening regulation
• R8 billion water sales for 09/10• 6 322 existing jobs• 116 new jobs created
6 Infrastructure R2.3 billion budget for CAPEX 2010
7 Rural development Limited success, but moving to ensure bulk services are accessible for rural municipalities
9 Local government 4. Local government to deliver water services
Provide bulk services to local government and secondary support on retail activities
10 Environment 2. Promote sustainable and equitable WRM
• DWA water resource management (WRM)
• O & M of DWA infrastructure
12 Public service 6. Build capacity to deliver quality services
Some WBs support municipalities to develop water related infrastructure
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Audited reports Name of water board 2009/10 2008/09 Comment
Albany Unqualified Unqualified No change
Amatola Unqualified Qualified Improvement
Bloem Unqualified Unqualified No change
Botshelo Disclaimer Disclaimer No change
Bushbuckridge Qualified Qualified No change
Lepelle Northern Unqualified Unqualified No change
Magalies Qualified Unqualified Regressed
Mhlathuze Unqualified Unqualified No change
Namakwa Qualified Regressed
Overberg Unqualified Unqualified No change
Pelladrift Unqualified Unqualified No change
Rand Unqualified Unqualified No change
Sedibeng Unqualified Unqualified No change
Umgeni Unqualified Unqualified No change 7
Consolidated Financial PerformanceTotal ’10 Total ‘09 % change
Volumes (kl) 2 303 649 769 2 308 972 211 -0,2%
Sales R8 billion R7,7 billion 4,4%
Operating expenses R4,9 billion R4,3 billion 15,4%
Net income R886 million R1,3 billion -31,8%
Fixed Assets R12,4 billion R11 billion 12,7%
Investment R402 million R608 million -33.8%
Current Assets R5,4 billion R5,3 billion 0.9%
Current Liabilities R2,9 billion R3,4 billion -13.4%
Long term debt R2,7 billion R2,3 billion 14.0%
Cash on Hand R3,4 billion R3,8 billion -10,5%
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Consolidated Ratios 2009/102010 2009
Gross profit percentage of sales 64,38% 66.41%
Net profit percentage of sales 10,87% 16.99%
Return on Asset (Net income/total assets) 4,84% 7,69%
Return on Equity (Net income/equity) 7,45% 12,3%
Current Ratio 1,85 1,56
Debtors days 84 69
Creditors days 176 173
Debt to assets (total debt / total asset) 35% 38%
Debt to equity (total debt / total equity) 54% 60%
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Annual Surplus/Deficit in R’000WATER BOARD SURPLUS DEFICIT
Albany Coast (9 months) 630
Amatola 17 584
Bushbuckridge 10 956
Bloem 16 619
Botshelo 9 894
Lepelle Northern 5 383
Magalies 4 121
Mhlathuze 21 160
Namakwa Annual Report outstanding
Overberg 391
Pelladrift 2 075
Rand 301 634
Sedibeng 44 265
Umgeni 540 712 10
Budget vs Actual• Surplus was budgeted at R1 billion• Actual surplus was R886 million mainly due to the
following:– Under achievement in sales volume due to
implementation of WC/DM and better than expected rainfalls
– Overruns in operating cost, especially for energy and chemical cost
– Higher than expected impairment of asset value – Increased provisions for doubtful debt– Higher than expected raw water cost
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CAPEX budget for next 5 years (1)
• Planned spending is estimated at R 12 billion• Short and long term cash reserves are R 3.8 billion• Likely borrowing to finance CAPEX is R 8.5 billion• Surplus must be viewed in relation to asset
management plan to ensure effect gearing of debt
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CAPEX budget for next 5 years (2) Water board 2011 2012 2013 2014 2015 Total
R000 R000 R000 R000 R000 R000
Amatola 71 511 106 890 177 000 155 499 101 499 612 399
Bloem 116 600 104 300 35 600 92 800 158 000 507 300
Botshelo 0 0 0 0 0 0
Bushbuckridge 10 721 5 569 4 950 9 660 6 400 37 300
Lepelle Northern 58 795 47 230 46 775 45 355 33 000 231 155
Mhlathuze 185 408 90 144 23 586 0 20 532 319 670
Magalies 402 505 287 741 110 030 30 612 0 830 888
Overberg 10 815 3 800 1 850 1 850 2 400 20 715
Pelladrift 1 450 5 000 5 010 2 150 5 400 19 010
Rand 1 000 000 1 000 000 1 700 000 1 761 000 1 688 000 7 149 000
Sedibeng 20 844 16 700 15 800 10 800 11 000 75 144
Umgeni 774 017 615 262 409 210 371 798 351 924 2 522 211
Total 2 652 666 2 282 636 2 529 811 2 481 524 2 378 155 12 324 792
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Oversight of WBs of WBs• Total bulk potable water volume supplied by WBs:
2.3 billion kiloliters per annum• Total authorised abstraction: 2.36 billion cubic
meters per annum• WBs under spent on CAPEX by an average of 13.4%
(previous year 14.5%). Total CAPEX spending for the current year was R1.5 billion
• Rand Water contributes 60% to consolidated turnover, Umgeni 20% and other 11 WBs 20%
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Municipal debt to water boards – Jun 2010Water board Outstanding
balanceCurrent 30 days 60 days 90 days 120 days
and overTotal arrears
Albany Coast 286 709 286 709 0 0 0 0 0
Amatola 14 095 860 13 689 994 405 866 0 0 0 405 866
Bloem 77 638 247 25 387 562 2 276 998 2 346 659 1 999 112 45 627 917 52 250 685
Botshelo 52 512 625 4 646 717 4 314 148 3 933 156 4 752 913 34 865 691 47 865 908
Bushbuckridge 194 108 644 7 561 349 7 815 778 8 824 424 7 455 683 162 451 410
186 547 295
Lepelle Northern
268 853 588 19 928 774 13 098 575 7 567 913 10 470 503 217 787 823
248 924 814
Magalies 15 791 741 6 878 245 6 060 618 2 065 766 455 845 331 267 8 913 496
Mhlathuze 5 975 680 865 050 1 316 908 667 860 906 482 2 219 380 5 110 630
Namakwa 2 529 415 1 234 266 1 295 149 0 0 0 1 295 149
Overberg 585 190 585 190 0 0 0 0 0
Pelladrift 309 137 93 011 97 438 118 688 0 0 216 126
Sedibeng 252 173 461 27 048 959 23 418 955 23 450 458 25 778 684 152 476 406
225 124 503
Rand 505 860 876 456 074 922 20 945 589 19 718 576 9 121 788 0 49 785 954
Umgeni 171 384 092 144 481 882 26 418 984 483 226 0 0 26 902 210
Total 1 562 105 266
708 762 630 107 465 006 69 176 726 60 941 010 615 759 894
853 342 636
Debtors age analysis
100% 45.37% 6.88% 4.43% 3.90% 39.42% 54.63%
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Municipal debt to water boards• Total arrears is 10.6% of total sales. • 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 WBs unpaid.
• Changes in legislation should be considered where the equitable share is paid directly to WBs for water provided.
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Achievements• The current ratio suggests a positive cash flow• No State guarantees issued to support water boards• No significant demand on Government to finance
expansion of WB’s bulk infrastructure• Water Boards provided bulk water in 11 of the systems
where Blue Drop Certificates were achieved• Positive contribution to National imperatives• Technical and engineering support provided to local
government
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Challenges and way forwardChallenge Proposed way forward
Refurbishment and extension of infrastructure
Obtain external loan funding
Raw water quality Firm application of legislation and support from CoGTA
Staff retention and skills shortages at remote WBs
WBs to consider pooling skills and deploying them to where needed
Lack of bulk water service provider contracts
Resolve with support of CoGTA
Security of service delivery over medium to long term
Monitor CAPEX plans
Debt payment by municipalities Ongoing mediation support of NT and CoGTA
Equitable share paid to municipalities Amendment of DORA to allow NT to withhold equitable share from municipalities in arrears and pay WBs directly 18
TABLED TARIFFS INCREASES
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Background in tariff setting process• Potable bulk water tariffs are not proposed by the Department, but are
determined by WBs• WBs must consult with municipalities on their proposed tariff increases (Sec 42
of MFMA, 2003)• WBs must request NT & SALGA to provide written comments• NT and DWA plays a monitoring and advisory role• I.t.o. sec 42 of the MFMA, WBs must submit (i) the proposed amendments, (ii)
the comments received & (iii) an explanation of how such comments were taken into account to the Minister ,
• Minister must table the amendments in Parliament• Tariff increases must be tabled on or before 15 March 2011, if the increases are
to take effect from 1 July 2011
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Tabled tariffs for 2011/12Name of water board % increaseAmatola 8.65% Buffalo City
8% Amatola DM
10% Ndlambe LM
Bloem Systems tariff of R3.50 [from multiple to single tariff system]
Botshelo 18%
Bushbuckridge 7,27%
Lepelle Northern 10.22%
Magalies 16% Modimole, Bela Bela, Rustenburg, Tshwane
28% Wallmanstal
6% Nokeng tsa Taemane
Mhlathuze 14%
Namakwa 10,2%
Overberg 15%
Pelladrift 20%
Rand 12,9%
Sedibeng 8,5%
Umgeni 6,1% 21
Impact of tariff increases• Enable WBs to finance future CAPEX thereby reducing
reliance on loans.• Borrowing to finance CAPEX is estimated at R8.5 billion,
partial funding of CAPEX will allow for smoothing of tariff especially in the initial years when the newly developed infrastructure will not be fully utilised.
• Pressure to reduce tariffs will result in a higher level of borrowing for infrastructure development, which will effectively increase tariffs to unaffordable levels in the future.
• From an operational point of view, the increase in energy, chemicals, labour and other cost resulted in higher than inflationary tariff increases.
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Challenges and way forwardChallenge Way forward
Insufficient engagements during consultation process
Align business plans and tariff increases
NT, SALGA and municipalities do not provide meaningful written comments in all instances
This is due to stringent timelines that will require legislative review
Consultation processes does not require consent, concurrence or agreement
Conflicting legal opinions
Fragmented tariff regime for the entire water value chain
Establish Economic Regulator that will require new legislation. Target date: 2014
DWA both player and referee in tariff setting process
Establish Economic Regulator that will require new legislation. Target date: 2014
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ConclusionFOR WBs TO REMAIN SUSTAINABLE::• There must be an ability to attract and retain the necessary skills
to operate and maintain the service effectively.• There must be a secure and adequate financial base &
economies of scale.• There must be the management capability to translate human
and financial resources into effective service delivery.• The governance environment must support good management.• There must be accountability for performance.• Tariff regime for the entire water sector [Independent
Regulator].
THANK YOU
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