MAGALIES WATER 2004/5 FINANCIAL AND CORPORATE PERFORMANCE

MAGALIES WATER 2004/5 FINANCIAL AND CORPORATE

PERFORMANCE

Presentation to Parliament 24 March 2006

1. Introduction

2. Vision and Mission

3. Area of Supply and Operations

4. Current Activities and Projects

5. Major Achievements in 2004/5

6. Mechanisms to achieve and strengthen service delivery

7. Strategic Challenges faced by the Board and plans to overcome them

TABLE OF CONTENTSTABLE OF CONTENTS

8. Future Planning and the Strategic Plan of Magalies Water for 2005/6 and going forward

9. Implications of the President’s 2005/6 State of the Nation address on Magalies Water’s service delivery

10.Financial Performance

TABLE OF CONTENTSTABLE OF CONTENTS

The VISION of Magalies Water is to

“TO BE THE LEADING PROVIDER OF QUALITY WATER SERVICES”

35 Years of Existence

MAGALIES WATER VISIONMAGALIES WATER VISION

AREA OF SUPPLY AND AREA OF SUPPLY AND OPERATIONSOPERATIONS

Magalies Water has been a provider of high quality water for over 35 years and continues to maintain this standard. This was achieved as a result of well established relationships with our Stakeholders as well as Benchmarking our services with international standards and players.

• North West Province

• Limpopo Province

• Gauteng Province

• 34 000 km² in three provinces

AREA OF SUPPLY AND AREA OF SUPPLY AND OPERATIONSOPERATIONS

AREA OF SUPPLYAREA OF SUPPLY

MAGALIES WATER AREA OF SUPPLY

Limpopo

Gauteng

NorthWest

STANDS POPULATION TOTAL

2005/6URBAN PERI-

URBANRURAL URBAN PERI-

URBANRURAL (Population)

Moretele LM 0 40 000 11 600 0 200 000 69 600 269 600

Madibeng LM 0 6 500 7 900 0 32 500 47 400 79 900

Moses Kotane LM

2 520 18 450 10 917 12 600

92 250 65 502 170 352

Rustenburg LM

2 500 7 700 800 225 000

138 500 14 800 377 800

Rustenburg LM (Bulk)

225 000

225 000

Thabazimbi LM

27 798

Tshwane Metro

33 000 17 500 1 300 365 000

187 500 17 800 260 300

Nokeng-Tsa- Taemane LM

32 634

BelaBela LM 45 450

Modimolle LM 31 584

Bulk Consumers

1 602

Total: 1 852 320

MUNICIPAL DEMOGRAPHICSMUNICIPAL DEMOGRAPHICS

TABLE 1:

Moses Kotane LM Urban 2477 Higher level of servicePeri-Urban 13203 Higher level of service(Legal & Illegal)Peri-Urban 6250 Basic Level of ServiceRural 1941 Higher Level of serviceRural 12773 Basic Level of Service

Moretele LM Peri-Urban 2553 Higher level of ServicePri-Urban 39447 Basic Level of ServiceRural 15000 Basic Level of Srvice & Below

Madibeng LM Peri-Urban 6500 Basic Level of SupplyRural 8000 Basic Level of Supply & Below

Rustenburg LM Urban 2103 Higher Level of ServicePeri-Urban 2500 Basic Level Of SupplyRural 600 Basic Level Of Supply

CTMM Urban 25800 Higher Level of ServicePeri-Urban 12000 Basic Level of Service

TOTAL NUMBER OF CONSUMERS FOR THE 5 LARGEST MUNICIPALITIES

TABLE 2:

MUNICIPALITIES• Thabazimbi Local Municipality• Modimolle Local Municipality• Bela-Bela Local Municipality• Rustenburg Local Municipality• Nokeng Tsa Taemane Local Municipality• Moses Kotane Local Municipality• Madibeng Local Municipality• Moretele Local Municipality• City of Tshwane Metro - Temba and Hammanskraal areas (Bulk and Retail

Services)

OTHER CONSUMERS• Amandelbult Platinum Mine• Swartklip Platinum Mine• Rhino Andalusite Mine• Bafokeng Rasimone Platinum Mine• Premier Mine• Royal Bafokeng Administration• Northam Platinum Mine

KEY SERVICE AGREEMENTSKEY SERVICE AGREEMENTS

• Rand Water• Sun City Hotel• Carousel Hotel• Pretoria Portland Cement (PPC)• Zonderwater Correctional Services• Baviaanspoort Correctional Service• Agricultural Research Institute• Hydrological Research Institute

KEY SERVICE AGREEMENTS ….KEY SERVICE AGREEMENTS ….

OPERATIONAL PERFORMANCE OPERATIONAL PERFORMANCE AND AND

ACTIVITIES/PROJECTSACTIVITIES/PROJECTS

Magalies Water subscribes to the views of DWAF that water is a scarce commodity in South Africa and that the construction of expensive new schemes can be eliminated or at least be postponed through the implementation of water conservation and demand management measures. Water conservation and demand management measures implemented by Magalies Water include the following:

Setting of maximum allocations for higher classes of consumers.

Communicating with consumers to make them aware of the need to restrict water consumption.

Actively monitoring and controlling water-network losses and UFW.

ACTIVITIES/PROJECTSACTIVITIES/PROJECTS

During the year under review, Magalies Water has contained water tariff increases between 0% - 6.8% within previously set targets without compromising the financial sustainability of the organisation.

Despite challenges faced due to external factors such as deteriorating raw water quality and drought, operational costs are being contained and attempts are made to manage increases in the future.

Time frames on an annual basis are currently established in order to assess the implementation of the strategies as well as evaluate progress on the set goals.

ACTIVITIES/PROJECTS (Cont…)ACTIVITIES/PROJECTS (Cont…)

The Magalies Water Board has established a Central Laboratory Facility with a view to provide quality monitoring of potable water to all municipalities in its service area. It also has the capability for the monitoring of sanitation plants;

The Board has entered into partnerships with a number of municipalities for the operation of bulk potable water and sewage plants.

The abovementioned efforts are viewed against the background of the Constitutional obligation of WSA’s to provide water services; requirements of the MFMA.

Table 3 Below– Outlines current Sanitation Projects

ACTIVITIES/PROJECTS (cont..)ACTIVITIES/PROJECTS (cont..)

TABLE 3TABLE 3

Scenario Disposal scheme

Population

Unit discharg

e

Industrial

discharge

Total dischargeIncluding

10% infiltration

Total industrial

reuse

(year end) (persons) (l/c/day) (Ml/day) (Ml/day) (Ml/day)

Rustenburg STW

2005 124 214 210 6.2 35.5 9

2010 157 390 210 8.2 45.4 20

Boitekong STW

2005 72 114 95 - 7.5 0

2010 87 573 95 - 9.2 0

SANITATION PROJECTS 2005-2010SANITATION PROJECTS 2005-2010

Approximately 400 000 consumers are currently served through the Sanitation System

Magalies Water has assisted Municipalities with the implementation of its refurbishment projects – transfer of assets. Project at Danhouse, Sespond and One-and-Ten villages in Moretele was successfully implemented during March 2005.

Other projects include the following: A number of projects were implemented in 2005 co-operation with

both Local- & District Municipalities. Subject to funding, these projects will be carried forward to subsequent years:

Basic sanitation: Ratjiepane, Moretele R2.0 mil Basic sanitation: Mabeskraal Moses Kotane R3.5 mil Basic sanitation: Boitekong Rustenburg R1.5 mil Basic Water: Disteneng Moretele R1.26

mil Basic Water: Cyferskuil Moretele R0.3 mil Basic Water: Tweelaagte Moses Kotane R1.4 mil Basic water: Bapong Moses Kotane R1.2 mil Source Augmentation: Derby Kgetleng River R2.02

mil Installation of connections: Jericho Madibeng R1.6 mil

COMMUNITY WATER SUPPLY & COMMUNITY WATER SUPPLY & SANITATION PROGRAMME & PROJECTSSANITATION PROGRAMME & PROJECTS

TOTAL = R14.78 Mill

Project Description R/million

Upgrade La Patrie – Mabeskraal pipeline (Vaalkop)

12

Extension of Doornhoek – Ledig supply system (Vaalkop)

13,26

Construction of Kameelfontein reservoir at Wallmannsthal

7,5

Construction of Nokeng pipeline at Wallmannsthal

3

Upgrading of Cullinan school area booster pump station

0,4

COMMUNITY UPLIFTMENT COMMUNITY UPLIFTMENT PROJECTSPROJECTS

2005/6

TOTAL = R39.8 mill

Excess of 1 500 km pipelines (including reticulation)

40 reservoirs with a total storage capacity in excess of 250Ml

Capital Infrastructure investment of +/- R800 million over the past 5 years

Capital Infrastructure expenditure approved in 2004/5 = R69 million

R149, 5 Mill to be spent over the next 5 years on pipeline and Infrastructure maintenance

INFRASTRUCTUREINFRASTRUCTURE

MAJOR ACHIEVEMENTS IN MAJOR ACHIEVEMENTS IN 2004/52004/5

Implementation of Future Corporate Strategy that focused

on: (a) Appointment of New BEE Suppliers and Professional Service

Providers

(b) Management Transformation - 50% of Executives are Currently HDI

Implementation of New Organisational Structure

ISO 14001 Accreditation in 2005

Balance Sheet improvement (Long term loan reduction of

R107 mill)

Asset Management Improvement Plan (AMIP)

PMR Diamond Award (For Public Sector Entity Service

Delivery) - 2005

Twinning Agreement with Nkana Water in Zambia

MAJOR ACHIEVEMENTS IN 2004/5MAJOR ACHIEVEMENTS IN 2004/5

Successful participation in the R550 million RTWST

project in 2005

Successful participation in the R250 million RWST

project in 2005

Successful attainment of gender balance in Magalies

Water

Unqualified financial report by Independent Auditor

(Never qualified by the Auditor in 35 years)

Successful Involvement in the Water Loss Program in

City of Tshwane Metro


Implementation of balanced tariff increases ranging

between 0% - 6.8%

Signed MoU with Rand Water and Ikangala Water to

service the WH Region of Bronkhorstspruit

Successfully established a Central Laboratory Facility

thru purchasing the Rustenburg LM Lab for +/- R1mill

As implementing agent, successfully implemented

DWAF projects to the value of R15 mill


Appointment as implementing agent for

municipalities in establishing basic water services

Successful disbursement of the donation of R18 million which was made available to 4 Key Municipalities for Water Services Projects directed to Water Services Projects

Gold Award under Public Sector at Rustenburg Show and Exhibition


MECHANISMS TO MECHANISMS TO STRENGTHEN SERVICE STRENGTHEN SERVICE

DELIVERYDELIVERY

Partnering with other Water Boards or Water Utilities on Joint Ventures to identify the most effective Sanitation Models and Processes. This means Joint Task Teams would be established to conduct research and publish information regularly on findings.

Progressive cost reduction in operational expenses and settlement of long term debt, and passing benefits of economies to consumers

Vigorously pursuing relationships with WSA’s and fostering appointment as implementing agent in establishing basic water services inclusive of basic sanitation services;

MECHANISMS TO STRENGTHEN MECHANISMS TO STRENGTHEN SERVICE DELIVERYSERVICE DELIVERY

Assisting WSA’s in “Project Consolidate” initiatives through partnerships and secondment of selected personnel;

Utilisation of Water Forums and Other Stakeholder Relationship Management initiatives to address their concerns;

Acceleration of transformation and Equity / gender balance internally thereby boosting morale among staff

Deliberate encouragement and prodding of staff to further their education and learning – successful implementation of ABET (Out of 71 registered candidates, 47 were successful in various Levels of ABET

Qualifications)

Increased Spend in Training and Development

MECHANISMS TO STRENGTHEN MECHANISMS TO STRENGTHEN SERVICE DELIVERYSERVICE DELIVERY

STRATEGIC CHALLENGES FACED STRATEGIC CHALLENGES FACED BY MAGALIES WATER AND BY MAGALIES WATER AND

PLANS TO OVERCOME THEMPLANS TO OVERCOME THEM

Obtaining Support from DWAF regarding the above average / Inflation raw water tariff increases whilst the Water Board is expected to increase tariffs in line with Inflation targets

Need for the improvement of the fast deteriorating raw water quality in such catchments areas as the Hartebeestpoort and Roodeplaat dams

Finalisation of the WSA/WSP Service Level Agreements

Reduction of UFW in areas of operation

Managing the uncertainty created by the Institutional Reform process

STRATEGIC CHALLENGES FACED STRATEGIC CHALLENGES FACED BY MWBY MW

Accelerating assistance offered to Municipalities to deal with “Project Consolidate” challenges

The Need to align and meet the challenges posed by the President in his 2006 State of the Nation address regarding water

Continuously ensuring that the quality of potable water produced and delivered remain quality consistent

Successfully managing the impact of HIV/AIDS at Magalies Water (Negotiating with ABSA for an Employee Support Program to assist MW in managing Voluntary

disclosure)

Accelerating access of Sanitation to all consumers in MW areas of operation


Accelerating Transformation efforts to balance gender at all levels of management, as well as Disability

Maintaining and Improving employee and Customer satisfaction

Ensuring that the Business Development Division becomes fully functional and focused

Reduction of Operational Expenses

Maintaining tariff increases at inflation targeted levels


Efforts and Discussions already pursued with DWAF to limit future tariff increases to Inflation levels – a study already completed and submitted to DWAF to highlight this anomaly

Raw Water Deterioration – A study has been initiated and discussions currently pursued with DWAF to assist in the management of the Raw water relevant catchments

Finalisation of WSA/WSP Agreements – Draft Agreements have already been compiled and submitted to all affected WSA’s to finalise the contracts

UFW / Water Loss Management - Further projects such as the STIP Project in CTMM need to be initiated. Already other projects in Moses Kotane are being implemented

DEALING WITH STRATEGIC DEALING WITH STRATEGIC CHALLENGES CHALLENGES

Institutional Reforms – continuous communication and information dissemination is currently performed and staff are regularly updated

Project Consolidate (PC) Assistance – Target teams and proposal development as well as laboratory services, among others are being undertaken to assist WSA’s in their efforts to deal with PC challenges

Quality Standards - The establishment of a Centralised Laboratory facility was primarily aimed at accelerating the testing of raw, potable and sewage water to ensure quality products

Sanitation access - MW as an Implementing agent is already engaged with DWAF and affected WSA’s to accelerate basic and advanced sanitation provisioning to affected communities


Customer Satisfaction – Surveys (both independent and MW driven) have been identified as the key to determination of customer satisfaction – the 2005 PMR Award for Service excellence is just but one driver

Employee Satisfaction – a Performance Management System has been introduced to reward key performers and to develop inadequate performers (Board members also trained)

The Training and Development spend has also been systematically increase to encourage personal development of staff

Reduction of Operational Expenses – Service providers and suppliers to MW are being systemically informed that MW would not accept increases above inflation – This is assisting tremendously in efforts to reduce OPEX


Reduction in OPEX – consolidation of business processes has been undertaken through the restructuring of the Organisational Structure in order to further reduce OPEX.

HIV/AIDS Management – Voluntary campaigns have been undertaken to date, including participation in national campaigns such as HIV/AIDS Week, World Aids day, etc

MW does not provide ARV’s nor is there a budget allocated for each beneficiary treatment. Plans are being made to establish a mobile clinic


FUTURE PLANNING FOR FUTURE PLANNING FOR 2005/6 AND GOING 2005/6 AND GOING

FORWARD…FORWARD…

Consolidating the new Organisational Structure and “milking” the benefits of consolidation to pass these to our consumers

Capacitating the Business Development Division so that it identifies viable projects and becomes profitable

Strengthening Magalies Water Capabilities in the Bulk Sanitation business

Preparing Strategic Plans for bulk supply in support of the municipalities WSDP’s especially in cases where the WSDP’s have not been completed;

Participating in the process of establishing WSDP’s of municipalities;

FUTURE PLANNING FOR 2005/6 FUTURE PLANNING FOR 2005/6 AND GOING FORWARD…AND GOING FORWARD…

Preparing Business Plans for extension of water services reticulation within villages;

Establishing community liaison committees in order to create relationships and to compile information on the most needy communities.

Aggressively pursuing the establishment of bulk water supply and O&M contracts with municipalities;

Pro-actively investigating the establishment of operating rules for raw water sources;


Maintaining Water Forums with Municipalities and all Stakeholders in an effort to support them in their role as WSA’s;

Transfer of knowledge to Municipal Officials in an effort to equip them for their task as WSA’s; and to assist with “Project Consolidate”

Allocating Funding in order to conduct research on Water Conservation, Sanitation, establishment of Infra-structure to forward plan.

Establishing Organisation wide EWRM Models and Risk Scenarios in order to manage uncertainty


BEE PROCUREMENTBEE PROCUREMENT

The BEE spend between 2003 – 2005 is as follows:

BEE PROCUREMENTBEE PROCUREMENT

2003 2004 2005

(Rm) (Rm) (Rm)

BEE Spend R47,661 (48.4%)

R50,778(44.1%)

R54,833(47.2%)

Non BEE Spend R50,765 (51.6%)

R64,354(55.9%)

R61,136( 52.8%)

IMPLICATIONS OF STATE OF IMPLICATIONS OF STATE OF NATION ADDRESS ON MW NATION ADDRESS ON MW

SERVICE DELIVERYSERVICE DELIVERY

Through our Implementing Agency status for the WSA’s, MW facilitates the eradication and acceleration of access to Sanitation to meet the 2007 ASGISA goals

Transfer of skills to Local Government – via the Rustenburg Infrastructure Management Project – to accelerate Project Consolidate deliverables

Working with Provincial Government in attaining the goals of the Provincial Growth & Development Strategy (PGDS) – Member of Infrastructure and Construction Working Group

Together with WSA’s, MW will put additional Infrastructure Development plans forward to access part of the R372billion

IMPLICATIONS OF STATE OF IMPLICATIONS OF STATE OF NATION ADDRESSNATION ADDRESS

MW has already invested more than R800 million for Infrastructure refurbishments in the last 5yrs, with plans for a further R150million in the next 5yrs

Several proposals are at different stages of completion to assist WSA’s in O&M programs as part of infrastructure projects management

MW Board already consist of 50% women at Board level in line with the ASGISA goals of placing women at decision making levels of public service

Learnerships are being accelerated to advance youth training and development


Raising capital through the Board’s balance sheet for infrastructure development on behalf of Stakeholders

MW’s BEE and SMME development initiatives have ensured that in 2004 procurement from these entities was already at 44.1% = (R51 million), of total procurement

Adoption of community agencies and centers by MW ensures that community development is accelerated

All Infrastructure programs, Basic water provision, sanitation, etc are all channelled at alignment with NEPAD goals


FINANCIAL PERFORMANCEFINANCIAL PERFORMANCE

SUMMARY: BUSINESS SUMMARY: BUSINESS PERFORMANCE INDICATORSPERFORMANCE INDICATORS

Magalies Water - Year ended 30 June 2005

2002 2003 2004 2005 Description

92.54 89.18 87.78 89.33 Water sales as % of total income

53.80 55.63 62.48 70.72 Expenses as % of total income

28.78 23.60 22.20 25.14 Remuneration as % of total expenses

71.22 76.40 77.80 74.86 Other expenses as % of total exp.

46.20 44.37 37.52 29.28 Surplus as a % of total income

0,15 0,14 0,13 0,15 Rate of return on assets (ROA)

1.9 1.69 1.38 0.97 Current Ratio

1.8 1.6 1.3 0.92 Quick Ratio

0,28 0,27 0,25 0,05 Debt to Equity Ratio

MAGALIES WATER

2005 2004

Accounts Receivable / Debtor’s days 60,07 days 47,94 days

Working Ratio 0,66 0,26

Operating Ratio 0,86 0,51

BUSINESS PERFORMANCE BUSINESS PERFORMANCE INDICATORSINDICATORS

FINANCIAL PERFORMANCEFINANCIAL PERFORMANCE

-

50,000

100,000

150,000

200,000

R'000

2002 2003 2004 2005

Financial years

Revenue Cost of Sales Operating exp. Surplus

Description 2005

(Rm)

2004

(Rm)

Variance (%)

Non-Current Assets 796,982 843,110 -5.47%

Current Assets 51,996 41,496 25.30%

Total Assets 848,978 884,606 -4.03%

Capital & Reserves 747,233 690,976 8.00%

Non-Current Liabilities 41,028 153,275 -73.23%

Current Liabilities 60,717 40,355 50.46%

Total Reserves & Liabilities 848,978 884,606 -4.03%

Consolidated Balance Sheet - Magalies Water

FINANCIAL OVERVIEWFINANCIAL OVERVIEW

R255,8 million currently in the Investment Account

FINANCIAL OVERVIEWFINANCIAL OVERVIEW

Description 2005 2004 Variance (%)

(Rm) (Rm)

Revenue 189,486 164,348 15.20%

Cost of Sales 91,836 77,673 18.23%

Gross Surplus 97,650 86,676 12.66%

Operating Expenses 95,519 74,661 27.90%

Surplus / (Deficit) Before Appropriations

47,360 49,269 (3.87%)

Consolidated Income Statement - Magalies Water

LOAN STRUCTURELOAN STRUCTURE

Description 2005 2004

Rm Rm

DWAF – WALLMANNSTHAL WTW (2027)

5,237 5,487

STANNIC

0,00 66,167

SCMB

0,00 33,177

5,237 104,831

Magalies Water – Long Term Commitments Outstanding

In the year under review, MW has settled the long term debt of R107 Mill

Unqualified Audit Opinion by the Auditor General, Treasury and

External Auditors of Magalies Water for 35 years now!!!!

AUDIT OPINIONAUDIT OPINION

Documents

MAGALIES WATER 2004/5 FINANCIAL AND CORPORATE PERFORMANCE