PRESENTATION TO PCWEA – 17

APRIL 2013

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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.

Area Ml/day Population Bushbuckridge Local Municipality Area (BLM) (8 PWTW) 96 454

817(Census 2011)• Two Plants owned by DWA and Six plants owned by BLM

Mbombela Local Municipality Area (MLM) (6 PWTW) 71 568 647(Census 2011)

( MLM) (1WWTW) 3.5• All Plants owned by MLM

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

ACHIEVEMENTS FROM TURN

AROUND STRATEGY

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Debt owed by WSAs to BW Bushbuckridge Local Municipality

• R240,2 mil – June 2012

• Escalated by R31,8 mil since June 2011 and R72 mil since June 2010

• 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 to date

• Additional R25 mil paid in December 2012 towards historical debt

• 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)

R18 million grant from DWA

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Supply ContractsBLM•A three years Bulk supply contract be signed and to be reviewed in 2014•A possible extension to a five year contract•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•DWA – Institutional Oversight consulted during the formulation of the draft contract

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Capital Infrastructure Projects

A 20 years Capital Infrastructure Plan being compiled, to be completed June 2013Challenges faced due to short term contracts with WSAs.

Cogta-MP

•BW entered into agreement to implement projects on behalf of Cogta-MP to the value of R23 mil•Projects completed as agreed with Cogta-MP and the receiving municipalities•5% agency fee was paid to BW for implementation of the projects

DWA-MP

•BW entered signed agreement to implement projects on behalf of DWA-MP to the value of R4,5 mil•Projects completed as agreed with DWA-MP and the receiving municipalities•5% agency fee to be paid to BW for implementation of the projects•A water purification package plant was implemented in Albert Luthuli LM(Carolina Town) to the value of R1,1 mil under the Rapid Response project.

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Metering/Illegal connections

•Metering

BW completed a study with the intention to address metering challenges in BLMStudy recommends the establishment of 20 new metering pointsDWA approved R2,5 million grant to address the new metering pointsRand Water appointed as implementing agent to install new metersA steering committee comprising of BW, Rand Water and BLM established to oversee the implementation of this project

•Illegal connections

The study Identified the existing illegal connections The report discussed with BLM and decision to be taken on which illegal connections to formalized or removedBLM to fund the metering/formalization of illegal connections

•Other projects funded through DWA grantTelemetry and Scada systemBlue Drop certificationRefurbishment and pumps replacementA total of R18 millions already transferred

ANNUAL FINANCIAL

STATEMENTS

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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 2011 Change R R %

Water Sales 101,085,561

93,308,244 8%

Services Rendered 33,267,520

34,442,465 -3%

Discounting of revenue 2,844,166

6,208,000 -54% Revenue 131,508,915 121,542,709 8% Other operating income 613,406 371,659 65% Direct operating cost -85,594,351 -86,465,660 -1%

Other operating expenses -23,699,435 -

14,805,549 60% EBITDA 22,828,535 20,643,159 11%

Deprecation -2,342,703 -2,229,560 5% Investment Revenue 11,234,394 5,179,944 117% Finance Cost -328,816 -321,670 2% Provision for Doubtful debt -81,357,686 -41,381,376 97%

Surplus/Deficit -49,966,276 -18,109,503 176% Operating Loss -60,871,854 -22,967,777 165% Gross Profit 45,914,564 35,077,049 31% Profit/ Earning Margins (%) Gross Profit margin (%) 35% 29%

Operating profit margin (%) -46% -19%

2011/12 Annual Financial Statement Continues…………. Statement of Financial Position as at 30 June 2012 % Change

2012 2011Assets R R Non- Current 56,385,467 57,142,070 -1.32%Current Assets 85,256,197 118,160,660 -27.85%Total Assets 141,641,664 175,302,730 -19.20%

   Equity 60,247,790 110,214,066 -45.34%Capital Contribution 68,355,117 68,355,117 0.00%Retained Income -8,107,327 41,858,949 -119.37%Liabilities 81,393,874 65,088,664 25.05%Non-Current Liability 2,885,308 3,070,427 -6.03%Current Liability 78,508,566 62,018,237 26.59%Total Equity and Liabilities 141,641,664 175,302,730 -19.20%

The amounts owing by BLM from the start of 2011 to the end of 2012 have increased as follows: 30 June 2012 30 June 2011 R ROutstanding debt at the beginning of the year 208 401 925 167 630 525Invoices raised with regard to current water supplied 115 237 540 106 371 399Repayments received by BLM in respect of current invoices raised 69 489 323 65 600 300Repayments received by BLM in respect of historical debt due 13 906 233 Outstanding balance at the end of the financial year 240 243 904 208 401 925Provision for doubtful debts in relation to the amount outstanding 178 660 827 97 303 141

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 .

AUDIT REPORT

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PERFORMANCE AGAINST

STRATEGIC OBJECTIVES

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2010/11 Annual Performance Results1. 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- 98% compliance to SANS 0241 for potable water due to old infrastructure-No out break of water-borne diseases reported

2. Entrench sound financial management and corporate governance2.1. 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

• Optimize stakeholder interaction and engagement

3.1 Stakeholder relations - Improve stakeholder relations engagements3.2. Business Development-SLA signed with BLM

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-

CAPITAL INFRASTRUCTURE EXPENDITURE

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2011/12 Capital Infrastructure Expenditure

Grant funding from Cogta-MP and DWA95% of projects completed within schedule:

Project Description Municipal Area

Total Project Value

Funder Status

Abstraction Sabie River - Cork Desilting facilities (Sand to be trapped)

Bushbuckridge Local Municipality

1 000 000 Department of Corporative Governance and Traditional Affairs: Mpumalanga (CoGTA)

CompleteAbstraction Mutlumuvi River Desilting facilities (Sand to be trapped) 1 000 000 CompleteAbstraction Motlamogale River Desilting facilities (Sand to be trapped) 1 000 000 CompleteTreatment Dingledale Package Plant (Villages, Dingledale only) Refurbishment of Package Plant

1 500 000 Complete

Abstraction Thulamahashe WTW : Upgrading of Plant components 3 000 000 CompleteBooster Pump Station Dwarloop WTW: Pump & Panel 2 500 000 Complete

Subtotal 10 000 000Kanyamazane 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

1 000 000 Complete

Water Tankers : Nsikazi North & South Scheme: 2 x 16000litre tankers 2 800 000 CompleteKanyamazane Regional Scheme Raw Water Pump Station) Packed High Lift pumps

2 500 000 Complete

Nsikazi South Scheme Boreholes & Jojo tanks 3 079 000

Department of Water Affairs

CompleteNsikazi North Scheme: Drill, Equip, Electrification, Securing & Supply & Install Jojo Tanks

2 821 000 Complete

Nsikazi North Scheme: Ground water investigation & borehole siting (56 Sites)

300 000 Complete

Subtotal 16 500 000  Grand Total

R 26 500 000  

2013/14 Tariff Structure

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2013/14 TARIFF STRUCTUREConsideration 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 concerned 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

2013/14 TARIFF STRUCTURE Continues

Initial Tariff prior the NERSA – Energy Approval = 9.6%Year Proposed Tariff

forTariff anticipated

in Tariff anticipated

in2014 2015 2016

Fy Year 1 Fy Year 2 Fy Year 3(R/Kl) (R/Kl) (R/Kl)

DWA / CMA charge 0.497 0.525 0.554Direct scheme operations costs 2.181 2.418 2.723Overheads 0.976 0.980 0.979Depreciation 0.065 0.074 0.078Income statement surplus 0.669 0.699 0.692Sub-Total 4.39 4.70 5.03 Projected water sales (kl) 38,507,500 40,432,875 42,454,519 Projected revenue (R ) 169,103,280 189,987,535 213,450,995 Projected costs (R ) 143,331,853 161,727,088 184,084,887 Projected surplus (R ) 25,771,427 28,260,447 29,366,108 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% 10.58% 11.00%Debt / (Debt + Equity) ratio 0.01 0.01 0.00Capex and Refurbishment (R ) 16,009,845 16,874,377 17,701,221

2013/14 TARIFF STRUCTURE Continues

Year Proposed Tariff for Tariff anticipated in Tariff anticipated in

2014 2015 2016Fy Year 1 Fy Year 2 Fy Year 3

(R/Kl) (R/Kl) (R/Kl)DWA / CMA charge 0.497 0.525 0.554Direct scheme operations costs 2.162 2.398 2.700Overheads 0.976 0.980 0.979Depreciation 0.065 0.074 0.078Income statement surplus 0.668 0.698 0.692Sub-Total 4.37 4.68 5.00 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 Reserves 29.81% 24.23% 18%Debt service cost 10.58% 10.58% 11.00%Debt / (Debt + Equity) ratio 0.01 0.01 0.00Capex and Refurbishment (R ) 16,009,845 16,874,377 17,701,221

Item Fy Year 1 Fy Year 2 Fy Year 3 2014 2015 2016ASSUMPTIONS CPI 6.0% 5.6% 5.5%Increase in water sales (percentage)

5.0% 5.0% 5.0%

Volume of water billed (kl) 38,507,500 40,432,875 42,454,519 Proposed tariff increase 12.0% 7.0% 7.0%Proposed Tariff (c/kl) 437.19 467.80 500.54Volume raw water purchases (kl) 42,358,250 44,476,163 46,699,971

Assumed raw water tariff (c/kl) 0.452 0.478 0.504

Final Tariff after consideration of Eskom 9.6% increase

Propose 12%

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Challenges

• Board vacancies hampers smooth operations of Board committees• Deteriorating financial condition of BLM impacting on financial viability of BW.•  Escalating debt for Bushbuckridge local municipality• Failure to attract suitably qualified personnel to fill vacancies.• Inability to meet CSI project targets due to cash flow constraints• Backlog in refurbishment and maintenance due to cash floe constraints

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