1

Finance strategic outputs

Presented by

Mr Onesmus AyayaChief Financial Officer

Department: Water Affairs (DWA)18 August 2009

2

outline• Key functional areas• Overview of the past key achievements• Past challenges facing the branch• Key Performance Areas• Rationale for selecting the KPAs• Funding

WTE MEA

• Monitoring• Departmental expenditure trends• Departmental indicate 2010 MTEF allocations

3

Key functional areas in the branch

• Supply Chain and Asset Management

• Revenue and debtors management

• Financial Accounting and Reporting

• Management Accounting

• Budget and Planning (including expenditure management)

4

Overview of past Key achievements

• The separation of the Department’s two accounts, namely; Main Account and the Water Trading Entity

• The strengthening of the capacity was also realized through the filling of key management position to provide effective leadership in financial management

• Verification and valuation of major bulk water supply assets• Creation of an updated asset register• Development of financial management processes and policies • Implementation of Enterprise Resource Planning systems for

WTE• Verification and valuation of biological assets

5

Past Challenges facing finance

• Clean audit (financial management and skills)

• Non-integrated financial systems for MEA

• Minimal transformation in terms of organisational systems and processes

• Financial governance: relationship between regions and head office

6

Past Challenges facing finance (cont)

• Systems that requires proper implementation and post implementation refinements– long term, user requirements (SAP, LOGIS etc)

• Inadequate capacity (lack of skilled resources)

• Improperly linked staff to either Main Account or Trading Entity

• Extensive infrastructure assets – magnitude, spatial distribution/location: Auditable assets plans needed

7

Wte specific challengesextent of infrastructure

• 240 schemes• 334 dams (34 billion cum storage) • 6929 km canals• 171 km tunnels• 990 km pipelines• 56 pump stations – 211 MW• Other infrastructure

28 wastewater treatment works 34 water treatment works 2581 buildings 3006 measuring facilities (1070 hydro, 1724 geohydro,212

meteorological stations)• Land – 795,563 Ha plus 137,264 Ha servitudes

8

WTE CHALLENGES• Escalating risk of service failure

renewal backlogs are R10 billion and growing infrastructure maintenance is insufficient insufficient funding - price capping and exemptions reduce potential income

from R4.4 billion pa (adequate) to actual of R1.8 billion pa (completely inadequate)

• Customer complaints over raw water tariff increases• Ineffective and inefficient structure of the sector as a whole• Multiple WTE roles – regulator, custodian, planner, constructor• Organisation’s technical capacity eroded (even if additional funding

made available, the WTE will need commensurate increase in skills and capacity, and improved systems)

• Less than satisfactory processes for billing, collection, budgeting, expenditure control, and reporting

• Less than satisfactory financial and asset management systems• Negative cash-flow

9

Key Performance Areas

Strategic Goal Strategic objectives

Create a value driven, effective and responsive department

Improve financial management

Organisational growth and development

10

Rationale for selecting the KPAs

• Qualified audit reports and opinions of the previous financial years

• Financial management is crucial to the successful functioning the org since it relates to how resources available to the organisation are used.

11

Main Account: Funding specific to financial Management

Cost element Amount

2009/10

Amount

2010/2011

Amount

2011/2012

Amount

2012/2013

Compensation to employees

63,741 65,783 69,965 73,463

Goods and services 30,714 48,199 53,380 56,049

Payments for capital assets

5,181 7,297 9,095 9,550

Total 99,636 121,278 132,441 139,063

12

Monitoring• Review of milestones achieved in the action

plan formulated to address financial weaknesses identified by AG

• Bi-weekly review of specific projects supported by external service providers at dedicated steering Committee meetings.

• In Year monitoring (financial and non financial reports)

• Quarterly reports• Financial statements as at 30 September • Inputs to the Annual Report

13

DEPARTMENTAL EXPENDITURE TRENDSYear Actual

R‘000

Budget

R‘000

2004/05 3,776,946 3,823,112

2005/06 3,717,088 3,935,636

2006/07 4,305,650 4,660,303

2007/08 5,385,461 5,862,513

2008/09 6,511,300 7,036,616

% Expend

99

94

92

92

93

14

2008-09:BUDGET VS Actual Expenditure

Programme 2008/09 Budget

R’000

2008/09 Actual

R’000

Under-spending

Administration 682 088 681 758 330

Water resource management

3 499 812 3 001 347 498 465

Water Services 2 348 031 2 341 816 6 215

Forestry 506 685 506 648 37

Total 7 036 616 6 531 569 505 047

15

MAIN ACCOUNT: REASON FOR UNDERSPENDING

The unspent budget allocation of R505,047 million is mainly due to the under expenditures on the De Hoop Dam project. The Department requested the National Treasury to utilise the

funds that could not be spent on this project for other projects (Nandoni and Inyaka water treatment works and the Hluhluwe regional water scheme), but the request was not approved- R265m

Unpaid invoices as at 31 March 2009: R227m

Action taken by the department: The Department requested the National Treasury to roll-over

R272,3 million of the underspending to the 2009/10 financial year for the continuation of the De Hoop Dam project.

16

Explanation• Disbursements of the funds i.r.o De Hoop was not made as a result

of the delays in the conclusion of the negotiations to finalise a memorandum of agreement with the 23 different mines.

• The memorandum records the principles for the sharing of the project cost and was essential to conclude the negotiations prior to the commencements with preparations for project implementation.

• Against this situation, the DWA requested the NT for approval to utilised the unspent funds for the benefit of other bulk water supply infrastructure projects that were nearing completion.

• The necessary approval was not received from the National Treasury and consequently these funds remained unspent within the Vote while WTE continued to implement the relevant bulk water services projects using funds meant for recurrent expenditure items.

• Had the approval from NT been received R262,67 million would have been paid out to the WTE to augment the Capex on other bulk water infrastructure projects.

17

Challenges identified

95% expenditure trends

Possible decline in donor funding

Significant portion of the budget that is earmarked

Funding of new programs, projects and structure changes

Possible establishment short funding and capacity constraints

Opex and CAPex plans Inflation costs and possible implementation delays

Office accommodation costs to be provided for regions

Internal and external coordination of projects

Multi-sector programme risks

Specialised service delivery consultants – possible budget shortfalls

18

2009/10: Earmarked Vs Un- earmarked

Goods and services Programme COE Interest on land

Transfers Capital payments

Total

R’000

R’000

R’000 R’000 R’000 R’000

Total allocation

1 327 863 2 074 825 782 3 337 704 1 152 653 7 893 827

Minus: Funds earmarked

86 077 667 586 - 1 455 000 961 500 3 170 163

Funds not earmarked

1 241 786 1 407 239 782 1 882 704 191 153 4 723 664

19

Exchequer funding earmarked in 2009/10

• Thus the total amount earmarked for the 2009/10 financial year for the Department amounts to R3 170 163 000 for the following purposes:

• Rent of buildings 138 331 000• Working for Water 455 724 000• Working on Fire 123 608 000• Refurbishment of water scheme 30 000 000• De Hoop Dam (Phases 2B to 2G) 600 000 000• Additional capacity: Internal Audit and Finance 6 000 000• Sanitation at school and clinics 350 000 000• Regional Bulk infrastructure 611 500 000• Operating subsidy (Water Services) 855 000 000• Total earmarked funding 3 170 163 000

20

Changes on 2009 MTEF Baseline

2009/10 R’000

2010/11 R’000

2011/12 R’000

Building of Capacity of the State 25 000 30 000

Growing the Forestry Sector: Support projects

30 000

Jobs for growth: Working on fire 50 000 100 000

Jobs for Growth: Working for water 100 000 300 000

Regional bulk Infrastructure programme - 200 000 800 000

21

Office of the DG2009/10

Chief Directorate: Main Appropriated Adjusted Appropriated

Director-General and Personnel 104,235 104,235

Chief Operating Officer 5,032 5,032

Director : Corporate Planning 3,878 3,878

CD: Internal Auditing 15,649 15,649

Director : Transformation 5,679 5,679

DDG: Special Programmes 3,000 3,000

DDG: Regulations 3,000 3,000

CD: Nat Water Resource Infrastructure 4,703 4,703

Total: Office of the DG 145,176 145,176

22

Branch: Corporate Services 2009/10

Chief Directorate: Descriptions

Main Appropriation Adjusted appropriation

Office of DDG: Corporate Services 5,868 5,868

Chief Information Officer 86,336 86,336

Director: Administration 231,256 231,256

Director: Legal Services 12,213 12,213

CD: Human Capital Solutions 98,416 98,416

Director : Gender and Disability 8,747 8,747

CD: Communication Services 26,550 26,550

Total: Branch Corporate Services 500,518 500,518

23

Branch: Finance 2009/10

Chief Directorate: Descriptions

Main Appropriation

Adjusted appropriation

Office of Chief Financial Officer

22,042

22,042

CD & Pers: Finance

99,636

99,636

Total: Branch Finance

121,678

121,678

24

Branch: Policy and Regulation 2009/10

Chief Directorate: Descriptions Main AppropriationAdjusted

appropriation

Office of DDG : Policy and Regulation 3,515 3,515

CD: Resource Directed Measures 23,000 23,000

CD: Institutional Oversight 94,000 94,000

CD: Intergrated WR Planning 90,000 90,000

CD: Policy and Strategic Coordination 18,822 18,822

CD: International Relations 21,178 21,178

CD: Information Management 165,000 165,000

CD: Water Use and Conversation 248,706 248,706

Total Summary: Policy and Regulation 664,221 664,221

25

Branch: National Water Resource Infrastructure

2009/10

 Chief Directorate: Descriptions

 Main Appropriation

 Adjusted appropriation

Infrastructure Development and Rehabilitation - Augmentation to WTE 1,989,201 1,989,201

Infrastructure-KOMATI BASIN WATER AUTHORITY (KOBWA) 180,000 180,000

Total 2,169,201 2,169,201

26

Branch: Operations Regions (WRM)

EXPENDITURE TO DATE: 31 JULY 2009

Chief Directorate: DescriptionsMain Appropriation

 Adjusted appropriation

Office of DDG: Operations Regions 8,267 8,267

Eastern Cape Region 137,923 137,923

Western Cape Region 101,906 101,906

KwaZulu Natal Region 72,763 72,763

Mpumalanga Region 63,271 63,271

Gauteng Region 44,173 44,173

North West Region 41,275 41,275

27

Branch: Operations Regions (Cont) 2009/10

Free State Region

35,911

35,911

Northern Cape Region

52,293

52,293

Limpopo Region

91,835

91,835

Working For Water - Cape Town Office

272,851

272,851

Regional Support and Co-ordinations

32,275

32,275

Augmentation to WTE - Proto CMA's

107,835

107,835

Total Summary: operations regions 1,062,578

1,062,578

28

Branch: Operations Regions (WS) EXPENDITURE TO DATE: 31 JULY 2009

Chief Directorate: Descriptions

Main Appropriation

 Adjusted appropriation

Eastern Cape Region 334,110

334,110

Western Cape Region 32,557

32,557

KwaZulu Natal Region 200,737

200,737

Mpumalanga Region 288,943

288,943

Gauteng Region 67,817

67,817

North West Region 156,045

156,045

29

Branch: Operations Regions (WS)

EXPENDITURE TO DATE: 31 JULY 2009

Free State Region 95,125 95,125

Northern Cape Region 103,792 103,792

Limpopo Region 959,906 959,906

Manager: National Transfer 15,990 15,990

Manager: Sanitation 86,393 86,393

CD: Regional Support and Co-ordination

315,758 315,758

Total Summary: operations regions

2,657,173 2,657,173

30

MAIN ACCOUNT: 2009 MTEF ALLOCATIONS-

Economic Classification

MTEF Estimate

2009/10R’000

2010/11R’000

2011/12R’000

CoE 1 327 863 1 314 086 1 399 588

Goods and Services 2 113 255 2 902 964 3 318 860

Capital assets 1 114 223 972 685 1 623 420Total 7 893 827 8 292 925 9 463 127

31

2010-MTEF Allocation New Programme Stricture

2009/10

R’000’

2010/11

R’000’

2011/12

R’000’

2012/13

R’000’

Administration 805,095 863,798 900,728 945,766

Water Management 345,0777 365,782 387,729 407,115

National W.R. Infrastructure

2,277,036 2,433,360 2,618,057 2,739,959

Regional Management

3,360,935 3,858,721 4,693,521 4,936,092

Water Services 184,716 213,818 241,188 253,247

TOTAL 6,972,859 7,735,479 8,841,223 9,282,179

32

Donor funding (R’000’)Project 2009/10 2010/11 2011/12

Water and sanitation services 108 229 429 440 -

Water and sanitation programme 52 460 52 460 52 460

Upgrading of hydrometric equipment in Lesotho

1 470 - -

Community water supply and sanitation 12 7 -

Twinning arrangements with Dutch water boards

2 080 - -

TOTAL 164 251 481 907 52 460

33

WTE: Revenue Vs ExpenditureR'000' 2009/10 2010/11 2011/12Revenue 9 842 602.00 10 767 027.00 11 792 509.00Bulk water sales 1 748 524.00 1 956 195.00 2 240 922.00Other WTE revenue 36 000.00 36 000.00 36 000.00Exchequer funds 7 893 827.00 8 292 925.00 9 463 127.00Donor funds 164 251.00 481 907.00 52 460.00ExpenditureRecurrent expenditinditure 5 108 151.00 5 984 860.00 6 577 116.00Goods and services 3 152 831.00 4 012 572.00 4 489 252.00COE 1 955 320.00 1 972 288.00 2 087 864.00Transfers and subsidies 1 625 495.00 1 203 036.00 1 188 079.00

34

MTEF allocation - WTEOperational activities 2009/10 2010/11 2011/12

Revenue

1,599,784

1,798,403

2,074,410

Raw Water

1,563,784

1,762,403

2,038,410

Sundry Income 36,000

36,000

36,000

35

MTEF allocation – WTE (cont..)

Operation & Maintenance costs

1,206,811

1,265,944

1,336,040

Compensation of Employees

340,506

357,191

373,264

Goods & Services

588,256

617,081

644,850

Support services 278,048

291,672

317,926

36

MTEF- allocation – WTE (cont)

Operating surplus/deficit from core business

392,973

532,458

738,370

CAPEX FUNDED FROM OPERATIONS

392,973

532,458

738,370

Movable assets  

-

-

Refurbishment

392,973

436,986 485,928

Betterment

-

95,472 252,441

37

MTEF allocation – WTE (cont…)

INFRASTRUCTURE DEVELOPMENT

1,744,913

1,853,806

1,992,036

Support services (Schedule) 416,453

465,934

508,633

Movable assets 104,570

13,480

106,327

Less: allocated to operations

(278,048)

(291,672) (317,926)

Projects direct & side support

1,501,938

1,666,064

1,695,001

Funded by Augmentation

1,744,913

1,853,806

1,992,036

38

MTEFallocation – WTE (cont)

SUBSIDISED ACTIVITIES

CMA (Proto)

Revenue 184,740 193,792 202,513

Raw Water 184,740 193,792 202,513

Operational Costs 279,332 316,617 349,124

Compensation of Employees 165,455 181,244 194,489

Goods & Services 113,877 135,373 154,636

Capital Expenditure - - -

Movable assets   - -

Operating surplus/deficit (94,592) (122,825) (146,611)

Funds by Augumentation 94,592 122,825 146,611

39

I thank you