30 August 2005

NCOP Briefing 1

Parliamentary BriefingPerformance and strategy

of theMunicipal Infrastructure Investment

Unit

Alwyn NaidooMIIU Project Manager

30 August 2005

NCOP Briefing 2

Contents Performance report for the year under review

2004/05• Background• Project performance and KPIs• Expenditure

The exit plan

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NCOP Briefing 3

Performance report for the year under review 2004/05

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Background Cabinet Memorandum No. 14 of 1997 created

MIIU as short-term arrangement to be wound up in five years (2003)

This term was extended by Cabinet Memorandum 4A of 2002 for an additional three years, to 31 March 2006

Mandated “To encourage and optimise private sector investment in local authority services on a basis that is sustainable for both local authorities and at a national level.”

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Background Non-profit private Company established in

April 1998 USAID Donor support for technical assistance

(PADCO) Project Preparation Fund Grants & TA to support local MSPs

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Project performanceAuditable (PFMA) KPIs (1)Key Performance Area Target Actual

Active MSP projects 50 77

Completed projects: 7 MSPs

1 loan guarantee2 revenue management

4 MSPsUthungulu Water (KZN);CPT drop-off (solid waste) WC);CPT SMMEs (solid waste) (WC);Epping Fresh Produce Market (WC)

0 loan guarantee2 revenue management

Mogale City (GA);Albert Luthuli (MP)

Disbursement on MSP’s R12,8 m R12,77m

Efficiency ratio 25.5% 17.8%

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Project performanceAuditable (PFMA) KPIs (2)Key Performance Area Target Actual

Active guarantee projects

3 3 Joburg Water (GA)Mogale CIty (GA);Midvaal (GA)

Active revenue enhancement projects

3 3 Ugu (KZN);Thembisile (MP)Dr JS Moroka (MP)

Target value of guarantees to be committed

50% of $35m (R105m)

0

Disbursement related to guarantee projects

$375 000 $257 500

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Project performanceAuditable (PFMA) KPIs (3)Key Performance Area Target Actual

Monitoring of major projects

5 5 ongoing

Customer surveys (Contract Monitoring)

5 completed projects

3 new projects

5 ongoing – Nelspruit (MP) ;Dolphin Coast (KZN)Kelvin Power (GA); Msunduzi (KZN); Mogalakwena (LM)0 – not yet started

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Project performanceInternal KPIs (1)Key Performance Area Target Actual

Case studies written up 5 5 in progress (75% complete)

Standard terms of reference documented

3 3Generic Terns of ReferenceGeneric Request for ProposalsTemplate financial model

Publication of MIIU history and case studies

1 1 Pending

Technical Assistance (TA) not associated with projects

4 hours per project manager per month or a total number of equivalent hours as a ceiling

Section 78 task team, dplg MSP workshops, Project Consolidate, loan guarantee marketing

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Project performanceInternal KPIs (2)Key Performance Area Target Actual

TA Disbursement of USAID funds

$185 000 $43 365

Market Development Seminar with financial sector

1 Session with Standard Bank in Aug 04; with Nedbank in Mar 05

Staff development SA staff (includes the use of USAID* funds of $15 000

6 personal development plans

6 plans followed: UK Study tour, Midrand Graduate Institute, various short courses

Implement MIIU obligations to Johannesburg Housing if fund becomes operational

N/A

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Completed projects (MSP) Uthungulu Water (KZN)

• an interim O & M contract with WSSA for operations of all rural schemes

CPT drop–off (solid waste) (WC)• establishment of four green waste drop-off centres

CPT SMMEs (solid waste) (WC)• CBO waste collection contracts in disadvantaged areas,e.g

Bloekombos, Kalkfontein, Khayelitsha Epping Fresh Produce Market (WC)

• sale of a non-core asset for R16m. A 20yr lease was entered into with the new owner, with repair, maintenance & expansion risk transferred to new owner. Proceeds of the sale to improve water and sanitation infrastructure. Winner of the Africa Investor Award in November 2004.

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Revenue Management & Loan GuaranteeMogale City (GA)

data cleansing, debt review and audit of customers, meters, connections, tariffs, etc resulting in significant saving of lost revenues. Private partner entered a shared risk contract with municipality, earning a reward only in the event where the municipality saves revenues relative to set revenue benchmarks.

Ugu District (KZN)data cleansing, debt review and audit of meters, connections, etc to improve revenue. Private partner is recommending a replacement of the existing revenue management systems to improve coordination of all billing systems that have existed in the individual B municipalities.

Thembisile (MP)data cleansing, debt review and audit of meters, connections, etc to improve revenue.

Dr J S Moroka (MP)data cleansing, debt review and audit of meters, connections, etc to improve revenue.

Loan Guarantee MIIU has recently refined the implementation methodology and tender document for banks to bid on.

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Distribution of Projects in SADistribution of projects throughout SA

KwaZulu-Natal22

Western Cape14

Eastern Cape14

Gauteng10

Mpumalanga8

Free State5

Limpopo3

North West1

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Distribution of projects by sectorDistribution of projects by sector

Water & Sanitation34

Solid Waste26

Other5

Electricity4

Fleet Management4

Fresh Produce Market3

Airport1

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ExpenditureCapital & operational expenditure

0

3,000

6,000

9,000

12,000

15,000

18,000

R (T

hous

ands

)

Compliance costs 388 459 767 619 589 940 1,021 1,180 Non disbursement expenditure 347 266 386 743 993 1,179 1,340 1,441 Disbursement expenditure 1,027 833 1,230 1,670 2,040 3,166 2,725 3,671 Capital expenditure 8,331 7,022 9,286 9,860 7,401 16,619 15,341 16,289

1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06

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EfficiencyTotal operating expenditure : Total expenditure

17.5%18.2%

20.4%

23.5%

32.9%

24.1%24.9%

32.1%31.0%

27.9%

0%

5%

10%

15%

20%

25%

30%

35%

1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06

Actual Budget

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Income Statement31 Mar 2005 31 Mar 2004

REVENUE (2 384) (5 045)

(Deficit) / Surplus of grants received to disbursements (2 999) (6 620)Grants received 12 342 10 000 Grants disbursed (15 341) (16 620)Sundry Income - 48 Investment income 615 1 527

OPERATING EXPENSES 5 085 5 285

Auditors' Remuneration 137 136 Board of Directors Costs 29 25 Remuneration and staff development 2 704 3 332 MIIU Business 1 265 1 481 Consulting Fees 214 35 Entertainment 10 10 Folders,Brochures and Publications 84 103 Marketing 124 746 Public Relation Activities 261 113 Subsistence and Travelling 258 474 Training 314 -

Administration Costs 950 311 Bank charges 10 7 Copiers - 1 Courier Services 16 12 Electricity 27 - Portfolio management fees 352 45 Rental 427 134 Stationery 46 55 Sundry expenses - 13 Telephone 72 44

Deficit for the year (7 469) (10 330)

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Statement of Changes in EquityR'000

Retained surplus as at 1 March 2003 21 667 Deficit for the year ( 10 330)

Retained surplus at 1 April 2004 11 337

Deficit for the year ( 7 469)

Retained surplus at 31 March 2005 3 868

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Strategic plan 2005/06(“the exit plan”)

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Background Cabinet Memorandum No. 14 of 1997 created MIIU

as short-term arrangement to be wound up in five years (2003)

This term was extended by Cabinet Memorandum 4A of 2002 for an additional three years, to 31 March 2006

In year 2005/06 the exit plan will be implemented as follows:• Closure of projects on the pipeline • Archiving of project deliverables• Packaging of institutional memory for dplg as executive

authority

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Why exit now? Discussions between management and BOD

with dplg (as executive authority) on the prospect of continuity for MIIU date as far back as June 2004

A decisive position from dplg on the continuation of MIIU has not been forthcoming

At BOD meeting of 24 June 2005, directors resolved to proceed with exit plan

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The exit plan Background Project activity Management contract with DBSA USAID-funded contracts Other donor issues Risk analysis dplg National Treasury Knowledge and information management Communication strategy Financial reporting Closure housekeeping Succession arrangements Action plan

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Project activity Pipeline of active MSP projects has been

audited. Projects classified into 3 classes of priority

All other activities are ongoing, but with succession arrangements per activity are being crafted for continuity (dplg as natural successor)

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Management contract with DBSA Provides MIIU with:

• Treasury and accounting function• Employment contracts & HR services • Office rental• Administrative and IT services

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USAID-funded contracts Provisions:

• Expatriate staff contracts• Assets• Commitment agreement for DCA implementation

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Other donor issues DFID commitment agreement Mega-Tech funding Cities Alliance (World Bank)

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Risk analysis HR risk – staff retention Financial risk – incurring of liabilities Legal risk – breach of grant funding

agreements Reputational risk – resulting from exiting from

funding agreements

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Department of Provincial and Local Government MIIU is a PFMA Schedule 3A public entity (of dplg).

Whilst certain responsibilities are expected of dplg, these cannot be taken for granted. MIIU needs to strategise without dependency on dplg.

Expected responsibilities of dplg in winding up MIIU:• provide funding for the final year • de-list MIIU as a public entity• disengage the Board of directors• disengage company members• provide a custodian by September 2005• take cession of assets, liabilities and institutional memory

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National Treasury A business case for delisting of a public entity

should include• financial statements of the final year prepared on

liquidation basis• transfer (cession) of the entity’s function to a

successor• transfer of surpluses, assets and liabilities• risk analysis of de-listing• closure of budget line, bank accounts, etc

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Knowledge and information management MIIU to package the following for handover

purposes to a suitable repository:• Projects on the pipeline • Archived project deliverables • Institutional memory

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Communication strategy Pronouncement by dplg as executive authority Communication from MIIU (in collaboration

with government) to:• municipalities• engaged consultants• PADCO, USAID, DFID

Press release Website updates

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Financial reporting Functional closure to be 31 March 2006, but

financial closure to be 31 August 2006 Caretaker arrangement necessary for the

March – August period Audit and Annual Report to be prepared

(liquidation basis) Cash flow management to be done monthly to

aim for zero balance at 31 March 2006.

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Closure and succession arrangements To be managed in collaboration with dplg

• Archiving• Handling of new requests from municipalities• Transition out of ongoing project activity from

January 2006• Identification of areas where specialist successor to

MIIU is required to support dplg

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Budget 2005/06: Monthly cashflowApr - Jul Aug 05 Sep 05 Oct 05 Nov 05 Dec 05 Jan 06 Feb 06 Mar 06 2005/06

Actual Est. Est. Est. Est. Est. Est. Est. Est. Fore.Sources of funds

Budget allocation (MTEF process) 0 2,809 0 2,809 0 2,809 2,809 0 0 11,236 Anticipated donor funding - Cities Alliance 0 0 1,200 0 0 0 0 0 0 1,200 Anticipated interest on investments 85 8 12 9 13 4 7 12 0 150 Recoverable expenses 0 30 0 0 30 0 0 0 30 90 Total inflow of funds 85 2,847 1,212 2,818 43 2,813 2,816 12 30 12,676

Application of fundsoperational expenditure

Board of directors 0 0 15 0 0 15 0 0 16 46 DBSA 894 229 229 229 229 230 230 740 230 3,240 *salaries seconded staff & support services 690 154 154 154 154 154 154 664 154 2,432 *overheads 204 75 75 75 75 76 76 76 76 808 Costs related to general admin actvities 230 165 165 165 165 165 165 166 270 1,659 Marketing and communication strategy 54 250 30 60 60 346 0 0 0 800 Trainee programme 35 0 100 45 50 100 0 0 0 330

Total operational expenditure 1,213 644 539 499 504 856 395 906 516 6,075 Capital expenditure 1,104 1,399 1,399 1,399 1,399 1,400 1,400 1,400 1,400 12,300 Total outflow of funds 2,317 2,043 1,938 1,898 1,903 2,256 1,795 2,306 1,916 18,375

Change in equityOpening balance 3,868 1,636 2,440 1,713 2,633 772 1,329 2,349 55 3,868 Total inflow of funds 85 2,847 1,212 2,818 43 2,813 2,816 12 30 12,676 Total outflow of funds (2,317) (2,043) (1,938) (1,898) (1,903) (2,256) (1,795) (2,306) (1,916) (18,375) Closing balance 1,636 2,440 1,713 2,633 772 1,329 2,349 55 (1,831) (1,831)

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Action plan: Key milestones Recommend adoption of plan by BOD on 4

August 2005 Submit budget to dplg reflective of exit plan Set up custodian arrangement Communication strategy Handover to dplg by 30 January 2006 Caretaker arrangement required March –

August 2006

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Thank you