Presentation to the Portfolio committee of Water and Environmental Affairs

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BUSHBUCKRIDGE WATER

ANNUAL REPORT FOR 2009/10

TARIFF 2011/12

AND

STRATEGY 2011/12

BACKGROUND 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.Area of operation include the BLM and part of the Nsikazi area in MLM.Legislative imperatives include corporate governance, PFMA, MFMA, WSA, NWA.

Area Ml/day Population Bushbuckridge Local Municipality Area (BL1) (8 PWTW) 96 700 000Mbombela Local Municipality Area (MLM) (6 PWTW) 71 500 000

( MLM) (1WWTW) 3.5

BOARD OF DIRECTOR

The term of the current board of directors is from February 1, 2010 – March 31, 2014. There was overlap in terms of office of BoDs. The board comprises 9 members, namely:

Term ended 0 Feb 2010 Appointed – 02 Feb 2010

Ms. TP. Nyakane – Maluka (Chairperson) Mr. P Ngomana (Chairperson)

Rev. R. Ngomane (Deputy Chairperson) Adv. G Khoza (Deputy Chairperson)

Mr. C. Phiri Adv. H Mbatha

Mr. BL. Mavuso (resigned 06 March 2009) Ms. C Van Rensburg (CA. SA)

Ms. N. Kubayi Ms. C Makwela

Mr. N. Nxumalo (resigned October 2009) Ms. S Khoza

Mr. M. Makhweyane Rev. R Ngomane

Ms. B. Ngobeni (resigned 20 March 2009) Mr. M Vilakazi

Mr. C Padayachee

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BACKGROUND….CONT SERVICE

AREA

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MISSION, VISION, & VALUES Page 1

MISSION

BW strives to provide sustainable water and sanitation services, contributes to water resource management and provide service through optimal utilisation of appropriate resource to enhance socio-economic development

VISIONTo be the best public water service utility

VALUES Customer first Investment in human resources Accountability and transparency Service Excellence Sound financial responsibility Environmental stewardship Social responsibility

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MAJOR ACHIEVEMENTS

& CHALLENGES

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Achievements 95% implementation of the Minister’s directives w.r.t. first phase Reviewed the corporate governance policies and board charter in line with the King

III best practices; Increase revenue on sale of potable water and management contract by 11% and

13% respectively but still faced challenges with full cost recovery; Increased profitability on the Nsikazi Project (Management contract) by R900 000

from –R10 000 loss but the payments were three months in arrears at the end of financial year;

Increased the potable water supply by 6% Increased monthly payment of invoices by 40% (R3Million to R5Million per month)

62% payment of monthly invoices Complied with the requirement of SANS 241 as amended in terms of drinking water

quality Achieved transformation and corporate citizenship targets through:-

Supported economic growth policy objectives on BBBEE discretional use by 71% purchases of goods and services from BBBEE companies or entities;

Contributed to national government targets for skills development through employment of temporary employees, leanership and internships.

Challenges

-Debt recovery •Bushbuckridge Local Municipality R128M•Disestablished Bohlabela District Municipality R 26M

-Lack of Long term Service Level Agreements• Currently operating on short term contracts at MLM and BLM

- Infrastructure challenges•Transfer of assets (DWA)•Aged and inadequate infrastructure

-Risk of technical insolvency•going concern •Debt recovery•Cash flow constrains

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NON FINANCIAL PERFORMANCE

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SUMMARY OF NON FINANCIAL PERFORMANCE Pages 48-52

Goal 1: Exploring and exploiting strategic ways for organisational financial sustainability & business development

Achieved organisational stability; Strengthened the organisational capacity by filling critical

vacancies; increasing efforts in the areas of training and staff development

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SUMMARY OF NONFINANCIAL PERFORMANCE

Goal 1: Cont.... The Minister appointed a new Board. Improved good governance by ensuring that compliance with

relevant legislations was observed; Increased organisational visibility by improving relations with

stakeholders; Increased BBBEE discretional spending; Improved relationship with the organised labour.

Setting up processes to improve debt collection

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SUMMARY OF NONFINANCIAL PERFORMANCE ...CONT

Goal 2: Promote institutional relations

Undertaken programmes on water conservation and demand management

Implementing the corporate social responsibility programmes by donating jojo tanks to the communities and other NGO’s, and donated soccer boots to various schools.

Improved stakeholders relations;

Goal 3: Providing sustainable water and sanitation services

Increased the volume of portable water by 10% in the BLM area and decrease of 5% in the MLM area

Complied with water quality standards (SANS 241)

Other Reportable Performance Area

• Finalised the case of the suspended Chief Executive• Reviewed the governance structures• Reviewed the corporate governance policy (Board charters and

committee terms of references

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FINANCIAL PERFORMANCE

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SUMMARY OF FINANCIAL PERFORMANCE

Volume of water sold

2010 2009

25,694,187

24,149,817

R3.07 R2.94

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SUMMARY OF FINANCIAL PERFORMANCE

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INDEPENDENT AUDITORS REPORT

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SUMMARY OF THE INDEPENDENT AUDITOR’S REPORT

Independent Auditors: Stabilis Inc BW received a qualified Audit report with emphasis on the following matters:

Basis of qualificationTrade Receivables Valuation –The trade received on

outstanding debt of R167,630,525 and R 26,478,120 owed by BLM and BDM respectively is R0.00. Provision of doubtful debts on the outstanding debt is R 82,399,855

Emphasis of Matter Payments of invoices by BLM-the existence of material

uncertainty which may cast doubt inability to continue with the business

Fixed Assets transferred during 1999/2000 without transferring ownership ( Non Compliance with section 73(2)(a) of WSA)

Forensic audit report - R644,654 not yet recoveredExceeded borrowing limits by R196 000 16

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INPUT COST OF BULK WATER

RAW WATER RAW WATER CHARGESCHARGES

COST OF RAW WATER SUPPLIED FROM DWAFCOST OF RAW WATER SUPPLIED FROM DWAF

DIRECT STAFF & DIRECT STAFF & LABOUR COSTLABOUR COST

ALL DIRECT COST OF STAFF WHO ARE ALL DIRECT COST OF STAFF WHO ARE RESPONSIBLE FOR O&M OF SCHEMES & PLANT RESPONSIBLE FOR O&M OF SCHEMES & PLANT

DIRECT ENERGY DIRECT ENERGY COSTCOST

ESKOM CHARGES FOR BOTH FACILITY & USAGE ESKOM CHARGES FOR BOTH FACILITY & USAGE FOR PUMPING, PURIFICATION & PLANT FOR PUMPING, PURIFICATION & PLANT LIGHTINGLIGHTING

CHEMICALSCHEMICALS FULL COST OF CHEMICALS USED FOR DOZING FULL COST OF CHEMICALS USED FOR DOZING OF WATEROF WATER

MAINTENANCEMAINTENANCE COST OF ROUTINE MAINTENANCE OF PLANT & COST OF ROUTINE MAINTENANCE OF PLANT & EQUIPMENTEQUIPMENT

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INPUT COST OF BULK WATERREFURBISHMENTREFURBISHMENT COST OF SUBSTANTIAL REPAIR OR COST OF SUBSTANTIAL REPAIR OR

REPLACEMENT OF PLANT & EQUIPMENT WHICH REPLACEMENT OF PLANT & EQUIPMENT WHICH DOES NOT FORM PART OF ROUTINE DOES NOT FORM PART OF ROUTINE MAINTENANCEMAINTENANCE

OVERHEAD OVERHEAD ALLOCATIONALLOCATION

PORTION OF HEAD OFFICE AND OTHER PORTION OF HEAD OFFICE AND OTHER INDIRECT COSTS ALLOCATED TO EACH INDIRECT COSTS ALLOCATED TO EACH SCHEMESCHEME

The following financial assumptions were considered:

ASSUMPTION

ActualBudg

etProjected

09/10 10/1111/1

212/1

313/14

14/15

CPI 6.9% 6.0% 5.7% 5.4% 5.6% 6.0%Salaries and wages

10.9% 10.0% 9.5% 8.5% 9.0% 9.5%

Interest rate 10.3% 10.0% 8.5% 9.0% 11.0%11.5%

Energy cost 31.3% 24.8%25.2%

26.1%

7.3% 7.5%

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NORMS FOR BULK POTABLE WATER TARIFFS

Water boards May set a single tariff for its whole supply area. May set a separate tariff for each scheme or each

water treatment plant – motivated by differentials in the cost of supplying to different customers.

The subsidization or cross subsidization of free basic water is a municipal concern and not within the capability of water boards.

Tariff increases may be smoothed out over time to take into consideration projected future infrastructure development costs.

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TARRIF STRUCTURE

35 373 975m3/year35 373 975m3/year AmountAmount %% Amount p/mAmount p/m

Raw Water (vc)Raw Water (vc) 6 336 9696 336 969 4.844.84 528 058528 058

Electricity (vc)Electricity (vc) 12 568 83212 568 832 9.609.60 1 047 4031 047 403

Maintenance (vc)Maintenance (vc) 15 793 10015 793 100 12.0612.06 1 316 0921 316 092

Chemicals (vc)Chemicals (vc) 8 850 0008 850 000 6.766.76 737 500737 500

Refurbishment (vc)Refurbishment (vc) 10 058 00010 058 000 7.687.68 838 167838 167

Capex (vc)Capex (vc) 14 917 00014 917 000 11.3911.39 1 243 0831 243 083

Salaries (fc)Salaries (fc) 40 630 09240 630 092 31.0431.04 3 385 8413 385 841

Administration cost (fc)Administration cost (fc) 21 760 897 21 760 897 16.6216.62 1 813 4081 813 408

TOTALTOTAL 130 914 617130 914 617 100100 10 909 55110 909 551

Cost structureCost structureKeys = VC: Variable costKeys = VC: Variable cost

= FC: Fixed cost= FC: Fixed cost

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TARRIF APPORTIONMENT

Variable Cost ComponentVariable Cost Component R1.94R1.94(Raw water, Electricity, Chemicals, Maintenance)(Raw water, Electricity, Chemicals, Maintenance) Fixed Cost ComponentFixed Cost Component R1.76R1.76(Salaries and Admin Cost)(Salaries and Admin Cost)

Tariff for 2011/2012Tariff for 2011/2012 R3.70R3.70

NBNB ** = Proposed tariff review, due to upgrading of = Proposed tariff review, due to upgrading of certain water certain water worksworks

Average for year ending 30 June

Actual

Projected

10/11 11/12 12/13 13/14 14/15

Bulk Water Tariff

DWA 1.48 1.64 1.79 1.95 2.13

Bulk Potable Water Tariff

BWB 3.45 3.70 * 3.90 * 4.02 * 4.02

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TARRIF STRUCTURE

M3/yearM3/year M3/dayM3/day

Total Water ConsumptionTotal Water Consumption 35 373 97535 373 975 96 91596 915

Total water consumption is based on an average water Total water consumption is based on an average water loss of 9% loss of 9%

Total water consumption represent the total bulk potable Total water consumption represent the total bulk potable water to be supplied to the municipalitywater to be supplied to the municipality

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COMMENTS FROM STAKEHOLDERS

SALGASALGA The capital expenditure is significant in amount;The capital expenditure is significant in amount; The tariff is lower than the sector average increase;The tariff is lower than the sector average increase;

NATIONAL TREASURYNATIONAL TREASURY Proposed tariff increase will lead to a better cost Proposed tariff increase will lead to a better cost

recovery.recovery. The proposed tariff will result in the organisation being The proposed tariff will result in the organisation being

financial viabilityfinancial viability The capital expenditure is significant in amount;The capital expenditure is significant in amount;

BUSHBUCKRIDGE LOCAL MUNICIPALITYBUSHBUCKRIDGE LOCAL MUNICIPALITY We have not received any comments from We have not received any comments from

Bushbuckridge Local Municipality. Bushbuckridge Local Municipality. 24

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Vision; Mission & ObjectivesVision“to be a leading water services utility”

Mission”to provide affordable and sustainable bulk water and sanitation services through optimal use of resources”

Strategic ObjectivesThe organisation’s objectives are articulated as:•To provide bulk water supply and sanitation services •To entrench sound corporate governance and financial management•To optimise stakeholder interaction and engagement•To acquire, develop and manage infrastructure for bulk water and sanitation services•To promote effective water resource management•Optimize human capital investment

Values•Passion and Commitment•Honesty•Integrity•Respect•Service Excellence•Customer Focus

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2011/12 PLAN

Supply area•Currently servicing area of Bushbuckridge Local Municipality (BLM) and sections of the Mbombela Local Municipality (MLM), both situated in the Ehlanzeni district of Mpumalanga Province.

Planned Expansion and other services•Full coverage of the current supply areas.•Coverage of the entire Ehlanzeni District area i.e. Nkomazi, Thaba Chweu and uMjindi Local Municipalities and roll out to other WSAs within the MP province. •MOUs to conduct assessment on status of infrastructure signed with Nkomazi LM and Thaba Chweu LM.•Assuming Project implementing Agency role for WSAs and other government agencies.•Provision of Scientific Services to WSAs and other institutions.

Water resources management•Assist WSAs with Water Conservation and Demand Management.•Regular monitoring of upstream raw water pollution and advise the regulators on mitigation measures.

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1. Contribution to economic growth and social development

2. Ensure sustainable and equitable water resources management

3. Promoting rural development

4. Effective support to local government

5. Improving the Department’s capacity to deliver services

6. Contribution to global relations

Department of Water Affairs Priority areas.

To provide bulk water supply and sanitation services - Develop and operate bulk water infrastructure-Water quality (Potable water and Waste water)-Development of the Demand Management Strategy

To entrench sound corporate governance and financial

management-Corporate governance framework and policies-Debt management strategy -Sustainable tariff structure-CSI-Audit and Risk management

To optimise stakeholder interaction and engagement-Contracts with municipalities and other stakeholders-Partnership with other water institutions To acquire, develop and manage infrastructure for bulk water and sanitation services-Integrated Infrastructure development Plan -Asset management Strategy

To promote effective water resource management-participate in strategy development for water resource management (CMAs)-Water conservation programmes-Consideration of environmental impact on activities of BW

Optimize human capital investment-Skills development programme-Performance management systems (Board to level one employees)

To provide bulk water supply and sanitation services - Develop and operate bulk water infrastructure-Water quality (Potable water and Waste water)-Development of the Demand Management Strategy

To entrench sound corporate governance and financial

management-Corporate governance framework and policies-Debt management strategy -Sustainable tariff structure-CSI-Audit and Risk management

To optimise stakeholder interaction and engagement-Contracts with municipalities and other stakeholders-Partnership with other water institutions To acquire, develop and manage infrastructure for bulk water and sanitation services-Integrated Infrastructure development Plan -Asset management Strategy

To promote effective water resource management-participate in strategy development for water resource management (CMAs)-Water conservation programmes-Consideration of environmental impact on activities of BW

Optimize human capital investment-Skills development programme-Performance management systems (Board to level one employees)

Bushbuckridge Water –Key Strategies

Alignment to Government Priorities

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PROJECTED INCOME STATEMENTMedium Term Expenditure Framework Forecast

2011/12 Budget Year Budget Year Budget Year Budget Year

Original Budget Adjusted Budget

Full Year Forecast 2012/13 2013/14 2014/15 2015/16

R' Thousand

Turnover

161,358,214

4,149,868

165,508,082

181,631,058

191,289,678

200,536,899

212,551,392

- Bulk portable water

122,040,214

5,792,650

127,832,864

137,174,300

145,054,650

152,452,470

163,505,274

- Operation and maintenance

39,318,000

(1,642,782)

37,675,218

44,456,758

46,235,028

48,084,429

49,046,118

Less: Variable Costs

(28,060,000)

(7,020,721)

(35,080,721)

(35,381,625)

(38,229,750)

(41,640,975)

(45,113,235)

- Raw water purchased

(6,305,000) 279,581

(6,025,419)

(7,344,878)

(8,231,115)

(9,542,925)

(10,688,076)

- Energy

(10,343,000)

(3,459,634)

(13,802,634)

(14,940,450)

(15,985,350)

(17,104,500)

(18,344,576)

- Chemicals

(11,412,000)

(3,840,667)

(15,252,667)

(13,096,298)

(14,013,285)

(14,993,550)

(16,080,582)

Contribution Margin

133,298,214

(2,870,852)

130,427,361

146,249,433

153,059,928

158,895,924

167,438,157

Budget Estimates

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Budget EstimatesPROJECTED INCOME STATEMENT CONTINUES

Medium Term Expenditure Framework Forecast2011/12 Budget Year Budget Year Budget Year Budget Year

Original Budget Adjusted Budget

Full Year Forecast 2012/13 2013/14 2014/15 2015/16

Less: Fixed Operating Costs (141,427,000)

8,072,772

(133,354,228)

(132,951,000)

(132,447,619)

(137,300,848)

(143,143,945)

- Staff costs (47,072,000)

(439,227)

(47,511,227) (54,018,608)

(58,487,378)

(61,845,713)

(66,329,527)

- Maintenance and Refurbishment (21,949,000)

(8,381,545)

(30,330,545) (25,187,663)

(21,409,513)

(28,299,620)

(30,351,342)

- Other Operating Costs (20,241,000)

(1,364,206)

(21,605,206) (23,228,205)

(25,085,855)

(27,152,715)

(29,460,696)

- Provision for doubtful debts (52,165,000)

18,257,750

(33,907,250) (30,516,525)

(27,464,873)

(20,002,800)

(17,002,380)

Other Income 374,000

-

374,000 400,000

1,279,084

1,506,077

1,615,268

Net Profit before Depreciation (7,754,786)

5,201,920

(2,552,867) 13,698,433

21,891,393

23,101,154

25,909,480

Less: Depreciation -6,555,000

4,573,849

-1,981,151 -6,959,453

-12,171,000

-10,099,000

-8,079,200

Operating (Deficit)/Surplus before net finance costs

(14,309,786)

9,775,769

(4,534,018) 6,738,980

9,720,393

13,002,154

17,830,280 - Finance Income

53,000 114,619

167,619 546,842

1,151,176

1,355,470

1,434,904

- Finance Expense -136,000

-

-136,000 -108,000

-67,000

-

-

Net Surplus/(Deficit) (14,392,786)

9,890,388

(4,502,399) 7,177,822

10,804,569

14,357,623

19,265,184

Accumulated earnings at the beginning of the year -8,022,000

21,122,856

13,100,856 8,598,458

15,776,280

26,580,849

40,938,472

Accumulated earnings at the end of the year (22,414,786)

31,013,244

8,598,458 15,776,280

26,580,849

40,938,472

60,203,655

Proposed CAPEX

Medium Term Expenditure Framework Forecast

2011/12 Budget Year Budget YearBudget Year

Budget Year

Description Original Budget

Adjusted Budget

Full Year Forecast 2012/13 2013/14 2014/15 2015/16

Refurbishments

1,390,000

4,980,000

6,370,000

-

6,500,000

- 500,000

Buildings

-

-

-

- 500,000

17,159,040

Motor Vehicles 981,000

(181,000)

800,000

1,000,000

500,000

1,000,000

Computer Equipments and Software

635,000

141,000

776,000

250,000

60,000

100,000

5,195,000

Plant and Equipment

2,513,000

5,612,500

8,125,500

4,500,000

13,274,703

16,195,000

Furniture and Fittings 50,000

221,000

271,000

200,000

100,000

105,000

20,879

5,569,000

10,773,500

16,342,500

4,950,000

20,934,703

17,400,000

23,874,919

Budget Estimates

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