1. PRESENTATION TO PORTFOLIO COMMITTEE ON WATER AFFAIRS AND FORESTRY Silas Mbedzi Chief Director: Institutional Oversight WATER BOARDS’ ANNUAL REPORT HEARINGS 6-7 May 2008

2. 2 DWAF’s OVERSIGHT ROLE OVER WATER BOARDS Evaluated Shareholder Compacts to determine if five-year plans are viable & sustainable & if appropriate services are provided to WSA; followed by individual appraisal sessions, which provide guidance Compare actual performance to projected performance in the business plan Appraise financial performance through the annual reports & financial statements - individual meetings with boards to discuss DWAF comments & concerns Ensure that tariff processes in terms of sec 42 of MFMA are complied with & tariff increases are timeously tabled in Parliament

3. 3 PROGRESS WITH OVERSIGHT OVER WATER BOARDS Shareholder CompactsEleven WBs submitted 5-year BPs to Minister - appraisal workshops held from 9 to 12 Oct 2007 Albany Coast-, Ikangala-, Namakwa-, & Pelladrift did not submit being small WBs – delays due to non- completion of sec 78 processes of municipalities & reviewing of future institutional options in regions Annual Reports & Financial Statements 2006/07 All annual reports were submitted to Minister & tabled in Parliament, except Botshelo Water Quarterly ReportsA template has been simplified and a system has been developed to enable boards to report in an easier format and in less detail on KPIs – it was recently provided to boards as part of the Oversight Guidelines Tariff increasesAll tariffs were approved & tabled in Parliament before 15/03/08, except Ikangala Water – which only exist in name

4. 4 REASON FOR BOTSHELO’s NON- SUBMISSION OF AR & FS The former acting Financial Manager & former Chief Executive left BW in Nov 2007 and Dec 2007 respectively, without ensuring that the AR & FS were ready for auditing Compilation of FS has been outsourced & completion expected end Feb ’08 Auditing by Auditor General expected to be finalized end April ’08 AR & FS expected to be ready end May ‘08

5. 5 CONSOLIDATED FINANCIAL PERFORMANCE OF WATER BOARDS [Botshelo Water’s 2005/06 figures included] Total ’07Total ’06%age Sales Volumes2 161 299 016 kl2 084 421 917 kl3.6% Total RevenueR6,5 billionR5,9 billion10.1% Income before interestR1,4 billionR1,1 billion27.2% Operating ExpenditureR3,1 billionR2,8 billion10.7% Finance CostR523 millionR727 million-28.1% Net IncomeR1,2 billionR854 million40.5% Fixed AssetsR9,3 billionR9,0 billion0% InvestmentR626 millionR562 million11.4% Current AssetsR3,3 billionR2,4 billion37.5% Current LiabilitiesR1,7 billionR1,6 billion6.2% Long term debtR3,9 billionR4 billion-2.5%

6. 6 CONSOLIDATED RATIOS 20072006 Gross profit %65.08%65.59%Unchanged Net profit %18.05%14.50%Improved Return on assets8.82%7.11%Improved Return on equity15.40%13.23%Improved Debtors’ days61 days58 daysWorse Creditors’ days161 days157 daysWorse Current ratio1.92%1.55%Improved Debt to asset45%49%Improved Debt to equity78%91%Improved

7. 7 SIZE OF BOARDS IN TERMS OF SALES Sales (R000 000)%age Rand Water4 11963% Umgeni Water1 18818% Sedibeng Water2774% Lepelle Northern Water2203% Bloem Water1903% Magalies Water1452% Mhlathuze Water1302% Amatola Water1002% Bushbuckridge Water601% Botshelo Water521% Overberg Water18 1% Namakwa Water10 Pelladrift Water7 Albany Coast Water3 Inkangala WaterInsignificant TOTAL6 520100%

8. 8 PROFIT / LOSS MAKING BOARDS ProfitLoss Albany Coast Waterx Amatola WaterX Bushbuckridge WaterX Bloem WaterX Botshelo WaterUnknown Lepelle Northern WaterX Magalies WaterX Mhlathuze WaterX Namakwa WaterX Overberg WaterX Rand WaterX Sedibeng WaterX Umgeni WaterX Ikangala WaterX Pelladrift WaterX

9. 9 QUALIFIED AUDITS SIX OUT OF FIFTEEN QUALIFIED QUALIFIED AUDITS Albany Coast Water Magalies Water Mhlathuze Water Sedibeng (North West Region) QUALIFIED WITH EMPHASIS OF MATTER Bushbuckridge Water Ikangala Water

10. 10 CHALLENGES & SOLUTIONS Standardization of reporting necessary Templates have been finalized Quarterly reporting: Some WBs complied by submitting quarterly reports. However, it was difficult to analyze KPIs as not all WBs reported on the same basis Template will assist in more effective reporting & enable DWAF to synthesize the information Poor Representation of persons with disability in WBs Encouraged WBs to headhunt

11. 11 CHALLENGES & SOLUTIONS Institutional Reform: Impact on WBs Institutional re-alignment in DWAF, led by Project Manager: IR, is currently taking precedence over external reform Stipends of board membersDWAF policy ensures consistency & equal treatment of board members Debtor days of more than 90 days Minister to intervene when necessary Long term Contracts need to be in place to ensure viability of WBs This depends on municipalities signing long-term contracts, Sec 78 processes concluded in favour of WBs - intervention of DPLG & DWAF necessary

12. 12 ISSUES RAISED BY PC IN 2007 ALBANY COAST WATER Low book value of assets – a re-valuation of property was performed & reflected in 2007/08 FS AMATOLA WATER Transfer of assets to AW- Once results from study on institutional models for water services provision are known, transfer of asset will be fast-tracked BUSHBUCKRIDGE WATE Bohlabela DM has been disestablished & debt taken over by Bushbuckridge LM Debt owed by Bushbuckridge LM not yet fully recovered; new billing meters installed & credit control measures put in place to ensure recovery

13. 13 ISSUES RAISED BY PC IN 2007 BOTSHELO WATER Internal audit committee appointed in July 2007 Forensic auditors are investigating the assets reflected as not owned by BW New board endeavours to get buy-in from Municipalities to pay their accounts in order to ensure future financial viability of BW IKANGALA WATER A consultation process determined whether Board should be disestablished or not – a report was submitted to the Minister during Oct 07 – awaiting her final decision (decision imminent)

14. 14 ISSUES RAISED BY PC IN 2007 LEPELLE NORTHERN WATER Rehabilitation & refurbishment of existing infrastructure is being addressed – Board budgeted R66m for 2007/08 & secured R92m from DWAF & Anglo Platinum Upgrading of projects are in progress to increase capacity of schemes to address continuous increase in demand for water Ba-Phalaborwa LM paid R18 million of outstanding debt & LNW will write-off interest of R27m when principal debt is serviced Protracted sec 78 process prevents LNW from entering into SLA with WSAs Capacity constraints are being addressed (i) by enrolling employees in learner ships, apprenticeships & skills programmes (ii) With respect to recruitment strategy only qualified & skilled people are targeted for appointment (iii) Incentive Policy with retention clause will ensure scarce skills are retained

15. 15 ISSUES RAISED BY PC IN 2007 MAGALIES WATER Retail debtors not included in the FS have been addressed Fixed assets were re-valued & auditors provided their opinion in 2006/07 financial year audit An actuary re-evaluated the endowment policy in 2007 SARS confirmed registration of MW as an entity exempt from income tax MHLATHUZE WATER Debt collection has improved slightly & is continually monitored for improvement NAMAKWA WATER Process to appoint a Manager (not CEO) is underway Nama Khoi Municipality cannot take over function of NW as they are struggling financially Sec 78 process is nearly completed & will resolve uncertainties concerning viability & future of NW

16. 16 ISSUES RAISED BY PC IN 2007 OVERBERG WATER Staff retention remains a challenge Long term contracts with Municipalities not yet concluded, although several meetings were held between DWAF & respective municipalities Disclosure of board meeting attendance & remuneration was done in 2006/07 Annual Report PELLADRIFT WATER DWAF provided support with strategic planning session & development of BP & Shareholder Compact SEDIBENG WATER Interest rate on long-term debt was renegotiated with DBSA, but higher penalties will be charged if loans are redeemed earlier than their maturity dates

17. 17 THE END THANK YOU