PRESENTATION TO THE PORTFOLIO COMMITTEE ON WATER & ENVIRONMENTAL AFFAIRS 24 April 2012

1. BLOEM WATER REPORTINGSTRATEGIC (BUSINESS) PLAN, ANNUAL REPORT 2010/2011, BUDGET AND 2012/2013 TARIFF INCREASES PRESENTATION TO THE PORTFOLIO COMMITTEE ON WATER & ENVIRONMENTAL AFFAIRS 24 April 2012 Presented by: Chairperson: Mr TB Phitsane Chief Executive: Dr B Malakoane Chief Financial Officer: Mr OJ Stadler

2. Contents 1. Overview 2. Feedback on issues raised by the Portfolio Committee on Water and Environmental Affairs 3. Annual Report 2010/11 4. Capex (5-year horizon) 5. Strategic Objectives (2011/12) 6. Bulk Water Tariffs (2012/2013) 7. Alignment of Bloem Water Strategy with Government Outcomes 8. Key Strategic focus areas 2012/13 9. Current Challenges

3. 1. Overview of BW • Vision Assuring sustainable provision of quality water services, for life! • Mission (defining our purpose) To create a leading, value-driven, effective and responsive Institution using adaptive best practice methods in anticipating tomorrow’s problems today

4. Overview of BW cont... • Areas of service – Central and Southern Free State • Local Municipalities - Mangaung - Kopanong - Mantsopa - Naledi • Other: as P.I.A. for DWA

5. Accountability Matrix PRESIDENCY National Parliament Honourable Minister, Edna Molewa DWA National Treasury Auditor General Shareholder Compact Policy Statement and Business Plan Reporting Formats Strategy Vision Annual Report, Capex Annual Assessment of Water Board Mission KPAs QR & Section 41 Reports Goals & Objectives KPIs

6. 2. Feedback Issues raised during 2011 Bulk Water Supply agreement/Capex • Consultation with MMM done on 16 January 2012 11/12 and 12/13 CAPEX programme submitted to MMM • CAPEX 2011 programme was submitted subsequent to the PWCEA Salary structure • Information was submitted to PWCEA subsequent to the 2011 sessions. Performance Assessments to be applied in terms of policy and audited performance rating at year end.

7. 3. Annual Reporta. Annual Financial Statements 2010/11 Income lower than contractual requirements and budget Expenditure aligned to raw water transfer, treated volumes and budget Provision for bad debt Finance revenue high for interest charges on debtors. Finance cost aligned to budget.

8. Non current assets marginally lower than budget as not all CAPEX projects were concluded Employee benefits in pension fund improved Current assets marginally higher than budget as funding committed for CAPEX projects

9. Reserves improved from retained earnings Non current liabilities aligned with budget Current liabilities aligned with budget

10. a. Annual Financial Statements:2010/11 • Indicators and Financial Actions -Continued Solvency - Ongoing Liquidity - Remain a Going Concern - Debtors position worsened - Cash position reduced marginally - Debt ratios remained high due to CAPEX requirements - Treated water volumes lower and raw water volumes higher than budgeted for - Streamlining of the pension fund in terms of Funding the deficit. b. Audit Report • Unqualified report • No Matter of emphasis - Opinion that financial statements fairly presents the financial position

11. c. Summaryof Performance Against Strategic Objectives and KPI’s 2010/11 Job creation – Annexure 1

12. 4.CAPEX 10/11: Achieved 97.19% of CAPEX Implementation. (Annexure 2) 11/12: Achieved to date: 72.72% of CAPEX implementation, projected to 95% by June 2012. (Annexure 3)

13. CAPEX Consultations • Meeting held with municipalities on 16 January 2012 Presentation: • Addressing water supply challenges on both raw and treated water supply systems • Water safety planning • CAPEX 11/12 and 12/13

14. 2011/2017 Refurbishments (Annexure 4)

15. CAPEX - Refurbishments

16. 2011/2017 Extensions(Annexure 5)

17. CAPEX - Extensions

18. 5.a. Strategic Objectives 2011/12 Strategic Themes/Goals (Aligned to SONA, SOPA, DWA goals & outcomes) (a) Manage financial affairs to meet current and future obligations • Strategic Result: Financial sustainability (b) Build, operate and maintain infrastructure • Strategic Result: Ensure universal access to safe and affordable water (c) Ensuring sustainable and equitable water resource management • Strategic Result: Securing the water value chain (d) Transformation/business processes/research and development • Strategic Result: Achieving an aligned and effective Institution through optimisation of business processes (e) Engaging in strategic partnerships • Strategic Result: Benchmarking, knowledge-sharing and pursuing international best practices

19. b. Summary Progress to 3rd Q v/s Strategic Objectives and KPI’s 2011/12

20. 6. Bulk Water Tariffs • Regulated by MFMA Section 42 and Circular 23 • WSA Section 4 ss(2), (3) and (4) • PFMA Section 51 ss(1)(a)(i) and 51(b)(i)

21. Salient Features • Volume growth of 2%; • Input costs increase higher than tariffs increases • CAPEX & Investment plan of R1bn: 12/13 to 16/17 • Improving profitability but returns still under pressure; • Borrowing costs capitalized to assets; • Retention of cash reserves • Utilize reserves for refurbishments • Debt service ratio of 25% maintained

24. Budget: 2012/13 • Consult with its municipal clients required by Section 42 MFMA & Circ 23. • The implication of the above incorporates the following major components: - An increase in the raw water cost up to 16.6% - An increase in chemical cost: 20% - An increase in electricity cost: 28% plus additional requirements - An increase in human resources cost: 9% plus additional requirements CAPEX: The proposed tariff will result in the downscaling of CAPEX projects in future years. It impacts the National Treasury requirements regarding debt service ratios – restricting Bloem Water to obtain external funding for the debt service ratio above 25% and as aligned with the approved borrowing limits by DWA and NT

25. Budget: 2012/13

26. Budget: 2012/13

27. Budget: 2012/13

28. Budget: 2012/13

29. Budget: 2012/13

30. Water Tariff increases: 2012/13 • The consultation process resulted in certain municipalities noting the 12.6% increase in tariff to R3.94, while others did not respond. • Following the above, consultation with National Treasury, SALGA and DWA ensued. Result: - DWA, NT and Minister of Water Affairs supported the increase. - SALGA used 2010/11 instead of 2012/13 information for appraisal and still awaiting new comments. • Impact – Still under recovering for the period 2012/15, affecting cash position

31. 7. Alignment of BW’s Strategy With Government Outcomes • Enterprise Balanced scorecard (provided separately) Alignment per strategic performance objective (Annexure 6) • DWA Priorities linked to National outcomes and aligned with Bloem Water strategic goals (Annexure 7) Alignment per strategic goal

32. Alignment (cont)

33. 8. Key Strategic Focus Areas for 2012/13 –aligned to SHC (see the BSC document provided separately) They are: • Organisational Capacity Perspective: • Improve access to technology & equipment • Train, retain technical skills (DWA 13,16,18) • Improve internal &external communication • Improve accountability by clarifying roles and responsibilities (DWA 6&19) • Internal Process Perspective: • Improve use of best management practices (DWA 1,5,19) • Improve operational efficiencies (DWA 2,12) • Improve statutory compliances (DWA 4,10,13,15,16) • Improve risk-based management practices (DWA 7) • Improve monitoring and reporting on performance (DWA 9,11,15) • Improve sustainable development initiatives (DWA 14,17)

34. Focus areas cont.... • Customer/Stakeholder Perspective • Improve customer and stakeholder satisfaction (DWA 3,13,17) • Improve brand awareness (DWA 14,17) • Increase strategic partnerships (DWA 8,18) • Financial Perspective • Improve financial stewardship (DWA 4,7,10,11,12,13,19) • Increase Corporate prosperity (DWA 9)

35. -Deteriorating raw water quality as a result of inadequate catchment management - Delays is issuing Abstraction permits - Availability of Water Resources - Payment Default risk by municipalities -Sustainable tariff structure -Ageing infrastructure –rollout of CAPEX program within resource constraints v/s demand -Experiencing rising input costs, i.e. Chemicals, raw water, energy and O & M cost -Failing WCDM 9. Current Challenges Experienced

36. Current Challenges Experienced Caledon River Region - Welbedacht Dam Siltation - Sand abstraction in the plant • Plant operate at maximum (145 ML/day) • Distribution system (ageing PCP pipeline) • Tienfontein /Novo Pump station (Water volumes and Quality) • Lack of storage capacity Modder River region - Tienfontein /Novo reduced transfer capacity - Modder river catchment (Pollution of raw water) - Plant capacity (85 of 100 ML/day) vs urban sprawl (ratio of 33/67 ML/day) - Maintenance and refurbishment frequency pump sets - Municipal Water losses

37. Strategic interventions (Shareholders compact) Caledon River • Extension of supply and increase capacity by 45 ML/day, tariff increases inevitable • Current PCP pipeline not upgradable as no additional pressure can be put on pipeline Modder River • Extension of supply by 2015 to meet supply emergencies to Bloemfontein • Dependant on Tienfontien-Novo transfer scheme for raw water, tariff increase inevitable Maselspoort(owned by Mangaung Metro) • Dependant on Tienfontein-Novo-Rustfontein transfer scheme primarily for use in Bloemfontein • Imminent extension, tariff increase inevitable

38. 10. Questions