Bloemfontein | 2 Mzuzu Street, Pellisier, 9301Tel: 051 403 0800 | Fax: 051 422 5333Email: info@bloemwater.co.zaWebsite: www.bloemwater.co.za

Annual Report2005|2006

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Bloemfontein

Bethulie

Wepener

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Photographs supplied by Henk Smit(IT Manager : Bloemwater)

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BBllooeemmffoonntteeiinn2 Mzuzu StreetPellissierBloemfontein, 9301Postal address:

PO Box 30121PellissierBloemfontein9322

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BBeetthhuulliiee2 Park AvenueBethulie9992Postal address:

PO Box 250Bethulie9992

TThhaabbaa ‘‘NNcchhuuMoutlatsiSetlogelo DamThaba ‘NchuPostal address:

PO Box 146Thaba ‘Nchu9783

WWeeppeenneerrWelbedacht DamWepener

Postal address:Private Bag X11Wepener9944

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Bloem Water Board “Bloem Water” hereby presents to the honourable Minister LindiweHendricks, representing the Executive authority, the Department of Water Affairs andForestry “DWAF”, the Annual Report for the financial year 1 July 2005 to 30 June 2006. The Annual Report reflects the performance of Bloem Water for the periodunder review and was compiled in accordance with the requirements of the PublicFinance Management Act “PFMA” and such guidelines as have been provided by theExecutive Authority, and forms part of the audited financial statements of Bloem Water.

SSUUBBMMIISSSSIIOONN OOFF AANNNNUUAALL RREEPPOORRTT TTOO TTHHEE EEXXEECCUUTTIIVVEE AAUUTTHHOORRIITTYY

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TABLE OF CONTENTS

PART ONE

1.1 COMPANY PROFILE 4

1.2 VISION, MISSION , VALUES ANDSTRATEGIC THRUSTS 6

1.3 CHAIRPERSON’S REVIEW 8

1.4. REPORT OF NON-EXECUTIVEDIRECTOR EXERCISING OVERSIGHTAT BLOEM WATER 9

1.5. STAKEHOLDER RELATIONS 12

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2.1 AN OVERALL GOVERNANCEPERSPECTIVE 13

2.2 COMPOSITION OF THE BOARD OFNON-EXECUTIVE DIRECTORS 13

2.3 DIRECTOR PROFILES 14

2.4 AN OVERVIEW OF DIRECTORS KEY ROLES AND RESPONSIBILITIES

16

2.5 INDUCTION OF NEW DIRECTORS 16

2.6 MANDATE OF THE BOARD 16

2.7 BOARD MEETINGS 16

2.8 CHIEF EXECUTIVE OFFICER 16

2.9 BOARD REMUNERATION 17

2.10 DIRECTORS INTEREST &INDEPENDENCE 17

2.11 STATUTORY RECORDS 18

2.12 BOARD COMMITTEES 18

2.13 BOARD COMMITTEE ASSESSMENTS & INDIVIDUAL PERFORMANCEEVALUATIONS 19

2.14 ACHIEVEMENTS 20

2.15 INTEGRATED SUSTAINABILITYREPORTING – COMPANIES ACT AND KING II 20

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3.1 STIPULATIONS CONTAINED INBLOEM WATER’S CODE OF ETHICS ARE AS FOLLOWS 21

3.2 BLOEM WATER’S SOCIAL RESPONSIBILITY 21

3.3 BLACK ECONOMIC EMPOWERMENT 22

3.4 CONCLUDING REMARKS FROM THE SECRETARY 23

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PART TWO PART THREE

4.1 ENVIRONMENTAL MANAGEMENT SYSTEM 26

4.2 ENVIRONMENTAL PROJECT MONITORING 26

4.3 WATER QUALITY MANAGEMENT 26

4.4 WATER QUALITY 26

4.5 ASSET MANAGEMENT 27

4.6 INFRASTRUCTURE 27

4.7 ADDITIONAL DEVELOPMENTS 28

4.8 HEALTH AND SAFETY 28

4.9 STATISTICS 29

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5.1 HUMAN CAPITAL AND THEDEVELOPMENT THEREOF 30

5.2 LABOUR RELATIONS 30

5.3 SKILLS DEVELOPMENT 31

5.4 REMUNERATION SYSTEM 32

5.5 HIV/AIDS AND EMPLOYEE WELLNESS PROGRAMME 32

5.6 RECRUITMENT, SELECTION, PLACEMENT AND INDUCTION 32

5.7 EMPLOYMENT EQUITY 33

5.8 BLOEM WATER PENSION FUND 33

5.9 CORPORATE SERVICES 34

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6.1 FINANCIAL OVERVIEW 36

6.2 ANNUAL FINANCIAL STATEMENTS 41

6.3 STATEMENT OF RESPONSIBILITY 42

6.4 REPORT OF THE AUDIT COMMITTEE 43

6.5 REPORT OF THE INDEPENDENTAUDITORS 44

6.6 BALANCE SHEET 45

6.7 INCOME STATEMENT 46

6.8 STATEMENT OF CHANGES IN FUNDS AND RESERVES 47

6.9 STATEMENT OF CHANGES IN FUNDS AND RESERVES 48

6.10 CASH FLOW STATEMENT 49

6.11 ACCOUNTING POLICIES 50

6.12 NOTES TO THE FINANCIALSTATEMENTS 55

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CONTENTS Page

1.1 COMPANY PROFILE 4

1.2 VISION, MISSION , VALUES ANDSTRATEGIC THRUSTS 6

1.3 CHAIRPERSON’S REVIEW 8

1.4. REPORT OF NON-EXECUTIVEDIRECTOR EXERCISING OVERSIGHTAT BLOEM WATER 9

1.5. STAKEHOLDER RELATIONS 12

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OVERVIEW

11..11 CCOOMMPPAANNYY PPRROOFFIILLEE

OVERVIEW

Bloem Water was established as aWater Board in 1991, with the mandate toprovide water services in the southern andcentral areas of the Free State. In terms ofthe PFMA, Bloem Water is a Schedule 3 Bentity, that is, a National GovernmentBusiness entity and reports to parliamentvia DWAF. Bloem Water as a partner ofexcellence in water seeks to provide safe,clean, quality water and related services.This objective is in line with the WaterServices Act, Act 108 of 1997, whichprovides for the establishment of WaterBoards to assist local government in thedelivery of sustainable, efficient andaffordable water services. Bloem Water inexecuting its mandate seeks to ensure aneffective link between water resourcesand the supply of water for water services,as well as regional efficiencies andeconomies of scale in its service area.

Bloem Water is a dynamic Organisationthat is striving to be staffed with a skilledand gender equalled workforce. It is prepared and ready to mobilise itsresources and capacity to meet thechallenges of empowering its workforce,working with stakeholders in extendingand improving water and related servicesas well as to improve the quality of life ofthe communities within its service area.

ORGANISATIONAL & DIVISIONAL STRUCTURE

Bloem Water is structured in a manneraimed at optimising the Company’soperations and comprises of the followingdivisions as depicted in figure 1.

These departments are headed by thefollowing General Managers:

• Finance:

Chief Financial Officer

• Technical:General Manager

Technical Services

• Human Resources:

General Manager Human Resources

• Corporate & Administration:

General Manager Corporate Services

The Chief Executive and the Board isassisted by the Secretariat, comprising ofthe Secretary to the Board and the Clerkto the Board.

The Regional Offices of Bloem Water in theFree State are headed by the relevantRegional Managers of the Modder River,Herschel and the Caledon/Orange Riverregions respectively.

11.. OOVVEERRVVIIEEWW

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Figure 1

CHIEF EXECUTIVE

Secretariat

Finance TechnicalHuman

ResourcesCorporate &

Administration

11..22 VVIISSIIOONN,, MMIISSSSIIOONN ,, VVAALLUUEESSAANNDD SSTTRRAATTEEGGIICC TTHHRRUUSSTTSS

VISION

The consistent supply of safe, clean andquality water and water related services.

MISSION

Bloem Water is the preferred provider tothe central part of South Africa of cleanand safe, quality water and relatedservices that meet the needs of WaterServices Authorities and end users. Theseservices are rendered through ensuring adedicated and competent staff.

VALUES

To its internal and external stakeholdersBloem Water commits itself to the followingvalues that will guide and direct allinteractions:

• The values of transparency, co-operation and fairness in all aspects of the rendering of quality services.

• Active participation with stakeholderstowards building communities in that spirit.

• Adhere to the principles of a non-racial, non-sexist democratic South Africa.

• Being environmentally conscious andmonitoring and evaluating the effectof its operations on the environment.

• Adhere to the principles of soundCorporate Governance

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OVERVIEW

STRATEGIC OBJECTIVES

Bloem Water’s strategic thrusts are:

Positioning Bloem Water as a leadingservice provider in the water industry.

The following objectives were set to ensurethat this strategic thrust is realised:

• Enhance the efficiency of Bloem Waterby acquiring the right expertise.

• Enhance the efficiency of Bloem Waterby creating a focused workforce andby motivating the workforce.

• Streamline information technologysystems.

• Streamline operational businessprocesses.

• Engage in a benchmarking process.

• Capitalise on areas of excellence.

• Improve environmental management.

• Improve stakeholder relations.

• Expansion of cooperation agreementswith identified stakeholders.

• Establishment and hosting of forums.

• Assisting municipalities and otherstakeholders with expertise andadvisory services.

• Assisting relevant stakeholders withtraining and education.

• Strategic positioning of Bloem Water ongovernment’s flagship programmesand other forums.

• Obtain support and technicalassistance from DWAF.

"The first step is to teach educated people the need for water conservation"

Anupam Mishra, an activist with the

Gandhi Peace Foundation

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Supporting municipal water servicesdelivery objectives.

The following objectives were set to ensurethat this strategic thrust is realised:

• Draft an intervention strategy for waterservice provision in our service area.

• Implementing of the municipal strategy as it relates and links withBloem Water’s mandate.

Satisfying customers.

The following objectives were set to ensurethat this strategic thrust is realised:

• Establish the level of customersatisfaction.

• Improve communication withcustomers when service deliveryproblems arise.

• Improving public relations with regardsto information requested by the public.

• Reconfirming contractual agreementswith municipalities.

• Increase the involvement of localmunicipalities in the Water QualityCommittee.

Ensuring financial viability.

The following objectives were set to ensurethat this strategic thrust is realised:

• Review and approve a tariff policy.

• Establish breakeven of the budget by 2008

• Establish profit for the CapitalExpenditure budget from 2009.

• Alignment of financial ratios (National Treasury).

• Strengthen reserve funds.

• Establish appropriate contracts for raw water purchases from DWAF.

• Financial training for Board membersand management.

Securing additional revenue streams.

The following objectives were set to ensurethat this strategic thrust is realised:

• Marketing of bottled water togovernment departments for meetings.

• Act as implementing agent for moreprojects with:

· DWAF

· Municipalities

· Provincial Government

· State Owned Enterprises

· Free State DevelopmentCorporation

· Expand water and sanitationservices to municipalities and/or enter into joint ventures in thewater sector.

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OVERVIEW

11..33 CCHHAAIIRRPPEERRSSOONN’’SS RREEVVIIEEWW STRATEGIC OVERVIEW

During the year under review,Bloem Water continued to live up to itsstrategic intent; “Your Partner ofExcellence in Water”. Significant progresswas made towards aligning Bloem Water’soperations to this intent. The Organisationtook an inward focus to strengthen itsoperational capacity and tightenadministrative systems and controls whilstensuring its positioning as a serviceprovider that is responsive to the servicedelivery objectives of its clientmunicipalities, as well as, the needs of thecommunities in Bloem Water’s servicearea.

Bloem Water actively participated innational initiatives such as ProjectConsolidate, by providing hands ontechnical assistance including themanagement of unaccounted for water,procurement and training to localmunicipalities in its service area. Inaddition, Bloem Water continued toproactively engage its stakeholders on theinstitutional reform process to ensure thatat the end of the day, the service provisionarrangement agreed upon will be onethat is mutually beneficial to all partiesinvolved, in particular, to the end-user.

The current Board of Bloem Waterundertook a series of interventions, key towhich was acting on the Ministerialdirective to implement therecommendations of a Forensic Auditconducted by the Department WaterAffairs and Forestry as executive authority,in relation to breaches of governance bythe previous Board, the erstwhile ChiefExecutive Officer and certain members of

management regarding pensions, policiesand procedures and assets of theOrganisation.

The Board finalised and adopted theBloem Water Board Charter encompassingthe individual charters of its BoardCommittees, to enhance corporatecitizenship, improve corporategovernance, and increase the success ofBloem Water’s business going forward.

The results of our strategic interventionshave been overwhelmingly positive and Iam pleased to report, that in the yearunder review, Bloem Water received anunqualified Audit opinion on its annualfinancial statements. The Organisationsuccessfully completed the valuation of itsassets, as well as, the valuation of thepension fund - the two items responsiblefor the qualification on the 2004/05financial statements. The Organisation hasembarked on a process of reviewing itsfunding structure to ensure financiallysustainable growth of Bloem Water’sbusiness, whilst ensuring that we play arelevant and meaningful role in assistinggovernment to reach its developmentobjectives and targets in relation to waterand sanitation delivery.

We commit to continuing the delivery ofour services in an integrated, collaborativeand sustainable manner to enhanceassurance of supply, sustainable livelihoodsand improved quality of life for thecommunities we serve.

Appreciation

The Board welcomes the new Minister ofWater Affairs and Forestry –HonourableLindiwe Hendricks and are trulyappreciative of the tremendous supportreceived from the erstwhile Minister

Me Buyelwa Sonjica as well as theDepartment both regionally andnationally. We trust that these relationshipswill progressively strengthen into the future.

To the employees of Bloem Water, oursincere appreciation for your support aswe endeavour to ensure soundgovernance within the Organisation,focussing on rebuilding industrial relationsand improving on our transformationtargets for a successful Bloem Water, well into the future.

Mampiti Matsabu

Chairperson of the Board

Date: 31 October 2006

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11..44.. RREEPPOORRTT OOFF NNOONN--EEXXEECCUUTTIIVVEE DDIIRREECCTTOORREEXXEERRCCIISSIINNGG OOVVEERRSSIIGGHHTTAATT BBLLOOEEMM WWAATTEERRDespite the pressure exerted by the

Forensic investigation, the departure of theChief Executive Officer and the disciplinaryhearings that ensued in the financial yearunder review, Bloem Water’s overallbusiness performance for the year hasbeen commendable. All employees whocontributed to this performance arethanked and appreciated. The effortmade, premised as it is the commitment ofemployees augers well for the future.

In the implementation of its publicmandate and the need to be publiclyaccountable Bloem Water is required topremise the sustainability of its business onthe fine balance between financial,operational and environmental and socialresponsibility decision-making and action.The environment in which Bloem Wateroperates is constantly changing andpressure is placed on the Organisation toconstantly adjust and adapt in order todeliver on its mandate.

These changes affected the operationsand financial sustainability of Bloem Water.Significant changes were negotiated withthe major clients of Bloem Water effectingthe contractual obligations by all parties.Bloem Water is operating as a bulk waterdistributor and is rendering services ofoperation and maintenance, retaildistribution, support and managerialservices. The services requiredmanagerial, financial and supervisorysupport and have created a substantialimpact on Bloem Water resources. Thewater industry is one of the most capital-

intensive industries and a significantportion of overall expenditure financesinfrastructure. Bloem Water has built upreserves during previous years andimplemented a capital levy to fund newinfrastructure.

In the year under review Bloem Waterundertook the mammoth task of makingadjustments and implementing measuresto comply with International FinancialReporting Standards. This resulted in amajor change in the asset managementof Bloem Water and resulted in asubstantial increase in the asset value,depreciation and reserve fund. Mostimportantly it contributed to Bloem Water’sreceipt of an unqualified audit opinion,thus indicating our commitment to beingaccountable in all that we do as apublicly owned entity.

From a debt management perspectivethe Board and management ofBloem Water are concerned about theincrease in outstanding debt and possiblebad debt. Bloem Water is continuing withnegotiations with respect to the remainingarrear accounts and anticipates theimprovement of the position of debtors inthe next financial year. The outstandingaccounts of major Local Municipalitydebtors stabilised with the same balanceat year-end as that that pertained at thebeginning of the year. This is largely due tothe debt management programme andpressure exerted by Bloem Water to assistmunicipalities in attending to the paymentof their accounts. The payment rate ofsmaller municipal clients has deterioratedand it is a major concern to Bloem Water.The latter continues to receivemanagements’ urgent attention and willbe dealt with in terms of the municipaldebtors support program aimed at

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OVERVIEW

assisting in the improved reduction ofcommercial losses and revenue collectionsystems within municipalities. A strict andrigorous debt management strategy is tobe developed in the next financial year tocurb the growing debt trend and inconsultation with municipalities to begin toaddress problems they are experiencing inrespect of, inter alia, their insufficientrevenue base, limited national transfersand inability of consumers to pay.

During the year under review Bloem Watercontinued its role in water conservationmanagement and education in concertwith various stakeholders. Bloem Water’scommitment to advancing blackeconomic empowerment will continue tobe consolidated, with specific emphasison broad based empowerment ofcommunities, women and people livingwith disabilities. Strategies will bedeveloped to ensure that procurementfrom co-operatives is undertaken and thatsuch co-operatives and other forms ofbroad based empowerment initiatives aresupported through, amongst other things,capacity training. A review of the Board’ssocial responsibility initiatives and policy isunderway with a view to bolstering andenhancing the programmes with whichBloem Water is engaged in withstakeholders.

Bloem Water has also participated in theactivities of the African Utilities WaterAssociation and has promoted co-operation and skills exchanges betweenmembers of its Twinning agreement inMalawi and Lesotho. We believe theseinitiatives are the stepping stones tobuilding momentum for change in Africa’swater sector and advancing the goals ofNepad.

By the very nature of its activities,Bloem Water impacts on the naturalenvironment. Effectively managing andmitigating this impact is a key priority. Inline with Bloem Water’s environmentalcommitment stipulated in its environmentalpolicy statement, the development of theISO 14001 accredited EMS has reached anadvanced stage. Based on the progress todate, Bloem Water is confident that thedeadline to complete the developmentphase by June 2007 will be met.

A number of water quality managementprogrammes have been implementedincluding projects and initiatives in bio-monitoring, microbial and chemicalmonitoring. Thus ensuring that Bloem Watersupplies drinking water that is, in terms ofquality, amongst the best in South Africa –our compliance rate with strict SANSguidelines is 99.9 percent.

The preventative and computerisedmaintenance management system, whichis now operational, informs manymaintenance decisions. This system willenhance the efficiency of operationalunits and increase the efficiency of watersupply systems. It will ensure maximumoperational utilisation with the minimumdown-time expended on planned andscheduled maintenance. The condition ofthe Caledon-Bloemfontein pipeline wasinvestigated in depth and majormaintenance programmes are plannedand will be undertaken in order to ensurethe operability of this asset. Theprogrammes will run for a number of yearsto ensure the efficient utilisation of thisageing asset, which is the main artery forthe region.

Bloem Water continued to play a pivotalrole in infrastructure development as an

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implementing agent in major projects inthe Eastern Cape, on behalf of theUkhahlamba District Municipality, in theHerschel and Sterkspruit areas. Theinvolvement of Bloem Water reaches as faras Lady Grey, Rossouw, as well as eLundini.Bloem Water, on behalf of MangaungLocal Municipality, acts as animplementing agent for a project worthR89,25 million. The project ranges fromwater supply upgrading to the installationof a water borne sewage system with topstructures.

Bloem Water is challenged by theshortage of technical skills, the lifeblood ofour business. A radical, multi-pronged andthorough strategy for addressing thischallenge is to be developed andimplemented in subsequent financialyears. Bloem Water will rally to tackle thechallenge of skills development in twoways: firstly by critically examining ourexisting resources to optimise potential byhoning skills and/or re skilling. Secondly,through the implementation of fasttracked internal training programmes andrecruitment practices which are focusedon building and retaining the skills base forall employees and women in particular.

It is with regret that we report thatBloem Water has not acquired a soundunderstanding of the prevalence andimpact of HIV/AIDS on employees, theirfamilies and the performance of thebusiness. Such an understanding will haveto inform the basis of what Bloem Waterdoes to mitigate the impact of thepandemic on our employees, their familiesand our business. Similar enterprises whichhave developed HIV/AIDS programmeshave focused on educational intervention,wellness programmes, counselling andARV treatment for employees and family

members. These interventions have beenshown to have beneficial effects for bothemployees and the business. A comprehensive HIV/AIDS interventionprogramme will be proposed to the Boardof Directors for approval andimplementation.

The positive performance review outlinedabove is attributable to the collectivecounsel and commitment of the mass ofBloem Water employees to whom wecommit to continuously inspire to growand develop.

As is customary for Bloem Water, it willcontinue spearheading a number ofinitiatives geared towards greaterinvolvement in extending service deliveryto the poor, as well as enhancing theoperations of the Organisation forimproved service delivery to its clients.Bloem Water has the experience andcommitment to meet the challengesenumerated and can and will play a partin the ongoing delivery of “blue gold” inthe interests of the development of ourProvince and Country.

Nolene Morris

Non-Executive DirectorExercising Oversight at Bloem Water for and on behalf of the Board of Directors of Bloemfontein

Date: 31 October 2006

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OVERVIEW

11..55.. SSTTAAKKEEHHOOLLDDEERR RREELLAATTIIOONNSSBloem Water strives to ensure

effective and integrated working relationswith all stakeholders, to ensure that they all have access to information whichenhances a structured andcomprehensive working relationship.Bloem Water stakeholder’s includeindividuals, groups and Organisations. Theyhave an interest in Bloem Water’s activitiesand influence its activities in a plethora ofways. Conversely Bloem Water’s actionsalso influences and affects thestakeholders in a plethora of ways. Thesestakeholder linkages include:

Enabling linkages. These stakeholdersprovide authority to the institutionand/or control its resources, thefollowing were identified:

• DWAF.

• Department of Treasury

• Department of Local Governmentand Housing

• Department of Agriculture

• Department of Labour

Functional linkages. These stakeholdersprovide inputs to the institution and/use their outputs, the following were identified:

• Employees

• NEHAWU and SAMWU

• Municipalities

• Private consumers

• DWAF

• Suppliers

• University of the Free State

Normative linkages. These stakeholdersare professional or industry associations,the following were identified:

• South African Association of WaterUtilities “SAAWU”

• Water Institute of South Africa“WISA”

• International WaterI Association“IWA”

• Integrated Development Plan “IDP”stakeholder forum

• Provincial Water Quality Board

• Lesotho, Malawian and NorwegianOrganisations and water utilities

Diffused linkages. These stakeholdersinfluence the Organisation through their opinions, the following were identified:

• South African Local GovernmentAssociation “SALGA”

• Community Forums

• Deputy Director General forEducation

• Provincial Cluster Committee forWater Services

• Masibambane

Public linkages. These stakeholders includeindividuals, formal or informal groupswhose goodwill and support isimperative to the success of theOrganisation, the following wereidentified:

• Minister of DWAF

• Director General of DWAF

• Premier

• Member of Executive Council“MEC” for Local Government and Housing

• Mayors and municipal managers in our service area

• Media

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22..11 AANN OOVVEERRAALLLLGGOOVVEERRNNAANNCCEEPPEERRSSPPEECCTTIIVVEEBloem Water endeavours to

enhance and maintain the highest levelsof Corporate Governance in all relatedaspects of its operations and iscontinuously striving to satisfy soundgovernance principles in line with the KingCode on Corporate Governance for SouthAfrica as well as the Protocol onCorporate Governance for State OwnedEnterprises (SOEs).

Governance structures, being dynamic,require the review and reassessment ofcoupling practices on a continuous basis,which is what Bloem Water has achievedand which it seeks to maintain in line withnational, continental and internationalbest practices.

Bloem Water’s goal is to ensure that itconducts its daily operations with integrity,thus responding to the needs of itsstakeholders, staff and the communities itserves.

22..22 CCOOMMPPOOSSIITTIIOONN OOFF TTHHEE BBOOAARRDD OOFF NNOONN--EEXXEECCUUTTIIVVEEDDIIRREECCTTOORRSSBloem Water currently has a board

consisting of 10 Non-executive Directorsappointed February 2005 to February 2009by the Minister of Water Affairs and 2 Independent Non-Executive Directorsappointed by the Board of Directors ofBloem Water. Directors are appointed from diverse backgrounds and provide a variety of experience and skills to theBoard.

APPOINTMENT OF DIRECTORSIn accordance to the Water Services Act,directors are appointed every four years.Directors may serve for a term of threeconsecutive terms of office as prescribedin the above Act, Schedule 1, 1(2).

22.. BBLLOOEEMM WWAATTEERR && CCOORRPPOORRAATTEE GGOOVVEERRNNAANNCCEE

CONTENTS Page

2.1 AN OVERALL GOVERNANCEPERSPECTIVE 13

2.2 COMPOSITION OF THE BOARD OFNON-EXECUTIVE DIRECTORS 13

2.3 DIRECTOR PROFILES 14

2.4 AN OVERVIEW OF DIRECTORS KEY ROLES AND RESPONSIBILITIES

16

2.5 INDUCTION OF NEW DIRECTORS 16

2.6 MANDATE OF THE BOARD 16

2.7 BOARD MEETINGS 16

2.8 CHIEF EXECUTIVE OFFICER 16

2.9 BOARD REMUNERATION 17

2.10 DIRECTORS INTEREST &INDEPENDENCE 17

2.11 STATUTORY RECORDS 18

2.12 BOARD COMMITTEES 18

2.13 BOARD COMMITTEE ASSESSMENTS & INDIVIDUAL PERFORMANCEEVALUATIONS 19

2.14 ACHIEVEMENTS 20

2.15 INTEGRATED SUSTAINABILITYREPORTING – COMPANIES ACT AND KING II 20

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BLOEM WATER & CORPORATE GOVERNANCE

Me M Matsabu (Chairperson of the Board)

Me Matsabu holds an MSc Civil Engineering degreefrom Drexel University (Philadelphia, USA), a BSc degree in Civil Engineering from HowardUniversity, Washington DC and a ManagementCertificate from the Witwatersrand Business Schoolas well as a Project Management Diploma from theSchool of Project Management. Me Matsabu serveson the Board of the Water Research Commission“WRC” as a chairperson of the Research Policy andStrategy & Finance and Audit Committees of theWRC Board .

Mr K Mcejwa (Vice Chairperson of the Board)

Mr Mcejwa is in possession of a BA degree in Public Administration, post-graduatediploma in Organisation and Management and iscurrently studying towards his Masters in BusinessLeadership. His designations range from CEO of theBotshabelo Transitional Local Council to DeputyDirector Parks & Recreation. Currently holds theposition of General Manager at Mangaung Local Municipality.

Me NC Morris (Chairperson to Finance Committee)

Me Morris is a qualified attorney, admitted topractice as such in the High Court of South Africa.She has experience in both the public and privatelaw ranging from labour and commercial law totelecommunications and municipal law. Me Morrishas extensive experience as legal researcher in theConstitutional Court of South Africa and theSupreme Court of Appeal a researcher to judges inthe Constitutional and Supreme Court of appealsrespectively . Designations accrued to Me Morrisare that of Director of a law firm, Director in localgovernment departments, and lecturer in Broadcasting and Telecommunications law.

22..33 DDIIRREECCTTOORR PPRROOFFIILLEESS

Me V Phatshoane (Chairperson to HRRC)

Me Phatshoane is currently a director in a law firm,a practising attorney, part time lecturer at theUniversity of the Free State and serves on the Boardof Mangaung Care for the Aged as part of hercommunity service. She specialises in conflictresolutions, mediation and arbitration and has alsoassisted both employees and employers to foster aculture of sound labour relations at the workplace.

Dr M Marumo

Dr Marumo has a very varied career. He obtained hisBSc degree at Washington State University, is acandidate for the Doctor of Letters degree withFairfax University and has also enrolled in aCompany Direction Graduate Diploma with theGraduate Institute of Management and Technology.His core skills relate to strategic planning, projectmanagement, capacity and institution building,training and facilitation as well as collaborativeaction-research.

Mr TJ Musandiwa

Joseph Musandiwa is a Chartered Marketer (SA) currently working at ATNS as an ExecutiveManager Business Development. He holds a M.Comfrom Rand Afrikaans University, B. BusinessAdministration from Andrews University (USA), and a Diploma in Marketing Management (Institute of Marketing Management).

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Mr KL Mofokeng (Chairman to the Trustee Committee)Mr Mofokeng has extensive experience in thebuilding industry, construction management fieldand also intends to pursue his PhD. He hascontributed in the design of quantum performancesystems, which is a model developed for Monitoring,Evaluation and Reporting specifically developed forconstruction development purposes.

Mr JJ Eagar (Chairman to the POC)

Mr Eagar was nominated by the South AfricanAssociation of Consulting Engineers and is aregistered professional engineer. He has extensiveexperience in Local Government and held theposition of City Engineer of Bloemfontein for 16 years. Mr Eagar’s professional membershipincludes Fellow of the South African Institution ofCivil Engineers and a fellow of the Institution ofMunicipal Engineers of South Africa.; Mr Eagar hasalso served on the Boards of the Engineering Councilof SA “ECSA” and the Lesotho HighlandsDevelopment Authority (current Chairperson).

Mr G Mohlakoana

Mr Mohlakoana has extensive experience inMechanical engineering and Engineeringmanagement and is in possession of the followingqualifications: BSc in Mechanical Engineering and aMasters in Engineering Management. Hisdesignations include Executive DirectorInfrastructure of Mangaung Local Municipality,Project Manager to SAB, Power Plant Engineer toEskom, Boiler Engineer to Eskom & Senior EngineerEskom. Mr Mohlakoana’s field of expertise relates tothe Management of Water and Sanitation, Roadsand Stormwater, Solid Waste Management,Financial Management, Training and Development,Risk Management as well as contract and projectmanagement of capital programs.

Mr N Mokhesi

Mr Mokhesi has extensive experience inDevelopment finances and financial management.He is in possession of the following qualification:BCom; BCompt; Hon BCom, MCom and a Diploma inBusiness Management. His designations range fromCFO of Municipalities, Executive director and Nonexecutive Directorships to Companies, IndependentSMME Business Consultant and Senior Managerialpositions in Development finance institutions.Mr Mokhesi presides at present as a Director of anunlisted investment company, Accredited BusinessMentor of a national wholesale SMME financialInstitution (Khula), Chairperson of the AuditCommittees of Fezile Dabi District and Free StateDepartment of Agriculture. He is also a formerMember of Statistics SA and is currently the ChiefFinancial Officer of Maluti-A-Phofung LocalMunicipality.

Mr V Nondabula (Independent Chairman to the Audit Committee)

Mr Nondabula has extensive experience in thefinancial field. His has qualifications such as anMBA (Finance and International Business),University of Wisconsin (Madison Campus) M.A. inpolitical science, B.A. Honours in Political Science,Diploma in Financial Management ,a U.E.D and a BAin History and Political Science.. Mr Nondabula is amember to a number of Associations herein referredto as: Chairperson to the AC at the Department ofEducation (Eastern Cape), Chairperson to the AC atMpumalanga’s Provincial Government andChairperson to the AC of NAMC as well as memberto the Provincial CFO Forum. His work experienceranges from being CEO to Security PacificInvestments, CFO to the Gauteng Department ofHealth, Senior Finance Manager at Coca-Cola SouthAfrica as well as a Financial Analyst at variouscompanies.

Mr JA Connolly (Independent Chairman tothe Risk Committee)

Mr Connolly is an independent consultant who hasmore than 23 years experience in the South Africanwater sector and holds 4 postgraduate managementqualifications from the Wits Business School. He has worked for Rand Water where he held anumber of senior management positions includingCorporate Risk Manager and Corporate Planner. Theprimary focus of his consulting work is on strategicplanning, strategic alignment of Organisationalactivities, strategy implementation, implementingstrategic performance measurement systems andincentives, performance enhancement and thedevelopment of business plans. In 2000, Mr Connollywas contracted to establish and set up the SouthAfrican Association of Water Utilities (SAAWU) andfor the last 5 years he has been contracted as theChief Executive of (SAAWU). Mr Connolly also hassubstantial experience in governance of publicutilities and has been directly involved in thedevelopment of governance courses for NonExecutive Directors of Water Boards..

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BLOEM WATER & CORPORATE GOVERNANCE

22..44 AANN OOVVEERRVVIIEEWW OOFFDDIIRREECCTTOORRSS KKEEYY RROOLLEESSAANNDD RREESSPPOONNSSIIBBIILLIITTIIEESSThe Board is responsible for the

strategic leadership of the Organisation, inessence encompassing sound corporategovernance practices, ensuring a clearstrategic direction, optimising operationalperformance and the consideration ofvarious business related matters such asfinancial performance, legislativecompliance and overall risk management.

The Board aspires to monitor progress interms of strategic direction, policyformulation and overall staff commitment.

22..55 IINNDDUUCCTTIIOONN OOFF NNEEWW DDIIRREECCTTOORRSSAll directors were required to

undergo an induction process to ensurethat they are adequately briefed and arein the possession of the requiredknowledge of the structure, operationsand policies. Directors are also providedwith applicable legislation and relevantdocumentation setting out their respectiveduties and fiduciary roles. The Board Secretary is responsible for theinduction of new Directors. Such inductionis supplemented with appropriate trainingand development programmes andinformation, amongst others, the DWAFsponsored governance training deliveredby the South African Water UtilitiesAssociation.

22..66 MMAANNDDAATTEE OOFF TTHHEE BBOOAARRDDThe Board operates in terms of a

mandate set out in the Water Services Act.

KEY FUNCTIONS OF THE BOARDINCLUDE, BUT ARE NOT LIMITED TO:· determining the strategic direction

of Bloem Water.

· approving strategic plans andprogrammes

· monitoring the implementation ofstrategic plans and programmes

· monitoring the performance ofBloem Water from a financial, humanresources, environmental and technicalperformance perspective.

· annually reassessing the Boardcommittees’ mandates by reviewingeach Committee’s charter.

· delegating, to the CEO and ExecutiveManagement, the authority tomanage the Organisation inaccordance with the delegatedauthorities approved.

22..77 BBOOAARRDD MMEEEETTIINNGGSS

The Board of Bloem Water meets ona quarterly basis under the chairpersonshipof, Me M Matsabu. Special meetings arearranged, if and when necessary.

22..88 CCHHIIEEFF EEXXEECCUUTTIIVVEE OOFFFFIICCEERR

For the year under review, in theabsence of a CEO, two Non-ExecutiveBoard members, at different times, wererequested by the Board to exerciseoversight in respect of the day to dayoperations of Bloem Water pending theappointment of a Chief Executive Officer.

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22..99 BBOOAARRDD RREEMMUUNNEERRAATTIIOONNNon-Executive Directors are

remunerated in accordance to a setpolicy formulated by the Department ofWater Affairs and Forestry. This policy isreviewed on an annual basis.

Details of Director attendance at meetingsand coupling remuneration are detailedherewith: -

RESIGNATIONSThere were no resignations during theperiod under review.

22..1100 DDIIRREECCTTOORRSS IINNTTEERREESSTT &&IINNDDEEPPEENNDDEENNCCEEA Declaration of Interest register

(along with other relevant statutoryrecords) is available for inspection fromBloem Water’s Head Office. A Declarationof Interest insertion is a standing item onthe agenda of every meeting; ensuringthat Non-Executive Directors declare anyinterest they may have as prescribed bythe Water Services Act, Act 108 of 1997and the Companies Act, Act 61 of 1973 asamended and as as dictated by soundcorporate governance principles.

DIRECTOR’S INDEPENDENCE FROMMANAGEMENT IS ENSURED VIA:• The CEO and Chairperson’s roles

being separate.

• 10 of the Directors are Non-Executivedirectors and two are Independentdirectors. The CEO is a non-executivedirector with no voting rights.

• All directors have access to the BoardSecretary and are entitled to, afterconsultation with the Chairperson, seek

Directors data 01.07.2005-30.06.2006

DirectorBoardAllowance

Board Activities Running Cost Board Meetings Board Activities

Attended Committees

M Matsabu 86 692.80 158 584.14 16 486.16 5 52

K Mcejwa 68 120.58 78 736.47 1 961.13 5 49

JJ Eager 60 770.52 55 969.80 15 804.90 5 33

M Marumo 60 770.52 229 897.65 2 542.71 5 53

KL Mofokeng 60 770.52 73 554.80 3 012.60 3 34

NC Morris 60 770.52 80 694.51 473.71 5 28

G Mohlakoane 40 959.64 5 459.90 1 207.80 3 7

N Mokhesi 40 959.64 4 327.72 22 442.35 3 6

TJ Musandiwa 60 770.52 18 724.95 41 717.93 5 8

MV Phatshoane 60 770.52 31 825.88 2 329.07 3 31

TOTALS 601 355.78 737 775.85 107 978.36

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BLOEM WATER & CORPORATE GOVERNANCE

independent professional advice onthe affairs of the Company.

22..1111 SSTTAATTUUTTOORRYY RREECCOORRDDSSAs prescribed by legislation, the

following statutory records are kept andmaintained by the Board Secretary atBloem Water’s Head Office and isavailable for inspection.

· Register of Directors

· Declaration of Interest Register

· Gift Register

· Attendance Register

· Minute Books

22..1122 BBOOAARRDD CCOOMMMMIITTTTEEEESSIn accordance to section 37 (a) of

the Water Services Act a Water Board maydelegate any operational power to acommittee of the Board. The purpose ofthe Board’s committees is to assist theDirectors in fulfiling their oversightresponsibilities.

· Bloem Water’s Board CommitteesStructure is set out on pg 19: -

BOARD COMMITTEES AND THEIR CHARTERSBoard committee charters define theresponsibilities and operations of eachcommittee of the Board. The Board adoptscommittee charters, which sets out thefunction, composition and powers of thecommittees.

The purposes and procedures outlined inthe charters are meant to serve asguidelines and each committee isdelegated the authority to adoptadditional procedures and standards as it

deems necessary to fulfil its responsibilitiesto the Board.

FEATURES OF THE CHARTERS

Charters in general include:

• A general outline of the objectives andpurpose of the Committee

• The duties or responsibilities of the Committee

• The composition of the committee andthose invited to attend

• Attendance of Committee meetings

• Frequency of Meetings

• Period of tenure

• Proposed functions of the Committee

• Reporting mechanism to the Board

DERIVABLE BENEFITS Although the Board is able to delegatesome of its functions to committees, theBoard cannot delegate its ultimate powerand responsibility. Committees throughclearly defined charters add value to theeffectiveness of Corporate Governanceby monitoring Company activities andgenerally strengthening the role of thenon-executive director and ultimately theBoard. Board Committees bring about anumber of benefits to the Board includingan improved opportunity for non-executive directors to utilise their skills andexperience to the maximum within afocussed area.

Bloem Water’s Board has finalised itsoverall charter document by reviewingeach committee’s charter and initialisingan all-encompassing overall document,know as the Bloem Water Board Charter

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Structure of Board Committees

BOARD

Audit Committee

Mr V Nondabula(Independent Chairperson)

Me N Morris

Mr K Mcjewa

Mr N Mokhesi

Mr TJ Musandiwa

Finance Committee

Me N Morris(Chairperson)

Mr G Mohlakoana

Me M Matsabu

Mr N Mokhesi

Mr TJ Musandiwa

Human Resource andRemuneration Committee

Me V Phatshoane (Chairperson)

Mr K Mcejwa

Mr K Mofokeng

Dr M Marumo

Procurement /Operations Committee

Mr J Eagar (Chairperson)

Mr G Mohlakoana

Mr K Mofokeng

Dr M Marumo

Trustees

Mr K Mofokeng(Chairperson)

Me V Phatshoane

Dr M Marumo

Mr JJ Eagar

Mr K Mcejwa

Risk Committee

Mr J Connolly(Independent Chairperson)

Mr JJ Eagar

Me V Phatshoane

Mr G Mohlakoana

Chairpersons Committee

Me M Matsabu(Chairperson)

Mr J Eagar

Me V Phatshoane

Mr K Mcejwa

Me N Morris

(established to deal with ad hoc and urgent matters)

Document. This document encompassesthe following charters:

· Audit Committee

· Finance Committee

· Procurement/Operations Committee

· Risk Committee

· Human Resources and Remuneration Committee

· Chairpersons Committee

The Board has mandated the TrusteeCommittee to compile a charter inaccordance to its mandate, which will beincluded in the overall charter document.

The committee charters will be reviewedon an annual basis in line with soundgovernance practices to optimise the roleand function of each committee of the Board.

22..1133 BBOOAARRDD CCOOMMMMIITTTTEEEEAASSSSEESSSSMMEENNTTSS &&IINNDDIIVVIIDDUUAALLPPEERRFFOORRMMAANNCCEEEEVVAALLUUAATTIIOONNSSBoard Committee performance

assessments have not been conducted,due to the recent finalisation of theCharters. Performance assessments of allboard committees will be concludedduring the next financial year. Interimperformance appraisals of individualdirectors will be conducted during the06/07 financial year, pending thefinalisation of performance contracts andan official performance assessment systemto be developed by the Department ofWater Affairs and Forestry.

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BLOEM WATER & CORPORATE GOVERNANCE

22..1144 AACCHHIIEEVVEEMMEENNTTSS• The implementation of

recommendations contained in theForensic Audit, initiated by the previousBoard and finalised by DWAF.

• The initialisation of a Risk Register,identifying, rating and monitoring allrelevant risks to the Company.

• The formulation of Board committeecharters to guide the functioning of theBoard’s Committees.

• Embarking on regular governancetraining for non-executive directors.

• The development of a Materiality andSignificance Framework.

• The conclusion of an AssetManagement System.

• The initialisation of an EnvironmentalPolicy.

• The initialisation of a SocialResponsibility policy.

• Conducting an overall policy review,addressing loopholes in policies andidentifying new policies forimplementation.

• Embarking on an overall review of thestrategic objectives of the Board.

• Embarking on the initialisation of aPerformance Management System.

• Identification of systemic problemswhich impact negatively on theperformance of Bloem Wateremployees and directing executivemanagement to address same in theinterests of improved management ofthe affairs of Bloem Water.

• Building improved communication withLabour at Bloem Water.

• Creating sound working relationshipswith DWAF (provincial and National)and Local government in the interestsof improved service delivery.

22..1155 IINNTTEEGGRRAATTEEDDSSUUSSTTAAIINNAABBIILLIITTYYRREEPPOORRTTIINNGG –– CCOOMMPPAANNIIEESS AACCTT AANNDDKKIINNGG IIIIBloem Water aspires to the highest

levels of professionalism and integrity in theconducting of its business withstakeholders and the community at large.All Bloem Water employees andrepresentatives are required to act in amanner that instills trust, transparency,mutual empowerment, respect anddignity – all in an endeavour to gain theconfidence from the community it servesinternally and externally.

Bloem Water is in the process of embarkingon an ethical business behaviour-trainingprocess. It is envisaged to empower staff inethical business behaviour thus inspiringexcelled achievement and overall soundperformance. Bloem Water’s ethical codeand the values it portrays are vital inprojecting the intended and expectedsound governance practices of the Boardto its stakeholders and community.

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33..11 SSTTIIPPUULLAATTIIOONNSS CCOONNTTAAIINNEEDDIINN BBLLOOEEMM WWAATTEERR’’SS CCOODDEEOOFF EETTHHIICCSS AARREE AASSFFOOLLLLOOWWSS:: --

• Officials are expected to promote andadvance their knowledge andcompetence by independent study,attending courses and seminars to thebenefit of themselves, Bloem Waterand the Board.

• Articulate Social Responsibilities ofmembers of an Organisational unit andthe encouragement and acceptanceof responsibilities.

• Due to the fact that Organisations of allkinds have an impact on the public,they are required and must acceptresponsibility to society. Organisationalprocedures and attitudes orientedtowards quality and the welfare ofsociety will enhance the service in theof public interest and will fulfil it’s socialresponsibility obligations.

• All Bloem Water officials are expectedto encourage social responsibilityinitiatives and actions and excellencein performance.

• Adherence to the Code

· Upon accepting an offer ofemployment/offer of appointment,an official accepts the Code ofEthics as a Bloem Water policy and will thus be required to aspireand hold fast to the principles setout in the Code to the best ofhis/her ability.

· Bloem Water places a high valueon integrity, honesty andtrustworthiness. The Board’s

principles of zero tolerance in termsof corruption and fraud willcontinue to be applied.

· Employees are required to report allincidences of suspect fraudulentbehaviour to the Fraud PreventionHotline, which has been initialised toprovide means of ensuring that anybreach of Bloem Water’s Code ofEthics is reported and acted upon.The utilisation of this hotline ispromoted and encouraged.

33..22 BBLLOOEEMM WWAATTEERR’’SS SSOOCCIIAALL RREESSPPOONNSSIIBBIILLIITTYYBloem Water is involved in and

committed to an all-embracing and farreaching range of educational programsand initiatives focused on promoting issuesrelated to water services, waterconservation, demand management viaproper education, capacity building andinformation sharing with communities andconsumers. Examples of these programsand initiatives are depicted hereunder:

• Organised site visits to water treatmentplants for stakeholders, interest groupsand schools.

• Active and visible support of NationalWater Conservation Programs (e.g. the20/20 vision of the Department ofWater Affairs and Forestry) and theNational Water and Arbor Week.

• The development of programs andactivities to encourage, within thecommunity of consumers, a betterunderstanding of service delivery andthe need to pay for service and topreserve water as a sustainer of life.

33.. BBLLOOEEMM WWAATTEERR’’SS EETTHHIICCAALL CCOODDEE // EETTHHIICCAALL BBUUSSIINNEESSSS BBEEHHAAVVIIOOUURR

CONTENTS Page

3.1 STIPULATIONS CONTAINED INBLOEM WATER’S CODE OF ETHICS ARE AS FOLLOWS 21

3.2 BLOEM WATER’S SOCIAL RESPONSIBILITY 21

3.3 BLACK ECONOMIC EMPOWERMENT 22

3.4 CONCLUDING REMARKS FROM THE SECRETARY 23

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ETHICAL CODE / ETHICAL BUSINESS BEHAVIOUR

• Providing support to the 20/20 visionschools water analysis and similarprojects.

• Participation in the BloemfonteinTechnology Project, whereby studentsfrom the Bloemfontein, Thaba Nchuand Botshabelo areas are offered anopportunity to receive tuition in maths,science and computer science.

• Embarking on various donations andsponsorships to assist impoverishedcommunities and supporting theactivities of various institutions.

• Encouraging participation in theBloem Water Annual Road Race heldin partnership with the Free StateUniversity.

• Engaging in various twinningagreements with institutions in an effortto exchange knowledge, experienceand to enhance training possibilities.

Bloem Water employees are given theopportunity to develop and extendtheir experience by havingparticipated in exchange programswith the Northern Region Water Boardin Malawi, (grant funding provided byFredskorppset, Norway).

• Entering into and implementing variousmemoranda of understanding withinstitutions such as Central University ofTechnology and the Free StateUniversity.

• Bloem Water has entered into anagreement with the University of theFree State. A sponsorship for aprofessorate position is made available

annually to maintain a study chair inWater Management. The purpose is topromote postgraduate study andresearch in terms of rivers in centralSouth Africa.

33..33 BBLLAACCKK EECCOONNOOMMIICCEEMMPPOOWWEERRMMEENNTTThe Board is committed to principles

and practices, which seek to addresshistorical inequalities in all its guises. Inparticular the Board seeks to ensure thatBroad Based Black EconomicEmpowerment constitutes the basis of allexpenditure in Bloem Water. The Board is iscurrently reviewing its procurement policyand procedures in this respect to ensurethat broad based black economicempowerment reaches the intendedbeneficiaries and contributes to LocalEconomic development initiatives in all themunicipal areas that Bloem Water serves.

EMPLOYMENT EQUITY AND WOMEN IN BLOEM WATER

An Employment Equity Plan and relatedtargets have been drafted and efforts arebeing made to realise the identifiedobjectives. The Plan requires theimplementation of results-orientatedpractices to ensure that all categories ofpreviously disadvantaged employees willbe afforded preferential selection, training,development and promotionalopportunities within the Organisation. The Policy is focused particularly onaddressing racial imbalances,

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representation of women and disabled persons at all levels within the Organisation.

Bloem Water will soon be embarking onthe initialisation of a Gender Policy,designed to promote gender equalitywithin the Company. Currently there is onlyone woman in the top executive structureof the Organisation. The aim of theGender Policy would be to ensure genderequality in the workplace by empoweringwomen within te Company with theneeded skills to grow and develop. TheBoard will kick start this process in thefinancial year 2006/2007 by paying tributeto the Women of Bloem Water who haveall contributed to its growth anddevelopment. This tribute by theChairperson of the Board will form part ofthe National 50th year celebrations of 9 August 1956 and heralds the “Age ofhope” for women in Bloem Water. The Board will also begin to give the much needed direction in respect of the employment of people living with disabilities.

33..44 CCOONNCCLLUUDDIINNGG RREEMMAARRKKSSFFRROOMM TTHHEE SSEECCRREETTAARRYYBloem Water is looking forward to

meeting future challenges in realising itsgoals and objectives by ensuring acontinued sound financial base andmaintaining the support of a devoted anddedicated workforce as well as a wellmaintained operational infrastructure,equipment and overall relations with thecommunity.

The core business of bulk water supply issound and those adjustments andadditions, which are to be implemented,will further enhance the operations of theOrganisation. Bloem Water will alsocontinue to aspire and focus on a numberof strategic, operational and institutionalissues, which will contour the Organisationand position it for the future as a goingconcern and substantiate its aspiration tobe the community’s partner of excellencein water.

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ETHICAL CODE / ETHICAL BUSINESS BEHAVIOUR

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2 5

PPAARRTT 22

TTEECCHHNNIICCAALL SSEERRVVIICCEESS

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CONTENTS Page

4.1 ENVIRONMENTAL MANAGEMENT SYSTEM 26

4.2 ENVIRONMENTAL PROJECT MONITORING 26

4.3 WATER QUALITY MANAGEMENT 26

4.4 WATER QUALITY 26

4.5 ASSET MANAGEMENT 27

4.6 INFRASTRUCTURE 27

4.7 ADDITIONAL DEVELOPMENTS 28

4.8 HEALTH AND SAFETY 28

4.9 STATISTICS 29

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TECHNICAL SERVICES

44.. TTEECCHHNNIICCAALL SSEERRVVIICCEESS

44..11 EENNVVIIRROONNMMEENNTTAALLMMAANNAAGGEEMMEENNTT SSYYSSTTEEMMIn line with Bloem Water’s

environmental commitment stipulated in itsenvironmental policy statement, thedevelopment of the ISO 14001 accreditedEMS has reached an advanced stage.Based on the progress to date,Bloem Water is confident that the deadlineto complete the development phase byJune 2007 will be met.

The environmental aspects and impactsassociated with our core business hasbeen identified. Environmental awarenesstraining will be undertaken to ensureactive participation of all employees in thedevelopment of the system and the roll-out of an applicable awareness campaignto all the communities that Bloem Waterserves. The programme is ongoing.

44..22 EENNVVIIRROONNMMEENNTTAALL PPRROOJJEECCTTMMOONNIITTOORRIINNGGBloem Water has set a target to

obtain environmental authorisation andmaintain full environmental compliance forall new projects. This is achieved throughadvising the relevant department ofenvironmental requirements pertaining toplanned projects and auditing projectsunder construction. With the co-operationfrom National and provincial departments,the relevant authority approved all newprojects and those under construction arebeing monitored.

Contingency plans to this effect weredeveloped and are continuously updated.

44..33 WWAATTEERR QQUUAALLIITTYYMMAANNAAGGEEMMEENNTTA number of programmes are

operational including projects andinitiatives in biomonitoring, microbialmonitoring, and chemical monitoring, inconjunction with the University of the FreeState. A total of R2,3 million was spent inthe continuation of these projects.

44..44 WWAATTEERR QQUUAALLIITTYYBloem Water supplies drinking water

that is, in terms of quality, amongst thebest in South Africa; Bloem Water’scompliance rate with strict SANS guidelinesis 99.9 percent.

Bloem Water continue to invest in thewater network to ensure that ourstandards remain high and to tackle water quality issues promptly.

Bloem Water continued with its contractwith the University of the Free State for theanalysis of bulk water supply and rawwater sources to ensure the delivery ofwater of the highest quality. The threeprimary objectives of water supply thatmeets drinking water standards, namelyaesthetical, financial/ economic andhealth aspects are constantly evaluated.

Purification plants from which water isdistributed for human consumption aresituated in three main areas, namelyBethulie on the Orange River, Rustfonteinon the Modder River and Welbedacht onthe Caledon River. Water was sampled atthe source (before purification) as well asat the distribution points (after purification).Sampling for the purpose of environmentalmanagement was also done althoughthese points do not necessarily correspond

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to those used for purified water. A totalnumber of 90 sites were analysed on aregular basis ensuring coverage of thecomplete area.

44..55 AASSSSEETT MMAANNAAGGEEMMEENNTTMinor capital expenditure will be

undertaken due to the slowing down trendin water demand growth. The focus is tocorrect outstanding technical aspects toimprove on efficiency. No major capitalexpenditure works are envisaged for thenear future. To expand capacity ofinfrastructure, the emphasis in theforeseeable future will be on refurbishmentand maintenance of existing assets. Theutilisation of these assets to maximize thereturn on Bloem Water’s investment willremain pronounced.

The preventative and ComputerisedMaintenance Management System, whichis operational, informs many maintenancedecisions as data is continuously beinggathered to populate the system. Thissystem will enhance the efficiency ofoperational units and increase theefficiency of water supply systems. This willensure maximum operational utilisationwith the minimum down time expendedon planned and scheduled maintenance.

The Caledon-Bloemfontein pipeline, whichis of a pre-stressed concrete construction,was investigated indepth. Majormaintenance in terms of programs areplanned and will be undertaken in orderto ensure the operability of this specificline. This program will run for a number ofyears to ensure the efficient utilisation ofthe ageing asset, which is the main arteryfor the region.

Both the condition as well as the capacityof the major assets was utilised effectively

and efficiently to mitigate the impact ofthe drought experienced in the centralparts of South Africa towards the end of2005. This entailed the continuousoperation of especially the Novo transferscheme for most of the financial year toensure that no water restrictions areimposed within the area of the supply ofBloem Water.

44..66 IINNFFRRAASSTTRRUUCCTTUURREEDDEEVVEELLOOPPMMEENNTTThe Technical Services Department

is still involved as Implementing Agent intwo major projects.

In the Eastern Cape, on behalf of theUkhahlamba District Municipality,Bloem Water is developing infrastructure aswell as refurbishing existing infrastructure inthe Herschel and Sterkspruit areas. Theinvolvement of Bloem Water reaches as faras Lady Grey, Rossouw, as well as Elundini.Funds amounting to R18 million weremade available for development fromMarch 2005 to July 2006, 2562 householdswere served within the identified area.

On behalf of Mangaung LocalMunicipality, Bloem Water is ImplementingAgent to a project in the municipal areabut primarily in the Botshabelo area nowamounting to R89,25 million in total.

The scope of the project, executed inthree phases for each of Mangaung,Botshabelo and Thaba Nchu, involvingmainly water supply upgrading, but inaddition a water borne sewage systemwith top structures have also beenprovided.

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44..77 AADDDDIITTIIOONNAALLDDEEVVEELLOOPPMMEENNTTSSAs in the past, the Technical

Services Division of Bloem Water is stillspearheading a number of initiativesgeared towards greater involvement inextending service delivery to the poor, aswell as enhancing the operations of theOrganisation for improved service delivery.

It is again envisaged that in the EasternFree State area, including Ladybrand,Ficksburg and Fouriesburg, discussions willcontinue to establish the current situationand enhance the provision of waterservices in these towns. Bloem Waterfurther played an active role in thedevelopment and conclusion of theLesotho Lowlands study to ensure sufficientvolumes of water to the more urbanisedareas within Lesotho. The Organisationcontinued its discussions with theDepartment of Water Affairs & Forestry onthe condition of the Caledon River tomitigate the damage to the environmentin terms of siltation and the effect on theWelbedacht Dam, a DVD detailing theproblems of siltation has been producedwith sponsorships from DWAF.

The Organisation is still playing a major rolein the establishment of the catchmentmanagement agencies within the region.In this regard the University of the FreeState through the Bloem Water fundedstudy-chair with the Department of WaterAffairs and Forestry is giving impetus to theestablishment and the program regardingcatchment management agencies.

Discussions continued with a number ofneighbouring municipalities namelyXhariep District Municipality as well asUmsobomvu Local Municipality in the

Northern Cape (the Colesberg area) andthe Kopanong Local Municipality(Jagersfontein project and Xhariep WaterTreatment Plant) on projects which willcontribute to the delivery of waterservices.

44..88 HHEEAALLTTHH AANNDD SSAAFFEETTYYIn terms of the Health and Safety

Act, health and safety committees havebeen established in the regions as well asin the Bloemfontein office where thenecessary appointments were made toensure monitoring and compliance withthe legislative prescripts.

By and large these committees arefunctioning adequately but much still hasto be done in terms of training to sensitiseand ensure the internalisation within theOrganisation of health and safetyawareness. First aid and basic safetytraining was conducted whilst anawareness campaign is due to belaunched to sensitise all of the employeesof Bloem Water to the implementation ofbest practices.

In line with the commitment ofmanagement to health and safety issues,the Board approved a policy, which willbe implemented and complianceaccordingly monitored.

No serious injuries on duty occurred andno loss of life has been reported.

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Plant

DesignCapacity

UtilisationFinal waterdelivered

ml/day % Million m3

Tienfontein 2,8 m3/s 38,8 34,26

Novo 1,5 m3/s 46,7 22,11

Raw Water Pumpstation

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44..99 SSTTAATTIISSTTIICCSS

Statistics for the different plantsare contained in the tables herewith.

Volumes abstracted, delivered, sold and losses

Million m3Volume loss

million m3 % Loss

Total volume of water abstracted 59,78 - -

Total volume of water delivered 56,94 2,84 4,75

Total volume of water billed 53,46 3,48 6,11

TOTALS 6,32 10,57

Plant

DesignCapacity

UtilisationFinal waterdelivered

Plant lossChlorine gas

DosageChlorine powder

DosageLime

DosagePolyelectrolyte

DosagePoly-acrylamite

Dosage

ml/day % Million m3 Million m3 % kg mg/l kg mg/l kg mg/l kg mg/l kg mg/lWelbedacht 145 81,6 41,27 1,91 4,4 203 749 4,94 4 345 0,11 878 803 21,29 330 454 8,01 888 0,02

Rustfontein 100 36,2 12,51 0,69 5,2 50 058 4,00 - - 107 414 8,56 37 644 3,01 - -

Groothoek 18 24,8 1,49 0,14 8,6 8 303 5,57 - - 15 838 10,63 6 867 4,61 - -

Gariep 2,8 53,2 0,52 0,03 5,0 499 0,96 108 0,21 1 038 2,00 2 572 4,94 - -

Bethulie 4,0 76,3 1,05 0,06 5,7 1 871 1,78 110 0,10 8 254 7,86 19 431 18,5 - -

Philippolis 1,2 28,0 0,10 0,02 20,3 556 5,86 84 0,84 672 6,72 730 7,30 - -

Herschel 6,6 100 2,84 0,09 3,1 8 732 3,07 730 0,26 18 250 6,43 21 900 7,71 - -

Treated Volumes and Dosages

Volumes of dams which Bloem Water operates

DamsCapacityMillion m3

Capacity on 01 July 2005 Capacity on 30 June 2006

Volume Million m3 %

Volume Million m3 %

Welbedacht 14,057 8,32 59,20 12,79 90,97

Rustfontein 72,068 41,16 57,11 69,65 96,65

Knellpoort 130,194 71,35 54,80 116,30 89,33

Groothoek 11,990 4,13 34,42 11,00 91,77

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CONTENTS Page

5.1 HUMAN CAPITAL AND THEDEVELOPMENT THEREOF 30

5.2 LABOUR RELATIONS 30

5.3 SKILLS DEVELOPMENT 31

5.4 REMUNERATION SYSTEM 32

5.5 HIV/AIDS AND EMPLOYEE WELLNESS PROGRAMME 32

5.6 RECRUITMENT, SELECTION, PLACEMENT AND INDUCTION 32

5.7 EMPLOYMENT EQUITY 33

5.8 BLOEM WATER PENSION FUND 33

5.9 CORPORATE SERVICES 34

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55..11 HHUUMMAANN CCAAPPIITTAALL AANNDD TTHHEEDDEEVVEELLOOPPMMEENNTT TTHHEERREEOOFFThe Human Resource department’s

scope of services includes, labour relations;recruitment, selection and placement,compensation and benefits administration;job evaluations; job grading, performancemanagement; employment equity;management of HIV/AID at workplace;skills development and compliance withlabour regulatory and legislativeprescriptions. The Department has beendogged by much difficulties particularly asthey relate to industrial relations andcompensation and benefits administration.The increased number of unresolvedgrievances is indicative of the difficultiesthat pertain in this regard. It is apparentthat a skills lacuna exists within theDepartment and the Board is committedto addressing this matter holistically overthe next and subsequent financial years.

Issues of Human Resource Managementremains a challenge despite theconcerted efforts at progressivelyaddressing the plethora of systemic issuespertaining to human resourcemanagement.

Human Capital development is at theheart of the Board’s strategy to ensure thatBloem Water contributes to ASGI-SA in thelong term. Building internal competence isat the core of improving functionaloperational management to which BloemWater is committed.

55..22 LLAABBOOUURR RREELLAATTIIOONNSSThe unresolved grievances,

pertaining to, inter alia, issues of

compensation and benefits as well as jobevaluations and grading has created aclimate incongruent with sound labourrelations. To this end Bloem Water iscommitted to re-establishing sound labourrelations, through a holistic and on-goingprocess of negotiations, and consultationswith Labour (unionised and non-unionisedemployees alike). Additional steps are tobe taken to building a culture ofengagement, through training anddevelopment, which respects both theemployer’s right’s while simultaneouslyensuring that employees concerns areattended to timeously, efficiently andeffectively. Appropriately developedprogrammes are to be implemented toensure that both Labour andManagement are sufficiently skilled toengage on contentious issues in a mannerwhich is conducive to buildingBloem Water as an employer of choice.

55..33 SSKKIILLLLSS DDEEVVEELLOOPPMMEENNTTThrough active engagement with

the Energy Sector Education TrainingAuthority in whose jurisdiction Bloem Waterfalls for skills development purposes,Bloem Water seeks to address the skillsdevelopment issues in a manner which willcontribute effectively to the Acceleratedand Shared Growth Initiative of SouthAfrica “ASGISA”. Over and above theTechnical Services department’scontribution to government’s programmefor accelerated growth, development andemployment targets in so far asinfrastructure programmes are concerned,the Human resources department throughskills development will seek to contributepositively to the ASGISA initiative. Thedepartment will seek to ensure that thesingle greatest impediment to economic

55.. HHUUMMAANN RREESSOOUURRCCEESS

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development, namely, the shortage ofskills and skilled technical employees, isgiven priority. This is over and above thecurrent skills development initiatives whichhave been undertaken over the yearunder review.

The information in the tables are indicativeof the modest training assistanceprovided:

The short courses to the right areencouraged to sharpen the competenciesof employees in relation to currentpositions held. Adult Basic Education andTraining still remains a priority and willresume in the latter part of the nextfinancial year. Bloem Water also plans toroll-out a bursary programme foremployees and students from previouslydisadvantaged communities, to undertakestudies in the engineering sciences,women are to be targeted in particular.An aggressively ambitious internshipprogramme is also to be developed inconsultation with stakeholders like theWater Institute of South Africa.

Bloem Water will continue to invest in itsmost valued stakeholder, its employeesand will strive continuously to develop adeep sense of loyalty and pride in beingemployees of a financially sound, efficientand effective employer.

55..44 RREEMMUUNNEERRAATTIIOONN SSYYSSTTEEMMThe Board approved the conversion

of the remuneration model from PackageSystem (Total Cost to Company), exceptfor Executive Management, back totraditional or classical Basic Pay plusbenefits in order to address issuespertaining to the Defined Benefit pensionfund while simultaneously ensuring that allthe employees were treated fairly. This has

Training Assistance provided since July 2005

B C W Total

Band Programme M F M F M F

7

Masters in Environmental Management 1 1Executive Development Programme 1 1B Tech; Electrical Engineering 1 1B Tech: Water Care 1 1B Tech: Mechanical Engineering 1 1ND: Water Care 2 2

6

Masters in Development Studies 1 1Bachelor of Management Leadership 1 1N3 Mathematics 1 1

5 ND: Water Care 1 2 3

4

ND: Office Management & Technology 1 1B Tech: Office Management & TechnologyB com 1 1Secretarial Studies (N6) 1 1Technical Skills Training (plumbing) 1 1

3Technical Skills Training (plumbing) 1 1Technical Skills Training (welding) 1 1

Short Courses provided since July 2005

B C W Total

Band Programme M F M F M F

7 Marketing Services & the Intangible 1 1

6

First Aid Level 1 & 2 2 0 1 0 1 0 4VIP Payroll 1 1Process Improvement for Credit Management 1 1Concept Introduction 1 1

5 First Aid Level 1 & 2 1 1

4

First Aid Level 1 & 2 1 3 0 0 0 2 6Business Writing Skills and Minute Taking 2 2Speed Writing for Effective Minute Taking 1 1 2

3 First Aid Level 1 & 2 1 1 2

2 First Aid Level 1 & 2 5 1 6

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HUMAN RESOURCES

been a costly and extremely difficultexercise which has given rise to most ofthe grievances which have arisen in the 3 months preceding the financial yearend. The grievances and problems thatarose as a result will incrementally beaddressed as part of the overall strategyto build sound labour relations.

55..55 HHIIVV//AAIIDDSS AANNDD EEMMPPLLOOYYEEEEWWEELLLLNNEESSSS PPRROOGGRRAAMMMMEEBloem Water acknowledges that

HIV/AIDS pandemic has had disastrousconsequences for the lives of personsinfected and affected as well as for thesocial and economic development of ourProvince in particular and the country as awhole. The impact is felt in Bloem Waterthrough the high absenteeism and sickleave rates, loss of productivity and theloss of valued employees.

A Policy has been formulated andapproved by the Board to:

• Prevent discriminatory conducttowards employees infected byHIV/AIDS;

• Manage and mitigate the impact ofHIV/AIDS;

• Promote mutual respect to employeesinfected and affected by HIV/AIDS;

• Engage in awareness and educationcampaigns;

The Board of Bloem Water is of the viewthat much more can and should be doneand thus the direction to the Departmentto develop and implement a holisticemployee wellness programme to supportemployees generally and the infectedand affected employees in particular.

55..66 RREECCRRUUIITTMMEENNTT,, SSEELLEECCTTIIOONN,,PPLLAACCEEMMEENNTT AANNDDIINNDDUUCCTTIIOONNBloem Water has consistently

developed and refined its recruitment,selection and placement procedures toensure a fair and transparent process ofappointing the most suitable candidates.Bloem Water will review its policies andpractices in this regard to recruit morewomen into positions of management andin the Technical Services department aswell as to address the recruitment,selection and placement of people livingwith disabilities. Six new appointmentswere made in the year under review andsuitably qualified new recruits wereinducted at Bloem Water.

55..77 EEMMPPLLOOYYMMEENNTT EEQQUUIITTYYBloem Water had a total

complement of 192 employees as at 30 June 2006. Six vacancies were filled.There were sixteen terminations in totaland of these three were retirements, threeresignations and ten deaths. Bloem Water,while on target in relation to employmentequity from a race perspective has thechallenge of reaching employment equitytargets relating to the nature and numberof technical and managerial positions heldby women and people living withdisabilities. To this end a fast trackedmanagerial programme is to bedeveloped and implemented in the next financial year through a combinationof external and internal trainingprogrammes. A comprehensive plan is tobe developed to ensure that Bloem Wateremploys people with disabilities in variousareas of its operations to give effect to

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HUMAN RESOURCES

EMPLOYMENT EQUITY

Position as at 30/06/2005 Position as at 30/06/2006

Employment Category Total *DG % *NDG % Total *DG % *NDG %Senior/Executive Management 5 3 60% 2 40% 4 2 50% 2 50%

Middle Management 14 10 71% 4 29% 15 11 73% 4 27%

Junior Management 24 16 67% 8 33% 21 15 71% 6 29%

Plant Operators 18 11 61% 7 39% 19 11 58% 8 42%

Clerks and Administrative Staff 28 27 96% 1 4% 24 23 96% 1 4%

Service Workers 28 25 89% 3 11% 7 7 100% 0 0%

Skilled Workers 21 21 100% 0 0% 52 50 96% 2 4%

Elementary Occupation 59 58 98% 1 2% 50 49 98% 1 2%

Total 197 171 87% 26 13% 192 168 88% 23 12%

*DG: designated group *NDG: non-designated group

the spirit, purport and letter of theEmployment Equity Act and relatedpolicies and legislation aimed at ensuringthat transformation takes place at everylevel in society.

55..88 BBLLOOEEMM WWAATTEERR PPEENNSSIIOONN FFUUNNDDSTATUS OF THE FUNDBloem Water Pension Fund was

established with effect from 1 November1991, its object is to provide, in terms of itsRules and the Pension Fund Act 24 of 1956as amended from time to time, benefits atretirement or other life contingencies onbehalf of employees of Bloem Water.Bloem Water Pension Fund is a DefinedBenefit Fund and it is administered as such.

The Fund has a Board of Trustees whichconsists of five (5) employer electedmembers and five (5) employee electedmembers and a Principal Officer. PresentlyAlexander Forbes Financial Servicesprovides the Fund with administrative,actuarial and consulting services.

Membership to the Fund is compulsoryand exclusive to permanent Bloem Wateremployees. Members contribute 7.5% oftheir basic salary and the employercontributes 22.5% of the employees' basicsalaries per month towards the Fund.

The Fund was erroneously administered asa Defined Contribution from July 1999 untilJanuary 2006. This resulted in a Fund deficitof ± R4m. The introduction of Pension FundSecond Amendment Act, 2001 resulted inunderpayments and overpayments tomembers who exited the Fund since theenforcement of the Act and were paid onthe basis of a Defined Contribution. The Board of Trustees are engaged in a

process of how best to deal with thedeficit, overpayments andunderpayments.

55..99 CCOORRPPOORRAATTEE SSEERRVVIICCEESS Bloem Water is committed to

investing in various programmes aimed atcreating awareness and contributing tothe upliftment of the communities whomwe serve as part of our overall stakeholderengagement strategy. Amongst others,Bloem Water has sponsored and co-sponsored the following programmes andprojects:

• ECO-SCHOOLS PROGRAMME The programme was designed toencourage curriculum-based action fora healthy environment. Aninternationally recognised awardscheme accredits schools that make acommitment to continuously improvingtheir schools environmentalperformance.

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• NATIONAL WATER WEEKAWARENESS CAMPAIGN –This was a project done in partnershipwith the Department of EnvironmentalAffairs and Tourism (Free StateProvince). Mooifontein School inZastron and Retsamaile in Botshabelowere beneficiaries of the project.

• NATIONAL WATER ANDSANITATION WEEKCELEBRATION-MINISTERIALVISIT This event held in Thaba Nchu was aMinisterial visit. During this time it wasalso the 4th World Water Forum inMexico City. The theme for the eventwas “Local Actions for a GlobalChallenge” The aim of which was toraise awareness on water issuesinternationally.

• BOLESWABLOEM-TOURNAMENTS– GABORONE, BOTSWANA Bloem Water, together with other waterutilities in South Africa, participated in asporting event with water utilities fromSwaziland, Lesotho and Botswana.

• TAKE GIRL CHILD TO WORK Girl child learners were taken to theBloem Water treatment works inRustfontein and the learnersparticipated in an event where theywere exposed to workplace issues.

HUMAN RESOURCES

• SOUTH AFRICAN ASSOCIATION OF LOCAL GOVERNMENTS’MEMBERS ASSEMBLYThis function was hosted by theMangaung Municipality and SALGA.An introductory session to newlyelected councillors was held at whichBloem Water had an opportunity todeliver a presentation on its role andfunctions.

• 30TH ANNIVERSARY-YOUTH DAY JUNE 16, 1976This event included a 5km fun run andwas attended by the Executive Mayorsin the Free State, the Premier, MEC’s ofdifferent government departments,Councillors, Stakeholders, Provincialrepresentatives of politicalOrganisations, Provincial YouthOrganisations and District councils.

• OTHER SPONSORSHIPSIncluded an event at the NationalCouncil Of Provinces – Northern CapeLegislature, the Department of TourismAnd Environmental Affairs GameAuction and Provincial Treasury‘s sportsday event. Bloem Water is proud tohave been associated throughinitiatives of the kind enumeratedabove.

BLOEM WATER PAYS TRIBUTE TO THE FOLLOWING

EMPLOYEES WHO HAVE SERVED SINCE 1991

MJ Mogwera KH Mokhwase

PN Seoela L Tamanyane

MJ Veldman MJ Landi

MM Valashiya MS Lehaohao

PT Ramontsoe PK Mphatsoanyane

FS Stallenberg TS Moleko

KS Phala LS Mohai

SJ Makgalane RM Sekonyane

SM Tsatsi TS Matshwele

KI Masoleng DT Leoatle

MT Lekhoba TB Mpapa

RM Maruping NE Modise

AN Mothokho MP Ntsube

NES Olivier TP Phala

LS Sebatana B Tuck

GM Tuck L van Oudsthoorn

C Britz MP Khotlele

SJ Moleko TD Ntomane

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PPAARRTT 33

FFIINNAANNCCEE

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CONTENTS Page

6.1 FINANCIAL OVERVIEW 36

6.2 ANNUAL FINANCIAL STATEMENTS 41

6.3 STATEMENT OF RESPONSIBILITY 42

6.4 REPORT OF THE AUDIT COMMITTEE 43

6.5 REPORT OF THE INDEPENDENTAUDITORS 44

6.6 BALANCE SHEET 45

6.7 INCOME STATEMENT 46

6.8 STATEMENT OF CHANGES IN FUNDS AND RESERVES 47

6.9 STATEMENT OF CHANGES IN FUNDS AND RESERVES 48

6.10 CASH FLOW STATEMENT 49

6.11 ACCOUNTING POLICIES 50

6.12 NOTES TO THE FINANCIALSTATEMENTS 55b

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FINANCIAL DEPARTMENT

66..11 FFIINNAANNCCIIAALL OOVVEERRVVIIEEWWThe environment in which

Bloem Water operates is constantlychanging and pressure is placed on theOrganisation to adjust and adapt in termsof these changes. These changes affectedthe operations and financial sustainabilityof Bloem Water. Significant changes werenegotiated with the major clients ofBloem Water effecting the contractualobligations by both parties. Bloem Water isoperating as a bulk water distributor and isrendering services of operation andmaintenance, retail distribution, supportand managerial services. The servicesrequired managerial, financial andsupervisory support and have created asubstantial impact on Bloem Waterresources. The water industry is one of themost capital-intensive industries and asignificant portion of overall expenditurefinances infrastructure. The Board ofBloem Water has built up reserves duringprevious years and implemented a capitallevy to fund new infrastructure.

Bloem Water has concluded a majorexpansion program and envisages only toundertake refurbishment and limitedupgrading in the near future. Bloem Wateris therefore well positioned to meet itsobligations to provide purified water andoperation and maintenance of retailservices in a cost effective way to itscustomers. Bloem Water is acting as anoperating and maintenance agent for theretail activities in the Thaba Nchu area onbehalf of Mangaung Local Municipalityand in Herschel for the UkhahlambaDistrict Municipality.

Bloem Water is also an ImplementingAgent for the Department of Water Affairsand Forestry in the Ukhahlamba District

Municipality area and Mangaung LocalMunicipality area for capital projects.

RESULTS FOR 2005/2006

Financial statements are prepared in amanner described by the Public FinanceManagement Act, 1999, Water ServicesAct, 1997, in accordance with IFRS andincorporates responsible disclosure in linewith the accounting practice ofBloem Water. The financial statements arebased on appropriate accounting policiesconsistently applied and supported byreasonable and prudent judgments and estimates.

The bulk water sales are higher than theaverage over the last few years and alsoto the demand budgeted for and can beascribed to a relative dry year andirregular rainfall patterns. This resulted in anexcellent financial year.

Bloem Water made adjustments andimplemented measures to comply toInternational Financial ReportingStandards. This resulted in a major changein the asset management of Bloem Waterand resulted in a substantial increase inthe asset value, depreciation and reserve fund respectively.

The financial statements reflectedhistorical cost where bulk water salesaccount for 80% of gross revenue andamounted to R148,6 million. Interestreceived from investments of 6,9% of grossrevenue amounted to R12,8 million andcontractual income (2,1%) to the amountof R4 million. The operating expenditurewas R141,1 million; interest and financecharges were R45,1 million. As a result ofconstant close liaison between the Boardand Management ensuring the continuousapplication of effective cost control and a

66.. FFIINNAANNCCIIAALL DDEEPPAARRTTMMEENNTT

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INFORMATION TECHNOLOGY

Bloem Water has established a local areanetwork to facilitate the optimal use ofsystems in the Organisation. Bloem Waterhas further established an Internet basedplatform for improved communicationsand operating environment. This network isa link between the head office and theregional offices and facilitates the optimaluse of the different programmes andprocesses. It is mainly the financial systems,stock control systems and certaintechnical systems that are currently inoperation. Other operating systems are ina developmental phase and will be fullyoperational in subsequent years.

MATERIALITY AND SIGNIFICANCE

Bloem Water is an asset drivenOrganisation. Without the properinfrastructure in place it will be impossibleto provide quality water to the variousclients. The main goal of Bloem Water is toprovide water and the combined basis offixed assets and water sales is the mostappropriate in determining materiality.

The inherent risk regarding Bloem Water isset at moderate and the appropriatepercentage used for the calculation ofmateriality is percent for the gross watersales and 1 percent for the fixed assets.

Significance is based on the size of thevariances as well as the level of tolerableerror. The composition of each categorybalance has been investigated in order todetermine individual significant accounts.From the review the following accountshave been indicated as significant:

· Salaries

· Chemicals

strict budget policy, an accumulated lossof R0,2 million occurred, after an amountof R0,5 million was transferred to theinsurance fund, R26 million additionaldepreciation was calculated to complywith International Financial ReportingStandards and allocation of R7 million forthe defined benefit Pension Fund deficit.The retained earnings totalled R319 millionat the end of the financial year.

No substantial amount was invested innew capital infrastructure. The majorcapital projects have been concludedand only limited capital requirementsinfrastructure and refurbishment will berequired during the next 5 years. Thefunding requirements over this period areprojected to be in excess of R200 million.

The Board of Bloem Water is concernedabout the increase in outstanding debtand possible bad debt and has embarkedon negotiations with its clients. The Boardof Bloem Water is continuing withnegotiations with respect to the remainingarrear accounts and will hopefully duringthe next financial year, improve theposition of debtors. The outstandingaccount of major Local Municipalitydebtors stabilised with the same balanceat year-end as that that pertained at thebeginning of the year. This is largely due tothe concerted efforts by Bloem Water toassist municipalities in attending to thepayment of their accounts. The paymentrate of smaller municipal clients hasdeteriorated and it is a major concern tothe Board of Bloem Water, which will bedealt with in terms of the municipaldebtors support program aimed atassisting in the improved reduction ofcommercial losses and revenue collectionsystems.

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FINANCIAL DEPARTMENT

· Electricity

· Operation & Maintenance

· Water Analysis

· Interest paid.

The policy of the Board is reviewed on anannual basis in conjunction with theExternal Auditors to ensure thatappropriate measures are in place todetermine the levels.

• CONCLUDING REMARKS FROM THE CFO

The financial position of Bloem Waterremains viable. This takes into accountthe considerable amount payable ininterest and capital redemption as wellas the involvement of Bloem Water inareas where services are rendered andthe operation and maintenance isperformed with limited cost recovery.The concern however is still the non-payment of customers in cost recoveryenvironments.

FUTURE WATER DEMAND (Sales)

Year 2007 2010 2015

Mangaung Local Municipality 48,05 49,53 52,1

Naledi Local Municipality 1,28 1,32 1,56

Kopanong Local Municipality 2,73 3,22 3,56

Mantsopa Local Municipality 0,1 0,11 0,12

Thaba Nchu – Retail 0,85 0,9 0,95

Other Small Customers 1,89 1,94 2,04

TOTAL 54,9 57,02 60,33

ConsumerQUANTITY UNTREATED WATER SOLD (kl)

2004/2005 2005/2006

Greater Bloemfontein 16 426 475 16 354 253

Other 1 538 1 606

TOTAL 16 428 013 16 355 859

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ConsumerQUANTITY UNTREATED WATER SOLD (kl)

2004/2005 2005/2006

Mangaung Municipality 45 837 707 47 387 255

Kopanong Municipality 2 342 946 2 652 415

Naledi Municipality 1 259 195 1 421 170

Mantsopa Municipality 88 666 52 055

Retail 842 390 837 681

Other – Bulk 1 852 443 1 948 909

TOTAL 52 223 347 54 299 485

2005 2006 STANDARD DESCRIPTION

6,5 5,3 6% Increase in Tariffs

0,66 0,81 0,75 Working Ratio

0,95 1,07 0,75 Operating Ratio

0,11 0,04 0,05 Rate of Return on Assets

1,54 0,99 1,75 Current Ratio

93,4 85,9 30,0 Average Age of Receivables

PERFORMANCE AND MEASUREMENTS

STATISTICS

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FINANCIAL DEPARTMENT

FINANCIAL IMPORTANT STATISTICS

Water Tariffs (Excluding value - added tax) Cents per kilolitre

Consumers

Bulk consumers 278

(Greater Bloemfontein-, Botshabelo-, Bethulie-, Dewetsdorp-, Edenburg-, Excelsior-, Xhariep-, Philippolis-, Reddersburg-, Springfontein-, Thaba Nchu-, Trompsburg- andWepener Municipalities)

Included in the above is a levy of 106 c/kl for capital requirements.

Thaba Nchu smaller consumers

0-6 kl/month 0

7-30 kl/month 600

31-100 kl/month 6,49

Above 100 kl/month 6,88

Raw water withdrawal by Bloemfontein Municipality

1. Losses between 5,9 and volumes in m / annum in agreement 58

2. Withdrawal of more than volumes m / annum in agreement 278

Unpurified water - Novo

1. Withdrawal below 60 kl/month 258

2. Withdrawal above 60 kl/month 278

Included in the above is a levy of 106 c/kl for future capital projects.

Unpurified water - Bethulie pipeline

1. Withdrawal below 60 kl/month 207

2. Withdrawal above 60 kl/month 278

Included in the above is a levy of 106 c/kl for future capital projects.

Unpurified water - Bethulie dam

1. Withdrawal below 5,19 million m/annum 118

2. Withdrawal above 5,19 million m/annum 278

Included in the above is a levy of 106 c/m for future capital projects.

Water Research Levy

1 July 2005 to 30 June 2006 (Excluding value added tax) 3,10 c/kl

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ENTITY INFORMATION

Registered address: 2 Mzuzu Street

Pellissier

BLOEMFONTEIN

Postal address: PO Box 30121

Pellissier

BLOEMFONTEIN

9322

Auditors: Ernst & Young

Gobodo Incorporated

BLOEMFONTEIN

Attorneys: Symington & De Kok

BLOEMFONTEIN

Bankers: First National Bank

of Southern Africa Ltd.

66..22 AANNNNUUAALL FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

for the year ended 30 June 2006

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FINANCIAL DEPARTMENT

The board is responsible for the maintenance of adequate accounting records and thepreparation and integrity of the financial statements and related information. Theauditors are responsible to report on the fair presentation of these financial statements.The financial statements have been prepared in accordance with International FinancialReporting Standards and in the manner required by the Water Services Act, 1997 in SouthAfrica.

The board also prepared the other information included in the annual report and isresponsible for both its accuracy and its consistency with the financial statements.

The board is also responsible for Bloem Water’s system of internal financial controls. Theseare designed to provide reasonable, but not absolute assurance as to the reliability ofthe financial statements and to adequately safeguard, verify and maintainaccountability of assets, and to prevent and detect misstatement and loss. Nothing hascome to the attention of the board to indicate that any material breakdown in thefunctioning of these controls, procedures and systems has occurred during the yearunder review.

The financial statements have been prepared on the going concern basis since theboard have every reason to believe that Bloem Water has adequate resource in placeto continue in operation for the foreseeable future.

The independent auditing firms Ernst & Young and Gobodo Incorporated have auditedthe annual financial statements. They have been given unrestricted access to allfinancial records and related data, including minutes of all meetings of the board andcommittees of the board. The board believe that all representations made to theindependent auditors during their audit were valid and appropriate. The audit report ispresented as part of the annual financial statements.

The financial statements as set out on pages 45 to 66 were approved by the board andsigned on their behalf.

M. Matsabu N. Morris

Chairperson of the Board Acting Chief Executive Officer

Date: 31 October 2006 Date: 31 October 2006

66..33 SSTTAATTEEMMEENNTT OOFF RREESSPPOONNSSIIBBIILLIITTYY

for the year ended 30 June 2006

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We are pleased to present our report for the financial year which ended on 30 June 2006.

Audit Committee Responsibility

The Audit Committee reports in terms of Section 38 (1)(a) of the PFMA and TreasuryRegulations 3.1.13. These require the Committee to report whether it has adopted formalterms of reference and whether it has fulfilled its responsibilities in compliance with theseterms of reference. Additionally, the Committee is required to report on the effectivenessof internal controls and to evaluate the annual financial statements.

The Committee reports that it has complied with its responsibilities arising from the aboveprescripts. The Committee also reports that it has adopted appropriate formal terms ofreference as its Audit Committee charter, has regulated its affairs in compliance with thischarter and has discharged all its responsibilities as contained therein.

The effectiveness of internal control

The system of internal controls is designed to provide cost effective assurance that assetsare safeguarded and that liabilities and working capital are effectively managed. In linewith the PFMA and the King II Report on Corporate Governance requirements, InternalAudit provides the Audit Committee and management with assurance that the internalcontrols are appropriate and effective. This is achieved by means of the riskmanagement process, as well as the identification of corrective actions and suggestedenhancements to the controls and processes. From the external auditor’s audit report onthe annual financial statements and the various internal audit reports, there were nosignificant or material issues reported regarding non compliance with the prescribedpolicies and procedures. Accordingly, we can report that the systems of internal controlfor the period under review were effective and efficient.

Evaluation of Financial Statements

The Audit Committee has

1. Reviewed and discussed the audited annual financial statements to beincluded in the annual report with the external auditor and management;

2. Reviewed the external auditor’s management letter and managementresponse thereto;

3. Reviewed significant adjustments resulting from the audit;

The Committee concurs and accepts the external auditor’s conclusions on the annualfinancial statements and is of the opinion that the audited annual financial statementsbe accepted and read together with the report of the external auditor.

Chairperson of the Audit Committee(Independent Non Executive member of the Board)Date: 31 October 2006

66..44 RREEPPOORRTT OOFF TTHHEE AAUUDDIITT CCOOMMMMIITTTTEEEE

for the year ended 30 June 2006

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FINANCIAL DEPARTMENT

We have audited the annual financial statements of Bloem Water as set out on pages 45to 66 for the year ended 30 June 2006. These financial statements are the responsibility ofthe Board of Bloem Water. Our responsibility is to express an opinion on these financialstatements based on our audit.

Scope

We conducted our audit in accordance with International Standards on Auditing. Thosestandards require that we plan and perform the audit to obtain reasonable assurancethat the financial statements are free of material misstatement. An audit includes:

• examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements,

• assessing the accounting principles used and significant estimates made bymanagement, and

• evaluating the overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinion.

Audit Opinion

In our opinion the financial statements fairly present, in all material respects, the financialposition of the Organisation at June 30, 2006 and the results of its operations and cashflows for the period then ended in accordance with International Financial ReportingStandards.

Registered Accountants and Auditors Registered Accountants and Auditors

Chartered Accountants (SA) Chartered Accountants (SA)

Bloemfontein Bloemfontein

Date: 17 October 2006 Date: 17 October 2006

66..66 RREEPPOORRTT OOFF TTHHEE IINNDDEEPPEENNDDEENNTT AAUUDDIITTOORRSSTTOO TTHHEE MMEEMMBBEERRSS OOFF TTHHEE BBOOAARRDD OOFF BBLLOOEEMM WWAATTEERR

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2006 2005 Note R’000 R’000

ASSETS

Non-current Assets 707 855 441 768

Property, Plant and Equipment 2 660 096 385 882Long-term Investments 3 47 163 54 793

Long-term Receivables 4 596 1 093

Current Assets 105 674 63 841

Inventories 5 3 442 2 417Trade and Other Receivables 6 37 787 44 006

Short-term Investments 3 28 811 12 604

Bank and Cash Balances 7 35 634 4 814

Total Assets 813 529 505 609

FUNDS, RESERVES AND LIABILITIES

Funds and Reserves 450 540 145 559

Retained Earnings 319 049 17 882Capital Replacement Fund 30 350 30 350

Capital Development Fund 50 477 50 477

Insurance Fund 3 596 3 091

Urban Development Fund 180 180

Asset DWAF Reserve Fund 43 579 43 579

Revaluation Reserve 3 256 -

Available for Sale Investment Fair Value Reserve 53 -

Non-current Liabilities 256 797 318 546

Interest Bearing Borrowings 8 254 199 318 546Employee Benefits 18 2 598 -

Current Liabilities 106 192 41 504

Trade and Other Payables 9 37 816 25 775Current Portion of Interest Bearing Borrowings 8 65 364 14 111

Provisions 10 3 012 1 618

Total Funds, Reserves and Liabilities 813 529 505 609

66..77 BBAALLAANNCCEE SSHHEEEETT

as at 30 June 2006

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66..88 IINNCCOOMMEE SSTTAATTEEMMEENNTT

for the year ended 30 June 2006

2006 2005 Note R’000 R’000

Income 173 667 157 478

Water Sales 158 604 146 697

Bulk Water Sales 148 551 137 145 Retail Water Sales 6 047 5 705

Agreements 4 006 3 847

Other Income 15 063 10 781

Operating Expenses (141 093) (104 074)

Operating Profit 12 32 574 53 404Finance Cost 13 (45 058) (46 026)

Investment Income 14 12 791 10 964

Net Profit for the year Before Transfer to Funds 307 18 342Transfer From/(To) Funds (505) (16 500)

Net Profit/(Loss) for the year (198) 1 842

FINANCIAL DEPARTMENT

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66..99 SSTTAATTEEMMEENNTT OOFF CCHHAANNGGEESS IINN FFUUNNDDSS AANNDD RREESSEERRVVEESS

for the year ended 30 June 2006

2006 2005 Note R’000 R’000

Retained Earnings

Opening Balance as per SA GAAP - 1 July 17 882 16 040

Fair Value Adjustments made in terms of IFRS 1 2 301 365 -

Restated opening Balance as per IFRS 319 247 16 040

Net Profit/(Loss) for the year before transfer to Funds 307 18 342

Transfer From/(To) Funds

Capital Replacement Fund - (8 000)

Insurance Fund (505) (500)

Capital Development Fund - (8 000)

Closing Balance - 30 June 319 049 17 882

Capital Replacement Fund

Opening Balance - 1 July 30 350 23 435

Transfer From/(To) Retained Earnings - 6 915

Closing Balance – 30 June 30 350 30 350

Capital Development Fund

Opening Balance - 1 July 50 477 42 697

Transfer From/(To) Retained Earnings - 7 780

Closing Balance - 30 June 50 477 50 477

Insurance Fund

Opening Balance - 1 July 3 091 2 591

Transfer From/(To) Retained Earnings 505 500

Closing Balance - 30 June 3 596 3 091

Urban Development Fund

Opening Balance - 1 July 180 180

Transfer From/(To) Retained Earnings - -

Closing Balance - 30 June 180 180

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66..1100 SSTTAATTEEMMEENNTT OOFF CCHHAANNGGEESS IINN FFUUNNDDSS AANNDD RREESSEERRVVEESS

for the year ended 30 June 2006

2006 2005 Note R’000 R’000

Asset DWAF Reserve Fund

Opening Balance - 1 July 43 579 40 006

Transfer - 3 573

Closing Balance - 30 June 43 579 43 579

Revaluation Reserve

Opening Balance - 1 July - -

Revaluation of Property, Plant and Equipment 2 3 256 -

Closing Balance - 30 June 3 256 -

Available for Sale Investment Fair Value Reserve

Opening Balance – 1 July - -

Increase in Fair Value of Investment 3 53 -

Closing Balance – 30 June 53 -

FINANCIAL DEPARTMENT

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66..1111 CCAASSHH FFLLOOWW SSTTAATTEEMMEENNTT

for the year ended 30 June 2006

2006 2005 Note R’000 R’000

Cash Flow from Operating Activities

Net Cash Inflow from Operating Activities 50 329 10 288

Cash Received from Customers 162 138 143 000

Cash Paid to Suppliers and Employees (79 542) (97 650)

Cash Generated from Operating Activities 15.1 82 596 45 350Interest Received 12 791 10 964

Interest Paid (45 058) (46 026)

Cash Flow from Investing Activities

Net Cash (Outflow) from Investing Activities (6 415) (2 106)

Purchase of Property, Plant and Equipment (985) (6 463)Decrease/(Increase) in Non-current Receivables 497 659

Proceeds From/(Additions to) Investments (8 525) 3 698

(Increase)/Decrease in Short-term Investments (1 791) 7 983(Increase) in Long-term Investments (6 734) (4 285)

Increase in Defined Benefit Pension Liability 2 598 -

Cash Flow from Financing Activities

Net Cash (Utilised in) Financing Activities (13 094) (14 402)

Repayments Made on Interest Bearing Borrowings (13 094) (11 222)Repayments Made on Funds - (3 180)

Net Increase/(Decrease) in Cash and Cash Equivalents 30 820 (6 220)Cash and Cash Equivalents at the beginning of the year 4 814 11 034

Cash and Cash Equivalents at the end of the year 15.2 35 634 4 814

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1 BASIS OF PREPARATIONBloem Water has for the first time, adopted IFRS1 for the basis of preparation of thefinancial statements. Bloem Water will therefore apply IAS1 for a period beginningbefore 1 January 2005. The financial statements are prepared on the historicalcost basis except for Furniture and Office Equipment and Financial Assets andLiabilities that have been measured at fair value. The following are the principalaccounting policies applied by the board of Bloem Water. These policies complywith International Financial Reporting Standards.

1.1 Changes in Accounting PoliciesThe accounting policies adopted are consistent with those of the previousfinancial year except that the Entity has adopted those new/revised standardsmandatory for financial years beginning on or after 1 January 2005.

The changes in accounting policies result from adoption of the following new orrevised standards:

• IAS 16 (revised) - Property, Plant and Equipment

• IAS 19 (revised) - Employee Benefits

The principal effects of these changes in policies are discussed below:

IAS 16 - Property, Plant and Equipment

As at 1 July 2005, the Entity elected to change its accounting policy for measuringProperty, Plant and Equipment so as to comply with IAS 16 and IFRS 1. The revisedaccounting policy for property, plant and equipment is described in the“Summary of significant accounting policies”.

IAS 19 - Employee Benefits

As of 1 July 2005, the Company adopted IAS 19 (revised). As a result, additionaldisclosures are made providing information about trends in the assets and liabilitiesin the defined benefit plans and the assumptions underlying the components ofthe defined benefit cost. This change in accounting policy has resulted inadditional disclosures being included for the years ending 30 June 2006 and 30 June 2005.

1.2 Property, Plant and EquipmentProperty, Plant and Equipment (except for Furniture and Office Equipment) isstated at a revised cost as per IFRS 1 and no depreciation is calculated on land.Furniture and Office Equipment is stated at Fair Value. Plant and Equipment isstated at cost, based on the transitional provisions of IAS 16 and IFRS 1, excludingthe costs of day-to-day servicing, less accumulated depreciation andaccumulated impairment in value. Such cost includes the cost of replacing part ofsuch plant and equipment when that cost is incurred if the recognition criteria are

66..1122 AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS

for the year ended 30 June 2006

FINANCIAL DEPARTMENT

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met. Depreciation is calculated on a straight-line basis over the useful life of theassetat the following rates:

Vehicles and Machinery : 15 years

Plant Equipment : 30 years

Furniture, Tools and Office Equipment : 5 - 25 years

Roads : 50 years

Pipeline and Reservoirs : 35 years

Buildings : 60 years

The carrying values of plant and equipment are reviewed for impairment whenevents or changes in circumstances indicate that the carrying value may not berecoverable.

An item of property, plant and equipment is derecognised upon disposal or whenno future economic benefits are expected from its use or disposal. Any gain or lossarising on derecognition of the asset (calculated as the difference between thenet disposal proceeds and the carrying amount of the asset) is included in theincome statement in the year the asset is derecognised.

The asset's residual values, useful lives and methods are reviewed, and adjusted ifappropriate, at each financial year-end. When each major inspection isperformed, its cost is recognised in the carrying amount of the plant andequipment as a replacement if the recognition criteria are satisfied.

1.3 Funds and Reserves

1.3.1 Capital Replacement Fund

Amounts as determined by the board are transferred to a separate fund to beutilised for the replacement of capital asset. Amounts equal to such transfers areinvested and can be utilised at the discretion of the board.

1.3.2 Capital Development Fund

Amounts as determined by the board are transferred from available funds to aseparate fund to be utilised at the discretion of the board.

1.3.3 Insurance Fund

An amount equal to the estimated external insurance premium as well as anamount payable on a specific investment is transferred to the insurance fund. This fund will be utilised for the replacement of certain assets not externally insured.

1.3.4 Urban Development Fund

Amounts received in respect of water connections in Thaba Nchu are transferredto an urban development fund. The fund is utilised to finance development of thewater supply network in Thaba Nchu.

AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS ((CCoonntt))

for the year ended 30 June 2006

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1.3.5 Infrastructure Development Fund.

An amount equal to the long - term loan written off by Department of WaterAffairs and Forestry, was transferred to the fund. The fund will be utilised forinfrastructure development in Botshabelo.

1.3.6 Asset DWAF Reserve Fund.

An amount equal to the value of Property, Plant and Equipment in the ThabaNchu region transferred from the Department of Water Affairs and Forestry toBloem Water was transferred to this fund. The amount constitutes a non-distributable reserve.

1.4 Revenue RecognitionRevenue is recognised to the extent that the risks and rewards of ownership havepassed to customers. Water sales comprise of net invoiced sales to consumers,excluding VAT.

1.5 InventoryInventory is stated at the lower of cost or net realisable value. Obsolete,redundant and slow moving inventory are identified and written down to theirestimated net realisable value.

1.6 ProvisionsProvisions are recognised when there is a present legal or constructive obligationas a result of past events, it is probable that an outflow of resources embodyingeconomic benefits will be required to settle the obligation, and a reliable estimateof the amount of the obligation can be made.

1.7 Retirement BenefitsThe policy of Bloem Water is to provide retirement benefits for all its employees.The fund represents a Defined Benefit Plan administered by Alexander Forbes.

In terms of IAS19, Bloem Water applies the corridor rule to any actuarial gain orlosses recognised during the year, meaning that actuarial gains and lossesrecognised by Bloem Water, is the excess over the greater of:

a) 10% of the present value of the defined benefit obligation at the end of the previous reporting period.

b) 10% of the fair value of any plan asset at the same date.

An actuarial valuation was performed by Alexander Forbes at balance sheet date.

1.8 Comparative FiguresWhere necessary, comparative figures have been adjusted to conform tochanges in presentation in the current year. All comparative figures are stated

AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS ((CCoonntt))

for the year ended 30 June 2006

FINANCIAL DEPARTMENT

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AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS ((CCoonntt))

for the year ended 30 June 2006

under IFRS except for Property, Plant and Equipment, which is stated under theprevious GAAP applied, as it is not practical to state it under IFRS. Fair valueadjustments have thus not been made to PPE comparatives in accordance with IFRS 1.

1.9 Financial Instruments

Financial instruments carried on the balance sheet consist of cash and bankbalances, investments, accounts receivables, accounts payables and borrowings.

Financial instruments are initially carried at cost, which includes transaction costs.Subsequently, the instruments are recognised as follows:

Investments

Investments held to their maturity date are classified as held to maturityinvestments and carried at amortised cost. Investments, which are openly tradedin an active market, are classified as available for sale investments and measuredat market value.

Accounts Receivable

Trade and other receivables are carried at anticipated realisable value after aprovision for bad debts. This provision for bad debts is made based on a review ofall outstanding amounts at year-end and is consistent with the basis of estimationin the prior year.

Accounts Payable and Other Borrowings

These financial liabilities are recognised at amortised cost, namely original debtless principle repayments and other amortizations or alternatively at the fair valueof the amount payable.

Profits/losses on subsequent measurement to market value is recognised in theprofit or loss for the period in which it occurred.

1.10 Adoption of IFRS's during the year

The Company has adopted the following revised standards during the year:

• IFRS 1 - First-time Adoption of International Financial Reporting Standards

• IAS 1 - Presentation of Financial Statements

• IAS 2 - Inventories

• IAS 7 - Cash Flow Statements

• IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors

• IAS 10 - Events after the Balance Sheet Date

• IAS 17 - Leases

• IAS 18 - Revenue

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• IAS 19 - Employee Benefits

• IAS 24 - Related Party Disclosures

• IAS 32 - Financial Instruments: Disclosure and Presentation

• IAS 36 - Impairment of Assets

• IAS 37 - Provisions, Contingent Liabilities and Contingent Assets

• IAS 39 - Financial Instruments: Recognition and Measurement

FINANCIAL DEPARTMENT

AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS ((CCoonntt))

for the year ended 30 June 2006

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66..1133 NNOOTTEESS TTOO TTHHEE FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

for the year ended 30 June 2006

Vehicles &

Machin-ery

R’000

PlantEquip-ment

R’000

Furniture & OfficeEquip-ment

R’000

Roads

R’000

Pipelines &

Reser-voirs

R’000

Land &Buildings

R’000

TOTAL

R’000

2 PROPERTY, PLANT & EQUIPMENT

Book Value as per SA GAAP – 30 June 2005

1 242 150 083 270 1 523 213 704 19 060 385 882

CostAccumulated Depreciation

6 849(5 607)

161 221(11 138)

975(705)

2 253(730)

228 652(14 948)

22 243(3 183)

422 193(36 311)

Fair Value Adjustment 2 681 (102 368) - 406 373 103 27 543 301 365Book Value as per IFRS – 30 June 2005 3 923 47 715 270 1 929 586 807 46 603 687 247

CostAccumulated Depreciation

6 190(2 267)

70 905(23 190)

975(705)

2 253(324)

886 537(299 730)

59 292(12 689)

1 026 152(338 905)

AdditionsRevaluation

530-

--

4553 256

--

--

--

9853 256

CostAccumulated Depreciation

--

--

4 038(782)

--

--

--

4 038(782)

Depreciation (406) 2 269 (386) (51) (26 898) (1 382) (31 392)

Book Value – 30 June 2006 4 047 45 446 3 595 1 878 559 909 45 221 660 096

CostAccumulated Depreciation

6 720(2 673)

70 905(25 459)

5 468(1 873)

2 253(375)

886 537(326 628)

59 292(14 071)

1 031 175(371 079)

Fair Value Adjustment in Terms of IFRS 1

Fixed Assets at carrying Value 01 July 2005

385 882

Increase in fair value 301 365Restated carrying value in terms of IAS 16 687 247

In terms of IFRS 1 an entity may elect to measure an item of Property, Plant and Equipment at the date of transition to IFRS (01 July 2005) at its fair value and use that fair value as its deemed cost at that date.

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FINANCIAL DEPARTMENT

NNOOTTEESS TTOO TTHHEE FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

for the year ended 30 June 2006

2006 2005 R’000 R’000

3 INVESTMENTS

Long-term Investments 47 163 54 793

Rand Merchant Bank Deposit Sinking Fund 47 163 40 429

This investment is to be held until its maturity date on the 31st December 2006. It is held as a pledge against a sale and lease back agreement between Bloem Water and Rand Merchant Bank.Bloem Water will therefore cede all rights to the investment on maturity date to Rand Merchant Bank. The investment bears interest at 15,505%

Standard Bank Corporate Money Market Fund - 14 364

This investment is an investment held on a call account at Stanlib.This investment will be classified under cash and cash equivalents in the current year as it can be withdrawn at any time.

Short-term Investments 28 811 12 604

Held at Amortised Cost 28 289 12 135

ABSA Bank 8 078 4 046Nedbank 8 078 4 048

First National Bank 4 055 4 041

FNB Corporate Bank 8 078 -

These investments are held on call deposit accounts. They are not traded and in terms of International accounting standard 39, are carried at amortized cost. Interest on these accounts varies between 7% and 7,5%

Available for Sale Investment 522 469

Sanlam Shares 522 469

This investment is carried at its fair value based on Market related prices. 36 014 Shares were held at year end and R14,50 was the market price per share at that date.In terms of IAS 39 any gain on an Available for Sale Investment must be recognised directly in equity.

75 974 67 397

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NNOOTTEESS TTOO TTHHEE FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

for the year ended 30 June 2006

2006 2005 R’000 R’000

4 LONG-TERM ACCOUNTS RECEIVABLES

Motor Vehicle Loans 1 214 1 613

Less: Short-term Portion of Motor Vehicle Loans (618) (520)

596 1 093The loans are secured by the underlying asset. The loans bear interest at the prime overdraft rate less two percent and are repa-yable in 48 equal monthly instalments.

5 INVENTORIES

Inventories Comprise of the following:

Chemicals 798 483

Consumables 2 644 1 934

3 442 2 417

6 TRADE AND OTHER RECEIVABLES

Trade Receivables 20 631 18 326

Total Trade Receivables 50 953 43 691Less: Provision for Doubtful Debts (30 322) (25 365)

Personnel Loans and Advances 10 295

Short-term Portion of Motor Vehicle Loans 618 520

Other 16 528 24 865

37 787 44 006

7 CASH AND CASH EQUIVALENTS

Consists of the following:

Current Accounts – First National Bank 10 288 626

Call Account – First National Bank 5 816 279

Call Account – Standard Merchant Bank 19 520 3 901

Petty Cash on Hand 10 8

35 634 4 814Guarantees to the amount of R20 000 was given by Bloem Water. These guarantees are held at First National Bank. They will lapse in 2025. The beneficiary of these guarantees is Eskom.

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FINANCIAL DEPARTMENT

NNOOTTEESS TTOO TTHHEE FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

for the year ended 30 June 2006

2006 2005 R’000 R’000

8 INTEREST BEARING BORROWINGS

8.1 Hire Purchase AgreementRand Merchant Bank

Original Capital Outstanding- Sale and Leaseback 51 396 51 396

Finance Charges – Capitalised 2 383 6 323

Total Amount Outstanding 53 779 57 719Less: Current Portion of Agreement (53 779) (4 055)

- 53 664Bloem Water entered into a sale and lease back agreement with Rand Merchant Bank whereby certain property, plant and equipment with a cost of R 51 396 311 was sold.

The loan bears interest at floating rates. The interest rate at year-end was 9.25908% per annum.

The Loan is Secured as follows:A session of the Rand Merchant Bank Long-term DepositA sale and leaseback agreement over fixed assets with a cost of R 51 396 311.The agreement will expire on the 31 December 2006.

8.2 Other Interest Bearing Borrowings

8.2.1 Department of Water Affairs and Forestry

Total Amount Outstanding 79 247 80 150

Less: Current Portion of Loan (1 060) (934)

78 187 79 216The agreement between the Department of Water Affairs and Forestry and Bloem Water came into effect on 1 April 1991 and will continue until March 2025.The loan bears interest at 13.5% and is repayable in 34 annual instalments.

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NNOOTTEESS TTOO TTHHEE FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

for the year ended 30 June 2006

2006 2005 R’000 R’000

8 INTEREST BEARING BORROWINGS (continued)

8.2.2 SA Development Bank

Total Amount Outstanding 185 668 194 788

Less: Current Portion of Loan (10 039) (9 122)

175 629 185 666

The loan is unsecured and bears interest at 12 % per annum.Capital repayments are made on a six-monthly basis. These repayments will continue until 31 March 2016.

Interest accrued for the 3 months ended 30 June 2006 are included in trade and other payables.

8.2.3 Loan Bethulie and Surrounding Areas – DBSA

Total Amount Outstanding 869 -

Less: Current Portion of Loan (486) -

383 -

The loan amount is R14 400 000 and only R869 461 was claimed for the year. The balance of R13 530 539 can still be claimed. The agreement came into effect on 31 March 2006 and will continue until 31 March 2021.

The loan is unsecured and bears interest at 8,91% per annum. Capital repayments are made on a six monthly basis.

Total Amount Outstanding 319 563 332 657Less: Current Portion (payable within 12 months) (65 364) (14 111)

Total Long-term Interest Bearing Borrowings 254 199 318 546

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FINANCIAL DEPARTMENT

NNOOTTEESS TTOO TTHHEE FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

for the year ended 30 June 2006

2006 2005 R’000 R’000

9 TRADE AND OTHER PAYABLES

Trade Payables 4 581 2 826

Other Payables 33 235 22 949

Interest Payable on Interest Bearing Borrowings 5 993 5 825Receiver of Revenue 9 970 7 167

Botshabelo Cost Recovery Project 5 228 1 894

Accruals 12 044 8 063

37 816 25 775

10 PROVISIONS

Carrying Value – 1 July 1 618 1 863

Additional Provisions made during the year 1 394 -

Unused Amounts Reversed during the year - (245)

Carrying Value – 30 June 3 012 1 618

11 TAXATION

No provision is made for taxation, since Bloem Water is exempt from tax in terms of section 10(1)(cA) of the Income Tax Act.

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NNOOTTEESS TTOO TTHHEE FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

for the year ended 30 June 2006

2006 2005 R’000 R’000

12 OPERATING PROFIT

The following amounts have been included in operating profit:

Depreciation 31 392 5 619

Auditors Remuneration 400 1 463

Audit 96 1 463 Other Services 304 -

Increase in Provision for Doubtful Debts 4 957 6 871

Personnel Costs: 29 308 24 842

Salaries & Wages 29 308 24 842

Employee Benefits: 7 290 - Defined Benefit Pension Fund Past Service Costs Interest Cost on Benefit Obligation Current Service Costs Expected Return on Plan Assets

3 4593 2563 752

(3 177)

----

13 FINANCE COSTS

Interest Paid 45 058 46 026

Interest Bearing Borrowings 45 058 46 026

14 INVESTMENT INCOME

Interest Received 12 791 10 964

Bank 37 130Other 3 232 2 786

Investment Income 9 522 8 048

12 791 10 964

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FINANCIAL DEPARTMENT

NNOOTTEESS TTOO TTHHEE FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

for the year ended 30 June 2006

2006 2005 R’000 R’000

15 NOTES TO THE CASH FLOW STATEMENT

15.1 Cash Flow from Operating Activities

Operating Profit 32 574 53 404

Adjustment for: 37 743 12 490

Depreciation in Property, Plant and Equipment 31 392 5 619 Increase in Provision for Leave 1 394 -

Increase in Provision for Doubtful Debts 4 957 6 871

Movement in Current Assets 12 279 (20 544)

(Increase)/Decrease in Inventories (1 025) (216) (Increase)/Decrease in Receivables 1 263 (14 478)

Increase/(Decrease) in Trade and Other Payables 12 041 (5 850)

82 596 45 350

15.2 Cash and Cash Equivalents

Cash and Cash Equivalents comprise of bank balances, Cash on Hand and Deposits on Call

35 634 4 814

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NNOOTTEESS TTOO TTHHEE FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

for the year ended 30 June 2006

2006 2005 R’000 R’000

16

16.1

16.2

16.3

FINANCIAL INSTRUMENTS

Credit Risk

Potential concentrations of credit risk mainly consist of short-term investments, cash, and cash equivalents and ac-counts receivable.

The board of Bloem Water restricts the risk from short-term investments and other cash items by dealing only with high quality, well-established financial institutions and by assessing credit worthiness of potential or existing customers.

At 30 June 2006, Bloem Water did not consider there to be any significant concentration of credit risk, which had not been insured or adequately provided for.

Interest Rate Risk

The Long-term Liabilities are loans with fixed contractual rates and thus the entity’s exposure to rate fluctuations is limited.

Fair Values

The carrying amounts of the following financial assets and financial liabilities approximate their fair values: Cash, investments, trade and other receivables and payables, short – term borrowings and floating rate long term borrowings.

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FINANCIAL DEPARTMENT

NNOOTTEESS TTOO TTHHEE FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

for the year ended 30 June 2006

2006 2005 R’000 R’000

17 EMPLOYEE BENEFITS

The entity provides retirement benefits for all its permanent employees through a funded defined benefit pension scheme that is subject to the Pension Funds Act, 1956 as amended.

Defined Benefit PlanAn actuarial valuation was performed by Alexander Forbes on the 30 June 2006. As per IFRS1 Bloem Water has elected to recognise all past actuarial gains and losses directly in profit and loss at the dates of transition to IFRS, as permitted by IFRS 1. The date of first time adoption of IFRS being 01 July 2005.Consequently the defined benefit liability has not been recognised in 2005 and the comparative information below is provided purely for information purposes.

Details of the plan are as follows:

Present Value of the Defined Benefit Obligation 44 502 36 256

Fair Value of Plan Assets (41 476) (32 797)

3 026 3 459Surplus of Plan Obligations over Plan Assets

Actuarial Losses not Recognised (428) -

Defined Benefit Liability 2 598 3 459

Actuarial Assumptions used:Discount RateSalary Increase RateExpected rate of return on AssetsInflationPension Increase Allowance

9.00%6.75%

10.00%5.75%4.51%

8.5%5.5%9.5%4.5%

4.03%

The following was recognised in profit & loss for the year ended 30 June 2006:

Employee Benefits: 7 290 -

Defined Benefit Pension Fund Past Service Costs Interest Cost on Benefit Obligation Current Service Costs Expected Return on Plan Assets

3 4593 2563 752

(3 177)

----

In terms of IAS 19 and IFRS 1 the amount of R3 459 000 was recognised directly in profit & loss for the year ended 30 June 2006. This amount being all previously unrecognised actuarial losses.

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NNOOTTEESS TTOO TTHHEE FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

for the year ended 30 June 2006

2006 2005 R’000 R’000

18 BOARD MEMBERS

The Board of Directors is responsible for, and undertook the following during the year end 30 June 2006:• Adoption of strategic plan• Monitoring of operation performance and management• Determination of policy and processes to ensure the integrity of the company’s risk management;

and internal controls, communication policy, and director selection, orientation and evaluation.

The Board had the following persons acting as Chief Executive Officers during the year:• M Marumo• N Morris• OJ Stadler• P Pelepele

Non-Executive Directors are as follows:G MohlakoanaJJ EagerK McejwaKL MofokengM MarumoM MatsabuMV PhatsoaneN MokhesiNC MorrisTJ Musandiwa

Key Management personnel have been identified as follows:P PelepeleOJ StadlerLE van Rheede van OudtshoornSL MeyerSS Ntsele

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19 DIRECTORS EMOLUMENTS

Non-Executive Directors:

Board Member FixedDirectors Fee

BoardActivity Fees

ExpenseAllowance

TotalRemuneration

M MatsabuK McejwaJJ EagerM MarumoKL MofokengNC MorrisG MohlakoaneN MokhesiTJ MusandiwaMV Phatsoane

86 69368 12160 77160 77160 77160 77140 96040 96060 77160 771

158 58478 73655 970

229 89873 55580 695

5 4604 328

18 72531 826

16 4861 961

15 8052 5433 013

4741 208

22 44241 7182 329

261 763148 818132 546293 212137 339141 940

47 62867 730

121 21494 926

601 360 737 777 107 979 1 447 116

Key Management Personnel are encouraged to attend board meetings. Five Board meetings were held

Board Member Board meetings Attended Other Board Activities Attended

M MatsabuK McejwaJJ EagerM MarumoKL MofokengNC MorrisG MohlakoaneN MokhesiTJ MusandiwaMV Phatsoane

5555353353

524933533428768

31

NNOOTTEESS TTOO TTHHEE FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

for the year ended 30 June 2006

FINANCIAL DEPARTMENT

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Bloemfontein

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Photographs supplied by Henk Smit(IT Manager : Bloemwater)

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BBllooeemmffoonntteeiinn2 Mzuzu StreetPellissierBloemfontein, 9301Postal address:

PO Box 30121PellissierBloemfontein9322

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BBeetthhuulliiee2 Park AvenueBethulie9992Postal address:

PO Box 250Bethulie9992

TThhaabbaa ‘‘NNcchhuuMoutlatsiSetlogelo DamThaba ‘NchuPostal address:

PO Box 146Thaba ‘Nchu9783

WWeeppeenneerrWelbedacht DamWepener

Postal address:Private Bag X11Wepener9944

COVER 210 MM 11/20/06 9:24 AM Page 3

Bloemfontein | 2 Mzuzu Street, Pellisier, 9301Tel: 051 403 0800 | Fax: 051 422 5333Email: info@bloemwater.co.zaWebsite: www.bloemwater.co.za

Annual Report2005|2006

COVER 210 MM 11/20/06 9:24 AM Page 2