presentation to parliamentary portfolio committee on water...

PRESENTATION TO PARLIAMENTARY

PORTFOLIO COMMITTEE ON WATER AND

ENVIRONMENTAL AFFAIRS

04th May 2010

2008/09 ANNUAL REPORT and

2010/11 TARIFF INCREASES

OverviewRelationship with Municipalities Served

Achievements and Challenges

2008/09 Performance AnalysisFinancial Performance

Non Financial Performance

Financial AnalysisIncome Statement

Balance Sheet

Financial Ratios/ Indicators

Water Sales / Revenue

Expenditure / Profitability

Debt / Capital Structure

Overall Operating Conditions

Audit Analysis

Tariff Adjustments

Scheme Source Customer / Municipality Type of service

Phalaborwa (150Ml/day)

Olifants river baPhalaborwa and Industrial Mines

Potable bulk water Industrial Bulk water

Modjadji (12Ml/day)

Modjadji dam Greater Letaba Potable bulk water (Management Contract)

Politsi (7Ml/day) Magoebaskloof dam

Greater Letaba and Tzaneen Potable bulk water

Nkowankowa (24Ml/day)

Letaba river Tzaneen Potable bulk water (Management Contract)

Ebenezer (48Ml/day)

Ebenezer dam Tzaneen and Polokwane Potable bulk water (25 yr)

Olifantspoort (60Ml/day)

Olifants river Polokwane and Lepelle Nkumpi Potable bulk water (25 yr)

Flag Boshielo (12Ml/day)

Olifants river Marble Hall, Makhuduthamaga, Fetakgomo

Potable bulk and internal reticulation water (5 yr)

Burgersfort (4Ml/day)

Spekboom River Greater Tubatse Bulk and internal reticulation water and sewage(5 yr)

Mapodile (0.5Ml/day)

Steelpoort river Greater Tubatse Potable bulk and internal reticulation water (5 yr)

Doorndraai (12Ml/day)

Doorndraai dam Mogalakwena Potable bulk water (30 yr)

329.5 Ml/day TOTAL CAPACITY

Organizational Development

Research Development and Planning

Sustainable, High Quality and Efficient Supply of

Bulk Water and Water Services

Ensure Financial Viability and Sustainability

Effective Corporate Governance

Effective Development and Maintenance of LNW’s

corporate image and stakeholder relations

• Free Basic Water Service Provision in Capricorn District Municipality

and GSDM (11 949 households)

• Water Demand Management (continued upgrade of telemetry

systems) resulting in water losses averaging 3.5% on bulk

• Water Quality compliance with SANS241:2006 (95% Class 1 and 100%

Class 2)

• Yard Connections installations in rural Greater Sekhukhune DM

• Turnaround Strategy Implementation in Phalaborwa LM and Greater

Tubatse LM on Cost Recovery

• Billing and Meter Reading Support to Greater Tubatse LM

• Recomissioning of underground water supply in Lepelle Nkumpi

Municipality

Year of Audit

Opinion Major Findings

2005/06 Unqualified •None

2006/07 Unqualified •Outstanding debts

2007/08 Unqualified •Materiality Framework; Outstanding Debts•Water Balances

2008/09 Unqualified •Outstanding Debts

Financial Performance

2005R’000

2006R’000

2007R’000

2008R’000

2009R’000

Revenue 159,761 179,656 200,154 203,284 226,900

Cost of Sales 26,789 41,684 24,519 15,743 21,223

Gross Profit 132,972 127,972 175,635 187,541 205,576

Operating expenditure (excluding Impairement)

75,102 91,312 97,544 127,266 169,072

Operating Profit 57,870 36,662 78,091 60,275 36,504

Surplus for the year

45,314 73,942 94,280 18,370 40,283

Financial Performance

2005R’000

2006R’000

2007R’000

2008R’000

2009R’000

Net interest paid

7,113 (15,804) 539 (27,214) (26,925)

Accumulated reserves

(5,064) 36,709 111,046 125,373 160,624

Long term loans

274,478 44,491 40,361 36,073 31,270

Average tariffR/kl

2,05 2,165.4%

2,316.9%

2,372.6%

2,609.7%

Business Performanc e Area

2005Actual

2006Actual

2007Actual

2008Actual

2009Actual

Gross Margin %

83% 77% 88% 92% 91%

Current Ratio

1.74 1.83 2.67 2,49 2.46

Return on Assets %

9.0% 8.4% 13% 3,5% 2.46%

Debt-equity ratio

101.9% 45.8% 33.3% 35% 38%

Asset turnover

0.20 0.28 0.28 0.27 0.26

Debt ratio 5.06% 3.14% 2.49% 2.57% 2.7%

Source June 2007 June 2008 June 2009

Ebenezer 53% 70% 88%

Tzaneen 67% 66% 90%

Magoebaskloof 100% 100% 100%

Blyderivierpoort 97% 100% 100%

Loskop 76% 101% 102%

Flag Boshielo 76% 101% 100%

Doorndraai 81% 98% 100%

Water Sources Sufficiency

•Below average rainfall in the reporting period than previous

•No major interruptions in water production and supply

•Negative impact due to high temperatures and below average rainfall (possible effect of climate change)

Scheme Performance (2009)

Raw WaterAbstracted (Ml/annum)

Pumped(Ml / annum)

Plant Loss%

Distribution Loss %

Ebenezer 19 854 18 979 4.4 9.7

Doorndraai 4 919 4 641 5.7 3.1

Phalaborwa 46 090 44 963 2.4 5.4

Politsi 2 007 1 981 1.3 1.0

Olifantspoort 15 273 14 472 5.2 2.2

Flag Boshielo 3 945 3 812 3.4 12.3

Modjadji 2 583 2 165 16.8 11.0

Nkowankowa 7 788 7 885 0.63 0.0

TOTAL 102 459 98 898 Average 3.5%

Average 4.87%

Description Period Amount Beneficiaries

COMPLETED PROJECTS

Flag Boshielo West Water Supply Phase 2 2007 - 2008 R 6.0 m 5 470

Premier Emergency Water Projects (Greater Tubatse) 2006 – 2008 R 19 m 19 000

Nkadimeng Water Supply Phase 3 2008/09 R 5.4m 6 257

Olifantspoort South NS7 Phase 4 2006/07 R 0.6m 6 900

Sekhukhune Deep Rural Schemes 2006- 2007/08 R 12 m 19 269

CURRENT PROJECTS

Nkadimeng Water Supply Phase 4 2007/08 – 2009/10 R 5.8 m 9 299

Flag Boshielo West Water Supply Phase 3 2008/09 – 2009/10 R 6.5 m 6 500

Olifantspoort Treatment Plant Upgrade Phase 2 to 60Ml/day

2007/08 – 2009/10 R 218 m 250 000

TOTAL R 273.3m

Capital Projects

• Internal Production Control•DWAE monthly monitoring•External Laboratory Monthly

Monitoring (Wastewater)

ParameterPerformance (2008/09)

Prescribed Minimum Maximum Compliance

pH 5-9 7.8 9.2 Class 1

Turbidity (NTU) <1.0 0.3 2.0 Class 1

Chlorides (mg/l) 200 13.0 70 Class 1

Total Alkalinity (mg/l as CaCO3)

30 30 62 Class 1

Total Hardness (mg/l as CaCO3)

60 34 70 Class 1

Calcium Hardness (mg/l as CaCO3)

250 24 89 Class 1

Conductivity (mS/m) 150 7 16 Class 1

Total Dissolved Solids (mg/l) 1 000 46 106 Class 1

Aluminium (g/l) 300 0.08 290 Class 1

ParameterPerformance (2008/09)

Prescribed Minimum Maximum Compliance

Magnesium Hardness (mS/m) 10 45 Class 1

Ammonia (mg/l) 1.0 0.09 120 Class 1

Cadnium (g/l) 5.0 3.0 8.0 Class 1

Cyanide (g/l) 50 0 5.0 Class 1

Flouride (mg/l) 1 0 0.59 Class 1

Iron (g/l) 200 0.14 150 Class 1

Lead (g/l) 20 12.0 78.0 Class 1

Manganese (g/l) 100 0.01 2.8 Class 1

Zinc (mg/l) 5 0.13 0.23 Class 1

Sulphate (mg/l) 400 0.0 8.0 Class 1

Seledium (g/l) 20 12.0 130 Class 1

Phenols (g/l) 10 9.0 49.0 Class 1

Nitrates (mg/l) 10 0.6 1.3 Class 1

-

100,000.00

200,000.00

300,000.00

400,000.00

500,000.00

600,000.00

700,000.00

800,000.00

900,000.00

2006/07 2007/08 2008/09 2009/10 2010/11

Budget (R'000) Spent (R'000) Budgeted Trainees

Performance Criteria Target Actual Challenges and Remedial Action

Recruitment Placement, Retention and Succession

Retention and Succession planning strategies to be developed and approved by the Board

99% of the vacant posts have been filled.Existing work force have been placed according to the organisation re-design. Average staff turnover of 0.3% experienced during the year under review.Retention and Succession Plan developed and approved.

•Turnaround time in recruitment.•Non implementation of retention strategy.•Matching existing staff to job requirements and training.•Inadequate staff for office administration.

Review of Policies and Procedures in line with legislative changes

Annual Reviews of all HR policies and procedures.

Policies and procedures in place.Effective workplace forums established in all our plants.

Orientation of new recruits and refresher workshops for existing employees on policies and procedures.

Ensure Staff Development Implement Management Programme

90% of staff / employees to have achieved ABET level 1

Management and Leadership Development programme in place.76.5% have already achieved ABET level

Eight (8) Middle management staff enrolled for MDP.


Performance Management System

Implement Performance Management System

The first phase of PMS implemented for 2007/08.

•Understanding of the system by lower levels of staff.•Non alignment of contracts with strategic objectives

Change Management Review Annual climate survey and change management programme report compiled in 2006.

Climate survey results partially implemented.Organisational redesign completed. HR Policies and Procedures reviewed

Comprehensive and intensive stakeholder involvement in the assessment of the changes made in LNW.

Employee Assistance / Wellness Programme

Implement Wellness Programme on HIV and Aids

EAP Officer appointed in April 2009.Awareness and Road Shows on HIV/Aids and Eyesight conducted.

Negative impact of HIV/Aids campaign on the overall wellness programmes through perceptions

Performance Criteria

Target Actual Challenges and Remedial Action

Increasing Income Streams

Negotiates retail contracts with CDM and SDM. Finalise of bulk contracts with SDM, MDM and CDM. Introduction of cost recovery for Flag Boshielo West.Finalise the bulk contracts with Mookgopong, Lephalale, Makhado and VDM

Negotiations with SDM on Tubatse concluded and continuing on Flag Boshielo Scheme. CDM has appointed LM as retail WSPs. Bulk water supply agreements with SDM and CDM finalised

•Negotiations with MDM in progress on bulk contract.•Non implementation of the Quarterly perform ance management meetings as provided for in the contracts with WSAs.

Expansion of existing Services

Develop strategy to leverage the economic growth of the province.Finalise retail contracts with SDM and CDMFinalisation of the Social Responsibility Policy

Draft Social Responsibility Policy concluded and due for presentation to Board in April 2009.

•Discontinued negotiations with CDM on retail services.•Negotiations with MDM in progress.•Non implementation of quarterly performance review meetings as provided for in the contracts.

Expansion into new areas

Negotiations with Lephalale, Makhado and Mookgopong LM’s for bulk water provision.Negotiations with VDM for bulk provision.Negotiatites with SDM for being PIA of their capital projects. Negotiations with both the Blyde and Lebalelo Water Users Associations in getting raw water from their system or utilising them for Tubatse and Maruleng LM’s. Conduct Feasibility studies in the new areas of operations prior involvement.

Bulk water supply contracts with SDM and CDM finalised

Development of lacking skills within Business Development


Support to Water Service Authorities

Advocate for the implementation of the turnaround strategy for Water Service Authority. Promote the support to municipalities with the implementation of capital projects.

Turnaround strategy implemented in Phalaborwa and Tubatse Municiplaities.

LNW involved in the development of WDM strategy in Mogalakwena Municipality.

Retail operations discussions discontinued with some WSA’s

Planning for Water Demand Management in Limpopo

Initiate and implement water demand management programme in LNW’s service areas.

Initiate Water Demand Management and Cost Recovery Program for all LNW Schemes.

Turnaround strategy implemented in Phalaborwa and Tubatse Municiplaities.

LNW involved in the development of WDM strategy in Mogalakwena Municipality

Partnership initiated in Lepelle Nkumpi Municipality for the enhancement of Cost Recovery in Lebowakgomo.

Development for the 2010 World Cup

Participate in the host city, Provincial and National Steering Committees on 2010

LNW appointed as Project Manager for the National co-ordination of 2010 by DWAE through SAAWU. Provincial and Municipal involvement on local activities for 2010 by LNW to be improved.


Water Quality and Environmental Management

Ensuring water quality compliance with SANS241:2006 on all our plants.

All potable water plants complying 95% with SANS241 on class 1 and the 5% fully complying with Class 2.Sewage Plants complying 85% with DWAE effluent standards.Implementation of the pilot project for Sodium Hypochlorite for disinfection continuing.Water quality programme implemented in all the plants

•Insufficiently trained and skilled process controllers on the sewage works.•Raw water quality in the rivers e.g. during floods.•Treatment capacity and process design on the plants.

Replacement and rehabilitation of ageing infrastructure

Conduct hydraulic network analysis of Phalaborwa bulk pipeline , prepare a flow model and start with refurbishmentConduct Functional Assessment of existing schemes.Phase 1 replacement of substandard bulk lines in Modjadji and Flag BoshieloSurvey internal condition of bulk lines with CCTV (>450mm Internal Diameter)

Service Providers on site for hydraulic analysis of Phalaborwa pipeline. Pipeline replacement in Modjadji completed. Flag Boshielo ongoing as part of normal maintenance programme.Functional assessments not completed service providers to be appointed. Survey of pipelines 60% completed in Phalaborwa and Olifantspoort Schemes.

•Lack of staff in the new projects unit of the department.•Lack of appreciation for the importance of capital, maintenance and refurbishment projects

Operation and Maintenance of infrastructure

Install Cathodic Protection on pipelines on Olifantspoort , old Doorndraai pipeline and Ebenezer pipelines.Clean Sl dge Ponds cleaning at

Cathodic Protection completed at Olifantspoort, Doorndraai and Ebenezer. Cleaning of Sludge ponds to be done as part of Phase2 Upgrading project at Olifantspoort

Lack of staff in the new projects unit of the department for projects monitoring and implementation


Ring fencing of projects to ensure sustainability

Revise and Implement Tubatse and Phalaborwa turnaround Strategy

Both Strategies revised and implemented.

Commitment from the WSA’s on ring-fencing of water services.

Expansion of infrastructure

Finalise the custodianship of Olifantspoort SchemeDevelop Bulk Infrastructure Plan for Greater Tubatse MunicipalityDevelop Bulk Infrastructure Plan for Sekhukhune District MunicipalityCompletion of Upgrading of Ebenezer Sand Filters to 30 Ml/dayInstall standby generators at Olifantspoort and Doorndraai Plants

Olifantspoort custodianship not completed. Submission made to DWAE for the transfer of all infrastructure systems that are above 30Ml/day in capacity and R100million in asset value.Bulk infrastructure Plan for GTLM and GSDM completed. Standby Doorndraai electricity generator has been ordered for installation. Designs and Specifications for the filter upgrading at Ebenezer completed

Infrastructure funding insufficient.

Health and Safety Environment

Initiate Development of the Health and Safety Environment Programme

NOSA system on health and safety implemented in all the plants. Safety audit conducted and NOSA grading issued for all the plants.


Financial Policies and Procedures

Review policies and procedures and ensure alignment with legislative requirements. Ensure compliance of policies and procedures by all departments.

Finance policies reviewed in line with legislative requirements and approved by the board.

Some policies outstanding.

Budgeting and Controls Organisational budget in line with strategic prioritiesFive year projections in alignment with strategy prioritiesMonitor effectiveness and efficiency of organisation against set budget

Budget for 2008/09 compiled and submitted on time.Draft budget for 2009/10 already prepared in line with the strategic objectives of the organisation and submitted to DWA.Monitoring and Control of budget ongoing through monthly and quarterly performance reviews on the budget. The budgeting process and alignment with strategic objectivesare in process.

Alignment of budget with strategic objectives.

Revenue Management Ensure that valid contracts with Water Service Authorities are in place

Contracts concluded with SDM and CDM. MDM contract still being negotiated. Industrial clients contracts reviewed and being concluded

Challenges with MDM requirements on the bulk agreement.


Tariff Determination Approval of tariffs by National Treasury and DWAF.

Tariff’s submitted to the Minister for approval.

Consultation process on the tariffs with WSA. Non response by WSAs.

Asset Management Develop effective and efficient Asset Register

The update of asset register in process with completion target by end June 09

Incorporation of underground infrastructure in the asset register

Introduction of Controls Investments being done according to the policy of the Board.

Control effectiveness and efficiency of the finance department.

Investments being made according to board decision and policy.

Instability in the investment industry


Supply Chain Management Establish Supply Chain Management Unit

SCM Unit established and fully staffed.All committees for SCM instituted and functional.

Quarterly reporting on procurement and progress on BBEEE targets achievement

Development and Management of IT Infrastructure

Procurement of Enterprise Resource Planning (ERP) System

Service Provider for ERP appointed and on site. Scheduled to go live with SAP system by the 01st July 2009.

•Training of staff on the new system.•Speedy and smooth conversion of current system to SAP.

Treasury Management Review of the Petty Cash Policy /ProceduresReview of Investment PolicyReview of the Cash Management Systems

Not Completed. All finance policies being reviewed .


Development of the communication and Marketing Strategy

Finalisation, approval and implementation of the strategy

The Strategy approved in October 2008 and communicated to employees through workshops in December 2008 and created awareness continuing.

Improved Stakeholder Relations

To develop a strategy to Support WSA’s on their mandate. Finalise the business model for new areas of Lephalale and Mookgophong Local Municipalities and Vhembe District MunicipalityFormalisation of bulk water supply agreements with SDM, CDM & MDMAwareness Campaigns on Water Demand Mgt

•Strategy not completed.•Bulk Service contracts formalised for CDM, GSDM.•MDM contracts still outstanding.•Bulk Water Demand Management Strategy implemented on all LNW schemes.•Assistance on WDM provided to BaPhalaborwa and Greater Tubatse as part of Turnaround Strategy.•LNW involved in the development of the WDM Strategy for Mogalakwena Municipality

Negotiations on the MDM Bulk water supply agreement continuing. Persistence by the municipality for LNW to pay levies as part of the contract remains stumbling block in concluding the contract.

Risk Management Development of the Risk Profiles, Strategy and Implementation Plan

Risk profile developed and approved by the board. Implementation and monitoring of the profile ongoing.

Improved Governance Induction and training of new Board members to execute governance responsibilities.Ensure full adherence to code

Code of Ethics encompassing code of conduct communicated to board members and implemented throughout the orgainsation.

Bulk

Ageing InfrastructureExceeding abstraction Permits (high demands) > Permits Over laden treatment plant (upgrades)Deteriorating raw water qualityOutstanding Bulk Service Contract in Mopani

Outstanding debtors by Municipalities

Reticulation

Lack of effective cost recovery, water conservation and demand managementAgeing internal reticulation infrastructureDefault on payment by consumersLack of maintenanceUnauthorized / illegal connections

Technical skills capacity retention

0

100

200

300

400

500

600Raw Water Purification Pumping Distribution Storage Total Demand

Treatment CapacityChallenge

Increase in Raw Water Charges

Increase in electricity costs

Labour Costs

Capital Investments

>Consumer Price Index ( 13.6% - 7.5%)

•

South African Local Government Association

•

National Treasury

•

Industrial Clients (PMC, Sasol Nitro etc)

•

Water Service Authorities

▫

Mopani District

▫

Capricorn District

▫

Polokwane Municipality

▫

Greater Sekhukhune District

▫

Mogalakwena Municipality

WATER SCHEME 2007/08

R/kl

2008/09

R/kl

2009/10

R/kl

2010/11

R/kl (Proposed)

2011/12

R/kl (proposed)

Phalabora Foskor 0.9217 0.9517 1.128 1.409 1.903

Phalabora Mining 0.8728 0.9013 1.068 1.378 1.874

Sasol Nitro 0.8793 0.9080 1.076 1.388 1.888

New Mining Co - - 2.181 2.334 2.496

Phalaborwa Scheme

(Potable)

2.1286 2.198 2.282 2.494 2.656

Ebenezer 3.7332 3.855 4.002 4.331 4.615

Politsi 2.2651 2.339 2.428 2.654 2.826

Olifantspoort 3.8824 4.009 4.161 4.419 4.613

Doorndraai 3.3982 3.509 3.642 3.981 4.239

Flag Boshielo 3.0351 3.134 3.253 3.555 3.786

Modjadji 2.2651 2.339 2.428 2.654 2.826

Average Tariff 2.342 2.42 2.514 2.878 3.218

Average % Increase - 3.26 4.22 7.36 11.85

•

Bulk

▫

Ageing Infrastructure

▫

Exceeding abstraction Permits (high demands)

▫

Over laden treatment plant (upgrades)

▫

Deteriorating raw water quality

▫

Non payment of services by WSAs

•

Reticulation

▫

Poor cost recovery and water demand management

▫

Ageing internal reticulation infrastructure

▫

Default on payment by consumers

▫

Lack of maintenance

▫

Unauthorized / illegal connections

▫

Insufficient Water Demand Management

- Conclusion of outstanding Bulk Water Services Contracts

- Resolve outstanding debt and late payment for bulk services by WSAs

- Rehabilitation and maintenance of infrastructure (effective asset management)

- Support municipalities with regard to cost recovery and water conservation and demand management strategies

- Capacity building, retention and succession planning

- Intensify technical support to municipalities through Provincial Departments

THANK YOU

presentation to parliamentary portfolio committee on water...

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