HEADING ANALYSIS OF WATER BOARDS PRESENTATION TO PARLIAMENTARY PORTFOLIO COMMITTEE Presenter: Sarah McPhail National Treasury 17 April 2013 Presenter: Lungisa Fuzile Director General, National Treasury 28 July 2011
Outline 1) Strategic Performance 2) Financial Performance 3) Infrastructure 4) Tariffs 5) Municipal Debt 6) Conclusions and Recommendations 2
Strategic Performance Botshelo Annual Report not submitted and thus excluded from this analysis KPIs/ Targets: With the exception of Amatola and Bushbuckridge, the other Water Boards met over 75% of their targets. Reliable Service Water Quality (Blue Drop) Unqualified Audit (excl. Amatola) Both Amatola and Bushbuckridge have a turnaround strategy in place. Amatola financial situation has improved with revenue growth higher than cost growth, however costs still exceed revenue resulting in a net loss. Bushbuckridge is still experiencing cash flow constraints largely due to unauthorised connections and outstanding debt with Bushbuckridge Local Municipality. Under-performance relates to failure to conclude service level agreements with clients; under-spending of capital budget. 3
R'000 Financial Performance Revenue collected from bulk water sales totalled R10.3 billion Profitability: With the exception of Amatola and Bushbuckridge, all Water Boards reported a profit. Consolidated Net Profit is R1.76 billion. Capital expenditure was R2.05 billion, which was 69% of the budgeted amount; and 23% increase from 2011 expenditure. Those who spent below average: Amatola, BBR, Mhlathuze, Magalies, Lepelle. Reasons for under spending the budget include cash flow constraints and project delays. Net Profit Capital Expenditure 2,500,000 2,000,000 1,500,000 1,000,000 500,000-2009 2010 2011 2012 4
R'000 Infrastructure (1 of 2) Profits are partially attributed to Reserves to fund capital infrastructure. Debt is also used to fund infrastructure (but not operational costs) In 2012, 7 Water Boards had interest-bearing debt totalling R2.9 billion Umgeni, Rand, Bloem, Mhlathuze, Sedibeng, Lepelle, Amatola Ability to borrow more is limited by their cash flow (municipal ability to pay tariffs to repay debt) and their balance sheet (the value of their assets). Net Profit Capital Expenditure Debt (interest bearing) 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000-2009 2010 2011 2012 5
R'000 Infrastructure (2 of 2) Reserves total R9.6 billion Water Boards consolidated Book Value of Assets = R14.8 billion Of which 53% Rand; 20% Umgeni Water Boards consolidated Replacement Value of Assets = R100 billion This indicates that infrastructure is well depreciated and ageing Total maintenance expenditure = approx. R492 million This is minimal given the value of the assets Reserves Assets (PPE) 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000-2009 2010 2011 2012 6
Tariff Comments Treasury comments were generally supportive of proposed tariffs Tariff increases in line with cost increases, particularly raw water costs; energy costs and staff costs Tariff increases in line with historical trend: 2012: 10%; 2011: 12%; 2010: 8% The following Water Boards tariffs do not cover their budgeted costs, thus requiring further cost reduction and revenue-enhancing measures to ensure sustainability: Bloem Amatola Umgeni Other comments relate to concerns regarding insufficient maintenance budget; under spending on capital budgets; water volumes and water losses. 7
Impact of Tariffs On Municipal/ Retail Tariffs: Illustrative Example from 2012 Water Board Tariff Increase was 13% Municipal tariff increases ranged from 7% to 15% Kilolitres 2010/11 2011/12 per connection per month Tariff Tariff (R/kl) (R/kl) %Increase 0-6 Free Free N/A > 6-10 R4.93 R5.26 7% >10-15 R7.31 R7.95 9% >15-20 R9.59 R10.62 11% >20-30 R11.98 R13.50 13% >30-40 R12.36 R14.09 14% >40 R14.94 R17.11 15% On CPI Basket: Water makes up 1.1% of total CPI basket Thus a 10% increase in municipal tariffs would add 0.1 percentage points to headline inflation 2011 Income and Expenditure Survey data found consumers spent between 1% and 1.5% of their total spending on water 8
Municipal Debt (1 of 2) Facilitation by NT, PTs and DWA including other stakeholders between the Water Boards and relevant municipalities has resulted in payment arrangement in place and implemented e.g. Lepelle and Bloem The total debt owed to Water Boards was R2.3 billion, of which R1.3 billion is in arrears. 85% of this debt is owed by 10 municipalities to Sedibeng, Botshelo, Lepelle and Bushbuckridge. 96% of the debt is over 120 days. In September 2011, 81% of the debt was over 120 days. This indicates that the outstanding debt relates primarily to past account and not to non-payment of the current accounts. From September 2011 to September 2012, on average 87% of debt was paid within 59 days; 93% within 89 days (i.e. an additional 6%) and 94% within 119 days. Thus for every month when invoices were issued, over the past year only 6% of the amount is outstanding. 9
Municipal Debt (2 of 2) Recommendations: Municipalities: Requested to address the root causes to ensure that arrears are addressed in a sustainable manner, including the preparation and implementation of financial recovery plan DWA to prioritise assistance to relevant Water Boards and Municipalities so that they have in place appropriate and adequate signed contracts (service level agreements). The contestations between municipalities around the shifting of water services powers and functions need to be addressed Water Boards should strengthen the implementation of measures for the timely collection of arrears and resolution of disputes, proper administration over the credit control policies and actions taken thereafter. 10
Conclusions and Recommendations Overall improvement in Strategic Performance and Financial Indicators However concerns around Botshelo, Bushbuckridge and Amatola Increasing expenditure on capital infrastructure However insufficient spending on Maintenance Infrastructure is old and requires refurbishment and replacement To expand operations and impact, Water Boards require: Long term Municipal Contracts Long term planning Stable, transparent tariffs Prioritised DWA grant funding for social infrastructure Investment in skills, training Finalisation of Pricing Strategy Review and Institutional Realignment Risk management strategy for Secondary activities 11
Thank You 12
Extra Slides: Financial Indicators Water Boards profitability and efficiency 2012 Net (Loss) Profit/ Net Profit margin Unit: R'000 % % Return on Assets Turnover growth % (year on year) Total Cost Growth % (year on year) Amatola -7 937-5% -2% 53% 47% Bloem 83 506 26% 9% 18% 5% Lepelle 110 718 35% 13% 9% -12% Magalies 61 842 23% 5% 21% 10% Mhlathuze 51 930 18% 7% 15% 27% Overberg 31 289 104% 37% 88% 7% Pelladrift 946 6% 2% 7% 13% Rand 778 484 11% 7% 17% 14% Sedibeng 60 098 11% 4% 23% 17% Umgeni 587 772 37% 11% 14% 7% Total 1 758 648 17% 8% 16% 12% Total 2011 1 149 557 13% 7% 12% 10% Median 60 970 20% 7% 17% 11% Average 175 865 27% 9% 26% 14% NPM: Profit made for every Rand of water sold ROA: Profit made for every Rand of asset owned Turnover growth: annual % increase in revenue Total cost growth: annual % increase in total costs 13
Extra Slides: Solvency Indicators Interestbearing Debt Total Debt /Total Assets Gearing Ratio (Interest bearing debt/ Equity) Current 2012 ratio R'000 % Times Days Amatola 1,847 44% 0.9 1% Bloem 234,806 29% 4.1 34% Lepelle 22,046 15% 4.1 3% Mhlathuze 233,773 55% 2.5 66% Rand 1,192,867 31% 1.2 16% Sedibeng 43,803 33% 1.5 4% Umgeni 1,257,137 40% 3.3 40% 'Benchmark' 40%-60% 2.0 14
Extra Slides: Municipal Debt September 2012 Top 10 Municipalities WATER BOARD MUNICIPALITY CURRENT DAYS 30 DAYS 60 DAYS 90 DAYS 120+ TOTAL TOTAL (excl. c% of total debt Sedibeng Water Matjhabeng LM 23,859,355 28,694,485 26,145,133 23,852,151 394,495,062 497,046,186 473,186,831 36% Bushbuckridge WatBushbuckridge LM 11,965,391 5,785,952 (6,254,760) (3,630,580) 243,874,484 251,740,487 239,775,096 18% Lepelle Nothern WaMopani DM 6,077,485.00 130,210.00 130,210.00 126,009.00 170,383,848.00 176,847,762 170,770,277 13% Botshelo Water Mafikeng LM 5,912,959 4,153,747 496,771 4,592,759 38,280,179 53,436,415 47,523,456 4% Sedibeng Water Nala LM 2,697,493 3,361,501 2,730,453 2,884,502 35,720,643 47,394,592 44,697,099 4% Sedibeng Water Maquassi Hills LM 2,910,993 2,656,433 3,550,225 2,722,473 17,372,882 29,213,006 26,302,013 2% Sedibeng Water Dr Ruth S Mompati DM 4,519,361 4,519,361 5,086,101 4,727,651 15,887,860 34,740,334 30,220,973 2% Botshelo Water Ditsobotla LM 476,185 363,876 497,186 424,845 25,267,212 27,029,304 26,553,119 2% Sedibeng Water Nama Khoi Municipali 2,149,621.00 2,034,398.00 1,953,423.00 1,823,860.00 19,639,655.00 27,600,957 25,451,336 2% Bloem Water Kopanong LM 2,461,144.00 2,011,477.00 1,354,427.00 903,753.00 20,493,563.00 27,224,364 24,763,220 2% TOTAL MUNICIPAL DEBT - SEPTEMBER 63,029,987 53,711,440 35,689,169 38,427,423 981,415,388 1,172,273,407 1,109,243,420 85% 15
Extra Slides: Capital Expenditure Water Board Capital Budget 2012 Capital Expenditure 2012 2012: Actual/ Budget Percentage R'000 R'000 % Amatola 21 200 556 3% Bloem 71 600 69 839 98% Botshelo 4 961 # # Bushbuckridge 10 125 1 217 12% Lepelle Northern 143 021 52 365 37% Magalies 503 000 6 176 1% Mhlathuze 100 859 19 119 19% Overberg 7 514 5 079 68% Pelladrift 5 000 300 6% Rand Water 1 443 000 1 351 820 94% Sedibeng 58 100 64 269 111% Umgeni 589 528 481 668 82% Total 2 957 908 2 052 408 69% 16
Extra Slides: CEO Pay Water Board Size Grade Minimum (80% of median) Maximum (100% of median) 2011/12 GP paid to CEOs % deviation (%) from maximum median Incentive bonus paid % of the Incentive bonus to the GP Total 2012 Rand Water Mega A1 R2 268 R2 835 R2 640 0 R1 791 68% R3 809 Umgeni Mega A2 R1 969 R2 462 R1 866 0 R455 24% R1 959 Mhlathuze Large B2 R1 359 R1 699 R1 599 0 R120 8% R1 617 Sedibeng Large B2 R1 359 R1 699 R1 709 0.6 % R84 5% R1 792 Amatola Large B2 R1 359 R1 699 R 2 089 23% 0 R2 089 Bloem Medium C1 R1 172 R1 466 R1 386 0 Magalies Medium C1 R1 172 R1 466 R1 491 2% 0 R1 491 Lepelle Medium C1 R1 022 R1 277 R1 344 5% R160 12% R1 504 Botshelo Medium C1 R859 R1 073 # # # Ov erberg Small D1 R851 R1 073 R 460 0 0 R460 Bushbuckridge Small D1 R780 R976 # # # Sedibeng, Amatola, Magalies and Lepelle paid their Chief Executives the Guaranteed Packages (GPs) above the maximum (100%) of the recommended median amount recommended by DWA. Amatola GP however includes back pay. DWA Policy is silent on Incentive Bonus. Noteworthy: Rand incentive bonus was 68% of the GP, which is above DPE guideline of maximum 50%. 17