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PRESENTATION TITLE Presented by: Name Surname Directorate Date

Financial Management at the Water Trading Entity (WTE) Presented by: Paul Nel Acting Chief Financial Officer 27 March 2018. PRESENTATION TITLE Presented by: Name Surname Directorate Date. CONTENT. Context History of the WTE overdraft 3. National Treasury requirements

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PRESENTATION TITLE Presented by: Name Surname Directorate Date

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  1. Financial Management at the Water Trading Entity (WTE) Presented by: Paul Nel Acting Chief Financial Officer 27 March 2018 PRESENTATION TITLE Presented by: Name Surname Directorate Date

  2. CONTENT • Context • History of the WTE overdraft • 3. National Treasury requirements • 4. Financial Management of WTE during 2017/18 • 5. Financial Management of WTE during 2018/19 onwards

  3. CONTEXT The Water Trading Entity (WTE) is in a strong financial position and assets exceed liabilities by R70,2 billion as per the 31 March 2017 audited annual Financial Statements. Budgets are strictly adhered to through budget blocking on the financial system. Therefore nobody can spend unless the budget has been made available and there is no overspending in the WTE. The existence of the WTE overdraft was an once off occurrence in the 2016/17 financial year due to budget cuts from National Treasury and non payment of debt by Municipalities. The overdraft has to date been reduced in line with National Treasury expectations. 

  4. PRESENTATION TITLE Presented by: Name Surname Directorate Date HISTORY OF WTE OVERDRAFT

  5. NATIONAL TREASURY BUDGET ALLOCATION OVER MTEF

  6. COMMENTS ON THE BUDGET ALLOCATION-NATIONAL TREASURY The main reasons that National Treasury (NT) indicated to the Entity for the budget cuts were that the Entity was under spending on capital projects and can use its accumulated surpluses to fund its capital needs. The NT requirement was not for the WTE to reduce expenditure but it was expected that the Entity should collect debts owed to it to fund its capital needs.  The accumulated surplus indicated by National Treasury consists of non-cash items and therefore did not translate into cash.

  7. WTE BUDGET ALLOCATION FOR 2016/17 AND ASSUMPTIONS MADE REGARDING DEBTORS COLLECTIONS

  8. ASSUMPTION MADE DURING THE BUDGET ALLOCATION-2016/17 In compiling the WTE 2016/17 budget the following assumptions were made: R7.8 billion would be billed and collected from the water usersin 2016/17 for current debt. Augmentation of R1.5 billion will be received from National Treasury. The amount of R2.9 billion of long outstanding debt (over 150 days) was to be received from the Water Boards and Municipalities and the R200 million owed by companies will be collected through the debt collector.

  9. Budget allocation 2016/17 • The 2016/17 approved budget was very specific that: • “The budget allocation was made on the assumption that the projected revenue will be collected from accounts receivable” and • “The intervention of Cooperative Governance and Traditional Affairs (COGTA) AND National Treasury (NT) will be required for the collection of this long outstanding debt.” • Clearly this intervention by COGTA and NT did not have any affect on Municipalities, hence the overdraft of R2.675 billion as at 31 March 2017

  10. PRESENTATION TITLE Presented by: Name Surname Directorate Date NATIONAL TREASURY REQUIREMENTS

  11. Freezing of WTE bank account National Treasury (NT) advised the WTE on 28 March 2017 that NT would no longer honour payments from the Paymaster General (PMG) account which is the WTE account held with the Reserve Bank (RB). NT then instructed the RB to freeze this account. In order to protect the TCTA Government Guaranteed debt, the TCTA payments would be ring-fenced and only those payments would be processed until such time that the NT and the WTE agrees on repayment terms to bring back the account to a positive balance.

  12. Trans-Caledon Tunnel Authority (TCTA) • The TCTA is a specialised liability Management body which is 100% State owned and its mission is to finance and implement bulk raw water infrastructure. • At 31 March 2017 TCTA owed R28,7 billion for money raised to fund infrastructure built. • These loans are backed by Government guarantees. • Non-payment will result in these guarantees being called up.

  13. TCTA activities • TCTA borrow money from banks & uses the money to build infrastructure. • The WTE invoice water users for monthly water consumption which includes the TCTA charge. • The WTE pay the invoiced amount relating to the TCTA charge to TCTA. (Total invoiced amount whether received or not). • TCTA pay money to banks to repay loans.

  14. Reduction of the overdraft Following engagements with the National Treasury (NT) during April 2017, agreement was reached that the WTE overdraft of R2 675 million as at 31 March 2017 would be reduced as follows: a) By the end of June 2017 by R200 million to R2 475 million, b) By the end of March 2018 by R748 million to R1 927 million. c) By the end of 2018/19 financial year the remainder of the overdraft will be eliminated. NT also emphasized that the WTE must stick to their mandate

  15. Projects paid by the WTE considered to be non core by National Treasury The WTE had funded the following projects which were considered to be non core: • Water services projects • Drought interventions • War on Leaks • Drop a Block Due to NT requirement that the WTE no longer fund any non core projects the Accounting Authority had no alternative but to move the funding of these projects to the Main Account.

  16. PRESENTATION TITLE Presented by: Name Surname Directorate Date FINANCIAL MANAGEMENT OF WTE DURING 2017/18

  17. WTE 2017/18 Budget The WTE budgeted to spend R748 million less than the expected revenue in order to reduce the overdraft. Strict budgetary control has been exercised during the year and this surplus will be realized. The June 2017 NT target was met and as at 20 March 2018 the overdraft was R1 851 million which is in line with the 31 March 2018 target of R1 927 million.

  18. Current Activities • Following a joint sitting of the Portfolio Committees of Water & Sanitation, National Treasury and COGTA the department has been included in the IMTT Technical Committee and has attended meetings on 12 December 2017, 5 February 2018 and 13 February 2018. The department has been attending further meetings arranged by COGTA in the various provinces. To date this has not resulted in any payment by Municipalities, • NT has pledged their full support to assist the WTE to collect the outstanding debt from municipalities but has indicated that the withholding of equitable share in the past has not yielded any results in the long termwhen this was done to assist Eskom in recouping outstanding debt from Municipalities.

  19. Current Activities continued • Letters were sent to the 30 largest defaulting municipalities (with debt of over R50 million each) warning them that their water would be restricted unless they made a payment and submitted a repayment plan by 8 December 2017. • This exercise was successful with the exception of 4 municipalities (Msukaligwa municipality, Maluti-a-phofung LM, Mafube LM and Madibeng LM) whom ignored the letters and resulted in their water being restricted by 20%. The water cannot be cut off completely as everyone has a basic right to water. • Although further discussions are taking place the restriction of water has also not yet resulted in any payments being made by these 4 Municipalities.

  20. PRESENTATION TITLE Presented by: Name Surname Directorate Date FINANCIAL MANAGEMENT OF WTE DURING 2018/19

  21. ISSUES OF MAJOR CONCERN GOING FORWARD • No clear improvement in the collection of Municipal debt: • Debt recoveries still not satisfactory & regressing further (The debt increased by R1,3 billion during first 11 months of 2017/18). • Critical infrastructure projects are being delayed due to repayment of overdraft (Raising of Tzaneen dam, Raising of Clanwilliam dam, Nwamitwa dam, Olifants River water resources development project phases 2D, 2E and 2F). • TCTA require 100% of revenue to be paid to repay loans even though debt is increasing (The outstanding debt relating to TCTA increased by R804 million during first 11 months of 2017/18).

  22. Analysis of Debtor’s Age Analysis 31 March 2017 vs. 28 February 2018

  23. Split of outstanding debt as at 28 February 2018

  24. Detailed Split of outstanding debt as at 28 February 2018

  25. Comparison of TCTA outstanding debt 2016/17 versus 2017/18

  26. POLITICAL RESOLUTION REQUIRED TO SOLVE MUNICIPAL DEBT PROBLEM. • To date the WTE has paid TCTA for all amounts invoiced for the TCTA charge. • During the 11 months to 28 February 2018 the debt relating to the TCTA charges has increased by R804 million to R4,1 billion as at 28 February 2018. • The non payment of debt by Municipalities will have a negative effect on the WTE’s ability to pay the TCTA as the WTE will not be able to absorb this non payment of debt. • Any non payment by the WTE to TCTA could result in TCTA defaulting on the loan repayments An urgent Political resolution to this problem is required.

  27. Thank you

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