Presentation to the Portfolio Committee: Water & Environmental Affairs

1. Presentation to the Portfolio Committee: Water & Environmental Affairs Presentation byMr Onesmus AyayaChief Financial Officer04 August 2010 Briefing on Current Expenditure and their Performance Trends 1

2. EXPENDITURE OUTCOME FOR THE FIRST QUARTER ENDED 30 JUNE 2010 2

3. EXPENDITURE OUTCOME FOR THE FIRST QUARTER ENDED 30 JUNE 2010 3

4. Monthly Forecast vs. Monthly Actual 4

5. Reason for under spending 5

6. MAIN ACCOUNT ALLOCATION (INCLUDING EARMARKED FUNDING) 6

7. DROUGHT RELIEF ALLOCATION – 2010/11 7

8. DROUGHT RELIEF ALLOCATION – 2010/11 Expenditure Report as at 29 July 2010 8

9. DROUGHT RELIEF ALLOCATION – 2010/11 cont.. Notes The payment of R10 million to Bitou Municipality is in the processes of being transferred. The transfer to Vhembe is awaiting finalisation of the process on the pipeline to Giyani. All the transfers above were made against the old payment schedule According to the new approved payment schedule received from Sello Mashaba of NT, the next transfer date for EC is 29/09/2010, and 01/09/2010 for WC. 9

10. EARMARKED FUNDING 10

11. UN-EARMARKED FUNDING 11

12. Water Trading Entity (WTE) Management Accounts Period ending 3 June 2010 PART B 12

13. Water Trading Entity (WTE) Management Accounts Period ending 30 June 2010 PART B 13

14. Contents Statement of financial performance Statement of Financial position Cash flow statement Expenditure and Revenue per Branch Concluding remarks PURPOSE 14

15. 15

16. FINANCIAL PERFORMANCE ANALYSIS Revenue is below budget due to the challenges that we have on SAP billing systems. The challenges are being addressed to ensure that hand billings are automated. The operating surplus of R98 million before depreciation is due to the slow spending on salaries and goods and services. COE is 25% below budget due to the unfilled vacant positions. The situation will improve during the year as most of the position are currently being advertised and filled. Goods and services is 33% below budget due to the fact that there is a link between unfilled vacancies and traveling costs as well as services to be rendered to WTE. The situation is bound to improve during the next quarter. The operating deficit of R405 million is due to the fact that the pricing strategy allows for the capping of tariffs and exemption of ROA to water users and has resulted in ROA not covering the depreciation of R500 million. The exemption of ROA is not covered by revenue generated. 16

17. INCOME AND EXPENDITURE 17

18. 18

19. 19

20. 20

21. 21

22. 22

23. 23

24. 24

25. 25

26. 26

27. 27

28. Analysis No expenditure on refurbishment and betterment due to the fact that SAP internal order system not implemented, spending is currently happening on OPEX, cost will be moved to CAPEX once the internal order system is fully implemented. Under expenditure on cost of employee on all Chief Directorate is attributable to vacant positions. The situation will improve during the financial year as posts are filled via the Departmental Roadmap. ANALYSIS 28

29. 29

30. Debts situation Challenges The huge debt book (R3,7billion) is affecting our cash flow and is due to slow payments by major customers ie Municipalities (Owing R1,12billion) and Water Boards. There was an impairment of R1.1 billion which reduces our debtors to R2.5 billion. WTE has R1.2 billion debtors more than 120 days and R2.5 billion less that 120 days. We have an obligation to pay TCTA whether we have collected or not from their customers and this is also affecting cash flow. The cash collection is very low due to the delay in sending out April and May invoices, we had system problems and as results billing did not take place as scheduled. DEBTS SITUATION 30

31. Action Plan to address the challenges Identify / Implement efficient debt collection methods. Reconciliation on individual debtors are done to confirm outstanding balance in accordance with our policy. The review of funding model and pricing strategy to be prioritised. An exercise is underway to clean the debtors book. ACTION PLAN TO ADDRESS THE CHALLENGES 31

32. 32

33. CASH FLOW POSITION Challenges Net cash position is a negative balance of R50million. WTE has the budget but no cash in bank due to long outstanding debts. However, WTE conversion cycle of Debts into cash takes us 178 days instead of 60 days. The spending on refurbishment and betterment will be restricted to cash collected by WTE. 33

34. Cash Flow Position ..cont Solutions The review of pricing strategy and funding model should be a priority of the department. This will assist in addressing the financing gaps we have between the pricing strategy and the funding model. System of budget monitoring is already in place to make sure that no unauthorised expenditure is incurred this financial year. Strategy to improve debtors collections should be implemented. Revisit the agreement between TCTA and DWA. More questions that beg answers from policy makers. CASH FLOW POSITION (CONT…) 34

35. Concluding remarks The backlog on maintenance and refurbishment of infrastructure of assets is estimated at R13billion. Cash generated from operating activities is not enough to fund refurbishment and betterment of infrastructure assets and this is arising from capping provisions in the Pricing Strategy. Revision of Pricing Strategy is the long term solution to financial stability within the Water Trading Entity to enable it to clear the above backlog. CONCLUDING REMARKS 35

36. THANK YOU 36