OVERBERG WATER
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Areas of service and municipalities served
Map
Achievements
Challenges
Non-Financial Performance
Audit Report
Income Statement
Balance Sheet
Financial Indicators & -Ratios
Bulk Water Sales & Revenue
Bulk Water Tariffs
Expenditure (Bulk Provision)
Reserve
Graphic presentation of tariffs
Principles of tariff structure
Process
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Overberg Water’s area of services is roughly from Botriver in the West, to
Riversdal in the East and from the Langeberg in the North to the coast in the
South.
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The Municipalities served are Theewaterskloof, Agulhas, Swellendam and
Hessequa.
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The services rendered are :
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Theewaterskloof
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Agulhas
:
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Swellendam
:
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Hessequa
:
:
Bulk to Caledon town
Bulk to rural
Retail to rural
Bulk to rural
Retail to rural
Bulk to rural
Retail to rural
Bulk to Heidelberg, Slangrivier, Witsand
Bulk to rural
Retail to rural
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The rural retail is for stockwatering and for the domestic use of farmers and
their workers – this water is considered commercial water because it is
primarily an input to an economic activity.
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Small stock units have increased from 800 000 to 2 500 000 as a result of the
provision of water, and it is estimated that it will increase to ± 3 000 000 in the
near future – hence the economic value for the region.
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We have ± 800 retail clients served by a network of ± 1500 km pipelines from
three purification plants. Our network is a branch network with limited
capacity that is almost fully allocated. In other words the only possibility for
higher sales, is by raising efficiency at the level of the end user which our
sliding scale tariff system encouraged.
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In total ± 70 000 people are served with water by Overberg Water
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6 Overberg Water was able to conduct its business on a fairly sustainable basis as
proved by our annual results and continues to do so.
6 We have commenced with a much needed refurbishment programme to
modernize our infrastructure and to minimize our risk. Our main pumpstations
at two of our schemes have been completed (we are currently busy with our 3rd
scheme) which amongst others put us in a position to achieve substantial
energy savings as high as 16% in some instances.
6 Overberg Water acknowledges that there are many challenges ahead and that
achievements have been modest.
6 Overberg Water has also commenced with a modernising/expansion program by
making use of “green” technology. One of first, if not the first, ultra filtration
plant in the country is currently being installed at our Rûensveld East plant.
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6 Due to increasing economic and other pressures, it will become increasingly
problematic to maintain the current level of service delivery.
6 Rapidly rising input costs, which all Water Boards are experiencing, particularly
the cost of energy, chemicals, transport and human resources, in tandem with
the declining ability of our clients to pay for services, are going to be
exceptionally demanding.
6 It will therefore not be easy to generate sufficient income to fulfil our obligations
to do proper maintenance and refurbishment, and to keep our operations at the
current high level.
6 Our ability to generate income from water sales (tariffs) is limited due to the
economic situation our clients find themselves in. The only apparent solution is
to allow Overberg Water access to grant funding such as RBIG or other funding.
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This is problematic in itself as there is no clarity about this aspect and the
process to get access to the RBIG is extremely complicated and cumbersome.
It should as a matter of urgency be shortened and simplified in the interest of
service delivery in south Africa in general.
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Agreements with the municipalities remain a challenge. It has’nt yet affected
our daily operations, but it limits our ability to plan for the future. We cannot
plan for the future if we do not know how costs will be recovered. This has
previously been brought to the attention of this Committee, DWA and SALGA.
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In our point of view the solution is obvious – introduce a new regional
institutional arrangement to do all bulk services. It is a pity that we have noted
in a letter from the Ministry that this process has been postponed for another 5
years. In our opinion we do not have 5 years.
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Serious work injuries → zero
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Absenteeism → 2,7%
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Staff turnover → 9%
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Labour unrest → zero
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Water quality → Class 1 (SANS 241, 2006)
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Water loss → 4,8%
6We had no serious work injuries, thanks to a well operated Health &
Safety Policy.
6We have a low absenteeism of 2,7% (means absent from total work
available/work time); staff turnover of 9% (staff leaving in comparison
with total staff) thanks to good working condition and good management.
6No labour unrest due to consultation with workers and unions.
6All our water is of Class 1 standard in accordance to SANS 241 of 2006
due to regular testing.
6Total water “loss” of 4,8%, well below national average.
690% of this “loss” is not really lost, but is used in maintenance
processes for backwashing, scouring and other cleaning and
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maintenance processes.
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Unqualified Audit
6We’ve yet again received an unqualified Audit Report from our auditors (Moore Stephens).
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Positive report on systems & procedures
6Report to Management & Board stated that our systems and procedures are of a high standard.
They have made a few suggestions to improve it further – which we will implement through our risk
management program under the supervision of our Audit Committee.
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Relevant legislation adhered to
6All relevant legislation was adhered to as well as all departmental regulations.
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Consolidated Income Statement
Income from and expenses financed through
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Bulk Water Sales
Retail Water Sales (as secondary activity)
Other Secondary Activities
Reserve
Total Income: R25 017
R’000
Total Expenses: R22 613
Other
1%
Investments
8%
TWK
8%
other
20%
Admin Fees
4%
Direct Labour
45%
Depreciation
8%
Chemicals
8%
Operating
79%
Raw Water
2%
Maintenance
7%
Energy
10%
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6 This is a breakdown of the consolidated income statement – meaning: it
includes income from and expenses financed through bulk water sales, retail
water sales as secondary activity, other secondary activities as implementing
agents and reserve activities.
6 The green pie graph shows the different types (sources) of income as
percentage of the total income of R25 million.
6 The red pie graph shows the different expenses as percentage of the total
expenses of R22,6 million (other expenses is admin, travel, fuel, etc).
6 Operating income in this instance, includes all water sales – bulk as well as
retail.
6 Admin income includes secondary activities such as Working for Water,
Masibambane, services to farmers etc.
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R’000
Net Income: R2 404
INSTALLMENT
DWA LOAN
R1 203
CHANGES IN
WORKING
CAPITAL
R1 088
CONTRIBUTION TO
RESERVE
R 113
+R113 to add to our reserve
6 This totals to a net income of R2.4 million for the year. However, from this
income the loan from DWA of R1,2 million had to be paid and changes in
working capital of R1 million had to be financed – leaving very little money to
add to our reserve.
6 The result is R113 thousand that could be added to our reserve.
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CAPITAL EMPLOYED
EMPLOYMENT OF CAPITAL
R74 139
Current
Liabilities
7%
Cash
1%
Receivables
6%
Loan DWA
34%
Equity
59%
Inventory
1%
Short-term
Investments
20%
Investments
13%
PPE
59%
6 The major portion of capital employed comes from equity – 59%. The other big
contributor is an interest free loan from DWA. This loan was made with the
initial take-over of the plants from government.
6 The major portion of our capital is employed in PPE (property, plant &
equipment) – 59%. The next big portion of 33% is employed in cash &
investment. This will be in our report on reserves.
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Indicator / Ratio
Net Profit %
(Net Profit ÷ Sales x 100)
Return on Assets
(Net Income ÷ Total Assets x 100)
Return on Equity
(Net Income ÷ Equity x 100)
Current Ratio
(Current Assets ÷ Current Liabilities)
Debtors Days (Water Consumers)
(Debtors ÷ Sales x 365)
Debt to Assets
(Total Debt ÷ Total Assets x 100)
Cost of Capital
(Interest paid ÷ Total Debt x 100)
Debt to Equity
(Total Debt ÷ Total Equity)
Asset turnover (times / year)
(Sales ÷ Total Assets)
CAPEX
2008/09
2007/08
12,07%
13,18%
3,24%
3,55%
5,47%
6,16%
4,32
6,18
73 days
65 days
41%
42%
0%
0%
69%
74%
0,27 x
0,27 x
R4 mil
R3,6 mil
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All ratios compare fairly stable in comparison with the previous year.
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Profitability ratios are slightly less than the previous years as capital was used
only to do much needed refurbishment of our infrastructure that is about 20 –
25 years old and not for expansion which would have increased our capacity to
generate additional income.
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As reflected, our indebtedness decreases each year with each loan installment
paid to DWA and without taking out further loans. In these difficult economics
times we will again petition Government to write off our existing loan.
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Although debtor days increased a little, it is still acceptable as we only bill bimonthly.
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Capital expenditure for the year was R4 million of which 2,9 million (about 73%)
was spent toward infrastructure refurbishments.
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RoA and RoE are lower than the average due to the nature of the schemes –
small quantities over large distances where other Water Boards have relatively
large volumes over short distances.
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BULK WATER SALES : VOLUME
(2,1%)
4 259 546
2,177,237
(0,6%)
4 171 830
4 148 761
2,166,872
2,135,262
BULK WATER SALES : R
7,1%
m3
4,3%
2006/ 2007
2,004,958
2007/ 2008
Mun
10 521 641
2,013,499
2008/ 2009
m3
2,082,309
10 971 913
11 746 761
6,085,497
5,377,775
5,698,873
5,143,866
5,273,040
5,661,264
2006/ 2007
2007/ 2008
2008/ 2009
Farmers
Mun
Farmers
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6 Note that this only refers towards bulk water sales. Part of the bulk water sales
is, however, further distributed to farmers as retail part.
6 The blue graphs show the total bulk water sales in volume (cubic meters) as well
as the split into the part that was sold to municipalities and the part that was
further distributed to farmers. From 2006/7 to 2007/8 the volume of water sold
declined by 2.1% and from 2007/8 to 2008/9 decreased by 0,6%.
6 The green graph shows the total bulk water sold in R and also the split between
bulk water to municipalities and to farmers. The decline of 2,1% in water volume
sold from 2006/7 to 2007/8 resulted in an increase of only 4,3% in monetary
value. The lower decrease of 0,6% in water volume sold from 2007/2008 to
2008/9, fortunately resulted in a slightly higher monetary value of R7,1%.
6 Higher sales in monetary values vs lower volumes is attributed to tariff structure
– enhances more efficient use of water allocation.
6 Lower volumes due to :
• Water savings program
• Good rainfall and clients using own sources of water
• Economic situation
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2008/2009
2007/2008
R 2,83
2006/2007
R 2,63
7,7%
R 2,47
6,5%
6 The average bulk water tariff increased from 2006/7 to 2007/8 with 6,5%
and from 2007/8 to 2008/9 with 7,7%. This is actually very low if one
takes into account the high increase of 40% in electricity cost per m³
water sold.
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2007/ 2008
2008/ 2009
R/ c per m3 sold
R/ c per m3 sold
2.63
0.10
2.73
Water Sales
Other Income
2.83
0.11
2.94
0.06
0.35
0.31
1.22
0.06
0.09
0.58
2.67
Raw Water
Electricity
Chemicals
Direct Labour Cost
Maintenance
Other Admin, Oper.
Depreciation
0.11
0.49
0.43
1.23
0.09
0.10
0.66
3.11
0.06
-0.17
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This table shows the breakdown of income and expenses per m3 of bulk water
sold.
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Once again it reflects that the significant increase in electricity and chemicals
played a major part, while other costs stayed fairly stable. The result is a
shortfall of 17c per m3 of bulk water sold that had to be financed through our
reserves. As mentioned earlier, the higher increase in depreciation is due to a
downward adjustment according to audit standards by auditors for the 2007/8
financial year and the 2008/9 year capital expenditure of 4 million.
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When the retail sales and secondary activities are added, loss is converted into
a small surplus as indicated earlier.
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R’000
HR &
Pensionars,
344
Operating
Capital, 3 672
TOTAL: R 24 906
Furniture,
Equipment
& Vehicles,
1 929
Infrastructure,
18 883
RESERVE FOR INFRASTRUCTURE REFURBISHMENT : R18,8 MILLION
5 YEAR INFRASTRUCTURE REFURBISHMENT PROGRAMME
R45 MILLION
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6 The total reserve in cash and investments is R24,9 million of which R3,6 million
is retained as working capital, and
6 R18,8 million is dedicated for infrastructure refurbishment. Our total
infrastructure refurbishment programme for the next 5 years amounts to R 45
million.
6 Although R18,8 million may seem like a lot of money, it will be inadequate to
carry out the required infrastructure refurbishment programme. Our shortfall to
carry out our refurbishment programme will be determined by future tariff
increases (contribution to reserve) and, most importantly, whether we will be
allowed to access funding such as RBIG.
6 This programme was already cut to do only the minimum to ensure continued
service delivery and to minimize risk. We cannot afford to defer projects any
further without increasing risk at the same time.
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PER HOUSEHOLD PER MONTH (VAT excluded)
Availability Fee:
VAT excluded
Caledon – R136 920 / per month
Heidelberg/Slangrivier – R47 220 / per month
Witsand – R13 475 / per month
DAM LEVEL < 40% : SLIDING SCALE TARIFF + 25% (from
15/m3 )
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The bulk tariff of R 3,42 /m³ highlighted by DWA and National Treasury is
correct, but it is an average based on estimated consumption.
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The tariff is calculated from a basic fee and consumption.
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There is also a drought component :
When the dam level drops below 40%, an amount of 25% is added to the
tariff for consumption above 15m³ per household.
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Availability fee of 30% of allocation up front.
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Sliding scale tariff – the higher the water use, the higher the unit cost of the
tariff.
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The use on the sliding scale is based on the number of households as supplied
by and agreed with the municipality.
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The tariff structure supports WC/DM.
A too high choice of allocation by the Municipality will result in a higher unit
cost if the consumption is low.
The lower the consumption, the lower the unit cost.
•
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The effective cost of water and the water tariff is therefore in the hands of the
Municipality – it requires careful and sound planning and management from
their side.
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At the same time Overberg Water has much more clarity and lower risk.
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The effective cost of water can easily be lower than R 3,42/m³ if their WC/DM is
in place.
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6Prescribed Process
As in the past, Overberg Water followed the prescribed consultation
process meticulously, within all the pre-determined time lines.
6Consultation Process
The consultation process went very smoothly. It must be pointed out,
however, that it is our perception that the municipalities are not too
enthusiastic as their response always has been that water is too
expensive. Irrespective of elaborate explanation, our motivation is not
considered. The conclusion is drawn that the wellbeing of the service
provider is not a priority among municipalities. This situation will only be
corrected once new regional service providers are instituted to handle all
bulk services. As it currently stands, the consultation process’s only
apparent value lies in the fact that the authorities are briefed. They have
never supported any proposals.
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6 Response from National Treasury & Salga
National Treasury responded in time, supporting the proposals of
Overberg Water. Unfortunately SALGA’s response was not
received within the prescribed time. Our interaction with DWA
Regional Office has been very constructive and useful.
6 Viability as result of tariff proposal
The proposed tariffs will enable Overberg Water to run its
operations, but it is insufficient to provide for the required
refurbishment of infrastructure. Some projects will now have to be
deferred with an obvious escalation of risk, except if funding can
be acquired from say RBIG.
6 Impact on end users
It is considered not viable to increase tariffs much further due to
the economic situation of our clients. Volume of sales already
decreases. Higher tariffs are partly responsible for this.
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