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Strategy Map

UMGENI WATER Briefing to the Portfolio Committee on Water Affairs Annual Report 2008/9 & Tariffs for 2010 4 May 2010. Strategy Map. OPERATIONAL PERFORMANCE 2008/2009. BULK WATER REVENUE : 6% INCREASE. 3% Volume Growth. 3% Average Tariff Increase. FINANCE COST TREND.

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Strategy Map

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  1. UMGENI WATERBriefing to the Portfolio Committee on Water Affairs Annual Report 2008/9&Tariffs for 2010 4 May 2010

  2. Strategy Map

  3. OPERATIONAL PERFORMANCE 2008/2009

  4. BULK WATER REVENUE: 6% INCREASE 3% VolumeGrowth 3%Average TariffIncrease

  5. FINANCE COST TREND R116m NET FINANCE COSTS • Represents areduction of 30% or R49m • Attributable to increase in investment income • 64% improvement in interest cover ratio to 5.52 times in 2009 from 3.37 times in 2008 Net Finance Costs as a % of Revenue

  6. Operating Performance Bulk Water Reduction of 6% in Cost Per Kl 2.45 2.36 • Increases in • Chemical costs 2c or 26% • Energy costs 1c or 10% - Mtce costs 4c or 22% 2.19 2.02 1.90 - 33% - 10% 11%

  7. 5 YEAR PROFIT TREND R527m R394m

  8. 5 YEAR CAPITAL EXPENDITURE 2009:R237m 2008: R110m 115% increase on prior year 2010: +/-R500m

  9. Abridged Balance Sheet

  10. Capital & Reserves - 5 year trend 2009 increase of 61% R1546m R1023m

  11. DEBT MANAGEMENT • The group’s debt consist of the following: • Total debt consists primarily of the UG65 bond of R974m (nominal) which will be redeemed on 1 June 2010 and DBSA amortising loans of R964m (nominal) Redemption of UG65 Bond • As at 30 June 2009 the group had invested the equivalent of 81% (R787m nominal) towards the redemption assets for the UG65 bond which matures in June 2010 • This amount exceeds the 75% cumulative requirement which is set in terms of the redemption strategy.

  12. Gearing Ratio & Borrowing Limit • Gearing Ratio • 2008/09: 1.28 16% improvement • Target: 0.70

  13. Overall Coverage of WSA CAPITAL PROJECTS IN SUPPORT OF CUSTOMER & DEVELOPMENT STRATEGY

  14. CAPITAL PROJECTS IN SUPPORT OF CUSTOMER & DEVELOPMENT STRATEGY • RURAL DEVELOPMENT • The surplus generated during 2009 is being deployed to rural development: R398m • Ngcebo Scheme R40m– serving approximately 16 000 people in KwaMaphumulo LM, iLembe DM. Specific communities to benefit are Ngcolose, Ekuthadazeni, Ngubane, Washi, Ekhata, Mambulu, Kwahlongwa, Mambulu, Mabomvini, Eshabe, and Mangongo. • KwaMaphumulo PhaseIR188m - iLembe DM • The Mhlabatshane bulk water schemeR155m- Ugu DM. • The upper Ndwedwe reservoirsR15m - iLembe and • Sikota Dam (under Planning) -Umgungundlovu DM.

  15. CAPITAL PROJECTS IN SUPPORT OF CUSTOMER & DEVELOPMENT STRATEGY (Cont’d) • Major projects under construction as at 30 June 2009 • The Northern Aqueduct Booster Pump Station – enhances water supply in eThekwini Metro and eliminate water interruptions in northern areas like Ntuzuma. • The Western Aqueduct (’57 pipeline) along the N3 between Msunduzi and eThekwini – augmenting the water supply to eThekwini. • The DV Harris to World’s View Pipeline – which will augment the Western Aqueduct at Umlaas Road.

  16. CAPITAL PROJECTS IN SUPPORT OF CUSTOMER & DEVELOPMENT STRATEGY (Cont’d) • Five projects were in detailed design phase as at 30 June 2009 • KwaMaphumulo Phase 1 – provide 12 million litres per day to Maphumulo Town, Maqumbi and Ashville. Approximately 110 000 people will be served. • Honolulu to Mvoti Pipeline – augments water supply to KwaDukuza LM • Ndwedwe Reservoirs 1 and 2, • Richmond Pipeline– which will supply water from Midmar Dam / Water Works to Richmond LM. • Hazelmere to Bifurcation P/L& Hazelmere WW Pump Station upgrade Two projects in preliminary design phase One project in detailed feasibility The total CAPEX for the year was R237 million representing 80% of target

  17. IN SUPPORT OF CUSTOMER & DEVELOPMENT STRATEGY (Cont’d) • PLANNED MAINTENANCE EXPENDITURE • R101 million spend • Represents 7% of Revenue or 12% of total costs POTABLE WATER QUALITY • The water produced from our water works and sold to municipalities complied with all the regulated standards for drinking water (SANS 241). WASTEWATER QUALITY • Overall our average wastewater quality compliance from four treatment works was more than 80%.

  18. IN SUPPORT OF CUSTOMER & DEVELOPMENT STRATEGY (Cont’d) • COMMUNITY SUSTAINABILITY • As an IA for the KZN DoE – R128m • Sanitation provided at 47 schools. • Water provided at 7 schools. As an IA for the Umgungundlovu DM • 6 300 households provided with sanitation.

  19. STRATEGIC SUPPORT TO MUNICIPALITIES OUTSIDE DESIGNATED AREA • OR Tambo DM to develop regional bulk infrastructure plans for local municipalities of Mbizana, Ngquza and Ntabankulu. • Mthatha LM under the OR Tambo DM: critical intervention to the water supply crisis in • uThukela Water through KZN DLGTA.

  20. Strategic Challenges • Sustainable funding of rural development (topography) • Declining volumes • Raising of cash/funding/loans under tight market conditions • Water resource inadequacy • Climate change • Declining Raw Water Quality

  21. IN SUMMARYFor the year ended 2008/09 • Umgeni Water has achieved: • Positive operating performance • Improved financial position • Results in efficient water service delivery at affordable prices

  22. Unqualified Audit ReportMaintained Fitch Credit Rating of AA+ Long Term & F1+ Short Term All statutory requirements met Robust Risk Management Framework in place (Strategic and divisional risk registers) • Unqualified Audit Report • Maintained Fitch Credit Rating of AA+ Long Term & F1+ Short Term • All statutory requirements met • Robust Risk Management Framework in place (Strategic and divisional risk registers)

  23. Tariff Setting Process for 2009/10 UW complied/adhered to the tariff setting process as determined in S 42 of the Municipal Finance Management Act (MFMA) 56 of 2003: • Consultation with all its customers was complete by the 30 November 2008 • At the start of the consultation process Umgeni Water, presented two tariff proposals, - one reflecting a high volume growth with a 10.5% tariff increase, and - the other scenario reflecting a low volume growth with an 8.5% tariff increase. • The issues raised are summarised as follows: -The status of the Msunduzi outstanding debt -Continuation of differentiated tariff increases/ring fencing of revenues & costs by customer -Benchmarking of UW’s cost of bulk water production -Maintenance costs : considered high /details requested. -eThekwini disagreed with the lower volume growth (3.6%) assumption and ascertained that only the higher volume growth (4.5%) be used. -The Capital Unit Charge (42c/kl ) by TCTA for the Spring-Grove dam not to be applied in FY10. The charge to be recovered only after commissioning of the dam. -The tariff increase of 8.5% was not accepted and a lower tariff was requested i.e. 5%

  24. IMPACT OF RAW WATER INCREASES

  25. Tariff Setting for 1 July 2009-30 June 2010 2. Taking into account customers concerns and managing known financial risks

  26. Tariff Setting for 1 July 2009-30 June 2010 3. Agreement with customers reached on 6.5% 4. Submission to National Treasury & SALGA of a 6.5% tariff increase prior to the final submission to the Minister of Water and Environmental Affairs 5. Final submission to the Minister of Water and Environmental Affairs on 25 January 2009 for a 6.5% tariff increase

  27. AFFORDABLE TARIFF INCREASES (f) Denotes forecast

  28. AFFORDABLE TARIFF INCREASES (f) Denotes forecast

  29. ACKNOWLEDGEMENTS • Board, Executive and Employees of Umgeni Water for the excellent achievement • eThekwini, iLembe, Ugu, Sisonke and uMgungundlovu and Msunduzi • The Ministry of Water and Environmental Affairs, the Department of Water Affairs (National and Regional Offices) • The Portfolio Committee for Water and Environmental Affairs for their ongoing support and understanding • National Treasury

  30. Thank You

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