2006 ANNUAL REPORT

 

PRESENTATION TO THE PARLIAMENTARY PORTFOLIO COMMITTEE ON WATER AFFAIRS AND FORESTRY

 

MONDAY 19TH MARCH 2007

 

 

 

General

Overberg Water welcomes the opportunity to address the Portfolio Committee and

to confirm its commitment not only to compliance with national legislation but also

implementation of the relevant legislation in accordance with the Constitution to

give effect to the committee’s powers of “ scrutinizing and overseeing executive

action”. In doing so, Overberg would like to stress that this presentation must be

viewed in conjunction with its Annual Report, its 5 year Business Plan and its Policy

Document.

 

Perhaps a good starting point would be to reiterate the fundamental principles of

our mission statement which in a nutshell is  “ to provide good quality water

services at affordable prices and remain economically viable”. This we feel we have

achieved and we would like to quote from DWAF’s financial appraisal of our 2006/7

Annual Report.

 

 

Finance

1. Audit

We have been fortunate to receive an unqualified report from the Auditor General

 

  1. Income Statement –

 

a “Overall, Overberg’s Income statement has improved significantly…”.

b. “…inspite of abnormal issues in operating profit, Overberg has still managed to perform relastively well over the past year.”

c. “ …an improvement of 534% over last year excluding Klein Karoo”

 

  1. Balance sheet – “ In general the current position of Overberg Water has improved considerably while the long term has also improved.”

 

  1. Sales Revenue – “ Revenue growth has finally exceeded inflation and has put the water board on a growth path. “

 

  1. Expenditures – “ operating costs per ML has dropped…this is a remarkable achievement.”

 

  1. Profitability – “…Total revenues exceeded total costs in every year since 2002.”

“…profitability indicators all trending towards a healthy position.”

“Average cash balances are healthy and probably exceeding target levels.”

 

  1. Debt – “ Overberg Water has a positive net interest income and debt is thus not a problem to service.”

 

  1. Conclusion – “ Overberg Water has produced good results.”

 

Overberg regrets however, that the situation at Klein Karoo has deteriorated the significantly since it was transferred to the Municipality inspite of offers by Overberg to assist in a monitoring/ mentoring capacity. Overberg would like to state that our financial position could have been significantly better except but we were instructed to change our investment policy, resulting in a net loss of additional earnings of almost R4 million over the last three years in spite of it being a very conservative and well managed portfolio. In the long term such losses impact heavily on a small entity experiencing capital shortages and we are currently awaiting treasury permission to reinstate our investment portfolio strategy. We have no doubt that with careful management and monitoring we will be able to build up much needed funds to lessen the burden of infrastructure refurbishment and emergency reserves.

 

Equity:

Employment equity still remains high on the priority list for Overberg , however we are having difficulty in finding suitably qualified personnel at affordable salary scales. The scarcity of skilled applicants has made this a very competitive market

with bigger Water Boards being able to offer better and more lucrative packages. Not only are we battling to find qualified staff to address our equity balance but we are also loosing qualified staff to the private sector. Notwithstanding these difficulties, Overberg views this as only one of the many challenges that it will seek to address in the year ahead and which it deals with both in the annual report and the strategy policy. To this end Overberg will be targeting local colleges to encourage young people to enter water services as a possible career opportunity and via its HR department, facilitating additional training and upgrading of skills. Overberg is also taking advantage of skills development opportunities being offered by certain foreign governments such as India, for the further education of senior personnel at no cost to Overberg other than granting leave of absence.

 

 

Succession / Risk Management

Overberg’s strategy for succession is closely aligned with its strategy to address equity imbalance and with National Policy on employment equity. However, this also forms part and parcel of its overall risk management and we are happy to report that we are well on the way to finalizing a comprehensive Risk Management strategy which has entailed considerable research by a top security company and an Auditing firm. Implementation is already commencing and Overberg’s Audit Committee functions optimally within the parameters of the legislation and regulations at its disposal with credible results as can be seen from its report in the 2006 Annual Report.

 

It is perhaps significant to note that one of the assessment observations made by the Auditor was the fact that Overberg’s tariff structures for bulk water was lower than the national average. However, management feels secure in the knowledge that this is a risk that can be managed and will not impact negatively on Overberg’s future performance.  It is our sincere wish that Municipalities pass on the benefits to the end users, thus providing potable water to the masses at affordable prices in compliance with national policy.

 

It is with deep regret that Overberg once again has to report that although it has forged strong working relationships with Municipalities in its area, there remains a reluctance within the municipal structures to conclude long term contracts which will enable Overberg Water to plan the way ahead more efficiently and effectively and plan its maintenance and infrastructure refurbishment programmes more cost effectively. To go ahead with long term expansion and expenditure without such contractual commitment would in our view be irresponsible and verging on mismanagement. We feel strongly that perhaps it is time for DWAF and DPLG intervention  and we are concerned that time is running out for the likes of

 

The Waterskloof and Hessequa where we have serious capacity constraints with our current infrastructure. The upgrading may well create economies of scale which it is hoped would be passed on to the end users and free up additional capacity to meet the needs of the growing number of end users.

This is of high priority to Overberg and a further series of consultative meetings will be scheduled in the near future to resolve this issue with particular reference to some of the substantive issues raised by the municipalities.

 

 

Tariffs

The excellent performance of Overberg Water in this financial year is in some respects due to the development of a unique sliding scale model which serves to regulate the allocation of water supplies and at the same time educates and encourages clients to be more efficient in their use of what is fast becoming a scarce resource in the Western Cape in particular and in South Africa in general.

 

Overberg’s tariffs to the retail sector is highly competitive and as was mentioned earlier, its bulk tariffs are lower than the national average. This is due primarily to the innovative sliding scale system employed by Overberg and the inclusive consultative processes set out by DWAF to which Overberg fully subscribes. Tariff policy is determined by this and other relevant factors but always with a view to remaining viable in order to continue delivering a high standard of potable water and service excellence.

 

Since tariffs are the prime source of Overberg’s income revenue it is of paramount importance that this income stream be well protected and that clients are well informed during the consultative process. However, our brief from DWAF is to remain viable and to control the escalation of tariffs but above all to operate under good business principles and accepted best practices. To this end, Overberg is proactively considering alternative income streams which will boost income revenue without impacting negatively on service delivery.

 

Alternative Income Streams

The Work for Water project is one of the alternative income streams referred to and although it was initiated by DWAF it will be seen from the Annual Report that Overberg has taken it to heart and have maintained its record of service excellence. Our commitment is based on DWAF research that eradication of 1000 ha of alien Vegetation from Rivier Sonderend will free up as much water as Overberg currently has access to. At an estimated cost of R4 million it is hard to accept that the funding is not available, considering the water crises in the Western Cape.

 

There are several other income streams we are currently investigating, such as better management of our resources and our fixed assets which we have no doubt will generate the revenue that we need to comply with all necessary legislation, deal with routine maintenance and upgrade infrastructure as and when required. We will of course ensure that all such additional non-core activities comply with the Water Services Act, the PFMA and other legislation and that we obtain the necessary permissions from the relevant government department but above all we will take all necessary precautions that nothing will impact negatively on delivery of our core functions.

 

Occupational Health and Safety

General onsite systems to cope with daily workplace health and safety measures are in place at all the purification plants as well as the various administration centres and in each case dedicated personnel have been allocated the responsibility for implementation and operation. Manuals on any given scenario with regard to procedures to follow, are being developed.

 

In addition Overberg  has appointed two dedicated members of staff ( one at senior level) to participate in the DWAF / SAAWU initiative on HIV / AIDS and we are happy to report that a pilot project for a Social Development programme will be put in place covering issues such as :-

 

  1. Leadership
  2. Counseling
  3. Budget allocation
  4. Monthly monitoring
  5. Feedback reports

 

Overberg would like to see the outcomes of this project benefit the national aids programmme and its final format being replicated to other areas.

 

 

Human Resource

As mentioned in the Annual report and elsewhere in this document, Overberg is actively implementing National Government policies relating to equity and skills development. We have also taken advantage of programmes for further training in water services and related issues and we are proactively engaging in schemes emanating from both national and international institutions. To a large extent the overall costs are covered by external funding programmes or by local sponsorship.

 

 

Conclusion

Technically Overberg Water operates well and provides a good product at affordable price thereby fulfilling its core function while at the same time remaining stable and viable, although not in a very strong position. We have been growing steadily over the past 4 years and the indicators are that we will maintain this growth mode for the next 4 years at least.

 

 

Finally I would like to assure the chair and the committee that we are actively pursuing both the President’s and the chairperson’s pet projects of bucket system eradication where it exists in our areas and in some cases we are doing joint ventures with the private sector to facilitate funding.