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Reflecting on 2017/18
Chairman’s foreword
It is with great pleasure that I present to our stakeholders the Integrated Annual Report for the 2017/18 financial year which outlines the key performance outcomes of Amatola Water from a strategic perspective.
The theme of this annual report is “access to quality water and sanitation for all”.
Amatola Water is committed to ensuring that the Eastern Cape communities have access to basic water services as this is a right enshrined in the Constitution of the Republic of South Africa.
We are cognisant of the fact that the realisation of this right cannot be achieved without effective and efficient bulk water services as a key part of the value chain.
As a bulk water service provider, we are committed to ensuring that we play a leading role as a water utility to the realisation of the constitutional rights and to the economic activity within our area of supply.
We are also committed to growing the business to service the entire Eastern Cape so that we could contribute meaningfully in the stimulation of the economy of the province.
Our focus during the period under review has been to stabilise the institution. We developed and started the implementation of the Turnaround Plan (TAP) which focused on the improvement of organisational capacity and effectiveness. This involved:
The appointment of the permanent CEO, Vuyo Zitumane who brings a wealth of experience in public administration to implement the adopted Turnaround Plan which has been endorsed by the shareholder
The appointment of other executives and key staff to be concluded in the first quarter of the 2018/19 financial year
The review of organisational policies to create an enabling and compliant environment for operational effectiveness in project management, supply chain management, financial management and human resources management The review of a risk management framework which focuses on institutionalising effective risk management by establishing levels of risk tolerance and an appetite to halt unwarranted risk exposure Exploring technologies that will ensure sustained access to water and sanitation in our area of operation.
ORGANISATIONAL PERFORMANCE
The engagement on debt provisioning took place with the support of the Department of Human Settlements, Water and Sanitation (DHSWS), National Treasury, South African Local Government Association (SALGA) and provincial Department of Cooperative Governance and Traditional Affairs (CoGTA).
The engagement was facilitated through the intergovernmental relations framework process to ensure there was no impact on service delivery and an amicable solution was found.
This debt impairment has contributed negatively to the overall organisational performance from a financial perspective. Amatola Water has maintained its performance against predetermined non-financial indicators despite the poor financial performance and position. The key bedrock performance indicators should be noted:
All Amatola Water treatment works and distribution networks have complied with SANS 241: 2015 Part 1 and Part 2. Two plants have achieved a “good” water quality standard while seven plants have achieved an “excellent” water quality standard.
A 99.95% assurance supply to customers from the source was achieved with adequate pressure at reservoirs, reaching set targets and the highest reliability of supply standards for customers and consumers.
100% spending of the allocated the Regional Bulk Infrastructure Grant (RBIG) and Municipal Infrastructure Grant (MIG) on the King Sabata Dalindyebo Presidential Intervention in Mthatha.
The secondary business – where Amatola Water is the implementing agent – created 638 temporary jobs.
The Board has intensified its efforts to improve organisational performance by inculcating the culture of monitoring and evaluating performance at an individual employee level which is facilitated through the implementation of the Performance Management Policy.
STATE OF GOVERNANCE IN THE ORGANISATION
In six consecutive years, Amatola Water has achieved an unqualified audit outcome which is once indicative of a resilient organisation despite the prevailing operating conditions.
An Audit Intervention Plan has been endorsed by the Audit and Risk Committee which provides oversight on behalf of the Board with regards to audit, risk and compliance.
The Board is committed to zero tolerance to fraud and corruption and has approved the revised Anti-Fraud and Corruption Strategy.
As evidence of the zero tolerance to fraud and corruption, the Board has implemented consequence management against individuals who have transgressed in this area.
STAKEHOLDER COLLABORATION AND ENGAGEMENTS
Amatola Water places a great deal of emphasis on accountability to its communities, customers, employees, the Minister and Department of Water and Sanitation, National Treasury and other key stakeholders.
Stakeholder collaboration and engagement are, therefore, considered paramount to the advancement of service delivery and long-term sustainable value creation.
In the year under review, several engagements were conducted with various stakeholders to strengthen relations and fully understand the expectations and areas of dissatisfaction.
The Board immediately prioritised the internal environment by stabilising the organisation to deliver on the expectations of external stakeholders, particularly in project management.
Reconnecting with stakeholders, as part of the Amatola Water’s Turnaround Plan initiatives, aims to improve the effectiveness of communication and rebuild stakeholder confidence.
TOWARDS A SUSTAINABLE ORGANISATION
Sustainability is at the core of the priorities of Amatola Water as we strive to ensure that our operations are compliant with sustainable management of the environment and that we exceed the expectations of our stakeholders.
We are looking at ways to be financially sustainable through our growth strategy and financial recovery plan.
We believe that through effective implementation of our sustainability plan, we will be a resilient organisation.
One of the thrusts of our strategy is to develop an infrastructure plan for the entity.
Work is progressing well in this area. Strategic infrastructure upgrades are underway to ensure that we realise our volume increases towards improving access whilst also growing our revenue base.
In conclusion, I want to express my gratitude to the Chief Executive Officer, her executive team and the entire staff complement for their hard work and commitment to the entity during trying times.
To my fellow Board Members who showed their unwavering commitment to Amatola Water and the people of the Eastern Cape, I am appreciative of their support and collaboration.
On behalf of the Board, I thank the Portfolio Committee for the constructive engagements in playing its oversight role and thus holding us accountable in discharging our mandate. We extend our word of appreciation to the Eastern Cape community for their faith in us and assure them that we will not rest until our constitutional mandate is fulfilled and their expectations are met.
We also thank the shareholder, Hon Minister Nkwinti and the departmental officials for the leadership and support they continue to provide to Amatola Water.
Ntombokuqala Nokulunga Mnqeta
Chairperson
CEO’s foreword
The following outline profiles the overall organisational performance against the strategy of the Board which is contextualised from the interpretation of the mandate derived from Section 29 and 30 of the Water Services Act 108 of 1997.
ORGANISATIONAL PERFORMANCE OVERVIEW
The overall organisational performance achieved in the 2017/18 financial year against pre-determined objectives and targets has been maintained at an average of 57% against an audited baseline of 57% in respect of 2016/17.
It is worth noting that the significant decline in the financial performance is attributable to the adverse achievement of financial targets as the organisation has recorded an unprecedented deficit of R105,624 million after providing for a bad debt of R120,038 million for the Amathole District Municipality old debt which continues to be unserviced.
FINANCIAL VIABILITY
Amatola Water has experienced financial distress and the overall decline in its financial performance and position which resulted in a 5% decrease in the revenue generated when compared to the prior year.
The biggest challenge is the collection of Amathole District Municipality’s debt which necessitated a 300% increase in the impairment of debtors. It has also created a conundrum for Amatola Water’s financial viability and sustainability.
In the financial year ahead, Amatola Water expects improvements in financial performance.
The critical focus areas include:
- Address the going concern risk by aggressively pursuing revenue-generating initiatives aligned to the strategic intent of growing volumes
- Ensure optimal working capital and liquidity through stringent credit control and debt management processes
- Facilitate stakeholder engagement activities with strategic customers to facilitate and increase co-operation and exploit potential opportunities for the sustainability of Amatola Water
- Implement the revised SCM Policy by conducting workshops and targeted training to ensure that the policy is embedded in the organisation
- Improve the control environment by assessing key control deficiencies
- Improve the performance in delivering water infrastructure projects
- Continue the process of instilling BBBEE initiatives that promote inclusive growth targeted at supporting SMMEs, qualifying emerging enterprises and black women-owned businesses.
TURNAROUND PLAN
Amatola Water adopted a Turnaround Plan (TAP) which is intended to stabilise the organisation to ensure that the entity is sustainable, resilient and growing so that it can achieve its long-term objectives.
The plan was adopted after conducting a diagnostic review of the organisation. The diagnostic review was completed in December 2017 and outlined key findings that informed turnaround interventions
The achievements from the implementation of the TAP are:
- Appointment of the permanent Chief Executive Officer and key critical staff to strengthen leadership and organisational effectiveness.
- A leadership change management programme is being implemented to create support and buy-in as well as leadership cohesion and team culture.
- Stakeholder and client relations are being conducted in line with the approved Stakeholder Relations and Communication Policy. A stakeholder engagement plan has been developed and consultation is taking place with internal and external stakeholders. The relationship has improved with the stakeholders as two contracts have been renewed and there is also a concerted effort to improve labour relations. The Board and management have undertaken roadshows to build confidence and trust a variety of stakeholders.
- An interim structure to rebuild and support the organisational stability has been developed and is awaiting consultation and Board approval.
- The Amatola Water Infrastructure Master Plan is being developed and is expected to be completed in 2018/19.
- The Infrastructure Procurement Policy, which is aimed at promoting operational efficiencies, improved turnaround times and compliance with procurement legislation, has been approved by the Board.
- Planning and Development (P&D) war rooms have been established to focus on improving delivery for secondary projects.
- Four professional registered and experienced engineers have been appointed to augment P&D’s capacity to accelerate project implementation. One of these engineers is heading the Project Management Unit (PMU).
- A Financial Recovery Plan has been developed to implement cost-containment measures, and improve debt and credit management controls.
- Supply Chain Management war rooms have been established to improve the effectiveness and efficiency of procurement processes and, in particular, those relating to secondary projects.
KEY STRATEGIC PROJECT HIGHLIGHTS
- In the King Sabata Dalindyebo Presidential Intervention, 100% of the spend against the allocated budget has been realised for Regional Bulk Infrastructure Grant (RBIG) and Municipal Infrastructure Grant (MIG) which has created 1,800 job opportunities since its inception. This project will unlock the housing backlog in OR Tambo District. Once completed, it will benefit over one million people.
- The overall water quality compliance in line with SANS 241: 2015 Part 1 and 2 has consistently been achieved. Against this national water quality standard, seven plants have achieved the “excellent” water quality standard and two plants have achieved a “good” water quality standard.
- The assurance of supply achieved in 2017/18 was 99.5% against an annual target of 98%despite the water restrictions which were implemented for the Amathole District Municipality. Water losses in the distribution and network infrastructure have been maintained at 11.12% against a target of 14%.
INFRASTRUCTURE STABILITY, OPERATIONAL RESILIENCE AND OPERATIONAL EFFECTIVENESS CHALLENGES
The overall project completion dates were not within the predetermined target of 80% as an average of 57% was achieved due to poor contractor performance, contractual disputes, land claims and the reprioritisation of budgets.
The target on the percentage progress against the ministerial directives implementation plan has not been achieved as a result of budget cuts on the original allocation by DWS. This has negatively affected the performance of the Nooitgedagt Coega Low-Level Scheme project.
The implementation of the Amatola Water plant upgrades has been affected negatively by the poor performance of contractors and issues arising from land ownership. An accelerated implementation plan has been put forward to fast-track upgrades for the Binfield and Debe water supply schemes with a revised completion date for the 2019/20 financial year.
In conclusion, I am pleased to report that Amatola Water has achieved an unqualified audit outcome for six years. This is a demonstration of great resilience and a resourceful workforce despite the challenges and difficulties. The continuous commitment of support and the strategic direction provided by the Board is worth noting and highly appreciated.
I thank the shareholder and all stakeholders for playing an important role in supporting the mandate of the water entity.
My sincere appreciation goes to the executive managers including the full staff complement for the team spirit demonstrated throughout the year. Together we will continue to make a positive impact on the growth of our province and improve the lives of the communities we serve.
“Together we will succeed
Vuyo Zitumane
Chief Executive Officer
In summary
The following milestones are noted for 2017/18:
- Reflecting on 2017/18: Financial Capital
- Reflecting on 2017/18: Manufactured Capital
- Reflecting on 2017/18: Social & Relationship Capital
- Reflecting on 2017/18: Intellectual Capital
Download your electronic copy of these milestones.
