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Bloem Water 2015/16 Annual Report

Table of Contents

General Information ________________________________________________________________ i

LIST OF ABBREVIATIONS ____________________________________________________________ 2

SCOPE AND BOUNDARY OF THE ANNUAL REPORT _________________________________________ 3

Strategic Overview __________________________________________________________________ 4

Legislative and other mandates ________________________________________________________ 6

Foreword by the Minister ____________________________________________________________ 7

Foreword by the Chairperson _________________________________________________________ 8

The Board _________________________________________________________________________ 9

Board Members’ Profile _____________________________________________________________ 10

Chief Executive’s Overview __________________________________________________________ 13

Executive Management _____________________________________________________________ 14

Organisational Overview ____________________________________________________________ 15

Corporate Governance _____________________________________________________________ 18

Directives by the Minister ___________________________________________________________ 27

Stakeholder Relations ______________________________________________________________ 28

Corporate Social Responsibility _______________________________________________________ 31

Risk Management and Business Continuity ______________________________________________ 32

Operations and Engineering _________________________________________________________ 35

Human Capital Management _________________________________________________________ 51

Financial Overview _________________________________________________________________ 57

Financial Statements _______________________________________________________________ 65

Report on performance against the strategic plan 2015/2016 ______________________________120

Bloem Water Annual Report 2015/16 Page 4

Strategic Overview VISION Assuring sustainable provision of water services, for life.

MISSION To create a leading, value-driven, effective and responsive Institution using adaptive best practice methods in anticipating tomorrow’s challenges today.

VALUES

Bloem Water commits itself to the following values that guide and direct all interactions with internal and external stakeholders:

Corporate Social Responsibility Governance Equality Responsiveness

STRATEGIC GOALS & OBJECTIVES

Develop, operate and maintain infrastructure to ensure sustainable water service delivery. Manage financial affairs to meet current and future obligations Securing the supply and quality of raw water resources Achieving an aligned and efficient institution through optimization of all business processes and systems Engaging in strategic partnerships with all relevant stakeholders

BLOEM WATER STRATEGIES

For the 2015/16 financial year, Bloem Water adopted the following strategies

1. Expand and grow the business in line with Regional Water Utility approach implemented in the sector via DWS Institutional Reform and Realignment Project by expanding to areas not serviced within the Region

2. A sound long-term and financing strategy will be developed, mindful of the growth strategy, which will incorporate aggressive pursuit and channeling of grant and other national funding for water infrastructure.

3. Strategic asset management strategy and infrastructure plan will be developed and implemented to improve decisions on asset investment, maintenance, disposal and replacement

4. Implement a marketing plan that is fully integrated with communication plan to create brand awareness, coordinate communication efforts and create competitive advantage.

5. Optimise skills and expertise to create an institution capable of attracting and retaining skilled people, with training and development programs based on skills gaps.

6. Stakeholder engagement is central to the organisation’s effectiveness. Bloem Water will improve stakeholder management and partnerships with all stakeholders within the value chain through benchmarking, knowledge-sharing and skills transfer with its stakeholders.

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SCOPE AND BOUNDARY OF THE ANNUAL REPORT The annual report covers the activities and results of Bloem Water for the period 1 July 2015 to 30 June 2016. The Financial Statements included in this report have been prepared in accordance with the SA GAAP and the requirements of the Public Finance Management Act (No 1 of 1999) (PFMA). The annual report is prepared in accordance with the recommendations of King lll and the National Treasury Guide on the preparation of Annual Reports for Public Entities.

Statement from Governing Board acknowledging its responsibility for ensuring the integrity of the report The Board acknowledges its responsibility to ensure the integrity of the integrated annual report. The Board has accordingly applied its mind to the annual report and in the opinion of the Board; the report addresses all material issues, and presents fairly the performance of the organisation and its impacts. The report has been prepared in line with best practice pursuant to the recommendations of the King III Code (principle 9.1).

The annual report was approved by the Board and signed on their behalf by: ______________________ Dr Limakatso Moorosi Chief Executive: Bloem Water Date: ___________________ _______________________ Mr Tefetso Phitsane Chairperson: Board of Bloem Water Date: ___________________

Bloem Water Annual Report 2015/16 Page i

General Information

REGISTERED NAME: BLOEM WATER

PHYSICAL ADDRESS: 2 Mzuzu Street,

Pellissier

BLOEMFONTEIN

POSTAL ADDRESS: P.O. BOX 30121, 9322

BLOEMFONTEIN

FREE STATE PROVINCE

SOUTH AFRICA

TELEPHONE NUMBER/S: (051) 403-0800

FAX NUMBER: (051) 422-5333

EMAIL ADDRESS: [email protected]

WEBSITE ADDRESS: www.bloemwater.co.za

EXTERNAL AUDITORS: KPMG

COMPANY SECRETARY: Ms. Noxolo Maduba

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LIST OF ABBREVIATIONS BW Bloem Water

BBBEE Broad Based Black Economic Empowerment

CEO Chief Executive Officer

CFO Chief Financial Officer

PFMA Public Finance Management Act

TR Treasury Regulations

WTW Water Treatment Works

PCP Pre-stressed Concrete Pipeline

DWS Department of Water and Sanitation

DHS Department of Human Settlement

SOP Standard Operating Procedures

HCD Human Capital Development

ABET Adult Basic Education and Training

IWA International Water Association

WRC Water Research Council

WSP Water Safety Plan

IoDSA Institute of Directors in Southern Africa

SANS South African National Standards




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BLOEM WATER STRATEGIC GOALS & OBJECTIVES ALIGNED WITH GOVERNMENT ALIGNED OUTCOMES

Bloem Water Objectives

Bloem Water Strategic Goals Ministerial Outcomes (MO)

Strategic Objective 1 Develop, operate and maintain infrastructure to ensure sustainable water service delivery.

a) Uninterrupted water supply to our customers.

b) Implementation of sustainable/ approved CAPEX plan

c) Quality Water that exceeds minimum standards

d) Build R&D and innovative capability (grow intellectual capacity)

e) Expand the business of Bloem Water in the water value chain

f) Reduce levels of unaccounted-for water

MO B Contribute to an efficient, competitive and response economic infrastructure network

MO A Environmental assets and natural resources that are well protected and continually enhanced

MO D Responsive, accountable, effective and efficient local government system

Strategic Objective 2 Manage financial affairs to meet current and future obligations

a) To seek optimal funding solutions for CAPEX b) Develop alternative revenue streams in the

water value chain c) Reduce levels of unaccounted-for water d) Improve financial ratios e) Ensure proper financial management



MO D Responsive, accountable, effective and efficient local government system

Strategic Objective 3 Securing the supply and quality of raw water resources

a) Identify/secure additional/ alternative water sources for BW to meet future demands

b) Improve access to water for rural development and productive use

c) Expand BW involvement in catchment management activities

d) Increased contribution to water resource management issues

e) Promote water conservation and water demand management

f) Mitigate climate change impacts and minimise the environmental impacts of BW activities



MO F Create a better South Africa and contribute to a better and safer Africa and world

MO G Vibrant, equitable and sustainable rural communities

Strategic Objective 4 Achieving an aligned and efficient institution through optimization of all business processes and systems

a) Ensure full legislative/policy compliance b) Ensure corporate BBBEE targets are met c) Obtain unqualified audit d) Effective Internal Controls and Risk

Management e) Improved corporate governance f) Contribute to job creation through inclusive

economic growth g) Improve knowledge, skills and capacity h) Ensure provision of Local Government

support i) Contribute to national/ international water

agenda.

MO E: Decent employment through inclusive economic growth

MO F: Create a better South Africa and contribute to a better and safer Africa and world

MO G: Vibrant, equitable and sustainable rural communities

MO C: Sustainable human settlements and improved quality of household life

Strategic Objective 5 Engaging in strategic partnerships with all relevant stakeholders

a) Build strategic partnerships with all key stakeholders

b) Strengthen relationship with DWS regional office

c) Ensure customer satisfaction d) Promote the brand of Bloem Water

MO E: Decent employment through inclusive economic growth

MO F: Create a better South Africa and contribute to a better and safer Africa and world

MO G: Vibrant, equitable and sustainable rural communities

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Legislative and other mandates LEGISLATIVE MANDATE

Water Boards derived their mandate as per their establishment in terms of Section 28(a) of the Water Services Act No 108 of 1997. As a Schedule 3B, a National Government Business Enterprise, Bloem Water is required among others to comply with the Public Finance Management Act No 1 of 1999 as amended by Act 29 of 1999, the National Treasury Regulations, the Municipal Finance Management Act, No 56 of 2003.

Bloem Water is legislated through the following legislation: Water Services Act. 108 of 1997; the provisions of the Shareholder Compact; Public Finance Management Act (No.1 of 1999 as amended by Act 29 of 1999); National Treasury Regulations; other regulations, which govern operations; Companies Act No. 71 of 2008; King III; Protocol on Corporate Governance in the public sector; and all other applicable laws of the Republic of South Africa.

WATER RELATED GOVERNMENT STRATEGIES AND PLANS

Water Resource Management strategy

National Development Plan




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Foreword by the Minister

As guided by the precepts and imperatives of the National Development Plan (NDP), the ANC Manifesto, National Water Resource Strategy, the Department of Water and Sanitation continues to put water provision and sanitation services at the centre of government programmes. Guided by the NDP we will steer South Africa towards socio-

economic transformation creating jobs, eradicating poverty and inequality.

Water entities have an equal responsibility to realise the goals set out in the NDP and in National Water Resource Strategy. The provision of water services to communities is a mammoth but a necessary task – delivering services alongside Municipalities. Much of South Africa’s hopes and dreams are pitched on their success providing water services even to the remotest villages in the country. Government’s stance of establishing dam operating rules where restrictions are currently applied to water resource on domestic and agricultural use is one of its responses to this national crisis. The Department has spent over R500 Million to mitigate the effects of drought and the Free State is amongst the eight (8) provinces that benefitted out of the nine (9) having been declared a drought disaster area.

Bloem Water is experiencing the effects of drought as the dams that they are relying on for raw water supply have not been sparred from raw water shortages. As a result I have issued a directive to the Department of Water and Sanitation to release water supply from the Katse Dam to the Caledon River. This will in the interim help mitigate against impact caused by drought and ensure that the entity remains capable in performing its work of providing safe, clean and healthy water to all Municipalities within their area of service.

It is equally important for us to take advantage of this crippling drought by making use of this period to refurbish our infrastructure and also move with speed in implementing new projects that are aimed at expanding on our capacity to provide a much more improved level of service to our people. The department is assisting Bloem

Water by funding some of the projects to augment water supply in the affected areas. The long term intervention plan to construct a pipeline from the Gariep Dam to Knellpoort Dam has been brought forward. This intervention is targeted to augment raw water supply in the South Central areas of the Free State. It is important to note the above project will help enhance and improve the level of service delivery for safe, clean and healthy drinking water for every household and will benefit a population of 1.2 million. The amount of money spent on drought related challenges has to work alongside a vigorous water conservation campaign that creates awareness on the consequences of behavioural conduct in the usage of water whilst we also explore new technological avenues that can bring relief. Some of the campaigns that should be prioritised include Water conservation and Water Demand Management (War on Leaks), surface and groundwater (drilling of boreholes) resource management, carting of water (fleet of motorized tankers) and provision of static storage tanks and storage reservoirs.

Other medium to long term interventions that are intended to ensure that we are more resilient in the event of future drought which must be implemented include interventions such as domestic rain water harvesting, integrating future groundwater and surface water use, desalination at large scale, building additional storage capacity, incorporate all municipal and privately owned dams into future management systems as well as invest in innovative solutions such as drop a block and water saving mechanism

To gain traction in all our efforts partnerships with all concerned stakeholders must be the cornerstone of our work and advocacy initiatives – working hand in hand with the communities in which we operate together with big business and organise formations in the water sector. This is not a war that can be single-handedly – for the sake of our hard earned democracy and the future of the next generation – unity must be the bedrock. “Water is Life and Sanitation is Dignity”

Nomvula Mokonyana Minister of Water and Sanitation

Nomvula Mokonyana Minister of Water and Sanitation

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Foreword by the Chairperson

It marks a sense of pride and gratification to look back at the successes stories of the financial year 2015/2016. The highlights for this period include ensuring delivery on its mandate as a water board within and beyond allocated areas, appraisal of the Board, role in the water sector regionally and globally and consistent level of probity in financial and governance spheres.

It is the Board’s responsibility to provide the strategic direction of the business, as well as approving its strategic plan. The Corporate/Business Plan 2016–2021 was adopted and approved in the year under review to coincide with the term of office of the current administration of government. This five-year Business Plan for 2016–2021 takes into account the external and internal environmental influences and identifies the strategic shifts required to enable execution of the mandate. Stability at Board level is an important feature of good governance. During the period covered by this report, the Board of Directors of Bloem Water underwent a process of Board appraisal by the Institute of Directors. This continuous process marks the strengthening and understanding of the fiduciary duties among the Board members and ensures robust participation that yields good corporate governance for efficient and effective running of the organization, coupled with transparency and integrity towards driving strategic direction of Bloem Water. Bloem Water continues to make meaningful contributions at national and international forums on the supply of water and sanitation. Through twinning programmes with different countries, the entity has shared ideas and innovations around the water sector. This is an indication that the experience gained is highly appreciated and sought after both regionally and internationally. While the water sector has a noticeable risk in its human capital due to the average age of its high level skills, Bloem Water boasts with a high number of young human capital and as a result the Board embraced the initiative to launch the Young Professionals Forum to ensure that the organization is strategically positioned with its future growth and intelligencia. The Forum is aimed at contributing to the emergence of a universal platform for dialogue among water boards, related institutions and civil society organisations, which are all working to meet people’s aspirations to respect, dignity and equality.

In line with the mandate, there is an obligation to utilise limited resources to serve the large mass of members of the society. Daily, technical personnel traverse every remote corner within the area of mandate and beyond executing this mandate. There is escalating demand on the resources for supply outside the statutory remit. However, without the concomitant and steady support from the clients with payments, sustainability and viability is threatened. As with all public entities, budget constraints and cost containment measures continue to affect the operations of Bloem Water. It is worth to mention that during the year under review, the serious episode of drought resulted in the organization seeking interventions from the office of the Minister of Water and Sanitation. Bloem Water is pleased to report that Business Continuity Plans are in place outlining the processes and procedures needed to continue critical operations in case of any unplanned business disruptions. With all the challenges faced, Bloem Water continues to explore innovative ways, developing and deploying technology to improve services that are aimed to increase the benefits not only to the customers but also the communities served and the industry at large.

Under the capable leadership of its Board of Directors, Bloem Water practices good governance in all spheres of the organisation. Strong financial management and governance has enabled the organisation to supply quality water in an economic and effective manner. There is a high level of compliance with the policies and effective measures to prevent fraud and promote ethics which have been maintained year-on-year. The period under review was no exception and the Board is confident that the Organisation will continue to maintain sound financial management practices. The Board continues to fortify the words of appreciation to the Minister of Water and Sanitation, all Members of the Board of Bloem Water, the Chief Executive, members of her Executive Management team, the dedicated professionals and all the staff members in the organisation for the advice, support, commitment and passion exuded, and the time given to the organisation and to the Board to help make this a success story. The collective commitment to the work of Bloem Water is undoubted. May the year ahead be filled with commitment to the objectives as guided by the entity’s adopted Corporate Plan. We thank you.

TB Phitsane Chairperson of the Board

Mr TB Phitsane Chairperson of the Board




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8 Bloem Water Annual Report 2015/16

Foreword by the Chairperson

It marks a sense of pride and gratification to look back at the successes stories of the financial year 2015/2016. The highlights for this period include ensuring delivery on its mandate as a water board within and beyond allocated areas, appraisal of the Board, role in the water sector regionally and globally and consistent level of probity in financial and governance spheres.

It is the Board’s responsibility to provide the strategic direction of the business, as well as approving its strategic plan. The Corporate/Business Plan 2016–2021 was adopted and approved in the year under review to coincide with the term of office of the current administration of government. This five-year Business Plan for 2016–2021 takes into account the external and internal environmental influences and identifies the strategic shifts required to enable execution of the mandate. Stability at Board level is an important feature of good governance. During the period covered by this report, the Board of Directors of Bloem Water underwent a process of Board appraisal by the Institute of Directors. This continuous process marks the strengthening and understanding of the fiduciary duties among the Board members and ensures robust participation that yields good corporate governance for efficient and effective running of the organization, coupled with transparency and integrity towards driving strategic direction of Bloem Water. Bloem Water continues to make meaningful contributions at national and international forums on the supply of water and sanitation. Through twinning programmes with different countries, the entity has shared ideas and innovations around the water sector. This is an indication that the experience gained is highly appreciated and sought after both regionally and internationally. While the water sector has a noticeable risk in its human capital due to the average age of its high level skills, Bloem Water boasts with a high number of young human capital and as a result the Board embraced the initiative to launch the Young Professionals Forum to ensure that the organization is strategically positioned with its future growth and intelligencia. The Forum is aimed at contributing to the emergence of a universal platform for dialogue among water boards, related institutions and civil society organisations, which are all working to meet people’s aspirations to respect, dignity and equality.

In line with the mandate, there is an obligation to utilise limited resources to serve the large mass of members of the society. Daily, technical personnel traverse every remote corner within the area of mandate and beyond executing this mandate. There is escalating demand on the resources for supply outside the statutory remit. However, without the concomitant and steady support from the clients with payments, sustainability and viability is threatened. As with all public entities, budget constraints and cost containment measures continue to affect the operations of Bloem Water. It is worth to mention that during the year under review, the serious episode of drought resulted in the organization seeking interventions from the office of the Minister of Water and Sanitation. Bloem Water is pleased to report that Business Continuity Plans are in place outlining the processes and procedures needed to continue critical operations in case of any unplanned business disruptions. With all the challenges faced, Bloem Water continues to explore innovative ways, developing and deploying technology to improve services that are aimed to increase the benefits not only to the customers but also the communities served and the industry at large.

Under the capable leadership of its Board of Directors, Bloem Water practices good governance in all spheres of the organisation. Strong financial management and governance has enabled the organisation to supply quality water in an economic and effective manner. There is a high level of compliance with the policies and effective measures to prevent fraud and promote ethics which have been maintained year-on-year. The period under review was no exception and the Board is confident that the Organisation will continue to maintain sound financial management practices. The Board continues to fortify the words of appreciation to the Minister of Water and Sanitation, all Members of the Board of Bloem Water, the Chief Executive, members of her Executive Management team, the dedicated professionals and all the staff members in the organisation for the advice, support, commitment and passion exuded, and the time given to the organisation and to the Board to help make this a success story. The collective commitment to the work of Bloem Water is undoubted. May the year ahead be filled with commitment to the objectives as guided by the entity’s adopted Corporate Plan. We thank you.

TB Phitsane Chairperson of the Board

Mr TB Phitsane Chairperson of the Board

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The Board

Board Members

Mr. TB Phitsane

Chairperson of the Board

Ms. P Matete

Deputy Chairperson of the Board

Mr. N Mokhesi

Dr. J Van der Merwe

Ms. MSS Maboe

Adv. LR Bomela

Dr. MJ Ellman

Ms. CM Phetwe

Mr. Z Mkiva

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Board Members’ Profile

Mr. TB PHITSANE APPOINTED: April 2014 Chairperson of the Board

Diploma in Education, BA Economics, MBA, Executive Leadership: University of Stellenbosch, Human Resources Strategy in Singapore.

He is former Chief Executive Officer and the Deputy Secretary (Deputy CEO): Corporate Services of the Free State Legislature. His core skills relate to varied knowledge of the PFMA, MFMA and general Governance Laws, Corporate Governance, Board effectiveness, public administration and service delivery and budget implementation programming, performance management systems solutions, development, planning and implementation systems as well as policy development and analysis. He is a member of the IoDSA, the PACC and the Sanlam Board of Trustees.

Ms. P Matete APPOINTED: April 2014 Deputy Chairperson of the Board BA Honours (Geography & Environmental Studies). Thesis pending for M.A. in Geography and Environmental Studies.

She is Head of Environmental Management at one of the leading infrastructure development companies. She headed an environmental department at steel and cement manufacturing companies. She was a Regional Manager: Environmental Monitor during construction of the Lesotho Highlands Tunnel from Mohale Dam to Katse Dam and before that Matsoku Diversion and Weir. She is a trained NED, has had executive leadership training. She has over the past 15 years acquired vast experience in environmental law and governance and Executive Preparation Programme in mining and water law.

ADV LR BOMELA APPOINTED: April 2014 BPROC, LLM, LLB Degree Adv Bomela served his articles of clerkship with the Law Society School for Legal Practice, Schutz and De Jager and Lawyers for Human Rights (Karoo Mobile Law Clinic). He served as a Public Prosecutor with the Department of Justice and Constitutional Development and was appointed as an Assistant State Attorney and a Senior Assistant Attorney with the State Attorney, Bloemfontein and Bisho.

He practiced in partnership as a Director in the Law firm du Toit Bomela and later practiced in his own account under the name and style Bomela’s. He later joined the Department of Health, Free State as a Director Legal Services. He left the department and became a Company Secretary for Centlec (SOC) Limited. While serving as such, he continued practicing for his own account. He has practiced as an Attorney for 14 years and he is currently with the Free State Society as a practicing

Advocate. Adv Bomela is a former Non-Executive Director at Centlec (SOC) Limited, former member of the Free State Law Society Gender Committee, former Secretary (two terms) of the National Association of Democratic Lawyers, Free State, member of the Provincial Disciplinary Committee of the ANC PEC, Free State, member of Peace and Stability Committee of the ANC PEC, Free State, member of the Legal and Constitutional Affairs Committee of the ANC, Motheo Region. Adv Bomela’s current field of specialty is Corporate Governance, Labour Law, Administrative Law and the Law of Contracts. He is also an accredited Arbitrator, Mediator, Negotiator and Facilitator with the Arbitration Foundation of Southern Africa.

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Ms MMM Maboe APPOINTED: April 2014 BSc Education, MA (Counseling) Ms Maboe’s experience ranges from Head of Department: Social Development, Municipal Manager to the Masilonyana Local Municipality, Communications Officer at Thabo Mofutsanyana District Municipality, Acting Registrar and Executive Director: Student Development and Support Service at University of the Free State(UFS) Qwaqwa Campus. She has a leadership qualification in Executive Municipal Management from the UFS, a MA Degree with a Major in Counselling from the University of Northern IOWA, USA and a BSc Ed Degree from the University of Bophuthatswana. She is a Psychologist by profession and has served in numerous Boards including

the Free State Development Corporation (FDC) and Sedibeng Water. Ms Maboe has also served on many a forum such as a member of the Executive Committee Forum of African Women Educationist, SA (FAWESA), member of the South Africa Association of Senior Student Affairs Professionals (SAASSAP) and member to the National Association of Student Development Practitioners (NASDEV). She is also a member of Southern African Fundraising Institute (SAIF).

Mr. N Mokhesi APPOINTED: April 2014 Chairperson of the Audit Committee M Com Financial Management, B Com Hons, B. Compt. (Accounting & Auditing), BCom.

Mr. Mokhesi is currently the Head of Department in Free State Department of Human Settlement. He started his career as a part-time teacher of Business Economics at the Mncube Senior Secondary School in Soweto.

He joined the Free State Development Corporation in 1986 as Senior Manager: Associate Companies and Joint Ventures. His private sector experience includes serving as Executive Director of Mphatlalatsane Geographical Solutions (Pty) Ltd and as an independent SMME Business Consultant. He has also gained extensive experience of the financial environment in the local Government sector

when he joined the Thabo Mofutsanyana District Municipality as Chief Financial Officer during 2002 and continued to serve in that position until he joined the Maluti-a-Phofung Local Municipality as Chief Financial Officer in 2005. He was appointed as City Manager of the Maluti-a-Phofung Local Municipality in 2007 and in 2009, he joined Centlec as Chief Financial Officer. He joined the Department of Police, Roads and Transport in June 2010 as the Chief Financial Officer and also acted as Head of Department and Deputy Director General at various times.

Dr J Van der Merwe APPOINTED: April 2014 Chairperson of the Human Resource Committee BSC., M. Science in Geology, PHD Geohydrology, Research at University of Arizona, Specialises in Civil Engineering and water management.

Senior Lecturer in Geohydrology: University of the Free State, Affiliated Researcher: Institution of Ground Water Studies, Member of WISA, Vice-Chairperson: Modder-Riet Catchment Management, Honorary Life Membership: Geological Society of South Africa.

He conducted research at the University of Arizona, USA, specializing in Water Management And Engineering. He was Head of the Department of Civil Engineering at the Technikon of the Free State (now Central University of Technology), joined the Department of Water Affairs and Forestry in 1988 as Deputy Director, Water Quality and Geohydrology in the Free State Regional Office. He retired in 2008 as Deputy Director: Strategic Support from the Department of Water Affairs. He is

an Affiliated Researcher at the Institute of Ground Water Studies at the University of the Free State and is also a member of the Water Institute of Southern Africa as well as a member of the Ground Water Division of the Geological Society of South Africa. As one of the representatives of Bloem Water, he was elected as Vice-Chairperson of the Modder-Riet Catchment Management Forum (an Institutional Committee of the Department of Water Affairs).

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Ms CM Phetwe

APPOINTED: April 2014 BCom (Accounting and Auditing) from North West, Certified Fraud Examiner from University of Pretoria, Programme in Strategy Alignment from Stellenbosch University, BDFM Online Certificate on Legal, Ethics and Risk Management.

Process Monitor Manager at Momentum, Senior HR & Risk Manager at Transnet Pension Fund Administrators, Internal Auditor at Gobodo Corporate Governance Services and Khula Enterprise Finance Limited. Former member and Chairperson of board HR Committee at Brakpan Bus Company, and Disaster Relief Fund in the Department of Social Development Services. Ms Phetwe consults in risk management frameworks. She is a member of the Audit Committee of the

Department of Women in the Presidency, Audit Committee of West Rand District Municipality, and Chairperson of the Risk Management Committee for Randfontein Local Municipality. She is a member of other professional bodies; GARP, Institute of Internal Auditors South Africa, and Information Systems and Control Association (ISACA). She has served as a director on various other boards and board committees. She served on the board of Brakpan Bus Company, where she was Chairperson of the Board HR Committee.

Dr MJ Ellman

APPOINTED: April 2014 Chairperson of the Capital Project and Fixed Asset Committee

BSc (Chem Eng) from University of Cape Town; MSc (Chem Eng) from University of Twente, Enschede, The Netherlands; PhD (Chem Eng) (cum laude) from Institute National Polytechnique de Lorraine, Nancy, France; MBA from Wits Business School, University of the Witwatersrand, Johannesburg; Project Finance Modelling, Euromoney, March 2013; Certificate in Sectional Title Bookkeeping (Paddocks/UCT, 2010); Certificate in Marketing & Customer Centricity, University of Johannesburg, 2007.

Managing Director: Thembalethu Engineering Services (Pty) Ltd, 2006 to present (project development and investment in the energy sector – electricity, renewables, gas, petroleum, etc.); Executive Director: Siyadingana Consulting (Pty) Ltd, 2002 to present (management and technical consulting to the energy sector – electricity, gas, petroleum, renewables, etc.); Executive Director:

Siyadingana Properties (Pty) Ltd, 2006 to present (investment in, and letting of, property). Non-Executive Director: Rand Water, 2002 to 2014; Non-Executive Director: Rand Water Services (Pty) Ltd, 2005 to 2008; Non-Executive Director: SABS, 2009 to 2014; Non-Executive Director: International Electrotechnical Commission (IEC), Geneva, Switzerland, 1999 to 2006; General Manager – Market Operations and Monitoring: National Electricity Regulator, 1999 to 2003 (responsible for electricity industry pricing, long-term capacity planning (NIRP), ESI restructuring, electrotechnical standardization, etc.); Corporate Consultant and Integrated Electricity Planning (IEP) Facilitator: Eskom, 1996 to 1999 (responsible for long-term capacity planning (IEP); Manager Production Planning & Economics, later Manager Business Development (strategic planning & marketing): Mossgas, 1988 to 1993.

Mr Z Mkiva

APPOINTED: April 2014

BA Social Science) and Honours Development Studies from University of the Western Cape (UWC), Training in Communications: University of Cape Town, Centre for Arbitration, Conciliation, and Mediation, Finance Managers: UCT Graduate School of Business.

Zolani Mkiva is an international acclaimed heritage practitioner and cultural activist. He is a well-respected policy maker who employs indigenous knowledge systems in carrying out his role. Zolani was born and raised in Dutywa, a rural town of the Eastern Cape Province of South Africa. He comes from a family with a lineage of oral traditional poets and regiments of African Royalty.

Mkiva is also an African renowned producer and director of artistic works that resonate with music, poetry and film. He has produced more than 20 music albums, including international singles for a myriad of countries, namely, Cuba, Cote D’Ivoire, Libya, Venezuela, Swaziland, and Colombia. Zolani Mkiva is an organic intellectual who has authored and published books and papers. In 2008 he was appointed as a Government Advisor on Traditional Affairs, working closely with the National Minister responsible for Cooperative Governance and Traditional Affairs. During his tenure as Government Advisor he managed to turn around a number of areas in the traditional affairs landscape. He was very instrumental in the establishment of the new national department of Traditional Affairs, formulating its strategic plan and structure.




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Chief Executive’s Overview

Despite the current water problems facing the country, specifically Free State as a Province, Bloem Water bulk services overall performance has been relatively satisfactory.

Through its high skilled personnel special focus was directed on mitigating the effects of continues depletion of water resources. In ensuring uninterrupted supply of bulk water to its clients, the entity through Departmental intervention enhanced the pumping capacity for raw water storage while waiting for rainfall season. Exploration and drilling of the boreholes as well as the reduction of water losses below the benchmark through leak detection program formed part of the entire drought mitigating strategy. The overall implementation of projects was affected by the effects of water shortage which resulted in sales reduction due to water restrictions by major client. The non-payment by Municipalities was just another setback for the entity. Given limited resources thereof caution had to be highly exercised by reprioritization of key projects. This included putting on hold some of the CAPEX projects until the situation normalizes and intensified cost containment measures across the organization in order to keep the finances of the entity sound. I can safely confirm that Bloem Water is financially viable going forward. Given the unemployment rate of the communities serviced by Bloem water, it would seem that unless there is some intervention, recovery of money owed to the Organisation would be difficult as regulatory processes have not assisted. The ongoing non-payment poses a high risk to the future sustainability. The strategic partnership with the department has yielded financial assistance for implementation of some key projects. More partnerships were entered into with Malawi Northern Water Board, and other Water Boards in the country, including academic institutions.

The ongoing partnership with Water Research Council on HydroPower initiative resulted in the international publication of the project. The initiative has seen the Head office operating fully under hydropower saving energy costs and this will be extended to regional offices in the near future. The entity is embarking on ensuring employees’ total commitment to its mandate through skills development program. The focus has therefore seen the total shift towards youth development. This is evidenced in training plan aimed at assisting young professionals to further studies. The risks identified by the plant assessment process were being addressed and these included continuous skills development of the employees. The union and management strive in all the endeavours to find each other through cordial engagements for the sake of achieving common goals. The safety of all employees including those of the private contractors doing the job for Bloemwater is regarded important. It is on this note that measures are taken to continuously improve health and safety in the Organisation. Corporate Social Responsibility plan is continuing to make impact through implementation of water related projects that are supporting schools in areas of services. The specific focus is sanitation and hygiene as well as water conservation in developing schools. In conclusion, the commitment to support and give strategic direction by the Board is highly appreciated. I would like to thank the shareholder and all stakeholders for having played an important role in supporting the mandate of Bloem Water. My sincere appreciation goes to the Executive Managers including the entire staff members for the team spirit demonstrated throughout the year.

DR L MOOROSI CHIEF EXECUTIVE





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Executive Management

Dr L Moorosi Chief Executive

Mr OJ Stadler Chief Financial Officer

Mr M Rapudungoane Acting Executive: Operations & Maintenance

Mr TS Ngubeni Executive: Projects and Engineering

Ms NA Motlhaolwa Acting Executive: Corporate Support

Ms SL Meyer Executive: Human Resources

Ms NP Maduba Company Secretary




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Organisational Overview

During the establishment of Water Boards by the then Department of Water Affairs, “Bloem Area Water” was established in 1991 to operate the Caledon/ Bloemfontein Government Water Scheme, constructed to supply water to the Municipal areas of Bloemfontein, Bainsvlei, Bloemspruit, Botshabelo and Dewetsdorp. The name was officially changed to Bloem Water. The Organisation is overseen by the Accounting Authority, which is the Board in this case reporting directly to Executive Authority, the Minister of Water and Sanitation.

The Southern Free State, specifically towns such as Bethulie and Philippolis were added to the services of Bloem water in 1995. Thaba ‘Nchu district is a former homeland with 42 rural villages, it is located 65 km east of Bloemfontein was also included to extend the service areas of the Organisation. Excelsior located in the Eastern Free State is the last area to be added for the services. Today Bloem Water has grown to supply a population in excess of 1.2 million people in the areas referred to in Figure 1, whereby services are rendered to the following Water Service Authorities (Municipalities):

Mangaung Metro Municipality Mantsopa Local Municipality, Naledi Local Municipality, and Kopanong Local Municipality.

The three main regions Modder River, Caledon River and Orange River are operating with a total of seven water treatment works. Brandkop which is located In Bloemfontein where the head office is, forms part of the main operations being the Caledon River Region which includes the water treatment works.

The year under review saw the financial stability of the Organisation being threatened by the ongoing non-payment of the Municipalities as well as the drought that affected the entire country including Free State Province. Subsequent to the Free State being declared as drought stricken, the Mangaung Metro which is the main client, instituted water restrictions. This resulted in decreased water sales and put further pressure on the finances of the Organisation. It is important to mention that the dams/ water schemes mentioned above, have reached the lowest levels ever experienced since the establishment of the Board. This saw one of the dams, Groothoek, being officially excluded from abstraction putting further pressure on water services to affected areas. The entity has put in place mitigating measures to avoid any water interruptions.

In order to mitigate the situation Bloem Water instituted extreme cost containment measures to streamline the operations, this included reprioritisation of key infrastructure. The Department however has assisted in funding some of the key infrastructure projects, which enabled the Organisation to continue rendering required services.

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AREAS OF SERVICE

Figure 1: Bloem Water Area of Service




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Figure 2: Greater Bloemfontein Water Supply System




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Corporate Governance

INTRODUCTION The leadership of Bloem Water, which includes the Board and the Executive of management, maintains high levels of corporate governance practices in running the organisation. To the Organisation, good governance means accountability, transparency, inclusiveness and ethical conduct. Bloem Water endeavour to comply at all times. This compliance incorporates all applicable legislation and standards. The institution embraces a system of effective, efficient, economic and transparent systems of finances, risk management, internal control, procurement, provisioning and Human Resources in all its practices and transactions.

All quarterly PFMA and Statutory compliance reports were submitted. Financial Internal Controls are functional and working effectively as fruitless and wasteful expenditure is now detected and reported by the line managers and not by internal auditors. Internal Audit reviews concluded that Bloem Water is generally complying with statutory, PFMA and King III prescripts and requirements. Cases of non-compliance with PFMA noted by Internal Audit were isolated, not pervasive and not material in nature. Management took appropriate steps to address the weaknesses identified by Internal Audit to ensure complete compliance going forward.

EXECUTIVE AUTHORITY Bloem Water submitted four quarterly performance reports to provide progress updates on the implementation of the Annual Plan 2015-2016 to the Executive Authority, in compliance with the Framework for Strategic and Shareholder Compacts. The entity’s Annual Report 2014-2015 was submitted to the Executive Authority, Parliament and National Treasury in accordance with Section 55(1) (d) of the PFMA.

THE BOARD AND ITS MANDATE The Board is the Accounting Authority of Bloem Water in terms of the PFMA (Act 1 of 1999 as amended) and is responsible for providing strategic direction and leadership, ensuring good corporate governance and ethics, managing risk and materiality limits, financial sustainability and determining policy as referred to in Section 51 of the PFMA. The Board acts as the focal point for and custodian of corporate governance and provides ethical leadership characterised by the principles of fairness, accountability, responsibility and transparency and ensures that it manages its relationship with management and stakeholders along sound corporate governance principles. The Board has the responsibility to and may do all that is necessary to achieve its mandate which includes determining, in consultation with the Minister of Water and Sanitation, its own staff establishment and the terms and conditions of employment. The Board operates in terms of a mandate set out as per the Water Services Act, Act 108 of 1997 and various other legislation as well as the King Code. Key functions of the Board include, but are not limited to: Determining the strategic direction of Bloem Water; Approving and monitoring implementation of Strategic Plans and Programmes; Monitoring the performance of Bloem Water from financial, human resources, environmental and technical

performance perspective; Annually reassessing the Board Committees’ mandate by reviewing each Committee’s Charter; Annually reassessing the strategic direction of the entity by gauging progress against the implementation plans

following the set of strategic objectives defined by the Board; Delegating to the Chief Executive and Executive Management the authority to manage the Organisation in

accordance with the approved delegated authorities; and Defining levels of materiality and evaluating as well as reporting on the reasons for issuing a going concern

statement.

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Further, an effective Board manages conflict of interest amongst the Board members in line with Principle 2.14 of the King III Code, which stipulates that “the Board and its directors should act in the best interests of the company”. Accordingly, “real or perceived conflicts should be disclosed to the Board and managed”. The Board of Bloem Water, through its Charter, ensured that each director adhered to the duties and responsibilities of directors, including amongst others, the duty to act in good faith, to avoid conflict of interest and to act in the best interest of the organisation. To this effect, all directors of the Board declared interest in all meetings they attended in the year under review to ensure adherence to the Bloem Water Code of Ethic.

COMPOSITION OF THE BOARD The Board of Directors of Bloem Water’s term of office commenced in April 2014 and will expire at the end of April 2018. The Board is constituted of 9 Non-Executive Directors, 1 Executive Director (The Chief Executive) and a representative from the Department of Water and Sanitation. The Board is comprised of specialists in various fields and representative of a balanced skill-based Board which include finance, corporate governance, risk management, legal, human resources, water and energy. The table below indicates members of the board and placement in board committees as at 30 June 2016. Table 1: Board Composition

Board Members

Gen

der

Cha

irper

son’

s

Com

mitt

ee

Aud

it C

omm

ittee

Fina

nce

Com

mitt

ee

Soci

al &

Eth

ics

Com

mitt

ee

Cap

ital P

roje

cts

& F

ixed

A

sset

s C

omm

itee

Cor

pora

te S

uppo

rt &

Hum

an

Res

ourc

e C

omm

ittee

Mr TB Phitsane Male

Ms P Matete Female

Mr N Mokhesi Male

Dr J van der Merwe Male

Dr MJ Ellman Male

Ms CM Phetwe Female

Adv L Bomela Male

Ms MSS Maboe Female

Mr Z Mkiva Male

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BOARD CHARTER The Board Charter sets out the Board’s role and responsibilities, as well as the requirements for its composition and meeting procedures. The Charter details Board succession, the selection of Board members and their induction as well as the evaluation of the Board. The charter which is reviewed on an annual basis guides the Board in executing its oversight function. The primary objective of the Board Charter is to set out the role and responsibilities of the Board as well as the requirements for its composition and meetings. The Charter requires that Directors exercise leadership, enterprise, integrity and sound judgment, accountability, responsibility and transparency throughout their term of office. The Board Charter was reviewed and approved by the Board in 2015/16 Financial Year.

BOARD COMMITTEES To enable the Board to properly discharge its onerous responsibilities and duties, certain responsibilities of the Board have been delegated to Board Committees. The creation of Committees does not reduce a Director’s overall responsibility and therefore all Committees must report and make recommendations to the Board. All Board Committees are chaired by a Non-Executive Director. Furthermore, each Board Committee acts in accordance with its respective Charter.

Committees of the Board assist the Board to efficiently advance the business of the Board. In tandem with the aforesaid, Committees are able to demonstrate that Director Responsibilities are being adequately and properly discharged. The Board has instituted the following committees:

The Corporate Support and Human Resources Committee – comprising of Directors suited to specialising in human resources, human capital as well as corporate social responsibilities.

The Finance Committee – comprising of Directors with expertise in the area of finance, audit and assets management and supply chain management.

The Audit Committee – comprising of Directors with expertise in finance, internal control and risk management.

The Chairperson’s Committee – comprising of the Chairpersons to all the Board’s sub-Committees.

The Social & Ethics Committee – comprising of Directors with skills and expertise in legal as well as areas that ensure the Organisation’s compliance with social, ethical and codes of best practice.

The Capital Projects & Fixed Assets Committee – comprising of Directors with expertise in capital appropriations and long term projects.

The Board of Trustees is an independent Committee and meets on a regular basis to deal with Pension Fund matters in accordance to the Pension Fund rules and regulations as well as applicable legislation.

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Bloe

m W

ater

Ann

ual R

epor

t 201

5/16

Page

21

The

follo

win

g st

ruct

ure

depi

cts t

he B

oard

Com

posit

ion

as a

t 30

June

201

6.

Chai

rper

son

Mr T

B Ph

itsan

e

Corp

orat

e Su

ppor

t &

Hum

an R

esou

rces

Co

mm

ittee

Dr J

van

der M

erw

e(C

hairp

erso

n)

Ms M

SS M

aboe

Adv

L Bom

ela

Dr M

J Ellm

an

Fina

nce

Com

mitt

eeM

r TB

Phits

ane

(Cha

irper

son)

Ms M

SS M

aboe

Mr N

Mok

hesi

Mr Z

Mki

va

Audi

t Com

mitt

eeM

r N M

okhe

si(C

hairp

erso

n)

Dr J

van

der M

erw

eM

s CM

Phe

twe

Dr M

J Ellm

an

Chai

rper

sons

' Com

mitt

eeM

r TB

Phi

tsan

e(C

hairp

erso

n)

Dr J

van

der M

erw

eM

r N M

okhe

siDr

MJ E

llman

Ms P

Mat

ete

Socia

l & E

thics

Com

mitt

eeM

s P M

atet

e(C

hairp

erso

n)

Ms M

SS M

aboe

Ms C

M P

hetw

eM

r Z M

kiva

Adv

L Bom

ela

Capi

tal P

roje

cts &

Fix

ed

Asse

ts C

omm

ittee

Dr M

J Ellm

an(C

hairp

erso

n)

Adv

L Bom

ela

Dr J

van

der M

erw

eM

r Z M

kiva

Vice

-Cha

irper

son

Ms P

Mat

ete




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BOARD COMMITTEE MEETINGS AND ATTENDANCE The Board meets at least once per quarter and when necessary. During the period under review, Board meetings and a Board Strategy Session was also held to review key strategies of the organisation. All documents submitted to the Board are approved by the Chief Executive to ensure completeness and relevance. Members of the Executive Committee, Company Secretary and the Chief Risk Officer are regular attendees at Board meetings and report to the Board on their respective operational areas. The attendance is tabled below:

Table 2: Board Meeting Attendance

Members

13 A

ugus

t 201

5

24 A

ugus

t 201

5

23 S

epte

mbe

r 201

5

27 O

ctob

er 2

015

03 D

ecem

ber 2

016

04 M

arch

201

6

09 M

arch

201

6

22 A

pril

2016

28 Ju

ne 2

016

1. Mr TB Phitsane 2. Ms. P Matete ≠ ≠ 3. Dr J van der Merwe ≠ ≠ 4. Mr N Mokhesi ≠ ≠ ≠ ≠ ≠ ≠

5. Ms MSS Maboe

6. Adv L Bomela ≠ ≠ ≠ ≠

7. Ms C Phetwe 8. Mr Z Mkiva ≠ 9. Dr MJ Ellman ≠ 10. Dr L Moorosi ≠ ≠ ≠

≠ Apology In Attendance

Audit Committee The purpose of the Bloem Water Audit Committee is to assist the Board in fulfilling its oversight responsibility for the integrated reporting process, the system of internal control, the audit process, and Bloem Water’s process for monitoring compliance with laws, regulations, voluntary codes, best practices and the code of conduct. Bloem Water is pleased to present its report for the financial year ended 30 June 2016. The Audit Committee reports that it has complied with its responsibilities arising from the Public Finance Management Act and Treasury Regulation. The Audit Committee also reports that it has adopted appropriate formal terms of reference as its Audit Committee Charter, has regulated its affairs in compliance with this charter and has discharged all its responsibilities as contained therein. A summary of attendance of Audit Committee meetings is summarised below.

Table 3: Audit Committee Attendance

Members 23 July 2015 22 September 2015

11 March 2016 28 June 2016

1. Mr N Mokhesi ≠ 2. Dr J van der Merwe ≠ 3. Ms CM Phetwe ≠ 4. Dr MJ Ellman ≠ 5. Dr L Moorosi ≠


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Capital Projects & Fixed Assets Committee The Purpose of the Capital Projects & Fixed Assets Committee is to assist the Board in the discharging of its duties relating to creating long and short term plans for Bloem Water Capital Projects and Fixed Assets, ensuring that the funding sources are in place to carry out these plans and assist the Board with capital expenditure programme related decisions within its delegated authority.

Table 4: Capital Projects & Fixed Assets Committee Attendance

Members 09 July 2015 10 September 2015 24 February 2016 01 June 2016

1. Dr MJ Ellman 2. Dr J van der Merwe 3. Adv L Bomela ≠ ≠ 4. Mr Z Mkiva ≠ ≠ 5. Dr L Moorosi


Finance Committee The Finance Committee assisted the Board in fulfilling its oversight role with regards to governance of financial management and financial accounting by reviewing quarterly, financial statements, investment management, and procurement processes through meetings which were held at least once a quarter. The Committee monitored and evaluated the effective and efficient functioning and operation of the Finance, Engineering and Projects and Operations and Maintenance Departments within Bloem Water. A table below summarises attendance by Committee members.

Table 5: Finance Committee Members 22 September 2015 12 February 2016 08 April 2016 05 May 2016

1. Mr TB Phitsane ≠ 2. Mr N Mokhesi ≠ ≠ 3. Ms Maboe 4. Mr Z Mkiva ≠ 5. Dr L Moorosi


Human Resource and Corporate Support Committee The primary objective of the Committee is to develop and implement a competitive Human Resource Strategy and Plan to ensure that Bloem Water is able to attract, retain and develop the best possible skills to support business performance. For the year under review, the Committee reviewed and recommended Organisational Structure, Reviewed Information Technology Systems within Bloem Water and other activities related to Corporate Support and the Human Resource Department. A summary of attendance by Committee members is given below.

Table 6: Human Resource and Corporate Support Committee


Members 06 August 2015 07 August 2015 22 October 2015 19 February 2016 11 May 2016

1. Dr J van der Merwe

2. Dr MJ Ellman 3. Ms Maboe 4. Adv L Bomela ≠ ≠ ≠ ≠ 5. Dr L Moorosi ≠ ≠

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Social and Ethics Committee The primary function of the Committee is to assist the Board of Directors with the oversight and monitoring of social and ethical matters related to Bloem Water’s activities, the extent to which Organisational Values are implemented and the impacts on Organisational stakeholders (internal and external).

Table 7: Social and Ethics Committee

REMUNERATION OF BOARD MEMBERS Directors are remunerated in accordance to a set policy formulated by the Department of Water and Sanitation. Director fees paid during the year under review is contained in the financial statements.

COMPLIANCE WITH LAWS AND REGULATIONS Bloem Water’s compliance universe consists of a number of applicable laws. Approximately 33 of these applicable laws require the attention of management on an ongoing basis, including the National Water Act 27 of 2014; the Public Finance Management Act 1999 as amended; the Basic Conditions of Employment Act 1997 as amended and the Employment Equity Act 1998 as amended. The Legislative Compliance Checklist, containing provisions that include deadlines for complying with certain statutory requirements, is confirmed annually by all executives.

Furthermore, the aforesaid PFMA provides management with guidelines that must be upheld and implemented for the realisation of good governance. Quarterly compliance reports are used to ensure that all relevant laws and regulations are complied with. Bloem Water also provides access to information to stakeholders and other third parties in compliance with the provisions of Section 32 of the Constitution of the Republic of South Africa (Act 108 of 1996) read with the Promotion of Access to Information Act 2 of 2000 (PAIA). The entity applied principle 8.5 of chapter eight (8) of the King III Report, which recommends organisations to consider disclosing in the report, the number and reasons for refusals of requests for information that were lodged with the organisation in terms of the Promotion of Access to Information Act (PAIA), 2000. During the 2015-2016 financial years the organisation did not receive any requests. SHAREHOLDER COMPACT The Shareholder Compact is an agreement between a Public Entity and the Executive Authority. It entails the key performance measures and indicators that the Public Entity commits to. A Shareholder Compact is concluded in compliance with Regulation 20 of the Treasury Regulations of the PFMA, which stipulate that on an annual basis the Public Entity should conclude a Shareholder Compact in consultation with its Accounting Authority. Bloem Water has in the year under review concluded a Shareholder Compact with the Minister of Water and Sanitation. Compliance with the Shareholder Compact is reported on a quarterly basis by submission of quarterly performance reports to the Minister. The Shareholders Compact for the new financial year awaits approval by the Minister of Department of Water and Sanitation.

Members 25 August 2015 15 October 2015 16 March 2016 22 June 2016 1. Ms P Matete ≠ 2. Ms MSS Maboe 3. Ms CM Phetwe 4. Mr Z Mkiva ≠ 5. Adv L Bomela +* ≠ ≠ 6. Dr L Moorosi ≠

≠ Apology In Attendance +* Not Member

≠ Apology +* Not a member In Attendance

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DIRECTORS’ CONTINUED TRAINING Bloem Water’s training programme for the directors is designed to provide best practice training and supports directors and by equipping them with the information and tools they require to become effective in their role as directors. The focus is more on applicable legislation to make the directors understand their fiduciary roles and responsibilities. For the year under review, directors attended courses on corporate governance offered by the Institute of Directors South Africa (IoDSA).

CORPORATE GOVERNANCE PRACTICES ENSURING DIRECTORS’ INTERESTS AND INDEPENDENCE A Declaration of Interest Register is available for inspection at Bloem Water’s Head Office. A Declaration of Interest insertion is a standing item on each Agenda of every meeting of the Board ensuring that Directors and Executive Management declare any interest they may have as prescribed by the Water Services Act, Act 108 of 1997 and the Companies Act, Act 71 of 2008, and as directed by sound Corporate Governance principles encapsulated within the King Code. Bloem Water also expects its designated employees to complete disclosure forms of interest on an annual basis. Director independence is ensured through the separation of the role of the Chief Executive and the Chairperson, the absence of the Chief Executive’s right to vote and the right of Directors to seek independent professional advice on the affairs of Bloem Water at any given time.

LEGISLATIVE RECORD KEEPING As prescribed by legislation, the following statutory records are kept and maintained by the Board Secretariat at Bloem Water’s Head Office and is available for inspection:

Register of Directors Declaration of Interest Register Gift Register Attendance Registers Minute Books

BOARD ASSESSMENTS During the year under review, the Board of Directors underwent a Board evaluation process conducted by the Institute of Directors. The process was welcomed by all participants and proved to be an exercise well worth undertaking. It is axiomatic that the Board’s performance be assessed; The Board must have a firm understanding of just what its responsibilities are and how it has performed. Where areas of improvement were identified, research will be done to enhance this vital process in terms of governance practices.

EXECUTIVE MANAGEMENT COMMITTEE Bloem Water has an Executive Committee which manages day to day operations of the organisation. The Executive Committee (EXCO) consists of all executives and the Company Secretary. The Committee meets at least once per month and when circumstances necessitate. Decisions are taken in accordance with Bloem Water’s delegation of authority, which is also informed by materiality and significance framework.

INTERNAL CONTROL AND RISK MANAGEMENT Bloem Water has policies and procedures in place which provides management with sufficient oversight over all the activities in the organisation. . As much as the Chief Financial Officer is the custodian of internal controls, all executives are expected to collectively manage internal controls in their respective departments.

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The controls throughout Bloem Water focus on the risk areas identified by operational risk management, confirmed by executive management and assessed by the internal auditors. The controls are designed to provide cost effective assurance that assets are safeguarded and that liabilities and working capital are efficiently managed. Organisational policies, procedures, structures and Delegations of Authority provide direction, accountability and a division of responsibilities while also containing self-monitoring mechanisms. Management and Internal Audit closely monitor the controls, and actions are taken to correct deficiencies as they are identified. The Internal Audit function evaluates the existing controls in terms of their adequacy and effectiveness, assessing the change in the likelihood of any risks materialising, and developing recommendations for improvement. Recommendations add value, and are measured against the reduction of the likelihood that a risk can materialise. The Internal Audit function provides written assessments on the effectiveness of financial and internal controls. The Chairperson of the Audit Committee provides reports on the assurance of risk and internal control effectiveness to the Board.

COMPANY SECRETARY An effective Board has a Board Secretary in compliance with the Companies Act, Act 71 of 2008. King III, Principle 2.21 stipulates that “the Board should be assisted by a competent, suitably qualified and experienced company secretary”. It is a prerogative of every public company and state-owned entity to have a company secretary available to the Board. Accordingly, the Board of Bloem Water, as a public entity, has access to the advice and services of the Board Secretary whose role is the following:

i. provides guidance to the Board on the duties of the directors and good governance; ii. assists with the induction and training programmes for Board members;

iii. ensures Board and Committee Charters are up to date and are reviewed annually or as required iv. ensures that an annual Board programme is in place and does what is required to ensure that meetings are

held as scheduled (including special meetings); v. prepares agendas of meetings in agreement with the Board and Board Committee Chairpersons;

vi. ensures that agendas and Board documents are distributed timeously to Board members and attendees; vii. ensures that minutes of Board and committee meetings are recorded, circulated and agreed to by members

of the Board; viii. ensures that the decisions of the Board are implemented;

ix. assists with the evaluation of the Board, committees and individual directors;

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Directives by the Minister The Honourable Minister, as the Executive Authority gives directives to water boards that are aimed to improve service delivery. They vary from project specific directives to changes in reporting and other strategic as well as operational issues. Directives from the Minister are issued in terms of Section 41(1) (ii) of the Water Services Act, 1997(Act No. 108 of 1997).

For the year under review, the following directives were issued to Bloem Water:

1. Construction of Welbedacht pipeline The directive was issued on 28 June 2016 to address water shortages at the greater Mangaung Metro. The existing pre-stressed concrete pipeline supplies water from the Welbedacht to Bloemfontein constructed in the 1970s and has surpassed its reliable service life.

2. Consolidation of Sedibeng Water, Magalies Water and Bloem Water into a single Regional Water Board that will cover the North West, Free State and Northern Cape Province.

The directive was issued on 1 June 2016 in line with the Department of Water and Sanitation’s Institutional Reform and Re-alignment Programme aimed at improving the institutional landscape of the water sector and building sustainable and performing water sector institutions. Furthermore, the consolidation will enable the three water boards to consolidate their assets and skills for key rural infrastructure development projects, bringing greater equity, economies of scale and improved financial liability. A due diligence study will be conducted and a business case developed for the establishment of a single Regional Water Board by DWS in consultation with the Water Boards.

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29





Bloem Water Annual Report 2015/16

Stakeholder Relations The ultimate accountability for stakeholder engagement lies with the Board. In Bloem Water, the Board recognises that stakeholder management is a central part of the organisations effectiveness and key to a sustainable business. It is committed to strengthen relationships with its stakeholders. Each relationship is an intangible asset of the organisation. Bloem Water has a wide range of stakeholders, with vastly differing views that are important to the sustainability of the organisation. The entity will continuously engage with stakeholders to have discussions on issues that matter and those that are important to the services. The values of transparency, co-operation and fairness, active participation with stakeholders and being environmentally conscious are regarded as key.

Stakeholder Basis for engagement Engagement methods

Customers

Bloem Water operates as a Water Services Authority for the following municipalities: Mangaung Metro, Mantsopa, Kopanong and Naledi.

Annual Customer Survey for all municipalities Participation in development of Municipal

Integrated Development Plans Planned strategic and operational meetings

Employees Employee engagement is a key element of the relationship between an organization and its employees. An "engaged employee" is defined as one who is fully absorbed by and enthusiastic about their work and so takes positive action to further the organization's reputation and interests. Engaged employees are more productive and improves the performance of the entity.

Employees engagements through Local Labour Forums and Employee Suggestion Box

Wellness Projects Climate survey (satisfaction index) Regular policy presentation sessions Quarterly EXCO meetings held in regions Pension Fund Road show Board road show Meetings with teams as and when required

The Board The Board of Bloem Water is appointed by the Minister of Water and Sanitation in accordance with the provisions of the Water Services Act No 108 of 1997 as Accounting Authority.

The Board gives strategic direction through annual strategic planning sessions with management

Board Committee meetings Board Roadshows

Shareholder Department of Water and Sanitation

Bloem Water as a Government National Enterprise accounts to the Executive Authority, which is the Department of Water and Sanitation in alignment with Water Service Act No 108 of 1997.

Portfolio Committee meetings Annual Appraisal of Business Plans, Shareholders

Compact with the Board, Quarterly and Monthly performance reports and Annual reports

Communities Bloem Water through its Corporate Social Responsibility policy implements and promote socially responsible behaviour throughout the organisation and contribute in enhancing livelihoods of communities it operates in.

World Toilet Day Schools Competition Adopt-a-School Project Environment Impact Assessments for Projects Public participation with regards to servitudes

Vendors and Suppliers

Socio-Economic development Broad-based Black Economic Empowerment (‘BBBEE’) compliance Corporate Social Investment Improve Health and Safety standards

Training of Service Providers Suppliers evaluation and feedback sessions Presentations on strategic products and services Site Visits

Government and Regulators

Licensing and compliance Debtors (Municipal) Payments

Catchment Management Agency Meetings Regional Water Affairs Reconciliation Steering

Committee Meetings


Stakeholder Relations The ultimate accountability for stakeholder engagement lies with the Board. In Bloem Water, the Board recognises that stakeholder management is a central part of the organisations effectiveness and key to a sustainable business. It is committed to strengthen relationships with its stakeholders. Each relationship is an intangible asset of the organisation. Bloem Water has a wide range of stakeholders, with vastly differing views that are important to the sustainability of the organisation. The entity will continuously engage with stakeholders to have discussions on issues that matter and those that are important to the services. The values of transparency, co-operation and fairness, active participation with stakeholders and being environmentally conscious are regarded as key.


Customers

Bloem Water operates as a Water Services Authority for the following municipalities: Mangaung Metro, Mantsopa, Kopanong and Naledi.

Annual Customer Survey for all municipalities Participation in development of Municipal

Integrated Development Plans Planned strategic and operational meetings

Employees Employee engagement is a key element of the relationship between an organization and its employees. An "engaged employee" is defined as one who is fully absorbed by and enthusiastic about their work and so takes positive action to further the organization's reputation and interests. Engaged employees are more productive and improves the performance of the entity.

Employees engagements through Local Labour Forums and Employee Suggestion Box

Wellness Projects Climate survey (satisfaction index) Regular policy presentation sessions Quarterly EXCO meetings held in regions Pension Fund Road show Board road show Meetings with teams as and when required

The Board The Board of Bloem Water is appointed by the Minister of Water and Sanitation in accordance with the provisions of the Water Services Act No 108 of 1997 as Accounting Authority.

The Board gives strategic direction through annual strategic planning sessions with management

Board Committee meetings Board Roadshows

Shareholder Department of Water and Sanitation

Bloem Water as a Government National Enterprise accounts to the Executive Authority, which is the Department of Water and Sanitation in alignment with Water Service Act No 108 of 1997.

Portfolio Committee meetings Annual Appraisal of Business Plans, Shareholders

Compact with the Board, Quarterly and Monthly performance reports and Annual reports

Communities Bloem Water through its Corporate Social Responsibility policy implements and promote socially responsible behaviour throughout the organisation and contribute in enhancing livelihoods of communities it operates in.

World Toilet Day Schools Competition Adopt-a-School Project Environment Impact Assessments for Projects Public participation with regards to servitudes

Vendors and Suppliers

Socio-Economic development Broad-based Black Economic Empowerment (‘BBBEE’) compliance Corporate Social Investment Improve Health and Safety standards

Training of Service Providers Suppliers evaluation and feedback sessions Presentations on strategic products and services Site Visits

30







Government and Regulators

Licensing and compliance Debtors (Municipal) Payments

Catchment Management Agency Meetings Regional Water Affairs Reconciliation Steering

Committee Meetings

Trade Unions Wage negotiations Bargaining council agreements Conditions of employment Engagement on safety issues Engagement on health and wellness issues

Local labour forums Policy awareness sessions Representation during interviews as observers

Media Houses Information sharing Relations building and establishment of clear lines to spoke persons and subject matters

Networking sessions

BLOEM WATER YOUNG PROFESSIONALS

The 2015/16 financial year saw the establishment and launch of Bloem Water’s Young Professionals Forum in October 2015 at the University of the Free State The Forum is aimed at ensuring that young professionals within the organisation are not only competent in terms of core skills but also to become future leaders, through skills development as well as resources and information sharing. The Forum was established in consultation with Rand Water and Umngeni Young professionals supported by Executive Management and the Board. It will address all water related matters such as water conservation and demand management, water quality, career guidance to schools and mentorship thereof in the water sector.

During the year under review, Bloem Water Young Professionals undertook the following activities amongst others:

Registering members with various professional bodies such as the Water Institute of South Africa(WISA), Black Management Forum Young Professionals(BMFYP);

Participated in Back to Care Outreach in partnership with the Department of Health where members assisted with cleaning, door to door health screening campaigns for diabetes, cholesterol, hypertension, mental health and Tuberculosis (TB). 10 Liters of water was also delivered per household;

Supported Early Childhood Event hosted by department of Social Development and the office of the Free State Premier on 18 February 2016 in Parys by distributing water during the event;

PLANT TOUR PROGRAMME Water conservation and water demand management is implemented through plant tours and information sharing sessions. During plant tours stakeholders are taken through all processes of water purification. This process includes the catchment, treatment and distribution.

STRATEGIC PARTNERSHIP (TWINNING) PROGRAMME Bloem Water has established partnerships with water boards nationally and internationally, institutions of higher learning and other institutions aimed at increasing influence, knowledge sharing, skills transfer, and improving business processes. There were new partnerships established with the University of the Free State, Central University of Technology and Motheo TVET College. Bloem Water continues to nurture these partnerships through ongoing engagements.

The long standing partnership with the Northern Region Water Board, Malawi, yielded staff exchanges and reciprocal board members visits during the year under review.




VALUES













31





Corporate Social Responsibility

32






Risk Management and Business Continuity The Board considers risk management as a strategic imperative and has committed Bloem Water to a process of risk management that is aligned to the principles of good corporate governance according to the King III Report, supported by legislation and other leading best practices.

Risk Management Approach and System Risk management is recognised as an integral part of responsible management and Bloem Water has therefore adopted an enterprise-wide approach outlined in the Risk Management Policy and Framework. This approach means that all departments, functions and processes within Bloem Water are included in a structured and systematic process of risk management. The framework consists of the governance structure and risk management process aligned to National Treasury Public Sector Risk Management Framework and ISO31000. The Board and its committees retain an obligation to remain informed not only of the risks to the organisation, but also to the effectiveness of risk management efforts. Internal Audit provides assurance on effectiveness of Risk Management processes in Bloem Water.

For the year under review, Bloem Water initiated and implemented a Risk Management System, BarnOwl, for electronic monitoring, review and control of organisational risks. Implementation of the system commenced in the beginning of June which included installation of the system and training of users.

Key Strategic Risks The following strategic risks were identified and monitored in 2015/16 financial year, reviewed in accordance with the World Economic Forum Global risks and IRMSA South Africa Risk Report of 2015.

Objectives Risks Risk Mitigation

SO1: Develop, operate and maintain infrastructure to ensure sustainable water Service delivery

SR04 Failure/ inability to meet customer water demands and expectations (Water Availability)

Water released from the Katse Dam through DWS support and assistance

Implementation of water restrictions

SO2: Manage financial affairs to meet current and future obligations

SR01 Revenue under-collection & Reduced tariff approval and one major customer

SR03 Fraud & Corruption

SR06 Insufficient budget for CAPEX Program

Anti-Fraud and Corruption Policy Whistle blowing procedures Fraud Prevention & Risk Management

Committee DWS assist with funding some of key

infrastructure expansion projects. SO3: Securing the supply and quality of raw water

SR05 Failure/ inability to meet customer water demands and expectations SR07 Deteriorating and Ageing Water Infrastructure SR08 Natural disasters (floods, droughts, global warming, climate change).

Implementation of Reconciliation Study interventions

Asset Condition Assessment Annual Winter and Continuous

Maintenance Business Continuity Management

Programme

SO4: Achieving an aligned and efficient institution through optimization of all business processes and systems

SR011 Public Safety and Workplace injuries/fatalities

SHEQ Policy Toolbox Talks Construction Safety Procedures Baseline Risk Assessments

SR12 Failure of Information Technology Strategy and operations to support Bloem Water activities

ICT Steering Committee established Improved reporting on IT to the board

SR10 Power supply interruptions or failures

Review the use of Hydropower for plant operations.

Continued engagements with Eskom




VALUES













33






FRAUD PREVENTION The Board together with management is committed to establishing and maintaining an honest, open and well intentioned atmosphere within the organisation and to fight the fraudulent behaviour in all levels of the organisation. Exposure to the risk of fraud is managed through the implementation of the Fraud Prevention Plan and board approved Anti-Fraud and Corruption Policy. Risk Management has commenced with procurement processes to establish an Ethics Hotline with the goal that is operational before the end of the 2016/17 financial year and is intended to be managed independent from the organisation. Bloem Water will continue in creating awareness on fraud red flags and how internal controls can be strengthened to prevent fraud and corruption.

BUSINESS CONTINUITY MANAGEMENT Risk management also encompasses disaster recovery planning and business continuity management. Bloem Water is committed to ensuring the continuity of the operations in the event of material disruption to its critical activities by ensuring the safety and wellbeing of its employees, contractors and visitors, protecting the environment and society in which it operates, minimising the adverse impact of the disruption on operations and ensuring continuity of critical processes to a predefined, acceptable level.

During the year under review, Bloem Water, through the services of Deloitte, embarked on a project to establish a Business Continuity Management (BCM) Programme. The BCM Policy was developed and approved to establish the mandate for Bloem Water’s BCM programme. The framework was also developed to provide guidance on the requirements defined in the BCM policy, and therefore provide the foundation on which Bloem Water’s BCM capability and programme are designed and built. The BCM Project has resulted in development and communication of the Emergency Response Plans, Crisis Management Plans and Continuity Plans for both the Regions and Head Office.

Business Continuity Management Structure In accordance with international good practices, Bloem Water’s management will carry out and discharge their legal, moral and regulatory accountabilities and responsibilities, even in the event of a disaster. A sound management structure has been developed to steer and respond to requests that emerge from the development and on-going planning processes. The BCM management structure is depicted below which highlight roles and responsibilities in terms of the policy.

Figure 3: The BCM Management Structure

34





Operations and Engineering

35






Operations and Engineering As part of strategic objectives, the core function of Bloem Water is bulk water provisioning to enhance effective service delivery and sustainable water supply. Planned preventative measures and operational controls are in place to ensure safe and reliable water services. Bloem Water operations encompass three Regions: Modder River, Caledon River and Orange River Regions. Caledon River Region being the main source of water supply to the greater Mangaung and surrounding towns. It is therefore important that infrastructure is continuously developed and maintained to meet the current and future demand. The development and expansion of the Bloem Water infrastructure is informed and aligned to the key elements of the Department of Water and Sanitation (DWS) Reconciliation Studies and Integrated Development Plans (IDP) from Water Services Authority. The following table gives a summary of Water Treatment Works capacity, catchment and areas of service.

Table 8: Bloem Water Regions and Systems

Region Source Pumping System Treatment Storage Area of Service

Orange

River

Orange River Boreholes

Driefontein Volgfontein Tolhuis

Phillipolis

x 1.2 Mℓ/d

Reservoirs x 2 Phillipolis

Gariep Dam Gariep Gariep

x 2.8 Mℓ/d

Reservoirs x 2 Gariep

Orange River Boreholes

SAR Kleinzuurfontein Hennie Steyn Brandewijnskuil

Bethulie x 12 Mℓ/d

Reservoirs x 5 Trompsburg Springfontein

Jagersfontein Mine Boreholes Kalkfontein

Lemoenkloof Jagersfontein x 2 Mℓ/d

Reservoirs x 1 Jagersfontein Fauresmith

Caledon

River

Welbedacht Dam Caledon River Knellpoort Dam Boreholes

Tienfontein Novo Reddersburg Edenburg Dewetsdorp Raw and Clear water

Welbedacht x 145 Mℓ/d

Reservoirs x 7 Bloemfontein Dewetsdorp Wepener Reddersburg Edenburg

Modder

River

Groothoek Dam Rustfontein Dam Knellpoort Dam Boreholes

OK Groothoek Lesaka Raw and Clear Water

Rustfontein x 100 Mℓ/d Groothoek x 18 Mℓ/d

Reservoirs x 6 Thaba Nchu Botshabelo Villages

The water supply system which falls within the responsibility of Bloem Water is summarised as follows:

The Modder and Caledon River Region water supply schemes are located within the Greater Mangaung supply system. The schemes provides the majority of potable water requirements to the larger centres of Bloemfontein, Thaba Nchu and Botshabelo, as well as the smaller towns of Wepener, Dewetsdorp, Reddersburg, Edenburg, and Excelsior.

36






The Caledon River Region scheme is Bloem Water’s largest scheme and comprises of the Welbedacht WTW. The Welbedacht Dam is located along the Caledon River and supplies water to the Welbedacht Water Treatment Works. The dam, since its construction in 1973, has lost approximately 95% of its storage capacity due to siltation. The last survey conducted in November 2011 indicates the capacity to be at approximately 9.63 x 10⁶ m³.

The Rustfontein WTW is situated at the Rustfontein dam, 12km West of Botshabelo and 25km South of Bloemfontein with a capacity of 71.210 x 10⁶ m³. The Rustfontein Dam receives the bulk of its water from the Knellpoort/Novo raw water transfer scheme.

The Groothoek WTW is situated 17km from Thaba Nchu near the Maria Moroka Game Reserve, at the Groothoek dam. The Groothoek dam has a design capacity of 11.9 x 10⁶ m³. Besides supplying water to the villages South of Thaba Nchu, the system acts as an augmentation scheme for the Rustfontein water supply system. The plant stopped operating in June 2015 due to drought.

The Novo Transfer Pump Station at Knellpoort Dam enables the transfer of water into the Modder River which supplies the Rustfontein and Mockes Dams, whereby it is released to the Masselspoort Water Treatment Works.

The Knellpoort dam is supplied with transferred water from the Caledon River via the Tienfontein Pump Station, enabling year-round abstraction from Welbedacht.

The Orange River Region provides and manages water supply to the towns of Bethulie, Gariep, Phillipolis, Trompsburg, Jagersfontein and Fauriesmith through a number of small schemes spread over a considerable geographic area. Bloem Water owns the Bethulie water supply assets and the abstraction, treatment and pumping components of the Phillippolis assets. Gariep and Jagersfontein distribution and storage assets are owned by the Kopanong Local Municipality and are operated and maintained by Bloem Water in terms of specific agreements.

TREATED WATER QUALITY To ensure that the customers are supplied with portable water, Water Treatment Plants in all the regions supply water that is measured and conforms to the SANS 241:2015. The standard specifies the quality of acceptable drinking water defined in terms of microbiological, physical, aesthetic and chemical determinants at the point of delivery. During the period under review, Bloem Water met the SANS 241:2015 requirements. Water Quality Monitoring Programmes were developed, implemented and water tested internally at plant level and externally at the laboratory of the University of the Free State for both operational and compliance monitoring. The water quality results (Microbiology and Chemical quality) for the 2015/16 financial year at the various schemes are captured on the DWS Blue Drop System and compliance per system is summarised below:




VALUES













37








VALUES














Table 9: Water Quality Compliance SANS 241:2015

Water Treatment Works Treated Volume (M3)

Percent Compliance with SANS 241:2015

Microbiology Operational Chemical

Rustfontein 18 025 304 99.9 % 96.9 % 99.9 %

Groothoek Not Operational Not Operational Not Operational Not Operational

Welbedacht 49 863 159 99.2 % 95.7 % 99.9 %

Bethulie 987 501 99.9 % 97.8 % 99.9 %

Gariep 385 892 99.9 % 97.8 % 99.9 %

Phillipolis 451 435 99.9 % 97.8 % 99.9 %

Jagersfontein 569 956 99.9 % 96.1% 99.9 %

Generally, Bloem Water produces and distributes quality water beyond the target of 96% compliance. Any incidents of non-compliance are immediately identified through operational testing and monitoring, timeously resolved to ensure compliance to SANS 241:2015.

WATER DEMAND The drought experienced throughout the country specifically in the province affected the levels of the Dams within the operation of Bloem Water namely: Groothoek, Rustfontein, Welbedacht, Knellpoort and Gariep. The effects of drought on the catchment and the Dams are reported to the Regional Department of Water and Sanitation that culminated with the scenario analysis on the Dams, especially Rustfontein, Groothoek, Welbedacht and Knellpoort. Following this analysis, 20% restrictions were imposed on water use by the Greater Mangaung system. In order to mitigate the effects of drought, the Minister of Water and Sanitation issued a directive for the water to be released from Katse Supply System into the Caledon River to augment supply in the Greater Bloemfontein. The dam levels during the period July 2015 to June 2016 for the various Dams are indicated in the figure below and details are outlined in the subsequent section:

0,00

20,00

40,00

60,00

80,00

100,00

%

Months

Dam LevelsJuly 2015 - June 2016

Weldam

Knelpoort Dam

38






Groothoek Dam

The Groothoek dam supplies water to Groothoek WTW and has a design capacity of 11.9 x 10⁶m3. Besides supplying water to the villages South of Thaba Nchu, the system acts as an augmentation scheme for the Rustfontein water supply system. The dam receives raw water primarily from the Kgabanyane River and has a small catchment. The Dam has completely dried up and abstraction by any means is no longer possible. The plant was not operational for the year under review due to drought, negatively affecting many areas. In order to mitigate the effects of drought, exploration and drilling of boreholes was initiated in the Thaba Nchu area.

Rustfontein Dam

Rustfontein dam has a design capacity of 71.2 x 10⁶ m3. It receives water from the Novo Transfer Scheme and provides raw water to Rustfontein Water Treatment Works as well as the release of water to Mangaung Metropolitan Municipality for Masselspoort WTW via Mockes Dam. The dam levels are continuously dropping however the plant remained operational.

Knellpoort Dam

The Dam was constructed to serve as the storage capacity for both Welbedacht and Rustfontein Dams in order to mitigate supply risks during drought periods. The dam has a storage capacity of 136 x 10⁶ m3.

Welbedacht Dam

The dam had a storage capacity of 115 x 10⁶ m3 reduced to just under 16 x 10⁶ m3 capacity over time due to siltation but remains operational.

Raw Water Transfer

Knellpoort Dam relies on the Tienfontein raw water transfer from Caledon River. The water is transferred via the Novo transfer scheme to augment Rustfontein Dam. Raw water is accordingly released to Mockes Dam to supply Maselspoort Water Treatment Works.

SUPPLY CAPACITY AND CONTRAINTS Bulk water supply delivery/infrastructure arrangements are typically made up of the primary system components illustrated in the following process diagram:

Raw Water Availability/

LicencingAbstraction Water

TreatmentPumping Distribution Storage CUSTOMER

DWS Responsibility

(security of supply)

Bloem Water Area of responsibility

Bulk delivery into municipal /customer receiving infrastructure




VALUES













39






The current status of security of supply in regard to all WTW owned by Bloem Water or operated by Bloem Water on behalf of the WSA , is summarised hereunder.

Welbedacht WTW

Tienfontein Novo Rustfonte

in WTW *Groothoe

k WTWGariepWTW

BethulieWTW *

Phillippolis WTW *

Jagersfontein *

Usage License 143,84 197,26 131,5 85 13,7 2,2 5,2 0,96 2,69Capacity 160 144,3 242 100 18 2,7 8,64 1,64 9,5

0

50

100

150

200

250

300

350

400

Mℓ/da

y

WTW Capacity v/s Approve Water License


The current status of security of supply in regard to all WTW owned by Bloem Water or operated by Bloem Water on behalf of the WSA , is summarised hereunder.

Welbedacht

WTW

Tienfontein Novo

Rustfontein

WTW *

Groothoek WTW

GariepWTW

BethulieWTW *

Phillippolis WTW

*

Jagersfontein *

Usage License 143,84 197,26 131,5 85 13,7 2,2 5,2 0,96 2,69Capacity 160 144,3 242 100 18 2,7 8,64 1,64 9,5

050

100150200250300350400

Mℓ/day

WTW Capacity v/s Approve Water License

40








VALUES














Item Capacity m3 per month Utilization m3 per month %

Caledon River

Welbedacht Pumping Capacity 4924800 3335585 67.73

Welbedacht Raw Water Capacity 4924800 3742839 76.00

Orange River

Bethulie Distribution Capacity 165888 82291 49.61

Bethulie Pumping Capacity 165888 151235 91.17

Bethulie Raw Water Capacity 278420 158929 57.08

Bethulie Treatment 180000 73475 40.82

Gariep Distribution Capacity 90000 57136 59.52

Gariep Pumping Capacity 96000 57136 54.91

Gariep Raw Water Capacity 103680 56935 54.91

Gariep Treatment 84000 56935 67.78

Phillipolis Distribution Capacity 34560 25037 72.45

Phillipolis Pumping Capacity 41472 23890 57.61

Phillipolis Raw Water Capacity 36000 25037 69.55

Modder River

Rustfontein Distribution Capacity 2073000 2478525 119.56

Rustfontein Pumping Capacity 1920000 2478525 129.09

Rustfontein Raw Water Capacity 3110400 2696541 86.69

Rustfontein Treatment 3000000 2696541 89.88

Modder River

The table above shows the effect that the drought has had especially on the Rustfontein WTW, where we were forced to operate at more than 100% to meet the water demand in the Botshabelo and Thaba Nchu with Groothoek WTW being out of operation and also to supply the Excelsoir area. Bloem Water is however waiting on the new Water Users Licence Application approval by DWS as all the requirements have been met from Bloem Water side.

WATER LOSSES Water losses were managed in all Bloem Water treatment works in an effort to reduce water losses including non-revenue water. All losses are determined through a water model which monitors and calculates water losses on a monthly basis. From a system input of 89 957 393 million m³ for 2015/2016 financial year (as illustrated below), water losses amounted to 8.88% of which 2.05% were apparent losses and 6.84% real losses. An increase of 0.11 % in water losses was seen in comparison to the previous year however the current water losses are still below the annual target of 13% agreed with the Shareholder.

41








VALUES














Table 10: Water Losses for the period: 2015/07/01 to 2016/06/30

System Input Authorised Consumption Billed Revenue Water

89,957,393

81,965,806 (91.12%)

79,990,418 (88.92%)

79,990,418 (88.92%)

Unbilled Non-Revenue Water

1,975,388 (2.20%)

9,966,975 (11.08%)

Water Losses Apparent Losses 7,991,587 (8.88%)

1,841,731 (2.05%)

Real Losses 6,149,855

(6.84%)

WATER RESOURCE MANAGEMENT The Bloem Water supply schemes receive the bulk of their raw water from the Orange River system. The Orange River which is the largest river in South Africa is an international resource, shared by four countries i.e. Lesotho, South Africa, Botswana and Namibia. Any strategy or decision taken by any one of the countries that will impact on the water availability or quality in South Africa must be taken into account. The Caledon River, forming the north-western boundary of Lesotho with the Republic of South Africa (RSA), is the first major tributary of the Orange River. The Caledon and the Orange (called the Senqu River in Lesotho) rivers have their confluence in the upper reaches of the Gariep Dam.

RAW WATER ABSTRACTION Water is a scarce resource in South Africa and the use thereof is regulated according to the National Water Act which requires approval of an application by the Department of Water and Sanitation. Bloem Water has monitoring systems to ensure compliance to the approved water use license. The table below gives maximum water abstracted per month compared to the water use license per water treatment works.

Table 11: Water Use Licenses

Water Treatment Works Current Plant

Design

Approved Water Use

Licence

Max. Raw Water

Abstraction Per Month

Welbedacht WTW

Ml/day x106m3 m3

160 52.5 3 909 983

Tienfontein 242 72 88.3

Novo 144.3 48 52.67

Rustfontein WTW 100 31 2 763 351

Groothoek WTW 18 5 137 176

Gariep WTW 2.4 0.8 54 062

Bethulie WTW 12 2 160 956

Philipolis WTW 1.2 0.35 26 071

The following trends were recorded for the previous financial years for the respective regions:

42






The following trends were recorded for the previous financial years for the respective regions:

0

10

20

30

40

50

60

06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16

mill

ion

cube

s p.a

.

Raw Water Abstractions - Caledon River Region

Novo T/Fontein Welbedacht

0

0,5

1

1,5

2

2,5

06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16

mill

ion

cube

s p.a

.

Raw Water Abstraction - Orange River Region

Philippolis Gariep Jagersfontein Bethulie

0

5

10

15

20

25

30

35

06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16

mill

ion

cube

s p.a

.

Raw Water Abstraction - Modder River Region

Rustfontein Groothoek

43








VALUES














RAW WATER QUALITY Raw water quality in Bloem Water differs according to the source. The table below gives a list of systems and status of the quality of water according to the latest testing results. Bloem Water raw water quality supply has the following potential risks/challenges which are continuously monitored and proactively managed: Table 12: Raw Water Quality

System Catchment Impoundment Raw Water Quality Description of Water Quality challenges

Welbedacht Caledon River

Welbedacht

Dam

Average turbidity:

1000 NTU

May’15 – Sep’15: water appears yellowish-brown in

colour and high algae content.Oct’15- Mar’16: too

much silt in the water.

Knellpoort

Dam

No sampling on the

dam

The water appears greenish, high algal content.

Bethulie Orange River N/A Good The quality is good, during the raining season the NTU

rises.

Gariep Orange River Gariep Dam Average Turbidity:

50 NTU

The water appears slightly green

Philippolis Orange River N/A Good The quality is good, during the raining season the NTU

rises.

Jagersfontein RietRivier Kalkfontein

dam

Average Turbidity:

22 NTU

The water appears light greenish in colour and at

times milky with very low turbidity.

Rustfontein Modder River

Rustfontein Dam

Average Turbidity 88

NTU

No water quality challenges.

Groethoek Kgabanyane River

Groothoek Not Operational Not Operational

RESOURCE USAGE AND EFFICIENCIES

Energy In its effort to reduce energy consumption, Bloem Water entered into a partnership with ESKOM, to participate in the ESKOM’s Demand Side Management (DSM)/load shifting initiative. The ideal water supply sub-system identified for this initiative was Novo/Rustfontein transfer scheme and the Welbedacht Treatment Plant. The emphasis is to participate in load shifting when the prevailing plant conditions are favourable to ensure minimal disruptions to operations or supply of water. The energy consumption in these sub-systems and other sub-systems is presented in the table and figures below.

Table 13: Energy Consumption Sub-System Energy Consumption (MW) Novo pump station 2.40 Rustfontein Water Treatment Plant 3.66 Welbedacht Water Treatment Plant 10

TOTAL 17.46

44






The critical peak period according to Eskom was identified. A total average power savings of 0.92 MW is envisaged from both sub-systems. The figures below outlines the power and cost savings for Welbedacht WTW since the beginning of the load shifting initiative (i.e. July 2015 till June2016).

Table 17: Energy Consumption

CUSTOMER PROFILE Bloem Water customer base consists of four municipalities: Mangaung Metro Municipality Kopanong Municipality Mantsopa Municipality Naledi Municipality.

Additional to the above municipalities, Bloem Water provides drinking water directly to rural communities through Boreholes in Thaba ‘Nchu, Reddersburg, Edenburg, Philippolis, Springfontein, Fauresmith, Jagersfontein and Bethulie.

Prospective Customers Bloem Water in its endeavour to expand its services to other areas within and outside the Region identified other municipalities and towns were services can be rendered in the Northern Cape, Free State and Eastern Cape. Engagement with Provincial and National counterparts such as DWS, SALGA and COGTA commenced. Bloem Water acknowledges the need for support to areas that are currently not serviced and will be required to support and engage in initiatives such as: water resource and catchment management to protect the raw water resources utilised by Bloem Water; taking responsibility for water services in rural and urban areas to improve service delivery at the request of the

Water Service Authority; Extending infrastructure to allow for increased water supply to Water Service Authorities; Review and evaluate any request by DWS to implement a new regional water scheme or project.

0

0,5

1

1,5

2

2,51,85

1,641,94 2,07

1,24

0,240,12

0 0

1,13

0,35 0,42

Monthly Savings: Power(KW)




VALUES













45






Bulk Supply Agreements There are signed service level agreements with Kopanong and Mantsopa Municipality and all efforts and attempts were made in the year under review to finalise the service level agreement with Mangaung Metro Municipality.

Customer Service Charter Bloem Water Customer Services Charter is in place and it enables customers to get the most out of Bloem Water’s services. It provides a means for customers to provide feedback and suggest improvements. It also helps them to raise concerns when they are dissatisfied with any aspect of their interaction with Bloem Water. Through this Charter, Bloem Water is able to maintain and improve quality of services. An annual Customer satisfaction survey was conducted through questionnaires which were distributed to municipalities in the area of service and internally to employees as water users.

CLASSIFICATION OF WORKS Regulation 2834 states that, the owner of a water care work in operation on the date of commencement of these regulations shall within 90 days of such date apply for the registration of such work. Bloem Water operates and maintains the following registered water care works:

No. Name of Water Treatment Works

Classification Capacity Average Monthly Flow (m3/month)

1. Welbedacht B 160 Ml/day 4.3 Million 2. Rustfontein B 100 Ml/day 2.5 Million 3. Groothoek C 18 Ml/day 0.14 Million 4. Bethulie C 12 Ml/day 0.07 Million 5. Jaggersfontein C 4.7 Ml/day 0.08 Million 6. Gariep D 2.7 Ml/day 0.05 Million 7. Philippolis D 1.2 Ml/day 0.023 Million

Total 298 Ml/day 7.16 Million

CLASSIFICATION OF PROCESS CONTROLLERS Regulation 17 under the Water Services Act requires Water Services Institutions to train, classify and/or register every process controller on the water services works. Bloem Water has a training plan to ensure Process Controllers meet and exceed minimum requirements of the Regulation.

ASSET CONDITION AND MANAGEMENT The assessment of the Pre-stressed Concrete Pipeline (PCP) using an in line/underflow leak detection mechanism was undertaken. The Inline leak detection is a very accurate method of leak detection because the acoustic sensor used to identify the sound of the leak is brought directly to the source. Both Smart Ball and Sahara Audio-Video inspection technologies were successfully applied. The estimated water loss based on indicative leak sizing categories amounts to approximately 1200 kl/day. The findings of the latest leak detection surveys were compared to that of a previous Sahara leak detection inspection project performed in 2007-2009 and 2013 to establish trends. The leak detection findings, engineering evaluation and risk assessment were factored into the development of a pipeline specific management strategy.

46






MAINTENANCE MANAGEMENT ACTIVITIES Maintenance management is a key component of effective asset management and can be described as achieving the optimal balance between cost, risk and performance. Aging water infrastructure, together with increased capital costs, energy costs, insufficient capital funds are major risks currently facing Bloem Water. The potential for water supply system deterioration due to age is further compounded by expectations for growth that would further stress existing facilities. To deal with these issues Bloem Water has adopted a risk based maintenance management approach and has initiated an assets condition assessment program.

Annual Winter Maintenance Annual winter maintenance for the year under review commenced in May. Both corrective and preventative maintenance tasks are performed to ensure that infrastructure integrity is enhanced.

Water Supply Interruptions Water supply interruptions were experienced in the Naledi Local Municipality on two occasions due to planned maintenance in the Caledon region. In the Mangaung Metro Municipality area there were two major bursts on the mainline pumping to Bloemfontein and also in some areas of Thaba Nchu due to the pressure burst and theft of Eskom power cables.

Pipeline Reaction Team/Workshop The Pipeline reaction team provides services to Bloem Water and its customers, through the workshop which includes services such as meter maintenance, manufacturing of pipes, provide Municipal infrastructure support, maintains and repairs the pipelines, manufacture pipe specials and fittings and boreholes. Since establishment of the Pipeline reaction team, Bloem Water’s response to pipeline failures has improved immensely. The Pipeline reaction team does not only respond to pipeline incidents but play a vital role in annual preventative winter maintenance thereby ensuring security of the Organisation’s strategic assets.

SYSTEM AUTOMATION One of the business objectives of Bloem Water is to implement an automation system to ensure early warning. The systems that enabling automation of the plants are:

Field Instruments Programmable Logic Controllers (PLC) Telemetry Systems Supervisory Controller And Data Acquisitions (SCADA)

During the year under review, the systems that were implemented improved efficiencies, reduced costs and enhanced controls.




VALUES













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INFRASTRUCTURE DEVELOPMENT The implementation of infrastructure projects is aligned and informed by the Greater Reconciliation Studies for Mangaung and the Orange River under the Department of Water and Sanitation to address the short to long term water supply demands. The 2015/2016 Infrastructure Programme had fifty nine (59) projects of which twenty one (21) is CAPEX and thirty eight (38) Refurbishment projects. The budget for the 2015/2016 financial year was R269 million and the total budget spent was R67 million (24%). The implementation of some of the projects were reprioritised and deferred due to financial constraints. The thirty projects (30) that were completed equate to 50% of the entire number of projects. The budget of R205 million had been allocated to the remaining twenty nine (29) projects that will be rolled over and implemented in the 2016/2017 financial year. Planning of most of the projects has been completed and awaiting funding.

Figure 4: Status of Infrastructure Projects

KEY INFRASTRUCTURE PROJECTS

The list below represents projects that have been prioritised from the Capex 2016/2021 five year programmes and some of which are awaiting funding:

1. Construction of Tabali-OK Pipeline The construction of the proposed additional 10 km, parallel pipeline to the existing line will assist in the augmentation of water to Thaba Nchu Town, rural and urban villages up to Excelsior Town.

2. Extend Treatment Capacity of Rustfontein WTP – Construction The Reconciliation Study identified the interventions that are required to reconcile the long term demands and supply of water in the area with a drive to eradicate the sanitation backlogs. Bloem Water has therefore identified this project to extend the treatment capacity of the Rustfontein Water Treatment Works by 50Ml/d to a total of 150Ml/d. The detailed design report has been compiled and the project is ready for implementation.

Completed Projects : 30

Active Projects: 29

Total Projects: 59

Status of Infrastructure Projects 2015/15 Financial Year

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3. New Pipeline Rustfontein to Botshabelo The Rustfontein to Lesaka 15km pipeline is under construction and is needed to augment supply to Lesaka Reservoir.

4. Modder River Houtnek Booster Pump Station This project comprises of the construction of a 2Ml/d (mega litre) booster pump station to increase the flow and pressure of water from main pipeline located south east of the village of Houtnek, in Thaba Nchu into the Houtnek Reservoir. The project is currently at practical completion stage.

5. Chlorine Booster Room at Uitkyk Reservoir The Supply and installation of a containerized mobile chlorine room at Uitkyk Reservoir which is aimed to reduce the chlorine dosage at Welbedacht Water treatment works to ensure the maintenance of chlorine residual to required standard until it reaches the terminal reservoir in Bloemfontein. The project has been successfully completed.

6. Design and Construct Steel bypass line parallel to existing Caledon/BFN PCP line for the 35km, 1000mm diameter from Lieuwkop off take to Bloemfontein. Pre-stressed Concrete pipeline (PCP) from Lieuwkop to Bloemfontein experienced many pipeline failures due to high hydraulic and operating pressures. The objective of this project is to construct a steel pipeline parallel to the existing PCP.

7. Bi -directional pipeline between Knellpoort and Welbedacht Dam The project is aimed to assist by transferring water from Knellpoort to Welbedacht Dam through construction of the bi-directional raw water pipeline as an initiative to address the siltation and allow the scouring of the dam during floods. The project is at the Final Detail Design phase.

8. Construction of additional pipeline to Dewetsdorp reservoir The purpose of this project is to design and construct the pipeline system parallel to the current supply system to the Dewetsdorp Reservoir. The implementation of the project is underway.

9. Installation of booster pump station on the Wepener bulk water supply line This project would augment the current water challenges in the area by increasing the water supply by means of constructing a booster Pump station. The implementation of the projects is underway.

10. Gariep – Knellpoort Pipeline The Gariep – Knellpoort Pipeline project was initially planned for the 2035 intervention as part of the Greater Bloemfontein Reconciliation Steering Committee intervention plan, but due to the recent challenges with the water resource, in Caledon River catchment the project had to be brought forward for implementation. The Pre -feasibility study was completed which entailed the pipeline route, the aerial survey of the route and the pipeline length and the proposed pipe size of 600mm diameter.

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SAFETY, HEALTH, ENVIRONMENT AND QUALITY (SHEQ) Bloem Water as a water services provider recognizes that its activities could have an impact on people, communities and the environment within which it operates. The entity is therefore committed to conducting ethical business practices which maintain and enhance the balance between economic, social and environmental aspects. The Board is further committed to providing a safe and healthy working environment for its employees who is in strict compliance with the South African Occupational Health and Safety Act and other relevant regulations and recognised standards and guidelines. Regional managers assume full accountability for Safety, Health and Environment management throughout their respective regions. They are responsible and accountable for the proper resource utilisation and day-to-day management. Regional SHEQ officers have a functional reporting relationship to the Regional Managers and to the Assistant Manager SHEQ.

It was with considerable regret that Bloem Water recorded the loss of two labourers of a contractor in execution of duties in the period under review. Unfortunately a member of the community was fatally injured and the Board instituted an independent high-level investigation that resulted in a risk assessment review process and tightening of controls. In an unrelated accident, a member of the public was fatally injured in a road accident involving a Bloem Water vehicle and driver. These incidents are most regrettable and Bloem Water will continue striving towards a zero-fatality target. Within the Organisation, no fatal injuries were reported and the disabling injury frequency rate target was achieved.

EMPLOYEE HEALTH PROGRAMMES Lifestyle undoubtedly impacts the employer and this is leveraged by hosting sporting events that promote wellness and influence lifestyle choices of employees. Bloem Water regards it as crucial to keep employees healthy and accordingly focus on prevention and intervention processes that help reduce employees’ health risk factors.

Bloem Water co-ordinates employee sessions at head office and Regions on a monthly basis in line with the national health calendar. These include voluntary health checkups in partnership with Free State Department of Health and other health institutions such as CANSA for cancer awareness, Women’s Day and World Aids Day. Staff Wellness days are arranged where staff is able to undergo various health screening. These are well supported by employees across all regions. Chronic diseases testing were offered and overwhelming participation was recorded. Extended support is provided to employees with acute conditions or recovering from illnesses and/or injury provided that medical evidence is provided.

Corporate wellness programs generally reduce absenteeism. Bloem Water employees are provided with in-house wellness equipment and often enjoy coming to work and exercising with colleagues. Bloem Water partnered with the Mangaung Metropolitan Municipality and Free State Provincial Government in hosting the first Oliver Thambo Marathon which was well supported by Bloem Water employees. The impact of these initiatives became visible in both a reduction of sick leave days and in the reduced cost of employee turnover. Lower absenteeism was measured in quarter 4 of the financial year which means higher work output.

POLICY DEVELOPMENT Policy development and review is an important process to ensure that policies remain current and relevant to business strategy, technology and practices. System descriptions and standard operating procedures are also reviewed on a regular basis to ensure alignment between policies and practices. A review process was developed to allow for management to consider all policies annually and Board approval at least once in a three year cycle.

The year under review marked the development of a business continuity management model for Bloem Water. The process involved among other, the alignment and/or review of some key policies. A number of Health and Safety, Information Technology and Human Resource policies are currently subject to review and alignment.

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INFRASTRUCTURE CHALLENGES The five (5) Year Infrastructure Programme for the period 2016 - 2021 will require funding of R1,06 billion. The funding of this Programme is dependent on the tariff increases, water volume price and the borrowing limits. There are other factors like debtors payments, drought and water restriction measures influencing the ability to fund.

DEPARTMENT OF WATER AND SANITATION PROJECTS The Projects are aimed at addressing water challenges and sewer spillage in the Naledi Local Municipality and Kopanong Local Municipality. Bloem Water has been appointed as the Implementing Agent for these projects.

Bloem Water was also appointed by the Department as an implementing Agent for Bucket Eradication Programme in the Free State Province.

To date, Bloem Water has delivered as follows:

Total flushing : 10 067 Total Connected but not flushing 3 204 Sub Total 13 271 Started but not complete 4 394 Grand Total 17 665

The toilets connected but not flushing are awaiting the completion of bulk systems. The Department of Water and Sanitation has taken over the implementation of the 2015/2016 financial year.

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Human Capital Management

ORGANISATIONAL DESIGN TO MEET BUSINESS NEEDS Organization design or architecture of an organization as a metaphor provides the framework through which an organization aims to realize its core qualities as specified in its vision statement. It provides the infrastructure into which business processes are deployed and ensures that the organization's core qualities are realized across the business processes deployed within the organization.

The Board of Bloem Water aims to consistently realize the institution’s core qualities across the services offered to clients and stakeholders. The Board accordingly reviewed the organisational structure in August 2015 in response to changes in the environment relating to water quality, regulatory compliance and improved business processes. A work study exercise was commissioned to achieve alignment between organisational design and business needs whilst at the same time enhancing strategic alignment and improving efficiencies.

RECRUITMENT, SUCCESSION PLANNING AND RETENTION

Recruitment, retention and succession planning are three Human Resource functions that require strategic thought and planning. During the year under review, recruitment was contained and limited to critical positions only whilst allowing the work study process to unfold. Bloem Water’s succession planning philosophy is to create a pool of potential successors for key positions within Bloem Water. The policy was reviewed following engagement with labour and other stakeholders.

Recruitment in 2015/16 was focused on critical vacancies only pending the results of the work study process. A total of 6 positions were filled compared to 48 during the previous reporting period. It remains important to retain employees who add value to the organisation. The staff turnover measured 1.56% at 30 June 2016, the lowest rate experienced in 20 years. The staff turnover rate for the previous period was 4.78%.

Succession Planning, a market related remuneration structure and incentivizing good performance are some of the strategies employed to manage staff retention. Exit interviews serve as a tool to assess what drives an individual to leave, the aspects valued by the exiting employee(s) and what needs to improve in order to increase employee engagement, performance and loyalty.

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WORKFORCE PROFILE

Quarterly workforce analysis are presented to the Board through which staffing data and trends are reviewed to determine current and future staffing needs and focus areas.

Age analysis: The last three years showed a marked improvement in the staff age analysis having managed an aging workforce through recruiting younger employees and/or appointments from the learnership pool, as a return on investment. The Government initiative on youth accord is accordingly supported. Whilst there is still sufficient representation of older, more experienced and able employees, skills are transferred to younger employees at entry level. It further reliefs the funding requirements of the defined benefit pension fund when an age balance of members is maintained.

Core versus supporting staff: The core staff represented 65.49% of the institution compared to the supporting services at 34.51% of the staff complement.

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Female representation: The female representation increased by 3% as at 30 June 2016. This area requires improved focus to promote gender diversity and equitable participation of women at all levels within the organisation.

EMPLOYMENT EQUITY AND WORKFORCE PROFILE The Employment Equity Plan of Bloem Water 2012 – 2017 allows the organisation to promote and manage diversity within the workforce using methods such as affirmative action and strategies such as black economic empowerment (BEE). These initiatives has sought to redress the imbalances of the past and have entrenched themselves into the Bloem Water landscape. Bloem Water has managed to embrace diversity and cultivate a work environment which aids the exchange of new perspectives while creating respectful workplace relationships.

Bloem Water is compliant to the requirements of the Employment Equity Act. The Employment Equity Committee is functional and currently preparing to draft a new plan for consideration by the Board. The plan will direct future targets and focus areas.

African 87.66%Coloured 4.03%

Indian 0.25% White 8.06% African

Coloured

Indian

White







Coloured

Indian

White

50






Coloured

Indian

White







Coloured

Indian

White

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EMPLOYEE RELATIONS AND HUMAN RIGHTS The concept of human rights at work has advanced significantly in the last decade. Human rights legislation is applied to all practices of employment such as recruitment, terminations, remuneration and other.

The Board strives to create a better world through its mission and by creating an inclusive workplace that is respectful and welcoming of diversity. To this end management reports quarterly to the Social and Ethics Committee of the Board on the UN Global compact principles. Principle 1 of the compact relates to the support and respect of the protection of international proclaimed human rights.

STAFF DEVELOPMENT AND RECOGNITION Training and development is part of the strategic human resource planning process to improve business value and to enable the organisation to reach its goals. This year the training unit embarked on a process for the development and/or revision of individual development plans for all employees. The information collected accordingly, coupled with the developmental requirements collated from the quarterly performance assessments formed the basis of the workplace skills plan. The intention was to align the training plan with actual training needs from both an individual and compliance perspective.

The training committee is now well established and duly involved in the development process. The Local Labour Forum was also engaged and contributed towards finalizing the Workplace Skills Plan on time and with due consideration of operational requirements.

Staff recognition is a key success factor, those who perform must be acknowledged and the organisation must celebrate success. The performance management policy sets the parameters for performance management and –incentives. The external auditors perform the annual agreed upon procedures to measure performance of the entity. Set targets are measured based on portfolios of evidence provided. The overall performance of the entity measured 76.81% for the 2014/15 financial year and auditing of the 2015/16 performance evidence is pending.

A performer of the year award was introduced in 2013 allowing for a controlled nomination-, evaluation- and adjudication process. Awards are announced annually at a formal event. This results in healthy competition among employees and regions, building team spirit and morale. A region of the year award is bestowed on the region that outperformed other regions based on set criteria.

PERFORMANCE DEVELOPMENT Performance Rewards

Programme Performance rewards (R’000)

Personnel Expenditure (R’000)

% of performance rewards to total personnel cost

Top Management 2 351 295 13 004 030.00 18.08 Senior Management 2 149 081.41 16 810 496.51 12.78 Professional qualified 766 214.05 5 572 932.92 13.75 Skilled 4 438 435.10 54 174 336.66 8.19 Semi-skilled 1 493 471.45 44 699 837.02 3.34 Unskilled 887 816.16 16 430 200.89 5.40 TOTAL 12 086 313.17 150 691 834 8.02

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Employee Wellness

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Financial Overview

INTRODUCTION

The country and the Free State has experienced severe drought conditions for the whole year which was not anticipated during the budget process. The levels of water and the implementation of restrictions by the Department of Water and Sanitation and the Mangaung Metropolitan Municipality resulted in a drastic decline in water demand from the entity. Similar restrictive measures were also required for the smaller municipalities. Bloem Water had to consider a budget revision early in the financial year to accommodate the impact of the continuation of the drought and water restrictions. The revised budget was approved by the Board and submitted to the Department of Water and Sanitation. Cost containment measures were considered and implemented for operations and maintenance. The Capex program was revised and a number of extension and refurbishment projects were deferred. The debtors’ position deteriorated as the outstanding accounts of the municipalities increased during the year, with an increasing number of non-payments towards the end of the year. The section 30 activities declined as the bucket eradication project was concluded during the year, with declining revenue from implementing agent fees. The conditions experienced during the year have strained the financial performance of the entity and the focus has continued on the debt and liquidity management. The net loss for the year can mainly be attributed to the impairment of trade receivables. The Financial Statements are prepared in accordance to the Public Finance Management Act 1999, the Water Services Act 1997, and SA Statements of Generally Accepted Accounting Practice and also incorporates responsible disclosures in line with the best accounting practices. The Financial Statements are based on appropriate accounting policies consistently applied and supported by reasonable, prudent judgements and estimates.

FINANCIAL OPERATING PERFORMANCE Bloem Water measures its financial performance and achievements against the financial indicators as contained in the Shareholders Compact for 2015/16. These indicators were amended with the revision of the budget and progress is reported accordingly. Bloem Water experienced declining financial results during the 2016 financial year in a challenging economic environment which was driven and aggravated by the drought experienced. This had an impact on water capacity and water levels. Additional financial control measures were implemented to enhance and improve the efficient operating expenditure environment. National Treasury’s cost containment measures were adhered to and it supported the reduction in expenses.

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The income generated during 2016 strained Bloem Water’s profitability/liquidity and solvency ratios, as lower sales resulted in insufficient revenue for operations and maintenance requirements as well as Capex projects. Revenue increased marginally whereas the other income associated with implementing agent fees declined. The operating and maintenance expenditure remained in line with the demand volumes apart from the electricity expenditure which increased due to water distribution to maintain levels in the different dams. Load shifting was introduced to mitigate the risk. The non-payment by the Water Services Authorities has the biggest impact on the finances of the entity and its ability to operate optimally. Various reporting and legislative compliance processes were embarked upon in an effort to resolve non-payment. These processes involved liason with the National and Provincial Treasury, Department of Water and Sanitation, Cogta and other related parties. The debtors accounts have risen to R297.3 million at year end, before impairment of assets were accounted for. This resulted in a deficit of R 28.444 million. An amount of R1.68 million was transferred to the Insurance Fund; hence the retained earnings totalled R 613.358 million at the end of the financial year. The 2016 financial results are reflective of the challenging economic environment. The Financial Statements reflect historical costs where the following were accounted for:

Description % of gross income Amount of gross income(R’000)

Bulk water sales 90,5 469,8

Finance income 6,9 35,7

Other income 2,5 13,1

Description % of gross expenditure Amount of gross expenditure

(R’000)

Operating expenditure 96,7 529,2

Finance cost 3,3 17,9

MAIN COST DRIVERS

The direct operating cost drivers are water abstraction, energy, chemicals and staff cost. The water abstraction cost declined due the lower demand due to the drought and water restrictions. The Groothoek dam abstraction could not be done due to the level of water. The raw water charges are substantially higher that the other abstraction points, which attributed to the lower expenditure. The increase in energy cost was primarily due to the tariff increases as well as the increased pumping requirements with the alleviation of the drought conditions. Chemical costs increased with price increases but was offset with the volumes of demand and the quality of water treated. Staff cost increased mainly due to the annual salary increases and new appointments.

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Water Abstraction Costs

0

5000

10000

15000

20000

25000

30000

2015/16 2014/15 2013/14 2012/13 2011/12 2010/11 2009/10

Cost

Financial Year

Water abstraction cost (R'000)

Energy Costs

0

20000

40000

60000

80000

100000

2015/16 2014/15 2013/14 2012/13 2011/12 2010/11 2009/10

Energy cost (R'000)

Energy cost

Chemical Costs

0

5000

10000

15000

20000

2015/16 2014/15 2013/14 2012/13 2011/12 2010/11 2009/10

Chemicals (R'000)

Chemicals

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Staff Costs

020000400006000080000

100000120000140000160000

2015/16 2014/15 2013/14 2012/13 2011/12 2010/11 2009/10

Staff cost (R'000)

Bulk Water Sales Analysis The impact of the drought and the restrictions resulted in the total volume of treated and raw water sold to be below the budgeted volumes. Bloem Water’s major client is Mangaung Metropolitan Municipality (MMM) and the supply to the municipality has the biggest impact on the budgeted volumes.

Consumer Quantity Treated Water Sold (Kℓ)

2014/2015 2015/2016

Mangaung Metropolitan Municipality 68 168 772 63 292 266 Kopanong Local Municipality 5 560 260 5 246 648 Naledi Local Municipality 1 320 794 1 470 370 Mantsopa Local Municipality 168 263 140 244 Other (Bulk) 1 844 904 1 967 186 TOTAL 77 062 993 72 116 714

Consumer Quantity Untreated Sold (Kℓ) 2014/2015 2015/2016

Mangaung Metropolitan Municipality 14 662 335 7 871 519

Other 6 116 2 185

TOTAL 14 668 451 7 873 704

BULK WATER TARRIFF The average tariff increase for the year was 15% for both the treated and raw water.

Systems Tariffs (excluding VAT)

Bulk consumers (Bloemfontein, Botshabelo, Bethulie, Dewetsdorp, Edenburg, Excelsior, Fauresmith, Gariep,

Jagersfontein, Phillippolis, Reddersburg, Springfontein, Thaba Nchu, Trompsburg, Wepener and others)

Bulk Treated Water

Bulk Raw Water

Cents per Kℓ

597

439

Water research levy (Excluding VAT)

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CASH FLOW ANALYSIS Cash from operating activities are negatively affected by comprehensive loss mainly due to non-payment of Municipalities and Department of Water and Sanitation. Credit control processes are implemented to pursue recovery of funds. Cashflow from financing activites are aligned to the approved capital borrowing plan, although some identified projects were deferred subject to the stabilising of the financial status of the entity. Future borrowings for expansion requirements will be considered when trading conditions normalize. Surplus cash are invested in line with the board approved investment policy. These limited funds are earmarked for loan obligations and for future Infrastructure project requirements.

PERFORMANCE MEASUREMENT ACCORDING TO FINANCIAL RATIOS Performance and Measurement

2014/2015 2015/2016

LIQUIDITY

Current ratio 2,68 2,56

Debt-equity 0,59 0,61

SOLVENCY Debt service/interest cover ratio 1,83 -2,58

Debt ratio 0,37 0,38

PROFITABILITY

Current asset turnover 0,92 1,00

Return on assets 0,02 -0,04

Asset turnover 0,34 0,35

Gross margin % based on operating profit 7,0% -10%

Gross margin % based on gross income 95,0% 95,5%

ACTIVITY/OPERATING

Fixed asset turnover 0,54 0,55

Inventory turnover 2,2 1,7

Debtors collection period 76,3 69,86

Accounts receivable turnover 4,46 4,88

Working ratio 1,02 1,16

Controllable working ratio 0,82 0,95

Weighted Average Cost per Capital 0,03 0,04

SURPLUS RATIOS

Accounting surplus/fixed assets 0,05 -0,03

Accounting surplus/revenue 0,09 -0,06

BUSINESS CREDIT RISK

EBIT interest coverage 1,83 -2,58

EBITDA interest coverage 4,86 0,76

Return on average total capital 0,07 -0,01

EBITDA/Sales 0,18 0,03

Internal Financing Ratio 0,37 0,38

Financial leverage or Debt 0,37 0,38

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FUNDING REQUIREMENTS The Department of Water and Sanitation compiled a Water Reconciliation Strategy Study for the large bulk water supply systems: Greater Bloemfontein Area, which informs the decisions for various parties for future development. Funding requirements are aligned to the study and the prioritised CAPEX needs analysis and approved borrowing limits. National Treasury approved borrowing limits for 5 years. The guidelines and set ratios by National Treasury and the Department of Water and Sanitation are affected and external funding can be sourced during the next few years within borrowing limit constraints. Any requirements beyond it will require grant funding or finance by the department. The needs will have to be prioritised in line with the availability of financial resources. The decline in revenue and the increase in outstanding debtors is affecting the ability to fund projects. The future funding process will be considered when the situation stabilises, in line with the business plan.

DEFINED BENEFIT PENSION PLAN The entity has its own pension fund which is a Defined Benefit Plan. It is valuated in terms of IAS 19 and is currently in a fully funded position. The Board of Trustees, supported by the employer, has implemented various measures in place to maintain it at a fully funded position. Further details are included in the notes to the Annual Financial Statements.

FINANCIAL RISKS Bloem Water is concerned about the increase in outstanding debt and possible bad debt and has continued with Section 44 MFMA processes. The Board and management is continuing with negotiations in respect of the remaining arrears accounts. The outstanding accounts of major Municipalities deteriorated at year-end in comparison to the beginning of the year. Various sessions were arranged where the national and provincial offices of Treasury, Auditor- General, COGTA and the Department of Water and Sanitation participated.

The Mangaung Metro municipality defaulted in payment in recent months. Several engagements followed after the Section 44 MFMA process was instituted. It was resolved that certain accounts be paid and the other accounts will be settled following the finalisation of a technical verification process on the bulk meters.

The Naledi Local Municipality defaulted in payment over the last few months. No progress was made in resolving the matter. The municipality is incorporated with the metro and the metro was engaged on the payment of the account. The challenges that existed with Kopanong Local Municipality over the last few years were not resolved, although partial payments were received on recent accounts. A format of payment was agreed upon when the Municipality receives the equitable share, although the Municipality made little effort to comply with these conditions and payment has mostly not been made in accordance with the Agreement.

ACCOUNTING POLICIES AND CHANGES IN ESTIMATES The Accounting Standard Board, National Treasury and the Auditor General have been in consultation with Water Boards regarding changing of applicable accounting standards. During July 2015 a directive was issued by the ASB. The Board’s deliberations on this matter gave way to three consultations which resulted in the development of two Exposure Drafts on The Application of Standards of GRAP by Government Business Enterprises (Schedule 3B and 3D) (ED 124), and The Selection of an Appropriate Reporting Framework by Public Entities (ED 130), issued for comment in May 2014 and February 2015 respectively.

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The Directive is effective for financial years commencing on or after 1 April 2018 so as to provide entities sufficient time to prepare for any change in reporting framework, with earlier application permitted. Therefore the initial application is 1 April 2018, or earlier. The Directive is applied subsequently where entities believe that a significant change has occurred that leads them to conclude that they meet, or no longer meet, the criteria in the Directive. These processes are still in progress as the Executive Authority should still adopt it for the water boards.

SUPPLY CHAIN MANAGEMENT Supply Chain Management is a highly regulated function of government institutions. With the establishment of the National Treasury Office of the Chief Procurement officer, whose role is to “…modernise and oversee the South African public procurement system to ensure that the procurement of goods, services and construction works is conducted in a fair, equitable, transparent, competitive and cost effective in line with the Constitution and all relevant legislation. The Office is not directly involved in procurement, but manages procurement reforms, maintains the procurement system and oversees the way in which government does business with the private sector. ”many changes have since come into effect.

Bloem Water currently meets the required Committee Structures and organizational SCM functions as per legislation and it operates under the Public Finance Management Act and its framework. It can be reported that the Bid Committees are in place and fully functional. Necessary procedural arrangements are constantly being improved and communicated to employees and kept updated with developments with the SCM regulatory sphere. Institutional arrangements that assist the entity in diligently carrying out its mandate have been effected by re-aligning roles and responsibilities within SCM whilst ensuring that clear roles and responsibilities of all role players in the chain and where necessary Delegations of Authority have been amended accordingly. All SCM activities are thus directed at ensuring that the entity achieves its strategic objectives and as such constant communication and monitoring is carried out by the office of the CFO and CE.

Legislative & Compliance changes: The Central Supplier Database (CSD) has resulted in the repeal of the National Treasury Practice Note no 8 of 2007/2008 relating to entities list of Prospective Suppliers. This function has since been moved to the National Treasury in line with Instruction note No. 4 of 2016/2017. This reduces the burden on institutions in terms of vendor management and the added risk of vendor non-compliance which reduction is greatly welcomed.

Bloem Water has thus complied with the instructions of the CSD as instructed by National Treasury effective 01 July 2016. Policies and processes are currently being aligned.

In addition to the above, the National Treasury has also issued Instruction Note. No 4 of 2015/2016: The Standard for Infrastructure Procurement and Delivery Management which is effective 01 July 2016. The purpose of this instruction note is to prescribe the following:

A control framework for the planning, design and execution of Infrastructure projects, the tracking of such projects and the monitoring of performance ;

A control framework for infrastructure procurement; Requirements for Institutional Arrangements, the Supply Chain Cycle and Risk Management & Internal

Controls; and Minimum standards for infrastructure procurement.

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Broad Based Black Economic Empowerment and its Regulations Following the amendments of the BBBEE Act and promulgation of the new regulations, Bloem Water has been aligning Policies and processes and preparing itself for the next BEE assessment process wherein the new gazette Codes will be the measure of Bloem Water’s performance with regards to the four relevant elements (Management Control, Skills Development, Enterprise & Supplier Development and Socio-Economic Development).

Initiatives to empower in all four BBBEE elements have been carried out throughout the year and this was culminated by the invitation of both the Department of Trade and Industry (DTI) and Treasury to provide workshops to Management with emphasis on Compliance matters and Cost Containment. It is thus anticipated that the outcome of the Verification process will be positive and demonstrate Bloem Water’s commitment to Good Corporate Citizenship.

Industry General Practice and Compliance In terms of consultancy appointments Bloem Water complies with relevant regulatory body requirements that fall within the ambit of South African law. In relation to the Construction Industry Development Board (CIDB) – It can be reported that Bloem Water has complied with CIDB requirements for the period and South African Revenue Services in relation to supplier payments

FUTURE PROSPECTS The impact of the water demand, drought conditions and the increase in non-payment places the financial sustainability of Bloem Water at risk. Bloem Water strives to maintain the sustainability of its operations under current conditions and manage finance for its CAPEX plan within the limits of affordability. A concerted effort and following due process in collaboration with the relevant stakeholders will continue to strive to recover the outstanding accounts.

The current conditions places a strain on the financial ability of the entity and will only improve when the water supply stabilises from the drought and the payment ratio improves from its clients.

Bloem Water will contribute towards the water value chain in line with National and Provincial objectives which maintained financial viability. The implementation of projects on behalf of other government entities and investment in water service delivery will assist in making a better life for all.

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Financial Statements

Bloem Water Financial statements for the year ended 30 June 2016

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Financial statements for the year ended 30 June 2016 Entity information Registered address: 2 Mzuzu Street Pellissier Bloemfontein 9300 Postal address: PO Box 30121 Pellissier Bloemfontein 9322 Auditor: KPMG Incorporated Bankers: First National Bank of Southern Africa Limited ABSA Bank Investec Bank Standard Bank Nedbank Country of incorporation: South Africa Legal form: Schedule 3B entity Nature of business: The supply of purified and un-purified water




VALUES













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Financial statements for the year ended 30 June 2016 Contents Page Statement of responsibilities and approval 68 Report of the Audit Committee

69 – 70

Independent auditor’s report 71 – 74 Statement of financial position 75 Statement of comprehensive income 76 Statement of changes in equity 77 Statement of cash flows 78 Notes to the financial statements 79 – 117 Detailed statement of comprehensive income 118 – 119 Report on performance against the strategic plan 120 – 124

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Statement of responsibilities and approval for the year ended 30 June 2016 The Board is responsible for the maintenance of adequate accounting records and the preparation, fair presentation and integrity of the financial statements and related information. The auditors are responsible to report on the fair presentation of these financial statements. The financial statements have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) as at 1 April 2012 and in the manner required by the Public Finance Management Act of South Africa, Act No. 1 of 1999 and other enabling legislation. The application of SA GAAP as at 1 April 2012 has been mandated by the Accounting Standards Board. A detailed analysis to the application is set out in notes 1.1 and 1.2 to the financial statements. The Board also prepared the other information included in the annual report and is responsible for both its accuracy and its consistency with the financial statements. The Board is also responsible for such internal control as the Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. These controls are designed to provide reasonable, but not absolute assurance as to the reliability of the financial statements and to adequately safeguard, verify and maintain accountability of assets, and to prevent and detect misstatement and loss. Nothing has come to the attention of the Board to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review. The financial statements have been prepared on the going concern basis since the Board has every reason to believe that Bloem Water has adequate resources in place to continue in operation for the foreseeable future. The independent auditing firm KPMG Incorporated has audited the financial statements. They have been given unrestricted access to all financial records and related data, including minutes of all meetings of the Board and committees of the Board. The Board believes that all representations made to the independent auditors during their audit were valid and appropriate. The audit report is presented as part of the financial statements. The financial statements were approved by the Board and signed by the Chief Executive. _____________________________ Dr L Moorosi Chief Executive _____________________________ Date

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Report of the Audit Committee for the year ended 30 June 2016 We are pleased to present our report for the financial year ended on 30 June 2016. Audit Committee Responsibility The Committee reports that it has complied with its responsibilities arising from Section 38(1) (a) of the PFMA and Treasury Regulation 3.1.13. The Committee also reports that it has adopted an appropriate formal Terms of Reference of its Audit Committee Charter, has regulated its affairs in compliance with this Charter and has discharged its responsibilities as contained therein. Auditor’s Report: Predetermined Objectives Our Auditors play a critical role in providing an independent assurance that the activities which are being carried out by the organization are in accordance with the approved predetermined objectives. The audit conclusions on the performance against predetermined objectives are included in the report to management, with material findings being reported in this annual report as per the legal and regulatory requirements. Please refer to page 71 of the Independent Auditor’s Report. The effectiveness of internal control The cost-effective assurance is provided in the systems of internal control that safeguard the assets and liabilities to be efficiently managed. In line with the PFMA and the King III Report on Corporate Governance requirements, internal audit provides the Committee and the Board an assurance that the internal controls are appropriate and effective. Continuous suggested enhancements of the internal controls and processes are achieved through risk management processes Bloem Water operates in a challenging environment, from strategic, business and operational perspectives. From the various reports of the internal Auditors, a number of areas were highlighted that required control improvement. Management has put processes and systems in place to address these issues. Despite these challenges we can report that overall, the systems of internal control during the 2015/16 financial period were effective and efficient. The Committee, therefore, considers Bloem Water’s internal controls and systems appropriate in all material respects to:

Reduce Bloem Water’s overall risks to an acceptable level Ensure Bloem Water’s assets are adequately safeguarded Meet business objectives of Bloem Water.

The quality of in-year management and quarterly reports submitted in terms of the PFMA and the Division of Revenue Act.

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Report of the Audit Committee for the year ended 30 June 2016 (Continued} Evaluation of Annual Financial Statements The Audit Committee has:

Reviewed and discussed with the external Auditors and Management the Annual Financial Statements (AFS) to be included in the Annual Report;

Reviewed the external Auditors’ Audit Report and Management responses thereto; Reviewed the accounting policies and practices; Reviewed significant adjustments resulting from the audit; Reviewed the Annual Financial Statements prior to publication both for fair presentation and for

conformity with the South African Statements of Generally Accepted Accounting Practices (SA GAAP).

Conclusion The Committee has evaluated the Annual Financial Statements of Bloem Water for the period ending 30 June 2015 and concluded that they comply, in all material aspects, to the requirements of the PFMA No.1 of 1999 (as amended) and the South African Statements of Generally Accepted Accounting Practice (SA GAAP). The Committee also agreed that the adoption of the going concern premise is appropriate in preparing Bloem Water’s Annual Financial Statements. The Committee, therefore, recommended the adoption of the Annual Financial Statements by the Board at its meeting on 23 September 2016. The Committee notes and supports the conclusions of the external Auditors, and is of the opinion that the audited Annual Financial Statements be accepted and read together with the report of the independent Auditors. The Committee would like to congratulate management on obtaining an unqualified audit report.

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Independent Auditor’s Report

To Parliament and the Executive Authority, the Minister of Water and Sanitation on Bloem Water Report on the financial statements We have audited the financial statements of Bloem Water set out on pages 75 to 117, which comprise the statement of financial position at 30 June 2016, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information. The Accounting Authority’s responsibility for the financial statements The board of directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the requirements of the Public Finance Management Act of South Africa, and for such internal control as the accounting authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Bloem Water at 30 June 2016 and its financial performance and cash flows for the year then ended in accordance with South African Statements of Generally Accepted Accounting Practice and the requirements of the Public Finance Management Act of South Africa.

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Independent auditor’s report To Parliament and the Executive Authority, the Minister of Water and Sanitation on Bloem Water (continued) Other matter The supplementary information set out on pages 118 to 119 does not form part of the financial statements and is presented as additional information. We have not audited these schedules and, accordingly, we do not express an opinion thereon. Report on other legal and regulatory requirements Public Audit Act requirements In accordance with the Public Audit Act of South Africa (PAA), and the general notice issued in terms thereof, we have a responsibility to report findings on the reported performance information against predetermined objectives of selected objectives presented in the annual report, compliance with legislation and internal control. We performed tests to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, we do not express an opinion or conclusion on these matters. Predetermined objectives We performed procedures to obtain evidence about the usefulness and reliability of the reported performance information of the following selected objectives presented in the Report on performance against the strategic plan 2015/2016 as set out on pages 120 to 124 of the annual report, and reported thereon to the Accounting Authority: We performed procedures to obtain evidence about the usefulness and reliability of the reported performance information of the following selected objectives presented in the Report on Performance against the strategic plan 2015/2016 as set out on pages 120 to 124 of the annual report, and reported thereon to the Accounting Authority: Objective 1: Water Quality Compliance on page 120 Objective 2: Reduced avoidable water losses on page 120 Objective 3: Reliability of supply on page 120 Objective 4: Contribution to National objectives of extending services on page 120 Objective 7: Increase in BBBEE expenditure on page 121 Objective 8: Manage cost within the approved budget on page 121 Objective 9: Capital expenditure to meet demands on page 121 Objective 10: Engagement in secondary activities on page 121 Objective 11: Bulk supply agreements concluded with Municipalities/other customers on

page 121 Objective 12: Implementation of Ministerial directives on page 121 Objective 13: Support rural development on page 122 Objective 14: Achieve Statutory Reporting compliance on page 122

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Independent auditor’s report To Parliament and the Executive Authority, the Minister of Water and Sanitation on Bloem Water (continued) We evaluated the usefulness of the reported performance information to determine whether it was presented in accordance with the National Treasury’s annual reporting principles and whether the reported performance was consistent with the planned objectives. We further performed tests to determine whether indicators and targets are well defined, verifiable, specific, measurable, time bound and relevant, as required by the National Treasury’s Framework for managing programme performance information (FMPPI). We assessed the reliability of the reported performance information to determine whether it is valid, accurate and complete. We did not identify any material findings on the usefulness and reliability of the reported performance information for the selected objectives. Additional matter Although we identified no material findings on the usefulness and reliability of the reported performance information for the selected objectives, we draw attention to the following matter: Achievement of planned targets Refer to the annual performance report on page(s) 120 to 124 for information on the achievement of the planned targets for the year. Of the total 37 planned targets 21 were achieved during the year under review. This represents 43% of total planned targets that were not achieved during the year under review. The directors have presented reasons for variations from planned targets in the Report on performance against the strategic plan. Compliance with legislation We performed procedures to obtain evidence that the entity had complied with legislation regarding financial matters, financial management and other related matters. We did not identify any instances of material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA. Internal control We considered internal control relevant to our audit of the financial statements, Report on performance against the strategic plan and compliance with legislation, but not for the purpose of expressing an opinion on the effectiveness of internal control. We did not identify any significant deficiencies in internal control.

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Independent auditor’s report To Parliament and the Executive Authority, the Minister of Water and Sanitation on Bloem Water (continued) Other reports We draw attention to the following engagements that could potentially impact on the entity’s financial, performance and compliance related matters. Our opinion is not modified in respect of these engagements that are either in progress or have been completed.

Investigations Management initiated an investigation on alleged irregularities on supplier contract payments made during the previous financial year. The investigation is still ongoing at the date of this report. Management cannot reasonably estimate the completion date of the investigation. Audit-related services and special audits We were engaged by the Accounting Authority to perform agreed upon procedures on the performance contracts of the entity for the period 1 July 2014 to 30 June 2015, and reported the results thereof on 21 October 2015. KPMG Inc. Registered Auditor Per: D Kanfer Chartered Accountant (SA) Registered Auditor Director 23 September 2016 200 Nelson Mandela Drive Brandwag 9301

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Statement of financial position at 30 June 2016 Note 2016 2015 R’000 R’000 Assets Non-current assets 858 761 859 648 Property, plant and equipment 2 828 627 833 242 Defined benefit asset 15 30 134 26 406 Current assets 471 612 504 574 Inventories 3 12 238 10 581 Trade and other receivables 4 96 267 103 700 Cash and cash equivalents 5 235 971 293 564 Infrastructure project receivable 21 127 136 96 729 Total assets 1 330 373 1 364 222 Equity and liabilities Capital and reserves 826 626 855 070 Retained earnings 613 358 643 482 Capital replacement fund 87 350 87 350 Capital development fund 70 217 70 217 Insurance fund 12 122 10 442 Asset DWS reserve fund 43 579 43 579 Non-current liabilities 319 256 320 765 Interest bearing loans and borrowings 6 231 537 233 046 Deferred income 20 87 719 87 719 Current liabilities 184 491 188 387 Current portion of interest bearing loans and borrowings 6 58 771 69 362 Trade and other payables 7 125 720 119 025 Total equity and liabilities 1 330 373 1 364 222

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Statement of comprehensive income for the year ended 30 June 2016 Note 2016 2015 R’000 R’000 Revenue 9 469 885 462 255 Water abstraction costs (21 166) (23 323) Gross income 448 719 438 932 Other income 9.1 13 131 25 453 Chemicals (14 383) (18 899) Depreciation (59 920) (52 508) Distribution cost (15 298) (16 592) Energy cost (96 585) (87 645) Repairs and maintenance (11 460) (14 523) Employment costs (150 691) (140 790) Impairment of trade receivables (111 660) (34 754) Operating expenses (48 081) (66 971) Operating (loss) / profit 10 (46 228) 31 703 Finance income 11 35 719 27 772 Finance costs 12 (17 935) (17 339) (Loss) / profit for the year (28 444) 42 136 Other comprehensive income - - Total comprehensive (loss) / income for the year (28 444) 42 136

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Statement of changes in equity for the year ended 30 June 2016 Note 2016 2015 R’000 R’000 Retained earnings Opening balance 643 482 602 276 Total comprehensive income/(loss) for the year (28 444) 42 136 Transfer from / (to) the insurance fund (1 680) (930) Closing balance 613 358 643 482

Capital replacement fund Opening balance 87 350 87 350 Transfer from / (to) retained earnings - - Closing balance 87 350 87 350 Capital development fund Opening balance 70 217 70 217 Transfer from / (to) retained earnings - - Closing balance 70 217 70 217 Insurance fund Opening balance 10 442 9 512 Transfer from / (to) retained earnings 1 680 930 Closing balance 12 122 10 442 Asset DWS reserve fund Opening balance 43 579 43 579 Transfer from / (to) retained earnings - - Closing balance 43 579 43 579

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Statement of cash flows

for the year ended 30 June 2016 Note 2016 2015 R’000 R’000 Cash flow from operating activities Net cash inflow from operating activities 43 236 51 141 Cash received from customers 350 188 380 651 Cash paid to suppliers and employees (298 164) (318 929) Cash generated from operating activities 13.1 52 024 61 722 Finance income 20 359 17 873 Finance costs (including borrowing cost capitalised) (29 147) (28 454) Cash flow from investing activities Net cash outflow from investing activities (88 748) (98 600) To expand and refurbish Additions to property, plant and equipment (66 198) (76 986) Proceeds on disposal of property, plant and equipment 177 709 Contributions made to defined benefit plan (22 727) (22 323) Cash flow from financing activities Net cash generated in financing activities (12 098) 11 451 Deferred income - - Interest bearing borrowings raised 49 000 72 700 Interest bearing borrowings repaid (61 098) (61 249) Net decrease in cash and cash equivalents (57 610) (36 007) Cash and cash equivalents at the beginning of the year 293 553 329 560 Cash and cash equivalents at end of the year 13.2 235 943 293 553

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Notes to the financial statements for the year ended 30 June 2016 1. Summary of significant accounting policies

The principle accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied, unless otherwise stated.

1.1. Basis of preparation and measurement Basis of measurement The financial statements have been prepared on the historical cost basis except where otherwise

indicated. The financial statements are presented in South African Rand (R) (rounded to the nearest thousand (R’000) except where otherwise indicated), which is the functional and presentation currency.

Statement of compliance The financial statements of Bloem Water have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) as at 1 April 2012 (including all amendments to May 2011) and the Public Finance Management Act of South Africa, Act No. 1 of 1999 (PFMA).

1.2 Changes in accounting policies and disclosures The new Companies Act, 2008 (Act No. 71 of 2008) required a re-evaluation of the continued existence of statements of SA GAAP. This resulted in a decision during March 2012 to withdraw statements of SA GAAP for financial years commencing on or after 1 December 2012. The withdrawal of statements of SA GAAP has an impact on schedule 3B public entities (i.e. Bloem Water) that are required to apply the SA GAAP reporting framework. In the interim, the Accounting Standards Board (ASB) has approved that public entities that previously applied statements of SA GAAP should continue to apply statements of SA GAAP as at 1 April 2012, including amendments to May 2011. Consequently, Bloem Water will continue to apply SA GAAP as at 1 April 2012 to the financial statements for the year ended 30 June 2016. During July 2015 a directive was issued by the ASB. The Board’s deliberations on this matter gave way to three consultations which resulted in the development of two Exposure Drafts on The Application of Standards of GRAP by Government Business Enterprises (Schedule 3B and 3D) (ED 124), and The Selection of an Appropriate Reporting Framework by Public Entities (ED 130), issued for comment in May 2014 and February 2015 respectively.

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Notes to the financial statements for the year ended 30 June 2016 (continued) 1.2 Changes in accounting policies and disclosures (continued)

The Directive is effective for financial years commencing on or after 1 April 2018 so as to provide entities sufficient time to prepare for any change in reporting framework with earlier application permitted. Therefore the initial application is 1 April 2018, or earlier. The Directive is applied subsequently where entities believe that a significant change has occurred that leads them to conclude that they meet, or no longer meet, the criteria in the Directive. The Directive requires the conversion either to GRAP or IFRS based on certain criteria. In the event of a transition to IFRS, there are new or revised Accounting Standards and Interpretations in issue. These include the following Standards and Interpretations that are applicable to the business of the entity and will have an impact on future financial statements. These standards will be effective to Bloem Water from 1 July 2018 as this is will be the first financial year for Bloem Water commencing on or after 1 April 2018.

Standard or Interpretation The Board is of the opinion that the impact of the

application of the remaining Standards and Interpretations will be as follows:

Effective for the financial year end commencing 1 July 2018 IFRS 13 Fair Value Measurement

The standard will be applied prospectively and comparatives will not be restated.

IFRS 13 introduces a single source of guidance on fair value measurement for both financial and non-financial assets and liabilities by defining fair value, establishing a framework for measuring fair value and setting out disclosures requirements for fair value measurements. The key principles in IFRS 13 are as follows:

Fair value is an exit price Measurement considers characteristics of the asset or

liability and not entity-specific characteristics Measurement assumes a transaction in the entity’s

principle (or most advantageous) market between market participants

Price is not adjusted for transaction costs Measurement maximises the use of relevant

observable inputs and minimises the use of unobservable inputs

The three-level fair value hierarchy is extended to all fair value measurements

The impact on the financial statements for Bloem Water cannot be reasonably estimated as at 30 June 2016.

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Notes to the financial statements for the year ended 30 June 2016 (continued) 1.2 Changes in accounting policies and disclosures (continued) Standard or Interpretation The Board is of the opinion that the impact of the

application of the remaining Standards and Interpretations will be as follows:

Effective for the financial year end commencing 1 July 2018 IAS 19 (amendments) Employee Benefits: Defined Benefit Plans

In terms of the amendments, the following key changes will have an impact on the entity:

Actuarial gains and losses are recognised immediately in other comprehensive income. The corridor method and the recognition of actuarial gains and losses in profit or loss are no longer permitted.

Past service costs as well as gains and losses on curtailments / settlements are recognised in profit or loss.

Expected returns on plan assets are calculated based on the rates used to discount the defined benefit obligation.

The definitions of short-term and other long-term employee benefits have been amended and the distinction between the two depends on when the entity expects the benefit to be settled.

The impact on the financial statements for Bloem Water is considered to be significant. The unrecognised actuarial losses to be recognised in the statement of comprehensive income is expected to amount to approximately R33 million. Retained earnings and the pension fund asset are expected to decrease with approximately R33 million (i.e. a pension fund liability of approximately R3 million will exist). Additional amendments are of a presentation nature and will not have a significant impact on the entity’s financial statements.

IFRS 1 amendment Government Loans

The amendment provides an additional relief to first-time adopters of IFRS from retrospectively measuring government loans with a below-market rate of interest. The amendments address concerns that the retrospective measurement of these government loans at fair value at their dates of origination could lead to first-time adopters applying hindsight.

The impact on the financial statements for Bloem Water is not expected to be material.

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Standard or Interpretation The Board is of the opinion that the impact of the application of the remaining Standards and Interpretations will be as follows:

Effective for the financial year end commencing 1 July 2018 IFRS 7 (AC 144) amendment Disclosures – Transfer of Financial Assets

In terms of the amendments additional disclosure will be provided regarding transfers of financial assets that are:

not derecognised in their entirety and derecognised in their entirety but for which Bloem Water

retains continuing involvement.


IAS 24 (AC 126) (Revised) The standard will be applied retrospectively.

IAS 24 (AC 126) (revised) addresses the disclosure requirements in respect of related parties, with the main changes relating to the definition of a related party and disclosure requirements by government-related entities. Under IAS 24 (AC 126) (revised), the definition of a related party has been amended, with the result that a number of new related party relationships have been identified.

Government-related entities including Bloem Water will have to provide the following disclosures: name of the government and nature of the relationship; nature and amount of each individually significant transaction and a qualitative or quantitative indication of the extent of other transactions that are collectively, but not individually, significant.

IAS 32 Offsetting Financial Assets and Financial Liabilities

The amendments clarify that an entity currently has a legally enforceable right to set-off if that right is:

not contingent on a future event; and enforceable both in the normal course of business and

in the event of default, insolvency or bankruptcy of the entity and all counterparties


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IAS 7 Disclosure Initiative (Amendments to IAS 7)

The amendments provide for disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. This includes providing a reconciliation between the opening and closing balances for liabilities arising from financing activities. The impact on the financial statements for Bloem Water cannot be reasonably estimated as at 30 June 2016.

Effective for the financial year end commencing 1 July 2018 IAS 1 amendment Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income

This amendment provides for changes to the presentation of Items of Other Comprehensive Income to existing pronouncements.


Effective for the financial year end commencing 1 July 2018 IAS 19 Defined Benefit Plans: Employee contributions

The amendments introduce relief that will reduce the complexity and burden of accounting for certain contributions from employees or third parties. Such contributions are eligible for practical expedient if they are:

set out in the formal terms of the plan; linked to service; and independent of the number of years of service.


Effective for the financial year end commencing 1 July 2018 IAS 1 Disclosure Initiative The amendments provide additional guidance on the

application of materiality and aggregation when preparing financial statements. The amendments also clarify presentation principles applicable to the order of the notes, Other Comprehensive Income of equity accounted investees and subtotals presented in the statement of financial position and statement of profit or loss and other comprehensive income.


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Notes to the financial statements

for the year ended 30 June 2016 (continued) 1.2 Changes in accounting policies and disclosures (continued)


Effective for the financial year end commencing 1 July 2018 IFRS 15 Revenue from contracts with customers

This standard replaces IAS 11 Construction contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC 31 Revenue Barter of Transactions Involving Advertising Services.

The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised.


Effective for the financial year end commencing 1 July 2018 IFRS 9 Financial Instruments IFRS 9 addresses the initial measurement and

classification of financial assets and financial liabilities and will replace the relevant sections of IAS 39.

Under IFRS 9 there are two options in respect of classification of financial assets, namely, financial assets measured at amortised cost or at fair value. Financial assets are measured at amortised cost when the business model is to hold assets in order to collect contractual cash flows and when they give rise to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets are measured at fair value. Embedded derivatives are no longer separated from hybrid contracts that have a financial asset host.

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IFRS 9 Financial Instruments (continued)

The classification and measurement requirements of financial liabilities are the same as per IAS 39, except for the following two aspects:

fair value changes for financial liabilities (other than financial guarantees and loan commitments) designated at fair value through profit or loss, that are attributable to the changes in the credit risk of the liability will be presented in other comprehensive income (OCI). The remaining amount of the fair value change is recognised in profit or loss. However, if this requirement creates or enlarges an accounting mismatch in profit or loss, then the whole fair value change is presented in profit or loss. The determination as to whether such presentation would create or enlarge an accounting mismatch is made on initial recognition and is not subsequently reassessed.

Derivative liabilities that are linked to and must be settled by delivery of an unquoted equity instrument whose fair value cannot be reliably measured, are measured at fair value.

The standard will be applied retrospectively, subject to transitional provisions.


Standards and interpretations not expected to have an impact on the entity:

The following Standards and Interpretations are not applicable to the business of the entity and it is therefore expected not to impact on future financial statements.

IAS 12 amendment Deferred tax: Recovery of Underlying Assets

IFRS 10 Consolidated Financial Statements

IFRS 11 Joint Arrangements

IFRS 12 Disclosure of Interests in Other Entities

IFRS 14 Regulatory Deferral Accounts

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IAS 27 Equity method in Separate Financial Statements (2011)

IAS 28 Investments in Associates and Joint Ventures (2011)

IAS 36 Recoverable Amount Disclosures for Non-financial Assets

IAS 39 Novation of Derivatives and Continuation of Hedge Accounting

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

IFRIC 21 Levies

Amendments to IAS 16 and IAS 38 Clarification of acceptable methods of depreciation and amortisation

IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters

IAS 16 and IAS 41 Agriculture: Bearer Plants

IAS 10 and IAS 28 Sale or Contribution of Assets between and investor and its Associates or Joint venture

IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception 1.3 Significant accounting judgments, estimates and assumptions The preparation of the entity’s financial statements in conformity with SA GAAP requires

management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the reporting date. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are set out below:

a) Pension and other post-employment benefits

The cost of defined benefit pension plans is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. The net pension plan asset at 30 June 2016 is R30 134 331 (2015:R26 406 096). Further details are disclosed in note 15.

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Notes to the financial statements for the year ended 30 June 2016 (continued) 1.3 Significant accounting judgments, estimates and assumptions

a) Trade and other receivables Loans and receivables shall be measured at amortised cost using the effective interest method. If there is objective evidence that an impairment loss on loans and receivables carried at amortised costs has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of the loss shall be recognised in profit or loss. Further details are disclosed in note 4.

b) Valuation and depreciation of property, plant and equipment Depreciation is based on the useful lives of the property, plant and equipment. The estimation of useful lives of property, plant and equipment is based on historical performance as well as expectations about future use and therefore require a significant degree of judgement to be applied by management. The depreciation rates and residual values, if any, represent management’s best estimates.

1.4 Property, plant and equipment

Land is carried at cost and not depreciated. Furniture and office equipment and vehicles and machinery are stated initially at cost, less accumulated depreciation and accumulated impairment losses in accordance with the provision of IAS 16 (AC 123) – Property, plant and equipment. Plant equipment, roads, buildings and pipelines and reservoirs are stated at cost, less accumulated depreciation and accumulated impairment losses. Cost includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the capitalisation of borrowing costs on qualifying assets (refer to note 1.12). Capital projects in progress are stated at cost which includes cost of material, direct labour and any directly attributable costs incurred in bringing it to its present location and condition. Subsequent costs are included in the assets’ carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably. When part of an asset is being replaced, the carrying amount of the replaced part is derecognised. Repairs and maintenance are charged to profit or loss during the financial period in which it is incurred.

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Notes to the financial statements for the year ended 30 June 2016 (continued)

1.4 Property, plant and equipment (continued)

Depreciation is calculated on a straight line basis over the estimated useful lives of the assets less its estimated residual value. The estimated useful lives for current and comparative periods are as follows: Vehicles and machinery: 15 years Plant equipment: 30 years Furniture and office equipment: 5 to 25 years Roads: 50 years Pipeline and reservoirs: 35 years Buildings: 60 years The assets’ residual values, useful lives and method of depreciation are reviewed and adjusted, if appropriate, at each financial year-end. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income in the year the asset is derecognised.

1.5 Funds and reserves

Capital replacement fund Amounts as determined by the Board are transferred to a separate fund to be utilised for the replacement of capital assets. Amounts equal to such transfers are retained and can be utilised at the discretion of the Board. Capital development fund Amounts as determined by the Board are transferred from available funds to a separate fund to be utilised at the discretion of the Board. The fund is utilised to finance development of capital infrastructures. Insurance fund At the discretion of the Board, an amount equal to the estimated external insurance premium may be transferred to the insurance fund. This fund will be utilised for the replacement of certain assets. The funds will be utilised at the discretion of the board.

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Notes to the financial statements for the year ended 30 June 2016 (continued) 1.5 Funds and reserves (continued)

Asset DWS reserve fund An amount equal to the value of property, plant and equipment in the Thaba ‘Nchu region transferred from the Department of Water and Sanitation to Bloem Water was transferred to this fund. The amount constitutes a non-distributable reserve.

1.6 Revenue recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the entity and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received/receivable excluding discounts, rebates, and value added tax or duties. The following specific recognition criteria must also be met before revenue is recognised: Sale of water Revenue is recognised when the significant risks and rewards of ownership of the water have passed to the buyer, usually on delivery of the water through the water meters and the revenue can be reliably measured.

1.7 Finance income

Finance income comprises interest receivable on trade receivables and finance income from investments and cash and cash equivalents. Finance income is recognised as it accrues in profit and loss, using the effective interest rate method.

1.8 Inventories

Inventories are valued at the lower of cost or net realisable value. Cost is determined on the weighted average basis. Obsolete, redundant and slow moving inventories are identified and written down to their estimated net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated cost of completion and the estimated cost necessary to make the sale. The cost of water inventory comprises of all costs of water abstraction, costs of conversion and other costs incurred in bringing the inventory to its present location and condition.

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92


1.9 Employee benefits Pension obligations

The policy of Bloem Water is to provide retirement benefits for all its employees. The fund represents a Defined Benefit Plan administered by Verso Funds Administrator. Obligations for contributions to defined contribution plans are recognised as an expense in the statement of comprehensive income as incurred. The defined benefit asset or liability comprises the present value of the defined benefit plan obligation less past service cost not yet recognised and less the fair value of plan assets out of which the obligations are to be settled directly. The value of any asset is restricted to the sum of any past service cost not yet recognised and the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan. The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit method. In terms of IAS 19 – Employee Benefits, Bloem Water applies the corridor rule to any actuarial gains or losses recognised during the year, meaning that actuarial gains and losses recognised by Bloem Water is the excess over the greater of: a) 10% of the present value of the defined benefit obligation at the end of the previous

reporting period; and b) 10% of the fair value of any plan asset at the same date. As required by the Pension Fund Act 25 of 1956, a qualified actuary performs the valuation. The actuarial valuation was performed by Independent Actuarial Consultants (Pty) Limited at reporting date.

Short term employee benefits Short term employee benefits are those that are paid within twelve months after the end of the period in which the services have been rendered. Remuneration to employees is charged to the statement of comprehensive income. Provision is made for accumulated leave, annual bonuses, and other short term employee benefits.

1.10 Finance cost

Finance cost comprises interest payable on borrowings and is recognised using the effective interest rate method. Borrowing costs which are not capitalised (refer to note 1.12) are recognised in profit and loss.

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Notes to the financial statements for the year ended 30 June 2016 (continued) 1.11 Financial instruments

Non-derivative financial instruments carried on the statement of financial position comprise of cash and cash equivalents, investments, trade and other receivables, infrastructure receivable, trade and other payables and interest bearing borrowings. Financial instruments are initially carried at cost, which includes transaction costs. Subsequently, the instruments are recognised as follows: Investments and other financial assets Financial assets with the scope of IAS 39 (AC 133) – Financial Instruments: Recognition of Measurement are classified as short term investments, cash and cash equivalents, loans and receivables, held-to-maturity investments, or available-for-sale assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus directly attributable transaction costs. Short term investments Short term investments are non-derivative financial assets with fixed determinable payments that are not quoted in an active market. After initial measurement short term investments are carried at amortised cost using the effective interest rate method less any allowance for impairment. Gains and losses are recognised in profit or loss when the short term investments are derecognised or impaired. Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the entity has the positive intention and ability to hold to maturity. After initial measurement held-to-maturity investments are measured at amortise cost using the effective interest method. Gains and losses are recognised in profit or loss when the investments are derecognised or impaired. Loans and receivables Loans, trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement loans and receivables are carried at amortised cost using the effective interest method less any allowance for impairment. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

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94

Notes to the financial statements for the year ended 30 June 2016 (continued) 1.11 Financial instruments (continued)

Available-for-sale financial investment Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the other financial asset categories. After initial measurement, available-for-sale financial assets are measured at fair value with unrealised gains or losses recognised directly in other comprehensive income until the investment is derecognised or determined to be impaired at which time the cumulative gain or loss previously recorded in other comprehensive income is recognised in profit or loss. Interest bearing borrowings

Interest bearing borrowings are recognised initially at fair value less attributable transaction costs. The discount or premium on the issue of loans is amortised over the period from acquisition to maturity so that a constant rate of interest is paid on the loan. The amortised amount is recognised in the statement of comprehensive income.

Subsequent to initial recognition, interest bearing borrowings are stated at amortised cost, with any difference between cost and redemption value being recognised in the statement of comprehensive income over the period of the borrowings on the effective interest basis.

Trade and other payables

Trade and other payables are initially recognised at fair value and are subsequently measured at amortised cost. Impairment of financial assets The entity assess at each reporting date whether a financial asset or group of financial assets is impaired. For loans and other receivables carried at amortised cost, the amount of the impairment loss is measured as the difference between the financial asset’s carrying amount and its present value of estimated future cash flows (excluding future expected credit losses that have been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced by the impairment loss and the loss is recorded in the statement of comprehensive income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the statement of comprehensive income, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. For assets carried at cost, if there is objective evidence that an impairment loss on an unquoted investment that is not carried at fair value, because its fair value cannot be reliably measured, has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return of a similar asset.

93






Notes to the financial statements for the year ended 30 June 2016 (continued) 1.11 Financial instruments (continued)

Fair value

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the reporting date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions, reference to the current market value of another instrument which is substantially the same and discounted cash flow analysis or other valuation modes.

Amortised cost

Held-to-maturity investments and loans and receivables are measured at amortised cost. This is computed using the effective interest rate method less any allowance for impairment. The calculation takes into account any premium or discount on acquisition and includes transactions costs and fees that are an integral part of the effective interest rate.

General risk management principles

Risk management is of critical importance to the entity as it understands that changing market conditions make risk unavoidable. Over the years the entity has sought and implemented a comprehensive risk management process to consistently identify, understand and properly manage risk at all times. Risk policies, limits and control procedures are continuously monitored.

1.12 Borrowing costs

Borrowing costs attributable to the constitution of qualifying assets are capitalised as part of the cost of these assets over the period of construction to the extent that the assets are financed by borrowings. The capitalisation rate applied is the weighted average of the borrowing costs applicable to the borrowings unless an asset is financed by a specific loan, in which case the specific rate is used.

1.13 Cash and cash equivalents

Cash and short term deposits in the statement of financial position comprise cash at banks and cash on hand. Short term investments with an original maturity of three months are classified as short term investments. For the purposes of the statement of cash flows, cash and cash equivalents comprise cash at banks, cash on hand and short term investments.

1.14 Leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

Operating leases

Leases where substantially all of the risks and rewards of ownership are not transferred to the entity, are classified as operating leases. Operating leases are charged to profit and loss on a straight-line basis over the period of the lease.

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96

Notes to the financial statements for the year ended 30 June 2016 (continued) 1.14 Leases (continued)

Finance leases Leases where the entity assumes substantially all the benefits and risks of ownership, are classified as finance leases. Finance leases are capitalised as property, plant and equipment at the lower of fair value or the present value of the minimum lease payments at the inception of the lease with an equivalent amount being stated as a finance lease liability. The capitalised amount is depreciated over the asset’s useful life. Lease payments are allocated between capital repayments and finance expenses using the effective interest rate method.

1.15 Capital and income related grants

Capital grants for infrastructure received by Bloem Water for its own benefit are reflected against deferred income until such time as the asset becomes available for use. On the date that the asset becomes available for use, the capital grant is credited against property, plant and equipment and is recognised in profit or loss over the remaining useful life of the depreciable asset as a reduced depreciation expense. Capital grants for infrastructure received by Bloem Water as an implementing agent are reflected against a grant liability and any spend on such project is reflected as a deduction in the grant liability. Grants related to income are reflected against deferred income for future expenditure to be incurred by the entity. The income is recognised in the period in which the related expenditure is incurred.

1.16 Provisions

A provision is recognised in the statement of financial position when Bloem Water has a present legal or constructive obligation as a result of a past event, where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are not made for future operating losses. Provisions are determined by discounting the expected future cash flows that reflect current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The increase in the provision due to a passage of time is recognised as finance costs.

1.17 Other income Other income comprises of income that does not arise in the course of ordinary activities

of Bloem Water. These other income items, inter alia, include skills development grant, profit on disposal of assets, employee rent and cost recoupments, implementation agent income, insurance proceeds, etc.

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Notes to the financial statements for the year ended 30 June 2016 (continued) 1.18 Implementation agent income

Implementation agent fees received by Bloem Water for the implementation of infrastructure projects on behalf of other entities and the relating contract costs are recognised as soon as the outcome of the transaction can be reliably measured. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: The amount of revenue can be measured reliably; It is probable that the economic benefits associated with the transaction will flow to the

entity; The stage of completion of the transaction at the end of the reporting period can be

measured reliably; and The costs incurred for the transaction and the costs to complete the transaction can be

measured reliably.

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98

Notes to the financial statements for the year ended 30 June 2016 (continued) 2. Property, plant and equipment

Vehicles

and machinery

Plant equipment

Furniture and office equipment

Roads

Pipelines

and reservoirs

Land and

buildings

Capital projects

in progress

Total R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Movement 2016 (3 134) (2 900) (1 844) (55) (23 781) 26 721 380 (4 613) Additions to property, plant and equipment

529

89

791

-

-

762

64 027

66 198

Transfers (from)/to CAPEX/ property, plant and equipment

-

-

-

-

15 805

36 693

(52 498)

- Borrowing costs capitalised

-

-

-

-

-

-

11 212

11 212

Impairment/disposal - cost

(813)

-

(225)

-

-

-

-

(1 038)

Impairment/disposal - accumulated depreciation

543

-

183

-

-

-

-

726 Accumulated depreciation adjustment

12

522

36

-

-

-

-

570

Retention and accruals recognised

-

-

-

-

-

-

4 410

4 410

Retention and accruals capitalised

-

-

-

-

-

-

(26 771)

(26 771)

Depreciation (3 405) (3 511) (2 629) (55) (39 584) (10 734) - (59 920) Book value 30 June 2016

29 843

40 633

9 085

1 583

391 395

214 540

141 548

828 627

Cost 44 106 92 681 20 219 2 482 1 023 841 264 393 141 548 1 589 271 Accumulated depreciation

(14 263)

(52 048)

(11 134)

(899)

(632 446)

(49 853)

-

(760 644)

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Notes to the financial statements for the year ended 30 June 2016 (continued) 2. Property, plant and equipment (continued)

Vehicles

and machinery

Plant equipment

Furniture and office equipment

Roads

Pipelines

and reservoirs

Land and

buildings

Capital projects

in progress

Other assets

Total R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Movement 2015 6 301 5 053 (474) (55) (18 240) 41 884 18 458 - 52 929 Additions/reclassification to property, plant and equipment

9 791

(694)

1 986

-

(285)

2 420

63 766

-

76 986 Transfers (from)/to CAPEX/ property, plant & equipment

364

9 141

-

-

18 564

46 415

(74 484)

-

- Borrowing costs capitalised

-

-

-

-

-

-

11 114

-

11 114

Impairment/disposal - cost

(2 779)

(90)

(1 588)

-

-

-

-

(1 289)

(5 746)

Impairment/disposal - accumulated depreciation

1 735

73

1 251

-

-

-

-

1 289

4 348 Accumulated depreciation adjustment

203

97

373

-

-

-

-

-

673

Retention and accruals recognised

-

-

-

-

-

-

26 771

-

26 771

Retention and accruals capitalised

-

-

-

-

-

-

(8 709)

-

(8 709)

Depreciation (3 013) (3 474) (2 496) (55) (36 519) (6 951) - - (52 509) Book value 30 June 2015

32 977

43 533

10 929

1 638

415 176

187 819

141 167

-

833 242

Cost 44 391 92 591 19 654 2 481 1 008 038 226 937 141 167 - 1 535 262 Accumulated depreciation

(11 414)

(49 058)

(8 725)

(843)

(592 862)

(39 118)

-

-

(702 020)

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for the year ended 30 June 2016 (continued) 2016 2015 R’000 R’000 2. Property, plant and equipment (continued) Borrowing costs on general borrowings are capitalised at an

average rate of 9,57% (2015: 9,46%) on qualifying assets. No specific borrowings existed at year end.

Amounts capitalised during the year (refer to note 12) 11 212 11 114 All assets are owned assets.

A register of all land and servitudes held by Bloem Water is available for inspection at the registered office of the entity.

The cost price of fully depreciated assets amounts to R962 197 (2015: R3 472 182).

3. Inventories Inventory comprise of the following: Chemicals 4 747 3 550 Consumables 6 043 5 303 Water 1 448 1 728 12 238 10 581 The amount of inventories written-off to net realisable value

through expenditure is Rnil (2015: Rnil).

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for the year ended 30 June 2016 (continued)

2016 2015 R’000 R’000 4. Trade and other receivables Trade receivables 89 929 96 597 Total trade receivables 297 250 192 912 Less: Provision for impairment (207 321) (96 315) Personnel loans and advances - (4) Other project receivables 993 2 092 Deposits – Eskom and Centlec 5 345 5 015 96 267 103 700 Trade receivables exceeding payment terms are interest

bearing at the prime overdraft rate plus 200 basis points. Payment terms are generally 30 day from statement date. At year-end the prime overdraft rate was 10,5% (2015: 9,25%). Movements in the provision for impairment of receivables were as follows:

Individually and collectively impaired R’000 Balance at 30 June 2014 64 257 Provision raised during the year 32 058 Balance at 30 June 2015 96 315 Balance at 30 June 2015 96 315 Provision raised during the year 111 006 Balance at 30 June 2016 207 321

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102

Notes to the financial statements for the year ended 30 June 2016 (continued) 4. Trade and other receivables (continued) Gross Impairment Gross Impairment 2016 2016 2015 2015 R’000 R’000 R’000 R’000

At 30 June 2016, the age analysis for trade receivables is as follows:

Not past due 64 528 12 957 61 454 5 357 Past due 30 to 60 days 43 190 5 817 42 228 3 250 Past due 60 to 90 days 44 684 44 684 4 238 3 200 Past due more than 90 days 144 848 143 863 84 992 84 507

Total 297 250 207 321 192 912 96 314 Based on historical default rates, the entity believes that no additional impairment allowances are necessary in respect of trade receivables. The past due amounts not impaired have been received subsequent to year-end.

2016 2015 R’000 R’000 5. Cash and cash equivalents ABSA Bank* 40 000 40 000 Nedbank* 50 298 50 009 Investec* 70 432 70 367 Current account – First National Bank 4 397 3 941 Call account – First National Bank 31 146 91 987 Money Market account – Standard Bank 39 678 37 113 Money Market account – First National Bank - 127 Petty cash on hand 20 20

235 971 293 564

* *These investments are held on call deposit accounts, which are all fixed for 3 months or less. The investments are not actively traded and are carried at amortised cost. Interest on these accounts varies between 6,46% and 7,51% per annum (2015: between 5,93% and 6,60% per annum). As these investments are short-term highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value they are classified as cash and cash equivalents. The short-term investments has therefore been reallocated to cash and cash equivalents in the statement of financial position for the 2015 financial years. The reallocation has not effected or altered the current asset position of Bloem Water.

Interest on the current accounts varies between 3,75% and 6,4% per annum (2015: between 0% and 6% per annum). The interest on the money market accounts was 7,62% at year-end (2015: 6,13%).

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Notes to the financial statements for the year ended 30 June 2016 (continued) 2016 2015 R’000 R’000 6. Interest bearing loans and borrowings 6.1 Development Bank of South Africa Total amount outstanding 7 477 8 618 Less: Current portion of loan (1 382) (1 304)

6 095 7 314

The loan is unsecured and bears interest at a fixed rate of 8,91% per annum. Average repayments of R922 648 are made on a six monthly basis. The agreement came into effect on 31 March 2006 and will continue until 31 March 2021.

6.2 Development Bank of South Africa Total amount outstanding 14 162 40 491 Less: Current portion of loan (14 162) (26 673)

- 13 818

The loan is unsecured and bears interest at a fixed rate of 10% per annum. Average repayments of R14 510 734 are made on a six-monthly basis. The agreement came into effect on 1 October 2006 and will continue until 30 September 2016.

6.3 Nedbank Total amount outstanding 44 407 50 381 Less: Current portion of loan (6 550) (5 983)

37 857 44 398

The loan is unsecured and bears interest at a fixed rate of 9,12% per annum. Average repayments of R5 221 403 are made on a six-monthly basis. The agreement came into effect on 29 December 2006 and will continue until 29 December 2021.

6.4 Sanlam Total amount outstanding 25 754 33 728 Less: Current portion of loan (10 170) (9 442)

15 584 24 286

The loan is unsecured and bears interest at the 6 month JIBAR rate plus 1,45%. Interest varied between 8,133% and 9,117% (2015: 7,78% and 8,13%) per annum. The effective rate at 30 June 2016 was 9,117% (2015: 8,13%). Average repayments of R4 326 742 are made on a six-monthly basis. The agreement came into effect on 9 August 2008 and will continue until 8 August 2018.

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104

Notes to the financial statements for the year ended 30 June 2016 (continued) 2016 2015 R’000 R’000 6. Interest bearing loans and borrowings (continued) 6.5 Nedbank Total amount outstanding 198 479 169 179 Less: Current portion of loan (26 477) (25 949) 172 002 143 230 The loan is unsecured and bears interest at a fixed rate of

9,8% per annum. The loan facility amounts to approximately R270 million and has a draw down arrangement. Average repayments of approximately R19,3 million are made on a six-monthly basis. The agreement came into effect on 1 March 2013 and will continue until 1 March 2023.

6.6 Corporate credit card Total amount outstanding 28 11 Less: Current portion of loan (28) (11) Corporate Credit Card account - - The credit card account is unsecured and bears interest at

17,45% per annum.

6.7 Total loans and borrowings Total amount outstanding 290 308 302 408 Less: Current portion (payable within 12 months) (58 771) (69 362) Total long term interest bearing borrowings 231 537 233 046

103







2016 2015 R’000 R’000 7. Trade and other payables Trade payables 8 730 10 729 Other payables 116 990 108 296 Accruals 87 025 86 766 SA Revenue Services – Value Added Tax 12 494 6 089 Cost recovery project 1 543 1 625 Payroll accruals 15 928 13 816 125 720 119 025

Trade and other payables are non-interest bearing and are normally settled on 30-day terms.

8. Taxation No provision is made for taxation since Bloem Water is

exempt from tax in terms of section 10(1)(cA) of the Income Tax Act.

9. Revenue Water sales 469 885 462 255 9.1 Other income Other income comprises of income that does not arise in

the course of ordinary activities of Bloem Water. These other income items, inter alia, include skills development grant, profit on disposal of assets, employee rent and cost recoupments, implementation agent fee, insurance proceeds, etc.

Other income 5 955 2 511 Implementation agent fee on Infrastructure Project 7 176 22 942 13 131 25 453

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106


11. Finance income Investment income 13 572 11 250 Interest on trade receivables 15 359 9 899 Interest on cash and cash equivalents 6 788 6 623

35 719 27 772 12. Finance costs Interest on loans and borrowings 29 140 28 413 Borrowing costs capitalised (refer note 2) (11 212) (11 114) Other 7 40

17 935 17 339

2016 2015 R’000 R’000 10. Operating profit The following amounts have been included in operating

profit:

Depreciation 59 920 52 508

Internal and external auditors’ remuneration 1 731 1 459

Increase in provision for impairment of trade receivables and doubtful debts written off

111 660

34 754

Employee benefits relating to the pension fund assets and obligations

13 931

12 201

Actuarial losses 591 345 Interest cost on benefit obligation 17 778 15 909 Current service costs

Expected return on plan assets 13 562

(18 000) 12 115

(16 168) Board member emoluments (refer to note 16) 1 104 1 102 Key management emoluments (refer to note 16) 13 004 11 014

105






Notes to the financial statements for the year ended 30 June 2016 (continued) 2016 2015 R’000 R’000 13. Notes to the statement of cash flows 13.1 Cash flow from operating activities Operating (loss) / profit before finance income and costs (46 228) 31 703 Adjusted for: 192 238 106 841 Depreciation of property, plant and equipment 59 920 52 508 Increase in payroll accrual 2 110 2 872 Increase in provision for impairment of trade receivables

and doubtful debts written off

111 660

34 754 Loss on disposal of property, plant and equipment (451) (22) Movement in defined benefit pension asset 18 999 16 729 Movement in working capital (93 986) (76 822) (Increase) / decrease in inventories (1 655) 1 536 Increase in trade and other receivables (88 869) (56 972) Increase in infrastructure project receivables (30 407) (66 516) Increase in trade and other payables 26 945 45 130 52 024 61 722 13.2 Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash

equivalents comprise of cash and cash equivalents and short term investments.

Cash and cash equivalents 235 971 293 564 Corporate credit card (28) (11) 235 943 293 553

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108


for the year ended 30 June 2016 (continued) 14. Financial instruments General risk management principles

Risk management is of critical importance to the entity as it understands that changing market conditions make risk unavoidable. Over the years the entity has sought and implemented a comprehensive risk management process to consistently identify, understand and properly manage risk at all times. Risk policies, limits and control procedures are continuously monitored.

Credit risk

Potential concentrations of credit risk mainly consist of short term investments, cash and cash equivalents and trade and other receivables.

The Board of Bloem Water limits the credit risk arising from short term investments and other cash items by dealing only with reputable well-established financial institutions in South Africa. Credit control procedures are in place which includes assessing credit worthiness of potential or existing customers. The financial positions of customers are monitored on an ongoing basis. Provisions are made for impairment allowances where deemed appropriate.

At 30 June 2016, Bloem Water did not identify any significant concentration of credit risk which had not been insured or adequately provided for. The entity is exposed to significant credit risk due to the nature of its customers and the extensive period it takes to recover amounts due.

Concentration of credit risk of trade and other receivables

At year-end, the following concentrations of credit risk existed with reference to trade and other receivables:

2016 2015 R’000 R’000

Mangaung Local Municipality 147 347 91 442 Kopanong Local Municipality 139 868 94 763 Naledi Local Municipality 6 523 2 283 Other 3 512 4 424

297 250 192 912 The carrying amount of financial assets represents the

maximum credit exposure. The following accounts are exposed to credit risk at the reporting date:

Trade and other receivables (refer to note 4) 96 267 103 700 Cash and cash equivalent (refer to note 5) 235 971 293 564 Infrastructure project receivable (refer to note 21) 127 136 96 729

459 374 493 993

A maturity analysis of trade receivables are set out in note 4.

107







for the year ended 30 June 2016 (continued) 14. Financial instruments (continued) Interest rate risk Interest rate risk arises from aspects of the entities namely, variable rate interest bearing loans.

Interest rate fluctuation will directly impact on the results of the entity. The following table identifies those financial instruments that are sensitive to interest rate re-price:

Variable rate interest bearing borrowings Interest rate

per annum 2016

R’000 2015

R’000 Sanlam 8,13% to 9,12% (25 754) (33 728) A change of 100 basis points in interest rates at the reporting date would have increased /

(decreased) profit by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2015.

Increase in interest rate Decrease in interest rate 2016 2015 2016 2015 R’000 R’000 R’000 R’000 Variable rate interest bearing borrowings (257) (337) 257 337 Loans and borrowings to the value of R264 554 919 (2015: R268 681 609) are fixed

interest rate loans. Therefore a change in interest rate at the reporting date would not affect the profit or loss.

Short term investments to the value of R160 730 027 (2015: R160 375 932) are fixed interest rate investments. Therefore a change in the interest rate at the reporting date would not affect the profit or loss.

Market risk Market risk is the risk that the value of a financial instrument will fluctuate with changing

market prices whether caused by factors specific to the instrument or to general external market changes. The entity has no financial instruments which are affected by changing market prices.

Liquidity risk Liquidity risk is the risk of the entity defaulting on its financial obligations as a result of

insufficient funding capacity in relation to such obligations. The entity manages this risk through maintaining adequate working capital, planning and continuing re-planning of long term project costs and funding requirements.

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110

Notes to the financial statements for the year ended 30 June 2016 (continued) 14. Financial instruments (continued) Maturity profile of financial liabilities Apart from the long-term loans and borrowings, all the entity’s financial assets and liabilities

are expected to mature within a twelve-month period. The undiscounted contractual cash flows of the long-term liabilities are set out below:

Within 12

months Between

1 to 5 years More than

5 years R’000 R’000 R’000 Nedbank 10 443 41 771 5 240 Nedbank 38 595 154 379 77 190 Development Bank of South Africa 1 845 7 379 - Development Bank of South Africa 14 511 - - Sanlam 11 347 17 021 - Total 76 741 220 550 82 430 The maturity of the contractual cash flows is the future undiscounted value. Capital management The overall objective of the entity’s capital management strategy is to maintain a strong capital

base so as to maintain stakeholder confidence and to sustain future development of the business. Long-term loans and cash reserves are managed through the process of reviewing all associated risks, including liquidity, credit and interest rate risks. It is also the policy of the entity to maintain a strong debt: equity as this plays an important role in the entity’s credit rating which impacts positively on the cost of funding. Accumulated income is managed through a number of initiatives and processes including planning and budgeting for long-term growth, capital expansion and maintaining or improving cost efficiencies.

2016 2015 R’000 R’000 Capital is monitored on the debt-to-adjusted-capital

ratio.

Total debt 503 747 509 152 Less: Cash and cash equivalents (235 943) (293 553) Net debt 267 804 215 599 Total equity 826 626 855 070 Less: Subordinated debt instruments - - Adjusted capital 826 626 855 070 Debt-to-adjusted-capital ratio 32% 25%

109






Notes to the financial statements for the year ended 30 June 2016 (continued) 14. Financial instruments (continued) Foreign currency

The entity is not exposed to foreign currency risk as no transactions in foreign currency are entered into.

Fair values

The carrying amounts of the financial assets and financial liabilities approximate their fair values.

Carrying amounts

Set out below are the carrying amounts of all the entity’s financial instruments that are carried in the financial statements:

2016 2015 R’000 R’000 Financial assets

Trade and other receivables 96 267 103 700 Cash and cash equivalents 235 971 293 564 Infrastructure project receivable 127 136 96 729

459 374 493 993

Financial liabilities

Interest bearing loans and borrowings – non-current 231 537 233 046 Trade and other payables 97 299 99 120 Current portion of interest bearing borrowings 58 743 69 352

387 579 401 518

15. Employee benefits

The entity provides retirement benefits for all its permanent employees through a funded defined benefit pension scheme that is subject to the Pension Funds Act, 1956 as amended.

The following tables summarise the components of net benefit expense recognised in the statement of comprehensive income and the funded status and amounts recognised in the statement of financial position for the respective plans:

Net benefit expense

Current service cost (13 562) (12 115) Interest cost on benefit obligation (17 778) (15 909) Expected return on plan assets 18 000 16 168 Net actuarial gain / (loss) recognised in the year (591) (345)

(13 931) (12 201)

110





112

Notes to the financial statements for the year ended 30 June 2016 (continued) 2016 2015 R’000 R’000 15. Employee benefits (continued) Present value of the defined benefit obligation (219 469) (192 503) Fair value of plan assets 216 550 184 900 Surplus of plan obligations over plan assets (2 919) (7 603) Actuarial losses not recognised 33 053 34 009 Defined benefit asset 30 134 26 406 The principal actuarial assumptions used were: % %

Discount rate 10,29 9,24 Salary increase rate 8,81 7,71 Expected rate of return on assets 10,29 9,24 Inflation 7,81 6,71 Post-retirement discount rate 2,29 2,36

2016 2015 R’000 R’000 The assets of the fund as at the valuation date were invested

as follows:

Prudential Inflation Plus 64 683 64 022 Coronation Managed 54 428 54 528 Sanlam Absolute Return 95 982 64 863 Cash at bank 2 174 2 231 Sundry debtors (98) (100) Sundry creditors (619) (644) Total assets 216 550 184 900 Limits of the corridor:

Unrecognised actuarial gains at 1 July 34 009 24 999 Limits of the corridor (21 947) (19 250) Excess loss 11 106 14 759 Average remaining lifetime 24 25 Actuarial loss to be recognised (461) (591)

111






Notes to the financial statements for the year ended 30 June 2016 (continued) 2016 2015 R’000 R’000 15. Employee benefits (continued)

Benefit liability

Present value of the defined benefit obligation at 1 July 192 503 164 556

Interest cost 17 778 15 909 Current service cost 13 562 12 115 Employee cost 5 067 4 528 Benefits paid (2 709) (8 595) Risk premiums - - Actuarial loss not recognised (6 732) 3 990

Defined benefit liability 219 469 192 503

Benefit asset

Fair value of the asset at 1 July 184 900 160 369

Expected return on assets 18 000 16 168 Contributions 22 727 22 323 Benefits paid (2 709) (8 595) Actuarial gains / (losses) not recognised (6 368) (5 365)

Present value of the asset 216 550 184 900 Sensitivity analysis

Assumed pension fund cost trends rates have a significant effect on the amounts recognised in profit or loss. A one percentage point change in assumed pension fund cost trends rates would have the following effects:

1% Increase

Core assumption

1% Decrease

R’000 R’000 R’000

Effect on service cost 135 13 562 (135) Effect on interest cost 177 17 778 (177) Effect on defined benefit obligation 2 194 219 469 (2 194) 2016 2015 2014 2013 2012 R’000 R’000 R’000 R’000 R’000 Present value of defined benefit

obligation

(219 469)

(192 503)

(164 556)

(163 203)

(123 744) Fair value of plan asset 216 550 184 900 160 369 124 624 95 025

(2 919) (7 603) (4 187) (38 579) (28 719) There have been no experience adjustments made.

112





114

Notes to the financial statements for the year ended 30 June 2016 (continued) 16. Directors and key management emoluments Non-executive directors with their remuneration for the financial year are as follows: 2016

Board member Board

activity fees Expense

allowance Total

remuneration R R R Mr TB Phitsane 152 381 15 532 167 913 Ms P Matete 84 823 4 771 89 595 Adv LR Bomela 98 918 698 99 616 Dr MJ Ellman 108 995 643 109 638 Ms MSS Maboe Phike 165 377 45 612 210 989 Mr Z Mkiva 53 465 37 050 90 515 Mr N Mokhesi 41 815 4 807 46 622 Ms CM Phetwe 88 772 1 083 89 855 Mr DJC Sides 6 601 271 6 872 Dr J van der Merwe 172 403 20 013 192 416 973 550 130 481 1 104 031 2015

Board member Board

activity fees Expense

allowance Total

remuneration R R R Mr TB Phitsane 196 174 16 397 212 571 Ms P Matete 167 476 14 084 181 560 Mr MJ Besnaar 13 106 - 13 106 Adv LR Bomela 35 507 4 560 40 067 Dr MJ Ellman 94 242 4 014 98 256 Ms MSS Maboe Phike 112 366 13 353 125 719 Mr Z Mkiva 99 598 17 184 116 782 Mr N Mokhesi 41 403 4 876 46 279 Ms CM Phetwe 112 772 4 211 116 983 Mr DJC Sides 26 261 1 484 27 745 Dr J van der Merwe 101 770 20 898 122 668 1 000 675 101 061 1 101 736

113






Notes to the financial statements for the year ended 30 June 2016 (continued) 16. Directors and key management emoluments (continued) Key management personnel with their remuneration for the financial year are as follows:

2016 Key management

Short term employee

benefits

Other long term

benefits

Incentive

bonus

Total

remuneration R R R R

Dr L Moorosi 1 953 884 181 176 452 227 2 587 287 Mr OJ Stadler 1 439 916 243 054 403 140 2 086 110 Mr MD Kgwale 1 149 093 101 133 425 612 1 675 838 Mr TS Ngubeni 1 076 329 265 876 234 027 1 576 232 Ms NP Silevu 886 077 175 041 77 579 1 138 697 Ms SL Meyer 1 477 444 113 858 405 447 1 996 749 Ms TP Kgantsi 1 317 567 272 287 353 263 1 943 117

9 300 310 1 352 425 2 351 295 13 004 030

2015 Key management

Short term employee

benefits

Other long term

benefits

Incentive

bonus

Total

remuneration R R R R

Dr L Moorosi 1 683 293 181 176 510 496 2 374 965 Mr OJ Stadler 1 397 665 210 265 406 686 2 014 616 Mr MD Kgwale 1 382 524 125 243 402 551 1 910 318 Mr E Gaoseb 78 848 2 688 - 81 536 Ms FKP Ntlemeza 667 332 54 863 - 722 195 Ms SL Meyer 1 456 136 101 905 387 816 1 945 857 Ms TP Kgantsi 1 320 673 247 749 396 009 1 964 431

7 986 471 923 889 2 103 558 11 013 918

Board meetings

Key management personnel are encouraged to attend board meetings. 7 Board meetings were held and attended as follows:

2016 Board member

Board meetings attended

Board activities / committee

meetings

Mr TB Phitsane 7 10 Ms P Matete 6 3 Adv LR Bomela 5 7 Dr MJ Ellman 6 16 Ms MSS Maboe Phike 7 16 Mr Z Mkiva 6 7 Mr N Mokhesi 3 7 Ms CM Phetwe 7 5 Mr DJC Sides 0 2 Dr J van der Merwe 5 19

114





116


for the year ended 30 June 2016 (continued) 16. Directors and key management emoluments (continued)

2015 Board member

Board meetings attended

Board activities / committee

meetings

Mr TB Phitsane 7 14 Ms P Matete 7 14 Mr MJ Besnaar 1 1 Adv LR Bomela 4 7 Dr MJ Ellman 7 15 Ms MSS Maboe Phike 7 15 Mr Z Mkiva 6 10 Mr N Mokhesi 5 6 Ms CM Phetwe 7 10 Mr DJC Sides 0 6 Dr J van der Merwe 6 17 16.1 Number of employees

According to the payroll system the entity had 397 (2015: 358) employees (including learnerships) as at 30 June 2016.

17. Commitments and contingencies 2016 2015 R’000 R’000 Commitments Estimated capital expenditure 206 401 269 247

Approved and contracted 75 064 114 519 Approved not yet contracted 131 337 154 728 The capital expenditure is expected to be incurred as follows: 206 401 269 247

Within one year 206 401 269 247 Between one and five years - - Capital commitments, excluding interest capitalised, include all projects for which specific

Board approval has been granted up to the reporting date. Projects still under investigation for which specific Board approval has not yet been granted are excluded.

The expenditure will be financed through general external borrowings, available cash resources

and internally generated funds. Guarantees Guarantees amounting to Rnil (2015: R20 000) was issued by First National Bank on behalf of

Bloem Water. The guarantee was cancelled. The beneficiary of these guarantees was Eskom. Guarantees amounting to Rnil (2015: R80 000) was issued by First National Bank on behalf of

Bloem Water. The guarantees were cancelled. The beneficiary of these guarantees was Centlec.

115






Notes to the financial statements for the year ended 30 June 2016 (continued) 18. Related parties

Bloem Water purchases raw water from the Department of Water and Sanitation (“the Department”). All entities and directorates of the Department are seen as related parties to Bloem Water. Water sales are made to Municipalities in the Free State Province.

The Board members and key management, as identified in note 16, are considered related parties.

The following table provides the total amount of transactions, which have been entered into with related parties for the related financial year:

2016 2015 R’000 R’000 Statement of comprehensive income

Transactions with the Department of Water and Sanitation

Water abstraction cost 15 627 18 025 Water research cost 4 344 4 341 Catchment management cost 626 496 Implementation fee received on infrastructure project with

Department of Water and Sanitation.

7 176

22 942

Transactions with other related parties

Electricity cost - Eskom and Centlec 96 585 87 645 Water sales to Municipalities 458 114 452 681

Board members’ and key management emoluments are set out in note 16.

Statement of financial position

Amounts owed to The Department of Water and Sanitation 9 651 22 782

Amounts owed by Municipalities (refer note 14) 293 738 188 687

Deferred income recognised on Department of Water and Sanitation Grant

87 719

87 719

Infrastructure project receivable from Department of Water and Sanitation

127 136

96 729

19. Operating leases

The entity rents printing equipment under long term non-cancellable operating leases since January 2013.

Minimum future lease payments

Within one year 707 707 Two to five years 353 1 060 More than five years - -

1 060 1 767

116





118

Notes to the financial statements for the year ended 30 June 2016 (continued) 2016 2015 R’000 R’000 20. Deferred income

Department of Water and Sanitation 87 719 87 719

This relates to a grant advanced to Bloem Water by the Department of Water and Sanitation to construct a pipeline between the Rustfontein Treatment Plant and Botshabelo.

21. Infrastructure project receivable

Department of Water and Sanitation

Funds received from the Department of Water and Sanitation and Ngwathe Local Municipality(excluding VAT)

(465 851)

(400 656)

Funds utilised in respect of the project (excluding VAT) 546 459 458 032 Implementation agent fee (excluding VAT) 46 528 39 353

Funds advanced by Bloem Water in respect of the project 127 136 96 729

Bloem Water has been appointed as an implementing agent by the Department of Water and Sanitation for the construction of public toilets and the eradication of the bucket system in the Free State.

Bloem Water is entitled to receive an implementation agent fee amounting to 10% of the construction fee incurred. The agent fees for the financial year amounted to R1,46 million (2015: R22,9 million) (excluding VAT). The agent fee income is included in other income on the statement of comprehensive income.

In terms of the implementation agent agreement, the following funds have been committed.

Funds committed

Funds committed by Department of Water and Sanitation (including VAT).

2013/14 230 000 230 000 2014/15 335 337 335 337 Funds committed for 2015/16 are committed in terms of

agreed scope

Funds received at year end (including VAT). 531 071 456 748

117







for the year ended 30 June 2016 (continued) 2016 2015 R’000 R’000 21. Infrastructure project receivable (continued) Funds utilised in respect of the project (including VAT) 622 963 522 134

Implementing agent fee being 10% of construction cost (including VAT)

53 042

44 863

Subsequent to year-end, Bloem Water committed and incurred an amount of R58,3 million

on the project. These funds have been refunded by the Department of Water and Sanitation. 22. Events after the balance sheet date

There were no significant events that have occurred between the reporting date and the date of signing the financial statements.

23. Going concern

We draw attention to the fact that Bloem Water incurred a net loss of R28 444 million for the current financial year, this is as a result of the non-payment of one of its major debtors.

However at year-end, the company’s total assets still exceeded its total liabilities with approximately R826 million and the current assets exceeds its current liabilities with approximately R287 million. The entity has sufficient cash resources to settle its short term liabilities as they become due in the normal course of business.

The financial statements have been prepared on the basis of accounting policies applicable to a going concern since the Board has every reason to believe that Bloem Water has adequate resources in place to continue in operation for the foreseeable future.

24. Contingent liabilities

Bloem Water is involved in an ongoing litigation regarding the cancellation of a service contract in the prior year due to non-performance of the supplier. The supplier issued a counter claim against Bloem Water for contract breach. Management has not raised a liability in the financial statements as the outcome of this claim is not yet know.

Bloem Water is also involved in a number of pending labour arbitration matters. No liability has been recognised in the financial statements because management is of the view that the existence of the possible obligations will only be confirmed by the occurrence or non-occurrence of uncertain future events not within the control of Bloem Water.

118





120

Detailed statement of comprehensive income for the year ended 30 June 2016 (continued) 2016 2015 R’000 R’000 Revenue

Bulk water sales 469 885 462 255 Water purchased (21 166) (23 323) Water opening stock 1 728 1 590 Water closing stock (1 448) (1 728) Water resource expenditure 20 886 23 461 Gross income 448 719 438 932 Other income 13 131 25 453 Infrastructure project - Implementation agent fee 7 176 22 942 Other income 5 146 2 183 Rental income 358 306 Profit on sale of assets 451 22 Expenses Impairment of trade receivables (111 660) (34 754) Chemicals (14 383) (18 899) Depreciation (59 920) (52 508)

Distribution costs (15 298) (16 592)

Fuel costs (6 151) (6 324) Vehicle and transport costs (9 147) (10 268)

Electricity (96 585) (87 645) Repairs and maintenance (11 460) (14 523)

Staff costs (150 691) (140 790)

Payroll accrual (2 111) (2 872) Medical expenses (8 656) (5 923) Salaries and wages (141 422) (123 250) Training and development (2 230) (1 777) Defined benefit expenses 3 728 (6 968)

Schedule not covered by audit opinion

119






Detailed statement of comprehensive income for the year ended 30 June 2016 (continued) 2016 2015 R’000 R’000 Other operating expenses (48 081) (66 971) Advertising 413 600 Audit fees 1 731 1 459 Bank charges 102 131 Bursaries and donations 75 107 Cleaning costs 372 411 Computer and IT expenditure 3 570 4 410 Conference seminars and workshops costs 870 1 911 Consulting costs 2 058 1 784 Contractors 391 378 Courier and postage 5 6 General and administration expenses 1 706 1 916 Insurance 1 698 930 Legal and contract costs 2 896 2 365 Marketing costs 4 006 3 299 Printing and stationary 2 126 1 841 Programmes and initiatives 10 330 13 587 Protective clothing and uniforms 741 1 264 Relocation costs 60 61 Rent paid – heavy duty equipment 412 25 Safety and security 1 328 3 707 Infrastructure project – consultation expenses 7 610 20 818 Service contracts 103 339 Subscriptions licenses and membership fees 450 262 Telephone and fax 1 674 1 373 Tools and equipment 417 393 Travelling and stakeholder visits 2 937 3 594 Operating profit (46 228) 31 703 Finance income 35 719 27 772 Finance expenses (17 935) (17 339) Interest on bank loans and overdrafts (17 928) (17 299) Other finance costs (7) (40) Profit/(Loss) for the year (28 444) 42 136 Total comprehensive income/(loss) for the year (28 444) 42 136

Schedule not covered by audit opinion

120





Repo

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52








121





Bloem Water Annual Report 2015/16 Financial Year Page 123

ANNEXURE A

Dri

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Pe

rfor

man

ce O

bjec

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Perf

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ance

Indi

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Ann

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Ann

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Impr

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11.

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√

122






ANNEXURE A

Dri

vers

Pe

rfor

man

ce O

bjec

tive

Perf

orm

ance

Indi

cato

rs a

nd m

easu

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Supp

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ness

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nd sy

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per

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of

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gov

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nce

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rd m

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ndan

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ns

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n by

the

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s num

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√

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it R

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ken

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ber

3 8

√

123






ANNEXURE A


Brief description of reasons for the non-achievement of the target performance objectives:

Bloem Water achieved 57% of the performance targets as set out in the Business Plan for the 2015/16 financial year. 16 of the 37 targets were not met as per the notes below:

1. Five (5) of the ten (10) financial ratios were achieved. The non-achievement can mainly be attributed

to non-payment by debtors and the impairment of trade receivables. The draught experienced across the country and particularly the Free State Province, negatively impacted on water sales and revenue collection as the Department of Water and Sanitation directed 20% restrictions for implementation by municipalities. This was aggravated by non-payment by clients during the latter part of the financial year. This resulted in declined demand and associated sales revenue. The institution was compelled to revise the operational and maintenance and infrastructure requirement budgets. Projects were accordingly reprioritized and/or deferred. The fixed cost drivers of operational expenditure, in particular energy and loan obligations impacted the ratios negatively.

The secondary services substantially reduced as the third year of the bucket eradication programme did not continue as anticipated given that the Department relocated the programme. This had a negative bearing on the targets set in the budget and shareholder’s compact which were inclusive of the bucket eradication programme. The above had a direct negative influence on the net- and gross profit margins compared to projections and budgets.

2. The target to improve BBBEE new entrants was not achieved and only 41 new entrants were

registered. Cost containment measures and the Treasury requirement that suppliers have to be registered on the central database impacted on this target. Procurement was reduced in response to the current operational, drought and non-payment challenges to manage cash flow during the financial year. The re-allocation of the 3rd year of the bucket eradication programme resulted in a reduced number of new entrants sourced.

3. The project expenditure targets were not met. Projects were reprioritized and some were deferred as

precautionary measure to manage cash flow given the current operational, drought and non-payment challenges. The re-prioritizing or deferring of projects accordingly impacted on achieving this target. The multi-year nature of key projects contributed to not having achieved the target. A more realistic and phased approach was introduced to measure and track performance and improve reporting on projects. The target for future years will be aligned according to the re-prioritizing and deferring of projects.

4. Service Level Agreements for Kopanong Local Municipality and Mantsopa Local Municipality are in place. The extension of Mangaung Metro to include some other local municipalities (sections of the Naledi and Tswelopelo Municipalities) in the service area delayed the revision of the service level agreement with Mangaung Metro.

5. The target of assisting three municipalities was not met. However, Bloem Water provided extensive technical support to Kopanong Municipality and Mantsopa Municipality and continues to support rural development. A number of boreholes were drilled in the Thaba Nchu area in support of rural water supply

124






ANNEXURE A


Brief description of reasons for the non-achievement of the target performance objectives: (continued)

6. The bursary target was not achieved as some training initiatives were deferred in an effort to proactively manage cash flow and reduce expenditure in response to non-payment challenges. Furthermore, the development of individual development plans for all employees and linking it to the workplace skills plan, was only concluded in April 2016 according to the EWSETA deadline. Implementation of the training plan commenced thereafter.

7. Neither of the job creation targets was met. Permanent positions were limited to critical vacancies only in line with the Ministerial directive on the approval of vacancies. The Board further deferred recruitment pending a work study process that is in an advanced stage with the objective to improve efficiency and staff utilization. The current operational challenges resulted in further reduction of appointments.

8. The Board continues to facilitate good oversight and the attendance of 84.1% is an improvement on the 81.33% reported in the previous period. This is marginally lower than the target of 85%. However, this is still reflective of Good Governance practices by the Board.

9. The targets on repeat and unresolved internal audit findings were not achieved. Despite a concerted effort to pursue the pending matters, it was not possible to resolve all during the period under review. Some of the unresolved and repeat findings, such as servitude registrations, spans over an extended period and will not be achieved in one financial year. Management continue to attend to these and internal controls were tightened accordingly.

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