Rehabilitation of existing infrastructure as per the prioritised Dam Safety Rehabilitation Programme.
Send a progress report within 30 working days with full contact details of the person handling the matter.
Three staff members in the National office and one staff member in each regional office.
3 Has the Department introduced an Employee Assistance or Health Promotion Programme for your employees If so, indicate the key elements/services of the programme?
Former members of the committee have left the Department.
New members must be recruited.
5 Has the Department reviewed the employment policies and practices of your Department to ensure that these do not unfairly discriminate against employees on the basis of their HIV status If so, list the employment policies/practices so reviewed?
6 Has the Department introduced measures to protect HIV-positive employees or those perceived to be HIV-positive from discrimination If so, list the key elements of these measures?
The Recruitment and Selection Policy and the Employment Equity Act prohibit unfair discrimination.
7 Does the Department encourage its employees to undergo Voluntary Counselling and Testing If so, list the results that you have achieved?
This is addressed through the various wellness measures.
Wellness is handled through absence management and Policy and Procedure on Icapacity Leave and Ill-health Retirement (PILIR) applications.
Completion of an analytical and drawing service for compiling the dam break flood-lines of first set of dam river system required for dam safety purposes.
Design service up to and including the preliminary design stage for the rehabilitation on the dams to comply with dam safety standards, Hammarsdale Dam.
Design service up to and including the preliminary design stage for rehabilitation of dams to comply with dam safety standards, Hammarsdale Dam.
WP10076 Appointment of a professional service provider for support of spatial information management in the Eastern Cape water sector through the Clearing House.
Loans were provided to the Irrigation Boards and Water User Associations.
Realised losses not recoverable i.e.
Guaranteed interest outstanding - Where interest is also guaranteed, interest of the guaranteed amount as from the last date of interest until 31 March 2010 is shown here. This amount must be separately and not be included in the opening or closing balances.
Realised losses i.e. claims paid out - Losses realised in respect of claims paid out are to be shown here. As in the case a housing loan to an official, a guarantee claim paid out is not necessarily a loss to the Sate. Seeing that the amount paid out can be recovered from the person in question. If such an amount cannot be recovered and has been written-off, it is regarded as a loss.
Guarantted exposure - The sum of closing balance and guaranteed interest outstanding and should be disclosed in the disclosure notes.
The annual financial statements for the financial year that ended 31 March 2010 were prepared in compliance with the South African Statements of Generally Accepted Accounting Practices (SA GAAP) and incorporate disclosures in accordance with the accounting policies of the Water Trading Entity (WTE) and the Public Finance Management Act, 1999 (Act No. 1 of 1999).
Under this Act, the DWA is required to create a register of all water users in the country and the Act makes provision for cost recovery on services rendered by the DWA to water users. This situation necessitated a need for the Department to create a Water and Equipment Trading Account which was approved in 1983 through circular SY3/6/B under the Exchequer Act, 1999 (Act No. 1 of 1999) and was subsequently amended by the Public Finance Management Act (Act No 1 of 1999) which converted it into a Trading Entity. Under the PFMA, the WTE was required to change from cash-based accounting to accrual-based accounting.
Trading account 1: Integrated Water Resource Management: Water trading account 1 covers specifically water resources management functions. This component funds the implementation of water resources management activities in each water management area, including resources quality management, control and authorisation of water use, and the promotion of water conservation measures. It also includes the portion of the Working for Water budget that is derived from revenue from water users.
Trading account 3: Bulk Water Supply: Water trading account 3 covers consumption charges. A number of water resources schemes (dams) are operated as stand-alone schemes and do not form part of an integrated system. The supply of water is mostly in bulk to different water users groups, but the agricultural sector is by far the largest consumer. Expenditure in this component covers operations and maintenance as well as management costs, and revenue is earned through the sales of water related services, mostly supplied in bulk.
The WTE has a responsibility for conducting, at least annually, a review of the effectiveness of the system of internal control. The review of the effectiveness of the system of internal control is informed by the work of internal auditors, executive managers within the chief directorates and the Risk Management Committee, who all take responsibility for the development and maintenance of the internal control environment. This is supported through reviews and comments made by the external auditors.
In discharging this overall responsibility, the WTE is also responsible for ensuring that there is a sound system of internal control which facilitates the effective execution of the WTE's functions to achieve its objectives. The system of internal controls includes governance arrangements for the management of risks.
The Top Management of the Department reviews internal control system documentation each year and present through the executive authority a report to Cabinet detailing our system of internal control, weaknesses in control, procedures for risk management and an action plan to rectify issues raised in the report. The report should request that the Cabinet Minister formally adopt the action plan for improved financial management. It is worth noting that reports identifying progress against the financial management improvement plan have been taken to the Audit Committee and EXCO on a quarterly basis since 2007/08. A key element of this action plan included the development of a robust framework of risk identification, assessment, control and reporting, via the compilation of a regularly reviewed corporate wide, key risk register. This should be generated from the risk assessment work of individual service management teams and ultimately approved by the Top Management Team.
During the year under review, the Water Trading Entity has embarked on focusing its delivery of service through the following strategic thrusts.
Water Reconciliation Strategies are being developed to ensure that South Africa continues to have security of water supply to balance its growing water needs which are driven by social and economic imperatives. In compiling the strategies for the various key supply areas of the country the Department conducts studies involving an assessment of the availability, use and future requirements for water and how these can be "reconciled" through various strategies.
Three key reconciliation strategies were completed during the 2009/10 financial year.
The CWRS ensures water security for the northern areas of Gauteng, the platinum mines and other developments around Rustenburg and Brits and further north to Thabazimbi. This strategy also covers the water supply to the large-scale energy-related developments that are planned for the Waterberg coalfields in the vicinity of Lephalele.
Continue to supply Gauteng (North) from the Vaal River (via Rand Water).
Supply mines, towns to north from re-use of growing return flows from Gauteng (North).
Transfer surplus effluent in the Crocodile (West) River System to the Lephalale area for the requirements of the development on the coal fields.
Investigate a transfer of effluent from the Vaal River catchment to the Crocodile catchment taking into consideration water quality issues.
Implement water conservation and water demand management measures to reduce losses and thus also urban demand.
Implement measures to manage the water quality in the Crocodile River System.
The Integrated Vaal River System (VRS) supplies a vast area covering the Eastern Highveld of Mpumalanga, Gauteng, the North West goldfields around Klerksdorp, the Free State goldfields around Welkom and down to Kimberley in the Northern Cape.
A mix of actions must be implemented to ensure sufficient water of acceptable quality in the supply area.
Eradicating, unlawful water use especially in the Upper Vaal catchment area as a priority by 2011.
Implementing water conservation and water demand management measures to reduce losses, and thus also urban demand, by at least 15% by 2014.
Preparing for the implementation of Phase 2 of the Lesotho Highlands Water Project, with the current target to supply water to the system by 2019/20.
Implementing measures to manage the water quality in the Vaal River System.
This strategy essentially covers security of water supply to the area from Pietermaritzburg to Durban (west to east) and from KwaDukuza (Stanger) in the north, to Amanzimtoti in the south. It includes the eThekwini Metropolitan area and the Msunduzi and iLembe Municipalities.
Plan and implement water conservation and water demand management.
Investigate and implement large-scale re-use of treated effluent.
Plan and implement a bulk water transfer scheme from the Thukela River to the Mgeni System.
Investigations into the desalination of sea water to augment water supply in the future.
An overall assessment of the output from studies done for these three key areas is that there is currently an acceptable balance between water demand and supply. However, in order for the balance to be maintained, key actions as indicated above need to be implemented at appropriate times. The Department has set up Strategy Steering Committees for each area covered by a Reconciliation Strategy in order to ensure that all stakeholders and role-players continue to perform the role identified as their responsibility in the strategy.
The Vaal River Eastern Sub-system Augmentation Project was declared operational in June 2009. After a capital investment of R2.5 billion, water can now be conveyed through a large pipeline from the Vaal Dam to a distribution point near Secunda to ensure the provision of additional water to Eskom and Sasol at the high level of assurance of supply required to strategic industries.
Olifants River Water Resources Development Project (ORWRDP) 2a: Construction of the project has progressed to 38% complete. All the related infrastructure necessary to complete the construction of the De Hoop Dam has now been completed. This includes the construction of the new 20 km stretch of the R555 road relocated around the dam basin which was completed and opened for traffic in June 2009. The in-house construction team of the DWA is now ready for placing the concrete in this large dam at high production rates. Construction of the dam is scheduled for completion in 2012. A Project Charter was established to set social-economic targets that would promote the optimisation of the benefits for local citizens of the Sekhukhune District. The project employment of local workers peaked at 1 200 during the year. Upon completion, the stored water would be available for ensuring sufficient water for the social needs of 800 000 people on the Nebo Plateau who currently do not have a sufficient source of water. Water would also be available for new mining developments. To date R1.3 billion has been spent on this project.
Good progress has been made with preparations for the implementation of four major water augmentation projects for which construction is due to start in the new financial year. These are: the Moloko-Crocodile River Augmentation Project Phase I to supply water new the Medupi power station, coal mines and Lephalale Municipality by 2013; the Mooi-Mgeni Transfer Scheme Project which comprises the construction of the Spring Grove Dam and transfer pipeline for augmenting the domestic water supply in the Ethekwini and Umgungundlovu municipal areas by the 2013; Komati River Water Augmentation Scheme to improve the assurance of supply to Eskom's Duvha power station by 2012; and the Olifants River Water Resources Development Project Bulk Distribution System to convey the water from the De Hoop Dam to communities and new mines by 2013 and later.
Dam Safety and Rehabilitation Programme: At the end of the financial year a total of eighteen dams had been rehabilitated. The upgrading of these dams ensures: (i) sustainability of water supply, (ii) limiting water losses, and (iii) increase the spillway capacity to ensure the protection of the dam as part of disaster management. An amount of R324 million was spent this year.
95% compliance for different user groups was ensured; 99.
2 regional bulk projects were completed.
The Water Trading Entity owns, operates and maintains infrastructure with a current replacement value of some R139 billion (excluding land). This infrastructure is of strategic importance to the country as not only does it ensure the supply of water for human needs but also ensures supply of water to strategic industries, e.g. Eskom.
A high level asset register was developed in the 1990's but did not fulfill the requirements of the Department and a more detailed project was undertaken between 2007-2009.
Compliance with National Treasury requirements for the asset register (March 2008 audit) and subsequent updates, the asset register has been linked spatially using the Geographical Information System.
Compliance with the requirements of the Government-wide Immoveable Asset Management Act (GIAMA) to prepare asset management plans (asset management plans (AMPs) were developed for each of the four operational areas during 2008 and have been refined/updated during 2009 including a national plan.
Robust information on the state of infrastructure, long-term financial needs and the challenges in terms of financial viability.
Staff awareness of best practice infrastructure asset management and techniques.
Exposure of staff to implementing elements of best practice - in the form of participating in the preparation of the AMPs, compiling the asset risk register, documenting asset life-cycle strategies and expected useful life, and the componentisation of infrastructure implicit in the shift to accrual accounting.
In implementing this project, the Department pre-empted the requirements of GIAMA and spearheaded the application of the new accounting standards, providing valuable leadership in the country's water sector.
The Department controls 250 schemes of which 65 are considered national schemes where raw water is collected and transferred from one catchment to another, with the balance being schemes where raw water is collected and delivered within a particular catchment.
There are 62 international rivers in Africa which are shared by 46 countries. It is estimated that 80% of Africa's water resources is shared. In SADC, 70% of the water resources is shared. South Africa shares the waters of the Orange, Limpopo, Inkomati, Maputo and Umbeluzi Rivers with its neighbours (namely Botswana, Lesotho, Mozambique, Namibia, Swaziland and Zimbabwe) and has taken a key leadership role in ensuring continued dialogue and co-operation on water-related issues in the continent.
South Africa participates in various international water sharing agreements to foster closer co-operation for judicious, sustainable and coordinated water resource management, protection and utilasation of shared water courses. This helps in dealing with water related disasters and emergency situations. Co-basin states are also able to resolve potential conflict over limited water resources, to promote integrated development and fight poverty and water related diseases. Working together with other shared watercourse states promotes the sharing of information and expertise for solving water-related engineering, legal, environmental, political, social and economic challenges.
Shared watercourse states have an opportunity to develop joint projects with a focus on equitable benefit sharing, e.g. the Lesotho Highlands Water Project between Lesotho and South Africa, and the Komati Water Project between South Africa and Swaziland. The water-related challenges in Africa are immense and the experience gained from the joint integrated water resource management of shared watercourses is valuable.
Planning for infrastructure maintenance is based on asset management plans formulated to meet specific service level standards agreed with water users. Water users registered for water use at various schemes require not less than 95 per cent assurance of water supply.
During the current year, approximately R850 million was spent by the WTE in the development of infrastructure. This resulted in significant progress in the development of new infrastructure and in this respect the Banhoek scheme was completed. Furthermore, the Bullshoek and Klipdrift schemes underwent significant refurbishment/ rehabilitation.
Progress has been made with the construction of the De Hoop Dam in the Limpopo Province. The project aims to unlock the mineral wealth in the Middle Olifants River Catchments and at the same time bring relief to thousands of people who currently do not have safe and reliable sources of water. The Department and ESKOM are also assessing how best the proposed Project Lima, a new pumped storage scheme that forms part of the Olifants River Water Resources Development Project (Phase 2: De Hoop Dam), can be utilised to provide an additional 1 500 MW of electricity to the national grid while it is utilised to pump water to about 800 000 residents on the Nebo Plateau in the Greater Sekhukhune District Municipality.
refurbishment of the Gamtoos scheme, the Kromellenboog Dam and the Pongolaspoort Dam.
The WTE is therefore responsible for the operation and maintenance of water resource infrastructure and the subsequent cost recovery emanating from the operations. Cost recovery is managed through a tariff structure which is based on the water pricing strategy of 1999, as amended in 2007.
Currently, there is approximately R13 billion backlogs in infrastructure refurbishments which may result in an increased risk of dilapidation of infrastructure assets managed by the WTE. The WTE is unable to recover the costs for these rehabilitations as a result of deficiencies in the pricing strategy, such as the provision for capping of tariffs. To this end, in consultation with water users, the prcing strategy is to be reviewed in order to serve as a public policy instrument that will ensure that financial resources are available to sustain service delivery and infuse responsible water use in the country.
The revenue billed is also not adequate to cover the operating and maintenance requirements excluding depreciation and amortisation of approximately R1.4 billion per annum, also as a result of the said deficiencies in the pricing strategy.
The WTE, in order to discharge its duties arising from the provisions of the PFMA, embarked on a process that is intended to lay a solid foundation from which a viable WTE could be operated and which is completely distinct from those of Vote 34 (Main Account). This foundation was created by commissioning projects that would assist the entity in developing policies and processes that will create an environment that enables compliance with the prescripts of the PFMA.
the Efficiency Drive Project.
inform the tariff setting process.
Through Project Sakhile, infrastructure assets were verified and valued during the financial year in accordance with international recognised best practices to determine their fair values. A project initiated by management to determine fair values for infrastructure assets resulted in the revaluation of these assets to R87 billion, including land and servitudes for 31 March 2008 assets register. The recommendations of Project Sakhile necessitated management to undertake further refinements on the infrastructure register in order to ensure completeness and accuracy. This process led to an adjustment of the carrying values of infrastructure assets to R 61 billion.
The Efficiency Drive Project was undertaken in the current year as a result of outcomes from the efficiency recommendations made partly through process re-engineering undertaken in Project Siyanqoba.
The project seeks to build on the momentum of previous reform initiatives - Sakhile, Hlayisa, Siyanqoba, and EWRM.
funding inadequate for infrastructure life-cycle needs resulting in growing backlogs and escalating risk of dilapidation of infrastructure.
establishment of an effective business performance framework.
The interventions enlisted above are expected to result in improvement in efficiencies within the operations of the entity and it is expected that embedded value will be unlocked through these processes as well.
The Annual Financial Statements have been submitted with my approval as the Accounting Officer.
I have audited the accompanying financial statements of the Water Trading Entity (WTE) which comprise the statement of comprehensive income as at 31 March 2010, the statement of financial position, statement of changes in net assets and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information, set out on pages 189 to 233.
The accounting officer is responsible for the preparation and fair presentation of these financial statements in accordance with the South African Statements of Generally Accepted Accounting Practices (SA Statements of GAAP) and in the manner required by the Public Finance Management Act of South Africa (PFMA). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Treasury Regulation 17.1.2 requires the source of the transactions in a clearing account to be readily identifiable, as well as monthly reconciliations to be performed to confirm the balance of the account. This information could not be provided for the transactions in the clearing account disclosed as part of the unallocated receipts note 10.2 to the financial statements. In addition the transactions that have been journalised out of this clearing account could not be supported by adequate supporting documentation. The entity's records did not permit the application of alternative audit procedures regarding this clearing account. Consequently, I did not obtain sufficient appropriate audit evidence to satisfy myself as to the existence, obligations, completeness, and valuation and allocation of this clearing account.
Excluded from water related services revenue is an amount of R231 791 894 relating to "return to sender" invoices. The SA Statements of GAAP, IAS 18 (AC 111), Revenue requires that revenue should be recorded when it is probable that economic benefit will flow to the entity. There was an inadequate system of control to assess the probability of the recording of these amounts as revenue on which I could rely on for the purpose of my audit, and there were no satisfactory audit procedures that I could perform to obtain reasonable assurance that all the water related service revenue was properly recorded. Consequently, I was unable to obtain sufficient appropriate audit evidence to satisfy myself as to the completeness of water related service revenue of R1 643 715 as disclosed in statement of comprehensive income.
There was no system of control over the recording of outstanding invoices at year-end on which I could rely for the purpose of my audit, and there were no satisfactory audit procedures I could perform to obtain reasonable assurance that all outstanding invoices have been accrued or provided for. Consequently, I am unable to conclude on the completeness of the accrual liability in the annual financial statements.
I was unable to verify the completeness, existence and valuation of water user debtors as disclosed in note 10.1 to the financial statements. There were a limited amount of debtors that confirmed their balances and the alternative audit procedures did not render satisfactory results. Consequently, I could not obtain reasonable assurance that these debtors balance exist and are disclosed at the correct value in the annual financial statements. In addition we could not conclude on the completeness of the trade debtors due to the limitation in the completeness of the water related services revenue.
The entity could not provide sufficient appropriate audit evidence to support the disclosure made in terms of IFRS7 and related standards in note 22 to the financial statements. Consequently, I did not obtain sufficient appropriate audit evidence to satisfy myself as to the valuation, rights and obligations, completeness, classification and understandability of the disclosure made in these notes.
In my opinion, except for the effects of the matters described in the Basis for qualified opinion paragraphs, these financial statements present fairly, in all material respects, the financial position of the Water Trading Entity as at 31 March 2010 and its financial performance and its cash flows for the year then ended, in accordance with SA Statements of GAAP and in the manner required by the Public Finance Management Act of South Africa (PFMA).
As disclosed in note 27 to the financial statements, irregular expenditure to the amount of R6 907 000 was incurred, as proper tender processes had not been followed.
With reference to note 19 to the financial statements, WTE is the defendant in a number of lawsuits. The ultimate outcome of these matters cannot currently be determined, and no provision for any liability that may result has been made in the financial statements.
As disclosed in note 23 to the financial statements, the corresponding figures for the year ended 31 March 2009 have been restated as a result of errors discovered during the year ended 31 March 2010 in the financial statements of WTE at, and for the year ended, 31 March 2009.
As disclosed in note 7 to the financial statements, impairment of infrastructure assets of R446 533 000 occurred as a result of assets not being able to functionally perform as contemplated when they were initially designed, mainly because of limited utilisation and loss of functionality due to siltation.
As disclosed in note 10.1 to the financial statements, R115 197 000 of long-outstanding debt has been written of due to management's assessment that the recoverability of these amounts are slim.
In terms of the PAA of South Africa and General notice 1570 of 2009, issued in Government Gazette No. 32758 of 27 November 2009 I include below my findings on the report on predetermined objectives, compliance with the PFMA, Public Service Act (PSA), Preferential Procurement Policy Framework Act (PPPFA) and financial management (internal control).
Validity: Has the actual reported performance occurred and does it pertain to the entity i.e. can the reported performance information be traced back to the source data or documentation?
Accuracy: Amounts, numbers and other data relating to reported actual performance has been recorded and reported appropriately.
The reported targets were not valid and accurate on the basis of the evidence provided to support the reported targets.
The internal audit function did not substantially fulfil its responsibilities for the year, as set out in TR 3.2.
Contrary to the requirements of TR 17 the authority utilised a suspense account, and did not implement adequate controls to clear the items on a monthly basis.
In contradiction with section 38 (1) (a), the Entity did not perform adequate creditor reconciliations for major supplier balances.
I considered internal controls relevant to my audit of the financial statements and the report on predetermined objectives and compliance with the PFMA, PSA and PPPFA, but not for the purposes of expressing an opinion on the effectiveness of internal control. The matters reported below are limited to the deficiencies identified during the audit.
An effective organisational structure that places people with appropriate skills has not been established.
Actions are not taken in a timely manner to address the risks relating to the achievement of complete and accurate financial reporting.
Effective financial systems and management thereof have not been implemented to ensure that all water-related services revenue was recorded in the correct accounting period and to ensure that suspense accounts are cleared on a monthly basis.
Manual or automated controls are not designed to ensure that all accruals are recorded at year end.
The financial statements are not reviewed for completeness and accuracy prior to submission for audit purposes, and as a result the financial statements were subject to material amendments resulting from the audit.
Internal control deficiencies were not identified and communicated in a timely manner to allow for corrective action to be taken.
The chief director - Financial Management was suspended during the year under review and the investigation is still ongoing.
The accounting officer of the Department of water affairs was placed on special leave and at the date of this report the department was busy with the investigation.
A performance audit was conducted during the year under review on the use of consultants. The audit covered the period April 2007 to March 2010 and is currently in the reporting phase. The findings will be reported in a separate report.
The financial statements have been prepared in accordance with South African Statements of Generally Accepted Accounting Principles (SA GAAP) and the Public Finance Management Act (PFMA), Act No. 1 of 1999 (as amended by Act No. 29 of 1999), except where specifically indicated, using historical cost as modified by the revaluation of property, plant and equipment. The financial statements are prepared on a going concern basis.
The following new and revised standards and interpretations have also been adopted in these financial statements. Their adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions or arrangements.
Revenue comprises the fair value of the consideration received or receivable for water related services. Revenue is shown net of value added tax.
Construction contract revenue is recognised by reference to the stage of completion of the contract when the outcome of a construction contract can be estimated reliably. The stage of completion is assessed by reference to surveys of work performed. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable in the period in which they are incurred. An expected loss on a contract is recognised immediately in the statement of comprehensive income.
Interest income is recognised on a time proportion basis taking into account the principal outstanding and the effective rate over the period to maturity when it is determined that such income will accrue to the entity.
Government grants that are provided for compensation of infrastructure development are recorded as deferred income when they become receivable and are then recognised as income on a systematic basis over the period necessary to match the grants with the related costs that they are intended to compensate.
Government grants that are provided for compensation of operating expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs are recorded as income in the statement of comprehensive income in the period that they become receivable.
Items of infrastructure property, plant and equipment are stated at revalued amounts, less accumulated depreciation and accumulated impairment losses. Additions on items of infrastructure property, plant and equipment are recorded at cost.
Cost comprises all expenditure 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.
Revaluation of all major infrastructure assets is carried out every 10 years. This revaluation is carried out throughout the particular revaluation year so as to determine the value as at the end of that financial year. Increases in carrying value arising on revaluation are credited directly to revaluation reserve and recognised in the statement of comprehensive income as other comprehensive income.
Any accumulated depreciation and any accumulated impairment loss is eliminated against the gross carrying amount of the asset upon revaluation. On disposal of previously revalued property, plant and equipment, any amount relating to that asset remaining in the revaluation reserve is transferred to accumulated deficit.
Depreciation is calculated on a straight line basis over the expected useful lives of each major component of infrastructure assets. Depreciation on infrastructure assets is charged to the statement of comprehensive income.
Subsequent costs are included in the assets carrying amount or recognised as a separate asset only when it is probable that the future economic benefits associated with the item will flow to the entity and the cost of that item can be reliably measured.
Capital projects under construction are stated at cost. Depreciation only commences on these assets when they are in the condition necessary for them to be capable of operating in the manner intended by management.
Items of infrastructure property, plant and equipment are tested for impairment whenever there are impairment indicators. An asset's carrying amount is written down to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.
The residual values and useful lives of all infrastructure assets are reviewed at the end of each financial year. Where there are changes in the residual values or useful lives of assets, these are accounted for as a change in estimate in accordance with IAS 8.
Gains or losses arising from de-recognition of an item of infrastructure asset is recognised directly in surplus or deficit in the statement of comprehensive income when the item is derecognised.
Items of moveable property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.
Depreciation is calculated on a straight line basis over the expected useful lives of the moveable assets. Depreciation on moveable assets is charged to the statement of comprehensive income.
Costs incurred subsequent to acquisition are included in the asset's carrying amount or recognised as a separate asset only when they meet the definition of an asset, it is probable that the future economic benefits associated with the item will flow to the entity and the cost of that item can be reliably measured.
All items of moveable property, plant and equipment are tested for impairment whenever there are indications of impairment. An asset's carrying amount is written down to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Recoverable amount is the higher of fair value less cost to sell; and value in use. The impairment loss is recognised in surplus/deficit in the statement of comprehensive income.
A reversal of the impairment loss is recognised directly in surplus or deficit in the statement of comprehensive income.
The residual values and useful lives of all moveable assets are reviewed at the end of each financial year.
Profit/loss on disposal of property, plant and equipment is recognised directly in surplus/deficit in the statement of comprehensive income.
Software and licenses are recognised and measured at cost less accumulated amortisation and accumulated impairment losses.
Other intangible assets are carried at cost less any impairment losses.
Amortisation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful live of intangible assets, unless such useful lives are indefinite.
Intangible assets with an indefinite useful life are tested for impairment at the end of each financial year and whenever there is any indication that the intangible asset could be impaired.
Any impairment loss of an intangible asset with an indefinite useful life is treated as a revaluation decrease in accordance with IAS 38 and recognised directly in the statement of comprehensive income as other comprehensive income in the period in which it occurs.
Any impairment loss of an intangible asset with a definite useful life is recognised directly in surplus/deficit for the period.
The amortisation period and the method of amortisation of intangible assets with a finite useful life are tested for impairment annually at the end of each reporting date. Any changes in the useful lives, residual values of amortisation period are accounted for as a change in estimate in accordance with IAS 8.
Other intangible assets are assessed to have an indefinite useful life.
The entity classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement.
Financial assets and financial liabilities are recognised on the entity's statement of financial position when the entity becomes party to the contractual provisions of the instrument.
Financial instruments are measured initially at fair value.
Transaction costs on financial instruments at fair value through surplus or deficit are recognised in surplus or deficit.
Regular way purchases of financial assets are accounted for at trade date.
trade and other payables.
Trade and other receivables are initially recorded at fair value and are carried at amortised cost using the effective interest rate less provision for impairment. The provision for impairment is established where there is objective evidence that the entity will not be able to collect all amounts due according to the original terms of the receivables.
Trade and other receivables are classified as loans and receivables.
Cash and cash equivalents are carried at cost in the statement of financial position. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, short term deposits held at call with banks, other short-term highly liquid investments with maturities of three months or less, and bank overdrafts.
Cash and cash equivalents are classified as available for sale financial assets.
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate.
Trade and other payables are classified as financial liabilities measured at amortised cost.
Exposure to continuously changing market conditions has highlighted the importance of financial risk management as an element of control for the entity.
The entity finances its operations primarily from cash receipts from customers and augmentation income received from the government. There are primarily two financial risks that the entity faces in the normal course of its operations. These are the interest rate risk and the credit risk.
The entity has no long term debt and such has very limited exposure to material losses as a result of fluctuations in interest rates. The entity complies with the PFMA requirements in that it always endeavours to pay its suppliers within 30 days of receipt of an invoice.
Potential areas of credit risk consist of trade accounts receivable and cash investments.
Accounts receivable consists mainly of government owned institutions and government owned entities.
The entity monitors the ageing of debtors on an ongoing basis and engages their customers where there is an indication of possible problems with regard to recovery from customers. Provision is made for both specific and general bad debts and at the end of the financial year management did not consider there to be any material credit risk exposure that was not already covered by the impairment provision.
Cash investments are investments made by the entity with the South African Reserve Bank and credit risk is considered to be acceptably low.
Inventory is carried in the financial statements at the lower of cost and net realisable value. Cost is determined using the weighted average cost method. Net realisable value is the estimated selling price in the ordinary course of business less the costs of completion and selling expenses. Any write down of inventory to net realisable value is recognised immediately in the statement of comprehensive income as an expense.
Provisions are recognised when the entity has a present legal or constructive obligation as a result of past events and 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.
Management also assesses whether the entity can avoid the liability without incurring significant penalties. If the liability can be avoided, the present obligation would not be present and a provision will not be raised.
A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.
Payments made under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.
When an operating lease is terminated before the end of the term of the lease, any payments required to be made by the entity by way of penalties are recognised as an expense in the period in which the termination occurred.
Finance leases, which transfer to the entity substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments.
Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are reflected in surplus or deficit in the statement of comprehensive income.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the entity will obtain ownership by the end of the lease term.
Contingent assets and liabilities are not recognised in the financial statements but are disclosed as such in the notes to the financial statements. Contingent liabilities represent a possible obligation that arises from past events and whose existence will be confirmed only by an occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
the amount of the obligation cannot be measured with sufficient reliability.
Contingent assets represent possible assets that arise from past events and whose existence will be confirmed only by an occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
Annual leave is provided for over the period that the leave accrues. In the case of accumulating compensated leave benefit, the entity recognises the cost when the employee renders the service that increases their entitlement to the future compensated absences. In the case of non-accumulating compensated absences, the entity recognises the leave cost when the absence occurs.
As a liability in cases where the amounts have not yet been paid. Where the amount paid exceeds the undiscounted amount of the benefits due, the entity recognises the excess as an asset to the extent that the overpayment will lead to a reduction of future payments or a cash refund.
As an expense, unless the entity uses the services of employees in the construction of an asset and the benefits received meet the recognition criteria of an asset, at which stage it is included as part of the related property, plant and equipment or intangible asset item.
The entity recognises the expected cost of performance bonus payments where there is a present legal or constructive obligation to make these payments as a result of past events and a reliable estimate of the obligation can be made by the entity. The entity considers the present obligation to exist when the entity has no realistic alternative but to make the payments related to performance bonuses.
Termination benefits are payable whenever an employee's employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy for these benefits or resigns. The entity recognises termination benefits when it is demonstrably committed either to terminate the employment of current employee(s) according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than twelve months after the end of the financial year are discounted to present value.
The entity provides retirement benefits for its employees through a defined contribution plan. Once the entity has paid the contributions, the entity has no further payment obligations. The contribution paid is charged to employee expenses in the same year as the related service is provided.
The entity contributes to the employees' medical benefits through a contribution to the employee's medical aid scheme. Once the entity has paid the contributions, the entity has no further payment obligations as such no provision is made for post retirement medical benefits. The contribution paid is charged to employee expenses in the same year as the related service is provided.
The entity constitutes part of the national government in terms of the Public Finance Management Act (Act no. 1 of 1999), as amended. Public and trading entities within the National Government sphere are considered to be related parties.
Goods and services are sold and / or purchased to or from related parties on an arm's length basis at market-related prices.
Construction work in progress represents the total cost spent by the entity on infrastructure projects that have not yet been completed at reporting date. It is measured as the total cost that the entity has incurred to date on infrastructure projects.
Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the entity's construction activities based on normal operating capacity. Construction work in progress is presented as part of property, plant and equipment in the statement of financial position.
The entity records and reports separately amounts of irregular, unauthorised, fruitless and wasteful expenditure discovered.
Amounts of irregular, unauthorised, fruitless and wasteful expenditure discovered are recognised as receivables to the extent that these are recoverable and are recognised as expenses to the extent that they are not recoverable.
Finance cost is recognised as an expense in surplus or deficit in the statement of comprehensive income in the period in which it is incurred, using the effective interest rate method.
Where necessary, comparative figures have been adjusted to correct errors identified in the current year but relating to prior years, and to conform to changes in presentation in the current year.
Finance lease assets and liabilities.
These restatements resulted in a restatement of amounts previously reported for reserves and also resulted in the restatement of amounts previously disclosed in the statement of cash flows.
The entity reviews its activities subsequent to its reporting date to determine whether these represents conditions that existed at reporting date in order to determine if these should be presented in the annual financial statements.
The collective assessment highlighted the fact that 60% of trade receivables assessed collectively that have been owing for over 150 days belong in the bulk payers category. The entity concluded that an impairment provision of 30% would be reasonable in the light of the evidence at its disposal.
The entity limits its exposure to credit risk by transacting with customers that have a sound credit history. Given this, the entity does not expect any counterparty to fail to meet its obligations.
The Water Trading Entity has no foreign exchange rate exposure.
Restatement of infrastructure assets on 01/04/2007 (23.
During the current year the WTE identified through verification and valuation of major water infrastructure project that some of the infrastructure asset classes required refinement and sub-componentisation. This project resulted in sub-componentisation of large pumps, motors and valves and correction of duplicated costs.
During the current year the WTE identified that some of assets included as part of infrastructure assets of the entity were not owned by the entity. It was identified that WTE erroneously treated the Driekoppies dam owned by KOBWA as infrastructure of the entity, whilst the WTE does not have ownership of the dam. The WTE has the right of use of the dam. It was further identified that the pipelines and reservoir on Usuthu scheme built by Eskom were erroneously included as part of the WTE's infrastructure assets.
Furthermore it was identified that the Pretoria West Building which is built on state land was erroneously included as part of the WTE infrastructure assets and in terms of the law all buildings belong to the Department of Public Works. The entity enjoys use of the building and pays the Department of Public Works for use of the building. It was further identified that some small assets belonging to Amatola and the irrigation board were erroneously included as part of infrastructure owned by the entity as these were transferred long time ago to these entities.
During the current year the WTE identified assets that were renewed in prior period but the old assets values were not removed as infrastructure assets.
During the current year the WTE identified errors in values of infrastructure assets that required further adjustment as result of change in values using more accurate lengths for longitudinal assets (i.e. canals, pipelines and tunnels) based on spatial cleaning exercise undertaken in 2009.
During the current year the WTE identified a material error in the accounting for movable assets in the prior year. Assets were carried at incorrect cost, assets were duplicated on the asset register, assets disposed were included on the asset register and assets found on the floor were not included in the asset register.
During the current year, the WTE identified a material error in the treatment of VAT balances taken on when they migrated from BAS to SAP. VAT receivable was incorrectly raised as a result of incorrect take on balances.
During the current year, the WTE identified a material error in the treatment of accommodation costs payable to construction staff balances taken on when they migrated from BAS to SAP. A payable was incorrectly raised as a result of incorrect take on balances.
Reclassification of property from owned land to servitudes on 01/04/2008 (23.
During the current year, WTE identified through the refinement process related to verification and valuation of major water infrastructure that certain items of land included in the WTE's annual financial statements in prior years was in fact not owned by the WTE. The WTE however has the right to use the land. This means that the WTE has servitude rights over the land and not land ownership rights. This resulted in the transfer of this land to servitudes.
Reclassification of trade and other payables on 01/04/2008 (23.
During the current year, the WTE identified a material error in the classification of subsidies paid to farmers and receivable from main account, these accounts were incorrectly classified as trade and other payables.
During the current year, the WTE identified a material error in the classification supplier payments suspense accounts, these accounts were incorrectly classified as trade and other payables.
Reclassification of trade and other receivables on 01/04/2008 (23.
During the current year, the WTE identified a material error in the classification of cashier deposits, these accounts were incorrectly classified as trade and other receivables.
Reclassification of assets under construction on 01/04/2008 (23.
During the current year, the WTE identified a material error in the classification of construction work done on behalf of third parties. This has been subsequently been reclassified to current assets. These accounts were incorrectly classified as non-current assets.
Reclassification of lease expenditure on 01/04/2008 (23.
During the current year, the WTE identified a material error in the classification of maintenance costs on lease contracts. These costs were incorrectly classified as lease expenditure.
During the current year, the WTE identified a material error in the classification of provision for pumping costs. These costs were incorrectly classified as other payables.
During the current year the WTE identified repairs and maintenance costs that were incorrectly capitalised as part of infrastructure assets and this was reclassified to operating expenditure.
During the current year the WTE identified that it had erroneously eliminated the Lesotho hydrological gauging weirs as part of the entity's infrastructure assets and further sub-componentisation, mainly valves at pump stations and dam outlets.
During the current year the WTE identified that it had been incorrectly calculating the depreciation on infrastructure assets and using incorrect costs/revalued amounts in its calculations.
Increase in release of depreciation as a result of revised asset values.
Correction of prior period error of trade and other receivables on 01/04/2008 (23.5, 23.6, 23.7 and 23.
During the prior year the WTE identified a material error in the manner in which it accounted for fruitless and wasteful expenditure which was classified as trade and other receivable. A receivable for a potential asset with no future inflow of economic benefits was recognised and a corresponding payable for a potential liability with no future outflow of economic benefits was also recognised.
During the current year, the WTE identified a material error in the accounting for finance income on overdue accounts in the prior year. Interest was incorrectly raised on debtors who were provided for as doubtful.
During the current year, the WTE identified a material error in the accounting for finance costs in the prior year. Interest was incorrectly raised on recognition of revenue.
Correction of prior period errors on leased assets on 01/04/2008 (23.
During the prior year the WTE identified a material error in the accuracy of the lease register. Some of the operating lease costs were incorrectly classified as leased assets.
Correction of prior period errors on lease liability on 01/04/2008 (23.
During the prior year the WTE identified a material error in the treatment of accuracy of the lease register. Some of the operating lease costs were incorrectly classified as leased assets.
Correction of prior period errors on assets under construction on 01/04/2008 (23.
The WTE constructs certain infrastructure assets for use in its operations. During the previous year an assessment was performed to identify all construction assets in progress that meet the recognition criteria of an asset per IAS 16. Certain assets that meet the recognition criteria were not recognised accordingly and certain items that do not meet the recognition were incorrectly capitalised.
The useful life of computer software was estimated in prior years to be 3 years. In the current period management have revised their estimate to 6 years. The effect of this revision has decreased the amortisation charges for the current and future periods by R 6,576,793.
The annual financial statements have been prepared on the basis of accounting policies applicable to a going concern entity. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.
Included in R 1 862 000 is an amount of R 1 168 000 that was condoned after the 31st of March 2010. The R 384 000 was also condoned after the 31st of March 2010.
31March 2010 R'000 31 March 2009 R'000 28.
Exposure to interest rate risk, credit risk and liquidity risk arises in the normal course of the entity's business.
Interest rates affect the entity in two ways. Firstly the changes in interest rate have an impact on the amount of interest that the entity charges its customers. The interest revenue recognised by the entity can therefore vary in accordance with changes in the interest rate. The entity does not take any specific steps to manage this risk as it does not rely heavily on this source of income.
A change in interest rates at the reporting date will not have a significant impact on the entity's profit or loss and cash flows.
The entity has a credit risk policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers.
The entity manages its cash position and future outflows on an ongoing basis. The entity ensures that it has sufficient cash on demand to meet expected operational expenses and liabilities, as they fall due.