SINCE 1903

RUNS IN YOUR VEINS

ANNUAL REPORT 2007 CONTENTS

PAGE

EXECUTIVE SUMMARY FOLD OUT

OUR THEME – RUNS IN YOUR VEINS 1

CHAIRPERSON’S MESSAGE 3

ACTING CHIEF EXECUTIVE’S REPORT 6

RAND WATER BOARD 14

PORTFOLIO INTEGRATING COMMITTEE 16

OPERATIONS 18

STAKEHOLDER REVIEW 29

ENVIRONMENTAL AND QUALITY REVIEW 47

GOVERNANCE AND RISK REVIEW 60

PAGE

CONSOLIDATED ANNUAL FINANCIAL STATEMENTS 68

STATEMENT OF RESPONSIBILITY BY THE MEMBERS OF THE BOARD 69

INDEPENDENT AUDITOR’S REPORT TO THE MINISTER OF WATER AFFAIRS AND FORESTRY 70

REPORT OF THE AUDIT COMMITTEE 72

BOARD MEMBERS REPORT 73

CONSOLIDATED INCOME STATEMENT 80

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 80

CONSOLIDATED BALANCE SHEET 81

CONSOLIDATED CASH FLOW STATEMENT 82

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS 83 EXECUTIVE SUMMARY

“Water – gathered and stored since the beginning of time in layers of granite and rock, in the embrace of dams, the ribbons of rivers – will one day, unheralded, modestly, easily, simply flow out to every South African who turns a tap. That is my dream.” President Thabo Mbeki, quoting poet Antjie Krog at the launch of the 2006 UNDP Development Report, Cape Town, November 2006 DEFINING RAND WATER

OUR VISION Rand Water is an industry leader and partner of choice in sustainable bulk water services.

OUR MISSION To consistently meet the expectations of our customers, partners and government by strengthening our capability to: • attract, develop and retain leading edge skills in the water sector • sustain robust financial performance • develop and sustain globally competitive operational capability • enter into and sustain productive partnerships • deploy cost effective technologies

OUR VALUES • Caring • Equity • Excellence • Integrity • Spirit of partnership

OUR STRATEGIC OBJECTIVES • Ensure that Rand Water continues to be a viable, sustainable, bulk water services provider • Position Rand Water as the partner of choice in water services • Satisfy all customers • Improve business efficiencies and quality • Achieve transformation • Create a dynamic learning organisation OUR BACKGROUND For over 100 years, Rand Water has been supplying quality potable water to Gauteng and surrounding areas. Our success is based on sharing in the pioneering spirit that has led to Johannesburg’s growth. The same spirit has driven our growth in terms of infrastructure and quality significantly increasing our area of supply. We have a reputation for supplying water that ranks alongside the best quality drinking water in the world. It is that pioneering spirit and can-do attitude that is behind our commitment to meeting the Millennium Development Goals in South Africa and on the African continent.

OUR CORE BUSINESS Rand Water is the largest bulk water utility in Africa and is one of the largest in the world, providing bulk potable water to more than 11 million people in Gauteng, parts of Mpumalanga, Free State and North West – an area that stretches over 18 000 km2.

Rand Water’s distribution network includes over 3 000 kilometres of large diameter pipeline, feeding 53 strategically located service reservoirs.

Our customers include metropolitan municipalities, local municipalities, mines and industries and we supply, on average, 3 550 million litres of water to these customers daily.

Rand Water as an organ of state reports to the Department of Water Affairs and Forestry. Throughout our long history, we have remained financially self-sustaining and our financials have been affirmed by Standard & Poor’s rating of our long-term local currency, corporate credit rating as A+ and our long-term foreign currency, corporate credit rating as BBB+.

ACCOLADES • International Star Award in the Gold category by Business Initiative Directions (BID) for Innovation and Technology • Award from Top 500 Companies for the best performing organisation in the water sector • Rand Water placed third in the Top Public Sector Transformation Award. It is an award that recognises the public sector’s efforts in supporting black economic empowerment, particularly with regard to professional procurement policy initiatives WATER SOURCES Since 1974, the water in the Vaal River has been The Lesotho Highlands Water Project (LHWP), transfers supplemented by the Tugela-Vaal scheme through the water from Lesotho to supplement the Vaal Dam. The inter-basin transfer of water from the Tugela River in entire project comprises six dams and three pumping KwaZulu-Natal. Water is released as required from the stations that divert the flow of the Orange River via tunnels Sterkfontein Dam into the Vaal River system via the Nuwejaar through the Maluti Mountains and channel the water to Spruit and the Wilge River. The availability of water from the eastern Free State and on to the Vaal Dam. The first the Tugela-Vaal scheme enabled Rand Water to maintain phase of the LHWP to meet the expected demand of restricted but adequate water supplies to consumers during water in the Gauteng Province up to the year 2020 the droughts of 1983 to 1987 and 1995. was completed in 1998.

WATER SECTOR VALUE CHAIN OUR FOOTPRINT IN SOUTH AFRICA

AREA OF SUPPLY Rand Water’s mandated supply area is mainly centred around the Gauteng Province and other areas in adjacent provinces including the Mpumalanga Western Highveld, Limpopo the Rustenburg area in the North West Province as well as some areas in the Free State Province.

Mpumalanga North West Gauteng

Free State KwaZulu- Natal Northtern Cape

Eastern Cape

Western Cape

Original Area of Supply

Extended Area of Supply PERFORMANCE SUMMARY

OVERVIEW The Minister of Water Affairs and Forestry is the sole shareholder and Rand Water is controlled by the Board which comprises of non-executive members appointed by the Minister of Water Affairs and Forestry as well as one executive board member the Chief Executive. The day-to-day management of Rand Water is the responsibility of the Portfolio Integrating Committee (PIC) which comprises the Chief Executive and Portfolio Heads.

Rand Water Services (Pty) Ltd and the Rand Water Foundation (a Section 21 company), operate as subsidiaries, wholly owned by Rand Water. OUR THEME

RAND WATER – RUNS IN YOUR VEINS

“If the earth were a giant living organism, the endless moving cycle of water would be its circulatory system.”

Professor Hannes Rautenbach, Researcher at the University of Pretoria Water Institute, March 2007

In an ongoing motion that is as much part of the laws of nature Water is the lifeblood that sustains economic growth and as the ebb and flow of the tides, water is part of an endless enhances human development. From the cradle to the grave, cycle … rain falls from the clouds, flows over the land or sinks Rand Water runs through your being. The water flowing through the ground, where it may be stored as groundwater in through the veins of our infrastructure ensures that the heart underground aquifers and finally flows through rivers, lakes and of our economy through mines and industry, continues to dams toward the sea. Evaporation from surface waters and beat steadily. As Gauteng is the economic powerhouse of the transpiration of plants and trees feeds the clouds and the South Africa and hence of the African continent, a steady cycle continues. heartbeat in this region helps to ensure the economic health of our country and our continent. It is a cycle on which we depend and take for granted, yet it is a cycle in crisis. In the past 50 years, the world’s We are proud of our rich history. Proud of the fact that the population has increased more than two and a half times water we supply is rated among the best quality potable to about 6.4 billion. However, demand for clean, quality water in the world. Proud that we have continued to grow to water has increased four-fold. meet and anticipate the needs of an economy that has not stopped expanding for the past hundred years and more. Currently, approximately 1.1 billion people lack access to Proud of our growing stature in a sector that is growing in safe drinking water, 2.6 billion people have no access to importance, in recognition of the fact that our potential and proper sanitation and more than 5 million people die each our future as individuals, as communities, as a nation and as year from water-related diseases. global citizens are symbiotically linked with water.

Water is as essential as the air we breathe for our very In water lies the key to unlocking the gate to development, survival; its presence determines the nature of the natural the realisation of potential and a brighter future for all. Rand environment in which we live; the majority of our economic Water will continue to eliminate the deprivations of the past activities depend on it. The health, wealth and development and help to open the way to development, ensuring that we potential of a nation are inextricably linked to the availability contribute to a brighter future by running in the veins of our of clean water. country and our continent for as long as we are required to do so. Since 1903, Rand Water has been playing an integral role in the development and growth of Gauteng, its cities and its surrounding regions, providing clean water to people and industries. All the while, our infrastructure has been growing steadily, spreading the veins of life, the pipes containing water, interwoven underground throughout the province and surrounding regions. Today, we own more than 3 000 kilometres of pipeline.

RAND WATER Annual Report 2007 1 “Providing universal access to water is one of the greatest development challenges facing the international community in the early 21st century. Restricted access is a brake on economic growth, a source of deep inequalities based on wealth and gender and one of the main barriers to progress towards the Millennium Development Goals.“

UNDP Development Report 2006

THE MILLENNIUM DEVELOPMENT GOALS • Eradicate extreme poverty and hunger • Achieve universal primary education • Promote gender equality and empower women • Reduce child mortality • Improve maternal health • Combat HIV/Aids, malaria and other diseases • Ensure environmental sustainability (includes reducing by half the proportion of people without sustainable access to safe drinking water) • Develop a global partnership for development

2 CHAIRPERSON’S MESSAGE

“Rand Water has the technology, the skills and the determination to take up the challenge and help to turn the tide...”

Ms Jean Maureen Ngubane, Chairperson Rand Water

Profound political, economic and social changes have taken place in South Africa and around the world since Rand Water was established 104 years ago, but our basic core business has remained the same; to deliver high-quality, affordable potable bulk water around the clock. Rand Water is the only utility in the world that has to pump large amounts of water over a long distance. 70 kilometres, over an elevation of 400 metres.

Rand Water is achieving its goal of becoming a performance driven organisation. This is underscored by our most recent set of results. For the year ended, 30 June 2007, Rand Water posted a record surplus of R743 million with sales volume up by 2.69%, amounting to an average daily demand of 3 550 million litres, up from 3 457 million litres a day last year. Water supply was uninterrupted, despite the fact that demand peaked to an all-time high during the hottest February and March months on record.

Ms Jean Maureen Ngubane Rand Water Chairperson

RAND WATER Annual Report 2007 3 CHAIRPERSON’S MESSAGE continued

THE COMPANY IS CONTINUING TO DELIVER HIGH-QUALITY BULK PORTABLE WATER BY MONITORING AND UPGRADING ITS EXTENSIVE INFRASTRUCTURE ON A CONTINUOUS BASIS USING THE LATEST TECHNOLOGY.

Water and economic and social development go hand in Rand Water has prioritised the reduction of water and hand. Accordingly, in a developing country such as South sanitation backlogs and the improvement levels of services in Africa, the demand for potable water is intensifying as rural areas in support of national, provincial and local economic growth, urbanisation and infrastructural government’s imperatives within South Africa. Through our development accelerate. Government has made substantial corporate social investment initiatives we are building strides in the provision of water and sanitation since 1994. capacity not just through the provision of water and Access to clean, potable water supply has increased from sanitation, but also through the transfer of skills. 59% in 1994 to 83% in 2006. However, in South Africa eight million people are still without potable drinking water. Water demand management goes beyond saving water. It This backlog is exacerbated by the uneven distribution of encompasses using water wisely so that everyone has sufficient water at an affordable cost. To this end, we engage with our both rainfall and inland water sources in South Africa. stakeholders in a number of forums. Several ‘Water Wise’ The International Water Management Institute estimates educational projects have been established, aimed at developing that by the year 2025, the country will experience water an understanding among all South Africans that water is precious scarcity, with an annual clean water availability of less than and that our water resources are scarce and finite. 1 000 m(3) per capita (the index for water scarcity).

As Africa’s leading water utility, the company has a The issues of water scarcity and growing water demand, significant role to play on the continent. The problems of compounded by climate change and climate variability floods and droughts in Africa are exacerbated by watershed are subjects of growing international scrutiny. While the degradation owing to extensive rain-fed agriculture, environment, weather patterns, climate change, urbanisation, fragmented institutions and a largely underdeveloped water population growth and development impact on Rand Water’s storage and flood control infrastructure. Rand Water has the performance, we cannot control these directly. However, technology, the skills and the determination to take up the the company can make a difference by delivering on its challenge and help to turn the tide. Through our subsidiary, critical mandate, and by proactively facilitating Government’s Rand Water Services, we are already involved in managing development agenda in a dynamic, growing South Africa; water supplies in Ghana. meeting the goals of the New Partnership for Africa’s Development (NEPAD); helping to make the Millennium Rand Water is also part of the NEPAD working group Development Goals (MDGs), a reality and partnering with looking into shared watercourse support in the South African local, regional and international stakeholders to find Development Community (SADC) region. To further our sustainable water solutions. involvement in Africa, in April this year Rand Water hosted a meeting of the Water Operators Partnership, attended Rand Water is doing this in a number of different ways, all by 96 participants representing 70 water utilities from of which are detailed in this annual report. The company throughout Africa. is continuing to deliver high-quality bulk potable water by monitoring and upgrading its extensive infrastructure on a The company expects its involvement in Africa to increase in continuous basis using the latest technology. In addition, line with NEPADs objectives, as investor perceptions change an inventory assessment process is in place, that will further about water projects specifically and in Africa in general. assist in the process. Changing perceptions are partly driven by initiatives such as

4 CHAIRPERSON’S MESSAGE continued

provision propositions. In this regard, the organisation actively engages with the South African Central Government, Provincial, Local and Municipal Agencies; the private sector and multilateral development agencies in creating vehicles and frameworks for delivery of water services. Where necessary Rand Water will work in partnership with other Water Service Providers and we expect further developments in the not too distant future.

The Strategic Water Services Framework makes reference to a ‘water ladder’ which gives all South Africans the opportunity to participate in terms of access to water and sanitation. Rand Water has the ability to unlock growth opportunities in this regard. the Pan African Infrastructure Fund, that signed investment Rand Water is actively engaged in economic, social and agreements worth $625 million in June 2007, pledging to business transformation. Various business structures have been use the money for energy, technology, transport and water re-engineered on the principles of triple BEE and employment projects on the African continent. Rand Water welcomes such equity. Rand Water’s growth and development is underpinned by its robust employment equity strategy. Our concept of developments that will promote access to water and sanitation. employment equity is broad-based and is not only focused on racial equity, but includes gender and disability equity. In addition, Rand Water established the Rand Water Foundation with funds of R15 million in 2002. The Rand The achievement of our goals is attributed to committed and Water Foundation is focused on CSI projects. These projects motivated employees. The past year has been one of are both water and non-water related that benefit communities transition and change for them as the Portfolio Integrating within Rand Water’s area of operation. Among others, the Committee (PIC) structure was bedded down. While change projects include HIV/Aids projects; the empowerment of is never easy, our employees rose admirably to the challenge. women; the caring for the aged, the disabled and people This is encouraging in the context of the new era of Rand with special needs. During the period under review, projects Water’s growth. to the value of R46 243 562 were implemented.

The Board is grateful to Kenny Fihla, our previous deputy Rand Water’s strong economic performance and its chairperson who has resigned after ten years of exceptional leadership role in integrated water management have proven service to Rand Water, and Ms Xoliswa Kakana (Board that the company has the capacity to meet and anticipate member), who left to study overseas. Rand Water wishes demand as the country grows. Rand Water’s vigilance in them well. To the management, employees and support anticipating growth and development will ensure a continued services and to the Board members, whose input over the and sustainable water supply that will not impede growth. To last year has been invaluable; I express my appreciation for realise this aim, in consultation with the Department of Water a successful year. We can all look back at the year under Affairs and Forestry (DWAF), we are looking at expanding review with satisfaction, and look to the year ahead with our geographic area of operation in terms of water supply. keen anticipation.

Government’s development agenda calls for South Africa’s “Ngesintu kuthiwa ukwanda kwaliwa umthakathi.” water stakeholders to work together to ensure our country meets the MDGs. Accordingly, another area of growth is sanitation. Rand Water is therefore engaging with the Emfuleni Municipality to further its involvement in sanitation. Water treatment and sanitation are closely linked hence our Ms Jean Maureen Ngubane participation in this project. Chairperson

Rand Water, among a limited number of Water Boards, has the financial capability, asset base and skills to actively participate and contribute in South Africa’s growth. There is a need to pursue a collaborative approach in all service

RAND WATER Annual Report 2007 5 ACTING CHIEF EXECUTIVE’S REPORT

“The water we supply is the lifeblood of our health, the lifeblood of our region and of our country’s wealth. ”

Mr Zvinaiye Manyere, Acting CEO, Rand Water

INTRODUCTION It gives me great pleasure to present this annual report, an overview of performance for the year ended 30 June 2007. Once again, Rand Water has turned in an outstanding set of results.

While this report outlines the activities that underpin our performance, it also sets out challenges and issues that we face going forward. Water, like air, is the ultimate shared resource and consequently we have to approach water issues from a holistic perspective. This 104th annual report seeks to give an enhanced understanding of the sector in which we operate from both a local and global perspective.

A limited number of people in South Africa can look back on such a long company history as ours and introduce their company’s 104th annual report, I am privileged to be among them. In fact, all of us at Rand Water can count ourselves privileged to be part of a company that plays a pivotal role in fulfilling the primary role and the fundamental responsibility of bringing quality potable water to over 11 million people Mr Zvinaiye Manyere daily. The water we supply is the economic lifeblood of our Acting CEO, Rand Water region and of our country’s wealth.

6 ACTING CHIEF EXECUTIVE’S REPORT continued

IF RAND WATER WERE TO STOP OPERATING TOMORROW, THE ENTIRE REGION IS AT THE RISK OF COMING TO A STANDSTILL – THAT IS HOW FUNDAMENTAL OUR SERVICES ARE, THAT IS WHY OUR THEME, ‘RAND WATER – RUNS IN YOUR VEINS’ IS SO APPROPRIATE.

THEME ECONOMIC PERFORMANCE Our theme operates on many levels. From an internal Once again I am pleased to report outstanding results. Our perspective, as an employee, it means living our values profits rose by 11.5%, the highest level ever, while the debt to of excellence, integrity, caring, equity and the spirit of equity ratio reduced, primarily as a result of the increase in partnership. For all of us who live in Gauteng and the accumulated reserves. areas we service, the theme has a literal meaning – the water we drink becomes part of our physiology. Going a We sold an average of 3 550 million litres of water daily. step further, for the customers we service, the water we Our revenue for the period was R4 119 million, up from supply sustains industry and economic development and R3 672 million the previous year, reflecting 12.17% growth enables Gauteng to be the economic powerhouse of the in sales. In the year under review, our reputation for quality African continent. was re-affirmed by the fact that Standard & Poors continued to rate of our long-term local currency, corporate credit rating With privilege comes responsibility. The latest UNDP as A+ and our long-term foreign currency, corporate credit Development Report points out that in a world of rating as BBB+. unprecedented wealth, almost 2 million children die A healthy balance sheet is the cornerstone of success, each year due to lack of access to water and sanitation. especially in a capital intensive, technology-focused sector Millions of women and young girls are forced to spend hours such as ours, where the need to be able to accommodate collecting and carrying water over long distances, restricting unexpected events is always at the back of our minds. their educational opportunities. The cycle of poverty and lack of economic growth in many parts of the world contribute to These results are due, in no small part, to Rand Water’s strong the spread of water-borne infectious diseases. engineering and water quality management backbone, as well as our focus on customer service and efficiency. Behind these statistics are real people. The child reaching out for a non-existent glass of water, the young girl walking along OPERATIONAL ACTIVITIES the road with water on her head as her brothers overtake her Rand Water’s replacement value of infrastructure is estimated on their way to school, the farmer anxiously watching his to be worth in the region of R30 billion. But as one would crops, the entrepreneur unable to move forward, the adult expect from an entity that is over 100 years old, our extensive dying from cholera. These are the images we are all too infrastructure is ageing. As development accelerates, so familiar with in the developing world. we are constantly augmenting our supply network. In the review period, R629.7 million was spent on augmenting, These are the images that reinforce Rand Water’s sense of refurbishing, upgrading and maintaining our infrastructure. responsibility in meeting our mandate. We are committed to finding sustainable water solutions: extending our services to In the last quarter of 2006, we announced that we planned a greater proportion of our country’s citizens, sustaining and to spend more than R2,5 billion over the next five years on accelerating economic growth and helping to meet upgrading and refurbishing our distribution infrastructure. Government’s development agenda. Of this amount, 57% was allocated to augmentation

RAND WATER Annual Report 2007 7 ACTING CHIEF EXECUTIVE’S REPORT continued

WE ARE ALL STAKEHOLDERS IN WATER RESOURCES, JUST AS WE ARE ALL STAKEHOLDERS IN THE ENVIRONMENT. OUR CONSTITUTION ESTABLISHES WATER AS A BASIC HUMAN RIGHT. WITH RIGHTS, COME OBLIGATIONS…

schemes, with the remaining 43% allocated to renovations RESEARCH AND DEVELOPMENT and upgrades of existing infrastructure. Our focus on operational excellence is underpinned by our research and development efforts. These are focused We continued with the process of proactively identifying on the one hand, on maximising the life of our infrastructure and using technology to upgrade our infrastructure. Our in terms of new materials and new technologies, on the ring-fenced subsidiary, Rand Water Services (Pty) Ltd, is other, at improving the water quality as cost effectively currently in the process of assessing the status of our pipeline as possible. network through thermal sensing technology. In an exciting development status that will hone our technology edge, CUSTOMER SERVICE Rand Water Services announced a technology agreement The general public often think that customer service in a with the United States Trade and Development Agency public utility is not a priority, and that customers are obliged (USTDA) in May this year. In terms of this agreement, US to accept poor service. Rand Water lives up to our vision of technologies will be identified and brought to the South being a partner of choice by making customer service a African market. priority. Regional and industry-specific account executives engage continuously with our customers to understand the context in which they operate, identify their needs and meet As outlined in last year’s annual report, we completed the exit their expectations. strategy from our farming operations at the end of December 2006. I am pleased to report that all the employees involved We assess ourselves both internally through Service Level in the operations were re-deployed within Rand Water. Evaluations (SLEs) and externally through Customer Value Management (CVM) surveys to ascertain whether we are SHARED SERVICES meeting those needs and expectations, taking into account a In 2005, Rand Water implemented a multi-functional shared broad variety of issues. In the financial year 2007, the score services operating model to enhance operational efficiencies, for the SLE was 89% (2006: 74.4%) and the score for the reduce internal costs of doing business and increase CVM survey was 76%, unchanged from last year. While we operational excellence. Shared Services comprises of IT, are pleased with the results of the surveys, we understand that Legal Services, Risk, Communications, Logistics and Facilities customer relationship management is a journey, not a and Procurement. destination, and we will continue our efforts to enhance the value and service we bring to our customers. Internal delivery and operating efficiencies have been significantly enhanced by our Shared Services Portfolio EXTERNAL BENCHMARKING AND which has been involved in streamlining and enhancing STANDARDS organisational processes over the last two years. Institutional For too long in South Africa we have looked outward to memory and tacit knowledge are both invaluable assets the rest of the world for our standards and our benchmarks. and key competitive advantages and a project will be We want to set new standards in quality, infrastructure initiated in the next financial year that will capture integrity, operational excellence, environmental management, corporate memory and knowledge and store it in an people development, stakeholder engagement and easily accessible way. participative partnerships.

8 ACTING CHIEF EXECUTIVE’S REPORT continued

emphasise performance management with personal development programmes such as ‘Investment in Excellence’ and ‘Upwards for Excellence’. We also continued to recognise and reward individuals through the Ziyagezana Excellence Awards.

TALENT RETENTION Along with many other organisations and companies not just locally, but worldwide, we face huge competition in attracting and retaining talent. So what is Rand Water doing about it? Firstly, we have reviewed our remuneration strategies to make them more market-related and competitive. Secondly, we spend a significant percentage, about 4.5% of our payroll on training and development and we will continue to create platforms from which people can grow and develop. Thirdly, We already benchmark ourselves to local and international surveys show that most people leave their jobs because of standards in every sphere of operations. Our Safety, Health, lack of career advancement. Environment and Quality (SHEQ) systems are aligned to international standards, OHSAS 18001 for safety and health; Therefore, in formulating our Human Resource strategy, we ISO 14001:2004 for environmental management; ISO 9001 are cognisant of the fact that we have to make Rand Water for quality systems throughout the organisation and ISO 17025 a place where people want to be, we have to give them for our offsite laboratories. In terms of water quality, we meet the attractive opportunities to grow and develop, not just in terms standards of the World Health Organisation (WHO), the South of training, but also in terms of their careers. As we grow our African National Standards (SANS 241: 2005) issued by the geographic area of operation in South Africa and on the South African Bureau of Standards and, of course, the African continent and as we enter new markets, such as requirements of national legislation. sanitation, new opportunities are created for our people. This is part of our new strategic direction in becoming In the year under review Rand Water continued to maintain ‘The World Class African Water Utility of Choice’. delivery to customers on the SANS 241 specification. Excellent quality was once again achieved during the year. Water quality WELLBEING compliance to SANS 241 drinking water quality specification The wellbeing of our employees is a key focus area. We was 98.91% in respect of Class 1, while 99.97% compliance are attempting to enhance the wellbeing of our employees in was achieved against Class 2. The production standard applied on the purification works to ensure product quality throughout the every sphere, including their financial, physical and emotional supply system was rated at 98.5%. wellbeing. In an attempt to de-stigmatise HIV/AIDS and to manage the disease more holistically, HIV/AIDS issues have I am pleased to report that our Disability Injury Frequency been integrated into the wellness concept. We continue to Rate (DIFR) declined significantly for the second year running, emphasise the importance of ‘Know Your Status’ throughout from 0.47 to 0.36. We are monitoring our contractors far the organisation with initiatives such as Voluntary Testing and more stringently. Counselling (VCT).

PEOPLE TRANSFORMATION PERFORMANCE MANAGEMENT Employment equity and transformation are ongoing priorities. In a global economy, people are more mobile than ever The percentage of Africans, Coloureds and Indians (ACIs) before, particularly when it comes to the choice of career increased slightly from 82.6% to 83.3% to end June 2007. path and employer. We aim to be the Employer of Choice in This compares well with the demographics of the country. our sector. We are achieving that by focusing on creating a We can be pleased with this, but we do need to increase the high performance culture, where people are recognised and proportion of ACIs at senior levels. We are lagging behind in rewarded in terms of both individual and team performance. the employment of women in senior positions. While this may Accordingly, we operate on the basis of performance be due to the historically low entry of women into technical management in terms of which goals are established, and technology related fields, we are attempting to redress performance against goals is assessed and incentives are this imbalance, starting at grassroots level. We will focus linked to performance. In the review period, we continued to closely on this in the financial year ahead.

RAND WATER Annual Report 2007 9 ACTING CHIEF EXECUTIVE’S REPORT continued

IT IS HEARTWARMING TO WITNESS THE HIGH NUMBER OF RAND WATER EMPLOYEES WHO TURNED OUT TO BUILD THREE HOUSES FOR COMMUNITY MEMBERS IN KATLEHONG, EKURHULENI.

In 2006, we introduced a learnership programme for disabled On an ongoing basis, we engage with external stakeholders learners. We have found that disabled learners make an such as DWAF; the South African Association of Water invaluable contribution to Rand Water, not just in terms of Utilities (SAAWU), local and international water bodies; local, organisational input, but in terms of changing attitudes and provincial and national government; SALGA and various forums perceptions and enhancing people’s understanding of what it on upstream, downstream and a broad variety of other issues. means to be a truly diverse organisation. Water supply and the lack thereof define development We continued our progress in Broad-based Black Economic aspirations. It should not confine development, particularly Empowerment (BBBEE), with procurement percentages given Government’s emphasis on economic growth and showing a small increase from last year 60.35% to 64%, a development. Cognisant of this, the Honourable Minister of significant value increase from just over 10% five years ago. Water Affairs and Forestry Ms Lindiwe Hendricks recently announced that her department had been given a mandate by In terms of capacity building, I must refer to the fact that our Cabinet to implement an accelerated programme for service ability to empower BEE entrepreneurs and create jobs is delivery. As part of the water resource plan inherent in this being challenged by the Construction Industry Development programme, DWAF will provide support to municipalities to Board (CIDB). Established by an Act of Parliament, the CIDB ensure that sufficient water is available to meet the needs for sets national standards for construction delivery and contracts. water service delivery and for local economic development. While well intended, the methodology is highly restrictive and is challenging capacity building within the sector. Rand Water is committed to supporting efforts to promoting the efficiency and building the overall capacity of the municipalities COMMUNITIES that we serve, just as we are committed to making a positive The provision of water, water management and sanitation impact on the water landscape in South African and on the drive our Corporate Social Investment (CSI) initiatives. Job African continent. creation, skills transfer and capacity building are the foundation on which our CSI initiatives are based. It is ENVIRONMENT encouraging to see the success of these projects, based on a We are all stakeholders in water resources, just as we are all ‘hands up’ rather than a ‘hands out’ principle and it was also stakeholders in the environment. Our Constitution establishes heart-warming to witness the high number of Rand Water water as a basic human right. With rights, come obligations employees who turned out to help build three houses for and as we approach a new era of water scarcity, it is vital community members in Katlehong, Ekurhuleni in December that we all adopt a new ethic promoting the efficiency and last year through our Foundation. protection of natural systems – one which makes us accept not just the rights, but also the obligations that we have toward EXTERNAL STAKEHOLDERS water – saving what we can and sharing what we have. Water Boards are an important link between water resources and water services. Service areas are determined in order to The poor return flows upstream of the Vaal Dam are having a achieve effective, efficient and sustainable integrated water detrimental impact on raw water quality, as is the case with resource management, cost effective water use, regional Hartbeespoort Dam. Contained further in this annual report are efficiency and economies of scale. details of projects that will help to mitigate the situation, but we

10 ACTING CHIEF EXECUTIVE’S REPORT continued

SUSTAINABILITY The forthcoming King III Code on Corporate Governance emphasises sustainability. As this issue is so integral to Rand Water’s very existence, this year we have not published a separate sustainability report. Instead, we have structured the report along broad triple bottom line reporting principles.

PLANNING FOR GROWTH While we have always been self-sustaining throughout the course of our long history, the changes in our sector have made us more resilient, more flexible and more responsive to the changes taking place all around us. This has stood us in good stead in an increasingly competitive environment.

Given this environment, as well as the accelerating cannot act in isolation. The poor quality of raw water in both importance of water issues, together with Government’s cases is a direct result of flows that do not conform to national requirements for state-owned enterprises (SOEs) to be standards. In the interests of water citizenship and water self-sustaining, now more than ever, we have to run on governance, I strongly urge industries, as well as local, efficient business principles, while also taking into account provincial and national government to take this matter seriously. Government’s development agenda.In addressing growth, Our water resources are not finite, but are infinitely precious. our objective is to broaden our service offering, thereby potentially improving our long-term revenue and becoming The environmental section of this annual report details the more involved in activities that will help meet this agenda. seriousness with which we view environmental issues in every aspect of our operations. We accept the fact that all human Our high level of skills and extensive knowledge gives us a activity impacts on the environment, but we are relentless in strong platform for growth. The skills we wish to share could our efforts to mitigate this impact. be project specific or function specific – for example assistance with billing process (from metering to cash), Similarly, we are attempting to drive the message to the customer management or engineering planning. We are also broader South African public that, how we manage the water able to offer technical expertise when it comes to infrastructure we have determines our quality of life, the strength of our management, rehabilitation, pipeline maintenance, or any economy and our ability to create jobs. Through site visits, other engineering-specific issue that assures water workshops and our various Water Wise communication optimisation or purification. The level of intervention could campaigns we are encouraging consumers to be water range from a simple review and advice on how to optimise efficient in the context of broad environmental responsibility. current systems, to actual management of operations.

GOVERNANCE SANITATION Our focus on operational excellence is based on strong Another platform for growth is our proven track record in corporate governance that is underpinned by the King II establishing new infrastructure, giving us a solid argument for report and Public Finance Management Act (PFMA), and expanding our geographic mandate and our services into is aligned to best corporate practices in South Africa. sanitation – at a time when one in three people in South Governance structures are geared to providing leadership Africa lack access to proper sanitation, we cannot afford within a framework of effective controls that enables risk not to do so. to be assessed and managed. These controls are reviewed regularly to incorporate changes and developments in The benefits of water and sanitation are mutually reinforcing. legislation, as well as the natural and economic environments. Countries that allow sanitation coverage to lag are destined We tightened our audit controls in the year under review and to see the benefits of progress in water diminish as a result. made slight amendments to our Code of Ethics. In addition, water and sanitation are catalysts for human progress, with the benefits spreading to other areas of In the year ahead, the Governance Portfolio will promote development. It is imperative for Rand Water, as the leading greater Board participation in local and overseas conferences water utility on the African Continent, to engage with the in order to enhance the Board’s understanding of the water practical delivery on NEPAD and the continent’s Millennium sectoral environment. Development Goals.

RAND WATER Annual Report 2007 11 ACTING CHIEF EXECUTIVE’S REPORT continued

RAND WATER IS APPROPRIATELY POSITIONED TO OFFER SERVICES IN THE OPERATION OF SMALLER SEWAGE PURIFICATION PLANTS ASSOCIATED WITH SMALL TO MEDIUM SIZE LOCAL MUNICIPALITIES.

The challenge, of course, is not limited to the provision of supplies Rustenburg through the Barnardsvlei and Vaalkop clean water to marginalised communities, but also includes systems. Mines and industry are expanding rapidly, upgrading and building new capacity to process sewerage supported by corresponding residential and office such that the quality of our rivers can be sustained or developments. An optimistic view gives Rustenburg eight improved. This has both health and cost benefits as it reduces years’ worth of surplus water at the current growth rate – biological contamination risks for communities drawing water not nearly enough. Together with Bigens Africa, we are downstream of the return flows and requires less treatment to investigating a Water Services Master Plan for Rustenburg render the water potable. I have alluded to the fact that Local Municipality, with the demand projections being one currently, most of the return flows from municipalities in our of the focus areas. area of supply as well as upstream of the Vaal Dam do not comply with national standards. When opportunity knocks, we want to be ready to open the door – not just in South Africa, but on the African continent. Instead of bemoaning this, we are becoming part of the Through Rand Water Services, we are engaged in a solution. We are entering into the bulk sanitation by engaging commercial venture for the provision of urban water services with the Emfuleni Municipality on a R600 million project. This in Ghana, a project funded by the World Bank. Our will improve the deteriorating source water quality, as well as experience here is establishing a strong position for Rand enhance health and dignity with all the concomitant benefits. Water in NEPAD and water bodies across the continent. Increased health means less pressure on public health This was confirmed during the Water Operators Partnership systems, greater productivity and a healthier environment. Workshops attended by delegates from all over Africa, that Rand Water hosted in April this year. The project will serve as a model for ongoing expansion into the sanitation area. Rand Water is appropriately positioned ACCOLADES to offer services in the operation of smaller sewage A highlight in the year under review was external recognition purification plants associated with small to medium size and verification of our quality assurance process by Business local municipalities. One of the reasons why some of these Initiative Directions (BID) in Paris. The BID symbol has made its municipalities are starting to look outwards has been a gap in presence known in 173 countries around the world, and has operational efficiencies. A gap we will investigate with the created a firm ground for the implementation of an integrated Department of Water Affairs and Forestry (DWAF) would be quality process through the technology and procedures of the the clustering of these plants where possible to start achieving QC100 Total Quality Management. Rand Water received the required operational efficiencies and economies of scale. the International Star Award in the Gold category in This could be done by sharing strategic skills and effecting recognition of Commitment to Quality, Leadership, Technology structured mentorship and oversight, that individual and Innovation. The purpose of the award is to recognise the municipalities cannot afford. commitment to quality of companies whose activities cover the top areas of industrial production and service. GROWTH OPPORTUNITIES Where there is economic development – that’s where we Further recognition of our high standards was our receipt of want to be. The town of Rustenburg, the fastest-growing the top award for the best performing company in the water town in the country, is a case in point. Rand Water currently sector in the prestigious publication, Top 500 Companies.

12 ACTING CHIEF EXECUTIVE’S REPORT continued

To our customers, thank you for the rewarding engagements we have experienced in the last year. Thank you to the Honourable Minster of the Department of Water Affairs and Forestry for your ongoing confidence and support.

To the Chairperson and to the Board who have given me and my management team invaluable guidance and advice, I also express my thanks.

A journey of a thousand miles, it has often been said, begins with a single step. To every employee at Rand Water – your energy, enthusiasm and hard work have taken us several steps down the road to becoming ‘The World Class African Water Utility of Choice’.

Rand Water received top honours when we were placed POST BALANCE SHEET EVENT third in the Top Public Sector Transformation Awards. The No material events have occurred since the balance awards recognise the public sector’s efforts in supporting sheet date. black economic empowerment, particularly with regard to professional procurement policy initiatives.

APPRECIATION We have an impeccable track record of performance, we have an outstanding foundation for growth, we have a strong management team and we have a body of committed individuals who can take pride in our successful performance Mr Zvinaiye Manyere over the last financial year. Acting Chief Executive

RAND WATER Annual Report 2007 13 RAND WATER BOARD

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1 Ms Jean Maureen 3 Mr Dawood Coovadia 5 Dr Michael John Ellman 7 Ms Mirriam Dooms Ngubane Non-executive Member Non-executive Member Non-executive Member Chairperson Mr Coovadia is a Chartered Dr Ellman is a Senior Consultant Ms Dooms is a former member Non-executive Member Accountant (SA) and Registered and Managing Member of of the Mayoral Committee of the Auditor, practising as COOVADIA City of Tshwane Metro Council, Ms Ngubane has served at Siyadingana Consulting cc. ASSOCIATES. He holds B.Compt He has more than 35 years’ responsible for water and leadership level in business, sanitation. She is the winner of and B Compt Honours degrees professional and managerial developmental and educational Women in Water Award for 2004 as well as BAC(SA), CMC, experience in the mining, institutions for many years. in the community development FIAC, FCIS, FSAIM, GIA(SA) chemical, oil and gas, electricity category. She is the former Mayor Her qualifications include a BA, and CAT(UK) qualifications. and the water industries. He has of Pretoria (1997 to 1998). and a Postgraduate Diploma in He practices as a Registered recently been appointed to the Applied Social Sciences. She is Professional Accountant, Advisory Board of the department She is a former board member currently completing her MBA. Internal Auditor, Management of Chemical Engineering of the of Magalies Water and Pretoria Academic Hospital. She holds Consultants and Tax Advisor. University of Pretoria. He is a diploma in general nursing, the former President of the South 2 Mr Zvinaiye Manyere He is a non-executive director of midwifery and community African National Committee of Acting Chief Executive the Johannesburg Roads Agency health nursing. Mr Manyere is currently the Acting (Proprietary) Limited and Gauteng the International Electro-technical Chief Executive at Enterprise Propeller. He serves as Commission (IEC), in Geneva, Rand Water. He serves on chairman and member of several and former Chairman of the 8 Adv Mohale Joseph the Executive Committee, Audit Committees and Board Electro-technical Sector Board Maluleke Non-executive Member Remuneration Committee and Sub-Committees. of the SABS. Capital Investment Committee. Dr Ellman holds a PhD, MBA, Adv Maluleke is a Managing Director of MTR Project His qualifications include BSc Ms Janet Yetta Love MSc in Chemical Engineering 4 Management & IT Solutions CC, Engineering (Honours) and MSc Non-executive Member and BSc degrees. a Legal and Project Management Engineering (Structural Design). Ms Love was a member of Consulting Services company. Parliament from 1994 to 1999. 6 Ms Xoliswa Kakana Non-executive Member H is a council member of She was, inter alia, involved in Central Johannesburg College the development of the Water Ms Kakana is a founder and for Further Education and Training Services Act as well as the Managing Director of ICT – and Coordinator and Project National Water Act. Works. She has extensive Manager of the Inaugural She is currently the experience in communications Gauteng Provincial Job Fair 2007. National Director of the (IT and Telecommunications). Legal Resources Centre. She is also founder and Chairperson of the Women in She holds a BA Degree and ICT (WICT) forum. postgraduate diplomas in Public Administration and She holds a MBA degree, Economics. BSc degree, Diploma Ingeneur Electrotechnik, and a Diploma in Management.

14 15

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9 Ms Sethe Patricia 11 Ms Phumelela Ndumo 13 Prof FAO (Fred) Otieno 15 Ms Ferhina Saloojee Makhesha (née Non-executive Member Non-executive Member Non-executive Member Mothibi) She serves as member of Prof Otieno holds a BSc (Civil Eng) Ms Saloojee is a former Non-executive Member Audit Committees of two Hons, MSc and PhD in Civil councillor with the Rustenburg Local Ms Makhesha is currently the other water boards. Engineering and MBA. He is a Municipality. She has CEO of Mothibi Multimedia Ms Ndumo has held senior Professional Engineer in South served in leadership roles in Services. Ms Makhesha held positions at Transnet, NBS Africa and the UK. He is a various business and local senior positions at the South Boland Bank and Nedcor. She is Fellow of the SA Institution of Civil government institutions. African Air Force, SABC, Absa the founder and MD of Thuthuka Engineers and the Water Institute of She holds membership in and the City of Johannesburg. SA. She is an author of a newly Southern Africa. various companies. She is also the winner of the published book, 7 Secrets to why He is currently a Professor of Women in Water Award the rich own their homes. Civil Engineering and the for 2005, sponsored by the 16 Mr Mdibanisi Tsheke Ms Ndumo holds a MBL degree, Executive Dean of Faculty of Department of Water Affairs Non-executive Member B.Com degree and a Higher Engineering and the Built and Forestry. Diploma in Computer Auditing. Environment at Tshwane University Mr Tsheke is the former She holds a MBA degree and of Technology (TUT). He previously Executive Mayor of Govan Mbeki Public Relations Management worked as a consulting engineer, and a member of the Executive Diploma and Strategy from 12 Ms Nandi researcher and entrepreneur in civil Committee of SALGA. His Harvard, EDP from Wits and Mayathula-Khoza and environmental management. community development activities Non-executive Member PMD from UCT. Prof Otieno is a non-executive include serving as an executive Ms Mayathula-Khoza is a member director and a member of of SANCO, responsible for the of the Mayoral Committee of the Highveld Ridge Reconstruction 10 many companies. Ms Nomsa Maureen City of Joburg, and is politically and Development. Maseko Non-executive Member responsible for Community Mr Tsheke holds a National 14 Adv Moabi Mosotho Development which includes Preliminary Certificate in Ms Maseko is the former speaker Human development, Sports, Petlane Non-executive Member Business Education and has of Metro Council, and the previous Art, Culture, Libraries and made substantial progress chairperson for the Health and 2010 Soccer World Cup. Adv Petlane is the Director toward completing a BBA degree. Social Committee. Ms Mayathula-Khoza was the Strategic Development at the She holds certificates in Local 2nd Woman Mayor of Soweto Engineering Council South Africa. Government Administration in 1997, and the 1st Speaker of He holds BA, and LLB degrees as and Management (Unisa) Joburg Council in 2000. She is well as a Postgraduate Diploma and Leadership Training and currently a member of the in Business Administration and a Community Development SALGA national Executive Secondary Teachers’ Diploma. (ICI Centre in Israel), and Higher Committee and is responsible He is a former Director of Student Diploma in ABET and OBE for Social development, health Affairs at Vaal Triangle Technikon, from UNISA. and Safety policy. former Deputy Headmaster and She holds BSc and BEd degrees Chairperson of the Technikon and is completing her Masters Institutional Forum. Degree in Public Development Management with Wits.

RAND WATER Annual Report 2007 15 PORTFOLIO INTEGRATING COMMITTEE (PIC)

4 3 1 5 6 2

Zvinaiye Manyere Acting Chief Executive

1. Keith Naicker 2. Zvinaiye 3. Catherine Smith 4. Thami Sithole 5. Sithokozile 6. Mapuleng Chief Operating Manyere Chief Financial Group Shared Mbongo Lesoro Officer Group Strategy Officer Services Executive Group Governance Acting GM: Strategic Manager Manager Human Capital

• Bulk Water Services • Corporate Planning • Funding • IT and Knowledge • Group Secretariat • Change Management • Scientific Services • Corporate Research • Group Finance Management • Corporate Social • Compensation • Strategic Asset Development • Payroll • Legal Services Responsibility • Employee Relations Management • Financial and • Logistic Services • Forensic Audit • Employee Wellbeing • Strategic Customer Economic Planning • Communications • Internal Audit • HR Administration Partnerships • International • Procurement • Risk Compliance • Learning and Relations • Risk Advisory Development • Legislation and Services • Staffing Advocacy • Risk Compliance

The PIC structure has created centres of key process integration, based on key organisational outputs and has enabled the organisation to realise efficiencies and provide better service, eliminate duplication and wastage and achieve best practice.

16 Our expertise and experience holds enormous potential in a water-stressed country.

Board and Committees

PIC

Portfolio Tender Corporate Risk Stakeholders’ Operations Management Committee Committee Forum Committee Committees

RAND WATER Annual Report 2007 17 OPERATIONS

Growing to meet developmental needs

“ ...the situation is so serious that author Dave Dempsey likened water to the ‘oil of the 21st century’.”

Inaugural Speech by Professor Fred Otieno, President of the Water Institute of South Africa, May 2007

• Revenue up 12.2% • Surplus – 25.2% • Sales volume up 2.69% • Standard & Poor’s credit rating maintained

18 OPERATIONS continued

BULK WATER SERVICES DEBT MANAGEMENT The inability of many municipalities to pay services bills has OVERVIEW OF PERFORMANCE been the subject of several press reports and has even been Rand Water reported a surplus of R743 million for the year tabled in Parliament as a point for concern. Rand Water is ending 30 June 2007, up 25.2% when compared to last sensitive to the risk of non-payment of primary services. year’s surplus of R593 million and indicating a steady Accordingly, we support and assist defaulters. However, a strict increase in profits over five years. policy of embracing payments from defaulting customers, in terms of the Water Services Act 1997, is followed. Interest at commercial rates is charged on outstanding amounts but where all reasonable steps have failed, we reduce or curtail supply.

INPUT COSTS OF POTABLE WATER The cost of potable water is determined by three main factors: raw water, chemicals and energy.

RAW WATER We buy our raw water from the Department of Water Affairs and Forestry (DWAF), who determine the price on an annual basis.

CHEMICALS

Carbon dioxide (CO2) is used as part of our water treatment process to control the pH and alkalinity of the water. This The growth in profits is mainly due to an increase of 2.69% in produces a stable water that controls scaling and corrosion potable water sold because of particularly high temperatures thus protecting public health, improving water quality and in the first quarter of the year, a lack of rain and growth in extending the life of the infrastructure. The current source of urbanisation as well as a decrease in net finance costs. CO2 is unreliable and consequently, in the year under review, Rand Water approached the market in order to The total volume of water sold in 2007 was 3 550 million secure an additional and more reliable source. Positive litres per day, up from the 3 457 million litres per day sold in responses are currently in final stages of evaluation in 2006. The balance sheet strengthened further and this is terms of cost, reliability and sustainability with a view to reflected in the debt equity ratio of 0.21%, compared to implementing the optimum solution. 0.25% for the previous year.

An alternative combination to CO2 and lime is organic The healthy surplus reflected in the financial year under review coagulants producing a water quality that is of similar quality is important for various reasons: Firstly it provides us with a but with a negative impact on the pipelines over the buffer in the event of a disaster necessitating an unplanned long-term. This process is used as a back-up process to CO infrastructural expense. Secondly, as Rand Water raises funds 2 and lime. These make up 36% of our total chemical budget. for projected infrastructure development on the open market, the organisation needs to maintain healthy credit ratings that ENERGY facilitate access to capital markets at reasonable rates. Our Electricity is the primary energy source used in our core reputation for quality was re-affirmed in the year under review business. In the year under review, coal was not utilised when international ratings agency Standard & Poors and electricity was the only type of energy used. The average continued to rate our long-term local currency, corporate cost increased from 17.7c/kWh to 18.8 c/kWh, in line credit rating as A+ and our long-term foreign currency, with inflation. corporate credit rating as BBB+.

ACCOUNTING POLICY In compiling our financial statements, we report in accordance with South African statements of Generally Accepted Accounting Practice (SA GAAP) aligned to International Financial Reporting Standards (IFRS).

All information systems are re-evaluated on an annual basis to test for compliance, efficiency and timeous availability of the relevant financial and management needs of the organisation. Any gaps or determined needs for upgrades and new requirements are planned as projects to be completed during the budget period.

RAND WATER Annual Report 2007 19 OPERATIONS continued

STRATEGIC ASSET MANAGEMENT driven mainly by projections and forecasts of future water Our infrastructure comprises of assets that needs to be demands. This involves extensive research, analysis of trends managed and leveraged to extract maximum value, and also and usage patterns and discussions with various stakeholders has to be monitored in order to avoid risk. Although most about their expectations. infrastructure expenditure work takes the form of augmentation to meet steady growth in demand, other projects are initiated Capital expenditure each year covers the development of new because of the need to reduce operating costs, improve infrastructure and the refurbishing and upgrading of existing treatment processes, enhance plant safety or extend the life of infrastructure. Project approvals cover numerous areas, from existing assets. pipeline links to reservoirs, pumping stations and purification works. Our aim, in maintaining and expanding our We are in the process of compiling advanced Technical, infrastructure, is to secure and sustain our water supply in terms Fixed and Spatial Asset Registers to facilitate decision-making of quality and quantity – essentially, the core of our business. on renovation, replacement or disposal of specific assets and to establish the total cost of ownership. We plan to spend close to R4 billion over the next five years on upgrading and refurbishing our distribution infrastructure. OVERVIEW OF INFRASTRUCTURE Of this amount, 57% will be allocated to augmentation Rand Water operates a network of over 3 000 km of projects, with the remaining 43% allocated to renovations pipelines, two combined pumping and purification stations (at and upgrades of existing infrastructure. Vereeniging and Zuikerbosch), one pumping station (Zwartkopjes), three booster pumping stations (Palmiet, PIPELINE RENOVATION Mapleton and Eikenhof) and a number of enclosed reservoirs. Only 10% of Rand Water’s 3 000 km pipeline network Two-thirds of the value of this infrastructure, estimated to have consists of concrete structures, as the remaining pipelines are a replacement costs of R30 billion, lies in the pipelines. manufactured from steel. Over the next five years, we will replace or renovate all the concrete pipelines – about 180 km. After decades of expansion to meet the challenge of Steel pipes are more suitable than concrete pipes especially infrastructural development and population growth, our current for large diameter pipelines, as steel tends to develop a leak or infrastructure is adequate to meet customers’ needs in the tear, while concrete is more likely to rupture and has a higher regions we service until 2014. This is remarkable when one potential to cause damage to people and property. considers that in 1965, Rand Water was supplying 1 000 megalitres a day (Ml/d) and that demand is expected to Some of our pipelines are approximately 70 years old, while increase six-fold to 6 000 Ml/d by 2014. the majority are range from 15 to 50 years old. A programme of refurbishment, renovation and replacement is essential. We We are ensuring that we are ready for the demands of 2014 are currently engaged in this programme of refurbishment and and beyond by focusing on infrastructure refurbishment and renovation at approximately 2% (about 60 km) of the total development. We work on a 20 year planning horizon, length per year.

20 OPERATIONS continued

EFFICIENCY MEASURES

Energy Consumption 2007 2006 2005 2004 2003

Coal Used t/Ml PHASED OUT 0.410 0.900 0.690 0.737 Electricity Used kWh/Ml 662 660 653 643 650 Cost of Energy

Cost of Coal R/t PHASED OUT 184.1 173.0 173.6 151.2 Cost of Electricity c/kWh 18.3 17.7 17.7 17.1 15.3 Energy Efficiencies

ZUIKERBOSCH 77.4% 84.3% 84.9% 85.9% 84.5% VEREENIGING: Electrical 73.0% 67.4% 56.1% 56.7% 57.4% VEREENIGING: Steam PHASED OUT 9.3% 9.0% 11.9% 11.4% ZWARTKOPJES: Electrical a) 72.3% 79.0% 72.4% 71.7% 70.3% ZWARTKOPJES: Steam PHASED OUT 8.4% 11.2% 11.8% PALMIET 82.7% 82.9% 81.6% 84.3% 82.4% EIKENHOF 83.7% 79.9% 81.4% 81.0% 81.0% MAPLETON 72.6% 73.6% 71.5% 74.3% 74.6% a) Zwartkopjes efficiency dropped because the old inefficient pumps were used after the closure of the steam plant. Environmental performance indicators

Energy Consumption 2007 2006 2005 2004 2003

Coal Used t 35,595 152,640 173,831 191,425 Electricity Used kWh 1,678,981,606 1,569,610,751 1,503,183,518 1,443,653,501 1,418,288,534

PRODUCTIVITY

Infrastructure Utilisation 2007 2006 2005 2004 2003

RAW WATER INTAKE Installed capacity (Ml/d) 7 511 7 511 7 511 7 511 7 511 Available capacity (Ml/d) 6 124 6 124 6 124 6 124 6 124 Utilisation (Ml/d) 3 744 3 618 3 523 3 515 3 427 % utilisation vs available capacity 61 59 58 57 56 Treatment Installed capacity (Ml/d) 5 370 5 370 5 370 5 370 5 370 Available capacity (Ml/d) 5 370 5 370 5 370 5 370 5 370 Utilisation (Ml/d) 3 918 3 776 3 666 3 662 3 571 % utilisation vs available capacity 73 70 68 68 66 Primary pumping Installed capacity (Ml/d) 7 171 7 686 7 686 7 686 7 686 Available capacity (Ml/d) 5 370 5 370 5 370 5 370 5 370 Utilisation (Ml/d) 3 679 3 528 3 529 3 469 3 359 % utilisation vs available capacity 69 66 66 65 63 Booster pumping Installed capacity (Ml/d) 8 210 8 210 8 210 8 210 8 000 Available capacity (Ml/d) 5 370 5 370 5 370 5 370 5 370 Utilisation (Ml/d) 3 574 3 457 3 452 3 414 3 340 % utilisation vs available capacity 67 64 64 64 62

RAND WATER Annual Report 2007 21 OPERATIONS continued

WE PLAN TO SPEND APPROXIMATELY R4 BILLION OVER THE NEXT FIVE YEARS ON UPGRADING AND REFURBISHING OUR DISTRIBUTION INFRASTRUCTURE.

Against this backdrop, in 2005, we commissioned Rand implementing agents for potable water supply to Palm Water Services to conduct an aerial survey of our pipeline Springs. During the financial year under review, Rand network using thermal remote scanning technology, whereby Water made a capital contribution of R12.75 million with leaks in large diameter pipes are easily detected. This enables Metsi-a-Lekoa contributing R2.5 million. In return, Rand Water early repairs and helps reduce water losses. During the survey, will own and operate this 6 Ml/d infrastructure. The project is digital maps are produced that show high-resolution infrared expected to be completed in the 2007/2008 financial year. images together with normal aerial photographs. Western Highveld Region Because water is cooler than the surrounding soil, leaks show Rand Water was appointed as the implementing agent for up as a dark patch on the thermal images. Western Highveld Region by the Department of Water Affairs and Forestry (DWAF), with effect from March 2007 to March In terms of the project, priority has been given to high-density, 2008. The appointment is for management and operations built-up areas. To date, 90% of Rand Water’s service area and maintenance of the water supply services in the southern has been surveyed. The ongoing project is expected to be part of the Western Highveld Water Supply Scheme as well completed by July 2008. as the Kungwini bulk water supply services in the vicinity of Bronkhorstspruit, Ekangala and Ekandustria. PIPELINE-SPECIFIC PROJECTS The reconditioning of the 1 675/2 100 mm B4 pipeline is CAPITAL WORKS AND CAPITAL PROJECTS complete. The 48 km-long pre-stressed pipeline, has served During the financial year ending 30 June 2007, capital as a pilot project whereby new techniques were developed expenditure incurred in the development of new infrastructure to establish the feasibility and methodology of renovating and the refurbishing and upgrading of existing infrastructure pre-stressed concrete pipelines. The project involved inserting steel into six kilometres of the B4 pipeline, as well as fixing amounted to approximately R629.7 million. Of this amount, and renovating the joints at a cost of R130 million. R546 million was for infrastructure under Independent Capital Projects, R2.8 million for replacements and refurbishments The O2 pipeline was laid in 1971 and 1972. It comprises and R1.9 million for periodic maintenance of replacements of 24,6 km of pre-stressed, concrete pipe with an ID of and refurbishment. 1 800 mm and 8,3 km of steel pipe of 1 400 mm ID from Modderfontein intersection to Klipfontein. The 8 km portion of The value of approved work to end of June 2007 under this pipeline from Van Buuren road to Lombardy East is Independent Capital Projects amounts to R2 817,8 million. currently being renovated. The renovation involved inserting a The outstanding value of approved work in progress amounts steel pipe for 3 km and carbon fibre repairs to other segments to R1 535, 6 million. The work comprises numerous projects that had wire breaks inside the concrete. For smaller cracks, necessary to ensure that Rand Water is able to meet the polyurethane coated glass is used to seal cracks. The total needs of consumers throughout the area of supply in the most costs are R40 million, R28 million of which was incurred in efficient and cost effective manner. These projects range in the year under review. The project is expected to be value from as little as R200 000 to over R100 million. completed in the 2007/8 financial year. Brakfontein-Hartbeespoort Dam Scheme INFRASTRUCTURAL PROJECTS This project serves to strengthen the supply to the Rustenburg Palm Springs Water Supply Scheme region. As part of the Environmental Impact Assessment (EIA) In November 2005, Metsi-a-Lekoa, the water services unit process, during the year under review, a Record of Decision of Emfuleni Local Municipality, appointed Rand Water as was awarded to proceed with the work from Brakfontein

22 OPERATIONS continued

Pipeline Section Length Diameter Pipeline ID

Brakfontein Reservoir to the Pretoriusrand Reservoir Site 8 km 1 400 mm H34 Pretoriusrand Reservoir Site to Mnandi Reservoir H35 Pipeline 3 km 1 000 mm H35 Mnandi Reservoir to H34 Pipeline (near Pelindaba) 17 km 1 000 mm H35 H36 Pipeline to Hartebeespoort Dam 19 km 800/600 mm H36 Pretoriusrand to Diepsloot Reservoir 6 km 600 mm H33

Reservoir to the Pretoriusrand Reservoir Site and then on to Surge Protection at Vereeniging and Zwartkopjes Hartbeespoort Dam. The Rustenburg South Reservoir was This work was approved by the Capital Investment Committee completed ahead of time and is now in service. in the year under review and the work at sites will resume in the next financial year. Replacement of steam turbine driven pump sets with electric motor driven pump sets at Zwartkopjes and Weltevredenpark 100 Ml Reservoir – Northwest Vereeniging of Johannesburg The work was broken down into Zwartkopjes Phases 1 and This R130 million project was approved by Capital 2 and Vereeniging Phases 1 to 3. Phase 1 of the work at Investment Committee in the year under review and the work Zwartkopjes involved the installation of four 100 Ml/d electric at sites will resume in the 2007/8 financial year. motor driven pump sets in the existing Engine Room 1. Three of Upgrade of Filter House one at Vereeniging the four pump sets are in service and the final unit should be The work is progressing well and completion is planned for commissioned in the 2007/2008 financial year. Phase 2 of October 2008. the work at Vereeniging is about 70% complete with the first pump set planned into service by October 2007. Variable Speed Drives Two new frequency converter technology variable speed Upgrading of Pipe Work at Zwartkopjes drives (VSDs) are in the process of being installed at Lethabo This work was approved by the Board in May 2001 and Pumping Station at a cost of R27 million. Each drive is rated includes the refurbishment and replacement of the suction pipe 4 MW at 6,6 kV and should be in operation by September work and delivery pipe work at Zwartkopjes. The suction line is 2007. Once they have been properly tested for reliability technically complete with the delivery line underway. and availability, the technology will be rolled out to other pumping stations. VSDs are very useful for flow control, Replacement of Pumps in Engine Room 3 Extension at energy management and pipeline protection through soft Zwartkopjes starting and soft stopping. This work involves the replacement of pumps 18 to 22 in Engine Room 3 extension at Zwartkopjes. Five 68 Ml/day Hydro-electric Power at the Control Works pumps will be replaced by five 100 Ml/day pump sets. The Previously, Rand Water identified an opportunity to generate scheme will reduce operating costs at Zwartkopjes and hydro powered electricity at break pressure tanks and at the enable the deferral of Stage 2 of the Steam Plant Replacement Zoekfontein control works between the Vaal Dam and the Project for approximately ten years. canal feeding Zuikerbosch pumping station. On investigation,

RAND WATER Annual Report 2007 23 OPERATIONS continued

WE ARE WELL POSITIONED TO MAKE A POSITIVE CONTRIBUTION TO SANITATION, AN ACTIVITY THAT WOULD HELP SOUTH AFRICA IN ACHIEVING THE MILLENNIUM DEVELOPMENT GOALS.

this proved to be economically unviable. However, Eskom is RESEARCH AND DEVELOPMENT (R & D) now offering to purchase electricity from co-generators. In R & D is focused on the development and application of new addition, it is possible to generate carbon credits, that are processes and materials for pipelines, that account for the tradable commodities, through hydro power generation. Both major part of Rand Water’s capital budget expenditure. R & D these developments now make it economically viable to is conducted by both internal staff and by using external proceed, particularly in view of Rand Water’s commitment to agencies such as universities, the Water Research Commission, helping to mitigate the effects of climate change. The cost and suitably qualified consultants and contractors. Rand Water would be in the order of R65 million with a potential payback funds two Chairs of Water Utilisation, one at the University of in approximately five years. Johannesburg, the other at the Tshwane University of Technology. These Chairs used to reside at the University of the Vaal Dam – Zoekfontein Control Works – BG3 Pipeline Witwatersrand and the University of Pretoria and there are This pipeline will increase the capacity that can be provided on-going projects at both of these Universities. Typical to Zuikerbosch pumping station especially when the Vaal pipeline-related projects are those dealing with leaks, Dam is at a low level. It is anticipated that this pipeline will friction factors, bio-films, detection of air pockets, performance be operational by September 2009. of epoxy and polyurethane linings, in-line filters for bitumen particles etc. Rand Water recognises the importance of Control Centres technical R & D and this is being considered in the thrust for In 2005, operational control centres were implemented at growth, operational integrity, and best-fit technology. Central Depot, Zwartkopjes, Zuikerbosch Pumping Stations and in 2007 at Vereeniging Pumping Station. These control centres PIPELINES are decision support mechanisms and provide operational The pipeline renovation programme is generating a decision makers with dashboards of real-time, on-line critical continuous need for R & D with new methods of evaluating variables like flows, pressures, reservoir levels and water pipeline condition and new techniques and materials being quality. As part of our disaster aversion programme, 220 of the used to repair or replace the old pipelines. One project largest customer flow meters were converted to be read in real- funded by the Water Research Commission involves the use time at the Central Depot Control Centre. The pressure is also monitored at these meter points as any sudden change could of grouted polyethylene liners to seal leaks in old steel indicate an emergency. pipelines. This is a five year project with a budget of R736 300 that is due to be completed in 2009. Banana Tapers Banana tapers are essentially reducers used to connect one The new 3.5 m diameter Vaal Dam – Zoekfontein pipeline end of a larger diameter pipe to that of a smaller diameter (outlined on in opposite column) has been designed using the pipe. The term ‘banana’ describes a method of construction findings from the research work conducted at Brakfontein whereby segments of steel are welded together along the Reservoir in 2001 for the proposed Clarens – Johannesburg length of the taper to make up a complete piece. pipeline. It has been possible to reduce the wall thickness from 11.5 mm to 10 mm, resulting in a saving of about The project to eliminate all banana tapers from Rand Water’s R10 million in steel pipe supply. infrastructure evolved from the Meredale incident in 2005 where one of these tapers burst along one of its multiple welds. The NEW AREAS OF OPERATIONAL incident led to Rand Water embarking on a disaster aversion OPPORTUNITY project in which 25 critical tapers were renovated or replaced. In SANITATION terms of the second phase in the forthcoming financial year, a While Rand Water is mandated to supply bulk sanitation further 15 tapers will be replaced. services, we focused on our core business of abstraction

24 OPERATIONS continued

INDUSTRIAL OR ‘GREY’ WATER In a country such as ours, where demand for water is rapidly outstripping supply, it makes sense to use ‘grey’ water for industry. Obviously this involves investment in infrastructure and technology. Mines and industries in the Rustenburg region are currently using grey water. This development has impacted positively on the supply of potable water to the town – the fastest-growing town in South Africa.

The Hartbeespoort Dam, close to Johannesburg is extensively eutrophied (deficiency of oxygen in the water). Rand Water is part of a consortium commissioned by Anglo Platinum in February 2007 to investigate the possibility of abstracting grey water from Hartbeespoort Dam and purify it to a standard suitable for industrial use. This water will then be pumped to all the mines between Madibeng, Rustenburg and then beyond Rustenburg, to Lephalale to provide industrial purification and distribution of bulk potable water. Hence our consumers with industrial grade water. involvement in bulk sanitation is in its infancy. However, we are well positioned to make a positive contribution to By applying sophisticated technologies such as floatation sanitation, an activity that uplifts the dignity of communities, activated carbon and, if required, ozonation, this water can improves basic health and would help in achieving the be purified to potable standards and made accessible for Millennium Development Goals (MDGs). Rand Water has the human consumption. financial health to move easily into this area of operation, opening up a new area of expansion for the organisation GROUP SHARED SERVICES and helping us meet the goal Government has set itself of providing adequate sanitation for all by 2010. In 2005, Rand Water implemented a multi-functional shared services operating model to enhance operational efficiencies, We have submitted a proposal for bulk sanitation services to reduce internal costs of doing business and increase operational excellence. Shared Services comprises of IT, the Emfuleni Municipality, one of three local municipalities Legal Services, Risk, Communications, Logistics and comprising the Sedibeng District Municipality in Gauteng. Facilities and Procurement. The current scheme was designed and adjusted as the area grew, resulting in a sub optimal sewage treatment, transfer and LEVERAGING TECHNOLOGY disposal scheme. Studies show that this scheme has a total of Since the SAP ERP system was introduced to Rand Water in up to 48 pumping stations where a total of five appropriately 2005, it has been stabilised. The number of open issues configured ones would suffice. This has led to unnecessarily reduced from 211 at year-end in 2005 to 117 a year later high operating costs as well as frequent spills of sub-quality and to 10 in the year under review. A best-fit IT applications effluent into the area upstream of Rand Water’s potable water strategy has been adopted ensuring that an end-to-end treatment facilities on the Vaal River system. This has resulted in integrated enterprise IT applications architecture is increased treatment costs for Rand Water and is one of the established for the organisation. reasons why the use of the Vaal Barrage has been discontinued. Emfuleni’s water services entity, Metsi-a-Lekoa, In the next financial year Rand Water will investigate and approached the market to design a long-term solution to the select the various components of this applications architecture. problem. Working in partnership with DWAF, Rand Water has The focus will be on Business Intelligence, Systems Integration been involved in the project since 2002. The R600 million and Enterprise Content Management, including Document project, which has a payback period of 20 years, which is and Records Management, Workflow and Portals. expected to be given the green light in 2008. IT INFRASTRUCTURE INVESTMENTS AND Other sanitation projects that we are involved in include: IMPROVEMENTS • A three-year contract with Randfontein Municipality for the In keeping with the trend in technology convergence, a provision of management, operations and maintenance Voice-Over-IP (VOIP) PABX solution and Managed Printing services at the Randfontein Sewage Treatment works to the Solution were investigated and selected for commissioning in value of approximately R10 million, the 2007/2008 financial year. An integrated IT server • Assisting Midvaal Municipality in sewage treatment works architecture, strategy and five-year road map will be defined projects, and in the next financial year. • We have been also been appointed by DWAF to address Bulk Sanitation and Bulk Water challenges faced by the Municipalities in the South Western Highveld region.

RAND WATER Annual Report 2007 25 OPERATIONS continued

KNOWLEDGE, BOTH TACIT AND EXPLICIT, IS ONE OF RAND WATER’S MAJOR ASSETS.

INTERNAL SERVICE MANAGEMENT risk and ensure alignment between business processes The shared service model has seen a significant improvement and applications. in the internal service delivery allowing the core operation to focus on uninterrupted supply of bulk potable water. The KNOWLEDGE MANAGEMENT efficiency levels have improved from non existent in certain A knowledge management project will be initiated during the areas to well above 80% of the SLA requirements. next financial year in order to investigate, introduce and implement the concept of knowledge management within Further, with the standardisation of internal services across the Rand Water by improving the identification, creation, organisation we have been able to reduce costs due to the extraction, safeguarding and dissemination of knowledge to elimination of wastage. all relevant stakeholders.

RISK MANAGEMENT TRANSFORMATION A cost effective disaster recovery solution and plan was Rand Water’s transformation is founded on three key successfully implemented. In terms of this plan, turnaround pillars, namely: time for critical functions is 24 hours, with recovery time for • Commercial Equity (the need to improve the expenditure the least critical functions estimated at a week. The continuous directed to previously disadvantaged black businesses), business improvement and continuity plans will be a focus • Employment Equity – the need to bring Rand Water’s area in the 2007/8 financial year. demographic profile into line with the country’s demographic profile, and BUSINESS PROCESS MANAGEMENT • Changing organisational culture. A business process management Centre of Excellence was established and commissioned, including the required skills, PROCUREMENT AND BBBEE technology, processes and methodologies based on the Rand Water’s preferential procurement policy, based on the Architecture of Integrated Information Systems (ARIS) platform. Broad Based Black Economic Empowerment Act and the DTI’s The first process improvement project was initiated in codes of good practice, is aimed at the rapid inclusion of 2006/7 to integrate the Rand Water business support previously disadvantaged individuals into the supplier base processes. The focus area for the next three years will be for goods and services supporting the organisation’s activities. to extend the same principles to other areas within the The policy also makes provision for the setting and review of organisation in order to improve efficiencies, reduce targets, at least annually, in order to ensure that progress is

BEE SPEND Total Traditional BEE BEE Spend Spend Spend Spend Financial Year R R R %

2006/2007 649 790 910 233 924 727 415 866 182 64,00

2005/2006 583 066 121 231 185 575 351 880 547 60,35

2004/2005 862 440 487 458 813 203 403 627 284 46,80

2003/2004 572 856 841 309 377 779 263 479 062 45,99

2002/2003 707 052 497 407 651 948 299 400 549 42,34

26 OPERATIONS continued

SHEQ Rand Water has developed an Integrated Safety, Health, Environmental and Quality (SHEQ) Management Policy. This is based on the safety and health standards OHSAS 18001:1999 the quality management system ISO 9001:2000 and the environmental management system 1SO 14001:2004.

SHEQ compliance manuals, that are maintained on continuous basis, are used by each site. There are a number of SHEQ committees structured in accordance with legislation. These committees are a vehicle for implementing and managing SHEQ Systems in the workplace.

Rand Water’s SHEQ Systems are monitored by internal audits as well as bi-annual external SABS audits.

OCCUPATIONAL HEALTH AND SAFETY made toward the achievement of the ultimate objective. The Disabling Injury Frequency Rate (DIFR) decreased from The procurement policy strives to: 0,47 to 0,36 during the year under review. • provide an appropriate acquisition process for the procurement of all goods and services; • ensure that the procurement process is fair, transparent; consistent, equitable, competitive and cost-effective; • maintain the highest ethical standards; • promote the objectives of the Commercial Equity Policy; and • the procurement complies with the leg framework that Rand Water is governed by.

Rand Water’s procurement environment is based on a strategy that involves optimising the Total Cost of Ownership within the context of commodity-based sourcing. The strategy is based on a complete value chain approach including planning, sourcing, inventory management and the use of cross-functional participation.

In the year under review, 83% of active BEE suppliers utilised In order to maintain our OHSAS 18001:1999 accreditation, was within the top 100, and 64% of the organisation’s focus was placed on hazard identification and risk discretionary spend (excluding manpower and statutory costs) assessments. Workplace teams identified and mitigated hazards through the process of job observations and re-training was awarded to PDI contracts – up from last year spend of on hazardous tasks such as working in confined spaces. 60.35% and nearly double what it was for the 2002 financial year. CONTRACTOR SAFETY Legislated SHEQ requirements constitute part of our tender INTELLECTUAL PROPERTY documentation and tenders are adjudicated in compliance Following on from the Top 100 Forum comprising Rand thereto. It is therefore mandatory that all suppliers on Rand Water’s top managers, an Intellectual Property (IP) Workshop Water sites comply. Contractors are inspected and audited to was hosted by the Legal Department with help from outside ensure SHEQ Management Systems are maintained. consultants. It has become clear that Rand Water needs a comprehensive IP policy and that agreements with third party ENVIRONMENT R & D providers need to be established. A further meeting All sites were audited and maintained their ISO 14001:2004 accreditation. This listing is currently was held between Rand Water Services (Pty) Ltd and role site-specific and will be converted into a single corporate players in Rand Water to discuss the development, listing in 2008. All Rand Water sites will be fully aligned, management, protection, and commercialisation of IP that and comply with the same standard. resides in Rand Water and its associated subsidiaries. Mapping and assessing of Rand Water’s intangible assets QUALITY through an R & D audit that reviews people, facilities and Rand Water has held ISO 9001:2002 quality management budgets will be a priority in the year ahead. certification since 2003. This certification was extended in

RAND WATER Annual Report 2007 27 OPERATIONS continued

EMHLANGENI PIPE MAKES USE OF THE LATEST TECHNOLOGY, INCLUDING ULTRA THIN PIPE TECHNOLOGY INVOLVING FLEXIBLE STEEL PIPELINES THAT ARE MUCH THINNER, RESULTING IN CONSIDERABLE COST SAVINGS.

the year under review to include the Transport Section within significantly improved. At 31 December 2006, the solvency the Shared Services Portfolio. Rand Water’s Quality ratio of the scheme was 96%, almost four times the minimum Management Systems (QMS) was commended by SABS requirement of the Council of Medical Schemes. auditors in our surveillance audits in March 2007. Option B As our quality management system is now mature, the focus This option is a low cost primary healthcare option providing has shifted on fully integrating QMS into the business process. health care at different Rand Water site clinics through specific healthcare service providers. This option was introduced primarily SECONDARY ACTIVITIES to cater for the needs of support staff. As at 31 December, the membership of this option stood at 491 people. FARMING OPERATIONS At the end of December 2006 we ceased farming operations RAND WATER PROVIDENT FUND in keeping with our strategy of focusing on core business. All With the pending closure of the Rand Water Superannuation farm employees were successfully redeployed within Rand Fund (liquidator appointed 19 September 2006), the Rand Water. The question of what to do with the land is still being Water Provident Fund – a defined contribution fund – is reviewed. However, we have still not entirely resolved the the primary fund under which Rand Water employees security of land tenure issue and are currently engaged in enjoy benefits. talks with Land Affairs in this regard. Membership for the year ended 30 June 2007 was 2 205. EMHLANGENI PIPE PLANT Total contributions received by the fund amounted to Rand Water owns Emhlangeni Pipe, a pipe manufacturing R58,2 million for the financial year. facility with an output of approximately 150 tons of steel pipe per month, supplying approximately 20% of the organisation’s At the end of the 2006 financial year, the trustees adopted a requirements. Emhlangeni Pipe makes use of the latest new strategy in terms of which the assets of the fund were technology, including ultra thin pipe technology involving moved from a guaranteed fund to market-related portfolios flexible steel pipelines that are much thinner, resulting in with specialist mandates given to investment managers. considerable cost savings. This meant that members who are five years from normal RAND WATER MEDICAL SCHEME retirement date can expect a return targeting inflation over The Rand Water Medical Scheme is a closed scheme with rolling one-year periods, while the target for all other restricted membership to Rand Water employees only. Since members is a return of the inflation rate plus 3 – 5% over inception on 1 January 1918, the scheme has been rolling five-year periods. These developments were administered in-house, providing healthcare for members and communicated to members by means of written their dependants, offering a choice of two options: communication and workshops.

Option A A key development in the year under review was the This option offers benefits to members and dependants in the approval of a pension-backed housing plan. In terms of this form of a traditional comprehensive healthcare plan. The total plan, fund members can apply to FNB for loans in order to membership of this option as at 31 December 2006 was build, renovate or purchase land by utilising a portion of their 2 328 of which 579 are continuation members (pensioners). balances in the fund as security. This is significant, as many After two consecutive years in succession of no increases in members are hostel dwellers, whose permanent residences the contribution rates, it became necessary to increase the are in rural areas as far away as KwaZulu-Natal and who contributions by approximately 6%. The benefits were also would normally find it difficult to access financial assistance.

28 STAKEHOLDER REVIEW

Focusing on partnerships

“I am confident enough in the water quality to drink tap water and even the bottled water I drink is tap water supplied by Rand Water.“

Lindiwe Hendricks, Minister `of Water Affairs and Forestry National Assembly, Parliament, Cape Town19 October 2006

Quality of product. . . quality of life. . . quality of people. At Rand Water, those are the three pillars of our multi-stakeholder approach. This approach enables us to meet the Millennium Development Goals (MDGs).

RAND WATER Annual Report 2007 29 STAKEHOLDER REVIEW continued

HUMAN RESOURCES ARE CONSIDERED A STRATEGIC ASSET THAT NEEDS TO BE EMPOWERED, FOR OPTIMAL BUSINESS PERFORMANCE.

STAKEHOLDERS In the year under review, we enhanced our performance management system, a primary tool used for recognising and The concept of a “water ladder”, can be expanded to the rewarding performance. Achieving a high level of performance idea of a ladder of opportunity we extend to all our starts with establishing a clear set of goals. Quantifying these stakeholders. These include employees, customers, suppliers, goals on an individual basis means that all our employees have communities, various environmental, municipal and a very clear idea of what is expected of them and allows for governmental organisations and our shareholder. We aim to both organisational and individual benchmarking of create an environment and a culture that empowers all our performance. Performance is formally assessed on an bi-annual stakeholders to perform to the highest possible level and basis and is linked to salary increases and incentives (where empower them to realise their potential. Underpinning this appropriate). As the enhanced system becomes more approach are our corporate values of caring, equity, entrenched within Rand Water, it is expected that employees excellence, integrity and partnership. at all levels of the organisation will be included.

Our engagement with various other institutions such as RECRUITMENT AND RETENTION STRATEGIES SAAWU, NEPAD, Local, Provincial and National and Our ability to recruit, retain and develop people is key to our international bodies is detailed throughout the report. ability to continue delivering on our mandate. In common with the rest of the world, South Africa is experiencing a skills crisis Contributing to Upliftment aggravated by the longest lasting economic boom in recent Following the success of a similar project in 2005, at the history. The skills crisis is particularly evident in technical fields end of 2006, the Rand Water Foundation partnered with and has been exacerbated by projects such as Gautrain, the building of the soccer stadium for 2010 and the Expanded Habitat for Humanity to build three houses for less fortunate Public Works Programme. A survey on remuneration, members of the community in Katlehong in the Ekurhuleni conducted in February 2007 by accounting firm Deloitte and Municipality. Expectations were that 100 Rand Water staff Touche found that 81% of companies in South Africa members would participate, instead nearly 200 did so. experience difficulties in recruiting technical professionals. After registration and safety training, participants pulled together during normal working hours to complete the As a technically focused organisation, the national and houses within five days. Employees gave their energy and global skills crisis has impacted on Rand Water. In the year commitment – Rand Water gave their employees’ time. under review, staff turnover was 9% (annualised overall). The organisation is increasingly experiencing difficulty in EMPLOYEES recruiting engineering and risk management skills particularly Human Resources are considered a strategic asset that needs with regards to Africans Coloureds and Asians (ACIs). to be empowered, for optimal business performance. We are attempting to redress the situation through a number PERFORMANCE MANAGEMENT of strategic interventions, including: Our focus is on creating and sustaining a high-performance organisation. The PIC annually develop Key Performance Remuneration Areas and Key Performance Indicators (KPIs). The KPIs and In the year under review, we undertook a benchmarking detailed budgets are used to measure the performance of exercise to compare our remuneration and benefit strategies each portfolio on a monthly basis. This performance against the market for identified skills. Following this, we management strategy is cascaded down to divisional and moved all our employees to the mid-range of the salary band individual levels. and increased salaries for people in critical positions in line

30 STAKEHOLDER REVIEW continued

We awarded eleven apprenticeships in the year under review. Nine of these were women. The apprenticeships for women were awarded as follows: four apprenticed electricians, one apprenticed fitter and four apprenticed fitter instrument mechanics.

SETA accredited water sector learnerships were awarded to school leavers from previously disadvantaged groups, in line with the Workplace Skills Plan requirements. Monthly training targets are monitored to ensure compliance.

In January 2006, Rand Water in partnership with ESETA enrolled twenty disabled people in learnerships. Three learners were placed in the Finance Department, two in the Communications Department, one in the Records Department with the external market. As a state-owned enterprise (SOE), and eight in the Human Resources Department. previously our salaries were slanted from the middle to the lower range of the scale. However, we are competing with Development and leadership strategies aim to develop private companies for the same skills and have to offer Rand Water’s pool of talent to the benefit of both the comparable remuneration and benefits in order to attract individual and the organisation. and retain staff. At middle to senior level, detailed performance contracts are Job Shadowing in place and performance is assessed bi-annually. During This involves shadowing of positions identified as critical these assessments individual performance gaps are identified within the organisation. and personal development plans (PDPs) are drafted to address training needs and set out career goals. These PDP Skills Modelling plans are linked to Rand Water’s overall Workplace Skills This project involved the mapping of jobs in critical areas, the Plan. This strategy of encouraging and motivating employees retention of tacit knowledge and a skills transfer process. The to take responsibility for their own development has helped to retention of tacit knowledge is based on an interview process instil a culture of high performance. to elicit information relating to the identified critical skill area.

Our high-performance culture is defined by several Critical Skills Barometer development interventions including: During 2007, we developed a Critical Skills Barometer to reflect • STEPS (Steps to Excellence for Personal Success), a the status of critical skills within the organisation and which will self-development programme aimed at support staff and assist in driving our training interventions going forward. presented in vernacular languages; Recognising Excellence • Investment in Excellence, a personal mastery and The annual Rand Water Ziyagezana Excellence Awards intelligence programme run over six days and premised were established in 2003 to recognise and reward on the fact that performance improvement in organisations excellent performance. The nomination process is ongoing begins with the individual; throughout the financial year and adjudication committees • Brain Based Learning and Development, a series of of divisions and sites convene on a quarterly basis to reach workshops focused on performance management, change consensus on winners for each quarter. The annual and stress management; awards, are based on the quarterly winners and a strict • Upwards for Excellence, an accelerated development review process before announcing the winners in ten intervention that builds on the principles of the Investment categories, ranging from Employee of the Year to Team in Excellence programme; of the Year. • Executive Managers are assigned mentors through an external service provider, who provide guidance on DEVELOPMENT AND LEADERSHIP STRATEGIES leadership and advice on how to enhance Executive Development Strategies Management output; and Programmes for upgrading skills and building capacity are • a number of HR Practitioners have been trained and long-standing at Rand Water. In the year under review, accredited as Coaches, with part of this training devoted we spent 4.5% of our wage bill on training totalling to talent development and coaching ‘high flyers’ in R25 748 461. the organisation.

RAND WATER Annual Report 2007 31 STAKEHOLDER REVIEW continued

IN JANUARY 2006, RAND WATER IN PARTNERSHIP WITH ESETA ENROLLED 20 DISABLED PEOPLE IN LEARNERSHIPS.

Leadership Strategies the programme undergo a 360 Degree Assessment to identify To ensure that high-performing individuals are developed to development needs. assume senior roles in the organisation, succession plans have been developed for key roles. This ensures business BURSARIES continuity by putting a leadership pipeline in place. Rand Water offers two types of bursaries: open bursaries and bursaries targeted at children of employees. A total of The following criteria are used to identify high performers: 40 bursaries were awarded in the 2007 financial year. Criteria • performance review ratings; and for the award of bursaries include academic merit, financial • identifying potential through Line Managers and need, employment equity status and fields of study aligned to research undertaken. organisational requirements. The open bursary scheme focuses on previously disadvantaged university and technikon students, The final list of candidates is approved at executive management and also targets schools in low-income areas. level. In addition, around two or three candidates are identified for any one position and all candidates are given the same In our Open Bursary Scheme, we have a total of 16 bursary exposure and development. The candidates compete for the holders for the 2007 academic year in the Engineering and position when it becomes available. Science fields.

In addition, each year Executive Members are selected to Ten bursary holders are due to complete their studies at the participate in the Strategic Leadership Programme. Delegates on end of this year.

Children of Staff Bursary Scheme 2007 Number per group Total Year Number African Coloured Indian White Female 2007 24 1700714 2006 41 16 0 0 12 18 2005 40 1501410 2004 48 1300411

Open Bursary Scheme 2007

Percentage and number per group Total Year Number African Coloured Indian White Female 2007 16 130309 2006 37 3114017 2005 38 3131018 2004 37 2411212 2003 42 3533123

32 STAKEHOLDER REVIEW continued

WELLNESS In keeping with international trends, we have adopted an integrated wellness concept incorporating programmes to address physical, spiritual, emotional, mental and financial wellbeing.

HIV/AIDS We have a long established HIV/AIDS programme focusesing on: • containing the epidemic in terms of physical wellness; • managing the economic impact of the disease; • living with HIV/AIDS; and • research and continuing education.

The programme is implemented by a fully representative steering committee that includes active trade union Water Technology Training commitment and support. The strategy is part of our overall Water technology training in Rand Water has been integrated wellness concept and is communicated as a accredited by the Energy Sector Education Training lifestyle disease in order to de-stigmatise it. Authority (ESETA). Training is annually audited by the ETQA section of the ESETA. Employees who are members of both Rand Water’s Option A and B medical aid schemes (the former being a Trainee achievements are listed on the national learner comprehensive healthcare option, the latter a low cost primary records data base (NLRD) at the Department of Labour healthcare option) have access to medical treatment for (DOL). Furthermore, all learning leads to a specific HIV/AIDS. A scheme members are encouraged to register qualification. The courses developed are unit standard with Aid for AIDS, that offers specialist medical care and compliant, in line with the South African Qualifications provides counselling services for affected staff and families. B Authority guidelines. scheme members register with Occupational Care South Africa (OCSA), an organisation that provides health and wellbeing To date, there are five unit standards based training programmes, including access to anti-retrovirals (ARVs). courses offered to internal and external students working in water purification. In the year under review, we continued with in-house peer counselling and education through our peer counsellors at EMPLOYEE SATISFACTION SURVEY each site. Noteworthy activities include our participation in In our ongoing quest for continuous improvement, we conduct the DWAF HIV/AIDS committee that is in the process of regular Employee Satisfaction Surveys. The survey elicits establishing an HIV/AIDS management policy framework for feedback from employees at every level to measure culture, all water utilities, part of which is the entrenchment of climate and employee satisfaction. The next survey will be HIV/AIDS interventions into organisations so that they conducted in March 2008. become part of their day-to-day activities.

HIV/AIDS Testing Statistics

Total Employees % Tested Site Employees Tested to Total Head office 1 085 140 12.90 Panfontein 28 15 53.57 Wadeville 24 20 83.33 Emhlangeni 84 37 44.58 Midrand 34 23 67.65 Central depot 604 195 32.28 Vereeniging 486 224 46.09 Zwartkopjes 412 88 21.36 Zuikerbosch 500 134 26.80 Total 3 256 876 26.90

RAND WATER Annual Report 2007 33 STAKEHOLDER REVIEW continued

IN OUR OPEN BURSARY SCHEME, WE HAVE A TOTAL OF 16 BURSARY HOLDERS FOR THE 2007 ACADEMIC YEAR IN THE ENGINEERING AND SCIENCE FIELDS.

Training Percentage Spend by Race and Gender

Gender Race 2006/2007 2005/2006 2004/2005 2003/2004 2002/2003

Males ACI 55.49 56.64 51.8 49.3 51.3 White 10.02 11.02 13.2 17.3 24.7 Females ACI 29.73 27.88 27.7 24.4 14.6 White 4.76 4.46 7.3 9.0 9.4 100 100 100 100 100

Employment Equity Statistics % ACI at Total % % % Management Number ACI of Women People with Financial Year Level of Staff at all Levels Employed Disability

2007 65.0 2 930 83.3 24.2 3.9 2006 63.0 3 006 82.6 23.4 3.9 2005 58.6 3 052 81.1 23.5 3.5 2004 45.6 3 097 80.0 21.4 0.9 2003 45.0 3 093 72.4 19.0 1.1 2002 32.1 3 105 77.7 16.7 1.3

Females Categories June 2005 June 2006 June 2007

ACI (Africans, Coloureds, Indians) Actual 149 163 153 M-Q Bands Percentage 24.0 25.8 25.2 ACI Actual 508 561 569 ALL LEVELS Percentage 16.6 18.7 19.4 Disability

Categories June 2005 June 2006 June 2007

All PWD Actual 107 120 115 Percentage 3.5 3.95 3.9

34 Employment Equity Statistics continued

Composition (%) of blacks & women compared to the Gauteng average According to Statistics South Africa, the percentage of Blacks (ACI) in Gauteng is 74%. Men comprise 48% and women comprise of 52% the population. Total staff RW 2006 % RW 2007 % Gauteng % African 2 332 78.9 2 284 78.0 73.80 Coloured 78 2.56 76 2.6 3.8 Indian 96 3.16 82 2.8 2.5 White 530 17.45 488 16.7 19.90 Total 3 036 2 930

Percentage women of total staff RW 2006 % RW 2007 % Gauteng % African 485 15.97 502 17.1 36.0 Coloured 35 1.15 33 1.1 1.98 Indian 43 1.42 34 1.2 1.24 White 149 4.91 141 4.8 10.24

Composition (%) of blacks and women at management level (M – Q) The number of Blacks (ACI) at senior levels (M – Q) decreased from 402 to 394 between June 2006 to June 2007 and women decreased from 221 to 209 over the same period. %% Total Females All ACI All Band Staff ACI % ACI Females Females Females Q 15 10 66.7 3 4 20.0 26.7 P 36 23 63.9 8 8 22.2 22.2 O 121 71 58.7 24 33 19.8 27.3 N 133 79 59.4 32 47 24.1 35.3 M 301 211 70.1 86 117 28.6 38.9

Composition of blacks and women in Rand Water (June 2007)

Level Total Staff ACI Females Executive Management 15 10 4 Senior Management 36 23 8 Middle Management 121 71 33 Supervisory 434 290 164

RAND WATER Annual Report 2007 35 STAKEHOLDER REVIEW continued

PARTICIPATION CO-OPERATION AND PARTNERSHIP (PCP) FORUM

Participation Collective Structure Bargaining Structure Chief Executive to Board

Dispute Stakeholders’ Forum Resolution (Quarterly) Committee

Central Steering Committee Bargaining (Monthly) Forum

Core Group Task Group Task Group

Working Working Group Group Site Forums (Monthly)

Task Group Task Group

Workplace Workplace Workplace Meeting Meeting Meeting

36 STAKEHOLDER REVIEW continued

promising model for participative processes toward policy formulation.

The PCP Forum comprises three layers of consultation: • the Stakeholders Forum is a corporate wide forum and deals with issues that have an organisational impact – the restructuring of Rand Water and the establishment of the Portfolio Integrating Committee (PIC) being examples; • Site Forums, that typically comprise a supervisor, site manager and labour representatives, deals specifically with issues affecting a particular site; and • Workplace Meetings are attended by all employees within a specific section.

The Participation Development Group, consisting of executive management, functional specialists, site management and labour representatives, meet on a quarterly basis to monitor LABOUR RELATIONS the value-adding service to PCP. This is achieved by Rand Water operates in unionised but stable environment. monitoring the functioning of the PCP processes and The company is 92% unionised, with two recognised structures and making recommendations for improvement trade unions – the South African Municipal Workers’ Union where necessary. (SAMWU) the majority union, the United Association of South Africa (UASA). The remaining percentage of employees are CUSTOMERS covered by the closed-agency-shop agreement concluded The Strategic Framework for Water Services, approved by between management and trade unions. Cabinet in 2003, shifted DWAF’s role from direct service delivery to support, monitoring and regulation. With this shift, Collective Bargaining the responsibility for maintaining existing water services and A well-established collective bargaining forum, the Central developing new ones moved to municipalities – the major Bargaining Forum (CBF), operates in accordance with a proportion of Rand Water’s customer base. constitution agreed by all the stakeholders. The CBF negotiates all changes to salaries/wages and conditions This development led Rand Water to adopt a more proactive, of service. customer-facing approach involving the appointment of Regional Account Executives tasked with customer relationship Dispute Resolution management. Service areas comprise six regions in total: Dispute resolution mechanisms are well established in • Four regions divided on a geographical basis and Rand Water. Individual conflicts are dealt with in terms of focusing on metros, municipalities, district municipalities a disciplinary code and grievance procedure jointly and SALGA. developed between management and labour. • One region servicing 40 mines. • One region servicing over 700 industries and Essential Service Agreement direct customers. An Essential Service Agreement is in place to ensure that key staff is available to operate and maintain the primary water In the year under review, municipalities accounted for supply activities of Rand Water during labour unrest. To further 92.12% of bulk water sales, mines for 6.48% and industries regulate protected industrial action, discussions with trade and other consumers 1.41%. Overall sales increased union parties resulted in an agreement on a Code of Conduct by 2.69%. with respect to protected industrial action. BULK WATER SUPPLY CONTRACTS Stay-Away Policy Rand Water operates on the basis of bulk water supply A policy to regulate absenteeism during politically motivated contracts with our customers, in compliance with the Water national stay-aways is in place ensuring the continued supply Services Act of 1997. The Bulk Water Supply Contract was of services. developed in consultation with the South African Association of Water Utilities (SAAWU) and the South African Local PCP Forum Government Association (SALGA) and concluded in 2004. The PCP Forum was established in 1995 at a time of These contracts, generally negotiated on a five-year basis, uncertainty and transition in South Africa. Focusing on mutual are aimed at formalising water service delivery. Contracts responsibility in problem solving, consensus decision making address water quality, quantity, billing and meter testing, etc. and creating a common understanding. The primary role of Contracts are essential from both a financial planning and the PCP is to ensure that all stakeholders contribute in the overall management, hence compliance is a key necessity. decision-making process on policies. The structure has been Challenges are ongoing, and relate to excess draw-offs, commended by many labour relations commentators as a non-payment and reluctance by municipalities to sign.

RAND WATER Annual Report 2007 37 STAKEHOLDER REVIEW continued

THE COMMUNITY BASED PROJECTS DEPARTMENT (CBPD) IS THE IMPLEMENTING AGENT FOR BOTH WATER AND NON-WATER RELATED CSI INITIATIVES.

Excess Draw-Offs ASSESSING CUSTOMER SERVICE Excess draw-offs by municipalities result in low pressure in our In a rapidly changing world, customers’ needs are constantly system, on supply to customers located in high lying areas. evolving. To determine whether we are meeting those needs The solution lies in more accurate demand predictions and and fulfilling our goal of being a world-class, performance- an appreciation that water is a shared resource. Through driven organisation, we evaluate our performance both partnerships with our customers and by using our own internally and externally. demand model, we are in the process of assisting municipalities to formulate more accurate demand models. Service Level Evaluations Service Level Evaluations (SLEs) are conducted twice a year Non-Payment by internal staff. This enables us to proactively resolve Non-payment for services continues to be a major challenge. problems as oppose to relying on the annual survey. Remedial action includes the following: SLEs measure: • reduce the water pressure or discontinue water services; or • continuity of water supply to bulk customers; • limit supply of water as per the Water Supply Contract • the metering process, including meter installation and and/or General Water Supply Conditions. upgrade turnaround times; • billing proficiency; We follow a strict policy with regards to defaulting customers, • customer service (regional account executive, district in terms of the provisions of the Water Services Act, Act 108 superintendent, and regional operations manager of 1997. framework); and • call centre efficiency. Interest is levied on all outstanding accounts at the current prime interest rate. The following table shows a general improvement in most of the areas, except for forward planning where there was a Progress Made decline of 4%. Operations and maintenance as well as We embarked on a process of renegotiating all our water relationship building showed a vast improvement of 7% supply contracts with our key customers. By financial year and 6% respectively. end, negotiations were concluded with the 3 metropolitan municipalities and 12 local municipalities, representing The rating improved from 74.4% in 2006 to 89% in 2007. 83.33% of our total number of municipal customers. CVM ratings remained at 76%. The difference between the ratings can be attributed to the fact that the SLE evaluates quantitative factors, while the CVM evaluates qualitative factors – hence the difference in ratings. Queries and concerns highlighted in the CVM survey are followed up with remedial action.

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RAND WATER’S SHARHEOLDER IS THE DEPARTMENT OF WATER AFFAIRS & FORESTRY (DWAF).

Customer Value Management Survey The Customer Value Management (CVM) survey is conducted annually by an external service provider – African Response in the year under review. The survey assessed a number of areas as listed below:

CVM time analysis between 2006 and 2007

Attributes 2006 Rating 2007 Rating Difference

Overall value 76 76 – Overall service efficiency 80 80 – Overall perceptions of relationship management 79 85 6 Overall strategic competencies 75 79 4 Overall perception of corporate image 78 82 4 Overall perception of tariff 45 47 2 Overall perception of forward planning 75 71 -4 Overall perception of management of water resources 75 79 4 Overall perception of operations and maintenance 75 82 7 Overall perception of billing and administration 76 78 2 Overall perception of communication 72 77 5 Overall perception of Account Executives 77 79 2 Overall perception of customer focus – 77 –

CUSTOMER SERVICE CENTRE CUSTOMER ENGAGEMENT In 2001 Rand Water established the Customer Service Rand Water has allocated resources and participates in various Centre (CSC). There is an effort to ensure that customers water related forums to ensure efficient customer interaction. The direct their queries and service request to the CSC. primary objective of the forums is to proactively offer solutions on the supply of water services for local government, mining, In the year under review we conducted a customer service industry and direct consumers. The Water Services Forum is held centre awareness survey to: monthly while the Mining Forum is held quarterly and the Industry • measure the extend of customer service throughout and Direct Consumer Forum is held bi-annually. the organisation; • the turnaround time on service requests; SHAREHOLDER • the effectiveness of CSC; and Rand Water’s shareholder is the Department of Water Affairs • the extent to which customer service requests are channelled through the CSC. and Forestry (DWAF).

The findings indicated that eight out of ten people in our area are The organisation provides DWAF with quarterly performance aware of the CSC and that 60% of them have contacted the CSC reports on key performance indicators as agreed between before. Employees are encouraged to log all customer queries DWAF and the South African Association of Water with the CSC. Utilities (SAAWU).

RAND WATER Annual Report 2007 39 STAKEHOLDER REVIEW continued

THROUGH THE RWF, RAND WATER FORMS PARTNERSHIPS WITH VARIOUS INSTITUTIONS AND DEPARTMENTS TO IMPLEMENT WATER-RELATED PROJECTS THAT BENEFIT COMMUNITIES WITHIN RAND WATER’S AREA OF OPERATION ON A COST RECOVERY BASIS.

In addition DWAF requests information from In 2002, we established a ring-fenced subsidiary, the Rand Rand Water pertaining to: Water Foundation (RWF) with funds of R15 million. Annually, • business and financial plan and amendments; approximately R3 million is utilised in partnership initiatives. • corporate governance practices and processes; Funds are sourced from Rand Water and RWF fundraising • register on conflicts of interest; initiatives. The Community Based Projects Department (CBPD) • remuneration and other human resource policies; is the implementing agent for all our initiatives. • risk management strategies; • strategic priorities. CSI is focused on water and non-water related projects. The latter are focused on helping marginalised sectors of the Rand Water regularly report to DWAF on meeting the community including the aged, the disabled, people with following long-term (five years) targets: special needs, the empowerment of women and HIV/AIDS • keeping tariff increases within the Reserve Bank’s inflation targeted range; projects. The value of these projects in the year under review • preventing catastrophic infrastructural failures; – funded by Rand Water – was R2.7 million. • compliance with SANS-241 water quality standards; • developing strategic human capacity in the water Through the RWF, Rand Water forms partnerships with various services sector, institutions and departments to implement water-related projects • supporting NEPAD initiatives with regards to bulk water that benefit communities within Rand Water’s area of operation services infrastructure; and on a cost recovery basis. During the review period, projects to • using the Rand Water Foundation as a socio-economic the value of R46 393 562 were implemented in various change agent. provinces by our Corporate Social Responsibility Division.

RAND WATER FOUNDATION Our water-related CSI projects are aimed at: One of the key fundamentals of Government’s development • improving access to water and sanitation; strategy is the vision of a better life for all. We are committed to • water conservation focused on making water affordable helping to realise this vision through Corporate Social Investment by reducing wastage and unnecessary consumption; and (CSI) initiatives. • enhancing water security.

Non-Water CSI The allocation to each focus area was as follows: Focus Area Type of Support Spent HIV/AIDS Home based care, care for orphans, HIV/AIDS training, Renovation of hospices etc R775 895 Education(Special needs institutions) Training equipment, furniture, educational material R493 275 People with Disabilities Resource provision (wheelchairs, medical supplies, educational material) R335 022 Women Empowerment Shelter provision, victims support R304 187 Care of the Elderly Support to institutions looking after the aged R283 922 Partnerships Partnering with organisations with same or complementing focus areas for joint campaigns R420 000 Health Grants to organisations that provide ongoing support to people with chronic ailments eg CANSA R80 000

40 STAKEHOLDER REVIEW continued

WATER CONSERVATION DOMESTIC LEAKS REPAIRS PROJECTS Water wastage through leaking pipes is one of the most pressing challenges facing municipalities. Leakages increase the unit cost of potable water hence services become unaffordable to poorer communities. Leakages also result in minimal collection of service revenue by municipalities. In response to this challenge, RWF has partnered with various municipalities to implement a project aimed at reducing water losses from leaking plumbing installations. This entails fixing and retrofitting of leaking pipes, toilets and taps to the households identified by the municipalities.

Currently two projects are being implemented in two municipalities namely in the City of Tshwane (Mamelodi and Eersterust), and Emfuleni (Ironside and Bophelong). The COMMUNITY BASED PROJECTS projects were implemented over two fiscal years in (CBPD) partnership with DWAF, Emfuleni and the City of Tshwane. IMPROVING ACCESS TO WATER AND Communities in these areas have benefited through job SANITATION creation, training and use of local suppliers and service BBR KUMANI WATER SUPPLY providers in the provision of plumbing materials. Of the total The project involved the upgrading and extension of the of 2 300 households that were assessed for pipe leakages in water reticulation network in Kumani Village situated within the City of Tshwane, 1 231 families benefited through the Bushbuckridge Municipality in Mpumalanga. From the retrofitting and repairs of leaking toilets. A total of 2 381 total budgeted amount of R1,9 million, R1,4 million was allocated to previously disadvantaged individuals toilets were retrofitted in Emfuleni. Workers were trained on (PDI) contractors. basic plumbing skills to enable them to assess and repair or replace damaged plumbing. WINTERVELDT PIPE REFURBISHMENT PROJECT This project took place in Winterveldt, located approximately INVASIVE ALIEN PLANTS REMOVAL PROJECTS 40 km northwest of Pretoria within the City of Tshwane. The Alien plants deplete valuable water resources. Rand Water has project involved excavation, laying and installation of two entered into partnerships with various government departments sections of steel pipeline. The community of Winterveldt, to implement a number of alien plants removal projects. comprising over 100 000 people, has benefited because previously inconsistent supply of potable water is now The project goal is the conservation of the natural resources. reliable. Ten job opportunities were created, of which four were for women. However, more than 60% of the project The general objectives of these projects are to: funds remained in the communities through the utilisation of • enhance water security by regaining control over local PDI suppliers and service providers. alien plants; • improve ecological integrity of natural systems; WINTERVELDT COMMUNITY SANITATION PROJECT • maximise social benefits; In partnership with the City of Tshwane we are involved in a • promote appropriate use of land that is cleared; and community sanitation project in Ten Morgan, the most rural • assist Government’s drive to eliminate poverty. part of Winterveldt. The key objectives of the sanitation project are to: Ventilated Improved Pit Latrines (VIPs) • achieve health by changing current poor hygiene It is virtually impossible to eradicate poverty and disease as behavioural practices; and • improve sanitation facilities by constructing approximately well as improve quality of life without adequate sanitation 1 153 Urine Diversion System (UDS) and ventilated and hygiene. The VIP latrine is one of the most cost-effective improved pit latrine (VIP) toilets. ways of providing sanitation to rural areas. The way it works is simple: waste drops into the pit, where organic The project includes skills training for maintenance of material decomposes and liquids seep into the surrounding sanitation facilities. In addition, six local building contractors soil. Continuous airflow through the top structure and were appointed and approximately 94% of the materials and above the vent pipe removes odour and releases gases other services were sourced from the area. Between June into the atmosphere. By maintaining a darkened interior, 2006 and June 2007, 1 158 families were supplied with VIP insects entering the pit are attracted to the light at the top latrines and 9 528 households benefited from the health and of the vent pipe and trapped by the fly screen. hygiene awareness programme.

RAND WATER Annual Report 2007 41 STAKEHOLDER REVIEW continued

WETLANDS ARE CRITICAL COMPONENTS OF THE LANDSCAPE AND PERFORM CRUCIAL ROLES IN SUSTAINABLE WATER RESOURCE MANAGEMENT.

WATER SECURITY • the construction of concrete information walls warning KZN DONGA REHABILITATION PROJECT people of danger associated with settling on Rand Water This ongoing project takes place in the three villages of servitudes; and Amangwane located within a radius of 30 kilometres from • community workshops and awareness campaigns. Bergville, in Ukhahlamba Local Municipality situated in Uthukela District Municipality. The main objective of this A total of seven encroached areas in Gauteng and the Free project is to preserve sensitive catchment areas through State were prioritised for intervention in the 2006/7 financial reclamation and rehabilitation of dongas in the Tugela and year. Project Advisory Committees (PAC) consisting of Mnweni catchments. The project activities include mapping, community representatives were formed to ensure community plotting and recording of dongas, construction of gabions buy-in and to enhance the sustainability of the project. and planting of grass species. To date, a total of 44 gabions have been constructed, and 300 m2 vetiver grass have been The major deliverables on the encroachment projects were planted. Workers attended a series of workshops that includes the installation of 181 beacons, the construction of skills training on gabion construction. 434 concrete information walls and local sourcing of material and transportation services. A labour intensive WETLAND PROJECTS approach was adopted. It resulted in creating employment Wetlands are critical components of the landscape and for 136 people and 55% of those were females. perform crucial roles in sustainable water resource management. RWF worked in partnership with Ekurhuleni, the Ongoing discussions are taking place with the relevant Gauteng Department of Public Works and Working for municipalities to remove informal houses erected within Wetlands to restore the wetlands area of Siluma Park, as well the servitude. as Blesbokspruit in Ekurhuleni. The main objectives of the wetlands projects are to: DWAF-Commissioned Projects Implemented • restore biodiversity; by the CBPD • create wetland awareness; The CBPD was funded by DWAF (for an amount of • poverty alleviation and job creation; R2 million) and tasked with an HIV/AIDS mainstreaming • capacity building as part of government special public project. Internal mainstreaming evaluated the existing works programme; and practices dealing with HIV/AIDS affected employees • control water flow and soil erosion. across a number of water utilities. The aim was to develop a best practice model for mainstreaming HIV ENCROACHMENT and AIDS in South African water utilities. External Rapid urbanisation in Rand Water’s area of operation has meant mainstreaming involved completion of analyses for a concomitant growth in development and informal settlement. policy guidelines, legal framework and inter-sectoral collaboration for the Ehlanzeni District Municipality. The problems created by encroachment include: It also involved a report on systematic involvement of • potential danger should a pipe burst; civil society in water and sanitation delivery. Final reports • restricted access to infrastructure that impedes have been submitted to DWAF for roll-out of the findings maintenance and repairs; and into other local authorities and water utilities. • unauthorised connections to bulk water pipelines. Strategic Programme Management and Financial Support The encroachment project entails: (R16,2 million) and Water Resource Management Support • the installation of beacons, using local labour, to indicate (R7,2 million) are two other DWAF-funded projects which or mark the position of the Rand Water pipelines; the CBPD is currently driving.

42 STAKEHOLDER REVIEW continued

JOB CREATION One of our priorities in implementing projects is to source labour and suppliers from local communities. Our aim is to ensure that local people are empowered through training. Where possible, we contribute to upliftment by assisting local previously disadvantaged suppliers and contractors to register as close corporations.

A total of 513 temporary jobs were created in the year under review. A significant portion of the budget (96%) was spent on local previously disadvantaged suppliers. This illustrates Rand Water’s commitment to ensuring that the bulk of project funds remain within the local communities.

Summary of Job Creation and Local Supplier Support Providing External Training for 2006/7

In April 2007, the Water Technology Training Gender Jobs Created % Department within Rand Water’s Scientific Services Male 224 48 Division was asked to assess 45 waste water Female 267 52 Total 513 100 works operators for technical and behavioural competence. The DWAF-funded project, conducted Project funds spent on local labour and suppliers at the Emfuleni local municipality, was completed for 2006/7 (YTD EXPENDITURE) in June 2007. Items Funds Spent % Traditional Suppliers 467 912.48 4 PDI Suppliers 10 056 018.00 96 Total 10 523 930.48 100

Project Areas and Budget Allocation Project Description Area Project Value Funder Water pipeline Reinforcement Winterveldt – Gauteng R7 000 000 CT Winterveldt Sanitation Winterveldt – Gauteng R7 500 000 CT Emfuleni Leaks Repairs Bekkersdal – Gauteng R1 900 000 Emfuleni, RWF Tshwane Leaks Repair Phase 2 Mamelodi – Gauteng R1 500 000 CT, RWF DACEL- Alien plants removal Elandsfontein – Gauteng R1 664 887 GDACE DACEL- Alien plants removal Mogale City – Gauteng R1 485 113 GDACE KZN Donga Rehabilitation Bergville – KwaZulu-Natal R4 824 562 DEAT HIV/AIDS Mainstreaming National R1 754 000 DWAF Water Sector Monitoring National R7 200 000 DWAF Bushbuckridge Water Supply Kumani village R1 900 000 BBR Municipality/DWAF Rand Water Golden Gate Kestel/Fouriesburg – Free State R2 000 000 Rand Water Encroachment projects Gauteng, Free State R2 000 000 Rand Water RW Foundation- Siluma Wetland Ekurhuleni – Gauteng R550 000 RWF, Working for Wetlands Blesbokspruit wetlands Nigel- Gauteng R1 265 000 RWF, Working for Wetlands Sri Lanka water service support Sri Lanka R3 850 000 Total R46 393 562 Key CT – City of Tshwane GDACE – Gauteng Department of Agriculture, Conservation and DEAT – Department of Environment, Agriculture and Tourism Environment DWAF – Department of Water Affairs and Forestry RW – Rand Water RWF – Rand Water Foundation

RAND WATER Annual Report 2007 43 STAKEHOLDER REVIEW continued

THE WATER WISE EDUCATION TEAM HAS BEEN WORKING EARNESTLY TO INTRODUCE NEW PROGRAMMES THAT ARE HANDS ON AND STIMULATING TO LEARNERS AT THE DIFFERENT BASES.

GENERAL PUBLIC Workshop attendance: It is estimated that South Africa’s population will have Results increased from 39 million people in 1995 to 50 – 75 million Number of in 2025. It is also estimated that by 2025 – 2030, all Centre Workshops economically viable water sources will be stretched to capacity. Rand Water wants to entrench an understanding of Delta Environmental Centre 104 the economic and developmental value of water. Messages Rand Water Nature Centre 73 are conveyed to the public through our Water Wise initiatives Vereeniging Purification Station 133 that include site visits. Other: Holiday Programme, etc. 10 During National Water Week, we take community members, Overall 320 schools, customers and staff to our water purification station in Vereeniging and to the Zuikerbosch Pumping Station to learn about potable water purification, and the conservation of water. Workshop figures for 2006/7 financial year: WATER WISE EDUCATION WORKSHOPS Educator satisfaction: The Water Wise Education Team has been working earnestly Results to introduce new programmes that are hands on and stimulating to learners at the different bases. Centre % • The new medicinal plant programme has been introduced Delta Environmental Centre 95.91 at the Rand Water Nature Centre where the learners learn more about the healing properties of indigenous plants. Rand Water Nature Centre 95.05 The learners go on a nature walk and investigate the Vereeniging Purification Station 94.54 plants. This encourages the learners to respect their Overall 95.16 indigenous flora and look after it. • The bathrooms at Delta Environmental Centre were retro fitted and repainted with new artwork where the learners experience what it feels like to be underneath a freshwater river. This gives the learners a different experience, hopefully helping them appreciate nature. • At Delta Environmental Centre, a new Grade 4 Water Quality Programme, aligned to the Revised National Curriculum Statements (RNCS) was developed. • The Water Wise Holiday Programme this year saw staff children visiting Gold Reef City and the Boswell Wilkie Circus to learn about being Water Wise through different methodologies.

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WATER WISE EDUCATION TEAM REACHING OUT PROMOTING WATER WISE GARDENING THROUGH PARTNERSHIPS Water used in gardening accounts for 31 – 50% of • Metsi-a-lekoa, the Water Services Unit of the Emfuleni household water usage. Rand Water promotes Water Wise Municipality, approached the Water Wise Education gardening through: Team to assist them by running Water Purification • gardening inserts; workshops for schools in their area of supply. The buses • printed media advertisements; and refreshments were sponsored by Emfuleni, and the • participation in events like Arbor Week; Water Wise message reached over 600 learners. • sponsorship of branded promotional items; • The Water Wise Education Team, through their • support of initiatives including Weedbuster Week; partnership with Johannesburg Zoo, reached out to • participation in forums such as UNISA’s Horticultural 150 learners during the Dream Night event. This is a very Forum; special event where kids with chronic illness and • industry-focused research relating to the use of grey water disabilities are given an opportunity to come out and and mulches; and enjoy the zoo under the night stars. Manzi The Water • the Water Wise website. Wise mascot and puppeteers from Rand Water added something special to the programme. • The Water Wise Education Team also managed to reach out to learners living in the Grootdraai Dam, Waterval and Wilge river catchment areas. The team went to Water Wise in the Garden various schools in these catchments during National The Lifestyle Garden Design Show held in March 2007 at Water Week to conduct successful Water Wise the Lifestyle Garden Centre in the West Rand, attracts over workshops with the learners. 180 000 visitors from all over Gauteng. With this high volume of visitors, it’s an ideal showcase for the Water MANZI’S MISSION Wise brand. Rand Water displays a Water Wise stand This year saw the start of the Manzi Roadshow, a roadshow at the show, and also sponsors a trophy awarded to the that goes out to schools to educate learners about the garden that best demonstrates Water Wise practices importance of being Water Wise. The first major show was while still maintaining its aesthetic appeal. performed at a school in Heidelberg to approximately 1 030 learners. The show ended with a very high note with all the learners and the educators singing the Water Wise Song. • The Water Wise Education Team has released a music Water Wise and Learners CD entitled “The Water Wise Beat”. It includes five Water At the suggestion of Rhodes University, the Water Wise Wise songs and a story of a water droplet travelling education team, together with Delta Environmental Centre through the water cycle. and learners from Voortrekker Hoër and Boksburg High, • Manzi and the Water Wise Education Team have been participated in the investigation of the water quality of the Bokspruit. The event ended with highly motivated learners performing the Water Wise Dance at the end of every who not only performed the chemical tests required, but workshop so that the learners leave with the Water Wise also took further environmental action by cleaning the lake. message firmly printed in their minds, and in their The Water Wise team is considering initiating an annual dance steps. study of the lake so that the quality of the water can be monitored by the schools around it.

RAND WATER Annual Report 2007 45 STAKEHOLDER REVIEW continued

management and operations of water purification and RAND WATER SERVICES supply in Ghana. BACKGROUND Rand Water Services (Pty) Ltd is Rand Water’s ring-fenced PROJECTS INITIATED IN 2007: commercial subsidiary, set up after the Water Services GAMTOOS SIPHONS Amendment Bill, passed in August 2004 which gave In October 2006, Rand Water Services secured a contract South African water boards the green light to perform activities for developing a rehabilitation strategy for the Gamtoos outside South Africa’s borders. Main Conveyance (GMC) system. The GMC system is approximately 64kms long and conveys water from the Established in 2005, Rand Water Services operates as a Kouga Dam to The Loerie Dam in Port Elizabeth. The major separate entity with its own board. The company is focused on volumetric users of water from the system are the irrigators providing business support, technology, consulting, advisory located within the Gamtoos River Valley which has an and capacity building services for water infrastructure-related annual GDP of approximately R700 million and is a major projects both nationally and in Africa. source of agricultural products within the region. The rehabilitation process is expected to be completed at In Africa, the role of local authorities and the private sectors the end of August 2009. is expanding and that of central government is declining, especially in the area of basic service provision. Driving this decentralisation trend is rapid urbanisation, which is putting TECHNOLOGY AGREEMENT great pressure on the provision of basic services. Against this In May 2007, the US Trade and Development Agency backdrop, Rand Water Services is focused on helping (USTDA) – a US government agency – announced a grant of countries improve capacity, assisting in utility management and several hundred thousand dollars to fund the appointment of a advising on building water infrastructure. US contractor to assist RWS in identifying and bringing US technologies into the South African market. The appointed Africa’s water problems are acute and the continent’s capacity contractor will visit South Africa in the second half of 2007 to cope is limited. According to the World Summit on to conduct detailed market research. Sustainable Development, more than 50% of the continent does not have access to water and sanitation. Rand Water This research will be conducted with the Department of Services is working closely with other water utilities to Water Affairs and Forestry, water utilities, municipalities, and overcome these challenges and in line with the Millennium the industry. Following completion of the market research, the Development Goals set out by the United Nations and in contractor will return to the US to identify all potential suppliers keeping with the vision of the New Partnership for Africa’s of water-sector technology. Development (NEPAD). The grant will also sponsor a team of employees from RWS ONGOING PROJECTS and Rand Water, to visit the US to meet with the short-listed companies offering related technologies to develop strategic AGREEMENT WITH CORNETT AND KINSBERGEN partnerships with suppliers. This technical assistance In 2005, Rand Water Services entered into a R500-million programme forms part of the US government’s efforts to assist partnership agreement with Cornett and Kinsbergen, a developing and middle-income countries in meeting Belgian company specialising in pipeline integrity and asset infrastructure and basic services needs by facilitating management. RWS has used this alliance as an entry strategy commercial partnerships. into the pipeline industry and offers solutions including thermal scanning and acoustic-based technologies. A project involving Technology is a key differentiator at RWS and this thermal scanning of Rand Water’s pipelines is currently development is another block in the innovative technology in progress. platform we are building for ourselves.

GHANA GOING FORWARD Ghana was faced with a lack of water service delivery, In the previous financial year, we announced that we would ageing infrastructure and inefficiencies. The Ghana Water be expanding into the bottled water business. However, in the Company did not have the capacity or expertise to address face of competition from various multinationals armed with the problem, so international partners were sought. The World substantial advertising budgets which made it difficult for us to Bank agreed to a $120-million grant to cover a management compete, we decided not to expand our bottled water from contract, training and capacity building and capital investment current operations. While this experience will not stop us from of water infrastructure. In partnership with Vitens, a water utility exploring entrepreneurial opportunities, we are going forward from the Netherlands, Rand Water Services successfully by concentrating on our core business: the securing of tendered for a five-year management contract in 2005. contracts to advise, implement and fund technological The Rand Water Services/Vitens consortium controls both products to assist in the maintenance of infrastructure.

46 ENVIRONMENTAL AND QUALITY REVIEW

Managing the environment for quality assurance

“Our people are bound up with the future of the land. Our national renewal depends upon the way we treat our land, our water, our sources of energy and the air we breathe.”

Former President Nelson Mandela Introduction to the report of the International Environmental Policy Mission to South Africa, September 1995

RAND WATER Annual Report 2007 47 ENVIRONMENTAL AND QUALITY REVIEW continued

PROCESS FLOW CHART

Stabilisation

The water flows into carbonation bays where it is stabilised by bubbling carbon dioxide gas, obtained from lime-burning kilns, through the water Sludge Carbonation Bay Filter House Chlorine Disposal Primary disinfection Consumer Site The water leaving the purification works is Sedimentation disinfected with chlorine to kill any remaining The flocculants micro-organisms, bacteria settle in specially and viruses designed tanks, Raw also engineered Water Potable to reduce sludge Water Raw water is abstracted Pumps from the Vaal Dam via a Flocculators canal and gravity pipeline and by pumping from the Vaal River Barrage Reservoir at Lethabo, Zuikerbosch and Vereeniging. The raw water now undergoes a stringent purification process.

Sedimentation Filtration Secondary disinfection Coagulation Tank The water passes Suspended into the filter houses Chlorine and During purification, 600 to particles are where it flows ammonia are added 1 000 tons of fine silt is removed from the through at the booster removed from the river raw water through rapid gravity pumping station to water daily and 9 000 tons the addition of sand filter beds. form monochloramine of slaked lime is used in sodium silicate and The remaining which protects the the purification process slaked lime suspended water against each month particles are bacteria for up to Flocculants Lime Slaking removed at eight days The suspended this stage particles clump Booster Balancing together to form Pumping Reservoir heavier visible Raw limestone is fired Station particles called in a kiln floculants The burnt limestone is Stabilisation crushed and slaked The water flows with water to produce into carbonation slaked lime or calcium bays where it is hydroxide stabilised by bubbling carbon Activated dioxide gas, Silica Chlorine and obtained from Lime Kilns Ammonia lime-burning kilns, through the water

48 ENVIRONMENTAL AND QUALITY REVIEW continued

approach to improve the planning, conservation, development and management of water, forest, land and aquatic resources, within a river basin context. IWRM deliberates on water quantity and quality issues, as well as the conjunctive management of rivers, lakes and groundwater

In accordance with the best practice of IWRM, we aim to maximise economic benefits and social welfare from water in an equitable manner, without compromising the sustainability of vital environmental systems.

WATER SOURCES More than 99% of water abstracted and treated by Rand Water is surface water taken from the Vaal Dam, fed by the Vaal and Wilge rivers. A significant proportion of this supply then becomes return flows to the Vaal River Barrage, approximately 80 kilometres downstream of the Vaal River. Maintaining Water Quality – At a Glance THE VAAL DAM CATCHMENT AREA Pollution Management The Vaal Dam catchment area is in a relatively pristine It is essential to monitor human activities in the catchment condition, with the water supplied by both the Vaal and area to minimise water pollution. Potentially toxic Wilge rivers to the Vaal Dam being of such good quality that pesticides and fertilisers from farms, heavy metals and treatment costs can be kept to a minimum. The Waterval oils from cars and trucks, litter and organic human waste, catchment area has been negatively impacted by the manure from animal farming, chemicals and metals from industrial and mining activities in the Secunda complex. heavy industry and sediments from construction sites can The Wilge River catchment area constantly produces good pollute our raw water supply. quality water, and also receives excellent quality water from the Katse Dam in Lesotho. Purification Purification processes at the purification and pumping THE VAAL BARRAGE CATCHMENT AREA stations remove suspended material and disinfect the Rand Water no longer draws water from the Vaal Barrage water before it is pumped to local authorities, the mining Reservoir except in emergencies, on account of the poor quality industry and other large industrial customers. More than of water due to the rapid urbanisation and stressed sanitation a thousand tons of dry sludge is removed daily. Quality is services. However, this may change with the prospects contingent monitored by taking numerous samples throughout the on decisions by Rand Water, the Sedibeng District and DWAF to distribution chain. improve the situation by building a new R600 million regional sewerage treatment scheme in the Emfuleni area. Water Quality Assurance Chemical, physical and hydrobiological tests are QUALITY OVERVIEW continually conducted on water samples in the system. Health and water quality are closely connected. In South Rand Water conducts a tap- analysis programme in Gauteng residences and schools. Africa more than 40 000 people die every year from diarrhoeal diseases, many of which are attributed to drinking contaminated water. It is estimated that up to 60% of infant deaths in the country are as a result of waterborne diseases WATER RESOURCES such as cholera. MANAGEMENT Our customers expect a reliable supply of high quality water Stringent guidelines are set for the quality of drinking water in a safe and sustainable manner. We deliver this by through all stages of the purification and distribution. Rand maintaining and expanding our infrastructure, complying Water aligns itself with the standards set by the World Health with the highest possible technical standards and managing Organisation (WHO), the South African National Standards the quality of both raw and potable water. (SANS241:2005) and national legislation.

South Africa is a water stressed environment. With a growing RAW WATER – MANAGING QUALITY population, rising income and living standards, as well as To protect our annual investment in raw water of more than accelerated urbanisation, pollution and rising demand poses R1 billion, we are active in all aspects of the management of an increasing risk to our water resources. the total water cycle. Consequently, in accordance with the requirements of the National Water Act, we have developed We are addressing this issue by applying Integrated Water a Water Quality Safety Plan (WQSP) to manage water Resource Management (IWRM). This entails a comprehensive quality risks, including not only health hazards, but also

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A COMPREHENSIVE MONITORING PROGRAMME IS MAINTAINED TO DETECT A LARGE VARIETY OF LONG- AND SHORT TERM IMPACTS ON THE RAW WATER QUALITY, AND INCLUDES ANALYSES FOR PATHOGENS SUCH AS CRYPTOSPORIDIUM AND GIARDIA, AS WELL AS CHOLERA, BIOLOGICAL TOXICITY AND CHEMICAL POLLUTION.

increased treatment costs. The WQSP clearly defines CATCHMENT MANAGEMENT responsibilities and encompasses the entire water supply The primary function of Catchment Management is to protect chain starting with catchment, through purification, the sources from which we abstract water. We do this through distribution and concluding at the point of delivery. involvement in DWAF’s Working for Water programme, that addresses the eradication of alien species that impact on RISKS ground water; and our involvement in wetland rehabilitation. Although water from the Vaal Dam catchment is of good We also participate in Catchment Management Forums that chemical and biological quality, the growth of certain algal extend beyond our geographical area of supply at the species in the dam leads to taste and odour problems. This is request of DWAF. not a health threat, but is aesthetically undesirable. The water can be treated successfully by the addition of powdered The main focus of the Catchment Forums is to provide a activated carbon (PAC). Utilising the PAC plant pushes Rand platform through which water-related issues can be tabled, Water’s costs up by an additional 11 – 15c/Kl. openly discussed and resolved utilising best management practices. The forums play a key role in strengthening the partnerships between Rand Water and our customers, and During the summer of 2006/07, algal species that favour between various municipalities. As a leader in this field and in saline water were detected in the dam. This is an indication the water sector, we are actively participating in the of a gradual decrease in water quality as a result of establishment of the Upper Vaal Catchment Management continuous urbanisation and industrialisation throughout the Agency (CMA), scheduled to be established in 2009. catchment. Implementing reverse osmosis to remove salinity, implies a cost increase of R 5.00/Kl. This measure will only The rivers and dams in the catchment areas of Rand Water be implemented in extreme conditions. are extensively monitored and the water quality is communicated to our consumers. Rand Water fulfils the role of Pollution of the Vaal River Barrage stems from three water quality auditor and facilitator in these forums, as we main sources: have the most comprehensive database of chemical, • sewage effluents discharged by local authorities; biological, and microbiological data. In addition, Catchment • underground water pumped by the gold mines; and Management staff continuously deal with a variety of ad-hoc • surface pollution that is washed or dumped into streams. pollution problems, such as frequent breakdowns in municipal infrastructure, which leads to raw sewage spilling into source Treating barrage reservoir water instead of Vaal Dam water waters. These issues are discussed with the relevant authorities would increase Rand Water’s cost by ±40%, and would also at the highest possible level (including the forums) to try involve different methods of treatment requiring new and minimise the health risk to communities and the technologies and infrastructure. receiving environment.

MONITORING Better protection of our sources will result in the supply of world class potable water at the lowest possible cost. A comprehensive monitoring programme is maintained to detect a large variety of long- and short term impacts on the raw water quality, and includes analyses for pathogens such as Cryptosporidium and Giardia, as well as cholera, biological toxicity and chemical pollution.

50 ENVIRONMENTAL AND QUALITY REVIEW continued

instruments and an offsite ISO 17025 and ISO 43 accredited lab. Extensive monitoring programmes are implemented in compliance with ISO standards. An online instruments upgrade programme has commenced.

AN INDEPENDENT WATER QUALITY AUDIT To ensure confidence in Rand Water quality measurements, we contract CSIR (an independent body) to assess the water quality we supply to our customers. Their results compare favourably with internal measurements.

BENCHMARKING TO INTERNATIONAL STANDARDS Rand Water benchmarks the quality of potable water supplied against the World Health Organisation (WHO) drinking water quality standards. The results in table Y compare favourably with WHO water quality standards. Monitoring of organic parameters is subject to an ongoing investigation as measurement of these parameters is complex and limited Eutrophication and the Vaal River Barrage analytical capacity is available in South Africa. Thus far no risks One of the consequences of sewage effluents flowing into have been identified. streams and rivers is eutrophication. This is the process that enriches water with nutrients, resulting in various plant MONITORING QUALITY AT THE TAP organisms flourishing in water bodies, especially in The Tap Analysis Programme was implemented in March stagnant or very slow moving water, such as the Barrage 1998. This voluntary programme, which monitors water Reservoir. With eutrophication, the amount of oxygen in quality at the point of consumption, was expanded to include the water is reduced, often to the extent that fish and other the Govan Mbeki municipal area. The programme now creatures die on a large scale. covers twelve of the twenty municipal areas that are supplied by Rand Water. The data collected confirms excellent water Given the frequent sewage spillages and breakdowns quality supplied to the end consumer. in certain parts of the Vaal River Barrage, Rand Water attempts to ensure that development along the river is CONSUMER COMPLAINTS controlled. High-level interaction with developers, local, In 2006/07 there were 46 consumer complaints that regional and provincial authorities ensures that risks required technical investigation. These complaints are are minimised. summarised in the table on p52. The majority of the complaints related to water quality and taste/odour; only one However, preventative measures for pollution control, health related complaint was reported. All of the consumer no matter how successful, will not eliminate the problem complaints were handled successfully, with follow-up altogether. Pollution always follows in the wake of industrial evaluations showing that all complainants were more than development. Authorities will have to pay closer attention satisfied with the action taken. to the disposal and/or use of effluents from the growing population of the Witwatersrand and environment. Examples of Complaints A direct consumer complained about the taste and odour of the water supplied by Rand Water. Investigations POTABLE WATER – MANAGING QUALITY revealed that the consumer only utilised the basic 6 Kl Rand Water water (water remains stagnant in the holding For 104 years, Rand Water continued uninterrupted delivery tank before use) and then reverted back to borehole of high-quality potable water. In terms of our WQSP, a fully supply. Chemical results were within specification. documented water quality management system is in place. However, high microbiological counts were found to be This includes: the cause of the taste and odour experienced. Relevant information pertaining to the cleaning and maintenance of THE SANS 241 DRINKING WATER QUALITY STANDARD the holding tank was given to the consumer. Follow up Water is tested when it leaves the purification works to a samples showed an improvement in the water quality. level that is generally twice as stringent as national standards. This dual water quality evaluation system provides us with A company complained about water that was making a buffer, so that we can deliver with certainty on the workers sick. Investigations carried out revealed that SANS 241 specifications. processed water from the industrial plant, was contaminating the incoming municipal drinking water WATER QUALITY MEASUREMENT AND REPORTING supply, with oil and grease. The company took corrective Rand Water has extensive measurement capacity consisting action to resolve the problem. of three ISO 9001 certified site labs, over 350 online

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Table A Annual bulk distribution water quality report – July 2006 to June 2007 Date generated: 9 July 2007 Specifications (based on SANS241: 2005) Achieved Required compliance Compliance Levels Units of 95% min 99% min No of Parameter Measure to Class I Class II Results Class I Class II

Specifications Chemical and Physical Properties

Colour (mg/l as Pt) <20 <_50 4 029 100.0% 100.0% Conductivity (mS/m) <150 <_370 8 339 100.0% 100.0% pH (pH units) >_5 to >_9.5 >_4 to <_10 8 339 100.0% 100.0% Turbidity (NTU) <1 <_5 10 756 99.7% 100.0% Total Dissolved Solids (mg/l) <1000 <_2400 4 004 100.0% 100.0% Taste (FTN) <5 <_10 4 154 100.0% 100.0% Odour (TON) <5 <_10 4 154 100.0% 100.0% Organic Determinants

Total Trihalomethanes (µg/l) <200 <_300 4 085 100.0% 100.0% Phenols as C6H5OH (µg/l) <10 <_70 2 107 100.0% 100.0% Dissolved Organic Carbon (mg/l) <10 <_20 3 957 99.9% 100.0% Micro Elements

Antimony (µg/l as Sb) <10 <_50 3 966 100.0% 100.0% Arsenic (µg/l as As) <10 <_50 3 966 100.0% 100.0% Cadmium (µg/l as Cd) <5 <_10 4 116 99.9% 100.0% Chromium (Total) (µg/l as Cr) <100 <_500 4 117 100.0% 100.0% Cobalt (µg/l as Co) <500 <_1 000 4 117 100.0% 100.0% Cyanide (Recoverable) (µg/l as CN) <50 <_70 3 864 100.0% 100.0% Lead (µg/l as Pb) <20 <_50 4 117 100.0% 100.0% Mercury (µg/l as Hg) <1 <_5 3 960 100.0% 100.0% Nickel (µg/l as Ni) <150 <_350 4 118 100.0% 100.0% Selenium (µg/l as Se) <20 <_50 3 966 100.0% 100.0% Vanadium (µg/l as V) <200 <_500 4 117 100.0% 100.0% Macro Elements & Miscellaneous Determinants

Aluminium (mg/l as Al) <0.3 <_0.5 4 118 100.0% 100.0% Ammonia (mg/l as N) <1 <_2 4 070 99.9% 100.0% Calcium (mg/l as Ca) <150 <_300 4 118 100.0% 100.0% Chloride (mg/l as Cl) <200 <_600 4 070 100.0% 100.0% Copper (mg/l as Cu) <1 <_2 4 118 100.0% 100.0% Fluoride (mg/l as F) <1 <_1.5 4 070 100.0% 100.0% Iron (mg/l as Fe) <0.2 <_2 4 117 99.8% 100.0% Magnesium (mg/l as Mg) <70 <_100 4 118 100.0% 100.0% Manganese (mg/l as Mn) <0.1 <_1 4 118 100.0% 100.0% Nitrate & Nitrite (mg/l as N) <10 <_20 4 070 100.0% 100.0% Potassium (mg/l as K ) <50 <_100 4 118 100.0% 100.0% Sodium (mg/l as Na) <200 <_400 4 118 100.0% 100.0% Sulphate (mg/l as SO4) <400 <_600 4 070 100.0% 100.0% Zinc (mg/l as Zn) <5 <_10 4 118 100.0% 100.0% Microbiological

E. Coli (cfu per minimum of minimum of 12 742 99.8% 99.8% 100 ml) 95% of the 99% of the original original and results repeat/ shall be consecutive non-detected results shall be non-detected Other Determinants as required by supply contract

Free chlorine and monochloramine (mg/l) >_0.2 min 95% 12 291 87.8% compliance Notes: (1) Specification date of effect: July 2006

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Annual bulk distribution water quality report – July 2006 to June 2007 Date generated: 9 July 2007 Specifications (based on SANS241: 2005) Achieved Required compliance Compliance Levels Units of 95% min 99% min No of Parameter Measure to Class I Class II Results Class I Class II

Specifications Chemical and Physical Properties Colour (mg/l as Pt) <20 <_50 60 100.0% 100.0% Conductivity (mS/m) <150 <_370 60 100.0% 100.0% pH (pH units) >_5 to <_9.5 >_4 to <_10 60 100.0% 100.0% Turbidity (NTU) <1 <_5 60 100.0% 100.0% Total Dissolved Solids (mg/l) <1 000 <_2 400 60 100.0% 100.0% Taste (FTN) <5 <_10 60 100.0% 100.0% Odour (TON) <5 <_10 60 100.0% 100.0% Organic Determinants Total Trihalomethanes (ug/l) <200 <_300 60 100.0% 100.0% Phenols as C6H5OH (ug/l) <10 <_70 60 100.0% 100.0% Dissolved Organic Carbon (mg/l) <10 <_20 60 100.0% 100.0% Micro Elements

Antimony (µg/l as Sb) <10 <_50 60 100.0% 100.0% Arsenic (µg/l as As) <10 <_50 60 100.0% 100.0% Cadmium (µg/l as Cd) <5 <_10 60 100.0% 100.0% Chromium (Total) (µg/l as Cr) <100 <_500 60 100.0% 100.0% Cobalt (µg/l as Co) <500 <_1 000 60 100.0% 100.0% Cyanide (Recoverable) (µg/l as CN) <50 <_70 60 100.0% 100.0% Lead (µg/l as Pb) <20 <_50 60 100.0% 100.0% Mercury (µg/l as Hg) <1 <_5 60 100.0% 100.0% Nickel (µg/l as Ni) <150 <_350 60 100.0% 100.0% Selenium (µg/l as Se) <20 <_50 60 100.0% 100.0% Vanadium (µg/l as V) <200 <_500 60 100.0% 100.0% Macro Elements & Miscellaneous Determinants

Aluminium (mg/l as Al) <0.3 <_0.5 60 100.0% 100.0% Ammonia (mg/l as N) <1 <_2 60 99.7% 100.0% Calcium (mg/l as Ca) <150 <_300 60 100.0% 100.0% Chloride (mg/l as Cl) <200 <_600 60 100.0% 100.0% Copper (mg/l as Cu) <1 <_2 60 100.0% 100.0% Fluoride (mg/l as F) <1 <_1.5 60 100.0% 100.0% Iron (mg/l as Fe) <0.2 <_2 60 100.0% 100.0% Magnesium (mg/l as Mg) <70 <_100 60 100.0% 100.0% Manganese (mg/l as Mn) <0.1 <_1 60 99.4% 100.0% Nitrate & Nitrite (mg/l as N) <10 <_20 60 100.0% 100.0% Potassium (mg/l as K) <50 <_100 60 100.0% 100.0% Sodium (mg/l as Na) <200 <_400 60 100.0% 100.0% Sulphate (mg/l as SO4) <400 <_600 60 100.0% 100.0% Zinc (mg/l as Zn) <5 <_10 60 100.0% 100.0% Microbiological (microbiological specifications do not have a class categorisation but specific percentage compliance requirements)

95%Min 99%Min 60 95%Min 99%Min E. Coli (cfu per 100 ml) Not detected not detected 60 100.0% 100.0% Standard Plate Count (cfu per 1 ml) <100 <5000 60 100.0% 100.0% Total Coliforms (cfu per 100 ml) Not detected <10 60 100.0% 100.0% Faecal Coliforms (cfu per 100 ml) Not detected <10 60 100.0% 100.0% Coliphages (per 10 ml) Not detected not detected 60 100.0% 100.0% Giardia (org/10 litres) Not detected not detected 60 100.0% 100.0% Cryptosporidium (org/10 litres) Not detected not detected 60 100.0% 100.0% Enteric viruses (per 10 litres) Not detected not detected 60 100.0% 100.0% Other Determinants as required by supply contract

Free Chlorine and monochloramine (mg/l) >_0.2 60 100.0% 100.0% Notes (1) Specification date of effect : July 2006 (2) Guideline derived from SANS 241: 2005 operations alert and industry practices Table C: Water quality compliance in the Bulk Distribution network as measured by independent third party(CSIR)

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Bulk distribution water quality who benchmark report – 2007 July 2006 to June 2007 Date generated: 9 July 2007 Units of WHO No of Compliance Parameter Measure Guideline Samples Levels (%)

Specifications Physical and Organoleptic Properties

Colour (mg/L as Pt) <15 4 029 99.98 Turbidity (NTU) <0.1 (5) 10 756 0.03 Turbidity (NTU) <5 (3) 10 756 99.98 Total Dissolved Solids (mg/L) <600 4 004 99.98 Hardness (mg/L as CaCO3) <200 (3) 4 118 98.18 Radioactivity(1)

Alpha (bq/L) <0.5 15 100.00 Beta (bq/L) <1 (7) 14 100.00 Inorganic

Aluminium (mg/L as Al) <0.1 4 118 99.81 Ammonia (mg/L as N) <1.5 4 070 99.95 ntimony (µg/L as Sb) <20 3 966 100.00 Arsenic (µg/L as As) <10 3 966 100.00 Barium (mg/L as Ba) <0.7 1 902 100.00 Boron (mg/L as B) <0.5 4 118 100.00 Cadmium (µg/L as Cd) <3 4 116 99.85 Chloride (mg/L as Cl) <250 4 070 100.00 Chloramines(2) (mg/L) <3 8 679 100.00 Chlorine Free (mg/L) <0.6 (3) 12 291 89.64 Chlorine Free (mg/L) <5 (4) 12 291 100.00 Chromium (µg/L as Cr) <50 4 117 100.00 Copper (mg/L as Cu) <1 (3) 4 118 100.00 Copper (mg/L as Cu) <2 (4) 4 118 100.00 Cyanide (Total) (µg/L as CN) <70 3 864 100.00 Fluoride (mg/L as F) <1.5 12 291 100.00 Iron (mg/L as Fe) <0.3 4 117 99.98 Lead (mg/L as Pb) <10 4 117 99.27 Manganese (mg/L as Mn) <0.1 (3) 4 118 100.00 Manganese (mg/L as Mn) <0.4 (4) 4 118 100.00 Mercury(11) (µg/L as Hg) <6(10) 3 960 100.00 Mycrocystin(9) (mg/L) <1 (8) 55 100.00 Molybdenum (mg/L as Mb) <0.07 4 117 100.00 Nickel (mg/L as Ni) <70 4 118 99.90 Nitrate (mg/L as N) <11.29 4 070 100.00 Nitrite (mg/L as N) <0.91 4 029 98.83 Nitrate/Nitrite Ratio(6) (mg/L as N) <1 4 029 98.73 Selenium (mg/L as Se) <10 3 966 99.92 Sodium (mg/L as Na) <200 4 118 100.00 Sulphate (mg/L as SO4) <250 (3) 4 070 100.00 Sulphate (mg/L as SO4) <500 (4) 4 070 100.00 Uranium (µg/L as U) <15 504 100.00 Zinc (mg/L as Zn) <3 4 118 100.00 Microbiological

Faecal Coliforms (cfu per 100 ml) 0 12 742 99.69 E. coli (cfu per 100 ml) 0 12 742 99.79 Notes (1) Analysed at the outlets of Purification works (2) Monochloramine (3) Aesthetic effects (4) Health effects (5) For effective disinfection

(6) [NO3 as N]/11.29 + [NO2 as N]/0.91 (7) Beta radiation excluding radiation from potassium-40 = [measured beta radiation in bq/l] - {0.0276 x [potassium in mg/l] } (8) LR type (9) Total (LR + LA + RR + YR) measured by Rand Water (10) Inorganic mercury (11) Total mercury measured by Rand Water

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Customer/Consumer complaints Type of No of Consumer Complaints Taste & Water Complaint Received Smell Invertebrates Health Visual Quality Chemical

Area: Ekurhuleni 20 4 2 1 4 5 4 Johannesburg 4 1 – – – 3 – Tshwane 5 1 2 – – 2 – Emfuleni 5 1 1 – 2 – 1 Midvaal 4 2 – – – 1 1 Rustenburg 1 – – – – – 1 Govan Mbeki 1 1 – – – - Ngwathe 1 – – – – 1 – Delmas 1 – – – 1 – – Metsimaholo 2 – 2 – – – – Direct Consumers 2 1 – – 1 – – Total 46 11 7 1 8 12 7

PROCESS OPTIMISATION OVERVIEW OF ACTIVITIES BACKGROUND Key projects undertaken in the year under review are: The mission of the Process Technology Department is to • The correct selection and application of water treatment ensure the implementation of the best available technology chemicals play a vital role in the successful and cost effective combined with the most advantageous treatment regime, treatment of drinking water. The period under review in order to produce the best quality water at the lowest includes an evaluation of various chemicals for primary cost. The primary focus is process optimisation and the water treatment and polyacrylamide for sludge treatment. provision of a consultancy service on water quality and • Both primary and secondary disinfection processes gave treatment matters. Applied research that would improve the rise to a number of investigations. These focused mainly on the issues of disinfectant decay and dosages required understanding of water related matters, is undertaken in to produce a safe drinking water. collaboration with academic institutions or with entities • Computational fluid dynamics (CFD), involving the use of such as the Water Research Commission. R & D is conducted computers to model aqueous flows, was used as the basis by both internal staff and by using external agencies such of two new projects focused on promoting cost savings as universities, the Water Research Commission, and and improving water quality. suitably qualified consultants and contractors. Process • An ongoing project relating to the removal of Technology contributed significantly to the appointments of contaminants focuses on the individual unit treatment two university chairs in water utilisation, one at the University processes. The potable water quality produced by the of Johannesburg, the other at the Tshwane University of combined treatment processes meets the SANS 241 Technology. These Chairs used to be at the University of the potable water quality standard. By investigating each Witwatersrand and the University of Pretoria. There are unit, it is possible to establish the efficiency of each and on-going projects at both of these Universities. identify whether or not there is a need for optimisation. • Filtration is necessary because while coagulation, Following the completion of a new facility for Process flocculation and sedimentation play important roles in Technology and Water Treatment Technology Training in removing the bulk of particles from the raw water, only December 2005, the reassembly of the department’s pilot filtration removes very small particles. This characteristic plant was prioritised and completed at the end of the review improves aesthetic properties and enables adherence to period. Other infrastructural projects included reconstruction of strict drinking water quality standards before reaching the mini plants, the experimental filter plant and a rural water consumer. A number of filter-related projects were treatment plant. As Process Technology is now situated in a undertaken over the last year, including: different location, the entire ISO 9001 quality management – The quality of filters at Rand Water’s Zuikerbosch and system had to be revised. As part of this process, analytical Vereeniging Treatment Plants were evaluated to assess methods and instrument documentation were amended in condition and performance. This project was initiated order to integrate with the new system. in June 2006 and completed at financial year end.

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FOLLOWING THE COMPLETION OF A NEW FACILITY FOR PROCESS TECHNOLOGY AND WATER TREATMENT TECHNOLOGY TRAINING IN DECEMBER 2005, THE REASSEMBLY OF THE DEPARTMENT’S PILOT PLANT WAS PRIORITISED AND COMPLETED AT THE END OF THE REVIEW PERIOD.

– Filtration serves as the final barrier against pathogens. projects. Water demand can be linked directly to the number Two projects in this area related to the effects of of people and their standard of living in the Rand Water area increasing the speed of the filtration rate, while another of supply. It is also directly correlated to the needs of large focused on filter backwashing. industries, mines and commercial businesses that use water. – The practice of recycling filter backwash water may reintroduce contaminants into the main treatment An effective water demand management programme reduces processes. The filter wash water recovery plant at water supply costs and wastage. This ensures the delivery of Zuikerbosch was monitored to evaluate its performance sufficient water to meet the demands of existing, as well as and revise design criteria for a further two filter wash new, customers. water recovery plants, expected to be constructed within the next two years. Rand Water uses three methods to estimate future demand. • The water from the Panfontein sludge handling plant may These are: contain exceptionally high geosmin concentrations, that • A questionnaire model that relies on the municipalities, are then returned to the Zuikerbosch treatment works. This mines and large direct industrial consumers to estimate can result in increased taste and odour problems in the their future potable water requirements based on their final potable water. Geosmin is an organic compound. understanding of their consumption due to urbanisation, The human nose can detect it at concentrations as small changes in the standard of living, household losses and as 10 parts per trillion. A project was undertaken to losses in reticulation systems. profile the discharge quality from Panfontein with the • A demographic model based on population growth rates ultimate aim of producing potential solutions to reduce in high-, medium- and low density residential areas and geosmin concentrations. This project is due to be changes in per capita consumption due to urbanisation, completed by June 2008. changes in the standard of living, household losses and • Two Water Research Commission projects, ‘Assessments losses in reticulation system. And Improvement Of Filter Media Cleanliness In Rapid • Regression modelling. Gravity Sand Filters‘ and ‘The Evaluation and Selection of Small Water Treatment Systems for Potable Water Supply Based on demand projections by Rand Water and other Vaal to Small Communities’ were completed in the review River system users, to determine assurance of supply, Rand period, the latter in collaboration with Chris Swartz Water provides a 99,99 % supply assurance. This is Consultants and the Peninsula University of Technology. equivalent to a single failure in 30 years for a duration not • Process Technology was represented at the 2006 exceeding 24 hours. The assurance of supply as provided to International Water Association congress in Beijing, Rand Water by DWAF, is described in the Rand where the manager of the department presented work on Water/DWAF Raw Water Agreement. disinfectant concentrations in the distribution system. Technical presentations were also made at the 2006 ENVIRONMENTAL MANAGEMENT SYSTEMS Water Research Showcase in Pretoria, where Process AND POLICIES Technology won the award for the best poster. Through our SHEQ policy, we have identified those aspects of the organisation that have significant environmental impact. DEMAND MANAGEMENT Our aim is to improve our environmental performance at both A vital part of water demand management is forecasting corporate and operational level through managing these future water demand as accurately as possible. This allows impacts. This commitment to continuous improvement is water authorities to plan capital expenditure requirements and embodied in the methods, techniques, and systems focus on areas that may require conservation and efficiency entrenched in the organisation.

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DUST COUNTS During the purification process that takes place at the purification stations at our Zuikerbosch and Vereeniging sites, significant amounts of dust are generated. In 2005, Rand Water undertook a dust-monitoring programme at the stations to ascertain whether dust counts were environmentally significant. Environmental dust samples taken at Zuikerbosch Pumping Station indicated that the airborne dust levels, other than at the lime plant, were well within statutory requirements.

Dustfall monitoring at the Vereeniging site recorded temporal-averaged monthly dustfall rates within the residential threshold with an exception of two areas that exceeded the SANS annual average target of 300 mg/m2/day during September and October.

Our environmental management programmes have been ISO WASTE MANAGEMENT 14001- certified since November 2002. We retained our We have prioritised implementing programmes to manage certification in the year under review. External certification legacy waste in accordance to legislation. such as the ISO-systems allows us to benchmark our systems and policies to international standards, while internal During the period under review we generated 11 tons of evaluation audits and management reviews ensure hazardous waste and 98 tons of non-hazardous waste. implementation and maintenance of these standards. Waste is treated or disposed of in the following ways: AIR POLLUTION MANAGEMENT GASEOUS EMISSIONS HAZARDOUS WASTE It is widely accepted that the developed world’s consumption Specialist external companies are used to dispose of of fossil fuels is a major contributor to global warming. We fluorescent lamps, batteries, material containing asbestos, are attempting to mitigate our impact on air emissions through spent chemicals and oils etc. energy efficiency initiatives. By way of example – we have almost completed the process of phasing out our old steam SLUDGE plants emitting gases such as sulphur dioxide, carbon dioxide The most significant amount of waste from our processes is the and nitrous oxide. In addition, in the last few years we terminated all on-site steam generation, replacing boilers and sludge that is treated and disposed of at our Panfontein site. steam driven pumps with electrical pumps. This reduced The site conforms to accepted international practice and overall pollution as Eskom can convert heat to electricity more complies with all current legislation. The sludge, between efficiently than we could convert heat to motive power. 1 300 – 1 500 tons per day, is disposed of daily via sprayers on drying beds. Fortunately the sludge has high Instead of producing our own lime in kilns during the organic content and may be used as fertilizer on agricultural purification process, we are purchasing lime directly from the land. A sludge reclamation project is currently in progress supplier. The treatment process will stay unchanged and lime with two suppliers removing sludge from site at no cost to will still be used as a coagulant. By purchasing lime directly Rand Water. Approximately 65 265 tons of sludge was from the supplier, we expect to reduce CO2 emissions by as removed from site from June 2006 to July 2007. A drying much as 50 tons a day. bed recovery programme is in place.

Dustfall standards, target, action and alert thresholds for dust deposition (SANS1929: 2005) Dustfall Rate Level (mg/m2/day) Permitted Frequency of Non-compliance Target 300 Action – Residential 600 Three within any year, not two sequential months Action – Industrial 1 200 Three within any year, not two sequential months Alert threshold 2 400 None. First non-compliance requires remediation and compulsory report to authorities

RAND WATER Annual Report 2007 57 ENVIRONMENTAL AND QUALITY REVIEW continued

THE MOST SIGNIFICANT AMOUNT OF WASTE FROM OUR PROCESSES IS THE SLUDGE THAT IS TREATED AND DISPOSED OF AT OUR PANFONTEIN SITE. THE SITE CONFORMS TO ACCEPTED INTERNATIONAL PRACTICE AND COMPLIES WITH ALL CURRENT LEGISLATION.

LAND MANAGEMENT ENERGY MANAGEMENT Land management falls within the area of responsibility of the Rand Water’s approach to energy management includes Environmental Management Services (EMS) Department. maximising the energy efficiency of our operations; minimising cost of energy and not exceeding our stipulated SITE MANAGEMENT maximum demand for energy. The replacing of the boiler Where pipelines go over sensitive areas such as wetlands, plant and steam-driven pump sets with electrical pump sets streams and mountains, the department makes sure that the has impacted significantly on consumption of electricity – from environment is not disturbed or destroyed. In terms of EIA 12% to 87%. The Department of Minerals and Energy has set regulations, every construction site has to have an the national target for the reduction of energy to 12% by environmental management plan (EMP), while the EMS 2015. The accompanying graph indicates that Rand Water department monitors compliance with the plan. exceeded this target by 1.2%. In cases where exposed pipes devoid of bitumen are identified, EMS arranges for the pipes to be wrapped or coated with bitumen and the site is reinstated.

EROSION CONTROL 3 000 000 000 By identifying areas that are prone to erosion, EMS can 2 500 000 000 anticipate problems and prevent them. The department is currently compiling a register of these areas by using GPS 2 000 000 000 coordinates and the mapping facilities of the GIS division. 1 500 000 000

Projects for erosion control mainly involve the construction of 1 000 000 000 gabions to repair erosion dongas or to prevent erosion and 1 000 000 000 exposure of the pipes. Activities here also include planting 500 000 000 grasses and plants after excavation. The department has estimated that every R2 million spent on erosion control 0 saves R10 million in damage repair.

58 ENVIRONMENTAL AND QUALITY REVIEW continued

AN EFFECTIVE WATER DEMAND MANAGEMENT PROGRAMME REDUCES WATER SUPPLY COSTS AND WASTAGE. THIS ENSURES THE DELIVERY OF SUFFICIENT WATER TO MEET THE DEMANDS OF EXISTING, AS WELL AS NEW, CUSTOMERS.

Environmental Performance Indicators

Aspect/Indicator Units of Measure 2007 2006 2005 2004 2003 Notes Environmental Performance

Energy Electricity Purchased kWh 1 678 981 606 1 569 610 751 Coal –Discontinued use tons – 35 595 Liquid Effluent Total Liquid Effluent Ml 1 678 1 444 – Hazardous Waste tons 272 983 251 290,0 – – Non Hazardous Waste tons 46 172 5 098 87 – – Air Quality Total NOx Emissions (mg/m3) – 1,7 – – Total SOx Emissions (mg/m3) – 278 – – CO (mg/m3) – 40 – – Particulate Emissions (mg/m3) – 246 – – Total Dust Fall Out mg/m2 4,173 4,378 – Compliance Water Quality Standards Class I = 98.91% Class I = 95% Class II = 99.97% Class II = 98% ISO 14001 Certifications Total ISO 14001 Certifications Number 6 6 6 6 5

RAND WATER Annual Report 2007 59 GOVERNANCE AND RISK REVIEW Maintaining the highest possible standards of corporate citizenship

“. . . South Africa has demonstrated how the human right to water can serve as a mechanism for empowerment and a guide to policy. . . . Rights-based water reform has enabled it to expand access and overcome the legacy of racial inequality inherited from apartheid, partly through rights-based entitlements.” UNDP Development Report of 2006

MILESTONES ON THE ROAD TO WATER REFORM

1996 The Constitution establishes access to clean water as a basic human right. 1997 The Water Services Act aims to ensure and define the rights of access to basic water supply and sanitation services. The Act also provides a comprehensive framework for the establishment and regulation of various Water Boards reporting to the Minister of Water Affairs and Forestry. 1998 The National Water Act provides for integrated management of surface water and groundwater and the sustainable use of both these resources. 2001 The Free Basic Water policy is launched, in terms of which households are entitled to 6 000 litres of free water a month. 2003 The National Water Resource Strategy is launched. The strategy sets out a framework for integrated water resource management and aims to reach an appropriate balance between the need to protect and sustain water resources on the one hand and the need to develop and use them for the benefit of all South Africans on the other. 2005 The Water Services Amendment Act gives Water Boards the green light to perform activities outside South Africa’s borders, subject to compliance with certain requirements.

60 GOVERNANCE AND RISK REVIEW continued

GOVERNANCE RAND WATER BOARD Rand Water operates on a strong corporate governance ROLE foundation that is representative of the interests of all Sound governance entrenched by the Board is integral to the stakeholders. The governance framework is aligned with King sustainability of Rand Water. The Rand Water Board is II and complies with the provisions of the Public Finance appointed by the Minister. It has a Board Charter detailing Management Act (PFMA) and the Protocol on Corporate processes and procedures that regulate the functioning of the Governance for Public Utilities. Board. Similarly, each Board Committee has formal and written terms of reference to ensure optimal discharge of This framework underpins the organisation’s risk-based, duties within the mandate conferred upon each committee by integrated approach to internal controls that are entrenched the Board. throughout management and governance processes and is reviewed on an ongoing basis. Governance structures are The Board is the core of Rand Water’s governance system focused on providing leadership within a framework of and is responsible for: effective controls which enables risk to be assessed and • providing clear strategic direction to the organisation; managed throughout the organisation. • ensuring that the appropriate management structures are in place; The Governance Portfolio is broadly concerned with • promoting a culture of ethical behaviour; organisational governance, an increasingly important aspect • entrenching sound corporate governance through an of managing Rand Water. Its key components are forensic audit, integrated governance structure; and risk compliance, internal audit and the group secretariat. The • compliance with all relevant laws, regulations and codes portfolio also manages the organisation’s social responsibility of practice. initiatives through the Rand Water Foundation and the Community Based Projects Department (CBPD). These will be integrated into a single vehicle primarily driven by the Rand The Board has a duty to address matters of significance and Water Foundation in the 2008/2009 financial year. concerns of all stakeholders, taking into account greater demands for accountability, and recognising and balancing Rand Water and the Public Finance Management Act the interests of all stakeholders. (PFMA) 1999 COMPOSITION As a public entity, Rand Water operates The Rand Water Board represents a broad range of skills and in terms of the PFMA. In terms of PFMA the accounting experience to ensure an appropriate balance, to bring a authority and accounting officers are accountable for sense of perspective and to add value and insight in strategic the use of resources to deliver services to communities. decision making. The Act emphasises: • regular financial reporting, There are 16 non-executive board members, and one • independent auditing and supervision of internal executive board member, the Chief Executive (CE). In line control systems, with best practice, the roles of Chairperson and CE are • improved accounting standards, separate. The term of office of a non-executive board member • greater focus on output and performance, and is for a period not exceeding four years. Non-executive board • increased accountability at all levels. members may be re-appointed by the Minister for a period not exceeding three consecutive terms in office.

SHAREHOLDER’S COMPACT In the year under review, Mr Andile Kenneth Fihla, Deputy Chair of the Board resigned with effect from 1 September In terms of the PFMA, Rand Water is obliged to conclude a 2006. Mr Moabi Petlane was appointed in his place with Shareholder’s Compact on an annual basis with its effect from April 2007. Shareholder, the Minister of Water Affairs and Forestry (the Minister). The compact sets out the mandate that Rand Water is The effectiveness and performance of all board members is committed to, together with the organisation’s key performance indicators for the year. One of the Board’s responsibilities is to assessed annually. The Board reviews its own role and keep the Minister informed on all major developments affecting effectiveness. The Chairperson of the Board reviews the the organisation. This is achieved through: performance of the CE, and the CE annually reviews the • quarterly reports to the Minister; performance of executive management. • the annual report; • detailed five-year business plans; As separate, ring-fenced entities, Rand Water Services (RWS) • direct contact between the Chairperson and Minister of and the Rand Water Foundation (RWF) have independent Water Affairs and Forestry; and boards from those of Rand Water. The CE of Rand Water is a • ongoing engagement with DWAF. RWS board member.

RAND WATER Annual Report 2007 61 GOVERNANCE AND RISK REVIEW continued

RAND WATER BOARD AND COMMITTEE STRUCTURES

62 GOVERNANCE AND RISK REVIEW continued

RAND WATER Annual Report 2007 63 GOVERNANCE AND RISK REVIEW continued

THE NATIONAL WATER RESOURCE STRATEGY IS LAUNCHED. THE STRATEGY SETS OUT A FRAMEWORK FOR INTEGRATED WATER RESOURCE MANAGEMENT AND AIMS TO REACH AN APPROPRIATE BALANCE BETWEEN THE NEED TO PROTECT AND SUSTAIN WATER RESOURCES ON THE ONE HAND AND THE NEED TO DEVELOP AND USE THEM FOR THE BENEFIT OF ALL SOUTH AFRICANS ON THE OTHER.

Summary of attendance of Board and Sub-committee Meetings JULY 2006 – JUNE 2007 Risk Farm Audit Board Treasury Executive Remuneration Capital Investment

Surname IniABABABABABABABAB

RAND WATER BOARD

Ngubane JM 9 91110

Coovadia D 9 9 4 4 2 2

Dooms M 9 9 7576

Ellman MJ 9 8 6 6 2 2

Fihla * AK112200 11 00

Love YJ 9 5 4 3 7 7 00

Kakana X 9 5 6 5 2 1

Chief Executive 9 9 11 9 6 6 2 1

Maluleke M 9 9 11 11 6 6 7 6

Maseko NM 9 9 11 10

Mayathula-Khoza NP 9 7 747321

Makhesha SP96 2121

Ndumo P 9811243

Otieno FAO 9 8 6 4 7 2

Petlane MM 9 8 77 7775

Saloojee F 9 7 6 5 7 5

Tsheke M 9 9 11 8

A = Total number of meetings B = Total meetings attended Colour Code = Alternate (Red), Orange (Resigned) * = Resigned 1 September 2006

64 GOVERNANCE AND RISK REVIEW continued

Failure to observe the provisions of the code may result in transgressors being disciplined in accordance with the procedures set out in Rand Water’s disciplinary code.

LEGAL COMPLIANCE Rand Water complies with a broad body of legislation, including sectoral, financial and environmental legislation, in particular the Water Services Act 108 of 1997, as amended, and the PFMA setting out the exact operational and fiduciary duties of the Board. Rand Water’s Legal Services and Group Secretariat ensure that the organisation keeps abreast of changing legislation.

Amendments to the National Environmental Management Act 107 of 1998 relating to the environmental impact assessment (EIA) process were published in the review period, but these REMUNERATION had no material impact on the organisation. There was no The Minister determines the remuneration of the board members. other legislation passed in the year under review that impacted on Rand Water. GOING CONCERN The board is satisfied that Rand Water has adequate Rand Water as an organ of state (in terms of S239 of resources to sustain its operation for the foreseeable future. the Constitution of the Republic of South Africa, 1996 Accordingly, Rand Water continues to adopt the (Act No. 108 of 1996) is obliged, when securing going-concern basis in preparing its accounts. The construction works, to do so in terms of CIDB requirements. independent auditors concur with this basis. The challenges facing the organisation in the implementation of CIDB legislation and the manner in which Rand Water is GROUP SECRETARIAT addressing them, are as follows: The primary responsibilities of the Company Secretary • Users of CIDB within the Oranisation do not understand include: the grading reqirements. This is being addressed in the • guidance to the board on their duties, responsibilities and form of ongoing workshops together with a quick powers, as well as guidance on compliance and broader reference guide. governance developments; • The CIDB lacks the capacity to register contractors within • ensuring access to information in order to enhance the the legislative framework of 21 days. Meetings have decision-making process; and been held with CIDB to look at this aspect. Rand Water • raising matters that may warrant the Board’s attention; and has been given access to a CIDB fast tracking team to • ensuring and facilitating compliance with relevant laws, assist in the registration process. It should be borne in regulations and codes of good practice. mind that a number of contractors submit incomplete CODE OF ETHICS documentation to CIDB or only submit their applications to CIDB when a tender is placed. In order for Rand Water Rand Water is a diverse organisation united by the Code of to then award a contract to the preferred tenderor, the Ethics. The code comprises a defined set of rules that sets out clearly what is expected, leaving no grey areas and covering project managers have to then liase with CIDB on behalf issues such as: of the contractor which further delays the process. • values of the organisation; • There are certain categories of work as outlined by CIDB • conflict of interest; for which contractors have not registered, as the private • reporting of irregularities; sector is seen as more viable. This often leads to delays where • gifts; tenders are placed and no responses received.This issue • confidentiality; has been raised with CIDB and they are currently • relationships with other employees, society and relooking the categories of grading. suppliers; and • image. INTERNAL AUDIT Rand Water has an established internal audit function in Employees are made aware of their responsibilities and compliance with the relevant statutes. Internal auditing is an account -abilities in terms of the Code of Ethics on an ongoing independent, objective assurance and consulting activity basis. Executive management and line managers are designed to add value and improve Rand Water’s operations. responsible for communicating, implementing and monitoring The department reports directly to the Group Governance compliance with the code. manager and has access to the Audit Committee.

RAND WATER Annual Report 2007 65 GOVERNANCE AND RISK REVIEW continued

The department assists Rand Water to accomplish its objectives management function independent of front-line activities. by bringing a systematic and disciplined approach to While Rand Water has a low risk tolerance, risks are viewed evaluating and improving the effectiveness of risk management, holistically, so that risk may be retained taking certain factors control and governance processes. A three-year internal audit into account: plan harnesses the audit effort, taking into consideration the • the specific risk characteristics of the operation; integrated risks as identified in the corporate risk register. The • the interrelationships between certain risk variables and three-year audit plan is developed in consultation with natural hedging mechanisms; and management, and is approved by the Audit Committee. • the achievement of various business objectives.

FORENSIC AUDIT STRATEGIC RISK REGISTER The overarching function of the Forensic Audit Unit is to detect, Rand Water’s strategic risk register records risks and threats investigate and report fraud, corruption, management neglect that could prevent the organisation from achieving its strategic and non-compliance with policy, procedures and legislation. objectives including, but not limited to ensuring reliability of The unit also assists management with the prosecution of water supply to our customers. The strategic risk register also identified offenders and the recovery of identified losses and identifies controls to mitigate against identified risks. The performs background checks on Rand Water employees. In control mechanisms in the strategic risk register are weighted addition, the unit provides the external auditors with forensic in order to determine whether there is any residual risk reports, highlighting identified high risk areas. exposure and if so, appropriate actions are identified to rectify shortcomings. These action plans are translated into business plans with budget allocations to ensure The department is authorised to initiate pro-active audits or implementation. Further, these are translated into individual investigations into processes, procedures and practices within performance contracts to ensure effective tracking. the organisation in order to establish compliance with policies and procedures. The organisation’s top ten inherent risks are: • infrastructure failure; Employees are encouraged to make use of an independent • technology failure; fraud hotline, maintained and monitored off-site to enhance • reputation risk; confidentiality. • poor quality water; • institutional reform; EXTERNAL AUDIT • tariff setting; The external auditors fulfil a statutory duty, providing an • environment; independent assessment of Rand Water’s systems of internal • people risk; financial control and annual financial statements. The external • health and safety; and auditor’s plan is reviewed by the Audit Committee to ensure that • loss of corporate knowledge and information. significant areas of concern are covered, without infringing on Risk control programmes to mitigate these risks are ongoing in the external auditor’s independence and right to audit. every department.

The organisation’s external auditors are SizweNtsaluba VSP. RISK MANAGEMENT PERFORMANCE They are responsible for independently auditing and reporting RISK FINANCING on the financial statements in accordance with SA GAAP, Risk Financing refers to any risk financing mechanism that PFMA and the Water Services Act. seeks to transfer residual or catastrophic risk to a third party, taking into account the organisation’s appetite for risk as RISK MANAGEMENT established by the Board. Over the years Rand Water’s risk Enterprise-wide risk management is the aggregation of financing initiatives have evolved from being a pure strategic and operational business and financial risks into a placement of insurance activity to an expanding, proactive cross-functional enterprise-wide, risk management framework. risk finance initiative, with an enterprise-wide focus. Our risk financing arrangements are focused on being innovative, This has been determined and formulated by the Portfolio flexible, dynamic and sustainable. Integrating Committee, and approved by the Board Risk Committee, in accordance with the risk philosophy and policies COST OF RISK established by the Board. Cost of Risk (COR) is utilised as a key indicator of the effectiveness of our risk management initiatives. COR The Board is responsible for the overall risk management of comprises of all risk related costs and is expressed as a the organisation. percentage of turnover for the period under review. The main components of COR are insurance costs (statutory and RISK MANAGEMENT FUNCTION non-statutory), cost of self-insured/self-retained losses, risk In keeping with the overall risk philosophy and internationally control costs and corporate administration costs (including accepted best practice, Rand Water maintains a risk risk personnel costs).

66 GOVERNANCE AND RISK REVIEW continued

RISK GOVERNANCE FRAMEWORK

GOVERNANCE STRUCTURES

BOARD CORPORATE RISK BOARD PIC TENDER COMMITEES COMMITEE

Strategy Internal Audit SWOT Analysis Planning Formulation Processes

Environmental Within the Budget scanning and context of: Risk management forecasting Balanced scorecard • financial Operations External business • customer Risk identification environment • internal Organisational • learning and Internal business growth Risk control environment

Financial Risk report and forecasting monitoring

Water sector supply and demand

RAND WATER Annual Report 2007 67 CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

PAGE STATEMENT OF RESPONSIBILITY BY THE MEMBERS OF THE BOARD 69

INDEPENDENT AUDITOR’S REPORT TO THE MINISTER OF WATER AFFAIRS AND FORESTRY 70

REPORT OF THE AUDIT COMMITTEE 72

BOARD MEMBERS REPORT 73

CONSOLIDATED INCOME STATEMENT 80

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 80

CONSOLIDATED BALANCE SHEET 81

CONSOLIDATED CASH FLOW STATEMENT 82

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS 83

68 STATEMENT OF RESPONSIBILITY BY THE MEMBERS OF THE BOARD for the year ended 30 June 2007

In accordance with the Water Services Act of 1997 and the Public Finance Management Act, 1999 (Act no 1 of 1999), as amended, the Board members are required to prepare consolidated annual financial statements that comply with statements of South African Generally Accepted Accounting Practice in alignment with the International Finance Reporting Standards (IFRS).

The Board members are responsible for ensuring that complete, accurate and reliable accounting records form the basis for preparing consolidated annual financial statements. The consolidated financial statements include judgments and estimates that are reasonable and prudent, made by management, reviewed and accepted by the Board members. The Board members also ensure that accounting policies are appropriate to the Group’s circumstances. In order to achieve this objective the Board members rely on the systems of internal control set up and maintained by management.

Independent internal auditors assist the Board members in their task of ensuring that internal controls are adequate and operate as intended throughout the financial year under review. The internal controls include a risk-based system of internal accounting and administrative controls designed to provide reasonable, but not absolute, assurance that the assets are safeguarded and transactions executed and recorded in accordance with generally accepted business practices, as well as with the Group’s policies and procedures. The Board has, however, the ultimate responsibility for this system of internal controls and reviews the effectiveness of its operations primarily through the Audit Committee.

The Board members have every reason to believe that the Group has adequate resources in place to continue in operation in the foreseeable future and has for this reason adopted the going concern basis in preparing the consolidated annual financial statements.

The external auditors, SizweNtsaluba VSP, who were given unrestricted access to all financial records and related data, including minutes of the meetings of the Board and committees of the Board, have audited the consolidated financial statements. The Board members believe that all representations made to the independent auditors during their audit are valid and appropriate. Their unqualified audit report on the consolidated annual financial statements is presented on page 70 and 71.

The Board members are of the opinion that the consolidated financial statements fairly present the financial position of the Group at 30 June 2007, and the results of their operations and cash flows for the year then ended. Material facts or circumstances between the accounting date and the date that the report has been signed have been disclosed in the consolidated annual financial statements.

The consolidated financial statements which appear on pages 80 to 110, have been approved by the members of the Board on 7 September 2007 and signed on its behalf by

JM Ngubane Z Manyere Chairperson Acting Chief Executive

RAND WATER Annual Report 2007 69 INDEPENDENT AUDITOR’S REPORT TO THE MINISTER OF WATER AFFAIRS AND FORESTRY for the year ended 30 June 2007

REPORT ON THE FINANCIAL STATEMENTS We have audited the annual financial statements and group annual financial statements of Rand Water, which comprise the Board members report, the balance sheet and the consolidated balance sheet as at 30 June 2007, the income statement and the consolidated income statement, the statement of changes in equity and the consolidated statement of changes in equity, the cash flow statement and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 80 to 110.

BOARD MEMBERS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Rand Waters’ board members are responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practise in alignment with the IFRS, and in the manner required by the Public Finance Management Act, 1 of 1999 and the Water Services Act, 108 of 1997. 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.

AUDITOR’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS 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. The audit was planned and performed to obtain reasonable assurance that our duties in terms of section 27 and 28 of the Public Audit Act, 25 of 2004, have been complied with.

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 Rand Water and the Group as of 30 June 2007, and their financial performance and their cash flows for the year then ended in accordance with South African Statements of Generally Accepted Accounting Practice and in the manner required by the Public Finance Management Act, 1 of 1999 and the Water Services Act, 108 of 1997.

REPORT ON FACTUAL FINDINGS ON KEY PERFORMANCE INDICATORS We have performed the procedures enumerated below with respect to the key performance indicators (KPIs) of the Rand Water Group for the year end 30 June 2007, set forth on page 74 of the annual report. The board members have responsibilities in terms of Section 55(2)(a) of the Public Finance Management Act, 1 of 1999 to report on the performance against predetermined objectives. Our engagement was undertaken in accordance with the International Standard on Related Services applicable to agreed-upon procedures engagements. The procedures were performed solely to assist in evaluating the accuracy and completeness of the report of the Board Members on the KPIs contracted and achieved by the Rand Water Group:

1. We read the Shareholder’s Compact dated 1 April 2006 to obtain an understanding of the KPIs contracted, and compared the KPIs in the Shareholder’s Compact to those summarised in the KPI report.

70 INDEPENDENT AUDITOR’S REPORT TO THE MINISTER OF WATER AFFAIRS AND FORESTRY continued for the year ended 30 June 2007

2. We considered the performance reported against the results of our audit of the annual financial statements and confirmed consistency of information in all areas. 3. We recalculated the performance ratios presented by management using the financial and other information obtained during the audit of the annual financial statements. 4. We scrutinised board minutes and decisions, management reports, outcomes of high level business process reviews performed during the audit and held discussions with management on the content of the KPIs report to confirm progress made on matters related to the group strategy and business process improvements.

WE REPORT OUR FINDINGS BELOW: (a) We found the KPIs on the report to be in agreement with the Shareholder’s Compact. (b) We did not identify material inconsistencies between the KPIs report and the information that came to our attention during the audit. (c) We found the performance ratios presented by management to have been calculated correctly. (d) We found the progress reported in the KPIs report on matters of strategy and business processes improvement to be in line with board decisions, related strategy documents and implemented management processes.

Because the above procedures do not constitute either an audit or a review, we do not express any assurance on the KPI report. Had we performed additional procedures or had we performed an audit or review of the KPI Report in accordance with International Standards on Auditing or International Standards on Review Engagements, other matters might have come to our attention that would have been reported to you.

SizweNtsaluba VSP Partner: Rakesh Bhika Registered Auditor

Woodmead 27 August 2007

RAND WATER Annual Report 2007 71 REPORT OF THE AUDIT COMMITTEE for the year ended 30 June 2007

The Audit Committee is pleased to present the report for the financial year ended 30 June 2007 as required by the Public Finance Management Act, 1 of 1999, as amended.

The Audit Committee 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 of its responsibilities contained therein.

In the conduct of its duties, the Audit Committee has, inter-alia, reviewed the following: • reports from both internal and external auditors, and from forensic investigations concerning the effectiveness of the internal control systems; • reports from internal and external audits detailing concerns arising out of audits and ensured there are appropriate responses from management, which will result in the concerns being addressed; • the risk areas of the group’s operations as identified by, and covered, in the scope of internal and external auditors work programmes; • the adequacy, reliability and accuracy of financial information provided by management and other users of such information; • the entity’s compliance with legal and regulatory provisions to the extent that such issues have been brought to the attention of the audit committee by either management, internal or external auditors; • the effectiveness of the internal audit function; • the activities of the internal audit function, including its annual work programme, coordination with the external auditors, the reports of significant investigations and the responses of management to specific recommendations; • the scope and results of the external audit function, it’s cost effectiveness, as well as the independence and objectivity of the external auditors.

The Audit Committee is of the opinion, based on the information and explanations given by management and the Corporate Audit Department and discussions with the independent external auditors on the result of their audits, that the internal accounting controls are adequate to ensure that the financial records may be relied upon for preparing the consolidated financial statements, and that accountability for assets and liabilities is maintained.

Nothing significant has come to the attention of the Audit Committee to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the period under review.

The Audit Committee has evaluated the consolidated financial statements of Rand Water and its subsidiaries for the year ended 30 June 2007 and, based on the information provided to the Audit Committee, considers that they comply, in all material respects, with the requirements of the Public Finance Management Act, 1 of 1999, as amended and South African Statements of Generally Accepted Accounting Practice in alignment with the IFRS. The Audit Committee concurs that the adoption of the going concern premise in the preparation of the consolidated financial statements is appropriate.

The Audit Committee has therefore recommended the adoption of the consolidated financial statements by the Board Members at their meeting held on 07 September 2007.

M Petlane Chairperson – Audit Committee

27 August 2007

72 BOARD MEMBERS REPORT for the year ended 30 June 2007

INTRODUCTION The Board members are pleased to present their report and the audited consolidated annual financial statements for the year ended 30 June 2007. In the opinion of the Board members, the consolidated financial statements fairly represent the financial position of Rand Water at 30 June 2007 and the results of its operations and cash flow information for the year then ended.

GOING CONCERN The consolidated financial statements have been prepared on the going concern basis. The Board members have every reason to believe that the business has adequate resources to continue as a going concern in the foreseeable future.

POST BALANCE SHEET EVENTS No material events have occurred since Balance Sheet date.

PUBLIC FINANCE MANAGEMENT ACT (ACT 1 OF 1999 AS AMENDED) Public Finance Management Act (PMFA) compliance is one of the key business issues that the Board members manage and monitor. Non-compliance with the PFMA is viewed very seriously by the Board and is dealt with in terms of the organisations processes. In addition the external auditors also perform a PMFA checklist review at year-end.

The Board has also considered the PFMA provisions relating to fruitless and wasteful expenditure and is of the opinion that there is nothing to be reported to the stakeholders in this regard.

WATER SERVICES ACT NO.108 OF 1997 The board members are committed to compliance with the Water Services Act and are of the opinion that Rand Water and its subsidiaries complies in all material respects.

Business address Postal address 522 Impala Road PO Box 1127 Glenvista Glenvista 2058 2000

FUNCTIONS Rand Water extracts raw water from the Vaal river basin, treats, transports and stores it in order to deliver potable water to municipalities, mines, industries and small volume consumers. Raw water is also delivered to certain industries by agreement. The organisation also engages in secondary activities, which are deemed to be supportive of the primary activities.

RAND WATER Annual Report 2007 73 BOARD MEMBERS REPORT continued for the year ended 30 June 2007

PERFORMANCE FOR THE YEAR An overview of the performance against its objectives is contained in the table below: Initiative Key performance indicator Target Performance results Operational performance Total volume of potable water sold >104 863 450 111 076 154 Total volume of raw water sold >5 624 747 6 090 099 Water balance in bulk water distribution system <734.3 Achieved 97.5 Water balance in treatment system <2.4% Achieved 1.8% Total water loss <4.3% Achieved 1.9% No of supply failures <5 0 instances Plant and maintenance expenditure >4.7% Achieved 9.9% Achieve peak Reliability of service Supply peak daily demand daily supply Achieved Customer satisfaction Percentage of customers with service agreements >44% Achieved 72% Average response time to complaints <24 hrs Achieved 43 minutes Product quality SABS241:2001 Compliance Complied with Class I and II Percentage of potable water analysis failing to meet SABS 241 Class I standard 5% Achieved 1.95% Financial credit ratings Standard and Poor’s rating: Local Currency Ratings have remained A/Stable stable at ‘A+” & ‘BBB+’ Outlook has remained stable. Foreign Currency National scale rating of BBB+/Stable “zaAAA” affirmed in 2007. CA Ratings: Long-term Long-term rating raised zaAA from ‘zaAA’ to ‘zaAA+’. Short-term Short-term rating has remained unchanged. Outlook has remained positive. Health and Safety Integrated SHE System Maintain Maintained corporate certification multi-listing certificate. Disabling incident frequency rate <0.8% Achieved 0.65% Environmental ISO 14001 accreditation all sites Maintain Maintained certification at management certification five major operational sites and Rietvlei Head Office. Laboratory accreditation ISO 17025 Maintain 100% Accreditation certification status maintained. Commercial Equity Procurement from PDI’s >60% Achieved 64% Employment Equity ACI in management, professional and supervisory positions 75% Achieved 65% Woman in management, professional and supervisor positions 60% Achieved 34% Persons with disabilities in total staff compliment 4% Achieved 3.9%

BUSINESS PLAN The corporate business plan, which sets out Rand Water’s strategic direction as well as the key performance indicators, is developed each year in consultation with the appropriate stakeholders.

The first year of the said plan is compiled in full detail to be used as the annual budget for the forthcoming year. Monthly progress and performance results are compared with the budget and material variances are analysed for managerial purposes.

74 BOARD MEMBERS REPORT continued for the year ended 30 June 2007

FINANCIAL PERFORMANCE

2003 2004 2005 2006 2007 Actual Actual Actual Actual Actual As restated As restated

Revenue Rm 2 884 3 258 3 461 3 672 4 119 Profit for the year Rm 281 392 494 593 743 Property, Plant and equipment Rm 3 552 3 663 3 903 4 113 4 382 Capital expenditure (including interest capitalised) Rm 231 239 385 339 408 Long term loans Rm 1 749 1 627 742 735 726 Accumulated reserves – restated Rm 2 293 2 685 3 187 3 772 4 509 Potable water bulk tariff R/kl 2,2809 2,4862 2,6278 2,7671 2,9055 Net interest paid (received) Rm 158 144 119 80 (0,09)

The revenue for the year exceeds the prior year mainly as a result of the tariff increase at the beginning of the year and an increase in volume sold.

Profit for the year has increased primarily due to an increase in revenue and a decrease in net finance costs. The capital expenditure has increased by 20% from the previous financial year.

It is Rand Water’s policy to recover all operational costs in the tariffs set. In order to improve the debt: equity ratio of the organisation, provision is made in the bulk water tariffs to fund some of the infrastructure developments internally. The impact is also evidenced in the reduction of net interest payable.

RAND WATER Annual Report 2007 75 BOARD MEMBERS REPORT continued for the year ended 30 June 2007

BUSINESS PERFORMANCE

2003 2004 2005 2006 2007 Actual Actual Actual Actual Actual As restated As restated

Profit Margin % 9.7 12.04 14.29 16.16 18.04 Profit per Employee R’000 90,44 126,70 162,18 197,41 252,29 Average cost of capital % 13.00 12.00 13.00 13.00 13.00 Debt-equity ratio 0,84 0,69 0,29 0,25 0,21 Return on assets % 9.0 10.2 10.8 12.5 11.9 Assets turnover Ratio 0,7 1,2 1,2 1,2 1,1 Current ratio 1,5 1,8 0,9 1,4 2,0

The profit margin has increased by 11.6% in comparison with the prior year mainly as a result of an increase in revenue and a reduction in the net finance costs. This has also contributed to the improvement in the income per employee.

The decrease in debt equity ratio has arisen primarily from the increase in the level of accumulated reserves, the debt levels having remained at a fairly constant level throughout the year. The significant improvement in the current ratio arises primarily from the increase in cash and cash equivalents.

The decrease in return on assets may be attributed to increased level of capital expenditure and the improved cash and cash equivalent position giving rise to an increase in total assets.

76 BOARD MEMBERS REPORT continued for the year ended 30 June 2007

OPERATIONAL PERFORMANCE

2003 2004 2005 2006 2007 Actual Actual Actual As restated As restated Actual Actual

Volume sold M l/d 3 340 3 414 3 452 3 457 3 550 Number of employees at year end 3 108 3 097 3 049 3 006 2 945

The volume sold has increased by 2.69% due to low rainfall and a long dry season experienced in the 2006/07 year.

RAND WATER Annual Report 2007 77 BOARD MEMBERS REPORT continued for the year ended 30 June 2007

RAND WATER BOARD MEMBERS EARNINGS 2006/2007 Fees Contributions for services to retirement, as Board Performance medical and Member Basic Other cash incentive life cover Total salary benefits bonus benefits Total Rand Water R’000 R’000 R’000 R’000 R’000 R’000 Executive Board Members TO Nkabinde (Chief Executive) – 1 085 350 – – 1 435 Non-executive Board Members JM Ngubane (Chairperson) 513 ––––513 D Coovadia 131 ––––131 M Dooms 165 ––––165 MJ Ellman 146 ––––146 AKL Fihla* 24––––24 X Kekana* 119––––119 JY Love 130 ––––130 MJ Maluleke 161 ––––161 NM Maseko170––––170 SP Makhesha118––––118 P Mayathula-Khoza 121 ––––121 P Ndumo 121––––121 FO Otieno 120 ––––120 M Petlane 200––––200 F Saloojee 124 ––––124 M Tsheke 163––––163 Total Rand Water Board Members 2 526 1 085 350 – – 3 961

SUBSIDIARIES BOARD MEMBERS EARNINGS 2006/2007 Fees Contributions for services to retirement, Board as Performance medical and Member Basic Other cash incentive life cover Rand Water Services Total salary benefits bonus benefits Total (Pty) Ltd R’000 R’000 R’000 R’000 R’000 R’000

Executive Board Members RHK Max – 816 360 330 – 1 506 Non-executive Board Members MP Mandela (Chairperson) 76 76 HM Brown 73 73 MJ Ellman 76 76 AKL Fihla* 19 19 X Kekana 75 75 MJ Maluleke 80 80 Z Motshabi* 24 24 TO Nkabinde†# –––––– JM Pohlane 73 73 PE Pokane 72 72 Total 568 816 360 330 – 2 074

* Members resigned during the year † Members appointed during the year # Chief Executive Rand Water, ex officio member

78 BOARD MEMBERS REPORT continued for the year ended 30 June 2007

SUBSIDIARIES BOARD MEMBERS EARNINGS 2006/2007

Fees Contributions for services to retirement, as Board Performance medical and Member Basic Other cash incentive life cover Rand Water Total salary benefits bonus benefits Total Foundation R’000 R’000 R’000 R’000 R’000 R’000

Non-executive Board Members TA Shange (Chairperson) 96 96 ZM Budnik-Lees 66 66 MF Kalako-Williams* 4 4 SP Makhesha 67 67 ED Maluleke 79 79 MJ Maluleke 67 67 NM Maseko 68 68 A Mostert 66 66 FO Otieno 66 66

Total 579 ––––579

RAND WATER EXECUTIVE MEMBERS EARNINGS 2006/2007 Contributions to retirement, Performance medical and Basic Other cash incentive life cover salary benefits bonus benefits Total Executive Members R’000 R’000 R’000 R’000 R’000

KM Naicker (Chief Operating Officer) 614 467 178 156 1 415 C Smith (Chief Financial Officer) 720 394 173 138 1 425 TS Sithole (Group Shared Services Executive) 1 014 133 224 – 1 371 Z Manyere (Group Strategic Planning Executive) 716 261 120 18 1 115 S Mbongo (Group Governance Executive) 715 131 120 18 984

Total Executive Members 3 779 1 386 815 330 6 310

* Members resigned during the year

RAND WATER Annual Report 2007 79 CONSOLIDATED INCOME STATEMENT for the year ended 30 June 2007

GROUP RAND WATER 2007 2006 2007 2006 Notes R’000 R’000 R’000 R’000

Revenue 4 118 601 3 672 119 4 101 080 3 667 557 Cost of sales (1 899 765) (1 668 333) (1 899 081) (1 666 810)

Gross profit 2 218 836 2 003 786 2 201 999 2 000 747 Other operating income 3 115 829 87 494 114 062 86 016 Staff costs 4 (642 144) (590 220) (624 634) (584 478) Energy (318 446) (288 384) (318 446) (288 384) Depreciation 9 (129 845) (124 486) (129 645) (124 436) Amortisation 10 (30 259) (14 652) (30 259) (14 652) Chemicals (168 934) (136 679) (168 934) (136 679) Other operating expenses 5 (303 565) (265 021) (296 172) (262 070)

Operating profit before finance costs 741 472 671 838 747 971 676 064 Finance income 6 75 016 49 970 74 388 49 239 Finance expense 6 (74 925) (129 999) (74 580) (129 999)

Profit before taxation 741 563 591 809 747 779 595 304 Taxation 7 1 432 1 615 – –

Net profit for the year 742 995 593 424 747 779 595 304

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE for the year ended 30 June 2007

GROUP RAND WATER 2007 2006 2007 2006 Notes R’000 R’000 R’000 R’000

Available for sale losses taken through equity 18 (5 701) (9 044) (5 701) (9 044) Foreign translation gain taken through equity 18 (42) – – –

Net expense recognised directly in equity (5 743) (9 044) (5 701) (9 044) Profit for the year 742 995 593 424 747 779 595 304

Total recognised income and expense for the year 737 252 584 380 742 078 586 260

80 CONSOLIDATED BALANCE SHEET for the year ended 30 June 2007

GROUP RAND WATER 2007 2006 2007 2006 Notes R’000 R’000 R’000 R’000

ASSETS Non-current assets 4 716 017 4 430 963 4 729 963 4 437 884

Property, plant and equipment 9 4 381 714 4 112 658 4 380 863 4 112 155 Intangible assets 10 190 940 173 035 190 940 173 035 Biological assets 11 – – – – Investments 12 132 569 138 270 132 569 138 270 Loans receivable 13 7 649 5 385 25 591 14 424 Deferred tax assets 14 3 145 1 615 – –

Current assets 1 541 320 955 874 1 523 672 951 171

Inventories 15 37 172 34 786 37 166 34 776 Trade and other receivables 16 503 363 403 011 503 291 411 651 Current portion of loans receivable 13 6 088 7 961 6 088 7 961 Cash and cash equivalents 17 994 697 510 116 977 127 496 783

Total assets 6 257 337 5 386 837 6 253 635 5 389 055

EQUITY AND LIABILITIES Equity Accumulated reserves 18 4 509 008 3 771 756 4 509 267 3 767 189 Non-current liabilities 965 182 951 297 965 182 951 297

Interest bearing borrowings 19 725 736 735 175 725 736 735 175 Deferred income 2 750 – 2 750 – Retirement benefit obligation 20 236 696 216 122 236 696 216 122

Current liabilities 783 147 663 784 779 186 670 569

Trade and other payables 21 773 648 650 697 769 687 657 482 Current portion of interest bearing borrowings 19 9 499 13 087 9 499 13 087

Total equity and liabilities 6 257 337 5 386 837 6 253 635 5 389 055

RAND WATER Annual Report 2007 81 CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 June 2007

GROUP RAND WATER 2007 2006 2007 2006 Notes R’000 R’000 R’000 R’000

CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers 4 029 554 3 657 217 4 009 440 3 652 836 Cash paid to suppliers and employees (3 093 026) (2 862 251) (3 069 241) (2 863 888)

Cash generated from operations 22 936 528 794 966 940 199 788 948 Interest received 75 016 49 970 74 388 49 239 Interest paid (73 081) (124 038) (72 736) (124 038) Taxation paid (729) – – –

NET CASH FROM OPERATING ACTIVITIES 937 734 720 898 941 851 714 149

CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property, plant and equipment (407 597) (339 137) (407 048) (338 584) Acquisitions of intangible assets (48 419) (22 870) (48 419) (22 870) Proceeds from disposal of assets 15 375 12 490 15 375 12 490 Net increase in loans receivable (391) (8 160) (9 294) (8 160)

NET CASH USED IN INVESTING ACTIVITIES (441 032) (357 677) (449 386) (357 124)

CASH FLOWS FROM FINANCING ACTIVITIES Net (decrease)/increase in finance lease liabilities (31) 396 (31) 396 Interest bearing borrowings redeemed (14 840) (896 048) (14 840) (896 048) Increase in deferred income 2 750 – 2 750 –

Net cash used in financing activities (12 121) (895 652) (12 121) (895 652)

Net increase/(decrease) in cash and cash equivalents 484 581 (532 431) 480 344 (538 627) Cash and cash equivalents at 1 July 510 116 1 042 547 496 783 1 035 410

CASH AND CASH EQUIVALENTS AT 30 JUNE 17 994 697 510 116 977 127 496 783

82 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

NOTE PAGE NOTE PAGE 1 Significant accounting policies 84 19 Interest-bearing borrowings 101 2 Formation of joint venture 93 20 Retirement benefit obligation 102 3 Other operating income 93 21 Trade and other payables 102 4 Staff costs 93 22 Reconciliation of profit before tax to 5 Other operating expenses 93 cash generated from operations 103 6 Net financing costs 94 23 Financial instruments 103 7 Taxation 94 24 Operating lease commitments 106 8 Secondary activities 94 25 Retirement benefit information 107 9 Property, plant and equipment 95 26 Capital commitments 107 10 Intangible assets 97 27 Contingencies 108 11 Biological assets 98 28 Related parties 108 12 Investments 98 29 Subsequent events 110 13 Loans receivable 98 30 Change in accounting policy 110 14 Deferred tax asset 99 15 Inventories 99 16 Trade and other receivables 99 17 Cash and cash equivalents 99 18 Accumulated reserves 100

RAND WATER Annual Report 2007 83 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2007

1. SIGNIFICANT ACCOUNTING POLICIES The consolidated annual financial statements of Rand Water, an organisation domiciled in South Africa, for the year ended 30 June 2007 comprise of Rand Water and its subsidiaries (including a special purpose entity) and the Group’s interest in a joint venture (together referred to as the “Group”).

The financial statements were authorised for issue by the Board members on 7 September 2007.

1.1 Statement of compliance The consolidated annual financial statements of the Group have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP), Water Services Act No 108 of 1997 and the Public Finance Management Act, Act 1 of 1999 as amended.

1.2 Critical judgements and estimates made in applying the accounting policies The preparation of financial statements in conformity with statements of SA GAAP requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.

The estimates and associated assumptions are based on historical experience and various other factors, including making assumptions concerning future events, that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are accounted for prospectively.

In the process of applying the Group’s accounting policies as set out below, management has made the following judgements that have a significant risk of causing material adjustment to the amounts recognised in the financial statements:

(a) Useful lives and residual values The useful lives and residual values of property, plant and equipment are reviewed at each balance sheet date. The useful lives are estimated, by management, based on historic analysis and other available information. The residual values are estimated based on useful lives as well as other available information.

(b) Post retirement benefit obligation Management has enlisted the expertise of actuaries in the calculation of the post-retirement benefit obligation. These actuaries have used various assumptions in the calculation and these assumptions have been disclosed in note 25 to the annual financial statements. The carrying amount of the liability is disclosed in note 20.

(c) Provisions and contingent liabilities Various estimates and assumptions have been applied by management in arriving at the carrying value of provisions that are recognised in terms of the relevant accounting policy. Management further relies on input from the Group’s lawyers in assessing the probability of items of a contingent nature.

(d) Special purpose entity Management has also applied significant judgement in assessing whether the substance of the relationship between the Group and the special purpose entity “Rand Water Foundation”, indicates that the entity is controlled by the Group.

1.3 Basis of preparation The consolidated financial statements are presented in South African Rands, rounded to the nearest thousand. The financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments, financial instruments classified as available for sale and biological assets.

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. The accounting policies have been applied consistently by the Group entities.

84 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

1. SIGNIFICANT ACCOUNTING POLICIES continued (a) Adoption of new and revised standards and interpretations The Group has adopted certain new and amended SA GAAP standards and interpretations, which were effective for the financial years beginning on or after 1 January 2006. The effects of adopting these standards, if any, are discussed in note 30.

IFRIC 4 Determining whether an arrangement contains a lease IFRIC 4 requires the Group to determine the possibility that certain arrangements, which do not take a legal form, are, or may contain, leases. The recognition of such leases requires retrospective adjustment to financial information.

(b) Standards, interpretations and amendments to published standards which are not yet effective The following are new standards, interpretations and amendments to existing standards that, at the date of authorisation, were in issue but not yet effective. These standards, interpretations and amendments have not been adopted early by the Group.

Standard/interpretation or amendment Effective date IAS 1, Presentation of financial statements: Disclosure Annual periods commencing on or after 1 January 2009 IFRS 7, Financial instruments: Disclosures Annual periods commencing on or after 1 January 2007 IFRS 8, Operating segments Annual periods commencing on or after 1 January 2009 IFRIC 10, Interim financial reporting and impairment Annual periods commencing on or after 1 November 2006 IFRIC 11, IFRS 2 Group and Treasury share transactions Annual periods commencing on or after 1 March 2007 IFRIC 12, Service concession agreements Annual periods commencing on or after 1 January 2008

Of all the standards, interpretations or amendments listed above only the following are standards that will be applicable to the Group in the coming financial years:

IFRS 7, Financial instruments: Disclosures IFRS 7 will be applicable for the 30 June 2008 financial year-end of the Group. The statement introduces new disclosures to improve the information about financial instruments. It requires additional information on the financial assets and liabilities of the Group as well as disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments. The statement also requires specific minimum disclosures about credit risk, liquidity risk, and market risk, including sensitivity analysis to market risk.

IAS 1, Presentation of financial statements Amendments to IAS 1 in respect of additional disclosures on the Groups objectives, policies and processes for managing its capital will be applicable for the 30 June 2010 financial year end of the Group.

1.4 Basis of consolidation (a) Subsidiaries Subsidiaries are all entities (including special purpose entities) controlled by Rand Water. Control exists when Rand Water has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefit from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Special purpose entities are consolidated when the substance of the relationship between the Group and the entity, indicates that it is controlled by the Group.

(b) Jointly control entities (joint ventures) Joint ventures are entities over whose activities the Group has joint control. Joint control is the contractually agreed sharing of control over an entity, and exists only when the strategic financial and operating decisions relating to the entity require the unanimous consent of the venturers. Joint ventures are accounted for by applying the proportionate consolidation method on a line-by-line basis.

The joint venture’s share of losses is recognised to the extent that the cumulative reserves are reduced to nil, except to the extent that the Group has incurred or guaranteed obligations in respect of the joint venture.

RAND WATER Annual Report 2007 85 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

1. SIGNIFICANT ACCOUNTING POLICIES continued (c) Translation of foreign operations The monetary assets and liabilities of the foreign operation are translated into Rand at rates of exchange ruling at the end of the financial year. Non-monetary assets and liabilities of the foreign entity that are stated at fair value are translated into Rand at the rates of exchange ruling at the transaction date. The non-monetary assets and liabilities stated at cost are translated into Rand at the rate of exchange ruling at the date of initial recognition and are not subsequently re-translated.

Exchange differences on translation of foreign entities are taken directly to equity (translation reserve). All translation adjustments recognised directly in equity are released to profit or loss upon the disposal of the foreign operation.

(d) Transactions eliminated on consolidation Intra-group transactions and balances are eliminated on consolidation together with any unrealised gains or losses arising on intra-group transactions. Unrealised gains arising from transactions with joint ventures are eliminated to the extent of the Group’s interest in those entities, while unrealised losses are eliminated in the same way, but only to the extent that there is no evidence of impairment.

1.5 Revenue Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown, exclusive of value added tax, rebates and discounts after eliminating sales within the Group.

(a) Goods sold and services rendered Revenue from the sale of water is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. Revenue comprises primarily the net invoiced value of water sales, exclusive of value-added tax, at declared tariffs arising from normal trading activities.

Income from services rendered is recognised in the income statement in proportion to the stage of completion of the transaction at balance sheet date.

(b) Rental income Rental income is recognised in the income statement on a straight-line basis over the term of the lease. Rental income is incidental in nature and is not derived from investment property.

1.6 Finance income Interest income comprises interest received or receivable on loans, trade receivables and funds invested. Interest is recognised in the income statement when it is probable that economic benefits associated with the transaction will flow to the Group, using the effective interest rate method over the period to maturity.

1.7 Cost of sales Raw water and bottled water purchases are considered to be cost of sales. All other costs are considered to be operating expenses.

1.8 Finance costs Finance expenses comprise interest payable on borrowings calculated using the effective interest rate method. The interest expense component of finance lease payments is also recognised in the income statement using the effective interest rate method.

1.9 Taxation Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of prior periods.

86 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

1. SIGNIFICANT ACCOUNTING POLICIES continued Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related benefit will be realised.

1.10 Property, plant and equipment (a) Owned assets Items of property, plant and equipment are stated at the cost of acquisition or construction, less accumulated depreciation and 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. The cost of self constructed assets includes the cost of materials, direct labour, borrowing costs, the initial estimate, where relevant, of costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads.

Where components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment and depreciated separately over their respectful useful lives.

Spare parts, standby and servicing equipment held by the Group are classified as property, plant and equipment if they are expected to be used in more than one year. If used in less than one year they are classified as inventory. Spare parts and standby equipment that can only be used in connection with a specific item of property, plant and equipment are also accounted for as property, plant and equipment.

(b) Leased assets Leases of property, plant and equipment, where the Group assumes substantially all the risks and rewards of ownership, are classified as finance leases. Lease payments are accounted for as described in the relevant accounting policy.

(c) Subsequent costs The Group recognises in the carrying amount of property, plant and equipment the cost of major inspections and the cost of replacing part of such an item, when the cost is incurred if it is probable that the future economic benefits embodied in the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised as expenses as incurred.

(d) Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful life of each component of an item of property, plant and equipment. Depreciation commences when the asset is available for its intended use by management.

Land, artwork and assets under construction are not depreciated. All other property, plant and equipment, including capitalised leased assets, are depreciated on a straight-line basis over their estimated useful lives or the term of the lease, whichever is shorter. Major repairs are depreciated over the remaining useful life of the related asset or to the date of the next major repair, whichever is shorter.

RAND WATER Annual Report 2007 87 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

1. SIGNIFICANT ACCOUNTING POLICIES continued The estimated useful lives are as follows:

Estimated useful Asset category life (years)

Buildings – Buildings structures 50 – Buildings components 10 – 20 Plant and reservoirs – Plant structures 50 – 80 – Plant components 5 – 50 – Reservoirs 80 Pipelines – Pipeline structures 25 – 75 – Pipeline components 20 – 75 Vehicles, furniture and equipment – Furniture and equipment 3 – 10 – Motor vehicles 6 – 15 – Movable machinery 3 – 10

The useful lives, depreciation method and residual values of property, plant and equipment, if significant, are reviewed and adjusted annually. Changes resulting from the reassessment are accounted for prospectively as changes in estimates.

The carrying amount of an item of property, plant and equipment is written down immediately to its recoverable amount if its carrying value exceeds its estimated recoverable amount (refer to the relevant accounting policy on impairments) Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These gains and losses are included in the income statements under other income or expenses.

1.11 Intangible assets (a) Intangible assets Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and any impairment losses.

Acquired computer software is capitalised on the basis of the costs incurred to acquire and bring into use, the specific software. Costs associated with researching or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the development of identifiable software products controlled by the Group, that will probably generate economic benefits beyond one year and can be measured reliably are recognised as intangible assets. Costs include employee cost incurred as a result of developing software and an appropriate proportion of relevant overheads.

Servitudes are rights granted to the Group for an indefinite period of time. The life of the servitude will remain in force as long as the relevant infrastructure is still in use. A servitude will only become impaired if the infrastructure to which the servitude is linked is derecognised.

The useful life of the water rights are estimated based on the relevant contractual agreements. The useful life is re-assessed annually and will be adjusted if necessary.

Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred.

(b) Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

88 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

1. SIGNIFICANT ACCOUNTING POLICIES continued (c) Amortisation Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with indefinite useful lives are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use.

The estimated useful lives are as follows:

Estimated useful Asset category life (years)

Water rights 20 – 40 Servitudes Indefinite Computer software 1 – 5

1.12 Leases Leases where the Group assumes substantially all the risks and rewards of ownership, are classified as finance leases. All other leases are classified as operating leases.

(a) Group as a lessee Finance lease liabilities and leased assets are capitalised at the lower of the fair value of the leased asset or the present value of minimum lease payments. Each lease payment is allocated between the capital and finance charges so as to achieve a constant rate on the finance balance outstanding. The interest portion of the lease payment is charged to the income statement over the lease period and the corresponding capital portion is included under long-term liabilities.

Operating lease payments, if significant, are charged to the income statement on a straight-line basis over the period of the lease.

(b) Group as a lessor Amounts due from lessees under finance leases are recognised in the balance sheet and presented as a receivable at an amount equal to the net investment in the lease. The difference between the gross receivable and the cost of the asset is recognised as unearned finance income. Finance income is recognised based on a pattern reflecting a constant periodic rate of return on the net investment outstanding in respect of the finance lease.

Rental income derived from operating leases, if significant, is recognised in the income statement on a straight-line basis over the term of the lease.

1.13 Biological assets Biological assets are stated at fair value less estimated point-of-sale costs, with any resultant loss or gain recognised in the income statement. Point-of-sale costs include all costs that would be necessary to sell the assets, excluding costs necessary to get the assets to market.

1.14 Grants Grants consist primarily of capital contributions received from customers, benefiting specific projects, which are recognised when it is probable that the grant will be received, future economic benefits will flow to the entity and these benefits can be measured reliably. The contribution is recognised to the extent that there are no further obligations arising from the receipt thereof.

The deferred income relating to grants is recognised on the following bases: (a) Capital contributions received, relating to items of property, plant and equipment, are deducted from the cost of the related asset and are recognised as income over the life of the depreciable asset by way of a reduced depreciation charge. (b) Grants relating to income are credited to the income statement when the related expense is incurred.

RAND WATER Annual Report 2007 89 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

1. SIGNIFICANT ACCOUNTING POLICIES continued 1.15 Borrowing costs Borrowing costs directly attributable to the construction of qualifying assets are added to the cost of those assets, until the assets are substantially ready for their intended use. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are charged against income in the period in which they are incurred.

1.16 Investments Financial instruments held by the Group are classified as being available-for-sale and are stated at fair value with any resultant gain or loss recognised directly in equity. When these investments are derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in profit or loss. Where these investments are interest bearing, interest calculated using the effective interest method is recognised in profit or loss.

The fair value of financial instruments classified as available-for-sale is the quoted bid price at balance sheet date. Financial instruments classified as available-for-sale are recognised/derecognised by the Group on the date it commits to purchase/sell the investment.

1.17 Inventories Inventories are stated at the lower of cost, determined on the weighted average cost basis, and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated selling expenses. Write-downs to net realisable value are expensed in the period that they occur.

Biological assets related to agricultural activity and agricultural produce at the point of harvest is measured at fair value less costs to sell.

1.18 Trade and other receivables Trade and other receivables are initially recognised at fair value and are subsequently measured at amortised cost using the effective interest rate method, less impairment losses. A provision for impairment of trade receivables is recognised when there is objective evidence that the Group will not be able to recover all amounts due.

1.19 Cash and cash equivalents Cash and cash equivalents comprise cash on hand, bank balances and investments in money market instruments that mature within 90 days.

1.20 Impairments The carrying amounts of the Groups assets, other than financial assets, biological assets, deferred taxation assets and inventories, are reviewed at each balance sheet date to determine whether there is an indication of impairment. If any such indication exists, the recoverable amount is estimated to determine the extent of the impairment loss.

For assets that have indefinite useful lives, the recoverable amount is estimated at each balance sheet date and whenever there is an indication that the asset may be impaired.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement.

The impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

90 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

1. SIGNIFICANT ACCOUNTING POLICIES continued When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the assets is impaired, the cumulative loss that had been recognised directly in equity is recognised in profit or loss even though the financial asset has not been derecognised. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss.

(a) Calculation of recoverable amount The recoverable amount of the Group’s receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of these financial assets). Receivables with a shorter duration are not discounted.

The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

(b) Reversal of impairment An impairment loss in respect of a receivable carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment was recognised.

In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss. If the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognised in profit or loss.

1.21 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 income statement.

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

1.22 Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure to interest rate risks arising from operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes.

Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition, derivative financial instruments are stated at fair value.

The gain or loss on re-measurement to fair value is recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged.

The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current credit worthiness of the swap counter parties.

RAND WATER Annual Report 2007 91 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

1. SIGNIFICANT ACCOUNTING POLICIES continued 1.23 Employee benefits (a) Defined contribution plans Obligations for contributions to defined contribution plans are recognised as an expense in the income statement as incurred.

(b) Defined benefit plans The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit the employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value and the fair value of any plan assets is deducted.

In accordance with the requirements of the Pension Funds Act No 25 of 1956 as amended, a qualified actuary performs the valuation of the defined benefit funds, every three years, using the projected unit credit method.

(c) Long-term service benefits The Group’s net obligation in respect of long-term service benefits, other than pension plans, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is actuarially calculated at balance sheet date, every year, using the projected unit credit method and is discounted to its present value and the fair value of any related assets is deducted.

1.24 Trade and other payables Trade and other payables are initially recognised at fair value and are subsequently measured at amortised cost.

1.25 Provisions A provision is recognised in the balance sheet when the Group 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. If the effect is material, 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.

1.26 Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

The Group has no reportable segments, which are subject to risks and rewards that are different from those of other segments.

92 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

2. FORMATION OF JOINT VENTURE During the year Rand Water Services (Pty) Ltd obtained 49% interest in the operations of Vitens Rand Water Services BV (incorporated in the Netherlands) a foreign jointly controlled entity.

The joint venture was established by Rand Water Services (Pty) Ltd to provide business support, technology, consulting, advisory and capacity building services for water infrastructure related projects in Ghana.

The joint venture has contributed an after tax profit of R330 405 to the consolidated net profit for the year.

Information on capital commitments and project performance bonds in respect of the joint venture have been disclosed in notes 26 and 27.

GROUP RAND WATER 2007 2006 2007 2006 R’000 R’000 R’000 R’000

3. OTHER OPERATING INCOME Recoverable project revenue 48 547 49 044 48 547 49 044 Other income 60 858 34 850 59 091 33 372 Net gain on disposal of property, plant and equipment and intangibles 6 424 3 600 6 424 3 600

115 829 87 494 114 062 86 016

4. STAFF COSTS Executive members 2 941 3 503 1 435 1 920 Non-executive members 3 673 3 151 2 526 2 438

Board members’ fees and emoluments 6 614 6 654 3 961 4 358 Salaries 406 692 383 725 393 242 381 117 Contributions to defined contribution plan 47 855 48 140 47 855 48 139 Other staff costs 180 983 151 701 179 576 150 864

642 144 590 220 624 634 584 478

5. OTHER OPERATING EXPENSE Auditors’ remuneration 2 375 2 159 2 158 1 972

– prior year under provision 422 337 374 317 – current year 1 953 1 822 1 784 1 655

Advertising 6 419 4 353 6 419 4 353 Bad debts provision 11 736 (18) 11 731 (18) Contract expenses 36 830 19 630 36 830 19 630 Courses and seminars 25 508 27 140 25 407 27 019 Insurance costs 14 277 17 037 14 191 17 037 Legal claim settlement 50 1 500 50 1 500 Maintenance spares and consumables 46 956 44 822 46 956 44 822 Post retirement medical benefit costs 20 574 22 624 20 574 22 624 Replacements, refurbishments, repairs, special projects and periodic maintenance 36 997 63 209 36 997 63 209 Software licences 13 712 9 248 13 712 9 248 Telephone and cell phone costs 9 768 9 652 9 487 9 514 Travel and accommodation 7 605 5 616 4 940 4 391 Other overheads 70 758 38 049 66 720 36 769

303 565 265 021 296 172 262 070

RAND WATER Annual Report 2007 93 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

GROUP RAND WATER 2007 2006 2007 2006 R’000 R’000 R’000 R’000

6. NET FINANCING COSTS Interest income (5 887) (3 578) (5 259) (3 547) Other investments (69 129) (46 392) (69 129) (45 692)

Financial income (75 016) (49 970) (74 388) (49 239) Interest expense 98 120 143 023 97 775 143 023 Fair value loss on interest rate swaps 445 1 534 445 1 534 Interest capitalised (25 039) (18 985) (25 039) (18 985) Amortised discount on issue of long term loans 1 399 4 427 1 399 4 427

Financial expenses 74 925 129 999 74 580 129 999

Net financing costs 91 80 029 192 80 760

Borrowing costs capitalised during the year arose on the general borrowing pool and are calculated by applying a capitalisation rate of 13% (2006: 13%)

7. TAXATION Current tax credit Foreign tax incurred (98) Deferred tax raised 1 530 1 615 – –

Credit to income statement 1 432 1 615 – –

Reconciliation of effective tax rate Profit before taxation 742 563 591 809 747 779 595 304

Income tax effect at 29% (215 343) (171 625) (216 856) (172 638) Tax exempt profits 216 749 173 240 216 856 172 638 Effect of transaction taxed in foreign country 26 – –

Deferred tax raised 1 432 1 615 – –

Rand Water Services (Pty) Ltd and Rand Water Services Vitens BV are the only tax paying entities in the Group. In terms of section 10(1)(cA) read with section 1(b) of the Income Tax Act 58 of 1962, Rand Water is exempt from income tax. Rand Water Foundation is in the process of applying to be classified as a Public Benefit Organisation that will exempt them from tax.

8. SECONDARY ACTIVITIES Included in operating profit before finance costs are the following profits/(losses) derived from secondary activities undertaken by Rand Water: Farming (4 735) (6 706) (4 735) (6 706) Community based projects (2 417) (136) (2 417) (136) Sanitation – 550 – 550 New Business – (1 034) – (1 034) Retail Water 388 (2 757) 388 (2 757) Emhlangeni Pipe 62 153 62 153

Loss on secondary activities (6 702) (9 930) (6 702) (9 930)

94 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

9. PROPERTY, PLANT AND EQUIPMENT

Vehicles Assets Land and Plant and furniture and under buildings reservoirs Pipe-lines equipment construction Total R’000 R’000 R’000 R’000 R’000 R’000

GROUP Cost Balance at 1 July 2005 303 025 1 979 120 2 138 895 196 591 458 083 5 075 714 Acquisitions 5 779 22 197 (64 847) 13 664 362 344 339 137 *Transfers to/(from) AUC 5 515 92 697 – (263) (97 949) – Disposals (682) (11 251) – (5 061) – (16 994)

Balance at 30 June 2006 313 637 2 082 763 2 074 048 204 931 722 478 5 397 857

Balance at 1 July 2006 313 637 2 082 763 2 074 048 204 931 722 478 5 397 857 Acquisitions 7 125 9 636 13 809 21 473 355 554 407 597 *Transfers to/(from) AUC 0 22 843 330 544 9 661 (363 048) – Disposals (6 694) (25 073) (12 323) (13 194) – (57 284)

Balance at 30 June 2007 314 068 2 090 169 2 406 078 222 871 714 984 5 748 170

Depreciation and impairment losses Balance at 1 July 2005 91 802 558 416 417 305 105 067 – 1 172 590 Depreciation charge for the year 6 694 67 869 32 964 16 959 – 124 486 Disposals (603) (6 662) (13) (4 599) – (11 877)

Balance at 30 June 2006 97 893 619 623 450 256 117 427 – 1 285 199

Balance at 1 July 2006 97 893 619 623 450 256 117 427 – 1 285 199 Depreciation charge for the year 10 303 68 733 37 723 13 086 – 129 845 Disposals (15) (37 527) (497) (10 549) – (48 588)

Balance at 30 June 2007 108 181 650 829 487 482 119 964 – 1 366 456

Carrying amounts Balance at 1 July 2005 211 223 1 420 704 1 721 590 91 524 458 083 3 903 124

Balance at 30 June 2006 215 744 1 463 140 1 623 792 87 504 722 478 4 112 658

Balance at 1 July 2006 215 744 1 463 140 1 623 792 87 504 722 478 4 112 658

Balance at 30 June 2007 205 887 1 439 340 1 918 596 102 907 714 984 4 381 714

* AUC = Assets under construction

RAND WATER Annual Report 2007 95 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

9. PROPERTY, PLANT AND EQUIPMENT continued

Vehicles Assets Land and Plant and furniture and under buildings reservoirs Pipe-lines equipment construction Total R’000 R’000 R’000 R’000 R’000 R’000

RAND WATER Cost Balance at 1 July 2005 303 025 1 979 120 2 138 895 196 591 458 083 5 075 714 Acquisitions 5 779 22 197 (64 847) 13 111 362 344 338 584 *Transfers to/(from) AUC 5 515 92 697 (263) (97 949) – Disposals (682) (11 251) – (5 061) – (16 994)

Balance at 30 June 2006 313 637 2 082 763 2 074 048 204 378 722 478 5 397 304

Balance at 1 July 2006 313 637 2 082 763 2 074 048 204 378 722 478 5 397 304 Acquisitions 7 125 9 636 13 809 20 924 355 554 407 048 *Transfers to/(from) AUC 0 22 843 330 544 9 661 (363 048) – Disposals (6 694) (25 073) (12 323) (13 194) – (57 284)

Balance at 30 June 2007 314 068 2 090 169 2 406 078 221 769 714 984 5 747 068

Depreciation Balance at 1 July 2005 91 802 558 416 417 305 105 067 – 1 172 590 Depreciation charge for the year 6 694 67 869 32 964 16 909 – 124 436 Disposals (603) (6 662) (13) (4 599) – (11 877)

Balance at 30 June 2006 97 893 619 623 450 256 117 377 – 1 285 149

Balance at 1 July 2006 97 893 619 623 450 256 117 377 – 1 285 149 Depreciation charge for the year 10 303 68 733 37 723 12 886 – 129 645 Disposals (15) (37 527) (497) (10 550) – (48 589)

Balance at 30 June 2007 108 181 650 829 487 482 119 713 – 1 366 205

Carrying amounts Balance at 1 July 2005 211 223 1 420 704 1 721 590 91 524 458 083 3 903 124

Balance at 30 June 2006 215 744 1 463 140 1 623 792 87 001 722 478 4 112 155

Balance at 1 July 2006 215 744 1 463 140 1 623 792 87 001 722 478 4 112 155

Balance at 30 June 2007 205 887 1 439 340 1 918 596 102 056 714 984 4 380 863

* AUC = Assets under construction

Leased assets (a) Vehicles, furniture and equipment The Group leases equipment under a number of finance lease agreements. At 30 June 2007, the net carrying amount of leased equipment was R671 (2006: R721). The leased equipment secures lease obligations of R724 at 30 June 2007 (2006: R755) (see note 19).

(b) Plant and reservoirs Other leased assets with a carrying value of R21,7 million are encumbered by finance lease liabilities (refer note 19).

96 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

9. PROPERTY, PLANT AND EQUIPMENT – COMPANY continued Property, plant and equipment under construction The Group undertakes a number of independent capital work projects. Total budgeted capital expenditure for the year was estimated at R571 million of which R380 million was undertaken in the current financial year. The balance will be carried over to subsequent financial years. Capital contributions Included in acquisitions for June 2006 is a credit of R71 million relating to capital contributions received from customers for construction of assets. 10. INTANGIBLE ASSETS

Software Servitudes Water rights Total R’000 R’000 R’000 R’000

Cost Balance at 1 July 2005 3 602 43 871 162 523 209 996 Acquisitions 20 896 1 974 – 22 870

Balance at 30 June 2006 24 498 45 845 162 523 232 866

Balance at 1 July 2006 24 498 45 845 162 523 232 866 Acquisitions 48 419 – – 48 419 Disposals (185) (70) – (255)

Balance at 30 June 2007 72 732 45 775 162 523 281 030

Amortisation and impairment losses Balance at 1 July 2005 481 – 44 698 45 179 Amortisation for the year 6 840 – 7 812 14 652

Balance at 30 June 2006 7 321 – 52 510 59 831

Balance at 1 July 2006 7 321 – 52 510 59 831 Amortisation for the year 22 162 – 8 097 30 259

Balance at 30 June 2007 29 483 – 60 607 90 090

Carrying amounts Balance at 1 July 2005 3 121 43 871 117 825 164 817 Balance at 30 June 2006 17 177 45 845 110 013 173 035 Balance at 1 July 2006 17 177 45 845 110 013 173 035

Balance at 30 June 2007 43 249 45 775 101 916 190 940

Note: Group and Rand Water balances for the intangibles are the same, as the subsidiaries and joint ventures have not recognised any intangible assets.

Indefinite useful lives Servitudes have an indefinite useful live and are not amortised but are assessed by means of annual impairment test. These servitudes consist of land expropriated by Rand Water containing infrastructure owned by the Group and used in the production of revenue. Land is not depreciated.

RAND WATER Annual Report 2007 97 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

11. BIOLOGICAL ASSETS

Livestock R’000

Balance at 1 July 2005 3 622 Decrease due to sales (3 716) Decrease due to deaths (57) Increase due to births 86 Change in fair value less estimated point-of-sale costs 65

Balance at 30 June 2006 –

Balance at 30 June 2007 –

During the year ended 30 June 2006, the Group sold all livestock comprising of 639 cattle.

GROUP 2007 2006 R’000 R’000

12. INVESTMENTS Non-current investments: Securities available for sale 132 569 138 270

Rand Water holds an investment of R120 million in Republic of South Africa R153 stock. These bonds are traded in the secondary market. The interest rate is 13%, which is paid bi-annually, and the maturity date is 2010.

GROUP RAND WATER 2007 2006 2007 2006 R’000 R’000 R’000 R’000

13. LOANS RECEIVABLE Employee loans: – Non current portion 7 649 5 385 7 649 5 385 – Current portion 6 088 7 961 6 088 7 961

13 737 13 346 13 737 13 346 Loan to subsidiary – – 17 942 9 039

13 737 13 346 31 679 22 385

Employee loans represent Micro Loans granted to employees. The scheme is registered with the Micro Finance Regulatory Council. Repayment period of the loans vary from 1 to 3 years, and closing interest rate is 14.5% (2006: 13%). Rand Water has registered as a credit provider in terms of S40 of the National Credit Act 34 of 2005.

The loan to subsidiary represents loans to Rand Water Services (Pty) Ltd. Rand Water has subordinated a portion of the loan until such time that the assets of Rand Water Services (Pty) Ltd fairly valued, exceeds the liabilities.

98 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

GROUP RAND WATER 2007 2006 2007 2006 R’000 R’000 R’000 R’000

14. DEFERRED TAX ASSET Carried forward from prior year 1 615 – – – Deferred tax raised for the year 1 530 1 615 – –

3 145 1 615 – –

15. INVENTORIES Raw materials and chemicals 19 830 16 364 19 830 16 364 Maintenance and consumable stores 17 342 15 695 17 336 15 685 Biological assets – 2 727 – 2 727

37 172 34 786 37 166 34 776

Inventories are shown net of impairment losses/(gains) amounting to R463 (2006: (R2 009)) recognised in the year.

16. TRADE AND OTHER RECEIVABLES Trade receivables 421 171 343 453 413 965 339 904 Recoverable work-in-progress 14 360 8 833 14 360 8 833 Other receivables and prepayments 67 201 50 725 74 966 62 914 Tax prepayment 631 – – –

503 363 403 011 503 291 411 651

Trade receivables are shown net of provision for bad debts amounting to R11 877 (2006: R203) recognised in the year determined by reference to past default experience.

17. CASH AND CASH EQUIVALENTS Bank and cash balances 11 982 67 831 8 380 65 336 Call deposits 73 968 149 838 60 000 139 000 Money market (term and discount transactions) 908 747 292 447 908 747 292 447

Cash and cash equivalents in the statement of cash flows 994 697 510 116 977 127 496 783

RAND WATER Annual Report 2007 99 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

18. ACCUMULATED RESERVES

Translation Fair value Accumulated Total reserves reserves profit equity R’000 R’000 R’000 R’000

Reconciliation of movement in Group capital and reserves: Restated balance at 1 July 2005 – 24 812 3 162 564 3 187 376 Total recognised income and expense – (9 044) 593 424 584 380

Balance at 30 June 2006 – 15 768 3 755 988 3 771 756

Balance at 1 July 2006 – 15 768 3 755 988 3 771 756 Total recognised income and expense (42) (5 701) 742 995 737 252

Balance at 30 June 2007 (42) 10 067 4 498 983 4 509 008

Reconciliation of movement in Rand Water capital and reserves: Restated balance at 1 July 2005 – 24 812 3 156 117 3 180 929 Total recognised income and expense – (9 044) 595 304 586 260

Balance at 30 June 2006 – 15 768 3 751 421 3 767 189

Balance at 1 July 2006 – 15 768 3 751 421 3 767 189 Total recognised income and expense – (5 701) 747 779 742 078

Balance at 30 June 2007 – 10 067 4 499 200 4 509 267

Translation reserve The translation reserve arises as a result of proportionally consolidating the foreign exchange differences on translation of the foreign joint venture.

Fair value reserve The fair value reserve relates to the cumulative net change in the fair value of available-for-sale investments until the investment is derecognised.

Accumulated profit The accumulated profits of Rand Water are not available for distribution and are utilised to fund infrastructure development, investments and working capital.

100 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

GROUP 2007 2006 R’000 R’000

19. INTEREST BEARING BORROWINGS Non-current liabilities: Secured bank loans 100 000 100 000 Unsecured bond issues 625 428 624 028 Finance lease liabilities 308 11 147

725 736 735 175

Current liabilities: Current portion of secured bank loans – – Current portion of finance lease liabilities 11 343 9 055 Unsecured bond issues – 300 Derivative instruments (1 844) 3 732

9 499 13 087

The bank loans are secured over a R100 million indefinite note. Finance lease liabilities are secured over plant and equipment to the value of R23,4 million.

Note: Group and Rand Water balances for the interest bearing borrowings are the same, as the subsidiaries and joint venture do not have any other borrowings.

Minimum Minimum lease lease payment Interest Principal payment Interest Principal R000 2007 2007 2007 2006 2006 2006

Finance lease liabilities Less than one year 13 258 1 915 11 343 13 237 4 182 9 055 Between one and five years 330 22 308 13 441 2 294 11 147

13 588 1 937 11 651 26 678 6 476 20 202

Under the terms of the lease agreements, no contingent rents are payable.

RAND WATER Annual Report 2007 101 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

GROUP 2007 2006 R’000 R’000

20. RETIREMENT BENEFIT OBLIGATIONS Balance as at 1 July 216 122 193 498 Interest cost 16 694 15 856 Service cost 11 048 9 729 Employer disbursements (7 442) (6 972) Actuarial loss 274 4 011 Total employee benefit 236 696 216 122

Liability for defined benefit obligation Rand Water has an obligation to continue to fund a portion of employees’ contributions to the Rand Water Medical Scheme after retirement. The liability is actuarially calculated each year in accordance with the stated accounting policy

Movements in the net liability for defined benefit obligation recognised in the balance sheet. Net liability for defined benefit obligation at 1 July 216 122 193 498 Expense recognised in the income statement 20 574 22 624 Net liability for defined benefit obligation at 30 June 236 696 216 122

Expense recognised in the income statement The expense is recognised under the following item in the income statement. Other expenses 20 574 22 624 20 574 22 624

Liability for defined benefit obligations Principal actuarial assumptions at the balance sheet date: Discount rate (% per annum) 7.75 8.00 Health care cost inflation (% per annum) 6.75 6.50 CPI Inflation (% per annum) 4.75 5.00 Salary Inflation (% per annum) 6.25 6.50 Membership continued at retirement (% per annum) 100 100

Note: Group and Rand Water balances for the retirement obligations are the same, as the subsidiaries and joint venture do not have any further obligation

GROUP RAND WATER 2007 2006 2007 2006 R’000 R’000 R’000 R’000

21. TRADE AND OTHER PAYABLES Trade payables 439 217 320 262 438 470 375 036 Other payables 251 515 263 715 249 768 217 022 Leave pay 29 499 27 772 29 340 27 772 Bonus 50 481 28 199 49 173 27 423 VAT 2 936 10 749 2 936 10 229

773 648 650 697 769 687 657 482

102 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

GROUP RAND WATER 2007 2006 2007 2006 R’000 R’000 R’000 R’000

22. RECONCILIATION OF PROFIT BEFORE TAXATION TO CASH GENERATED FROM OPERATIONS Profit before taxation 741 563 591 809 747 779 595 304 Adjustments for: Depreciation 129 845 124 486 129 644 124 436 Amortisation 30 259 14 652 30 259 14 652 Interest income (75 016) (49 970) (74 388) (49 239) Interest expense 73 526 125 572 73 181 125 572 Gain on disposal of property, plant and equipment (6 424) (3 600) (6 424) (3 600) Gain on translation of foreign operation (42) – – – Change in value of biological assets – (151) – (151) Amortised discount on issue of long-term loans 1 399 4 427 1 399 4 427 Post retirement medical benefits costs 20 574 22 624 20 574 22 624 Operating profit before changes in working capital 915 684 829 849 922 024 834 025 (Increase)/decrease in trade and other receivables (99 721) (1 306) (91 640) 5 851 (Increase)/decrease in inventories (2 386) 2 194 (2 390) 2 204 Increase/(decrease) in trade and other payables 122 951 (35 771) 112 205 (53 132) Cash generated from operations 936 528 794 966 940 199 788 948

23. FINANCIAL INSTRUMENTS Exposure to credit, interest and currency risk arises in the normal course of the Group’s business. Derivative financial instruments are used to hedge exposure to fluctuations in interest rates.

Liquidity risk The Group manages liquidity risk through proper management of working capital, capital expenditure and actual versus forecasted cash flows. Adequate reserves, liquid resources and unutilised borrowing facilities are also maintained.

Interest risk The Group manages its interest rate risk by maintaining an appropriate mix between fixed and floating interest rate borrowings and investments, as well as by entering into interest rate swap contracts on outstanding borrowings. The swaps mature over the next year following maturity of the related loan (see following table) and have fixed swap rates ranging from 13.8% NACQ to 13,.86% NACS. At 30 June 2007 the Group had interest rate swaps with a notional contract amount of R70 400 (2006: R70 400).

The Group classifies interest rate swaps as cash flow hedges and states them at fair value.

The net value of swaps at 30 June 2007 was R1 844 (2006: R2 288) comprising liabilities of R0 (2006: R3 732). These amounts were recognised as fair value derivatives.

Credit risk Hedging Financial assets, which potentially subject the Group to the risk of non-performance by counter-parties and thereby subject the Group to concentrations of credit risk, consist mainly of cash and cash equivalents, investments, trade receivables and derivative financial instruments. Credit risk is controlled through the application of credit approvals, limits and monitoring procedures.

The Group limits its treasury counter-party exposure by only dealing with well-established financial institutions with high credit ratings assigned by international credit-rating agencies. The Group’s exposure and the credit ratings of its treasury counter-parties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counter-parties. The Group does not expect any treasury counter-parties to fail to meet their obligations, given their high credit rating.

The Group does not consider there to be any significant concentration of credit risk, which has not been adequately provided for. Trade receivables are presented net of the allowance for doubtful debt.

RAND WATER Annual Report 2007 103 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

23. FINANCIAL INSTRUMENTS continued Effective interest rates and repricing analysis In respect of income earning financial assets and interest bearing financial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they reprice.

Six to Effective Less than twelve One to Two to More interest rate Total six months months two years five years than R’000 R’000 R’000 R’000 R’000 R’000 five years

2007 Secured bank loans: ABSA Indefinite 10,57 100 000 – – – 100 000 –

Unsecured bank loans: SCMB#3 ––––––– Effect of interest rate swap ––––––– SCMB#3 ––––––– Effect of interest rate swap 8,60 (1 844) (1 844) – – –

Unsecured bond issues: RW01 ––––––– RW02 13,00 625 428 ––––625 428 Finance lease liabilities 8,70 11 651 – 11 343 308 – – Cash and cash equivalents 9,35 994 697 994 697 ––––

2006 Secured bank loans: ABSA Indefinite 8,74 100 000 – – – 100 000 –

Unsecured bank loans: SCMB#3 7,19 6 025 6 025 –––– Effect of interest rate swap 7,19 (5) (5) ––––

SCMB#3 Effect of interest rate swap 8,39 (2 288) (2 288) ––––

Unsecured bond issues: RW01 16,50 300 300 –––– RW02 13,00 624 328 ––––624 328 Finance lease liabilities 7,14 20 202 – 9 055 11 147 – – Cash and cash equivalents 7,23 510 116 510 116 ––––

104 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

23. FINANCIAL INSTRUMENTS continued Fair values The fair values together with the carrying amounts for the Group are as follows:

Amortised Amortised Carrying cost/ Carrying cost/ amount fair value amount fair value 2007 2007 2006 2006 R’000 R’000 R’000 R’000

Equity securities available for sale 120 000 132 569 120 000 138 270 Loans receivable 13 737 13 737 13 346 13 346 Trade and other receivables 503 363 503 363 403 011 403 011 Cash and cash equivalents 994 697 994 697 510 116 510 116 Secured bank loans 100 000 100 000 106 025 103 732 Unsecured bond issues 633 754 625 428 633 754 624 628 Finance lease liabilities 11 651 11 651 20 202 20 202 Trade and other payables 773 648 773 258 650 697 650 697

Estimation of fair values The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflected in the table above.

Securities Fair value is based on quoted market prices at the balance sheet date without any deduction for transaction costs.

Derivatives Interest rate swaps are marked to market using zero coupon curves derived from the BESA. These quotes are tested using pricing models or discounted cash flow techniques.

Where discounted cash flow techniques are used, estimated cash flows are based on management’s best estimates and the discount rate is a market related rate for a similar instrument at balance sheet date. Where other pricing models are used, inputs are based on market related data at balance sheet date.

Interest-bearing loans and borrowings Fair value is calculated based on discounted expected future principal and interest cash flows.

Finance lease liabilities The fair value is estimated as the present value of future cash flows, discounted at market interest rates for homogenous lease agreements. The estimated fair values reflect change in interest rates.

RAND WATER Annual Report 2007 105 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

23. FINANCIAL INSTRUMENTS continued Fair values continued Trade and other receivables/payables For receivables/payables with a remaining life of less than one year, the nominal amount is deemed to reflect the fair value. All other receivables/payables are discounted to determine the fair value.

Interest rates used for determining fair value The Group uses the government yield curve as at 30 June 2007 plus an adequate constant credit spread to discount financial instruments. The interest rates used are as follows:

2007 2006 % %

Derivatives 7.54 – 9.18 7.19 – 9.07 Loans and borrowings 8.7 – 13.0 7.14 – 16.5 Leases 13.0 13.0 Receivables 2.0 – 13.5 2.0 – 13.5

24. OPERATING LEASE COMMITMENTS

GROUP RAND WATER 2007 2006 2007 2006 R’000 R’000 R’000 R’000

Operating lease rentals are payable as follows: Group as lessee Less than one year 1 447 497 1 034 122 Between one and five years 3 861 623 3 861 210 More than five years 6 628 – 6 628 –

11 936 1 120 11 523 332

The Group leases a number of office and residential facilities under operating leases. The leases run for periods of between 1 to 3 years, with an option to renew the lease after that date. Lease payments are subject to an annual escalation to reflect market rentals. None of the leases include contingent rentals.

Group as lessor The future minimum lease payments are as follows:

GROUP RAND WATER 2007 2006 2007 2006 R’000 R’000 R’000 R’000

Less than one year 768 193 768 193 Between one and five years 2 684 304 2 684 304 More than five years 43 204 43 204

46 656 497 46 656 497

The Group leases out a number of properties under operating leases. These property leases do not qualify as investment property as the properties were purchased for future operational use and the related income is incidental in nature. During the year ended 30 June 2007, R573 (2006: R345) was recognised as rental income in the income statement. Property leases consist mainly of vacant land and therefore little or no costs have been realised for repairs and maintenance.

The group revised its accounting policy in respect of IFRIC 4 in the 2007 financial year. The commitments included above arise out of those arrangements that contain deemed operating leases (see note 30).

106 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

25. RETIREMENT BENEFIT INFORMATION Employees are members of the Rand Water Superannuation Fund; the Rand Water Provident Fund or the South African Municipal Workers’ Union National Provident Fund.

On 1 July 1997 the Rand Water Retirement Fund was merged with the Rand Water Superannuation Fund. The Superannuation Fund is a defined benefit fund, which requires an actuarial valuation every three years. A valuation was conducted as at 31 December 2003 and in the opinion of the actuary, the defined benefit plan was found to be in a sound financial position. A snapshot valuation was conducted as at 30 June 2005 and based on the same assumptions as the previous valuation. The fund is still in the process of voluntary liquidation.

The following information is provided in respect of the Rand Water Superannuation Fund.

2005 2003 R’000 R’000

Present value of obligation 654 935 572 800 Fair value of plan assets 792 292 656 300 The “best estimates assumptions” basis has been adopted for the valuation. Key assumptions used are as follows: Discount rate (% per annum) 4,5 9,1 Expected rate of salary increases (% per annum) N/A 5,9 Inflation (% per annum) 5,0 4,9

26. CAPITAL COMMITMENTS

GROUP RAND WATER 2007 2006 2007 2006 R’000 R’000 R’000 R’000

Contracted for but not provided in the financial statements 348 602 301 406 348 602 301 406 Authorised but not contracted for 557 600 368 433 557 600 368 433 Authorised but not contracted for in foreign currency (USD 367 000) – 2 762 – –

Total future commitments 906 202 672 601 906 202 669 839

The Group is committed in respect of capital expenditure including expected contract price adjustments. This expenditure will be financed from internal resources and out of loans.

RAND WATER Annual Report 2007 107 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

27. CONTINGENT LIABILITIES Legal claims Cosmic Paints During the year Cosmic Paints instituted proceedings against Rand Water in respect of breach of contract. The amount being claimed from Rand Water is approximately R6,3 million. The matter has not been settled but appears to have been abandoned by the applicant. Accordingly, no provision has been made in the annual financial statements.

Guarantees At 30 June 2007 the Group has contingent liabilities in respect of guarantees given to third parties which amount to R7 million (2006: R7,2 million).

Project performance bond The Group is also liable for 49% of a project performance bond, in respect of the joint venture with Vitens Rand Water Service BV, a Netherlands based company. The joint venture holds a management contract with Ghana Urban Water. The value of the project performance bond at 30 June 2007 is R10,4 million (USD $1,96 million) and at 30 June 2006: R24,9 million (USD3,43 million) which matures over a period of five years. The exposure will reduce as the management contract matures.

28. RELATED PARTIES The Group has a related party relationship with its subsidiaries and with its executive officers and board members. As Rand Water is a state controlled entity it also has a related party relationship with all other entities within the same sphere of government.

Transactions with key management personnel In addition to their salaries, the Group also provides non-cash benefits to executive officers and contributes to a post-employment defined benefit plan on their behalf.

GROUP RAND WATER 2007 2006 2007 2006 R’000 R’000 R’000 R’000

Key management personnel compensations are as follows: Short term employee benefits 20 113 19 624 16 139 16 340 Post employment benefits 763 1 102 763 1 102

20 876 20 726 16 902 17 442

Total remuneration is included in personnel expenses (see note 4) Board members 3 673 3 151 2 526 2 438 Executive and general management 17 102 17 575 14 376 15 004

20 775 20 726 16 902 17 442

Amount advanced to board member: Ms J Ngubane 75 75 75 –

The amount advanced relates to an erroneous payment made to the Board member in respect of board fees.

108 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued

28. RELATED PARTIES continued

Country of Ownership incorporation interest

Subsidiaries Rand Water Services (Pty) Ltd South Africa 100%

Rand Water Services (Pty) Ltd is a 100% owned subsidiary of Rand Water.

Rand Water Foundation South Africa –

Rand Water Foundation is an association incorporated under Section 21. The company is a special purpose entity as defined. The members of Rand Water Foundation are officials of Rand Water.

Country of Ownership incorporation interest

Joint Venture Vitens Rand Water Service BV Netherlands 49%

Vitens Rand Water Service BV is a jointly controlled entity, based in the Netherlands of which Rand Water Services (Pty) Ltd holds 49%.

The following transactions were carried out with the subsidiaries:

RAND WATER RAND WATER SERVICES (PTY) LTD FOUNDATION 2007 2006 2007 2006 R’000 R’000 R’000 R’000

Purchases of goods and services 2 702 7 204 – – Contribution to associates – – 3 886 3 713 Sale of assets – 536 – – Interest received 714 17 – – Year end balances arising from transactions: Receivables 17 942 9 038 7 452 3 493 Payables 501 8 579 – –

Group entities The Group is 100% controlled by the government of South Africa represented by the Department of Water Affairs and Forestry. Rand Water and its subsidiaries are schedule 3B enterprises in terms of the Public Finance Management Act. The related parties of Rand Water consist mainly of government departments and state owned enterprises and other public entities in the National sphere of government.

RAND WATER Annual Report 2007 109 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continued for the year ended 30 June 2007

28. RELATED PARTIES continued Below is a summary of transactions with other state controlled entities in the National sphere of government:

GROUP RAND WATER 2007 2006 2007 2006 R’000 R’000 R’000 R’000

Sales of goods and services 383 479 328 671 381 797 305 769 Purchases of goods and services 2 326 650 2 041 648 2 326 650 2 041 648 Interest received 57 44 57 44 Statutory liabilities 266 888 135 235 266 888 135 235 The above transactions with related parties are on an arms length basis at market related prices Year end balances arising from transactions Receivables 2 757 12 341 2 376 4 071 Payables 386 466 312 355 386 466 312 355

All receivables/payables are due within 30 days from date of invoice.

Interest receivable/payable is in accordance with normal market practice.

29. SUBSEQUENT EVENTS No material events have occurred between the balance sheet date and the date on which the consolidated annual financial statements were approved.

30. CHANGES IN ACCOUNTING POLICIES The Group has implemented the following interpretation and change in accounting policies:

IFRIC 4 Determining whether an arrangement contains a lease The implementation of the above interpretation and impact, if any, on the consolidated annual financial statements are indicated below:

The implementation of IFRIC 4 Determining whether an arrangement contains a lease has resulted in a change in accounting policy. The Group has reviewed the requirements in terms of the interpretation and as such has determined the following:

• that certain arrangements did not contain leases, • arrangements that contained deemed leases and qualify as operating leases are recognised in terms of IAS 17 Leases, • an arrangement that contained a deemed lease and qualified as a finance lease was deemed to be immaterial and not adjusted for.

110 GLOSSARY OF TERMS

ACI Africans, Coloureds, Indians PIC Portfolio Integrating Committee

ASGISA Accelerated and Shared Growth Initiative for RWF Rand Water Foundation South Africa RWS Rand Water Services BBBEE Broad-based Black Economic Empowerment SAAWU South African Association of Water Utilities BEE Black Economic Empowerment SABS South African Bureau of Standards BWS Bulk Water Services SAICE South African Institute of Civil Engineers CBPD Community Based Projects Department SALGA South African Local Government Association CSR Corporate Social Responsibility SAMWU South African Municipal Workers’ Union COR Cost of Risk SANS South African National Standards CVM Customer Value Management SAP Systems Application Products DIFR Disabling Injury Frequency Rate SHEQ Safety, Health, Environment and Quality DPLG Department of Provincial and Local Government SLA Service Level Agreements

DWAF Department of Water Affairs and Forestry SLE Service Level Evaluation

EIA Environmental Impact Assessment SOE State Owned Enterprise

ERM Enterprise Risk Management TCTA Trans-Caledon Tunnel Authority

HACC Hazard Assessment Critical Control WHO World Health Organisation

ISO International Standards Organisation WQSP Water Quality Safety Plan

JIPSA Joint Initiative on Priority Skills Acquisition

KPIs Key Performance Indicators

LGWSETA Water Services Sectoral Education and Training Authority

MDGs Millennium Development Goals

MFMA Municipal Finance Management Act

NEPAD New Partnership for Africa’s Development

NETU National Employees’ Trade Union

OHSAS Occupational Health and Safety Assessment System

PFMA Public Finance Management Act

RAND WATER Annual Report 2007 111 CONTACT DETAILS POSTAL ADDRESS PO Box 1127, Johannesburg, 2000 Company Secretary: South Africa Sandile Dlamini Telephone number: +27 11 682 0911 Telephone number: +27 11 682 0892 Fax number: +27 11 682 0444/0555 Fax number: +27 11 682 0678 Call centre: 0860 10 10 60 Email address: [email protected] Email: [email protected] HEAD OFFICE PHYSICAL ADDRESS MARKETING AND COMMUNICATIONS 522 Impala Road, off Kliprivier Road, Telephone number: +27 11 682 0980 Glenvista, 2058 Fax number: +27 11 432 4943 Email address: [email protected] www.randwater.co.za