ANNUAL REPORT 2007

BLANTYRE WATER BOARD

BLANTYRE WATER BOARD

ANNUAL REPORT 2007

(Incorporated under the Waterworks Act, No.17 of 1995)

ANNUAL REPORT AND STATEMENT OF ACCOUNTS

For the year ended 30th June 2007

(Submitted in accordance with provisions of the Public Finance Management Act No. 7 of 2003 and the Public Audit Act No. 6 of 2003)

BLANTYRE WATER BOARD

ANNUAL REPORT 2007

TABLE OF CONTENTS

_________________________________________________________________________ MISSION STATEMENT 4 _________________________________________________________________________ APPOINTMENTS 5 _________________________________________________________________________ CORPORATE PROFILE 6 _________________________________________________________________________ CHAIRPERSON'S STATEMENT 7 _________________________________________________________________________ CHIEF EXECUTIVES REPORT 9 _________________________________________________________________________ HUMAN RESOURCES 11 _________________________________________________________________________ OPERATIONS 13 _________________________________________________________________________ CAPITAL INVESTMENT 20 _________________________________________________________________________ FINANCIAL RESULTS 25 _________________________________________________________________________ REPORT OF INDEPENDENT AUDITORS 29 _________________________________________________________________________ NOTES TO FINANCIAL STATEMENTS 35 _________________________________________________________________________

BLANTYRE WATER BOARD

ANNUAL REPORT 2007

MISSION STATEMENT
To provide reliable and affordable water supply services to our customers whilst effectively contributing to the development of the national economy and sustenance of the environment

BLANTYRE WATER BOARD

ANNUAL REPORT 2007

APPOINTMENTS
DIRECTORS OF THE BOARD
Dr Chrissie P.N. Kaponda (Chairperson) Mr. T.I Nampota Mr. L. Namakhwa Mr. E. Thulambo Mr. Trouble Kalua Mr. Wakuda Kamanga Mrs. E.V. Solomoni C. Jika O.C. Chigamba Chief Executive, Blantyre City Assembly Secretary for Water Development Comptroller of Statutory Corporations CHIEF OFFICERS General Manager/Chief Executive O. Kankhulungo, R.Eng, MSC in Water & Waste Eng. B.Sc (Civil), Cert. in Utility Regulation& Strategy, Cert. in Effective Mgt, Cert. in Water Resources Reform Strategies, from 01-03-07 Financial Controller Y. Mwanda FCCA, CPA (M), BCOM (ACC), Dip- Bus. Studies from 01-11-05 Operations Manager B. Chirwa, Dip. C.E. Secretary to the Board C.S.M. Liabunya, B.A. (Pub. Admin.) Engineering Manager A.M. Thawe, B. Sc. (Civil) Dip. P.M; A.M.M.I.E from 1-02-05 AUDITORS Ernst and Young SOLICITORS Wilson & Morgan BANKERS National Bank of Malawi BLANTYRE WATER BOARD HEAD OFFICE Off Makata Road P.O. Box 30369 Chichiri, Blantyre 3 Tel. : Blantyre (265) 1 872 000 Fax : Blantyre (265) 1 872 026 E-Mail : bwb@bwb.mw

BLANTYRE WATER BOARD

ANNUAL REPORT 2007

CORPORATE PROFILE
Blantyre Water Board was established in 1929. It is the largest of five government owned catchment-based water utilities in Malawi, serving just over 850,000 people in the City of Blantyre and peripheral areas that form its water supply area. Blantyre is Malawis largest city and the countrys industrial hub. The Board sold 13.77 million cubic meters of water in the 2006/07 reporting year to its clients that range from domestic, commercial, industrial, and institutional and kiosk connections through approximately 32,806 metered connections. This consumption is down by 1.4% as compared to the previous year. The Boards asset base in 2001/02 was valued at MK3.4 billion and comprises seven clear water pumping stations; two treatment works; two main clear water storage and thirteen distribution reservoirs; over 50km of transmission mains; 1,033km of distribution pipe networks; and the Mudi Dam which supplies 10% of annual demand at peak demand. Mudi Dam was commissioned in 1953 as the main source of water for the Blantyre and Limbe Municipality, before the construction and commissioning in 1963 of the Walkers Ferry intake on Shire River- 45 km west of Blantyre and 870m lower than it- as a run-of the river source. The Dam remains the only emergency back-up source of water for Blantyre. Work on the rehabilitation programme of the Mudi Dam catchment area to its pre- 1993 condition continued in the reporting year. During the period, the Board through the Water
Resources Board applied for a Control Order in a bid to have the legal protection status over the Mudi Catchment area.

Blantyre Water Board has a staff complement of 434 permanent and 132 temporary translating to 16 employees per thousand connections. The Board continues to collaborate with water resources management institutions such as the Southern Africa Development Corporation - Global Water Partnership (SADC-GWP), the Abidjan- based Water Utility Partnership (WUP), the International Water Association (IWA) and Water Operators Partnerships for Africa based in Nairobi.

BLANTYRE WATER BOARD

ANNUAL REPORT 2007

CHAIRPERSONS STATEMENT

I have the pleasure to submit the Boards performance for the year 2006/2007.

The Board continued to struggle to deliver most of its programs Successfully in the year as evidenced by frequent water shortages in some of our service areas. During the 2006/2007 fiscal year, the Boards Operational, financial and management challenges adversely affected the Boards capacity to produce and sell sufficient volumes of water to our customers. To this end, there was only a negligible increase in water production and sales from 52% to 53% for a consumption demand of 95,000m3/day. The Boards inability to supply sufficient water to our customers can be attributed to the frequent breakdown of dilapidated electrical/mechanical equipment and high levels of Non-Revenue Water through physical and commercial losses. Thus, there was only 1% increase in production and a 1.4% reduction in sales. The Boards Financial Statement report registered a deficit of MK132,158,000.00 after tax as compared to MK242,152,000.00 in 2005/2006. In the last quarter of 2006/2007year, the 15% water tariff which was due in October 2006 was effected late and had very minimal impact on the Boards financial performance and caused severe cash flow problems. However, despite this deficit, the Board continued to meet the minimum capital investments programs aimed at meeting the growth in demand and this contributed 9.7% of the total capital budget. The Board in liaison with the government through the Ministry of Irrigation and Water Development continued to prepare for the World Bank International Development Association funding under the National Water Development Program II. Despite the many challenges the Board experienced and already alluded to, the Board was very successful to have the project proposal for Blantyre Peri-Urban Water and Sanitation Project approved by ACP-EU Water Facility with assistance from European Investment Bank for US$10.6 million. The project will mainly focus on improving the Boards technical operations especially on production capacity, efficiency and expansion of water systems and improvement of water and sanitation services to low income areas. For the board to continue operating as a successful business entity, there is need to inject large capital investments, restructure its loans with government into equity with an effective nominal tariff rate. It is even more critical to invest a full scale project to reduce the high non-revenue water. Complementary interventions are also needed to develop manpower for the Board especially in the technical fields so that as the operational system improves, there will be specialized personnel that bring forth new initiatives and also take advantage of technological advances in water systems operations and management and fully contribute to the realization of the Millennium Development Goals. 7

BLANTYRE WATER BOARD

ANNUAL REPORT 2007

The Board sincerely extends its gratitude to the government of Malawi for the timely financial and technical support and encouragement during the timely financial and technical support and encouragement during this difficult period. It is the Boards wish that the same support will be offered in the forthcoming financial year. Lastly, let me thank the Management and Staff of the Board for their effort to sustain operations using dilapidated electrical/mechanical equipment to meet the increasing demand despite the poor working environment.

Dr. Chissy P.N Kaponda CHAIRPERSON

BLANTYRE WATER BOARD

ANNUAL REPORT 2007

CHIEF EXECUTIVES REPORT

INTRODUCTION
The financial year 2006/2007 ending June 30th, 2007 was a real challenge for the Board financially and technically, in the absence of any major capital investments program since 1998, due to interrupted production of water and inadequate revenue generation because of a number of multifactors. The performance of the Board therefore did not excel to achieve most of the key performance targets as set at the beginning of the financial year. CORPORATE GOVERNANCE Despite the financial and technical challenges faced during the financial year, the Board met its obligations of conducting corporate governance meetings for policy direction and sustenance of water services. The Boards financial performance registered a reduction in deficit to MK132,158,000.00 after tax as compared to MK242,152,000.00 in the previous year. This marginally met the Boards operational and maintenance targeted activities with minimum growth to meet the growing demand. The management of the Board, with Technical Assistance from the European Investment Bank, successfully got approval of the Blantyre Peri-Urban Water Supply and Sanitation Project estimated at US$10.6 million. WATER SUPPLY MANAGEMENT The Board continued to increase its sales volume despite the high system losses through commercial and physical losses by 1%. The levels of an un-accounted for water stagnated at 49%. However, this is also the period the Board started experiencing major technical challenges in terms of plant and machinery breakdowns at Walkers Ferry and Chileka Pumping Stations due to dilapidated state of the infrastructure. Immediate interventions, through a financing gap, is therefore urgently required to sustain the water services until a big capital investment program takes place in the near future to meet the current demand of 95,000 m3/day with minimum interruption of the services. CAPITAL INVESTMENTS The Boards capital investments program which was aimed at meeting the growth had 9.7% from its own resources. However, in addition to this the Board continued to implement projects for major stakeholders in the provision of the services. Capital works aimed at replacement and renewal of the existing network was about 15.8%, for improving of efficiency was about 32.3% and works aimed at improving water supply accounted for about 38.4% of the capital budget.

BLANTYRE WATER BOARD

ANNUAL REPORT 2007

PLANT AND MACHINERY The dilapidated state of the plant and machinery of the Board had to be sustained and a recovery plan for the refurbishment of the pumps and motors at Walkers Ferry, Chileka, Nyambadwe and Mudi Pumping Stations was implemented with financing totaling MK127.00million received from the Government as part of the outstanding institutional arrears. During the same period, the Board installed a reconditioned transformer at Chileka pumping station for improved pumping efficiency in addition to a 2mVA transformer procured for Walkers Ferry as a standby capacity. FINANCIAL MANAGEMENT As the Boards financial performance continued not to be encouraging with the operating loss of MK132,158,000.00, measures are being put in place for business growth while operating within the approved budgets. The Board is also in the process of engaging the Government to consider the restructuring of the current long-term loans that are affecting the Boards financial position.

Owen Kankhulungo

CHIEF EXECUTIVE

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ANNUAL REPORT 2007

HUMAN RESOURCES
Blantyre Water Board employs professional, technical and non-technical personnel to fulfill its obligation of delivering water supply services to the City of Blantyre and its environs. The mix of type of staff and their skills range from contract staff at top management level with three-year contracts, through middle managers to lower levels on permanent and pensionable, to temporary employees. There is also a degree of outsourcing of some non-core tasks such as asset maintenance, rapid response security services, civil works and computer services. The Board plans to identify and outsource some areas such as security, landscaping and perhaps, in the long term, meter reading. Changes in staff strength over the last three years are summarized below: -

30 June 2005 Category of Staff Staff on Contract Permanent Employees Temporary Employees Total 4 437 187 628

30 June 2006

30 June 2007

5 434 132 571

5 436 135 576

Staff Development and Training The principal objective of the Boards Training Policy is to raise the level of managerial and technical competence of the staff in the Board in order to serve the Boards customers effectively and efficiently. The strategy used to ensure a fair and equitable distribution of resources to meet this objective has been through staff performance appraisals in the preceding year and develop a need-based staff development program for the following year. The five- year training programme was finally developed that will be reviewed annually to ensure that the trainings are tailored towards the organizational human needs/challenges. During the year, the following programmes were undertaken based on the findings of the performance review: a) Mr. M. Chiipanthenga, Projects Controller, is attending an 18 months MSc in Integrated Water Resource Management in Zimbabwe. b) Mr. M.P. Malowa, Information Technology Manager, attended a Billing Software Course in South Africa. c) Messrs G. Chidulo and S. Kazembe, Management Graduate Trainees (Engineering) attended a Fluid and Centrifugal Pumps Course in Kafue Zambia. d) Mrs. E. Khonje, Executive Personal Assistant, attended a Management Development Program for Executive Assistants in Mombasa - Kenya. 11

BLANTYRE WATER BOARD

ANNUAL REPORT 2007

Fourteen employees attended a variety of other courses at local institutions. An average 0.17 days of training per permanent employee was provided.

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BLANTYRE WATER BOARD

ANNUAL REPORT 2007

OPERATIONS
1. SUPPLY In the year 2006/07 the Board produced a total of 29.38 million cubic meters of treated water and sold 13.77 million cubic meters over the same period representing and increase of 1% in production and reduction of 1.4% in sales. The production and sales disparity for the year went up to 53% from 52% the previous year. The Frequent pipe bursts, vandalism, under registering of meters and illegal connections from the distribution network continued to be high and contributed to the high disparity figure. Silt build-up at Walkers Ferry raw water intake continued to cause problems. Temporary relief was obtained through frequent use of a hired dredger from SUCOMA. Blockages from floating weeds continued at times during the year. Procurement of a dredger for Walkers Ferry intake was not done due to poor cash flow. During the year the Board continued with the rationing programme to ensure that all areas receive some water supply. The main challenge was to provide water supply for 24 hours as such most areas in higher altitudes experienced eratic water supply. The total rainfall for the year 2006/07 as recorded at Mudi was 1,115.6mm. This compares with 1,174mm recorded during the same period last year. The rains started in November and continued to late March. Mudi Dam started spilling on January 24, 2007. Table A and Figure 1 below show the summary of production figures for both Walkers Ferry and Mudi and sales figures for the15- year period from 1992 up to 2007. Tables A: Summary of production and sales figures for the 15-year period from 1992 to 2006/07
Treated water produced (Mill m3) Increase as % of previous year 4.28 2.17 7.61 -2.15 3.68 3.41 4.86 -0.44 2.89 3.51 **2.05 5.72 6.33 -5.16 0.39 Source W.Ferry Mudi Water sold (Mill m3) Increase as % of previous year

Year

1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 *2002/03 2003/04 2004/05 2005/06 2006/07

20.71 21.16 22.77 22.28 23.10 23.89 25.05 24.94 25.66 26.56 33.86 28.77 30.60 28.99 29.38

19.09 19.55 20.81 20.87 19.08 19.85 21.91 21.93 23.25 23.53 30.61 26.52 27.03 26.90 25.48

1.62 1.61 1.96 1.41 4.02 4.04 3.14 2.99 2.41 3.03 3.25 2.25 3.57 2.09 3.90

16.66 17.08 18.21 17.84 17.87 17.63 17.18 16.33 16.64 17.58 18.81 15.74 15.11 13.96 13.77

6.45 2.52 6.61 -2.03 0.17 -1.34 -2.55 -4.95 1.90 5.65 **-14.35 - 4.63 - 4.17 -7.61 -1.36

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ANNUAL REPORT 2007

Notes: * 15 months (April 2002 to June 2003) ** Daily average figures used in the comparison

Figure 1: Summary of Production and Sales Figures

40 35 30 Million m3 25 20 15 10 5 0

During the year the Board experienced an increase in the annual production of water and the amount of water that was sold continued to decrease annually. This disparity between production and sales figure explains the fact that the Board has been experiencing the annual increase in Unaccounted for Water which currently is at 53%. Below Table B and Figure 2 shows the water production and peak demand over the period of 1992 to 2007.

19 92 / 19 93 93 / 19 94 94 / 19 95 95 / 19 96 96 / 19 97 97 / 19 98 98 / 19 99 99 / 20 00 00 / 20 01 01 / 20 02 02 / 20 03 03 / 20 04 04 / 20 05 05 / 20 06 06 /0 7
Year Total Prodn. W/Ferry Mudi Sales

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ANNUAL REPORT 2007

Table B: Water Production Peak Demand

Year Annual Average (m3/day) 56,742 57,965 62,396 60,854 62,986 65,142 68,758 68,260 70,291 72,770 74,260 78,184 83,817 79,410 80,493 Peak 1-day Ratio to average Peak 7-days Ratio to Average Peak 30-days Ratio to Average

1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

67,331 70,877 75,347 68,213 70,028 74,773 82,776 80,154 81,540 89,026 87,697 89,383 98,671 87,120 93,451

1.19 1.22 1.21 1.12 1.11 1.15 1.21 1.17 1.16 1.22 1.18 1.14 1.18 1.09 1.16

63,960 66,760 69,809 66,473 67,198 71,298 76,406 73,322 75,263 79,483 79,949 84,258 93,714 84,088 90,972

1.13 1.15 1.12 1.09 1.07 1.09 1.11 1.07 1.07 1.09 1.09 1.07 1.12 1.06 1.13

61,373 64,821 65,664 63,726 66,570 67,804 72,561 70,883 74,052 77,735 77,857 82,658 88,560 81,351 88,048

1.08 1.12 1.05 1.05 1.05 1.04 1.07 1.04 1.05 1.07 1.05 1.05 1.06 1.03 1.09

The average production is an average for the whole year while as peak 1- day, 7- days and 30days are averages for highest consecutive days that can fall at any time during the year. Peaks frequently fall between September and November. The ratios are indicators of deviations from the average.
F ig u r e 2 : W a te r Pro d u c tio n - P e a k D em a n d
1 2 0, 0 0 0

1 0 0, 0 0 0

80,000
A nnu al A v g
y a d / 3 m

60,000

P eak 1-da y P e a k 7 - d a ys P e a k 3 0 -d a ys

40,000

20,000

Year

Both Table B and Figure 2 show that the annual average production is far below the daily, weekly and monthly peak demand. 15

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ANNUAL REPORT 2007

2. WATER QUALITY During the year the Water Quality Control Section increased its monitoring and surveillance activities so as to ensure safe and quality water distributed to the Board users. A total of 860 samples were collected and tested for bacterial quality and the results revealed a water supply of safe quality, which met with WHO guidelines on drinking water. There was a decrease of samples collected as compared to the previous year by 36%. In the period a total of 48 samples were collected for chemical analysis on both sources. The tests were conducted on both raw and treated water and the results showed satisfactory physical and chemical quality. Private Supplies During the period a total of 320 samples were submitted to the Boards laboratory from private water supplies for both chemical and bacterial test. A total of MK388, 500 was realized from these tests. Pollution The monitoring of pollution in the Shire River was carried out at critical points of the river at Liwonde and Mkhorombidzo. Samples were collected for the monitoring of potential toxic heavy metals such as chromium in the river on quarterly basis with the assistance of Industry Consultancy Unit of Chancellor College in Zomba. So far the results indicated no significant changes in the levels of heavy metals in the Shire River according to World Health Organization and National Standards. Physical inspection in all areas along Shire River was carried out three times the year under review to detect waste which could render quality of water undesirable. No problems were experienced in the year due to Police intervention on dumping of waste which has been an emerging problem in the previous years. Staff Health Checks Routine staff medical check ups were conducted for staff fitness for duties. 99% of staff tested was fit for duties. Mudi Catchment Protection and Rehabilitation During the period, the Board through the Water Resources Board applied for a Control Order in a bid to have the legal protection status over the Mudi Catchment area. 3. DISTRIBUTION A total of 606 pipe bursts were reported and repaired during the year as compared to 232 in the previous year representing an increase of 161%. This was due to disruptions of water supply in the distribution system and this represented a decrease of 20%. Plans to undertake the replacement of mains with frequent bursts in the system network never materialize due to cash flow problems however only M. 16

BLANTYRE WATER BOARD

ANNUAL REPORT 2007

Illegal connections occurrence continued to be the major concern to the Board. However, inspection of the same continued. A total of 753 illegal connections were uncovered this financial year by the Boards inspectorate team and well wishers and the necessary actions were taken immediately. This represents an increase of 49% as compares to 384 illegal connections reported in the previous year. There were delays to some leak repairs due to shortage of necessary pipe fittings as a result of poor cash flow. A total of 130 byelaw inspections to determine wastage at consumer premises were carried out compared to 90 the previous year. A total of 351 new connections were made this year as compared to 771 new connections made the previous year, and this represents a decrease of 54%. The decrease in new connections was due to unavailability of water meters and fittings as a result of poor cash flow situation. Below Table C shows the population growth, number of new connections in a year, cumulative number of connections, length of new mains laid, number of faults occurred in a year and estimated loss through faults from 1992 to 2007. Table C: Population Growth, Metered Connections, Mains Laying and Estimated Water Loss
1 Year 2 Estimated Blantyre City Population 392,600 405,714 419,266 433,270 447,743 462,699 499,954 518,753 539,500 561,083 583,526 735,000 744,555 765,000 787,000 3 Number of new connections made in year 5 Length of new mains laid (Km) 6 Cumulative length of mains laid (Km) 780 809 824 860 899 917 937 957 969 975 988 1003 1028 1033 1040 7 Number of faults occurred in a year 5,708 6,514 5,900 6,612 6,569 7,697 9,629 9,825 10,177 11,356 15,269 11,941 10,967 9,964 7,403 8 Estimated loss through faults (M3)

1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

1,249 1,678 1,337 1,195 1,279 1,656 1,564 1,516 1,263 945 1,429 921 771 322 501

60 29 15 36 39 18 20 20 12 6 13 15 25 5 7

126,808 95,541 100,828 102,160 194,699 187,211 224,200 251,965 283,230 280,608 322,596 187,420 175,031 89,905 98,876

Below Table D shows the distribution of connection by customer category for the year 2006/07. Figure 3 only shows the distribution of connection by customer category for the year 2006/07.

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ANNUAL REPORT 2007

Table D: Distribution of Connection by Category of Housing CATEGORY Domestic Commercial Institutions Industrial Kiosk TOTAL NUMBER OF CONNECTIONS 2006/07 29,801 920 1,667 96 322 32,806

Distribution of Connections by Customer Category

1% 0% 3% 5% Domestic Institutional Commercial Industrial Kiosk 91%

Below Table E shows the annual consumption by customer category for the year 2006/07. Table E: Annual Consumption by Area (Category) CATEGORY Domestic Commercial Institutional Industrial Kiosk BWB Installations CONSUMPTION (m3) 2006/07 6,930,083 3,003,340 2,197,080 1,212,529 359,376 63,122

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ANNUAL REPORT 2007

TOTAL

13,765,530m3

System In+/- 5 Below Table E shows the summary of Water Balance for Blantyre Water Board for the Year 2004/05.

Table E: Blantyre Water Board Water Balance (Mm3/year) for 2006/07

Authorized Consumption

Billed Consumption 13.8 Unbilled Consumption 0.001 Commercial Losses 4.6 (30%) Physical Losses 10.9 (70%)

Revenue Water 13.8

System Input Volume 29.3

13.8 (47%)

Water Losses
15.5 (53%)

NRW 15.5

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ANNUAL REPORT 2007

CAPITAL INVESTMENT
The Capital Investment Programme is detailed and analyzed below according to purpose. The programme was designed to satisfy the following objectives: 1. 2. 3. 4. To ensure adequate supply of potable water of satisfactory quality to meet the demands of various customers within the supply area. To invest adequately and efficiently in development of water infrastructure to meet increased demand and to maintain satisfactory levels of service. To provide improvements in the levels of service by increasing water treatment capacity and remedying recognized deficiencies over a reasonable period. To increase operating efficiency by investing in new machinery and systems.

In the year under review, works aimed at meeting growth in demand contributed for 9.7% of the total capital budget. Capital works aimed at replacement/renewal of the existing network was about 15.8%, for improving on efficiency was about 32.3% and works aimed at improving water supply accounted for about 38.4% of the capital budget. The remaining 3.8% of the capital budget was used for staff welfare. This is summarized in the table below. Table F: Capital Budget Analyzed by Purpose Amount Percentage of Total (K000) Investment 17,028,810.15 8.7 21,139,212.60 10.8 68,898,174.40 35.2 81,229,381.75 41.5 7,437,871.10 3.8 195,733,450 100

Growth in Demand Replacement/Renewal Efficiency Improvement to Supply Staff Welfare Total

It should also be mentioned that most of the budgeted activities were not done due cash flow problems.

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Figure below shows the capital budget analyzed by purpose for 2005/06 financial year.
F ig u re 4 : C a p ita l B u d g e t A n a lys e d b y P u rp o s e (2 0 0 6 /0 7 )

9 0 ,0 0 0 8 0 ,0 0 0 7 0 ,0 0 0 6 0 ,0 0 0 5 0 ,0 0 0 K w a c h a (K '0 0 0 ) 4 0 ,0 0 0 3 0 ,0 0 0 2 0 ,0 0 0 1 0 ,0 0 0 0 G ro w th R e p l/R e n E ffic ie n c y C a te g o ry Im p r. T o S u p S ta ff W e lfa re

Major projects undertaken during the year were as follows: 1.0 PLANT AND MACHINERY 1.1 Replacement of Pumps / Motors

During the first and second quarters of the reporting period the Board received MK 127 million from the Government as payment of arrears and the funds were used for urgent rehabilitation of pumps and motors. However there was no replacement of Pumps and Motors. 1.2 Refurbishment of Pumps

The Board ordered spare parts from abroad and other parts were locally refurbished. The following pumps were maintained while others refurbished to improve their efficiencies: PUMPING STATION Walkers Ferry Intake Walkers Ferry Highlift Chileka Highlift Nyambadwe Mudi Clear Water Mudi Raw Water PUMP NUMBER #1,3,9,10 #3,4,6,7 #2,4,5,6,8 #1,3 #6 #5 21

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ANNUAL REPORT 2007

Chichiri 1.3 Refurbishment of Motors

#3

The following motors were maintained to make them operational and improve their efficiency. PUMPING STATION Walkers Ferry Intake Walkers Ferry Highlift Chileka Highlift Mudi Clear Water Chichiri 1.4 MOTOR POSITION # 9,10 #7 #5 #2,3,5 #4,

Installation of Transformer at Chileka High Lift Station

During the first quarter of the reporting period the Board lost 2500KVA and 1750KVA transformers at Chileka Pumping Station. The Board procured a reconditioned transformer from South Africa and installed at Chileka to improve the station pumping efficiency. The 2mVA transformer was also procured but was kept at Walkers Ferry as a spare as no station had power deficiency to run the available pumping units.

2.0 RETICULATION The following are some of the reticulation projects undertaken in the year under review: 2.1 Namiwawa Plots The works involved in this project were the laying of new distribution mains of 63mm diameter. The total length of the mains was 1.5 Km and the total cost that was paid by Ministry of Lands and Physical Planning amounted to MK9.2. Million. By the reporting period the works were completed. 2.2 Individual Water Meter Project Ministry of Education The Project involved provision of meters to houses that previously did not have meters to Soche Hill Secondary School. The works involved laying of distribution mains of 32mm and 110mm diameter. The total length of the mains that was laid was 800m.The total cost paid by Ministry of Education amounted to MK 2,267,002.19. By the end of reporting period the works were completed. 2.3 Nyumba Yanu Project The works involved laying of distribution main of 75mm diameter to the Nyumba Yanu Project in Maoni Park costing Fargo Ltd about MK 9,354,579.21 Million. By the end of the reporting period the works were completed.

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2.4 Bulk Metering Project All bulk meters of various sizes on pumping and distribution network within the Boards supply area were installed as part of the efforts to audit water. The project also carried pipe works of 200m and 100m in Chilomoni, Chemboma and Mabvuto Branch. The project was estimated to cost the Board MK 38 million. The remaining works include chamber construction and covers. The works were still in progress by the end of the reporting period. 2.5 Pipe Rerouting on Chirimba Bridge. The pipe relocation works involved laying of distribution mains of size 100 mm diameters at Chirimba Bridge due to the construction of new bridge. The total length of the mains was 200m costing the National Roads Authority MK 1.1million. The works were completed by the end of the reporting period. 2.6 Pipe Rerouting in Chilomoni Fargo. The pipe rerouting works involved laying of distribution mains of size 100 mm diameters in Chilomoni Fargo. The total length of the mains was 200m costing the Board MK 568,900. The works were completed by the end of the reporting period. 2.7 Community Kiosks Community Kiosks were constructed in Angelo Govea, Bangwe and Chikunda. The kiosks were financed by CICOD and Blantyre District Health Office. The aim of the project was to supply water (through kiosks) to unplanned areas where most of the inhabitants could not afford connections. The works involved laying of distribution mains of sizes 32mm and 63mm diameter. Total length of the laid mains was 2.2km. These works costed CICOD and Blantyre District Health Office MK151, 000 and MK 4.0 million respectively. 3 MAJOR CAPITAL INVESTMENT

The Board through the joint Project Implementation Unit (PIU) between Blantyre and Lilongwe Water Boards continued carrying out preparatory works under National Water Development Programme II with funding from World Bank. The Board submitted a proposal to ACP EU Water Facility with assistance of EIB. The proposal was successful and the Board will benefit a grant of US$ 10.6 in Malawi Peri- Urban Water Sanitation Project to be co-financed by EIB. The Project will mainly focus on improvement of production capacity efficiency and expansion and improving water and sanitation services to low income areas. 3.1 Catchment Protection for Mudi Dam

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Rehabilitation of the Mudi Dam catchment continued in the reporting year. During the period, the Board through the Water Resources Board applied for a Control Order in a bid to have the legal protection status over the Mudi Catchment area.

3.2 HIV/AIDS Workplace Programs for Blantyre Water Board During the reporting period there was implementation of HIV/AIDS planned activities that included awareness sessions for staff and their spouses and provision of ARVs to both staff and community members.

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ANNUAL REPORT 2007

FINANCE
FINANCIAL RESULTS The financial results for the twelve months period ended 30th June 2007 are summarized in the section that follow below: 1. Income Statement The summarized Income Statement for the twelve months period ended 30th June 2007 gives the following picture: ACTUAL 12 Months July 2005 June 2006 (Restated) K000s 1,006,511 (703,202) 303,309 28,310 (548,131) (216,512) (103,271) (319,783) (77,631) (242,152) ACTUAL 12 Months July 2006 June 2007 K000s Revenue Cost of Sales Gross Profit Other Operating Income Operating Expenditure Operating Loss Finance Charges Loss before Taxation Taxation Net Loss 1,171,686 (704,708) 466,978 32,252 (554,757) (55,527) (110,492) (166,019) 33,861 (132,158) BUDGET 12 Months July 2006 June 2007 K000s
1,711,607

Description

(807,609) 903,998 17,871 (854,924) 66,945 (54,317) 12,628 (5,170) (7,458)

The estimated sales quantity of 16.5 million m3 which was later revised after six months to 14.3 million m3 was not achieved, as the actual quantity of water sold was 13.77 million m3. The disparity resulted mainly due to the effects of drought. Operating expenses were about 1.5% below the approved budget mainly because of cash flow problems. At 43%, electricity contributed the single highest percentage of total operating costs and is expected to remain the major cost until a new and cheaper source of water is identified and developed.

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Finance Charges Net interest charges were adversely affected by an increase in interest payable on loans, which totaled K103.3 million against an interest receivable of only K10.2 million on short-term deposits and staff loans. 2. Balance Sheet The summarized balance sheet is reproduced below: Summarized Balance Sheet as at 30th June 2007 As at 30 June, 2007 K000s Capital Employed Capital Grants and Contributions Fixed Assets Revaluation Reserve Retained Earnings Total Equity Long-term Borrowings Deferred Taxation Total Capital Employed Employment of Capital Fixed Assets Net Current Assets (Liabilities) Investments (Home ownership scheme receivables) Capital Work in Progress Total Employment of Capital 2,428,382 (512,540) 15,546 0 1,931,388 2,472,755 (396,434) 16,222 0 2,092,443 173,727 1,326,544 (321,631) 1,178,640 359,906 392,842 1,931,388 As at 30 June, 2006 (Restated) K000s 136,782 1,361,800 (239,839) 1,125,743 391,887 441,813 2,092,443

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3.

Tariff Increase

Tariff for metered water was increased by 15% on 1st April 2007. The Board for the first time categorized the domestic consumption further into institution, commercial and industrial category with a rate higher than the domestic category. The existing tariff structure was as follows: -

Table .. Tariff Structure

Tariff Code Category Approved Tariff (MK) A.1 a. A.1.1 b. A.1.2 A.1.3 A.1.4 A.1.5 A.1.6 A.2 A.2.1 A.2.2 A.2.3 A.3 A.3.1 A.3.2 A.3.3 A.4 A.4.1 A.4.2 A.4.3 Domestic in all areas Communal Water Points (Kiosks) Served from water kiosks for 1 cubic metre Domestic Consumption For the first 5 cubic metres, or part thereof Exceeding 5 cubic metres up to 10 cubic metres For the first 10 cubic metres, or part thereof Exceeding 10 cubic metres up to 40 cubic metres Exceeding 40 cubic metres Institution For the first 10 cubic metres, or part thereof Exceeding 10 cubic metres up to 40 cubic metres Exceeding 40 cubic metres Commercial Establishments For the first 10 cubic metres, or part thereof Exceeding 10 cubic metres up to 40 cubic metres Exceeding 40 cubic metres Industrial Establishments For the first 10 cubic metres, or part thereof Exceeding 10 cubic metres up to 40 cubic metres Exceeding 40 cubic metres 95 106 117 83 91 99 83 91 99 70 72 74 75 77 44

The Board also introduced other service charges as follows: (i) (ii) Meter Rental Meter reading services MK 300.00 MK 63.00 27

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Table . : Tariff increase over the past 10years (1998 2007)

YEAR MWK US$

1998 13.34 0.34

1999 20.20 0.44

2000 30.89 0.43

2001 39.84 0.50

2002 39.84 0.50

2003 39.84 0.50

2004 39.84 0.50

2005 51.92 0.48

2006 59.71 0.45

2007 68.66 0.49

Fig. : Tariff increase over the past 10years (1997 2007)

Tariff Increase Over the Past 10 Years (1998-2007)

80 Average cost per m3 70 60 50 40 30 20 10 0 MW K US$

98

99

00

01

02

03

04

05

06 20

19

19

20

20

20

20

20

20

Year

It has to be noted from Figure 5 that the average tariff has been adjusted yearly from 2005. However, the adjustment had no impact on US$ as the average rate is at 0.49/ m3. This implies that the tariff increase is still not on cost recovery as such it would not make any noticeable economic impact on the Board foreign denominated investment to cater for debt repayment.

20

07

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ANNUAL REPORT 2007

REPORT OF INDEPENDENT AUDITORS TO MEMBERS OF BLANTYRE WATER BOARD

Report on the Financial Statements We have audited the accompanying financial statements of Blantyre Water Board, which comprises the balance sheet as at 30 June 2007, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors responsibility for the Financial Statements Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Standards on Auditing. 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. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standard on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, 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 controls relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the entitys internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, 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.

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Emphasis of Matter Without qualifying our opinion, we draw attention to the matters referred to in note 19 to the financial statements wherein the Boards own financial resources may not be sufficient for it to meet its recurrent expenditure and to reinvest any substantial amounts into the infrastructure to achieve sustainable growth. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Board at 30 June 2007 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted for use in Malawi and in accordance with the provisions of the Water Works Act, 1995.

Ernst & Young Certified Public Accountants Blantyre: August 2008

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BALANCE SHEET For the year ended 30th June, 2007 Notes ASSETS NON-CURRENT ASSETS Property, plant and equipment Home ownership scheme receivables 2007 K000 4 5 2,428,382 15,546 2,443,928 CURRENT ASSETS Inventories Accounts receivables Current portion of home ownership scheme receivables Short-term investments Cash resources 6 7 5 50,528 591,610 6,806 362 7,614 656,920 3,100,848 2006 (Restated) K000 2,472,755 16,122 2,488,877 48,729 562,971 8,605 8,122 628,427 3,117,304

TOTAL ASSETS EQUITY AND LIABILITIES RESERVES Revaluation reserve (Accumulated Losses) Retained earnings 8

1,326,544 (321,631) 1,004,913

1,361,800 (239,839) 1,121,961 136,782 391,887 441,813 970,482 42,490 311,945 642,185 28,177 64 1,024,861 3,117,304

NON-CURRENT LIABILITIES Deferred income Interest bearing borrowings Deferred taxation CURRENT LIABILITIES Accounts payable Accruals Current portion on interest-bearing borrowings Bank overdraft Taxation

9 10 11

173,727 359,906 392,842 926,475

12 13 10

46,051 295,419 784,741 43,249 1,169,460 3,100,848

TOTAL EQUITY AND LIABILITIES

The financial statements were authorized for issue by the Directors on 1st August 2008 and were signed on its behalf by: _________________

CHAIRPERSON

________________ DIRECTOR
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ANNUAL REPORT 2007

INCOME STATEMENT For the year ended 30th June, 2007 Notes Year ended 30 June 2007 K000

30 June 2006 K000

TURNOVER COST OF SALES GROSS PROFIT OTHER INCOME

3.6

1,171,686 (704,708) 466,978 32,252 499,230

1,006,511 (703,202) 303,309 28,310 331,619 (548,131)

OPERATING AND ADMINISTRATION EXPENSES

(554,757)

OPERATING LOSS BEFORE FINANCE CHARGES

(55,527) 16 (110,492) (166,019) 17 33,861 (144,158)

(216,512) (103,271) (319,783) 77,631 (242,152)

FINANCE CHARGES LOSS BEFORE TAXATION TAXATION LOSS AFTER TAXATION

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ANNUAL REPORT 2007

STATEMENT OF CHANGES IN EQUITY For the year ended 30th June, 2007

Revaluation reserves K000

Retained profits K000

Total K000

Balance at 30 June 2005 Net loss for the year Transfer of depreciation charge relating to surplus on revaluation of property, plant and equipment

1,392,825 -

(45,564) (242,152)

1,347,261 (242,152)

(47,877)

47,877

Transfer from deferred taxation

14,363

14,363

Balance at 30 June 2006 Net loss for the year Adjustment on revaluation reserve Transfer: of depreciation charge relating to surplus on revaluation of fixed assets Transfer: to revaluation surplus from deferred taxation Balance at 30 June 2007

1,359,311 2,489

(239,839) (132,158) -

1,119,472 (132,158) 2,489

(50,366)

50,366

15,110

15,110

1,326,544

321,631

1,004,913

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BLANTYRE WATER BOARD

ANNUAL REPORT 2007

CASH FLOW STATEMENT For the year 30 June 2007

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BLANTYRE WATER BOARD

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Cash flows from operating activities Loss before taxation Adjustment for:Depreciation Interest payable Interest receivable Amortisation of deferred income Profit on sale of equipment Operating Profit / (loss) (Increase) / decrease in inventories Increase in home ownership scheme accounts receivables (Increase) / decrease in accounts receivable Increase in accruals Increase in accounts payable Cash utilized in operations Taxation paid Cash inflows from operating activities Investing activities Purchase of property, plant and equipment Proceeds from sale of equipment Cash outflow from investing activities Financing activities Proceeds from medium term borrowings Contributions from new consumers Interest paid Interest receivable Decrease in home ownership scheme receivable Repayment of long-term borrowing Cash inflow/ (outflow) from financing activities Net cash inflow Cash and cash equivalents at 1 July 2006 Cash and cash equivalents at 30 June 2007 Net increase in cash and cash equivalents STATUTORY DISCLOSURE Increase/ (decrease) in net working capital

Year ended Year ended 30 June 2007 30 June 2006 K000s K000s (166,019) (319,783)

119,564 110,492 (3,978) (8,878) (6,424) 44,757 (1,799) 1,799 (28,638) 3,561 (16,526) 3,153 (426) 2,727

165,928 103,271 (10,206) (7,569) (495) (68,854) 9,277 6,015 (6,270) (11,374) 61,850 (9,356) (483) (9,839)

(75,781) 7,014 (68,767)

(24,190) 495 (23,695)

50,993 61,694 (24,599) 3,978 576 (26,311) 50,460 (15,580) (20,055) (35,635) (15,580) (117,082)

22,633 (8,141) 10,206 (17,451) 7,247 (26,287) 6,232 (20,055) (26,287) (194,410)

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ANNUAL REPORT 2007

NOTES TO THE FINANCIAL STATEMENTS

30 JUNE 2007 1. BUSINESS ACTIVITIES The principal activity of the Board is the supply of potable water to areas specified by the Government of Malawi. The Board is governed by the Water Works Act, 1995. 2. COMPLIANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS These financial statements have been drawn up in accordance with International Financial Reporting Standards.

3.

ACCOUNTING POLICIES The principal accounting policies of the Board, which are set out below, have been consistently followed in all material respects. 3.1 Accounting convention The financial statements are expressed in terms of the historical cost convention with the exception of property, plant and equipment and financial instruments, which are included at cost and valuation. 3.2 Property, plant and equipment a. Depreciation of fixed assets Depreciation is not provided on land or capital work in progress. All other assets are depreciated on the straight line basis over periods estimated as the useful economic lives of the assets. These lives have been estimated at: Structures Water treatment, pumps and motors Reticulation system Workshop equipment Motor vehicles Office, laboratory and residual equipment 50 - 150 years 8 - 25 years 20 - 80 years 10 years 5 years 5 - 25 years
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b.

Revaluation of property, plant and equipment Property, plant and equipment are shown at valuation with subsequent additions at cost, less related depreciation. Surpluses on revaluation are transferred to a non- distributable fixed asset revaluation reserve. On realization of the asset, the appropriate portion of the revaluation reserve is transferred to (accumulated losses) / retained profits. Deficits on revaluation are charged to the income statement except to the extent to which they relate to revaluation surpluses previously transferred to the revaluation reserve. An amount equal to the additional depreciation arising from revaluation is transferred from the revaluation reserve to (accumulated losses) retained earnings annually.

3.3

Government grants Government subventions to finance specific fixed asset purchases are credited to a deferred income account in the balance sheet and released to the income statement over the life of the related assets.

3.4

Inventory Inventory is valued at average landed cost and due allowance is made for obsolescence.

3.5

Foreign currency translation Foreign balances Assets and liabilities in foreign currencies are translated to Malawi Kwacha at rates of exchange approximating to those ruling at the balance sheet date. Profits and losses on translation Profits and losses on translation are dealt with through the income statement.

3.6

Revenue Water charges are raised at the date meter readings are taken during the month. Accruals of water consumption from the date of the last reading to the balance sheet date are not brought to account.

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3.7

Interest Interest, both payable and receivable, is accounted for on the accruals basis. Interest payable in respect of the work in progress is capitalized and that relating to fixed assets brought into use is charged to the income statement.

3.8

Taxation Taxation charged in the profit and loss account is based on profit and income for the year as determined in accordance with adjustment to provisions of prior years. Full provision is made at current rate of tax deferred as a result of differences in the accounting and taxation treatment of depreciation and other timing differences. A deferred tax debt balance is only recognized where there is a reasonable expectation of asset being realized.

3.9

Retirement benefit plans The Board contributes to a defined contribution pension plan for employees. Contributions are charged to the income and statement as they are incurred.

3.10

Financial instruments The term financial instruments include assets and financial liabilities. These are initially recognized at cost, which is fair value of the consideration paid or received to acquire the asset or liability, respectively. Subsequent to initial recognition all financial assets are measured at fair value except for the companys originated loans and receivables (not held for trading), held to maturity investments and other financial assets whose fair value cannot be reliably measure. Where these assets have a fixed maturity, they are measured at amortised cost using the effective interest rate method. Those that do not have a fixed maturity are measured at cost less, where applicable, provision for permanent diminution in value. Subsequent to initial recognition all financial liabilities are measured at amortised cost with any difference between cost and redemption value being recognized in the income statement over the period of the financial liabilities on an effective interest basis.

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3.11

Impairment At the balance sheet date, the Board reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately for assets carried at cost and for those carried at a revalued amount, the impairment loss is treated as a revaluation decrease. When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

3.12

Provisions Provisions are recognized when the Board has a present obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reasonably estimated.

3.13

Consumer contributions One-off new consumer contributions are credited to a deferred income account in the balance sheet and released to the income statement over 35 years.

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BLANTYRE WATER BOARD

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4 .

PROPERTY, PLANT AND EQUIPMENT COST OR VALUATION Opening Balance K000

Correction of prior period error K000

Additions K000

Disposals K000

Closing Balance 30/6/07 K000

Land Structures Water Treatment pumps & motors Reticulation system Vehicles Workshop Office, Laboratory and residential equipment Total valuation/cost ACCUMULATED DEPRECIATION Structures Water treatment pumps & motors Reticulation system Vehicles Workshop Office, Laboratory and residential equipment
Total accumulated depreciation

26,106 1,773,708 755,614 3,958,149 71,567 10,986 81,811 6,677,941 11,241

(11,241) -

1,746 7,339 32,970 27,397 152 6,177 75,781

(6,125) (6,125)

26,106 1,775,454 762,953 3,991,119 81,598 11,138 87,988 6,736,356

(171,257) (755,550) (3,117,869) (71,506) (10,000) (81,493) (4,207,675)

(62) 15,094 (985) (317) 13,730

(35,492) (185) (78,244) (4,995) (30) (618) (119,564)

(5,535) 5,535

(206,749) (755,797) (3,196,113) (55,872) (11,015) (82,428) (4,307,974

NET BOOK VALUE

2,470,266

2,489

2,428,382

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ANNUAL REPORT 2007

PROPERTY, PLANT AND EQUIPMENT (Continued) Cost or valuation at end of the year comprise the following: At cost At 2002 valuation Total cost or valuation Assets at 2002 valuation comprise land and buildings, structures, water treatment pumps and reticulation system. Land and building were revalued by Chris Mullock, MRICS, MSIM, and Chartered Valuation Surveyor. The basis of valuation used is the open market value. Water treatment pumps and motors and reticulation system were revalued by Dikani Banda, B.Sc. (Mech), F.I.Mech .Eng., C. Eng, of Prime Engineering (a consortium of mechanical and electrical engineers) in March 2002 and the basis used for valuation used was depreciated replacement cost.

2007 K000
348,748 6,387,608 6,736,356

2006 K000 287,844

6,390,097 6,677,941

The register of land and building is available for inspection at the Boards registered office.
5. HOME OWNERSHIP SCHEME RECEIVABLES Total amount receivables Less: Amount receivables within 12 months Impairment loss provision

48,535 (6,806) (26,183) 15,546

50,910 (8,605) (26,183) 16,122

Home ownership scheme receivables due after 12 months The Home Ownership Scheme was set up by the Board in 2003. The amount receivable is in respect of loans arising from the sale of the Boards staff houses to members of staff and purchase of houses from third parties on behalf of members of staff. The current average recovery period of the loans is 10 years. The Board considers that the carrying amount of the staff loans approximates to their fair value

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6.

INVENTORIES

2007
K000

2006
K000

Pipes and fittings Stores consumables Total Inventory

33,161 17,367 50,528

34,990 13,739 48,729

7.

ACCOUNTS RECEIVABLES Trade accounts receivables - other customers Trade accounts receivables - Government

780,711 107,885 888,596 (378,622) 507,974 81,086 591,060

668,566 277,240 945,806 (428,050) 517,756 45,215 562,971

Less: provision for doubtful debts Other receivables and prepayments

The Boards credit risk is primarily attributed to its trade receivables. The amounts presented in the balance sheet are net of provisions for doubtful debts as shown above. The specific provision is estimated by management based on prior experience and current economic environment, after taking into account the requirements of IAS 39, Financial Instruments: Recognition and Measurement requiring recognition of such losses.

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8.

REVALUATION RESERVE

2007 K000 1,361,800 (50,366)

15,110

2006 K000 1,392,825 2,489 (47,877)

14,363

At 1 July 2006
Adjustment on revaluation reserve

Surplus depreciation relating to the revaluation element of property, plant and equipment Revaluation surplus from deferred taxation At 30 June 2007

1,326,544

1,359,311

9.

DEFERRED INCOME CONSUMER CONTRIBUTIONS Balance at beginning of the year Current year Releases to income statement Balance at end of the year GOVERNMENT GRANTS Balance at beginning of the year Released to income statement Balance at end of the year Total deferred income

136,782 45,823 (8,878) 173,727

121,718 22,633 (7,569) 136,782

---136,782

4,429 (4,429) -----121,718

10.

INTEREST BEARING BORROWINGS Malawi Government National Bank of Malawi- medium term loan National Bank of Malawi long term loan Less: amounts payable within twelve months 1,071,752 35,937 36,958 1,144,647 (784,741) 359,906 989,111 44,961 1,034,072 (642,185) 391,887

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11. DEFERRED TAXATION The deferred taxation position and the basis of computation are set out below. The accounting policy for deferred taxation is explained at Note 3.8 2007 Full Potential liability K000 Accelerated capital allowances Connection fees Other timing differences Tax losses Revaluation of properties 230161 (52,118) (37,732) (145,432) (5,121) 397,963 392,842

Provision K000 230,161 (52,118) (37,732) (145,432) (5,121) 397,963 392,842

2006 Full potential Liability (Restated) K000 237,558 (41,035) (36,646) (126,604) 33,273 408,540 441,813

Provision K000 237,558 (41,035) (36,646) (126,604) 33,273 408,540 441,813

The movement on the provision for deferred taxation is made up as follows: 2007 K000 At 1 July 2006 Adjustment for the year (Note 17) Income statement Revaluation reserve At 30 June 2007 12. ACCOUNTS PAYABLES Trade payables Claims payable
Consumer deposits

2006 K000 534,007 (77,831) (14,363) 441,813

441,813 (33,861) (15,110) 392,842

40,544 13 5,494 46,051

35,659 1,642 5,189 42,490

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13.

ACCRUALS Accrued electricity charges Other accruals

2007 K000 211,882 83,537 295,419

2006 K000 255,050 56,895 311,945

14.

CAPITAL COMMITMENTS Authorized by the board: Not contracted for Contracted for

3,862,541 141,235 4,003,776

154,700 29,500 184,200 50,200 134,000 184,200

To be financed by: Loan finance Internal resources

3,799,471 204,305 4,003,776

15.

LOAN CASH FLOWS TO AND FROM GOVERNMENT Cash paid to and on behalf of the Government: Loan repayments Loan interest

327 327

16.

FINANCE CHARGES Interest payable on: International Development Agency Loan African Development Bank Loan European Investment Bank Loan Bank overdraft National Bank of Malawi Loan

58,159 24,483 13,606 14,244 110,492

58,159 24,483 9,098 11,531 103,271

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17.

TAXATION Minimum tax based on turnover for the year Deferred taxation (Note 11) Total taxation per profit and loss account Proof of taxation per profit and loss account: Loss before taxation (33,861) (33,861) 200 (77,831) (77,631)

(166,019)

(319,783)

Taxation calculated at tax rate of 30% - (2006 30%) Minimum tax based on turnover for the year Expenses not deductible for taxation purposes

(49,806) 15,945 (33,861)

(95,935) 200 18,104 (77,631)

The effective tax rate of 20% (2006: 25%) is not equal to statutory rate of 30% (2006: 30%) due to the incidence of estimated tax losses, the impact of certain income that is not subject to taxation and deferred tax adjustments in respect of prior years. The Board has tax losses estimated at K487.774 million (2006: K422.011 million) subject to assessment by the Malawi Revenue Authority. 18.

NUMBER OF EMPLOYEES The number of employees at the end of the year was 582 (2006: 491)

19.

GOING CONCERN The Board made a net loss for the period of K132.904 million (2006: K241.406 million) which was largely due to high depreciation of property, plant and equipment following the March 2002 revaluation, high incidence of bad debt provision on both Government and other receivables. The Board is also in a net current liability position of K513million as at 30June 2007 (2006:K396million) At present the Boards financial resources may not be sufficient to enable the Board to pay recurrent expenditure as such the Board is unable to reinvest any substantial amounts into its infrastructure of its operations. The Board of the directors have embarked on the following initiatives to turn around the financial fortunes of the Board: i) Management is critically focusing on substantial investment towards reducing Non Revenue Water with the objective of increasing the 46

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revenues and improve on profitability. ii) The Board has also approached the Malawi Government to consider recapitalising the Board by converting debt into equity. iii) Other initiatives include applications to Malawi Government for tariff increase tariffs and also to classify water as a zero-rated commodity for Value Added Tax purposes and thus reduce the cost base of the Board. iv) European Union (EU) / European Investment Bank (EIB) Funding The Board is earmarked to access a total capital investment of Euro 14.365million for pooled funding from European Union (ACP Water Facility) and European Investment Bank (EIB). The funds are meant to Renew plant and machinery at both Walkers Ferry and Chileka Pumping Stations, reduction of non revenue water and facilitation of water supply to low income areas. The bill to authorize The Malawi Government to access this funding has ni=ot been approved as of 1 August 2008. v) World Bank Funding The World Bank is to provide the Board funding amounting to United States Dollars 4.67million. These funds are mainly meant for Emergency rehabilitation works and feasibility studies for preliminary Design, Environmental Impact Assessment for new water source. The National Assembly already approved this facility under National Water Development Programme (NWDP2). The directors have considered the above and the level of support expected from the Government and concluded that the Board will continue as a going concern.

20.

KEY ECONOMIC INDICATORS The average of the year-end buying and selling rates of the foreign currency most affecting the performance of the Board is stated below, together with the increase in the National Composite Consumer Price Index for the preceding year, which represents an official measure of inflation. 30 June 2007 Kwacha/US Dollar Kwacha/GBP Kwacha/ ZAR Kwacha /EUR Inflation rate % As at 1 August 2007, the exchange rates of the Malawi Kwacha against the US Dollar, GBP, EUR and ZAR changed to 140.8, 278.4, 219.3 and 19.2 47 140.6 287.2 20.4 190.4 7.7 30 June 2006 139.0 260.1 20.1 178.1 18

BLANTYRE WATER BOARD

ANNUAL REPORT 2007

respectively. The impact of this change has not been reflected in these financial statements.

21.

CONTINGENT LIABILITIES The Board has contingent liabilities amounting to K 9 million relating to pending litigation and legal costs at the balance sheet date (2006 K 7 million)

22.

PRIOR PERIOD ERROR Blantyre Water Board adopted the use of the fixed asset register during the current year. On introduction of the register, certain differences were identified relating to opening balances of different elements of property, plant and equipment and such differences have been duly corrected by debiting property, plant and equipment and crediting the revaluation reserve. Corresponding adjustments have been made for deferred tax implications of these errors.

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ANNUAL REPORT 2007

APPENDIX 1
DETAILED INCOME AND EXPENDITURE ACCOUNT For the Year ended 30 June 2007 REVENUE COST OF SALES Electricity Depreciation of property, plant and equipment Chemicals Total cost sales GROSS PROFIT OTHER OPERATING INCOME Sundry income Profit on sale of plant and equipment Amortisation of new connection contributions Interest receivable Reconnection fees Total other operating income OPERATING AND ADMINISTRATIVE EXPENSES Salaries, wages and staff costs Bad and doubtful debt Maintenance of plant and equipment Motor vehicle running expenses Printing, stationery and office sundry Other expenses Contributions to retirement benefit plans Leave days accrued Medical expenses Fringe benefit tax Consultancy fees Maintenance of buildings and structures Insurance Security Directors fees and expenses Legal charges and rates Audit fees current - prior Training Rents payable Bank charges Subscriptions Donations \ Loss before finance costs and tax Year ended 30 June 2007 K000 1,171,686 537,453 119,564 47,691 704,708 466,978 4,900 6,424 8,878 3,978 8,072 32,252 249,342 (49,428) 109,135 69,075 37,758 31,066 23,607 608 7,843 9,446 13,355 8,879 10,364 2,500 7,066 5,830 4,364 7,798 216 3,142 2,791 554,757 (55,527) Year ended 30 June 2006 K000 1,006,511 493,306 165,929 43,967 703,202 303,309 5,312 495 7,569 10,207 4,727 28,310 224,117 32,475 54,339 55,763 45,714 29,212 17,722 18,071 8,009 8,870 17,101 5,322 6,014 1,075 4,142 2,682 3,859 1,857 5,847 326 3,037 2,577 548,131 (216,512)

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BLANTYRE WATER BOARD

ANNUAL REPORT 2007

APPENDIX 2 INTEREST BEARING BORROWINGS For the year ended 30 June 2007 Malawi Government Interest Loan Original Balance Rate Period 01.07.06 Loan (%) Amount (K000) (K000) 8.5% 8.5% 8.5% 3.5% 14.0% 14.0% 14.0% Total
National Bank of Malawi

Repayments Amortization Balance 30.06.07 (K000) (50) (277) (K000) 58,159 2,566 21,916 82,641 (K000) -

1981/2005 1981/2005 1986/2005 1990/2005 1990/2005 1990/2005 1990/2010

701 518 9,025 5,789 193,424 19,176 168,048

50 277 589,897 42,000 357,214 989,111

648,056 44,566 379,130 1,071,752

24.5% 27.5% Total Borrowings

2007/2008 1998/2012

40,000 97,000

49,961 1,034,072

5,000 10,318 15,318

937 2,315 85,893

35,937 36,958 1,144,647

LOAN SECURITY 1. Malawi Government Loan is unsecured 2. National Bank of Malawi is secured by Government Guarantee for K97m.The Malawi Government is in the process of renewing the guarantee which expired on 31 March 2005, for a further period of twelve months as required by the Loan Agreement.

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