Portfolio Committee

14 October 2004

Martie van RensburgRobert Mbwana

[ Agenda ][ Agenda ]

1. Presentation of 2004 Annual Report TCTA – the entity Report on Lesotho Highlands Water Project Report on Berg Water Project Report on Umgeni Water Treasury Management The future

2. Comments on National Water Resource Strategy

1. Presentation of 2004 Annual Report TCTA – the entity Report on Lesotho Highlands Water Project Report on Berg Water Project Report on Umgeni Water Treasury Management The future

2. Comments on National Water Resource Strategy

Section 138A, Water Act 1956 replaced by National Water Act 1998, Chapter 10

Notice of Establishment – 1986 version from Treaty between RSA and Lesotho, revised in 2000 creating a wider mandate

PFMA – schedule 2 powers

Report via Minister of Water Affairs and Forestry to Cabinet and Parliament

[ Who is TCTA? ][ Who is TCTA? ]

TCTA

DWAF

Dams

Treat raw water to Potable level

Deliver water and sanitation through network

Water Boards

Municipality

End User

[ TCTA = position in water sector ]

[ Liability Management ][ Liability Management ]

PROJECT VIABILITY

PROJECT FUNDING

ENGINEERINGAND

CONSTRUCTIONMANAGMENT

RISKIDENTIFICATION,ASSESSMENT &

MANAGMENT

STRATEGIC MANAGEMENTOF ENVIRONMENTAL ASSETS

STRATEGIC MANAGEMENT OFSOCIAL ASSETS

PRO-ACTIVEDEBT

MANAGEMENT

[ TCTA – The Multi-Project Environment ]

[ UMGENI WATER]• Governed by SLA• Current debt – R 3

500 million• Redemption assets

– R 1 200 million

[ OTHER ]• Mhlathuze Water,

Bloem Water• Tariffing and debt

management services

[ LHWP ]

• Funding and Risk Management on behalf of Government

• Debt is explicitly Government Guaranteed• Current debt - R 17 900 million • Current assets - R934 million

[ BWP ]

• Funding, Risk Management and Implementation on behalf of Government

• No Government Guarantee – Project Financed• Current debt - R 30 million• Forecast capital expenditure - R 1 500 million

[ OTHER ]

• Funding, Risk Management and Implementation for DWAF on future projects

Liability Managers for Bulk Raw Water InfrastructureIntegrated Treasury

Management Services

[ Specialised Liability Management ]

TCTALiability Management

ORGANISATIONAL STRUCTURE

Bu

sin

ess

Imp

erat

ives

Bu

sin

ess

Imp

erat

ives

Co

rpo

rate

Go

vern

ance

Ris

k M

anag

emen

tF

ram

ewo

rk

Fu

nd

ing

& D

ebt

Man

agem

ent

Pro

ject

Imp

lem

enta

tio

n

Via

ble

& S

ust

ain

able

Pro

ject

s

EnterpriseRiskManagement

TariffingTariffing

FundingFunding

Risk ManagementRisk Management

EngineeringEngineering

Socio EnvironmentalSocio Environmental

CommunicationCommunication

[ Risk Management ]

[ TCTA: Risk Management Principles ][ TCTA: Risk Management Principles ]

IN ORDER OF PRIORITY

OPTIMAL CAPITAL STRUCTURE(Fixed/Floating)

ASSET/LIABILITY MATCHING(Refinancing & Forward Interest

Rate Risk)

REDEMPTION PORTFOLIO MANAGEMENT

(Large Debt Maturities)

PRO-ACTIVE INTEREST RATE RISK MANAGEMENT

SCENARIO & STRESSTESTING:

Manage peak and tail of debt curve based on following scenario’s: Zero and negative

growth in demand Changes in:

inflation real interest rates timing of future

augmentation

[ TCTA: Tariffing Principles ]

Constant tariffin

realterms

End user

affordability

Debtoutstanding

• Economic useful life of assets• Timing of future augmentation • Water consumed vs water delivered

[ TCTA: Funding Principles ][ TCTA: Funding Principles ]

““HOW”HOW”

Manage overall maturity structure of debt in a risk sensitive manner

Exploitation of opportunistic funding opportunities

Active marketing of funding programmes

Contribute and participate in building better markets

Through ongoing dissemination of information to investors

FundingPro-actively manage funding to achieve lowest weighted average cost of funding

[ Project implementation philosophy ] [ Project implementation philosophy ]

Implement the most appropriate and cost effective, timeous solution within an acceptable risk framework;

Co-operative partnerships will be entered into with due regard for cost impact, appropriate risk allocation and accountability;

All arrangements formalised with agreements; Appropriate remedies will be implemented to

mitigate the impact of the Project on the environment and community; and

Development principles to be applied: Utilisation of local labour and businesses Effective balance between labour intensive

methods and impact on cost and timing Co-ordination to fit in regional and local

development plans

Implement the most appropriate and cost effective, timeous solution within an acceptable risk framework;

Co-operative partnerships will be entered into with due regard for cost impact, appropriate risk allocation and accountability;

All arrangements formalised with agreements; Appropriate remedies will be implemented to

mitigate the impact of the Project on the environment and community; and

Development principles to be applied: Utilisation of local labour and businesses Effective balance between labour intensive

methods and impact on cost and timing Co-ordination to fit in regional and local

development plans

[ TCTA the entity - 2004 highlights ][ TCTA the entity - 2004 highlights ]

Increased focus on governance and assurance (legal and internal audit ) functions

Board efficiacy review – healthy Enterprise wide risk assessment Increased focus on risk management Long term Credit Rating ZA AAA with and without

guarantee (excluding impacts of BWP) Organisational development – culture print and DNA Learning and development Full compliance to BEE and PPPFMA Rated under top ten performing companies > 25 %

senior female

Increased focus on governance and assurance (legal and internal audit ) functions

Board efficiacy review – healthy Enterprise wide risk assessment Increased focus on risk management Long term Credit Rating ZA AAA with and without

guarantee (excluding impacts of BWP) Organisational development – culture print and DNA Learning and development Full compliance to BEE and PPPFMA Rated under top ten performing companies > 25 %

senior female

[ Employment Equity ][ Employment Equity ]

CATEGORY BLACK MALE*

BLACK FEMALE *

WHITE MALE

WHITE FEMALE

TOTAL

Executive 1 3 4 3 11

Management 1 3 5 2 11

Professionals 3 3 0 5 11

Support 0 5 0 2 7

TOTAL 5 14 9 12 40

* Black includes African, Indian and Coloured.

[ Segmental Income Statement ] [ Segmental Income Statement ]

LHWP

2004

R’million

UW

2004

R’million

TOTAL

2004

R’million

TOTAL

2003

R’million

Revenue 1 538 3 1 541 1 332

Royalties paid 208 - 208 184

Operating expenses 78 3 81 103

Operating surplus 1 252 - 1 252 1 045

Finance cost 1 351 - 1 351 1 098

Net deficit for the year 99 - 99 53

(1) LHWP – Lesotho Highlands Water Project

(2) Umgeni Water treasury management services

[ Segmental Balance Sheet ][ Segmental Balance Sheet ]

LHWP

2004

R’million

BWP

2004

R’million

TOTAL

2004

R’million

TOTAL

2003

R’million

ASSETS

Non-current assets 15 872 34 15 906 13 911

Property, plant and equipment 14 913 34 14 947 13 907

Long-term financial market investments 942 - 942 4

Receivables and prepayments 17 - 17 -

Current assets 777 11 788 691

Receivables and prepayments 442 4 446 341

Short-term financial market investments 335 - 335 350

Cash and cash equivalents - 7 7 -

Total assets 16 649 45 16 694 14 602

[ Segmental Balance Sheet ][ Segmental Balance Sheet ]

LHWP

2004

R’million

BWP

2004

R’million

TOTAL

2004

R’million

TOTAL

2003

R’million

EQUITY AND LIABILITIES

Reserves and deficit (2 173) - (2 173) (2 138)

Non-distributable reserves 84 - 84 24

Cumulative deficit (2 257) - (2 257) (2 162)

Non-current liabilities

Long-term financial market liabilities 16 187 - 16 187 15 082

Current liabilities 2 635 45 2 680 1 658

Payables 511 6 517 484

Short-term financial market liabilities 2 124 39 2 163 1 174

Total equity and liabilities 16 649 45 16 694 14 602

(1) BWP – Berg Water Project

Lesotho Highlands Water ProjectLesotho Highlands Water Project

[ LHWP ][ LHWP ]

[ Lesotho Highlands Water Distribution ][ Lesotho Highlands Water Distribution ]

Normal

Emergency

[ Governance Structure ][ Governance Structure ]

LHWC

Governmentof Lesotho

Government ofSouth Africa

[ TCTA –LHWP 2004 Highlights ][ TCTA –LHWP 2004 Highlights ]

Inauguration of phase 1B and completion of Phase 1 celebrated in March 2004

Project of the Century Award – SAICE Asset and Liability management focus – R 18 billion

debt managed 2nd largest issuer of bonds (next to government) Successful prosecution by Lesotho Government and

Authorities on bribery and corruption charges Completion of phase 1 impacts on institutional

structures in Lesotho Raised R 2 .7 billion of funding

Inauguration of phase 1B and completion of Phase 1 celebrated in March 2004

Project of the Century Award – SAICE Asset and Liability management focus – R 18 billion

debt managed 2nd largest issuer of bonds (next to government) Successful prosecution by Lesotho Government and

Authorities on bribery and corruption charges Completion of phase 1 impacts on institutional

structures in Lesotho Raised R 2 .7 billion of funding

[ TCTA –LHWP 2004 Highlights ][ TCTA –LHWP 2004 Highlights ]

Launched first split maturity bond – R 1 billion Operating surplus of R 1. 3 billion Planned defecit after interest paid R 99 million – due

to project finance principles used in water tariff structure

AC 133 compliant Water volumes :

Delivered : 687 million m3

Sold : 1 325 million m3 – R 1.5 billion

Launched first split maturity bond – R 1 billion Operating surplus of R 1. 3 billion Planned defecit after interest paid R 99 million – due

to project finance principles used in water tariff structure

AC 133 compliant Water volumes :

Delivered : 687 million m3

Sold : 1 325 million m3 – R 1.5 billion

[ LHWP: Sources of Funding ]

As at 31 March 2004 R 17 809 million

Other3%

Foreign Institutions

7%

WS0121%

WS0317%

WS0425%

WS0510%

WSP1-WSP56%

Commercial Paper

Program11%

Capital Market Bonds 79 % Foreign 7 %Other funding 21 % Local 93 %

Fixed 73 %Floating 27 %

[ Tariff Composition ][ Tariff Composition ]

TARIFF COMPOSITION FOR DOMESTIC USAGE2003/04 Financial Year

R -4.00

R -2.00

R 0.00

R 2.00

R 4.00

R 6.00

R 8.00

R 10.00

0 to 6 kl >6 to 10 kl >10 to 15 kl >15 to 20 kl >20 to 40 kl >40 kl

Block Usage

Ran

ds

pe

r c

ub

ic m

etr

e

TCTA DWAF WATERBOARD MUNICIPALITY

Free Water:Net Zero Cost

[ LHWP: Debt Maturity Profile and Liability Curve ]

5

10

15

20

25

30

35

40

2003/04 2005/06 2010/11 2016/17 2018/19 2025/26

RA

ND

BIL

LIO

NS

Forecast

Issued

CPPWS01

WS03 WS04

WS05

Capital Value

Split Maturity Bonds

[ LHWP – Social aspects ][ LHWP – Social aspects ]

RSA – Eastern Free State Learnerships Tourism Education Disabled persons

Lesotho Compensation (individual and community) Resttlement Access roads Food security and agriculture Rural water supply

RSA – Eastern Free State Learnerships Tourism Education Disabled persons

Lesotho Compensation (individual and community) Resttlement Access roads Food security and agriculture Rural water supply

Berg Water ProjectBerg Water Project

[ Location of Project ]

[ Western Cape Water System ]

Voëlvlei Dam

Theewaterskloof Dam

Kogelberg Dam

Berg River Dam

DWAF

TCTA Water Income

City of Cape Town

Steenbras Dam Wemmershoek Dam

WaterDelivered

WaterDelivered

SalableWater

SalableWater

Water DeliveredWater Delivered

Other Users

Other Sourceseg Misverstanddam

Other Sourceseg Misverstanddam

[ Public Public Partnership Agreements ]

City of Cape TownCity of Cape Town

DWAFDWAF

TCTATCTA

• Supply of water from WCS to CCT

• Conditions of Supply

Agreement 1:

Agreement 2:

• Payment for water incl. BWP to TCTA• Payment for water incl. BWP to TCTA

• Implementation

• Payment of watercharge

• Collection of income

[ TCTA – 2004 Business highlights ][ TCTA – 2004 Business highlights ]

Agreements signed April 2003 Dam type selection completed and procurement of

contractors Environmental :

Environmental Monitoring Committee Approval of environmental management plan Franschhoek First policy

Long term credit rating AA+ Long term funding on place Future

Impact mitigation Housing Public participation

Agreements signed April 2003 Dam type selection completed and procurement of

contractors Environmental :

Environmental Monitoring Committee Approval of environmental management plan Franschhoek First policy

Long term credit rating AA+ Long term funding on place Future

Impact mitigation Housing Public participation

[ TCTA – score card ][ TCTA – score card ]Employment OpportunitiesEmployment Opportunities

Employment Local Total

Dam contract 72 111

Access Road contract 153 198

Working for water 252 252

TOTAL 477 561

Employment Local

Dam contract 6

Working for water 21

TOTAL 27

Procurement OpportunitiesProcurement Opportunities

[ TCTA – score card ][ TCTA – score card ]

Training OpportunitiesTraining Opportunities

Training Training

days

Number of Local

Persons

Working for water 194 48

TCTA 1 071 66

TOTAL 1 265 114

[ TCTA – score card ][ TCTA – score card ]

SMME Training and SupportSMME Training and Support

Training and Support Number of SMME’s

3 Training courses 14

2 Local joint venture tenders submitted for La Motte construction housing

Outcome of training and supportOutcome of training and support

[ BWP: Debt Curve in Actual Rand Value ]

BWP LIABILITY CURVE AND ANNUAL CAPITAL CHARGE

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

'03 '06 '09 '12 '15 '18 '21 '24 '27 '30

Ran

d m

illio

n

-

0.200

0.400

0.600

0.800

1.000

1.200

1.400

1.600

1.800

2.000

Ran

d p

er m

3

Total Liability Curve Capital charge FV Capital charge PV

Construction Period

Repayment Period - 20 years

Umgeni Water

Treasury Management

Umgeni Water

Treasury Management

[ Umgeni Water Treasury Management Services ]

Service LevelAgreement

Phases

Status Complete Complete Complete In Progress

Ministerial Directive – started 11 July 2001

Phase 1: Situation analysis and take-on

Phase 2: Tariff, debt and treasury model review

Phase 3: Balance sheet and treasury model restructuring

Phase 4: Capacity building and handover

2 Year SLAJuly 01 - July 03

SLA extendedJuly 03 - July 05

Phase 1 Phase 2 Phase 3 Phase 4

[ Umgeni Water - Phase 1][ Umgeni Water - Phase 1] Full treasury operations take-on

Market Making Cash Management Portfolio Management Accounting, Compliance, Audit Risk Management

Full data take-on and due diligence

Legal & Regulatory compliance

Full Business Analysis Vision, Mission Long-term business plans Tariff model Long-term cash flow analysis Accounting policy & procedures

Phase 1

Situation analysis and take-on

[ Umgeni Water – Phase 2 ]

Reviewed of tariffing methodology

Broad strategy for Umgeni restructuring

Gap Analysis between current treasury model and that required to support core business

Input into annual financial statements

Reviewed of tariffing methodology

Broad strategy for Umgeni restructuring

Gap Analysis between current treasury model and that required to support core business

Input into annual financial statements

Phase 2

Tariff, debt and treasury model review

[ Umgeni Water – Phase 3 ]

BALANCE SHEET RE-ENGINEERING:

Exited Market Making - 28 November 2003 : Closure Market Making portfolio and repo book Elimination of cash flow risk associated with

market making Freeing up of financial assets used for Market

Making to support redemption portfolios

Greater Achievement of Asset / Liability Matching Minimize re-financing and forward starting

interest rate risk through restructuring of structured loans and UG55 / UG66 debt buyback

Negotiated R1 billion in amortizing debt to support balance sheet restructuring and asset / liability matching

Phase 3

Balance sheet re-engineering and treasury restructuring

[ Umgeni Water – Phase 3 ][ Umgeni Water – Phase 3 ]

BALANCE SHEET RE-ENGINEERING::

Greater Achievement of Optimal Capital Structure From 92 % fixed / 8 % floating to 73 % fixed /

27 % floating

Restructuring of long-term Investment Portfolio for Redemption Portfolio Purposes

TREASURY MODEL RESTRUCTURING:

Simplification of Umgeni Treasury requirements by turning treasury into a cash management operation

Phase 3

Balance sheet re-engineering and treasury restructuring

[ Umgeni Water – Phase 4 ][ Umgeni Water – Phase 4 ]

Input into income and supply agreements

Build capacity through: Creation of in-house Umgeni treasury Transfer of skill’s – treasury, finance

and internal audit

Formulate detailed handover plan and execute

Create commercial contract for ongoing specialized treasury services

Input into income and supply agreements

Build capacity through: Creation of in-house Umgeni treasury Transfer of skill’s – treasury, finance

and internal audit

Formulate detailed handover plan and execute

Create commercial contract for ongoing specialized treasury services

Phase 4

Capacity building and handover

Behold our kaleidoscope, scintillating gems united in

splendor…

Thank You

265 West Street

Centurion

0046

Telephone: (012) 663 8000

Fax: (012) 663 5054

Website: http://www.metsi.com http://www.tcta.co.za

e-mail: info@tcta.co.za