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11/19/10 11

Presentation to Parliamentary

Portfolio Committee17 November 2010

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Content of Presentation

�Overview –� Chairman of the Board: Dr. Snowy Khoza

�Highlights of Organizational Performance –� Chief Executive Officer: Mr. James Ndlovu

�Project Implementation –� Executive Manager for Project Management

and Implementation: Mr. Johann Claassens

�Financial Highlights –� Chief Financial Officer: Ms. Halima Nazeer

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11/19/10 33

Overview

Chairman of the Board: Dr. Snowy Khoza

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Establishment of TCTA

• Established in 1986 as an SPV to fund and implement bulk raw water infrastructure

• Non profit-making

• Schedule 2 Public Entity - PFMA

• Reports via Minister of Water Affairs to Cabinet and Parliament

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Water Supply Value-Chain

5555

TCTA

DWA (Infrastruct

ure Branch)

Water Boards

Municipali ty

End User

National Raw Water Resource Infrastructure

Treat raw water to potable level

Oversight by CoGTA

Distribution of water

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Operations Model

66

Mandate from the Minister of Water Affairs

Due diligence

Financin g,

costing, timeline

Design optimisati

on

Type of funding

Constructi on (incl. social

compone nt)

Obtain project risk rating, and competitive financing (local and international )

Procurem ent

BBBEEEnterprise DevelopmentLocal ProductsContractor dev.Skills transferLocal employment

Job creationPoverty alleviationLED

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Financial Model

77

� Funding is off-Balance Sheet, i.e. no funding from National Treasury

� Funding relies only on implicit guarantees from Treasury (excluding Lesotho Highlands (LHWP), which is explicitly guaranteed)

� All projects are ring-fenced, i.e. no cross- subsidisation is allowed

� Debt repayment is funded through water tariffs, over 20 years

� Deficit is intended to ensure on-going affordability for end users; the deficit reverses after a few years, and is not related to TCTA’s feasibility as a going concern.

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Risk Model

88

Stakeholder Agreements:

• Off-take agreements

• Construction agreements

• Implementation agreement

Debt Managem ent (Revenue

collection by DWA)

Project Manageme

nt(transferred to partners, e.g. contractors)

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Board Oversight

� Provides strategic direction in support of the Government’s developmental agenda

� Provides effective leadership, based on an ethical foundation, for the effective governance of risk

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Highlights of Organisational Performance

Chief Executive Officer: Mr. James Ndlovu

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Strategic Objectives

�Deliver to all mandates provided by the Minister, in accordance with specifications and within the agreed timelines and budget

�Facilitate social transformation and build sustainable communities by providing jobs and empowerment

�Operate the business projects and processes in a cost-effective manner, conscious of the imperatives of PFMA

1111

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Strategic Objectives cont.

�Build the knowledge and capability of the organisation to generate lessons for project improvements, in pursuit of greater efficiencies in water delivery

�Ensure the continuous availability of high- calibre human capital for delivering on organisational mission into the future, while remaining a value-adding agile entity.

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Directives Issued to TCTA

� The funding & implementation of the following projects� 1986-2002: Lesotho Highlands Water Project� 2002: Berg Water Project� 2004: Vaal River Eastern Subsystem Augmentation

Project � November 2007: Mooi-Mgeni Transfer Scheme - Phase 2;� July 2008: Olifants River Water Resources Development

Project;� September 2008: Komati Water Scheme Augmentation

Project; � June 2009: Mokolo Crocodile Water Augmentation Project

� Moved from a single to a multiple project environment, including simultaneously raising finance and managing projects & associated knowledge

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Highlights of Performance in 2009/10

�Simultaneous Projects�Environmental performance�Institutionalized knowledge management�Effective human resources management�Operating surplus of R2 026 million (2009: R 1 756 million)�Unqualified audit report�Strategic transformation & community

empowerment

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Strategic Transformation

� Preferential Procurement

� Enterprise Development

� Local Employment

� Skills development

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Community Empowerment

� Transferred Pietersdal Office Block to Free State Provincial Government

� Launched Charl Cilliers Victim Empowerment Center (VEC)

� Implementation of BWP SUP (Sustainable Utilization Plan) such as Transfer of La Motte Houses in Franschhoek

� Internship Programme

� Learnership Programme1616

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Transformation: BBBEE Scorecard

BBBEE ELEMENT Maximum Score/Points

31 March 2010

Management Control 16 16.00Employment Equity 18 12.84Skills Development 20 16.03Preferential Procurement 20 8.97Enterprise Development 15 11.66Socio-Economic Dev. 15 15.00

104 80.05

• TCTA moved from 68 points (2009) to 80 points (2010)• From Level 4 to Level 3 contributor

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Going Concern

TCTA is highly solvent over the long-term with no risk of being unable to service and repay debt

TCTA is a going concern

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Project Implementation

Executive Manager for Project Management and Implementation: Mr. Johann Claassens

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Second Outline Level− Third Outline

LevelFourth Outline Level− Fifth

Outline Level

− Sixth Outline Level

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Building on the Multi-Project Environment

T C T ALiability management for bulk raw water infrastructure

developmentImplementation & Funding Mandates Advis oryDWAF

Cost recovery from DWAF

Expected:

- VRESAP-2- LHWP-2(approximately R7.5 billion )MCWAP -2 (approximately R11 bn)

LHWP

Explicit Government Guaranteed

R 20 billion

19862001

BWP

•

Income stream of BWP

•

Implied guarantee

R 1,4 billion

20032008

VRESAP

R 3,3 billion

20052011

MMTS2

+ R 2 billion

20112014

•

Income stream of MMTS2

•

Implied guarantee

•

Income stream of VRESAP

•

Implied guarantee

•

Fund•

Risk mngmnt

•

O&M of assets

•

Implement•

Fund•

Risk mngmnt

•

Implement•

Fund•

Risk mngmnt

•

Implement•

Fund•

Risk mngmnt

2025 2028 2028 20 years after construction

Constructio n info:

Commence dCompleted

Peak of debt

Revenue Recourse

Mandate Activities

Repayment of debt

ORWRDP2

+ R 10 billion (Dam & BDS)

Dam: ‘07 – ‘12BDS: ‘11 – ‘16

•

Income stream of ORWRDP2

•

Implied guarantee

•

Implement•

Fund•

Risk mngmnt

20 years after construction

KWSAP

+ R 2 billion

20112014

•

Income stream of KWSAP

•

Implied guarantee

•

Implement•

Fund•

Risk mngmnt

20 years after construction

MCWAP 1

Construction cost

+ R 2 billion

20112014

•

Income stream of MCWAP

•

Implied guarantee

•

Implement•

Fund•

Risk mngmnt

20 years after construction

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Lesotho Highlands Water Project

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Lesotho Highlands Water ProjectInstitutional Arrangements

RSA Chief Engineer

DW A

LHWC

LHDA

GOLGovernment

RSA Government

TCTA

LHWCResponsible/Accountable

Non -

O+MTreaty

Manager to report on O+MAppointment require LHWC

approval

AppointBoard

AppointBoard

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Lesotho Highlands Water Project Status

�Phase I continued to deliver water to Vaal System – 784 million m³ - Royalty payments to Lesotho R 342 million

�Phase I debt being repaid from revenues from water sales out of the Vaal System

�Phase II approved by Cabinet end 2008 – subject to an Agreement

�Provide water to RSA – Lesotho considering their Hydropower options

�Agreement expected to be concluded end of

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Berg Water Project

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Berg Water Project

�Inaugurated in March 2009 – attracted 4 awards for construction and environmental excellence

�Project operated and maintained by DWA as part of the Western Cape Water Supply System

�Continued to deliver water to City of Cape Town as part of WCWS

�Operation of the dam continued to meet the environmental requirements – first dam in SA that fully complies with the World Commission

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Vaal River Eastern Sub-system Augmentation Project

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Vaal River Eastern Sub-system Augmentation Project

� VRESAP provides water to two key strategic industries:� Sasol in Secunda� Eskom Power Stations in Mpumalanga Province

� Water delivery commenced in June 2009 when DWA declared the project operational

� Project operated and maintained my DWA as part of VRESS

� Revenues from water sales amounted to R 145 million – project debt of R3.2 billion expected to be repaid by 2028

� Termination of contract due to poor performance – replacement contractors successfully appointed

� Final costs expected within the approved budget of R2.7 bn

� Final completion of the project – June 2011

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Mooi-Mgeni Transfer Scheme: Phase 2

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Mooi-Mgeni Transfer Scheme: Phase 2

� Augment the Mooi-Mgeni system in KZN for water supply via Umgeni Water to eThekwini, uMgungundlovu and Msunduzi Municipalities – KZN economic hub

� Project comprises a dam in the Mooi River and a water conveyance system – project budget estimated at R1.7 bn

� Project in final preparation stage:� Finalisation of institutional arrangements� Securing of long-term funding – mainly DFI funding� Construction tendering

C t ti t d t t t i J 2011 d fi t

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Komati Water Supply Augmentation Project

Matla Power Station

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Komati Water Scheme Augmentation project

�Augment the Komati System from the Vaal Eastern Sub-System with 57 million m³ pa to supply water to Eskom’s Duvha and Matla power stations and later the new Kusile Power Station all in Mpumalanga Province

�Infrastructure includes a pump station next to Rietfontein weir and 68 km of pipeline - project budget R1.7 bn

�Project in final preparation stage:�Finalisation of institutional arrangements�Securing of long-term funding

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Olifants River Water Resources Development Project: Phase 2

De Hoop Dam

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Olifants River Water Resources Development Project: Phase 2

De Hoop Dam

STRYDPOORT MOUNTAINS

BURGERSFOR T

EPSS

DE HOOP DAM

STEELPOOR T TOWN

MOTOTO LO

MOKOPAN E

POLOKWAN E

LEBOWAKGO MO

JANE FURSEFlag Boshielo

RWS

Tubatse RWS

Nebo Plateau RWS

Lebalelo RWSOlifantspoort South RWS

Olifants-Sand RWS

FLAG BOSHIELO DAM

MOOIHOE K

Mphahele and Groothoek RWS

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Olifants River Water Resources Development Project: Phase 2

� Main beneficiaries (50/50):� social needs (Government agenda - provide basic water services by 2014)

� water requirements for further mining developments.

� Social portion funded by fiscus and commercial portion off- budget by TCTA

� Phase-2 (b) to (h) – Distribution system implemented by TCTA R7.9bn – water services a further R7 bn

� Funding constraints due to mines reluctance to sign unconditional off-take agreements – world economic downturn

� DWA/TCTA approached National Treasury for MTEF allocation – awaiting outcome

� Project to proceed in Phases – priority to social needs

� Construction expected to start in Sep 2011 – water delivery 2012 for social use.3434

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Mokolo-Crocodile Water Augmentation Project

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Mokolo-Crocodile Water Augmentation Project

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Mokolo-Crocodile Water Augmentation Project

� Main beneficiaries� Phase 1: Eskom’s Medupi Power Station, Exxaro, Lephalale

Local Municipality� Phase 2: Further power stations Eskom/IPP’s, Sasol,

Secondary Developments

� Composition� Phase 1 – 46km pipeline and pump station & acquire existing

infrastructure – transfer water from Mokolo Dam 40 million m3/a

� Phase 2 – abstraction weir Crocodile River, pump station and 128km pipeline - utilizing return flows transfer 197 million m3/a

� Phases 3 & 4 – Further pipeline and water transfer return flows

� Implementation� Phase 1 – Budget R2 billion – Construction Start Jul 2011 –

Water Delivery Jun 2013� Phase 2 to 4 – Budget R10 to 15 billion – Construction start

uncertain

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Financial Highlights

Chief Financial Officer: Ms. Halima Nazeer

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Fundamental Accounting Principles

� Each project is ring-fenced

� Costs of infrastructure reflected as asset until debt fully repaid, then handed back to DWA (LHWP – intangible asset – right of receipt of water – owned by Lesotho Highlands Development Authority)

� Full cost recovery from water sold to end-users

� Constant tariff in real terms which increases with:� Consumer Price Index annually� Projects may need to increase borrowings in the first number of years

after completion to maintain constant tariff

� Repayment of debt within reasonable period (e.g. 20 years)� Should not be longer than the economic useful life of the asset� Timing and cost of future augmentations schemes� Affordable structure to the end-user

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Project Financing Approach

� The first number of years of a project is designed to result in a shortfall in interest costs, hence the deficit.

� The project financing approach adopted means that this deficit was anticipated. In the project tariff setting, the debt is deliberately allowed to grow to allow for affordable tariffs.

� This is the first year that accounting surpluses were recorded on LHWP (R99 million).

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Project Financing Approach contd.

� The graphs below illustrates the principles:-

-500

-400

-300

-200

-100

0

100

Annual Surplus/(Deficit) & Liability CurveStep-down tariff - CCT Low Demand Curve

BWP

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Project Financing Approach contd.

LHWP

-3

0

3

6

9

12

15

18

21

24

Cumulative Forecast Liability Curve & Annual Operating Surplus/(Deficit)

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Statement of comprehensive income as at 31 March 2010

2010R’Million

2009R’Million Comments

Revenue 2 757 2 361 • VRESAP was declared operational on 1 June 2010• LHWP and BWP increased due to volumes and

tariff

Other Income 3 8 • Recovery of La Motte of R5million in 2010• Rental income

Royalties paid (342) (325) • Volume of water delivered was 18million m3 morethan 2009

Other Operating expenses

(392) (288) • Increased activities on new projects, as theseprojects have gained momentum in the currentyear. All administration costs not directlyattributable to construction has to be expensed

• VRESAP depreciation of works for the first time(R81m)

Operating surplus 2 026 1 756

Net finance costs (2 177) (1 965)

Finance income 849 639 • Increase in LHWP short term investments towardthe end of 2009 financial year

Finance cost (3 026) (2 604) • VRESAP finance costs reflected on IncomeStatement for the first time (previously capitalised)

• Increase in interest on WS04 due to incrementalfunding

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Project Capital Projections (excluding LHWP)

44

Cum Cost to Date

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

(R million) (R million) (R million) (R million) (R million) (R million) (R million) (R million) (R million) (R million)

BWP 1,626 1 1,626

VRESAP 2,596 100 3 2,698

MMTS2 289 625 599 108 46 1,667

ORWRDP 212 1,058 1,058 3,827 844 602 385 7,985

KWSAP 113 759 572 216 77 1,736

MCWAP1 54 384 389 550 382 127 1,885

MCWAP2 12 539 2,055 2,233 2,895 2,498 1,519 922 12,673

Total 4,888 2,938 3,160 6,756 3,582 3,623 2,883 1,519 922 30,271

Cum Total 4,888 7,826 10,986 17,741 21,324 24,947 27,831 29,350 30,271

TOTAL

TOTAL PROJECT COST - Capital Expediture (excluding O&M)

(Forecast) / Budget

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TCTA is a Going Concern

� The income agreements allow for a CPI adjusted increase on an annual basis as well as automatic triggers.

� Debt will be repaid over the planned repayment period and the organization is a going concern.

� The External Auditors have confirmed that TCTA is a going concern.

� 2009/10 Financial year� Operating surplus of R2 billion� Deficit of R152 million (after funding costs)

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Questions …

Thank you