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transform empower uplift
RFT NO.: TCTA/PFT/FMA/2013/25
Unyielding commitment to
REJUVENATION REVIVAL RENAISSANCE TRANSFORMATION
Appointment of service provider to conduct annual audits of financial models – Briefing session
4 November 2013
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1. Opening and welcome G MNISI
2. Background & scope of services N Gosani
3. Tendering process G MNISI
3.1 Disqualification criteria
3.2 Submission requirements
3.3 Technical Evaluation Criteria
3.4 Financial and Preference Evaluation Criteria
4. Submission of tender G MNISI
5. Communication G MNISI
6. Question & Answers G MNISI
7. Closure G MNISI
Agenda
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Purpose of the Presentation
To give the potential tenderers an opportunity to seek clarity on any
issue that may have presented challenges in responding to the RFT
To give a summary of TCTA’s projects with the view to assist
tenderers complete their bids in an informed manner
To invite those services providers with appropriate skill, experience
and software to submit bids for the purpose of providing financial
models audit services to TCTA
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Background to TCTA
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Background on TCTA
TCTA is a Special Purpose Vehicle Responds to directives/mandates from the Minister of Water and Environmental Affairs to
fund and implement bulk raw water infrastructure on behalf of DWA Board is appointed by Minister of Water and Environmental Affairs Established under the Water Act Schedule 2 Public Entity w.r.t. PFMA
Limited recourse approach No balance sheet Break-even of revenue to costs over a specified period Fully debt funded – no equity Ring-fenced projects – tariffs related to a specific project – no cross-application of revenue
Non profit-taking organisation Recover actual costs – overhead and capex, no profit/loss or reserves Risk averse approach – risk is transferred to parties best suited to manage it Revenue stream terminates once debt is repaid on a project
Tariffs are TCTA’s main source of revenue5
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Water Supply Value Chain
DWA
TCTA
Water Boards
Municipality
End User
National Raw Water Resource Infrastructure
Treat raw water to potable level
Distribution of water
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TCTA funding and implementation model
• Fund and implement infrastructure
Imp
lem
enta
tio
n
agre
emen
t
• Collection of Income• Undertake to honour
obligations of TCTA
• Supply bulk raw water to users
• Operate & maintain infrastructure
Wat
er s
up
ply
ag
reem
ent
• Payment for water including CUC due to TCTA
Water D
eliveryP
aym
ent
of
Tari
ffs
Users
DWA
TCTA
7
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TCTA Projects
LHWP-I
R 20 billion
• Explicit Government Guaranteed
• Fund• Risk management• Operation & Maintenance of assets
2025
BWP
R 1.4 billion
2003 - 2008
•Income stream from BWP• Implied government guarantee
•Implement• Fund• Risk management
2028
KWSAP
+ R 1.9 billion
Jan 2011 Apr 2014
• Income stream from KWSAP• Implied guarantee
• Implement• Fund• Risk management
20 years after construction
VRESAP
R 3.3 billion
2005 - 2012
•Income stream from VRESAP•Implied government guarantee
•Implement• Fund• Risk management
2028
1986 - 2001
Projects in operations
Construction Period:CommencedCompleted
Peak of debt
Revenue Recourse
Mandate Activities
Repayment of debt
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TCTA Projects (cont.…)
MMTS-2
+ R 1.6 billion
• Income stream of MMTS2• Implied guarantee
• Implement• Fund• Risk management
20 years after construction
ORWRDP-2
N/A – fiscal funding, no debt
Dam: CompletedBDS: (To be advised)
• Funded from the fiscus
• Implement• Model audit not the scope for now
N/A
AMD
N/A – fiscal funding, no debt
• Short term solution funded from the fiscus
• Implement• Model audit not on scope for now
MCWAP
Ph 1 – R 2.5 billionPh 2 – R 15 billion
Ph 1 – 2012/ Ph 2 2014Ph 1 – 2014/ Ph 2 - 2020
• Income stream of MCWAP• Implied guarantee
• Implement• Fund• Risk management
20 years after construction
Feb 2011 (Apr 2014) Jan 2015
Projects under construction
Construction Period:CommencedCompleted
Peak of debt
Revenue Recourse
Mandate Activities
Repayment of debt
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Stakeholders & tariff principles
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Interested and affected stakeholders TCTA
Tariffs will generate sufficient revenue streams to meet contractual obligations and sustain TCTA
Correct tariff set so as not to misinform stakeholders
Banks and bondholders Repayment of loan obligations within contract terms
SARB Support inflation targeting
National Treasury Protection of sovereign against unnecessary risk - Bankable project Relieve government from financing commercial infrastructure from the fiscus Ensure affordability of tariffs to users Responsible utilisation of state guarantees
DWA Inflationary increases in raw water as start of water chain input cost
Affordability and predictability to end-users Uncomplicated annual tariff consultations – inflationary increases
Water demand management incentive (pay on actual use) No cross subsidisation between projects – transparency of costs Compliance with Water Pricing Strategy
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Interested and affected stakeholders
SALGA Inflationary increases Fair tariff structures
Municipalities Limited to inflationary increases, including raw water components
DWA expects TCTA to support this objective Municipality and Council pressure to keep increases low
Water sector and end users Tariff stability and predictability Affordable water Inflationary increases acceptable No cross subsidisation between projects – transparency of costs
Fitch Ratings Credit rating of all TCTA projects except LHWP
12
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Tariff Principles
Tariff categories for off-budget schemes:
Capital Unit Charges (to repay debt)
Bulk Operating and Royalties Charge (to repay royalties and bulk O&M)
Water Use Charges (statutory charges as per pricing strategy)
Operations and Maintenance Charges (State schemes portion)
Betterment and Refurbishment Charges (if applicable)
Input data supplied to TCTA as follows: BER:
long-term economic forecasts (inflation, real interest rates) DWA:
water demand forecasts (high and low scenarios) system yields future schemes timing and projected costs
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Tariff Principles (cont.…)
TCTA recovers the following tariffs: Raw water tariff as capital unit charge to repay debt Bulk Operating and Royalties charge to cover royalties and bulk O&M
Full cost recovery from water sold to end-users or take-or-pay where required
Based on water sold out of system and not on water delivered into the system from the specific project
supports water demand management initiatives reduces demand risk
Constant tariff in real terms which increases with: CPI annually Triggers as per the Income Agreement
Repayment of debt within reasonable period (eg 20 years)
Affordable structure to the end-user
Tariff setting takes account of tariff, funding and risk management principles in combined approach
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Other considerations
National Water Pricing Strategy
Administered prices – inflation targeting
Stakeholder consultation outcomes
Affordability to end-users phasing-in of large adjustments allowance for capitalisation of interest in early years
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Tariff Setting Balancing Effect
End user
affordability
Debtoutstanding
Considerations to support end user affordability:
•Under recovering in early years
• End-user pays on actual use if bankable
• Constant tariff in real terms approach – CPI targeting
• Phasing-in of large tariff adjustments over 2-3 years
• Take account of future augmentation – future affordability
• No reserves built into tariffs
• Actual cost transfer – TCTA not profit taking
Considerations to support debt management:
•+20 year repayment period
• Peak of debt in relation to value of asset (limit interest capitalisation)
• Risk transfer to end-user – trigger adjustments if input assumptions change
• Water sector debt profile – debt overlap with future schemes
• Interest rates mostly fixed
• Utilisation of explicit Government guarantees and impact on National
Treasury16
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Tariff Setting Process – May to August
• Input dataDemand, system yield, economic fundamentals, cost and timing of future augmentation schemes
• Long-term projections DWA compiles long-term demand projections based on coordinated approach with DWA – various departments involved, Water Boards’ Planning and Budgeting departments, Large industrial users, Muni’s etc.
• Sensitivity Analysis Inflation, real interest rate, timing of future augmentation schemes and repayment periods
• Stress TestingLower inflation, changes in yield of system, higher real interest rate, zero growth in demand etc
• Stakeholder validation Demand projections, system yield, economic fundamentals, cost and timing of future augmentation schemes
• Consultation with National Treasury and SARB
On administered prices
• Consultation with DWA management structure
• Rand Water Services Forum
• Other Major stakeholder forums
Planning process Sensitivity Analysis &
Stress Testing Consultation Participation
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Scope of service
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Scope of service
The annual audits will include, inter alia,
Correct capture of assumptions, i.e.:
General input assumptions; demand projections, CPI, real interest rates, admin
costs, funding requirements and LT cost plans;
Funding input; calcs relating to loans, bonds, interest, fees, capital requirements,
capi, CPI uplift on CPI-linked instruments;
Loans on models correspond with loan agreements
Confirm the accuracy of the following outputs:
Net debt curve
Tariff
Gross borrowings
Graphs, etc.
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Scope of service (cont.…)
Assess the accuracy of the financial models:
Initial audits only – review the logic and accuracy of computations;
For subsequent audits – map out changes in logic and construction of the model
from the previous audited version, and review where changes have been
detected;
Deliver an initial report of findings and recommendations relating to the accuracy,
integrity, highlighting issue for TCTA’s attention;
Review changes made by TCTA following initial report;
Deliver final opinion letter (report) by the 15th of September, annually;
First year only, report to be delivered by 31 March 2014.
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Key projects information
LHWPI&II BWP VRESAP KWSAP MMTS-2 MCWAPI&II
No. of off-takers Numerous 1 2 1 1 2
Project phase Phase I: operationalPhase II: structuring
Operational Operational Operational Dam: fully constructed, conveyance system: planning phase
Phase I: constructionPhase II: project structuring
No. of phases 2 1 1 1 1 2
No. of loans, sub-loans & fin. instruments
Various BondsLT loansCPP
3x LT loansCPP
5x LT loansRCFCPP
4x LT loansRCFCPP
3x LT loansRCFCPP
3x LT loansCPP
Estimated unique formulae
2000 400 1100 1200 600 1100
Debt curves 3 1 3 1 1 1
CPI-uplift CPI-linked bond
None CPI uplift on 1 of the sub-loans
None None None
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Model features
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Model features
Excel based – standardised template
Model information
Input (update funding, macro-economic data, demand projections, etc.)
Cash flow (calculations)
Loan calculations
Chart input
Charts
Tariffs - goal seek function to arrive at a tariff
Provision for phasing in during construction to minimise capitalisation of interest
Provision for different off-takers and funders
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TENDERING PROCESS
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Failure to meet the minimum technical score of 65 out of a possible 100 points.
No proof of access to auditing tool
If currently TCTA’s external auditor
Disqualification criteria
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Submission Requirements
Tenderers must submit the full list of
documents and information required by
TCTA for the purpose of evaluation of the
tender offer.
The documentation and information
required must be numbered in accordance
with the numbering set out in this RFT.
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Evaluation criteria Two envelope system:
Technical evaluation Preference and price 90/10 preference point system will be used
Technical evaluation: Company track record, in the last 5 years on financial model auditing and access to financial
model audit software tools. The information shall contain: Name of company for whom the work was done Period of Contract Description of the financial model audited Audit tool used Contactable reference
Proof of access to a financial model auditing software tool (either current software license in company name or signed letter from licence holder granting access)
Company track record on financial model auditing and access to financial model audit software tools
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Evaluation criteria (cont.) CVs
Project Leader Financial Model Auditor Financial Model Auditor (HDI)
Financial proposal: Tenderers are required to provide a total fixed price over the contract period, broken down
per project and per year, for undertaking the scope of services as per the template contained in Appendix D of the RFT
Allocation of points: Preference points will be allocated in terms of the preferential procurement evaluation
criteria in section 7.2 of the RFT.
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Technical Evaluation criteria
TCTA will evaluate each Technical submission in terms of the method of evaluation stated in the RFT.
The purpose of the technical evaluation is to determinate which tenders qualify for the next phase (financial and preference evaluation).
The technical component will be out of 100
points. In order to qualify for the next phase a minimum score of 65 out of a possible 100 points needs to be achieved.
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Tender submission
List of Returnable schedule
Annexure A: Covenant of Integrity Affidavit
Annexure B: Bribery and Corruption Declaration
Annexure C: Enterprise Information Affidavit
Annexure D: Enterprise information
Annexure E: Sample refence letter on past projects audited
Section 3 • Track Record:- Name of company for whom the work was done Period of Contract Description of the financial model audited Audit tool used Contactable reference
o Proof of access to a financial model auditing software tool (either current software license in company name or signed letter from licence holder granting access)
Appendix B: Standard Bidding Documents:-
• SBD 4
• SDB 6
• SBD 8
• SBD 9
• Tax Clearance Certificate.
• Company Registration Documents & cancelled cheque.
• BBBEE Scorecard and Certificate.
Annexure C: CV Template
Section 4 CVs of:-1. Project Leader2. Financial Model Auditor3. Financial Model Auditor (HDI) Template With certified copies of graduate, post graduate and modelling certificates attached
Annexure H: Financial Proposal Template
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Tender submission
Closing date and time for submissions: 29 November 2013 at 14h00
Delivery Address: TCTA offices, Ground Floor Stinkhout Wing, Tuinhof Building, 265 West Street, Centurion
Delivery method : Proposals must be hand delivered at TCTA’s Centurion offices and addressed to the Receiving Officer, and marked RFT: TCTA/PFT/FMA/2013/25 on or before the closing date and time.
ENVELOPE A-Technical Information Copies to be submitted: 1 Original (clearly marked
“original” and 5 copies ENVELOPE B-Financial Information Copies to be submitted: 1 signed hardcopy and 1 CD-
ROM
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Communication
Only written communication addressed to Receiving Officer at [email protected] will be considered.
TCTA will assume that every individual communicating with it on behalf of a tenderer or a potential tenderer is duly authorized unless otherwise indicated.
Please use tender number on all correspondence.
Written questions emailed to [email protected] will be responded to within 48 hours.
Any addendum to the RFT necessary will be published in the TCTA website until 3 days before the tender closing date
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Thank you
Contacts:
Ntsikelelo GosaniProject Finance [email protected]
Godfrey MnisiProject Procurement [email protected]
Telephone: (012) 683 1200