Transform empower uplift 6/9/11 TCTA Strategic Plan for 2011/12 11 Date: 7 June 2011 Presentation to Parliamentary Portfolio Committee on Water Affairs

transform empower uplift

6/9/11

TCTA Strategic Planfor 2011/12

11

Date: 7 June 2011

Presentation to Parliamentary Portfolio Committee

on Water Affairs


Click to edit Master subtitle style

6/9/11 22

STRATEGIC OBJECTIVES

Deputy Chairman of the Board: Mr. Simphiwe Kondlo


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Purpose of TCTA

Special Purpose Vehicle, established by DWA to raise off-budget funding for projects.

The purpose of constructing works off-budget is two-fold:To ensure that the cost of the infrastructure is

paid for by the benefiting end user and not by the entire tax base;

To reduce the Government borrowing requirements (I.e. TCTA borrows direct from the market rather than National Treasury)


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Purpose of TCTA (cont)

TCTA implements directives in accordance with Government PolicyThe method of calculating the Capital Unit

Charge is in accordance with the Pricing Strategy as established by the Minister

The rising block tariff ensures that low consumption domestic consumers pay nothing or well below cost of supply

Currently there is a serious funding shortfall (R2.6 billion/annum) on the operation, maintenance and replacement of National Water Resource Infrastructure

If no new infrastructure built then high consumption consumers must use less water so it can be shared equitably


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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

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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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TCTA’s Offering

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Chief Executive Officer: Mr. James Ndlovu


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Products and Services

To provide water infrastructure at the lowest life cycle cost to the end consumer

ProductsProject managementProject design & implementationLiability managementStructuring and raising of project financeKnowledge managementLocal Economic Development


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Strategic Transformation

Preferential ProcurementEmphasis on women owned enterprises and local

enterprises

Enterprise DevelopmentTwo contractors being developed per project to enable

them to construct multi-disciplinary projects

Local EmploymentTargets in contract to impose use of local employment

Skills development Ensure the skills set of the local population is enhanced

to enable them to participate in the developed economy and thus escape the rural poverty trap Bursaries – 9 students in their final year Internship Programme- 10 interns

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Support to the Water Sector

TCTA increasingly uses its skills to provide advisory services to DWA, water boards and local municipalities. (Examples of work to date):

Turnaround Strategy for the Water Trading Entity

Concept Paper on the Institutional Arrangement for the treatment of Acid Mine Drainage

New contract between Mangaung Local Municipality and Bloemwater

Water Resource Augmentation Options for Mbombela Local Municipality

Raising funding for the Rehabilitation/replacement of the Vaal Gamagara Scheme

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Mandate & Directives

Executive Manager: Project Management & Implementation

Mr. Johann Claassens


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Lesotho Highlands Water Project

TCTA fulfils the financial obligations of South Africa towards Lesotho in respect of the water transfer component of this project

Debt curve has reached peakFinal repayment has been brought forward

from 2025 to 2022 to lessen the impact on tariffs of Lesotho Phase 2 (Polihali Dam)

Phase II agreement with Lesotho being finalised – signing by June/July


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Berg Water Project

The project is fully operational and delivering water to consumers in the City of Cape Town.

The project is earning sufficient revenue through water tariffs to repay project debt

The City of Cape Town chose to implement the tariff at commencement of construction to reduce the interest costs on the project


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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

131 km. 1.9 m dia. pipeline and associated pumpstations

Status:

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

Termination of contract VO32 due to poor performance – replacement contractors successfully appointed

Final completion of the project – August 2011

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


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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

Status:

Institutional Arrangement finalised: UW/DWA off-take agreements and Municipal/UW back-to-back agreements

signed

TCTA/DWA Implementation Agreement signed

Long-term funding agreements signed – mainly DFI funding

Construction contract awarded 2 Feb 2011 – start construction in Mar 2011 and first water delivery April 2013

Sod-turning event held on 16 May 2011

Project budget estimated at R1.7 bn


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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

Status: Institutional Arrangements and Long-term Funding:

Institutional arrangements in place Long-term funding in place

Construction contract awarded Dec 2010 and construction commenced in Jan 2011

Water delivery by October 2012

Project budget R1.7 bn


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Olifants River Water ResourcesDevelopment Project: Phase 2

De Hoop Dam


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Olifants River Water ResourcesDevelopment Project: Phase 2

Main beneficiaries (50/50): social needs (Government agenda - provide basic water

services by 2014) water requirements for further mining developments.

Status:

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

Implementation of Phase 2C & D proceeding balance of project subject to re-planning

Construction of 2 C&D expected to start in Dec 2011

Water delivery 2012 for social use

DWA/TCTA approached National Treasury for MTEF allocation –R1.9bn available over 3 years

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Mokolo-Crocodile Water Augmentation Project


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Mokolo-Crocodile Water Augmentation Project Phase 1

Main beneficiaries Eskom’s Medupi Power Station, Exxaro, Lephalale Local

Municipality 46km pipeline and pump station & acquire existing infrastructure –

transfer water from Mokolo Dam 40 million m3/a

Status: Institutional Arrangements and funding:

Off-take agreement signed (DWA/ESKOM & EXXARO) DWA/TCTA Implementation Agreement signed Bridging finance in place Long-term funding being secured

Construction tendering in progress Environmental authorisation obtained Construction to start September 2011 Water Delivery June 2013 Project Budget R 2.1 billion

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Metsi Bophelo Borehole Project

Main Beneficiaries: Rural communities in Limpopo, North West, Mpumalanga, Free State and Eastern Cape

Status

Directive received: 2 March 2011

Site investigations commenced

Expected completion: November 2011

Project budget R26 million


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Acid Mine Drainage Project

Main Beneficiaries: All users in the Vaal and Crocodile River Catchments

Status

Directive received: 6 April 2011Tender for Professional Service

Provider closed 26 April 2011Due Diligence commenced 9 May

2011Immediate solutions being

identified to reduce decant in Western Basin

The Short actions required over the next 12 months period are:Installation of pumps to extract

water from the mine void to on-site treatment plants.

Construction of an on-site water treatment plant in each basin or refurbishing and upgrading the existing ones owned by the mines, to treat the water to acceptable standards.

Installation of infrastructure to convey treated water to nearby water courses.

Expected completion: September 2012

Available budget from DWA, R225 million


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Financial Overview

Chief Financial Officer: Ms. Halima Nazeer



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Financial Highlights 2009/10


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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

Fundamental Accounting Principles


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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).

Project Financing Approach


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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 more

than 2009

Other Operating expenses

(392) (288) Increased activities on new projects, as these

projects have gained momentum in the current

year. All administration costs not directly

attributable 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 toward

the end of 2009 financial year

Finance cost (3 026) (2 604) VRESAP finance costs reflected on Income

Statement for the first time (previously capitalised) Increase in interest on WS04 due to incremental

funding

Net project deficit for the year

(151) (209)



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Budgets2011/12


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OverviewBudget 2011/12

The Budget for approval, has been based on the following strategic imperatives:

Increased activity on new mandates

resulting in: Increased capital expenditure and administrative

costs

Staff compliment will remain at projected

2010/11 levels, well below 2010/11

approved headcount;

Incremental funding requirements;

Relocation to larger premises;


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Budget Components Budget 2011/12

R’ Million

Capital Expenditure 2 463

Income (3 442)

Directly Controllable Expenditure 264

Indirectly Controllable Expenditure 763

Finance Costs 2 491

At a glance


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The budget for 2011/12 was prepared based on the Long Term Cost Plans, Charter and expected timeline of the projects taking into account current project delays.

BWP includes finalization of claims

Budget Highlights 2011/12Capital Expenditure


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Cum Cost to Date

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

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

BWP 1,622 15 -39 1,598

VRESAP 2,509 155 96 -104 2,657

MMTS2 57 180 486 506 198 48 1,475

ORWRDP 49 88 696 701 197 1,803 2,254 170 5,958

KWSAP 49 249 876 178 25 6 3 1,387

MCWAP1 53 115 660 589 214 99 1,731

Total 4,340 802 2,776 1,870 634 1,957 2,257 170 14,806

Cum Total 4,340 5,142 7,918 9,788 10,422 12,378 14,636 14,806

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

(Forecast) / Budget TOTAL


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Water Income in LHWP increases in accordance with the agreement reached at the Annual Water Users Forum Tariff Review.

VRESAP income based on the

Raw Water Supply Agreement

entered into between TCTA, Sasol

and Eskom.

BWP revenue based on the

Addendum to Raw Water Supply

Agreement entered into between

TCTA and City of Cape Town.

LHWP revenue includes

income of R90,3m for LHWP II.

Budget Highlights 2011/12Water Income


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Budget Highlights 2011/12Running Expenditure


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Net Deficit of R78.94m R237.2m lower than 2010/11 approved budget Driven by materially lower finance costs, offset by increases in Royalties

and amortization.

Capital Expenditure – R2 463.5m Lower than 2010/11 Budget due to project delays

Funding Requirement – R3 556.7m Lower interest rate environment compared to 2010/11 Pro-active management of funding costs through fixing rates and

switching

Directly Controllable Expenditure – R265.0m Continued initiatives to contain costs and optimize efficiencies

Budget 2011/12 In Summary


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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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TCTA is a Going Concern


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Questions …

Thank you

Documents

Transform empower uplift 6/9/11 TCTA Strategic Plan for 2011/12 11 Date: 7 June 2011 Presentation to Parliamentary Portfolio Committee on Water Affairs