Capital Expenditure Programme Tariff Consultation 10 October 2016 Presenter: Anthony Els

CONTENT Demand growth forecast 2. Augmentation & renewal plan to 2036 3. Capital budget

Rand Water Overview Bulk water supplier to 12 million people 2016 average demand ~ 4350 Ml/d 3500+ km of pipeline – mostly > 600 mm 58 reservoirs – average size 100 Ml

Demand Growth 2016 Snapshot 4 metros = 84% of demand Customer base 2015/2016

Demand Growth Customer base Historical growth Projected growth Several decades of growth in the 3 to 6% per annum An AADD increase from 1000 Ml/d in 1965 to 4350 Ml/d in 2016 Growth started to decline from about 1990 Growth in decade to 2011 averaged 2.5% Projected growth Continued decline in annual growth rates (currently 2%) Decline in both ‘natural’ population growth and inward migration Expect drop from current 2% p.a. to 1% p.a. by about 2035 Medium term growth of 1.75% Growth could level off by about 2070

Demand Growth Forecast Domestic usage ~ 71% of total Natural population growth, inward migration, AIDS, service backlogs, system losses Factors affecting demand growth Estimated population in 2010 – 11.7 million Projected population by 2030 – 14.7 million Annual rate of growth (%) continues to decline Population demographic model Supply 84% of total demand to four metros – Johannesburg, Ekurhuleni, Tshwane, Emfuleni Metros forecast av. growth of 1.5% to 2% p.a. Questionnaire model (major customers) Year 2020 2025 2030 2035 Average Demand (Mℓ/d) 4700 5100 5500 5900

Demand growth versus raw water

Response to limited resources WDM plans continue Municipal customers are required to submit WDM plans when applying for new connections (offset WDM savings against new demand) WDM initiatives not intended to restrict development Typically, areas of saving and development nodes are geographically separate A statistical model is being developed that allows rating of customers water use efficiency, allowing Rand Water to determine focus areas for WDM and monitor municipal performance.

Response to 15% cut in water supply A mandated 15% cut in water supply = 15% less income Tariff could have been increased above normal, or; Capital expenditure can be slowed appropriately: Major projects have long lead times Current projects underway will be completed. A number of future projects can be deferred. Spending on some current projects can be slowed and will be formally reviewed in the next financial cycle. Cutting capital spending has consequences. When the drought is over, it will take time to get capital projects back on track. Thus, careful consideration is needed when considering capital projects to cut. Some projects are requires to allow other major infrastructure out of service for renewal. These cannot be slowed. Spending on replacements and refurbishments is less easily slowed.

Supply systems for Planning Note: Primary = Raw Water + Vereeniging + Zuikerbosch Rand Water Eikenhof Supply System Zwartkopjes Supply System Palmiet Supply System Mapleton Supply System Booster Systems Primary Systems Vereeniging Purification System Zuikerbosch Purification System Raw Water Supply System

Corporate Systems Booster Primary 200km

Supply systems City of Tshwane Palmiet system Eikenhof system Mapleton system Zwartkopjes system Vereeniging Zuikerbosch Primary systems Vaal Dam

Required Augmentation Augmenting for 2015 to 2030 cycle Projected growth in peak day demand = 1600 Ml/d over 15 years Growth split between four booster systems Northern Jhb Tshwane Madibeng Central Jhb Southern areas Eastern Tshwane Ekurhuleni Mpumalanga North west Jhb West Rand Rustenburg Zwartkopjes system 300 Ml/d growth Palmiet system 600 Ml/d growth Eikenhof system 400 Ml/d growth Primary (refurb) Mapleton system 300 Ml/d growth Primary Primary systems 1600 Ml/d growth Primary

Peak demand by pumping station Design capacity Projected peak day demands (Ml/d) (including WDM savings - indicative) 2020 (2025) 2025 (2030) 2030 (2035) 2035 (2040) Primary Systems Zuikerbosch 3610 4300 4800 5300 5800 Vereeniging 1200 1300 Booster systems Palmiet 1875 2000 2190 2380 2570 Mapleton 960 990 1080 1180 1270 Eikenhof 1800 1470 1610 1750 1880 Zwartkopjes 800 760 780 840 880

CONTENT Demand growth forecast 2. Augmentation & renewal plan to 2036 3. Capital budget

Augmentation & Renewal Planning Integrated asset management approach Many projects combine augmentation and renewal (eg pipelines) Integrate at plant, site and system level Augmentation - Increase capacity to meet future demands 20 year view of projects based on 35+ year view of demands Renewal - Extend life of existing assets where appropriate Refurbish if possible Replace if condition merits it

Asset Portfolios Buildings and property Civil structures Pipelines Mechanical Electrical Process Automation

Infrastructure renewal Asset category Replacement value (Rbn) Design life (yrs) Annual renewal allocation (Rm) Pipelines 55 65+ 600 Civil 13 50 to 100 70 Mechanical 10 30+ 115 Process 15 to 20+ Buildings 5 80+ 35 Electrical 1 20 to 30+ 50 Automation 5 to 10+ 20 Total 95   1 005 (1.05%)

Infrastructure augmentation Providing for 2015 to 2030 augmentation cycle Augment primary capacity, with associated major pipelines and booster pumping capacity Package of linked major projects for backbone infrastructure 2009 Additional Water Supply (AWS) Scheme Anchor project for the 2009 AWS Scheme Purifies and pumps into the network additional 1200 Mℓ/d after completion of phase 2 Station 5 at Zuikerbosch

The Primary systems Augmenting for 2015 to 2030 cycle Projected growth in peak day demand = 1600 Ml/d over 15 years Growth split between four booster systems Palmiet system 600 Ml/d growth Mapleton system 300 Ml/d growth Eikenhof system 400 Ml/d growth Zwartkopjes system 300 Ml/d growth Primary systems 1600 Ml/d growth North west Jhb West Rand Rustenburg Central Jhb Southern areas Northern Jhb Tshwane Madibeng Eastern Tshwane Ekurhuleni Mpumalanga Primary Primary (refurb)

The Primary systems Overview Growth in demand Increase of 1600 Ml/d from 2015 to 2030 Key augmentation projects Station 5 at Zuikerbosch (1200 Ml/d in two phases) BG4, Canal 2 and new Forebay B19 Lethabo to Vereeniging raw water pipeline (nearing completion) Lethabo header upgrade Panfontein Drying Beds Phase 2 Key renewal projects Vg Engine Room 4 upgrade Increase sedimentation capacity at Vg Vg chlorine plant 2 upgrade Zb Filter House 1 upgrade Zb Chlorine Plant 4 upgrade

Primary Systems – 1600 Ml/d growth from 2015 to 2030 Additional Purification Plant – 1200 Ml/d capacity Additional raw water pipelines and purification plant upgrades Vg Sed Tank R250 million over next 5 years B19 raw water pipeline R10 million budget for 2016/17 Station 5 at Zuikerbosch 1200 Ml/d capacity in two phases R3 258 million budget over 5 yrs Panfontein Drying Beds R810 million over next 5 years

The Palmiet system Augmenting for 2015 to 2030 cycle Projected growth in peak day demand = 600 Ml/d over 15 years Mapleton system 300 Ml/d growth Eikenhof system 400 Ml/d growth Zwartkopjes system 300 Ml/d growth North west Jhb West Rand Rustenburg Central Jhb Southern areas Northern Jhb Tshwane Madibeng Eastern Tshwane Ekurhuleni Mpumalanga Primary Primary (refurb) Palmiet system 600 Ml/d growth Primary systems 1600 Ml/d growth

The Palmiet system Overview Main customers Growth in demand Eastern and northern Johannesburg Central, western and northern Tshwane Western Ekurhuleni Growth in demand Increase of 600 Ml/d from 2015 to 2030 Key augmentation projects Zuikerbosch to Palmiet B17 pipeline (nearing completion) Klipfontein Brakfontein pipe H39 Engine Room 3b at Palmiet pumping station (nearing completion) Palmiet to Klipfontein O6 pipeline Kensington to Yeoville pumping station Klipfontein - Brakfontein H39 pipeline Brakfontein-Lyttleton Heights H43 and H14 pipelines Key renewal projects O2 Pipeline and O1/G25 Palmiet Engine Room 1 upgrade B6 refurbishment

Zuikerbosch Purification & Pumping Station Palmiet System – 600 Ml/d growth from 2015 to 2030 Additional Engine Room – 600 Ml/d capacity Total of 150 km of pipe between 600 mm and 2100 mm diameter H43 Brakfontein – Lyttleton R535 million in next 5 years O6 Palmiet – Klipfontein R55million in next 3 years B17 Zuikerbosch - Palmiet R10 million in 2017 H39 (95%) Engine Room 3b at Palmiet 600 Ml/d operational capacity R 10 million in 2017 G37/H37 Zuikerbosch Purification & Pumping Station

The Mapleton system Augmenting for 2015 to 2030 cycle Projected growth in peak day demand = 300 Ml/d over 15 years Eikenhof system 400 Ml/d growth Zwartkopjes system 300 Ml/d growth North west Jhb West Rand Rustenburg Central Jhb Southern areas Northern Jhb Tshwane Madibeng Eastern Tshwane Ekurhuleni Mpumalanga Primary Primary (refurb) Palmiet system 600 Ml/d growth Mapleton system 300 Ml/d growth Primary systems 1600 Ml/d growth

The Mapleton system Overview Main customers Growth in demand Central and eastern Tshwane Eastern Ekurhuleni Growth in demand Increase of 300 Ml/d from 2015 to 2030 Key augmentation projects R5 Vlakfontein to Mamelodi pipeline Zuikerbosch – Slangfontein B16 pipeline Engine Room 3 at Mapleton pumping station S4 Van Dyk Park to Vlakfontein pipeline Vlakfontein Reservoir 200Ml Bronberg Reservoir 100Ml Key renewal projects Mapleton disinfection plant M1 pipeline replacement

Mapleton System 100Ml Bronberg Reservoir R5 Vlakfontein – Mamelodi R220 million over next 5 yrs R5 Vlakfontein – Mamelodi R280 million over next 5 yrs 200Ml Vlakfontein Reservoir R271 million over next 5 yrs S4 Van Dyk Park - Rynfield R468 million over next 5 yrs Engine Room 3 at Mapleton R650 million over next 5 yrs B16 Zuikerbosch - Mapleton R612million over next 5 yrs

The Eikenhof system Augmenting for 2015 to 2030 cycle Projected growth in peak day demand = 400 Ml/d over 15 years Zwartkopjes system 300 Ml/d growth North west Jhb West Rand Rustenburg Central Jhb Southern areas Northern Jhb Tshwane Madibeng Eastern Tshwane Ekurhuleni Mpumalanga Primary Primary (refurb) Palmiet system 600 Ml/d growth Mapleton system 300 Ml/d growth Eikenhof system 400 Ml/d growth Primary systems 1600 Ml/d growth

The Eikenhof system Overview Main customers (includes significant mining use) Western Johannesburg and Soweto Far West Rand Rustenburg Growth in demand Increase of 400 Ml/d from 2015 to 2030 Key augmentation projects F34 Waterval to Weltevreden pipeline F49 Krugersdorp to Randfontein pipeline Meredale reservoir 1 x 210Ml Additional Meredale reservoir storage (2 x 100Ml) Key renewal projects Replace Eikenhof disinfection plant Link to Witpoortjie Reservoir F18 pipeline Replace pipework from Moroka to Zuurbekom

The Zwartkopjes system Augmenting for 2015 to 2030 cycle Projected growth in peak day demand = 300 Ml/d over 15 years Northern Jhb Tshwane Madibeng Central Jhb Southern areas Eastern Tshwane Ekurhuleni Mpumalanga North west Jhb West Rand Rustenburg Zwartkopjes system 300 Ml/d growth Palmiet system 600 Ml/d growth Eikenhof system 400 Ml/d growth Primary (refurb) Mapleton system 300 Ml/d growth Primary Primary systems 1600 Ml/d growth Primary

The Zwartkopjes system Overview Main customers Northern Emfuleni and Southern Johannesburg Central Johannesburg (largely developed, low growth expected) Benoni Growth in demand Increase of 300 Ml/d from 2015 to 2030 Key augmentation projects Amanzimtoti pumping station upgrade T5 Orange Farm to Ennerdale pipeline Daleside additional 40 Ml reservoir Arcon Park to Langerand A13 pipeline duplication Key renewal projects Replace Vg-Daleside A6 and A8 pipelines Lay new Zb-Daleside pipe to allow refurbishment of B1 and B2

Balancing and Emergency Storage Reservoir storage 20 year plan includes additional 1300 Ml reservoir storage 40% to 50% in Eikenhof system to boost emergency storage Water quality – total volume, through flow, circulation Availability of appropriate sites Projects “Lower” Meredale reservoirs (and associated pipework) Daleside 40Ml reservoir Vlakfontein 200Ml reservoir Bronberg 100Ml reservoir Hartebeesthoek additional reservoir Brakpan reservoir

CONTENT Demand growth forecast 2. Augmentation & renewal plan to 2036 3. Capital budget

Capital budget for 2016/17 Annual budget 2016/17 Augmentation projects – R2.0 billion Renewal projects – R1.06 billion Current replacement value – R95 billion Annual budget 2016/17 Forecast average demand growth of 1.75% per annum to 2030 Equates to about R1.5 bn per annum (Current planned is ~R2.0 bn/a) Theoretical augmentation spend Should spend 1% - 2% pa on renewal Equates to R0.8 – R1.6 billion per annum (Current planned is ~R1.0bn/a, or 1.05%) Theoretical renewal spend

5-year Capital Expenditure (2017 - 2021) forecast of R18 5-year Capital Expenditure (2017 - 2021) forecast of R18.8 billion for continuing business System Augmentation (Rm) Renewal (Rm) Total Eikenhof 1 344 470 1 814 Mapleton 2 833 910 3 743 Palmiet 1 281 377 1 658 Primary systems 4 741 1 561 6 302 Zwartkopjes 999 846 1 845 Other & All/spread 500 2 988 3 488 11 698 (62%) 7 152 (38%) 18 850

Capital expenditure forecast

Capital 2017 2036 Zb Eik Red: timing is subject to WDM success Zks Raw Capital Vg Zb Eik Red: timing is subject to WDM success Zks Palmiet Mapleton

Infrastructure renewal 2017 2036 Raw Vg Zb Eik Zks Pal Mapleton

Thank You