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 Click to edit Master subtitle style 6/9/11 22 STRATEGIC OBJECTIVES Deputy Chairman of the Board: Mr. Simphiwe Kondlo

transform empower uplift 6/9/11 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)

transform empower uplift 6/9/11 Purpose of TCTA (cont) TCTA implements directives in accordance with Government Policy The 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

transform empower uplift 6/9/11 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 55

transform empower uplift 6/9/11 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. 66

transform empower uplift 6/9/11 TCTA’s Offering 77 Chief Executive Officer: Mr. James Ndlovu

transform empower uplift 6/9/11 88 Products and Services To provide water infrastructure at the lowest life cycle cost to the end consumer Products Project management Project design & implementation Liability management Structuring and raising of project finance Knowledge management Local Economic Development

transform empower uplift 6/9/11 Strategic Transformation Preferential Procurement Emphasis on women owned enterprises and local enterprises Enterprise Development Two contractors being developed per project to enable them to construct multi-disciplinary projects Local Employment Targets 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 99

transform empower uplift 6/9/11 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 1010

transform empower uplift 6/9/11 Mandate & Directives Executive Manager: Project Management & Implementation Mr. Johann Claassens

transform empower uplift 6/9/ 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 peak Final 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

transform empower uplift 6/9/ 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

transform empower uplift 6/9/11 Vaal River Eastern Sub-system Augmentation Project

transform empower uplift 6/9/11 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

transform empower uplift 6/9/11 Mooi-Mgeni Transfer Scheme: Phase 2

transform empower uplift 6/9/11 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

transform empower uplift 6/9/11 Komati Water Supply Augmentation Project Matla Power Station

transform empower uplift 6/9/11 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

transform empower uplift 6/9/11 Olifants River Water Resources Development Project: Phase 2 De Hoop Dam

transform empower uplift 6/9/11 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. 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 2121

transform empower uplift 6/9/11 Mokolo-Crocodile Water Augmentation Project

transform empower uplift 6/9/11 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 2323

transform empower uplift 6/9/11 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

transform empower uplift 6/9/11 Acid Mine Drainage Project Main Beneficiaries: All users in the Vaal and Crocodile River Catchments Status Directive received: 6 April 2011 Tender for Professional Service Provider closed 26 April 2011 Due Diligence commenced 9 May 2011 Immediate 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

transform empower uplift 6/9/11 Financial Overview Chief Financial Officer: Ms. Halima Nazeer

transform empower uplift Click to edit Master subtitle style 6/9/ Financial Highlights 2009/10

transform empower uplift 6/9/11 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

transform empower uplift 6/9/11 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

transform empower uplift 6/9/11 Statement of comprehensive income as at 31 March R’Million 2009 R’Million Comments Revenue  VRESAP was declared operational on 1 June 2010  LHWP and BWP increased due to volumes and tariff Other Income38  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 Net finance costs(2 177)(1 965) Finance income  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)

transform empower uplift Click to edit Master subtitle style 6/9/ Budgets 2011/12

transform empower uplift 6/9/11 Overview Budget 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;

transform empower uplift 6/9/11 Budget Components Budget 2011/12 R’ Million Capital Expenditure2 463 Income(3 442) Directly Controllable Expenditure264 Indirectly Controllable Expenditure763 Finance Costs2 491 At a glance

transform empower uplift 6/9/11  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 2011/12 Capital Expenditure

transform empower uplift 6/9/11

transform empower uplift 6/9/11

transform empower uplift 6/9/11  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 2011/12 Water Income

transform empower uplift 6/9/11 Budget Highlights 2011/12 Running Expenditure

transform empower uplift Click to edit the outline text format Second Outline Level  Third Outline Level Fourth Outline Level  Fifth Outline Level  Sixth Outline Level  Seventh Outline Level  Eighth Outline Level Ninth Outline LevelClick to edit Master text styles Second level Third level Fourth level Fifth level  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 – R m  Lower than 2010/11 Budget due to project delays  Funding Requirement – R m  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

transform empower uplift 6/9/11 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) 40 TCTA is a Going Concern

transform empower uplift 6/9/11 Questions … Thank you