5/12/10 Artist ’ s impression of De Hoop Dam Olifants River Water Resources Development Project (ORWRDP) 1 Presentation to the Standing Committee on Appropriations Discuss matter emanating from the Committee’s oversight visit to the De Hoop Dam, Inyaka Dam and Nandoni Dam Presentation by Dr Cornelius Ruiters Deputy Director General: NWRI 07 May 2010

5/12/10 PRESENTATION OUTLINE 1. ORWRDP 2: The Bigger Picture 2. Sub-Phase 2A : De Hoop Dam 3. Sub-Phases 2B – 2I : Bulk Water Infrastructure 4. Roadmap 2005 to Water Supply Agreements with potential Users 6. Impact on DWA Budget 7. De Hoop Dam impoundment and water delivery 8. Price of Water 9. Challenges 10. Government support 2

5/12/10 BURGERS- FORT EPSS DE HOOP DAM STEEL- POORT TOWN MOKOPANE POLOKWANE LEBOWAKGOMO JANE FURSE FLAG BOSHIELO DAM MOOIHOEK LEGEND EXISTING BULK WATER PIPELINES ORWRDP BULK WATER PIPELINES ESKOM PSS INFRASTUCTURE PUMP STATIONS WATER TREATMENT RESERVOIRS Phase 2: The Bigger Picture Layout of Bulk Water Infrastructure Olifants River Steelpoort River Olifants Sand Transfer Lebalelo Nebo Plateau 3

5/12/10 STRYDPOORT MOUNTAINS BURGERSFOR T EPSS DE HOOP DAM STEELPOOR T TOWN MOTOTO LO MOKOPAN E POLOKWAN E LEBOWAKGOM O JANE FURSE Flag Boshielo RWS Tubatse RWS Nebo Plateau RWS Lebalelo RWSOlifantspoort South RWS Olifants-Sand RWS ORWSDP: WATER SERVICES DEVELOPMENT FLAG BOSHIELO DAM MOOIHOE K Mphahele and Groothoek RWS LEGEND SUPPLY AREAS EXISTING BULK WATER PIPELINES ORWRDP PIPELINES WATER SERVICES BULK PIPELINES ESKOM PSS INFRASTUCTURE PUMP STATIONS WATER TREATMENT RESERVOIRS Heavy reliance on Eskom for power supply to enable pumping of water to users 4

5/12/10 Roadmap 2005 to : Cabinet approval – De Hoop Dam (2A) at R million (NPV) NT funds 2006: Revised Record of Decision (delays due to appeals) 2007: Construction of De Hoop Dam commenced 2008: MOA signed between DWA and JWF (Mines representing body) – 50% social : 50% commercial indication (BDS - R4 935 million PV in 2008 terms) Eskom: – 2008: Electricity shortages became a reality – 2009: Eskom withdrew from Sub-Phase 2I (Tubatse PSS) serious impact on supply to Nebo Plateau – 2010: NERSA price hikes – impact on optimization Mines: – : Global economic climate changed dramatically Platinum price and demand for platinum decreased substantially Liquidity crisis peaked – Implementation delayed to meet mining readiness (pay on licensed volume) 5

5/12/10 Water Supply Agreements August 2009: Final draft Water Supply Agreement (WSA) advertised – Insertion of suspensive conditions (meet or waive by 31 May 2010 to ensure bankability of commercial component) 10 December 2009 – License applications for water use licenses (WUL) from ORWRDP closed – Conditions stated by mines for signing of WSA influences bankability (categorised in 3 options) Conclusions: Insufficient commitment by mines to implement ORWRDP as originally planned – Very limited number of mines can currently commit due to global economical climate – Very limited bankability achieved – Meeting suspensive conditions outstanding – indications of willingness to commit by 2017 or later commitment 6

5/12/10 Water Use Licence Applications Overall 21 applications: – 3 from municipalities & Lepelle Northern Water – 18 from mines Overall original demand 180 million m3 per annum – Approx 30 million m3 per annum mining – Approx 150 million m3 per annum municipal Exceeds available supply by 100 million m3 per annum Original equal share between social and commercial distorted 7

5/12/10 Mining Water Use License Applications Option 1: “Do-nothing-scenario” (no signature of WSA & no lodging of WUL application) but recommended provision of correspondence to motivate mine’s position, future demand & timing Option 2: Sign an amended WSA & lodge an application for WUL with correspondence motivating mine’s position, future demand & timing Option 3: Sign the WSA & lodge an application for WUL – as published (suspensive conditions however still questionable) Full signing – but non- fulfillment of Suspensive Conditions Full signing – bankable 8

5/12/10 WUL Outcome License applications – Under application by mines Less received from mines to justify full implementation of project to obtain technical benefits of scale Mining is stimulus for social development (not vice versa) – Over application by Muni’s Volumes requested to be interrogated – water conservation and demand management etc. Raw water not affordable – equitable share insufficient to cover ROA payments to DWA (Base case R5 per kl) Limited funding available for bulk water services infrastructure Optimization of scheme – Pruissen onwards pipe – mines will only contribute if part of project Timing of water supply – 2014 – basic water supply target date to meet MDC commitments – 2017 or later – estimated mining readiness 9

5/12/10 Impact on DWA Budget De Hoop Dam (Sub-phase 2A) – 2010 ENE: R2 900 million cost to completion – fully funded Bulk Water Infrastructure (Sub-phases 2B – 2H) – Social component on budget requirement: R5 400 million (Future value (FV) as per 2010 ENE and only partially funded) Vote 37: 2010/11 – R208 million; 2011/12 – R285 million; 2012/13 – R342 million Earmarked funding: R900 million Budget shortfall: R3 665 million – Commercial component off budget requirement: R5 400 million (FV) Insignificant commitment by mines Budget shortfall equal to R5 400 million over next 6 years if originally planned project is implemented with state funds or explicit government guaranteed loan 10

5/12/10 ORWSDP Budget Bulk distribution: R5 378 million over next 6 years Reticulation: R1 364 million over next 6 years Contributions from RBIG and municipal budgets part of budget requirements 11

5/12/10 Project Costs De Hoop Dam: R2 900 million fully funded Bulk Water Infrastructure: R million, R1 735 million funded ORWRDP: R million, R4 635 million funded ORWSDP: R6 742 million Total Project cost: R million 12

5/12/10 De Hoop Dam Delivery (Actual and Latest Projected) Contract Start Date – 18 June 2007 New P169-1 opened – June 2009 Projected partial impoundment – January 2011 Raw water available for delivery from De Hoop Dam – April 2012 Contract completion – March

5/12/10 Delivery to the People Nebo Plateau and Jane Furse from Steel Bridge: 2012 Greater Tubatse from Mooihoek: 2012 Mokopane from untapped local resources and Sub-Phase 2B: 2018 subject to government covering budget shortfalls and Eskom power availability 14

5/12/10 Water tariffs Commercial raw water tariff: In the order of R10 per kl throughout ORWRDP area of supply Social users to pay ROA and O & M but it still exceeds equitable share of R5 per kl Water tariff to Nebo Plateau estimated to be in the order of R20 per kl after treatment Equitable share is insufficient. National Treasury was approached to amend policy with respect to Equitable Share formula 15

5/12/10 Bulk Water Supply Challenges Huge uncertainty of global economic situation impacting negatively on commodity markets Lower than expected commitment by mining industry in this climate Ratio of social versus commercial water supply grossly distorted Adequate aligned funding for water services Availability of Eskom power for pump stations 16

5/12/10 Bulk Water Supply Challenges (Continued) Withdrawal by Eskom from Phase 2I (TPSS) impacting on supply to Nebo Plateau – new plans to be developed Funding shortages: More than R5 billion required excluding water services Unrealistic water demands by municipalities Reconfiguration of Bulk Water Infrastructure Capacity at local level a serious concern 17

5/12/10 Bulk Water Supply Solutions Strive to reinstate balance between social and commercial demands Approached NT with motivation for increased funding including RBIG and Equitable share Temper social demands Start delivery from De Hoop Dam and expand outwards 18

5/12/10 Bulk Infrastructure Targets Finalise allocation of water entitlements by July 2010 Secure water resource at Steel Bridge for Nebo Plateau by July 2012 Link Steelpoort and Olifants River Systems by end 2012 Construction programme depends entirely on available funding (fiscus and private) ORWRSP to continue in parallel 19

5/12/10 Construction Progress 20

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5/12/10 VIEWS BY MINES 8 April B: Commitment by approximately C: Revert from LWUA to De Hoop, however no commitment on timing 2D & 2E: Use surpluses in LWUA Support ORWRDP but economic circumstances prevent full commitment at this stage 22

5/12/10 Government Support Mines – Government guarantee for off budget funding until mines commit Explicit guarantee Revenue shortfall guarantee (underwriting) – No upfront funds made available by Government – Project is funded off-balance sheet – Government provides an annuity income stream equal to forecast demand at the Capital Unit Charge Mines able to commit now (sign WSA) when payment for water coincides with mining activities Munis – Increased equitable share/MIG to munis to cover ROA charges – Written commitment for full municipal portion – commercial off- budget funding requirement – Increased fiscal funding if split of commercial and municipal charge 23

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