Portfolio Committee

1
Portfolio Committee

• 14 October 2004

Martie van Rensburg Robert Mbwana
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Agenda

• 1. Presentation of 2004 Annual Report
• TCTA the entity
• Report on Lesotho Highlands Water Project
• Report on Berg Water Project
• Report on Umgeni Water Treasury Management
• The future
• 2. Comments on National Water Resource Strategy

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Who is TCTA?

• Section 138A, Water Act 1956 replaced by National
  Water Act 1998, Chapter 10
• Notice of Establishment 1986 version from
  Treaty between RSA and Lesotho, revised in 2000
  creating a wider mandate
• PFMA schedule 2 powers
• Report via Minister of Water Affairs and Forestry
  to Cabinet and Parliament

4
TCTA position in water sector
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Liability Management
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TCTA The Multi-Project Environment
Liability Managers for Bulk Raw Water
Infrastructure
Integrated Treasury Management Services

• UMGENI WATER
• Governed by SLA
• Current debt R 3 500 million
• Redemption assets R 1 200 million
• OTHER
• Mhlathuze Water, Bloem Water
• Tariffing and debt management services

• LHWP
• Funding and Risk Management on behalf of
  Government
• Debt is explicitly Government Guaranteed
• Current debt - R 17 900 million
• Current assets - R934 million
• BWP
• Funding, Risk Management and Implementation on
  behalf of Government
• No Government Guarantee Project Financed
• Current debt - R 30 million
• Forecast capital expenditure - R 1 500 million
• OTHER
• Funding, Risk Management and Implementation for
  DWAF on future projects

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Specialised Liability Management
Enterprise Risk Management
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Risk Management
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TCTA Risk Management Principles
IN ORDER OF PRIORITY
OPTIMAL CAPITAL STRUCTURE (Fixed/Floating)

• SCENARIO STRESS
• TESTING
• Manage peak and tail of debt curve based on
  following scenarios
• Zero and negative growth in demand
• Changes in
• inflation
• real interest rates
• timing of future augmentation

ASSET/LIABILITY MATCHING (Refinancing Forward
Interest Rate Risk)
REDEMPTION PORTFOLIO MANAGEMENT (Large Debt
Maturities)
PRO-ACTIVE INTEREST RATE RISK MANAGEMENT
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TCTA Tariffing Principles

• Economic useful life of assets
• Timing of future augmentation
• Water consumed vs water delivered

Constant tariff in real terms
End user affordability
Debt outstanding
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TCTA Funding Principles
Funding Pro-actively manage funding to achieve
lowest weighted average cost of funding

• HOW
• Manage overall maturity structure of debt in a
  risk sensitive manner
• Exploitation of opportunistic funding
  opportunities
• Active marketing of funding programmes
• Contribute and participate in building better
  markets
• Through ongoing dissemination of information to
  investors

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Project implementation philosophy

• Implement the most appropriate and cost
  effective, timeous solution within an acceptable
  risk framework
• Co-operative partnerships will be entered into
  with due regard for cost impact, appropriate risk
  allocation and accountability
• All arrangements formalised with agreements
• Appropriate remedies will be implemented to
  mitigate the impact of the Project on the
  environment and community and
• Development principles to be applied
• Utilisation of local labour and businesses
• Effective balance between labour intensive
  methods and impact on cost and timing
• Co-ordination to fit in regional and local
  development plans

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TCTA the entity - 2004 highlights

• Increased focus on governance and assurance
  (legal and internal audit ) functions
• Board efficiacy review healthy
• Enterprise wide risk assessment
• Increased focus on risk management
• Long term Credit Rating ZA AAA with and without
  guarantee (excluding impacts of BWP)
• Organisational development culture print and
  DNA
• Learning and development
• Full compliance to BEE and PPPFMA
• Rated under top ten performing companies gt 25
  senior female

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Employment Equity
CATEGORY BLACK MALE BLACK FEMALE WHITE MALE WHITE FEMALE TOTAL
Executive 1 3 4 3 11
Management 1 3 5 2 11
Professionals 3 3 0 5 11
Support 0 5 0 2 7
TOTAL 5 14 9 12 40
Black includes African, Indian and Coloured.
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Segmental Income Statement
LHWP 2004 Rmillion UW 2004 Rmillion TOTAL 2004 Rmillion TOTAL 2003 Rmillion
Revenue 1 538 3 1 541 1 332
Royalties paid 208 - 208 184
Operating expenses 78 3 81 103
Operating surplus 1 252 - 1 252 1 045
Finance cost 1 351 - 1 351 1 098
Net deficit for the year 99 - 99 53

1. LHWP Lesotho Highlands Water Project
2. Umgeni Water treasury management services

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Segmental Balance Sheet
LHWP 2004 Rmillion BWP 2004 Rmillion TOTAL 2004 Rmillion TOTAL 2003 Rmillion
ASSETS
Non-current assets 15 872 34 15 906 13 911
Property, plant and equipment 14 913 34 14 947 13 907
Long-term financial market investments 942 - 942 4
Receivables and prepayments 17 - 17 -
Current assets 777 11 788 691
Receivables and prepayments 442 4 446 341
Short-term financial market investments 335 - 335 350
Cash and cash equivalents - 7 7 -
Total assets 16 649 45 16 694 14 602
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Segmental Balance Sheet
LHWP 2004 Rmillion BWP 2004 Rmillion TOTAL 2004 Rmillion TOTAL 2003 Rmillion
EQUITY AND LIABILITIES
Reserves and deficit (2 173) - (2 173) (2 138)
Non-distributable reserves 84 - 84 24
Cumulative deficit (2 257) - (2 257) (2 162)
Non-current liabilities
Long-term financial market liabilities 16 187 - 16 187 15 082
Current liabilities 2 635 45 2 680 1 658
Payables 511 6 517 484
Short-term financial market liabilities 2 124 39 2 163 1 174
Total equity and liabilities 16 649 45 16 694 14 602

1. BWP Berg Water Project

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• Lesotho Highlands Water Project

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LHWP
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Lesotho Highlands Water Distribution
Normal Emergency
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Governance Structure
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TCTA LHWP 2004 Highlights

• Inauguration of phase 1B and completion of Phase
  1 celebrated in March 2004
• Project of the Century Award SAICE
• Asset and Liability management focus R 18
  billion debt managed
• 2nd largest issuer of bonds (next to government)
• Successful prosecution by Lesotho Government and
  Authorities on bribery and corruption charges
• Completion of phase 1 impacts on institutional
  structures in Lesotho
• Raised R 2 .7 billion of funding

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TCTA LHWP 2004 Highlights

• Launched first split maturity bond R 1 billion
• Operating surplus of R 1. 3 billion
• Planned defecit after interest paid R 99 million
  due to project finance principles used in water
  tariff structure
• AC 133 compliant
• Water volumes
• Delivered 687 million m3
• Sold 1 325 million m3 R 1.5 billion

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LHWP Sources of Funding
As at 31 March 2004 R 17 809 million
Commercial
WSP1-WSP5
Paper
Other
6
Program
3
WS05
11
10
Foreign
Institutions
7
WS04
WS01
25
21
WS03
17
Capital Market Bonds 79 Foreign 7
Other funding 21 Local 93 Fixed 73
Floating 27
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Tariff Composition
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LHWP Debt Maturity Profile and Liability Curve

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LHWP Social aspects

• RSA Eastern Free State
• Learnerships
• Tourism
• Education
• Disabled persons
• Lesotho
• Compensation (individual and community)
• Resttlement
• Access roads
• Food security and agriculture
• Rural water supply

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• Berg Water Project

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Location of Project
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Western Cape Water System
Other Sources eg Misverstanddam
Wemmershoek Dam
Steenbras Dam
Voëlvlei Dam
Water Delivered
Theewaterskloof Dam
Salable Water
Water Delivered
DWAF
City of Cape Town
Kogelberg Dam
Berg River Dam
Other Users
TCTA Water Income
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Public Public Partnership Agreements
City of Cape Town
Agreement 1

• Supply of water
• from WCS to CCT
• Conditions of
• Supply

• Payment for water
• incl. BWP to TCTA

DWAF

• Implementation
• Payment of water
• charge
• Collection of income

Agreement 2
TCTA
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TCTA 2004 Business highlights

• Agreements signed April 2003
• Dam type selection completed and procurement of
  contractors
• Environmental
• Environmental Monitoring Committee
• Approval of environmental management plan
• Franschhoek First policy
• Long term credit rating AA
• Long term funding on place
• Future
• Impact mitigation
• Housing
• Public participation

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TCTA score card

• Employment Opportunities

Employment Local Total
Dam contract 72 111
Access Road contract 153 198
Working for water 252 252
TOTAL 477 561
Procurement Opportunities
Employment Local
Dam contract 6
Working for water 21
TOTAL 27
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TCTA score card

• Training Opportunities

Training Training days Number of Local Persons
Working for water 194 48
TCTA 1 071 66
TOTAL 1 265 114
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TCTA score card

• SMME Training and Support

Training and Support Number of SMMEs
3 Training courses 14
Outcome of training and support
2 Local joint venture tenders submitted for La Motte construction housing
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BWP Debt Curve in Actual Rand Value
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• Umgeni Water
• Treasury Management

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Umgeni Water Treasury Management Services
Ministerial Directive started 11 July 2001

• Service Level
• Agreement
• Phases
• Status

2 Year SLA July 01 - July 03
SLA extended July 03 - July 05
Phase 1
Phase 2
Phase 3
Phase 4
Complete
Complete
Complete
In Progress
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Umgeni Water - Phase 1

• Full treasury operations take-on
• Market Making
• Cash Management
• Portfolio Management
• Accounting, Compliance, Audit
• Risk Management
• Full data take-on and due diligence
• Legal Regulatory compliance
• Full Business Analysis
• Vision, Mission
• Long-term business plans
• Tariff model
• Long-term cash flow analysis
• Accounting policy procedures

Phase 1 Situation analysis and take-on
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Umgeni Water Phase 2
Phase 2 Tariff, debt and treasury model review

• Reviewed of tariffing methodology
• Broad strategy for Umgeni restructuring
• Gap Analysis between current treasury model and
  that required to support core business
• Input into annual financial statements

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Umgeni Water Phase 3

• BALANCE SHEET RE-ENGINEERING
• Exited Market Making - 28 November 2003
• Closure Market Making portfolio and repo book
• Elimination of cash flow risk associated with
  market making
• Freeing up of financial assets used for Market
  Making to support redemption portfolios
• Greater Achievement of Asset / Liability Matching
  
• Minimize re-financing and forward starting
  interest rate risk through restructuring of
  structured loans and UG55 / UG66 debt buyback
• Negotiated R1 billion in amortizing debt to
  support balance sheet restructuring and asset /
  liability matching

Phase 3 Balance sheet re-engineering and
treasury restructuring
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Umgeni Water Phase 3
Phase 3 Balance sheet re-engineering and
treasury restructuring

• BALANCE SHEET RE-ENGINEERING
• Greater Achievement of Optimal Capital Structure
• From 92 fixed / 8 floating to 73 fixed / 27
  floating
• Restructuring of long-term Investment Portfolio
  for Redemption Portfolio Purposes
• TREASURY MODEL RESTRUCTURING
• Simplification of Umgeni Treasury requirements by
  turning treasury into a cash management operation

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Umgeni Water Phase 4

• Input into income and supply agreements
• Build capacity through
• Creation of in-house Umgeni treasury
• Transfer of skills treasury, finance and
  internal audit
• Formulate detailed handover plan and execute
• Create commercial contract for ongoing
  specialized treasury services

Phase 4 Capacity building and handover
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Behold our kaleidoscope, scintillating gems
united in splendor
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Thank You
265 West Street Centurion 0046 Telephone (012)
663 8000 Fax [phone] Website
http//www.metsi.com http//www.tcta.co.za e-m
ail info_at_tcta.co.za