Ola Busari Acting CEO, TCTA 1 18 April 2018
Strategic Overview Pre-determined Objectives Current TCTA Directives Balanced Scorecard Budget Funding Program Discussion & Clarifications 2
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Vision To be the Leader in the Sustainable Supply of Water in the Southern Africa Region Mission To facilitate water security through the planning, financing and implementation of bulk raw water infrastructure, in the most cost-effective manner that benefits water users 4
Who is TCTA? What do we do? 5 State-owned Water Infrastructure Entity (SPV) Established in 1986 to fund and implement RSA portion of LHWP Mandate expanded to undertake liability management on LHWP Now a multi-project entity, to fund & implement bulk raw water infrastructure Reports to Minister of Water & Sanitation Shareholder s Compact: agreement with Minister on the expected performance targets Quarterly Reports to the Minister from Board Project structuring Project funding Project implementation Liability management Tariff setting Advisory services Knowledge management
Deliver to Ministerial directives relating to the planning, financing & implementation of bulk raw water infrastructure, to meet specifications & within agreed timelines & budget. Operate the business & its projects & processes in a costeffective manner, conscious of the imperatives of public finance management. Ensure that all project activities facilitate social transformation & build sustainable communities by providing jobs & empowering women, youth & the disabled. Ensure the continuous availability of high-calibre human capital for delivering on organisational mission into the future. Build the knowledge & capability of the organization to support other water institutions, in pursuit of greater efficiencies in overall water management & water services delivery. 6
Outcome Government outcomes 4 Decent employment through inclusive economic growth. TCTA contribution Providing cost-effective water infrastructure as an enabler of economic growth & jobs. 5 Skilled and capable workforce. Developing a strong skills-set in scarce fields to enable SA compete in world markets, & promoting entrepreneurship in small businesses. 6 Efficient, competitive and responsive economic infrastructure network. Ensuring a comprehensive financial and implementation package that delivers the most cost-effective solution. 7 7 Vibrant, equitable and sustainable rural communities with food security for all. Supporting other water sector institutions to enable them to deliver on their mandate.
Outcome Government outcomes 8 Sustainable human settlements and improved quality of household life. TCTA contribution Providing affordable infrastructure & improved access to basic services. 9 A responsive, accountable, effective and efficient local government system. Supporting other water sector institutions to enable them to deliver on their mandate. 10 Environmental assets and natural resources that are well protected and continually enhanced. Developing infrastructure in an environmentally responsible & socially inclusive manner, in accordance with global best practice. 8 12 An efficient, effective and development-orientated public. Contributing to the development of critical knowledge in the sector & beyond (eg. Project financing & implementation, desalination, water re-use).
Procurement policy reform, for goods & services, as well as for infrastructure development. Provision of economic opportunities to previously disadvantaged individuals, through preferential procurement. Development of black businesses through enterprise development, with emphasis on women, youth and people with disabilities. Job creation and employment of local citizens. Skills development. Provision of bursaries to deserving students from previously disadvantaged backgrounds. Poverty alleviation. 9
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Manage the implementation of projects to meet defined objectives Operate and maintain AMD Plants in accordance with requirements Structure project funding and secure institutional arrangements Raise funding for implementation of infrastructure projects Manage debt within the approved borrowing limit and ensure debt is repaid Ensure financial sustainability of the organisation 11
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LHWP-1 BWP VRESAP KWSAP MMTS2 MCWAP 1 AMD-STI Revenue Recourse User tariffs User tariffs User tariffs User tariffs User tariffs User tariffs & fiscus (25%) User tariffs & fiscus (66%) Mandate Activities Fund Risk mngmnt O&M of assets Implement Fund Risk mngmnt Implement Fund Risk mngmnt Implement Fund Risk mngmnt Implement Fund Risk mngmnt Implement Fund Risk mngmnt Fund Risk mngmnt O&M Peak of debt +- R 20 billion +- R 1,4 billion +- R 3,3 billion +- R 2 billion +- R 2 billion +- R 13,2 billion +- R 1,1 billion Construction Commenced, Completed 1986 2001 2003 2008 2005 2010 2009 2013 2008 2016 2011 2015 2013 2016 Repayment of debt 2043 2028 2029 2033 2033 2042 2036 13
Projects Under Construction Operations & Maintenance ORWRDP-2C Kriel LHWP-2 AMD LHWP Revenue Recourse Fiscus Funded Fiscus Funded User tariffs User tariffs & fiscus (66%) User tariffs Mandate Activities Implement Fund Risk mngmnt Implement Fund Risk mngmnt Fund Risk mngmnt O&M of assets O&M of assets O&M of assets Peak of debt/cost Cost +- R 2,5 bn Cost +- R 0,056 bn +- R 23 bn +- R 0,41 bn pa +- R 0,25 bn pa Construction Commenced, Complete 2012 2018 2015 2018 2015 2025 2012 ongoing 2001 ongoing Repayment of debt N/A N/A 2045 N/A N/A 14
ORWRDP-2B MCWAP-2 AMD-LTS BRVAS MWP Revenue Recourse User tariffs & fiscus User tariffs & fiscus User tariffs & fiscus Iffs (67%) User tariffs Fiscus funded Mandate Activities Implement Fund Risk mngmnt Implement Fund Risk mngmnt Implement Fund Risk mngmnt Implement Fund Risk mngmnt Implement Fund Risk mngmnt Peak of debt/cost + R 7,2 bn +- R 13,3 bn Cost +- R11 bn Debt +- R 4,4 bn +- R 0,8 bn +- R 28,9 bn (cost) Construction to Commence, To Complete 2019 2022 2016 2024 2016 2020 2018 2023 2018 2029 Repayment of debt 2042 2044 2040 2043 N/A 15
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Objectives Measures Targets 1. Ensure financial sustainability of the organisation Cost-effective financial management in corporate operations Actual spend on operational costs is between 90-100% of budgeted operational costs The sustainability reserve fund is increased to between R80 and R84 million, created from operational budget savings Sufficient liquidity available to act as a buffer for non-payment by DWS At least R500 million liquidity buffer (on tariff receivable) available as a reserve, to be converted into cash over remaining term of debt Sufficient unutilised borrowing facilities to cover 1-30 days delay in payment 17
Objectives Measures Targets 1. Ensure financial sustainability of the organisation Sufficient revenue collected to meet obligations 90% of revenue billed and due is collected Capital expenditure, excluding LHWP-2 (Adjustments may be made in consultation with the Board) Between 90 and 100% of planned expenditure: R725 million by March 2019 18 Reconfiguration of Business Model Model approved by Board in July 2018
Objectives Measures Targets 2. Manage the implementation of projects to meet defined objectives Achievement of critical project milestone dates MCWAP-2A: Tender design and documentation complete by March 2019 AMD-LTS: Final conceptual design and optimisation of the scheme complete by October 2018 BRVAS: Engineering Professional Service Provider (evaluation and supervision only) appointed by October 2018 19
Objectives Measures Targets 2. Manage the implementation of projects to meet defined objectives Achievement of critical project milestone dates BRVAS: Tender document for Design & Build Contractor issued by October 2018 MWP: Finalise handover of project from DWS and initiate project preparatory activities ALL PROJECTS: Projected completion within approved project contingency provision 20
Objectives Measures Targets 3. Operate and maintain AMD Plants in accordance with requirements Maintaining or reducing water levels within the mine voids Average volume of water treated in the Western Basin of between 30-33 Ml/d Water level in the Central Basin is lowered to between 10-15 m below ECL by March 2019 21 Quality of treated water from the Western Basin, Central and Eastern Basins treatment plants Board approved strategy for the O&M of AMD STI Quality of treated water from plants meets 90-94% of DWS specifications Strategy approved by June 2018
Objectives Measures Targets 4. Structure project funding and secure institutional arrangements Project funding structured BRVAS: Borrowing limit covering an indicative R43.5 million borrowings in 2018/19, approved by Minister of Water & Sanitation, with concurrence of the Minister of Finance by June 2018 Institutional arrangements secured BRVAS: Water Supply Agreements signed in April 2018 BRVAS: Implementation Agreement with DWS signed in April 2018 MWP: Formalise negotiation of institutional arrangements with key stakeholders (Terms of Reference ready for signing in Sep 2018) AMD-LTS: Agreements submitted to the parties (DWS and each off-taker) for signing by Aug 2018 AMD-LTS: Income Agreement signed by June 2018 22
Objectives Measures Targets 5. Raise funding for implementation of infrastructure projects Arrangement of funding facilities VRS: R4 billion loan facilities available by Jul-Aug 2018 MCWAP: Funding facilities available by March 2019 to cover R1,250 million funding requirements for 2019/20 BRVAS: Global Bridging Facility and/or Budget from DWS available from June 2018 to cover initial funding requirements for 2018/19 BRVAS: Long-term funding available from Jan 2019 to cover the balance of the R225 million funding requirements for 2018/19 & 2019/20 23
Objectives Measures Targets 6. Manage debt within the approved borrowing limit and ensure debt is repaid Debt managed within approved borrowing limits Debt managed within borrowing limits & all payment obligations are met: o o o o VRS, R42,500 million (including redemption of R9.2 billion WS05) BWP, R715 million VRESAP, R4,039 million KWSAP, R1,408 million o MMTS-2, R1,860 o MCWAP, R4,400 million All projects, except VRS, include a 10% contingency 24
Objectives Measures Targets 7. Proactively engage DWS to ensure effective execution of shareholder strategy / mandate Resolution of critical project matters identified during the year 70-79% resolution of critical project matters by March 2019 8. Ensure organisational positioning for the planned Water Infrastructure Agency Prompt articulation of strategic inputs for optimal positioning Due Diligence Report submitted to Board in July 2018 25
Objectives Measures Targets 9. Coordinate and monitor the efficient implementation of the projects within SIP-3 and SIP-18 Satisfactory feedback from key partners on the effectiveness of coordination. Average effectiveness rating of 3 out of a maximum 5 10. Facilitate socioeconomic development and transformation through TCTA projects 26 Achievement of transformation objectives, in terms of black-owned entity participation in contracts awarded (TCTA policy requirement is 30%) Contractors: Achievement of 30-35% participation Professional Service Providers: Achievement of 45-50% participation
Objectives Measures Targets 11. Enhance the internal control environment with respect to internal business processes Adequacy of internal control environment Unqualified audit opinion No irregular, fruitless & wasteful expenditure, which is material in terms of the Significance and Materiality Framework (Material expenditure incurred while meeting business needs is condoned) Management of risk to acceptable levels 7 of 10 strategic risks satisfactorily addressed Appropriate ICT governance framework ICT governance charter and framework approved by September 2018 27 No repeat of high-rated ICT external audit findings
Objectives Measures Targets 12. Position TCTA as a thought leader in critical aspects of water security Contribution of papers to reputable technical publications and conferences, as well as proposals to clients. Four business relevant papers written and submitted Four papers published, from previous and current year submissions 28
Objectives Measures Targets 13. Improve human resource efficiency and effectiveness Conclusion of an independent human resource efficiency and effective study Report and Implementation Plan approved by Board in October 2018 Effectiveness of training on human resource efficiency Average effectiveness score of 3 out of 5 14. Develop a Succession Planning Policy Approval of Succession Planning Policy and Implementation Plan Approval by Board of Succession Planning Policy by July 2018 15. Ensure organisational culture is in support of business strategy 29 Improvement in organisational climate 70-80% progress against organisational climate improvement plan
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Partnering with key stakeholders to address current issues of water security Establishment of intergovernmental partnerships and strengthening of relationships with DWS Optimisation of resources in an enhanced work environment Business process improvements Exploring new project pipeline Enhancement of the TCTA brand 31 Ensuring mechanisms for enhanced financial sustainability
Actual/ Forecast 2017/18 Budget 2017/18 Budget 2018/19 Tariff Receivable (Incl. O&M Tariff) R million R million R million (5 677,30) (5 591,95) (6 628,86) Expenditure and O & M 2 184,02 2 108,25 2 761,41 Operating Inflows/ Outflows Finance Charges Incl. AG8) (3 493,28) (3 483,70) (3 867,45) 3 963,01 (6 809,58) 5 802,81 (Surplus)/ Deficit 469,73 (10 293,29) 1 935,36* Capital Repayments 2 710,03 2 708,43 9 440,56 Fixed Assets 8,50 10,28 1,96 Capital Expenditure 600,33 3 393,62 1 687,41 32 Non cash flow items and accruals Total Funding Requirement (1 518,94) 9 013,20 (3 111,12) 2 269,65 4 866,73 9 954,17 *R3bn AG8 adjustment (accounting entry) included in finance charges has resulted in this deficit.
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The main fundraising activity for 2018/19 will be for the Vaal River System ( VRS ). The VRS short-term funding strategy mainly comprises the refinancing of the WS05 (projected at about R9,200 million) on 1 August 2018. About R6 billion will have to be raised to fund the redemption over and above the Projects cash flows and cash reserves. Funding plan involves the issuance of R2.7 billion in JSE listed bonds and R3.5 billion of Commercial Paper. 34
As back-up\support facilities for the Capital Markets Program, R8 billion in Term Loans and Revolving Credit Facilities will also be raised. The medium-term plan is for monthly issuances of between R600 million and R800 million in bonds to fund LHWP II and AMD capex, as well as the redemption of maturing bonds in 2021. An estimated R1 billion in loans will be raised to fund the BRVAS project in the Western Cape. TCTA will also be going out to the market to raise R1 billion for the Global Facility 35
Continued lack of appetite for SOE debt resulted in us aborting our first auction in February 2018. Main reason indicated for the lack of interest is on-going concern around governance in SOEs. Some investors indicated their reluctance to fund under the existing capital markets program documentation. The strain on TCTA s liquidity resulting from delayed payments from DWS was also indicated as a concern. Analysis of the reasons points to a strong possibility of future auctions encountering the same problem, unless the situation is addressed. 36
As a risk mitigation, TCTA is accelerating the process to raise R8 billion in loans from commercial banks and DFIs. TCTA is fast-tracking the process to finalise the new Domestic Multi-term Note ( DMTN ) Program to have it registered by June 2018. TCTA is actively engaging with institutional investors to find ways to improve investor protection under the new DMTN. On-going engagement with DWS & National Treasury on delayed payments, as well as measures to enhance liquidity. Planned roadshows to address the concerns of investors and funders. 37
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