TRANSNET SOC LTD: TARIFF APPLICATION FOR THE LICENCED PIPED GAS TRANSMISSION FACILITY FOR THE 2016/17 TARIFF YEAR 1
Contents 1 Executive Summary... 6 2 Background... 8 3 Approach... 9 4 Regulatory Asset Base ( RAB )... 10 4.1 Property, Plant, Vehicles & Equipment (V)... 10 4.1.1 Indexation... 11 4.1.2 Useful Lives... 11 4.1.3 Assets to be decommissioned... 11 4.2 Net working capital (w)... 12 4.3 Deferred Tax (dtax)... 13 5 Weighted Average Cost of Capital (WACC)... 14 5.1 Cost of Equity... 14 5.1.1 Risk free rate... 14 5.1.2 Market risk premium... 15 5.1.3 Beta... 15 5.2 Cost of Debt... 16 5.3 WACC... 16 6 Expenses... 17 6.1 Other Expenses... 18 6.1.1 Decommissioning Provision... 18 6.1.2 Transnet Corporate Overheads... 19 7 Income Taxation... 20 8 Depreciation... 21 9 Clawback... 22 9.1 Revenue Clawback... 24 9.2 Operating Cost Clawback... 24 9.3 Operating Efficiency Adjustment... 25 9.4 Asset Clawback... 25 9.5 WACC Clawback... 27 10 Allowable Revenue Calculation... 28 11 Volumes and Tariffs... 28 12 Conclusion... 29 13 Regulatory Financial Statements... 30 14 Annexures... 33 2
List of Tables Table 1: Allowable Revenue Summary... 7 Table 2: Assumption Variables... 7 Table 3: Regulatory Asset Base... 10 Table 4: Asset Additions and Trended Original Cost... 11 Table 5: Working Capital... 12 Table 6: Deferred Tax... 13 Table 7: WACC... 14 Table 8: Proxy Companies and Unlevered Beta... 15 Table 9: Real Cost of Equity... 16 Table 10: Expense Summary... 17 Table 11: Decommissioning provision... 18 Table 12: Transnet Corporate Cost Allocated to TPL... 19 Table 13: Taxation Allowance... 20 Table 14: Depreciation... 21 Table 15: Summary of depreciation and amortisation of write up... 21 Table 16: Sources of Clawback... 22 Table 17: Clawback... 23 Table 18: 2012/13, 2013/14 and 2014/15 Operating Cost Clawback... 24 Table 19: 2012/13, 2013/14 and 2014/15 Operating Efficiency Clawback... 25 Table 20: 2012/13 Asset Clawback... 25 Table 21: 2013/14 Asset Clawback... 26 Table 22: 2014/15 Asset Clawback... 26 Table 23: 2015/16 Asset Clawback... 27 Table 24: 2012/13, 2013/14, 2014/15 WACC Clawback... 27 Table 25: Allowable Revenue Calculation... 28 Table 26: Volume data and Tariffs... 28 3
Abbreviations and Acronyms AR BER CAM CPI CWIP D d DJP DoE DSCR dtax Dt DTD E EaOC EBIT Eq GA GDP K d KdA K e LE MIRTA MR MRP Allowable Revenue Bureau for Economic Research Cost Allocation Manual Consumer price index Capital work in progress Depreciation and amortisation of inflation write-up Accumulated depreciation and accumulated amortisation of inflation write-up Durban to Johannesburg Pipeline Department of Energy Debt service cover ratio Deferred tax Debt Draft Tariff Determination Expenses: maintenance and operating for the tariff period under review Estimated average operating costs Earnings before interest and taxes Equity General adjustment Gross Domestic Product Cost of debt Cost of debt adjustment Cost of equity Latest Estimate Minimum information required for tariff application Market return Market risk premium 4
NERSA NRBTA OEA Opex OpexE PPE RAB Rf RFR RRM SRAB T t TOC TPL V w WACC WA β National Energy Regulator of South Africa Net revenue before tax allowance Operating efficiency adjustment Operating and maintenance expense Operating efficiency Property, plant, vehicles and equipment Regulatory Asset Base Risk-free rate of interest Reasons for Decision Regulatory Financial Reports Regulatory Reporting Manuals Starting regulatory asset base Tax expense Prevailing corporate tax rate of the licensee Trended original cost Transnet Pipelines Value of operating property, plant, vehicles and equipment Net working capital Weighted average cost of capital Weighted average β of the proxy firms asset betas beta: The systematic risk parameter for regulated entities providing pipeline, storage and loading facility services 5
1 Executive Summary Transnet SOC Limited ( Transnet ) submits its 2016/17 Piped Gas Transmission facility ( Gas business ) tariff to the National Energy Regulator of South Africa s ( NERSA ) for monitoring and approval in terms of section 4(h) of the Gas Act, 2001 (Act No. 48 of 2001) ( the Gas Act ) which requires NERSA to monitor and approve, and if necessary regulate, transmission and storage tariffs and take appropriate action when necessary to ensure that they are applied in a non-discriminatory manner as contemplated in section 22. This tariff application has been guided by NERSA s Guidelines for Monitoring and Approving Piped-Gas Transmission and Storage Tariffs in South Africa 1 May 2009, ( Tariff Guidelines ). Financial statements for the ring-fenced Piped Gas Transmission facility for the periods 2012/13 to 2017/18 have been provided. Refer to Section 13 for the income statement, statement of financial position and statement of cash flows. Transnet has chosen not to file a multi-year tariff application as Transnet is currently in discussion with Sasol Gas Ltd ( Sasol Gas ) regarding their continued operation of the gas pipeline in terms of the Gas Transportation Agreement ( GTA ). The Starting Regulatory Asset Base ( SRAB ) as approved by NERSA has been trended (in accordance with the Tariff Guidelines) to arrive at the Regulatory Asset Base ( RAB ) submitted in this application. Due to the cost centre rationalisation exercise performed in the 2014/15 tariff year the overall allocation of shared costs to the Gas business has decreased. Operating and maintenance expenses include a recovery for rehabilitation costs. Transnet had recently communicated to NERSA that approval has been received from National Treasury (NT) and the Department of Public Enterprises (DPE) in terms of section 51(1)(g) and sections 54(2)(b) of the Public Finance Management Act (PFMA) with respect to setting up a Trust. The trust deed has subsequently been lodged with the Master of the High Court in Johannesburg. This Trust will maintain the invested cash, collected via tariffs, for the future decommissioning of assets. Transnet will continue to keep NERSA informed of further developments relating to the registration of the Trust. Based on the above, Transnet has calculated an Allowable Revenue ( AR ) of R108.50 million for the 2016/17 tariff year. The AR calculation is reflected in the table below: 6
Table 1: Allowable Revenue Summary 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 App FC FC WACC Return on RAB 52.70 50.10 52.00 53.80 43.21 44.33 45.43 Expenses 59.00 59.80 62.20 65.70 21.90 23.21 23.56 Depreciation 23.70 24.20 25.50 27.00 26.55 27.93 29.49 Clawback - - - - (3.09) - - Profit before Tax 135.50 134.10 139.70 146.50 88.57 95.47 98.49 Notional tax 21.70 21.30 22.70 24.00 19.93 20.94 21.98 Allowable Revenue 157.20 155.40 162.40 170.50 108.50 116.41 120.46 = Reasons for decision App = Application FC = Forecast Further, in compliance with clause 14.2 of the conditions to the licence awarded to Transnet for the operation of a gas transmission pipeline, dated 11 November 2009, Transnet further submits a tariff to the value of R5.73 for the 2016/17 tariff year. The application is derived from the following variables: Table 2: Assumption Variables 2012/13 2013/14 2014/15 2015/16 2016/17 App 2017/18 FC 2018/19 FC Weighted CPI (%) 5.75% 5.55% 5.55% 5.55% 5.75% 5.75% 5.75% Post tax Real Cost of Debt (Kd) (%) 1.62% 1.65% 1.65% 1.65% 1.46% 1.46% 1.46% Real Cost of Equity (Ke) (%) 8.49% 8.36% 8.36% 8.36% 6.91% 6.91% 6.91% Real WACC (%) 6.43% 6.35% 6.35% 6.35% 5.28% 5.28% 5.28% Debt ratio (%) 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% Volume (million gigajoules) 17.00 15.89 19.00 19.00 18.92 19.44 19.53 The determination of the above variables and economic parameters will be discussed in more detail under the relevant sections of the application. 7
2 Background The current Transnet gas pipeline, commonly referred to as the Lilly pipeline is a transmission gas pipeline and came about as a result of a conversion of sections of the crude oil pipeline ( COP ) and the Durban Witwatersrand pipeline ( DWP ). In 1994, Transnet Pipelines took a strategic decision to expand its scope of services by diverging into the gas pipeline transportation business. On 11 November 2009, NERSA granted Transnet Pipelines a licence to operate a gas transmission facility, comprising of: A 16 inch diameter, 153 km pipeline from the inlet flange at Secunda via Standerton and Volksrust to Ingogo; An 18 inch diameter, 420 km pipeline from Ingogo via Scheepersnek and Empangeni to Durban; terminating near the Island View area at Bayhead; and Seven supply points at Newcastle, Empangeni, Mandini, Verulam, Phoenix, Avoca and Durban, along the pipeline route. Transnet Pipelines ( TPL ) currently has only one Shipper on the pipeline namely Sasol Gas. The GTA governs the relationship between Transnet Pipelines and Sasol Gas. However, Transnet and Sasol Gas had agreed that tariffs would be charged in terms of the Tariff Guidelines as of the 2012/13 tariff year. In this regard, the contracts governing the TPL piped gas transportation service have been separated into conveyance and commercial terms. This is to ensure that future amendments to the commercial terms do not necessitate a re-negotiation of the entire contract. Transnet is currently in discussions with Sasol Gas regarding their continued operation of the gas pipeline in terms of the GTA. 8
3 Approach The building blocks of the Tariff Guidelines are reflected in the following formula 1 : AR = (RAB x WACC) +E + T + D - C Where: AR = Allowable revenue RAB = Regulatory Asset Base inflation indexed original cost net of cumulative depreciation and cumulative amortisation write-up WACC = Weighted average cost of capital (in real terms) E = Efficient operating and maintenance expenses T = Tax expense D = Depreciation for the tariff period under review, including amortisation of the inflation write-up C = Clawback adjustment: to correct for differences between actual values and assumptions using the calculation of the tariff for the preceding tariff period (including volume or other cost differences). This factor is included with a 1 or 2-year lag in order to obtain full year actual values for assumed values. The formula allows for the calculation of an AR for the ring-fenced Piped Gas Transmission facility. As a result, TPL s petroleum storage facility, petroleum pipelines and non-regulated business areas of TPL have been excluded. Shared non-pipeline assets ( NPAs ) have been allocated to the Gas business on the basis of the latest approved CAM. 1 Refer section 3.2.1 of the Tariff Guidelines 9
4 Regulatory Asset Base ( RAB ) In terms of the Section 4.4.1 of the Tariff Guidelines, the value of the RAB is the inflation-adjusted historical cost or trended original cost (TOC) of property, plant, vehicles and equipment less the accumulated depreciation for the period under consideration plus net working capital and adjusted for deferred tax. The formula for the RAB is as follows: RAB = V d+ w ± dtax Where: V = Value of used and usable regulated property, plant, vehicles and equipment at the commencement of the tariff period under review, indexed by TOC D = Accumulated depreciation at the commencement of the tariff period under review and amortisation of the inflation indexation adjustment value for the same period w = Net working capital dtax = Deferred tax The qualifying RAB submitted in this Application amounts to R819.09 million for the tariff period under review. Refer to Table 3 for the RAB calculation. Table 3: Regulatory Asset Base 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 APP FC FC Property, Plant & Equipment 772.30 767.50 797.20 823.40 795.93 816.52 836.94 Deferred tax - - - - (2.41) (3.23) (4.18) Net Working capital 48.20 21.90 22.80 24.10 25.57 27.18 28.52 RAB 820.50 789.40 820.00 847.50 819.09 840.47 861.28 4.1 Property, Plant, Vehicles & Equipment (V) Property, plant, vehicles and equipment are valued on the TOC basis using the forecasted consumer price index ( CPI ) for the forthcoming tariff period. Pipeline assets have been allocated directly to the pipelines business and NPAs, as well as shared assets have been allocated in terms of the latest approved CAM. The Starting Regulatory Asset Base ( SRAB ) as approved by NERSA has been trended to arrive at the RAB submitted in this application. Property, plant, vehicles and equipment expected to come into use during the forthcoming tariff period have been admitted to the RAB on an average proportion of the tariff period under review. 10
Table 4: Asset Additions and Trended Original Cost Write up of PPE 2016/17 new additions, plus TOC at prorata time (pre Total NBV at 31 Mar 2016 (closing balance) 2016/17 additions) to opening NBV 2016/17 Prorata time of new TOC additions to new additions at 2016/17 Trended value of Total PPE value on which WACC is earned CPI Useful additions CPI 2016/17 forecast 2016/17 Life of in forecast of new of 5.75% additions Additions 2016/17 5.75% additions Formula a b c d e f=c*e*toc g=d*e+f h=a+b+g Gas Transmission and NPAs 750.98 43.16 3.37 50 50% 0.10 1.78 795.93 4.1.1 Indexation The forecasted Consumer Price Index ( CPI ) for the forthcoming tariff period has been used to trend property, plant, vehicles and equipment. The projected CPI for the 2016/17 tariff period has been sourced from NERSA s website. A forecasted CPI of 5.75% has been applied to the net book value of all assets included in property, plant vehicles and equipment for the 2016/17 tariff period. Assets with zero book value have not been indexed. 4.1.2 Useful Lives The useful lives of pipeline assets in the RAB are aligned with the report of the last full valuation conducted by Arthur D. Little ( ADL ) in March 2015. See Annexure A. 4.1.3 Assets to be decommissioned In line with section 34 (1) (d) of the Gas Act and Regulation 11 (4) and (5), Transnet has to provide security in respect of its rehabilitation obligations. Transnet has included a proportionate value of its obligation to be recovered in the 2016/17 tariff year. The amount included in the application is R1.61 million for the Gas business for the 2016/17 tariff period (refer to Section 6.1.1 for a detailed calculation). Decommissioned assets have been excluded from RAB. 11
4.2 Net working capital (w) Net working capital is included in the RAB and is calculated according to the formula provided in the methodology which is as follows: Net working capital = inventory + receivables + operating cash trade payables 2 The components are recognised as follows: Inventory is stated at the lower of cost and estimated net realisable value. Net realisable value represents the estimated selling price less all estimated costs of completion and selling. Inventory balances includes maintenance stock owned by Transnet Pipelines; Trade receivables are based on 30 days of turnover. Allowances for irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. Other receivables include prepayments; Trade payables are settled within 45 days; and The allowance for operating cash is taken as a standardised factor of 45 days operating expenditure, excluding depreciation and income tax. Table 5: Working Capital 2012/13 2013/14 2014/15 2015/16 2016/17 App 2017/18 FC 2018/19 FC Inventory 35.10 8.90 9.30 9.80 16.53 17.48 18.48 Receivables 13.10 12.90 13.50 14.20 9.04 9.70 10.04 Operating Cash 7.10 7.30 7.60 8.00 2.50 2.66 2.71 less: Trade payables (7.10) (7.30) (7.60) (8.00) (2.50) (2.66) (2.71) Net Working Capital 48.20 21.90 22.90 24.10 25.57 27.18 28.52 2 Refer to section 4.4.4 of the Tariff Guidelines 12
4.3 Deferred Tax (dtax) Transnet has adopted the notional tax approach as discussed in section 4.4 of the Tariff Guidelines. Consequently, the deferred taxation liability has been deducted from the RAB. The annual and cumulative deferred tax amounts are as follows: Table 6: Deferred Tax Actual Estimate 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 PPE taken into operation Gas Transmission & NPAs 2.17 35.16 4.04 0.77 3.37 4.06 2.98 Total 2.17 35.16 4.04 0.77 3.37 4.06 2.98 Deferred tax on timing differences Gas Transmission & NPAs (0.08) (0.94) (1.69) (2.41) (3.23) (4.18) (5.21) Cumulative Total (0.08) (0.94) (1.69) (2.41) (3.23) (4.18) (5.21) The deferred tax balance for the purpose of the RAB adjustment relates strictly to the statutory timing differences between depreciation deducted for the purposes of calculating the notional tax allowance and wear and tear allowances at the beginning of the financial year. Deferred tax liabilities deducted from the RAB are cumulative and stated at opening balances. 13
5 Weighted Average Cost of Capital (WACC) Section 4.4.5 of the Tariff Guidelines prescribes the formula to determine the WACC. In applying the formula, Transnet s calculation yielded a post-tax real WACC of 5.28% as presented in Table 7. Table 7: WACC 2016/17 WACC App Risk free rate (Real) 4.16% Beta 0.462 Market Risk Premium (Real) 5.95% Cost of equity (Ke, post-tax real) 6.91% Nominal cost of debt (as per TPL) 10.13% CPI forecast 5.75% Tax rate 28% Nominal post-tax cost of debt 7.29% Real cost of debt (Kd, post tax real) 1.46% Capital Structure: Equity % 70.00% Debt % 30.00% WACC 5.28% 5.1 Cost of Equity Section 4.4.5 of the Tariff Guidelines sets out the formula for calculating the real cost of equity. In this section of the application, we deal in turn with the individual components of the cost of equity calculation embodied in the Capital Asset Pricing Model ( CAPM ), namely the risk free rate, the market risk premium (MRP) and beta. 5.1.1 Risk free rate Transnet used the risk-free rate of 4.16% as published on the NERSA website. NERSA determined the applicable real risk-free rate to be 4.16% from monthly observations of the yields on government bonds, adjusted for inflation, over the 300 months from April 1990 to March 2015. 14
5.1.2 Market risk premium Transnet used the MRP of 5.95% as published on the NERSA website. The MRP is the return investors can expect to earn, over and above the risk free rate, by investing in the market. This premium includes returns to investors in the form of dividends and capital appreciation, measured by the All Share Index ( ALSI ). NERSA calculated an average MRP over the specified 25 year period of 5.95% based on the ALSI data for the 300 months from April 1990 to March 2015 5.1.3 Beta Section 4.4.5 of the Tariff Guidelines requires the beta to be calculated based on betas for at least six pipeline companies. The companies and calculations are reflected in the table below: Table 8: Proxy Companies and Unlevered Beta Proxy company Ticker No Total Debt ($) Equity/Market cap ($ mil ) Debt to equity ratio % Equity Raw beta Unlevered Beta Weighted unlevered beta AGL Resources Inc. GAS US EQUITY 4 125.00 5 947.70 69.4% 59.0% 0.347 0.205 0.056 UGI Corporation UGI US EQUITY 3 518.60 5 631.10 62.5% 61.5% 0.732 0.451 0.117 WGL Holdings Inc. WGL US EQUITY 1 170.50 2 804.30 41.7% 70.6% 0.537 0.379 0.049 Piedmont Natural Gas Company Inc. PNY US EQUITY 1 904.40 3 137.30 60.7% 62.2% 0.508 0.316 0.046 South Jersey Industries SJI US EQUITY 1 301.20 1 857.00 70.1% 58.8% 0.688 0.405 0.035 Lacede LG US EQUITY 2 063.90 2 217.60 93.1% 51.8% 0.369 0.191 0.020 Unlevered asset beta using the Harris Pringle Formula 0.323 Arriving at beta involves: de-levering of the equity beta for the proxy companies into an asset beta; the determination of a weighted average asset beta from the proxy companies; and re-levering of the weighted average asset beta into a proxy equity beta for Transnet. Transnet has employed the market value of equity and the book value of debt as 31 March 2015 for all proxy companies except for Piedmont Natural Gas Company Incorporated (value as at financial year end of 31 January 2015 was used) when de-levering equity betas. Further, Transnet has used the Harris and Pringle approach to de-lever the equity beta of the peer companies and to re-lever the asset beta to arrive at an equity beta. The asset beta was determined as the weighted average of the unlevered beta s of each of the peer companies, weighted by the total capital stock of each peer company. For the purposes of this application, Transnet has based its estimation of the beta on monthly data for a 5 year period. The weighted average asset beta for the six peer companies determined by Transnet was 0.323. This was converted to an equity beta for Transnet using the Harris and Pringle approach. As the methodology requires a minimum gearing ratio of 30%, the Debt: Equity ratio is calculated at 0.43 (i.e. 30%/70%). Using this Debt: Equity ratio to convert the asset beta to an equity beta results in an equity beta for 0.462 for Transnet. 15
Table 9: Real Cost of Equity Real cost of equity 2016/17 App Risk free rate (real) 4.16% Beta 0.462 Market Risk Premium (real) 5.95% Cost of equity (Ke, post-tax real) 6.91% 5.2 Cost of Debt Transnet calculated the nominal cost of debt for the 2016/17 tariff year to be 10.13%. The Bureau for Economic Research ( BER ) projected inflation rate as sourced from NERSA s website for the 2016/17 tariff year is 5.75%, resulting in a real post-tax cost of debt of 1.46%. 5.3 WACC The WACC is the weighted average of the cost of equity and the cost of debt. For the 2016/17 tariff year the cost of equity is 6.91%, and the cost of debt is 1.46%. This results in a real WACC of 5.28% for the 2016/17 tariff year (after taking into account a debt ratio of 30.00%). 16
6 Expenses Transnet s operating expenses are recognised in terms of the International Financial Reporting Standards ( IFRS ). Expense forecasts are based on the latest actual information available. The expenses have been adjusted for inflation in accordance with data provided by the BER, except for electricity (adjusted for municipal tariff increase) and fuel (adjusted for impact of brent crude price fluctuation), where specific indices to indicate expected increases were utilised. Further, labour cost adjustments are a function of anticipated training, salary increases and changes in headcount. The significant reduction in operating and maintenance costs in 2016/17 is due to the cost centre rationalisation exercise performed in the 2014/15 tariff year that resulted in lower operating costs being allocated to the Gas business. In light of the 2013/14 tariff decisions and actual operating expenses, Transnet cannot make a comparison due to the aforementioned cost centre rationalisation exercise. In terms of the application period, increases in costs are reasonable in comparison to the 2015/16 latest estimate (LE). A summary of Transnet s storage operating expenses are detailed in the table below. Table 10: Expense Summary 2016/17 APP 2012/13 2013/14 2014/15 2015/16 2015/16 2016/17 APP vs 2015/16 LE LE Operating & Maintenance Costs 59.00 59.80 62.20 65.70 19.08 21.90 2.82 Salaries & Wages 25.60 27.00 27.60 29.10 1.21 1.37 0.16 Materials & Supplies 3.20 6.50 6.80 7.40 0.12 0.11 (0.02) Professional Fees 2.80 1.20 1.30 1.30 0.19 0.20 0.00 Operating Fuel 0.70 2.20 2.40 2.60 0.31 0.41 0.10 Legal Expenses 0.30 - - - 0.03 0.03 0.00 Rent - External Operating Leases 2.40 1.80 1.90 2.00 2.22 2.22 0.00 Employee Benefits - - - - 0.06 0.06 0.00 Insurance 0.30 0.20 0.20 0.30 0.75 0.70 (0.05) Other Expenses 23.70 20.70 22.10 23.00 14.20 16.80 2.60 Electricity 1.50 1.70 2.20 2.80 0.20 0.22 0.02 Maintenance - - - - 6.28 6.61 0.33 Security 3.40 3.20 3.40 3.60 2.24 2.78 0.54 Telephone & Data 1.30 1.40 1.50 1.60 0.71 1.09 0.38 Training - - - - 0.08 0.07 (0.01) Travel & Accommodation 1.60 1.20 1.20 0.20 0.37 0.41 0.03 Prof Fees (Internal) - - - - 0.23 0.26 0.02 Decommissioning Provision 0.60 0.60 0.60 0.60 0.63 1.61 0.98 Transnet Corporate Overhead 13.10 9.10 9.10 8.80 2.94 3.20 0.26 Other Miscellaneous 2.20 3.50 4.10 5.40 0.52 0.55 0.04 17
6.1 Other Expenses 6.1.1 Decommissioning Provision In line with section 34 (1) (d) of the Gas Act and Regulation 11 (4) and (5), Transnet has to provide security in respect of its rehabilitation obligations. Transnet has included a proportionate value of its obligation to be recovered in the 2016/17 tariff period to the value of R1.61 million. This has been informed by the latest audited independent study conducted in the 2010/11 financial year the results of which were communicated to NERSA on 7 June 2011. Transnet will be conducting a further detailed study at the end of March 2016. The future value of the provision has been calculated using the long term inflation rate (5 year) and has been discounted at the current interest rates being earned on the ABSA fixed deposit account into which the funds that have been collected to date have been invested. Prior to the submission of this tariff application, Transnet had communicated to NERSA that approval had been received from NT and the DPE in terms of section 51(1)(g) and sections 54(2)(b) of the PFMA with respect to setting up a trust. Transnet has lodged the trust deed with the Master of High Court in Johannesburg. This trust will maintain the invested cash, collected via tariffs, for the future decommissioning of assets. Transnet will continue to keep NERSA informed of further developments relating to the registration of the trust. Table 11: Decommissioning provision Actual contribution 2012/13 Actual contribution 2013/14 Actual contribution 2014/15 Forecast contribution 2015/16 per Cumulative contribution Present value of future commitment Shortage if total required balance is to be allowed immediately Remaining period Present value / remaining life a b c d e=sum(a:d) f g=f-e h i=g/h Gas Transmission & NPAs 0.60 0.66 0.57 0.63 2.45 44.34 41.89 26.02 1.61 18
6.1.2 Transnet Corporate Overheads TPL as one of Transnet s operating divisions receives support and services from the Transnet Corporate Head Office that includes financial, treasury, planning, commercial, project management, legal and human resources. The corporate overhead costs are allocated to operating divisions based on various defined cost drivers (e.g. headcount, external revenue etc). The total corporate overhead assigned to TPL amounted to R203.43 million, of which R3.20 million was assigned to the Gas business for the 2016/17 tariff year. The major cost elements of the corporate overhead costs include: Personnel costs including post-retirement benefits, Professional fees; Electronic data and telecommunication costs; Internal audit costs; Depreciation and amortization and Miscellaneous costs. Table 12: Transnet Corporate Cost Allocated to TPL 2012/13 Act 2013/14 Act 2014/15 Act 2015/16 LE 2016/17 App 2017/18 FC 2018/19 FC Total Allocation to TPL 149.54 164.11 167.96 199.61 220.01 233.36 251.02 Less: Social Investment Spend (6.14) (8.58) (11.26 (12.95) (16.58) (16.44) (16.98) 143.4 155.53 156.7 186.66 203.43 216.92 234.04 Transnet Corporate Overhead allocated to the Gas business 6.81 5.73 1.63 2.94 3.20 3.41 3.68 19
7 Income Taxation Transnet has elected to use the normalised (notional) tax approach in its tariff application. Normalised tax refers to an estimated normalised tax expense with respect to the regulated activity for the tariff period under review. Transnet wishes to use this approach as it is consistent with both the petroleum storage and petroleum pipeline regulated businesses. Normalised tax has been calculated based on the following formula: Tax = (NPBT (excluding tax allowance) / (1-tr)) x tr Where: NPBT (excl tax allowance) = {(RAB x WACC) +E + D (of total TOC asset base) + F ± C} {E +D(historic)} tr = prevailing corporate tax rate The income tax allowance, using the above formula, amounts to R19.93 million for the 2016/17 tariff period. Table 13: Taxation Allowance Tax={(NPBT excl tax allowance)/(1-tr)}*tr 2016/17 App Formula /% Ke*RAB*Equity ratio a 39.62 Kd*RAB*Debt Ratio b 3.59 WACC*RAB c=a+b 43.21 E (Operational Expenditure) d 17.09 E (Land Rehabilitation provision) d 1.61 E (Corporate Overhead Costs) d 3.20 D (historic) e 18.52 D (write-up) ee 8.03 D (F-factor) eee 0.00 F-factor f 0.00 C [Clawback Including Tax clawback] g -3.09 Allowable revenue before tax allowance h=c+d+e+ee+f+g 88.57 Tax rate [Tr] j 28% Add back Clawback as the notional tax thereon is already calculated gg -3.09 NPBT excl tax allowance [Note:interest not deducted to allow Tax shield] k=h-d-e-gg 51.24 Allowable Revenue pre tax 88.57 Tax={(NPBT excl tax allowance)/(1-tr)}*tr l={k/(1-j)}*j 19.93 Total Allowable Revenue m=h+l 108.50 20
8 Depreciation Depreciation is calculated on a straight line basis over the useful lives of the assets as per the methodology. The useful lives currently reflected in the regulatory asset register are aligned to the report issued by Arthur D Little ( ADL ) in the last full valuation conducted in March 2015. Refer to Annexure A for the ADL report. The estimated regulatory depreciation charge for the 2016/17 tariff year amounts to R26.55 million. Depreciation relating to new assets has been prorated in the year of capitalisation based on the period in which they are in operation. Table 14: Depreciation 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Depreciation Act Act Act LE App FC FC Historic Depreciation 48.00 30.13 18.30 18.51 18.52 18.43 18.42 Amortisation of write up 8.28 6.38 5.28 6.61 8.03 9.50 11.08 Total Depreciation and Amortisation 56.29 36.50 23.58 25.12 26.55 27.93 29.49 Table 15: Summary of depreciation and amortisation of write up Comparison of Depreciation in the Regulated Asset Register and Net depreciation and Amortisation allowed Gas Transmission and NPAs Total Depreciation 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19-56.29-36.5-23.58-25.12-26.55-27.93-29.49 Should have received 56.29 36.5 23.58 25.12 26.55 27.93 29.49 depreciation As allowed in Rfd 23.70 24.20 25.5 27.00 26.55 27.93 29.49 Depreciation as per 23.70 24.20 25.5 27.00 26.55 27.93 29.49 Total Depreciation to be given /(clawed) back 32.59 12.30-1.92-1.88 - - - The significant depreciation clawback in the 2012/13 tariff year relates to changes in useful life. 21
9 Clawback The clawbacks have been determined in terms of Section 4.4.7 of the Tariff Guidelines. The following clawbacks have been calculated: Revenue, Operating cost and efficiency, Asset, Depreciation and amortisation and WACC clawbacks for the 2012/13, 2013/14 and 2014/15 tariff years. Asset, Depreciation and Amortisation clawbacks for the 2015/16 tariff year. The Asset, Depreciation and Amortisation clawbacks relating to the 2015/16 tariff year have been calculated based on the differences between the values estimated in the previous application and latest values estimated in the current application. Table 16: Sources of Clawback Sources of Clawback (CLAWBACK)/ GIVEBACK RAB (9.95) Depreciation 41.10 Operational Costs and operating efficiency (50.80) WACC (4.18) Taxation Allowance (1.94) Revenue 19.08 Time Value of Money 3.60 Total clawback (3.09) 22
Table 17: Clawback (CLAWBACK)/ Clawback NERSA Actual (CLAWBACK)/ GIVEBACK Taxation effect 28% GIVEBACK INCLUSIVE OF Taxation effect Revenue Clawback 157.10 143.98 13.12-13.12 Operating Cost (19.44) - (19.44) Operating efficiency 7.98-7.98 Clawback on Gas Assets (2.44) (0.95) (3.39) Depreciation clawback 27.50-27.50 Amortisation of inflation write-up clawback 5.08 1.98 7.06 WACC clawback (1.79) (0.70) (2.49) Total Clawback for 2012/13 tariff year 30.02 0.33 30.35 Revenue Clawback 155.39 162.87 (7.48) - (7.48) Operating Cost (24.61) - (24.61) Operating efficiency 13.72-13.72 Clawback on Gas Assets (1.87) (0.73) (2.59) Depreciation clawback 10.53-10.53 Amortisation of inflation write-up clawback 1.78 0.69 2.47 WACC clawback (1.37) (0.53) (1.90) Total Clawback for 2013/14 tariff year (9.31) (0.57) (9.87) Revenue Clawback 162.40 148.95 13.45-13.45 Operating Cost (50.50) - (50.50) Operating efficiency 22.05-22.05 Clawback on Gas Assets (2.63) (1.02) (3.66) WACC clawback (1.02) (0.40) (1.41) Depreciation clawback (1.30) - (1.30) Amortisation of inflation write-up clawback (0.62) (0.24) (0.86) Total Clawback for 2014/15 tariff year (20.57) (1.66) (22.23) Clawback on Gas Assets (3.01) (1.17) (4.18) Depreciation clawback (1.19) - (1.19) Amortisation of inflation write-up clawback (0.69) (0.27) (0.96) Total Clawback for 2015/16 tariff year (4.89) (1.44) (6.33) Total Clawback before Time value of money (4.75) (3.34) (8.09) Time value of money 2012/13 (6.43%) 6.43% 8.50 3.31 11.81 Time value of money 2013/14 (6.35%) 6.35% (1.89) (0.74) (2.63) Time value of money 2014/15 (6.35%) 6.35% (2.70) (1.05) (3.75) Time value of money 2015/16 (6.35%) 6.35% (0.31) (0.12) (0.43) Total Clawback (1.15) (1.94) (3.09) 23
9.1 Revenue Clawback The difference between the actual 2012/13 revenue (R143.98 million) and the revenue per the 2012/13 tariff decision (R157.10 million) amounts to a give back of R13.12 million (exclusive of tax effect). The difference between the actual 2013/14 revenue (R162.87 million) and the revenue per the 2012/13 tariff decision (R155.39 million) amounts to a clawback of R7.48 million (exclusive of tax effect). The difference between the actual 2014/15 revenue (R148.95 million) and the revenue per the 2014/15 tariff decision (R162.40 million) amounts to a give back of R13.45 million (exclusive of tax effect). 9.2 Operating Cost Clawback Table 18: 2012/13, 2013/14 and 2014/15 Operating Cost Clawback 2012/13 2013/14 2014/15 Operating cost as per Operating Costs 45.90 50.70 53.10 Corporate Costs 13.10 9.10 9.10 Total 59.00 59.80 62.20 Operating cost as per Actual Operating Costs 32.75 29.46 10.08 Corporate Costs 6.81 5.73 1.63 Total 39.56 35.19 11.70 Total Operating cost clawback (19.44) (24.61) (50.50) The main reason for the significant operating cost clawback in the 2014/15 tariff year is the cost centre rationalisation exercise which resulted in a lower allocation of shared costs to the Gas business. 24
9.3 Operating Efficiency Adjustment Table 19: 2012/13, 2013/14 and 2014/15 Operating Efficiency Clawback 2012/13 2013/14 2014/15 R/Gigajoule Operating Expenditure a 59 000 000 59 800 000 62 200 000 Operational Expenditure b 39 561 897 35 185 925 11 703 208 Volume [forecast] c 16 999 224 15 894 000 19 000 000 Volume [actual] d 15 996 080 16 647 039 17 046 670 EaOC per volume e=a/c 3.47 3.76 3.27 AaOC per volume f=b/d 2.47 2.11 0.69 EaOC-AaOC g=e-f 1.00 1.65 2.59 Operating efficiency X actual volume h=g*d 15 956 445 27 447 329 44 102 206 50% thereof if positive i=h*50% 7 978 222 13 723 665 22 051 103 9.4 Asset Clawback The clawback on the assets relate to asset additions not aligning to forecasts. Consequently clawback on assets has been determined for the 2012/13, 2013/14, 2014/15 and 2015/16 financial years as detailed below in Table 20, Table 21, Table 22 and Table 23 respectively. Table 20: 2012/13 Asset Clawback As per RFD Actual March 2013 Capital ratio % Capital ratio % Ke 70.00% 8.49% 70.00% 8.49% Kd 30.00% 1.62% 30.00% 1.62% WACC 100.00% 6.43% 100.00% 6.43% Difference in Cost March 2014 Total TOC value WACC Ke Kd Value of PPE as per RFD 772.30 49.65 45.90 3.75 Final TOC as per asset register 734.34 47.21 43.64 3.57 Difference in Cost (37.96) (2.44) (2.26) (0.18) 25
Table 21: 2013/14 Asset Clawback As per RFD Actual Capital Capital March 2014 ratio % ratio % Ke 70.00% 8.36% 70.00% 8.36% Kd 30.00% 1.65% 30.00% 1.65% WACC 100.00% 6.35% 100.00% 6.35% Difference in Cost March 2014 Total TOC value WACC Ke Kd Value of PPE as per RFD 767.50 48.71 44.91 3.80 Final TOC as per asset register 738.07 46.85 43.19 3.65 Difference in Cost (29.43) (1.87) (1.72) (0.15) Table 22: 2014/15 Asset Clawback As per RFD Actual Capital Capital March 2015 ratio % ratio % Ke 70.00% 8.36% 70.00% 8.36% Kd 30.00% 1.65% 30.00% 1.65% WACC 100.00% 6.35% 100.00% 6.35% Difference in Cost March 2015 Total TOC value WACC Ke Kd Value of PPE as per RFD 797.20 50.60 46.65 3.95 Final TOC as per asset register 755.73 47.97 44.23 3.74 Difference in Cost (41.47) (2.63) (2.43) (0.21) 26
Table 23: 2015/16 Asset Clawback As per RFD Actual Capital Capital March 2016 ratio % ratio % Ke 70.00% 8.36% 70.00% 8.36% Kd 30.00% 1.65% 30.00% 1.65% WACC 100.00% 6.35% 100.00% 6.35% Difference in Cost March 2015 Total TOC value WACC Ke Kd Value of PPE as per RFD 823.40 52.26 48.19 4.08 Final TOC as per asset register 775.93 49.25 45.41 3.84 Difference in Cost (47.47) (3.01) (2.78) (0.23) 9.5 WACC Clawback The WACC clawback (detailed in Table 24 below) is due to the cost of debt as a result of: the actual nominal cost of debt of 9.20% being lower that the forecasted cost of debt of 10.36% for 2012/13. the actual nominal cost of debt of 9.27% being lower that the forecasted cost of debt of 10.12% for 2013/14. the actual nominal cost of debt of 9.52% being lower that the forecasted cost of debt of 10.12% for 2014/15. Table 24: 2012/13, 2013/14, 2014/15 WACC Clawback 2012/13 2013/14 2014/15 NERSA NERSA Actual NERSA Actual Actual /% RAB 748.47 748.47 761.60 761.60 783.13 783.13 Gearing 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% WACC (%) 6.43% 6.19% 6.35% 6.17% 6.35% 6.22% WACC return 48.13 46.34 48.36 46.99 49.73 48.71 WACC clawback (1.79) (1.37) (1.02) 27
10 Allowable Revenue Calculation The calculation of AR is summarised below: Table 25: Allowable Revenue Calculation 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 App FC FC PPE 772.30 767.50 797.20 823.40 795.93 816.52 836.94 Deferred tax - - - - (2.41) (3.23) (4.18) Net Working capital 48.20 21.90 22.90 24.10 25.57 27.18 28.52 RAB 820.50 789.40 820.10 847.50 819.09 840.47 861.28 Equity Return on Assets 48.80 46.20 48.00 49.60 39.62 40.65 41.66 Debt Return on Assets 4.00 3.90 4.00 4.20 3.59 3.68 3.77 Return on Assets 52.80 50.10 52.00 53.80 43.21 44.33 45.43 Expenses 59.00 59.80 62.20 65.70 21.90 23.21 23.56 Depreciation 23.60 24.20 25.50 27.00 26.55 27.93 29.49 Clawback - - - - (3.09) - - F-Factor - - - - - - - Profit Before Tax 135.40 134.10 139.70 146.50 88.57 95.47 98.49 Notional Tax 21.70 21.30 22.70 24.00 19.93 20.94 21.98 Total Allowable Revenue 157.20 155.39 162.40 170.50 108.50 116.41 120.46 11 Volumes and Tariffs Table 26: Volume data and Tariffs 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Volumes and Tariffs App FC FC Allowable Revenue (Rm) 157.20 155.30 162.40 170.50 108.50 116.41 120.46 Volumes(million gigajoule) 17.00 15.89 19.00 19.00 18.92 19.44 19.53 Tariff (Rand per gigajoule) 9.25 9.77 8.55 8.98 5.73 5.99 6.17 Further, in compliance with clause 14.2 of the conditions to the licence awarded to Transnet for the operation of a gas transmission pipeline, dated 11 November 2009, Transnet further submits tariffs to the value of R5.73 for the 2016/17 tariff year. 28
12 Conclusion In arriving at its AR requirement, Transnet has been guided by the methodology. Transnet requests that for its 2016/17 tariff year, a revenue requirement of R108.50 million and a tariff of R5.73 per gigajoule be approved by NERSA. 29
13 Regulatory Financial Statements Statement of Income Statement of Income Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Mar 2019 ( s ) ( s ) ( s ) ( s ) ( s ) ( s ) ( s ) Total Revenue 66.1 155.39 162.40 170.50 108.50 116.41 120.46 Operating Revenue - Storage 66.10 155.39 162.40 170.50 108.50 116.41 120.46 Operating Costs (96.5) (72.32) (35.92) (44.21) (48.45) (51.14) (53.05) Operating & Maintenance Costs (40.2) (35.82) (12.34) (19.08) (21.90) (23.21) (23.56) Salaries & Wages (17.81) (12.29) (1.83) (1.21) (1.37) (1.54) (1.69) Materials & Supplies (0.05) (0.04) (0.02) (0.12) (0.11) (0.09) (0.10) Outside Services - Ext Professional Fees & Survey Costs (0.22) (0.27) (0.19) (0.19) (0.20) (0.26) (0.25) Operating Fuel (0.69) (0.64) (0.39) (0.31) (0.41) (0.43) (0.45) Legal Expenses (0.02) (0.02) (0.02) (0.03) (0.03) (0.03) (0.03) Rent - External Operating Leases (1.50) (1.63) (0.96) (2.22) (2.22) (2.53) (2.72) Injuries & damages (0.21) 0.05 0.01 0.00 0.00 0.00 0.00 Employee Benefits (1.68) (1.07) (0.10) (0.06) (0.06) (0.06) (0.07) Insurance (0.31) (0.45) (0.16) (0.75) (0.70) (0.69) (0.74) Bad Debt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other Expenses (17.73) (19.47) (8.66) (14.20) (16.80) (17.58) (17.51) Electricity (1.16) (1.07) (0.59) (0.20) (0.22) (0.26) (0.30) Maintenance (2.12) (5.39) (1.64) (6.28) (6.61) (6.90) (6.14) Security (2.53) (2.55) (2.17) (2.24) (2.78) (2.94) (3.09) Telephone & Data (0.96) (1.40) (0.58) (0.71) (1.09) (1.16) (1.22) Training (1.56) (0.73) (0.11) (0.08) (0.07) (0.08) (0.09) Travel & Accomodation (0.74) (0.60) (0.15) (0.37) (0.41) (0.43) (0.45) Prof Fees (Internal) (0.74) (0.50) (0.19) (0.23) (0.26) (0.27) (0.28) Other Miscellaneous (0.46) (0.86) (0.97) (0.52) (0.55) (0.52) (0.65) Decomissioning Provision (0.63) (0.63) (0.63) (0.63) (1.61) (1.61) (1.61) Transnet Corporate Overhead (6.81) (5.73) (1.63) (2.94) (3.20) (3.41) (3.68) Depreciation & Amortization (56.3) (36.50) (23.58) (25.12) (26.55) (27.93) (29.49) Depreciation (56.29) (36.50) (23.58) (25.12) (26.55) (27.93) (29.49) PPE - Pipelines (54.91) (35.85) (22.85) (24.12) (25.52) (27.04) (28.62) PPE - NPAs (1.37) (0.66) (0.73) (1.01) (1.03) (0.88) (0.88) Regulatory Operating Profit (30.4) 83.07 126.48 126.29 60.05 65.27 67.41 Non-Regulatory Adjustments (0.3) (0.64) 0.00 0.01 0.01 0.01 0.01 Expenses (0.29) (0.64) 0.00 0.01 0.01 0.01 0.01 Other Deductions (0.29) (0.64) 0.00 0.00 0.00 0.00 0.00 Donations & Social Investment (0.29) (0.64) 0.00 0.00 0.00 0.00 0.00 Operating Profit before Finance Costs (30.7) 82.43 126.49 126.30 60.05 65.28 67.41 Finance Costs 4.5 (31.27) (25.04) (20.97) (19.41) (18.12) (16.94) Intergroup Interest: R1.9bn Loan (6.76) (34.89) (34.89) (34.89) (34.89) (34.89) (34.89) ST Interest & Bank Charges 11.31 3.62 9.85 13.92 15.48 16.78 17.95 Profit before Taxation (26.1) 51.15 101.45 105.33 40.65 47.16 50.47 Taxation 7.1 (14.50) (28.58) (29.67) (11.83) (13.65) (14.58) Taxes - Income & Regulatory Operating Income (8.49) (23.60) (33.95) (35.45) (17.92) (20.01) (21.30) Provision for Future Income taxes 15.63 9.10 5.37 5.78 6.09 6.36 6.71 Net Profit / (Loss) for the Year (19.0) 36.65 72.86 75.66 28.82 33.51 35.89 Regulatory Net Profit / (Loss) for the year - transferred to retained earnings (18.7) 37.29 72.86 75.66 28.81 33.50 35.89 30
Statement of Financial Position Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Mar 2019 ( s ) ( s ) ( s ) ( s ) ( s ) ( s ) ( s ) Owners' Equity: 573.5 645.22 829.06 932.09 996.55 1 062.77 1 132.43 Equity Issued 173.54 178.45 263.39 263.39 263.39 263.39 263.39 Non Distributable Reserves 240.59 270.14 296.19 323.56 359.21 391.93 425.70 Revaluation Reserve 235.40 265.47 291.18 320.69 351.80 383.47 416.05 Other Reserves 5.19 4.68 5.01 2.87 7.41 8.46 9.65 Retained Earnings 159.33 196.62 269.48 345.14 373.95 407.45 443.33 Accumulated Earnings 178.02 159.33 196.62 269.48 345.14 373.95 407.45 Retained Earnings - Current Year (18.70) 37.29 72.86 75.66 28.81 33.50 35.89 Non-Current Liabilities: 345.9 346.04 346.09 346.21 346.33 346.47 346.62 Provision (pension) 1.39 1.59 1.64 1.76 1.88 2.02 2.17 Long Term Debt: Intergroup 344.50 344.45 344.45 344.45 344.45 344.45 344.45 Loan at R1.9bn 344.45 344.45 344.45 344.45 344.45 344.45 344.45 Deferred Credits 38.30 40.90 45.52 51.22 57.23 63.19 69.15 Unamortised Debt Premium & Exp 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Contri & Grants for Constr (Levy) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Regulatory Liabilities (Clawback) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other Deferred Credits 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Product Adj 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Accum Future Income Taxes (dtax) 38.30 40.90 45.52 51.22 57.23 63.19 69.15 Current liabilities: 221.83 212.70 192.63 206.60 195.57 207.73 219.53 Accounts Payable 177.93 150.16 116.49 123.71 130.92 138.46 146.32 Trade Creditors 4.88 4.34 1.44 2.27 2.50 2.66 2.71 Other Payables 173.05 145.82 115.05 121.43 128.42 135.80 143.61 Intergroup Creditors 17.84 19.24 18.66 19.69 20.82 22.02 23.29 Debt due within 1 year 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Provision - capital lease 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Interest payable 10.31 10.07 9.77 10.31 10.90 11.53 12.20 Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Income Tax Payable 8.49 23.60 33.95 35.45 17.92 20.01 21.30 Other Current Liabilities 7.27 9.63 13.76 17.44 15.01 15.70 16.43 Clawback (Short Term Portion) 0.00 0.00 0.00 3.09 0.00 0.00 0.00 Short Term Provision 4.29 6.65 10.78 11.37 12.03 12.72 13.45 Other 2.98 2.98 2.98 2.98 2.98 2.98 2.98 Total Capital & Reserves 1 179.49 1 244.85 1 413.31 1 536.12 1 595.69 1 680.16 1 767.72 Non-Current Assets (Regulated Plant) 716.16 732.50 745.65 764.30 788.20 809.85 829.46 NET PPE in Service 678.71 718.56 734.43 751.37 771.23 790.78 809.09 Plant in Service 1 245.45 1 320.85 1 359.72 1 402.54 1 448.65 1 494.35 1 541.15 PPE - Pipelines 1 233.41 1 309.50 1 344.58 1 385.38 1 431.01 1 478.18 1 524.60 PPE - NPAs 12.03 11.35 15.13 17.16 17.64 16.17 16.55 Accumulated Depreciation (566.74) (602.29) (625.29) (651.17) (677.42) (703.57) (732.07) PPE - Pipelines (560.45) (596.17) (618.63) (642.59) (667.81) (694.35) (721.97) PPE - NPAs (6.29) (6.13) (6.65) (8.57) (9.61) (9.22) (10.10) Plant Under Construction (CWIP) 37.45 13.94 11.22 12.93 16.97 19.07 20.37 Other Non-Current Assets & Investments 377.93 377.93 377.93 377.93 377.93 377.93 377.93 Net Other Plant 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other Investments 377.93 377.93 377.93 377.93 377.93 377.93 377.93 Current Assets 85.40 134.42 289.73 393.89 429.56 492.38 560.34 Cash & Cash Equivalents 22.54 92.60 246.27 348.10 387.12 447.37 512.95 Accounts Receivable 54.19 31.16 28.65 30.16 25.91 27.54 28.90 Trade Debtors 5.51 12.95 13.53 14.21 9.04 9.70 10.04 Intergroup Debtors 3.32 12.62 3.68 3.89 4.11 4.35 4.60 Other Receivables 45.36 5.59 11.43 12.07 12.76 13.49 14.27 Bade Debt Provision 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Inventory 8.67 10.66 14.81 15.63 16.53 17.48 18.48 Prepayments 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other Current Assets 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Clawback - Current Asset 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Derivative Current Asset 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total Assets 1 179.49 1 244.85 1 413.31 1 536.12 1 595.69 1 680.16 1 767.72 31
Statement of Cash Flows Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Mar 2019 ( s ) ( s ) ( s ) ( s ) ( s ) ( s ) ( s ) Operating Activities 18.8 76.80 70.05 104.31 46.42 66.40 69.86 Cash Revenue 145.7 155.39 162.40 170.50 108.50 116.41 120.46 Cash Operating Expenses (53.2) (34.99) (11.65) (18.33) (20.16) (21.46) (21.80) NonReg Cash Adjustments (1.6) (0.64) 0.00 0.01 0.01 0.01 0.01 Cash from Operating Activities 91.0 119.76 150.75 152.17 88.34 94.95 98.66 Changes in Working Capital (107.9) (3.20) (32.06) 7.06 12.94 7.48 8.14 Cash Generated from Operations (17.0) 116.56 118.70 159.23 101.28 102.43 106.81 Net Finance Costs 44.2 (31.27) (25.04) (20.97) (19.41) (18.12) (16.94) Forex & Derivative Gain / (Loss) 0.0 0.00 0.00 0.00 0.00 0.00 0.00 Tax Paid (8.4) (8.49) (23.60) (33.95) (35.45) (17.92) (20.01) Inflow/(Outflow) from Investment Activities (12.1) (11.65) (1.32) (2.48) (7.40) (6.16) (4.27) Plant in Service - Pipelines (9.8) (10.85) (0.12) (1.42) (5.31) (2.80) (3.15) Plant in Service - NPAs (0.5) (0.80) (1.20) (1.06) (2.09) (3.36) (1.12) Intangible Software & Fin Lease Assets (1.8) 0.00 0.00 0.00 0.00 0.00 0.00 Other Investments 0.0 0.00 0.00 0.00 0.00 0.00 0.00 Net Cash Inflow/(Outflow) from Financing Activi 0.0 4.86 84.94 0.00 0.00 0.00 0.00 Net Increase/ (Decrease) in Long Term Borrowings 0.0 (0.05) 0.00 0.00 0.00 0.00 0.00 LTL: NMPP Levy 0.0 0.00 0.00 0.00 0.00 0.00 0.00 Net Increase/ (Decrease) in Equity 0.0 4.91 84.94 0.00 0.00 0.00 0.00 Dividend Expropriation 0.0 0.00 0.00 0.00 0.00 0.00 0.00 Net Increase/(Decrease) in Cash 6.7 70.01 153.67 101.83 39.02 60.24 65.59 Cash at Beginning of Year 328.3 22.54 92.60 246.27 348.10 387.12 447.37 Cash at End of Year 335.0 92.55 246.27 348.10 387.12 447.37 512.95 32
14 Annexures 1. Annexure A Arthur D Little Report 33