Portfolio Committee 14 October 2004 Martie van Rensburg

Portfolio Committee 14 October 2004 Martie van Rensburg Robert Mbwana

[ 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

[ Who is TCTA? ] § Section 138 A, 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

[ TCTA = position in water sector ] Dams TCTA DWAF Treat raw water to Potable level Water Boards Municipality End User Deliver water and sanitation through network

[ Liability Management ] PROJECT VIABILITY PROJECT FUNDING PRO-ACTIVE DEBT MANAGEMENT ENGINEERING AND CONSTRUCTION MANAGMENT STRATEGIC MANAGEMENT OF SOCIAL ASSETS RISK IDENTIFICATION, ASSESSMENT & MANAGMENT STRATEGIC MANAGEMENT OF ENVIRONMENTAL ASSETS

[ TCTA – The Multi-Project Environment ] Liability Managers for Bulk Raw Water Infrastructure Integrated Treasury Management Services [ LHWP ] [ UMGENI WATER] • • • Funding and Risk Management on behalf of Government Debt is explicitly Government Guaranteed Current debt - R 17 900 million Current assets - R 934 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 • 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

Viable & Sustainable Projects Project Implementation Funding & Debt Management Risk Management Framework Corporate Governance Business Imperatives [ Specialised Liability Management ] TCTA Liability Management ORGANISATIONAL STRUCTURE Enterprise Risk Management

[ Risk Management ] Tariffing Funding Risk Management Engineering Socio Environmental Communication

[ TCTA: Risk Management Principles ] IN ORDER OF PRIORITY OPTIMAL CAPITAL STRUCTURE (Fixed/Floating) SCENARIO & STRESS TESTING: § ASSET/LIABILITY MATCHING (Refinancing & Forward Interest Rate Risk) REDEMPTION PORTFOLIO MANAGEMENT (Large Debt Maturities) PRO-ACTIVE INTEREST RATE RISK MANAGEMENT Manage peak and tail of debt curve based on following scenario’s: § Zero and negative growth in demand § Changes in: § inflation § real interest rates § timing of future augmentation

[ TCTA: Tariffing Principles ] • Economic useful life of assets • Timing of future augmentation • Water consumed vs water delivered End user affordability Debt outstanding Constant tariff in real terms

[ 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

[ 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

[ 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 > 25 % senior female

[ 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.

[ Segmental Income Statement ] LHWP 2004 R’million Revenue TOTAL 2004 R’million UW 2004 R’million TOTAL 2003 R’million 1 538 3 1 541 1 332 208 - 208 184 78 3 81 103 Operating surplus 1 252 - 1 252 1 045 Finance cost 1 351 - 1 351 1 098 99 - 99 53 Royalties paid Operating expenses Net deficit for the year (1) LHWP – Lesotho Highlands Water Project (2) Umgeni Water treasury management services

[ Segmental Balance Sheet ] LHWP 2004 R’million BWP 2004 R’million TOTAL 2003 R’million ASSETS Non-current assets 15 872 34 15 906 13 911 Property, plant and equipment 14 913 34 14 947 13 907 942 - 942 4 17 - Current assets 777 11 788 691 Receivables and prepayments 442 4 446 341 Short-term financial market investments 335 - 335 350 - 7 7 - 16 649 45 16 694 14 602 Long-term financial market investments Receivables and prepayments Cash and cash equivalents Total assets

[ Segmental Balance Sheet ] LHWP 2004 R’million TOTAL 2004 R’million BWP 2004 R’million TOTAL 2003 R’million EQUITY AND LIABILITIES Reserves and deficit Non-distributable reserves Cumulative deficit (2 173) - (2 173) (2 138) 84 - 84 24 (2 257) - (2 257) (2 162) 16 187 - 16 187 15 082 2 635 45 2 680 1 658 511 6 517 484 2 124 39 2 163 1 174 16 649 45 16 694 14 602 Non-current liabilities Long-term financial market liabilities Current liabilities Payables Short-term financial market liabilities Total equity and liabilities (1) BWP – Berg Water Project

Lesotho Highlands Water Project

[ LHWP ]

[ Lesotho Highlands Water Distribution ] Normal Emergency

[ Governance Structure ] Government of South Africa Government of Lesotho LHWC

[ TCTA –LHWP 2004 Highlights ] § Inauguration of phase 1 B 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 § 2 nd 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

[ 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 m 3 § Sold : 1 325 million m 3 – R 1. 5 billion

[ LHWP: Sources of Funding ] As at 31 March 2004 R 17 809 million WS 05 10% WSP 1 -WSP 5 6% Commercial Paper Program 11% Foreign Institutions 7% WS 04 25% WS 01 21% WS 03 17% Capital Market Bonds 79 % Other funding 21 % Fixed Floating Other 3% 73 % 27 % Foreign 7 % Local 93 %

[ Tariff Composition ]

[ LHWP: Debt Maturity Profile and Liability Curve ] 40 Forecast 35 Issued RAND BILLIONS 30 25 20 15 WS 03 10 5 CPP WS 05 Capital Value WS 04 WS 01 2003/04 2005/06 2010/11 2016/17 2018/19 Split Maturity Bonds 2025/26

[ 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

Berg Water Project

[ Location of Project ]

[ Western Cape Water System ] Other Sources eg Misverstanddam Wemmershoek Dam Voëlvlei Dam Steenbras Dam Water Delivered Theewaterskloof Dam Salable Water Delivered DWAF City of Cape Town Kogelberg Dam Berg River Dam Other Users TCTA Water Income

[ Public Partnership Agreements ] Agreement 1: City of Cape Town • Supply of water from WCS to CCT • Payment for water incl. BWP to TCTA • Conditions of Supply DWAF • Implementation Agreement 2: • Payment of water charge TCTA • Collection of income

[ 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

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

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

[ TCTA – score card ] SMME Training and Support Number of SMME’s 3 Training courses 14 Outcome of training and support 2 Local joint venture tenders submitted for La Motte construction housing

[ BWP: Debt Curve in Actual Rand Value ] BWP LIABILITY CURVE AND ANNUAL CAPITAL CHARGE 4, 000 2. 000 3, 500 1. 800 3, 000 1. 600 1. 400 1. 200 2, 000 1, 500 0. 800 3 2, 500 0. 600 1, 000 0. 400 500 0. 200 - '03 '06 '09 '12 Total Liability Curve '15 '18 Capital charge FV '21 '24 '27 Capital charge PV '30 Rand per m Rand million Repayment Period - 20 years Construction Period

Umgeni Water Treasury Management

[ Umgeni Water Treasury Management Services ] Ministerial Directive – started 11 July 2001 Service Level Agreement 2 Year SLA July 01 - July 03 SLA extended July 03 - July 05 Phases Phase 1 Phase 2 Phase 3 Phase 4 Status Complete In Progress Phase 1: Situation analysis and take-on Phase 2: Tariff, debt and treasury model review Phase 3: Balance sheet and treasury model restructuring Phase 4: Capacity building and handover

[ 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

[ 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

[ 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 UG 55 / UG 66 debt buyback § Negotiated R 1 billion in amortizing debt to support balance sheet restructuring and asset / liability matching Phase 3 Balance sheet re-engineering and treasury restructuring

[ Umgeni Water – Phase 3 ] BALANCE SHEET RE-ENGINEERING: Phase 3 Balance sheet re-engineering and treasury restructuring § 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

[ Umgeni Water – Phase 4 ] § Input into income and supply agreements § Build capacity through: § Creation of in-house Umgeni treasury § Transfer of skill’s – 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

Behold our kaleidoscope, scintillating gems united in splendor…

Thank You 265 West Street Centurion 0046 Telephone: (012) 663 8000 Fax: (012) 663 5054 Website: http: //www. metsi. com http: //www. tcta. co. za e-mail: info@tcta. co. za