Portfolio Committee

1. Portfolio Committee 14 October 2004 Martie van Rensburg Robert Mbwana

2. [ 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

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

5. PROJECT VIABILITY PROJECT FUNDING ENGINEERINGANDCONSTRUCTIONMANAGMENT PRO-ACTIVEDEBTMANAGEMENT RISKIDENTIFICATION,ASSESSMENT &MANAGMENT STRATEGIC MANAGEMENT OFSOCIAL ASSETS STRATEGIC MANAGEMENTOF ENVIRONMENTAL ASSETS [ Liability Management ]

6. [ 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

7. TCTALiability Management Viable & SustainableProjects ProjectImplementation Funding & DebtManagement Risk ManagementFramework Corporate Governance Business Imperatives ORGANISATIONAL STRUCTURE [ Specialised Liability Management ] Enterprise Risk Management

8. Risk Management Philosophy Funding Philosophy Tariffing Funding Risk Management Implementation Philosophy Engineering Socio Environmental Communication [ Risk Management ]

9. [ TCTA: Risk Management Principles ] IN ORDER OF PRIORITY SCENARIO & STRESS TESTING: • 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 OPTIMAL CAPITAL STRUCTURE (Fixed/Floating) ASSET/LIABILITY MATCHING (Refinancing & Forward Interest Rate Risk) REDEMPTION PORTFOLIO MANAGEMENT (Large Debt Maturities) PRO-ACTIVE INTEREST RATE RISK MANAGEMENT

10. [ 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

11. Funding Pro-actively manage funding to achieve lowest weighted average cost of funding [ TCTA: Funding Principles ] “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

12. [ 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

13. [ 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

14. [ Employment Equity ] * Black includes African, Indian and Coloured.

15. [ Segmental Income Statement ] • LHWP – Lesotho Highlands Water Project • Umgeni Water treasury management services

16. [ Segmental Balance Sheet ]

17. [ Segmental Balance Sheet ] • BWP – Berg Water Project

18. Lesotho Highlands Water Project

19. [ LHWP ]

20. [ Lesotho Highlands Water Distribution ] Normal Emergency

21. Government of South Africa Governmentof Lesotho LHWC [ Governance Structure ]

22. [ 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

23. [ 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

24. [ 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 %

25. [ Tariff Composition ]

26. 40 Forecast 35 Issued 30 25 20 RAND BILLIONS WS05 15 Capital Value WS04 10 WS03 WS01 5 CPP 2003/04 2005/06 2010/11 2016/17 2018/19 2025/26 Split Maturity Bonds [ LHWP: Debt Maturity Profile and Liability Curve ]

27. [ 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

28. Berg Water Project

29. [ Location of Project ]

30. [ 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

31. [ 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

32. [ 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

33. [ TCTA – score card ] Employment Opportunities Procurement Opportunities

34. [ TCTA – score card ] Training Opportunities

35. [ TCTA – score card ] SMME Training and Support Outcome of training and support

36. BWP LIABILITY CURVE AND ANNUAL CAPITAL CHARGE 4,000 2.000 1.800 3,500 Repayment Period - 20 years Construction 1.600 Period 3,000 1.400 2,500 3 1.200 Rand million Rand per m 2,000 1.000 0.800 1,500 0.600 1,000 0.400 500 0.200 - - '03 '06 '09 '12 '15 '18 '21 '24 '27 '30 Total Liability Curve Capital charge FV Capital charge PV [ BWP: Debt Curve in Actual Rand Value ]

37. Umgeni Water Treasury Management

38. Service Level Agreement Phases Status 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 Treasury Management Services ] Ministerial Directive – started 11 July 2001 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

39. [ 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

40. [ Umgeni Water – Phase 2 ] • 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 Phase 2 Tariff, debt and treasury model review

41. [ Umgeni Water – Phase 3 ] Phase 3 Balance sheet re-engineering and treasury restructuring 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

42. [ Umgeni Water – Phase 3 ] 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 Phase 3 Balance sheet re-engineering and treasury restructuring

43. [ 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

44. Behold our kaleidoscope, scintillating gems united in splendor…

45. 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