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RFT NO.: TCTA/PFT/FMA/2013/25

RFT NO.: TCTA/PFT/FMA/2013/25. Appointment of service provider to conduct annual audits of financial models – Briefing session 4 November 2013. Unyielding commitment to REJUVENATION REVIVAL RENAISSANCE TRANSFORMATION. Agenda. Opening and welcome G MNISI

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RFT NO.: TCTA/PFT/FMA/2013/25

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  1. RFT NO.: TCTA/PFT/FMA/2013/25 Appointment of service provider to conduct annual audits of financial models – Briefing session 4 November 2013 Unyielding commitment to REJUVENATION REVIVAL RENAISSANCE TRANSFORMATION

  2. Agenda • Opening and welcome G MNISI • Background & scope of services N Gosani • Tendering process G MNISI 3.1 Disqualification criteria 3.2 Submission requirements 3.3 Technical Evaluation Criteria 3.4 Financial and Preference Evaluation Criteria • Submission of tender G MNISI • Communication G MNISI • Question & Answers G MNISI • Closure G MNISI

  3. Purpose of the Presentation • To give the potential tenderers an opportunity to seek clarity on any issue that may have presented challenges in responding to the RFT • To give a summary of TCTA’s projects with the view to assist tenderers complete their bids in an informed manner • To invite those services providers with appropriate skill, experience and software to submit bids for the purpose of providing financial models audit services to TCTA

  4. Background to TCTA

  5. Background on TCTA TCTA is a Special Purpose Vehicle Responds to directives/mandates from the Minister of Water and Environmental Affairs to fund and implement bulk raw water infrastructure on behalf of DWA Board is appointed by Minister of Water and Environmental Affairs Established under the Water Act Schedule 2 Public Entity w.r.t. PFMA Limited recourse approach No balance sheet Break-even of revenue to costs over a specified period Fully debt funded – no equity Ring-fenced projects – tariffs related to a specific project – no cross-application of revenue Non profit-taking organisation Recover actual costs – overhead and capex, no profit/loss or reserves Risk averse approach – risk is transferred to parties best suited to manage it Revenue stream terminates once debt is repaid on a project Tariffs are TCTA’s main source of revenue

  6. Water Supply Value Chain National Raw Water Resource Infrastructure DWA TCTA Water Boards Distribution of water Municipality End User Treat raw water to potable level 6 6

  7. TCTA funding and implementation model Water Delivery Payment of Tariffs TCTA • Fund and implement infrastructure • Collection of Income • Undertake to honour obligations of TCTA Implementation agreement DWA • Supply bulk raw water to users • Operate & maintain infrastructure • Payment for water including CUC due to TCTA Water supply agreement Users 7

  8. TCTA Projects Projects in operations LHWP-I KWSAP BWP VRESAP Revenue Recourse • Explicit Government Guaranteed • Income stream from KWSAP • Implied guarantee • Income stream from BWP • Implied government guarantee • Income stream from VRESAP • Implied government guarantee • Fund • Risk management • Operation & Maintenance of assets • Implement • Fund • Risk management • Implement • Fund • Risk management • Implement • Fund • Risk management Mandate Activities R 20 billion + R 1.9 billion R 1.4 billion R 3.3 billion Peak of debt Jan 2011 Apr 2014 2003 - 2008 2005 - 2012 1986 - 2001 Construction Period: Commenced Completed 2025 20 years after construction 2028 2028 Repayment of debt

  9. TCTA Projects (cont.…) Projects under construction MMTS-2 AMD ORWRDP-2 MCWAP Revenue Recourse • Income stream of MMTS2 • Implied guarantee • Short term solution funded from the fiscus • Funded from the fiscus • Income stream of MCWAP • Implied guarantee • Implement • Fund • Risk management • Implement • Model audit not on scope for now • Implement • Model audit not the scope for now • Implement • Fund • Risk management Mandate Activities + R 1.6 billion N/A – fiscal funding, no debt N/A – fiscal funding, no debt Ph 1 – R 2.5 billion Ph 2 – R 15 billion Peak of debt Dam: Completed BDS: (To be advised) Ph 1 – 2012/ Ph 2 2014 Ph 1 – 2014/ Ph 2 - 2020 Feb 2011 (Apr 2014) Jan 2015 Construction Period: Commenced Completed 20 years after construction N/A 20 years after construction Repayment of debt

  10. Stakeholders & tariff principles

  11. Interested and affected stakeholders • TCTA • Tariffs will generate sufficient revenue streams to meet contractual obligations and sustain TCTA • Correct tariff set so as not to misinform stakeholders • Banks and bondholders • Repayment of loan obligations within contract terms • SARB • Support inflation targeting • National Treasury • Protection of sovereign against unnecessary risk - Bankable project • Relieve government from financing commercial infrastructure from the fiscus • Ensure affordability of tariffs to users • Responsible utilisation of state guarantees • DWA • Inflationary increases in raw water as start of water chain input cost • Affordability and predictability to end-users • Uncomplicated annual tariff consultations – inflationary increases • Water demand management incentive (pay on actual use) • No cross subsidisation between projects – transparency of costs • Compliance with Water Pricing Strategy

  12. Interested and affected stakeholders • SALGA • Inflationary increases • Fair tariff structures • Municipalities • Limited to inflationary increases, including raw water components • DWA expects TCTA to support this objective • Municipality and Council pressure to keep increases low • Water sector and end users • Tariff stability and predictability • Affordable water • Inflationary increases acceptable • No cross subsidisation between projects – transparency of costs • Fitch Ratings • Credit rating of all TCTA projects except LHWP

  13. Tariff Principles • Tariff categories for off-budget schemes: • Capital Unit Charges (to repay debt) • Bulk Operating and Royalties Charge (to repay royalties and bulk O&M) • Water Use Charges (statutory charges as per pricing strategy) • Operations and Maintenance Charges (State schemes portion) • Betterment and Refurbishment Charges (if applicable) • Input data supplied to TCTA as follows: • BER: • long-term economic forecasts (inflation, real interest rates) • DWA: • water demand forecasts (high and low scenarios) • system yields • future schemes timing and projected costs 13

  14. Tariff Principles (cont.…) TCTA recovers the following tariffs: Raw water tariff as capital unit charge to repay debt Bulk Operating and Royalties charge to cover royalties and bulk O&M Full cost recovery from water sold to end-users or take-or-pay where required Based on water sold out of system and not on water delivered into the system from the specific project supports water demand management initiatives reduces demand risk Constant tariff in real terms which increases with: CPI annually Triggers as per the Income Agreement Repayment of debt within reasonable period (eg 20 years) Affordable structure to the end-user Tariff setting takes account of tariff, funding and risk management principles in combined approach

  15. Other considerations National Water Pricing Strategy Administered prices – inflation targeting Stakeholder consultation outcomes Affordability to end-users phasing-in of large adjustments allowance for capitalisation of interest in early years

  16. Tariff Setting Balancing Effect End user affordability Debt outstanding • Considerations to support debt management: • +20 year repayment period • Peak of debt in relation to value of asset (limit interest capitalisation) • Risk transfer to end-user – trigger adjustments if input assumptions change • Water sector debt profile – debt overlap with future schemes • Interest rates mostly fixed • Utilisation of explicit Government guarantees and impact on National Treasury • Considerations to support end user affordability: • Under recovering in early years • End-user pays on actual use if bankable • Constant tariff in real terms approach – CPI targeting • Phasing-in of large tariff adjustments over 2-3 years • Take account of future augmentation – future affordability • No reserves built into tariffs • Actual cost transfer – TCTA not profit taking 16

  17. Tariff Setting Process – May to August Sensitivity Analysis & Stress Testing Consultation Planning process Participation • Rand Water Services Forum • Other Major stakeholder forums • Input data Demand, system yield, economic fundamentals, cost and timing of future augmentation schemes • Long-term projections DWA compiles long-term demand projections based on coordinated approach with DWA – various departments involved, Water Boards’ Planning and Budgeting departments, Large industrial users, Muni’s etc. • Sensitivity Analysis • Inflation, real interest rate, timing of future augmentation schemes and repayment periods • Stress Testing Lower inflation, changes in yield of system, higher real interest rate, zero growth in demand etc • Stakeholder validation Demand projections, system yield, economic fundamentals, cost and timing of future augmentation schemes • Consultation with National Treasury and SARB On administered prices • Consultation with DWA management structure

  18. Scope of service

  19. Scope of service • The annual audits will include, inter alia, • Correct capture of assumptions, i.e.: • General input assumptions; demand projections, CPI, real interest rates, admin costs, funding requirements and LT cost plans; • Funding input; calcs relating to loans, bonds, interest, fees, capital requirements, capi, CPI uplift on CPI-linked instruments; • Loans on models correspond with loan agreements • Confirm the accuracy of the following outputs: • Net debt curve • Tariff • Gross borrowings • Graphs, etc.

  20. Scope of service (cont.…) • Assess the accuracy of the financial models: • Initial audits only – review the logic and accuracy of computations; • For subsequent audits – map out changes in logic and construction of the model from the previous audited version, and review where changes have been detected; • Deliver an initial report of findings and recommendations relating to the accuracy, integrity, highlighting issue for TCTA’s attention; • Review changes made by TCTA following initial report; • Deliver final opinion letter (report) by the 15th of September, annually; • First year only, report to be delivered by 31 March 2014.

  21. Key projects information

  22. Model features

  23. Model features Excel based – standardised template Model information Input (update funding, macro-economic data, demand projections, etc.) Cash flow (calculations) Loan calculations Chart input Charts Tariffs - goal seek function to arrive at a tariff Provision for phasing in during construction to minimise capitalisation of interest Provision for different off-takers and funders

  24. TENDERING PROCESS

  25. Disqualification criteria • Failure to meet the minimum technical score of 65 out of a possible 100 points. • No proof of access to auditing tool • If currently TCTA’s external auditor

  26. Submission Requirements • Tenderers must submit the full list of documents and information required by TCTA for the purpose of evaluation of the tender offer. • The documentation and information required must be numbered in accordance with the numbering set out in this RFT.

  27. Evaluation criteria Two envelope system: Technical evaluation Preference and price 90/10 preference point system will be used Technical evaluation: Company track record, in the last 5 years on financial model auditing and access to financial model audit software tools. The information shall contain: Name of company for whom the work was done Period of Contract Description of the financial model audited Audit tool used Contactable reference Proof of access to a financial model auditing software tool (either current software license in company name or signed letter from licence holder granting access) Company track record on financial model auditing and access to financial model audit software tools

  28. Evaluation criteria (cont.) CVs Project Leader Financial Model Auditor Financial Model Auditor (HDI) Financial proposal: Tenderers are required to provide a total fixed price over the contract period, broken down per project and per year, for undertaking the scope of services as per the template contained in Appendix D of the RFT Allocation of points: Preference points will be allocated in terms of the preferential procurement evaluation criteria in section 7.2 of the RFT.

  29. Technical Evaluation criteria • TCTA will evaluate each Technical submission in terms of the method of evaluation stated in the RFT. • The purpose of the technical evaluation is to determinate which tenders qualify for the next phase (financial and preference evaluation). • The technical component will be out of 100 points. In order to qualify for the next phase a minimum score of 65 out of a possible 100 points needs to be achieved.

  30. Tender submission List of Returnable schedule

  31. Tender submission • Closing date and time for submissions: 29 November 2013 at 14h00 • Delivery Address: TCTA offices, Ground Floor Stinkhout Wing, Tuinhof Building, 265 West Street, Centurion • Delivery method : Proposals must be hand delivered at TCTA’s Centurion offices and addressed to the Receiving Officer, and marked RFT: TCTA/PFT/FMA/2013/25on or before the closing date and time. • ENVELOPE A-Technical Information • Copies to be submitted: 1 Original (clearly marked “original” and 5 copies • ENVELOPE B-Financial Information • Copies to be submitted: 1 signed hardcopyand 1 CD-ROM

  32. Communication • Only written communication addressed to Receiving Officer at tenders@tcta.co.za will be considered. • TCTA will assume that every individual communicating with it on behalf of a tenderer or a potential tenderer is duly authorized unless otherwise indicated. • Please use tender number on all correspondence. • Written questions emailed to tenders@tcta.co.za will be responded to within 48 hours. • Any addendum to the RFT necessary will be published in the TCTA website until 3 days before the tender closing date

  33. Thank you Contacts: Ntsikelelo Gosani Project Finance Manager ngosani@tcta.co.za Godfrey Mnisi Project Procurement Specialist gmnisi@tcta.co.za Telephone: (012) 683 1200

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