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Unyielding commitment to REJUVENATION REVIVAL RENAISSANCE TRANSFORMATION Appointment of service provider to conduct annual audits of financial models –

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Presentation on theme: "Unyielding commitment to REJUVENATION REVIVAL RENAISSANCE TRANSFORMATION Appointment of service provider to conduct annual audits of financial models –"— Presentation transcript:

1 Unyielding commitment to REJUVENATION REVIVAL RENAISSANCE TRANSFORMATION Appointment of service provider to conduct annual audits of financial models – Briefing session 4 November 2013

2 1. Opening and welcomeG MNISI 2. Background & scope of services N Gosani 3. Tendering processG MNISI 3.1 Disqualification criteria 3.2 Submission requirements 3.3 Technical Evaluation Criteria 3.4 Financial and Preference Evaluation Criteria 4. Submission of tender G MNISI 5. Communication G MNISI 6. Question & Answers G MNISI 7. Closure G MNISI

3 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 TCTAs 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 3

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5 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 TCTAs main source of revenue 5

6 66 DWA TCTA Water Boards Municipality End User National Raw Water Resource Infrastructure Treat raw water to potable level Distribution of water

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

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

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

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11 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 11

12 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 12

13 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 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 14

15 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 15

16 End user affordability Debt outstanding 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 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 16

17 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, Munis 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 Rand Water Services Forum Other Major stakeholder forums Planning process Sensitivity Analysis & Stress Testing Consultation Participation 17

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19 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. 19

20 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 TCTAs attention; Review changes made by TCTA following initial report; Deliver final opinion letter (report) by the 15 th of September, annually; First year only, report to be delivered by 31 March

21 LHWPI&IIBWPVRESAPKWSAPMMTS-2MCWAPI&II No. of off-takersNumerous12112 Project phasePhase I: operational Phase II: structuring Operational Dam: fully constructed, conveyance system: planning phase Phase I: construction Phase II: project structuring No. of phases No. of loans, sub- loans & fin. instruments Various Bonds LT loans CPP 3x LT loans CPP 5x LT loans RCF CPP 4x LT loans RCF CPP 3x LT loans RCF CPP 3x LT loans CPP Estimated unique formulae Debt curves CPI-upliftCPI-linked bond NoneCPI uplift on 1 of the sub- loans None

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23 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

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25 Failure to meet the minimum technical score of 65 out of a possible 100 points. No proof of access to auditing tool If currently TCTAs external auditor

26 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 27 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 28 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 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 List of Returnable schedule Annexure A:Covenant of Integrity Affidavit Annexure B:Bribery and Corruption Declaration Annexure C:Enterprise Information Affidavit Annexure D:Enterprise information Annexure E: Sample refence letter on past projects audited Section 3 Track Record:- Name of company for whom the work was done Period of Contract Description of the financial model audited Audit tool used Contactable reference o 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) Appendix B: Standard Bidding Documents:- SBD 4 SDB 6 SBD 8 SBD 9 Tax Clearance Certificate. Company Registration Documents & cancelled cheque. BBBEE Scorecard and Certificate. Annexure C: CV Template Section 4 C Vs of:- 1.Project Leader 2.Financial Model Auditor 3.Financial Model Auditor (HDI) Template With certified copies of graduate, post graduate and modelling certificates attached Annexure H: Financial Proposal Template

31 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 TCTAs Centurion offices and addressed to the Receiving Officer, and marked RFT: TCTA/PFT/FMA/2013/25 on or before the closing date and time. ENVELOPE A-Technical Information Copies to be submitted: 1 Original (clearly markedoriginal and 5 copies ENVELOPE B-Financial Information Copies to be submitted: 1 signed hardcopy and 1 CD- ROM

32 Only written communication addressed to Receiving Officer at 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 ed to 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 33 Contacts: Ntsikelelo Gosani Project Finance Manager Godfrey Mnisi Project Procurement Specialist Telephone: (012)


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