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. Projects in operations
TCTA Projects
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
2028
KWSAP
+ R 1.9 billion
Jan 2011
Apr 2014
Income stream from KWSAP
Implied guarantee
20 years after construction
VRESAP
R 3.3 billion
Income stream from VRESAP
Implied government guarantee
Projects in operations
Construction
Period:
Commenced
Completed
Peak of debt
Revenue Recourse
Mandate Activities
Repayment of debt

9. Projects under construction
TCTA Projects (cont.…)
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
Model audit not the scope for now
N/A
AMD
Short term solution funded from the fiscus
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
Feb 2011
(Apr 2014) Jan 2015
Projects under construction
Construction
Period:
Commenced
Completed
Peak of debt
Revenue Recourse
Mandate Activities
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 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. Tariff Setting Process – May to August
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
Rand Water Services Forum
Other Major stakeholder forums
Planning process
Sensitivity Analysis & Stress Testing
Consultation
Participation

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
LHWPI&II
BWP
VRESAP
KWSAP
MMTS-2
MCWAPI&II
No. of off-takers
Numerous 1 2
Project phase
Phase 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
5x LT loans
RCF
4x LT loans
Estimated unique formulae
2000
400
1100
1200
600
Debt curves 3
CPI-uplift
CPI-linked bond
None
CPI uplift on 1 of the sub-loans

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 CVs of:- 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
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.
CV Template
Section 4
CVs of:-
Project Leader
Financial Model Auditor
Financial Model Auditor (HDI) Template
With certified copies of graduate, post graduate and modelling certificates attached
Annexure H:
Financial Proposal Template

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/2013/25 on 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 hardcopy and 1 CD-ROM

32. Communication
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. Thank you Contacts: Ntsikelelo Gosani Godfrey Mnisi
Project Finance Manager
Godfrey Mnisi
Project Procurement Specialist
Telephone: (012)