Capital Expenditure Programme 24 October 2018 Presenter: Anthony Els Capital Expenditure Programme Tariff Consultation

The Tariff increase Partly depends on: The Capex budget; which depends on: Augmentation & Renewal plan (for core water assets), which depends on: Demand growth and Asset Renewal requirements

SECTION CONTENT Demand growth forecast 2. Augmentation & Renewal plan to 2038 3. Capital budget

Supply Area Overview 2017/2018 average demand: ~4200 Mℓ/d 3500+ km of pipeline: mostly > 600 mm 60 reservoirs: 20Mℓ to 650 Mℓ 600 Bulk meters ≥ 100mm dia.

Supply systems for Planning Eikenhof Supply System Zwartkopjes Supply System Palmiet Supply System Mapleton Supply System Booster Systems Primary Systems Vereeniging Purification System Zuikerbosch Purification System Raw Water Supply System Note: Primary = Raw Water + Vereeniging + Zuikerbosch 5

Supply systems Palmiet system Eikenhof system Mapleton system Zwartkopjes system Primary systems Vaal Dam

Supply topography (Palmiet) Booster Primary 200km

Potable Demand Snapshot 4 metros = 83% of Rand Water potable demand

Potable Demand Potable water users Historical growth Municipalities Mines Direct Users Historical growth AADD increase from 1000 Mℓ/d in 1965 to 4200 Mℓ/d in 2017/2018 (potable sales). Several decades of growth in the 3% to 6% per annum range AADD Growth from 2007 to 2018 averaged ~2.3% Current growth < 2% (restrictions and long-term reduction) Unaccounted for leaks are > 40% in some municipalities (and are/were growing).

Forecasting Demand in future Domestic usage is ~71% of total Natural population growth, inward migration, AIDS, service backlogs, system losses Growth in municipal leaks Growth in leaks of municipal customers Factors affecting demand growth Estimated population in 2010 – 11.7 million Projected population by 2030 – 14.7 million (Annual population growth rate is declining) Population demographic model Supply 83% of total demand to four metros: Johannesburg, Ekurhuleni, Tshwane, Emfuleni Metros forecast their growth. Questionnaire model (major customers)

Demand Growth Forecast Scenario 1: Current growth Currently < 2% (was negative last year during restrictions) Projected potable growth After compiling and correlating data, a decline is seen in both ‘natural’ population growth and inward migration: Medium term growth of 1.80% p.a. By 2035 a growth rate of 1.25% p.a. Growth may level off by about 2070 (0%) Year 2020 2025 2030 2035 Average Potable Demand (Mℓ/d) 4700 5100 5500 5900 11

Demand Growth Forecast Scenario 1 is ultimately unsustainable: Unacceptable losses in potable systems downstream of Rand Water (30 to 40%): Within municipal bulk networks Within networks of customers of municipalities Late raw water infrastructure to augment Scenario 1 current growth rate. Increased risk to IVRS when abstracting beyond 1600Mm³/a (4384 Ml/d AADD).

Potable Upgrade Peak Week Potable Demand (retail) Potable Upgrade Scenario 1 forward projection for abstraction (incl. RW production losses) Annual Average Daily Demand (retail. excl production losses) Infrastructure Capacity Actual abstraction over time

Scenario 1: growth as per Infrastructure Planning Projection (no WDM) Almost identical growth gradients Vioolsdrift Dam LH PH2 (late) Scenario 1: growth as per Infrastructure Planning Projection (no WDM) Polihali Dam LH PH2 (late) Historical Abstraction Proposed 1600 Mm³/a abstraction licence Scenario 2: Demand reduced By ~15% for 5 – 8 years, before growing again (WDM, etc.) Permits deferral of some RW augmentation, but some renewal may be accelerated 14

RW Response to reduce demand Integrated Vaal River System (IVRS) Project 1600 Committee to establish common ground on usage and abstraction (RW, DWS, SALGA, COGTA) Focusses on Water conservation, WDM Measurement: RW statistical model rates water use efficiency Develops and implements appropriate protocols for: Medium term: compliance with abstraction limit of 1600 Mm³/annum set by DWS until 2025: Lesotho Highlands Phase II. Shorter term drought and emergency situations, using a phased throttling approach (next slide) Monitors municipalities and informs them monthly. Problem areas highlighted From 1 July 2018, all customers are cumulatively ~3% over their 1600 targets.

Expected municipal response to reduce demand Water Demand Management efforts (medium term) Municipal WDM focuses on municipal delivery infrastructure (closing gaps on unaccounted-for water). However: Municipal action required on high night flow areas. Municipal action required to reduce abnormally high household leaks. Municipalities are currently required to have comprehensive WDM plans (large meters may not be considered unless they do). Emergency action protocol (short term and still in force): Phase 1: Notify municipalities to reduce minimum night flows (MNF). Phase 2: RW assists distressed RW bulk systems from other RW systems. Phase 3: RW direct intervention: restrict top 25 meters by quantity (may in future change to top 25 volumetric meters, additionally weighted by least efficient recent water usage). 16

Expected municipal response to reduce demand There is currently no financial enforcement mechanism for municipal Project 1600 compliance. However, municipalities that are not substantially complying may not get new (>25mm) additional connections. There is currently no direct RW control of WDM in municipal networks. Planning for demand reduction is the much preferred approach, compared to allowing IVRS levels to drop, resulting in repeated/yearly restrictions). 17

The road to Scenario 2 Direct Rand Water WDM control reduces risk of following Scenario 2 for augmentation planning. Rand Water proposes to engage with municipalities to investigate fitting of Rand Water flow control valves and PRV’s within municipal networks at strategic locations (early days). 18

RW Response to limited raw resources Alternative raw water resources being investigated: Re-use of Zuurbekom Wells by RW (~10 Ml/d) Additional boreholes throughout Gauteng for RW (~200 Ml/d sought) Return water processing closer to bulk customers (new plants; >400 Ml/d potential): Collaborations with municipalities/sewage treatment works are sought for sustainable treatment of return water to grey and potable standard Some municipalities have their own return water treatment plants, in addition to large connections to Rand Water. Arbitrarily alternating between sources disrupts RW bulk operation. More stringent agreements are required 19

Effects of WDM-depressed growth RW Augmentation infrastructure rollout still tracks Scenario 1 (until projects are in place to lower risk of scenario 2) RW still intends to operate at <=1600 Mm³/a However, a lower supply = reduced income stream Fixed costs remain (less efficient operating) Slower growth requires reactively slowing the RW augmentation programme as follows: Large, long-lead-time augmentation projects currently underway will still be completed (they will improve flexibility & ability to renew other pipes) Future projects (5-10yr horizon) are identified for deferral Some augmentation projects are required to facilitate renewal In 95% of renewal project cases, deferral is not an option. Renewal completion dates are based on condition, not demand growth.

SECTION CONTENT Demand growth forecast 2. Augmentation & Renewal plan to 2038 3. Capital budget

Required Augmentation Augmenting for 2015 to 2030 cycle Projected growth in peak day demand = 1600 Mℓ/d over 15 years Growth split between four booster systems Northern Jhb Tshwane Madibeng Central Jhb Southern areas Eastern Tshwane Ekurhuleni Mpumalanga North west Jhb West Rand Rustenburg Zwartkopjes system 300 Mℓ/d growth Palmiet system 600 Mℓ/d growth Eikenhof system 400 Mℓ/d growth Primary (refurb) Mapleton system 300 Mℓ/d growth Primary Primary systems 1600 Mℓ/d growth Primary 22

Peak demand by pumping station Design capacity (Mℓ/d) Projected peak day demands (Mℓ/d) Yellow = WDM change (indicative) 2020 (2025) 2025 (2030) 2030 (2035) 2035 (2040) Primary Systems Zuikerbosch 3810 4300 4800 5300 5800 Vereeniging 1200 1300 Booster systems Palmiet 1875 2000 2190 2380 2570 Mapleton 960 990 1080 1180 1270 Eikenhof 1800 1470 1610 1750 1880 Zwartkopjes 800 760 780 840 880

Augmentation & Renewal Planning Augmentation: Increase capacity to meet future demands 20 year view of projects based on long term view of demands Renewal: Asset management approach Operate and maintain asset; Monitor asset condition; Refurbish and extend life of existing asset when appropriate; Replace when economical and if condition merits it Integration of augmentation and renewal Renewal and augmentation can facilitate each other (e.g. pipelines) Integrated at plant, site and system level

Asset Portfolios Buildings and property Civil structures Pipelines Mechanical Electrical Process Automation 25

Asset Replacement Value   Buildings Civil Pipelines Electrical Mechanical Process Automation All Assets Raw Water 74 1,619 2,083 1,403 32 0.6 5,212 Vereeniging 1,254 881 1,997 172 1,508 3,434 22 9,268 Zuikerbosch 1,972 4,158 264 1,707 7,718 45 15,864 Eikenhof 275 1,572 17,241 128 1,258 263 11.5 20,749 Zwartkopjes 1,499 847 8,850 126 892 266 14.5 12,495 Palmiet 204 2,867 19,635 105 1,020 242 13.5 24,087 Mapleton 164 1,165 13,283 81 856 166 10.5 15,726 Total 5,442 13,109 63,089 876 8,644 12,121 117.6 103,400 Total Asset Replacement values (per corporate system) Total Asset Replacement values (per Asset Category) (61%) Total for all assets: R103.4 million

Infrastructure Augmentation Providing for 2015 to 2030 augmentation cycle Augment primary capacity, with associated major pipelines and booster pumping capacity Package of linked major projects for backbone infrastructure 2009 Additional Water Supply (AWS) Scheme Anchor project for the 2009 AWS Scheme Purifies and pumps into the network additional 1200 Mℓ/d after completion of phase 2 Station 5 at Zuikerbosch

The Primary systems Augmenting for 2015 to 2030 cycle Projected growth in peak day demand = 1600 Mℓ/d over 15 years Growth split between four booster systems Palmiet system 600 Mℓ/d growth Mapleton system 300 Mℓ/d growth Eikenhof system 400 Mℓ/d growth Zwartkopjes system 300 Mℓ/d growth Primary systems 1600 Mℓ/d growth North west Jhb West Rand Rustenburg Central Jhb Southern areas Northern Jhb Tshwane Madibeng Eastern Tshwane Ekurhuleni Mpumalanga Primary Primary (refurb) 28

The Primary systems Overview Growth in demand Increase of 1600 Mℓ/d from 2015 to 2030 Key augmentation projects Station 5 at Zuikerbosch “anchor project” (1200 Mℓ/d in two phases) Canal 2 & Forebay in future B19 raw water pipeline from Lethabo to Vg (tie-ins needed) Lethabo pipe header upgrade Panfontein Drying Beds Phase 2 Key renewal projects Vg Engine Room 4 upgrade 250 Ml/d Sedimentation Tank at Vg Vg Chlorine plant 2 Zb Filter House 1 renewal Zb Chlorine Plant 4 renewal

Primary Systems – 1600 Mℓ/d growth from 2015 to 2030 Additional Purification Plant – 1200 Mℓ/d capacity Additional raw water pipelines and purification plant upgrades Vg Sed Tank R300 million over next 5 years (renewal) B19 raw water pipeline R10 million budget for 2016/17 Station 5 at Zuikerbosch 1200 Mℓ/d capacity in two phases R1 310 million budget over 4 yrs: aug Panfontein Drying Beds R490 million over next 5 years (augment)

The Palmiet system Augmenting for 2015 to 2030 cycle Projected growth in peak day demand = 600 Mℓ/d over 15 years Mapleton system 300 Mℓ/d growth Eikenhof system 400 Mℓ/d growth Zwartkopjes system 300 Mℓ/d growth North west Jhb West Rand Rustenburg Central Jhb Southern areas Northern Jhb Tshwane Madibeng Eastern Tshwane Ekurhuleni Mpumalanga Primary Primary (refurb) Palmiet system 600 Mℓ/d growth Primary systems 1600 Mℓ/d growth 31

The Palmiet system Overview Main customers Growth in demand Eastern and Northern Johannesburg Central, Western and Northern Tshwane Western Ekurhuleni Growth in demand Increase of 600 Mℓ/d from 2015 to 2030 Key augmentation projects Zuikerbosch to Palmiet B17 pipeline (in commissioning) Engine Room 3b at Palmiet pumping station Germiston to Lombardy Phase 2 O6 pipeline Klipfontein to Brakfontein H39 pipeline Brakfontein-Lyttleton Heights H43 (and H14 pipeline) Kensington to Yeoville pumping station Key renewal projects O2 Pipeline and O1/G25 Palmiet Engine Room 1 upgrade B6 refurbishment Sections of 17 priority pipes for refurbishment

Zuikerbosch Purification & Pumping Station Palmiet System – 600 Mℓ/d growth from 2015 to 2030 Additional Engine Room – 600 Mℓ/d capacity Total of 150 km of pipe between 600 mm and 2100 mm diameter H43 Brakfontein – Lyttleton R724 million in next 5 years (aug) O6 Germiston to Lombardy R460 million in next 5 years (aug) H39 Phase 2: Dale Road to Modderfontein R350 million in next 5 years (aug) Kensington – Yeoville system R400 million in next 5 years (aug) B6 Renewal: R240 million over 5 years (renewal) G37/H37 Condition based renewal of sections of 17 pipes throughout the Palmiet supply system have been prioritized: Over the next 3 years: R1 500 million B17 Zuikerbosch Purification & Pumping Station 33

The Mapleton system Augmenting for 2015 to 2030 cycle Projected growth in peak day demand = 300 Mℓ/d over 15 years Eikenhof system 400 Mℓ/d growth Zwartkopjes system 300 Mℓ/d growth North west Jhb West Rand Rustenburg Central Jhb Southern areas Northern Jhb Tshwane Madibeng Eastern Tshwane Ekurhuleni Mpumalanga Primary Primary (refurb) Palmiet system 600 Mℓ/d growth Mapleton system 300 Mℓ/d growth Primary systems 1600 Mℓ/d growth 34

The Mapleton system Overview Main customers Growth in demand Central and eastern Tshwane Eastern Ekurhuleni Growth in demand Increase of 300 Mℓ/d from 2015 to 2030 Key augmentation projects Zuikerbosch – Slangfontein B16 pipeline Engine Room 3 at Mapleton pumping station S4 Van Dyk Park to Vlakfontein pipeline Vlakfontein Reservoir 200Mℓ Bronberg Reservoir 100Mℓ R5 Vlakfontein to Mamelodi pipeline Key renewal projects Mapleton disinfection plant M1 pipeline replacement Sections of 20 priority pipes for refurbishment over 4 years

The Mapleton system Mapleton System 100Mℓ Bronberg Reservoir R124 million over next 4 yrs (aug) R5 Vlakfontein, Mamelodi R520 million over next 4 yrs (aug) 200Mℓ Vlakfontein Reservoir R330 million over next 5 yrs (aug) S4 Van Dyk Park - Rynfield R407 million over next 5 yrs (aug) 210Mℓ Brakpan Reservoir R234 million over next 5 yrs (aug) M1, M6 replacement R237 million over next 5 yrs (renew) Condition based renewal of sections of 21 pipes throughout the Mapleton system have been prioritized: Over the next 4 years: R1 400 million (renew) B16 Zuikerbosch - Slangfontein R920 million over next 5 yrs (aug) Engine Room 3 at Mapleton R660 million over next 5 yrs B16 Zuikerbosch – Slangfontein system 36

The Eikenhof system Augmenting for 2015 to 2030 cycle Projected growth in peak day demand = 400 Mℓ/d over 15 years Zwartkopjes system 300 Mℓ/d growth North west Jhb West Rand Rustenburg Central Jhb Southern areas Northern Jhb Tshwane Madibeng Eastern Tshwane Ekurhuleni Mpumalanga Primary Primary (refurb) Palmiet system 600 Mℓ/d growth Mapleton system 300 Mℓ/d growth Eikenhof system 400 Mℓ/d growth Primary systems 1600 Mℓ/d growth 37

The Eikenhof system Overview Main customers (includes significant mining use) Western Johannesburg and Soweto Far West Rand Rustenburg Growth in demand Increase of 400 Mℓ/d from 2015 to 2030 Key augmentation projects F34 Waterval to Weltevreden pipeline F49 Krugersdorp to Randfontein pipeline Meredale reservoir 1 x 210Mℓ Additional Meredale reservoir storage (2 x 100Mℓ) Key renewal projects Replace Eikenhof disinfection plant Replace F18 pipe at Witpoortjie Reservoir Replace pipework from Moroka to Zuurbekom Ten priority pipes for refurbishment

The Zwartkopjes system Augmenting for 2015 to 2030 cycle Projected growth in peak day demand = 300 Mℓ/d over 15 years Northern Jhb Tshwane Madibeng Central Jhb Southern areas Eastern Tshwane Ekurhuleni Mpumalanga North west Jhb West Rand Rustenburg Zwartkopjes system 300 Mℓ/d growth Palmiet system 600 Mℓ/d growth Eikenhof system 400 Mℓ/d growth Primary (refurb) Mapleton system 300 Mℓ/d growth Primary Primary systems 1600 Mℓ/d growth Primary 39

The Zwartkopjes system Overview Main customers Northern Emfuleni and Southern Johannesburg Central Johannesburg (largely developed, low growth expected) Benoni Growth in demand Increase of 300 Mℓ/d from 2015 to 2030 Key augmentation projects Amanzimtoti pumping station upgrade T5 Orange Farm to Ennerdale pipeline Daleside additional 40 Mℓ reservoir Arcon Park to Langerand A13 pipeline duplication Key renewal projects Replace Vg-Daleside A6 and A8 pipelines Lay new Zb-Daleside pipe to allow refurbishment of B1 and B2 Sections of 15 priority pipes for refurbishment

Balancing and Emergency Storage Reservoir storage 20 year plan includes additional 1300 Mℓ reservoir storage 40% to 50% is in the Eikenhof system to boost emergency storage Water quality – total volume, through flow, circulation Availability of appropriate sites is an issue Reservoir projects “Lower” Meredale 210Mℓ reservoirs (and associated pipework) Additional 300Mℓ reservoirs at Meredale Daleside 40Mℓ reservoir Selcourt two x 40 Mℓ reservoirs Vlakfontein 210Mℓ reservoir Bronberg 100Mℓ reservoir Hartebeesthoek additional reservoir Brakpan 210Mℓ reservoir

SECTION CONTENT Demand growth forecast 2. Augmentation & renewal plan to 2038 3. Capital budget

2019 2038 Raw Vg Augmentation Zb Eik Red projects: timing can be altered to suit WDM success Zks Palmiet Mapleton

Infrastructure renewal Pg1 2038 2019 Raw Vg Infrastructure renewal Pg1 Zb Eik Zks Pal Mapleton

Infrastructure renewal Pg2 Pal 2019 2038 Eik Infrastructure renewal Pg2 Map Zks Pal Eik Map

Capital budget Annual budget 2018/19 Theoretical Augmentation spend Augmentation projects – R1.4 billion â Renewal projects – R2.0 billion á Overall: R3.5 billion á Annual budget 2018/19 Forecast average demand growth of 1.8% to 2020, (1.75% -> 2025, 1.6% -> 2030, 1.2% -> 2035) Roughly equates to a need for ~R1.6 bn p.a. 2019 planned is R1.4 bn (R2.5 bn for 2020) Theoretical Augmentation spend RW should be spending 1% - 2% p.a. of replacement value on renewals This equates to R1.0 – R2.0 billion p.a. Planned for 2019 is R2.0bn/a (1.9%). 2020: R3.3bn (3.2%) Theoretical Renewal spend

Replacement value (RM) 18/19 renewal allocation (Rm) Renewal spending Asset category Replacement value (RM) Design life (yrs) 18/19 renewal allocation (Rm) Pipelines 63 090 65+ 1 426 Civil 13 110 50 to 100 201 Mechanical 8 644 30+ 84 Process 12 121 15 to 20+ 105 Buildings 5 442 80+ 28 Electrical 876 20 to 30+ 35 Automation 117.6 5 to 10+ 50 Total 103 400   1 929 (1.9%)

2019 projects entering scoping/investigation Indicative ttl cost (Rm) Item Sys. Project Description Indicative ttl cost (Rm) 1 Primary Raw Water Canal and Forebay 1 900 2 System 5B at Zuikerbosch Pumping Station 3 400 3 Vereeniging Engine Room 2 200 4 Palmiet Palmiet PS to Meyersdal Reservoir O4 Pipeline and Pump station Upgrade 100 5 Remainder of the C25 pipeline from Glenvista to Meyers Hill Reservoir 79 6 B6 Pipeline Refurbishment (Phase 2) 370 7 Mapleton Construction of 150 Mℓ reservoir at Ekandustria 8 Construction of Engine Room 2 at Mamelodi Booster Pumping Station 140 9 Augmentation of W1 Pipeline Mamelodi to Ekandustria Municipal Reservoir 1 270 10 Augmentation of H7 Pipeline Olifantsfontein to Monument Park 245 11 Replacement of N1 Pipeline Selcourt to Wildebeestfontein Reservoirs (Ren.) 1 422 12 Eikenhof Roodepoort Booster Pump Station (RBPS) 85 13 P1/P2 pipeline augmentation: 100Ml/day scheme from Hartbeespoort Dam 1 102 Replace and Augment E2 & E5 pipeline (Renewal) 330 14 15 Zks Replacement of K1 Pipeline Leeuwpoort to Benoni (Renewal) 74 16 Daleside - Ennerdale Augmentation and Engine Room 2 375 17 Zuikerbosch – Daleside pipeline 436

5-year Capital Expenditure (2019 - 2023) forecast of R25.7 billion for continuing business System Augmentation (Rm) Renewal (Rm) Total Eikenhof 1 300 - 1 526 á 2 826 á Mapleton 4 569 á 2 086 á 6 655 á Palmiet 2 426 á 2 231 á 4 657 á Primary systems 3 315 á 2 288 á 5 603 á Zwartkopjes 1 377 á 1 971 á 3 348 á Other 223 â 2 393 á 2 616 â 13 210 á 12 495 á 25 704 á Percent of total Aug: (51%) â Renewal: (49%) á 100% 49

Capital Expenditure: Augmentation + Renewal forecast

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