Appointment of service provider to conduct annual
audits of financial models – Briefing session
4 November 2013
Unyielding commitment to
REJUVENATION REVIVAL RENAISSANCE TRANSFORMATION
1. Opening and welcome
G MNISI
2. Background & scope of services
N Gosani
3. Tendering process
G 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
 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
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 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
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National Raw Water Resource Infrastructure
DWA
TCTA
Water Boards
Distribution of water
Municipality
End User
Treat raw water to potable level
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• Fund and implement
infrastructure
Implementation
agreement
Water Delivery
TCTA
• Collection of Income
• Undertake to honour
obligations of TCTA
Users
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• Payment for water
including CUC due to
TCTA
Payment of Tariffs
• Supply bulk raw water to
users
• Operate & maintain
infrastructure
Water supply
agreement
DWA
Projects in operations
LHWP-I
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KWSAP
BWP
VRESAP
Revenue
Recourse
• Explicit Government
Guaranteed
• Income
stream from
KWSAP
• Implied
guarantee
Mandate
Activities
• Fund
• Risk
management
• Operation &
Maintenance of assets
• Implement
• Fund
• Risk
management
•Implement
• Fund
• Risk
management
•Implement
• Fund
• Risk
management
Peak of debt
R 20 billion
+ R 1.9 billion
R 1.4 billion
R 3.3 billion
Construction
Period:
Commenced
Completed
1986 - 2001
Jan 2011
Apr 2014
2003 - 2008
2005 - 2012
Repayment
of debt
2025
2028
2028
20 years after
construction
•Income stream from
BWP
• Implied government
guarantee
•Income stream from
VRESAP
•Implied government
guarantee
Projects under construction
MMTS-2
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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
Mandate
Activities
• Implement
• Fund
• Risk
management
• Implement
• Model audit not on
scope for now
• Implement
• Model audit not the
scope for now
• Implement
• Fund
• Risk
management
Peak of debt
+ 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
Construction
Period:
Commenced
Completed
Feb 2011
(Apr 2014) Jan 2015
Dam: Completed
BDS: (To be advised)
Ph 1 – 2012/ Ph 2 2014
Ph 1 – 2014/ Ph 2 - 2020
Repayment
of debt
20 years after
construction
N/A
20 years after
construction
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 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


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
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
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 SALGA
 Inflationary increases
 Fair tariff structures
 Municipalities
 Limited to inflationary increases, including raw water components
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
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
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 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:



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water demand forecasts (high and low scenarios)
system yields
future schemes timing and projected costs
 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
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 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
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End
user
affordability
Considerations to support end user
affordability:
Considerations to support debt
management:
• Under recovering in early years
•+20 year repayment period
• End-user pays on actual use if
bankable
• Peak of debt in relation to value of
asset (limit interest capitalisation)
• Constant tariff in real terms approach
– CPI targeting
• Risk transfer to end-user – trigger
adjustments if input assumptions
change
• Phasing-in of large tariff
adjustments over 2-3 years
• Take account of future
augmentation – future affordability
• No reserves built into tariffs
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Debt
outstanding
• Actual cost transfer – TCTA not
profit taking
• Water sector debt profile – debt
overlap with future schemes
• Interest rates mostly fixed
• Utilisation of explicit Government
guarantees and impact on National
Treasury
Planning process
• Input data
Demand, system
yield, economic
fundamentals,
cost and timing of
future augmentation
schemes
• Long-term
projections
DWA compiles longterm demand
projections based on
coordinated approach
with DWA – various
departments
involved, Water
Boards’ Planning and
Budgeting
departments, Large
industrial users,
Muni’s etc.
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Sensitivity Analysis &
Stress Testing
• 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
Consultation
• 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
Participation
• Rand Water Services
Forum
• Other Major
stakeholder forums
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 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.
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 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.
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LHWPI&II
BWP
VRESAP
KWSAP
MMTS-2
MCWAPI&II
No. of off-takers
Numerous
1
2
1
1
2
Project phase
Phase I:
operational
Phase II:
structuring
Operational
Operational
Operational
Dam: fully
constructed,
conveyance
system:
planning
phase
Phase I:
construction
Phase II:
project
structuring
No. of phases
2
1
1
1
1
2
No. of loans, subloans & 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
2000
400
1100
1200
600
1100
Debt curves
3
1
3
1
1
1
CPI-uplift
CPI-linked
bond
None
CPI uplift on
1 of the subloans
None
None
None
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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
 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
 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.
 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
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 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.
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 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.
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
Appendix B:
•





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)
Standard Bidding Documents:•
SBD 4
 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 CDROM
 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
responded to within 48 hours.
to
tenders@tcta.co.za
will
be
 Any addendum to the RFT necessary will be published in the
TCTA website until 3 days before the tender closing date
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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