tcta a new word for water 2012/2013 bulk potable water tariffs setting forum october 2011

transform empower uplift

TCTAA new word for water

2012/2013 Bulk potable water tariffs setting forumOctober 2011

transform empower uplift2

Contents

Background

TCTA the organisation

Water supply chain and collection of revenue

Tariff Principles

Other considerations in the determination of tariffs

Tariffing setting

LHWP: Income Agreement with DWA

Tariff setting process

Vaal River tariff review 2012/13


Background

To consult with stakeholders on input assumptions applied to calculating tariffs for 2012/13

Although tariffs are expressed, it is by no way binding as it serves as a platform for discussion only and may be subject to revision

Stakeholder consultation meetings already undertaken:

Major Vaal stakeholders forum

TCTA management

DWA management

National Treasury

SARB


TCTA - The Organisation


TCTA the organisation

Established under the Water ActSpecial purpose vehicle for the funding and implementation

of off-budget raw water infrastructure on behalf of DWAState owned entity - Schedule 2 Public Entity per PFMABoard is appointed by the Minister of Water and

Environmental Affairs

Non profit-taking organisation Recover actual costs – no profit or loss or reservesBreak-even of revenue to costs over a specified periodNo balance sheetTransfer risks to parties and sectors best suited to manage

it


Water Supply Chain & Revenue Collection

TCTA

DWA

Water Board

Municipality

End-users

Paym

ent fo

r Water U

sed

S

up

pli

es W

ater


Tariff Principles


Tariff principles

TCTA recovers raw water tariff as capital unit charge to repay debt

Full cost recovery from water sold to end-users

Based on water sold out of system and not on water delivered into the system (supports demand management initiatives)

Constant tariff in real terms which increases with: CPI annually Triggers as per the Income Agreements

Repayment of debt within reasonable period (eg 20 years)

Affordable structure to the end-user

Tariff setting takes account of funding principles and risk management principles in combined approach


Other considerations in the determination of tariffs

National Water Pricing Strategy

Administered prices – inflation targeting

Stakeholder consultation outcomes

Affordability to end-users (phasing-in of large adjustments)

Input data supplied to TCTA as follows: BER for long-term economic forecasts (inflation, real interest rates etc.)DWA on water demand forecasts (high and low scenarios)DWA on system yieldsDWA on future schemes and projected costs


Tariffing Setting

End user

affordability

Debtoutstanding

• Under recovering in early years

• End-user pays on actual use

• 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 and no consultancy fees

• 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


LHWP: Income Agreement with DWA

Automatic and negotiated adjustmentsCPI annually

Other tariff review triggers in the Income AgreementChanges in water demandChanges in timing and cost of future augmentation

schemes (dependant on system yield)Changes to operations and maintenance costsChange in input assumptions that increase/decrease

final repayment date

4.5%

Negotiated adjustment Negotiated adjustment

7.5%

Automatic adjustment

Floor Cap


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

1. Planning Process

• 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

2. Sensitivity Analysis & Stress Testing

• 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

3. Consultation

• Rand Water Services Forum

• Other Major stakeholder forums

4. Participation


Vaal River Tariff Review 2012/13


Demand and yield assumptions&

Impact of timing of future schemes


Debt curve per project phase – Low demand Scenario II

-

3

6

9

12

15

18

21

24

27

2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043

RA

ND

VA

LU

E (b

illio

n)

FINANCIAL YEAR END

LHWP-1&2 Cumulative Forecast Liability Curves Indicating Debt Overlap Between Phases - Scenario II

LHWP-1 Debt Curve

LHWP-2 Debt Curve

LHWP-1 & 2 Combined Debt CurveDebt Overlap


Debt curve per project phase – High demand Scenario IV

-

3

6

9

12

15

18

21

24

27

30

33

36

39

42

2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046

RA

ND

VA

LU

E (b

illio

n)

FINANCIAL YEAR END

LHWP-1&2 and TWP Cumulative Forecast Liability Curves Indicating Debt Overlap Between Phases - Scenario IV

LHWP-1 Debt Curve

LHWP-2 Debt Curve

LHWP-1 & 2 and TWP Combined Debt Curve

TWP Debt curve

Debt Overlap

Debt Overlap


2012/13 Vaal River Raw Water Tariff


Notes to the 2012/13 Tariff Review

Demand Forecast: DWA Low demand Scenario II forecast used for tariff determination Average annual growth from 2013 to 2022 1.09% Base volume 1 526 million m3/a for 2012/13 Growth after 2030 used as 1% per annum for low growth

Timing of next scheme: Timing of the next scheme used as 2020

Earliest possible date for implementation even though low demand assumes 2023 Phasing-in of the LHWP-2 tariff to minimize debt overlap and paying off

of two debts simultaneously Period of phasing-in stretched to 2020 (previously 2018)

Economic forecast: New 30-year BER economic forecast incorporated Average real interest rates decreased from 3.34% previously to 2.85%

new forecast Average CPI increased from 5.15% previously to 5.36% new forecast


Notes to the 2012/13 Tariff Review

LHWP-1 and LHWP-2 split

LHWP-1 Debt curve shown separately from LHWP-2 6c/m3 charged for LHWP-2 in 2011/12 taken out form LHWP-1 debt curve and

accounted for under LHWP-2 Tariff charged for LHWP-1 to cover debt outstanding by 2023

LHWP-2 Debt curve shown separately from LHWP-1 Tariff charged for LHWP-2 to cover costs expensed under LHWP-2 Cost estimate used as supplied by DWA for 2020 implementation Tariff based on Scenario II demand with 1% annual growth after 2030 Administration cost is shared with LHWP-1 until debt in repaid under LHWP-1

– made provision for additional administration cost during construction which forms part of standard project budgeting


Conclusion on the 2012/13 Tariff

LHWP-1 Inflation: 4.60% May 2011 CPI – 4.6% - automatic adjustment – falls between cap and floor level No triggered adjustments

LHWP-2 Phase-in of tariff: 1.98% LHWP-2 phase in to be implemented over 9 years instead of 6 because earliest

implementation date for LHWP-2 is 2020. LHWP-2 tariff to be phased in until 2020 and then the full 37 c/m3 (PV terms) will

commence from 2021. 2012/13 portion 2 of 9 of the phase-in amounts to 3.86 c/m3 or 1.98% additional to

LHWP-1 increase

Tariff increase for 2012/13: 6.58% Supports end-user affordability

Phasing-in of tariff for further augmentation over longer period No additional triggers required as input assumptions did not change substantially Supports impact on debt overlap and end-user affordability in future


TCTA Tariff adjustment 2012/13

Increase c/m3 Increase c/m3 Increase %

2008/09 Tariff: 157.04 6.40%

6.0% adjustment – under recovery 9.42 6.00%

2009/10 Tariff: 166.46 6.00%

6.90% CPI adjustment June 11.53 6.90%

Under-recovery from 2009/10 portion 1 of 2 1.2 0.75%

2010/11 Tariff: 179.19 7.65%

4.6% CPI adjustment May 8.24 4.60%

Under-recovery from 2009/10 portion 2 of 2 1.34 0.75%

LHWP-2 Phase-in portion 1 of 6 5.75 3.21%

2011/12 Tariff: 194.52 8.56%

4.6% CPI adjustment May 8.95 4.60%

LHWP-2 Phase-in portion 2 of 9 3.86 1.98%

2012/13 Tariff: 207.33 6.58%


Vaal River Raw Water Tariff 2012/13

a) Costs:

i) State schemes 43.14 39.71 8.60%

ii)Augmentation schemes 207.33 194.52 6.58%

Total state and augmentation schemes 250.47 234.23 6.93%

2012/13 2011/12 Increase %

b) Water pricing:

i)Total development and use of water works 250.47 234.23 6.93%


LHWP tariff history


LHWP historical tariff adjustments

LHWP-1Inflation year Tariff

Increase Year

Month of inflation

index used

Inflation Inflation Tariff

Increase

Total Tariff Increase


% c/m3 % c/m3

1999 2001 88.142000 2002 Oct 8.00% 95.19 10.39% 97.302001 2003 Oct 5.90% 100.81 8.53% 105.602002 2004 Oct 11.30% 112.20 9.93% 116.082003 2005 Sep 5.40% 118.26 5.40% 122.352004 2006 Jun 5.00% 124.17 7.50% 131.532005 2007 Jun 3.50% 128.52 7.03% 140.772006 2008 Jun 4.80% 134.69 4.80% 147.532007 2009 Jun 6.40% 143.30 6.40% 157.042008 2010 Jun 11.60% 159.93 6.00% 166.462009 2011 Jun 6.90% 170.96 7.65% 179.192010 2012 May 4.60% 178.83 5.35% 188.782011 2013 May 4.60% 187.05 4.60% 197.46Average adjustment over 12 years 6.50% 6.97%

ADJUSTMENT IF ONLY INFLATION APPLIED

ADJUSTMENT AT ACTUAL INCREASE


LHWP historical tariff adjustments

LHWP-1 and LHWP-2Inflation

yearTariff

Increase Year

Month of inflation

index used

Inflation only Inflation Tariff

Increase


LHWP-1&2

Total Tariff LHWP-1&2

% c/m3 % c/m3

1999 2001 88.142000 2002 Oct 8.00% 95.19 10.39% 97.302001 2003 Oct 5.90% 100.81 8.53% 105.602002 2004 Oct 11.30% 112.20 9.93% 116.082003 2005 Sep 5.40% 118.26 5.40% 122.352004 2006 Jun 5.00% 124.17 7.50% 131.532005 2007 Jun 3.50% 128.52 7.03% 140.772006 2008 Jun 4.80% 134.69 4.80% 147.532007 2009 Jun 6.40% 143.30 6.40% 157.042008 2010 Jun 11.60% 159.93 6.00% 166.462009 2011 Jun 6.90% 170.96 7.65% 179.192010 2012 May 4.60% 178.83 8.56% 194.522011 2013 May 4.60% 187.05 6.58% 206.61Average adjustment over 12 years 6.50% 7.40%

ADJUSTMENT IF ONLY INFLATION APPLIED

ADJUSTMENT AT ACTUAL INCREASE


Questions………

Contacts:

Hombisa MbokothoProject [email protected]

Alicia KeyserSenior Project Finance [email protected]

Telephone: (012) 683 1200

Thank you!

mailto:[email protected]

mailto:[email protected]

tcta a new word for water 2012/2013 bulk potable water tariffs setting forum october 2011

Documents

fixed slide

participation slide

new forecast slide

water demand changes

raw water tariff

minister of water

combined approach slide

water demand forecasts