unyielding commitment to rejuvenation revival renaissance transformation appointment of service...

transform empower uplift

RFT NO.: TCTA/PFT/FMA/2013/25

Unyielding commitment to

REJUVENATION REVIVAL RENAISSANCE TRANSFORMATION

Appointment of service provider to conduct annual audits of financial models – Briefing session

4 November 2013


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

Agenda


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

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transform empower uplift4

Background to TCTA


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 revenue5

transform empower uplift 66

Water Supply Value Chain

DWA

TCTA

Water Boards

Municipality

End User

National Raw Water Resource Infrastructure

Treat raw water to potable level

Distribution of water


TCTA funding and implementation model

• Fund and implement infrastructure

Imp

lem

enta

tio

n

agre

emen

t

• Collection of Income• Undertake to honour

obligations of TCTA

• Supply bulk raw water to users

• Operate & maintain infrastructure

Wat

er s

up

ply

ag

reem

ent

• Payment for water including CUC due to TCTA

Water D

eliveryP

aym

ent

of

Tari

ffs

Users

DWA

TCTA

7


TCTA Projects

LHWP-I

R 20 billion

• Explicit Government Guaranteed

• Fund• Risk management• Operation & Maintenance of assets

2025

BWP

R 1.4 billion

2003 - 2008

•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

2005 - 2012

•Income stream from VRESAP•Implied government guarantee

•Implement• Fund• Risk management

2028

1986 - 2001

Projects in operations

Construction Period:CommencedCompleted

Peak of debt

Revenue Recourse

Mandate Activities

Repayment of debt


TCTA Projects (cont.…)

MMTS-2

+ R 1.6 billion

• Income stream of MMTS2• Implied guarantee



ORWRDP-2

N/A – fiscal funding, no debt

Dam: CompletedBDS: (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 billionPh 2 – R 15 billion

Ph 1 – 2012/ Ph 2 2014Ph 1 – 2014/ Ph 2 - 2020

• Income stream of MCWAP• Implied guarantee



Feb 2011 (Apr 2014) Jan 2015

Projects under construction

Construction Period:CommencedCompleted

Peak of debt

Revenue Recourse

Mandate Activities

Repayment of debt


Stakeholders & tariff principles


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

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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

12


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

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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

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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

15


Tariff Setting Balancing Effect

End user

affordability

Debtoutstanding

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

Treasury16


Tariff Setting Process – May to August

• Input dataDemand, 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 TestingLower 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

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Scope of service


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.

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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.

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Key projects information

LHWPI&II BWP VRESAP KWSAP MMTS-2 MCWAPI&II

No. of off-takers Numerous 1 2 1 1 2

Project phase Phase I: operationalPhase II: structuring

Operational Operational Operational Dam: fully constructed, conveyance system: planning phase

Phase I: constructionPhase II: project structuring

No. of phases 2 1 1 1 1 2

No. of loans, sub-loans & fin. instruments

Various BondsLT loansCPP

3x LT loansCPP

5x LT loansRCFCPP

4x LT loansRCFCPP

3x LT loansRCFCPP

3x LT loansCPP

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 sub-loans

None None None


Model features


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


TENDERING PROCESS


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

Disqualification criteria


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.


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


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.


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.


Tender submission

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 CVs of:-1. Project Leader2. Financial Model Auditor3. Financial Model Auditor (HDI) Template With certified copies of graduate, post graduate and modelling certificates attached

Annexure H: Financial Proposal Template


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


Communication

Only written communication addressed to Receiving Officer at [email protected] 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 to [email protected] 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


Thank you

Contacts:

Ntsikelelo GosaniProject Finance [email protected]

Godfrey MnisiProject Procurement [email protected]

Telephone: (012) 683 1200

unyielding commitment to rejuvenation revival renaissance transformation appointment of service...

Documents

minister of water

tcta projects

bulk raw water infrastructure

raw water components

tcta tariffs

water pricing strategy

water act schedule

low water sector