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TCTA A new word for water 2012/2013 Bulk potable water tariffs setting forum October 2011 PowerPoint PPT Presentation


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TCTA A new word for water 2012/2013 Bulk potable water tariffs setting forum October 2011. Contents. Background TCTA the organisation Water supply chain and collection of revenue Tariff Principles Other considerations in the determination of tariffs Tariffing setting

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TCTA A new word for water 2012/2013 Bulk potable water tariffs setting forum October 2011

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

  • TCTA

  • A new word for water

  • 2012/2013 Bulk potable water tariffs setting forum

  • October 2011


Contents

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


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

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

TCTA - The Organisation


Tcta the organisation

TCTA the organisation

Established under the Water Act

Special purpose vehicle for the funding and implementation of off-budget raw water infrastructure on behalf of DWA

State owned entity - Schedule 2 Public Entity per PFMA

Board is appointed by the Minister of Water and Environmental Affairs

Non profit-taking organisation

Recover actual costs – no profit or loss or reserves

Break-even of revenue to costs over a specified period

No balance sheet

Transfer risks to parties and sectors best suited to manage it


Water supply chain revenue collection

Water Supply Chain & Revenue Collection


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

Tariff Principles


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

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 yields

DWA on future schemes and projected costs


Tariffing setting

Tariffing Setting

End

user

affordability

Debt

outstanding

  • 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

  • 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


Lhwp income agreement with dwa

LHWP: Income Agreement with DWA

Automatic and negotiated adjustments

CPI annually

Other tariff review triggers in the Income Agreement

Changes in water demand

Changes in timing and cost of future augmentation schemes (dependant on system yield)

Changes to operations and maintenance costs

Change in input assumptions that increase/decrease final repayment date

4.5%

7.5%

Negotiated adjustment

Negotiated adjustment

Automatic adjustment

Floor

Cap


Tariff setting process may to august

4. Participation

1. Planning Process

2. Sensitivity Analysis & Stress Testing

3. Consultation

  • Rand Water Services Forum

  • Other Major stakeholder forums

  • 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

Tariff Setting Process – May to August


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

Vaal River Tariff Review 2012/13


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

Demand and yield assumptions

&

Impact of timing of future schemes


Debt curve per project phase low demand scenario ii

Debt curve per project phase – Low demand Scenario II


Debt curve per project phase high demand scenario iv

Debt curve per project phase – High demand Scenario IV


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

2012/13 Vaal River Raw Water Tariff


Notes to the 2012 13 tariff review

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 review1

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

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

TCTA Tariff adjustment 2012/13

Increase c/m3


Vaal river raw water tariff 2012 13

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%


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

LHWP tariff history


Lhwp historical tariff adjustments

LHWP historical tariff adjustments


Lhwp historical tariff adjustments1

LHWP historical tariff adjustments


Questions

Questions………

Contacts:

Hombisa Mbokotho

Project Financier

[email protected]

Alicia Keyser

Senior Project Finance Manager

[email protected]

Telephone: (012) 683 1200

Thank you!


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