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RFT NO.: TCTA/PFT/FMA/2013/25. Appointment of service provider to conduct annual audits of financial models – Briefing session 4 November 2013. Unyielding commitment to REJUVENATION REVIVAL RENAISSANCE TRANSFORMATION. Agenda. Opening and welcome G MNISI

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rft no tcta pft fma 2013 25
RFT NO.: TCTA/PFT/FMA/2013/25

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

4 November 2013

Unyielding commitment to

REJUVENATION REVIVAL RENAISSANCE TRANSFORMATION

agenda
Agenda
  • Opening and welcome G MNISI
  • Background & scope of services N Gosani
  • Tendering process G MNISI

3.1 Disqualification criteria

3.2 Submission requirements

3.3 Technical Evaluation Criteria

3.4 Financial and Preference Evaluation Criteria

  • Submission of tender G MNISI
  • Communication G MNISI
  • Question & Answers G MNISI
  • Closure G MNISI
slide3

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
background on 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 revenue

water supply value chain
Water Supply Value Chain

National Raw Water Resource Infrastructure

DWA

TCTA

Water Boards

Distribution of water

Municipality

End User

Treat raw water to potable level

6

6

tcta funding and implementation model
TCTA funding and implementation model

Water Delivery

Payment of Tariffs

TCTA

  • Fund and implement infrastructure
  • Collection of Income
  • Undertake to honour obligations of TCTA

Implementation agreement

DWA

  • Supply bulk raw water to users
  • Operate & maintain infrastructure
  • Payment for water including CUC due to TCTA

Water supply agreement

Users

7

tcta projects
TCTA Projects

Projects in operations

LHWP-I

KWSAP

BWP

VRESAP

Revenue Recourse

  • Explicit Government Guaranteed
  • Income stream from KWSAP
  • Implied guarantee
  • Income stream from BWP
  • Implied government guarantee
  • Income stream from VRESAP
  • Implied government guarantee
  • Fund
  • Risk management
  • Operation & Maintenance of assets
  • Implement
  • Fund
  • Risk management
  • Implement
  • Fund
  • Risk management
  • Implement
  • Fund
  • Risk management

Mandate Activities

R 20 billion

+ R 1.9 billion

R 1.4 billion

R 3.3 billion

Peak of debt

Jan 2011

Apr 2014

2003 - 2008

2005 - 2012

1986 - 2001

Construction

Period:

Commenced

Completed

2025

20 years after construction

2028

2028

Repayment of debt

tcta projects cont
TCTA Projects (cont.…)

Projects under construction

MMTS-2

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
  • Implement
  • Fund
  • Risk management
  • Implement
  • Model audit not on scope for now
  • Implement
  • Model audit not the scope for now
  • Implement
  • Fund
  • Risk management

Mandate Activities

+ 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

Peak of debt

Dam: Completed

BDS: (To be advised)

Ph 1 – 2012/ Ph 2 2014

Ph 1 – 2014/ Ph 2 - 2020

Feb 2011

(Apr 2014) Jan 2015

Construction

Period:

Commenced

Completed

20 years after construction

N/A

20 years after construction

Repayment of debt

interested and affected stakeholders
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
interested and affected stakeholders1
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
tariff principles
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

13

tariff principles cont
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

other considerations
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

tariff setting balancing effect
Tariff Setting Balancing Effect

End

user

affordability

Debt

outstanding

  • 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 Treasury
  • 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

16

tariff setting process may to august
Tariff Setting Process – May to August

Sensitivity Analysis & Stress Testing

Consultation

Planning process

Participation

  • 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
slide19

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.
slide20

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.
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

disqualification criteria
Disqualification criteria
  • 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
submission requirements
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
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
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
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
Tender submission

List of Returnable schedule

tender submission1
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/2013/25on 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 hardcopyand 1 CD-ROM
communication
Communication
  • 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 to tenders@tcta.co.za 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
Thank you

Contacts:

Ntsikelelo Gosani

Project Finance Manager

ngosani@tcta.co.za

Godfrey Mnisi

Project Procurement Specialist

gmnisi@tcta.co.za

Telephone: (012) 683 1200