RAND WATER GROUP ANNUAL RESULT LAUNCH – 12Rand OCTOBER Water 2012

National Parliamentary ~ Portfolio Committee on Water and Environmental Affairs

Adv M Petlane Chairperson

Presentation by April 2013 DKP Sechemane Chief Executive About Rand Water

. Rand Water is a public utility wholly owned by government (DWA)

. Rand Water has been in existence for 110 yrs

. Bulk Water supplier - 4205 Mℓ/d Consumers - Over 12 million Total Pipeline Length - 3 500 km Total Number of Reservoirs - 58

. Supply Area - 18 000 km2

. Additional 13 000 km2 in the Western Highveld

Page 2 About Rand Water Pumping and Distribution Elevation

Page 3 Annual Report for 2011/12 Performance Snapshot against:

. Triple Bottom line

. Shareholder Compact

. Presidential outcomes

. Financial performance

Page 4 Audit and Performance snapshot

. Unqualified audit opinion . Product Quality - SANS 0241 Class 1 and 2 specification . Employment Equity: . ISO accreditations maintained: o Disabilities – 4.2% . Corporate ISO 9001:2008 o Females in total workforce – 30% . OHSAS 18001:2007 o Females in management – 45% . Laboratories ISO 170425 . Employee engagement level of 68% . All plants ISO 14001 accredited attained against World class . BEE attained 92.4% against a target of benchmark of 67% 83% . Credit ratings: . Customer centric approach yielding an o S&P (A/Local Currency) & (BBB+/ overall satisfaction rate of 84% Foreign Currency) – Negative outlook . Management, operations and in line with sovereign maintenance of water and wastewater o Fitch Rating (F1+ (zaf) – Short term) & treatment works and capacity building Page 5 (AA+ (zaf) Long term) . Supply of peak daily demand achieved Performance against Shareholder Compact Strategic Plan

Alignment to National Government Objectives: Presidential Outcomes

Honourable Minister, Edna Molewa

National Treasury DWA Auditor General National Parliament

Shareholder Compact

Corporate Business Plan

Rand Water Strategy Reporting Formats

Vision Annual Report Annual Assessment of Water Mission Boards Strategic Objectives Quarterly Reports KPAs Page 6 KPIs Performance Results Performance against Shareholder Compact

Page 7 Performance Results Performance against Shareholder Compact

Page 8 Contribution to government and Minister’s performance agreement (cont.)

Outcome No. 4: Decent employment through inclusive growth. Outcome No. 5: A skilled and capable workforce to support an inclusive growth path.

Job Creation and Training (2012 – 2017)

New staff Temporary Staff Permanent New employed by RW (indirect) by Rand Jobs Within Rand Rand Water Year Contractors Water Foundation Water Academy Training 2012 993 1 150 123 56 2013 400 1 500 100 120

2014 600 3 000 100 150 2015 400 3 000 100 200 2016 300 3 000 100 225 2017 300 3 000 100 250

Total 2 993 14 650 623 Page1 001 9 Contribution to government and Minister’s performance agreement (cont.)

Outcome No. 10: Environmental assets & natural resources that are well protected and enhanced.

Rand Water Foundation – Flagship Projects . Water and Sanitation Projects: School Sanitation . The Foundation refurbished existing ablution blocks in 11 Winterveldt schools in Tshwane Metropolitan Municipality

. Municipal Capacity Building on Operations and Maintenance of Water and Waste Water Treatment Plant through Unemployment Graduates Training . The project is aimed at contributing towards building municipalities’ capacity and also to assist municipalities in terms of blue and green drop compliance requirements.

. Schools Rainwater Harvesting . The initiative is aimed at Schools Water Supply, Demand Management and Households Poverty Eradication

. The Lesotho Schools Water Supply . The Foundation has equipped 5 schools in Lesotho with boreholes, submersible pumps connecting to new reservoirs, and reticulation equipment.

. War on Water Leaks-Water Demand Management and Conservation . The Foundation managed water demand and ensured conservation within the Randfontein Municipality in Toekomsrus.

Page 10 Contribution to government and Minister’s performance agreement (cont.) Outcome No. 10: Environmental assets & natural resources that are well protected and enhanced.

Rand Water and Blue Drop status . Rand Water’s awards have increased from last year - 9 to 14 awards this year

. Together with the Ekurhuleni, Rand Water was the nation’s top performer

. Rand Water received special recognition for helping municipalities achieve blue drop status

. Extract from 2012 blue drop assessment report: Special mention has to be made to the bulk supplier, Rand Water. This water board embraced the Blue Drop certification concept and invested ……….They also went to great lengths to implement best practice as prescribed by the World Health Organisation. They also respect the regulatory requirements set by the Department of Water Affairs and through all of this, not only showed that they are a leading entity in many ways but also a very valuable team player of the South African water sector” Page 11 Contribution To Government and Ministers Performance Agreement (cont.)

Outcome No. 6: An efficient, competitive and responsive economic infrastructure network.

Rand Water’s Capex Programme

Page 12 Contribution To Government and Ministers Performance Agreement (cont.) Rand Water’s Capex Programme

Outcome No. 6: An efficient, competitive and responsive economic infrastructure network. Projected peak day demands to 2035

Station Available New Come on Projected peak day demands capacity capacity line by Mega litre

2015 2020 2025 2030 2035

Zuikerbosch 3900 1200 2016 3910 4500 4030 4550 4080

Vereeniging 1400 Nil 1400 1400 1400 1400 1400

Clarens Nil 1000 2025 1000 1000 2000 P/line Eikenhof 2000 Nil 1400 1550 1700 1840 1980

Zwartkopjes 800 200 2013 700 760 820 880 930

Palmiet 1870 600 2015 1880 2100 2300 2500 2700

Mapleton 960 300 2017 920 1040 1140 1240 Page1340 13 Page 14 Primary Systems – 1600 Ml/d growth from 2015 to 2030 Additional Purification Plant – 1200 Ml/d capacity Additional raw water pipelines and purification plant upgrades

B19 raw water pipeline R55 million budget for 2012/13

Station 5 at Zuikerbosch 1200 Ml/d capacity in two phases R52 million budget for 2012/13

BG3 raw water pipeline 9 km x 3500 mm R50 million budget for 2012/13 Page 15

Page 16

Page 16 Page 17 Contribution to government and Minister’s performance agreement (cont.)

Outcome No. 6: An efficient, competitive and responsive economic infrastructure network.

Other Projects Brugspruit Acid Mine Drainage Plant . DWA appointed Rand Water for operations and maintenance of Brugspruit Acid Mine Drainage Plant in 2008. . Plant was successfully refurbished and commissioned in August 2010. . Rand Water continues to work closely with DWA to operate and maintain the plant

Westonaria Regional Bulk Infrastructure - Extension of the Hannes Van Niekerk wastewater treatment works . This was a special project that was identified by the Presidency and DWA . Rand Water is the implementing agent on this project Page 18 Contribution to government and Minister’s performance agreement (cont.) Outcome No. 6: An efficient, competitive and responsive economic infrastructure network.

Multi Hydro Power Projects Sedibeng Scheme Rand Water has previously proposed On 26th Sept 2012, Rand Water was invited to the to develop multiple hydropower Presidential Infrastructure Coordinating Committee projects (the Projects) combining a (PICC) to present its proposal to a number of cabinet total net capacity of 12.9MW, various Ministers. sites across South Africa, namel: There are a number of options available for a closer . Zoekfontein : 5.60 MW working relationship on this regional bulk scheme . Brakfontein: 2.00 MW 1. Rand Water can be involved as the implementing . Klipfontein: 3.30 MW agent – (construction of the scheme, working closely . Hartebeeshoek: 2.00 MW together with Emfuleni). Rand Water will then be . In selecting the project sites, our available for the operations and maintenance of the primary objective was to locate scheme. the proposed power projects 2. Emfuleni can build the scheme and allow Rand Water nearest to our current water to provide support with regards to project management and capacity building on behalf of transfer infrastructure where Emfuleni hydropower can be generated 3. Rand Water can continue with the operations and maintenance on behalf Emfuleni . From the feasibility study These options demonstrate the wide range of options for conducted, the outputs of the state-owned entities and organs of state to work together. Projects indicate that the total cost of the 4 Projects will be On 12th November 2012, the Honourable Minister for approx. R463.7 million. Water Affairs issued a directive requesting Rand WaterPage 19to be the implementing agent for this project. Africa Initiatives

Swaziland An MoU was signed with Swaziland Water Services Cooperation (SWSC) for collaboration on broader water sector issues. SWW appointed Rand Water to assist them in preparation for ISO accreditation of their laboratory DRC Project The DRC requested assistance from the South African Government in 2007 to improve water supply in the Katanga Province. Visits to the DRC culminated in the signing of the Bi-National Agreement between SA and DRC on 20 June 2011, in Lubumbashi (DRC). Botswana The Botswana water utility appointed Rand Water to assist in design and implementation of business systems. Project commenced in April 2012, end in November 2012. Nigeria The Water Operator Partnership (WOP) program was launched on August 2011 during at the African Development Bank in Pretoria. The program manager is accommodated at the Rand Water head office in Reitvlei. 490,000 Euros was provided as a grant by the African Development Bank acting as trustee for the African Page 20 Water Facility (AWF) Financial Performance highlights

. Achieved over R6.8bn in revenue

. Gross margin improvement from 53.56% to For the year 2012 2011 56.25% ended 30 June R R million million . Variable costs increasing by over 24% yoy with energy costs increasing by 31% Revenue 6 838 5 891 . 26% increase in EBITDA from R750m to R948m Net operating expenses 5 890 5 141 . Improvement in profit from operations from R536m to R778m EBITDA 948 750

. Overall cash reserves of R1,327m Depreciation and amortisation 212 201 . Actual capital investment of R1,481m Profit from operations before 736 549 57% 8,000 net finance costs 56% 7,000 55% 6,000 54% 5,000 Net investment 53% 42 (16) 4,000 52% income/(expense) 3,000 51% 50% 2,000 Taxation - 3 49% 1,000 48% - Net Income for 2008 2009 2010 2011 2012 778 536 Revenue GP% the year Page 21 Revenue growth and net income analysis

Revenue growth

• Revenue growth primarily driven by tariff increases of 12.9% Potable water bulk tariff and volume of water sold effective from 1 July 2011. Volume Sold Potable water bulk tariff • Volume increases of 3% primarily from the municipal 4.51 4.4 3.99 5.00 customers. /d 4.2 3.50 3.04 3.23 4.00 mgl 4.0 4.2 • Municipal customer contribution to revenues decreasing year- 4.1 3.00

Ave Ave 3.8 on-year from 90% to 89% in 2012. 2.00 R/kl 3.6 3.8 3.7 3.7 1.00 • Tariffs are cost reflective. 3.4 3.2 - • Water research levy has remained constant year on year. 2008 2009 2010 2011 2012

Net Income Analysis 2,000

1,600 258

158 274 1,200 212

Rm 792 800 11 47

400 778 536

Other

Energy

Chemicals costs Staff

Raw water Raw

Gross profit Gross

Depreciation

Tariff increase Tariff

2011 Net income Net 2011 income Net 2012 Page 22 Asset base analysis and cost breakdown

June 2011 June 2011 June 2012 June 2012 historical cost replacement value historical replacement R’000,000 cost value Profit/loss for the period 534 534 778 778 Adjustments: Depreciation and amortisation (1,573) (1,402) Adjusted profit after revaluation for the year 534 (1,039) 778 (623) Equity cumulative impact: Closing Equity 6,756 5,184 7,534 4,561 Adjustments: Revaluation of PPE - 71,484 - 72,466 Adjusted closing Equity balance 6,756 76,668 778 77,027 Statement of financial position : PPE 7,154 78,639 8,417 80,000 RATIOS Return on assets 7% NONE 9% NONE Debt/Equity ratio 15% 1% 19% 2%

2011 cost breakdown 2012 cost breakdown

4% Cost of raw water Cost of raw water 3% 20% Energy Energy 21% Chemicals Chemicals 4% 51% 49% Other costs Other costs 4% 5% 4% Labour Labour Dep&Amort 16% 19% Dep&Amort Page 23 Statement of financial position

2012 2011 for the year ended 30 June R million R million EQUITY AND LIABILITIES Equity 7 534 6 756 Non-current liabilities 1 428 998 Borrowings 985 646 Post-retirement benefit obligation 294 274

Capital and Reserves (R million) Debt: Equity (%)

20 8,000 7,534 20 18 6,756 6,222 16 5,925 16 6,000 5,339 14 14 12 4,000 8

2,000 4

0 0 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012

Page 24 Abridged statement of cash flows

2012 2011 for the year ended 30 June R million R million Cash flow from operating activities 1 169 950 Cash generated from operations 1 196 970 Other (28) (20) Cash flows from investing activities (1 316) (956) Acquisitions (1 360) (1 011) Proceeds from disposal of assets 3 14 Other investment activities 41 41 Cash flow from financing activities 544 12 Increase in bank and cash 397 6 Cash generated from operations (R million)

• Cash generated from operations after working capital changes 1,400 1,196 increased by 23% to R1 196m 1,200 • Net cash generated from operating activities increased by 23% 959 970 to R1 169m 1,000 881 800 546 600 400 200 0 2008 2009 2010 2011 2012 Page 25 Analysis of 2011/12 Budget

Page 26 2011/12 Actual performance against budget

2012 2012 For the year ended 30 June Actual Budget Variance R million R million %

Revenue 6 838 6 706 2 Net operating expenses 5 890 5 810 1.3 EBITDA 948 896 5.8 Depreciation and amortisation 212 194 (9.3)

Profit from operations before net finance costs 736 702 4.8

Net investment 42 income/(expense) Taxation -

Net Income for the year 778 702 10.5

Page 27 Analysis of operational expenditure - year on year (yoy) and against budget

Cost of raw water (6.0% increase yoy) 60% 25 17.0 19.5 3,500 2.50 2,992 40% 20 3,000 2.01 49% 16.5 1.83 2.00 20% 28% 36% 1.55 1.70 1.94

2,500 15 3,031 16% 0% R’m 2,000 1.50

11.9 0% 10 R/kl 1,500 -20% 2,251 2,734 1.00 R/kl 6.9 8.6 1,000 2,435 -40% 5 0.50 500 -60% -42% 0 - 0.00 2008 2009 2010 2011 2012 2012 2009 2010 2011 2012 2012 Budget Actual Budget Actual % growth in chemical costs yoy R/kl Cost of raw water R/kl

Staff costs (16.9% increase in R/kl yoy) Opex (8.8% decrease in R/kl yoy) Headcount increase of 4% (123 new heads in 2012) 275 0.20 0.18 0.18 0.19 0.18 1,400 1,276 1.00 270 0.19

1,200 R’m 0.74 0.83 265 271 0.71 0.80 0.18 1,000 0.58 0.67 260 268 266 270 0.60 /kl R

800 1,112 0.17 R/kl 961 0.17 600 1,065 0.40 255 848 Rm 400 254 0.16 0.20 250 200 - 0.00 245 0.15 2009 2010 2011 2012 2012 2009 2010 2011 2012 2012 Budget Actual Budget Actual Staff costs R/kl Opex R/kl Excludes cost of sales – non-core Page 28 Energy management

Energy Efficiency Security of supply Tariff minimization improvement

Energy Cost Cogeneration Other optimization

Cost of energy 70 45% Energy Usage

40% 1.6 60 35% 1.4 50 30% 1.2 40 25% 1.0

c/kWh 20% 30 0.8

15% Mwh/ml 20 0.6 10% 10 0.4 5% 0.2 - 0% 2005 2006 2007 2008 2009 2010 2011 2012 - c/kWh % growth yoy 2009 2010 2011 2012

Page 29 Capital expenditure

Capital expenditure performance excluding moveable assets

R’m

1600 1477 100% 99% 1361 1400 98% 1200 1074 96% 1000 986 1000 970 1000 910 94% 800 92% 92% 600 90% 90% 400 91% 200 88% 0 86% 2009 2010 2011 2012

Budget Capex % Achievement

Page 30 2013/14 Tariff

Page 31 Previous Cycle Tariff Consultation (Before revised energy tariff)

• Rand Water has Rand Water Tariff = Rand Water Internal Inflation for Financial Year Ending 30th June 2013 followed a consistent Price Forecast Percent Weighted rationale for Year-End ~ 30 June increase 2013 of total increasing its tariff over the years. % R m % %

• This rationale has TCTA 8.2% 2888 40.7% 3.5% been based on DWA 10.3% 590 8.3% 0.7% assessing the Rand Water internal rate of Raw Water 8.5% 3478 48.9% 4.2% inflation. Energy - Eskom 26.1% 808 11.4% 3.0% Energy - Municipalities 38.6% 726 10.2% 3.9% • This is a projection of Chemicals 12.5% 330 4.7% 0.6% the expected increase in total costs. Multi-Partnered Uncontrollable Costs 5342 75.2% 11.7% Labour 8.2% 1165 16.4% 1.3% • A breakdown of the total costs and their Other 5.4% 598 8.4% 0.5% overall expected rate Total 7105 100.0% 13.5% of price increase is then proposed as the proposed tariff Page 32 increment. Target bulk tariff increase 13.5% Tariff Consultation after revised energy tariff Eskom Tariff Revision – Original Tariff Increment – 26.1%

Rand Water Tariff = Rand Water Internal Inflation for Financial Year Ending 30th June 2013

18.0% 16.7% Price Forecast Percent Weighted 15.7% 16.0% Year-End ~ 30 June increase R 2,013.00 of total 16.0% 13.5% % R m % % 14.0% 11.1% 12.0% TCTA 8.18% 2888 41.3% 3.5% DWA 10.3% 590 8.4% 0.7% 10.0% Raw Water 8.5% 3478 49.7% 4.2% Energy - Eskom 16.7% 747 10.7% 1.8% Energy - Municipalities 29.2% 677 9.7% 2.8% Chemicals 12.5% 330 4.7% 0.6% Multi-Partnered Uncontrollable Costs 5233 74.8% 9.4% Labour 8.2% 1165 16.6% 1.4% Other 5.4% 598 8.5% 0.5% Total 6996 100.0% 11.3% In line with a consistent rationale for increasing its tariff over the years, Rand Water revised its tariff to 11.3%.

Rand Water Tariff = Rand Water Internal Inflation for Financial Year Ending 30th June 2014 Price Forecast Percent Weighted Year-End ~ 30 June increase 2014 of total % R m % %

TCTA 8.47% 2845 37.2% 3.24% DWA 10.8% 603 7.9% 0.69% Raw Water 8.7% 3448 45.0% 3.92% Energy - Eskom 15.0% 887 11.6% 1.74% Energy - Municipalities 15.0% 725 9.5% 1.42% Chemicals 8.9% 360 4.7% 0.42% Multi-Partnered Uncontrollable Costs 5420 70.8% 7.50% Labour 8.0% 1303 17.0% 1.36% Other 7.8% 933 12.2% 0.96% Total 7656 100.0% 9.82%

Page 34 Target bulk tariff increase 9.82%

Bond Raised (R m) 1210 Current Cycle of Tariff Consultation – Tariff increase on 1st July 2013

 NERSA approved a general tariff increase of 8% on the price of electricity.

 Following the announced increase, Eskom went into the different categories of their tariff structure to apply different rates on their diverse customer profile based on Eskom’s priorities and justification. This would result in an average 8% increase on Eskom’s average price.

 The Eskom tariff structure is based on 23 categories determined by their customer profile.

 Megflex is the wholesale price aimed at big industrial consumers (the drivers of our economy) and municipalities (slightly different from the industrial version).

 Given that 97% of Rand Water’s energy received from Eskom is based on only one category i.e. Megaflex, it follows that the tariff increase that will matter most to Rand Water is the Megaflex tariff increase.

 Depending on Eskom’s priorities and rationale on restructuring the tariffs, different categories would be affected differently by the price increase.

Page 35 Current Cycle of Tariff Consultation – Tariff increase on 1st July 2013

 The table below illustrates the price  The table below shows the actual percentage movements in the last three years per item on increase per item. the Megaflex tariff category applicable to Rand Water ESKOM PERCENTAGE CHANGE PER ITEM (Based on Megaflex) - Palmiet PumpingUNITS Station 2011/12 2012/13 2013/14 (Based on Megaflex) - Palmiet PumpingUNITS Station 2011/12 2012/13 2013/14 SUMMER WINTER SUMMER WINTER SUMMER WINTER SUMMER WINTER SUMMER WINTER SUMMER WINTER Administration Charge 1 2,016.00 2,016.00 2,320.80 2,320.80 2,506.50 2,506.50 Service Charge 1 2,104.29 2,104.29 2,422.28 2,422.28 2,616.06 2,616.06 Administration Charge 1 15.1% 15.1% 8.0% 8.0% Service Charge 1 15.1% 15.1% 8.0% 8.0% kWh Peak 3,616,395 0.5104 1.8283 0.5875 2.1046 0.6568 2.0133 Standard 8,977,295 0.3127 0.4752 0.3600 0.5470 0.4520 0.6099 kWh Peak 3,616,395 15.1% 15.1% 11.8% -4.3% Off-Peak 12,470,300 0.2187 0.2539 0.2517 0.2923 0.2868 0.3312 Standard 8,977,295 15.1% 15.1% 25.6% 11.5% Notified Network Access 48,863 8.63 8.63 9.93 9.93 10.67 10.67 Off-Peak 12,470,300 15.1% 15.1% 13.9% 13.3% TX Network Access 48,863 4.3 4.3 4.95 4.95 5.35 5.35 Notified Network Access 48,863 15.1% 15.1% 7.5% 7.5% NetworkDemand Charge 43,030 16.35 16.35 18.82 18.82 20.23 20.23 TX Network Access 48,863 15.1% 15.1% 8.1% 8.1% Reactive Energy 326,863 0.0756 0.087 0.094 NetworkDemand Charge 43,030 15.1% 15.1% 7.5% 7.5% Reliability & Afordability 25,063,990 0 0 0.0233 0.0233 New Items Reactive Energy 326,863 15.1% 8.0% Premium Connection Charge 1 24,390.00 24,390.00 24,390.00 24,390.00 24,390.00 24,390.00 Reliability & Afordability Charges 100.0% 100.0% New Items Electrifcation & Rural Subsidy Levy25,063,990 0.0397 0.0397 0.0457 0.0457 0.0520 0.0520 Premium Connection Charge 1 0.0% 0.0% 0.0% 0.0% Envrironmental Levy 25,063,990 0.0200 0.0200 0.0200 0.0350 0.0350 0.0350 Electrifcation & Rural Subsidy Levy 15.1% 15.1% 13.8% 13.8% Envrironmental Levy 0.0% 75.0% 75.0% 0.0% Monthly Bill 300,767,880 10,240,431 16,928,953 11,707,974 19,783,852 14,456,818 21,364,379 Annual Costs 142,950,736.43 164,723,323.60 194,204,503.62 Monthly Bill 14.3% 16.9% 23.5% 8.0% R/kWh 0.4753 0.5477 0.6457 Annual Costs 15.2% 17.9% R/kWh 15.2% 17.9% % Increase on R/kWh 26.8% 15.2% 17.9% Page 36 What drives the high increase?

Increase Proportion Contribution Per Item of Bill to Total Increase Administration Charge 8.0% 0.02% 0.00% Service Charge 8.0% 0.02% 0.00%

kWh TOTAL 12.6% 72.5% 9.2%

Notified Network Access 7.5% 3.2% 0.2% TX Network Access 8.1% 1.6% 0.1% NetworkDemand Charge 7.5% 5.4% 0.4% Reactive Energy 8.0% 0.0% 0.0% Reliability & Afordability Charges 100.0% 3.6% 3.6% Premium Connection Charge 0.2% Electrifcation & Rural Subsidy Levy 13.8% 8.1% 1.1% Envrironmental Levy 47.4% 5.4% 2.6%

17.9% Rand Water is therefore unable to reduce its tariff based on this energy tariff which is higher than the projected tariff. Page 37 Looking forward and other strategic matters

. Rand Water Priority areas

. Capex plan for next 5 years

. Funding overview

. PAIA and PAJA

. Other strategic matters

. Other strategic issues

Page 38 Priority areas

Quality and Growth RW Top 10 quantity of Initiatives Academy Risks Raw Water

RAND RAND WATER WATER STRATEGY 2030

Presidential Organizational Bulk Outcomes Preparedness Sanitation Rural development39 Page 39 Capital expenditure in the near and medium term

Capital budget for 2012/13 Capital expenditure 5-year plan

• Total planned capital expenditure = • Continuing business – R1.5 billion Annual budget R11 billion (2013 – 2017) • Augmentation projects – R1 billion 5-year plan • Projected R8 billion for augmentation 2012/13 • Renewal projects – R 0.5 billion projects

Project distribution by value Relation to asset replacement value • Expenditure planned on 300 projects • Estimated current asset replacement value of R80 billion – • Top 15 projects have total planned expenditure of about R1 billion should spend 1% to 2% per annum on renewal • Many smaller projects • Forecast average demand growth of 1.75% per annum to 2030 Typical renewal projects Funding for augmentation and renewal • Zwartkopjes – East Rand system: pipelines • Augmentation – R1.6 billion p.a. • Pre-stressed concrete pipelines • Upgrade/replacement of switchgear, pumps, motors, valves, • Renewal – R0.6 billion p.a. instrumentation • Need better long term balance Capital expenditure split between main plant categories (Rm) Capital expenditure forecast on continuing business 3.0 2.6 2.4 Reservoirs 2.5 2.4 2.3 Pumping R122 2.0 R1,484 1.6

Rm 1.4 1.5 1.2 1.0 1.0 Pipeline 1.0 0.7 R4,061 0.5

Purification - R2,463 Page 40

Financial year Major capital projects 2012 – 2013

Actual cost to Estimated total R11 billion 5-year capital expenditure plan on continuing date cost business Major capital projects Rm Rm Palmiet - Klipfontein augmentation 1 520 Year of Augmentation Renewal Total System BG3 pipeline 466 612 completion (Rm) (Rm) (Rm) Zuikerbosch to Palmiet pipeline 158 1,376 Zuikerbosch scheme (phase 1) 20 2,312 Eikenhof 2016 552 242 794

Sedimentation tanks at Zuikerbosch 101 330 Mapelton 2017 519 187 706

Palmiet Engine Room 3b 4 475 Palmiet 2016/17 3,276 454 3,730 Co-generation 5 465 Raw Water 2016 538 566 1104 Growth investments and green agendas Vereeniging 325 752 1077

Hydropower Zuikerbosch 2016/17 2,766 431 3,197

Zwartkopjes 2015 234 501 735

Total 8,210 3,134 11,344

Effluent re- Sedibeng use Scheme Page 41 Funding overview

Rand Water has made use of the capital markets for many decades, Sources of funding with a history of regular issuances going as far back as 1970. Facility Utilisation Available Recent issuances amount RW02 RW21 600 468 506 Cash 700 0 700 400 R’m General banking 2 500 2 2 498 208 200 facilities

- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 DMTN 5 000 974 4 026 • RW02 was issued at a nominal value of R208 million in 2000, but DFI 1 000 0 1,000 has since been tapped into for an additional R425 million by Rand Total 9 200 980 8 220 Water during its 12 year tenor. • RW21 was issued in April 2011 at a nominal value of R468 million, Credit ratings and Rand Water made a tap issuance of R506 million in 2012. • Over the next 5-year period, Rand Water has a funding requirement Standard & Poors Fitch Ratings Short term A+ F1+ (zaf) of R6 billion which will be funded thru the available funding facilities Long term BBB AA+ (zaf) The RW21 bond is the only Rand Water Issuance that is currently trading in the capital market and has not matured. Debt profile

Salient features of bond RW21 17% Amount issued ZAR974 million Coupon 9.97% . RW02 (R208m) matured: July 2012 Capital profile Bullet . RW21 (R974m) maturing: April 2021 Interest profile Fixed 83% Date of maturity 21 April 2021 Page 42 Tenor 10 year < 1 year 9 years Credit rating A-, Standard & Poor’s Rand Water & the Promotion of Access to Information Act, No 2 of 2000 (PAIA)

• Rand Water’s compliance with the above Act, is in accordance with Section 14, being an office of state

• As required by the Act, a manual has been compiled and has been published in the Government Gazette, no. 23888, dated 4 October 2002. This manual is updated annually

• The manual has been submitted to the Human Rights Commission for the first time on 15 August 2002 and updated versions has been submitted to the Commission ever since

• The manual is available in English, Zulu and Southern Sotho

• The manual is also electronically available on Rand Water’s website and intranet

• In terms of the Act, the Chief Executive is the Information Officer and a Deputy Information Officer has been designated since 15 July 2002. Currently there are two Deputy Information Officers, being the Group Company Secretary and the Group Shared Services Executive

Page 43 Rand Water & the Promotion of Administrative Justice Act (PAJA)

• South Africa is a constitutional • The person must be informed of his rights democracy. Government and state organs Rand Water as an Organ of State is subject must act within the confines of the law. In to the provisions of PAJA . order to give effect to the protection of people’s rights, the Constitution has a Bill • Example: Blacklisting/delisting of Service of Rights which at section 33 provides Providers from RW’s database due to that everyone has a right to an financial irregularities, fraud, corruption administrative action that is lawful, etc. – before blacklisting is done, the reasonable and procedurally fair. Services Provider is given the opportunity to attend meeting, the allegations and • National legislation (PAJA) was passed in findings of an internal investigation is order to give effect to section 33 of the presented to the SP who is then given the Bill of Rights. PAJA sets out mandatory opportunity to defend/rebut the allegations rules for a fair procedure where rights or with factual corroboration; legitimate expectation of a person or a group are affected. The mandatory • Letters to non-successful tenderes are procedure is that before an administrative sent notifying them of them not being the decision is made: successful tenderer The person affected by the decision must • Land and rights – servitude be given written adequate notice of the negotiations/expropriations – process put nature and purpose of the administrative in place to ensure proper consultation with action; the land owners before servitude is registered or expropriated. • The person must be given an opportunity Page 44 to make representation Strategic Issues

1. It is important to note that some municipalities have passed on to households Rand Water’s original tariff of 13.5 per cent. Rand Water suggests that this differential be utilised by local councils to establish a fund for Project 15% 2. Project 15% - There is growing alarm that this project has not been successful. Rand Water would like to offer its assistance which will help to reduce the high growth in demand. SALGA and Rand Water should work closely to impart lessons from other local councils where Rand Water has worked on this matter. 3. Energy Tariffs – In previous years, local councils have imposed a far high tariff increment than Eskom. 4. Encroachment on Rand Water Servitudes - The issue of informal settlements imposes a great risk to people close to Rand Water’s pipe network and the supply of water. This is an issue that requires urgent assistance to water boards and other state owned utilities. 5. Experiencing steep increases in input costs, i.e chemicals and energy and fluctuations in steel prices 6. Higher wage rate increase in the water sector 7. Maintain and improve Rand Water’s credit profile 8. Default risk by major municipalities Page 45 9. Deteriorating raw water quality as a result of poor catchment management Thank You

Page 46