TCTA: its financial performance and future plans

The Trans-Caledon Tunnel Authority (TCTA), a stateowned entity (SOE) charged with financing and implementing bulk raw water infrastructure projects, gives an update on the new water body, its irregular expenditure and funding pipeline.

CEO Percy Sechemane believes that the TCTA is one of the best performing and well-run SOEs in the country. “We received a qualified audit opinion for the first time in our 34-year history for 2018/19 financial year and an unqualified audit opinion for the 32nd time for the 2019/20 financial year. Comparisons of TCTA’s debt with other SOEs is ill-informed, as TCTA is primarily set up to source debt for critical projects on behalf of government. The TCTA model is one where government, through a ministerial directive, instructs TCTA to source debt funding at competitive rates for commercially viable bulk water infrastructure projects and to implement such projects on behalf of government.”

However, the 2019/20 annual report was completed four months later than the deadline of 31 August 2020. Sechemane explains that the delay in the completion of the annual audit was largely due to the postponement of the audit of the Lesotho Highlands Water Project (LHWP) on the Lesotho side. “Going forward, we will have to clarify the roles and responsibilities of the different parties on the LHWP and make the institutional arrangements less complicated.

“TCTA and other SOEs are facing challenges within the funding environment. Due to the nature of water projects, if people do not pay for their water, one cannot simply remove the infrastructure and put it elsewhere. This is why funders want guarantees for their capital. However, TCTA has received a satisfactory response from the market for raising R15.2 billion for a maturing WSP5 bond that is for Phase 2 of the LHWP. We have ongoing engagements with the Department of Water and Sanitation (DWS) and National Treasury on the issuing of government guarantees. The longer we can stretch the debt, the better – ensuring that there are no spikes or peaks that will make water unaffordable,” explains Sechemane.

While remote working, closed borders and stringent lockdown rules are expected to have a significant impact on the 2020/21 Audit Report, TCTA aims to meet its deadline of 31 August 2021 for submission to Parliament and is working towards its 33rd unqualified audit opinion.

National Water Resources Infrastructure Agency

President Cyril Ramaphosa announced in his 2021 State of the Nation Address

“Comparisons of TCTA’s debt with other SOEs is ill-informed, as TCTA is primarily set up to source debt for critical projects on behalf of government. The TCTA model is one where government, through a ministerial directive, instructs TCTA to source debt funding at competitive rates for commercially viable bulk water infrastructure projects and to implement such projects on behalf of government.”

that a National Water Resources Infrastructure Agency will be set up to oversee the supply of water across the country. The primary responsibility of the agency is to ensure that quality water and sanitation are available to all South Africans and there is a guarantee of water sustainability for the economy. In this regard, the agency will work with municipalities,

FINANCIAL PERFORMANCE

High-level performance 2019/20: Outstanding project debt

• Vaal River System (incorporating

LHWP and short-term intervention for acid mine drainage) –

R13.2 billion • Berg River Project – R488 million • Vaal River Eastern Subsystem

Augmentation Project – R3.4 billion • Mooi-Mgeni Trasnfer Scheme (Phase 1) – R1.5 billion • Komati Water Scheme

Augmentation Project – R1.2 billion • Moloko-Crocodile River

Augmentation Project (Phase 1) –

R1.3 billion

High-level performance 2019/20: Funding pipeline

• Vaal River System (for Phase 2 of

LHWP) – R2.6 billion • Moloko-Crocodile River

Augmentation Project (Phase 2a) –

R12 billion • uMkhomazi Water Project (Phase 1) – R23 billion • Berg River Voëlvlei Augmentation

Scheme – R800 million water boards, financial institutions, the agricultural community, and other sector institutions such as mining. This process will bring together some of the sector’s strongest capabilities in a single government-owned entity.

“TCTA had been put forward as a possible pilot for the implementation of the new body, as what is currently conceptualised as a potential protoagency. We are looking forward to this big challenge and are hopeful that we will be considered the ideal entity to herald in this new era in water management in the country. Traditionally, the financial markets do not like change, so any change must be well managed. It will be a very sensitive project and will have to be structured in a way that gives funders more security. If all assets fall under a single entity, it will also be easier to use them as security for the raising of funding. We believe that this agency will ensure greater efficiency and accountability in the management of water resource infrastructure,” states Sechemane.

Irregular expenditure

Over both the 2019/20 and 2020/21 financial years, irregular expenditure was close to R805 million. TCTA is in the process of addressing this non-compliance by training employees on how to avoid irregular expenditure, setting up a committee to deal with non-compliance issues, and implementing consequence management. A request has been made to National Treasury for condonement.

One particular reason for TCTA’s irregular expenditure is ‘Practice Note 3’, where National Treasury has to approve any expenditure above R20 million. “This is not always possible for TCTA and we have applied to National Treasury for an exemption. To give an example, when working on a huge infrastructure project, there are sometimes unforeseen circumstances. The construction team may encounter a huge rock when working underground. Applying to National Treasury for an extra R20 million to deal with this will bring the entire project to a standstill until we receive approval, and this will cost even more money. It is important to note that irregular expenditure can still benefit the state; it sometimes only indicates that not all procedures were followed,” says Sechemane.

In conclusion, Sechemane says that while there were continued reports on the financial state of the DWS, which led to delayed payments to TCTA, thereby potentially affecting its funding status, the DWS has been able to meet all its obligations. “However, due to events in the past year, it has come to our attention that a significant liquidity buffer is required by the organisation, to cater for external events such as significantly lower volumes of water being sold, or the much-reported and widespread non-payment of water tariffs by municipalities.”