Presentation to the Standing Committee on Appropriations Discuss

Presentation to the Standing Committee on Appropriations Discuss matter emanating from the Committee’s oversight visit to the De Hoop Dam, Inyaka Dam and Nandoni Dam Presentation by Dr Cornelius Ruiters Deputy Director General: NWRI 07 May 2010 Artist’s impression of De Hoop Dam Olifants River Water Resources Development Project (ORWRDP) 1

PRESENTATION OUTLINE 1. ORWRDP 2: The Bigger Picture 2. Sub-Phase 2 A : De Hoop Dam 3. Sub-Phases 2 B – 2 I : Bulk Water Infrastructure 4. Roadmap 2005 to 2010 5. Water Supply Agreements with potential Users 6. Impact on DWA Budget 7. De Hoop Dam impoundment and water delivery 8. Price of Water 9. Challenges 10. Government support 2

Phase 2: The Bigger Picture Layout of Bulk Water Infrastructure POLOKWANE MOKOPANE Olifants Sand Transfer LEBOWAKGOMO Lebalelo er MOOIHOEK iv ts R n fa Oli FLAG BOSHIELO DAM BURGERSFORT JANE FURSE STEELPOORT TOWN Nebo Plateau DE HOOP DAM EPSS ort o elp r e t e S Riv 3

Heavy reliance on Eskom for power supply to enable pumping of water to users 4

Roadmap 2005 to 2010 • • • 2005: Cabinet approval – De Hoop Dam (2 A) at R 1 050 million (NPV) NT funds 2006: Revised Record of Decision (delays due to appeals) 2007: Construction of De Hoop Dam commenced 2008: MOA signed between DWA and JWF (Mines representing body) – 50% social : 50% commercial indication (BDS - R 4 935 million PV in 2008 terms) Eskom: – 2008: Electricity shortages became a reality – 2009: Eskom withdrew from Sub-Phase 2 I (Tubatse PSS) serious impact on supply to Nebo Plateau – 2010: NERSA price hikes – impact on optimization Mines: – 2008 - 2010: Global economic climate changed dramatically • Platinum price and demand for platinum decreased substantially • Liquidity crisis peaked – Implementation delayed to meet mining readiness (pay on licensed volume) 5

Water Supply Agreements August 2009: Final draft Water Supply Agreement (WSA) advertised – Insertion of suspensive conditions (meet or waive by 31 May 2010 to ensure bankability of commercial component) • 10 December 2009 – License applications for water use licenses (WUL) from ORWRDP closed – Conditions stated by mines for signing of WSA influences bankability (categorised in 3 options) Conclusions: • Insufficient commitment by mines to implement ORWRDP as originally planned – Very limited number of mines can currently commit due to global economical climate – Very limited bankability achieved – Meeting suspensive conditions outstanding – indications of willingness to commit by 2017 or later commitment • 6

Water Use Licence Applications • • Overall 21 applications: – 3 from municipalities & Lepelle Northern Water – 18 from mines Overall original demand 180 million m 3 per annum – Approx 30 million m 3 per annum mining – Approx 150 million m 3 per annum municipal Exceeds available supply by 100 million m 3 per annum Original equal share between social and commercial distorted 7

Mining Water Use License Applications Option 1: Full signing – but nonfulfillment of Suspensive Conditions “Do-nothing-scenario” (no signature of WSA & no lodging of WUL application) but recommended provision of correspondence to motivate mine’s position, future demand & timing Option 2: Sign an amended WSA & lodge an application for WUL with correspondence motivating mine’s position, future demand & timing Full signing – bankable Option 3: Sign the WSA & lodge an application for WUL – as published (suspensive conditions however still questionable) 8

WUL Outcome • • • License applications – Under application by mines • Less received from mines to justify full implementation of project to obtain technical benefits of scale • Mining is stimulus for social development (not vice versa) – Over application by Muni’s • Volumes requested to be interrogated – water conservation and demand management etc. • Raw water not affordable – equitable share insufficient to cover ROA payments to DWA (Base case R 5 per kl) • Limited funding available for bulk water services infrastructure Optimization of scheme – Pruissen onwards pipe – mines will only contribute if part of project Timing of water supply – 2014 – basic water supply target date to meet MDC commitments – 2017 or later – estimated mining readiness 9

Impact on DWA Budget • • De Hoop Dam (Sub-phase 2 A) – 2010 ENE: R 2 900 million cost to completion – fully funded Bulk Water Infrastructure (Sub-phases 2 B – 2 H) – Social component on budget requirement: R 5 400 million (Future value (FV) as per 2010 ENE and only partially funded) • Vote 37: 2010/11 – R 208 million; 2011/12 – R 285 million; 2012/13 – R 342 million • Earmarked funding: R 900 million • Budget shortfall: R 3 665 million – Commercial component off budget requirement: R 5 400 million (FV) • Insignificant commitment by mines • Budget shortfall equal to R 5 400 million over next 6 years if originally planned project is implemented with state funds or explicit government guaranteed loan 10

ORWSDP Budget • • • Bulk distribution: R 5 378 million over next 6 years Reticulation: R 1 364 million over next 6 years Contributions from RBIG and municipal budgets part of budget requirements 11

Project Costs • • • De Hoop Dam: R 2 900 million fully funded Bulk Water Infrastructure: R 10 800 million, R 1 735 million funded ORWRDP: R 13 700 million, R 4 635 million funded ORWSDP: R 6 742 million Total Project cost: R 20 442 million 12

De Hoop Dam Delivery (Actual and Latest Projected) • • • Contract Start Date – 18 June 2007 New P 169 -1 opened – June 2009 Projected partial impoundment – January 2011 Raw water available for delivery from De Hoop Dam – April 2012 Contract completion – March 2013 13

Delivery to the People • • • Nebo Plateau and Jane Furse from Steel Bridge: 2012 Greater Tubatse from Mooihoek: 2012 Mokopane from untapped local resources and Sub-Phase 2 B: 2018 subject to government covering budget shortfalls and Eskom power availability 14

Water tariffs • • Commercial raw water tariff: In the order of R 10 per kl throughout ORWRDP area of supply Social users to pay ROA and O & M but it still exceeds equitable share of R 5 per kl Water tariff to Nebo Plateau estimated to be in the order of R 20 per kl after treatment Equitable share is insufficient. National Treasury was approached to amend policy with respect to Equitable Share formula 15

Bulk Water Supply Challenges • • • Huge uncertainty of global economic situation impacting negatively on commodity markets Lower than expected commitment by mining industry in this climate Ratio of social versus commercial water supply grossly distorted Adequate aligned funding for water services Availability of Eskom power for pump stations 16

Bulk Water Supply Challenges (Continued) • • • Withdrawal by Eskom from Phase 2 I (TPSS) impacting on supply to Nebo Plateau – new plans to be developed Funding shortages: More than R 5 billion required excluding water services Unrealistic water demands by municipalities Reconfiguration of Bulk Water Infrastructure Capacity at local level a serious concern 17

Bulk Water Supply Solutions • • Strive to reinstate balance between social and commercial demands Approached NT with motivation for increased funding including RBIG and Equitable share Temper social demands Start delivery from De Hoop Dam and expand outwards 18

Bulk Infrastructure Targets • • • Finalise allocation of water entitlements by July 2010 Secure water resource at Steel Bridge for Nebo Plateau by July 2012 Link Steelpoort and Olifants River Systems by end 2012 Construction programme depends entirely on available funding (fiscus and private) ORWRSP to continue in parallel 19

Construction Progress 20

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VIEWS BY MINES 8 April 2010 • • 2 B: Commitment by approximately 2017 2 C: Revert from LWUA to De Hoop, however no commitment on timing 2 D & 2 E: Use surpluses in LWUA Support ORWRDP but economic circumstances prevent full commitment at this stage 22

Government Support • • Mines – Government guarantee for off budget funding until mines commit • Explicit guarantee • Revenue shortfall guarantee (underwriting) – No upfront funds made available by Government – Project is funded off-balance sheet – Government provides an annuity income stream equal to forecast demand at the Capital Unit Charge • Mines able to commit now (sign WSA) when payment for water coincides with mining activities Munis – Increased equitable share/MIG to munis to cover ROA charges – Written commitment for full municipal portion – commercial offbudget funding requirement – Increased fiscal funding if split of commercial and municipal charge 23

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