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Artist’s impression of De Hoop Dam

Olifants River Water Resources Development Project (ORWRDP)

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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 RuitersDeputy Director General: NWRI

07 May 2010

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PRESENTATION OUTLINE

1. ORWRDP 2: The Bigger Picture

2. Sub-Phase 2A : De Hoop Dam

3. Sub-Phases 2B – 2I : 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

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BURGERS-FORT

EPSS

DE HOOP DAM

STEEL-POORT TOWN

MOKOPANE

POLOKWANE

LEBOWAKGOMO

JANE FURSE

FLAG BOSHIELO

DAM

MOOIHOEK

LEGEND

EXISTING BULK WATER PIPELINES

ORWRDP BULK WATER PIPELINES

ESKOM PSS INFRASTUCTURE

PUMP STATIONS

WATER TREATMENT

RESERVOIRS

Phase 2: The Bigger PictureLayout of Bulk Water

Infrastructure

Olifants

River

Steelpoor

t

River

Olifants Sand Transfer

Lebalelo

Nebo Plateau

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STRYDPOORT MOUNTAINS

BURGERSFORT

EPSS

DE HOOP DAM

STEELPOORT TOWN

MOTOTOLO

MOKOPANE

POLOKWANE

LEBOWAKGOMO

JANE FURSEFlag Boshielo

RWS

Tubatse RWS

Nebo Plateau RWS

Lebalelo RWSOlifantspoort South RWS

Olifants-Sand RWS

ORWSDP: WATER SERVICES DEVELOPMENT

FLAG BOSHIELO DAM

MOOIHOEK

Mphahele and Groothoek RWS

LEGEND

SUPPLY AREAS

EXISTING BULK WATER PIPELINES

ORWRDP PIPELINES

WATER SERVICES BULK PIPELINES

ESKOM PSS INFRASTUCTURE

PUMP STATIONS

WATER TREATMENT

RESERVOIRS

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

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Roadmap 2005 to 2010• 2005: Cabinet approval – De Hoop Dam (2A) 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 - R4 935 million PV in 2008 terms)

• Eskom: – 2008: Electricity shortages became a reality– 2009: Eskom withdrew from Sub-Phase 2I (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)

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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

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Water Use Licence Applications• Overall 21 applications:

– 3 from municipalities & Lepelle Northern Water– 18 from mines

• Overall original demand 180 million m3 per annum– Approx 30 million m3 per annum mining– Approx 150 million m3 per annum municipal

• Exceeds available supply by 100 million m3 per annum• Original equal share between social and commercial

distorted

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Mining Water Use License Applications

Option 1:

“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

Option 3:

Sign the WSA & lodge an application for WUL – as published (suspensive conditions however still questionable)

Full signing – but non-

fulfillment of Suspensive Conditions

Full signing – bankable

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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 R5 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

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Impact on DWA Budget• De Hoop Dam (Sub-phase 2A)

– 2010 ENE: R2 900 million cost to completion – fully funded

• Bulk Water Infrastructure (Sub-phases 2B – 2H)– Social component on budget requirement: R5 400 million (Future

value (FV) as per 2010 ENE and only partially funded)• Vote 37: 2010/11 – R208 million; 2011/12 – R285 million;

2012/13 – R342 million• Earmarked funding: R900 million• Budget shortfall: R3 665 million

– Commercial component off budget requirement: R5 400 million (FV)

• Insignificant commitment by mines• Budget shortfall equal to R5 400 million over next 6 years if

originally planned project is implemented with state funds or explicit government guaranteed loan

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ORWSDP Budget• Bulk distribution: R5 378 million over next

6 years• Reticulation: R1 364 million over next 6

years• Contributions from RBIG and municipal

budgets part of budget requirements

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Project Costs

• De Hoop Dam: R2 900 million fully funded• Bulk Water Infrastructure: R10 800 million,

R1 735 million funded• ORWRDP: R13 700 million, R4 635 million

funded• ORWSDP: R6 742 million• Total Project cost: R20 442 million

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De Hoop Dam Delivery(Actual and Latest Projected)

• Contract Start Date – 18 June 2007 • New P169-1 opened – June 2009• Projected partial impoundment – January 2011• Raw water available for delivery from De Hoop

Dam – April 2012• Contract completion – March 2013

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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 2B: 2018 subject to government covering budget shortfalls and Eskom power availability

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Water tariffs• Commercial raw water tariff: In the order of R10

per kl throughout ORWRDP area of supply• Social users to pay ROA and O & M but it still

exceeds equitable share of R5 per kl• Water tariff to Nebo Plateau estimated to be in

the order of R20 per kl after treatment• Equitable share is insufficient. National Treasury

was approached to amend policy with respect to Equitable Share formula

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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

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Bulk Water Supply Challenges(Continued)

• Withdrawal by Eskom from Phase 2I (TPSS) impacting on supply to Nebo Plateau – new plans to be developed

• Funding shortages: More than R5 billion required excluding water services

• Unrealistic water demands by municipalities• Reconfiguration of Bulk Water Infrastructure• Capacity at local level a serious concern

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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

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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

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Construction Progress

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VIEWS BY MINES8 April 2010

• 2B: Commitment by approximately 2017• 2C: Revert from LWUA to De Hoop,

however no commitment on timing• 2D & 2E: Use surpluses in LWUA• Support ORWRDP but economic

circumstances prevent full commitment at this stage

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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 off-

budget funding requirement– Increased fiscal funding if split of commercial and municipal

charge

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Thank you!

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