L Hendricks: Trans-Caledon Tunnel Authority Gala Dinner

19 April 2007

Minister Moleleki
Chairperson of TCTA
Members of Parliament
Programme director
Honoured guests
Ladies and gentlemen

It is indeed an honour for me to join you here this evening to celebrate the
twentieth year of the birth of the Trans-Caledon Tunnel Authority (TCTA). I am
pleased to welcome the Minister from Lesotho to this event and to recognise the
importance of co-operation between our two countries, particularly in the water
sector.

Currently visiting South Africa is the internationally renowned economist
and Nobel Laureate for Economics, Professor Amartya Sen. This distinguished
Professor is in our country delivering a series of lectures. His thinking and
the contribution he has made towards shaping the role of the developmental
state has been acknowledged by President Mbeki during his budget vote speech
last year. The President quoting from Professor Sen's book 'Development as
Freedom' notes the link between development, freedom and the removal of
poverty, expanding economic opportunity as well as fighting social
deprivation.

Professor Sen's early work in understanding the role of inequality and other
social and economic factors in causing famine has contributed to our thinking;
and this work has helped to shape our understanding of the critical importance
of access to basic resources in contributing to sustainable livelihoods.

With access to water being a key measure of poverty reduction, and the
importance that our government has placed on access to this critical resource
we need to acknowledge the role of institutions that are active in this sector,
and thereby contribute to our development.

The scarcity of water in South Africa is something that everyone here this
evening should be acutely aware of. It has therefore been necessary that our
country develop infrastructure and capabilities as a response to this
challenge. In recognising the role of water not only in poverty alleviation but
also in contributing towards economic growth and development, our need for
water and water infrastructure will only expand.

Tonight, I would like to take stock of the role that TCTA has played in
water resources management and development of our water resource infrastructure
over the past two decades, and what the future now holds for this organisation.
The history of TCTA can be divided into two distinct phases of almost a decade
each in length.

TCTA phase one

The first phase of TCTA's existence commenced in October 1986; with the
signing of the Treaty between Lesotho and South Africa on the Lesotho Highlands
Water Project. The function of Trans-Caledon Tunnel Authority was described in
the Treaty and it was allocated the responsibility for the implementation,
operation and maintenance of that part of the project in the Republic of South
Africa. Other functions included the raising of funds and servicing of Project
debt. In Lesotho, the Lesotho Highlands Development Authority (LHDA) was also
established through the Treaty to plan, design, construct, operate and maintain
the components of the project on the Lesotho side.

In my speech at the Stockholm Water Symposium on 21 August 2006, I referred
to the Lesotho Highlands Water Project, pointing to the many benefits of
sharing trans-boundary water resources between South Africa and Lesotho. Such
benefits I believe were critical to the success of the co-operation and formed
a cornerstone of the project, and they were important drivers in making such an
ambitious project possible.

I said on that occasion, "The benefits to South Africa include the increased
security of water supply to Johannesburg and the Gauteng province. The benefits
to Lesotho include major infrastructure development in the country such as
roads, power lines, communication lines, schools and clinics; a hydropower
scheme supplying electricity needs of the whole of Lesotho; and a constant
income from the selling of water to South Africa." It is these social and
economic benefits to the two developmental states that make the Lesotho
Highlands Water Project a flagship project, not only for the two countries, but
also for the Southern African Development Community (SADC) region as whole.

The initial focus of the TCTA in this project was on technical issues
related to the implementation of the 22 kilometre long Delivery Tunnel North.
The appointment of engineering consultants in 1989 and the award of the tunnel
contract in 1991 were important developments in this regard.

Funding and financial issues then became the greater focus; by 1995 it was
realised that it would be advantageous to have an in-house financial team as
this would be the primary focus of TCTA over the longer term.

During the earlier years, consideration was given as to how the total debt
and commitments such as royalty payments to Lesotho would affect the water
tariffs for the end user. It was found that a major increase in tariffs would
occur if debt recovery only commenced upon water delivery. A novel approach was
accordingly instituted whereby a modest levy on all domestic and industrial
water sold in the Vaal River System would be applied. This levy was increased
annually. The levy was used for partial funding of costs and interest during
construction and was highly effective in eliminating a sudden rise in water
tariffs and it also dramatically reduced the debt peak. This innovative
approach has subsequently been applied to other water projects with great
success thus benefiting the water user.

By 1995, the debt book of the TCTA had risen to R3,8 billion and the first
TCTA Bonds were issued via market makers. All loans for the Lesotho Highlands
Water Project were backed by government guarantees and this approach would
change in subsequent projects. Increased use was made of offshore loans and
appropriate foreign exchange management systems had to be developed and
applied. I believe that the TCTA Board was subject to a steep learning curve of
financial jargon and funding strategies! The necessity of financial expertise
on the Board resulted in a change of its composition to incorporate independent
members with such a background.

This first phase of the life of TCTA culminated with the successful
completion of the Delivery Tunnel North within time and budget with water
delivery starting in January 1998.

TCTA phase two

Ladies and gentlemen, the start of the second decade of TCTA was a period of
organisational uncertainty. The implementation of the Lesotho Highlands Water
Project was complete and only the debt servicing for the Project and the
operation of the Delivery Tunnel North remained as TCTA responsibilities.
Questions arose whether this would be sufficient a challenge to retain a viable
and vibrant organisation?

These considerations led to a strategic realignment process to determine the
future of TCTA in 1999. Participation of the board, staff and stakeholders was
a feature of this process. With the promulgation of the National Water Act in
1998, TCTA was legislatively incorporated into the Act as a body established to
implement international agreements and to which the Minister of Water Affairs
and Forestry could allocate additional functions insofar as these would not
compromise its ability to discharge its primary functions. Such additional
functions could include, but are not limited to, management services, financial
services; training and other support services.

During March 2000 a significant event occurred which widened the scope of
TCTA and together with the strategic assessment has broadened TCTA's potential
role within the broader Water Sector in South Africa. A Revised Establishment
Notice was published in the Government Gazette wherein TCTA's mandate was no
longer linked only to the Lesotho Highlands Water Project, but was of a far
broader nature.

Government policy with respect to the State funding of so-called economic
water projects changed during this period. Such projects were required to raise
funding from commercial sources without the provision of a government
guarantee. In essence this means that the water users would ultimately have to
bear the full cost of the project. A suitable organisation was, therefore,
needed to give effect to this new policy as government departments are not
empowered to raise funds. The TCTA was fortunately positioned with a broad
mandate and the necessary expertise. Several major projects have been initiated
in terms of this revised mandate, which I will highlight.

In view of its experience, expertise and capacity in funding and treasury
activities, the TCTA was directed in 2001 to perform the Treasury management
functions for one of our water boards and to develop treasury management
capacity within that organisation. A task that did successfully undertook and
laid the foundation for the continued successful operation of that water
board.

The TCTA was further directed to implement and fund the Berg Water Project
in 2002. This Project is an integral part of the Western Cape Water System
supplying the Greater Cape Town Metropolitan area with water. The Project
consists of a large dam near Franschhoek, also including major pipelines and
pumping stations. The total capital cost will be about R1,5 billion. The Dam
should start storing water by mid 2007. As no government guarantees would be
provided for the loans, reliance had to be placed on agreements between the
Department of Water Affairs and Forestry, the City of Cape Town and TCTA in
respect of use of water and the payment therefore. Both local and offshore
loans have been raised at favourable interest rates as a result of the
excellent independent rating which TCTA received from an international ratings
agency. The principle of pre-funding of the Project prior to water delivery was
applied to this Project with good effect.

The implementation of the Project has incorporated an immense amount of
attention being paid to social and environmental issues. The various
contractors have for instance had a compliance of about 99,5 percent with the
Environmental Management Plan, which was approved by the Department of
Environmental Affairs and Tourism. Recruitment of local labour, training,
housing and black economic empowerment provisions are important aspects of the
Project implementation.

During late 2004 my predecessor, Minister Sonjica, directed TCTA to fund and
implement the Vaal Pipeline Project to meet the rising water demands of Eskom
and Sasol in the Mpumalanga Highveld Region. The Project consists of the pumped
transfer of water via a 120 kilometre pipeline from the Vaal Dam to discharge
points near Secunda. Water delivery is scheduled for May 2008. The estimated
capital cost of the Project is R2,5 billion. The TCTA has been faced with new
challenges in this Project in that it was to be implemented within a very short
time due to the existing drought conditions. The current general shortage of
skilled personnel has placed extra demands on TCTA, consultants and
contractors. As no government guarantees have been provided, a similar funding
arrangement to that for the Berg Water Project with suitable agreements between
the project partners has been instituted.

TCTA, the next phase

Programme director, during its twenty year period of existence, TCTA has
grown from a very small organisation (of only one secretary) to one of modest
proportions with a staff complement of 115. It has developed the
characteristics of a dynamic and highly focused organisation in the Water
Sector with specific expertise in financing and project implementation.

The future of TCTA is tied into the restructuring that my department has
been undergoing since the promulgation of the 1998 National Water Act. This
restructuring is in part necessary in order to accommodate new functional
mandates under this Act. As part of this restructuring process Cabinet approved
in August 2005, the creation of an agency for the management and development of
national water resource infrastructure; and we expect that a new institutional
arrangement will be created by April 2008. This will see the incorporation of
TCTA's activities into the new agency.

The agency will be expected to address the various social and economic needs
of government. Furthermore it will also address the issue of transformation
which is one of the key objectives of my department and government in general.
As economic growth of South Africa relies heavily on adequate and dependable
supplies of water, we do need sound institutional capacity to maintain our
present water resource infrastructure and to build new augmentation projects.
South Africa and indeed Southern Africa have a great skills shortage and we
must ensure that optimal use is made of such expertise.

To conclude, ladies and gentlemen, TCTA needs to be commended for the work
done over the past 20 years; work that in many developing countries would have
been done by international institutions. We are fortunate that through the TCTA
we have been able to develop local capabilities in this area; and in looking to
the future, I am confident that with a new water resources institution emerging
in its next decade, albeit in a somewhat new form, we will be able to draw on
this vitality and dedicated focus to meet our economic and social needs as a
developmental state. Organisational change offers many challenges but holds
many opportunities as we have seen from the past experience of TCTA.

I thank you.

Issued by: Department of Water Affairs and Forestry
19 April 2007
Source: Department of Water Affairs and Forestry (http://www.dwaf.gov.za)