Transcript Overall organisational design process

City of Cape Town
An Update of the Water
Services Financial Model
26 October 2006
PDG
PAL M E R D E V E L O P M E N T G R O U P
Background

At the end of 2005 a report was presented that was
the culmination of work done to determine:
– What is affordable and sustainable capital
expenditure for water services?
– What are implications for:
• Financing (how funds are secured)
• The service (what can and can’t be done)
• Tariffs (impact on consumer)
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– What are the key strategic issues facing the
service in order to get water services onto a
sustainable footing?
This was done using 2003/04 data .
Outcomes from previous work

Financing issues
– Water services needs too secure an appropriate share of
MIG funds
– Cost of capital
• Current cost of capital for sanitation to high (15%) , must
negotiate with the City to reduce this
– Will need to look at project finance for some of the larger
projects (continue dialogue with MIIU and DBSA)
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PDG
For a sustainable service the following is required:
– Basic services for all
– Adequate provision for rehabilitation
– Adequate provision for maintenance
– Improved collections and debt management
– Higher tariffs are necessary for a sustainable services
– Capital programme will need to be fit for purpose (and
trimmed down from current needs assessment)
Request for model update
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PDG was requested to work with the City to update
the data in the model based on the 2005/06
financial year.
The scope of work did not include any discussion
and revision of the model assumptions, except a
revision of the population projections and the LTWD
forecast.
– What was proposed to the City was to:
• engage in a series of strategic discussions for
each of the key ‘sub business’ areas addressed in
the model for example network management
(UAW; meter replacements), water demand
forecasts, basic services programme, etc.
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Model update
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Results
– Demand
– Operating costs
– Capital costs
– Tariffs
Demand – for connections
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Population growth: 1.1 % (Dorrington’s projections)
New household formation: approximately 23 000
Backlog (informal settlements): eradicated for water and
40 000 for sanitation
Primarily affects
-- reticulation infrastructure CAPEX
-- staffing and maintenance OPEX
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Demand – for connections
Domestic water and sewer
connections
1,000,000
800,000
600,000
400,000
200,000
2006
2008
water connections
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2010
2012
2014
2016
sewer connections
Demand for water
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Affects:
– Water sales, production and wastewater
treatment
– Bulk infrastructure requirements
– Bulk water purchases
– Chemical and energy costs
– Revenue
Demand for water
Long term
Water demand forecast
(CoCT)
Demand
300
200
100
-
Demand growth
(volumes)
2016
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Wastewater treated
16
20
15
13
14
20
20
12
20
11
water sales
20
20
20
07
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
20
water production
10
2014
% pa
water sales
wastewater treated
2012
20
2010
20
2008
08
2006
09
million kl pa
400
water production
Operating costs
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Change to:
maintenance assumption
Staffing levels and costs
– Assume efficiency gain of 5%
Maintenance
– Fixed at 1 % of asset value (may be too low?)
Bulk purchases
– Exogenous; significant real increases (from Berg
River and new sources (figures to be confirmed)
Updated Berg River
figures still need to
be obtained
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Operating costs
Operating costs
(nominal annual increase)
% increase pa
20%
15%
10%
5%
% increase pa
15%
10%
5%
16
20
15
20
14
20
13
20
12
20
11
20
10
20
09
20
08
20
20
07
0%
Total operating costs
Inflation
14
20
12
11
10
13
20
20
20
20
09
20
08
Total operating costs
Operating costs
(nominal annual increase)
PDG
20
07
06
20
20
20
05
0%
Inflation
Operating costs
(real annual increase)
% real increase pa
Staff costs
10.0%
8.0%
6.0%
4.0%
2.0%
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
0.0%
Total operating costs
% real increase pa
Operating costs
(real annual increase)
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
0.0%
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Total operating costs
staff costs
staff costs
Maintenance &
bulk costs
Significant impact
in early years
Maintenance and bulk water costs
(Real annual increase)
50%
40%
Bulk water
costs
Maintenance
15%
10%
30%
20%
5%
10%
0%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
maintenance
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bulk water
Opex
outcomes
• Staff costs too high?
• Note real reduction in “other” costs
c/kl sold
Operating costs ("pure") - real
water and waste water (per unit water sold)
500
400
300
200
100
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
staff
chem
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maint
elec
bulk dwaf
other
bulk skuif
Capital programme
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PAL M E R D E V E L O P M E N T G R O U P
4 scenarios
1.
2.
3.
4.
City of Cape Town (needs based)
Model (calculated using unit costs and demand)
“Affordable” (not implemented as yet)
Choice
The “choice” option allows user to choose one of the
three options for each of the major components of
the system (bulk water expansion, bulk water
renewals etc)
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Comparison of scenarios
Capital investment (2004 Rands)
1,200
R m illion pa
1,000
800
600
Affordable
CoCT
400
200
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
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Selected
Model
Assessment of CoCT scenario
over ambitious
too low
Capital investment (2004 Rands)
1,200
R m illion pa
1,000
800
600
Affordable
CoCT
400
200
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
-
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Selected
Model
Tariffs required
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PAL M E R D E V E L O P M E N T G R O U P
PDG
R 7 /kl
2014
2013
2012
2011
2010
2009
2008
2007
2005
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2006
Average tariff (real)
(water and sewerage)
2004
R/kl (of water sold)
CoCT CAPEX
Modeling process
Design
model
Collate and
input data
Demand
assumptions
Operating
costs
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Strategic
conclusions
Sensitivity
Refine
data
Outcomes
Refine
scenarios
Tariff
requirements
CAPEX
programme
Financial
targets
Model design
Scenario
Manager
Demand
Capex
Summary
Pages
Opex
Assets
IS
PDG
BS
CF
Debtors &
collections