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TCTA: Release of Annual Financial Statements and Qualified Audit Opinion
Trans-Caledon Tunnel Authority (TCTA)
WSP4 (LHWP) ZAG000020009
WSP5 (LHWP) ZAG000020017
As established by Notice No 2631 in Government Gazette No 10545 of 12 December 1986 and revised
by Notice No 277 in Government Gazette No 21017 of 24 March 2000 (the Notice of Establishment).
A Schedule 2 Public Finance Management Act No. 1 of 1999 (PFMA) entity.
RELEASE OF ANNUAL FINANCIAL STATEMENTS AND QUALIFIED AUDIT OPINION
Investors are advised that TCTA’s Annual Financial Statements for (AFS) the year ended 31 March
2019 have been released:
(a) The Annual Financial Statements are available for inspection at TCTA’s registered office and are
also available on TCTA’s website (www.tcta.co.za) at http://www.tcta.co.za/annual-report
(b) On 20 December 2019, the Auditor-General of South Africa (“AGSA”), the Auditors of TCTA,
issued a qualified audit opinion with respect to TCTA’s AFS for the year ended 31 March 2019, to
which this letter relates.
1. The AGSA provided the following reasons as a basis for the qualified audit opinion:
1.1. That he was unable to obtain sufficient appropriate audit evidence regarding the Acid Mine
Drainage (“AMD”) receivables, because the financial models provided as audit evidence for
the receivables, did not substantiate the amounts disclosed in the AFS. Consequently, he was
unable to determine whether any adjustments were necessary to the AMD receivables as
disclosed in note 14 to the AFS;
1.2. That he was unable to obtain sufficient appropriate audit evidence to substantiate the
provision for compensation to individuals affected by a loss of income as a result of re-
appropriation of land in respect of the Lesotho Highlands Water Project (“LHWP”). As a
consequence, he was unable to determine whether any adjustments were required to the
amounts provided for compensation as disclosed in note 17 to the AFS; and
1.3. That he was unable to obtain sufficient appropriate audit evidence for Capital commitments,
as disclosed in note 22 to the AFS as the Capital commitments schedule provided as audit
evidence, did not substantiate the amounts disclosed in the AFS. Consequently, he was
unable to determine whether any adjustments were necessary to commitments as stated in
the AFS.
2. TCTA’s response/explanation on the reasons for the qualification is as follows:
2.1. With respect to the AMD Receivables matter referred to in 1.1 above, TCTA submitted to the
AGSA detailed workings and calculations of the receivables to support the amounts disclosed
in the financials. The AGSA identified differences between the financials and the workings
which resulted in the financials not balancing. The mistake was caused by an error in the
preparation of the information which could not be corrected and resubmitted before the
deadline for resubmission;
2.2. With respect to the provision for compensation matter in 1.2 above, it occurred due to TCTA
having reflected a transaction between a 3rd party, the Lesotho Highlands Development
Authority (LHDA) and impacted persons in Lesotho, in its financial statements and thus being
unable to produce sufficient and appropriate audit evidence as required in time. ; and
2.3. Finally, with respect to the provision for Capital Commitments in 1.3 above, TCTA excluded
provisions for the outer years (5 years and beyond) from the financials and this resulted in
differences between the provisions disclosed in the financials and those reflected in the
Capital Commitments schedule that was submitted as evidence of the workings.. This error
was corrected and the numbers revised, however it was too late to resubmit the revised
provision to the AGSA as the submission deadline had passed.
TCTA intends to engage with the AGSA ahead of the next audit to unpack the finding in 1.2 in order
to avoid a repeat finding or any finding related to TCTA’s role in LHWP. TCTA will also strengthen
internal controls to avoid similar findings as in 1.1 and 1.3.
RESTATEMENT OF ANNUAL FINANCIAL STATEMENTS
In the current year, management amended the accounting policy relating to the measurement of tariff
receivables. The tariff receivable is a financial asset that is measured at amortized cost. The old policy
required management to calculate the effective interest rate which is a rate that exactly discounts
estimated future cash payments or receipts through the expected life of the financial asset or financial
liability to the gross carrying amount of a financial asset. When calculating the effective interest rate,
management estimated the expected cash flows by considering all the contractual terms of the
financial instrument. When the expected cash flows were re-estimated, management recalculated the
gross carrying amount of the financial asset and recognised a modification gain or loss in surplus or
deficit previously referred to as imputed interest. Management has amended the accounting policy by
opting to re-estimate the effective interest rate when the expected cash flows of the assets are re-
estimated thus no modification gain/ loss will impact surplus or deficit. This has resulted in the
restatement of the Tariff Receivable balance.
In addition, the provision for compensation has been revised to include an additional amount relating
to compensation for host communities where households affected by the project have elected to be
resettled. This amount is intended to fund infrastructure projects for the benefit of the host
communities. The impact of this revision increases the provision for compensation and tariff receivable
on the Statement of Financial Position.
Further, the LHDA makes payments to 3rd parties for the implementation of the community
infrastructure development. These payments are disclosed as prepaid expenses until the 3rd party has
delivered the infrastructure to the community. This has resulted in the restatement of the Provision for
Compensation balance.
The findings referred to in 1.1 and 1.3 will result in a restatement in next year’s financial statements.
With regards to 1.2, TCTA will reflect on how it accounts for payments made to LHDA on behalf of the
Republic of South Africa, so that it is properly accounted for in subsequent years. Addressing 1.2 will
either result in a restatement if the figures were to change or a review of the accounting treatment of
third-party expenditure will be performed. Ultimately it does not change TCTA’s ability to perform the
Government of South Africa’s financial obligations to Lesotho in terms of the Treaty and/or the Phase
II agreement.
In our considered view, the qualified audit opinion does not indicate a deterioration in TCTA’s credit
profile nor a reflection of TCTA’s ability to perform its obligations under the Facility Agreement or any
of its other financial obligations. As such TCTA is able to meet its loan obligations to the lenders and
will continue to do so, with government support through explicit guarantees on LHWP and AMD, and
government commitment to step-in and fulfil TCTA’s obligations if it is unable to do so on other
projects.
Darshana Jeeva, TCTA Sponsor +27 12 683 1311
Queries – Wanda Mkutshulwa, Head of Communications +27 12 683 1378, wmkutshulwa@tcta.co.za
3 March 2020
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Date: 03-03-2020 10:20:00
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