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Delay in Completion of TCTA's 2018/19 Audit and Annual financial Statements
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.
DELAY IN COMPLETION OF TCTA’S 2018/19 AUDIT AND ANNUAL FINANCIAL STATEMENTS
Noteholders are notified of the following with regards to TCTA’s Annual Financial Statements (AFS) for
the year ended 31 March 2019.
Background
The Auditor-General of South Africa (AGSA) has been TCTA’s Auditor since 1 April 2018 (see the TCTA
SENS Announcement of 11 May 2018 titled “Change in External Auditor from 1 April 2018” for more
detail). As such the audit of the financial statements for the financial year ended 31 March 2019
(2018/19) represents the AGSA’s first engagement with TCTA.
In the course of this engagement it emerged that there were significant differences of interpretation
between the AGSA and TCTA over the nature of the supporting documentation required to substantiate
payments made by TCTA to the Lesotho Highlands Development Authority (LHDA) and Lesotho
Highlands Water Commission (LHWC) in fulfilment of its mandate under the Notice of Establishment and
the relevant accounting treatment in respect thereof. As a result there has been a delay in the completion
of the audit of the financial statements and a corresponding delay in the release of the 2018/19 AFS.
Problem Statement
TCTA submitted its draft AFS to the AGSA on 31 May 2019, as per PFMA requirements. Included in
these was the disclosure of payments made to the LHDA on the water transfer portion of the Lesotho
Highlands Water Project (LHWP or the Project) located in Lesotho; royalty payments due to the Kingdom
of Lesotho; and South Africa’s contribution to the operating costs of the LHWC. These payments are
made to discharge South Africa’s financial obligations as regulated by the Treaty on the LHWP between
South Africa and Lesotho (the Treaty).
The AGSA requested that TCTA provide supporting documentation relating to the expenses and costs of
the LHDA and LHWC in the form of invoices, bill of quantities, contracts etc. TCTA’s response was that,
due to its mandate, it had to pay monies over to LHDA on presentation of Monthly Subventions,
approved by the CFO of the LHDA, as the duly authorised LHDA representative, and approved for
payment by the RSA Delegation to the LHWC. TCTA pointed out that its mandate and powers in this
regard are regulated by:
- the Notice of Establishment (1986, amended in 2000);
- the LHWP Phase 2 Agreement (2011); and
- the Memorandum of Understanding (2005) between LHDA and TCTA that sets out the operating
framework for the payment of money to the LHDA.
None of which give TCTA jurisdiction over or direct access to information in the possession of the LHDA.
Instead the Treaty provides for the LHWC to exercise oversight over LHDA and to be accountable for the
Project.
The LHWC is a bi-national commission established in terms of the treaty and comprising of two equal
delegations from Lesotho and South Africa. It has approval, monitoring and advisory powers over the
activities of the LHDA to safeguard the respective interests of the two governments; It acts for and
advises the governments and is the channel of all government inputs relating to the Project. The RSA
delegation to the LHWC reports to the Department of Water and Sanitation (DWS).
Both the LHWC and LHDA are audited by reputable audit firms and to the best of TCTA’s knowledge
neither have ever had an adverse audit opinion.
TCTA continues to engage with the AGSA, DWS and LHWC. In addition to this it has sought the
assistance of the Accountant General at National Treasury towards resolving the matter; and has
approached the Office of the Chief State Law Adviser for advice.
Potential Consequences of the Delay:
At this stage, these relate mostly to the potential failure to submit the AFS in a timely manner to various
stakeholders. The timely submission of the AFS is a legal (Public Finance Management Act No 1 of
1999 – PFMA), regulatory (Financial Markets Act 19 of 2012 – FMA, Financial Sector Regulation Act of
9 of 2017 – FSRA, JSE Debt Listing Requirements - DLR) and contractual (various loan agreements
with various lenders) requirement. The table below indicates the various submission deadlines and the
potential consequences of failure to comply with each:
Consequences of Non-
Requirement Deadline Status
Compliance
s55(1)(c) PFMA to Auditors 31 May 2019 Submitted N/A
s55(1)(d) PFMA submission to 31 Aug 2019 - Internal
Minister/DWS and National
Treasury
s65(1)(a) PFMA Minister to 30 Sep 2019 - Minister must table written
table AFS to National explanation to the National Assembly
Assembly setting out the reason for failure
s65(2)(a) PFMA.
AGSA may issue a special report
s65(2)(b) PFMA.
s90(b) FMA Regulated Person 31 Aug 2019 Extension granted Administrative penalty levied in terms
must submit AFS to FSCA to 31 Oct of s167 FSRA.
s7.4 DLR: make AFS publicly 31 Oct 2019 - s7.7(b) DLR JSE will publish SENS
available & publish JSE SENS after deadline informing investors of
announcement potential suspension of listing.
S7.7(c) DLR if AFS are still
outstanding after end of Nov 2019,
JSE will suspend listing.
s7.8 DLR grant JSE discretion as to
the application of 7.7(b) and (c)
above.
Various Loan Agreement Between the TCTA is engaging Varies from no consequences to
end of Jul 2019 with the lenders. being a potential event of default.
and the end of
Sep 2019
There is a potential for some lenders to regard the failure to provide the AFS in a timely manner either to
themselves (in terms of the information undertakings under their loan agreements) or to the National
Assembly, should the matter not have been resolved by 30 September as either an Event of Default or
as a breach of law (loan agreements generally require the borrower to act lawfully), which can also be an
Event of Default.
At this stage, TCTA believes that the fact that the breaches do not emanate from any act of bad faith, or
illegality on the part of TCTA but rather from a difference of opinion on a technical matter, which would
allow its lenders to reserve their rights under the relevant instruments of debt until the matter is finalised.
A further risk exists in that should the AFS remain outstanding after the end of November 2019, the JSE
may, at its discretion, suspend TCTA’s listed debt. At this stage, TCTA believes that a successful
engagement between the AGSA, DWS, LHWC and LHDA would likely result in the completion of the
process by the end of October 2019 and thus views the possibility of this as remote.
However, TCTA will also engage the JSE with regards to its bona fides in terms of attempting to find a
speedy resolution to this matter in order to convince the JSE to exercise its discretion in terms of s7.8 of
the DLR with regards to the suspension of its notes in case the current view regarding the completion of
the process proves to be over-sanguine.
TCTA will update Noteholders promptly when there are further updates regarding the AGSA’s
stance, or the actions of its lenders on this matter.
30 August 2019
For further information please contact
Nyiko Mageza, TCTA Sponsor +27 12 683 1334
Page 3 of 3
Date: 30/08/2019 03:35:00
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