Task Force on Financing Water for All

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Task Force on Financing Water for All MMC Dooms
/ J. Pansegrouw 01 February 2006
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Gauteng in South Africa
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City of Tshwane in Gauteng
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Tshwane in Context

• Land Area 2199 km²
• Population 1989019 people
• IDP Zones 9
• Wards 76
• Councillors 152

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Tshwane Status Quo
THE NORTH Rudimentary household services Public
facility/ space clusters Ineffective public
transport Relatively low average densities Cross
boundary areas
THE CENTER Declining CBD Capital City Government
Departments Research and Education
facilities Links to poor, but relatively well
serviced townships in east and west
THE SOUTH Quality municipal services Growing
Economy
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City Development Strategy
DEVELOPING THE NORTH
MAINTAINING EXISTING URBAN AREAS
STRENGTHENING ECONOMIC CLUSTERS
CELEBRATING THE CAPITAL
BUILDING SOCIAL COHESION
SOUND FINANCIAL FUNDAMENTALS
STRONG DEVELOPMENTAL MUNICIPAL INSTITUTION
Source CDS Sept 2004
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Infrastructure Status Quo
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Water Sanitation Income
Water Sanitation contributes to 16 of
Municipal income
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WATER AS PART OF TOTAL TSHWANE(BASED ON 2003/04
EXPENDITURE)
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WATER SUPPLY SERVICE LEVELS(BACKLOGS)
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SANITATION SERVICE LEVELS(BACKLOGS)
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Cost to Eradicate Backlog
Financial strategy Eradicate water backlogs in 5
years, and Sanitation backlogs in 10 years
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Long Term Capital ProgrammeInformation based on
Master Plan (Internal and External Funds)
- 35 Externally funded capital programme
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Capital Expenditure
92
77
73
58
Total value of existing infrastructure R 16 000
million
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Water Service Providers in CTMM

• Bulk Water Service Providers
• 1.1 Internal Providers
• - CTMM
• 1.2 Municipal Entities
• - Roodeplaat Temba Water Services Trust
• - Sandspruit Works Association
• 1.3 External Providers
• - Rand Water
• - Magalies Water
• - Bothelo Water
• Retail Water Services Providers
• 2.1 Internal Providers
• - CTMM
• 2.2 External Providers
• - ODI Water (a division of Rand Water)
• - Magalies Water

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Funding Mechanism for infrastructure
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Roodeplaat / Tembe Water Services Trust
Roodeplaat Water Supply Scheme Construction cost
excluding contingencies escalation
160,291,530 Construction contingencies 10
16,029,153 176,320,683 Project
contingencies 5 8,816,034
185,136,717 Estimated escalation 1 Sep 2002 to
30 Sep 2005 38,510,843 SUB TOTAL
223,647,560 Design fees 8.72
19,502,067 Other professional fees
6,245,946 OTHER COSTS Employers
representative fee 500,000 Servitudes
2,500,000 SUB TOTAL
252,395,573 Capitalised interest during
construction 39,957,110 Reserve
accounts 39,186,646 SUB TOTAL
331,539,329 Project sponsor 4
13,261,573 SUB TOTAL 344,800,902 Underwri
ting fee 2 6,896,018 Arrangement fee
0.5 1,724,005 TOTAL CAPEX
353,420,925
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Roodeplaat / Tembe Water Services Trust
Roodeplaat Water Supply Scheme Construction cost
excluding contingencies escalation
68,773,689 Construction contingencies 10
6,877,369 75,651.058 Project
contingencies 5 3,782,553
79,433,611 Estimated escalation 1 Sep 2002 to
31 Oct 2004 12,113,182 SUB TOTAL
91,546,793 Design fees 9.30
8,513,852 Other professional fees
4,773,528 OTHER COSTS Employers
representative fee 300,000 Servitudes
330,000 SUB TOTAL
105,464,173 Capitalised interest
15,568,790 Reserve accounts
16,313,354 SUB TOTAL 137,346,317 Project
sponsor 4 5,493,853 SUB TOTAL
142,840,170 Underwriting fee 2
2,856,803 Arrangement fee 0.5
714,201 TOTAL CAPEX 146,411,174
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LOAN INFORMATION

• Absa is the Agent Bank (Management fee of 10
  basis points p.a.)
• Base Rate was fixed at 10,24 on 12 September
  2003 (R157 rate)
• Last drawdown in March 2006
• All project interest capitalised
• First repayment on 29 September 2006
• Repayments R39,995,763.35 bi-annually until 31
  March 2021
• Debt Service Reserve account R90 million
• Capital Reserve account R10 million
• Operating Reserve account R0,5 million
• Debt Service Cover Ration 1,5 or better
• Loan Life Cover Ration 1.8 or better

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Proposed Advantages of a Trust vs Actual Outcome
No capital required by CTMM
Trust procured the capital
Base rate 10,24 plus bank margin of 260 points
plus 10 points management fees 12,94 (Bank
margins much lower on CTMM loans)
Obtain more attractive rates
Obtain longer term finance
Term 15 years (not longer than CTMM terms)
The new MFMA requires consolidated financial
statements incorporated with municipal entities.
No off-balance sheet finance
Off-balance sheet financing
Construction started 22 months after approval by
Council, which is longer than conventional and
similar than period needed by BOT/BOOT
Fast track implementation (Compared to other
concessions e.g. BOT/BOOT)
CTMM retaining full operational control
Amended Systems Act requires no councillor /
official involved in municipal entity, except
through shareholding control. Trust has no
shareholders and also no operational control
No securities needed from CTMM
All income from large users were ceded to the
Trust as security by CTMM
Risk is shared by all parties
CTMM can only claim damages which is insured by
the Trust. All non-insurable risk is taken by CTMM
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Roodeplaat / Tembe Water Services TrustList of
Agreementd
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Conclusion

• Structural difficulties are experienced with a
  Trust as a municipal entity under new legislation
• Lack of control over a Trust by the municipality
  is a risk for the CTMM
• CTMM has to depend on external trustees, with own
  vested interest, to manage R100 R130 million
  p.a. on its behalf.
• Annual cash flow savings of R25 million will be
  possible on expenditure in CTMMs operational
  budget.
• Additional legal responsibilities and limited
  flexibility associated with the Trust under
  present legislation no longer justifies its
  existence
• CTMM has the capacity to manage the loan and
  operation of the Roodeplaat / Temba schemes
• Elimination of the Trust as a go-between will
  improve efficiency of the organization (saves
  time and money)