The plan is to inject investment into the city’s capital programme. On Tuesday, at the mayoral committee meeting, it was revealed that the City of Cape Town is prepared to secure an R4-billion loan within the next three years from the German government-owned Kreditanstalt für Wiederaufbau (KfW) Development Bank.
Its short-term objective, however, is to secure a total of R1.3-billion to launch capital projects in 2019. The Cape Argus reported that the funding is aimed at launching improvement projects in the Cape Flats, Bellville, Mitchells Plain, Borcherds Quarry, Hout Bay, Gordon’s Bay and the Zandvliet wastewater treatment plants.
City plans to launch capital programme with KfW Development Bank funds
The need for this loan was detailed in a proposal document that was undersigned by mayoral committee member (MCM), Stuart Diamond. In it, it is stated that the city’s Medium Term Revenue and Expenditure Framework (MTREF) for the next financial year reveals the need for an injection of R4-billion into its purse.
This, according to the document, is the best approach to launching capital projects in the city without hurting the pockets of the ratepayers.
“For the past number of years, the city has funded its capital programme out of its working capital. However, this is not a best practice as it places a burden on the current ratepayer due to the fact that it does not spread the related costs over the useful life of the related projects and artificially inflates the tariffs.” the report claimed.
The loan of R1.3-billion, according to the report, will — should it be approved — be received in three parts, the two payments are expected in January and May 2019 respectively. The third amount will be tranched in November 2019.
“The city is currently earning an average interest rate of 8.22% on its investments. The tentative interest rate indicated in the information statement is for a rand-denomination loan and is a fixed rate for the period of the loan.
“The unsecured loan from KfW Development Bank will be for 15 years and will be drawn down in three separate disbursements between January and December 2019” the report added.
National Treasury warns City of Cape Town to tread cautiously on loan ambition
Zanele Mxunyelwa, the National Treasury’s acting accounting-general, indicated that if the loan were to be approved, two-thirds of it, R829.17-million, would have to be drawn into the 2018/2019 financial year, with the third payment falling into the 2019/2020 financial year.
“It appears that the three separate tranches will result in an 8.75% interest rate each. The rate appears to be expensive as compared to taking the total amount of R1.3-billion in one tranche with one interest rate, while we recognise the 15-year tenure of the loan.
“The municipality must ensure that this is the most cost-effective way of structuring the loan”. Mxunyelwa stated.