It is easy to be critical of municipalities with declining service delivery and increasing charges, but the municipal system is highly complex, says eThekwini infrastructure planning strategic executive Ken Breetzke.

“The challenge is to align the thinking of senior management across the organisation, otherwise coordinated strategy fails,” Breetzke told the twelfth Infrastructure Dialogue, held in Johannesburg last month.

The topic for the dialogue was Municipal Infrastructure Investments Framework – Planning Till 2019.

The first dialogue in this series took place in June 2009, the topic being the Municipal Infrastructure Investment (MIIF). At that dialogue, the key findings of the then MIIF Round 5 analysis were debated.

Some of the findings included that significant capital expenditure would be required over ten years if the infrastructure service backlogs were to be met by 2014 and to ensure infrastructure growth and renewal.

Total capital expenditure of about R47-billion a year over ten years was predicted, requiring between R15-billion and R24-billion to be borrowed each year (depending on the infrastructure levels of services adopted), in addition to capital grants available to municipalities from the national government.

eThekwini has an annual capital budget of around R6-bilion and an operating budget of R18,5-billion.

Breetzke added that, for the 2013/14 budget, eThekwini is under huge pressure and the Municipal Services Financial Model is being used to force the budget down from around R6-billion (currently, including all funding) to R4,5-billion, which is a more sustainable position.

The intention of the spatial/geographic review of projects is to ensure that eThekwini targets key areas, such as promoting key public transport corridors by ensuring that budgets are committed for all infrastructure, rolling stock, social facilities and the fast-tracking of planning approvals and urban management within these corridor areas.

“Spatial planning will feature strongly in the next few months and an additional R2-billion in funding is needed to achieve the desired targets and for eThekwini to run sustainably,” noted Breetzke.

He pointed out that the municipality needed a stronger focus on economic growth to fund social programmes and that public housing should no longer be the driver.

The discussion centred on the role of public infrastructure in urban regeneration, and it was highlighted that life cycle costs – operation and maintenance – of infrastructure should be factored in to the development of urban regeneration infrastructure.

Urban management was vital, and when developers were costing and planning a project, operation and maintenance of the asset should always be included, so that it did not become a burden for the municipality responsible, after the handover of the infrastructure.

The local authority would struggle to maintain the infrastructure if it did not derive any income from the infrastructure. It was also suggested that there should be a way of making finance available for maintenance of the infrastructure that development agencies were obliged to deliver for citizens.

Geci Karuri-Sebina, a special adviser to Neighbourhood Development Programme (NDP), a division within the National Treasury, noted that the NDP, which administered grants for infrastructure projects in townships, often received plans for developments that were not accompanied by any plans for operation, or programmes for the use of the infrastructure once built.

She added that “thoughtless” public infrastructure spending was not useful.

“I think that public infrastructure is a critical and necessary, but not sufficient condition to promote urban regeneration. I tend to think, that urban management, the much more boring part of it, is more important,” stressed Trust for Urban Housing Finance (TUHF) CEO Paul Jackson.

He noted that public infrastructure upgrades done by the Johannesburg Development Agency (JDA) were “critically important”, and directed where TUHF would invest.

Jackson also explained that his company invested in retail space along Rockey and Raleigh streets in Johannesburg when the JDA upgraded the public infrastructure there, however, he said the company was disappointed that hawkers and illegal traders were starting to move back into the street as it was not being properly managed.

Urban Genesis director Graham Reid stated that “it’s not done when it’s built”.

“There are consequences from the investment, often unintended consequences and one needs to manage them, understand them, monitor them, and constantly recapitalise on them,” Reid added.

Poor urban management led to urban decline, which is why constant urban regeneration was required.

“Implementing agencies must also consider their roles as development facilitators,” JDA planning and strategy manager Sharon Lewis emphasised.

By: Christy van der Merwe (04 June 2010)

Edited by: Mariaan Webb

In response to massive service backlogs and recent widespread protests against inadequate service delivery, the government has accelerated investment into infrastructure.

The failure to preserve these new investments, along with what is already in place, will not only jeopardise these investments, but will also threaten stability further, and give rise to costly repairs later on.

National Treasury Intergovernmental Relations director Malijeng Ngqaleni said that the maintenance problem has been acknowledged across government.

Among the infrastructure maintenance challenges, she cited a lack of culture of asset management practices, such as inadequate asset registers and the extent of maintenance needs.

“There are deficiencies in institutional arrangements, which undermine the actual maintenance of assets and the one-size-fits-all approach to fiscal flows to municipalities is a major problem,” Ngqaleni told the Infrastructure Dialogue, held at the Development Bank of Southern Africa (DBSA).

The Infrastructure Dialogue, jointly hosted by the Support Programme for Accelerated Development, a partnership between the Business Trust and the Presidency of the South African government, and the DBSA, is a series of monthly dialogues dealing with key issues in the infrastructure sector.

These dialogues provide a platform for discussion and exchange of views between senior government, private sector and civil society stakeholders in the sector.

Ngqaleni noted that there is a need to strengthening the regulatory framework governing planning and budgeting for infrastructure maintenance.

Afcap Consulting director Johan Kruger said that the timely maintenance of infrastructure increases economic life and delays capital replacement.

“The quality of maintenance of municipal infrastructure has a direct and indirect impact on private sector productivity and profitability affecting the tax base for central government and the gross domestic product of South Africa in turn, leaving less money for maintenance,” warned Kruger.

The meeting focused on the Municipal Infrastructure Investment Framework (MIIF) and was held at the Development Bank of Southern Africa (DBSA) last week.

Besides other things, the MIIF assesses the amount of capital required to meet the municipal services delivery targets set by government.

Jointly hosted by the DBSA and the Support Programme for Accelerated Infrastructure Development, the Infrastructure Dialogues have been launched to identify relevant topics challenging the infrastructure sector in South Africa and stimulate 
debate around dealing with blockages to overcome these challenges.

Government has committed 
itself to removing services backlogs by 2014, in a way that allows municipalities, which have the primary responsibility for delivering services, the capacity to operate and maintain this infrastructure while remaining financially viable.

“The MIIF model has always been run on the assumption that the national government’s aim of eradicating the backlog by 2014 must be met. There needs to be a push on capital expenditure to achieve that goal,” Walsh said.

She added that after all other funding sources had been taken into account, modelling showed that 53% of the capital expenditure would need to be funded through new borrowing amounting to R242-billion over ten years, from 2007.

“To put that into perspective, the current municipal loan book is at R23-billion and an additional R24-billion is required every year for the next ten years. 
“This is unlikely to be feasible, and demonstrates the scale of 
the problem that government faces.”

Walsh explained that rough measures of capacity to borrow indicated that municipal borrowing could realistically be somewhere between R112-billion and R135-billion, far too short of the R242-billion required.

She noted that the MIIF modelling showed that a combination of greater caution from municipalities in installing high service levels and greater innovation in capital finance methods was required if 
infrastructure expansion was to continue without inhibiting 
municipal financial viability.

“There have been some positive trends in the current munici-
pal borrowing environment. Although overall outstanding debt has declined substantially yearly, new borrowing is being reported in municipal financial statements. Annual borrowing has increased by almost four times since 2003/4.”

The bulk of this borrowing is in metropolitan and other large urban municipalities, for whom loans are now the most important source of financing. This group of municipalities accounts for about 90% of outstanding 
municipal debt.

SPAID – www.spaid.co.za

Business Trust – www.btrust.org.za

Infrastructure Dialogues – www.infrastructuredialogues.co.za

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