Durban wants to borrow a half-a-billion-rand... Here's why
Durban - The eThekwini Municipality is poised to borrow R500 million in long-term debt finance, and at the same time is contemplating issuing a bond of R1 billion to finance capital expenditure for the 2018/19 and 2019/20 financial years.
The deputy city manager for finance, Krish Kumar, was granted permission by the council to invite financial institutions to submit proposals for the provision of the half-a-billion-rand loan on Thursday.
According to the city, capital projects have the potential to deliver on the municipality’s strategic objectives.
These include Warwick Junction, the Point Waterfront, the Integrated Rapid Public Transport Network-C3 Corridor and the Cornubia Integrated Development.
The bond, according to city manager Sipho Nzuza, would be placed on the stock exchange to raise the R1bn.
“People buy these bonds as an investment Government bonds are popular because of lower rates, and people buy into them because of the assurance that the money invested will return,” he said.
The opposition DA and IFP, however, said the city was in no position to acquire loans given its “poor” revenue collection and existing debt record.
The DA’s Rory Macpherson, a member of the finance committee, said: “As of September, the eThekwini council was owed R13bn in debt. Of this, R4.1bn is directly related to unread meters, increased insolvency challenges and liquidations. Higher tariffs are also given as part of the reason for non-payment and insolvency.
“In other words, instead of higher tariffs increasing revenue, the exact opposite is happening.”
Macpherson said more than R1bn was owed to the city by government departments, and several parastatals also owed the city hundreds of millions. He said the declining ratepayer base, increased insolvencies, uncompetitive and increasing tariffs, and poor debt collection were reason enough not to proceed with the loan.
“For this municipality to deliver on capital budget promises, we need to stop wasteful expenditure and have the political will to collect the billions owed The city’s entered into R2bn worth of loans over the last four years and it’s not correct that we keep borrowing with such high levels of debt.”
The IFP’s Mdu Nkosi concurred with Macpherson, adding that the council had been borrowing money for capital projects which were “hardly seen” by the ratepayers. “We’re not doing well in collecting what’s owed to the city, so we should be focusing our energies on that instead of going deeper and deeper in debt,” Nkosi said.
However, Kumar said the municipality was in a good position to borrow for capital projects at favourable rates.
“We’re well geared financially and this loan is needed for these projects. We get some of our money from grants, internal resources and borrowing. Sustainability and affordability are key factors considered when raising loans to fund capital expenditure.
“The municipality’s sound financial standing puts us in a position to secure the loan,” he said.
The city had a capital budget of R7.5bn for the 2017/18 financial year, the second highest among South Africa’s cities, behind Joburg.