BuaNews (Tshwane)

22 February 2012

South Africa: State Has R4.5 Trillion in Resources to Help Fund Infrastructure - Gordhan

Photo: William Oeri
Road construction work on Thika Road, Nairobi.

Cape Town — The state would have about R4.5 trillion in resources to draw on, using a range of financing methods over the next three years, to fund key infrastructure projects, the Minister of Finance Pravin Gordhan said today.

Gordhan revealed the figure in a media briefing shortly before he delivered his Budget Speech in Parliament on Wednesday.

The Budget Review lists 43 major infrastructure projects - each of which will take between seven and eight and half years to complete and require R3.2 trillion in spending over the next few years.

In his Budget Speech, Gordhan said over the next three years, government had approved and budgeted infrastructure plans to the value of R845 billion - R300 billion of which is in the energy sector and R262 billion in the transport and logistics sector.

He said the country's infrastructure mega-projects announced by President Jacob Zuma in his State of the Nation Address earlier this month would be financed using the fiscus, public entities' balance sheets, taxes, private-sector investors and by raising funding from multilateral finance institutions and foreign investors.

The government would also improve the delivery of infrastructure through a range of measures.

He revealed measures to improve the implementation of infrastructure projects and cracked the whip on government departments and municipalities' poor record of being able to spend funds made available to them to improve infrastructure.

The fiscus would meet the cost of public-service facilities such as schools, courtrooms, hospitals and rural roads, he said.

Public entities such as Eskom and Transnet would finance their respective investments from their own surpluses and by borrowing from the capital market - by issuing low-term bonds.

"This means they have to generate sufficient revenue from tariffs and charges to repay debt over time, and cover operating and maintenance costs," Gordhan said.

He said in some cases a mix of tax finance and cost recovery would be appropriate, but he added that the government contributed to the costs of commuter transport and electricity and water services to poor communities through allocations in the budget.

Local and foreign investors would also be key and Gordhan said private-sector investment already plays a substantial role in several sectors, such as the airline industry and telecommunications sector.

The first round of over 1 200MW of renewable energy projects was also recently tendered to independent power producers.

Gordhan pointed out that the use of construction and operating concessions - for example the management of industrial development zones, freight logistics and port operations - was another way to rope in private investors.

The Development Bank of SA (DBSA) would play a key role in raising finance in partnership with multilateral finance institutions, foreign investors and other investment funds, he said.

Added to this, he said South Africa had deep and liquid capital markets through which long-term capital can be raised at competitive rate by the government, state enterprises and the private sector.

He said the country's development finance institutions are capable of raising capital and co-financing investments of the private sector, state entities and municipalities

"These are considerable strengths - they mean that we do not have to rely on expensive external finance or complex structured arrangements," he said.

The bulk of the R3.2 trillion in mega-projects would be spent on electricity (R1.945 trillion), while R583 billion would be spent on transport, R213 billion on liquid fuels, R185 billion on new schools and R110 billion on new clinics and hospitals.

The remainder - R169 billion would be spent on housing, telecommunications and water.

Of the total amount, R1.082 trillion would be spent on the concept stage, R921 billion on pre-feasability and feasibility studies, R378 billion on construction and R328 billion to fund on-going programmes.

The remainder - R499 billion - would be spent on tendering, financing and detailed design.

The mega-projects include a Durban-Free State-Gauteng logistics corridor, a southeastern development node and projects in the North West, Limpopo and on the West Coast.

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