select committee on appropriation 7 november 2014
TRANSCRIPT
Select Committee on Appropriation
7 November 2014
||
Objective
2
Reflect on how:
1.The 2014 MTBPS proposed infrastructure allocations will provide a space for the Bank to increase its support to municipalities
2.The Bank should indicate any shortfalls to current infrastructure investment needs and any proposed alternative funding.
22
As per letter dated 21 October 2014 re: “Public Hearings on Division of Revenue Amendment Bill and proposed division of revenue and conditional grant allocations to provinces and local government”
||
Our understanding of the key changes to the proposed infrastructure allocation as reflected in the MTBPS – Extracts from the MTBPS
3
• Reviving investment in cities (MTBPS pg 4)o Policy seeks to reshape urban landscape, renewing investment in
affordable housing in partnership with the private sectoro Government will roll out a new approach to local government
infrastructure financingo Government will also work with private investors and development
finance institutions to expand debt financing for municipal infrastructure
• Funding local government (MTBPS pg 39)o A call for municipalities to get back to basics in delivering services
and funding infrastructureo The baseline allocation for local government conditional grants will
be reduced by R920.6 million in 2015/16 and R1.4 billion in 2016/17
||
Presentation outline
4
1. GROUP OVERVIEW
• Strategy
• Outlook
2. SUPPORT TO MUNICIPALITIES
• Overview of the municipal market
• CAPEX trends
• Current planned support to municipalities
• Potential scope to increase support to large cities
• Crowding-in the private sector
• Product innovation is a key enabler
44
||
GROUP OVERVIEW
5
|| 6
Mandate and regulatory framework
National Department
Major DFIs
• DBSA 100% owned by the SA Government• Oversight by the National Treasury (Finance Ministry) and ultimately
Parliament • Incorporated as a development finance institution (DFI) under the
DBSA Act (no 13 of 1997)• Regulated by the Public Finance Management Act• Not regulated by the SA Reserve Bank or Bank Act
100% 100% 100% 100%
100%
Mandate (per DBSA Act)
The main objectives of the Bank are the promotion of economic development and growth, human resources development, institutional capacity building, and the support of development projects and programmes on the African continent
||
Governance framework
7
DBSA BoardChairman: Jabu Moleketi
Audit and Risk Committee
Board Credit and Investment Committee
Human Resources, Nomination, Social and
Ethics Committee
Infrastructure Delivery and Knowledge
Committee
Ministry of Finance (sole shareholder)Minister Nhlanhla Nene
Finance and Treasury Committee
Investment Committee Corporate Services Committee
Infrastructure Delivery & Knowledge Management CommitteeM
an
ag
eme
nt
Su
b-C
om
mit
tee
s
DBSA Executive Management CommitteeChairman: Patrick Dlamini
Bo
ard
S
ub
-Co
mm
itte
es
||
Infrastructure development plays an important role in the achievement of the National Development Plan objectives
Outcome DBSA’s role Example
Create an economy that will create more jobs • IDD: ASIDI and Eastern Cape Rural Housing
Investing in economic infrastructure • Funding of various energy, transport and ICT projects
Environmentally sustainable and resilient: Transition to a low carbon-economy
• Preparation and funding of IPPs
An inclusive and integrated rural economy• Funding of bulk water supply • Eastern Cape Rural Housing Programme
South Africa in the region and the world• Funding of projects in SADC• North-South corridor
Transforming Human Settlements• Eastern Cape Rural Housing Programme• Housing Impact Fund
Improving the quality of education, training and innovation• IDD: ASIDI programme• Funding of student accommodation
Quality health care for all• IDD: refurbishment of health clinics and construction of doctors’
rooms
Social protection
Building safer communities
Building a capable and developmental stateProvision of technical support in the planning and implementation of projects
Fighting corruptionIDD: management of procurement processes in appointing service providers
Transforming society and uniting the countrySupporting development impact through investment in social and economic infrastructure
Direct Indirect Not applicable 8
||
The Strategic Integrated Projects (SIPs) direct our work…
Social Infrastructure programmes Involvement of DBSA
SIP 1
Description
SIP 2
SIP 3
SIP 4
SIP 5
SIP 6
SIP 7
SIP 8
Unlocking the northern mineral belt with Waterberg as the catalyst
SIP 9
SIP 10
SIP 11
Durban – Free State – Gauteng logistics and industrial corridor
South – Eastern node and corridor development
Unlocking the economic opportunities in North West Province
Saldanha – Northern Cape development corridor
Integrated municipal infrastructure project
Integrated urban space and public transport programme
Green energy in support of the South Africa economy
Electricity generation to support socio economic development
Electricity transmission and distribution for all
Agri-logistics and rural infrastructure
SIP 12
SIP 13
SIP 14
SIP 15
SIP 16
SIP 17
SIP 18
Revitalisation of public hospitals and other health facilities
National school build programme
Higher education infrastructure
Expanding access to communication technology
SKA & Meerkat
Regional integration for African cooperation and development
Water and sanitation infrastructure
9
||
PartnershipsBalance Sheet
Capacity
DBSA strategic framework is aligned to the government’s economic policy and programs
A prosperous and integrated region, progressively free of poverty and dependence
Vision
Mission
To advance the development impact in the region by expanding access to development finance and effectively integrating and implementing sustainable development solution
Strategy Objectives
Improve the quality of life of people through the development of social
infrastructure
Support Regional Integration
Support Economic Growth through investment in
economic infrastructure
Financial Sustainability
InnovationHigh Performance Culture
Strategic Enablers
Business Intelligence
Operational Excellence
High PerformanceShared Vision IntegrityInnovationService Orientation
Values
Performance Measures
Growth in disbursements: 20%+ CAGR
Cost to income ratio: 35% long term
Return on equity: 5-6% in long term
Equity Growth: Inflation linked
IDD Growth: Full cost recovery and R500M revenue
Integrated infrastructure solutions provider (“cross-sell”)
Early stage risk (project prep)
Trusted partner
Access to infra. decision-makers (esp. public sector)
Basel III – ability to provide longer tenor debt
Competitive Advantages
National imperativesNational Development Plan
Presidential Infrastructure Coordinating Commission
Integrated infrastructure solutions provider
Sustained growth in development impact
10
|| 11
DBSA primarily plays a key role in the prepare, fund and build phases of the infrastructure development value chain
Plan Prepare Plan Prepare
1 2
Finance
3
Build4
Maintain / improve5
DBSA’s primary focus
Se
rvic
es • Project identification
• Feasibility assessments• Technical assistance• Financial structuring• Project Preparation funds• Lead arranger
Provide vanilla and boutique financing opportunities•Debt•Mezzanine Finance•Limited non–recourse lending•MLA
• Managing the design and construction of key projects in the education, health and housing sectors
• Project Management support, including to the Jobs and Green funds
• National and provincial government departments
• Municipalities
South Africa• Municipalities• State–Owned Enterprises• Public-Private Partnerships• Public-Public Partnerships• Private sector
The rest of Africa• State-Owned Enterprises• Public–Private Partnerships• Private sector
• Municipalities• Public-private partnerships• Public-public partnerships• Regional integration
• Under-resourced municipalities
Cli
en
t /
ma
rke
ts
• Supporting the maintenance and/or improvement of social infrastructure projects
• National and provincial government departments
• Municipalities
Integration across the value chain and innovative solutions to drive infrastructure delivery and development impact
||
Build on our competitive advantages in our core markets
Exclusive access to deal flow
Early stage risk
DBSA a trusted partner
Arbitrage Basel III capital
requirements
Integrated infrastructure
solutions provider
Source of Competitive Advantage
DBSA able to leverage preferential access to RSA government to access opportunities in South Africa (SOEs, municipalities) and countries in Africa with strong relations w RSA
As a DFI, the DBSA is positioned to take on early-stage risk where commercial banks are reluctant to take on this risk
Use project preparation services as a ‘deal pipeline”
The DBSA is positioned to leverage its role as a trusted partner between the government and the private sector
Private sector banks not ‘threatened’ by DBSA
As a DFI, the DBSA does not have to comply with Basel III capital requirements
Allows DBSA to take longer tenor on debt (vs. commercial banks)
The DBSA operates across the infrastructure finance value chain and can therefore offer clients an integrated solution
Opportunities for ‘cross selling’ across DBSA divisions
Competitive Advantage
12
||
OUTLOOK
13
|| 14
Infrastructure financing
We aim to be at the heart of infrastructure development on the continent Our growth ambitions will enable DBSA to become a leading infrastructure financier in
Africa, meaningfully contributing to economic growth and regional integration
Rest of Africa: 18%
South Africa: 25%
• Targeting 20% annual growth rate for next three years:
• ~ 70% in South Africa, remaining 30% in the rest of Africa
• More than doubling our disbursements to under-resourced municipalities
CAGR:
|| 15
Infrastructure delivery support – providing implementation agent, programme management and coordination services
• Continue to support in key sectors of education, health and housing – partnering with the communities to succeed
• Doing more with less to fill the gap in implementation
• Full cost recovery
• Embracing new build technology
||
Our ongoing success is dependent on…
16
• Developing innovative solutions to infrastructure challenges – planning, financing, construction and maintenance
Innovative infrastructure
solutions
Project Preparation
Partnerships
Full value chain offering
Employer of choice
• Unlocking projects through project preparation
• Development of partnerships as the demand for infrastructure development exceed what we can provide
• Optimising our service offering in terms of the value chain
• Attracting, retaining and developing talent – key skills in the area of project management, engineering and finance skills
||
SUPPORT TO MUNICIPALITIES
1717
||
DBSA role and approach in the municipal sector
18
Strengthen the capacity of under-resourced municipalities in areas such as project planning, preparation and packaging
Increase focus on areas with the biggest unfunded gap through project origination initiatives
Providing affordable funding through development subsidies to secondary municipalities and under resourced municipalities
Integrate financing and non-financing support activities to achieve over-all development impact
Provide support to municipalities to improve the level of expenditure of conditional transfers by providing implementation support
||
Segmentation: Secondary (M2) / under-resourced (M3) Municipal Sector
1919
19
Large Towns: 27
Large Towns: 27
Districts44
Districts44
Market 2: Total 90 municipalities
Market 2: Total 90 municipalities
Large towns with urbanized areas at the periphery
Large towns with urbanized areas at the periphery
Not providing water services: 23 Providing water services: 21 and
responsible for:o Regional bulk serviceso Capacity building supporto Disaster management
Not providing water services: 23 Providing water services: 21 and
responsible for:o Regional bulk serviceso Capacity building supporto Disaster management
Market 3: Total 180 municipalies Market 3: Total 180 municipalies
Economic base:Moderate economiesHighly variable revenue baseFair degree of grant dependencySome ability to borrow to raise capital Limited institutional
capacity
Economic base:Moderate economiesHighly variable revenue baseFair degree of grant dependencySome ability to borrow to raise capital Limited institutional
capacity
Small Towns and Rural180
Small Towns and Rural180
Small towns with rural periphery and scattered settlements: 111
Rural municipalities with scattered settlements and deep rural areas: 69
Small towns with rural periphery and scattered settlements: 111
Rural municipalities with scattered settlements and deep rural areas: 69
Economic base: Very weak economies base weak
institutional capacityTotal reliance on national government transfers for both capita; and operating expenditureLimited to no ability to borrow to raise capital
Economic base: Very weak economies base weak
institutional capacityTotal reliance on national government transfers for both capita; and operating expenditureLimited to no ability to borrow to raise capitalEconomic base:
Strong economies; substantial revenue baseLow grant dependencyAbility to borrow to raise capital
Economic base:Strong economies; substantial revenue baseLow grant dependencyAbility to borrow to raise capital
Economic base:Not applicable (various local municipalities constitute the areas of jurisdiction of the DMs)High degree of grant dependency to render servicesVariable ability to borrow to raise capital
Economic base:Not applicable (various local municipalities constitute the areas of jurisdiction of the DMs)High degree of grant dependency to render servicesVariable ability to borrow to raise capital
Largest budgets after metros
Direct National Treasury budget oversight
Aspirant metros
Largest budgets after metros
Direct National Treasury budget oversight
Aspirant metros
270 municipalities270 municipalities
Secondary Cities : 19
Secondary Cities : 19
Tend to attract little interest from the commercial banks Require support in the planning and identification and
preparation of projects
Require extensive support in all aspects of infrastructure delivery and management
Support required include their ability to plan, prepare and implement projects, and to utilise support through fiscal transfers
Require extensive support in all aspects of infrastructure delivery and management
Support required include their ability to plan, prepare and implement projects, and to utilise support through fiscal transfers
||
Segmentation: Metropolitan Municipalities
2020
STRATEGIC ISSUES/DEVELOPMENT CHALLENGES
•Rapid urbanization•Aging infrastructure leading to water and electricity losses•Growing indigent populations•Economic growth constraints by infrastructure•Conservative fiscal policy (reference for low borrowing)
CAPACITATED METRO’S
Consists of 5 Metropolitan municipalities:•Ekurhuleni •City of Johannesburg•City of Tshwane•eThekwini •City of Cape Town
UNDER RESOURCED METRO’S
Consists of 3 Metropolitan municipalities:•Buffalo City•Nelson Mandela Bay•Mangaung
||
Historical Capex Trends: M1, M2 & M3
2121Source: National Treasury: Local Government Revenue and Expenditure: Fourth Quarter Local Government Section 71 Report (2010/11 to 2013/14)
Actual municipal capital expenditure vs. budget from 2010/11 to 2012/13
Actual Historic Spending Trends (based on 3 year data)82% CAPEX expenditure83% expenditure of planned borrowing78% expenditure of grant funding
Actual Historic Spending Trends (based on 3 year data)63% CAPEX expenditure34% expenditure of planned borrowing67% expenditure of grant funding
Actual Historic Spending Trends (based on 3 year data)64% CAPEX expenditure56% expenditure of planned borrowing67% expenditure of grant funding
M1M1 M2M2 M3M3
||
DBSA market share
2222
DBSA significant role player in:•M3: 84% •M2: 73% •M1: 30%
DBSA municipal book (R18.1bn):• M1: 66%• M2: 28%• M3: 6%
DBSA 84%
of under
resourced municipal
debt
DBSA 73%
of secondary municipal
debt
DBSA 30 % of
metro debt
R18.1bn
R44bn
||
Planned capital expenditure 2014/15 to 2015/16
2323
23
Increased infrastructure funding needs (R149bn over 2 years):
• M1: R67bn
• M2: R40bn
• M3: R42bn
Increased funding gap
(R33.2bn over 2 years):
• M1: R4.7bn
• M2: R3.9bn
• M3: R24.6bn
Source: National Treasury database: Municipal Budgets 2013/14 World Bank: The South African Urban Agenda Report 2009
Total CAPEX (2 yrs) (R'bn)
CAPEX Grants/Subsidies
(R'bn)
Own Revenue (R'bn)
Borrowings (R'bn)
M1 62.6 28.8 15.2 18.6M2 36.1 25.6 8.0 2.5M3 17.5 13.6 3.5 0.4Total 116.2 68.0 26.7 21.5
||
Metro’s: Potential capital projects
2424
CLIENT PROJECT EST. VALUE
Buffalo City Metro
1. Bulk water treatment plants R2bn
2. Revenue enhancement linked to water demand management & water losses
R1.6bn
Mangaung Metro
1. Bulk water upgrades R3bn
2. Water conservation demand management & automated metering
R600m
3. Airport Nodal development R450m
Nelson Mandela Metro
1. Nooitgedacht bulk water augmentation scheme
R1bn
2. Water demand, stormwater & augmentation scheme
R540m
3. Coega IDZ Nodal waste water scheme
R500m
City of Tshwane
1. Wonderboom Airport nodal upgrade
R2bn
2. West Capital Project (mix use economic development
R3.2bn
CLIENT PROJECT EST. VALUE
Ekurhuleni Metro
1. Nodal development at OR Tambo airport
R450m
2. Water conservation demand management
R3bn
eThekwini Metro
1. Bulk water infrastructure linked Dube Trade Port
R1bn
2. Dube Trade Port nodal development
R1.5bn
City of Johannesburg
1. Greening projects - waste to energy
R2bn
2. Inner city economic Precinct
R3bn
City of Cape Town
1. Bulk infrastructure expansion
R4bn
2. ICT broadband fibre optic network
R1.3bn
Source: Metro Budgets MTEF 2014/15 to 2016/17IDP 2014/15
||
Municipal Strategic initiatives: New business development
2525
STRATEGIC INITIATIVE
DESCRIPTION POTENTIAL APPLICATION
1 Districts municipalitiesas vehicles forreaching M2/M3 communities Planning Support Bridge Finance
Support prioritised District municipalities (Water Service Authorities)complete their 3-5 year infrastructure plansIncrease their claim to MIG, MWIG & RBIGUse their balance sheet to raise fundingPartner with DM’s and the Department of Water and Sanitation to build the regional bulk infrastructure for water
DM borrowings at 75% of allocated grants as per MFMA Circular 51
DBSA target 30% of the allocated grants R100m per annum borrowed on balance sheet National Treasury on-time approval of the
municipal applications for pledging grants
2 Cities SupportProgramme for 10Secondary cities Infrastructure plan
Fund part of the infrastructure plan:Balance sheet Off balance sheetConditional grant pledging
Secondary Cities borrowings at 75% of allocated grants as per MFMA Circular 51
DBSA target 30% of the allocated grants Secondary cities borrowing at 56% of budgeted
borrowings R500 million per annum off balance sheet
lending
3 Maintain pricecompetitiveness: Efficiencies Budget Subsidy
support
Participating in bidding processes and bilateral offers to provide direct lending to municipalities
Municipal borrowings (R5.5bn) Trend of 56% of planned borrowings take-up to
improve to 60% 75% DBSA success rate on planned borrowings
by municipalities (bids & bilateral offers) The planned borrowings from municipalities
continue to grow at current rate of 5% per annum
4 Public-Public Partnerships
Structures that involve stronger public entities engaging weaker ones through structured contractual agreements to deliver infrastructure. Bulk water infrastructure requires capex over and above current budgets
Water Board partnering to assist several small municipalities to deliver a bulk regional water project
||
Municipal Strategic initiatives: New business development
2626
STRATEGIC INITIATIVE DESCRIPTION POTENTIAL APPLICATION
5 Private Developer Financing Private developers (e.g. Property) provides infrastructure finance in exchange for certain concessions
Opportunities to enter into Long Term arrangements with private sector risk taking. Urban infrastructure development in high demand areas (Metro’s) as identified through mega projects
6 Public Sector Contract (Concession model)
The development (investment) and operation of an infrastructure project under a concession agreement
Opportunity to structure Student Accommodation via an SPV management company with retained ownership but PSC managed. Water turnkey projects required due to bulk needs in high density industrial and residential areas
7 Build-Lease-Transfer(BLT)
Private Company gets contracted by Government to build a project, and then lease it to Government over a period. Eventually transferring ownership to Government
Potential application in mass roll-out of higher education accommodation, health facilities, public schools, etc
8 Project Preparation Assistance
Provide both expertise and early stage risk capital to originate projects
At scale projects generated through own pipeline and/or national departments’ partnerships
||
Municipal growth prospects: 2015/16 to 2017/18
2727
Growth Scenario (3yrs to 2017/18): R19.9bnM1: R12.8bnM2/M3: R7.1bn
20 % GrowthCurrent:
4.5Planned:
6.0Planned:
6.3Planned:
7.6
Corporate Plan
Note: Targeted loan disbursements subject to demand for infrastructure debt funding, debt absorption capacity and creditworthiness of the respective municipalities as well as the ability of the DBSA to provide competitive funding rates
||
POTENTIAL SCOPE FOR DBSA TO INCREASE SUPPORT TO LARGE CITIES
2828
||
Infrastructure grant pledging has been a key to support the acceleration of infrastructure delivery in under-resources municipalities
29
• Conditional grant pledging provides an opportunity for municipalities to obtain short term bridging finance to accelerate investment spending on capital projects to:o Accelerate reduction in backlogso Bring implementation forward from 36 months to between 9 and 12 monthso Take advantage of additional subsidised support for programme planning and
implementationo Improve socio-economic development and quality of life of residents
• DBSA is currently the biggest contributor and strongly positioned to provide infrastructure support to under resourced municipalitieso Sole provider of bridging finance for infrastructureo Significant provider of subsidised project preparation, planning and implementation
support to under resourced municipalities
Pledging programme could be extended to large urban cities
||
Additional capital injection can help create additional funding capacity in large urban centres
3030
• Inject, say R5 billion into DBSA (R2.5 billion per annum)• Use its existing balance sheet and leverage additional capital by two-and-a-half
times (2.5 times)
Increase funding support to R17.5 billion to support growth-enabling infrastructure that expands the income generation base of municipalities by supporting the funding
of economic infrastructure
Total R17.5bn
||
Crowding-in the private sector investment is essential to increasing the funds available to large urban centres
31
• Participation by the private sector capital markets in the development of the debt market remains an important focus area for the DBSA.
• DBSA is currently testing various securitisation options of its existing loan book.
o Loans to urban cities could be amalgamated, packaged and sold-off to attract and crowd-in private sector capital.
o Strong appetite from both the commercial bank market and the debt capital markets for exposures to Cities and Large Urban centres.
o The DBSA could fund the longer-end of the loan which is the typical role of development finance institution, in other, for periods from ten to 20 years.
o Period shorter than ten years would be funded by the private / commercial bank market.
• Crowding in the private sector will enable the DBSA to free up capital for reinvestment into infrastructure projects.
||
Product innovation is a key enabler
32
The DBSA’s continues to explore options to catalyse private sector participation in the municipal sector and thereby accelerate the provision of economic infrastructure including:
oInfrastructure bonds.
oMunicipal bond underwriting.
oProject finance / Off-balance sheet limited recourse structures.
oPublic/municipal service contracting models.
oRevenue enhancement financing models.
||
THANK YOU
3333