January 16, 2006
By Anish Abraham
CHEAP, long-term debt will be used by the City of Johannesburg to finance its capital expenditure costs. And the City is giving residents the opportunity to comment on the proposed transaction.
The City's treasury department intends borrowing R320-million from Agence Francaise de Developpement (AFD). According to the treasury's compliance officer, Mohau Motake, the cash will be used by Johannesburg Water to complete the installation of water meters in Soweto as part of Operation Gcin'amanzi.
According to its website, AFD is the main operator of the French Official Development Assistance system and is involved in more than 60 countries. It conducts missions in these nations on its own behalf and on the behalf of France.
It also provides loans at competitive rates.
"We advertised for the loan and several banks were invited. After closely evaluating the applications from nine respondents, AFD was chosen," Motake said.
The unsecured R320-million loan will be used to finance the City's capital infrastructure programme.
It cannot be tied to existing assets or revenue streams because of the municipal bonds that Johannesburg has issued. "The three bond issues of the City have a negative pledge and in terms of this negative pledge, the City is precluded from pledging or encumbering its assets to third parties,” Motake explained.
Repayments will only start after a two-year grace period, with semi-annual interest and capital repayments made over 10 years.
"The two-year grace period was not part of our requirements, but it was included in AFD's proposal. That made it a very attractive offering for us," he said.
The interest on the debt will be the three-month Johannesburg Inter-bank Agreed Rate (Jibar), minus 35 basis points. At present this rate is 7 percent.
According to the South African Futures Exchange, Jibar is a South African money market rate, updated daily, as indicated by a number of local and international banks.
Municipal Finance Management Act
Any plans to incur long-term debt have to be made known, ensuring the municipality abides with the Local Government: Municipal Finance Management Act of 2003.
According to that act, a municipality may incur long-term debt only if the municipality's accounting officer has made public an information statement with particulars of the proposed debt.
This includes the amount of the proposed debt, the purposes for which the debt is to be incurred and details of any security to be provided.
In addition the public, the national Treasury and the relevant provincial treasury should be invited to submit written comments or representations to the council regarding the proposed debt.
People who wish to submit comments can do so by 4pm on 20 January. They must be sent to William Mathamela or Mohau Mtotake at:
Treasury department
14th Floor, Jorissen Place
66 Jorissen Street
Braamfontein
Comments can be faxed to 011 242 1055/6 or emailed to agentem@joburg.org.za or wmathamela@joburg.org.za.
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