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DBSA’s new Project Vumela financing instrument to help municipalities fund bulk infrastructure investment

1st March 2024

By: Darren Parker

Creamer Media Contributing Editor Online

     

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Development finance institution the Development Bank of Southern Africa(DBSA) has introduced a new financing instrument called Project Vumela, which blends municipal revenue sources with financing from development finance institutions and commercial finance.

Revealed in the 2024 Budget Review on February 21, the National Treasury said that Project Vumela would be aimed at raising funds for bulk infrastructure required for services such as water, sanitation, roads and stormwater, electricity and solid waste, without affecting the borrowing capacity of municipalities.

This financing will be secured against future revenue, including development charges, municipal grants and a portion of property rates.

The National Treasury said that the initiative complements other measures aimed at increasing investment in infrastructure by leveraging private-sector resources and expertise to support economic growth and improve service delivery.

Finance Minister Enoch Godongwana admitted that the quality and reliability of urban utility services, including water, wastewater and electricity, had declined owing to neglect and inadequate maintenance.

He recalled that government previously allocated R61.7-billion to local governments in the 2022/23 financial year to address these challenges, but lamented that little progress had been made.

Godongwana added that, as from 2025/26, a new incentive grant would be made available to those cities that demonstrated a certain level of transparency, displayed strong governance and reached key milestones in transforming their water businesses.

National Treasury director-general Dr Duncan Pieterse said upon the release of the 2024 Budget that macroeconomic stability was being prioritised, along with structural reforms to reduce binding constraints to growth and improved State capacity.

“Broad reforms are under way in energy, rail, ports and the water sector. It will take time to reverse the consequences of myriad operational, maintenance and governance failures at key State-owned companies,” he said.

In the water sector, the National Water Resources Infrastructure Agency Bill was introduced in June 2023, with plans to establish the National Water Resources Infrastructure Agency by March 2025.

In addition, Godongwana said he was set to agree on the updated Raw Water Pricing Strategy this year.

Meanwhile, comments on the Water Services Amendment Bill, which allows for greater regulatory power and interventions by the Department of Water and Sanitation in failing municipalities, closed in mid-January.

The reforms are expected to improve service provision at the municipal level, with the urban settlements development grant providing financing for water infrastructure services rehabilitation for the 2024/25 financial year.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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