City highlights latest capex figures for the 2013/14 financial year

The City has consistently achieved the highest levels of capital expenditure in South Africa as part of our commitment to infrastructure-led growth. However, there are instances where factors beyond the City's control affect this high level of spend, leading to a projected reduced capital expenditure in the last financial year. Read more below:

The City of Cape Town is committed to infrastructure-led growth as the way to drive economic growth, development and inclusion.

We believe that a focused strategy of major capital expenditure is critical to creating the necessary enabling environment for the private sector to thrive.

We have an impressive record in this regard, having spent over R20 billion over the past five years on capital projects.

This expenditure has seen large-scale investments in public transport, roads, broadband roll-out, housing and the Cape Town International Convention Centre (CTICC) expansion, amongst others.

The net effect of these investments is that we have improved the lives of residents - especially in areas that have experienced historical under-investment. These capital investments are also the main reason why Cape Town does not have the kind of failing infrastructure and backlogs regrettably being experienced in many other municipalities throughout the country.

Last year we achieved a record spend of 94,3% of our capital budget - spending R5,78 billion of the R6,2 billion on capital projects. This was a reflection of a targeted approach designed to ensure that the City was able to spend at the highest level possible. This was the highest capital expenditure of any metro in South Africa.

Achieving and maintaining this level of spend, however, is a complex and demanding task and while the City does everything possible to control the variables over which we have direct control, there are always certain factors over which we have no influence or control and which can have a materially detrimental effect on our capital expenditure.

Over the last financial year, it is likely that we will see a reduced spend in the region of 80,6%. This percentage is likely to increase once all outstanding payments are finalised.

The City has therefore spent approximately R4,5 billion of its R5,6 billion capital budget for the 2013/2014 financial year.

The reasons for this reduced capital expenditure are primarily factors beyond our control such contractors being liquidated or companies under-performing.

The Capex figures are outlined below:

South Africa's economic slowdown, which the City has no direct ability to change, has negatively affected a number of companies that the City does business with. In this depressed economic climate, a number of contractors have been liquidated and have been unable to fulfil their contractual obligations with the City. When awarding the tender, it is difficult to foresee future problems.

In other instances, certain contractors have under-performed and the City has been forced to institute the lengthy performance provisions that are contained in law to remedy their performance.

In addition, some major City projects - especially in terms of Human Settlements and the IRT roll-out - have been negatively affected and delayed as a result of community resistance.

The table below indicates the underspend as a result of liquidation or contract cancellation:

It needs to be underscored that the reduced capital expenditure as a result of these factors does not mean that the projects are cancelled or that the funds are lost to the City.

Rather, in the vast majority of cases, the funding will be rolled over and the projects will be implemented on the basis of a revised project schedule.

Some significant examples of where these factors, as well as community resistance, have led to underspending are the following:

Transport for Cape Town (TCT)

TCT's underspend is a result of various factors which the City has already taken steps to rectify. These include the MyCiTi Lumen Technologies contract which was cancelled earlier this year due to non-performance and an amount of R15 million was held over. A new contract has since been awarded.

Another factor which affected TCT's capital expenditure was the R80 million compensation for the N2 Express. We have reached an agreement with the respective parties and are now able to assign the funds. Once complete, this will improve the TCT bottom line expenditure by an additional 5%.

There has also been an under spend of R48 million on the IRT project (Phase 1B, N2 Express and Imizamo Yethu) due to labour unrest and community participation issues. These issues have since been resolved and we have received a commitment from National Treasury that the amounts can be rolled over into the 2014/2015 financial year.

Several contractors for roadworks projects have also been liquidated, affecting projects and TCT capital expenditure.

Human Settlements

The underspend in Human Settlements is largely due to contractors underperforming, as in the case of the Manenberg Community Residential Unit (CRU) upgrades, where the contract was terminated due to poor progress. An agreement has been reached with a new contractor to complete the remainder of the work which will continue in this financial year.

In another example, the Marble Flats CRU project in Ottery was delayed as the contractor was not performing. A new contractor has since been appointed to complete the project also in this financial year.

The Heideveld CRU project was delayed as the contractor was liquidated. A new contractor has been appointed to continue the work in this financial year.

Finance

In Finance, one of the main reasons for the underspend was the change in the City's approach to the Salazar Square project at the CTICC. The City has decided not to develop the square ourselves and rather lease the property to an adjacent property owner for them to develop. Therefore the City funds allocated for the project were not required. It must be noted that last year the Finance Directorate spent 94% of its budget.

Community Services

In the Community Services Directorate, several projects were delayed due to community conflict and as a result of contractor underperformance. These include the Imizamo Yethu SC upgrade which was delayed due to conflict within communities.

The Parow Library upgrade and extension was delayed due to contractor performance.

The new regional library in Kuyasa, Khayelitsha was negatively affected due to community interference.

Utility Services

The Utility Services Directorate achieved an 86,9% (R2,1billion) actual spend against the total budget of R2,4 billion - with a final spend projected to be 88%.

The Solid Waste Management Department achieved a 97,9% actual expenditure; Electricity Services achieved an 86,4% spend; and Water and Sanitation an 86% spend.

One of the main projects affected in the Electricity Services Department is a R17,2 million electrification project in Joe Slovo. Progress has been delayed due to community conflict over the allocation of housing units.

Another project affected was Phase 2 of the R17 million Koeberg Switching Station and Gugulethu Main Substation upgrade. Building work is behind schedule due to poor performance of the contractor which negatively affected both the building construction and the switchgear installation contracts' spend. A site monitoring professional was appointed to manage the project - the cost of which is to be recovered from penalties imposed.

Another contract for R9,1 million for a pump station and rising main in Dunoon was affected when the civil contractor was not performing and fell behind on the schedule.

Under the Solid Waste Management Department, a vendor approached the City advising of his imminent liquidation and was therefore unable to deliver shipping containers required for waste drop-off.

The City of Cape Town will not be satisfied until we spend 100% of our capital budget. We will now redouble our efforts and strengthen our systems. As part of our planning, the City will ensure that only tender-ready projects will be included in the budgeting process.

We are also reviewing the methodology of planning and project management capacity in the City. These aspects will strengthened in order to ensure that we maintain our high level of capital expenditure, and that we are able to mitigate the risk posed by factors such as the stagnant economic environment and complex community dynamics.

Statement issued by the Executive Mayor City of Cape Town, Patricia de Lille, July 16 2014

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