Extended PEC Lekgotla

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Extended PEC Lekgotla POOLED FINANCING / BOND POOLING Creating Innovative Funding Opportunities for SA Cities

CONTEXT What is pooled financing? Pooled Financing Mechanisms Resolutions: COJ/FMDV Conference Progresstodate Recommendations

What is pooled financing? Pooled financing involves the pooling of multiple municipalities borrowing needs together normally through a local government funding agency (LGFA) which can offer larger debt issues with better credit rating at lowered costs of debt. A LGFA is a special purpose agency owned by local municipalities in some occasions, with the minority shares held by state. The LGFA issues bonds in the capital markets, and on-lends the proceeds to local authorities who are members/ shareholders of the agency.

South African Context Municipalities that have issued municipal bonds in the country City of Johannesburg Jozibond and Green bond(r1.46bn) City of Tshwane Ekurhuleni Metrol Municipality CityofCapeTown Ethekwini Metro Municpality

Pooled Financing Mechanism (PFM) A developed use of PFM stimulates competition and brings several benefits for local authorities: Access to capital markets Lower margin on loans Lower processing costs Lower risks trough diversification Lower risks with financial expertise Incentives to improve creditworthiness Transfer of knowledge Economies of scale

European Local Government Funding Agencies www.salga.org.za

www.salga.org.za Joburg /FMDV Conference Innovating in Financing South African Cities Conference

Joburg / FDMVSeminar 28-30 January 2015 The City of Johannesburg and the Global Fund for Cities Development (FMDV), an agency that supports municipalities to access funding, organised a three day seminar with the theme Innovating Financing for SouthAfricanCities thattookplaceon28,29and30 th ofjanuary2015at the Sandton Convention Centre. The seminar was attended by around 100 key stakeholders in local government infrastructure funding aimed at creating a platform for key stakeholders in local government infrastructure funding to explore, share ideas as well as discuss innovative funding mechanisms for consideration by the South African municipalities with a focus on pooled financing mechanisms(pfm).

Resolutions: COJ/ FMDV Conference Following the interest expressed by all the parties who attended the workshop to continue the exploration of developing Pooled Financing Mechanisms in South Africa, the following resolutions were proposed: i. To establish a Task Team consisting of municipalities, SALGA, SACN, National Treasury, Development Financing Institutions, advisory firms and private banks.. i. To develop a detailed Business Case to consider the opportunities to develop on subnational pooled financing mechanisms, their relevance and the benefits they could bring for South African Municipalities.

Role of SALGA PEC Resolutions 23 March 2015 SALGA to facilitate: i. Establishment of a Task Team on Pooled Financing Mechanisms consisting of FMDV, SALGA, South African Cities Network, National Treasury and COGTA in liaison with the City of Johannesburg and FMDV; ii. Development of a detailed Business Case to consider the opportunities to explore mechanisms on subnational pooled financing, their relevance and benefits to African municipalities. iii. Further investigation into the possibility of establishing the proposed Local Government Funding Agency (LGFA) to explore various funding mechanism for South African municipalities, also taking into account the proposed Gauteng Infrastructure Financing Agency(GIFA) by Gauteng Treasury.

Role of SALGA PEC Resolutions 23 March 2015 Cont SALGA to facilitate: i. Tabling of progress reports on activities of the Task Team on exploring financing alternatives for municipalities at SALGA governance structures. ii. The Task Team should further engage the National Treasury and COGTA regarding SALGA s participation in the Conference on Urban Infrastructure Investment on Financing Opportunities as pronounced bytheministeroffinanceinthebudgetspeech.

Role of SALGA Progress to date 1. Establishment of a Task Team 2. Participation in the French Agency for Development (AFD) 13 May 2015 3. Capacity Building initiatives

Role of SALGA Progress to date 1. Establishment of a Task Team i. SALGA will coordinate the Sub-national Pooled Financing Task Team comprising of FMDV, Development Bank of Southern Africa (DBSA), South African Cities Network(SACN) and metropolitan municipalities. ii. Task Team to develop the Terms of Reference for the Task Team and the Advisory team. iii. The Task Team to quantify the cost to develop a business case and to engage FMDV on the proposal submitted. iv. Consultative engagement with relevant stakeholders i.e. National & Provincial Treasury, COGTA upon completion of a Business Case. v. The National Treasury has agreed to include SALGA in the planning process towards the Conference on Urban Development Financing scheduled for 29to30July2015.

Role of SALGA Progress to date 2. Meet with Agence Francaisede Developement (AFD) 13 May 2015 i. Meeting held on 13 May 2015 attended by Senior Executives from AFD, Delegation of the EU, Europe Investment Bank, KFW Development Bank, INCA,ICLEI and ASISA. ii. To discuss the contributions/views made by the local experts to give a good overview about the current state of municipal financing in South Africa and the needs of municipalities; iii. To provide a platform for institutional investors could give their views and appetite for this type of credit to identify potential opportunities. iv. To allow other Development Finance Institutions (DFIs) to contribute to the discussion by positioning themselves and explain their perspectives on alternative types of financing mechanisms.

Role of SALGA Progress to date 3. Capacity Building on Pooled Financing The SALGA GP is in discussions with FMDV and the International Finance Corporation (IFC) to provide Capacity Building initiatives to enable the Local Government Sector to play a more informed role in this initiative. The discussions with other Funding Agencies agencies engage and exchange on the benefits and prerequisites of different models of the Sub-national Pooled Financing Mechanism(SPFM) is continuing.

RECOMMENDATIONS i. That the Extended PEC Lekgotla notes the progress report from the Bond Pooling Task Team established to facilitate the development of a Business Case to explore pooled financing mechanisms(pfm) opportunities for South Africa; ii. That the Task Team, should amongst other matters, should interact with other Funding Agencies and various DFI s with a view to develop Local Government Capacity on alternative funding models.

THANK YOU! www.salga.org.za