SA Budget 2012: Funding of Infrastructure Highlights


Finance Minister Pravin Gordhan deliveres South Africa's 2012 budget at Parliament in Cape Town.

To some the budget brings relief, while for others added pressure. In this part of the Budget Speech, the minister looks at the Presidential Coordinating Commission and clarifying long-term investment plans to drive economic change.

Funding of infrastructure:

"The Presidential Infrastructure Coordinating Commission has made considerable progress in identifying projects and clarifying long-term investment plans to drive economic change.

The Budget Review lists 43 major infrastructure projects, adding up to R3.2 trillion in expenditure. Over the MTEF period ahead, approved and budgeted infrastructure plans amount to R845 billion, of which just under R300 billion is in the energy sector and R262 billion in transport and logistics projects.

These projects are funded in various ways:

The fiscus meets the costs of public-service facilities such as schools and courtrooms, hospitals and rural roads.

Public entities such as Eskom and Transnet finance their investments from internally generated surpluses and borrowing from the capital market. This means they have to generate sufficient revenue from tariffs and charges to repay debt over time, and cover operating and maintenance costs.

In some cases, a mix of tax finance and cost recovery is appropriate - we make budget contributions to the costs of commuter transport services and electricity and water service delivery to low-income communities, for example.

Private sector investment plays a substantial role in several sectors. Access to telecommunications services is financed by private operators, and our airlines industry has several private sector players. The first round of over 1 200MW of renewable energy projects was recently successfully tendered to independent power producers. Private sector capacity can also be mobilized through construction and operating concessions, for example in the management of industrial development zones, freight logistics and ports operations.

The Development Bank of Southern Africa will play a coordinating role in raising finance, in partnership with multilateral finance institutions, foreign investors and other investment funds. The Industrial Development Corporation similarly invests directly in income-generating projects, in partnership with other investors.

South Africa has deep and liquid capital markets, through which long-term capital can be raised at competitive rates by government, state enterprises and the private sector. Our development finance institutions are capable of raising capital and co-financing investments of the private sector, state entities and municipalities. These are considerable strengths - they mean that we do not have to rely on expensive external finance or complex structured arrangements.

But the key consideration, Mister Speaker, is the impact and economic viability of our infrastructure investments. The PICC will ensure expert project assessment, subject to appropriate standards of review and public accountability - a critical requirement before investment decisions are taken.

No good project will be short of funding."

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