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What is a billion rand between councillors?

Questions arise about the real cost of Tshwane’s new headquarters.

At a special council meeting on Wednesday, the City of Tshwane’s council approved the fast-tracking of the public private partnership (PPP) for the building of a new headquarter complex. But what this will cost ratepayers over the 25-year duration of the contract, is not at all clear.

Little clarity was given during the council meeting and there was also very little discussion, apart from an exchange of insults and bartering between the ruling ANC and opposition DA.

Deputy city manager Lindiwe Kwele could not on Thursday clarify the discrepancy between the mayor’s statement earlier this year putting the cost at R2 billion, the city website that put it at R3 billion and an independent expert who put it at R4.3 billion. She said the city will submit a report to National Treasury where an assessment will be done.

A report from Treasury will come back to council “and then we can have this discussion,” she said.

The PPP was approved in 2006 and the Tsela Tshweu consortium led by Group Five was appointed in April 2011. Financial close has however not been reached. According to the new fast-tracked timeline, the council aims to reach financial close by the end of next month.

The project entails the building of a 35 000m2 new headquarter complex on the same site where its predecessor Munitoria was demolished last year, as well as a 25-year operational phase. During that period the consortium will be responsible for the operation and maintenance of the complex. At the end of the period the building is handed to Tshwane at no cost.

Kwele told Moneyweb the total capital cost for the construction is R986 million and operating cost over the 25-year period is R25 million per year.

In various documents it shows the city will make an annual payment over the period. This payment was capped at R117 million in 2006 and was adjusted to R183 million early this year. The adjustment was merely to align the payment with the present value of money, Moneyweb was told. The city calculates that will equate R204 million when the payments commence in 2016.

In a statement on the demolition of Munitoria, published in June last year (and still available on the city’s website) the value of the project was put at R3 billion.

In guidelines to a public consultation process about the project in February this year, project office Peter Aborn, said: “The total net present value cost of the project is expected be comfortably below the high side cost of R2 billion reported to the press by the City’s executive mayor.”

In a value-for-money assessment by an independent expert – that was included in the council documents for Wednesday’s meeting and will also be submitted to Treasury – the net present value of the project was put at R4.3 billion.

Kwele said the expert’s assessment was based on certain assumptions. Treasury will interrogate this. “But R4.3 billion will be unaffordable”, she said.

The expert calculated the benefit the project holds and came to the conclusion that it will amount to R4.9 billion. The net benefit to the city is therefore calculated to exceed R600 million, which makes the project viable.

In calculating the benefit the expert included among other items R844 million that will be saved over the period by releasing accommodation currently leased, R17 million in savings on parking and R23 million savings on maintenance.

A total of R1.4 billion is included as the benefit from “increased productivity”. The part of the report that explains how this number was arrived at was not included in the council documents.

The DA asked in Wednesday’s meeting that its opposition to the decision be noted. The party earlier stated that it did not get timeous notification of the meeting and at least ten of its 80 councillors did not get the reports.

Before the meeting the party’s legal representatives sent a letter to the speaker objecting to the lack of proper notice. The speaker noted the letter, but proceeded with the meeting.

Find Tshwane’s full response here.

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