6. Results relating to capital finance: base scenario
6.1 Capital expenditure
dampened due to the fact that some demand management has been assumed in the model scenario. In the early years of the model run, increasing consumption by low income households is also a factor for electricity as significant backlogs are eradicated.
Solid waste collected increases by 51% over the model run, once again driven by economic growth which results in improvements in income distribution (and thus increased consumption by high income households in total) and increases in waste generation by the non-residential sector.
Comparison with MIIF 5 figures
Taking this latter set of results as a basis, the comparative position in 2007 and 2010 (the financial years 2006/07 and 2009/10) based on the modelling done as part of the MIIF 5 and MIIF 7 studies show Table 6.1.
In considering these relative costs, and leaving roads aside, there are two drivers at play when comparing MIIF 5 and MIIF 7.
First are changes in unit costs (see Table 17 and Annexure B). There have been significant increases in some unit costs, most notably for bulk and connector infrastructure for water and sanitation.
This impacts on rehabilitation expenditure as well as expenditure for new infrastructure, because it results in higher estimates of the value of current assets. Together, this results in Capex in MIIF 7 being higher than in MIIF 5.
Second involves differences in numbers of consumer units served. The model makes use of S-curves and thus assumes that expenditure ramps up significantly from Year 1 in the model. In this case, the comparison is between the peak year of provision in MIIF 5, with the first year of provision in MIIF 7. The use of S-curves means that the number of consumer units that MIIF 5 assumed would be served in 2010 is at least double the number that MIIF 7 assumes will be served.
The interplay between these two drivers differs for different services.
45
120 100 80 60 40 20 0
R billions
2010
Water supply Electricity Roads Public transport
Economic infra. and buildings Budget
Sanitation Solid waste Public services Public places
Admin. buildings and systems 2011 2012 2013 2014 2015 2016 2017 2018 2019
Figure 6.2: Capital expenditure for base scenario but with housing target stretched
MIIF 5 MIIF 5 MIIF 7
Year in which estimate made 2007 escalated 2010 Notes
Year in which figures apply 2010 2010 2010
Water supply 9 477 11 942 16 949 Major increase in unit costs for
bulk & connector infrastructure (e.g. 7 to 14 Rm/Ml/d capacity)
Sanitation 11 035 13 904 11 783 See notes below.
Electricity 15 285 19 259 12 001 Ditto
Solid waste 1 423 1 792 1 447 Difference not substantial
Roads 12 245 15 429 31 478 Big change in road lengths,
from 230,000 to 405,000 km.
Sub-total 'Big 5' services 49 466 62 327 73 658
Public services 3 011 3 794 2 190 Reduction in Capex related to
new unit costs and targets.
But unit costs probably too low and need to be reviewed.
Public transport 4 279 5 392 7 432 New agenda; figure for MIIF 7 based
on the level of Public Transport capital grants provided plus provision for some funding from LG.
Public places 2 478 3 122 1 549 New figure for MIIF 7 based
on municipal budgets.
Economic infra and buildings 2 328 2 933 1 660 Ditto
Admin buildings and systems 2 001 2 522 5 136 Ditto
Sub-total other infrastructure 14 097 17 763 17 967
Total 63 563 80 089 91 625
Table 6.1: Total capital expenditure: base scenario compared with MIIF 4 figures
For water, the significant increases in unit costs more than off-set the reduction in consumer units served and MIIF 7 Capex is higher than MIIF 5. (Expenditure on bulk and connector infrastructure is a significant portion of expenditure for water supply).
For sanitation, electricity, solid waste and public services the reduction in consumer units served means that estimates for MIIF 7 are lower than those for MIIF 5.
For roads there is a different dynamic. Here the change in unpaved road lengths due to new data results in a much higher Capex estimate in MIIF 7.
To conclude on this MIIF 5 to MIIF 7 comparison, the total Capex figures are quite similar. However, to some extent this is coincidental as costs for some sectors have gone up relatively, while costs for others have come down.
Capital expenditure split by sub-category
Capital expenditure is split between municipal sub- categories as follows in Table 6.2 below:A B1 B2 B3 B4 Total
Water supply 6 997 2 378 950 1 318 1 758 13 402
Sanitation 4 654 1 573 701 1 024 1 461 9 413
Electricity 3 896 1 650 796 1 202 2 357 9 902
Solid waste 866 266 113 122 41 1 408
Roads 4 333 3 095 3 783 4 664 13 758 29 634
Public services 952 317 151 211 202 1 833
Public transport 5 685 1 168 147 103 162 7 265
Public places 908 102 38 161 328 1 536
Economic infra and buildings 908 119 60 175 355 1 616
Admin buildings and systems 2 398 1 090 467 499 681 5 134
31 597 11 757 7 206 9 479 21 102 81 142
Table 6.2: Split in modelled capital expenditure between municipal sub-categories for 2010/1160
60 The totals in this table add up to slightly less than the total Capex from the national model due to the complexities associated with approximating the results from the five different sub-categories into one national model.
35 30 25 20 15 10 5 0
R billions
A B1 B2 B3 B4
Water supply Sanitation Electricity Solid waste Roads
Public services Public transport Public places
Economic infrastructure and buildings Administration buildings and systems
Figure 6.3: Modelled capital expenditure figures by municipal sub-category
100 80 60 40 20 0
Percentage
A B1 B2 B3 B4
Water supply Sanitation Electricity Solid waste Roads
Public services Public transport Public places
Economic infrastructure and buildings Administration buildings and systems
The dominance of roads, particularly in B4 municipalities, is evident. This rather skews the results and is therefore given specific attention in the setting up of alternative scenarios.
Further detail on each of the sub-categories, with a comparison between budget and modelled numbers, is given in Annexure C.
In considering the structure of capital expenditure, in the work done for National Treasury as part of the municipal infrastructure finance synthesis project, the subdivision of infrastructure spending into three main categories was investigated:
Infrastructure relating tobacklog eradication:
internal, connector and bulk infrastructure required for those who currently do not have access to adequate services.
Growth related infrastructure: includes bulk and connector infrastructure for non- residential consumer units, for high income consumer units and for new low income households (bulk and connector infrastructure for currently un-served low income households is included as part of ‘backlog eradication).
Infrastructure rehabilitation: capital expenditure on infrastructure which has reached the end of its useful life and requires construction work to return the piece of infrastructure concerned into a condition in which it can start its useful life once again.
The MSFM allows this split to be calculated with the results shown below:
The dominance of growth related infrastructure is evident in this scenario, which is based on fairly high economic growth. In the early years of the 10-year programme, the expenditure on infrastructure for backlog removal is also evident.