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Progress & Feedback on Ndpg First Round

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PROGRESS & FEEDBACK ON NDPG FIRST ROUND APPLICATIONS (August 2006) This report serves to provide progress made on the roll out of the Neighbourhood Development Partnership Grant (NDPG), with specific reference to the First Round of Applications called for in May 2006 and evaluated in September 2006. BACKGROUND The NDPG aims to stimulate and accelerate investment in poor, underserved residential neighbourhoods by providing technical assistance and capital grants for municipal projects. The NDPG is a conditional grant to municipalities through the Division of Revenue Act (DoRA). Allocations of R2.5bn for a three year period (R50 million in 2006, R950 million in 2007 and R1.5 billion in 2008) have been made towards the grant. The NDPG has also been established with the objective of leveraging private sector investment in these neighbourhoods thereby unlocking the social and economic potential within these areas. This may be achieved by accelerating investment in community amenities in qualifying areas and providing the platform for commercial development through the NDPG thus attracting private sector investment at scale. Historically, a number of issues have stood in the way of this type of synergy between public investment and its ability to creatively attract commercial investment. It is hoped that the NDPG will provide a vehicle to overcome these barriers, some of which are: • A lack of focus on township areas: municipalities are aware that planning effort needs to be directed to township areas but do not necessarily have the financial and project management wherewithal to address the detailed planning issues. • A shortfall of planning expenditure for future development and investment: municipalities have targeted expenditure in township areas in terms of dealing with bulk infrastructure backlogs (water, sewer, electricity, roads and stormwater). The requirement to now create the appropriate investment in community facilities for future economic development in these areas has not been a priority. • Uncertainty over long-term funding for development projects: municipal priorities can shift from one budget cycle to the next, making it difficult to plan for projects appropriately. This, coupled with inadequate funding, generally stalls project delivery. The dual nature of the NDPG, which provides both Technical Assistance and Capital Grants as required to municipalities, can overcome some of these barriers. PROGRESS: FIRST ROUND APPLICATIONS 1. Applications Received and Evaluation Process: Appplications from municipalities for the NDPG were received between May and August 2006. Over 60 municipalities submitted 243 applications for both Technical Assistance and Capital Grants. The aggregate request is for R5,1 billion for a variety of projects valued at over R47 billion in total. Many bids relate to visionary, ambitious precinct and nodal developments and the creation of Multi Purpose Community Centres (MPCCs). This points to the possible creation of a critical mass of community and commercial multi-faceted, large-scale developments within targeted township areas across the country. Many bids for ad hoc sports-related and community facilities projects were received. A number of non-eligible bids – especially for the provision of bulk infrastructure - were also received. Many municipalities display an understanding of the potential of the NDPG to unlock private sector investment in low-income areas. Some of the more advanced projects in larger townships demonstrate that business interest in township investment is in place, and can be further encouraged. Projects were ranked relative to each other using criteria based on whether the project: • Has a Council resolution supporting it • Has the potential to be developed as a node • Is located in a township • Has the potential to leverage investment from the private sector, or where a partnership was already in place, hence offering a critical mass of both community and commercial development • Serves a large number of beneficiaries • Is in a state of readiness for implementation • Is in alignment with municipal, provincial and national priorities • Demonstrates principles of sustainability A NDPG Reference Group supported the evaluation process, the criteria and its outcomes at a meeting on 5 September. 2. Project Details: Thirty five projects – mainly town centre and precincts - have been identified as applications worthy of conditional approvals. These require an amount of R90 million for Technical Assistance with an estimated possible projected Capital Grant requirement going forward (over a period of up to 10 years for implementation due to their complexity) of R2 billion, against a total project cost of R4.8 billion, which includes possible private sector investment and local governments’ own contributions. The range of successful projects is broad (see Appendix 1 for full list) and includes township projects in Soweto; Kwazakhele; Ngangelizwe; Motherwell; Kwamashu; Mpophomeni; Galeshewe; Ikageleng; Philippi, Masifunde, and elsewhere. 3. Next Steps: The projects with Conditional Approval status are subject to a verification process in respect of details submitted and costs. In some cases, National Treasury has been able to influence scope and quality issues on projects in order to more closely align them to the NDPG’s goals. Projects are then to be submitted to the Project Development Facility (PDF) of the PPP Unit, and agreed by the Director- General as the ‘Transferring Officer’ in terms of DoRA. Contracts are to be entered into between National Treasury and the municipalities for the disbursement of Technical Assistance Funds to the successful municipalities. The R50 million allocated for this financial year is being transferred to the PDF account, and can be expended. Generally this is for Technical Assistance only. As requests in terms of the 35 projects for Technical Assistance amounts to R90m, this will require splitting over more than one financial year. No Capital Grants have been awarded to date as such, although applicants need to be aware that funds are being set aside for the successful projects. Capital Grant awards will be made only from 1 April 2007 onwards. Note that all Capital Grant awards require the authorisation by the Minister of Finance. The NDPG Tool Kit (located on www.treasury.gov.za/ndp) needs revision, so as to advise municipalities better, based on the experience gained in the first Round of Applications. A Second Round of Applications is planned for November 2006 in order to enlarge the current pool of projects (please check with the web site: www.treasury.gov.za/ndp for new notifications and also a new Application Form. Municipalities must not use the current form please!). ISSUES Given that the NDPG has been conceptualised as facilitating the unblocking of township projects through the provision of design and implementation capacity to municipalities, and that the duration of the NDPG at present addresses only the current three-year MTEF period, there is a need to plan and budget for a longer period, say 8 to 10 years. Some projects may require a long-term funding partner going forward. Project planning cycles are necessary to ensure the sustainability of these multi-facted, large-scale urban renewal projects and tend to be long. Indeed, a short-term approach to these projects may compromise quality and sustainability, placing a burden on the municipalities and with communities not receiving the intended benefits. The National Treasury is considering playing a more active role of ‘Strategic Alliance’ with municipalities. This has a number of possible operational implications for the roll out of the NDPG, such as: • A simpler registration process for projects, with an early set-aside of funds for successful projects, thus providing funding certainty to municipalities and allowing National Treasury to allocate and manage the NDPG budget appropriately. A possible aspect may be the limitation of the number of awards made within the next year or two. Demand calculations at this early stage indicate it is possible in this time frame to identify at least 100 projects worth an estimated R15 billion (comprising Technical Assistance of R270 million and Capital Grants in the order of R6 billion, which may leverage addiitional private and other public sector investment of at least R9 billion over a decade or so). • A project-based relationship or ‘Strategic Alliance’ between the National Treasury and the municipality can then be developed. This can provide benefits such as more focus on the quality and sustainability of projects. All learning experiences can be adopted for any similar project and widely disseminated, thus increasing the influence of the NDPG without necessarily increasing its required budget to do so. The Strategic Alliance approach will also allow for a better fit between MTEF budget allocations and the anticipated expenditure in terms of the cash flows of the combined projects, which are currently very poorly aligned. • More emphasis can be placed on marketing the township investment opportunities to the business community rather than in marketing of the grant to the municipalities. • Given that there are about 7,000 townships and 15,000 informal settlements in South Africa, National Treasury can drive more strategic deployment of NDPG as resource to catalyse township developments in some of the biggest townships, as the NDPG can clearly only offer a narrow window of opportunity. • If the Strategic Alliance model is adopted, it may
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