Cities slash budgets for 2010 stadiums

Posted On Monday, 07 September 2009 02:00 Published by eProp Commercial Property News
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Soccer City’s soaring costs force Johannesburg to trim more than R1bn from budget.

Infrastructure IndustrySoccer City’s soaring costs force Johannesburg to trim more than R1bn from budget.

The cash-strapped City of Johannesburg has had to slash its budget for the current financial year by more than R1-billion to make up for the ballooning costs of the country’s flagship 2010 stadium.

Soccer City, which will host the World Cup final and the tournament’s opening and closing ceremonies, will now cost a mammoth R3.3-billion to complete, significantly up from the last estimate of R2.5-billion, according to a report tabled at a council meeting last week.

The city, already under considerable financial pressure due to the global recession and service defaulting, has cut its 2009/10 budget by about R1.1-billion, of which about R800-million will be diverted to help finance the soaring costs of the stadium. Co-operative Governance and Traditional Affairs Minister Sicelo Shiceka will discuss the funding shortfalls with city officials this week.

Johannesburg authorities have asked department heads to reduce spending by a total of R670-million from their capital budgets and by R477-million from their operating budgets to free funds to finance the shortfall.

City spokesman Nthatisi Modingoane told The Times that all departments would have to “reprioritise” their spending, “without compromising on service delivery’’.

He said: “Departments will reprioritise spending to ensure there are no negative repercussions to services and ratepayers.”

The report lays much of the blame for Soccer City’s spiralling costs on sub-contractors’ tender prices and additional work requirements. Modingoane said forex and import duties on big-ticket items such as the stadium’s roof and screen fittings also contributed to the soaring price tag.

Shiceka’s spokeswoman, Vuyelwa Qinga Vika, said: ‘‘The minister is aware of the situation, but we cannot comment on the matter as provincial governments have not been called in. The minister will be having a meeting with host city members on Thursday where the issue will be discussed.’’

Johannesburg’s budget is already under pressure from the global financial crisis.

The report reveals the city started the 2008/09 budget with a surplus, but ended the year with an operating deficit of about R510-million .

“The impact of the economic slowdown started filtering during the third and fourth quarter of the 2008/09 financial year, resulting in many customers defaulting on their payments on utility bills,” the report said.

A new property tariff model implemented last year, following the introduction of the Municipal Property Rates Act of 2004, was also cited as having affected income.

Modingoane said: “The city’s main sources of revenue are from service charges (electricity, property rates, water and refuse). Due to the recession, many customers have cut their use of electricity and water while others are defaulting on payment of bills.

“Furthermore, there is a 50% reduction in property transactions. All these issues have led to the reduction in revenue.”

The city has embarked on an expenditure review exercise in all departments and developed a financial turnaround strategy to focus on short-, medium- and long-term intervention.

Da councillor Victor Penning said the DA was not happy with the decision: “It’s the result of inefficient revenue and debt-collecting systems. The city is owed about R10-billion. It’s a very, very sad situation.”

Former finance minister Trevor Manuel’s 2009 budget made provision for a 2010 Fifa World Cup stadium development grant and a 2010 host city operating grant. The grant was allocated R1.9-billion for 2009/10 and 2010/11 after costs escalated beyond the initial budget. Last year the budget shortfall for the 2010 stadiums was R3.2-billion . However, the National Treasury warned host cities that they would have to finance some of the shortfall .

The 2010 Local Organising Committee’s spokesman, Rich Mkhondo, said the LOC “has not been informed on the shortfall”, but “all our infrastructure for the delivery of the World Cup is on track.”

Mkhondo was not certain whether the Treasury would bail out host cities, saying it was their “prerogative”.

The City of Cape Town may foot the bill for Green Point stadium, the final cost of which has been projected at R4.414-billion , almost double the original estimate.

City of Cape Town spokesman Pieter Cronjé said : “We’re assured funding of R3.913-billion with a projected deficit therefore of R501-million This deficit is financed in the short term by a council loan facility.”

The loan facility will be repaid by income received from a 30-year lease of the stadium to a private operator, income from the city’s share of 2010 ticket sales, the sale of the stadium’s naming rights to a commercial sponsor, and funding from the national and provincial governments.

Cronjé said the city was also reviewing its budget “to ensure affordability and to rephase certain capital projects to maintain service delivery.”

eThekwini’s deputy mayor, Logie Naidoo, said: “Invariably [the city] will face additional expenditure in terms of 2010. We’ve made representations to National Treasury for additional funding or we face the undesirable option of trimming our budgets for 2009/2010.”

Naidoo added: “This will certainly affect service delivery.”

 

Last modified on Thursday, 31 October 2013 12:11

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