City unexcited about property deals

07 November 2013 Author  

front city 08 novThe City of Windhoek’s new strategy to fast track the shortage of serviced land in the Capital through Public Private Partnerships has run into headwinds from some Strategic Executives in the municipality. Documents tabled at the October 30 meeting of the council show a lack of consensus among the various departments in the municipality, particularly on a profit sharing formula between the local authority and the private developers.

 

Two private companies Hangala Group and Twine Investment Holdings presented offers to the Windhoek municipality for private-public partnerships to service residential land.

The municipality invited both Hangala Group and Twine Investments Holdings to make proposals to the City of Windhoek on August 14.

Former long-serving managing director of NamPower Leake Hangala owns Hangala Group.

Frans Ndoroma (MD of Telecom Namibia), Grace Mate (a manager at Standard Bank and Otto Shikongo (MD of DebMarine) serve as director of Twine Investment Holdings.

After the presentation of the offers the city council meeting decided that the proposals “be submitted as a matter of urgency to the Management Committee”.

Several City of Windhoek officials however, appeared sceptical about the PPP proposals with some even making scathing remarks about the offers.

In their comments some say that the land be sold “outright to the private entity to develop the land with Council approval in all aspects”.

This would avoid risk the municipality could face in the event the developer encounters problems with the project.

The City Council resolved at the beginning of August this year that it should consider all unsolicited Public Private Partnership proposals to the municipality to address the shortage of serviced land in the capital.

However, the municipality has come under criticism from the public who question why it does not throw the whole process open for tenders.

This would allow for wider competition, instead of just considering the unsolicited proposals, whose prices may be exorbitant.

Last year, when the municipality announced that it would develop part of Otjomuise through public-private partnership, many welcomed the initiative.

They saw it as part of a move by the municipality to fulfil its mandate of providing housing and in line with the call by the City Mayor Agnes Kafula to provide basic service in the informal settlements.

The municipality has now clearly started looking more favourably at private sector involvement in installing services on municipal land.

Critics of the latest initiative however, say that the municipality should concentrate on the provision of serviced land and housing for low and middle-income earners.

They question the rationale of the municipality in going into marriages with developers in areas of the city where no critical need for housing exists such as upmarket suburbs like Klein Windhoek and Auas Blick.

The municipality first appeared very open the proposals in a cover letter to the application of the Hangala Group for the Public Private Partnership application for the Auas Blick’s Extension 1 and 2, which was tabled at the City Council’s meeting on October 30.

“The importance of the Public Private Partnership cannot be over emphasised because investments in public infrastructure are an important means of developing and maintaining economic activity,” it said.

The other applicant Twine Investments Holdings has applied to install municipal services in Klein Windhoek Extension 4.

Profit sharing

The two private companies submitted plans in which they apparently suggested profit sharing arrangements based on a ratio of 60:40.

In a comment to both proposals the City of Windhoek’s Strategic Executive Finance says that the “input from the partner (developer) does not justify the profit sharing ratio”.

The ratio, he says, must be relooked and suggested 70:30 in favour of the municipality would be more realistic.

Chief Executive Officer of the City of Windhoek Niilo Taapopi also appeared lukewarm about the proposals.

“It has become evident that various applications are received for Public Private Partnership because developers have realised that is the easiest way to obtain high profits by only providing a lenders agreement provided by a third party,” he said.

The CEO also proposes that the City should allow Hangala Group and Twine to develop the land by obtaining finances of their own and carrying the risk of the development with the City only monitoring the project.

This would also allow the City to claim private development administration fee.

“With the selling of the land, the capital will be available immediately and following the sale of the serviced plots, the City will still receive the rates and taxes,” the CEO commented.

The executives also argue that the City should include land value, bulk service value if any and any further costs such as administration and quality control as part of the project cost.

This would mean the projects would have to deduct those costs prior to profit sharing and “thus be included in the definitions of Project Cost”.

The Strategic Executive Finance suggests that the municipality establishes a wholly owned company of the City of Windhoek to carry out the projects on its own.

This would mean the City would source all required resources to execute the development, construction and provision of erven and mass houses.

“This will cut out the partner and the profits that will be shared should a partner be involved,” he said.

In that event, the company it owned could channel back the profits on the completed projects to the City as dividends.

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