Trea­sury ex­plains me­chan­ics of cost­ing

The Star Early Edition - - NEWS -

This is what The Star asked the Na­tional Trea­sury:

1. Is the “to­tal con­struc­tion pay­ment” of R684 515 256 the whole amount spent on con­struc­tion? If not, what’s the con­struc­tion cost?

2. What do the “op­er­at­ing costs” of R1 766 604 527 re­fer to? If this is the to­tal op­er­at­ing cost over 25 years, then what’s the rest of the project cost for?

3. There are three sets of debt/loan prin­ci­pal and debt/loan in­ter­est pay­ments. In each case, the in­ter­est is greater than the debt/loan. Why?

4. Why is there an ad­di­tional “fi­nanc­ing costs and fees” amount of R130 890 096?

5. Why is the gov­ern­ment be­ing billed for a pri­vate con­sor­tium’s bor­row­ing costs?

6. There’s a list­ing for “cor­po­rate tax” for R729 717 265. Surely this shouldn’t be part of a gov­ern­ment bud­get? Does this mean the gov­ern­ment is pay­ing the pri­vate con­sor­tium’s tax bill on this project?

7. There’s a list­ing for “VAT payable” for R1 201 484 028. This seems to work out at nearly 18 per­cent, and it’s ap­par­ently cal­cu­lated on ev­ery­thing (in­clud­ing the “cor­po­rate tax”, the fi­nanc­ing and debt costs, etc). How is this VAT cal­cu­lated?

8. Why is there a list­ing for VAT any­way – doesn’t the gov­ern­ment or its con­trac­tors claim back VAT pay­ments?

9. The first uni­tary pay­ment is listed as R95.5m in­clud­ing VAT. What’s the uni­tary pay­ment in the last year of the con­tract (year 27)?

This was the Na­tional Trea­sury’s re­sponse:

The new DEA head of­fice is a ser­viced ac­com­mo­da­tion project de­liv­ered via a pub­lic pri­vate part­ner­ship. A con­tract was con­cluded in July 2012, with the pri­vate party (a spe­cial-pur­pose ve­hi­cle regis­tered for tax and VAT ac­cord­ing to South African laws) to de­sign, build, fi­nance, main­tain and op­er­ate the build­ing ac­cord­ing to a set of spec­i­fi­ca­tions, for 25 years.

This re­quired the pri­vate party to go to the mar­ket and raise fund­ing for the project.

The fund­ing in­cludes both debt of R434.5m and eq­uity of R133m; the debt on which in­ter­est is payable over a 20-year pe­riod and the eq­uity which earns a re­turn on in­vest­ment.

The DEA will re­ceive from the pri­vate party a monthly tax in­voice for the build­ing and ser­vices in­clu­sive of VAT (with ref­er­ence to the ques­tions on the pay­ment of VAT, this is in line with all ser­vice providers con­tracted to the gov­ern­ment).

The first monthly uni­tary pay­ment is due only from the date of ser­vice com­mence­ment which was in Septem­ber. The pay­ment is de­pen­dent on the per­for­mance by the pri­vate party ac­cord­ing to the con­tracted per­for­mance lev­els, in­clud­ing main­te­nance and life-cy­cle re­place­ments.

Op­er­a­tional costs over the con­tract will be R1 766 617 and life-cy­cle re­place­ments will come to R543m. This will en­sure that the build­ing is in mint con­di­tion at the end of the con­tract term.

Penal­ties may be de­ducted from the uni­tary pay­ment in cases of non-per­for­mance, and re­peated non-per­for­mance would re­sult in breach and ter­mi­na­tion.

The uni­tary pay­ment payable for Septem­ber to March (end of the fi­nan­cial year) will be R71.6m. For the 12 months from April to March 2016, the uni­tary pay­ment is fore­cast to be R130.9m at a level of 6.2 per­cent. (The uni­tary pay­ment at year 25 will de­pend on move­ments in the con­sumer price in­dex over the life of the con­tract.)

To de­velop the project and con­tract en­tered into, as well as de­sign, con­struct and com­mis­sion the build­ing from July 2012 to Au­gust 2014, cost R889m, in­clud­ing con­struc­tion cost of R684.5m. The rest is fees payable to the team that put the con­tract to­gether.

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