Elifas Luaanda
Participants from various Local Authorities gathered at NIPAM last week to attend the first cohort training on Project Finance. The training is designed for Local Authorities with an objective of addressing the service need such as serviced land and provision of housing. Project Finance can be defined as a financing structure whereby a Local Authority can form a project company (PTY) that can borrow funds from the financial institution such as FNB, DBN and relies for its repayment primarily on the project’s (future) Cash flow and not on their balance sheet.
Guest speakers from local financing institutions such as Old Mutual Investment Group (NAMIBIA) Alternative Investment and First National Bank were invited to share their experience on their previous transactions of land delivery and provision of housing.
The facilitator presented different financing structure of project finance from the structure that involves a Private Developer (third party) which has to acquire debt and equity with local authority has to provide land to the transaction and share profit. Another structure that was shared was whereby the Local Authority has to form a Project Company (Pty), 100% owned by the Local Authority and borrow funds from the financial institution appoints the contractor (Engineering, Procurement and Construction) to service land.
The training also covered the early stage project risks that might impede the implementation of land servicing and how best they can be mitigated, making reference to the Swakopmund Case Study of land delivery. The training further discussed the due diligence process from the lender’s perspective to ensure that the project risks such as market risk, political risk and regulatory risk are mitigated. The training also offered participants an opportunity to work on cash flow projection simulation.
The participants from the Keetmanshoop Municipality were impressed by the concept of Project Finance structure whereby they can form a project company to borrow money directly from the bank, and propose that they can consider it as pilot project for their middle to upper income class and the profit be reinvested for low income class, Mr Ernst Jash, Council Member and Member of the Management Committee of Keetmanshoop Municipality commented. The next training is scheduled for Swakopmund from September 11 to 13, 2019.
Attendees of the Project Finance Course also included Lesley Goreseb, Karibib Town Council CEO, who proposed that similar training be extended to executives of Association of Local Authorities of Namibia (ALAN) and The Namibia Association of Local Authority Officers (NALAO).
The Joint Business Venture or Public Private Partnership that the Local Authorities have been advocating for land delivery and provision of housing seems to be posing some challenges. The City of Windhoek last week placed a notice on the newspaper in an effort to sell land on private treaty to three companies, transaction that were initially entered into as public private partnership. Some of the challenges for land delivery in PPP are the alienation process of land to clients that can only be done by the Local Authorities, that delay the whole process and another challenge is the pricing of land for end users, as there is no guideline formula.
* Elifas Luaanda is the facilitator of the tailor-made Project Finance course at NIPAM