World Cup 2010 Host Cities on Alleged Funding Crisis for Stadia: briefing

Sports, Arts and Culture

23 January 2007
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report


23 January 2007

Chairperson: Mr B Komphela (ANC)

Documents handed out:
Cape Town Presentation on funding of 2010 stadia
Nelson Mandela Bay Municipality Presentation
eThekwini Presentation
Mbombela Presentation
City of Polokwane Presentation

Representatives of the five cities building new stadiums for the 2010 FIFA World Cup explained how shortfalls had developed between the amounts of money estimated for the building of stadiums and the amounts tendered for by contractors.  All pointed out that larger amounts were due to provision being made by contractors due to foreign exchange fluctuations and the risks associated with shortages of skilled management and labour, as well as anticipated problems with the supply of building material and equipment.

The cities had plans to counteract the shortfalls. Negotiations would be held with contractors to lower costs, some design aspects of the stadiums and their surrounds could be omitted to save costs and the work could be divided into phases to reduce costs.  They expressed a view that National Treasury should make some intervention, either by negotiating at high level with contractors or by providing relief from import duties or utilising increased tax income to provide financial relief.

The cities also described their state of progress. Most had started some form of work on the building sites, but all had experienced some form of delay as they were forced to wait for funds from national government sources to be confirmed before contracts could be finalised and work could begin.

Members asked questions about Black Economic Empowerment (BEE) issues and how the required legacy aspects would be affected by any changes to the original plans.  Enquiries were made about how the areas surrounding the host cities would benefit and about the state of co-operation between local and provincial government.  The absence of some mayors, especially the mayor of Polokwane, were questioned as the Committee felt it important that the chief political decision-makers should be present.

The Chairperson said a Cabinet lekgotla was being held that day.  The Ministers in the Local Organising Committee (LOC) would brief the Legkotla, and some of the host city mayors would also attend.  The mayors had been asked to attend this meeting.  The Committee would be checking on progress from time to time.  There had been an assumption that the cities would receive money from central government and that provisions of the Municipal Financial Management Act (MFMA) would be relaxed.

The Committee needed to see milestones.  Relationships between host cities and provincial governments would also be examined.  Hosting the World Cup would be a collective task for municipalities, provincial and national spheres.  It was critical that close relations be maintained. 

There had been a rumour that the Director General (DG) of the Department of Sport and Recreation (SRSA) 2010 Unit had cancelled this meeting.  This was wrong, as SRSA had no jurisdiction over the Committee.  He invited the delegation from Cape Town to present to the Committee.

City of Cape Town Presentation
Mr Michael Marsden (Executive Director Service Integration, City of Cape Town) explained the basis of the original estimate for the construction of the stadium.  This had been the result of close work between the City and the provincial government.  There had been a joint administrative team and a joint political team comprising Mayor Committee (Mayco) and Members of the Executive Committee (MECs), overseen by the Mayor and the Premier.

The City was the contracting party.  There had been a process to develop the stadium.  A project team had developed the business plan.  There was an extensive design plan.  The City had engaged with the LOCs technical team.  The City’s estimate had been made at current industry rates, and there had been both international and local input in the process.  The final estimate had been approximately R1.84 billion, but the lowest tender received had been for R2.63 billion.

The Chairperson asked if the request for funding had been R 1.8 billion.

Mr Marsden answered in the affirmative. The lowest price in the tenders was R2.6 billion.  The City would still negotiate with the contractor to reduce this figure.  An escalation cost had been included in the tender to the end of 2009.  The City’s advice was that this figure should be 10%.  There was a contingency amount of 5%.  Professional fees should be a reasonable percentage, and negotiations would be held of insurance and the FIFA overlay.

The total business play was for a figure of R 2.5 billion, but this would now have to be pushed up to R 3.5 billion.  The City would be entering a period of negotiations, and this would be an opportunity for further value handling.  SRSA had contributed R 1.69 billion, and the City would contribute R 400 million.  This was the limit of affordability for Cape Town.  The provincial government had contributed R 112 million.  Therefore a total of R 2.472 billion had been secured.

Mr Marsden said that there were other areas of expenditure.  A significant upgrade of electrical system was needed, which was estimated at R 2.7 million.  This would incorporate work at the Green Point Common as well as the feed from the Montague Gardens sub-station.  It would be necessary to redesign the common and to create an urban park, which would cost R 120 million.  The City would also contribute R 165 million to transport upgrades and R 57 million to Integrated Technology projects.  The City would therefore be paying close to R 600 million towards infrastructure projects outside of the stadium, and R 400 million towards operational expenditure.

The funding shortfall was R 1.28 billion.

He said that the development process which had been followed took account of the sensitive setting.  Environmental controls had been stringent, with questions of noise and light pollution.  Sufficient parking also had to be provided.  Professional teams had handled issues of architecture, engineering, quality, business analysis and urban spatial planning. 

The supply chain management process had led to the identification of the preferred bidder.  It was now time for negotiation.  The tender price had been significantly above industry norms due to the degree of risk.  There was a need for engagement and clarification of the issues.  Negotiations would be handled with great care in order to get the best possible deal.

Mr Marsden said that if the City could not negotiate an acceptable reduction, then it would consider dividing the work into phases, and put these out to tender.  The City would not be held hostage.  Costs would be finalised after the negotiation phase.  Once this was settled the City could start looking for financing.

The basis of the design was that the stadium would be a semi-final venue.  It would comply with FIFA and LOC requirements, and all of their inputs had been incorporated.  Significant requirements had arisen from MEC Essop’s Record of Decision.  These provisions regarding aesthetics, sound and light pollution, and parking had been incorporated.  The stadium would not be a white elephant, and had been designed to incorporate future commercial activities in order for it to be self-supporting.  It was designed for a purpose, not for show.

Mr Marsden said that value engineering had reduced the initial estimate from R 3.3 billion to R 2.5 billion.  This had been the basis of the submission to national government.  The original sliding roof concept would have been an enormous cost, so now only the spectator area would be covered.  This would have represented 30% of the total cost.  The City was still looking for further reductions in material and construction technology.

He found the escalation provisions troubling, with 10% factored into the costs.  Inflation and the Rand’s fluctuations against foreign currencies also were considered.  He said there was a need to address the way in which government had exposed the host cities to these fluctuations.  The City had made a submission on this matter, but no formal response had been received yet.  He reminded the meeting that the original budget submitted to Treasury had been R 2.5 billion.

Mr Marsden believed this was a national phenomena.  It was related to the capacity of South African industry.  Many huge projects were being undertaken apart from the 2010 projects.  Developments in the energy and transport sector infrastructure were making an impact on the construction industry.  He wished to lock in the ability to buy expertise.  There was a shortage in skilled manpower, and also material shortages particularly in steel and to a lesser extent cement.  Plant shortages were also likely, and prices would be affected by supply and demand and by the tight deadlines.  Nevertheless he believed that the tenders were based on opportunistic pricing and the limited market.

The MFMA implications were a limitation on the supply chain.  Tenders had been received but now the City could negotiate with the preferred supplier.  Work could not start until the price became affordable and the money was in the bank.  This was causing a delay in the commencement of building.  This delay could cost money, and he estimated this figure at
R20 million per month.

He suggested the way forward.  The National Treasury should study the tender process, and consider intervening with the industry.  Another consideration was to waive or reduce import duties.  The City would commence with robust negotiations.  All host cities should do this.  The design would be reviewed, and would be subjected to a second stage of value engineering with additional expertise.  Treasury should meet with the host cities to discuss finances.  It should consider what the affordability limits of Cape Town and other cities were.

Mr Marsden said that Cape Town was proceeding with the demolition of the exiting stadium.  The problems could be solved, and preparations were being started to get the contractor on site.

The Chairperson thanked Mr Marsden for a precise and to-the-point presentation.  He invited Members to ask questions of clarity.

Mr R Reed (ANC) asked what the BEE credentials were of the preferred bidder.  He noted that Cape Town was about to go into negotiations with the bidder.  He asked why the cost of the Cape Town stadium was so high.

Mr D Dikgacwi (ANC) referred to the cost analysis.  He noted that there were two empty spaces in the fields for insurance and the FIFA overlay.

Mr T Louw (ANC) was concerned about the shortfall.  He asked how Cape Town planned to finance it.  He asked if this would be done by increasing municipal rates, or if more government funds would have to be allocated.  He asked how much the provincial government was contributing.  If the City was able to put in R 400 million, why could the province not give more.  All citizens of the province stood to benefit.

Mr D Dodovu (ANC) asked if the cost for the demolition of the old Green Point Stadium was included in the figures mentioned and, if so, how the matter was being handled.  He asked if it was an open process.

Mr J Masango (DA) asked what the second option was after negotiations.

Mr R Bhoola (MF) said that the costs were a concern to all.  Some skills would be imported internationally.  He asked what initiatives were being taken to involve unemployed local graduates.

Mr C Frolick (ANC) understood the need for further negotiations on the price.  It was clear to the Committee from the start that a legacy component was needed.  The stadium had to be multi-purpose.  Negotiations might lead to the requirements for a multi-purpose venue being lost.

Mr Marsden replied that a five-fold attack was being made on costs.  Firstly, negotiations would be held to bring the price down.  Secondly, the City would look at the value in the design.  Thirdly, every aspect of the design would be studied to see where costs could be saved.  Fourthly, the City would look at common components surrounding the development to see if there were opportunities for cross-subsidisation.  Finally, if all else failed, the City would make new approaches to the National Treasury.  He said that it would be folly to think that the current price could be brought into the folds of affordability.  Time was of the essence, as construction had to start in the first quarter of 2007.

He said that he was reluctant to speak on behalf of the Western Cape government, which had a limited income primarily in the form of grants from national government.  He would engage with them for an increased contribution, but it would be up to the province to make this decision.

He said that the demolition of the old stadium was included in the tenders.  The price had been a competitive R 8 million.  The cost had been determined separately in order to save time, as the old site would be used as a contractor’s yard.  This would save some six weeks.

Mr Marsden said that negotiations would take some time.  He was aware of the relatively poor position regarding time, but the City would not be brow-beaten.  Work would be divided into smaller contracts if all else failed.  This would add an element of competition, and it was not impossible that international bidders would be invited to tender if it came down to this.

He said that there was an unprecedented boom in the construction industry at present.  This was resulting in an absence of skills in all fields.  The City’s capital budget could not be spent because of this lack of capacity.  Skills were being soaked up into other aspects of the economy.  Major contractors had sought work elsewhere in the world in the last decade, particularly in the Middle East.  They now had commitments elsewhere in the world, and this was a national issue.

The legacy requirement was an enormous opportunity for Cape Town.  The stadium was a stepping stone to long term benefits.  It would be the centre of an urban park which would make the common sustainable.  It was a long term opportunity.  The City was spending another R 600 million on other projects, such as in public transport, which were all aligned to 2010.  These would have great public benefits.  The operational plan was shared amongst all the inhabitants of Cape Town.  Viewing sites and street fests would be organised to include all the residents, and the project would be a unifying factor.  The City did not wan to compromise the design.  The high costs were partially attributable to coping with environmental sensitivity issues and legal requirements.

Mr Dave Hugo (Director Infrastructure 2010, City of Cape Town) said that all the tendering consortia were public companies, therefore it was difficult to determine their BEE status.  The preferred bidder had an Historically Disadvantaged Individual (HDI) status of 27 %, which was higher than the other bidders.  Similarly, it had provided the best local resource component of 9%.  The blocks referred to by Mr Dikgacwi had been left empty as the amounts were included in the top figures on the presentation.  It had been anticipated that the contractor would cover the insurance costs, but this would now be borne by the City.

The Chairperson said that the project was of a huge nature.  He asked how these things would increase the Gross Domestic Product (GDP) of the city.

Mayor Helen Zille (Executive Mayor of Cape Town) said that the full Council was united on the stadium issue.  A lot of hard work had gone into achieving this.  The private sector had been brought in to help with the meeting of deadlines.  She would like to make Cape Town a model of corporate governance.  FIFA requirements had been a restraint.  Time and money were serious constraints.  A business plan had been evolved, and a study had been made into alternate sites.  Legitimate concerns of the population had been discussed, and it was necessary to guard against the infringement of their rights.  Parties had been affected to different degrees, but one had to consider the concerns of local citizens to the benefits for all the citizens of the City.  Matters were now at a sensitive stage, but all the strings were being pulled together.

Mr E Lucas (IFP) said that the most positive thing was that demolition of the old stadium had started.  This was a sign that things were going somewhere.  The situation was worsening due to the delays.  He asked if the amount of R165 million allocated to transport projects was enough considering the serious problems the City faced.  He asked if the professional teams were an additional cost.

Mr Marsden replied that the transport issue was one of co-funding.  This was the portion added by the City to the national and provincial subsidies.  This paid for the upgrading of roads and interchanges.  Rail, airport and harbour upgrades were being paid for by the respective parastatals.  These companies were spending some R 6 billion on work outside the immediate ambit of 2010.  Professional fees had been included in the cost schedule.

Mayor Zille said that there was no dilly-dallying.  In fact, three meetings had been held between Christmas and New Year.

The Chairperson said that the 2010 developments were unprecedented.  The time to get on with things was now.  He wished to know if Treasury would convene a meeting with the host cities, and asked what interaction had taken place.

Mr Marsden replied that they were working closely with the Treasury.  There was daily communication with Mr Malcolm Simpson, the head of Treasury’s 2010 Unit. They had communicated by letter with Deputy Minister Molakete on the outcome of the tender process and how the City saw the way forward.  The City was awaiting the outcome of this approach.  Time was a concern.  Other host cities found themselves in a similar predicament.

The Chairperson commented on the BEE component.  Government was funding 90% of the stadium, and was concerned about the application of BEE policy.  It was the responsibility of the Mayor of each city to check that BEE compliance was taking place.  It was a legal requirement to look at empowerment and shared growth.  He appreciated what Cape Town was doing, and it seemed in control of the situation.   He urged the stadium designers to consult with the South African Broadcasting Corporation (SABC) regarding network, wiring and other television infrastructure issues.  It would be more expensive to have to demolish parts of the stadium to accommodate the broadcaster’s needs than it would be to include their inputs.  The City needed to meet the SABC to discuss these requirements.  A close watch was needed on progress.

elson Mandela Bay Municipality Presentation
The Mayor of Nelson Mandela Bay Municipality (NMBM), Ms Nondumiso Mapazi, introduced the delegation from her city.

Mr T Knott (Accounting Officer, NMBM) apologised on behalf of the engineering component of the project team.  The availability of the site at the St Alfred Park had helped matters.  The small rugby club which had been based there had been relocated.  The site was centrally located and there was no need for major replanning.  There had also been no complications with rezoning.  The Environmental Impact Assessment (EIA) had been completed in March 2006.  A design consortium had been appointed, including some persons who had experience of FIFA requirements.  NMBM was in a position to issue the main tenders in July 2006, but funding was not confirmed at that stage.

He said that five stages were involved. The demolition of the existing buildings and the bulk earthworks and stormwater drains had begun in October 2006 and was nearly complete.  Contracts had been awarded for sewerage and water.  The contractors were on site and work was 50% complete.  The piling contract had been awarded in December and the contractor was on site and work would start in the next few days.  The main contract for the stadium was expected to be awarded in the second week of February.

Mr Knott said that NMBM had always planned to have a little more time available.  There would be a degree of overlap on the different contracts being fulfilled.  The piling should be complete by May 2007.

Mr Knott said that the approach to design and cost effectiveness was that the stadium needed to be practical and sustainable.  The aesthetics were also important.  The city had chosen a modest approach.  It should meet the specifications, with adequate quality and standards to ensure durability.  NMBM thought that a capacity of 30 thousand was appropriate for the city, and modular seating would be incorporated to meet the FIFA requirement of 48 thousand.  These areas would be targeted for alternate uses after the tournament.  He said that there had been some discussion over the roof design.  Given the prevailing weather conditions at the time, it was only strictly necessary to have a roof on the western stand to satisfy FIFA requirements.  The current design provided for all spectator areas to be covered.  This design had been signed off by the technical team.

He said that the approach to contracting had been an open tender system.  The fixed price model hat not been considered.  A number of designed and costed components were included.  An empowerment approach was being followed.  A close liaison was being kept with the LOC on the question of funding, with one member of the LOC Technical Team being dedicated to each city. 

Once agreement had been reached on the design, the cost could be calculated independently.  The recommended conditional grant requested by NMBM was R 960 million, which the LOC had thought a bit high.  An amount of R 890 million had been approved, and the final figures had to be juggled accordingly.  The city had proceeded on the basis of the conditional grant allocation.  Figures and estimates were based on the best information at the time.  In terms of the MFMA, figures were needed beforehand.

Mr Knott outlined the outcomes of the preliminary tender process.  There were three qualified tenders, and the closing date had been extended to this day.  The evaluation report would be finalised the following day.  As Accounting Officer it would be his responsibility to award the tender or to award preferred bidder status to a contractor and then enter into negotiations.  He would report to the Council at their first meeting on 7 February.  There was a need for the Council to make a decision in terms of Section 19 of the MFMA.  It was likely that Council would approve the award of the contract, after which it could consider amending its budget.

He said that the shortfall in funding was likely to be R 262 million.  A possible solution would be to raise a loan to cover this.  Payment would only be due in the Financial Year 2008/09.  The city would also assess its options to reduce the amount.  Negotiations would be held with the contractor while the city would also seek additional sources and funding partners.  In the event of the loan option being pursued, the implications of repayments would have to be considered.  A specific concern existed around the preferred bidder.  There was no final report yet, and the adjudication committee would have to decide on this matter.

A meeting held been held with National Treasury and SRSA on 13 December.  There was pressure on the award of tenders.  A waiver had been requested.  He said that the pattern of high tender costs was a national problems.  A set of solutions was needed for each city.  No exemptions had been given in terms of Section 19 of the MFMA.  A meeting between the host cities, Treasury and SRSA had been cancelled.

Formal letters from the National Treasury and the DG 2010 indicated that there would be no increase to the initial allocations.  Cities were told to sort out their own shortfalls.  Mr Knott then listed the reasons for the increased prices.  Prices were higher than those calculated at current market rates.  All the experts had therefore been proved wrong.  There was a timing problem with all the tenders being issued simultaneously.  Availability of equipment would be a problem, especially cranes.  There was an international shortage of high-rise cranes.  There was a high level of construction activity in the region already, with the Coega harbour project in full swing.  There was a short supply of material and labour.  Wage demands would impact on final costs.  The nature of the work was a high risk one.  Contingency amounts had resulted in the increased amounts to the tune of between 400 and 765 % higher than the estimate.

Mr Knott said that the MFMA was the law, and there was no option but to comply with it.  He said that NMBM planned to comply, but the timing was a problem.  Submissions would be made to Council.  He did not have much detail regarding savings, but the technical team was working flat out on this issue. The design team had also listed some choices.  Some packages of possible savings had been identified, one of which was to take off the roof of all but the western stand.  This would save approximately R 100 million without compromising the compliance with FIFA regulations.

Mr Masango asked when the contractor would be appointed, and when construction would start.  He asked if R 260 million would be the final figure for the shortfall, and if the final cost of the tender was known.

Mr Knott replied that the main contractor should be appointed on 7 February.  The evaluation of the tenders had almost been concluded, and large sections of the report had already been drafted.  The adjudication committee would hopefully be able to deal with the issue during the week.  As Accounting Officer he could not take part in the process.  It would be possible to negotiate with the preferred bidder before the Council, so that the contract could be awarded immediately after the Council meeting.

Earthworks were a major component.  These were already well advanced, and piling had started during the week.  The top portion should be completed by March.

He said that the figure of R 262 million was based on the technical team’s anticipations of the tender price.  There were other areas of the shortfall.  Provisional sums would make up about 37% of the contract value, and could be higher.  An escalation factor was part of any construction contract.  If NMBM had been able to go to tender immediately when it was ready, the contract could have been awarded in June 2006 already.

Mr Komphela reminded the NMBM delegation of the need to consult with the SABC on technical issues.  He observed that eThekwini was already busy with piling, and was running ahead of schedule.  Progress was being made.  Speculation had been proved wrong, and this was a new experience.

Mayor Mapazi said that this was an important meeting, and she hoped it would not be the first and last.  There was an opportunity for change, and the fast tracking of service delivery.  She saw no reason why the city could not deliver what was expected by the nation.  This development would leave a legacy.  One impact would be on the upgrading of transport systems.  The community would be supported by the 2010 funds.  A workshop had been held with all stakeholders, and business would be approached to participate.  The community was being mobilised, but more still needed to be done.

The Chairperson asked how relations were developing between NMBM and the Eastern Cape government.  The city should not lose sight of the fact during negotiations that it was not building a stadium just for FIFA.  It had to be a multi-purpose facility.  He asked about BEE compliance.  Mr MacDonald Ntshetenzhe of the Department of Trade and Industries had held negotiations on the BEE component with FIFA.  An extreme degree of compliance was needed, but within reason.

Mayor Mapazi replied that there was on approach of trying to incorporate BEE into the stadium.  Some 37% of the work was reserved for small companies, and BEE would be a consideration with these awards.  NMBM was the only host city in the Eastern Cape, but OR Thambo and Buffalo City municipalities would be used as base camps.  After finding agreement with the contractor, it was likely that the province would assist with the shortfall.

eTHEKWINI Presentation
Ms Julie-Mae Ellingson (Head: Strategic Projects & 2010 Programme, City of Durban) assured the Committee that they would not lose sight of the importance of the project.  Their objective was to position eThekwini as Africa’s premier sports venue.  The business plan had government’s full commitment.  There were obligations to agreements that had been reached.  The city had identified 50 projects, each of which held long term benefits.

The city’s business plan had been completed in August 2006.  Most of the engagements were concerning the stadium with limitations regarding transport.

Ms Ellingson said that the city faced time constraints and inflation in costs.  Their goal was to ensure the maximum benefits for 2010.  One of the problems was the release of land by Transnet, which would be part of the stadium site.  This had been appropriated from Durban at below market rates some years previously, but Transnet was now looking for a market-related price of R 60 million.

She said that a survey was underway on the proposed linkages to the beachfront.  A multi-media museum would be established.  The plan was to have 365 days a year usage.  A concept plan was being formulated.  A bus service was being introduced in the precinct.  Budget constraints prevented the introduction of a tram system, but this could perhaps be done at a later stage.  Access to rail transport would be through the Kings Park station.  The buses would be disabled friendly, and security of commuters would be paramount.  The new flyovers at the Warwick Junction would relieve motor traffic.  Integrated Telecommunication and Communications systems were being developed.  A fibre network was progressing, and a wireless Wide Area Network was 80% complete. 

Five training venues had been identified in the bid book, all in Durban.  The current thinking was that only two would be in the city, and the others would be established in other cities in the province.  This decision was pending.  Guidelines were needed from FIFA on their requirements.  She said that there would be an impact on football in the province, as these venues would be out of action while being developed and would thus not be available for league matches.

Ms Ellingson said that the original budget was R 1.4 billion, but this had been revised to
R 957 million.  The concept was to develop a 70 thousand seater, multi-purpose venue.  It would be financially viable, and income streams would be maximised.  It could be expanded to meet Olympic standards.  Modular seating would be used.

She said that six consortia had competed for the design, and an appointment had been made in June 2006.  The stadium design was subject to cost constraints.  The arched roof was an integral part of the design.  One of the world’s leading bridge designers was involved in the process.  Twelve gantries would have been needed without the arch, but this had been reduced to four. 

The professional fees had been negotiated down to 13% as compared to the national average of 26%.  The cost per seat was in the lower cost bracket compared to international norms.  Details had been worked out well, and there were no unknowns.  Separate workstreams had been devised.  Various categories of VIP accommodation would be provided.  Offices, restaurants and the museum would be incorporated in the design.  The cable car to the top of the arch would be built if funds permitted.  The stadium would be the centre of the sporting precinct.

Ms Ellingson said that three separate contracts had been issued.  Firstly, there had been a public tender for the demolition of the old stadium on the site.  This had been completed by October 2006.  The piling had been put to tender and the contract was awarded at the end of September 2006.  This was due to be completed in mid-February 2007.  The diaphragm walling had started in December 2006 and was due to be completed by the end of May 2007.  The award of the principal building was subject to a pre-qualification process when going to tender.  The level set was level 9 GB.  Five submissions had been received, of which four had been shortlisted.  Three had submitted tenders, and the city had been ready to award the contract by 15 December, but uncertainty over funds had delayed the process.  The criteria were quality of materials, building methods and sub-contractors.  The contract had been awarded to Group 5 WBHO.  They had tendered the lowest price as well as the highest BEE component.

She said that an estimate of R 1.893 billion had been sent to Treasury.  Since then the budget had had to be revised to R 2.5 billion, a shortfall of R 600 million.  This figure included potential escalation and a component for fluctuating foreign exchange rates.  The reasons for the increase in budget included risk factors, increased input costs, hire of plants and equipment, increased costs of materials and higher mark-ups.  The contractor had offered a
R50 million saving after negotiations, and had offered R 10 million to set up a skills development centre, which would be a critical element in the programme.  Cost increases were part of all construction projects.

She said that the costs of the stadium were compared to international standards.  There was an incremental increase as the size of the stadium increased.  The international norm for a stadium of this size was in the region of R 2.5 billion.  The city had allocated R 930 million to various projects and operational costs.

Ms Ellingson said that the city had discussed the way forward with the LOC.  It was essential that the contract be concluded as soon as possible.  The accounting officer needed relief from the provisions of the MFMA.  There had to be a focus on overall costs, and a value engineering exercise would have to be conducted.  A fixed price contract was an option.  Additional FIFA requirements were being received on a weekly basis, which complicated matters.  Prices of steel and cement and other materials were rising.  There would be an increase in tax revenue, and she asked if some of this could be ploughed back into the project.  The national government needed to assist.

Mr Logie Naidoo (Deputy Mayor, City of Durban) said that the stadium should be developed as an icon and as a legacy for the people of Durban.  They were passionate about football, and the Kings Park rugby stadium was regularly sold out when clubs like Kaiser Chiefs or Orlando Pirates were in town.  There was no other facility big enough to accommodate the crowds, but the cost of usage was R 250 thousand.  The project would service the need to provide an acceptable venue for football.

Durban was excited to be hosting a semi-final.  The city would also bid to host the opening ceremony.  The weather in Durban was at its best in winter, when the tournament would be staged.  The city would ensure that the stadium was ready for the Confederations Cup in 2009.  Great progress was being made, and the only delay was in the awarding of the contract and finding funding to cover the shortfall.  He believed that between the three spheres of government the money could be found.

Mr Naidoo said that the museum was a very exciting project.  Several brilliant soccer players had emerged from the province.  The city had a strong relationship with provincial government, aided by the fact that the same party was in control in both spheres of government.  They were mobilising the people, and the project enjoyed support across KwaZulu-Natal.

He said that the design of the stadium and the precinct in general had been commended.  Political parties were united, and ANC members were being mobilised.  There was buy-in from all parties.  Support was needed.  The stadium was a beautiful and cost-effective design.

Mr Solo said that there was a lot of emphasis on the world-class nature of the stadium.  This was appropriate.  He pointed out that it had to cater for recreation as well, as it was so close to the sea.  He was however worried about the escalation costs and the shortfalls.  Cape Town had a shortage of R 1.6 billion and Durban R 600 million.  He asked why the sums were so different.  He noted the variations and price fluctuations.  He asked if there was any similarity to the Gautrain project which would have limited use.

Mr Louw said that NMBM was looking at cutting costs by sacrificing the roof of the stadium.  He asked if Durban could not cut off the arch.  He saw no role for it apart from aesthetics.  He noted that the stadium would be ready for the Confederations Cup, and hoped it would also be ready for an ANC rally in 2009.

Mr Lucas congratulated eThekwini Municipality on a good presentation.  The shortfall was within reason.  They were waiting for Treasury approval.  He said that there had been no mention of security.  There was a perception that Durban was unsafe.  Spending was needed to counter this perception.

Mr Bhoola was overwhelmed to hear about the initiatives regarding workshops.  Bed and breakfast operators needed to be aware of requirements.  The city needed to focus on the needs of the people.  There were similar setbacks for the different host cities.  All suffered from a skills shortage.  There were many unemployed people with special skills, and a database should be created where their abilities should be captured.  There were lots of cases of foreign investments being managed by South Africans.  Investment and profit-making were needed, but the focus needed to be on South African companies so that profits would remain in the country.

Mr Dodovu noted that NMBM had engaged with nearby municipalities.  He asked if Durban had made any approaches to cities such as Richards Bay.

Ms N Ntuli (ANC) was given hope by the presentation.  BEE had been mentioned, but she asked if youth groups and women were included in the planning.  Control measures were needed.

Ms Ellingson replied that the cost difference between Cape Town and Durban were due to very specific circumstances.  Exchange rates were subject to extreme fluctuations.  Mechanisms could be adopted by measures such as buying forward cover.

She said that the roof was an integral part of the design, and also strengthened the bowl structure.  This was the best option, and reverting to a standard cantilever structure would produce minimal savings.  There had been some “what-if “ studies to cut the design to the bone if necessary.  The city had been upfront with the Committee.  There had not been approval from Treasury as yet, and they were working to find a solution.

She affirmed that security was a concern.  More auxiliary constables would be appointed.  Some 300 had been used over the holiday period.  The solution might be to integrate security officials into the municipal police.  Attention should not only be paid to the traditional tourist areas.  The concept of an individual database would be taken on board.  The city already had a database of companies.

Ms Ellingson said that the peferred bidder was a wholly-owned South African company.  Pandev was part of the consortium, and was the BEE component.  From a provincial perspective, the city was working with coastal towns and Pietermaritzburg.  Two or three training venues would remain in Durban.  Places like Newcastle had limited accommodation, but there would have to be clarification with FIFA as these venues had not been in the bid book.

She said that BEE perspectives had been taken wherever possible.  Groups owned by youth and women would be considered.  There was a learnership program from which 500 people joined the municipality per annum.  The linkages between the stadium and the beaches were important.  The city of eThekwini enjoyed 100 km of beaches, but the infrastructure needed to be spread over this entire area.

The Chairperson said that the Committee would engage with the LOC about the opening ceremony.  It was not a Gauteng World Cup.  If the closing ceremony was held in Johannesburg, which would co-incide with the final, then the opening ceremony should be held elsewhere.  Discussion would be held with Mr Danny Jordaan of the LOC.  All nine host cities would be engaged on the social responsibility aspects.  The Committee would investigate what the impact was on preparations in terms of Sections 7 and 9 of the MFMA.  Escalation costs were normal, but empirical evidence was needed to compare costs to market values.  He noted that Group 5 was a wholly South African-owned company, but wished that it was a wholly black-owned company.

Mbombela Local Municipality Presentation
Mr Neil Fourie (Project Manager, Mbombela Local Municipality) apologised on behalf of the Mayor.  He said that Mbombela had stayed away from an iconic design in order to stay within its means.  The design was for the spectator areas to be fully covered although there had been some compromise on the design of the roof.  This was still within FIFA’s requirements.  The stadium would seat 46 thousand spectators.

He reported on progress.  Site clearance had started on 1 August, and there was an undertaking for this to be ready by September.  However, this process had been delayed due to funding problems.  The erection of fencing and creation of drainage was being done at the municipality’s expense.  The main contractor would be ready to start the next day.  Transport upgrades were being carried out, and other projects were being maintained from other sources.

Mr Fourie said that the original estimate had been R 950 million.  This had been reduced to R 856 million after some cuts.  An amount of R 855 million had been allocated.  This did not include the event overlay (R 15 million).  The main contract was estimated at R 761 million.  This meant there would be a shortfall of R 71 million before the close of tenders, and it was anticipated that the shortfall would increase by R 25 million after the tenders had been received.  This would leave the final shortfall at about R 97 million.  There were various options to address this, including the use of sponsorship and by accessing the Municipal Infrastructure Grant.  After taking out all options, it would be necessary to cut the main contract to R 720 million.  Various expenses had been saved.  The biggest was in external facilities such as parking areas and pedestrian walkways.  These cuts would be reconsidered if more funding became available.

Mr Fourie said that transport projects were mainly related to the upgrade of the Matafan township.  Attention needed to be paid to practice venues, public viewing spaces and water and electricity infrastructure. 

The approach to development had been to have a stadium compliant to various guidelines and regulations.  A cost-effective design had been pursued with the capacity remaining the same.  The stadium would only be utilised for football although facilities for other codes would be located within the precinct.  These would not be supported by 2010 funding.  The design allowed the possibility of creating new facilities inside the stadium such as suites.  These were only potential upgrades at present.

Commenting on the increased tender prices, he said that the rates were almost the same as the estimate.  The big difference was in the preliminary and general expenses, which had gone from R 92 millions to R 137 million, an increase of 40%.  These were related to risks such as the availability of sub-contractors.  The price of steel for the roof was 50% above the estimate.  A fixed price approach was being followed.

Mr Fourie said that the MFMA constraints were not a problem, but there was a problem in compliance of all parties involved.  There had been a late transfer of funds.  The purpose of the MFMA was to protect smaller cities from the consequences of unwise, unfair or unethical practices.

Mbombela was looking forward to the completion of site clearance, fencing and drainage work.  They were still awaiting the award of the main contract, and it was realistic to anticipate the completion of the stadium by March 2009.  A penalty of R 1000 thousand per day would be imposed for late delivery.

He said that BEE compliance was dealt with in the ownership of construction companies.  The preferred bidder was a joint bid by Basil Read and an overseas company.  Basil Read was a public-owned company, but 40% of its share was allocated to BEE companies.  This claim had been audited and was found to be true.  Therefore 40% of the consortium was BEE compliant.  A minimum of 50% of the labour would be sourced locally as well as 5% of sub-contracts.  Local procurement would be a minimum of 5%.  He conceded that this sounded low, but much of the material and equipment could not be found locally.

Mr Differ Mogale (2010 Co-Ordinator, Mbombela Local Municipality) said that the city had started with some of the other projects.  As one of the smallest cities, money was a problem.  The delivery of electrical infrastructure to the site would cost about R 200 million and sanitation services another R 190 million.  The site had been privately owned, and there had been no infrastructure previously.

He added that business plans had been submitted by various departments.  Road construction and other transport related projects amounted to R 679 million.  Work had started on training venues.  The province had been engaged with the relocation of two schools adjacent to the stadium site, and this process would be completed by February.  Everything was now ready, and consultants were in place.  However the main plans were being kept on hold by Treasury.

Ms Ntuli said that Mbombela was a small city with big expectations.  The preparation phase had included a number of cuts.  The main objective should be seen as not only being 2010.  There was a perception that space should be reserved for other codes.  She asked where Mbombela would get money in the future.  She asked if the municipality had a strategy for the future.

Mr Frolick believed that Mbombela was well on track.  The LOC was happy with their efforts thus far.  Other associated projects needed further interaction.  He was saddened that the pedestrian walkways had been subject to cost-cutting measures.  They did much to create the atmosphere outside the ground.  He made a strong recommendation that these be prioritised.

Mr Masango said that most cities had a shortfall problem.  He did not know how this could be sorted out, but the cities should get together with Treasury.  Not all the cities would make it without a helping hand due to their limited income.  Mbombela needed another R 97 million together with infrastructure costs.  He asked what the total was for the five cities present.

Mr Frolick said that it was clear there had been interaction between the cities attending this meeting.  The World Cup was part of the government’s development agenda.  The correct approach was to deal with issues on a case-by-case basis.  It would be viable to see where the shortfalls were occurring.  The current approach was the best one.  The Committee had to play an oversight role.  The municipalities must not be overburdened before or after the tournament.

Mr Fourie replied that plans for the stadium were up to date, but they were behind on the infrastructure.  The establishment of the township was impacting on the stadium.  The cutting of the walkways was a reversible decision.  Mbombela was on the limit of what could be cut for now.

Mr Mogale replied that it would be difficult for the city to maintain the stadium.  Modular seating would be used, as it was not feasible to maintain a 46 thousand-seater stadium after 2010.  Business had proposed athletics and cricket facilities to be built after 2010.

The Chairperson asked what the extent was of relations between the municipality, district council and Mpumalanga province.

Mr Lawrence Mobasa (PMU Manager, Mbombela Local Municipality) said that the Premier of Mpumalanga set the political direction and a committee had been established as well as a technical committee.  The cities of Mbabane and Maputo in the neighbouring states were also involved.  There was good co-operation at municipal level with the district council.  Some money had been contributed by the premier’s office.

The Chairperson asked if this money was part of the budget or if it was top-up funding.

Mr Fourie said that it was for separate projects, but they were all regarded as equally important.

The Chairperson agreed that the redesigned roof was better than the original design.  He asked if there were any legal issues.

Mr Fourie said that there was excellent co-operation.  Professional fees would be reduced proportionally.  They were within the limits of adjusting the contract without having to renegotiate.  Future upgrades included creating entertainment areas and corporate suites on one side of the stadium, and making the other side available to clubs and debenture holders.  This process would be driven commercially.  Other space would be utilised by the establishment of an academy, a gymnasium and retail stores.  Mbombela would need business partners to make a success of this initiative, and these partners would have to fund the fitting-out of these areas.

The Chairperson said more attention had to be paid to Mbombela.  It was important to involve the area in the World Cup.  Mpumalanga was far ahead of schedule.

Polokwane Presentation
Mr Frik van der Merwe (Manager Sport and Recreation / 2010 City Co-Ordinator, Polokwane Municipality) apologised for the absence of the Mayor and the municipal manager.  The invitation to the meeting had only been received the previous day.  He said that Polokwane was busy with the upgrading of roads and other infrastructure projects.  A roadshow had been held in the area with the emphasis on FIFA requirements especially regarding accommodation.  A task team had been established at MEC level.  Base camps would be established at other cities in the Limpopo province.

The cost estimate had been R 864 million.  The tender price was set to be R 1.2 billion.  The funding allocated by national government was R 659 million.  The shortfall was R 576 million, but this had been trimmed to R 476 million after some process re-engineering measures.  Three tenders had been received, and negotiations would be held with these consortia to reduce costs.  There would be a positive saving although the final numbers on the tenders would only be known on 26 January.

Mr van der Merwe said that some of the specifications would be downgraded.  There could be some saving by extending the contract period.  It was unlikely that Confederation Cup matches would be played there.  The approach to development had been to build a cost-effective new stadium.  Upgrades to the current Peter Mokaba stadium and the loss of venue while it would have been closed indicated that the best cost-effective option was to build a new stadium.  It would be compliant to FIFA and environmental requirements.

The cost of materials had increased.  Steel was up by about 20% and copper by 84%.  The tender price had increased because of shortages of materials, labour and skills.  The building of five stadiums concurrently and media reporting were also factors.  In terms of the MFMA, funds were in budget awaiting the tender.

Mr Frolick was awaiting a final response on the cuts.  Even so, the shortfall was about R 500 million.  Compliance with FIFA requirements was important, but the shortfall was still significant.  He asked what was needed for completion.

Mr Solo asked what the numbers meant to the Committee.  Inland venues were disadvantaged in that overland transport was needed for bulk materials.  It might be extremely pressured to produce what was required.  He was worried about the quality and sustainability of the stadium.

Mr van der Merwe said the final price should be known later that day, but the identity of the preferred bidder would only be known on 26 January.  Negotiations would then follow.  No work had been done yet, as consultants had advised that the main contractor should be responsible for all aspects of the construction.  They were relooking at the engineering aspects and would be bringing in some equipment.  The were looking to expedite the project by bringing in the materials already.  They should be ready to go on site by mid-February, and construction should be complete by mid-2009.  He stressed that Polokwane could not afford to make up the shortfall.

The Chairperson remarked that earthworks had not started.  He asked if there were any targets for the different phases of construction, and if Polokwane was on track.

Mr van der Merwe said that the contractor should be on site by 22 February, so construction would be about three weeks behind.

The Chairperson said that it would be a major worry to recover from this setback.  The Committee would visit Polokwane on or before 16 February.

Mr Solo felt “bad vibes”.  He wondered if this was the reason that the mayor and municipal manager were not present.  Three weeks represented a huge backlog.

Mr Frolick observed that there was an apology and the notice of the meeting had only been delivered the previous day.

Mr van der Merwe said that the mayor had an all-day meeting, and the municipal manager was writing an exam that day.

The Chairperson said that this could not be true.  Polokwane had been the first city to respond to the invitation.

Mr van der Merwe replied that he had only seen it the day before.  There were IT problems in his office.

The Chairperson accepted the apologies in good faith, but reminded the meeting that the Committee had the right to summon any person to attend in terms of Section 63 of the Constitution.  This was not done haphazardly.  Any person refusing to attend the Committee could be found to be in contempt of Parliament.

Concluding remarks by Chairperson
Mr Komphela said he had a positive message from all the cities.  Extraordinary work was being done to stage an African World Cup.  All cities were on track, and the issues involved were peripheral.  The Committee would visit the various provinces.  A phased approach was needed with measurable target dates.  He was left inspired.

The meeting was adjourned.


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