Wescape: who will finance the new city?

Developers say no public finance will be needed, but critics are sceptical

Graphic of Wescape development

Artist impression of the proposed Wescape city. Image from Wescape website

By Ashleigh Furlong

1 June 2016

The City of Cape Town has approved the creation of a new city of 800,000 people in 200,000 homes, 20 kilometres from Cape Town up the west coast. But many questions about the controversial new development remain unanswered. In the second of a three part series, GroundUp asks: who will finance the project?

Read part one: Thriving new city or failed development

Read part three: Wescape: 800,000 people in Koeberg’s nuclear “red” zone?

Wescape is a private sector development and the developers say no public finance has been requested. But critics ask who will pay for bulk infrastructure like sewage and transport upgrades, which will run into billions of rands.

Gita Goven, the chairperson of communiTgrow, the developer of the project, says finance is currently being raised both for the project development phase and for infrastructure. But she will not say what the total budget is or how much has already been raised.

She says that some of the finance is locked down and some is “in the process of being locked down”.

“We have a lot of people interested in the project once it’s fully viable,” she says, explaining that the money is easier to secure once processes such as the rezoning and subdivision processes have been completed.

“Right now we are struggling with the most difficult stage – the project development and finance,” says Goven.

Rob McGaffin, who is a town planner and land economist, believes that Wescape “doesn’t make any sense from an economical and financial perspective, even from the developer’s perspective”.

As for the project development stage that communiTgrow is currently engaged in, McGaffin says that this stage is a “notoriously risky stage of financing” and that the current economic climate makes it even more risky.

He also doesn’t believe that Wescape’s attempts to garner international funders can work. International funders wanting to invest in South Africa would go for a safer investment option, he says.

McGaffin says that “megaprojects” such as Century City, Melrose Arch and even the London docklands all failed the first time around - yet these are all much smaller projects than Wescape.

“Those megaprojects are notorious for failing. It’s not that they are bad operators or developers,” says McGaffin. There are many “unknowns” in megaprojects as projects of that scale take a long time to be completed, he says.

He says that having to predict so far into the future as to what the conditions will be is very difficult and that “no one has that information”.

“Usually they undertake their feasibility with the incorrect information and the incorrect forecasts… and it doesn’t materialise the way it was expected,” he says, adding that the failure of megaprojects the first time around is a “global phenomenon” and that the second developer is often the one who succeeds as the first developer has either absorbed the costs or written them off.

Bulk infrastructure

Of major concern is the provision of bulk infrastructure as a city of this size would require a new wastewater treatment works, major electrical infrastructure and possibly a large upfront cost that locks the City into development in the area.

Many of these critiques were contained in responses from various departments to Wescape’s application in 2012 for an amendment to the urban edge.

The City’s Water and Sanitation Department described the proposal as “premature and unaffordable”, questioning whether the City would be locked into financing bulk infrastructure that would only service one area. The department also mentioned the new water treatment system that would be necessary, the high cost of the proposed desalination scheme and new reservoirs.

The City’s Electricity Services stated that “no capacity exists to supply this development” and that it would all need to be constructed.

Wescape claims to have budgeted R8.5 billion for “bulk, link and internal services” but questions have arisen over what this will cover, as a spreadsheet tabulating the various costs that will make up the R8.5 billion does not take into account all bulk services that will be needed.

Who will ultimately be covering the cost of the infrastructure is still a subject of debate. Goven says that there is “some current residual capacity in the infrastructure at the moment and exactly how that gets navigated is a function of what you pay for and what you don’t pay for”.

“Where there isn’t capacity – so for example if the pipes don’t exist they will have to be put in and they will have to be paid for – all of that has been allowed for in the Wescape budget and is not for the City’s account”.

“It’s not going to be cost to the taxpayer’s pocket, not any more than anything else the City is doing currently,” she says, insisting that Wescape will not drain funds from other developments in the city.

Nancy Odendaal, who is a senior lecturer in City Planning at the University of Cape Town and works with the African Centre for Cities, explains that expanding bulk infrastructure far outside of the city is difficult. She says the City usually pays for bulk infrastructure unless the developer and the City come up with an agreement. Odendaal says that it could “have a serious impact on their feasibility model” if the developer had to provide bulk infrastructure.

“I can’t see how they are going to fund the bulk infrastructure of this nature, so I am convinced that the state has to come to the party,” agrees McGaffin.

He asks what will happen if Wescape doesn’t work the way that the developers imagined and they go bankrupt after the state has put in a large amount of bulk infrastructure. “Who is left carrying the cost?” asks McGaffin.

Funding from the Government

The developers say that most of the costs of transport to and from Wescape will be paid for by the government with contributions from Wescape, but plans for this are still sketchy.

Goven says there is already a major freeway and the MyCiti that runs past Wescape. She proposes linking with trunk routes to connect to the MyCiti and also makes mention of the conversion of the Atlantic railway to commuter traffic. But there are no details on when or if this will happen. The extension of the R300 that Wescape believes the SA National Roads Agency will fund is also uncertain.

Unfortunately GroundUp did not receive any response from the City of Cape Town to our questions regarding Wescape, as the City said an Environmental Impact Assessment had yet to be lodged.