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Local Government: Municipal Finance Management Act, 2003 (Act No. 56 of 2003)

Chapter 6 : Debt

46. Long-term debt


(1) A municipality may incur long-term debt only in accordance with and subject to any applicable provisions of this Act, including section 19, and only for the purpose of—
(a) capital expenditure on property, plant or equipment to be used for the purpose of achieving the objects of local government as set out in section 152 of the Constitution, including costs referred to in subsection (4); or
(b) re-financing existing long-term debt subject to subsection (5).


(2) A municipality may incur long-term debt only if—
(a) a resolution of the municipal council, signed by the mayor, has approved the debt agreement; and
(b) the accounting officer has signed the agreement or other document which creates or acknowledges the debt.


(3) A municipality may incur long-term debt only if the accounting officer of the municipality—
(a) has, in accordance with section 21A of the Municipal Systems Act
(i) at least 21 days prior to the meeting of the council at which approval for the debt is to be considered, made public an information statement setting out particulars of the proposed debt. including the amount of the proposed debt, the purposes for which the debt is to be incurred and particulars of any security to be provided; and
(ii) invited the public, the National Treasury and the relevant provincial treasury to submit written comments or representations to the council in respect of the proposed debt; and
(b) has submitted a copy of the information statement to the municipal council at least 21 days prior to the meeting of the council, together with particulars of—
(i) the essential repayment terms, including the anticipated debt repayment schedule; and
(ii) the anticipated total cost in connection with such debt over the repayment period.


(4) Capital expenditure contemplated in subsection (1)(a) may include—
(a) financing costs, including—
(i) capitalised interest for a reasonable initial period;
(ii) costs associated with security arrangements in accordance with section 48;
(iii) discounts and fees in connection with the financing;
(iv) fees for legal, financial, advisory, trustee, credit rating and other services directly connected to the financing; and
(v) costs connected to the sale or placement of debt, and costs for printing and publication directly connected to the financing;
(b) costs of professional services directly related to the capital expenditure; and
(c) such other costs as may be prescribed.


(5) A municipality may borrow money for the purpose of re-financing existing long-term debt, provided that—
(a) the existing long-term debt was lawfully incurred;
(b) the re-financing does not extend the term of the debt beyond the useful life of the property, plant or equipment for which the money was originally borrowed;
(c) the net present value of projected future payments (including principal and interest payments) after re-financing is less than the net present value of projected future payments before re-financing; and
(d) the discount rate used in projecting net present value referred to in paragraph (c), and any assumptions in connection with the calculations, must be reasonable and in accordance with criteria set out in a framework that may be prescribed.


(6) A municipality's long-term debt must be consistent with its capital budget referred to in section 17(2).