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

Chapter 6 : Debt

48. Security


(1) A municipality may, by resolution of its council, provide security for—
(a) any of its debt obligations;
(b) any debt obligations of a municipal entity under its sole control: or
(c) contractual obligations of the municipality undertaken in connection with capital expenditure by other persons on property, plant or equipment to be used by the municipality or such other person for the purpose of achieving the objects of local government in terms of section 152 of the Constitution.


(2) A municipality may in terms of subsection (1) provide any appropriate security, including by—
(a) giving a lien on, or pledging, mortgaging, ceding or otherwise hypothecating, an asset or right, or giving any other form of collateral;
(b) undertaking to effect payment directly from money or sources that may become available and to authorise the lender or investor direct access to such sources to ensure payment of the secured debt or the performance of the secured obligations, but this form of security may not affect compliance with section 8(2);
(c) undertaking to deposit funds with the lender, investor or third party as security;
(d) agreeing to specific payment mechanisms or procedures to ensure exclusive or dedicated payment to lenders or investors, including revenue intercepts, payments into dedicated accounts or other payment mechanisms or procedures;
(e) ceding as security any category of revenue or rights to future revenue;
(f) undertaking to have disputes resolved through mediation, arbitration or other dispute resolution mechanisms;
(g) undertaking to retain revenues or specific municipal tariffs or other charges, fees or funds at a particular level or at a level sufficient to meet its financial obligations;
(h) undertaking to make provision in its budgets for the payment of its financial obligations, including capital and interest;
(i) agreeing to restrictions on debt that the municipality may incur in future until the secured debt is settled or the secured obligations are met; and
(j) agreeing to such other arrangements as the municipality may consider necessary and prudent.


(3) A council resolution authorising the provision of security in terms of subsection (2)(a)—
(a) must determine whether the asset or right with respect to which the security is provided, is necessary for providing the minimum level of basic municipal services; and
(b) if so, must indicate the manner in which the availability of the asset or right for the provision of that minimum level of basic municipal services will be protected.


(4) If the resolution had determined that the asset or right is necessary for providing the minimum level of basic municipal services, neither the party to whom the municipal security is provided, nor any successor or assignee of such party, may, in the event of a default by the municipality, deal with the asset or right in a manner that would preclude or impede the continuation of that minimum level of basic municipal services.


(5) A determination in terms of subsection (3) that an asset or right is not necessary for providing the minimum level of basic municipal services is binding on the municipality until the secured debt has been paid in full or the secured obligations have been performed in full, as the case may be.