Making the Mega-Nexus Work: Financing Key
Projects and the role of Public Private Partnerships
Presentation: James Aiello
Senior Project Advisor
PPP Unit National Treasury
Date: 19 April 2012
Public Private Partnerships
The Role of PPPs in Infrastructure
acquisition and maintenance
Contents
1. Introduction
2. Government’s role: accessing private resources
3. Specifics of Government’s Role
4. Experience to date
5. Challenges
. Other Municipalities
6. New Dawn?
7. Governance Going Forward
Introduction
The Problem: Lack of interconnection between
governmental entities with jurisdiction over finite
resources – water, land and energy –
•
Interim solution: maximise the efficient use thereof within
existing jurisdictional boundaries
– “Efficient Use”
• Bringing existing finite resources infrastructure up to – or
near – good practice standards
• Always
including
maintenance
and
operational
considerations when planning for new finite resources
infrastructure expenditures
• Always consider accessing all available financial and
technical resources
– Including –
ACCESSING PRIVATE SECTOR EXPERTISE AND
FINANCING
Government’s Role in accessing private sector resources
National Treasury’s PPP Unit – liaises with
– The “Public Finance” Directorate relating to the funding of PPPs for National
Departments
– The “Intergovernmental Relations” Directorate (IGR) relating to the funding of
provincial and municipal PPPs
– The “Budget Office” Directorate for overall PPP policy
– The Industrial Development Corporation (IDC), a State Owned Enterprise (SOE)
for major PPP funding
– The Development Bank of Southern Africa (DBSA) for major PPP funding as well
as municipal PPP funding
– The Director-General of the Ministry of Finance for high level policy direction and
reporting
– The Minister, for overall policies relating to infrastructure procurement within
South Africa
Government’s Role in accessing private sector resources,
continued
National Treasury’s PPP Unit – also liaises with
–
–
–
–
–
National Departments, on a demand-driven basis – i.e., they come to us
The Provincial Treasuries and any PPP Units established in them
Provincial departments on a demand-driven basis
Municipalities – Metros, District and Local, on a demand-driven basis
State owned enterprises (SOEs)
• By invitation
• Seeking an exemption from Treasury Regulation 16
Provincial Treasury PPP Units
– Provincial Departments i.t.o. PPP budget requirements
– Municipalities
• MFMA
• Municipal PPP Regulations
• MSA
Government’s Role in accessing private sector resources,
continued
• Component
– Effective 1 April, Component established
– Per DPSA legislation and regulations
– Brings together the PPP Unit and the Technical Assistance Unit (TAU)
– Will have a CEO reporting to the Minister
– “Wholly owned” by National Treasury
– Both Units presently access private sector expertise
– Anticipated to extend the reach of such expertise to areas not currently served
– Should play an important role in the sustainability of all infrastructure capex
initiatives over a specified amount
Specifics of Government’s Role
Government’s role depends upon the project phase
– Inception
• High level determination as to suitability for PPP
• Registration, assignment of Project Manager
• Procurement of Project Officer, Transaction Advisor
– Feasibility Study
• Most important assessment
• Provides information necessary to make PPP suitability
determination
• Convenes multi-discipline committee to take decision
• Output includes sustainability parameters that must be met
Specifics of Government’s Role, continued
– Procurement
• Fair, equitable, transparent and competitive
• BEE, Technical expertise and financial resources must be
demonstrated
• Approval required for designation of Preferred Bidder
• Approval also required before PPP Agreement signed
– Implementation
• Typically two phases – infrastructure construction and
service delivery from the infrastructure
• Contract management important
• Independent expert determines infrastructure availability
• Payments not made until services begin from infrastructure
Specifics of Government’s Role, continued
– Variations
• Variation = material change in the PPP contract
• Approval must be obtained
• PPP must still demonstrate value for money, affordability and
risk transfer before approval can be given
• Most PPP contracts will be amended
– Examples
• Chapman’s Peak
• Department of Education
• The Biovac Institute
Experience to date
– National
• Gautrain – largest PPP on the continent
• Office accommodation
– Department of Trade and Industry
– Department of International Relations and Cooperation
– Department of Education
• The Biovac Institute
• Department of Transport transversal Fleet PPP
– Provincial
• Health care – three joint use hospitals in Eastern Cape and
Free State
• Limpopo renal dialysis
• Cradle of Humankind World Heritage Site
Experience to date, continued
– Participation with the IDC and the DBSA in organising
finance and/or equity for major infrastructure PPP
initiatives
• Major hospital rehabilitation coordinated with improving
medical university “teaching hospitals”
• Non-fossil fuelled independent power production
– Solar
– Concentrated solar
– Wind
– Contribution to the procurement oversight processes for
PRASA in terms of major tender for completely new rolling
stock within the country
– DBSA by participation in SADC PPP initiative
Experience to date, continued
Municipal
– Mbombela (Nelspruit) water services concession
– Ilembe (Dolphin Coast) water services concession
– Uthekela municipal solid waste disposal
•In total, the PPP Unit has completed 23 PPP
projects with total project values in excess of R35
billion and is currently involved in “PPP-like”
undertakings worth nearly R60 billion.
Challenges
•PPPs are complex and time consuming
– Analysis shows no appreciable difference, time-wise from
traditional procurement
• Many government entities lack the human and
financial resources to undertake the assessments
required for a PPP
– Existing programmes (PDF) expanded through
Component should address
– Is a serious matter, requiring diligent oversight
the
• Unions & some NGOs oppose private sector
participation in providing water services infrastructure
– Recent statements by COSATU
– NGO position not heard
Challenges, continued
• Lack of new services infrastructure
– Energy infrastructure, via IPPs being addressed
– Water services infrastructure needs are not being
addressed
• Fact that only two full-services water services concessions
can only be described as tragic
• Deterioration of existing infrastructure
– “Blue Drop” and “Green Drop” programme results
dismaying
– Fact is that municipalities don’t have the expertise to care
for existing infrastructure
Challenges, continued
• Multiple governmental entities with jurisdiction over
water services
–Department of Water and Environmental Affairs
–Water Boards
–Municipalities
• Metropolitan Municipalities
• District Municipalities
• Local Municipalities
• Sustainability viz-a-viz ability to provide basic
municipal services not clearly demonstrated by
either geographical jurisdiction assigned or
allocated responsibilities
Challenges, continued
•Free basic services (water, electricity) requirement of
National Government without the provision of either
the financial of technical resources to do so
– “Equitable Share” does not come close to covering the
cost of providing “free services”
– No requirement that it be used in any specific way
• There is little evidence of an overall vision for the
provision of basic municipal services
– Minister’s recent pronouncements welcomed
– Need to know how such will be translated into action by
affected municipalities
New Dawn?
• Different approaches to providing services infrastructure
– Donor funding for new infrastructure construction
• Drawback is that donors will not fund operations and maintenance
• In any event, lack of technical expertise to properly operate and
maintain
– Franchising
• There is an franchising initiative underway in the Eastern Cape,
sponsored by a school district
– SMME employs local artisans and labourers to maintain the ablution
facilities at a school
• May be some question as to the authority of the school to so
contract
– “Near PPPs”
• IPPs for renewable-fuelled energy production
• Private sector participation in PRASA new coaches initiative
New Dawn, continued
–Bulk Services PPPs
• Wastewater treatment
• Private party is also the offtaker
• Should be less offensive to labour organisations
–Outsourcing expertise
• Contracting for “Town Engineer” expertise
• Drawback is little capacity transfer
• Term of such outsourcing a matter of concern
–Component implementation
• New infrastructure capex budget processes
• “Feasibility” assessment of all major infrastructure proposals
• Close cooperation w/other Treasury Directorates re: O&M for
existing infrastructure
• More “PPP-Like” procurements
Governance going forward
• Municipalities are at the “coal face” for service delivery to South
African citizens. They are responsible for most public services –
–
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–
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Potable water treatment and reticulation
Wastewater treatment, reticulation and disposal
Solid waste collection, transport and disposal
Electricity distribution (some Metros also generate electricity)
Streets, roads, storm-water systems
Planning and zoning
• Municipalities have many revenue sources
–
–
–
–
National Government
Provincial Government
Municipal utility rates and charges
Municipal property taxes and levies
• Fact is all of these are insufficient to fund the provision of services
•Fact is that even with sufficient revenue, most lack capacity to provide
them
Governance going forward, continued
• Private sector has both the financial resources and the
expertise to assist municipalities in providing basic
services
• Minister of Water and Environmental Affairs states that
government wants to attract R25 billion from foreign
investors for maintenance of SA’s aging water services
infrastructure
• Government also considering “partial privatisations” of
some water treatment plants
• Surprisingly, COSATU has stated it will take a “waitand-see” attitude and respond on a “case-by-case”
basis
• No response from the anti-water services NGOs
Governance going forward, continued
• How will government give effect to its stated intent?
– No clear mechanism under the Constitution to do so
– Municipalities are accorded specific rights and responsibilities
– Some sort of cooperation agreement might have to be
developed and executed for each municipality
– Similar situation is being addressed in terms of the National
Department of Health’s initiative to rehabilitate and upgrade
certain academic hospitals and strengthen their relationship
with the partner-university
• A way will be found to effect this with the
municipalities
and
hopefully
some
sort
of
rapprochement with COSATU will also be achieved
Governance going forward, continued
• This can only be an interim solution, however
– Re-demarcation of municipalities must be part of the longterm solution
• Each municipality must have a tax-paying population – citizens,
businesses and otherwise -- of sufficient size that, when
combined with other revenue sources, can be sustainable
• Otherwise, National Government must provide the revenues to
support the ongoing operations and maintenance of water
infrastructure for the foreseeable future
• And do the same for all “partial privatisations”
• Our current situation of wall-to-wall municipalities with little or
no regard to revenue resources is unsustainable
Governance Going Forward, continued
• Overarching,
nation-wide
planning
for
the
development and implementation of sustainable
municipal water services should be part of the MegaNexus Initiative
– We need to clearly understand its goals
– The mechanisms for achieving those goals
– And regular, transparent reporting on the
implementation progress
To the end that we can provide our support and
encouragement for their achievement and do “our part”
in ensuring sustainable water use for our nation
Contact Details
James Aiello
Senior Project Advisor
PPP Unit
National Treasury
240 Vermeulen Street
Pretoria
South Africa
Tel: +27 12 315 5298
Fax: +27 12 315 5477
james.aiello@treasury.gov.za
www.ppp.gov.za
www.treasury.gov.za