Health Care Public Private
Partnerships in South Africa–
what has worked and what has
not
PRESENTER: James Aiello
December 2014
CONTENTS OF PRESENTATION
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Introduction and background to SA PPPs
South African success factors
Health Care PPPs
Successfully implemented projects
Project that didn’t work out as planned
Polokwane Kidney and Dialysis Centre
The future: Specialized Procurement Services
Conc
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INTRODUCTION AND BACKGROUND
• In 1997, the South African Cabinet appointed an inter-departmental task team
to create an enabling environment for PPPs
• In 1999, the Public Finance Management Act was adopted as well as the
Strategic Framework for PPPs
• In 2000 the PPP Unit was established in the Department of Finance and the first
PPP regulations enacted
• The mandate was to support PPPs in the national and provincial spheres of
government
• In 2004 the Public Private Partnership Manual and the Standardised PPP
Provisions were adopted providing technical and contractual guidance
• In 2005 the mandate was expanded to include supporting PPPs in the municipal
sphere of government, and the Municipal services and PPP Guidelines were
published
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PPP UNIT TODAY
• Total staff complement is 18
– Thirteen professionals
– Four support staff
– One office manager
• A division of the Government Technical Advisory Centre (GTAC), an agency of
the Department of Finance
• Offices in Tshwane (Pretoria) South Africa
• Closed 24 PPP projects in excess of R60 billion
• Provided specialized procurement services to the Department of Energy (IPPs)
and the Department of Transportation (PRASA) for non-PPP projects valued in
excess of R153 billion
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SOUTH AFRICAN SUCCESS FACTORS
• Detailed Legislative Framework in place
– Public Finance Management Act (PFMA)
• PFMA Treasury Regulation 16
• Public-Private Partnership Manual
• Standardised Public Private Partnership Provisions
• Public Private Partnership Toolkit for Tourism
– Local Government: Municipal Systems Act
– Municipal Finance Management Act (MFMA)
• Municipal PPP regulations
• Municipal Service Delivery and PPP Guidelines
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SOUTH AFRICAN SUCCESS FACTORS
• Highly Capacitated PPP Team in Place
• Work is allocated to staff by sector
Health
Accommodation
Energy
Education
Water
Contract Management
Transport
Project Development Account
Tourism
Waste
Business Development
International Relations
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HEALTH CARE PPPS
1. Introduction
2. Inkosi Albert Luthuli Central Hospital
3. Universitas and Pelonomi Hospitals
4. Humansdorp District Hospital
5. Port Alfred and Settlers Hospital
6.Western Cape Rehabilitation and Lentegeur Hospitals
3. The South African PPP Unit
7. Limpopo Renal Dialysis
8. Phalaborwa Private Hospital
9. State Vaccine
INTRODUCTION
A first-world private health-care system exists in South Africa, but government
lacks the financial and human resources to provide a similar public health-care
system
• Health Services PPPs include:
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Management information systems
Joint-use of facilities by public sector and private sector health care service providers
Accommodation-only initiatives
Catering
Renal dialysis
Vaccine production, ordering, packaging and distribution
Making redundant health care facilities available to the private sector for upgrading and providing health
care services to private sector patients
• Most of these PPPs have operated satisfactorily
• Disputes have arisen, but have been quickly sorted
• Private sector poised to perform an even greater role, with PPPs or via a
National Health system
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TYPES OF HEALTHCARE PPPS
Inkosi Albert Luthuli Central Hospital – Durban, Kwa-Zulu Natal Province
• Private sector supply of equipment, information management and technology
systems and facilities management services.
• 15 year term commencing March 2002, w/option to extend
• Project deliverables – the management of all non-core activities at the hospital
– all medical, information technology and facilities management services.
• Private party – the Impilo Consortium (Pty) Ltd. SPV shareholders included
Siemens, AME, Drake & Skull and BEE shareholders
• NPV of capital = R1.156 billion
• Unitary Payment = R304.9 million p.a. escalated by CPI
• State-of-the-art central hospital – only one in Public Health System
• 3000 jobs created, including 2000 nurses
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TYPES OF HEALTHCARE PPPS
Universitas and Pelonomi Hospitals – Bloemfontein, Free State Province
• Private sector design, finance, build, operate and transfer based upon the colocation of the private partner (Netcare) and provincial health-care providers
in both Pelonomi and Universitas hospitals.
• 16.5 year term, initially, from November 2002, later extended to 21.5 years
• Project deliverables – utilisation of unused space; optimisation of theatres and
specialised equipment; provision of private health-care services within both
public hospitals; provision of tertiary and academic health services to private
patients; retention of professional staff within the public sector and
enhancing the capabilities of Universitas, a leading academic hospital.
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TYPES OF HEALTHCARE PPPS
Universitas and Pelonomi, continued
• Private Party is Netcare, including Netcare Construction and Community
Hospital Management (Pty) Ltd. BEE shareholder is Malesela Holdings.
• NPV of total capital investment for refurbishment = R100 million
• Unitary Payment – there was no Unitary Payment from the Provincial Health
Department to the Private Party; the Private Party was to pay a variable and a
fixed concession fee.
• However, things did not work out as planned, and the PPP Agreement is being
currently renegotiated.
• Areas of concern mainly revolve around replacement of “guaranteed” radiology
fees to the Private Party with fees earned for provision of back-logged services
for Province.
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TYPES OF HEALTHCARE PPPS
Humansdorp District Hospital – Humansdorp municipality, Province of the Eastern
Cape
• Comprises Humansdorp District Hospital and a smaller Isivivana Private
Hospital in a co-location PPP. The Private Party refurbished the Humansdorp
public hospital and constructed Isivivana Private Hospital and operates both as
the Kouga Partnership Hospital.
• Project term is 20 years
• Project deliverables – to increase availability of private sector health expertise
to the public health sector at an affordable cost.
• Private Party is Life Healthcare Group
• All financing provided by the Private Party; NPV of total capital investment =
R7.8 million
• While road has been rocky, both sides feel project is working
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TYPES OF HEALTHCARE PPPS
Port Alfred and Settlers Hospitals – Province of the Eastern Cape
• Private sector refurbishment and on-going maintenance of two public hospitals
and permission given to provide health-care services to private patients at both
hospitals. To the extent that the provision of health-care services to private
patients does not cover the costs of maintenance, the Provincial Health
Department will pay a Unitary Payment to the Private Party. Follows the
Humansdorp model.
• The term of the PPP Agreement is 25 years.
• The Unitary Payment = R27.2 million, escalated, base date 2005.
• Private Party capital provided = R196 million
• Newspaper article late last year lauded the project
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TYPES OF HEALTHCARE PPPS
Western Cape Rehabilitation Centre and Lentegeur Hospitals PPP Project – Western
Cape Province
• The Private Party will provide all equipment, facilities management and
associated services in respect of the Western Cape Rehabilitation Centre and
Lentegeur Psychiatric Hospital.
• Project deliverables:
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Obtaining private sector efficiency and know-how on non-core needs
Provision of preventative maintenance instead of being only reactive
Obtaining economies of scale by combining several outsourced contracts and in house functions at both
hospitals
Improved governance in that the Province only has to deal with one party for both hospitals
Private Party is the Mpilisweni Consortium
Private Party provided all financing – no debts
Beginning Unitary Payment, escalated = R30 million p.a.
Term of PPP = 12 years (from March 2007 commencement date)
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TYPES OF HEALTHCARE PPPS
Limpopo Renal Dialysis Clinic – Limpopo Province
• Private sector to finance, design, construct, operate and maintain a renal
dialysis clinic for the Limpopo Province Department of Health.
• 10 year term, commencing November 2007
• Total cost approximately R7 million; no debt, no financing
• Private Party is Clinix Renal Care
• Unitary Payment = R11.86 million p.a., escalated
• First PPP where private party provides clinical services to public health
patients.
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TYPES OF HEALTHCARE PPPS
Phalaborwa Hospital –Limpopo Province Health Dept.
• Not a health-care PPP per se, but private sector use of state lands for
commercial purposes.
• Private Party will finance, design, refurbish, operate and maintain, as a
private-sector hospital, a public hospital that is no longer needed by the
Province.
• Private Party will pay a fixed fee (eventually R100,000 per month) and a
variable fee (3% of annual revenues over R80 million).
• Private Party is Clinix-Phalaborwa Private Hospital (Pty)(Ltd), the same party
operating the dialysis clinic. Will put in a dialysis clinic as well and will provide
reduced-cost medical services to public health-care patients as well.
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TYPES OF HEALTHCARE PPPS
State Vaccine Institute – National Department of Health
• PPP for the procurement, receipt, packaging and distribution of vaccines for
the Government of South Africa
• Private Party = The Biovac Institute, which is 40% owned by the Government of
South Africa, through its Department of Health.
• PPP Agreement was executed in 2003 and was recently extended to 2016, in
order that Strategic Equity Partner can initiate vaccine manufacturing in South
Africa.
• Private Party is compensated by a mark-up on the procurement price of the
vaccines.
• Working on a technology transfer from either an Italian or Cuban manufacturer
to allow manufacture of vaccines within South Africa.
• Eventually wish to manufacture for export to rest of Africa
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SUCCESSFULLY-IMPLEMENTED PROJECTS
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The South African PPP Team has closed 24 PPP projects in the following sectors:
– Health Care, including medical equipment installation, operation and
maintenance, hospital co-location, provision of renal dialysis services, and
hospital refurbishment, maintenance and operation at various hospitals
– Office Accommodation, for the financing, design, construction, maintenance
and operation of office accommodation facilities for government departments
– Toll Roads, for commercial and tourism activities
– Social Grants, for the distribution of social grants, including the accounting
therefor
– Fleet Management, for the provision and maintenance of motor vehicle fleets
for government departments
– IT, for the provision, maintenance and upgrading of IT equipment for
government departments
– World Heritage Site, for the design, construction, maintenance and operation
of the Cradle of Humankind World Heritage Site
– Rapid Rail, for the partial financing, design, construction, maintenance and
operation of a Rapid Rail system
Note: PPP regime is not applicable to State Owned Entities
SUCCESSFULLY-IMPLEMENTED PROJECTS
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Some significant projects –
– Albert Luthuli Hospital – the first “paperless” hospital in Africa
– Polokwane renal dialysis facility – private sector rendering both facility and
clinical services
– Biovac Institute – country-wide vaccine repackaging and distribution
– Gautrain Rapid Rail Project -- first of its kind in Africa
– Chapman’s Peak toll road – one of South Africa’s most scenic drives
– Department of Transportation transversal fleet management – fleet
management services for most national departments including the Office of
the Presidency
– Head Office Accommodation
• Department of Trade and Industry Campus
• Department of Basic Education
• Department of International Relations
• Department of the Environment
• Statistics South Africa
• (soon) Tshwane (Pretoria) City Hall (Munitoria)
– Cradle of Humankind World Heritage Site
PROJECT THAT DIDN’T WORK OUT AS PLANNED
Eastern Cape Department of Health –Pharmaceutical distribution
• Registered in 2004 because over a third of all pharmaceuticals failed to arrive
at the province’s hospitals and clinics
• Province operated two pharmaceutical depots, one in PE and one in Mthatha
• Delivery systems included local delivery service in PE and taxis
• Hospitals & clinics ordered drugs from depots by facsimile; many were lost
• Feasibility study recommended experienced delivery service provider for both
depots
• Preferred bidder proposed mobile phone drug ordering system, tied to
province-wide IT system & fleet of proper vehicles capable of carrying at
required temperature & delivery validation
• Change of Department of Health chief at eleventh hour killed the project
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POLOKWANE KIDNEY AND DIALYSIS CENTRE
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Before 2000, haemodialysis patients transferred 300 kms to Pretoria from
Polokwane for treatment – some as many as three times a week
– In 2004, registered as a PPP and issued a Request for Qualifications (RFQ)
– Request for Proposals (RFP) issued in 2005
• Sought proposals for design, construction and upgrade of existing dialysis
unit, construction of a new unit and provision of facilities management,
maintenance and replacement of renal dialysis equipment and the
staffing of the new renal dialysis unit at the Polokwane hospital complex
– PPP agreement signed 10 November 2006 – service commenced 1 December
– Winning bidder provided all of the financing – no lenders involved
– Construction commenced 5 March 2007
– Phase I completed 22 August 2007
– Phase II completed 15 November 2007
– Completion certificate awarded 12 May 2008
– Full service commenced 1 April 2008
– NPV of Unitary Payments to service provider for 10 years of project = R88.3
million
POLOKWANE KIDNEY AND DIALYSIS CENTRE
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Partners
– Government of Limpopo Province
– Clinix Renal Care (Pty) Ltd– the SPV for the project, with Emang/Thagang Joint
venture as the Construction subcontractor
– Fresenius Medical Care South Africa (Pty) Ltd – performance guarantor to
Clinix Renal Care
Operations
– Facility able to cater for 80 haemodialysis and 50 peritoneal dialysis patients –
previously could only cater for 30 patients
– Concession Period is 10 years
– Target Black Economic Empowerment in the project: 50%
– Payment mechanism: Unitary Payment based on a “procedure fee” subject to
annual CPI escalation
Current Status
– Treatment of 1500 Haemodialysis Dialysis patients a month
– Acute dialysis services and peritoneal dialysis outpatient services in place
– All facilities management service ISO 9001 & ISO 14001 certified
– Staff training – six staff training to be nephrology nurses
Management
– Joint management, monthly meetings, all processes audited
THE FUTURE: SPECIALISED PROCUREMENT SERVICES
• As a division of GTAC, the PPP Unit’s mandate has been
expanded to include providing specialist procurement
services which will include
– Comprehensive feasibility studies
– Disciplined, robust procurement processes
• Mandate has also been expanded to include providing
technical advisory services outside the Republic
• Will continue to provide PPP training services within the
Republic and internationally as well
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CONCLUSION
• Based on Partnership UK principles the PPP processes
have been contextualized to reflect the realities of both
government and the private sector in South Africa
• That contextualization is never complete – we are
always evolving
• We don’t claim to have all the answers or to do
everything right the first time, but we are keen to learn
from our mistakes and to offer our insights to any other
government, in Africa and elsewhere, where PPPs are
being considered.
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Thank you for your attention
James Aiello
Senior Project Advisor
PPP Division, GTAC
+27 12 315 5298
Private Bag X115
Pretoria 0001
Republic of South Africa
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