Public Sector Infrastructure in South Africa

1
Public Sector Infrastructurein South Africa

• Presentation to
• Roads Pavement Forum
• 10 May 2006

2
Introduction SA infrastructure

• Extensive network of 752000 km of national,
  provincial,municipal and access roads and 19700
  km of rail, together moving about 700 million
  tons a year domestically,
• 7 of 16 Southern African major commercial ports -
  handling 161 million tons annually.
• 3 major international airports and 7 regional
  airports handling 500 000 flights, 21
  million passengers and 0,5 million tons of
  freight a year.
• About 250 large dams with a capacity of 30
  billion cubic metres
• 478 passenger railway stations, and 2,2 million
  passenger trips/ day
• 29 400 schools accommodating about 12,3 million
  learners
• Electricity generation capacity of over 40 000 MW
  continuous power
• 156 million circuit kilometers of telephone line
  with 5,5 million installed phones
• 3000 km of petroleum and gas pipelines.

3
Why focus on infrastructure?

• Although SA is relatively well endowed with a
  relatively good infrastructure stock in many
  sectors, there are wide disparities and growing
  demands, and so we still face many challenges
• Apartheid legacy of unequal infrastructure
  distribution (backlogs)
• Infrastructure in townships - lacking, of poor
  quality and in general disrepair roads,
  pavements, streetlighting, clinics, schools, etc
• Lack access to water, electricity and
  communications infrastructure
• Housing provision did not meet demandcould not
  own land in urban areas
• New Demand
• With democratic change and economic growth came
  changes in social and economic patterns
  increasing urbanisation etc, placing pressures on
  various infrastructure sectors, resulting in
  higher infrastructure demands, and increased
  maintenance and rehabilitation needs
• Increased pressure on economic infrastructure eg.
  ports, increased traffic at border posts and
  urban and provincial roads, aging railway rolling
  stock, lines and signalling, airplanes etc.
• Increased pressure on social infrastructure
  schools, health infrastructure, justice, safety
  and security infrastructure, government
  facilities etc
• Spatial Inequalities
• Urban-rural divide, migration and social
  movement, densities and economies of scale

4
Broad economic impacts of infrastructure

• Expenditure on infrastructure and the built
  environment are regarded as investments, which
  imply welfare benefits to individuals and groups
  in society and returns to the economy as a
  whole in the form of multipliers of economic
  growth.
•  
• Being durable in nature, the capital investments
  have an inter-temporal effect in that the savings
  of the present generation are harnessed for the
  benefit of present and future generations as
  well. For the present generation the additional
  benefits, besides utility and future returns, are
  the immediate jobs created in the building of
  infrastructure, and so there is a direct poverty
  reduction/ pro-poor element to infrastructure
  investment.
•  
• The roads, pipelines, cables, transmitters etc,
  facilitate the access of inputs into our
  factories and production facilities, which
  produce goods and services, and facilitate the
  access to goods and services, distribution
  facilities, product and societal information
  dissemination, etc. In short, it has been written
  that investments in infrastructure support
  development by
• Creating favourable conditions for production and
  consumption
• Facilitating economic diversification
• Providing access for people to both government
  and private sector services and opportunities

5
Infrastructure delivery in the 10 years of
democracy

• 1,6 million subsidised houses constructed.
• 56000 classrooms constructed, 2700 schools
  connected to water, 4000 to electricity.
• 700 new clinics constructed, 2300 clinics
  re-equipped. 141 hospitals rehabilitated and 3
  new tertiary hospitals constructed (2000 beds
  added)
• Water supply to 9 million more people and
  sanitation to 6,4 million more. 6 more dams
  constructed including the Lesotho Highland
  project.
• Over 4 million more electricity connections.
• 3000 projects building or improving police
  stations
• Prison expansion to accommodate 15000 more
  prisoners
• Renovation and extension of 129 court buildings
• Construction, rehabilitation and maintenance of
  6000km of national roads and 15000km of
  provincial roads.
• About R10 billion private sector investment in
  toll road PPPs.
• Remodelling and refurbishment of 150 main
  commuter rail stations and 7 new stations, with
  264 engines and coaches rebuilt.
• R38 billion spent by Transnet on freight rolling
  stock, port upgrades and aircraft purchases.

6
Infrastructure Institutional Arrangements

• National departments 22 of 34 national
  departments perform infrastructure functions such
  as government buildings, bulk water resources,
  police stations, courts and prisons,
  electrification etc, as well as make
  infrastructure transfers to agencies and public
  entities.
• Provincial departments mainly schools, health
  infrastructure, agricultural infrastructure,
  provincial roads and public works. Infrastructure
  budgets derived from own revenues, provincial
  equitable share, as well as infrastructure grants
  allocated by NT and national departments.
• Local government municipal roads and stormwater,
  water distribution and wastewater collection and
  treatment, electricity distribution,
  streetlighting, bus and taxi ranks, community
  halls, refuse sites etc. Budgets derived from own
  revenue and supported by Municipal infrastructure
  grant from national
• Large number of extra budgetary
  institutions/agencies and public entities that
  are publicly owned but operate on business
  principles and deliver infrastructure eg. 17
  water boards, SA Roads Agency, TCTA, SARCC,
  Transnet, Eskom, Telkom, Sentech etc. Funding is
  obtained from user charge retained earnings,
  borrowing, transfers from oversight government
  departments, ppps and concessioning, sale of
  assets etc.

7
Infrastructure Budgeting Reporting

• Independent budgeting by different spheres of
  government and entities based on their needs and
  priorities however, reporting to NT is a
  requirement.
• National department infrastructure budgeting is
  integrated within the main budgeting process 3
  year MTEF
• Requirements specific to infrastructure are
  published in the Treasury guidelines to
  departments annually and departments present
  motivations at MTEC hearings ensures capex
  alignment with operational capability and budget,
  feasibility etc.
• National policy departments make
  requests/representations on behalf of agencies
  and spheres that they fund.
• Reporting on infrastructure is currently done per
  dept in the Estimates of National Expenditure
  (ENE). Currently only mega and large projects
  are reported individually with small projects
  aggregated. Also reported are transfers to
  agencies and other spheres, transfers to
  households, and maintenance.
• NT also publishes aggregate public sector
  estimates in the Budget Review.
• National and Provincial Infrastructure Project
  Registers requires individual project detail
  and tracks project delivery quarterly.

8
Budgeting Framework(source Afrec)
9
Broad Treasury capital budgeting role

• MONITORING AND EVALUATION ROLE
• -spending and output performance feedback
• -evaluation wrt efficiency, economy,
  effectiveness
• -Infrastructure Project Registers delivery and
  expenditure
• POLICY, PLANNING AND DECISION SUPPORT ROLE
• -strategic big picture on infrastructure
  delivery sectoral profiles,
• GDP multipliers etc, and better targeting of
  infrastructure portfolio
• -Development of appraisal guidelines suited to
  SA, and refinement of decision processes,
  capacity building in departments for appraisal
• -buy/lease, dispose/maintain/reinvest trade-offs
  and decisions
• -backlogs/demand assessment, macro GFCF targets
• RESOURCE INPUT/ BUDGETING ROLE
• -strategic level are we making the right
  capital decisions as a country
• -portfolio level do we have the correct mix
  and spread of projects in any one year, given
  capital constraints etc
• -project level appraisal benefit to cost
• -institutional/industry issues-
  delivery/spending capacity etc
• COORDINATION, COLLABORATION, INTERVENTION ROLE
• -potential proactive role in delivery,
  stakeholders, implementers, research etc.

10
Capital Budgets Committee

• ROLE
• Initiated within the 2005 MTEC process
• MTEC sub-committee - Interdepartmental in nature,
  Treasury lead
• Act as a filter to the main budget process
• Undertake the review of individual
  capital/infrastructure project and programme bids
  made by departments to Treasury for funding
• Prioritisation and Selection of projects -capital
  rationing situation
• Make recommendations to MTEC, Mincombud
• Further role develop and improve appraisal
  process in future
• COMPOSITION
• Major infrastructure oversight departments, and
  the development and grant distribution
  departments the Presidency
• Transport, DWAF, Housing, DPLG, Public Works,
  DTI, DME, Presidency, National Treasury (various
  sections)

11
National and Provincial Infrastructure Project
Registers

• Over 15000 projects valued at R111,7 billion
  currently on the National Project Register,
• 6 500 of which are currently under construction
• Over 10000 projects currently on the Provincial
  Project Register
• PROJECT REGISTER OBJECTIVES
• Enable the departments as well as Treasury to
  give full account of progress made with spending
  on a regular basis
• Track infrastructure delivery progress with the
  utilisation of budgeted funds and physical
  implementation of projects
• Track spending on both capital and maintenance
  projects
• Track project progress from project
  identification to completion
• Support Treasurys budget allocation process for
  infrastructure projects
• Communicate progress and achievement to relevant
  stakeholders and the public PROJECT REGISTER
  INFORMATION
• Project information from department as well as
  entities submitted on quarterly basis
• Financial Data budget, cash flow and
  expenditure with expenditure measured against
  budget and cash flow
• Non-Financial Data - project details, type of
  project, name, nature of investment, location of
  the project etc.
• Physical progress quarterly progress measured
  (this include outputs achieved, project stage
  etc.)
• Data on Expanded Public Works Programme (in
  case where the project is labour intensive)
• Auditable information - payment certificate
  number, responsible official for the project

12
Budget Review Infrastructure related estimates
2006 MTEF
13
2006 ENE departmental infrastructure summary
14
Provincial Government Capex-2006 MTEF

15
Municipal Grants(Budget Review 2006)

16
ESKOM Capex

• 5 year plan revised to R98 bn, nominal.
• Return to service of Camden (R1,5bn), Grootvlei
  (R3bn), Komati (R3,6bn) refurbishment of Kriel
  (R1,1bn)
• OCGT plants in Atlantis and Mossel Bay, (R2bn)
  completion in 2007 2010 CCGT plants at Saldanha
  and Coega (R4bn)
• Hydro pumped storage schemes Braamhoek (R5bn)
  and Steelpoort (R1,5bn)
• Partner on Inga hydro project (R1,6bn) in DRC
• Transmission capacity strengthening (incl. Cape
  lines)

17
Transnet Capex

• MTBPS estimates Transnet revising its capital
  programme
• All major projects have commenced
• Capacity expansion on Orex and Coalink lines
• Multi-purpose terminal at RB, Durban Pier 1
  conversion for containers, Island View
  reconstruction, Cape Town container expansion,
  port superstructure
• Multi-products petroleum pipeline - coast to reef

18
Focus on key infrastructure sectors (table under
construction not a complete breakdown)
19
Breakdown of Road Sector Expenditure Estimates
Roads infrastructure expenditure estimates Roads infrastructure expenditure estimates Roads infrastructure expenditure estimates Roads infrastructure expenditure estimates Roads infrastructure expenditure estimates
Sector   2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 Total MTEF
National Roads National Roads 1,846 2,374 1,657 2,399 3,894 7,943 10,083 21,920
Provincial Roads Provincial Roads 5,333 5,878 6,353 7,265 8,012 9,520 9,885 27,417
Municipal Roads Municipal Roads 1,900 2,923 2,800 4,187 4,404 4,616 4,823 13,843
Total Roads Total Roads 9,079 11,175 10,810 13,851 16,310 22,079 24,791 63,180
20
Gross Fixed Capital Formation Public Sector
(Reserve Bank)
21
Gross Fixed Capital Formation Public and
Private Sector ( GDP) (Reserve Bank)
22
Broad indicators of success

• A broad measure of success in the general
  direction, is that government (across departments
  and spheres)
•  
• Is now prioritising infrastructure and capital
  investment
• Beginning to re-build capacity after shedding
  many built environment professionals over the
  years
• Starting to plan earlier and more effectively in
  many cases
• Indicators that lead us to conclude that we are
  moving forward in the right direction are
• increases in gross fixed capital formation trend
  in the government and public sector as a whole,
  and more importantly, private sector GFCF.
• increases in government capital expenditure and
  number of projects appearing on our project
  registers
• improved confidence and outlook assessments in
  construction industry reviews
• increased demand for engineers and other built
  environment professionals
• More PPPs and mega-projects identified and
  pursued
• Overall upward trend in GDP

23
Issues needing attention

•  The planning, generation and management of
  projects
• Since democracy much skills have been shed -
  these need to be renewed through targeted efforts
  ensuring transformation
• Restructuring resulted not only in skill loss,
  but loss of systems, process and organizational
  knowledge resulting in confusion at planning and
  delivery level Too many projects of all sizes are
  not managed and monitored by suitably qualified
  people.
• project appraisals and approval pathways even on
  large projects needs attention.
• Re-engineering the business processes of project
  planning, approval and management  
• The construction/delivery environment
• - constraints and shortcomings both in
  workmanship and material shortages.
• - some contractors taking on bigger jobs they can
  handle and abandoning jobs resulting in expensive
  project delays, at the same time we need to
  nurture small contractors to get bigger, better
  and more in number in order to prepare for
  greater infrastructure expenditure in future
• - material shortages and the booming tender
  environment in many cases result in higher tender
  prices, rendering original estimates and budgets
  too low.
• - rationalisation of contract docs and specs so
  as not to burden small contactors
• -profiteering
•  
•  

24
Issues needing attention (cont)

• Quality, standards, and maintenance
• - With increasing work in the industry, coupled
  with skills/learning curve constraints, and lower
  monitoring/quality control capability from
  authorities, the quality of construction is in
  many sectors in decline.
• - same applies in the planning and development
  approvals/town planning environment in especially
  the smaller munis, where development proceeds
  regardless of whether the existing infrastructure
  has the capacity to cater for additional loads
• - far more thinking should be done by the built
  environment research and development community on
  better though cheaper /quicker housing and other
  infrastructure
• - much attention needs to given to the
  prioritisation of maintenance of assets,
  especially systems that schedule planned
  maintenance and the budgeting for this.
• Coordination, cooperation and collaboration
• -Misaligned, unbridled and uncoordinated
  investment in infrastructure results in weakened
  benefits relative to costs, diminished multiplier
  effects on growth, and reduced returns on
  investment. There is therefore a need to
• Target investments towards needs and areas of
  higher growth potential
• Coordinate efforts of different
  agencies/authorities and their respective
  infrastructure types towards these targeted
  developments and large multidisciplinary projects
• Cooperation between approval authorities in
  different spheres to remove red-tape approval
  bottlenecks is essential to accelerating delivery
  on investments
• Collaboration between the planning sections of
  departments and even the private sector in order
  to create sustainable living spaces and a viable
  built environment.
• The plethora of high level plans need to be
  aggregated, and assimilated at national level and
  inform and align consolidated national planning.

25
Thanks!

• Questions?