PPPs in South Africa

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PPPs in South Africa

• Philippe Burger
• University of the Free State
• South Africa

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Overview

• A brief history of PPPs and the PPP unit in South
  Africa
• The role of the South African dedicated PPP unit
• The Gautrain project
• Conclusion

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Intro

• After 1st democratic election in South Africa in
  1994 reform of the approach of government
  towards the management of state assets.
• Did this in a manner that represent a move from
  government to governance.
• This approach towards state assets is broader
  than just privatisation and included PPPs

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A brief history of PPPs and the PPP unit in South
Africa

• Apr 1997 Cabinet approved appointment of
  interdepartmental task team
• From 1997 to 2000 Six pilot project
• SA National Roads Agency N3 and N4 toll roads
• Department of Public Works and Correctional
  Services Two maximum security prisons
• Two municipalities Water services and
• SA National Parks Tourism concessions

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• Framework for PPPs endorsed in Dec 1999
• National Treasury issued PPP regulations Apr
  2000.
• Mid 2000 PPP unit established in Nat Treasury.

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• Legislative framework
• National and provincial PPPs Treasury Regulation
  16, issued 2004 to PFMA (1999).
• National Treasury PPP Practice Notes that
  constitute the PPP manual of the PPP unit
• Municipal PPPs Municipal Public-Private
  Partnership Regulations, issued 2005 to Municipal
  Finance Management Act (2003)

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• Since 1997 average of 2 PPPs per annum
• Between Mar 2000 and Sept 2006 13 projects
  signed
• Acceleration in the number of projects signed
• Between Oct 2006 and Oct 2007 5 more signed
  thus, total of 18 signed
• Relatively slow roll out due to lack of skilled
  staff capacity in individual departments and
  provinces

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• A significant proportion of projects never
  reached the contract signing stage and were
  deregistered.
• Main reason
• Not so much that proposed projects failed the
  tests of affordability, VFM or insufficient risk
  transfer,
• Rather the absence of capacity in departments and
  provinces.
• Issue is addressed by PPP unit as can be seen by
  the higher roll-out of projects since 2006/7

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• Projects in the pipeline at end of October 2007
• 16 in national government departments
• 17 in the provinces
• 8 in public entities
• 14 in municipalities

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• In SA the Net Present Value (NPV) of benefits to
  government for 6 of the 11 projects for which
  this data is available, is lower than R100 mil
  (roughly Euro 1 R11).
• Larger projects include
• Gautrain project capital value of R23.09 billion
• Chapmans Peak Drive toll road NPV equals R450
  mil,
• The latest fleet management project of the
  Department of Transport NPV equals R919 mil.
• Department of Education Head Office capital
  value of R513 mil
• 11 of the projects have a unitary charge. The NPV
  to government range between R18.9 mil to R4.5 bil
  (only 2 have a value gt R1 billion).

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The role of the South African dedicated PPP unit

• Main functions Ensure affordability, VFM and
  sufficient risk transfer
• In line with international best practice
• Main drivers of VFM risk transfer and
  competition
• Prerequisite for VFM is affordability

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• PPP unit in Nat Treasury has two broad tasks
• Provide technical assistance to government
  departments, provinces and municipalities
• Provide Treasury Approvals during pre-contract
  phases
• The life cycle comprises six phases
• 1) Inception 2) Feasibility study
• 3) Procurement 4) Development
• 5) Delivery and 6) Exit
• Treasury Approvals I, IIA,IIB and III

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• Feasibility study must pass three regulatory
  tests affordability, VFM and risk transfer.
• Value assessment
• Base and risk-adjusted PSC PPP reference model
• Bidding process
• Dept must demonstrate why preferred bidder
  fulfils criteria of affordability, VFM and risk
  transfer
• Competition in bidding key element to ensures VFM
• If only one bidder Competes with PSC
• Contract meets criteria of affordability, VFM and
  substantial risk transfer

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• Management of agreement, once signed, rests with
  individual department or province
• Not the responsibility of PPP unit
• PPP unit still provides technical assistance
• Length of the pre-contract period is roughly 8-18
  months (Gautrain one significant exception)
• Environmental approvals

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• Future challenges
• Pace at which contracts are concluded
• Capacity constraints
• Contract managers
• Capacity, mechanisms and procedures of department
  is receiving attention pace accelerated
• Health, education and infrastructure development
  
• Initiative to setup such projects (less ad hoc)
• Provincial dedicated PPP units
• Provincial units mainly to provide Treasury
  Approvals National unit provides technical
  assistance

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The Gautrain

• The Gautrain is a high-speed train in the Gauteng
  province (Johannesburg/Pretoria area)
• The Gautrain project is the largest
  infrastructure deal in Africa
• Planning commenced in 2000
• 7 Dec 2005 cabinet approved project
• May 2006 Initial work commenced
• 28 Sept 2006 signing of the Concession Agreement
  between the Gauteng Provincial Government and the
  Bombela Concession Company construction
  commenced

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• Project to be completed in 2010/11
• Initial cost estimates R3.5 - 4 billion in 2000
• Current capital value estimate R23.09 billion
• Government contributes 87 of capital, another
  11 comes from debt issue and a further 2 comes
  from equity.
• Environmental impact studies took time and caused
  some delays compared to initial envisaged
  roll-out plans

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• Bombela concessionaire (50 foreign owned/50
  local owned)
• Bombardier 25
• Bouygues 25
• Murray Roberts 25
• Strategic Partnership Group 25
• RATPDéveloppement will operate and maintain it

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• Government expects Gautrain to cut the number of
  cars on the N1 (Ben Schoeman) highway
• Currently gt 157 000 vehicles per day (traffic
  growth 7 per year).
• Currently 300 000 cars per week day in
  Pretoria-Johannesburg traffic corridor
• 20 cut number of road commuters expected
• Gautrain will also attract airport passengers on
  the link to OR Tambo International Airport
• Forecasts Initially 100 000 passengers per day.
  Expected annual growth 4.8 with more than 120
  000 passengers per day by 2010.

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• Length of network 77 kilometers
• 10 stations, 3 underground
• Connected to other public transport (taxis, buses
  and trains)
• Gautrain consists of 24 trains, departing every
  12 minutes, with a maximum speed of 160km/h (42
  minutes to travel from Johannesburg to Pretoria)
• Each train is made up with four linked cars

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• Stages of completing construction
• The Sandton to OR Tambo International Airport
  link between Sandton and Midrand in 45 months, in
  time for the Soccer World Cup in 2010. 
• Remaining 5 stations (links between Sandton to
  Johannesburg Park Station and Midrand to
  Hatfield) in 54 months, by 1 March 2011.

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Conclusion

• SA has come a long way in implementing PPPs,
  though the scale is still small.
• The PPP unit approves PPP agreements and renders
  technical assistance in creation and maintenance
  of PPPs.
• It has been successful in ensuring that potential
  PPP comply with affordability and VFM
  requirements.
• It now also succeeds in accelerating the pace at
  which PPPs are created
• Gautrain The largest PPP to date in SA (still in
  construction phase)