Health Care Public Private Partnerships in South Africa– what has worked and what has not PRESENTER: James Aiello December 2014

CONTENTS OF PRESENTATION Introduction and background to SA PPPs South African PPP success factors Limpopo Renal Dialysis Clinic State Vaccine Institute Eastern Cape Department of Health Pharmaceutical distribution 2

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 3

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 4

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 5

SELECTED SOUTH AFRICAN HEALTH CARE PPPS 2. Limpopo Renal Dialysis 3. The South African PPP Unit 1. Introduction 3. State Vaccine Institute 4. Eastern Cape Pharmaceutical Distribution

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: –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 7

EXAMPLE OF A SOUTH AFRICAN HEALTHCARE PPP Limpopo Renal Dialysis Clinic – Limpopo Province -- overview Private sector 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 Lessons learnt: A very successful PPP – other provincial health departments will replicate; process has started in the Northern Cape Province of South Africa. 8

LIMPOPO RENAL DIALYSIS CENTRE 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

LIMPOPO RENAL DIALYSIS CENTRE 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 certified –Staff training – six staff training to be nephrology nurses Management –Joint management, monthly meetings, all processes audited

EXAMPLE OF A SOUTH AFRICAN HEALTHCARE PPP State Vaccine Institute – National Department of Health -- overview 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 11

STATE VACCINE INSTITUTE Partners –National Department of Health –The Biovac Institute (TBI), composed of: Litha Healthcare, a JSE listed South African pharmaceuticals manufacturer and distributor – 60% National Department of Health – 40% -- transfer of the NDOH’s shares to the South African Department of Science and Technology is underway Operations –TBI receives pharmaceuticals from manufacturers selected by the NDOH in annual tenders –Repackages the pharmaceuticals in accordance with the requirements of the 9 South African provinces and distributes them to provincial pharmaceutical warehouses Current Status –Throughout the history of this PPP all pharmaceuticals delivered on time under appropriate temperature conditions without fail –Western Cape province separately has TBI deliver to its hospitals & clinics Management –Managed by a board of directors, monthly meetings, all processes audited –Lessons learnt – NDOH shouldn’t be a project sponsor and a part owner as well

EXAMPLE OF A 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 was local delivery service in PE and taxis elsewhere Hospitals & clinics ordered drugs from depots by facsimile; many were lost Because temperature of drugs not catered for many batches spoiled 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 13

EXAMPLE OF A PROJECT THAT DIDN’T WORK OUT AS PLANNED Eastern Cape Department of Health –Pharmaceutical distribution The situation previously described still obtains – large percentages of pharmaceuticals lost, stolen, misplaced or expired due to improper temperature conditions Primary lessons learnt include: –Changes in top management can have a deleterious effect on any PPP –All senior management officials sidelined after the project was stopped –Notwithstanding the fact that the Province has two successfully operating health care PPPs in it (Humansdorp and Port Alfred & Settlers hospital co- location), there is a great deal of resistance to PPPs mainly generated by the government unions –No new PPPs have been developed in any other government sector in the Province –The bifurcation of responsibility between national government and provincial government is an aggravating circumstance 14

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. 15

Thank you for your attention James Aiello Senior Project Advisor PPP Division, GTAC Private Bag X115 Pretoria 0001 Republic of South Africa 16