Programme & Project Principles in Public Sector Planning, Budgeting & Financial Management in Implementing Public Private Partnership In SA IPMA Research Expert Seminar Cape Town 9 March 2010

1. Who we are & Our mandate 2. Public sector planning, budgeting and financial management 4. Competencies, programme & project management Focus, Challenges & Opportunities 3. Public Private Partnerships in South Africa Table of Contents

Who we are

The Public Private Partnership Unit Director General DD General: Budget Office Head: PPP Unit Project Evaluation Financial Analysis Business Development Municipal Desk Performance Monitoring & Evaluation ICT Minister: GCFO 1.Established by a Cabinet Memorandum in Mandate: Treasury Regulation 16.

National Treasury Mandate Constitution: sections 213, 215, 216,217, 218 of Act 108 of 1996; The Public Finance Management Act (PFMA), Act 1 of 1999, gives effect to the 4 sections, 213: National Revenue Fund; –Revenue, –Appropriations, –Direct charges, –Division of Revenue Act (DoRA), 215: Budgets; Transparency and Accountability in Financial Management of; –South African Economy, –Debt, –Public sector, 216: Treasury Control: Transparency and Expenditure Frameworks; –Accounting practice, –Expenditure classifications, –Treasury norms & standards, 217: Procurement; Contracts for Goods & Services; –Economy, efficiency, effectiveness, equity 218: Government Guarantees; –Approvals, –Annual reports on guarantees.

National Treasury legal mandate Economy, Efficiency, Effectiveness Treasury Regulations Practice notes Toolkits CONSTITUTIONAL RIGHTS Constitution S195(1)(b) PFMAS38(1)(b)33 regulations issued under the PFMA Issued under the PFMA For specific sectors MFMAS62(1)(a)7 regulations issued under the MFMA Issued under the PFMA For specific sectors Housing, Education, Health, Water, Food, Social security. South African Fiscus and Financial Institutional Frameworks Training Manuals

7 Electoral Cycle Five-year MTSF and Performance Plans Fiscal Years Planning & Budgeting Year Election Mandate Election 5 year Strategic & Performance Plan detailing Targets & priorities MTEF (3 years) Year 1 Budget APP For Year 1 Year 2 Budget Year 3 Budget APP For Year 2 APP For Year 3 MTEF (3 years) Year 1 Budget APP For Year 1 Year 2 Budget Year 3 Budget APP For Year 2 APP For Year 3 MTEF (3 years) Year 1 Budget APP For Year 1 Year 2 Budget Year 3 Budget APP For Year 2 APP For Year 3 MTEF (3 years) Year 1 Budget APP For Year 1 Year 2 Budget Year 3 Budget APP For Year 2 APP For Year 3 MTEF (3 years) Year 1 Budget APP For Year 1 Year 2 Budget Year 3 Budget APP For Year 2 APP For Year 3 MTEF (3 years) Year 1 Budget APP For Year 1 Year 2 Budget Year 3 Budget APP For Year 2 APP For Year 3 MTEF (3 years) Year 1 Budget APP For Year 1 Year 2 Budget Year 3 Budget APP For Year 2 APP For Year 3 MTEF (3 years) Year 1 Budget APP For Year 1 Year 2 Budget Year 3 Budget APP For Year 2 APP For Year 3 MTEF (3 years) Year 1 Budget APP For Year 1 Year 2 Budget Year 3 Budget APP For Year 2 APP For Year 3 MTEF (3 years) Year 1 Budget APP For Year 1 Year 2 Budget Year 3 Budget APP For Year 2 APP For Year 3 MTEF (3 years) Year 1 Budget APP For Year 1 Year 2 Budget Year 3 Budget APP For Year 2 APP For Year 3 MTEF (3 years) Year 1 Budget APP For Year 1 Year 2 Budget Year 3 Budget APP For Year 2 APP For Year 3 3 Year MTEF & Annual Performance Plans and Budgets May 2008 Public Sector Planning, Prioritization, Budgeting & Sequencing

Public Private Partnerships (PPP) A PPP is defined in South African law (PFMA & MFMA and their regulations): A government institution at national, provincial, local level or their agencies enter into a performance contract with a private party, The Private party then performs an institutional function and/or uses state property in terms of output specifications or service delivery specifications, The infrastructure project should be affordable to government, demonstrate value for money and substantial project risk (financial, technical, operational) should be transferred to the private party (regulatory tests) Private party benefits through: unitary payments from government budget and/or user fees

Delays Opex: Budgeted Capex Overruns 2 Capex Time (years) Government Pays (plus CPI) Private Party Pays Time (years) Government Pays Opex: Budgeted Opex: Overruns Tender PPP Infrastructure Services Procurement Systems

Government Design & construction contractor Operations contractor Maintenance contractor Finance contract PPP-Special Purpose Vehicle Design & construction contractor Operations contractor Maintenance contractor Finance contract Government Public Finance (Tender)Private Finance (PPP) South African Procurement Systems Long-term service contract

Generic PPP Contractual Structure Government The PPP Agreement The PPP Agreement Private Party (Special Purpose Vehicle) [SPV] Private Party (Special Purpose Vehicle) [SPV] Subcontracts Subcontractor e.g. Construction Subcontractor e.g. Construction Subcontractor e.g. Operations Subcontractor e.g. Operations Loan Agreements Loan Agreements Debt Shareholding Agreement Shareholding Agreement Equity

Cash Flow & Project Finance Structure Infrastructure Economy: Turnkey models

IMPLEMENTATION TREASURY AND ACCOUNTING OFFICER APPROVALS t1 t0 t2t endYears Gov. No expenditure Private Party initial investment Private Party projected investment Private Party projected expenditure Private Party projected earnings from unitary payment OPERATIONS,MAINTAINANCE, UPGRADE AND HANDOVER Gov. Unitary payment Years1-3 Years Investment PPP cycle PPP Practice: Project & Cash Flows

Register Project Prepare Construction Variations & Amendments Conduct Feasibility Study Prepare RFQ Prepare RFP Prepare Value for Money (VfM) Report Engage in PPP Agreement Negotiation National Registered Project Variation Request Project Feasibility Issued RFQ Issued RFP VfM Report PPP agreement Variation Request Treasury Registration Letter Treasury Variation Approval Letter Treasury Approval I Or TVR I Treasury Approval Letter Treasury Approval IIA Or TVR IIA Treasury Approval IIB Or TVR IIB Treasury Approval III Or TVR III Treasury Variation Approval Letter Prepare Operations Variations & Amendments INCEPTION FEASIBILTY PROCUREMENT CONTRACT MANAGEMENT & EXIT Activity Output Project Cycle Regulatory Activity The Regulatory Cycle & PPP Project Cycle

State of PPPs in SA 25 projects with more than R13 billion private sectors investment –Office accommodation –Hospital infrastructure & Clinical services –Correctional facilities (prisons) –Fleet management –Pharmaceutical supply chain services –Eco-tourism facilities –Private sector use of state land for commercial purposes –Municipal solid waste management –Municipal water services –ICT Toll roads

PPP Competencies DataResult ICT competencies Programme & project management competencies KnowledgeInformationAction Implementation Public Sector & PPP competencies ProcessExpertiseDesign Adapted from Venkatrama’s process-information continuum

Elements of successful project management – concept – design – planning – costing – management – construction – monitoring – performance – delivery But who does what?

Health vs Education Infrastructure Services Health SectorEducation SectorInfrastructure Services Hospital StructuresEducational StructuresAccess Hospital EquipmentEducational EquipmentEnabling Hospital ICTEducational ICTSupport, enabling, SD Hospital Hard FacilitiesEducational Hard FacilitiesInfrastructure support Hospital Soft FacilitiesEducational Hard FacilitiesSupport, enabling, Hospital AdministrationEducational AdministrationSupport, enabling, Clinical ServicesEducation ServicesService Delivery (SD)

Best Practice Norms & standards (KPIs): Educational infrastructure Services Number of schools, i.e. number of schools per number of residents, Number of learners, cost per learner, Number of teachers, number of teacher per student, Mixture of new & refurbishments, Construction times, NPV of unitary or school fees, or combination. 1.Adapted IMF, 2007, PPP Pilot Studies: Brazil, Chile, Colombia, Ethiopia, India, Jordan & Peru, 2.DTI survey of 90 PPP Schools projects in English Schools.

ICT Services 1.ICT Governance, 2.Desktop & Data Centre, 3.Intranet & Internet, 4.Corporate applications, 5.Telecoms (voice, data, video), 6.ICT Security, 7.Printing.

ICT cost categories 1.Hardware, 2.Software, 3.Network (voice, data, video), 4.Data, 5.Private Party, 6.Consumables.

Challenges to working: Faster, Harder, Smarter BEE & SMME access to PPP resources, –both financial & non-financial, Government support, –Programme, & project management, –Project finance, –technical assistance to facilitate financial close, –contract management to extract efficiency gains in finance, design, construction, operation, maintenance & upgrade, (economies of scale & scope) Private sector –Transaction advisory, “the same culprits syndrome”, & lack of capacity, –Project finance, –Efficiency in PPP feasibility study & best mix of funding, –Competition on innovation, –Co-financing & co-funding. Sector Public Private Partnerships

Opportunities Health –Chris Hani Baragwanath & George Mkhari: Gauteng –5 projects in Limpopo, – KwaZuluNatal and Eastern Cape in pipeline, –Watch other provinces, Education, Housing, Eco-tourism, public transport, portable water supply, liquid & solid waste, Public sector fleet management & office accommodation, Use of state property, ICT: supports, enables, & delivers service, Public Sector General Ledger, Economic Classification & Reporting.

Contact Details Cedrick Muleya PPP Unit National Treasury 240 Vermeulen Street Pretoria South Africa Tel: Cel: Fax: