1 PPPs in South Africa Philippe Burger University of the Free State South Africa

2 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

3 Intro After 1 st 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

4 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

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

6 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)

7 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

8 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

9 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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12 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 –Chapman’s 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 > R1 billion).

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14 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

15 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

16 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

17 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

18 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

19 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 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

20 Project to be completed in 2010/11 Initial cost estimates: R 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

21 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

22 Government expects Gautrain to cut the number of cars on the N1 (Ben Schoeman) highway –Currently > vehicles per day (traffic growth: 7% per year). –Currently 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 passengers per day. Expected annual growth: 4.8% with more than passengers per day by 2010.

23 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

24 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 –Remaining 5 stations (links between Sandton to Johannesburg Park Station and Midrand to Hatfield) in 54 months, by 1 March 2011.

25 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)