1. South Africa’s Municipal Infrastructure Investment Unit Annual Portfolio Budget Hearing 14 March 2003 Presented by MIIU Board Directors & Management

2. Presentation Overview 1.Policy & Operation 2.2002-03 Budget Review 3.2002-03 Performance Review 4.2003-04 Business Plan & KPIs 5.2003-04 Budget 6.Lessons Learned

3. Policy & Operations

4. What is the MIIU?  Cabinet Memoranda: 1997 & 2002 - Life- span extended to 2006  Non-profit Sect. 21 Company, est. 4/98  Financial & tech. support from USAID  PPU & Project Preparation Fund  Grants & advice to support local MSPs  Administrative support provided by DBSA

5. MIIU Mandate  Facilitate private sector investment in municipal services – on a controlled, sustainable basis  Help create a market in Municipal Services Partnership (MSP) services to provide advice to local governments

6. The MIIU Board Independent BOD, representing:  Private sector banks & investors  DPLG & National Treasury  DBSA  Private individuals and business people  Local governments  Awaiting restructuring of Board in terms of Cabinet Memorandum

7. The MIIU Grant Process: How Does it Operate?  Municipality applies for MIIU assistance  MIIU assesses chances for success & development impacts – Project Preparation Report  Formal grant agreement signed  Municipality contributes partial funding (local ownership)  MIIU provides quality control

8. The Project Development Process 1.Feasibility Study of MSP options 2.Council decision on option (with MIIU advice on recommendations and implications of options) 3.Prepare bid documents, draft contract 4.Selection of public or private partner 5.Negotiate & sign contract 6.Financial close -- begin implementation 7.Initiate contract compliance monitoring

9.  MSP’s31  Non-MSPs*34 All MIIU projects to date: 65 *Internal improvements and/or judged non-viable as MSPs Completed MSPs: MSPs vs. Non-MSPs

15. 2002-03 Budget Overview

16. MIIU Budget 2002-03 Financial Mgmt. Goals:  Maintain MIIU pipeline – 70 in pipeline  Accelerate disbursements; draw down surplus – aiming to meet target by end March 2003  Explore new donor funding – DFID monitoring system  Continue new activities: diagnostics; public awareness – 4 new ones  Accelerate transformation with new staff – performance reviews

17. Revenues - 2002-03 Budget Current Variance Budget allocation 6,0006,000 0 Donor grant 0 0 0 Interest2,5002,521 21 Expense recovery 90 116 26 --------------------- TOTAL 11,090 9,419 -1,671

18. Revenues - 2002-03 Var Explanation Budget 0 -- Donor grant 0 -- Interest 21 Higher IR than expected Exp recovery 26 More recovered from contractor ------ TOTAL -1,671

19. Admin. Expend. - 2002-03 BudgetCurrent Variance BOD expenses 70 10 -60 DBSA admin fee 2,2151,570 -645 General admin 1,451 731 -720 Marketing/Comm 340 382 42 Trainee Programme 130 0 -130 -------------- ------ TOTAL 4,2062,693 -1,513

20. Var. Explanation BOD expenses -60 Remun. budgeted, not approved DBSA admin fee -645 Timing difference re new FY General admin -720 Timing difference re new FY Marketing/Comm 42 Extra recovery re Conference Trainee Prog. -130 Interns vs. permanent staff ------ TOTAL -1,513 Admin. Expend. - 2002-03

21. Project Spending - 2002-03 Budget Current Variance MIIU pipeline 7,652 4,489 - 3,163 Project Expend.: Var. Explanation MIIU pipeline -3,163 A dditional spending expected before FY end

22. Budget Summary - 2002-03 Budget Current Variance 2001-02 surplus 17,211 17,211 0 Revenues 8,590 8,637 47 Admin. Expend. 4,2062,693 -1,513 Project Expend. 7,652 4,489 -3,163 2002-03 surplus 13,943 18,666 4,723

23. MIIU Budget 2002-03 Conclusions:  Budget 02-03 numbers are current, not actual  FY change accounts for major variations  Pipeline growing again – affects of demarcation, powers & functions starting to diminish  Importance of consistent MTEF allocations.  Need to explore new donor funding.

24. 2002-03 Performance Review

25. Business Plan Objectives 1.Key focus areas for MSP project development work 2. Diagnostic Studies 3. Government policy & legislation 4.MIIU Transformation & skills transfer

26. MIIU Pipeline To date  70 active projects – the most ever  23 in concept stage – reflects new growth  35 in feasibility study – key step in process  9 in bid/negotiation stage  33 in solid waste  All provinces included – for the first time  65 projects completed; 31 MSPs

27. 1. Focus Areas: 5 Signed MSPs 1.Concessions: Mogalakwena water 2.Metros: Cape Town waste 3.Cs: Ugu, Amatola feasibility studies 4.Bs: Mbombela electricity & rev. mgmt. Theewaterskloof waste

28. 1. Focus Areas: in Process 1.Concessions: Durban waste 2.Metros: Pretoria & CT power 3.Cs: Ilembe water; uThungulu waste 4.Bs: Mangaung Water; Rich. Bay water [70 active projects at 2/2003]

29. 2. Diagnostic Studies

30.  Quick assessment of the service needs  Report in 4-6 weeks  No obligation to accept findings  Guaranteed MIIU follow-up help if partnerships identified  Recommendations for dealing with other problems (esp. with budgets) 2. Diagnostic Studies

31. 1.Alfred Nzo 8. JS Moroka 2.Nelson Mandela 9. Kgalagadi 3.Mangaung 10. Central Karoo 4.Ugu 11. Umkhanyakuda 5.uMgungundlovu 12. Matatiele* 6.Msunduzi 13. OR Tambo* 7. Sekhukhune 14. Lukhanji* *New in 02-03 15. Bushbuckridge* 2. Completed Diagnostics

32. 3. Govt. Policy & Legislation: 3. Govt. Policy & Legislation:

33. 1. MSA, Sect. 94(1)(c) 2. Meetings/testimony on MFMB 3. DWAF water policy White Paper 4.EDI Restructuring Ring Fencing 5. Advice to munis re MSA Sect. 78 3. Govt. Policy & Legislation: 3. Govt. Policy & Legislation:

34. 4. MIIU Transformation & Skills Transfer

35. 1. New SA CEO: Ms. Karin Pearce 2. New long-term expatriate advisor: Ms. Jacqueline Levister 3. 2 South African Project Managers: Danai Magugumela; Asha Bassa 4. Secured two L-T advisors from DFID 5. MIIU BOD has approved recruitment of two new MIIU project managers 4. MIIU Transformation & Skills Transfer

36. 2003-04 Business Plan

37. STRUCTURE OF PRESENTATION  STRATEGIC ISSUES FOR LOCAL GOVERNMENT  MIIU APPROACH TO ADDRESSING THESE ISSUES  MIIU KEY PERFORMANCE AREAS  KPI’S  BUDGET

38. OVERALL STRATEGY  Policies, planning;legislation;restructuring are in place – the challenge for all sectors of society is sustainable implementation of services and growth  HOW CAN MIIU HELP TO ACHIEVE THIS, IN 3 YEARS?  MIIU is uniquely placed alongside all spheres of government, has implementation experience and skill, has credibility in the market and has the confidence of municipalities, to facilitate implementation through investment by both the public and private sectors; service delivery solutions within and between both the private and public sectors  Therefore, the next 3 years for MIIU are about “MAKING IT WORK”

39. STRATEGIC ISSUES  SUPPLY SIDE  AVAILABILITY AND ACCESS TO PRIVATE SECTOR FINANCE  SERVICE OPERATORS  CONSULTANTS AND BEE  DEMAND SIDE  CAPACITY TO PRIORITISE, MANAGE,MONITOR  COUNCIL COMMITMENT IN RELATION TO RISK  GENERIC ISSUES  STRATEGIC PLANS – INTERGOVERNMENTAL ALIGNMENT  LEGISLATION AND REGULATION

40. APPROACH TO SUPPLY SIDE ISSUES  Stimulate the market’s appetite for water sector partnerships, through CHS in water and sanitation – public or private risk  Encourage municipal service partnerships in service delivery, based on public sector borrowing – public risk  BEE database and training opportunities

41. APPROACH TO DEMAND SIDE ISSUES  MIIU project process: professional responsibility – council resolutions and implications  Ensure financial risk apportionment is appropriate to risk management functions in contract design with regards to the risk of non- payment  Facilitate access to “on-the job” training for sector specific, contract related matters

42. APPROACH TO GENERIC ISSUES  STRATEGIC FOCUS ON ESSENTIAL SERVICES: Facilitate intergovernmental alignment between  National;provincial programmes and local government: DWAF;DPLG;DME;DEAT  categories of municipalities through projects: Multi-jurisdiction service delivery areas in water  LEGISLATION: Actively participate in the formulation of regulations appropriate to facilitating service delivery in local government:  MFM Act

43. KEY PERFORMANCE AREAS  MSP’S IN ESSENTIAL SERVICES: Water and sanitation, waste and electricity. Some will be PPP’s, others will be public MSP’s. Focus is on MIIU disbursement to projects which enhance investment in and service delivery in the short term, and sustainability in the long term. Target: 80 active; 9 new  DIAGNOSTICS: Enhance the ability of rural municipalities to deliver through analysis of the status quo and recommendations on solutions within existing resource constraints of MIIU Target: 5 active; 3 new diagnostics

44. KEY PERFORMANCE AREAS CONT.  UNFUNDED TECHNICAL ASSISTANCE: Enables practical implementation of alignment between and within spheres of government through timeous intervention and advice on request  Revenue Enhancement Programme -DPLG  National Infrastructure Cluster Committee – DPLG;DWAF;DEAT;DPE etc  DWAF national coordinating committee  DME/EDI Task Group  Treasury/PPP Unit: Regulations for MFM Bill  COMMUNICATION  Conferences/Seminars: less in number but more focused on impacting municipalities and the private sector  Monitoring and Evaluation system: establish in MIIU and begin M&E on 5 projects  Website: establish and keep up to date

45. Auditable KPIs 1.No. of active projects 80 2.No. of new completions 9 3.Total disbursementsR14.1m 4.No. of completed diagnostics 8 5.No. of new diagnostic starts 3 6.Diagnostic disbursementsR0.6m 7.Disbursement-related opex to total grant expenditure 28.4%

46. Internal MIIU KPIs 1.Establish a project monitoring system 1 2.Value of MIIU TA to munis 20hr/mon 3.Value of MIIU TA to other govt. 20hr/mon 4.Completed electricity ring-fencings 3 5.Reports on ring-fencing implications 3 6.Established credit guarantee scheme 1 7.Agreements for muni access to guarantee 1 8.Development plans for MIIU’s SA staff 4 9.Contract mgmt course for muni officials 1 10.New funding for MIIU R14.9m

47. 2003-04 Budget

48. MIIU Budget 2003-04 – Approved by the BOD 2002 2002 2003-04 Summary: Budget Current Budget Revenues 8,590 8,637 12,290 Admin. Expend. 4,207 2,693 6,591 Project Expend. 7,652 4,489 14,150

49. MIIU Budget 2003-04 2003-04 Summary: Budget Explanation Revenues 12,290 (+) New donor funding expected Admin. Expend. 6,591 (+) Two new SA staff Project Expend. 14,150 (+) Recovery from demarcation -related distractions, plus new project managers

50. Lessons Learned

51. Success factors for sustainable infrastructure and service delivery  Know the true cost, now and in the future – life cycle cost of infrastructure  Know who is going to foot the bill now and in the future – whether it is consumers or taxpayers or a combination of both  Ensure level of service (quantity and quality) is appropriate to affordability  Ensure users and providers of services understand and agree to price and level of service – stakeholder cost/benefit  Develop appropriate performance monitoring in the public sector  Take timing into account: maturity of the market; political climate; budgetary flows  Enable certainty for life of the project so that everyone knows what they are in for Certainty in: –Legal and regulatory framework –Pricing policies –Who carries what risks under normal and abnormal circumstances –Decision-making procedures and accountability

52. Success Factors in the Municipal Sphere in SA  Human Capacity: identify solutions and make recommendations which spell out implications; move from feasibility to implementation; monitor; preemptive and remedial action  Financial management: intergovernmental coordination so that planning is meaningful and prioritising/scheduling can be done with certainty – knock on effect on construction industry; financial services sector; stability in the local environment;accountability for spending decisions  On average, +90% of municipal revenue comes from own sources – local economic base is very important, but local economic planning can’t on its own overcome macro structural problems.

53. Success Factors in the Municipal Sphere in SA Cont.  Legal and regulatory environment: Local government legislation recognizes discretionary powers of other spheres, e.g. Tariff capping; free basic services. Need for certainty of mechanisms for municipalities; private sector  Local government empowered by law to decide solutions and to carry the burden of risk: importance of local political responsibility for risk apportionment in a project Requires cost benefit analysis to establish UP FRONT who can and should afford what; and a determination of who is best able to manage which risks UP FRONT: Define Material Adverse Government Actions; determine what constitutes systemic risk and how to manage it; penalties

54. SOLUTION FRAMEWORK  No single stakeholder has what it takes to create sustainable infrastructure – partnerships between providers and users are needed; regulation should incentivize partnerships.  In the long run, sustainable infrastructure delivery means resources must come from taxpayers or consumers, i.e. users are the key. Targeting intragenerational equity should be deliberate. Ultimately, failure becomes a taxpayers’ cost – systemic non-payment by some impacts on all.  In the short term, infrastructure investment by its nature, happens in “large chunks”, and, both public and private investment is needed to overcome the “backlog hump” – we should be mindful of ensuring that at a minimum, intergenerational equity is attained in levels of service and cost of service.

55. CONCLUSION Everyday decisions by municipalities, should answer these questions:  What are the long-term impacts of the decision?  Is the decision sustainable at a local level?  Have the economic, social and environmental impacts been taken into account in the decision?

56. Thank You. For more information visit… http://www.miiu.org.za