1. Zimbabwe Mining and Infrastructure Indaba 2015 Structuring PPP’s for Infrastructure Development

2. Introduction The expansion of basic services and the development of sustainable infrastructure are key challenges in Africa. One option of expanding service delivery is to enhance the role of the private sector in the financing and management of basic services such as water, sanitation, waste management, road maintenance, etc. Consequently, Public Private Partnerships (PPPs) are increasingly viewed as a mechanism to develop infrastructure and deliver state services on a cost effective and sustainable basis.

3. PPPs are not new to Zim Developed PPP Policy in 2004 Created a Projects Master Register Undertook major PPPs including: – Limpopo Bridge – 1995 – Bulawayo-Beitbridge Railway - 1999 PPP DRIVERS Role of Public Sector as service provider HAS to change Role is changing from “rowing” to “steering” While accountable for service delivery Public Sector is not always most appropriate service provider vis~a~vis Cost Quality Ability to carry commercial risk etc Demand for increased access to services Huge backlogs Access to capital, technologies, INNOVATION, skills

4. PPPs are not new to Zim Developed PPP Policy in 2004 Created a Projects Master Register Undertook major PPPs including: – Limpopo Bridge – 1995 – Bulawayo-Beitbridge Railway - 1999 Why does limited/non-recourse PF give comfort? Leveraging Private Sector investment Off-Balance Sheet Very efficient way of investing in Infrastructure Banks are exposed Tension between Participants in PF Structure Robust Due Diligence Holistic approach in decision-making Appropriate risk transfer and mitigation Thorough due diligence on Project Documentation Gov and PF interests are aligned (project MUST continue)

5. 5 PPP Private party:  Finances (whole or most)  Designs  Builds  Operates Government purchases complete service and/or enables business Fixed assets belong to government Outsource  Capitalisation is for government account  Government buys specific services but retains risk  Fixed and movable assets typically belong to government Privatise  State assets sold  State liabilities sold  Government has regulatory function only 5 PPP DIFFERENTIATED TO OUTSOURCING AND PRIVATISATION

6. 6 Traditional Expenditure Profile Money Years 123..........25 Estimated capital cost Estimated running costs Cost overrun Time overrun

7. 7 Expenditure Profile for PPP Money Years 123..........25 no payment Unitary payment

8. Benefit of PPPs Acceleration of infrastructure provision Efficient implementation : efficient and effective service Stimulates the economy Reduced whole life costs Get equity investment Better allocation of risk Fiscus is able to divert funds to much need social development programmes Better incentives to perform Improved quality of service Generation of additional revenues Enhanced public management Job Creation Promotion of indigenisation, SMME, women and youth involvement Builds national pride

9. Challenges – Country and Political Risk (both percieved and real) – Changing attitudes to PPs – Length of time it takes to under a PPP – Lack of expertise and capacity within Government – Mistrust between govt and private sector – Lack of financial resources in Government – Lack of political commitment Lack of established and clear legal framework (ambits, stability, applicability) – Lack of established and clear legal framework (ambits, stability, applicability) – The financial services sector is not mature and developed enough to finance PPP projects – Private sector corporates in Africa are not conversant enough to undertake PPP projects – Lack of conducive environment for PPPS ie regulatory or legislation – Monitoring outputs (benchmarking/market assessment) – Conflicting interests/limited consultation between public and private sector – Process risk (ambiguous procurement transaction approvals) – Complex enforcement of contractual obligations (finance and dispute resolution)

10. Other African Countries – Active PPPs South Africa Botswana Mauritius Malawi Zambia Ghana Nigeria Kenya Tanzania

11. PPPs are not new to Zim Developed PPP Policy in 2004 Created a Projects Master Register Undertook major PPPs including: – Limpopo Bridge – 1995 – Bulawayo-Beitbridge Railway - 1999 PPPs in Zimbabwe PPPs not new to Zimbabwe PPP policy in 2004 Rail PPP- BBR (1999) Rail – New Limpopo Newlands bypass Why PPPs needed: Zimbabwe in crisis Government is bankrupt New money/capital needed Equity needed Lack of services – in some instances no services Infrastructure in crisis

12. JOINT VENTURE PROCESS (2015) Line Ministry Identify, appraise, develop and monitor Project to be implemented Invite expressions of interest in the project Undertake a feasibility study Submit Feasibility Study to Unit Joint Venture Unit Established in the Ministry of Finance Unit Approves or rejects Feasibility Study to develop best practice guidelines in relation to all aspects of joint ventures; to assist the Committee to formulate policy in relation to joint venture projects; and joint ventures Refer Proposal to Committee Joint Venture Committee Review feasibility study Approve or reject the feasibility study Make Recommendations to Cabinet to assist the Minister to formulate policy guidelines on joint ventures; and to ensure that all projects are consistent with the national priorities specified in the relevant policy on joint ventures; Cabinet Approves/Rejects Proposal If rejected, the Cabinet gives reasons for rejection If Project Proposal is provisionally approved, this is on fulfilment of certain conditions specified by the Cabinet Notwithstanding anything in the Act, a contracting authority may then invite special formal tenders

13. FEASIBILITY STUDY (1) Where a contracting authority considers that a project may be implemented under a joint venture agreement, it shall undertake or cause to be undertaken a feasibility study, to assess whether the proposed project is feasible as a joint venture project. (2) A feasibility study shall— (a) demonstrate the advantages of implementing the project under a joint venture agreement; and (b) describe in specific terms— (i) the nature of the contracting authority’s functions, the specific functions to be considered in relation to the project, and the expected inputs and deliverables; and (ii) the extent to which those functions can lawfully and effectively be performed by a counterparty in terms of an agreement; and (iii) the most appropriate form by which the contracting authority may implement the project under an agreement; and (c) demonstrate that the project will— (i) be affordable to the contracting authority; and (ii) provide value for money; and (iii) optimally transfer technical, operational or financial risk to the counterparty; and (d) explain the capacity of the contracting authority to effectively enforce the agreement, including the ability to monitor and regulate project implementation and the performance of the counterparty in terms of the agreement.

15. GENERIC PROJECT FINANCE STRUCTURE FOR PPPS Government Concession Agreement Concession 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 70/90 Debt 70/90 Shareholding Equity 30/10 Equity 30/10

16. Structure for indigenisation A.Private Party Equity A1 Black Equity A2 Active Black Equity A3 Cost of Black Equity A4 Timing of Black Equity Returns A.Private Party Equity A1 Black Equity A2 Active Black Equity A3 Cost of Black Equity A4 Timing of Black Equity Returns B.Private Party Management and Employment B1 Black Management Control B2 Black Women Management Control B3 Employment Equity B4 Skills Development B.Private Party Management and Employment B1 Black Management Control B2 Black Women Management Control B3 Employment Equity B4 Skills Development C Sub-Contracting C1 Project Capex to Black Enterprises C2 Project Opex to Black Enterprises C3 Black Management Control C4 Black Women Management Control C5 Employment Equity C6 Skills Development C7 Procurement to SME’s C Sub-Contracting C1 Project Capex to Black Enterprises C2 Project Opex to Black Enterprises C3 Black Management Control C4 Black Women Management Control C5 Employment Equity C6 Skills Development C7 Procurement to SME’s Subcontracts Subcontractor e.g. Construction Subcontractor e.g. Construction Subcontractor e.g. Operations Subcontractor e.g. Operations D Local Socio-Economic Impact

17. 17 Forms of JVs and PPPs Less Risk Transfer More Risk Transfer Service Contracts Design, Build, Operate, Finance & Concession contracts Leasing Management Contracts BOT, BOO Joint ventures Partnerships

18. TYPES OF JOINT VENTURE PROJECT 1. Power generation plants and power transmission and distribution networks. 2. Roads and bridges. 3. Inland ports and harbours. 4. Inland container depots and logistics hubs. 5. Gas and petroleum infrastructure such as refineries, storage depots and distribution pipelines. 6. Water supply, treatment and distribution systems. 7. Solid waste management works. 8. Renewable energy works. 9. Educational and health care facilities. joint ventures 10. Urban transport systems. 11. Housing. 12. Information communication technology projects. 13. Agriculture and irrigation development.

19. WHY PPPS FAIL Not addressing RISK issues properly Lack of commitment and buy in from key stakeholders Transaction advisors who lack expertise and draft poor agreements Governments lack integrity – (corruption) Private parties that lack integrity – over pricing projects Lack of contract management and monitoring

22. Utho’s experience in PPP’s Department of Trade and Industry- Office Space Department of Environment- Office Space Sedibeng Waste To Energy- Waste to Energy Plant Rustenburg Waste to Energy- Waste to Energy Plant Gautrain – Bombela and Gauteng Province Eastern Cape Department of Health- Lusikisiki Hospital Accomodation Eastern Cape Department of Health- Pharmaceutical PPP Gauteng Partnership Fund- Housing Western Cape- N1/N2 E-tolls Department of Communications – 112 national emergency call centre Department of Justice- Accommodation Jewellery manufacturing precinct

23. CONTACT DETAILS Offices: 2nd Floor Lillipark, 354 Rivonia Buolevard Rivonia 2128 Johannesburg Tel: +27 11 234 1370 Fax: +27 11 234 1380 website: www.utho.co.za Sheila Galloway +27 828 216 630