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PPPs in South Africa. Philippe Burger University of the Free State South Africa. 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. Intro.

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PPPs in South Africa

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ppps in south africa

PPPs in South Africa

Philippe Burger

University of the Free State

South Africa

  • 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
  • After 1st 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
a brief history of ppps and the ppp unit in south africa
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
Framework for PPPs endorsed in Dec 1999
  • National Treasury issued PPP regulations Apr 2000.
  • Mid 2000: PPP unit established in Nat Treasury.
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)
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
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
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
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).
the role of the south african dedicated ppp unit
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
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
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
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
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
the gautrain
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 2000
  • 7 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
Project to be completed in 2010/11
  • Initial cost estimates: R3.5 - 4 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
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
Government expects Gautrain to cut the number of cars on the N1 (Ben Schoeman) highway
    • Currently > 157 000 vehicles per day (traffic growth: 7% per year).
    • Currently 300 000 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 100 000 passengers per day. Expected annual growth: 4.8% with more than 120 000 passengers per day by 2010.
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
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 2010. 
    • Remaining 5 stations (links between Sandton to Johannesburg Park Station and Midrand to Hatfield) in 54 months, by 1 March 2011.
  • 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)