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PPPs in South Africa

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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  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 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

  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 2000. • 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

  10. 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).

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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.

  20. 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

  21. 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.

  22. 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)

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