1. Public Private Partnerships
Presentation: Xola Ngamlana
Senior Project Advisor
PPP Unit National Treasury
Date: 07 March 2012

2. PPPs: Critical Success Factors to the South African Experience
Public Private Partnerships
PPPs: Critical Success Factors to the South African Experience

3. Contents 3. The South African PPP Unit
1. South African Critical Success Factors
2. PPP Unit Challenges
3. Fundamentals of PPPs
4. South African PPP Processes
5. Typical Projects/Examples
6. Questions
3. The South African PPP Unit

4. South African Critical Success Factors
Detailed Legislative Framework in Place
Public Finance Management Act
PFMA Treasury Regulation 16
Public-Private Partnership Manual
Standardised Public Private Partnership Provisions
Public Private Partnership Toolkit for Tourism
Municipal Finance Management Act
Local Government: Municipal Systems Act
Municipal PPP Regulations
Municipal Service Delivery and PPP Guidelines
The South African Constitution provides:
“When an organ of state … contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.”

5. South African Critical Success Factors
Highly Capacitated PPP Unit In Place
Informed by the Partnerships UK model
A division of the Budget Office Directorate in National Treasury
Reports through the Deputy Director-General: Budget Office to the Director-General and the Minister of Finance
Head of PPP Unit is a Chief Director
Have an established track record – 23 completed PPPs with over fifty in the pipeline

6. South African Critical Success Factors
Has both Technical Assistance and Regulatory Roles
Provides technical assistance on:
Procuring Transaction Advisors
Procuring Project Officers
Acts as a Regulator in terms of:
Approving feasibility studies to permit procurement as a PPP
The development and issuance of tender documents
The selection of the preferred bidder
Approving the execution of the negotiated PPP Agreement
Approving material variations and amendments to executed PPP Agreements

7. South African Critical Success Factors
Work is allocated to staff by sector
HEALTH - ACCOMMODATION
ENERGY - EDUCATION
WATER - BUDGET SUPPORT
TRANSPORT - CONTRACT MANAGEMENT
ICT - PROJECT DEVEL. FACILITY
TOURISM - BUSINESS DEVELOPMENT
WASTE - INTERNATIONAL RELATIONS

8. South African Critical Success Factors
We are also in the process of reviewing the institutional set-up of the PPP Unit within the context of its relationship to other advisory entities within National Treasury
Discussions around spinning off the PPP Unit and the Technical Assistance Unit into a stand-alone “component” have been ongoing for the last couple of years
Affecting these discussions is a proposal that all capital expenditures above a specified floor be required to undertake a feasibility study in an attempt to ensure that all such expenditures provide the best “value for money” for the nation

9. PPP Unit Challenges
The biggest challenge to procuring infrastructure via a PPP is TIME
Procurement of infrastructure is an intensely political process
Politicians are keen:
to produce infrastructure quickly
to preserve their decision-making prerogatives
to reward supporters
PPPs require:
TIME to undertake a proper feasibility study
TIME to secure National Treasury approvals and
TIME to conduct a fair, equitable, transparent and competitive procurement process

10. PPP Unit Challenges
The South African financial community is extremely risk averse
A key requirement for a PPP is the transfer of financial risk to the private party
That includes the private party’s lenders
However, SA financial institutions strongly resist accepting risk
The negotiations around the level of risk transfer they will accept consume huge amounts of time
National Treasury is considering providing a significant capital grant to public sector PPP sponsors to reduce the amount of debt that must be accessed
We have spent a couple of days with representatives of financial institutions to try to panel beat a solution

11. PPP Unit Challenges
Dealing with the lack of capacity within South African governmental entities to undertake PPPs
There is a massive skills shortage in South Africa which affects governmental entities as well
Lack of capacity is particularly acute in terms of the appointment of a Project Officer in a PPP assessment
National Treasury maintains a Project Development Facility which provides funding for the procurement of a Project Officer
Dealing with the lack of reliable information possessed by governmental entities necessary for conducting a feasibility study
Dealing with governmental entity staff turn-over and changes in the political structure of a governmental entity

12. PPP Unit Challenges
The most commonly heard “challenge” is that the PPP process takes too long
A feasibility study can take from six to 18 months
The Request for Qualifications (RFQ) processes can take six to eight months
The Request for Proposals processes, including negotiating with the Preferred Bidder can take a year or more
There is no simple answer – these are complex matters
Worldwide, and in South Africa, the knowledge that a project has undergone the rigours of a feasibility study and a transparent bidding process typically ensures a successful project, whereas a “conventional” procurement may – and often does -- not

13. Fundamentals of PPPs Three tests for a PPP:
Affordability
Value for money
Appropriate risk transfer
Applied in a set PPP project cycle:
Inception
Feasibility
Procurement
PPP agreement management

14. Fundamentals of PPPs
Worldwide experience has shown there are certain requirements before a government can successfully use PPPs to procure public services infrastructure
They are:
A functioning judicial/legal system
Capacitated, enthusiastic government officials
Demonstrated, capable private sector interest
An enabling PPP framework

15. Fundamentals of PPPs A functioning Judicial/Legal System
At the end of the day, all PPP agreements must be enforceable by both parties
Lenders, particularly require this certainty
PPP contracts may include dispute resolution and arbitration clauses, but must have a legal underpin
Capacitated, enthusiastic government officials
Undertaking the assessment and procurement of infrastructure via PPP requires diligence and an understanding of the processes
Government requires a “Project Champion” with zeal and keen interest in the project
The failure of government in this regard is often cited as being a reason for no – or poor – PPPs

16. Fundamentals of PPPs Demonstrated, capable private sector interest
Private sector interest should include
Interest from contractors, facility operators
Interest from the financial sector
Banks
Development Finance Institutions (DFIs)
Other financial organisations
In South Africa are many regional contractors, facility operators and representatives from most aspects of the financial sector

17. Fundamentals of PPPs An enabling PPP framework Objectives:
Clear policy framework to ensure that PPPs are a coherent option
Refining legislation to remove unnecessary obstacles to assess and procuring PPPs
Regulations to ensure sound expenditure control and prudent use of government assets
Enhancing capacity of government departments
Providing simple yet effective institutional framework to ensure that PPPs provide value for money
Providing clear direction and comfort to private sector participants, including financial institutions

18. South African PPP Processes
Inception
Institution registers project with PPP Unit
Meets with Unit to discuss
Nature, parameters of project
Appointment of Project Officer
Procurement of Transaction Advisors
Procures Transaction Advisor
Procures Project Officer
Project Development Facility (PDF) available

19. South African PPP Processes
Feasibility Study
Needs analysis
Options analysis
Project Legal Due Diligence
Value Assessment
Public Sector Comparator (PSC)
Risk-adjusted PSC
Private Sector Reference
Value-for-Money determination
Economic Valuation
Procurement Plan
Environmental/other consents
Treasury Approval (TA I)

20. South African PPP Processes
Procurement
Fair, equitable, transparent, competitive, cost-effective bid process
Request for Qualifications (RFQ)
Short List
Request for Proposals (RFP)
Treasury Approval IIA (TA IIA)
Issue RFP to short-listed bidders
Compare with feasibility study and each other
Select preferred bidder
Prepare value-for-money report
Treasury Approval IIB (TA IIB)

21. South African PPP Processes
Procurement, continued
Negotiate with Preferred bidder
Prepare PPP Agreement Management Plan
Treasury Approval III (TA III)
PPP Agreement Management
Development
Obtain environmental/other consents
Construct infrastructure
Delivery
Service delivery
Exit
At expiry, Institution takes over

22. Typical Projects/Examples
By the end of 2010, the South African PPP Unit had closed 23 PPP projects in the following sectors:
Health Care, including medical equipment installation, operation and maintenance, hospital co-location, provision of renal dialysis services, and hospital refurbishment, maintenance and operation at various hospitals
Office Accommodation, for the financing, design, construction, maintenance and operation of office accommodation facilities for government departments
Toll Roads, for commercial and tourism activities
Social Grants, for the distribution of social grants, including the accounting therefor
Fleet Management, for the provision and maintenance of motor vehicle fleets for government departments
IT, for the provision, maintenance and upgrading of IT equipment for government departments
World Heritage Site, for the design, construction, maintenance and operation of the Cradle of Humankind World Heritage Site
Rapid Rail, for the partial financing, design, construction, maintenance and operation of a Rapid Rail system

23. Typical Projects/Examples
At the end of 2010, the South African PPP Unit had some 60 PPP projects in the pipeline, at both the national/provincial level and the municipal level, including:
Office accommodation
Management of monies in trust
Clinical services
Airports
Correctional facilities (prisons)
Emergency call centres
Fleet
Pharmaceutical supply chain services
Hospital rehabilitation
Juvenile detention centres
Provincial legislature
Eco-tourism facilities
Private sector use of state land for commercial purposes
Municipal solid waste management
Municipal water services

24. Conclusion
Founded in 2001, the PPP Unit at South Africa’s National Treasury has been an important driver for the development of government services infrastructure
Gautrain Rapid Rail one of the largest PPPs on the Continent
The success has been possible because of an enabling legislative and regulatory environment, together with robust support from our Minister of Finance
Capacity in government and maintaining our staffing with capacitated professionals has been, and will continue to be, challenging
Prospect of expanded capital expenditure oversight role exciting

25. Contact Details Xola Ngamlana Senior Project Advisor PPP Unit
National Treasury
240 Vermeulen Street
Pretoria
South Africa
Tel:
Fax:

26. Questions
QUESTIONS?