1. Public Sector Infrastructure in South Africa Presentation to Roads Pavement Forum 10 May 2006

2. 2 Introduction: SA infrastructure Extensive network of 752000 km of national, provincial,municipal and access roads and 19700 km of rail, together moving about 700 million tons a year domestically, 7 of 16 Southern African major commercial ports - handling 161 million tons annually. 3 major international airports and 7 regional airports handling 500 000 flights, 21 million passengers and 0,5 million tons of freight a year. About 250 large dams with a capacity of 30 billion cubic metres 478 passenger railway stations, and 2,2 million passenger trips/ day 29 400 schools accommodating about 12,3 million learners Electricity generation capacity of over 40 000 MW continuous power 156 million circuit kilometers of telephone line with 5,5 million installed phones 3000 km of petroleum and gas pipelines.

3. 3 Why focus on infrastructure? Although SA is relatively well endowed with a relatively good infrastructure stock in many sectors, there are wide disparities and growing demands, and so we still face many challenges: Apartheid legacy of unequal infrastructure distribution (backlogs) –Infrastructure in townships - lacking, of poor quality and in general disrepair – roads, pavements, streetlighting, clinics, schools, etc – Lack access to water, electricity and communications infrastructure –Housing provision did not meet demand…could not own land in urban areas New Demand –With democratic change and economic growth came changes in social and economic patterns – increasing urbanisation etc, placing pressures on various infrastructure sectors, resulting in higher infrastructure demands, and increased maintenance and rehabilitation needs –Increased pressure on economic infrastructure eg. ports, increased traffic at border posts and urban and provincial roads, aging railway rolling stock, lines and signalling, airplanes etc. –Increased pressure on social infrastructure – schools, health infrastructure, justice, safety and security infrastructure, government facilities etc Spatial Inequalities –Urban-rural divide, migration and social movement, densities and economies of scale

4. 4 Broad economic impacts of infrastructure Expenditure on infrastructure and the built environment are regarded as ‘investments’, which imply welfare benefits to individuals and groups in society and ‘returns’ to the economy as a whole in the form of multipliers of economic growth. Being durable in nature, the capital investments have an inter-temporal effect in that the savings of the present generation are harnessed for the benefit of present and future generations as well. For the present generation the additional benefits, besides utility and future returns, are the immediate jobs created in the building of infrastructure, and so there is a direct poverty reduction/ pro-poor element to infrastructure investment. The roads, pipelines, cables, transmitters etc, facilitate the access of inputs into our factories and production facilities, which produce goods and services, and facilitate the access to goods and services, distribution facilities, product and societal information dissemination, etc. In short, it has been written that investments in infrastructure support development by: –Creating favourable conditions for production and consumption –Facilitating economic diversification –Providing access for people to both government and private sector services and opportunities

5. 5 Infrastructure delivery in the 10 years of democracy 1,6 million subsidised houses constructed. 56000 classrooms constructed, 2700 schools connected to water, 4000 to electricity. 700 new clinics constructed, 2300 clinics re-equipped. 141 hospitals rehabilitated and 3 new tertiary hospitals constructed (2000 beds added) Water supply to 9 million more people and sanitation to 6,4 million more. 6 more dams constructed including the Lesotho Highland project. Over 4 million more electricity connections. 3000 projects building or improving police stations Prison expansion to accommodate 15000 more prisoners Renovation and extension of 129 court buildings Construction, rehabilitation and maintenance of 6000km of national roads and 15000km of provincial roads. About R10 billion private sector investment in toll road PPP’s. Remodelling and refurbishment of 150 main commuter rail stations and 7 new stations, with 264 engines and coaches rebuilt. R38 billion spent by Transnet on freight rolling stock, port upgrades and aircraft purchases.

6. 6 Infrastructure Institutional Arrangements National departments: 22 of 34 national departments perform infrastructure functions such as government buildings, bulk water resources, police stations, courts and prisons, electrification etc, as well as make infrastructure transfers to agencies and public entities. Provincial departments: mainly schools, health infrastructure, agricultural infrastructure, provincial roads and public works. Infrastructure budgets derived from own revenues, provincial equitable share, as well as infrastructure grants allocated by NT and national departments. Local government: municipal roads and stormwater, water distribution and wastewater collection and treatment, electricity distribution, streetlighting, bus and taxi ranks, community halls, refuse sites etc. Budgets derived from own revenue and supported by Municipal infrastructure grant from national Large number of extra budgetary institutions/agencies and public entities that are publicly owned but operate on business principles and deliver infrastructure eg. 17 water boards, SA Roads Agency, TCTA, SARCC, Transnet, Eskom, Telkom, Sentech etc. Funding is obtained from user charge retained earnings, borrowing, transfers from oversight government departments, ppp’s and concessioning, sale of assets etc.

7. 7 Infrastructure Budgeting & Reporting Independent budgeting by different spheres of government and entities based on their needs and priorities however, reporting to NT is a requirement. National department infrastructure budgeting is integrated within the main budgeting process – 3 year MTEF Requirements specific to infrastructure are published in the Treasury guidelines to departments annually and departments present motivations at MTEC hearings – ensures capex alignment with operational capability and budget, feasibility etc. National policy departments make requests/representations on behalf of agencies and spheres that they fund. Reporting on infrastructure is currently done per dept in the Estimates of National Expenditure (ENE). Currently only ‘mega’ and large projects are reported individually with small projects aggregated. Also reported are transfers to agencies and other spheres, transfers to households, and maintenance. NT also publishes aggregate public sector estimates in the Budget Review. National and Provincial Infrastructure Project Registers – requires individual project detail and tracks project delivery quarterly.

8. 8 Budgeting Framework (source: Afrec) Constitutional, Political, Legislative and Macroeconomic environment PLANNING BUDGETINGMONITORING & EVALUATION IMPLEMENTATION POLICY PRIORITY INPUTS RESOURCE INPUTS SERVICE DELIVERY OUTPUTS Out- comes

9. 9 Broad Treasury capital budgeting role MONITORING AND EVALUATION ROLE -spending and output performance feedback -evaluation wrt efficiency, economy, effectiveness -Infrastructure Project Registers – delivery and expenditure POLICY, PLANNING AND DECISION SUPPORT ROLE -strategic ‘big picture’ on infrastructure delivery & sectoral profiles, GDP multipliers etc, and better targeting of infrastructure portfolio -Development of appraisal guidelines suited to SA, and refinement of decision processes, capacity building in departments for appraisal -buy/lease, dispose/maintain/reinvest trade-offs and decisions -backlogs/demand assessment, macro GFCF targets RESOURCE INPUT/ BUDGETING ROLE -strategic level – are we making the right capital decisions as a country -portfolio level – do we have the correct mix and spread of projects in any one year, given capital constraints etc -project level – appraisal – benefit to cost -institutional/industry issues- delivery/spending capacity etc COORDINATION, COLLABORATION, INTERVENTION ROLE -potential proactive role in delivery, stakeholders, implementers, research etc.

10. 10 Capital Budgets Committee ROLE Initiated within the 2005 MTEC process MTEC sub-committee - Interdepartmental in nature, Treasury lead Act as a filter to the main budget process Undertake the review of individual capital/infrastructure project and programme bids made by departments to Treasury for funding Prioritisation and Selection of projects -capital rationing situation Make recommendations to MTEC, Mincombud Further role; develop and improve appraisal process in future COMPOSITION Major infrastructure ‘oversight’ departments, and the ‘development’ and grant distribution departments + the Presidency: Transport, DWAF, Housing, DPLG, Public Works, DTI, DME, Presidency, National Treasury (various sections)

11. 11 National and Provincial Infrastructure Project Registers Over 15000 projects valued at R111,7 billion currently on the National Project Register, 6 500 of which are currently under construction Over 10000 projects currently on the Provincial Project Register PROJECT REGISTER OBJECTIVES Enable the departments as well as Treasury to give full account of progress made with spending on a regular basis Track infrastructure delivery progress with the utilisation of budgeted funds and physical implementation of projects Track spending on both capital and maintenance projects Track project progress from project identification to completion Support Treasury’s budget allocation process for infrastructure projects Communicate progress and achievement to relevant stakeholders and the public PROJECT REGISTER INFORMATION Project information from department as well as entities submitted on quarterly basis Financial Data – budget, cash flow and expenditure with expenditure measured against budget and cash flow; Non-Financial Data - project details, type of project, name, nature of investment, location of the project etc. Physical progress – quarterly progress measured (this include outputs achieved, project stage etc.) Data on Expanded Public Works Programme (in case where the project is labour intensive) Auditable information - payment certificate number, responsible official for the project

12. 12 Budget Review Infrastructure related estimates 2006 MTEF

13. 13 2006 ENE – departmental infrastructure summary

14. 14 Provincial Government Capex-2006 MTEF

15. 15 Municipal Grants (Budget Review 2006)

16. 16 ESKOM Capex 5 year plan revised to R98 bn, nominal. Return to service of Camden (R1,5bn), Grootvlei (R3bn), Komati (R3,6bn) & refurbishment of Kriel (R1,1bn) OCGT plants in Atlantis and Mossel Bay, (R2bn) completion in 2007 & 2010 CCGT plants at Saldanha and Coega (R4bn) Hydro pumped storage schemes – Braamhoek (R5bn) and Steelpoort (R1,5bn) Partner on Inga hydro project (R1,6bn) in DRC Transmission capacity strengthening (incl. Cape lines)

17. 17 Transnet Capex MTBPS estimates – Transnet revising its capital programme All major projects have commenced Capacity expansion on Orex and Coalink lines Multi-purpose terminal at RB, Durban Pier 1 conversion for containers, Island View reconstruction, Cape Town container expansion, port superstructure Multi-products petroleum pipeline - coast to reef

18. 18 Focus on key infrastructure sectors (table under construction – not a complete breakdown)

19. 19 Breakdown of Road Sector Expenditure Estimates Roads infrastructure expenditure estimates Sector 2002/032003/042004/052005/062006/072007/082008/09Total MTEF National Roads 1,846 2,374 1,657 2,399 3,894 7,943 10,083 21,920 Provincial Roads 5,333 5,878 6,353 7,265 8,012 9,520 9,885 27,417 Municipal Roads 1,900 2,923 2,800 4,187 4,404 4,616 4,823 13,843 Total Roads 9,079 11,175 10,810 13,851 16,310 22,079 24,791 63,180

20. 20 Gross Fixed Capital Formation – Public Sector (Reserve Bank)

21. 21 Gross Fixed Capital Formation – Public and Private Sector (% GDP) (Reserve Bank)

22. 22 Broad indicators of success A broad measure of success in the general direction, is that government (across departments and spheres): Is now prioritising infrastructure and capital investment Beginning to re-build capacity after shedding many built environment professionals over the years Starting to plan earlier and more effectively in many cases Indicators that lead us to conclude that we are moving forward in the right direction are: increases in gross fixed capital formation trend in the government and public sector as a whole, and more importantly, private sector GFCF. increases in government capital expenditure and number of projects appearing on our project registers improved confidence and outlook assessments in construction industry reviews increased demand for engineers and other built environment professionals More PPP’s and mega-projects identified and pursued Overall upward trend in GDP

23. 23 Issues needing attention The planning, generation and management of projects Since democracy much skills have been shed - these need to be renewed through targeted efforts ensuring transformation Restructuring resulted not only in skill loss, but loss of systems, process and organizational knowledge resulting in confusion at planning and delivery level Too many projects of all sizes are not managed and monitored by suitably qualified people. project appraisals and approval pathways even on large projects needs attention. Re-engineering the business processes of project planning, approval and management The construction/delivery environment - constraints and shortcomings both in workmanship and material shortages. - some contractors taking on bigger jobs they can handle and abandoning jobs resulting in expensive project delays, at the same time we need to nurture small contractors to get bigger, better and more in number in order to prepare for greater infrastructure expenditure in future - material shortages and the booming tender environment in many cases result in higher tender prices, rendering original estimates and budgets too low. - rationalisation of contract docs and specs so as not to burden small contactors -profiteering

24. 24 Issues needing attention (cont) Quality, standards, and maintenance - With increasing work in the industry, coupled with skills/learning curve constraints, and lower monitoring/quality control capability from authorities, the quality of construction is in many sectors in decline. - same applies in the planning and development approvals/town planning environment in especially the smaller muni’s, where development proceeds regardless of whether the existing infrastructure has the capacity to cater for additional loads - far more thinking should be done by the built environment research and development community on better though cheaper /quicker housing and other infrastructure - much attention needs to given to the prioritisation of maintenance of assets, especially systems that schedule planned maintenance and the budgeting for this. Coordination, cooperation and collaboration -Misaligned, unbridled and uncoordinated investment in infrastructure results in weakened benefits relative to costs, diminished multiplier effects on growth, and reduced returns on investment. There is therefore a need to: Target investments towards needs and areas of higher growth potential Coordinate efforts of different agencies/authorities and their respective infrastructure types towards these targeted developments and large multidisciplinary projects Cooperation between approval authorities in different spheres to remove red-tape approval bottlenecks is essential to accelerating delivery on investments Collaboration between the planning sections of departments and even the private sector in order to create sustainable living spaces and a viable built environment. The plethora of high level plans need to be aggregated, and assimilated at national level and inform and align consolidated national planning.

25. 25 Thanks! Questions?