Health Care Public Private Partnerships in South Africa– what has worked and what has not PRESENTER: James Aiello December 2014

CONTENTS OF PRESENTATION Introduction and background to SA PPPs South African success factors Health Care PPPs Successfully implemented projects Project that didn’t work out as planned Polokwane Kidney and Dialysis Centre The future: Specialized Procurement Services Conc 2

INTRODUCTION AND BACKGROUND In 1997, the South African Cabinet appointed an inter-departmental task team to create an enabling environment for PPPs In 1999, the Public Finance Management Act was adopted as well as the Strategic Framework for PPPs In 2000 the PPP Unit was established in the Department of Finance and the first PPP regulations enacted The mandate was to support PPPs in the national and provincial spheres of government In 2004 the Public Private Partnership Manual and the Standardised PPP Provisions were adopted providing technical and contractual guidance In 2005 the mandate was expanded to include supporting PPPs in the municipal sphere of government, and the Municipal services and PPP Guidelines were published 3

PPP UNIT TODAY Total staff complement is 18 –Thirteen professionals –Four support staff –One office manager A division of the Government Technical Advisory Centre (GTAC), an agency of the Department of Finance Offices in Tshwane (Pretoria) South Africa Closed 24 PPP projects in excess of R60 billion Provided specialized procurement services to the Department of Energy (IPPs) and the Department of Transportation (PRASA) for non-PPP projects valued in excess of R153 billion 4

SOUTH AFRICAN SUCCESS FACTORS Detailed Legislative Framework in place –Public Finance Management Act (PFMA) PFMA Treasury Regulation 16 Public-Private Partnership Manual Standardised Public Private Partnership Provisions Public Private Partnership Toolkit for Tourism –Local Government: Municipal Systems Act –Municipal Finance Management Act (MFMA) Municipal PPP regulations Municipal Service Delivery and PPP Guidelines 5

SOUTH AFRICAN SUCCESS FACTORS Highly Capacitated PPP Team in Place Work is allocated to staff by sector HealthAccommodation EnergyEducation WaterContract Management TransportProject Development Account TourismWaste Business DevelopmentInternational Relations 6

HEALTH CARE PPPS 2. Inkosi Albert Luthuli Central Hospital 3. Universitas and Pelonomi Hospitals 4. Humansdorp District Hospital 5. Port Alfred and Settlers Hospital 3. The South African PPP Unit 1. Introduction 6.Western Cape Rehabilitation and Lentegeur Hospitals 7. Limpopo Renal Dialysis 8. Phalaborwa Private Hospital 9. State Vaccine

INTRODUCTION A first-world private health-care system exists in South Africa, but government lacks the financial and human resources to provide a similar public health-care system Health Services PPPs include: –Management information systems –Joint-use of facilities by public sector and private sector health care service providers –Accommodation-only initiatives –Catering –Renal dialysis –Vaccine production, ordering, packaging and distribution –Making redundant health care facilities available to the private sector for upgrading and providing health care services to private sector patients Most of these PPPs have operated satisfactorily Disputes have arisen, but have been quickly sorted Private sector poised to perform an even greater role, with PPPs or via a National Health system 8

TYPES OF HEALTHCARE PPPS Inkosi Albert Luthuli Central Hospital – Durban, Kwa-Zulu Natal Province Private sector supply of equipment, information management and technology systems and facilities management services. 15 year term commencing March 2002, w/option to extend Project deliverables – the management of all non-core activities at the hospital – all medical, information technology and facilities management services. Private party – the Impilo Consortium (Pty) Ltd. SPV shareholders included Siemens, AME, Drake & Skull and BEE shareholders NPV of capital = R1.156 billion Unitary Payment = R304.9 million p.a. escalated by CPI State-of-the-art central hospital – only one in Public Health System 3000 jobs created, including 2000 nurses 9

TYPES OF HEALTHCARE PPPS Universitas and Pelonomi Hospitals – Bloemfontein, Free State Province Private sector design, finance, build, operate and transfer based upon the co- location of the private partner (Netcare) and provincial health-care providers in both Pelonomi and Universitas hospitals year term, initially, from November 2002, later extended to 21.5 years Project deliverables – utilisation of unused space; optimisation of theatres and specialised equipment; provision of private health-care services within both public hospitals; provision of tertiary and academic health services to private patients; retention of professional staff within the public sector and enhancing the capabilities of Universitas, a leading academic hospital. 10

TYPES OF HEALTHCARE PPPS Universitas and Pelonomi, continued Private Party is Netcare, including Netcare Construction and Community Hospital Management (Pty) Ltd. BEE shareholder is Malesela Holdings. NPV of total capital investment for refurbishment = R100 million Unitary Payment – there was no Unitary Payment from the Provincial Health Department to the Private Party; the Private Party was to pay a variable and a fixed concession fee. However, things did not work out as planned, and the PPP Agreement is being currently renegotiated. Areas of concern mainly revolve around replacement of “guaranteed” radiology fees to the Private Party with fees earned for provision of back-logged services for Province. 11

TYPES OF HEALTHCARE PPPS Humansdorp District Hospital – Humansdorp municipality, Province of the Eastern Cape Comprises Humansdorp District Hospital and a smaller Isivivana Private Hospital in a co-location PPP. The Private Party refurbished the Humansdorp public hospital and constructed Isivivana Private Hospital and operates both as the Kouga Partnership Hospital. Project term is 20 years Project deliverables – to increase availability of private sector health expertise to the public health sector at an affordable cost. Private Party is Life Healthcare Group All financing provided by the Private Party; NPV of total capital investment = R7.8 million While road has been rocky, both sides feel project is working 12

TYPES OF HEALTHCARE PPPS Port Alfred and Settlers Hospitals – Province of the Eastern Cape Private sector refurbishment and on-going maintenance of two public hospitals and permission given to provide health-care services to private patients at both hospitals. To the extent that the provision of health-care services to private patients does not cover the costs of maintenance, the Provincial Health Department will pay a Unitary Payment to the Private Party. Follows the Humansdorp model. The term of the PPP Agreement is 25 years. The Unitary Payment = R27.2 million, escalated, base date Private Party capital provided = R196 million Newspaper article late last year lauded the project 13

TYPES OF HEALTHCARE PPPS Western Cape Rehabilitation Centre and Lentegeur Hospitals PPP Project – Western Cape Province The Private Party will provide all equipment, facilities management and associated services in respect of the Western Cape Rehabilitation Centre and Lentegeur Psychiatric Hospital. Project deliverables: –Obtaining private sector efficiency and know-how on non-core needs –Provision of preventative maintenance instead of being only reactive –Obtaining economies of scale by combining several outsourced contracts and in house functions at both hospitals –Improved governance in that the Province only has to deal with one party for both hospitals Private Party is the Mpilisweni Consortium Private Party provided all financing – no debts Beginning Unitary Payment, escalated = R30 million p.a. Term of PPP = 12 years (from March 2007 commencement date) 14

TYPES OF HEALTHCARE PPPS Limpopo Renal Dialysis Clinic – Limpopo Province Private sector to finance, design, construct, operate and maintain a renal dialysis clinic for the Limpopo Province Department of Health. 10 year term, commencing November 2007 Total cost approximately R7 million; no debt, no financing Private Party is Clinix Renal Care Unitary Payment = R11.86 million p.a., escalated First PPP where private party provides clinical services to public health patients. 15

TYPES OF HEALTHCARE PPPS Phalaborwa Hospital –Limpopo Province Health Dept. Not a health-care PPP per se, but private sector use of state lands for commercial purposes. Private Party will finance, design, refurbish, operate and maintain, as a private-sector hospital, a public hospital that is no longer needed by the Province. Private Party will pay a fixed fee (eventually R100,000 per month) and a variable fee (3% of annual revenues over R80 million). Private Party is Clinix-Phalaborwa Private Hospital (Pty)(Ltd), the same party operating the dialysis clinic. Will put in a dialysis clinic as well and will provide reduced-cost medical services to public health-care patients as well. 16

TYPES OF HEALTHCARE PPPS State Vaccine Institute – National Department of Health PPP for the procurement, receipt, packaging and distribution of vaccines for the Government of South Africa Private Party = The Biovac Institute, which is 40% owned by the Government of South Africa, through its Department of Health. PPP Agreement was executed in 2003 and was recently extended to 2016, in order that Strategic Equity Partner can initiate vaccine manufacturing in South Africa. Private Party is compensated by a mark-up on the procurement price of the vaccines. Working on a technology transfer from either an Italian or Cuban manufacturer to allow manufacture of vaccines within South Africa. Eventually wish to manufacture for export to rest of Africa 17

SUCCESSFULLY-IMPLEMENTED PROJECTS The South African PPP Team has closed 24 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 Note: PPP regime is not applicable to State Owned Entities

SUCCESSFULLY-IMPLEMENTED PROJECTS Some significant projects – –Albert Luthuli Hospital – the first “paperless” hospital in Africa –Polokwane renal dialysis facility – private sector rendering both facility and clinical services –Biovac Institute – country-wide vaccine repackaging and distribution –Gautrain Rapid Rail Project -- first of its kind in Africa –Chapman’s Peak toll road – one of South Africa’s most scenic drives –Department of Transportation transversal fleet management – fleet management services for most national departments including the Office of the Presidency –Head Office Accommodation Department of Trade and Industry Campus Department of Basic Education Department of International Relations Department of the Environment Statistics South Africa (soon) Tshwane (Pretoria) City Hall (Munitoria) –Cradle of Humankind World Heritage Site

PROJECT THAT DIDN’T WORK OUT AS PLANNED Eastern Cape Department of Health –Pharmaceutical distribution Registered in 2004 because over a third of all pharmaceuticals failed to arrive at the province’s hospitals and clinics Province operated two pharmaceutical depots, one in PE and one in Mthatha Delivery systems included local delivery service in PE and taxis Hospitals & clinics ordered drugs from depots by facsimile; many were lost Feasibility study recommended experienced delivery service provider for both depots Preferred bidder proposed mobile phone drug ordering system, tied to province-wide IT system & fleet of proper vehicles capable of carrying at required temperature & delivery validation Change of Department of Health chief at eleventh hour killed the project 20

POLOKWANE KIDNEY AND DIALYSIS CENTRE Before 2000, haemodialysis patients transferred 300 kms to Pretoria from Polokwane for treatment – some as many as three times a week –In 2004, registered as a PPP and issued a Request for Qualifications (RFQ) –Request for Proposals (RFP) issued in 2005 Sought proposals for design, construction and upgrade of existing dialysis unit, construction of a new unit and provision of facilities management, maintenance and replacement of renal dialysis equipment and the staffing of the new renal dialysis unit at the Polokwane hospital complex –PPP agreement signed 10 November 2006 – service commenced 1 December –Winning bidder provided all of the financing – no lenders involved –Construction commenced 5 March 2007 –Phase I completed 22 August 2007 –Phase II completed 15 November 2007 –Completion certificate awarded 12 May 2008 –Full service commenced 1 April 2008 –NPV of Unitary Payments to service provider for 10 years of project = R88.3 million

POLOKWANE KIDNEY AND DIALYSIS CENTRE Partners –Government of Limpopo Province –Clinix Renal Care (Pty) Ltd– the SPV for the project, with Emang/Thagang Joint venture as the Construction subcontractor –Fresenius Medical Care South Africa (Pty) Ltd – performance guarantor to Clinix Renal Care Operations –Facility able to cater for 80 haemodialysis and 50 peritoneal dialysis patients – previously could only cater for 30 patients –Concession Period is 10 years –Target Black Economic Empowerment in the project: 50% –Payment mechanism: Unitary Payment based on a “procedure fee” subject to annual CPI escalation Current Status –Treatment of 1500 Haemodialysis Dialysis patients a month –Acute dialysis services and peritoneal dialysis outpatient services in place –All facilities management service ISO 9001 & ISO certified –Staff training – six staff training to be nephrology nurses Management –Joint management, monthly meetings, all processes audited

THE FUTURE: SPECIALISED PROCUREMENT SERVICES As a division of GTAC, the PPP Unit’s mandate has been expanded to include providing specialist procurement services which will include –Comprehensive feasibility studies –Disciplined, robust procurement processes Mandate has also been expanded to include providing technical advisory services outside the Republic Will continue to provide PPP training services within the Republic and internationally as well 23

CONCLUSION Based on Partnership UK principles the PPP processes have been contextualized to reflect the realities of both government and the private sector in South Africa That contextualization is never complete – we are always evolving We don’t claim to have all the answers or to do everything right the first time, but we are keen to learn from our mistakes and to offer our insights to any other government, in Africa and elsewhere, where PPPs are being considered. 24

Thank you for your attention James Aiello Senior Project Advisor PPP Division, GTAC Private Bag X115 Pretoria 0001 Republic of South Africa 25