1. 1 THE DEDICATED PPP UNIT OF THE SOUTH AFRICAN NATIONAL TREASURY Philippe Burger University of the Free State South Africa

2. 2 Overview The rationale for a dedicated PPP unit The rationale for a dedicated PPP unit A brief history of PPPs and the PPP unit in South Africa A brief history of PPPs and the PPP unit in South Africa The role of the South African dedicated PPP unit The role of the South African dedicated PPP unit Future challenges Future challenges Conclusion Conclusion

3. 3 The rationale for a dedicated PPP unit Fallacy regarding cost and the off-budget nature of PPPs Fallacy regarding cost and the off-budget nature of PPPs Principle-agent and free-rider problem within government Principle-agent and free-rider problem within government Department vs. government as a whole Department vs. government as a whole Centre of knowledge and expertise Centre of knowledge and expertise

4. 4 A brief history of PPPs and the PPP unit in South Africa Apr 1997: Cabinet approved appointment of interdepartmental task team Apr 1997: Cabinet approved appointment of interdepartmental task team From 1997 to 2000: Six pilot project From 1997 to 2000: Six pilot project Framework for PPPs endorsed in Dec 1999 Framework for PPPs endorsed in Dec 1999 Nat Treasury issued PPP regulations Apr 2000. Nat Treasury issued PPP regulations Apr 2000. Mid 2000: PPP unit established in Nat Treasury. Mid 2000: PPP unit established in Nat Treasury.

5. 5 Legislative framework: Legislative framework: National and provincial PPPs: Treasury Regulation 16, issued 2004 to PFMA (1999). 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 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) Municipal PPPs: Municipal Public-Private Partnership Regulations, issued 2005 to Municipal Finance Management Act (2003)

6. 6 Since 1997 average of 2 PPPs per annum Since 1997 average of 2 PPPs per annum Mar 2000 and Sept 2006: 13 projects signed Mar 2000 and Sept 2006: 13 projects signed Relatively slow roll out due to lack of skilled staff capacity in individual departments and provinces Relatively slow roll out due to lack of skilled staff capacity in individual departments and provinces 45 projects in the pipeline in Dec 2002 45 projects in the pipeline in Dec 2002 7 signed 7 signed 12 still in pipeline 12 still in pipeline 26 deregistered 26 deregistered

7. 7 The role of the South African dedicated PPP unit Main functions: Ensure affordability, value for money and sufficient risk transfer Main functions: Ensure affordability, value for money and sufficient risk transfer In line with international best practice: In line with international best practice: Main drivers of value for money: risk transfer and competition Main drivers of value for money: risk transfer and competition Prerequisite for value for money is affordability Prerequisite for value for money is affordability

8. 8 PPP unit in Nat Treasury has two broad tasks: PPP unit in Nat Treasury has two broad tasks: Provide technical assistance to government departments, provinces and municipalities Provide technical assistance to government departments, provinces and municipalities Provide Treasury Approvals during pre- contract phases Provide Treasury Approvals during pre- contract phases The life cycle comprises six phases: The life cycle comprises six phases: 1) Inception; 2) Feasibility study; 3) Procurement; 4) Development 5) Delivery and 6) Exit

9. 9 1. Inception phase Departments inform PPP unit of intent to set up PPP Departments inform PPP unit of intent to set up PPP Also need to inform PPP unit of available expertise (concern to PPP unit) Also need to inform PPP unit of available expertise (concern to PPP unit) Appoint project officer and team Appoint project officer and team Checklist Checklist

10. 10 2. Feasibility study Feasibility study must pass three regulatory tests: affordability, value for money and risk transfer. Feasibility study must pass three regulatory tests: affordability, value for money and risk transfer. Needs analysis Needs analysis Method of delivery Method of delivery Due diligence Due diligence

11. 11 Value assessment Value assessment Base and risk-adjusted PSC & PPP reference model Base and risk-adjusted PSC & PPP reference model Discount rate Discount rate Nominal values Nominal values Analyse budget: affordability, value for money Analyse budget: affordability, value for money Economic valuation: greenfield or capital projects, or projects with externalities Economic valuation: greenfield or capital projects, or projects with externalities Procurement plan Procurement plan Treasury Approval:I Treasury Approval:I

12. 12 3. Procurement phase Documentation (draft contract) Documentation (draft contract) Treasury Approval:II: Treasury Approval:II: Procurement: Bidding process Procurement: Bidding process Department: demonstrate why preferred bidder fulfils criteria of affordability, value for money and risk transfer Department: demonstrate why preferred bidder fulfils criteria of affordability, value for money and risk transfer

13. 13 Competition in bidding key element in this phase Competition in bidding key element in this phase Ensures value for money Ensures value for money If only one bidder: Competes with PSC If only one bidder: Competes with PSC Treasury Approval:IIB Treasury Approval:IIB

14. 14 Finalise contract, draw up management plan and complete due diligence on all parties Finalise contract, draw up management plan and complete due diligence on all parties Contract meets criteria of affordability, value for money and substantial risk transfer Contract meets criteria of affordability, value for money and substantial risk transfer Capacity, mechanisms and procedures of department Capacity, mechanisms and procedures of department Treasury Approval:III Treasury Approval:III

15. 15 Management of agreement, once signed, rests with individual department or province Management of agreement, once signed, rests with individual department or province Not the responsibility of PPP unit Not the responsibility of PPP unit PPP unit still provides technical assistance PPP unit still provides technical assistance 13 projects concluded, the length of the pre-contract period is roughly 8-18 months 13 projects concluded, the length of the pre-contract period is roughly 8-18 months Environmental approvals Environmental approvals

16. 16 Future challenges Pace at which contracts are concluded Pace at which contracts are concluded Capacity constraints Capacity constraints Contract managers Contract managers Health, education and infrastructure development Health, education and infrastructure development Initiative to setup such projects Initiative to setup such projects Ad hoc manner Ad hoc manner

17. 17 Approach issue in structured and systematic manner Approach issue in structured and systematic manner 1. Ascertain and prioritise the needs 2. Analyse what is best method for service delivery in terms of value for money 3. Portfolio of PPP projects structured in terms of policy priorities

18. 18 Provincial dedicated PPP units Provincial dedicated PPP units Independently from national PPP unit Independently from national PPP unit Provincial officials trained Provincial officials trained Units rolled out as capacity develops Units rolled out as capacity develops Not all units rolled out simultaneously; some provinces might not have a units Not all units rolled out simultaneously; some provinces might not have a units Provincial units mainly provide Treasury Approvals; National unit provides technical assistance Provincial units mainly provide Treasury Approvals; National unit provides technical assistance

19. 19 Long-term contracts and competition Long-term contracts and competition Competition disappears once contract is signed Competition disappears once contract is signed Markets might also become uncontested (no threat of new entrants) Markets might also become uncontested (no threat of new entrants) Pressure to renegotiate Pressure to renegotiate

20. 20 Conclusion Role of dedicated PPP unit: Role of dedicated PPP unit: Approve PPP agreements and Approve PPP agreements and Render technical assistance in creation and maintenance of PPPs. Render technical assistance in creation and maintenance of PPPs. Initiative, ultimate management of and accountability regarding PPP agreements originates and rests with individual government departments and provinces Initiative, ultimate management of and accountability regarding PPP agreements originates and rests with individual government departments and provinces