1. BASICS OF PUBLIC PRIVATE PARTNERSHIPS

2. Contents INTRODUCTION Defining a PPP
Reasons and Benefits for Implementing PPPs
The PPP Life Cycle
Different Types of PPPs
Why use them?
Conclusion

3. Introduction
Public Private Partnerships (PPPs) in South Africa have been regulated under the PFMA, providing a clear and transparent framework for government and its private sector partners to enter into mutually beneficial commercial transactions, for the public good.
Introduction of the PPPs has been considered as a more innovative approach for improved effectiveness in terms increased value for money; improved service access; reliability; timely delivery; transparency and accountability of public money.
PPP - partnership which exists along the continuum of the two extremes of Public Procurement and Full Privatization

4. Introduction
Privatization: - The Govt get out, or devolve responsibility to private sector; - Feasible where it can be done commercially; - Where rewards outweigh risks thus private sector interest; - All risks of investments and performance are shifted to the private sector; - The private sector shoulder the risks and reap the benefits.
PPPs: - Where Govt/public must ensure that the service is provided; - The risks and rewards involved are not attractive for the private sector (which is profit motivated) to do it alone; - Where there is scope for sharing the risks and benefits.

5. Defining a PPP
“….A PPP is any medium to long-term relationship between the public and private sectors, involving the sharing of risks and rewards of multi-sector skills, expertise and finance to deliver desired policy outcomes.” (Standard & Poor)
In South African government context:
A contract between a government institution and private party, where:
the private party performs an institutional function and/or uses state property in terms of output specifications
substantial project risk (financial, technical, operational) is transferred to the private party
the private party benefits through: unitary payments from government budgets and/or user fees.

6. Defining a PPP
Skills and assets are shared in delivering a service / facility for the use of the general public.
Shared risks and rewards in the delivery of the service and/or facility
Joint, symbiotic and collaborative provision and financing of public projects and services
Important to Note:
Transfer of risk in PPP does not imply the maximum transfer of risk to the private partner.
It means that the party best able to carry the risk, should do so.

7. Reasons for implementing PPPs
Funding
Government (public) obligations to deliver public infrastructure services or other basic services
Lack of fiscal resources to finance the infrastructure investments
Direct Government financial support may be limited or not required
Government support may be needed in risk management
Efficiency
Private sector projects present limited cost overruns and delays, and lower operating costs compared to public works contracts
Flexibility
PPP arrangement allows to design the optimum combinations of Public and Private financing

8. Benefits of implementing PPPs
Funding / Creation of Value (VFM)
Government (public) obligations to deliver public infrastructure services or other basic services
Lack of fiscal resources to finance the infrastructure investments
Through synergies between public authorities and private sector companies, in particular through the integration and cross-transfer of public and private sector skills, knowledge and expertise;
Efficiency
Private sector projects present limited cost overruns and delays, and lower operating costs compared to public works contracts
Flexibility
PPP arrangement allows to design the optimum combinations of Public and Private financing

9. Benefits of implementing PPPs
Affordability and VFM are the benchmarks for PPP viability.
Affordability and VFM determines whether the PPP route is the best alternative.
Because of the off-balance sheet nature of PPPs, their use has led to some misconceptions regarding their impact on the affordability of projects.
Confusion stems from the impression that because government not responsible for the acquisition of the asset, that PPPs are cheaper than traditional procurement – this is a fallacy.

11. Affordability and VFM
Relative affordability: affordability of PPP compared to that of traditional procurement.
Interest rate and efficiency differentials main determinants (of relative affordability and VFM).
Absolute affordability: Can the project (delivered either trough a PPP or traditional procurement) be accommodated within the budget without violating the budget constraint.
Reason for going the PPP route: Value for money, but effective risk transfer to the private partner prerequisite to ensure VFM.

12. PPP Project Cycle Inception Feasibility Procurement
Contracting Agreements
Management of PPP agreements

13. PPP Project Cycle Inception Feasibility Study
Register PPP with relevant Treasury
Appoint: Project Officer and possibly Transaction Advisor
Feasibility Study
Determine strategic & operational benefits
Demonstrate Value for Money
Allocation of financial, technical, and operational risk
Treasury Approval I

14. PPP Project Cycle Procurement Contracting Agreements
Treasury Approval IIA: Approval that the procurement process will be in line with all constitutional imperatives.
Treasury Approval IIB: After evaluation but prior to appointing the preferred bidder.
Contracting Agreements
Treasury Approval III. After appointment but before conclusion of an agreement.
Management of PPP agreements

15. Different Types of PPPs
Management Contract
Supplies management services to the utility in return for a fee
Affermage
Runs the business, retains a fee based on the volume of water sold (No infrastructure asset investment)
Lease
Runs the business, retains revenue from customer tariffs, and pays a lease fee to the contracting authority
Concession
Runs the business, Finances the Investment, & can own the infrastructure assets depending on transaction
Build Operate Transfer (BOT) Concession
Designs, builds (or rehabilitates), Finances, and Operates the asset for the period of the concession

16. Why use the PPPs?
PPPs leverage private party capital to fund infrastructure
PPPs leverage private sector skills
PPPs can be good for project planning
The private sector takes financial risk over the lifecycle of the project
Risks are allocated to the party best able to manage a particular risk
PPPs deliver budgetary certainty
The public sector pays only when services are delivered
The quality of service has to be maintained for the duration of the PPP
PPPs encourage the injection of private sector capital

17. THE END