1. South Africa’s Municipal Infrastructure Investment Unit Annual Portfolio Budget Hearing 26 April 2002 Ms. Marlene Hesketh, Board Chair Dr. James Leigland, Acting CEO Ms. Danai Magugumela, Project Manager

2. Presentation Overview 1. Policy & Operation 2. 2001-02 Budget Review 3. 2002-03 Budget 4. 2001-02 Performance Review 5. Lessons Learned & Future Direction

3. Policy & Operations

4. What is the MIIU?  Cabinet Memorandum, No. 14, 1997  Non-profit Sect. 21 Company, est. 4/98  Financial & tech. support from USAID  PPU & Project Preparation Fund  Grants & TA to support local MSPs  Tech. & logistic support provided by DBSA  5-year life-span—likely to be extended

5. MIIU Objectives A government intervention to:  Facilitate private sector investment in municipal services – on a controlled, sustainable basis  Help create a market in MSP services to provide advice to local governments

6. The MIIU Board Independent BOD, representing:  Private sector banks & investors  Dept. of Provincial & Local Government & National Treasury  The Development Bank of Southern Africa  Private individuals and business people  Local governments

7. The Project Preparation Unit: How Does it Operate?  Municipality applies for MIIU assistance  Questionnaire helps conceptualise project  MIIU assesses chances for success & development impacts  Formal grant agreement signed  Municipality contributes partial funding (local ownership)  MIIU provides quality control

8. The Project Development Process 1.Feasibility Study of MSP options 2.Council decision on option (with MIIU advice) 3.Prepare bid documents, draft contract 4.Selection of public or private partner 5.Negotiate & sign contract 6.Financial close -- begin implementation 7.Initiate contract compliance monitoring

9. Completed MSPs: Total Values ContractsValues  O&M R 42 m  O&M plus Capex R 5,167 m  Divestiture R 1,407 m  Corporatisation R 70 m ---------- Total R 6,686m

10. Benefits for the Disadvantaged: Direct Benefits to Households: Project Households  Harrismith water 14,222  Thabazimbi waste 3,000  Nelspruit water 42,667  Tzaneen waste 12,000  Jnb Metro Gas 6,000  Jnb Bus 355,556 Total 433,445

11. Benefits for the Disadvantaged: Indirect Service Efficiencies:  Jnb Info Tech  Dolphin Coast water  Nelspruit water  Jnb Fleet  Jnb Market  Jnb bus  Eastern Cape IT

12. Benefits for the Disadvantaged: Environmental Improvement:  Thabazimbi waste  Robertson waste  WMLC waste  Nelspruit water  Dolphin Coast water  Tzaneen waste  Jnb Metro Gas

13. Benefits for the Disadvantaged: More Revenue for Services to Poor:  Jnb Metro Gas  Jnb Rand airport  Richards Bay airport  Pretoria airport  Nelspruit water  Dolphin Coast water  Jnb Parking

14. Public-public Partnerships  Harrismith Water – 14,222households  Maluti a Phofung Water – 178,000  uThukela Water (MJMSD) – 267,000  Johannesburg Water Utility – 622,000  Eastern Cape Info Tech. – 100,000  Johannesburg Bus & Market – 355,556

15. 2001-02 Budget Overview

16. MIIU Budget 2001-2002 Financial Mgmt. Goals:  Maintain MIIU pipeline  Accelerate disbursements; draw down surplus  Explore new donor funding  New activities: diagnostics; public awareness  Accelerate transformation with new staff  Target disbursements by category

17. Budget Structure 1. Revenues minus 2. Administrative Expenditures minus 3. Project Expenditures plus 4. Previous FY’s surplus

18. MIIU Budget 2001-2002 Revenues: Budget Actual Variance Budget allocation 6,4506,450 0 Donor grant 0 533 533 Interest2,2502,212 -38 Expense recovery 90 224 134 Success fees 2,300 0 -2,300 TOTAL 11,090 9,419 -1,671

19. MIIU Budget 2001-2002 Revenues: Var Explanation Budget 0 -- Donor grant 533 Exchange rate correction Interest -38 Lower IR than expected Exp recovery 134 More recovered from Padco Success fees -2,300 Not enough time to adjust bid docs TOTAL -1,671

20. MIIU Budget 2001-2002 Admin Expend.:BudgetActual Variance BOD expenses 28 10 -18 DBSA admin fee 1,5791,658 79 General admin 699 953 254 Marketing/Comm 342 370 28 Trainee Programme 220 124 -96 Exit Planning 655 141 -514 TOTAL 3,5233,256 -267

21. MIIU Budget 2001-2002 Admin Expend.: Var. Explanation BOD expenses -18 Fewer directors, closer DBSA admin fee 79 Cost increases on office equip General admin 254 CEO trips, consulting costs Marketing/Comm 28 Advertorials; public awareness Trainee Prog. -96 Interns vs. permanent staff Exit Planning -514 Delayed pending Cab. Memo TOTAL -267

22. MIIU Budget 2001-2002 Project Expend.: Budget Actual Variance MIIU pipeline 16,171 9,860 - 6,311 Concessions 18% 0%-18% Metros 16% 45% 29% Dist. councils 35% 34% -1% Other local councils 31% 21% -10%

23. MIIU Budget 2001-2002 Project Expend.: Var. Explanation MIIU pipeline -6,311 New councils; demarcation; powers/functions Concessions -18% L-t commitments difficult Metros 29% Conclusion of all Jnb iGoli work Dist. councils -1% -- Local councils -10% “Bs” unsure of powers/functions

24. MIIU Budget 2001-2002 Summary: Budget Actual Variance 2000-01 surplus 20,842 20,842 0 Revenues 11,090 9,419 -1,671 Admin. Expend. 3,5233,256 -267 Project Expend. 16,171 9,860 -6,311 2001-02 surplus 12,238 17,1454,907

25. MIIU Budget 2001-02 Conclusions:  Steady pipeline growth (highest ever project spending).  But growth much slower than expected due to demarcation, powers & functions.  Strong, early grant funding continues to provide strong financial foundation.  Importance of consistent Budget allocations.  Need to explore new donor funding.

26. 2002-03 Budget

27. MIIU Budget 2002-2003 20012001 2002-03 Summary: Budget Actual Budget Revenues 11,090 9,419 8,090 Admin. Expend. 3,5233,256 4,678 Project Expend. 16,171 9,860 12,845 Surplus 17,145 7,712

28. MIIU Budget 2002-2003 2002-03 Summary: Budget Explanation Revenues 8,090 (-) Less interest income Admin. Expend. 4,678 (+) Two new SA junior staff Project Expend. 12,845 (+) Recovery from demarcation-related distractions

29. 2001-02 Performance Review

30. Business Plan Objectives 1.Key focus areas for MSP project development work 2. Diagnostic Studies 3. Government policy & legislation 4.MIIU Transformation & skills transfer

31. 1. Focus Areas: 5 Signed MSPs 1.Concessions: - Margate Airport 2.Metros: - Kelvin Power Plant Sale 3.Cs: - uThukela Water (MJMSD) 4.Bs: - Overstrand Solid Waste; - Maluti a Phofung Water (pub-pub)

32. 1. Focus Areas: in Process 1.Concessions: -PMB Airport; Durban SW 2.Metros: -Pretoria Power; Cape Town SW 3.Cs: -Ugu Wastewater; Amatola SW 4.Bs: -Kwadukuza Water; Rich. Bay Water [53 active projects at 2/01]

33.  Quick assessment of the service needs  Report in 4-6 weeks  No obligation to accept findings  Guaranteed MIIU follow-up help if partnerships identified  Recommendations for dealing with other problems (esp. with budgets) 2. Diagnostic Studies

34. 1. Alfred Nzo (EC) 8. Sekhukhune (MP) 2. JS Moroka (MP) 9. Central Karoo (WC) 3. Mangaung (FS) 10. Kgalagadi (NC) 4. Ugu (KZN) 11. Umkhanyakuda (KZN) 5. Msunduzi (KZN) 6. uMgungundlovu (KZN) 7. Nelson Mandela (EC) 2. Diagnostics

35. 1.Severe rural poverty means little chance for viable PPPs 2.Officials in urban-centred areas unaware of pending service system crises 3.Budgeting & financial mgmt not suited to early warning of problems 4.Many opportunities for PPPs, but much political resistance 2. Diagnostics: Findings

36. 1. MSA, Sect. 94(1)(c) 2. Powers & Functions Steering Comm. 3.Meetings/testimony on MFMB 4.DWAF water policy white paper 5.DWAF WSA regulations 6.DPLG Cities’ Network 7.EDI Restructuring Ring Fencing 3. Govt. Policy & Legislation: Task Teams & Committees

37. Many opportunities to advise local officials regarding MSP development requirements in MSA. (Sect. 78) 3. Govt. Policy & Legislation

38. Two new full-time Project Managers: 1. Ms. Danai Magugumela (civil engineer) 2. Ms. Asha Bassa (lawyer, banker) 4. MIIU Transformation & Skills Transfer

39.  Departure of MIIU CEO, Gugu Moloi, to become CEO of Umgeni Water.  Recruitment of new CEO currently underway. Change in Senior Personnel

40. Lessons Learned & Future Direction

41. Lessons Learned  Continuing need for private investment in municipal infrastructure  Continuing municipal need for assistance with MSPs  Growing need to measure/monitor MSP performance  Need to counter misleading publicity (Nelspruit & Dolphin Coast)

42. Internal Challenges  PFMA Compliance Auditable performance targets Directors’ liability  King II – Corporate Governance Implications for the MIIU BOD?  Succession planning Capacity building, successor organisations Donor funding (needed? From whom?)

43. MIIU into the Future Likely increase in MIIU client base because of...  Final allocation of powers & functions  Permanent appointment of city management  MFMA + GAMAP = cost recovery emphasis  Consolidation/rationalisation of grant programmes  EDI restructuring (?)

44. The MIIU Role in Reform beyond concluding PPPs  Review restructuring strategies in IDPs (via diagnostic studies)  Brief clients on restructuring requirements  Inform clients re other support programmes  Ensure MSPs fit restructuring needs Thorough feasibility investigations Consider all options (incl. public-public) Use performance-based contracts

45. Strategic Issues 1. Free Water policy Linkages between the three spheres of government Monitoring of municipal infrastructure investments Financial support to the unit to increase impact and capacitate local governance (Continued)

46. Strategic Issues - cont. 2. Implementation of applicable legislation: The Municipal Systems Act The Municipal Structures Act Pending regulations 3. Communication about MSPs (private & public) 4. Linkages with strategic programmes of govt Integrated rural strategy Urban renewal programme

47. Summary  Best-practice procedures & policies  R6.7 billion in completed MSP projects  53 active projects  Lessons learned – the need for MSPs in infrastructure finance  The role of MSPs in municipal reform

48. Thank You. For more information visit… http://www.miiu.org.za