Public Private Partnership Toolkit for tourism: briefing by National Treasury

Meeting report

Chairperson’s Opening Remarks
The Chairperson highlighted the plight of communities who lived around protected areas. Sometimes land had been given back to communities. He spoke about project development and whether the projected amounts were being reached. What happened to the ownership of assets on the completion of projects? Did ownership pass to communities? Of importance to tourism was inclusive growth with jobs in addition to rural development. How could it be ensured that local persons were able to run projects?  The main role of the Committee was oversight. The idea was to strengthen oversight over government. The aim of which was to grow the economy of South Africa towards the National Development Plan and the National Tourism Sector Strategy.

Public Private Partnership (PPP) Unit: National Treasury
The Public Private Partnership Unit: National Treasury briefed the Committee on its Public Private Partnership Tourism Toolkit. The delegation comprised of Ms Elsa Strydom, Senior Project Advisor PPP Unit and Mr Lindokuhle Hlatswayo, Senior Project Advisor PPP Unit. Ms Strydom undertook the briefing duly assisted by Mr Hlatswayo. She provided brief background on the process of the Toolkit which started in 2004.

The intention of the toolkit was to boost the tourism sector of the economy to make it easier for institutions and the private sector to enter into tourism related partnerships on state property managed by national and provincial government institutions. Ms Strydom noted that Treasury Regulation 16 of the Public Finance Management Act defined a public-private partnership. The definition of PPP in Treasury Regulation 16 specified inter alia that a PPP involved the commercial use of state property. A tourism PPP was where the private/ communal land formed part of a protected area managed by the institution. The institution had statutory rights or obligations to provide tourism amenities and /or to commercially develop the protected area, and the institution had a contractual right from the owner to commercially develop the area.

The Public Private Partnership Tourism Toolkit’s approach was to determine which PPP route to follow by projected value of capital investment and assessment of projected risks. There was either a small capitalisation route where the capital investment was less that R10m, with few employees and low turnover. The large capitalisation route was investment over R10m with a sizeable turnover, relatively high project risks and suitably long contract periods. The tourism PPP cycle had different phases. Phase 1 was inception and a pre-feasibility study. Phase 2 was a feasibility study regarding the type of capitalisation needed. Phase 3 entailed procurement. Phase 4 was development, Phase 5 was operations and Phase 6 was the exit phase. Some typical tourism PPP products were accommodation, food and beverages, heritage and culture. The Public Private Partnership Tourism Toolkit did allow for exemptions from National Treasury approval processes if for example institutional capacity was present. Exemptions were most likely for small capitalisation tourism PPPs. It may be given to large capitalisation tourism PPPs if institutional experience and capacity existed, for example SANParks. A PPP typically involved the commercial use of state property. In instances where an institution performed functions through co-management agreements on communal/private property, the Toolkit could provide for a co-management agreement back to back with a community-private party agreement.

Benefits of the Toolkit were clear terms for PPP agreements and direct beneficiation to surrounding communities which as a plus met the objectives of the National Development Plan.

Challenges of the Toolkit included the project development cost, lack of bulk infrastructure and funding at local government level and the demand risk as to whether businesses could stand on their own. There was also a lack of funding for community involvement in shareholding.

Suggestions made included that government should provide longer-term contracts and that government should provide infrastructure such as roads and water.

In total in terms of the Toolkit there were 15 projects on the active list. Most of the projects were at the inception stages. Members were provided with a list of projects in the Eastern Cape, Gauteng, Western Cape and Free State that had progressed to feasibility and procurement phases.

Tourism projects completed included the Cradle of Mankind where 106 jobs were created, De Hoop and at the Whale Trail where 45 jobs were created in construction and 45 jobs in operations.

Discussion
The Chairperson said that the intention was to increase opportunities for the use of the Toolkit. The Toolkit could contribute towards economic growth and transformation.

Mr R Shah (DA) highlighted that there were fifteen active projects since the Toolkit was established. However, he noted that if there were three in the feasibility stage, one in the procurement stage and three completed, it gave a total of seven projects. So where were the rest of the projects? 

Continuing on, he asked how many applications had been received since inception. From 2004 to 2013 was eight years. Why was there a delay in the process? Was the Toolkit working?

He also asked what role the PPP Unit played in the appointment of project officers. The private party involved took substantial risks. Did National Treasury also take risks? Were there instances where project officers were not qualified or were guilty of malpractices? He referred to the exemptions given to SANParks and asked what the criteria were. Were experience and capacity the sole criteria? Were there failed projects and instances of fraud and corruption?

Ms Strydom confirmed that the PPP Unit had an active list of projects. The PPP had four different phases. The first phase was inception, the second feasibility, the third procurement and the final and fourth phase was conclusion of an agreement and implementation. Each phase had time frames and requirements to get through in order to move on to the next phase. There were those projects that did not even get out of the starting blocks.

The project officer needed to be a qualified experienced person who understood the project. The person had to have skills relevant to the project. The appointment of the project officer was the responsibility of an accounting officer and not the PPP Unit. The Unit could not prescribe who to appoint and who not to appoint. Initially an internal person could be appointed as a project officer but once the process reached the procurement stage a professional person needed to be appointed. Ideally, the person appointed need to be a dedicated and senior person.

Mr Shah replied that where a project officer was appointed by a municipality or a province, it was surprising that the private party had no say in the appointment even though they bore a great deal of the operational risks.

Ms Strydom said that the private party would have a say in who got appointed as project officers at the contract signing phase. They could make recommendations. In the process, the institution like the municipality or the province was the driver and hence the project officer was with the institution. The PPP Unit, if requested, evaluated the committees that considered curriculum vitas of possible applicants. The role of the PPP Unit was advisory but it did not take responsibility for the appointment.

Mr Hlatswayo spoke about the issue of the SANParks exemptions. He said that an institution would submit a proposal. It would stipulate whether it had internal capacity or not. SANParks was given exemption because it had capacity and people. The PPP Unit would come in to assist in managing the process. No complaints had been received thus far over SANParks. Exemptions were given to small capitalisation projects. Exemptions could be given at National Treasury Approval Phases 1 and 2 but not Treasury Approval Phase 3. It depended on what the level of achievement of the institution was.  

Mr S Farrow (DA) pointed out that problems arose when things were put into practise. An example was the Tsitsikamma Treetop Canopy Project. He understood that the state owned the asset at the Kruger National Park. SANParks had taken over state forests as apparently they had the capacity to do so. He felt that actual project management was lacking. In Tsitsikamma there were concessions in place before SANParks had taken over. All of a sudden, the project at Tsitsikamma had become unsustainable when SANParks took over due to increases in concessions. He felt that that where intellectual property issues were involved as in Tsitsikamma there should not be bureaucratic regulations brought in to forcibly stop concessions. At Tsitsikamma, legal proceedings were taking place. The issue was about allowing continuity. Additionally, there was a great deal at stake as there was huge community involvement and a school had even been built. Concessions were simply stopped because regulations said so.

Ms Strydom referred to the Tsitsikamma issue and explained that the PPP Toolkit had a contractual agreement requirement. There would be a handover clause in the contract in relation to the end of concessions. The Unit was protective of termination. There were lots of implications around this.

Ms M Njobe (COPE) said that from experience the Committee had realised that the quality and competencies of project officers were important. Were South African educational institutions able to provide the market with manpower to run projects? She asked whether educational institutions were playing their role.  In addition, she asked how the PPP Toolkit Project tied in with the budget of National Treasury.

Ms Njobe referred to the registrations of projects and asked whether there were a national treasury and provincial treasuries. In addition, she asked about National Treasury’s interaction with environmental activists which might oppose projects. What experiences were there and how were things balanced.

Ms Njobe felt as though most of the work on the PPP Toolkit was done on the pre-feasibility stage. What was done at the feasibility stage? She referred to an article in the Mail and Guardian which had spoken about PPP in the Free State Province where government had contributed R30m. There were however questions already asked about political interferences and issues regarding the appointment of a manager. Did the PPP Unit have such experiences? Why could the Toolkit not solve such problems?

Ms Strydom stated that there was only a national treasury and no provincial treasuries. She explained that the municipality, the department, the province or some categories of public entities had to register with National Treasury. The process took time.

She explained that there was a system in place to produce good project managers. Mentors were also in place. There was a great deal of scope to develop internal capacity.

At different stages there were different links to budgets. During the feasibility phase there was only the cost of advisors. There had to be funds in place when the procurement phase was reached. The issue of the budget went hand in hand with the institution’s capability.

Mr Hlatswayo added that if a project manager did not have all the skills there would be a team to assist with the management of the project.

Ms Njobe asked whether the skills needed were available. What was the Unit’s experience?

Ms Strydom responded that the skills were there. A good example was the Gautrain Project. Educational levels were there. The challenge was to attract the right people to the project. The persons needed were mostly those with engineering, legal and financial backgrounds. The person should also have people skills as they needed to manage a team of experts. A pre-feasibility study needed to be done in order to determine if small or high capitalisation was needed. It was not a detailed and complicated study and could be done by the institution itself. It was also not as expensive and as long as a feasibility study.

Ms Strydom said that the funding of a feasibility study was normally done by the institution who registered the project. It could be a municipality, a province or even a public entity. National Treasury could also provide funding. If the institution did not wish to provide funding then National Treasury knew that they were not committed to the project. The role of each party could be stipulated in a memorandum of understanding (MOUs). MOUs could exist with communities.

Mr Hlatswayo said that he and Ms Strydom both were not aware of the Free State project that Ms Njobe was referring to. He added that regulations stipulated that all PPP projects needed to be registered with National Treasury.

Ms V Bam-Mugwanya (ANC) was glad that the Toolkit had been in place since 2005. Previously PPP had been badly done and nobody knew who owned the projects. She asked why some of the other projects were inactive. What was the reason? On the issue of communities funding infrastructure who paid for things like business plans. Were communities able to identify their own projects? And to who could communities go to for assistance in government. She asked whether coastal areas were also regarded as protected areas.

Ms Strydom said that communities could identify projects. Procurement was done by the institution’s accounting officer.

Mr Hlatswayo said that a feasibility study took ten days to two weeks to complete provided everything was in order.

Ms Strydom said that protected areas were defined in the Environmental Act for Protected Areas.

Ms X Makasi (ANC) asked how long the PPP had taken. She also asked what the difference was between national, provincial and local toolkits were.

Ms Strydom said that the PPP was a thorough process. It was comprehensive and the procurement process needed to be followed. Agreement with the private party needed to be reached. A good timeframe for the entire process was eighteen months. Deliverables took place at the operations phase and were stipulated in agreements signed with the private sector.

Mr Hlatswayo said that the Toolkit applied to national and provincial.

Mr L Khorai (ANC) asked where community funding from PPPs come from.

The Chairperson asked referring to government delays and asked why it took five to six years to obtain approval on projects. Once projects were operational he asked whether there was joint management. Did skills transfer take place? What did the PPP Unit have to offer? 

Mr Hlatswayo said that delays on approvals could be due to the challenge of deciding on what basis did one accept a proposal. He said that there was however an Unsolicited Proposal Framework in place.  The Public Finance Management Act did not encourage it but neither did it discourage it. At the end of the day a market test needed to be done.

Mr Shah said that mention was made of competing applications. What happened when two projects had the same feasibility and viability results? Why could the National Development Plan’s goals like job creation not be used as deciding factors?

Did the Unit in its processes come across instances of malpractice?

Mr Hlatswayo said that he and Ms Strydom were not aware of any malpractice issues. Supply chain regulations had criteria that had to be abided to. He conceded that approval times were a challenge.

Ms Bam-Mugwanya asked what the reasons for failures were.

Ms Strydom reacted that there were no failures, it was just that projects had not yet moved on to the next phase. She did note that there were projects which got deregistered. The aim was still partnership. Termination or failure of projects was not in the interest of government.

The Chairperson invited any other role-players present in the meeting wishing to comment to go ahead.

A female representative from the National Department of Tourism commented that people were involved in projects in the Eastern Cape. Sessions should be held with different provinces for them to become actively involved.
Ms Soza Simango Deputy Director, City of Johannesburg said that there could be closer co-operation with National Treasury. Provincial regional managers should be aware of the National Treasury’s projects.

He added that a project was underway with the Industrial Development Corporation on the building of budget holiday accommodation resorts. There should be cooperation with National Treasury on a tourism infrastructure investment model. Resorts and properties owned by national, provincial and local government would be looked at.

Ms Bam-Mugwanya asked how much of the information presented today was known by other departments.

The Chairperson said that the dialogue needed to be taken forward. He suggested that matters come to a close and that discussions could be continued at another forum.

Ms Strydom observed that the budget resort project could be a good pilot project. Greater collaboration should take place.

The Chairperson added that transformation in the tourism industry should take place and that a foundation should be laid. Rural areas also needed attention. India had a project where urban amenities were brought to rural areas an example was the introduction of all weather roads. Inclusive accelerated growth must take place.

The meeting was adjourned.