Review of the Public-Private Partnership Regulations to deliver on strategic infrastructure projects; with Deputy Minister

Meeting report

The Chairperson opened the meeting with a message about the 16 days of activism against the abuse of women and children and welcomed all present.

Ms Noxolo Kiviet, Deputy Minister of Public Works and Infrastructure, indicated that the weight of the regulations fell within the domain  National Treasury. They would therefore lead the presentation and the Department of Public Works and Infrastructure (DPWI) would be available to answer questions where necessary.

National Treassury: PPP Framework review & recommendations
Mr B Mashilo, Head: Infrastructure Development, National Treasury, requested Ms Dorcas Kayo from the National Treasury lead the presentation.

Ms Kayo told the Committee that to date,  34 public-private partnership (PPP) projects had been closed, of which 28 were closed prior to 2007. There has been a significant decline in the number of new PPPs since 2007. Nineteen of the 34 PPP projects were closed before National Treasury Regulation 16 (NTR16) was amended and the standardised PPP provisions were issued.

She said factors contributing to early success may have included the political leadership and championing of PPPs by the Minister of Finance; overall global and regional economic factors; and the market’s appetite and capacity for PPPs, including a relatively active project finance market.

The current PPP pipeline includes 22 projects with nine projects at various stages of procurement. NTR 16, under the Public Finance Management Act (PFMA), specifically regulated PPPs through a 4-stage process involving Treasury Approval (TA) and Treasury Views and Recommendations (TVRs). TA I involved the checking and approval of the feasibility study. In the case of a complex feasibility study, a transaction advisor was appointed. TA IIA involved checking and approval of the procurement documentation prior to it being issued and TA IIB involved checking and approval of bids prior to the appointment of the preferred bidder. TA III involved checking documentation prior to the approval of contract signature. Although Treasury did not give final approval, their TVFRs were highly regarded.

The objective of the PPP Framework Review was to address the concerns, perceptions and criticism raised about PPPs with the hope of increasing PPPs and crowding in private sector funding. It was also to better understand the challenges and bottlenecks, and to provide stakeholders with an opportunity to validate the draft recommendations before they were fully adopted. The review considered lessons learned from the application of the current PPP framework over the past years and the experience of other selected countries. The aim was to present key findings on the current PPP legal, regulatory, and institutional environment and to present targeted recommendations on how to address identified gaps and challenges.

The review of PPPs was part of broader infrastructure reforms and was meant to increase infrastructure investments by pooling together the public and private sectors.

The review was done in four stages: a desktop review of PPP rules and regulations, consultation and validation workshops with stakeholders, a review of the South African PPP experience and international best practice and benchmarking.

The National Treasury Budget Office appointed a reference committee as a sounding board for the PPP framework review. It comprised public and private sector PPP practitioners. It included representatives of:
the Government Technical Advisory Centre (GTAC); the Development Bank of Southern Africa (DBSA); the Gauteng Management Agency (GMA); the Independent Power Producers Office; the Department of International Relations and Cooperation (DIRCO) and representatives of leading financial and legal firms advising on PPP projects in South Africa.

The Committee found that South Africa lacked an overarching infrastructure policy framework that could mainstream PPPs into the overall planning process for public investments in a fiscally prudent manner.  There were multiple approvals and inadequate coverage of important aspects in the PPP legal and regulatory framework. In the current institutional arrangements and accountability requirements, there was a lack of a centralised approach and a ‘gateway’ body to screen infrastructure investments for PPP suitability. There was a lack of capacity at various government levels. The National Treasury did not have enough dedicated staff; the PPP Unit needed more resources; and Procuring Institutions (PIs) lacked skills and expertise in PPPs. The existing PPP processes were rigid and cumbersome as they were not calibrated to project size or project type.

The review findings indicated that there was no need for a complete overhaul of the PPP legal and regulatory framework as there were good aspects that compared well with international benchmarks. However, critical gaps and challenges need to be addressed. Recommendations included legislative changes to improve the PPP value chain and improved application and practice. This was expected to yield more reliable results and generate more confidence in the overall PPP framework.

Proposed changes in the policy framework and the legal and regulatory framework, with time frames, were presented to the Committee. Proposals about institutional arrangements, accountability, PPP processes and capacity were also presented,  with envisaged time frames.

(See slide presentation for details.)

Concerning PPPs at the municipal level, the reference committee found that there were overlaps in the legal framework for PPPs and public consultation and inadequate coverage of important aspects of the PPP framework. The current institutional arrangements had proved inadequate due to lack of capacity at various government levels - the regulator, the PPP Unit and procuring Institutions (PIs) -  which would benefit from training and other technical assistance. Delays in the PPP project cycle could be attributed to a lack of dedicated full-time staff on the regulatory side, the absence of operational guidance and the fact that there were no prescribed timeframes. The PPP Unit was unable to catalyse a robust municipal PPP pipeline or proactively support municipalities in PPP identification and preparation. Municipalities were ill-equipped to identify, prepare and implement PPPs. There was no PPP champion at the senior government level to promote and support using PPPs as an alternative funding mechanism.

Even though PPP training was conducted for municipalities at the DBSA quarterly, there still appeared to be a significant lack of understanding of PPPs. Hence, municipalities did not lean towards PPPs as an alternative funding mechanism.

The presentation outlined proposals to facilitate priority municipal programmes. These included simplifying and rationalising the legal and regulatory framework; strengthening institutional arrangements and market engagement; and streamlining processes in the municipal PPP manual to provide more guidance.

(See slide presentation for details.)

Proposed changes to the Municipal Systems Act were presented, with further recommendations about issuing directives for the interpretation and application of the Municipal Systems Act, an appropriate BEE framework and the application and interpretation of regulations pending changes to legislation.

Proposals were presented for a Municipal PPP championing body to proactively facilitate a municipal PPP pipeline. It should lobby support and develop advocacy material. It would be responsible for developing a fit-for-purpose document and template for priority programmes and for building a conducive environment by creating a balance of competencies of both parties to the PPP contract

(See slide presentation.)

Ms Kayo said that mainstreaming PPP should be done in a fiscally prudent manner. There was currently a lack of funding for PPPs. Therefore, a financing support mechanism was required to ensure a self-sustainable facility for project preparation funding. The project pipeline should consist of skills, institutional capacity, and a capable transactional service. Additional requirements at the municipal level have been identified.

The administrative processes would rest in National Treasury. Memorandums were signalling the intention to change TR 16 and all necessary approvals had been granted.

Going forward, a number of processes needed to be concluded. These included alignment with the Public Procurement Bill; taking the necessary steps to change the regulations concerning the PFMA and relevant municipal legislation; meeting the requirements for further consultations; and following the PPP Review Project Document guiding the implementation of work streams and deliverables.

Discussion

Ms S Van Schalkwyk (ANC) asked who would take responsibility for the review of the PPP processes. Would it be the Office of the President or National Treasury? She also asked how long this process would take, if there was a cost estimate and if sufficient funds were available for this process. Would the establishment of PPP offices include the movement of staff? What has led to the decline in PPP numbers since 2021?

Ms S Graham (DA) asked who would be responsible for driving the proposed changes to the different pieces of legislation. The legislation fell within different departments. Would it be National Treasury or the Department of Cooperative Governance and Traditional Affairs (Cogta)? What was the projected timeframe for the adjustments to the regulatory framework?

She raised her concern about the proposed directives around BEE and other issues pending amendments to the legislation. She welcomed the move towards the inclusion of unsolicited projects in municipalities.

She was concerned about the funding requirements of the PPP Units. She asked where they would be located, as the infrastructure funding units at provincial level were not functioning optimally.

Would the use of transactional advisors not be a duplication of the use of consultants? Currently, consultants are used before a project starts.

Mr W Thring (ACDP) raised his concern about PPP projects that were stopped mid-way. Did National Treasury or the DPWI have any experience or information on why this happened and what measures they were putting in place to prevent this?

The Chairperson said she supported the proposed measures around the Municipal Finance Management Act (MFMA) as it was her experience that the current legislation prohibited investment in infrastructure. The proposed changes to address unsolicited bids were a positive move. She raised her concern about the time it took for PPP projects to take off. She was concerned that establishing yet another agency would create another level on top of all the existing processes. Why was this necessary? PPPs were not new.

Responses

Ms Kayo said that the review had found that the municipal regulations were not conducive to PPP projects.

She agreed with the concern about time lapses. It was however important that a feasibility study be completed before development could commence. Feasibility studies could be done faster, but skills were needed to prevent the return of documents and to fill gaps and that could delay the process even more. This could happen even if there were transactional advisers. She indicated that transactional advisers assisted in feasibility studies, drafting documents and preparing concession agreements. There was a need for upskilling at municipal and provincial levels.

She explained that there was currently a PPP Unit within the Government Technical Advisory Unit. It had always been there, but they could not mix the advisory and regulatory functions as that could lead to corruption. The regulatory unit currently sat in National Treasury and they would like to convert the PPP Unit into a centre of excellence.

Ms Kayo said that National Treasury performed regulatory functions under TR 16. They were of the view that PPPs should go through one channel for approval. The PPP review was initiated by National Treasury and conducted with a grant received from the World Bank.

She informed the committee that there would be no movement of staff, but there would be skills capacitation.

The decline in PPP projects was due to the economic situation in the country. The affordability of projects was tested and failed the test.

The MFMA and PFMA desks within National Treasury were tasked with reviewing the legislation. They would consult with the relevant stakeholders and Treasury would then drive the process.

Implementing the different review recommendations would be done in line with the timelines as presented. Budget review reports on projects would be monitored for resource implications. Ms Kayo agreed that highly skilled people were required, but reminded the Committee that this came at a cost.

Ms Kayo indicated that the feasibility of infrastructure funding agencies needed to be explored. She also said that transactional advisors were the equivalent of consultants. There would therefore not be duplications.

PPP projects were often abandoned at the procurement stage. There was a need for accounting officers to be held accountable. They would also look at what the private sector contributed to the capital bill and find ways to stimulate growth. The review intended to clear ways, with the right controls, to assist the private sector to come in with scale, even outside the PPP framework.

Mr Mashilo said that in terms of the National Development Plan, infrastructure spending needed to reach 30 percent of GDP. It was currently at less than half of that and it was necessary to build capacity and capability to be able to get to the 30 percent target.

The Deputy Minister undertook that the review of the legislation would be done with the necessary speed.

The Chairperson expressed concern that the DBSA could not be called to account before the Committee. It made the oversight role of the Committee very difficult if one looked at a situation like Telkom Towers. She asked National Treasury to look into this matter.

The Chairperson also raised her concern that there were many projects and events that the Members of the Portfolio Committee were not invited to. This left Members in a difficult position when contacted by the media.

The Deputy Minister apologised for the oversight and undertook to rectify the matter.

After the adoption of minutes, the Chairperson thanked the Members of the Committee and parliamentary staff for the work done during the year and wished all well for the festive season.

The meeting was adjourned