Improving public-private partnership deal flow for infrastructure delivery in South Africa : the role of National Treasury

Ngamlana, Philbert Xola (2009-12)

Thesis (MDF (Development Finance))--University of Stellenbosch, 2009.


ENGLISH ABSTRACT: The traditional form of delivering infrastructure and services by government is fraught with problems. These include cost overruns, time overruns and neglect of maintenance resulting in dilapidated and aged infrastructure. Public-private partnerships (PPPs) are emerging as an alternative form of delivering infrastructure, not necessarily as a solution, but as a procurement option. PPPs have not been without problems either and one of them is deal flow. In this research deal flow is referred to as a rate at which PPP projects move in the pipeline from initiation to conclusion of the contract. Initiation means registration of the project by a sponsoring institution with the National Treasury of the Republic of South Africa and conclusion of the contract means financial close. Financial close is the last stage of the project when financial institutions are ready to disburse borrowed funds. It follows immediately after contractual close, i.e. the stage when parties to the agreement (government department and private sector) signed the contract. The main objective of the research was to identify factors that lead to a slow deal flow. As discussed in the research this movement takes place at a rate of two deals per annum in South Africa presently. This is not good if compared with countries such as the United Kingdom which closes deals at a pace of around 50 per annum. However it is recognised that South Africa is a developing country and is not at the same level of development as other European countries. This comparison is therefore done for benchmarking purposes. The other objective of the research was to find out where the occurrences of the blockages are in the project life cycle with the aim of removing or mitigating their impact. Finding answers to some of these questions will not only help the National Treasury but the whole country in delivering infrastructure. The motivation for this is that infrastructure development contributes to economic development, economic growth and poverty reduction and the creation of a better South Africa for us all. The main findings of the research are that a great amount of time is spent during the inception phase, that is from registration of the project to Treasury Approval 1 for the feasibility study. Contrary to literature which suggests that more time is always spent in negotiations, that does not seem to be a problem in South Africa. Therefore an aggressive push at inception phase is necessary. Lack of clear government objectives and commitment is a problem. Poorly defined sector policies and poor risk management are problems too. There is a lack of mechanisms to attract long-term finance at affordable rates. This research has proved that other phases in the cycle, i.e. Treasury Approvals 2A to Treasury Approval 3, are not a problem. In other words, the phase of inviting, evaluating, appointing and negotiating with bidders is not a problem and therefore a slow deal flow problem can be solved if initiatives are taken right from conceptualisation to feasibility.

AFRIKAANSE OPSOMMING: Die tradisionele manier waarop die regering infrastruktuur voorsien is deurspek van probleme. Dit sluit in oorspandering, oorskryding van spertye en gebrek aan onderhoud wat lei tot bouvallige en verouderde infrastruktuur. Publieke-private vennootskappe (public-private partnerships (PPPs)) kom na vore as 'n alternatiewe manier om infrastruktuur te skep, nie noodwendig as 'n oplossing nie, maar as 'n opsie vir verkryging. PPPs is ook nie sonder probleme nie en een van die probleme wat in hierdie navorsingstudie aangespreek word is die vloei van transaksies. In hierdie navorsing dui die vloei van transaksies (deal flow) op die tempo waarteen PPP projekte in die pyplyn beweeg vanaf die aanvang tot die sluiting van die kontrak. Aanvang beteken registrasie van die projek deur 'n borg institusie by die Nasionale Tesourie van die Republiek van Suid-Afrika en kontraksluiting beteken finansiële sluiting. Finansiële sluiting is die laaste stadium van die projek wanneer finansiële instellings gereed is om geleende geld uit te betaal. Dit volg direk op kontraksluiting, i.e. die stadium wanneer die partye tot die ooreenkoms (regeringsdepartement en privaatsektor) die kontrak onderteken het. Die stadige tempo waarteen transaksies vloei is die onderwerp van hierdie navorsing. Die hoof-doelwit van die navorsing was om faktore te identifiseer wat lei tot 'n stadige vloei van transaksies. Soos in die navorsing bespreek, vind hierdie beweging tans plaas teen 'n tempo van twee transaksies per jaar. Dit is nie goed nie, vergeleke met lande soos die Verenigde Koninkryk waar transaksies gesluit word teen 'n tempo van 50 per jaar. Daar word egter erken dat Suid-Afrika 'n ontwikkelende land is en nie op dieselfde vlak van ontwikkeling is as die ander Europese lande nie. Hierdie vergelyking word dus bloot gedoen met die doel op die vestiging van 'n maatstaf vir toekomstige verwysing. Die ander doelwit was om uit te vind waar die blokkasies in die projek se lewensiklus is met die oog daarop om dit te verwyder of die impak daarvan te verminder. Antwoorde op sommige van hierdie vrae sal nie alleen die Nasionale Tesourie help nie, maar die hele land help om infrastruktuur te skep. Die motivering hiervoor is dat die ontwikkeling van infrastruktuur bydra tot ekonomiese ontwikkeling, ekonomiese groei en die verlaging van armoede en die skep van 'n beter Suid-Afrika vir ons almal. Die hoofbevindings van hierdie navorsing is dat daar 'n groot hoeveelheid tyd spandeer word gedurende die aanvangsfase, naamlik vanaf registrasie van die projek tot by Tesourie Goedkeuring 1 vir die lewensvatbaarheidstudie. In teenstelling met die literatuur wat beweer dat meer tyd altyd spandeer word aan onderhandelings, is dit nie die probleem in Suid-Afrika nie. 'n Aggressiewe dryfkrag met die aanvangsfase is dus nodig. 'n Gebrek aan duidelike regeringsdoelwitte en -toewyding is ook 'n probleem. Swak gedefinieerde sektorbeleide en swak risikobestuur is verdere probleme. Daar is 'n gebrek aan meganismes om langtermyn-finansiering teen bekostigbare tariewe te lok. Hierdie navorsing het getoon dat ander fases in die siklus, naamlik Tesourie Goedkeuring 2A tot Tesourie Goedkeuring 3, nie problematies is nie. Met ander woorde, die fase van nooi, evalueer, aanstel en onderhandel met aanbieders is nie 'n probleem nie en die stadige transaksievloei-probleem kan dus opgelos word as inisiatief geneem word reg aan die begin van konsepsualisering tot en met die fase van lewensvatbaarheid.

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