Private sector players have welcomed the National Treasury’s draft amendments to public-private partnership (PPP) regulations and urged their implementation as soon as possible.
Private sector players believe the new regulations will give a boost to PPPs, which to date have not had the desired momentum. PPPs use private sector funding for large-scale infrastructure projects such as roads, water works, bridges or hospitals.
The government believes that PPPs can play a crucial role in delivering much-needed infrastructure which is seen as a lever to promote economic growth and job creation. By mobilising private sector capital, they can also ease the pressure on a financially constrained fiscus.
The Treasury held a series of webinars last week with public sector entities, municipalities and the private sector on the draft regulations which stemmed from a 2021 Treasury report that identified shortcomings in the existing PPP framework.
The draft amendments to National Treasury Regulation 16 and Municipal Regulation 309, which govern PPPs, were published for public comment in February with a revised deadline of April 15 for comments. These were the first amendments in about 15 years and are aimed at reducing the procedural complexity in PPP implementation.
The Treasury noted in its explanatory memorandum to the draft regulations that the number of new project transactions had declined over the past 10 years from an estimated R10.7bn in 2011/12 to R7.1bn in 2022/23.
William Dachs, the Treasury’s technical adviser on PPPs to director-general Duncan Pieterse, said at Friday’s webinar that the Treasury wanted to reignite PPPs. Not enough was being spent by the state on infrastructure and when public money was spent, it tended to be spent inefficiently. However, a balance had to be achieved between the need for fiscal risk management and the need not to choke the project pipeline with too much regulation.
One of the major changes remarked on by webinar participants was the proposed amendments related to unsolicited proposals submitted by the private sector. These unsolicited proposals would have to comply with the strategic objectives of the state entity or be in a strategic sector or be innovative. Dachs believed that the proposal would lead to more projects.
Treasury director for infrastructure finance Dorcas Kayo, who was a key player in the preparation of the amendments, said the proponent of an unsolicited proposal would automatically be prequalified and shortlisted. If the proponent of the unsolicited proposal failed to be selected as the preferred bidder in a competitive process, then it would be reimbursed with the development costs of the feasibility study.
Simplify and expedite
Another proposed amendment is to introduce a R2bn threshold (the total project value over its entire life), below which projects would be exempt from the need to obtain certain Treasury approvals, to simplify and expedite the implementation of smaller projects.
Standard Bank executive for energy and infrastructure George Kotsovos noted that state utilities had complained in the past about the existing PPP framework. They said PPPs were too cumbersome to implement and took too long. The proposed amendments would help unlock the use of PPPs by state entities. Developers were keen to come to SA but there was no pipeline of projects on the table, he said. The visibility of projects was also critical.
Kotsovos proposed that the regulations should include timelines for the PPP process, which was otherwise open-ended. Kayo said lengthy discussions were held as to whether the Treasury could legislate on the time frames in which the regulator had to respond but decided there were other things in the value chain that needed to be corrected before this could be done. One of these issues was the quality of the transaction advisers and the time it took the procuring institution to make a decision.
Rand Merchant Bank senior legal adviser Viola Ngwenya said there was great excitement that PPPs would get going again. Because of the inexperience of some transaction advisers, she proposed the Treasury have a centralised panel of advisers for PPPs. She said that now the Treasury had no control over advisers, which damaged the reputation of PPPs.
PPP consultant Karen Breytenbach — the former head of the Independent Power Producer Office — agreed, saying that everyone went for the cheapest consultants and not necessarily the best, which resulted in a “mess”.
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