Public-Private Partnerships in South Africa: A History and Review of the Latest Proposed Amendments

Public-private partnerships (PPPs) have emerged as a significant tool for infrastructure development in South Africa since their introduction in 1998. The National Development Plan (NDP) prioritises investment in crucial sectors like water, energy, telecommunication, transport, and social infrastructure to achieve economic growth and reduce inequality. Recognising the limitations of traditional public funding, PPPs offer an attractive alternative by leveraging private sector capital and expertise.

The regulatory framework for PPPs in South Africa is primarily established by the Public Finance Management Act (PFMA) of 1999. For national and provincial projects, Treasury Regulation 16 governs PPPs, mandating approval from the National Treasury at four key stages: feasibility study, procurement, value for money assessment, and finalisation of the PPP agreement. Municipal PPPs, on the other hand, are regulated by the Municipal Finance Management Act (MFMA) of 2003.

PPPs in South Africa function through contracts between public sector institutions and private parties. The private partner typically assumes responsibility for functions traditionally delivered by the public sector, including financing, constructing, operating, and maintaining infrastructure. A core principle of PPPs is the transfer of a significant portion of project risk (technical, financial, and operational) to the private party. The public sector, in turn, makes payments for a defined set of services over the project's lifecycle.

A critical resource for navigating the PPP landscape in South Africa is the National Treasury's PPP Manual. This comprehensive document serves as a roadmap for both public and private entities involved in PPP projects. It systematically outlines the various phases of the project cycle for national and provincial governments, offering policy insights and procedural clarity. The Manual draws on South African legislation and best practices to provide a structured approach to PPP development.

On the 19th of February 2024, National Treasury published draft amendments to the current PPP regulations for public comment. One significant update involves the implementation of provisions empowering the National Treasury to establish two frameworks for Public-Private Partnerships (PPPs): one tailored for high-value projects and a simplified version for low-value projects (below R2 billion). Projects costing less than R2 billion will no longer require National Treasury approvals, streamlining and expediting the approval process to fast-track the start of smaller PPP initiatives, as indicated by the National Treasury.

While details regarding the future revisions to the PPP framework aren't clear at this stage, we can analyse the existing framework and anticipate potential areas of focus in future updates.

• Value for Money (VfM):  A cornerstone of successful PPPs is ensuring VfM throughout the project lifecycle. Any knew frameworks will likely continue to emphasise robust feasibility studies, competitive procurement processes, and transparent cost-benefit analyses to demonstrate VfM for the public sector.

• Affordability: Fiscal prudence is supposed to be paramount for public authorities. Any knew frameworks are likely to stress the importance of affordability assessments that consider whole-of-life project costs and ensure long-term financial sustainability for the public sector.

• Risk Allocation:  Effective risk transfer is crucial for PPP success. The frameworks will likely provide guidance on allocating risks appropriately between public and private partners based on their expertise and risk tolerance. This ensures optimal project delivery and minimises potential disputes.

• Project Selection and Prioritisation:  With limited resources, prioritising projects with the highest economic and social impact is essential. The frameworks may outline criteria for project selection, considering factors like alignment with national development goals, job creation potential, and broad societal benefits.

• Institutional Capacity Building:  Successful PPPs necessitate strong institutional capacity within public entities. The frameworks may recommend capacity-building initiatives to equip public officials with the necessary skills to manage complex PPP projects effectively.

• Transparency and Accountability:  Maintaining public trust is critical. The revised frameworks will likely emphasise transparency throughout the PPP process, including open communication with stakeholders and clear reporting mechanisms to ensure accountability.

• Social and Environmental Considerations:  Sustainable development is a key national priority. We are likely to see the Frameworks encourage the integration of social and environmental considerations into PPP projects, promoting inclusive growth and environmental protection.

PPPs offer a promising approach to bridge the infrastructure funding gap in South Africa. By leveraging private sector expertise and capital, PPPs can expedite infrastructure development and contribute to economic growth and social progress. The National Treasury's PPP guidelines play a vital role in ensuring the successful implementation of PPP projects, promoting value for money, affordability, and risk management. Continuous refinement of these guidelines is essential to adapt to evolving needs and ensure PPPs remain an effective tool for South Africa's infrastructure development journey.