THABO MASOMBUKA: How PPPs can be catalysts for infrastructure delivery

Infrastructure spending remains one of the most critical drivers of economic growth, investment for skills development and, ultimately, job creation.

Speaking in his first state of the nation address under the government of national unity, President Cyril Ramaphosa declared that SA should be turned into a construction site, with expenditure envisaged to reach to R158.45bn in 2025 and R900bn over the next three years.

Against this background, government’s infrastructure cluster departments, together with their agencies and the development financial institutions (DFIs) as well as the private sector, need to collaborate to deliver essential infrastructure.

The need for public-private partnerships (PPPs) is also underscored by the Nedbank Capital Project Listing for 2024, which has shown the sharpest increase in planned projects since 2021. The value of announced new projects stood at R445.9bn, up from R210bn in 2023.

Government is a major driver of this spending, accounting for R199.8bn or 44.8% of projects. Parastatals are responsible for R150bn or 33.8% and the private sector accounts for R95.6bn, or 21.4%. The private sector and DFIs are able to mobilise required funding.

Unless properly coordinated and marshalled, at the Infrastructure SA and public infrastructure co-ordination committee level, all the envisaged spending will not materialise, especially since many government departments charged with such responsibilities lack adequate capacity to deliver. This is partly what makes PPPs so crucial.

A PPP is defined as a contract between a public‐sector institution and a private party, where the private party performs a function that is usually provided by the public sector or uses state property by agreement. Most of the project risk — that is, technical, financial and operational — is transferred to the private party, while the public sector pays for maintenance through agreed periodic payments.

In instances where the public sector asset has the potential to raise revenue — such as a toll road or a rail link — the private party would be responsible for these services through a user‐pays PPP. In a traditional government project the public sector pays for the capital and operating costs and carries the risks of cost over-runs and late delivery. 

If this is properly and effectively managed, institutions such as the Construction Education & Training Authority (CETA) would not struggle — as they now do — with the placement of trainees and programme participants into projects.

The Development Bank of Southern Africa, another critical player in infrastructure finance as custodian of the R100bn Infrastructure Fund, estimates that SA will have an infrastructure funding gap of R4.8-trillion by 2030. This presents both a challenge and an opportunity for infrastructure funders, especially in the pursuit of collaborative development and project delivery. 

In the sixth administration, government recognised and prioritised the district development model as a part PPP model for project delivery. This is very relevant and important for the delivery of infrastructure projects, especially in rural areas and provinces where private capital is scarce. This is why the National Treasury undertook a review of the institutional arrangements for strategic infrastructure with the aim of fast‐tracking the delivery of projects. 

The Public Investment Corporation (PIC), though a public entity investing on behalf of other public entities, has the capability of playing a private sector player’s role in a PPP through its access to capital and the skills profile it employs.

The PIC can, for example, partner with the national or provincial department to deliver public health facilities to the standard of the National Health Insurance (NHI). 

When the PIC partners with government to deliver hospital infrastructure for NHI, it will be looking for investment returns that match or exceed its internal benchmark for infrastructure projects but also a social return of helping SA achieve universal healthcare coverage. 

SA now has a robust PPP framework, which was updated in the 2021/2022 financial year, a solid pipeline of projects, and an established track record of delivery of PPP projects across a range of sectors.

The update of the framework covered all three spheres of government by reviewing projects covered by the Public Finance Management Act of 1999 and the Municipal Finance Management Act of 2003. 

The review of the PPP framework has been undertaken alongside other initiatives to improve the efficiency of infrastructure delivery. These include the passing of the Infrastructure Development Act, the establishment of the Presidential Infrastructure Co-ordinating Committee, and the Sustainable Infrastructure Development Symposium, also located in the presidency. 

The review of the PPP framework covered a wide range of areas to strengthen both the institutional and financing mechanisms for PPP. For a start, it made prefeasibility studies compulsory for large infrastructure projects even before spending on feasibility studies. The review also states that once feasibility has been concluded and value for money as well as project risk accurately established, it is compulsory for the project to proceed. 

The review also streamlined several approval processes by relaxing procurement approval requirements for projects under R1bn and streamlined consultation requirements by reducing the number of consultations required for municipal-level projects. 

The review also centralised the identification of PPP projects as well as the screening and prioritisation of projects, and explored the feasibility of provincial infrastructure agencies. The review also provided incentives and guidelines for the treatment of unsolicited proposals and developed financing mechanisms for the financing of projects to improve the bankability of PPP projects. The list of successful PPP projects since 2000 covers road and water infrastructure, transport, health and tourism.

For the PIC, the focus for the 2024/25 financial year will be on deploying allocations for developmental infrastructure investments, thus aligning with the objectives of the National Development Plan, specifically about infrastructure projects undertaken by other state-owned companies. 

The PIC is to embark on accelerated PPP investments into renewable energy and water infrastructure projects that will contribute to alleviating the current energy crisis and avert a potential water crisis in SA. 

The country’s infrastructure drive faces multiple challenges in the decade ahead. The biggest of these is competition from other developing countries and renewing their infrastructure, in addition to normal infrastructure activity worldwide.

This creates a high demand for capital, skills and building material that will affect SA. But with the country’s deep and liquid financial markets, attractiveness as an investment destination and a great country for professionals to live and work in, as well as the experience acquired in delivering projects such as the Medupi Power Station, various dams and the Gautrain, SA can overcome these challenges and successfully deliver its infrastructure projects, including through PPPs.

Therefore, a properly co-ordinated approach in the delivery and rollout of adequately financed infrastructure projects is vital in facilitating economic growth and ultimately growing the numbers of skilled and semi-skilled employees, which is a critical outcome for sector education and training authorities.

• Masombuka, a construction and engineering lawyer, chairs the CETA board.