PPPs to Overcome Service Delivery Hurdles

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PPPs to Overcome Service Delivery Hurdles
INCA Summer School, 11 February 2008
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Presentation Overview
Why PPPs
Highlight of Completed and Ongoing Municipal PPPs
Improving Enabling Environment for PPPs
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Why PPPs

• First and foremost capacity constraint
• Pace of delivery in water sector needs to be
  QUADRUPLED to meet targets. Can public sector do
  this on its own?
• Continuing drop in number of engineers from 21
  to 3 engineers per 100 thousand population
  (SAICE, 2007)
• Private sector efficiency
• Example waste collection R40-70/HH/month
  (municipality) vs. R20/HH/month (private sector)
• Efficiency derived from output based payment
• Private sector capital
• Even though the state is plush with funds, it is
  still not sufficient

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EgBasic Water Supply Challenge in KZN
2014
Current implementation _at_ 310 000p/a
Increase implementation to 625 000p/a (200)
2010
2008
Increase implementation to 1 250 000p/a (400)
2014
2010
2008
2.5 mil
?
2006
2008
2010
2012
2014
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Highlight Municipal PPPs--Completed

• Total (assisted by MIIU) 46 projects leveraging
  private investment of more than R 5 billion
  covering water, waste collection, waste disposal,
  composting and recycling, markets, airports, bus,
  IT, and fleet.

Sector/Type Municipality
Water--Concession (total system) Nelspruit (Mbombela), Dolphin Coast (Ilembe)
Water--Bulk (BOT) Mogalakwena
Water--OM Uthungulu, Umhlatuze, Harrismith,
Water--Management Contract Joburg Water, Maluti A-Phofung
Market (lease and sale) Cape Town
Waste--Collection Cape Town, Msunduzi
Waste--Landfill Thabazimbi, Tzaneen, Tulamela
WastewaterRecycling for Industry Durban
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Highlight Municipal PPPsCompleted Cape Town
Epping Fresh Produce Market

• Summary
• Identified as non-core operations.
• Sale of business operations and 20-year lease of
  existing land and buildings.
• Management-led consortium won the bid.
• New operator responsible for repair, maintenance
  and expansion.
• Impact
• Prior to PPP, City only received R 3.5 mill p.a
  from markets operations.
• After PPP, City received R 6 mill p.a increasing
  at CPIX from lease, plus sale of business
  operations (cash flow stream) for R 16 mill, plus
  R 22 mill owed to the City by traders collected
  by new operator.
• Municipal employees were redeployed and no one
  retrenched new operator hired new 100 people.
• Won 2006 Africa Privatization Award.

• Recent developments
• New operator sold its shares valued at R 50 mill
  (which was bought at R 16 mill) constituting a
  very good return on investment for the operator.
• Operator has submitted a proposal to develop the
  markets underutilized premises with investments
  amounting to R 450 mill.
• Entering into the export marketthe first market
  to do this.

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Highlight Municipal PPPsCompleted Mogalakwena
Bulk WaterPublic Public and Public Private
Partnership

• Summary
• Municipality was struggling with dire shortage of
  water but neither the Municipality nor the Water
  Board could not finance the needed pipeline and
  treatment plant upgrade.
• On the other hand, Anglo Platinum who was using
  treated sewage from the municipality to meet its
  water needs, could not expand due to lack of
  treated sewage.
• Three way partnership was structured where Anglo
  financed the needed capital and received more
  treated sewage, the Water Board implemented and
  operated the facilities, and the municipality
  purchased bulk water and sold treated sewage to
  Anglo Platinum.
• Also included in the partnership is an exchange
  of property between the mine and the
  Municipality for future mine housing.

• Asset belongs to mine until loan is paid off upon
  which they are transferred to the municipality
  and Water Board
• Total value of transaction R 86 million

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Highlight Municipal PPPsCompleted Joburg
WaterManagement Contract

• Summary
• 5 year management contract to turn around
  operational and financial performance and build a
  sustainable water and sanitation utility
• Payment based on fixed fee and incentives based
  on financial and operational performance
• Impact (select indicators)
• Wastewater works compliance increased from 82 to
  98
• Power and chemical consumption decreased by 9
  and 57 respectively
• Meter reading ratio increased from 50 to 94
• AWOL decreased by 91

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Highlight Municipal PPPsCompleted Joburg
WaterManagement Contract

• Revenue improvement
• Revenue increased by over 46 over 4 years due to
  mainly meter reading and billing in middle and
  upper income areas

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Highlight Municipal PPPs--Ongoing

• More than 10 active projects registered with PPP
  Unit covering accommodation, solid waste,
  wastewater, water, and property development.

Sector/Type Municipality
Head Office Accomodation Tshwane
Solid Waste Potchefstroom, Rustenburg, DPW/DEAT SMME Waste Collection
Wastewater Treatment Cape Town
Water Buffalo City, Madibeng
Property Hibiscus Coast, Swellendam
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Improving Enabling Environment for Municipal PPPs

• REGULATORY the completion of a joint DPLG and NT
  Service Delivery and Municipal PPP Guideline
• Combines and streamlines MSA and MFMA
  requirements in one place
• Logic and flow before compliance
• Three types of activities services, supporting
  activities, and use of municipal property
• Shorter decision making process by delegating
  council decision to explore external options to
  Municipal Manager
• Operational suggestions on how to simplify
  stakeholder consultation
• How to deal with unsolicited bids

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Improving Enabling Environment for Municipal PPPs

• PROJECT DEVELOPMENT
• Municipal Desk established to strengthen PPP
  Units Technical Assistance
• Grant funding from Project Development Facility
  (PDF) for payment of feasibility study,
  procurement, and hiring of Project Officer
• EXPEDITING SERVICE TO POOR
• Use of MIG as capital contribution for component
  serving indigent communities
• NT looking for pilot project candidates

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Project Life Cycle
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Contact Details

• Laila Horton
• PPP Unit
• National Treasury
• 240 Vermeulen Street
• Pretoria
• South Africa
• Laila.Horton_at_treasury.gov.za
• Tel [phone]
• Fax [phone]
• www.ppp.gov.za