18 November 2024: South Africa’s construction and infrastructure development sector eagerly awaits amendments to Treasury Regulation 16, aimed at streamlining and supporting public-private partnerships (PPPs), which are set to be published before the end of November.
These changes are aligned with recent government commitments, including those outlined in the recent 2024 Medium Term Budget Policy Statement (MTBPS). During the MTBPS, Minister of Finance Enoch Godongwana emphasised government’s intention to boost economic growth through stimulating infrastructure investment and increasing private sector participation.
“Collectively, the infrastructure reforms will strengthen planning, appraisal, contracting, financing, and monitoring and evaluation. The outcome will be faster delivery of infrastructure that supports economic growth, the expansion of access to basic services and boosting job creation,” he noted.
Industry expert Roelof van den Berg, CEO of the Gap Infrastructure Corporation (GIC), states that the amendments therefore promise to deal with long-standing challenges and bottlenecks in PPP implementation, marking a shift in how PPPs are structured, and unveiling new mechanisms to protect both public and private sector interests.
“The fact of the matter is that PPPs have a critical role to play in accelerating the roll-out of vital public infrastructure – especially large-scale and complex infrastructure projects. By attracting private investments, state institutions can avoid the burden of upfront capital expenditure on the fiscus and instead repay costs over time, while leveraging expertise in the private sector to deliver high quality infrastructure that can immediately improve service delivery to communities,” he explains.
“The introduction of these changes signals government’s recognition that PPPs are crucial for infrastructure development. In a difficult economic climate, it’s hoped that they will address many of the concerns around financial risks and slow, cumbersome implementation processes. This will give both construction companies and investors the confidence and reassurance needed to play an even greater role in projects that could improve the quality of life of millions of South Africans.”
Key reforms for an enabling environment
Among the draft amendments to Treasury Regulation 16 gazetted for public comment in February this year, one of the most significant changes was the launch of a PPP Advisory Unit to provide expert guidance and assist in driving projects through the inception, preparation, evaluation, and approval phases.
To streamline processes for smaller infrastructure developments, National Treasury further proposed establishing two distinct pathways for PPPs – one for high-value projects, and another, simpler pathway for projects below R2 billion. Additionally, a notable amendment was new provisions for unsolicited proposals (USPs) for PPP projects.
“These provisions are particularly significant in that they will create new opportunities for developers to bring creative solutions to the table in terms of ongoing infrastructure challenges. USPs often encourage innovation through inviting stakeholders in the private sector to submit ideas and technologies that partners in the public sector may not have otherwise considered.
“Similarly, they can speed up development through allowing private companies the chance to identify and propose infrastructure projects to state partners that could bridge critical gaps in communities. This process can be time-consuming and costly, so USPs also act to share the burden rather than making this the sole responsibility of the public sector,” explains van den Berg.
“However, from a government perspective, these proposals must rightly still conform to strategic sector objectives. Plus, given the risks and investment involved, there must be fair and transparent processes for evaluating these proposals to allow businesses of all sizes and capabilities to participate on a more level playing field. So, it’s encouraging to see that these points are being addressed for the benefit of the entire industry.”
Further areas for improvement
But while the industry welcomed proposed changes in February, some challenges remain – which van den Berg hopes to see addressed in either the upcoming amendments, or in future reforms.
These include clearer deadlines for Treasury approval processes and project implementation, greater protections for investors and developers against sunk costs when PPP procurement processes are cancelled, and measures to address any situations where an institution may disregard recommendations by the PPP Advisory Unit.
“Plus, with so many moving parts in the project planning and implementation machine, any changes that will further simplify and speed up infrastructure development processes, or attract increased investments into the PPP market are welcome,” he adds.
“But ultimately, government clearly understands how crucial infrastructure is to socio-economic development and growth, so the entire sector is excited and ready to see the November changes as a first and important step in unlocking infrastructure’s full potential.”
