Eighteen public-private partnerships (PPPs) have been signed and sealed at municipal level and a further 18 are being negotiated by provinces, despite strong criticism from public-sector trade unions.
The treasury’s intergovernmental fiscal review says such partnerships are taking “root” as national and provincial departments seek assistance to enhance their own capacity, and private investors explore new opportunities.
The review lists 18 PPPs that are being negotiated in different provinces, but says none of these has reached financial closure. It says that since 1998 the total contract value of 18 major partnerships already concluded at local level is more than R5,6-billion.
The treasury also says it expects an increase in private-sector borrowing by local government, emphasising that the time is right for the development of a municipal bond market, potentially worth up to R5-billion a year.
The promotion of PPPs and the support for the municipal bond market indicate a strong commitment to the increasing involvement of the private sector in service provision. The Congress of South African Trade Unions argues that this should remain a public sector function as the profit motive will entail tariff hikes and the neglect of poor consumers.
However, the review says that in PPPs different interest groups benefit from projects and facilities. “Departments and provinces achieve savings and greater efficiency; the users of a service should gain easier access to quality services; private parties find business opportunities; and broader society may benefit from specific objectives included in the contract.
“These benefits are achieved through deals that shift technical, operational and financial project risk to the private party … In a PPP the government is not procuring an asset, rather it is procuring a specific level of service.”
Treasury regulations require that a PPP be affordable to the department during the life of the contract, give the public value for money and transfer risk appropriately to the private party. Affordability is a cornerstone of such partnerships. While a PPP might shift the capital financing requirement to the private party and defer budgetary effect over time, a department’s budget must still be able to honour the cost of the service.
The review says it will be critical in the years ahead to develop the capacity of provincial treasuries to oversee the unfolding of the PPP agenda across provincial departments. Currently the national PPP unit has the regulatory responsibility for all national and provincial partnerships.
The review says most short-term partnerships not requiring capital investment or commercial risk by a contractor entail payments to the contractor for services rendered. But “many long-term partnerships, involving investment and/or commercial risk responsibilities by the contractor, involve payments back to the municipality in the form of fees or investment in municipal infrastructure”.
It says municipal interest in PPPs continues to improve, particularly with the growth of council responsibilities under the new municipal demar-cation. It concedes the private sector must not be seen as a panacea for all problems and that “service delivery sys-tems without real prospects for cost recovery are not good candidates for such partnerships”.