Alignment of the Infrastructure Delivery Cycle with the Budget Cycle (Abridged Version for

1. Alignment of theInfrastructure Delivery Cyclewith the Budget Cycle(Abridged Version for Prepared by the Infrastructure Delivery Improvement Programme (IDIP)

2. The Infrastructure Delivery Improvement Programme (IDIP) • IDIP is a continuous improvement programme which guides & capacitates to improve infrastructure delivery • IDIP is coordinated by National Treasury in partnership with DBSA, DPW & CIDB • IDIP provides flexible tools that can be adapted to the province & sector • IDIP is a key strategy of government to address inadequate capacity and skills in the infrastructure sector National Treasury

3. Problem Statement • Continuing under expenditure of infrastructure budgets. • Inappropriate expenditure patterns characterized by the 4th Quarter expenditure spike. • Currently there appears to be very little alignment between the Infrastructure Delivery Cycle and either the Budget Cycle or the Strategic Planning Cycle. • Currently the budget for large multi-year projects is committed to 1 financial year instead apportioning the budget across the MTEF. National Treasury

4. Budget Preparation Process Implement Budget Preparation of Annual Performance Plan (APP) Quarterly Reporting Budget Preparation Process Implement Budget Closure Processes Preparation of Annual Performance Plan (APP) Quarterly Reporting Budget Preparation Process Implement Budget Closure Processes Preparation of Annual Performance Plan (APP) Quarterly Reporting Budget Preparation Process Implement Budget Preparation of Annual Performance Plan (APP) Quarterly Reporting 3 Year MTEF Period MTEF Budget Cycle These are all the concurrent budget activities that need to be undertaken in any 1 year Closure Processes Budget Day Currently it would appear that annual budgets are prepared by updating last years budget with a factor for inflation The annual budgets submitted to treasury do not appear to be informed by actual projects to be implemented in the following year.

5. Infrastructure Delivery Cycle Rollover Budget Cumulative Cashflow Time 3 Year MTEF Period Current Infrastructure Delivery Cycle Infrastructure Planning Project Design Project Tender Project Implementation Implement Rolled Over Unspent Budget 100% With the current Infrastructure Delivery Cycle, expenditure during the 1st half of the year is virtually impossible since most projects are still in the tender phase. The result is the 4th quarter expenditure spike and overall under-expenditure. President Thabo Mbeki in his 2006 State of the Nation Address said,“Better supervision of infrastructure projects undertaken by government will be introduced, to ensure that capital budgets are spent without roll-overs”

6. Improved Infrastructure Delivery Cycle Each Infrastructure Delivery Cycle is characterized by under-expenditure and rolled over unspent budgets Infrastructure Planning Project Design Project Tender Project Implementation Rolled Over Unspent Budget Infrastructure Planning Project Design Project Tender Project Implementation Rolled Over Unspent Budget 3 Year MTEF Period Current Infrastructure Delivery Cycle Infrastructure Planning Project Design Project Tender Project Implementation Rolled Over Unspent Budget Improved Infrastructure Delivery Cycle Infrastructure Planning The Infrastructure Plan sets out the infrastructure priorities for the next 10 years. It is updated annually by the Client Department.

7. Infrastructure Programme Management & Implementation Plans(IPMP & IPIP) Client Department (CD) FUNCTIONS OF CD: • Planning • Procurement • Programme Management • Monitoring & Reporting Infrastructure Plan Update SDA with IA 1 IPMP Update SDA with IA 2 IPMP issued to IAs Implementing Agent IA 1 Implementing Agent IA 2 IPIP for IA 1 IPIP for IA 2 IPIPs respond to IPMP FUNCTIONS of IAs: • Programme Management • Project Initiation • Procurement 4. Project Implementation 5. Project Completion 6. Monitoring & Reporting National Treasury

8. Improved Infrastructure Delivery Cycle Infrastructure Planning Project Design Project Tender Project Implementation Rolled Over Unspent Budget Infrastructure Planning Project Design Project Tender Project Implementation Rolled Over Unspent Budget 3 Year MTEF Period Current Infrastructure Delivery Cycle Infrastructure Planning Project Design Project Tender Project Implementation Rolled Over Unspent Budget Improved Infrastructure Delivery Cycle Infrastructure Planning IPMP IPIP Project Design Project Tender Project Implementation Planned Multi-year Commitments Monitoring & Reporting The Infrastructure Plan sets out the infrastructure priorities for the next 10 years. It is updated annually by the Client Department. IPIP = Infrastructure Programme Implementation Plan Prepared by Implementing Agent and submitted to Client Department for approval. Contains the details of how the list of projects issued by the Client Department will be implemented. IPMP = Infrastructure Programme Management Plan Prepared by Client Department and given to Implementing Agent. Contains list of projects for the next 3 years and where they are located.

9. Alignment of the Infrastructure Delivery Cycle & the Budget Cycle MTEF Budget Cycle Budget Preparation Process Implement Budget Closure Processes Current Infrastructure Delivery Cycle Infrastructure Planning Project Design Project Tender Project Implementation Rolled Over Unspent Budget Improved Infrastructure Delivery Cycle Infrastructure Planning IPMP IPIP Project Design Project Tender Project Implementation Planned Multi-year Commitments The improved Infrastructure Delivery Cycle now facilitates the alignment of the Infrastructure Delivery Cycle with the Budget Cycle. The budget preparation process can now be strengthened by actual projects identified during Infrastructure Planning. Currently Infrastructure Planning is undertaken too late to facilitate effective alignment of the Infrastructure Delivery Cycle with the Budget Cycle.

10. Infrastructure Planning IPMP IPIP Project Design Project Tender Project Implementation Planned Multi-year Commitments Monitoring & Reporting Infrastructure Planning IPMP IPIP Project Design Project Tender Project Implementation Monitoring & Reporting Infrastructure Planning IPMP IPIP Project Design Monitoring Required Capacity for Departmental Infrastructure Units These are all the concurrent infrastructure delivery activities that need to be undertaken in any 1 year. Departments therefore need to have the capacity to undertake all these concurrent activities. Improved Infrastructure Delivery Cycle Infrastructure Planning IPMP IPIP Project Design Project Tender Project Implementation Planned Multi-year Commitments Monitoring & Reporting LEGEND: IPMP – Infrastructure Programme Management Plan IPIP – Infrastructure Programme Implementation Plan

11. Example of a Programme Budget to commit the entire Annual Budget National Treasury

12. Managing Cashflows Across Years In reality the neat chunks of work shown on the earlier slides are actually individual projects or clusters of projects with different start & end dates Some projects or clusters of projects in the current year can be delayed causing potential under expenditure Project Implementation Planned Multi-year Commitments Project Design & Tender Project Implementation Planned Multi-year Commitments Project Design & Tender Project Implementation IPMP IPIP But here we have clusters of projects that have been designed and are ready to go to tender Infr. Plan update IPMP IPIP National Treasury NB: The total value of the work in this year equals the Annual Budget for this year

13. Managing Cashflows Across Years Project Implementation Planned Multi-year Commitments Project Design & Tender Project Implementation Planned Multi-year Commitments Project Design & Tender Project Implementation IPMP IPIP We need to tender these projects earlier and start implementation in Year 1 to offset the potential under expenditure caused by the delayed projects Infr. Plan update IPMP IPIP National Treasury

14. Identified Benefits • Better linkage with Strategic Planning is achieved • Better alignment of the budget with the targets set out in the Strategic Plan • Project planning & design is properly done resulting in achievable & realistic cashflows • Multi-Year commitments are planned and budgeted for thereby reducing rollovers • Improved clarity of roles & responsibilities between client departments and implementing agents National Treasury

15. STATEMENT ON THE CABINET MEETING OF 21st February 2007. Cabinet approved a framework to align infrastructure delivery cycles with the MTEF budget cycle in order to improve planning, implementation and better cash-flow management that would, among other things, deal with the fourth quarter expenditure spike. This framework accommodates the long lead time before infrastructure projects reach the construction stage. The infrastructure delivery cycle will be amended to include an Infrastructure Programme Management Plan (IPMP) and an Infrastructure Programme Implementation Plan (IPIP) which will be mandatory for all departments. Best practice approaches will be adopted to include budget cycles that commit funds for the duration of the project without leading to the so-called roll-overs. This framework will require the appointment of appropriately skilled built-environment professionals across all relevant departments, provinces and local government. National Treasury

16. THANK YOU