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The Pan African Health Conference Healthcare Funding. 15 September 2010. Introduction. This presentation aims to: Provide a brief introduction to Nedbank Capital; Introduce the concept of PPPs ; Provide the background to PPPs ; Explain the key features of a PPP ;
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The Pan African Health ConferenceHealthcare Funding 15 September 2010
Introduction • This presentation aims to: • Provide a brief introduction to Nedbank Capital; • Introduce the concept of PPPs; • Provide the background to PPPs; • Explain the key features ofa PPP; • Discuss what would constitute an optimal service delivery and financing option; • Discuss the requirements for a successful PPP; • Discuss some of the criticisms of PPPs; • Discuss the potential benefits of PPPs as a procurement mechanism. This document is confidential, and is not available for circulation or publication. This document should not be interpreted as an offer for professional advisory services, and/or finance and/or underwriting. Nedbank Capital will only be bound to any terms relating to a transaction once all terms of the transaction have been approved by their appropriate investment, technical and credit committees and embodied in written documents and those documents have been signed in full by all parties concerned.
Introduction to Nedbank Capital Old Mutual (listed on the LSE & JSE) Old Mutual plc (£ bn) Current market cap 6.97 Total assets 142.7 Revenue 14.6 Shareholders funds 9.6 Employees 54 630 54% ±11% BEE shareholders Nedbank Group Limited Nedbank (ZAR bn) Current market cap 63 Total assets 489 Deposits 384 Advances 374 Employees 26 652 Nedbank Capital Nedbank Business Banking Nedbank Corporate Nedbank Retail An empowered bank with a global parent
Infrastructure | Energy | Telecommunications The leading South African Arranger of project finance transactions over the past 24 months; Projects exceeding R14bn brought to financial close over past 24 months Currently the mandated lead arranger on projects totaling ZAR 18 billion in Southern Africa The leading Southern African Lender to infrastructure project finance transactions; Currently hold approximately 22% of all SA infrastructure project finance debt Invested in a significant proportion of total South African infrastructure debt across all sectors, leading in road, rail and telecommunications sectors Currently the largest dedicated sector focused project finance team in South Africa Sector Specialised Finance team comprising 44 sector experts Infrastructure | Energy | Telecommunications team comprising 18 sector experts
Infrastructure | Energy | Telecommunications 8 INTERNATIONAL AWARDS IN 24 MONTHS EMEA Project Finance award Best Telecommunications Deal Neotel Year 2009 African Banker Deal of the year 2009 Ai Infrastructure Awards Transport Deal of the year Bakwena 2009 Socially Responsible Bank of the year Nedbank 2009 Ai Award ICT / Telecoms Deal of the year Neotel 2009 Euromoney Project Finance Awards Africa Transport Deal of the Year 2009 Award ICT / Telecoms Deal for Seacom Year 2008 Award EMEA Telecommunications Deal for New Dawn Satellite project Year 2008
Introduction The South African Government is faced with the challenge of delivering quality infrastructure and services to South Africans, within the context of increasing demand and limited financial and human resources. The current infrastructure backlog at state health facilities together with the difficulty faced by the public sector in attracting and retaining skills, in competition with private healthcare providers, has resulted in a strategic shift with government seeking to partner with the private sector in order to provide a solution to South Africa’s growing healthcare needs.
Background to Public- Private- Partnerships The private finance initiative (PFI) was invented in Australia in the late 1980s, and was originally applied to toll road and railway projects. PFI was implemented in 1992 in the UK for the first time. Public- Private- Partnerships (“PPPs”) in South Africa are currently legislated under the Public Finance Management Act (1999) and the Municipal Finance Management Act. Standardisation of the South African PPP framework was achieved in 2004.
The PPP Landscape in South Africa South African PPP Projects closed to date 24 projects with a total capital value of approximately R60 Billion (£4bn ) have reached financial close since 1998 UK PPP Projects closed to date 935 projects with a total capital value of £68bn have reached financial close since 1992 in the UK
The PPP Landscape in the UK PPPsremained the UKs preferred method for public sector procurement. In January 2009, the Secretary State of Health, Alan Johnson reaffirmed this commitment with regard to the health sector, stating that “PFIs have always been the National Health Scheme’s ‘plan A’ for building new hospitals……There never was a ‘plan B’.
The PPP Landscape in South Africa PPP unit available to assist public sector departments in developing and managing projects; Legal framework is in place; Contractors have developed specialist concession businesses; Infrastructure equity funds have been established; Legal and Financial advisory firms have gained experience; Commercial banks have become comfortable with risk and structure.
Public- Private- Partnerships The South African National Treasury has set aside R105 Billion for national and provincial health spending, but also plans to partner with the private sector in an attempt to address the infrastructure backlog at state health facilities and attempt to improve the country’s hospital system through PPPs. The Minister of Finance, PravinGordhan, in his 2009 budget speech announced that the flagship PPP hospital project would be the Chris Hani Baragwanath hospital. The potential for partnering with the private sector to assist in the revamp of the following major tertiary hospitals are also being investigated:- George Mukhari (Ga- Rankuwa) King Edward VIII (Durban) Nelson Mandela (Mthatha) Limpopo Academic (Polokwane)
What is a Public- Private- Partnership? South African law defines a PPP as a contract between a public sector institution/municipality and a private party, in which the private party assumes substantial financial, technical and operational risk in the design, financing, building and operation of a project. There are two types of PPPs:- Private party performs an institutional or municipal function; or Private party acquires the use of state or municipal property for its own commercial purposes. A PPP could also be a hybrid of these two types. The PPP agreement establishes a relationship between the public and private sector which is based on a partnership that is beneficial to all parties to the agreementand not a confrontation.
Key features of a PPP Long Term output based contract between the public and private sector For delivering a specified asset condition and/ or service; With appropriate incentives for performance over the term of the PPP contract. Government purchases specified outputs of a service and the private sector provides the necessary design to deliver the desired outcome. The PPP agreement regulates the service required to meet the necessary standards during the PPP agreement. The PPP agreement provides that the public sectors desired socio-economic, environmental, broad based economic empowerment and SMME targets or objectives are complied with.
Key features of a PPP The PPP agreement ensures that risks and responsibilities are allocated in an efficient and cost- effective manner. Assets are generally not owned by the private sector and will usually revert to government; The PPP agreement can be terminated for non-performance.
The optimal service delivery and financing option The allocation of risk between the public and private sectors is a key aspect of structuring any transaction. Risk should be allocated where it can best be managed thereby maximizing the potential for value for money. This does not mean that the public sector should seek to transfer all risks to the private sector since the law of diminishing returns sets in. The public sector will still be best placed to manage certain risks, and whilst the private sector may be prepared to assume these, it will be at a price which may not represent value for money.
The optimal service delivery and financing option Envisaged contractual structure:- • Government will likely retain responsibility for clinical services. • Private sector will assist with design, co-financing, construction and operation of the facilities themselves. Scope of PPP could include :- • Greenfield projects; • Equipment supply; • Maintenance and operation; • Refurbishment; • or a combination thereof.
Requirements of a successful PPP In order to successfully implement a project financing the following requirements are essential:- • Legislative framework; • Reliable revenue stream; • Strong sponsors; • Reputable, experienced and credit worthy construction contractors and operators; • Strong advisers- legal, financial, technical; • Properly formulated output specification; • Public sector ability to manage the contract; • Political commitment and will.
Criticisms of PPPs as a procurement mechanism • Private finance is extremely expensive in comparison to public finance; • Pricing of risk which will improve with more transactions • PPP transactions are complex and time consuming; • Skills will develop with experience gained from consistent deal flow • Private sector makes super profits out of PPPs; • Competitive bidding, sharing mechanisms and greater deal flow will ensure PPPs deliver keen pricing • PPPs are a form of privatisation which results in public sector job losses; • PPPs allow public sector to focus on core services and infrastructural spend can only create jobs
Benefits of PPPs as a procurement mechanism The following benefits can be derived from adopting PPPs as a procurement method:- • Value for money delivered, through complete package of design, construction and operation and removing spending from annual budget considerations; • Creates a long term approach to the provision of public services; • Private Sector Funding can be leveraged; • Private sector skills and efficiencies should result in innovation; • Value for money achieved through efficient risk allocation and competitive bidding process • Better working conditions should attract and retain skilled staff; • Government able to focus on priorities while retaining strategic control; • Vehicle for the promotion of BEE transformation and SMME development.
Conclusion • We arefaced with a significant challenge in providing adequately for the future healthcare infrastructure and service requirements of South Africa; • PPPs provide an alternative mechanism for the procurement of quality healthcare infrastructure and services on a sustainable basis; • Nedbank Capital is committed to working with the private and public sector in order partner together to meet the objective of providing efficient healthcare services and infrastructure on a sustainable basis.
