PPPs to Overcome Service Delivery Hurdles

1. PPPs to Overcome Service Delivery Hurdles INCA Summer School, 11 February 2008

2. Presentation Overview Why PPPs Highlight of Completed and Ongoing Municipal PPPs Improving Enabling Environment for PPPs

3. 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

4. Eg:Basic Water Supply Challenge in KZN 2014 Current implementation @ 310 000p/a 2010 Increase implementation to 625 000p/a (200%) 2008 Increase implementation to 1 250 000p/a (400%) 2014 2008 2010 2.5 mil ? 2006 2008 2010 2012 2014

5. 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.

6. Highlight Municipal PPPs—CompletedCape 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 market’s 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 market’s underutilized premises with investments amounting to R 450 mill. • Entering into the export market—the first market to do this.

7. Highlight Municipal PPPs—CompletedMogalakwena Bulk Water—Public 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

8. Highlight Municipal PPPs—CompletedJoburg Water—Management 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%

9. Highlight Municipal PPPs—CompletedJoburg Water—Management Contract Revenue improvement • Revenue increased by over 46% over 4 years due to mainly meter reading and billing in middle and upper income areas

10. Highlight Municipal PPPs--Ongoing More than 10 active projects registered with PPP Unit covering accommodation, solid waste, wastewater, water, and property development.

11. 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

12. Improving Enabling Environment for Municipal PPPs • PROJECT DEVELOPMENT: • Municipal Desk established to strengthen PPP Unit’s 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

13. Project Life Cycle

14. Contact Details Laila Horton PPP Unit National Treasury 240 Vermeulen Street Pretoria South Africa Laila.Horton@treasury.gov.za Tel: +27 12 315 5132 Fax: +27 12 315 5477 www.ppp.gov.za