Public Private Partnerships

1. Public Private Partnerships MUNICIPAL PPP CONFERENCE Date: 18 February 2010

2. Public Private Partnerships Municipal PPPs in South Africa Regulatory Framework

3. Contents South Africa’s Regulatory Environment for Municipal PPPs Municipal Finance Management Act Municipal Systems Act

4. Municipal Finance Management Act • 2003: Municipal Finance Management Act: • Consistent financial accountability system for local sphere of government • Section 120 provides for municipal PPPs and Treasury view on feasibility • 1 April 2005: Municipal PPP Regulations go into effect • 1 July 2005: Municipal Supply Chain Management Regulations go into effect

5. Municipal Systems Act • Covered in Sections 76-84 • Main difference: • Separation of internal and external assessments • Separate labour consultation

6. Key PPP Regulatory Features • Three tests for a PPP (both MFMA and MSA): • Affordability • Value for money • Appropriate risk transfer • Clear PPP project cycle (both PFMA and MFMA): • Inception • Feasibility • Procurement • PPP agreement management

7. Key PPP Regulatory Features

8. PPPs and the MFMA MFMA Section 120, Continued: • Municipality must do a feasibility study that: • Explains how PPP serves its objectives • Describes: • Private party’s role in the PPP • Extent that role can legally and by nature be performed by private party • How proposed PPP will: • Provide value for Money • Be affordable • Transfer appropriate risks to private party • Impact on revenue flows and budget

9. PPPs and the MFMA MFMA Section 120 feasibility study, Continued: • Takes into account all relevant information • Explains the capacity of municipality to effectively monitor, manage and enforce the agreement. • When feasibility study completed- • Accounting Officer of the municipality must: • Submit report on feasibility study to council • For Council decision, in principle on PPP

10. PPPs and the MFMA 60 daysbefore the council’s decision-making meeting, it must: • Make public particulars of proposed PPP • Invite comments • Solicit views and recommendations of • National Treasury • Relevant Provincial Treasury • COGTA • Responsible national dept (if PPP is for municipal services) • Section 33 applies to future budgetary commitments beyond three years

11. PPPs and the MFMA MFMA Municipal Public-Private Partnership Regulations: • Regulatory framework for PPPs • Defines a PPP that mirrors PFMA • Commercial transaction where private party: • Performs municipal function or use of municipal property for its own use • Assumes substantial financial, technical & operational risks • Receives a benefit by way of: 1. Payment by the municipality 2. Fees collected from service users or 3. A combination of both • Defines a ‘municipal function’- • A municipal service; or • Any other activity within municipal legal competence • Defines ‘municipal property’ • Movable, immovable or intellectual property • Owned, or under control of the municipality

12. PPPs and the MFMA MFMA Municipal Public-Private Partnership Regulations (Cont): • Defines ‘affordable’ as meaning that the municipality can meet its PPP obligations by: • Current budget • Future budgets • Allocations to the municipality • A combination of the above • Defines ‘value for money’ as meaning: • The performance of a private party in terms of the PPP agreement will result in a net benefit to the municipality in terms of cost, price, quality, quantity, risk transfer,or any other combination of these factors.

13. PPPs and the MFMA MFMA Municipal Public-Private Partnership Regulations (Cont): • In terms of the feasibility study required by Section 120(4): • Requires the Accounting Officer to notify National and provincial Treasuries of intention to initiate feasibility study, with explanation on expertise within municipality necessary to conduct the feasibility study • If requested by National or provincial Treasury, appoint a transaction advisor • Feasibility study requirements in addition to those described in Section 120(4): • Identify activity to be performed by private party • Assess municipal needs in terms thereof • Assess impact on staff, assets, liabilities, revenues • Any potential staff redundancies & costs thereof • Assets to be placed under private party control • Assets that could become obsolete • Municipal liabilities to be ceded to private party • Debt and revenue consequences

14. PPPs and the MFMA MFMA Municipal Public-Private Partnership Regulations (Cont): • Feasibility study requirements in addition to those described in Section 120(4): • Provide a procurement plan for the PPP • Demonstrate Value For Money - • Costs to municipality if no PPP • Costs to the municipality of the PPP • If an MSA Section 78(3)(b) and (3)(c) feasibility study undertaken, will be deemed sufficient if covers matters set forth in the regulations and the study is included in matters submitted to Council • Requires municipality’s accounting officer to appoint project officer to: • Perform the statutory and regulatory duties • Any other duties delegated by the accounting officer in terms of Section 79 of the Act • Only the accounting officer can sign a PPP agreement • The accounting officer is responsible for its implementation

15. PPPs and the MFMA MFMA Municipal Public-Private Partnership Regulations (Cont): For the PPP procurement process: • 30 days before bids are invited and 30 days before bid awarded, accounting officer must solicit views and recommendations of National and provincial treasuries. • These Treasury views must be obtained on: • The bid documents • Proposed terms of the PPP agreement • Municipality’s plan for managing the agreement • Preferred bidder’s competency and capacity for the PPP • The PPP agreement must – • Provide value for money, be affordable • Describe the private party’s role in the PPP • Confer effective regulatory powers on the municipality • Impose financial management duties on private party • Provide for termination of the agreement • Restrain the private party from offering employment to a municipal official other than as in PPP contract

16. PPPs and the MFMA MFMA Municipal Public-Private Partnership Regulations (Cont): • 60 days before any amendments to PPP agreements, views and recommendations of National and provincial Treasuries must be obtained. • No municipal entity may enter into a PPP on its own, but may be a party to a PPP initiated, procured and entered into by its parent municipality.

17. PPPs and the MFMA MFMA Municipal Supply Chain Management Regulations • Municipality must have a Supply Chain management policy • Procurement of a PPP comes within the Supply Chain regulations • Municipal PPP regulations refer to Supply Chain processes • These processes deal with the logistics, processes and procedures attendant to creating, advertising, receiving and adjudication of tenders • Municipality must co-ordinate PPP processes reflecting requirements of: • MFMA Chapter 11 • MFMA Supply Chain and PPP regulations • MSA Chapter 8

18. Contact Details PPP Unit National Treasury 240 Vermeulen Street Pretoria South Africa Tel: +27 12 315 5537 Fax: +27 12 315 5477 www.ppp.gov.za www.treasury.gov.za