Unlocking South Africa’s infrastructure development and investment opportunities: Amendments to the PPP regulations

The public sector pays for a full set of services, including new infrastructure and facilities management, through monthly or annual payments.

South Africa has a track record of successfully implementing various PPP projects. While the bulk of these PPPs are accommodation projects, other PPP projects have also been implemented in the transport, energy and water sectors. At least 34 PPP projects, valued at R89,3 billion, have been successfully completed in South Africa, such as the Gautrain Rapid Rail Link and various Renewable Energy Independent Power Producers Programmes, which have been rolled out for over a decade. This shows that South Africa is well positioned to attract private sector investment for PPP projects, which is needed for electricity, water and road infrastructure developments.

Attracting private funding

Notwithstanding this background, PPPs are not sufficiently used for attracting private sector funding to public infrastructure. The majority of the public sector infrastructure is procured through the general use of the process that complies with Framework for Infrastructure Delivery and Procurement Management (FIPDM) guidelines issued by National Treasury. However, the FIPDM does not require organs of state to consider forms of procurement that would attract private funding. Moreso, considering that there is no requirement in the FIPDM that requires procuring entities to consider PPPs as an alternative procurement mechanism. However, this is expected to be better managed since the Procurement Bill intends to streamline the public procurement regulatory system and consolidate all laws regulating different methods of public procurement.

Under the current legislative framework, PPPs typically involve a four-step process that requires approvals from National Treasury at various stages of the projects, including for the feasibility study, procurement documents and PPP contract.

The Procurement Bill that was tabled in Parliament in 2023 does not have much detail on PPPs, in contrast to the 2020 Public Procurement Bill. Instead, the revised 2023 Procurement Bill gives the Minister of Finance the authority to establish a framework that procuring institutions must use for PPPs.

In order to establish the framework, National Treasury commissioned a review of the current PPP regulatory framework to identify changes that should be made. The review concluded that an overhaul of the regulatory framework is not necessary but that National Treasury should rather make certain changes to the provisions of the current regulatory framework.

Amendments

As result, on 19 February 2024 National Treasury published draft amendments to the current PPP regulations for public comment. The draft amendments will be open for comments for 30 days from the date of publication. One of the notable changes is the introduction of the provisions that will enable National Treasury to set up two frameworks for PPPs, i.e. one for high-value projects and a simplified version for low-value (below R2 billion) projects. The PPP projects that have a cost of less than R2 billion will be exempted from the requirement of obtaining National Treasury approvals. National Treasury has indicated that such exemption is intended to simplify and expedite the approval process to accelerate the commencement of smaller PPP projects. Despite the intended improvement of the PPP framework, one issue that still requires confirmation and clarity is the applicability of the PPP framework on entities listed in the Public Finance Management Act 1 of 1999 (PFMA). While the Procurement Bill applies to all Schedule 2 and 3 PFMA listed public entities, the proposed amendments to the PPP regulations do not make changes to the applicability of the regulations. The PPP framework, as it now exists, applies to Schedule 3 PFMA entities but does not apply to Schedule 2 PFMA entities. As such, it remains unclear whether the intention of the Procurement Bill and regulations is to do away with this distinction or retain the status quo on the applicability of PPPs.

Nonetheless, given that the PPP regulatory framework has not changed in over 15 years despite significant changes to South Africa’s economic climate and socio-economic development, the planned approach to strengthen and modify the framework is a positive one. National Treasury has reported that there has been a decrease in the number of new project transactions, from an estimated R10,7 billion in 2011/12 to R7,1 billion in 2022/23. The amendments to the PPP regulatory framework will be essential for promoting and encouraging frequent use of PPPs as a tool to deliver much-needed infrastructure development and to ease the burden on the strained government budget. A streamlined and simpler approach to PPPs will result in increased clarity and uniformity in the rollout of PPPs in South Africa.