White & Case Commentary on the Proposed Amendments to the PPP Regulations in South Africa

The South African Minister of Finance gazetted (in February 2024) proposed amendments to Treasury Regulations 16 (Reg 16) issued pursuant to the Public Finance Management Act, 1996 (the "PFMA") and Municipal Public Private Partnership regulations issued pursuant to the Municipal Finance Management Act, 2003 (the "MFMA").

National Treasury has publicly recognised the need for more private sector investments in the South African infrastructure. The main benefit to the State of PPPs is that they enable the State to provide services to the population without having to invest capital upfront in relation to that infrastructure asset. The private sector invests capital upfront to build an infrastructure asset which is then used (when built) for service delivery and the State pays for the assets in amounts (instalments) it can afford over an appropriate period (which could run to 30 years or more). This a compelling case to use PPPs considering the challenges faced by the South African fiscus.

Unfortunately, there has been a decline in the procurement of services through PPPs in South Africa recently and the State is eager to reignite private sector investment in PPPs to accelerate infrastructure development while applying capital to other pressing needs of the State like healthcare, social welfare, education and others.

We understand from the explanatory memorandum that these proposals are aimed at unlocking the PPP potential in South Africa and attracting more private sector investment in the sector by streamlining the PPP processes including, in respect to procurement, management of PPP contracts and institutional relationships across a PPP process, etc.

Broadly, the proposed amendments to Reg 16 deal with the following:

• the codification and/or clarification of the roles and responsibilities of the PPP Advisory Unit within the PPP project cycle and providing a clear outline of its functions. The PPP Advisory Unit is tasked with helping the public sector entities from the inception and preparation phases of a PPP lifecycle. The PPP Advisory Unit with also provide technical expertise to the National Treasury as may be necessary during the evaluation and approval of proposed PPPs;
• the establishment of two distinct pathways for PPPs for high-value projects and a streamlined alternative for low-value projects valued below two billion rands, with the intent of reducing procedural complexities and simplifying the procurement process for low value projects;
• the introduction of provisions for unsolicited proposals. The proposed amendments stipulates that a procuring institution is authorised to entertain an unsolicited proposal on the condition that the proposed PPP demonstrates innovation and conforms to one or more strategic sectors or objectives outlined by the procuring institution; and
• other amendments providing for definitions of certain key PPP concepts for common understanding and application.

The key question that the PPP market would ask is whether the proposed amendments to Reg 16 are sufficient to unlock the PPP potential in South Africa. Amongst the obstacles that the South African government must overcome is the credibility crises faced by the PPP market caused by many factors including, unclear government policy on the use of PPPs (i.e. the challenges in the prisons/correctional services PPPs needs to be tackled), delays in PPP implementation, cancellation of PPP procurement processes without proper reasons and cognisance to PPP stakeholders and their sunken investments at the point of cancellation, etc.

In addition to the proposed amendments, we would expect that dealing with the following items will go a long way in remedying and/or mitigating against the risks mentioned above:

• simplifying and/or streamlining the cumbersome nature of the PPP procurement process in South Africa to make it easy to implement within a short space of time;
• in addition to codifying the roles and responsibilities of the PPP Advisory Unit, further streamlining of the Treasury Approval ("TA") process, providing for timelines for TA approvals and for decisions by implementing institutions. For example, streamline or reduce the number of TAs now that the role and responsibilities of the PPP Advisory Unit has been dealt with, which may include having three Tas, etc. The National Treasury would then rely to the officers of the PPP Advisory Unit for information flow during the implementation of a PPP;
• providing for solutions in circumstances where an institution fails to heed or ignores advice from the PPP Advisory Unit. If there are no consequences institutions will continue to ignore PPP Advisory Unit’s guidance and advice as before and that will have further negative effects on the PPP Market;
• providing for a clear empowerment framework specific to PPPs; and
• providing for solutions in addressing human resource capacity issues within institutions when conducting PPP procurement. For example, the approach used in the renewable energy programme where officials are fully dedicated and specialised works better for the successful implementation of complex projects like PPPs.

The above is not a closed list of initiatives but there may be other initiatives that the South African government could implement to attract private sector investments back to the South African infrastructure. Most private sector infrastructure investors have invested in the South African infrastructure previously and may have moved to other sectors due to the challenges in the PPP market. Therefore, the South African government will have to undertake more substantive changes to the PPP regulatory framework and provide policy certainty to achieve its intentions as recorded in the explanatory memorandum to the amendments.

Boitumelo Rakgwane (White & Case, Paralegal, Johannesburg) contributed to the development of this publication. 

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