Paul Janisch

Government wants us to fix its buildings- PPP territory but how many takers

In other words a PPP (Public-Private Partnership).  I thought PPPs had died down - this is not the case.  They are happening.  Refurbishing and managing a building probably won't be too hard a bidding process.

PPPs are a different beast that don't appear to be issued under section 10 of the BE Act, you know that section that incompetent government officials hide behind when they use race criteria to offer support under COVID.  The BEE aspect of PPPs is in fact a code so it's issued under section 9 and this one of the first codes, it came out in 2004.  When it comes to PPPs we have a code that can be found on Treasury's website or here.  

Back to this article.  It's building across the country.  If we think about inner city buildings I think this will be a hard sell.  So does our esteemed government

So far, five government properties – Telkom Towers, Cervitas Building, Public Works House, Police Barracks and Department of Defence Flats – have been identified in the City of Tshwane as pilot projects of these public-private partnerships.

Said to be done in phases, the first project is expected to commence in March 2024. “No property has been leased out as yet as the process is still in its conceptual stage,” said the minister.

We have a BEE for PPP course coming up in March this year.  I'll keep the blog updated.  There are rumours that the Minister will update the code this year.  Let's see

Why BEE and public private partnerships could work

Courtesy of Moneyweb.  They published my article

 

Why BEE and public private partnerships could work

While relatively new to South Africa, public-private partnerships have incredible potential to deliver on empowerment measures.

By Paul Janisch 10 Feb 2023  11:40 

A recent article indicated that Transnet is considering outsourcing its container corridor between Durban and Johannesburg.  The proposal appears to be some sort of an interim solution with the winning bidder handing it back to Transnet in 20 years.

To me this seems like a public-private partnership (PPP). It also suggests that state-owned entities (SOEs) may be softening their attitude to these partnerships.

PPPs are without doubt the most effective tool the government has to achieve its Black Economic Empowerment (BEE), reconstruction and development programme and other empowerment-related goals. Yet this method of procurement is not making the most of these opportunities.

The problem seems to be that the transaction advisors that are used in the early stages of the feasibility study are not suitably aware of empowerment requirements and structures that PPPs would like to achieve in the long term. The majority of these bid documents contain antiquated empowerment requirements that might deliver a narrow type of empowerment structure that ultimately benefits very few people.

The empowerment criteria for PPPs are contained in Module 2 of the National Treasury PPP Practice Note of 2004. The practice note precedes the Department of Trade and Industry’s broad-based BEE codes of good practice (COGP) by about three years, but a careful reading of both the COGP and the practice note reveals that they are remarkably similar and that a standard COGP implementation will more than likely cover almost every requirement that Module 2 has laid out.

 Interestingly the Municipal Service Delivery and PPP Guidelines have deviated from Treasury’s module 2 and incorporated the DTI’s codes of good practice into its requirements – suggesting perhaps that the Treasury module will follow suit in the future.

The stated empowerment objectives of PPPs include

• Increasing levels of black ownership and management
• Development of local skills
• Development of supporting entrepreneurship
• Creation of local jobs (directly and indirectly)

It is the last three objectives that tend to be ignored in most PPPs.

The management and ownership requirements are pushed to the fore and more often than not benefit people who may not reside or have any roots in the area that the PPP has targeted.

It may appear that empowerment has been achieved but, without the required emphasis on local economic development, the local population might come out of this process completely neglected.

Perhaps the best way to explain this process is to use an example of a PPP that we worked on in a remote area of the Eastern Cape.

Case study

The specific project was located in a region that was a labour sourcing area during apartheid. It is still suffering from the chronic ravages of this policy and as a result has virtually no infrastructure, with an economically active population that is mostly female with a high HIV infection rate.

It stands to reason that any investment in this area must have some positive impact on the local community. Our job was to ensure that the empowerment requirements would continuously develop that local community.

Using both module 2 and the DTI’s codes as a starting point we recognised that the construction phase was unlikely to employ any of the local population on a permanent basis. As such, budgets that would typically be allocated under a standard BEE scorecard were re-allocated to other areas of the scorecard that would see a greater investment in the local community.

We specified that the local community (i.e. people living within a 50km radius of the target area) was to be used, because the DTI’s BEE scorecard only speaks of black people – not local people. This means that without specifying local investment it is conceivable that a company operating in this area could be fully compliant by investing in any other area. The facilities’ management scorecard built on the BEE foundations laid by the construction phase and increased the number of local people employed on a permanent basis over a ten-year period. The modifications to the scorecards were within the ambit of module 2.

The single most important feature of a PPP is that the Treasury Manual insists that all empowerment requirements are made contractually binding on the winning consortium, with penalties for non-compliance.

Of course this requires both the government and the private party to measure their BEE performance. If the prescribed scorecard deviates so far from a standard scorecard then there is no conventional method of measurement. Verification agencies have been mandated to measure empowerment based on either the DTI’s scorecard or a sectoral charter and do not have the legal capacity to measure any other type of scorecard that deviates from these norms. This means that an additional third party has to be contracted to measure and report on this.

PPPs are still relatively new to South Africa and their efficacy is not yet fully tested. But there is little doubt that they have incredible potential to deliver on government’s empowerment measures.

It is very important that these measures are carefully thought out at the early stages of any PPP, because it may be very difficult to change them ten years down the line when it is realised that they are not achieving what all stakeholders hoped they would. Proper advice at the outset mitigates this risk.

Paul Janisch is a BEE consultant with wide experience in the transaction phase of a number of PPPs

The Debswana story: a PPP success (what about us?)

As the rest of Africa was plundering its mineral wealth through nationalisation and mismanaged parastatals, Botswana chose the PPP path and stuck to it.  Moreover, the wealth from the Debswana partnership was used wisely and did not act as a catalyst for unnecessarily grandiose projects and an orgy of looting.  Through Debswana, Botswana has topped the world diamond sales league by value. Critics may say that other countries in Africa (Ivory Coast is a good example) have achieved the same status with other natural wealth with or without a 50-50 PPP. But the difference is that the fruits from the Debswana PPP have been channelled to successfully develop a once dirt-poor country.  Of course, the fact that the Debswana arrangement has worked for Botswana does not mean that we close our eyes to its unedifying aspects.  

But the broad picture indicates that in comparative terms, the Debswana arrangement has worked well for Botswana.  Crucial in this success has been fairly good management and the fact that our leaders have not been corporate raiders and pirates voraciously feeding off state resources like famished hyenas.

via www.mmegi.bw

Very interesting.  A successful PPP.

On the subject of PPPs, this is an email I got from a partner who did not want to even contemplate bidding for a PPP

From: A person

Sent: 17 April 2012 10:09 AM
To: Another person
Subject: Re: RFP GSM/12/03/0428 - Transaction Advisor for proposed Durban Dig-Out Port

The reality is that it wouldn't pass our bid/no bid criteria on the basis of chances of winning, so a no in this instance.

From: Another person
Sent: Tuesday, April 17, 2012 08:33 AM
To: A person
Subject: RE: RFP GSM/12/03/0428 - Transaction Advisor for proposed Durban Dig-Out Port 
 
I understand that concern but it is a massive project and they don’t come around too often. 
We would not fund the bid costs and therefore it is no problem if you elect not to bid.

This same sentiment is echoed in a FM Supplement, conveniently entitled Infrastructure.

Companies have expressed frustration with abandoned processes and policy flips. Moreover, the money that they pump into tenders has been wasted. Basil Read, which is part of the consortium that won the tender to build the R10bn N1/N2 winelands toll road, had been working to win it for over 10 years. Government's freeze on all new toll roads makes its future uncertain.

"Recent experience with PPPs has not been good. We have spent tens of millions preparing tender proposals which, in some cases, have not even been opened. But with limited state funding, they will have to be an option in one form or another," M&R's Henry Laas says.

The financial costs of bidding are not mitigated against the likelihood of succeeding.  Many believe that the bid will never be awarded and so can't justify the expense.  Who has the money and personnel to sit on a bid for 10 years?

An unfortunate feature of the stagnant Zuma government (probably inherited it from Mbeki who was a big a failure).

 

Master Builders SA says cancelled prison contracts may dampen industry’s PPP appetite

Mapisa-Nqakula also lambasted two existing PPP prison contracts, noting that, while the Kimberley facility had been built at a cost of R300-million, government would end up paying R1.5-billion for the capital cost of construction over a 15-year period.

Cabinet, which endorsed the cancellation, also indicated that there would be a review of PPP models across government.

via www.engineeringnews.co.za

Review of PPP models resulting in more delays.  The first paragraph is interesting and likely to be false.  I strongly suspect that this figure that the minister refers to includes operational costs as well.  If this isn't the case then why did Treasury let the PPP go through?  Treasury's PPP unit is made up of a number of very sharp individuals who would never let that pass.

Egg on face perhaps?

SA cancels much-delayed private prisons tender, reviews PPP model

The South African government has officially cancelled the much-delayed public-private partnership (PPP) procurement process for four new prisons, which would have added 3 000 additional bed spaces at the Paarl, East London, Nigel and Klerksdorp correctional centres.

The procurement process was initiated in October 2003 when a transaction advisory team was appointed to study the feasibility of delivering the facilities in partnership with the private sector.

The request for qualifications were released in October 2007 and the final tender on September 30, 2008. The bids were submitted in May 2009.

However, Correctional Services Minister Nosiviwe Mapisa-Nqakula, who took over the position in May 2009, instituted a policy and operational review, during which the bids were "not opened or evaluated" and were kept in a secure facility.

Mapisa-Nqakula said the review highlighted a number of financial and operational problems with the PPP model, including the fact that it conflicted with policy stipulating that security and custodial services of the State not be handed over the third parties.

via www.engineeringnews.co.za

In case you were considering bidding for this. The fact that these processes cannot be handed over to the private sector/third parties might be something that Pierre de Vos could consider discussing on his blog.

R7bn Gauteng hospital upgrade tender to open in December

The tendering process for one of Gauteng’s largest health care public private partnership (PPP) projects, the R7-billion revitalisation of the Chris Hani Baragwanath (CHB) hospital would open in December.

The Gauteng provincial government said on Monday the process represented a commitment to leverage funding from the private sector to deliver quality healthcare services to the public.

via www.engineeringnews.co.za

PPP season is back.  Not quite in full swing yet.  This PPP has such incredible potential for the local Soweto community.  

A justification for PPPs

Taken from info.gov.za.  The Settlers PPP hospital is opening tomorrow - it's a private public partnership with Nalithemba hospitals and Netcare.  The announcement has this to say about the nature of PPPs

Private partnerships and collaboration in the health sector is important and timely in light of the challenges the public sector is facing in healthcare finance, management and provision. Many governments are confronted by fiscal constraints that force them to carefully prioritise and restrict public expenditures.

Moreover, many public health systems are already indebted and face further fiscal pressures, such as the need to provide care to increasingly aging populations, improve quality, or invest in often expensive medical treatment and technology advances.

Turning to the private sector can, when appropriately structured and executed, help address specific cost and investment challenges, deliver improvements in efficiency (for example: improved service provision and management at reduced costs) and enhance service quality (for example: increased expertise, more rapid and substantial investments in infrastructure and new medical technologies, a potential to attract and retain better performing staff). 

OK - let's see a few more then

PPPs and BEE

Public Private Partnerships are without doubt the most effective tool that the government has to achieve its Black Economic Empowerment (BEE), RDP and other empowerment related goals. Yet this method of procurement is not making the most of these opportunities. The problem seems to be that the transaction advisors that are used in the early stages of the feasibility study are not suitably aware of empowerment requirements and structures that PPPs would like to achieve in the long term. The majority of these bid documents contain antiquated empowerment requirements that might deliver a narrow type of empowerment structure that ultimately benefits very few people.

The empowerment criteria for PPPs are contained in Module 2 of the National Treasury PPP Practice Note of 2004. The practice note precedes the Department of Trade and Industry's broad-based BEE codes of good practice (COGP) by about three years but a careful reading of both the COGP and the practice note reveals that they are remarkably similar and that a standard COGP implementation will more than likely cover almost every requirement that Module 2 has laid out. Interestingly the Municipal Service Delivery and PPP Guidelines have deviated from Treasury's module 2 and incorporated the DTI's codes of good practice into its requirements – suggested perhaps that the Treasury module will follow suit in the future.

The stated empowerment objectives of PPPs include

•    Increasing levels of black ownership and management

•    Development of local skills

•    Development of supporting entrepreneurship

•    Creation of local jobs (directly and indirectly)

It is the last three objectives that tend to be ignored in most PPPs. The management and ownership requirements are pushed to the fore and more often than not benefit people who may not reside or have any roots in the area that the PPP has targeted. It may appear that empowerment has been achieved but without the required emphasis on local economic development, the local population might come out of this process completely neglected. Perhaps the best way to explain this process is to use an example of a PPP that we worked in a remote area of the Eastern Cape.

The specific project is located in an region that was a labour sourcing area during apartheid. It is still suffering from the chronic ravages of this policy and as a result has virtually no infrastructure with an economically active population that is mostly female with a high HIV infection rate. It stands to reason that any investment in this area must have some positive impact on the local community. Our job was to ensure that the empowerment requirements would continuously develop that local community.

Using both module 2 and the DTI's codes as a starting point we recognised that the construction phase was unlikely to employ any of the local population on a permanent basis so budgets that would typically be allocated under a standard BEE scorecard were re-allocated to other areas of the scorecard that would see a greater investment in the local community. We specified that the local community (i.e. people living within a 50km radius of the target area) was to be used because the DTI's BEE scorecard only speaks of black people – not local people. This means that without specifying local investment it is conceivable that a company operating in this area could be fully compliant by investing in any other area. The facilities' management scorecard built on the BEE foundations laid by the construction phase and increased the number of local people employed on a permanent basis over a ten year period. The modifications to the scorecards were within the ambit of module 2.

The single most important feature of a PPP is that the Treasury Manual insists that all empowerment requirements are made contractually binding on the winning consortium, with penalties for non-compliance. Of course this requires both the government and the private party to measure their BEE performance. If the prescribed scorecard deviates so far from a standard scorecard then there is no conventional method of measurement. Verification agencies have been mandated to measure empowerment based on either the DTI's scorecard or a sectoral charter and do not have the legal capacity to measure any other type of scorecard that deviates from these norms. This means that an additional third party has to be contracted to measure and report on this.

Public Private Partnerships are still relatively new to South Africa and their efficacy is not yet fully tested. But there is little doubt that they have incredible potential to deliver on government's empowerment measures. It is very important that these measures are carefully thought out at the early stages of any PPP because it may be very difficult to change them ten years down the line when it is realised that they are not achieving what all stakeholders hoped they would. Proper advice at the outset mitigates this risk.

---------------------------------------------------------------------------------------------------------------------------

Paul Janisch is the CEO of Caird Consulting – a broad-based BEE compliance consultancy. Caird has advised both the private and public sectors on PPP empowerment requirements. Janisch can be contacted on 083 227 1375 or email

A bit more on PPPs

I found this great article from a SKNews (St Kitts in the West Indies). 

The principles of PPP, when properly applied, give government tremendous leverage in undertaking many infrastructural projects simultaneously and even bring on board other projects that would otherwise be impossible.  It is well known that infrastructure drives development.

PPP is a partnership between government and a private entity specifically designed for the delivery of a public service. The private entity assumes some of the risks and responsibilities normally associated with government thus providing government the opportunity to focus on governing and the delivery of services.

More on PPPs and transaction advisors soon.