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South Africa: Government’s plan to boost private sector investment – proposed amendments to the PPP Regulations

1 March 2024
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Overview

  • On 19 February 2024, National Treasury gazetted proposed amendments to Regulation 16.
  • In its 2023 annual Budget review, National Treasury noted that public private partnerships (PPPs) are an important part of the revitalisation of economy and meeting the goals of the National Development Plan 2030.
  • The number of PPPs has steadily declined in recent years due to a lack of private sector interest. In 2019, National Treasury, with the support of the World Bank, embarked on a project to improve the effectiveness of the PPP regime and encourage private sector investment in South Africa.

On 19 February 2024, pursuant to a review of public private partnerships (PPPs), National Treasury gazetted proposed amendments to Regulation 16, which will be out for public comment until 20 March 2024. 

In its 2023 annual Budget review, National Treasury noted that PPPs are an important part of the revitalisation of South Africa’s economy and meeting the goals of the National Development Plan 2030. 

PPPs enable Government, whose capital budget is insufficient due to competing interests, to draw in private financing on infrastructure projects, thus strengthening infrastructure development and leading to increased economic growth and job creation.  As at the date of the latest Budget review, 34 PPPs valued at ZAR 89.3 billion had been successfully completed in South Africa. 

However, the number of PPPs has steadily declined in recent years due to a lack of private sector interest. This is because of the confusing PPP legislative framework, and poor contract and project management by government entities. In September 2019, National Treasury, with the support of the World Bank, embarked on a project to improve the effectiveness of the PPP regime and encourage private sector investment in South Africa. 

PPPs, particularly for national and provincial entities and organs of State, are regulated by Regulation 16 of the treasury regulations, issued in terms of the Public Finance Management Act 1 of 1999 (PFMA), which were promulgated in 2005 (Regulation 16). 

Key provisions in the proposed amendments to Regulation 16 

In the explanatory note published with the proposed amendments, National Treasury explained that these amendments were necessitated by the changing economic landscape since the promulgation of Regulation 16. The primary purpose of the proposed amendments is to simplify the process required for the planning and procurement of PPPs, strengthen contract management and project oversight mechanisms, and streamline institutional relationships across the PPP lifecycle. This will ultimately make PPPs easier and more attractive for private sector investors. 

The proposed amendments establish a PPP Advisory Unit (PPP Unit), which will be responsible for providing support to the public sector during the initiation and preparation for PPPs. Specifically, the PPP Unit will render advice and guidance to institutions on the registration of a proposed PPP with National Treasury, and on conducting a feasibility study in relation to the proposed PPP. The PPP Unit will also provide technical advice to National Treasury, which may be required when considering approvals in respect of proposed PPPs. 

The proposed amendments also introduce separate processes for proposed PPPs valued at less than ZAR 2 billion and for those above this threshold. Presumably, this is an effort to remove unnecessary red-tape in relation to lower value contracts, thus ensuring that simpler and lower value contracts are concluded more efficiently and without undue delay, whilst also ensuring that high-value contracts are given the necessary consideration by procuring institutions and National Treasury. Ultimately, this proposed amendment should lead to a shorter timeline for the conclusion of PPPs, which often take years to finalise. 

Another important reform brought about by the proposed amendments is to the way that PPPs are initiated. Historically, PPPs were seen as a State-led process, as the government entity was required to identify and conduct a feasibility study in respect of a proposed PPP. As such, unsolicited proposals were not accepted. 

However, the proposed amendments explicitly provide for the use of unsolicited proposals in PPPs, and state that a procuring institution may consider an unsolicited proposal if the proposed PPP is innovative and aligns with one or more of the procuring institution’s strategic sectors or objectives. Importantly, the proposed amendments still provide that the procurement for such PPPs must be in accordance with a process that is ‘fair, equitable, transparent, competitive and cost-effective’ and that, if the procuring institution accepts the unsolicited proposal, it must go out on a competitive tender process. 

The proposed amendments do, however, provide for some concessions to the proponent of the unsolicited proposals. For example, the proponent is automatically pre-qualified and shortlisted in the tender process and may be entitled to payment of a development fee if they are not selected as the preferred bidder pursuant to the bidding process. 

Overall while the changes are welcomed, the new Regulations do not appear to offer much change from the current cumbersome process, and we will be submitting comments to encourage a more streamlined process to approvals and to amendments in a PPP context. 

National Treasury invites all interested parties to submit written comments to proposed amendments to Regulation 16 to [email protected]. 

For further information please contact government contracting and public procurement specialist, Claire Tucker.