Far-reaching reforms to fast-track and boost the delivery of infrastructure and attract private sector participation are to be implemented by the government.
This includes the establishment of an infrastructure finance and implementation support agency to coordinate the planning and preparation of large projects.
These reforms are linked to total infrastructure investment planned by government over the next three years, which the Budget Review reported amounts to R943.8 billion.
This includes investments of R486.1 billion by state-owned companies (SOEs) and public entities, R213.8 billion by municipalities and R224.8 billion by provincial and national government.
Consolidated spending on buildings and other fixed structures will increase by an average of 15.9% over the next three years, the review said.
Minister of Finance Enoch Godongwana said on Wednesday in his budget speech that the government is introducing fundamental and far-reaching reforms to infrastructure financing and delivery as part of this budget to optimise the infrastructure value chain to be effective and efficient.
“In this way, we will strengthen the public investment management and the associated value chain.
“We will also attract private sector participation,” he said.
Godongwana said in this regard the government:
- Gazetted the amendments to the public-private partnership (PPP) regulatory framework for public comments earlier this week;
- Is reviewing institutional arrangements and governance for catalytic infrastructure, with the intention of creating clearer mechanisms for accountability, cooperation and coordination;
- Is consolidating similar functions to reduce duplication and inefficiencies, with the intention to fast-track delivery, particularly of blended finance arrangements; and
- Will be introducing several new financing instruments, such as infrastructure bonds and concessional loans.
Godongwana said the gazetted PPP regulatory framework seeks to reduce the procedural complexity of undertaking PPPs, create capacity to support and manage PPPs, formulate clear rules for managing unsolicited bids, and strengthen the governance of fiscal risk.
He added that as part of the new financing instruments being introduced, a flow-through tax vehicle for specific infrastructure projects, similar to trusts and other investment vehicles, is being considered.
Godongwana said through these reforms, greater efficiency gains and infrastructure delivery will be fast-tracked.
“This will benefit network sectors, social infrastructure, PPPs and blended finance projects,” he said.
Support agency
The Budget Review said an infrastructure finance and implementation support agency will be established in 2024/25 to coordinate the planning and preparation of large projects, engaging directly with private financial institutions.
It said the agency will incorporate the functions of project preparation, PPP technical support and data management.
Departments, public entities and municipalities will be able to use its services to prepare, plan and execute projects, it said.
The review said proposed amendments out for public comment are intended to encourage more regular use of PPPs and revive the pipeline, harnessing private financing, and capitalising on private sector efficiencies.
It said “red tape” will be reduced by granting exemptions for projects valued below R2 billion from obtaining multiple approvals while limits on the ability of accounting officers to cancel key projects that have passed the feasibility stage will provide greater security to investors.
The planned reforms follow a government review of the PPP regulatory framework with the aim of reducing waste and inefficiency, improving quality and increasing the impact of public investment on growth.
The key elements of the reforms are to:
- Consolidate the financing, preparation and planning arrangements for large projects in a single entity to crowd in private-sector finance and expertise;
- Increase the use of PPPs to deliver infrastructure projects; and
- Reduce fragmentation and duplication across spheres of government.
DBSA and Project Vumela
The review said that in a move to unlock financing for bulk infrastructure to drive economic growth, the Development Bank of Southern Africa (DBSA) has introduced a new financing instrument called Project Vumela, which blends municipal revenue sources with financing from development finance institutions and commercial finance.
It said the financing instrument is aimed at raising funds for bulk infrastructure required for services such as water, sanitation, roads and stormwater, electricity, and solid waste – without affecting the borrowing capacity of municipalities.
Financing will be secured against future revenue, including development charges, municipal grants and a portion of property rates.
The review said the quality and reliability of urban utility services, including water, wastewater and electricity, have declined due to neglect and inadequate maintenance.
It added that government allocated R61.7 billion to local government in 2022/23 to address these challenges, but little progress has been made.
From 2025/26, a new incentive grant will be available to cities that demonstrate a certain level of transparency, display strong governance and reach key milestones in transforming their water businesses.
The review reported that there has been an uptake of PPPs in 2023/24, with 15 projects at the inception phase and 19 projects at the feasibility study phase.
It said six projects have completed feasibility studies and 10 projects are ready to start the procurement process.
“This demonstrates public-sector institutions’ continued interest in the PPP market.
“Given the budget constraints, the PPP mechanism offers an alternative option for institutions to tap into private-sector financing and expertise.
“Additionally, the amendments to the PPP regulatory framework will enable greater private-sector participation in public-sector infrastructure projects by reducing the procedural complexity in implementing PPPs.
“The creation of two pathways for PPPs, one for high-value projects and a simplified version for low-value projects, will incentivise the commencement of smaller PPP projects,” it said.
One of these major projects is the redevelopment of ports of entry project, which aims to reduce delays experienced by passengers and vehicles at six inland borders that South Africa shares with its neighbouring countries and facilitate the efficient movement of goods to improve regional trade.
Ports of entry
The Department of Home Affairs will enter into a PPP agreement with a private party to design, build, operate and finance the redevelopment of the six ports of entry:
- Beitbridge (Zimbabwe)
- Lebombo (Mozambique)
- Maseru Bridge (Lesotho)
- Kopfontein (Botswana)
- Ficksburg (Lesotho), and
- Oshoek (Eswatini).
A request for proposals was published on 3 September 2023 inviting the private sector to submit bids by 4 March 2024 but the closure date was subsequently extended until 4 July 2024.
Another major PPP project is the Inkosi Albert Luthuli Central Hospital, an 846‐bed referral hospital that serves the whole of KwaZulu‐Natal and part of the Eastern Cape.
The 15‐year PPP agreement is coming to end and the provincial government is undertaking a new PPP arrangement to ensure continuity of the current service while making improvements to the system.
The project will reach financial closure in 2024/25.
Industry view
Master Builders South Africa (MBSA) on Wednesday welcomed Godongwana’s budget, particularly the introduction of reforms to infrastructure financing and delivery.
MBSA President Musa Shangase said the association remains concerned about the declining infrastructure spending in the county and any measure aimed at addressing the decline is welcomed by the construction sector.
“We are very much concerned when we see construction companies and firm shutting down their business because the country does not have enough infrastructure projects required to keep these companies in competitive business.
“The recently released Quarterly Labour Survey for the third quarter of 2023 paints a gloomy picture for the construction sector, which has shed thousands of jobs in just one quarter,” he said.
Shangase said it is important for government to address all the inhibitors to the implementation of infrastructure spending, such as the lack of state technical capacity to roll out the projects, delays in approving building plans, the inability to deal with illegal construction site disruptions, the non-payment of contractors and the load shedding.
The source for this hardhatNEWS is Moneyweb
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