Zimbabwe Mining and Infrastructure Indaba 2015

Structuring PPP’s for Infrastructure Development

Introduction• The expansion of basic services and the

development of sustainable infrastructure are key challenges in Africa.

• One option of expanding service delivery is to enhance the role of the private sector in the financing and management of basic services such as water, sanitation, waste management, road maintenance, etc.

• Consequently, Public Private Partnerships (PPPs) are increasingly viewed as a mechanism to develop infrastructure and deliver state services on a cost effective and sustainable basis.

• PPPs are not new to Zim• Developed PPP Policy in 2004• Created a Projects Master Register• Undertook major PPPs including:

– Limpopo Bridge – 1995– Bulawayo-Beitbridge Railway - 1999

PPP DRIVERS

• Role of Public Sector as service provider HAS to change

• Role is changing from “rowing” to “steering”• While accountable for service delivery Public

Sector is not always most appropriate service provider vis~a~vis• Cost• Quality• Ability to carry commercial risk etc

Demand for increased access to services Huge backlogsAccess to capital, technologies, INNOVATION, skills

• PPPs are not new to Zim• Developed PPP Policy in 2004• Created a Projects Master Register• Undertook major PPPs including:

– Limpopo Bridge – 1995– Bulawayo-Beitbridge Railway - 1999

Why does limited/non-recourse PF give comfort?

• Leveraging Private Sector investment•Off-Balance Sheet•Very efficient way of investing in Infrastructure•Banks are exposed •Tension between Participants in PF Structure•Robust Due Diligence•Holistic approach in decision-making•Appropriate risk transfer and mitigation•Thorough due diligence on Project Documentation•Gov and PF interests are aligned (project MUST continue)

5

PPPPrivate party:Finances (whole or most)DesignsBuildsOperates

Government purchases complete service and/or enables business

Fixed assets belong to government

OutsourceCapitalisation is for government account

Government buys specific services but retains risk

Fixed and movable assets typically belong to government

PrivatiseState assets sold

State liabilities sold

Government has regulatory function only

5

PPP DIFFERENTIATED TO OUTSOURCING AND PRIVATISATION

6

Traditional Expenditure Profile

Money

Years1 2 3..... .....25

Estimatedcapitalcost

Estimated running costs

Cost overrun

Cost overrun

Time overrun

7

Expenditure Profile for PPP

Money

Years1 2 3..... .....25

no payment Unitary payment

Benefit of PPPs

• Acceleration of infrastructure provision• Efficient implementation : efficient and effective

service• Stimulates the economy• Reduced whole life costs• Get equity investment• Better allocation of risk• Fiscus is able to divert funds to much need social

development programmes• Better incentives to perform• Improved quality of service• Generation of additional revenues• Enhanced public management• Job Creation• Promotion of indigenisation, SMME, women and

youth involvement• Builds national pride

Challenges

– Country and Political Risk (both percieved and real)– Changing attitudes to PPs– Length of time it takes to under a PPP– Lack of expertise and capacity within Government – Mistrust between govt and private sector– Lack of financial resources in Government– Lack of political commitment– Lack of established and clear legal framework (ambits,

stability, applicability)– The financial services sector is not mature and developed

enough to finance PPP projects– Private sector corporates in Africa are not conversant enough

to undertake PPP projects– Lack of conducive environment for PPPS ie regulatory or

legislation– Monitoring outputs (benchmarking/market assessment)– Conflicting interests/limited consultation between public and

private sector– Process risk (ambiguous procurement transaction approvals)– Complex enforcement of contractual obligations (finance and

dispute resolution)

Other African Countries – Active PPPsSouth AfricaBotswanaMauritiusMalawiZambiaGhanaNigeriaKenyaTanzania

• PPPs are not new to Zim• Developed PPP Policy in 2004• Created a Projects Master Register• Undertook major PPPs including:

– Limpopo Bridge – 1995– Bulawayo-Beitbridge Railway - 1999

PPPs in Zimbabwe

PPPs not new to ZimbabwePPP policy in 2004Rail PPP- BBR (1999)Rail – New LimpopoNewlands bypass

Why PPPs needed:Zimbabwe in crisisGovernment is bankrupt New money/capital neededEquity neededLack of services – in some instances no servicesInfrastructure in crisis

JOINT VENTURE PROCESS (2015)

Line Ministry• Identify, appraise, develop and monitor Project to be implemented• Invite expressions of interest in the project• Undertake a feasibility study• Submit Feasibility Study to Unit

Joint Venture Unit

• Established in the Ministry of Finance• Unit Approves or rejects Feasibility Study• to develop best practice guidelines in relation to all aspects of joint

ventures; • to assist the Committee to formulate policy in relation to joint venture

projects; and joint ventures• Refer Proposal to Committee

Joint Venture Committee

• Review feasibility study• Approve or reject the feasibility study• Make Recommendations to Cabinet to assist the Minister to formulate

policy guidelines on joint ventures;• and• to ensure that all projects are consistent with the national priorities

specified in the relevant policy on joint ventures;

Cabinet

• Approves/Rejects Proposal• If rejected, the Cabinet gives reasons for rejection• If Project Proposal is provisionally approved, this is on fulfilment of

certain conditions specified by the Cabinet• Notwithstanding anything in the Act, a contracting authority may then

invite special formal tenders

FEASIBILITY STUDY

(1) Where a contracting authority considers that a project may be implementedunder a joint venture agreement, it shall undertake or cause to be undertaken a feasibilitystudy, to assess whether the proposed project is feasible as a joint venture project.(2) A feasibility study shall—(a) demonstrate the advantages of implementing the project under a jointventure agreement; and(b) describe in specific terms—(i) the nature of the contracting authority’s functions, the specificfunctions to be considered in relation to the project, and the expectedinputs and deliverables; and(ii) the extent to which those functions can lawfully and effectively beperformed by a counterparty in terms of an agreement; and(iii) the most appropriate form by which the contracting authority mayimplement the project under an agreement;and(c) demonstrate that the project will—(i) be affordable to the contracting authority; and(ii) provide value for money; and(iii) optimally transfer technical, operational or financial risk to thecounterparty;and(d) explain the capacity of the contracting authority to effectively enforcethe agreement, including the ability to monitor and regulate projectimplementation and the performance of the counterparty in terms of theagreement.

Stages of the PPP Feasibility Study

Needs Analysis

Options Analysis

Project Due Diligence

Value Assessment

Economic Valuation

Procurement Plan

Feasibility Study for TA:I

Revisiting Feasibility

study for TA:III

Strategic objectives

Budget Institutional environment

Output specifications

Project definition

Output analysis

Output selection

BEE and socio-economic

Site Legal

Risk-adjusted

PPP

PPP reference

Info verification

Procurement choice

Value for money

Risk-adjusted

PSC

Base PSC

Affordability

Sensitivity analysis

GENERIC PROJECT FINANCE STRUCTURE FOR PPPS

Government

Concession Agreement

Private Party(Special Purpose Vehicle)

[SPV]

Subcontracts

Subcontractore.g. Construction

Subcontractore.g. Operations

LoanAgreements

Debt70/90

ShareholdingEquity30/10

Structure for indigenisation

A. Private Party EquityA1 Black EquityA2 Active Black EquityA3 Cost of Black EquityA4 Timing of Black Equity Returns

B. Private Party Management and EmploymentB1 Black Management Control B2 Black Women Management ControlB3 Employment EquityB4 Skills Development

C Sub-ContractingC1 Project Capex to Black EnterprisesC2 Project Opex to Black EnterprisesC3 Black Management Control C4 Black Women Management ControlC5 Employment EquityC6 Skills DevelopmentC7 Procurement to SME’s

Subcontracts

Subcontractore.g. Construction Subcontractor

e.g. Operations

D Local Socio-Economic Impact

17

Forms of JVs and PPPs

Less Risk Transfer

More Risk Transfer

Service Contracts

Design, Build, Operate, Finance & Concession

contracts

Leasing

Management Contracts

BOT, BOO

Joint ventures

Partnerships

TYPES OF JOINT VENTURE PROJECT

1. Power generation plants and power transmission and distribution networks.2. Roads and bridges.3. Inland ports and harbours.4. Inland container depots and logistics hubs.5. Gas and petroleum infrastructure such as refineries, storage depots and

distribution pipelines.6. Water supply, treatment and distribution systems.7. Solid waste management works.8. Renewable energy works.9. Educational and health care facilities.joint ventures10. Urban transport systems.11. Housing.12. Information communication technology projects.13. Agriculture and irrigation development.

WHY PPPS FAIL

Not addressing RISK issues properly

Lack of commitment and buy in from key stakeholders

Transaction advisors who lack expertise and draft poor agreements

Governments lack integrity – (corruption)

Private parties that lack integrity – over pricing projects

Lack of contract management and monitoring

Utho’s experience in PPP’s• Department of Trade and Industry- Office Space• Department of Environment- Office Space• Sedibeng Waste To Energy- Waste to Energy Plant• Rustenburg Waste to Energy- Waste to Energy Plant• Gautrain – Bombela and Gauteng Province• Eastern Cape Department of Health- Lusikisiki Hospital

Accomodation• Eastern Cape Department of Health- Pharmaceutical PPP• Gauteng Partnership Fund- Housing• Western Cape- N1/N2 E-tolls• Department of Communications – 112 national emergency call

centre• Department of Justice- Accommodation• Jewellery manufacturing precinct

CONTACT DETAILSOffices: 2nd Floor

Lillipark, 354 Rivonia BuolevardRivonia 2128Johannesburg

Tel: +27 11 234 1370Fax: +27 11 234 1380

website: www.utho.co.za

Sheila Galloway +27 828 216 630