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May 04, 2012

Future PPP model must balance public, private risk more ‘equitably’

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Education|South Africa|Columbia University|Energy|Ebrahim Patel|Joseph Stiglitz
education-company|south-africa|columbia-university-facility|energy|ebrahim-patel|joseph-stiglitz
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Economic Development Minister Ebrahim Patel has called for a new dialogue on the appropriate structuring of public–private partnerships (PPPs) in South Africa, which was gearing up to implement a multitrillion-rand infra- structure roll-out over the coming two decades.

Speaking at the recent yearly Economic Development Conference, in Ekurhuleni, Patel said there was an opportunity for the private sector to be integrated into the 17 strategic infrastructure projects, or Sips, outlined by the Presidential Infra- structure Coordinating Commission. Sips included logistics, energy and water programmes designed to catalyse growth and investment in five geographically defined regions, or corridors. Also included were housing, health, education, communications, science and cross-border projects and initiatives.

However, Patel argued that future PPPs would have to embrace an “equitable risk transfer” to the private sector, as opposed to the models deployed in the recent past that had left the public sector bearing the bulk of the risk burden.

There was currently widespread unhappiness in the private sector about the stop-start nature of PPP projects, some of which had also been cancelled after protracted delays.

Some Concern

There was also some concern that the current infrastructure plan was overly dominated by State-owned companies and departments, with the private sector’s role limited to buying government or utility bonds and supplying material and technical inputs to projects.

Patel said there was a need to open a discussion on the “appropriate” structuring of PPPs.

But he also stressed that opportunities exist for innovative funding, “including accessing retirement funding as equity in infrastructure projects”. No reference was made, though, to prescribing that specific resources be set aside by pension funds to support the infrastructure plan.

Patel received support for his appeal for more equitably partnerships with the private sector, as well as for mobilised domestic savings in favour of infrastructure, from renowned economist Professor Joseph Stiglitz.

The Nobel Prize in economics recipient, who is currently associated with Columbia University, argued that skewed risk alloca- tions were unhealthy. There was a need, therefore, to “look beyond the rhetoric” around partnerships in infrastructure and calculate the “cost of capital, who gains and who carries the risk”.

Stiglitz noted, too, that a number of East Asian economies had successfully channelled pension funds in support of the infrastructure that had been developed to facilitate their rapid export-led growth strategies.

South Africa should, thus, consider the carrots and sticks needed to help direct domestic savings towards projects that would stimulate future growth and investment.

Stiglitz also welcomed South Africa’s long-term focus on infrastructure, which he said would have both demand- and supply-side multiplier effects.

The average returns associated with such infrastructure programmes that had been pursued elsewhere had been high, even when the inevitable project failures were included in the calculation.

Edited by: Martin Zhuwakinyu
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