President Cyril Ramaphosa has highlighted the importance of project preparation to unlocking the mostly private finance that will be needed to realise government’s goal of investing R1-trillion in infrastructure over the coming four years and turning South Africa into a “building site”.
Speaking at an Infrastructure South Africa (ISA) roundtable in Gauteng on Tuesday, Ramaphosa said that private sector funding and high-impact capital funding would be secured only if a credible pipeline of “bankable” projects was developed.
“Project preparation is a costly exercise, but absolutely necessary,” he averred, attributing the country’s chronic failure to complete infrastructure projects on time and budget, or at all, to inadequate front-end preparations.
“Attention must be given to improving the State’s technical, project preparation and financial engineering capabilities, including by drawing in private sector skills and expertise.”
The recent establishment of ISA, the President added, would streamline the preparation and implementation process.
Government has placed infrastructure investment at the heart of its recently released Economic Reconstruction and Recovery Plan, which relies heavily on attracting private funding for water and sanitation, energy, transport, digital infrastructure, agriculture and agroprocessing and human settlements projects.
“Over the next four years we hope to unlock R1-trillion in infrastructure investment,” Ramaphosa said, adding that the newly operationalised Infrastructure Fund would be an important vehicle for de-risking projects and making them attractive for private sector participation.
Government has committed R100-billion for the fund for the coming ten years, of which R18-billion will be released over the coming three years.
“It is significant, and most welcome, that the multilateral development banks, pension funds and commercial banks have agreed to participate in the governance structures of the Infrastructure Fund.”
Work was also under way to introduce other innovative project financing instruments, such as green infrastructure bonds, project bonds and performance bonds.
The head of the Presidency’s infrastructure investment office Dr Kgosientsho Ramokgopa said efforts were also under way to make conditions more conducive for pension funds to invest in public infrastructure as an asset class.
Government was also reviewing Regulation 28 of the Pension Funds Act to make it easier for retirement funds to invest in infrastructure, should their board of trustees opt to do so.
He added that ISA was currently focusing on preparing the next round of projects following the gazetting, in July, of 50 strategic integrated projects and a further 12 so-called special projects, collectively valued at R340-billion, to be fast-tracked in line with the Infrastructure Development Act.
An additional 28 projects, tentatively valued at R210-billion, had already been identified for further preparation.
These “catalytic projects” were mostly related to the network industries, but Ramokgopa said he was optimistic of including the private sector in the financing and operation of social infrastructure projects in future.
Some 25 experts had also been seconded from the private sector to support the ISA with the project preparations.
Public Works and Infrastructure Minister Patricia de Lille reported other financial models and funding sources, especially for project preparation, were being explored.
“We spend too much time finding out what went wrong afterwards with commissions and inquiries when we should be investing those scarce resources into project preparation now to prevent mistakes,” she averred.