While it is widely accepted that public–private partnerships (PPP) projects and programmes are vital contributors to the socioeconomic development of South Africa, many potentially good PPP projects never reach the point of implementation.

One of the primary reasons, according to financial institution Nedbank Capital Infrastructure, Energy and Telecommunications business head Mike Peo, is that the stakeholders involved in conceptualising and initiating projects do not correctly establish the vital early frameworks on which these partnership-based projects can be built.

“Key to these initial frameworks is upfront investment that can get them to the point of bankable feasibility, including establishing the policy and economic imperative, bedding down the regulatory requirements, defining the environmental framework and developing a workable financial model,” he says.

Peo adds that, without a clear understanding of, and investment in, these project components, attempting to replicate the success that has been achieved with, for example, South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) is likely to result in a futile exercise.

He notes that, currently, the biggest challenges, with the exception of the Department of Energy’s (DoE’s) Renewable Energy Programme, are a lack of clear policy direction from government and, while embedded in the National Development Plan, the minuscule allocation of actual PPP transactions coming to market.

“A lack of capacity in national government and in provincial governments to actually manage and implement PPPs is another challenge, along with the time it takes to complete all the processes to get a deal to implementation, where the National Treasury PPP unit has approved the deal,” Peo explains.

He adds that the key principles for the successful implementation of these projects are an enabling policy framework by national government, a well-defined regulatory environment, all of which we currently have in South Africa, and then well-developed projects.

“South Africa’s REIPPPP programme – which was conducted by the DoE as a standalone programme – is the best example yet by government of how to procure projects on a large scale.”

Peo explains that the central premise of the REIPPPP is a partnership between government and the private sector, where risks are allocated to the party best able to assume and manage those risks, with the assumption that such risks are correctly priced by the financing parties.

Further, the programme is a mechanism, he adds, where private-sector debt and equity are mobilised to fund a project and it is the best procurement mechanism through which to deliver large-scale infrastructure projects. In South Africa, another great benefit is the ability to access private-sector capacity and experience in delivering such projects, including all aspects such as financial, legal and technical.

“A successful PPP entails a well-structured deal, where there is an appropriate sharing of risk between the public- and private-sector parties, as well as commitment and capacity by both parties; fundamentally, the project needs to provide affordability and value for money for the public-sector party and equitable economic returns, commensurate with the risk, to the private-sector party,” Peo concludes.