Fair arbiters ‘are one of the keys to PPP deals’
IDC executive Nina Yose highlights an essential element in projects such as third-party access to Transnet lines
These governance, regulatory and skills problems have become self-perpetuating because municipalities get government grants every year and never use them
Nina Yose, head of infrastructure at the Industrial Development Corporation (IDC), says swift and fair arbitration of disputes between the government and the private sector is key to South Africa’s attractiveness as an investment destination.
“The private sector wants to know what the rules of the game are, and that they’ll be applied fairly in the event of disputes between themselves and government,” she says — a day after President Cyril Ramaphosa extolled the value of the country as an investment destination at the 2024 Sustainable Infrastructure Development Symposium South Africa (SIDSSA) in Cape Town and Transnet released for public comment the tariffs it wants for third party access to its rail network.
Private operators say the fees are excessive and even predatory. How disputes around the tariff proposals are handled will be critically important not only for the country’s logistics turnaround but for its desirability as an investment destination, Yose says.
“What investors need to know is that the [Transnet] tariff will be competitive for everyone, it will be a level playing field for everyone who is participating in the sector, and that if there’s any dispute they know whoever arbitrates between themselves and the infrastructure manager will be fair, and that the arbitration will be quick.”
The biggest impediments to infrastructure development in South Africa are poor governance, policy and regulatory uncertainty and lack of skills, precisely because they discourage private sector investment, Yose says.
The provision of social infrastructure such as water, housing and roads at municipal level is being seriously impeded by issues of governance, she says.
Ideally, municipalities should be able to take on some debt and make at least limited commitments to crucial infrastructure projects. “But because of governance failures they’re not collecting the revenue they should from users, so they can’t. The alternative is to bring in the private sector. But because of the skills gap they’re not able to package transactions properly and put together a business case to take to investors.” This has led to a devastating lack of essential water infrastructure projects. The Development Bank of Southern Africa (DBSA)’s infrastructure fund and Infrastructure South Africa (ISA) were set up to close that skills gap and get these projects packaged properly for investors, but it’s not happening, she says.
“The reality is that these governance, regulatory and skills problems have basically become self-perpetuating because municipalities get government grants every year and every year they don’t use them.”
Although the DBSA infrastructure fund and ISA were set up to fast-track the process, when private sector investors do engage with local government infrastructure projects they find that getting regulatory approvals can still take forever.
“It does become frustrating to get these approvals at municipal, provincial and even national level. Registering with the DBSA infrastructure fund and ISA has helped to hurry projects along, but the process is still too slow.”
All this explains why getting financial close on projects is such a challenge and attracting private sector involvement is also “too slow”.
“But we have seen some successes,”
Yose says. She mentions an IDC pipeline project for platinum miners in Lephalale in Limpopo. The government has provided grants upfront and commercial banks have come in with loans for the project that will be repaid by the users, the mines.
But it’s taken four years just to get this far. “It has not been as fast as we anticipated initially when the project was announced in 2020,” she says.
Nothing is more important right now than bringing in private sector funds and skills to galvanise the network sectors — rail, ports and electricity. “Once the policies and regulatory environment comes in around government’s logistics road map, we’re going to see a lot of investment of skills and money coming in.”
Yose is upbeat about long overdue policy certainty at Transnet around opening the rail infrastructure to private operators.
“Because you have governance failures in almost every single town in the country it becomes difficult for agencies like ISA, DBS and the IDC to fix everyone’s problems all at once at municipal level, but at the level of state-owned companies such as Transnet and Eskom we’re seeing projects advancing and getting prepared.”
Lack of project preparation remains a major challenge, however. “It’s happening, it’s just not happening fast enough.”
How can the public-private partnership (PPP) model be made more fit for purpose?
“Our mandate as the IDC is to fund profitable projects and our work is mainly with SOEs. Right now we’re looking at the Eskom transmission line and Transnet and the water infrastructure agency that has to be set up. From that point of view there is a lot of work to be done. But government has done quite a lot in terms of preparing the environment for investors, such as putting proper regulations in place to enable them to participate.”
The most urgent governance issues right now are around water, she says. “You cannot have lack of governance when it comes to the provision of water, because water is about life and death. What we’ve seen in Hammanskraal, where we had the issue of cholera, is evidence of that.”
What does she make of the water crisis in Johannesburg?
“It’s the same story everywhere. It’s the fact you’ve got this backlog of infrastructure development and maintenance around the country. It comes back to governance. With all the infighting it becomes difficult to make the decisions that need to be made for investment to happen.”
As for South Africa being an attractive investment destination, “the potential is certainly there, but there’s a lot of work to be done”.
Work that is being done, especially in the Presidency with the logistics road map, the splitting of Eskom and putting in transmission lines, and the joint venture with a Philippines-based international port operator to manage flagship Durban container terminal pier 2 will go a long way to reaching that goal, she says.
On paper at least things are looking hopeful at the level of SOEs such as Transnet and Eskom, “but it’s about swift execution”.
Enough groundwork has been done to safeguard infrastructure development projects during the election period, says Yose, a Wits University and PwC-trained chartered accountant. She has an MBA from the Gordon Institute of Business Science and joined the IDC as an analyst in 2008, rising to head of infrastructure in 2020.
“If the new administration that comes in fast-tracks what this one has started we can get to where we need to go very quickly.”