Treasury paves the way for unsolicited PPP bids
The government will take unsolicited bids from the private sector for public and private partnership (PPP) infrastructure projects, the National Treasury said as it introduced a proposal to stimulate participation in government-led projects by overcoming barriers to entry for the private sector.
Briefing government officials and industry representatives this past week, the Treasury said unsolicited bids will boost technical knowledge, innovation, and efficiency.
However, private sector attendees said they would need strong incentives to make unsolicited proposals as they might still lose the bids.
William Dachs, technical adviser to Treasury director-general Duncan Pieterse on PPPs, said unsolicited proposals were difficult for the private sector as the government would charge the bid owner for their side of the feasibility study and then still put it out to tender, which was unattractive to those investors.
He said, as a result, South Africa has not had a meaningful unsolicited proposal “in some 20 years”.
He said the proposed amendments allow those making unsolicited bids to conduct their own feasibility studies, while the government will assess proposals for affordability, value for money and risk transfer.
Dachs said the state needed to create a balance where the private sector could present proposals for the government to consider.
“The private sector in the freight and logistics sector, for example, has many, many ideas that they can back with their investment, but until Transnet or the department of transport goes and puts out a tender for these ideas, they can’t respond and can’t put their ideas forward.
“And this is where government needs to be quite innovative in our thinking and create that balance where the private sector can put their ideas forward and we as the government then consider it and subject it to competition.”
Attendees heard that if an unsolicited proposal goes into the bidding process, the entity making the bid will be pre-qualified and shortlisted as an incentive. If they lose the tender, they will be reimbursed for their feasibility study costs and also have their intellectual property protected.
Standard Bank energy infrastructure executive vice-president George Kotsovos said the private sector needed clarity on how the Treasury would incentivise companies to come forward with unsolicited bids if they risked losing the bid.
“From a development point of view, the concerns were always about reimbursement of costs. Ultimately, they’ve put in the work, they’re spending money on the feasibility and then they don’t become the preferred bidder... There’s somebody else who wins and they [the original bid author] don’t get compensated... I think that clarification is going to be quite important.”
Kotsovos welcomed the effort that the Treasury is putting into reconceptualising PPPs to deliver world-class infrastructure projects, saying it should consider a “toolkit that can be used by the private and public sector alike to know what needs to get done”.
“One thing that we’ve heard is that PPPs are cumbersome and time-consuming. What is being done now is quite important to ensure that private sector and state entities are being heard about what needs to be done to enhance PPPs.”
Rand Merchant Bank’s legal adviser for infrastructure solutions Viola Ngwenya welcomed the government’s willingness to engage the private sector on PPPs in a variety of sectors. She said the private sector needed assurance that the government would ensure the quality output of projects.
“The structuring of the projects themselves and the quality of the output of the project when it goes through feasibility... has an impact on the project, whether it is ready for investment and whether the private
sector can invest in it.”
She recommended a central panel at the Treasury to manage the quality of PPPs, as the Treasury cannot currently manage or control the quality of appointees and procedures in PPPs for infrastructure projects.
Dachs said few countries allowed “serious” unsolicited proposals. He said South Africa’s infrastructure challenge could be broken into three parts, namely underinvestment, inadequate private-sector investment, and infrastructure investment with poor-quality output.
Treasury’s proposed regulation amendments aim to sharpen the definition and meaning of project feasibility and fiscal risks. Dachs cited the example of Thailand’s light-rail PPP project which ran into trouble when the 1997 Asian crisis triggered a call for guarantees on the project.
Director of infrastructure finance at the budget office Dorcas Kayo said low-value projects below R2bn will have a framework for grants that will contain less red tape and lock-in measures, preventing accounting officers from abandoning these projects.
She said the PPP unit would now reside in the government technical advisory centre, located within the Treasury, where it would play an advisory role. The period for written submissions on the proposed amendments ends on April 15.
One thing that we’ve heard is that PPPs are cumbersome and time-consuming George Kotsovos
Standard Bank energy infrastructure executive vice-president