AN EXPLORATION OF PUBLIC PRIVATE PARTNERSHIP IN INFRASTRUCTURE DEVELOPMENT IN SOUTH AFRICA
By
Murendeni Liphadzi
A DISSERTATION Submitted in fulfilment
Of the requirements for the degree
BACHELOR OF TECHNOLOGY
In
QUANTITY - SURVEYING
In the
FACULTY OF ENGINEERING AND THE BUILT ENVIRONMENT
at the
UNIVERSITY OF JOHANNESBURG
SUPERVISOR: MR C.O. AIGBAVBOA
2013
AN EXPLORATION OF PUBLIC PRIVATE PARTNERSHIP IN INFRASTRUCTURE DEVELOPMENT IN SOUTH AFRICA
MURENDENI LIPHADZI
SUPERVISOR: MR C.O. AIGBAVBOA
A dissertation submitted in partial fulfillment of the requirements for the award of a Baccalaureate Technologiae in Quantity Surveying to the Faculty of Engineering and the Built Environment, Department of Construction Management and Quantity Surveying, University of Johannesburg, Republic of South Africa.
JOHANNESBURG, OCTOBER 2013
DECLARATION
I, Murendeni Liphadzi, hereby declare that the content of this dissertation represents my own work, unless otherwise indicated by appropriate references. The dissertation has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinion and not necessarily that of the University of Johannesburg.
______
Signature Date
ACKNOWLEDGEMENTS
Firstly I would like to thank God, who made it possible for me to come this far. I am truly thankful for the strength and courage that he restored in me throughout this journey.
I would further like to express my sincere thanks as follows.
- To my family and friends, for the support and the encouragement gave me throughout my studies, especially my dad who assisted me in editing the dissertation.
- Mr C. Aigbavboa, my supervisor, for his encouragement, motivation, invaluable insights, direction, as well as timeous and honest feedback ; and
- All the respondents who participated in the research process.
ABSTRACT
Purpose
Public-Private Partnerships (PPPs) are generally envisaged by countries around the world as a major innovative policy tool that will remedy the lack of dynamism in traditional public service delivery by increasing investment in infrastructure, as well as improving the delivery of social services. To this end, the South African Government since 1999 through the National Treasury has adopted the use of PPPs as an integral strategy in its national and international developmental plan. Therefore, if the government needs to complement its developmental aspirations, there is a need to instill the confidence and competitiveness amongst bidders to use PPPs, as a coherent development orientated best value tool to deliver services and infrastructures to the people. This research therefore, explores the relevance of PPP’s in South Africa and the challenges facing the PPP legal framework and suggests some techniques that could serve in fast- tracking infrastructure.
Methodology
The data used in this research were derived from both primary and secondary sources. The secondary data were collected via a detailed review of related literature. The primary data was collected through a structure questionnaire aimed at 50 construction government and private officials who have the knowledge of PPPs.
Findings
Findings from the study revealed that PPPs is a viable option for infrastructure delivery in South Africa and should be better explored; as it was also found that PPPs is currently unpopular because it has been under-explored. Also, the respondents informed that current PPP regulations in South Africa may have to be changed or better adapted to be effective in the administration of PPP transactions.
Originality
Based on the outcomes of this study of Public Private Partnership in infrastructure development, this research calls out to government to pay special attention to the creation of skills within government to deal with PPPs and have equal responsibility to play in ensuring that PPP is promoted amongst the private sector during the procurement phase of the PPP by creating an enabling environment which is fair.
Keywords
Infrastructure Development, Public Private Partnership, Gauteng Province Government
TABLE OF CONTENTS
DECLARATION ii
ACKNOWLEDGEMENTS iii
ABSTRACT iv
LIST OF ABBREVIATIONS xi
LIST OF FIGURES xii
LIST OF TABLES xiii
CHAPTER ONE 1
1.1 INTRODUCTION 1
1.2 BACKGROUND 1
1.3 SIGNIFICANCE OF RESEARCH 2
1.4 AIM OF THE STUDY 2
1.5 PROBLEM STATEMENT 3
1.6 RESEARCH QUESTIONS 3
1.7 OBJECTIVES 3
1.8 METHODOLOGY 4
1.9 ETHICAL CONSIDERATION 4
1.10 OVERVIEW OF CHAPTERS 5
1.11 CONCLUSION 6
CHAPTER TWO 7
LITERATURE REVIEW 7
2.1 INTRODUCTION 7
2.2 HISTORY AND RELEVANCE OF PUBLIC PRIVATE PARTNERSHIPS 7
2.3 DEFINING PPPs TOWARDS INFRASTRUCTURE DEVELOPMENT 8
2.4 CONVENTIONAL VS. PPP PROCUREMENT 9
2.5 DIFFERENT TYPES OF PPP’S 12
2.5.1 Supply and management contracts 12
2.5.2 Turnkey contracts Build, Operate, Transfer (BOT) and Design, Build, Operate (DBO) 12
2.5.3 Affermage/Lease 13
2.5.4 Concessions 13
2.5.5 Private Finance Initiative (PFI) and Private ownership 13
2.6 PPP PROCESS – HOW IT WORKS 14
2.7 ADVANTAGES AND DISADVANTAGES OF PPP’S 15
2.8 SOUTH AFRICAN REGULATIONS FOR PPPS 16
2.8.1 The Public Financial Management Act 16
2.8.2 Treasury Regulation 16 16
2.9 THE ROLE OF PPPS IN INFRASTRUCTURE DEVELOPMENT 21
2.10 PPP – SA EXPERIENCE 22
CHALLENGES FACED BY PUBLIC PRIVATE PARTNERSHIP IN THE DEVELOPMENT OF SOUTH AFRICAN INFRASTRUCTURE. 24
2.11 PPP UNIT CHALLENGES 24
2.12 PRIVATE SECTOR MISTRUST 25
2.13 SKILLS SHORTAGE 25
2.14 UNCERTAINTY IN THE SERVICE AGREEMENTS 25
2.15 INADEQUATE STANDARDISATION OF PROJECT DOCUMENTS 26
2.16 POLITICAL INTERFERENCE 27
2.17 RISK TRANSFER 27
SUCCESS FACTORS WITHIN IMPLEMENTING PPP’S TOWARDS INFRASTRUCTURE DEVELOPMENT. 29
2.18 OVERVIEW OF PRINCIPLES FOR PPP SUCCESS 29
2.19 CAREFUL SELECTION OF PARTNER 30
2.20 FOCUSED PURPOSE 30
2.21 COMMITMENT, SUPPORT AND INVOLVEMENT BY ALL PARTIES INVOLVED 31
2.22 CREATING SKILLS 31
2.23 TRANSPARENT PROCUREMENT PROCESSES 32
2.24 ENABLING POLITICAL AND STATUTORY ENVIRONMENT 32
2.25 PPP LEADERSHIP 32
2.26 THE CONTRACT: THOUGHT OUT PLAN 33
2.27 CAPACITY 33
2.28 RISK TRANSFER 33
2.29 MARKETING OF PPP’s 34
2.30 CASE STUDY ANALYSIS: LESSONS LEARNED FROM THE GAUTRAIN 34
2.30.1 INTRODUCTION 34
2.30.2 GAUTRAIN: OVERVIEW 34
2.31 CONCLUSION 37
CHAPTER THREE 38
RESEARCH METHODOLOGY 38
3.1 Introduction 38
3.2 Research design 38
3.2.1 Types of research methods 38
3.2.2 Target population 38
3.2.3 Sampling 39
3.2.4 Sample size 40
3.2.5 Research instrument 40
3.2.5.1 Questionnaire design 40
3.3 THE RESEARCH PROCESS 41
3.3.1 The Administration of questionnaires 41
3.3.2 Collection of questionnaires 41
3.3.3 Data analysis 42
3.3.4 Reliability and validity 42
3.4 Conclusion 43
CHAPTER FOUR 44
DATA ANALYSIS AND DISCUSSIONS OF THE DATA 44
4.1 Introduction 44
4.2 Data Analysis 44
4.2.1 Section A: Background Information Of Respondents. 45
4.2.2 Section B: Relevance of PPP towards Infrastructure Development. 51
4.2.3 Section C: Challenges facing PPP towards Infrastructure Development in South Africa (Gauteng). 53
4.2.4 Section d: Possible success factors within implementation of PPPs. 54
4.3 Conclusion 56
CHAPTER FIVE 57
DISCUSISION OF FINDINGS 57
5.1 Introduction 57
5.2 Background information results of respondents 58
5.2.1 Biographical data results 58
5.3 RESEARCH QUESTION 1 59
5.3.1 Findings 59
5.4 RESEARCH QUESTION 2 60
5.4.1 Findings 60
5.5 RESEARCH QUESTION 3 61
5.5.1 Findings 61
5.6 Conclusion 62
CHAPTER SIX 63
CONCLUSION AND RECOMMENDATIONS 63
6.1 Introduction 63
6.2 RESEARCH OBJECTIVE 1 63
6.2.1 Conclusion 63
6.3 RESEARCH OBJECTIVE 2 64
6.3.1 Conclusion 64
6.4 RESEARCH OBJECTIVE 3 64
6.4.1 Conclusion 65
6.5 CONCLUSIONS 65
6.6 RECOMMENDATIONS 65
6.7 CONCLUSION 66
REFERENCE LIST 67
QUESTIONNAIRE DESIGN 72
LIST OF ABBREVIATIONS
PPP Public Private Partnerships
PFMA Public Finance Management Act
SPV Special Purpose/Project Vehicle
LIST OF FIGURES
Page
Figure 2.1 PPP models…………………………………………………………………...14
Figure 2.2 PPP Project life cycle………………………………………………………...20
Figure 2.3 Gautrain PPP Structure……………………………………………………….35
Figure 4.1 Respondents on Gender………………………………………………………45
Figure 4.2 Respondents ethnicity………………………………………………………...46
Figure 4.3 Respondents Highest qualifications………………………………………...... 46
Figure 4.4 Respondents sectors of working…………………………………………...... 47
Figure 4.5 Divisions deployed in…………………………………………………………47
Figure 4.6 Respondents current position in the selected sector and division…..... ……...48
Figure 4.7 Respondents who worked in the construction industry…...... 48
Figure 4.8 Construction related degree…………………………...... 48
Figure 4.9 Industry Experience by Respondents…………………………………………49
Figure 4.10 PPP experience………………………………………………………………49
Figure 4.11 PPP sphere…………………………………………………………………...49
Figure 4.12 Role in the selected PPP sector……………………………………………...50
Figure 4.13 Success of a PPP ……………………………………………………………54
LIST OF TABLES
Page
Table 1.1 Traditional Procurement vs. PPP’s ………………………………………………11
Table 4.1 Relevance of PPP towards infrastructure development ………………...... 51
Table 4.2 PPP tests …………………….…………………………………………………...52
Table 4.3 Challenges facing Public Private Partnerships ………………………..……….53
Table 4.4 Success conditions of a Public Private Partnership………………………....….55
xii
CHAPTER ONE
1.1 INTRODUCTION
The Public-Private Partnership (PPP) is a popular instrument for infrastructure development. It has become the traditional form of delivering infrastructure and services; PPP is an alternative form of delivering infrastructure. Many challenges have been experienced in the South African PPP fraternities that have contributed to the stagnation of value-adding projects being implemented. In spite of these challenges, some developed countries have successfully implemented PPP projects which have concurrently presented opportunities and lessons that South Africa can draw from. This research studies PPP within South Africa towards infrastructure development and also looks into the fundamental causes of the challenges.
1.2 BACKGROUND
Public Private Partnerships or PPPs as they are commonly referred to are arrangements for procuring infrastructure, goods and services by government through a joint venture with the private sector (Malao, 2011:16). Infrastructure development is taking on new momentum in South Africa. The reasons for this are many and varied. They range from fixing the dilapidated and aged infrastructure to job creation, as well as to respond to the global economic crisis. PPPs in South Africa are an important service delivery mechanism because they can facilitate rapid infrastructure delivery as envisaged under the Accelerated and Shared Growth Initiative for South Africa (Budget speech, Trevor Manuel, 2006:14).
In October 2007, the Public-Private Partnership Unit of the South African National Treasury had 73 registered public-private partnership (PPP) projects on its books. Of these 73 projects, 18 were already active and had a joint value of more than R31 billion (PPPU, 2007; 21). In January 2011, the list of national and local PPPs in South Africa stood at 75 and the construction phase of the R25 billion Gautrain PPP project was nearing completion (PPPU, 2011; 11).
PPPs should be seen as a catalyst for providing basic infrastructure services that have the intent of improving the quality of lives for ordinary citizens. PPP also operates in a manner that the private party uses its own funds to ensure that the construction is completed on time and within budget. Within South Africa most infrastructure development has traditionally been done by the state through tax revenue collection, which is why the use of PPPs as a way of mobilizing economic development and infrastructure spend needs significant consideration (Malao, 2011:2).
As the PPP market grows in South Africa, it is clear that the public sector needs to improve its understanding of PPPs and in which sectors they should be pursued, to complement traditional procurement practices (National Treasury PPP Unit, 2007:23). It is imperative that the public and private sectors move towards a greater shared vision of the role that PPPs can play in delivering infrastructure and services in South Africa. The onus is on both parties to make PPPs viable through a genuine spirit of co-operation that produces trust (Akintoye, 2005:459).
1.3 SIGNIFICANCE OF RESEARCH
PPP is very important in developing the infrastructure of the country. If South Africa wants to remain globally competitive and ahead of its emerging market counterparts, there needs to be a complete change of priorities regarding procurement methods used. The purpose of this study is to assess PPP towards infrastructure development in South Africa with regards to how PPP has affected the construction spectrum and the way forward in building a more developed country. I believe this research can be helpful to the nation and development agencies in bringing new procurement strategies.
1.4 AIM OF THE STUDY
The aim of this study is to explore and access the Public Private Partnership in South Africa. It is known that PPP has been successful in other countries with regard to service delivery, so we access its challenges as we develop the success factors.
1.5 PROBLEM STATEMENT
In South Africa infrastructure development needs special attention from both the public and private sectors. Thus, this research will evaluate the use of the Public Private Partnership procurement method in infrastructure development in South Africa in order to find out its challenges and how PPP can be used to fast track infrastructure development. The study is a case study of the Gauteng Province.
1.6 RESEARCH QUESTIONS
In this research, the following questions have been developed in line with the research problem statement, which are:
1. What is the relevance of Public Private Partnership towards infrastructure development in South Africa?
2. What are the challenges faced by Public Private Partnership in the development of the South African infrastructure?
3. Which conditions are necessary for the successful implementation of Public Private Partnership and to what extent can this implementation fast track the delivery?
1.7 OBJECTIVES
The objectives of this study can be highlighted as follows:
1. To investigate the relevance of PPP to infrastructure development in the Gauteng Province.
2. To assess the challenges that Public Private Partnership in infrastructure development are facing in South Africa.
3. Possible success factors within implementation of PPP’s, and to suggest solutions for the challenges faced by South African Public Private Partnership.
1.8 METHODOLOGY
This research will adopt a quantitative approach which will comprise of a questionnaire. The target population was the government and private officials who have the knowledge of PPPs. This will comprise of company officials who worked on different PPP projects. The questionnaire will be delivered to different people. The number of targeted respondents will be 50 for this survey, final sample size and analysis will depend on the responses of those officials.
The format of the questionnaire will have three sections. The first section will be based on demographic data of the professionals and officials; this reflects the experience in the field, gender, race, and professional status. Section two comprises of questions relating to the relevance of PPP towards infrastructure development and that will be based on the Likert scale, ranging from 1 (strongly disagree) to 5 (strongly agree). Section two will deal with the challenges facing PPPs with regard to infrastructure development. The third section consists of questions and statements relating to possible conditions needed for fast tracking infrastructure through PPPs.