Although a slow burn, momentum is growing in South Africa's PPP sector. A dedicated Treasury Unit and standardised procedures has led to the build up of a substantial pipeline that is starting to deliver accommodation projects, and will soon deliver hospitals, schools and possibly even prisons.

This is an important step for South Africa. With serious social issues as well as infrastructure issues that need to be resolved, there is a feeling that PPP is needed to free up funds to deal with those.

"The pace of progress made by PPP projects is slow right now, but success breeds success," says Michael Meeser of Investec. "Look at the UK market where the first few deals lasted forever, until the people involved started to believe that the system works and delivers value for money. Right now the Treasury is 100% behind PPP."

The biggest project in South Africa's PPP pipeline is the Chris Hani Baragwanath Hospital project in Gauteng Province. The sheer size of the project makes this an important milestone. With bids expected in the first quarter of 2010, this project will be the biggest hospital PPP in the southern hemisphere, expected to be worth R5-8 billion ($670 million to $1.07 billion).

"Ultimately when the government issues an edict that says beyond a certain size a project has to be done using PPP, then South Africa will be an advanced PPP market," says Meeser.

The last PPP to close was an accommodation project, the R100 million Department of Foreign Affairs Head Office Building 25-year concession awarded to the Imbumba-Aganang Consortium, which reached financial close in March 2009. The Imvelo-Grinaker consortium – comprising Grinaker-LTA, Old Mutual, Tiso and WIPHOLD – has just been made the preferred bidder on another head office accommodation project, for the Department of Environmental Affairs & Tourism. Absa is underwriting the deal, which is expected to reach financial close in March. The Department of Land Affairs and the Department of Correctional Services are other ministries that also have head office accommodation projects in the pipeline.
South Africa already has a history of pulling off large hospital PPPs, having closed the Inkosi Albert Luthuli Central Hospital in 2002, and a number of other smaller healthcare deals. Aside from the Chris Hani Hospital, there was an RFP deadline for the Phalaborwa Hospital in Limpopo in September.

In education, a school PPP is in the inception stage in Gauteng. There is confusion, however, about the future of a PPP project from the Department of Correctional Services involving the construction of four new prisons. There were reports – later denied – in September that this had been cancelled. Bids are in for this project and were they supposed to be opened in mid-November, but an order is thought to have come from on high that the bids should remain unopened. Private sector involvement in prisons is politically controversial, and the correctional services minister is believed to be opposed to financing them using the PPP method.

PPP opportunities are likely to be less widespread in transport, but in this area there has been progress on the N1/N2 Winelands real toll concession, which has been in the works for a number of years and is now closer to becoming a reality. The South Africa National Roads Agency (SANRAL) is expected to issue the tender for the R4-7 billion project in the first quarter of 2010. Other SANRAL concessions in the pipeline are the N2 Wildcoast real toll – theoretically quite far advanced, but held up on environmental impact grounds – and the R300 project aimed at alleviating congestion around Cape Town.

SANRAL's most important project, the Gauteng Freeway Improvement Project (GFIP), is being financed on balance sheet, however. The capex requirement is too great for toll revenues to support it without large government subsidies, and having a private operator collecting tolls on South Africa's busiest route – between Johannesburg and Pretoria – would be politically controversial. Consequently SANRAL has been busy in the bond market this year, and is looking to have raised a total of R44 billion in the capital markets by 2012.

The state owned transport company Transnet has an R80 billion investment programme to improve its ports, railways and fuel pipelines over the next five years, but this will most likely be funded using the strength of the company's balance sheet. Plans are in place to tap European and American bond markets in the first quarter of next year for bonds worth between $500 million and $1 billion.

Transnet is also seeking funding from multi-lateral lending agencies, and in November it secured a Eu200 million 12-year loan from Agence Francaise de Developpement for its expansion of the container terminal at the port of Cape Town. This follows on from a ¥35 billion ($396 million) loan from JBIC in March to upgrade the Port of Durban earlier in 2009.
Although Transnet has shown no great inclination to go down the PPP route, some experts believe that the scale of its planned investment is too great for its balance sheet to bear. In September, Coal of Africa Ltd announced it was in discussions with Transnet over the possibility of a PPP for the Maputo rail corridor, and it was reported early in 2009 that Kumba Iron Ore were in similar talks.