Public-private-partnerships (PPPs), or BOT concessions, started in the South African transport sector with the Maputo Corridor toll road undertaken by the parastatal that is now the South African National Roads Agency Ltd (SANRA).

Although no new toll road PPPs have achieved financial close since 2003, there are more toll road PPPs – three national roads undertaken by SANRA, and one provincial road undertaken by the Provincial Administration of the Western Cape (PAWC) – than any other type of PPP in South Africa.

New deals in the pipeline

Transport deal flow is picking up again. SANRA is understood to have several new toll road PPPs in the pipeline, which will hopefully come to the market soon. And the $1.2 billion Gautrain Rapid Rail project – the first foray by the South African government into rail PPPs – was recently awarded to the Bombela consortium with Standard Bank and Rand Merchant Bank arranging finance.

The rail sector, both light and heavy, presents great potential for PPPs, as there is a need for large investments in rail infrastructure to spur wider economic development. Furthermore, PPPs in the light rail sector would be in line with the aim of the South African government to promote and develop public transport and to engender a culture of using public transport across the population as a whole – an aim embodied in various policy documents and statutes.

At present, heavy rail is the responsibility of Spoornet (a division of Transnet Ltd, a parastatal) and the South African Rail Commuter Corporation Ltd (SARCC), another parastatal, owns and operates the national light rail services. There have been tantalizing statements by various Spoornet spokespeople that it is considering using PPPs as a possible means of addressing the heavy rail infrastructure investment backlog. SARCC has registered one PPP with the PPP Unit of National Treasury, which project (according to the latest "PPP Quarterly" issued by the PPP Unit) is in its feasibility stage.

In addition to SANRA, Spoornet and SARCC, provincial governments also have certain responsibilities and rights in respect of rail transport and road infrastructure. At present, two provincial governments have ventured into the PPP sector, with PAWC undertaking the Chapmans Peak Drive PPP and the Government of Gauteng Province (GPG) undertaking the Gautrain PPP.

The port sector also holds potential for PPP projects. The port authority is the National Ports Authority of South Africa (NPA) with port operations provided by the South African Port Operations (SAPO) – both are divisions of Transnet. There have been several rumours in recent years, fuelled by public statements by various National government officials, that PPPs in the container terminal sector are imminent, with Durban port container terminal being the private sector's favourite for the subject matter of a PPP.

There is a strong belief in some national government circles that there will be PPPs in the port sector and more PPPs in both the light and heavy rail sectors as well as the road sector in the future.

Getting the approvals

Generally, all South African PPPs follow the regulatory procedure set out in Treasury Regulation 16: Occasionally a government body or institution undertaking a PPP does not fall within the definition of "institution" in Treasury Regulation 16 or is granted an exemption from Treasury Regulation 16.

Regulation 16 is part of the Treasury Regulations promulgated under the Public Finance Management Act (the statute that regulates all financial and accounting matters of national and provincial government and all parastatals). The procedure in Treasury Regulation 16 requires various Treasury Approvals to be obtained from the PPP Unit (a division of the National Treasury) at various stages before the PPP can proceed.

The first approval is TAI, which is obtained once the institution proposing to undertake the PPP has undertaken a feasibility study in respect of the PPP project, which study shows (amongst other things) that the project will be affordable, present value for money and achieve a required risk transfer if done as a PPP.

Once TAI is obtained, TAIIA has to be obtained in respect of the tender procurement documentation (including the PPP agreement) before these documents can be issued to the bidders. Often, but not always, there is a pre-qualification procedure in which potential bidders have to pre-qualify before they are entitled to receive the tender documentation and submit a tender submission. Once the tender submissions are received, before the preferred bidder can be announced, TAIIB has to be obtained from the PPP Unit.

TAIIB will only be issued if the tender submissions reflect the affordability level, value for money and risk transfer contained in the feasibility study and in respect of which TAI was obtained.

If the tender submissions do not reflect these requirements, then a "best and final offer" stage and even a "final best and final offer" stage will be undertaken in order to obtain the affordability level, value for money and risk transfer that the PPP Unit and relevant institution require for the relevant PPP.

Treasury Regulation 16 also provides that, if it appears that the basis on which the original TAI was obtained is incorrect or no longer valid, a revised TAI can be sought and obtained on the basis of a revised feasibility study, at any time before the issue of TAIII.

TAIII is the last and final Treasury Approval and is obtained once the negotiations are completed, all the legal documents are in final form and the technical principles are settled. Once again, before issuing TAIII, the PPP Unit will compare the final form of the project to the form approved under the TAI and the TAIII will not be issued if there is a substantial difference between those forms.

The PPP Unit usually participates in the negotiation of the relevant PPP to ensure that negotiations do not lead the PPP to stray from the requirements of TAI and TAIIA and from the bid that formed the basis for the issue of TAIIB. This participation by the PPP Unit is useful in that it forms a measure for ensuring that the final form of the negotiated PPP is of such a nature that TAIII will most likely be obtained.

Regulatory exemptions

SANRA has been granted an exemption from complying with Treasury Regulation 16 on the basis of its experience and expertise in respect of PPPs. In addition, Transnet (and hence, its divisions, Spoornet and NPA) does not fall within the definition of "institution" in Treasury Regulation 16 and so does not need to comply with the procedures and requirements of Treasury Regulation 16. SARCC and all provincial governments that undertake transport PPPs would constitute "institutions" for the purposes of and hence have to comply with Treasury Regulation 16.

In addition to Treasury Regulation 16, the PPP Unit issued the "Standardised Public-Private Partnership Provisions" in March 2004. These provisions contain the recommended contractual provisions to be used in respect of PPPs at a National and Provincial government and parastatal level.

It is important to bear in mind that Treasury Regulation 16 is not the sole piece of legislation applicable to PPPs and that in most sectors, and particularly in the various transport sectors, specific statutes enabling and permitting PPPs will be required.

There is a strong argument in South African administrative law that, as South Africa is a constitutional democracy, the powers held by the State are derived from the principles espoused in the Constitution, as may be expressed and given specific form and detail by specific legislation – accordingly, the State at its 3 levels (national, provincial and local) has no inherent powers and authorities anymore. Thus in order for any organ of State to delegate any of its core functions, duties and responsibilities by way of a PPP, it must be specifically empowered to do so by legislation.

In keeping with this argument, as all PPPs in the various transport sectors would involve the delegation of a core function of the relevant institution granting the PPP, there needs to be specific legislation permitting any PPP in any transport sector. In certain important sectors, this legislation already exists (SANRA undertakes its PPPs under a tried and tested statute, NPA has a newly promulgated statute that permits "concessions" and both PAWC and GPG have specific transport infrastructure statutes that authorise PPPs), but at present there is no legislation permitting SARCC or Spoornet to undertake PPPs and it is probable that the private sector would require this legislation to be in place before it embarked on PPPs with these two entities.

These specific statues will and would contain procedures that are additional to the procedures detailed in Treasury Regulation 16. It is important to bear in mind when undertaking PPPs in South Africa that Treasury Regulation 16 does not detail all the procedures to be followed in respect of PPPs – it details the procedures that are to be followed in order to obtain the approval of the National Treasury to the relevant PPP.

There may be, and usually are, additional procedures prescribed by specific sector legislation in respect of PPPs falling within the sector governed by that specific legislation. These procedures will usually deal with important aspects of the PPP that are not covered by Treasury Regulation 16, such as the procedure for the procurement of the land to be used in respect of the PPP, the public participation process to be followed prior to the declaration of a road as a toll road or the process to be followed in respect of the publication of toll or rail tariffs.

Environmental issues

Environmental and heritage issues and procedures constitute important aspects of any PPP. In some previous PPPs, significant delays have been caused by actual or apparent environment or heritage issues. There is a well developed body of South African legislation dealing with environmental and heritage issues, with various assessments and reports being required to be undertaken at various stages of a project, as well as a requirement for consultation with interested and affected parties in public participation processes.

In certain environmental legislation, however, there are some rather unclear phrases dealing with socio-economic issues, which phrases do not clarify whether these issues are broad socio-economic issues or socio-economic issues that are directly related to and arise only out of the environmental impacts of the relevant PPP.

Because of this lack of clarity, these phrases have resulted in actions under the environment legislation delaying or causing suspension of some transport PPPs for considerable periods of time as a result of socio-economic concerns that do not arise out of the strict environmental impacts of the relevant PPP.

That is not to say that such broad socio-economic concerns should not be raised in respect of a PPP – certainly, they should be raised. But it could be argued that the place to raise them is under the specific legislation that authorises and permits the relevant PPP and which always prescribes a public participation procedure and a procedure for the raising and addressing of such socio-economic concerns. There are, however, counter arguments that it is more appropriate as well as procedurally easier to raise such concerns under the environmental legislation rather than under the specific authorising legislation.

Conclusion

The procedural aspects of the various transport PPPs that have been undertaken at present in South Africa have generally run smoothly, the applicable legislation has worked satisfactorily and financial close has been achieved as hoped.

The institutions undertaking the PPPs and the PPP Unit have displayed a willingness, ability and capacity to reach agreement on terms acceptable to all participants in the PPPs. The signs for development of significant PPPs in rail (light and heavy), port and roads are promising and most (and in certain sectors, all) of the legal tools required for PPPs already exist. When those developments occur, they are likely to result in a number of sizeable PPP transactions.