In February 2024, National Treasury published draft amendments to Regulation 16 of the National Treasury Regulations (“the Regulations”). These amendments will take effect on 1 June.

Public-private partnerships (“PPP’s”) have long been seen in South Africa and elsewhere as a means of facilitating delivery of public infrastructure and services where government institutions lack the financial or logistical capacity to do so unassisted. PPP’s are governed by Regulation 16 of the National Treasury Regulations (“the Regulations”) promulgated on 15 March 2005, in terms of the Public Finance Management Act, 1 of 1999 (“PFMA”). The Regulation defines a PPP as - “a commercial transaction between [a state] institution and a private party in terms of which the private party—

(i) performs an institutional function on behalf of the institution; and/or

(ii) acquires the use of State property for its own commercial purposes; and

(iii) assumes substantial financial, technical and operational risks in connection with the performance of the institutional function and/or use of State property; and

(iv) receives a benefit for performing the institutional function or from utilising the State property, either by way of: (i) consideration to be paid by the institution which derives from a revenue fund or, where the institution is a national government business enterprise or a provincial government business enterprise, from the revenues of such institution; or

(ii) charges or fees to be collected by the private party from users or customers of a service provided to them; or (iii) a combination of such consideration and such charges or fees”.

The Regulations set out rules and procedures for the management and deployment of public funds and assets. They were promulgated with a view to ensuring transparency and equity and reducing the likelihood of corruption and waste. This, however, resulted in a system that is in many respects very formalistic and unwieldy, resulting in bottlenecks and delaying the implementation of projects which, in turn, discouraged private investors, especially foreign investors, from entering into PPP’s. Between the 2011/12 and 2022/23 financial years, the value of new PPP transactions in South Africa noted by National Treasury declined by approximately a third, from R10.7 billion to R7.1 billion.

Having recognized this, National Treasury, in February 2024, published draft amendments to Regulation 16. The purpose of the amendments is to simplify the process of approval of certain PPP’s, to avoid unnecessary red tape and delays in implementing them.

Under the current Regulations, before an institution may proceed with a PPP, a multistage approval process must be followed –

• Stage I requires that the institution must undertake a feasibility study, explaining thestrategic an operational befits of the proposed PPP, the nature of the institutional functionto be performed by the institution or the State property to be used for the PPP and thefinancial and operational risks and benefits of the PPP. The institution may not proceed with the procurement phase of a PPP until the feasibility study has been approved by the National Treasury or provincial treasury, whichever has authority (“the relevant treasury”).
• Stage IIA requires that, before issuing procurement documentation in respect of the PPP to prospective bidders, the institution must obtain the approval of the National Treasury or relevant provincial treasury.
• Stage IIB requires that, after evaluating the bids received, the institution must submit a report, for approval by the National Treasury or relevant provincial treasury, demonstrating how the criteria of affordability, value for money and substantial technical, operational and financial risk transfer were applied in the evaluation of the bids, and how these criteria were satisfied in the preferred bid, and including any other information as required by the treasury;
• Stage III requires that after the procurement procedure ahs been concluded, but before the a PPP agreement is concluded, the institution must obtain the approval of the relevant treasury that the agreement meets the criteria of affordability, value for money and substantial technical, operational and financial risk transfer approved in Stage I, of a management plan, and that satisfactory due diligence has been conducted in respect of both the institution and their capacity and competence to enter into the agreement.

Some of the significant changes brought about by the amendments are –

• Providing for the creation of a “PPP Advisory Unit” to provide advice, support and knowledge management to institutions and National Treasury through the stages of the procurement and approval process;
• If an institution, having commenced a PPP procurement process, fails to adhere to the timelines as approved or as contained in the procurement documentation, it is obliged to inform the relevant treasury of the delay and the reasons for it, and steps taken to mitigate the delay;
• An institution may only abandon or suspend a procurement process after consultation with the National Treasury and after submitting to the relevant treasury a report setting out the reasons and justification for abandoning or suspending the process;
• In the case of a PPP project below R2 billion, an institution need not obtain Stage IIA and IIB approvals from the relevant Treasury. Instead, the accounting officer or accounting authority may authorise and sign off on the documentation, after obtaining and considering the views of the PPP Advisory Unit.

The amendments are intended to bring about a streamlining and acceleration of the process of approving and implementing PPP’s, and, in so doing, remove some of the systemic problems currently inherent in the process. It is hoped that this will encourage more private sector investors, both local and offshore, to invest in PPP projects to the benefit of service and infrastructure development in South Africa.