State moves to improve infrastructure project outcomes

Government has published a full list of its infrastructure projects and has promised greater transparency in this regard. See the list here.

In the medium-term budget policy statement (MTBPS) it acknowledges that weak project preparation, planning and execution has resulted in lengthy delays, over- and underspending and problems with quality.

A case in point is the delay of several years in the completion of Eskom’s Medupi and Kusile power stations and the associated huge overspending. This has often been ascribed to lack of proper planning and design before construction started.

In the MTBPS government attributes the planning problems to a lack of technical expertise and institutional capacity.

It announces the establishment of a project preparation facility, with representation from the National Treasury, Government Technical Advisory Centre, the Presidential Infrastructure Coordinating Commission, the Development Bank of Southern Africa, the Association for Savings and Investment South Africa, the Banking Association of South Africa, the South Africa Venture Capital and Private Equity Association, and the New Development Bank.

This facility will be situated in the National Treasury budget office and R625 million has been allocated over the next three years to support its operations.

It will deploy technical experts to sponsoring departments to support development of investment-ready projects, government states.

It makes it clear that infrastructure spend is a key element of its plans for economic recovery and, apart from plans to improve the efficiency of government’s own infrastructure spend, it hopes to unlock private sector investment in such projects.

Government has published a list of all government projects with the MTBPS documents and says it will publish online expenditure reports of current infrastructure projects to improve transparency and accountability.

Government adds that it is negotiating access to infrastructure funding from development finance institutions, multilateral development banks and private banks as well as their assistance with technical skills to help plan, approve, manage and implement projects.

Work is underway with assistance from the private sector and multilateral development banks to design the infrastructure fund announced by President Ramaphosa as part of his economic stimulus package.

“The fund is expected to identify innovative financing mechanisms and allow for accompanying regulatory reforms.”

The Department of Energy’s Renewable Energy Independent Power Producer Programme (REIPPP) is named as a model “which involved very little public funding, but required offtake agreements guaranteeing future cash flow, and regulatory changes to allow private electricity production”.

Government states that its underspending on infrastructure projects could amount to R30 billion over the medium term, based on recent performance. It hopes to sharply reduce that through improved oversight and implementation of existing capital budget.

Government will develop a framework for investors to assess potential long-term returns on public infrastructure projects, which will make it easier to access funding. This will include mechanisms like subsidies and guaranteed offtake agreements which government can use to unlock private investment.

If projects are commercially viable and can by fully funded privately, government undertakes to remove regulatory hurdles.

If it is borderline commercially viable, hybrid funding would be considered in the form of public-private partnerships, concessional financing, government guarantees, loan subsidies and development finance.

Projects that are not at all commercially viable but offers a clear social benefit would be funded directly from the fiscus.

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