10 December 2015

Public-Private Partnerships: a legal spider web

Public-private partnerships (PPPs) have been touted by government and presented in the media as possible solutions to service delivery shortfalls in a variety of sectors, including education, transport, and health. However, it is not as easy to define a public-private partnership as one might think, particularly within South Africa’s legislative framework.

The old National Treasury PPP Unit website (which is still live) defines a PPP as “a contract between a public sector institution/municipality and a private party, in which the private party assumes substantial financial, technical and operational risk in the design, financing, building and operation of a project”. The National Treasury also points out that a PPP is not ‘a simple outsourcing of functions where substantial financial, technical and operational risk is retained by the institution’. Furthermore, a PPP is not ‘a donation by a private party for a public good, the 'commercialisation' of a public function by the creation of a state-owned enterprise, nor does it constitute borrowing by the state’.

These definitions offer some general guidance as to the nature of PPPs, but what a PPP is and how it is regulated lies in the intersection between the Public Finance Management Act (PFMA), Treasury Regulation 16 to the PFMA, and the Standardised Public-Private Partnership Provisions. At the municipal level, the Municipal Financing Management Act (MFMA), the Municipal Public Private Partnership Regulations, and the Municipal Systems Act (MSA) also interact to regulate PPPs. Furthermore, the key term ‘substantial financial, technical and operational risk’ is not defined in any of the relevant legislation, and as a result it is difficult to say exactly what its legal meaning is held to be in the context of PPPs.

SAHA has been attempting to procure records relating to PPPs in the education sector. The National Treasury’s Government Technical Advisory Centre (GTAC) website is supposed to list the national and provincial PPP projects which have been registered in terms of Treasury Regulation 16, and municipal projects registered in terms of the MFMA and MSA. The list of active PPP projects on the GTAC website at the time of writing appears to be incomplete. SAHA has however received a list of the registered PPP projects as at October 2015, in response to a PAIA request submitted to the National Treasury, which lists additional active PPP projects.

In addition to the list of active PPPs on the GTAC website being incomplete, the list of ‘signed/closed’ PPPs available on the GTAC website does not include PPPs which were registered but did not reach financial close. This is unfortunate, as even PPP projects that did not reach financial close would have to have been registered with the National Treasury once they had been identified as PPPs, and would likely have progressed at least to the feasibility study phase. This means that a substantial amount of information would have been produced before the project was discontinued, such as due diligence, economic valuations and needs analyses.

One such PPP which was identified as such but does not appear on any of the National Treasury’s PPP lists is the Department of Education e-Education Project, which according to law firm Ledwaba Mazwai’s website was discontinued in 2007 after the feasibility stage. SAHA submitted a PAIA request for records relating to the e-Education Project and received a number of documents from the Department of Basic Education which had been prepared for Treasury approval in terms of Treasury Regulation 16, including the due diligence report, needs analysis and procurement options report. While SAHA did receive some records from the Department of Basic Education it is also clear that it is more difficult to access historic information regarding PPPs which may have been registered but for some reason were prematurely discontinued.

Public comments and representations could play a role in refining proposed PPPs at the various stages of approval, especially once the feasibility study phase is complete. One interesting distinction between municipal and national/provincial PPPs appears to be that proposed municipal PPPs must be made public, and the local community must be invited to submit comments or representations in terms of section 120 of the MFMA and Municipal PPP Regulations. It appears that the PFMA and Treasury Regulation 16 do not explicitly require provincial or national PPPs to be opened to public comments or representations. Should this be the case, it remains to be seen why government thought it unnecessary to require a higher level of public participation in the municipal PPP process, but not that of national or provincial PPPs.