Public Private Partnerships (“PPPs”) are a common method of procurement in South Africa, and particularly since the introduction of Regulation 16 of the Public Finance Management Act 1 of 1999 (the “PFMA”).
On 7 February 2025, the Finance Minister Enoch Godongwana published the amended National Treasury Regulation 16 for Public Private Partnership (“TR 16”). The review of the South African PPP Framework seeks to implement reforms that will create conditions to attract greater private sector participation, mobilise significant private sector financing and to gather technical expertise to augment the limited public sector capacity. The amendments are to take effect from 1 June 2025. We highlight key changes and their implications in this article.
Simplified Approvals and Exemptions for Earmarked Projects
TR 16.5.6 has been amended to exempt projects with an estimated total project cost of less than ZAR 2 billion from obtaining Treasury Approval IIA and Treasury Approval IIB. This means, inter alia, that projects on a smaller-scale will have a simplified approval process. The result is a reduced need to adhere to compliance documentation and administrative processes, all to facilitate faster initiation and execution.
The aim of this exemption is to encourage investment in smaller projects by reducing the regulatory load, thus making it more attractive for private entities to participate in PPPs. Although this is a good step for such projects, it should be noted that the amended TR 16.5.6 lists important steps that must still be fulfilled to adhere to the nuances and additional conditions specified for obtaining exemption/s.
PPP Advisory Unit & Institutional Units
The TR 16 amendments have introduced a PPP Advisory Unit which will sit within the Government Technical Advisory Centre. The PPP Advisory Unit is tasked with, inter alia, rendering advice, guidance, technical support and knowledge during the different phases of the PPP project cycle.
In addition to the above, TR16.2A.2 authorises national departments to create their own specialised departmental units that would be responsible for implementing a systematic approach to PPPs on behalf of government entities/departments within their designated strategic sectors. The specialised departmental units would have a valuable role to play provided staffing and tools of trade are provided.
Some of the challenges that were faced by participants in PPPs in the past included insufficient expertise and resources within the procuring institutions at provincial and national levels. Accordingly, the introduction of these institutional bodies, especially within the national departments, are welcomed as they embody the introduction of improved support and guidance to better lead departments in planning and executing the procurement process.
Unsolicited Proposals (“USP”)
The amended TR 16 officially establishes a transparent system for handling and evaluating unsolicited PPP proposals, along with incentives to facilitate private sector participation. The concept of Unsolicited Proposals is explained as “an unsolicited proposal prepared by a proponent and submitted in terms of regulation 16.11 to the institution for the development of a PPP project by the institution”. The introduction of USPs in the South African PPP Framework seeks to encourage the private sector to develop project proposals under a clear USP regulatory framework for PPPs that aligns with international best practices.
According to international best practices, a USP must be innovative and/or align with one or more strategic sectors to be considered by an institution. It must also support the objectives of the institution's functions. Historically, one of the distinct benefits of USPs is their effectiveness in promoting innovative solutions.
The USP regulatory framework includes the introduction of a development fee which can be recovered by a proponent that is not a successful bidder. Amended TR 16.14.4 also outlines circumstances where the development fee may be forfeited, including if the procurement process is unsuccessful for any reason. This may not be adequate from a risk perspective for potential proponents.
While there is an opportunity for the USP proponent to recover a development fee which is a step in the right direction in support of USPs, the circumstances seem limited and the process might be fraught with challenges. National Treasury has not provided any clear pathway that dictates how the bid of a USP proponent will be evaluated and ultimately whether the USP proponent or another private party will be selected as the preferred bidder in a USP process. This may deter potential proponents from submitting a USP. In a USP process, the USP would have to compete with other bidders and may well find that they are not appointed as preferred bidder but that they will potentially also not be reimbursed for their development costs, although the development and feasibility work had been undertaken by the USP proponent. This is likely to be viewed negatively by potential proponents.
A balance ought to be struck for private parties to submit USPs and still meet the requirements of section 217 of the Constitution. One of the ideas that have been suggested in the past is to pre-qualify a reasonable portion of the USP’s bid for the relevant PPP and thereafter have the remaining portion subjected to an open tender process, whilst ensuring compliance with the requirements of section 217 of the Constitution.
Strategic Sectors
PPPs have been instrumental in strategic sectors and in turn strategic sectors are even more critical where USPs are concerned. Strategic sectors are those critical to the South African economy, security and public welfare, which in the history of South Africa they are also identified through the significant investments they receive from government. These sectors include transport (including road and freight), healthcare, water and sanitation and infrastructure.
One can hope that with the clearer framework and an opening for USPs, the existing strategic sectors can be developed to include for example, in respect of transport, sectors like harbours, ports, railway and logistics and in respect of health infrastructure more refurbishments of hospitals and clinics. The formal structuring of USPs invites innovation and creativity from the private sector that might have evaded the public sector. The energy sector for example, has seen direct and indirect financial and groundbreaking investments from the private sector over the past decade or so. The promotion of “innovation” will give rise to more inventive solutions that might not be on the government’s radar in key sectors. Such projects will be acceptable under the realm of amended TR 16 however it should be noted that a project proposal that introduces an invention that is not state of the art would still need to be assessed for viability and progression under National Treasury Practice Note No 11 of 2008/2009.
Missed Opportunity on Municipalities
While the amended TR 16 introduces the PPP Advisory Unit as a functionary within National Treasury to provide technical advisory support to national departments and municipalities, no corresponding amendments have been made to the Municipal PPP Regulations as yet.
With the lack of service delivery experienced in local municipalities, it would have been welcomed if National Treasury had also prioritised local municipalities as opposed to only the national sphere of government. There are very few PPPs that have been implemented within the municipality level - policies ought to change and be implemented urgently to ensure that many projects are rolled out in this sphere as well.
Furthermore, since the Municipal Finance Management Act 2003 does not contain an equivalent section 66 of the Public Finance Management Act 1999, we query whether National Treasury could consider repurposing the Municipality Infrastructure Grant (MIG) for concessions. This grant is the largest local government infrastructure development fund in South Africa and it can be repurposed for PPPs in respect of bulk infrastructure (i.e. water sanitation, waste and energy). For example, in 2023 National Treasury rejected a rollover of about ZAR 1.2 billion conditional grant which was allocated to the eThekwini Municipality for the repair of critical bulk infrastructure as the Municipality failed to utilise the funds timeously. We submit that rather than rolling over funds, other viable service delivery avenues such as concession should be considered.
Lastly, the amendments are welcomed, especially in light of the decline in the number of PPPs introduced to the market by government over the past number of years. These changes are seen as a positive step forward, addressing key issues and promising to enhance overall effectiveness of the regulations.
