Roles and responsibilities in Public-Private Partnerships

Public-Private Partnerships (PPPs) are used in the strategic procurement of services for the long-term sustainable productive operation of economic infrastructure. The concept is drastically different from the traditional public procurement of goods and services. In this issue, we will look at PPPs with a particular focus on the responsibilities of the public sector.

Public-Private Partnerships move beyond the client-supplier relationship such as requests for quotes from private entities to supply assets or services. Unlike the generic procurement process, PPPs aim to deliver an economic infrastructure project over the long term, potentially from 15 up to 30 years. These long-term strategic partnerships provide benefits by combining the strengths of the public sector’s mandate to deliver services with the private sector’s focus on commercial efficiency.

What are the roles and responsibilities of each party?

Table 1 briefly illustrates roles and responsibilities pertaining to the strategic management of economic infrastructure in South Africa. It is clear that the policy formulation, planning, and ownership of infrastructure falls within the jurisdiction of the public sector. Hence, the Department of Transport (DoT) exists to lead the development of integrated efficient transport systems. It does this by creating a framework of sustainable policies, regulations, and implementation models to support government strategies for economic, social, and international development. In a Public-Private Partnership, however, the maintenance, funding, and operation of the transport infrastructure is executed by the private sector, although the public sector still leads the regulatory oversight.

PUBLIC SECTOR

The public sector refers to the DoT, with the South African National Roads Agency (SANRAL) operating as its agency. The Department aims to achieve the following objectives by providing policy framework, regulation, and implementation models: competitive transport costs, safety and security improvements, a reduction in infrastructure backlogs, improvement in access, and a reduction of time in transit.

The vision of SANRAL is to ensure that the national road transport system delivers a better South Africa for all. The agency’s mandate is to finance, improve, manage, maintain, and develop South Africa’s national road network (the ‘economic arteries of South Africa’), including National ‘N’ and some Provincial and Regional ‘R’ route segments.

SANRAL also manages the concession contract between the Concession Holder and the DoT, and the agency introduced and consolidated the concept of PPP, culminating in the internationally-acclaimed Maputo Development Corridor.

SANRAL is committed to carrying out its mandate by protecting and preserving the environment through context-sensitive solutions and continues to support the development of South Africa’s human capital through tertiary institutions and cooperative governance.

Toll roads are funded from borrowings on the capital and money market – bonds issued on the Bond Exchange of South Africa (BESA) in SANRAL’s name – or through the concessioning of roads to private sector consortia.

OWNERSHIP OF INFRASTRUCTURE

South Africa has adopted policy supporting the ownership of transport infrastructure networks by the state. Emanating from this policy, the ownership of national road networks rests with the public sector (i.e., SANRAL). In a PPP contractual arrangement, the public sector has the power to expropriate land for its use as a public good. On the other hand, the private sector only acquires the right to utilise the infrastructure for a specific period of time, in the form of concession contracts. Concession contracts are often done on a Build Operate and Transfer (BOT) basis, particularly when a project is implemented in a greenfield environment.

POLICY FORMULATION

It is important to note that the DoT, through SANRAL, takes responsibility for the policy formulation process pertaining to road infrastructure. In compliance with the National Land Transport Act, No. 5 of 2009 (Republic of South Africa, 2009), the DoT involves stakeholders such as provincial and local government, with a view to facilitating planning processes.

The appropriateness and effectiveness of toll roads policy in the country’s current socio-economic circumstances – as viewed by the travelling public – must be put in the spotlight. This is an opportune moment to re-examine the approach to toll roads: particularly the balance between agency-managed and concessioned toll roads (DoT, 2002:98). This model is intended for application in the transport infrastructure; the rationale is to make a distinction of responsibilities assigned to various parties in respect of ownership, policy formulation, legislative framework, regulation, planning, operation, maintenance, funding, accessible tariffs, and safety.

LEGISLATIVE FRAMEWORK

PPP projects must be preceded by a legal framework, in the form of a specific law relating to the project or to concessions in general. In the case of toll roads, the framework would allow a private sector entity (concessionaire) to charge and collect revenues from users for providing this public sector service. The framework is essential because PPP projects are too contract-intensive, and the long-term horizon of most projects increases the danger of contractual disputes. Sponsors want to be reasonably confident that any such dispute can be solved fairly through the domestic judicial system.

REGULATION

The role of a regulatory authority in the transport industry would be to promote competition and encourage accessibility of transport services for the public. Transport economic regulations are therefore expected to be clear and credible, assuring investors that regulators are committed to fair, consistent, and sustainable policies and procedures. The DoT’s decision to establish a transport economic regulatory authority to ensure the regulation of prices imposed on users should be commended.

It is precisely on the basis of this contention that a transport economic regulatory authority should be established with significant power and authority over the concessionaire’s operation. The DoT’s standpoint should be that of developing a regulatory system giving it the capacity to ensure that transport sector operators meet the required safety and security standards, as noted in the 2005/6 Budget Review. We should be mindful of the fact that a concession contract grants a private company – typically through competitive bidding – the exclusive right to provide a service for a specified period by using existing facilities and developing new ones. In other words, a concession agreement only transfers assets to the private sector on a temporary basis.

PLANNING

Under the government’s decentralisation policy, the responsibility for maintaining the national road network was transferred from the DoT’s Road Board to SANRAL, following the establishment of the latter in 1998. Currently, the strategic planning of toll roads remains the responsibility of SANRAL, with substantial input from various stakeholders, such as the community, private sector, municipal government, and provincial authorities. The transport planning process does not take place in a vacuum and SANRAL attempts to ensure that it is done with stakeholders, rather than for them.

WHO IS RESPONSIBLE FOR OPERATION?

The reorganisation of government in 1994 resulted in a greater distinction being drawn between policy formulation, planning, and operation. The general consensus is that operation or service delivery is best provided by the private sector, partly in response to governmental reforms and demands for greater cost-effectiveness (DoT, 2002:12). It needs to be noted that operation – in the current South African situation – is the exclusive domain of the private sector.

WHO IS RESPONSIBLE FOR ROAD MAINTENANCE?

SANRAL plays a crucial role in the upgrading, maintenance, and strengthening programmes of the toll and non-toll portfolios of national roads. There has been an effort to transfer some of the public risk in road infrastructure development to the private sector, as evidenced by trends such as BOT and Design Construct and Maintain (DCM). When maintenance work is done, it is important that the traditional procurement process is followed and implemented as contained in specific schedules of the Concession Contract.

This approach has been executed successfully in Rwanda, as the maintenance of paved roads is consistently carried out by the private sector under national competitive tender arrangements. Local communities undertake simple paved road maintenance activities, such as clearing verges and drains, under the supervision of the Directorate of Roads.

Road maintenance in South Africa is done by the private sector and this should extend to encompassing members of the community, to ensure that they benefit from road infrastructure projects. This would also benefit the public sector as such community structures would take moral ownership of the infrastructure and would protect it from being vandalised during protests.

WHO MUST PROVIDE FUNDING?

Funding refers to the process of providing capital for a particular purpose, either by government or other sources such as private sector organisations. A typical example would be the funding of a transport infrastructure PPP project by the National Treasury through the fiscus, over the 2022-24 Medium Term Expenditure Framework (MTEF). In countries such as Rwanda, funding for road maintenance is provided through the country’s Roads Maintenance Fund (RMF), while in the case of South Africa, particularly with respect to toll roads, the principle is to provide a road with a superior level of service for users willing to pay for the exclusive differentiated services rendered.

CONCLUSION

A discussion of the roles and responsibilities of each party in a PPP project clearly highlights the unique characteristics that differentiate a PPP procurement system from a generic procurement methodology. The public sector’s roles and responsibilities were the primary focus of this initial article; the next instalment will deal with the roles and responsibilities of private sector parties in PPP agreements.

Table 1: An example of a typical toll road project managed as a Public-Private Partnership