CURRENT PRACTICE ON TOURISM PPP PROCUREMENT PROCESS
4.6 South African policy definitions of private public partnership
According to the Review of the Treasury PPP Manual (2005) a PPP is defined as a contract where a private party performs an institutional function and/or uses a state facility for commercial reasons. However, according to the Review of the Treasury PPP Manual (2005) version 2:
“Since government can normally borrow more cheaply, the gains from the private operator’s efficiency must exceed the difference in borrowing cost if a PPP project is considered. The real benefit of PPP’s is the value for money derived from the operational and strategic benefits mentioned above” (p.14).
These conditions, according to the National Treasury PPP Manual (2002) Version 2 are not, however, inevitable, but are dependent on at least three conditions namely, an operational need for the private sector’s skill to deliver the service; secondly, an identifiable market of private sector bidders prepared to compete for the project; and thirdly, the appropriate allocation of risk.
According to National Treasury PPP Manual (2007: 43) Version 2 “for PPPs to be approved by any relevant Treasury, they must demonstrate affordability, value for money and the transfer of appropriate financial, technical and operational risk to the private sector.”
The PPP Practice Notes issued by Treasury in relation to PFMA No. 16 of 1999 (PPP Manual 2005) confirm that legislative amendments were already necessary in the context of prison PPPs. This is, according to the PPP Practice Notes issued by Treasury in relation to PFMA No.
16 of 1999 (PPP Manual 2005:16) “where the Correctional Services Act had to be changed in order to permit private parties to manage and operate prison services in the country.”
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Interventions to address sections such as legal capacity, spheres of government’ jurisdiction and competent officials to create a strong commitment on the government, had to be developed. This also, according to the PPP Practice Notes issued by Treasury in relation to PFMA No. 16 of 1999 (PPP Manual, 2005), include prescribing cross-sectorial minimum contractual provisions for PPPs to cover, among other things, the duration of the contract, range of services and/or output levels, the basis of payment in relation to service and output level, the relationship between the department and service provider, accommodation of a department’s changing requirements over the duration of the contract, and allowances for contingencies and termination. Included within the environmental legislation, was, as stated in (PPP Manual 2005: 42) “the provision that dealt fairly with the cost implications of making non-compliant infrastructure and the responsibility for compliance when that infrastructure is transferred to the private sector.” All these regulations are covered within the Public Finance Management Act No 16 of 1999. There is a need and responsibility to ensure that steps being taken will result in the organisation being better prepared and more capable to maintain the best practices, hence, regulations are created and enforced by regulatory bodies such as the National Treasury PPP Unit, (Treasury Regulation 16A 9.1 – 9.3 of 1999).
“The Public Finance Management Act’s approach to financial management focuses on outputs and responsibilities and is a cornerstone of the government’s strategy to improve financial management in the public sector and to ensure that in spending tax payer’s money, it produces the intended results,” (Treasury Regulation 16A 9.1 – 9.3 of 1999). The Public Finance Management Act No. 16 of 1999 makes the Departmental Head, the accounting officer and the Boards of Schedule 3 Public Entities, the accounting authorities which are accountable for sound financial management strategy implementation. Both the accounting officers and the accounting authorities are answerable to their political principals (legislature or parliament) for the management of their budget and the state property under their care to achieve their public mandate. These officials, as expected by PFMA, “need to evaluate constantly value-for-money choices. A Public Private Partnership choice for the use of state property for private commercial purposes, such as tourism PPP, warrants this kind of evaluation. The various phases of a PPP procurement process are designed to ensure that an accounting officer or accounting authority complies with his or her PFMA obligations”
(Treasury Regulation 16A 9.1 – 9.3 of 1999).
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Specific guidance is invaluable when a new improvement program is being developed and implemented. There is need and responsibility to ensure that steps being taken result in the organisation being better prepared and more capable of maintaining the best practices.
Hence, regulations are created and enforced by regulatory bodies such as the National Treasury PPP Unit.
The Public Finance Management Act No.16 of 1999 “provides that the National Treasury must make regulations for a range of matters to do with the effective and efficient management and use of financial resources” (PMFA of 1999: Section 76). Many of these issues are critical to public private partnerships. Kildow (2011) argues that regulations require compliance and failure to comply results in penalties or sanctions. Typically, regulations are very specific in nature and are usually mandatory and punitive. Hence, Section 16 of Treasury Regulations dealing with Public Private Partnerships for national and provincial departments and Schedule 3 public entities was issued in terms of the Public Finance Management Act of 1999 (Government Gazette No. 23463 of 25 May 2002).
The Minister of Finance has, “in terms of section 76 of the PFMA, amended the Treasury Regulations that were published in Government Gazette No. 22219 dated 9 April 2001 as set out in the Schedule published in Government Gazette No. 23463 dated 25 May 2002,” (South African National Parks, 2005: 20).
According to the National Treasury PPP Practice Note Number 01 (2005) Treasury Regulation 16 to the PFMA defines a PPP, sets out the phases and tests it will have to go through and provides precise and detailed instructions for the PPPs. Treasury Regulation 16 as well as the National Treasury PPP Practice Note Number 01 (2005) state that the PPP procurement process further requires that the relevant treasury gives various approvals at certain crucial stages which ensure that the three tests (affordability, value for money and appropriate risk transfer) have been passed and that the PPP project cycle has been complied with.
The National Treasury PPP Practice Note Number 01 (2005), continue and state that:
“While PPPs can achieve greater efficiency in the use of public resources, they can also negatively affect public financial management if they are not properly conceived, structured, implemented and monitored. The Treasury Regulations ensure that financial consequences of such arrangements do not impose adverse risks on the budget” (p.9).
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In addition to the PFMA and Treasury Regulation 16, there are many other laws and regulations which are relevant to the tourism PPPs. The National Treasury PPP Practice Note Number 01, (2005:92) provides “the specific statutes which govern the particular institution (such as the World Heritage Convention Act, 1999, which applies, among others, to the Greater St Lucia Wetland Park; and the Western Cape Nature Conservation Board Act, 1998, which applies to Cape Nature), are given as examples. The National Treasury PPP Practice Note Number 01 further states that “other statutes are of general application, such as the National Environmental Management Act: Protected Areas Act, 2003, as well as a range of heritage and environmental legislations” (S.A. Department of National Treasury, 2005). The next important step was to allocate the PPP to a relevant department that would be the regulator and thus guide the process.
At present, all PPP processes and approvals are given by the National Treasury. However, Treasury Regulation 16 allows this authority to be delegated to provincial treasuries. The practice applied by treasury to enhance this process, is to allocate a National and a Provincial support individual from their teams, to support all registered PPP projects. It was proposed by the Finance Ministry that a dedicated Public Private Partnership Unit be established to promote PPPs effectively in conforming to the institutional principles highlighted. The key objective for the Unit was to address constraints in the enabling environment and facilitate successful implementation of affordable PPPs that represent value for money to all the stakeholders. The core functions required to meet this objective entails technical assistance, support, enforcement, monitoring the government’s PPP strategy to the department (National Treasury PPP Manual 2002, Version 2).
The following are the stages after inception: Treasury Approval I, Treasury Approval II and Treasury Approval III.
According to Wahba & Stanley (2011), PPPs are a contractual arrangement between a public- sector entity and a private sector entity whereby the private sector performs a departmental function in accordance with an output-based specification for a specified significant period of time in return for a benefit which is normally in the form of financial remuneration.
Wahba & Stanley (2011), further argues that, public private partnerships further involve a substantial transfer of all forms of project life cycle risk to the private sector. The public sector
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retains a significant role in the partnership project either as the main purchaser of the service provided or as the main enabler of the project. According to the PPP Manual (2004: Version2),
“the Treasury’s role is to ensure that PPP projects reflect a prudent use of state resources (i.e.
that they are affordable and provide value for money).” The regulations and the guidelines’
role in the process, as stated in (Wahba & Stanley, 2011:22) “is to facilitate departments and the Treasury to play their respective roles throughout the PPP project cycle.” This led to the development of the public private partnership project approval phases. These phases have the project inception stage as a preparatory stage followed by the three Treasury Approval stages. These stages are discussed below (Treasury Regulation 16A9).