ENABLERS TO THE PUBLIC PRIVATE PARTNERSHIP PROCUREMENT PROCESS
3.4 Role Players
3.4.2 Treasury
At present in South Africa, all public private partnership processes and procedures are regulated and approved by the National Treasury. Since Treasury is entrusted with the responsibility of regulating the process of those that involve government owned entities, it provides a better road map to start with. This authority can be delegated to provincial treasuries, through the Treasury Regulation 16 of 1999. The practice applied by the treasury to enhance this process, is allocating a national and a provincial support individual from their teams to support all registered PPP projects. It was proposed by the Finance Ministry, (National Treasury PPP Manual, 2007:10) that a dedicated Public Private Partnership Unit be established to promote PPPs effectively to conform to the institutional principles highlighted.
The key objective for the Unit was to address the constraints in the enabling environment, and thus 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 and monitoring the government’s PPP strategy to the department.
The following are the stages after inceptions that are managed by the treasury: Treasury Approval I, Treasury Approval II and Treasury Approval III. According to the National Treasury PPP Manual (2007: Version 2):
“PPP’s 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” (p. 11).
According to the PPP Manual (2004:9) “the Treasury’s role is to ensure that PPP projects reflect a prudent use of state resources, that is, they are affordable and provide value for money.” The regulations and the guidelines facilitate the departments and Treasury in playing their respective roles throughout the PPP project cycle, guided by the three essential
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elements for public private partnerships. Firstly, a contractual arrangement, secondly, substantial risk transfers, and thirdly, an outcome-based financial reward. With a clear understanding of the role of Treasury, the next structure on the line is the organisational executive leadership that actually owns the process from both the strategic level and the operational level. The next focus is to investigate the role of the executive leadership as an enabling structure.
The section has provided various definitions of state-owned enterprises, the role of Treasury, characteristics within them that do not only support public private partnerships, but also those characteristics that discourage public private partnerships. To bring a balance in the understanding of the two worlds, it is therefore, important to look at the private sector’s role and how government entities are influenced by private sector or influences the private sector.
This next section starts by giving the background to privatisation, analysing the private sector and its role within PPPs.
3.4.3 Private sector and its role in enhancing PPPs
According to Harper (2000), public service delivery, particularly for poorer people in rural areas or urban areas, has never been good and part of the problem is undoubtedly one of the rising expectations. Harper (2000:37) continues with the argument and claims that,
“governments are being pressed to provide more and better services but are at the same time getting less resources with which to supply them”. Osman (2014) argues that one popular solution to this challenge in public services is privatization. This section thus critically analyses the definitions given by different writers to privatisation, as a background and an enabler for the private sector to operate effectively within the PPP process. Different arguments on the private sectors’ role analysed and lastly this section evaluates the role of government on enabling the private sector.
The key question is how does privatization happen from a theoretical point of view? In some cases, it happens as a result of ‘grassroots’ pressure and initiatives from the client communities themselves or because the public provider have finally accepted that what private partners have been doing unofficially for some, is actually helping to better service
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delivery. New technologies or increased service capacity, sometimes require new delivery channels or financial constraints may force the public service provider to allow private partners to take over some of their functions. It may also be initiated by the government itself in an effort to contain costs or by a community in order to provide themselves with business opportunities. It may also have been because the demand exceeded the government capacity to provide or supply. Osman (2014) brings another analysis to privatisation referred to as ‘micro privatisation’.
There is a widespread belief on privatisation which, according to Harper (2000:18) is indicative of the fact that “private enterprises are necessarily more efficient than government-owned enterprises”. Wang (2013) claims that privatization refers simply to divestment of the ownership of state-owned enterprises and the measure of privatisation is the number of state owned enterprises sold or transferred into the private sector/ownership. Privatisation is not limited to state-owned enterprises and assets. Government service activities are also privatizable and there is a growing interest in the privatisation of other services like health, solid waste collection, prisons and so forth. Privatization generally means transferring the ownership and management of a given activity from the public to the private sector. Some privatization have involved more than simple transfer of ownership which leaves the functions and structure of the enterprise untouched. In some, it is either the provision of infrastructure that is privatized or operations or even both. Some public service providers have dramatically improved the delivery of their services and have often reduced their costs too, by using both or one of the above-mentioned approaches. Governments of all political stripes have embraced privatization at all levels in recent years. Zeckhauser (1989) presents that:
“by and large the British government has simply privatized public monopolies without increasing competition in the industry, but the privatization program has been successful politically because widening share ownership has created a constituency supportive of the program while reducing the public sector’s need to borrow” (p. 36).
The government entity moves from a stage of being a department to having the status of an independent agency, or to become a state-owned enterprise or parastatal and then to some form of shared ownership between the government and the private sector to a final complete private owned state. Osman (2014) argues that according to those who advocate privatization as a remedy for public service problems, service delivery becomes better when
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it is undertaken by the private sector. However, evidence from experience is not as clear as it was expected to be.
Micro privatization sometimes reduces the pressure for complete privatization as it has the potential for addressing issues of efficiency and thus reduces costs and transfers some risk to the private sector. This is one of the reasons accounting for the adoption the PPP process by treasury. Immediately linked to this is the understanding of the private sector, its characteristics, and its role on partnerships. Notably, there are many different types of entities within the private sector. Some are private solely owned enterprises, acting only in their own interest. Others are co-operatives or formal companies. Their members are sometimes members of the community that need a service or may be others who are looking for employment.
3.4.4 How both private sector and public sector influence each other on PPPs
Harper (2000) refers to partnerships between the public sector and the private sector as micro-privatization to distinguish it from the complete transfer of ownership to a private sector. There are several benefits to a partnership with the private sector such as the management burden gets reduced as the management of the operations would move to a private sector partner with increased cost-effectiveness as the private sector would be expected to bring along more effective systems of managing the business. Thus, government reduces the risk as all risks associated with operations and insurances would be carried by the private partner. Evidently, there is also better service delivery with better capacity from the private sector staff compliment, improved the image and additional income through better service delivery levels and more investment on customer centric processes improve.
Arguably, privatization provides benefits to the public sector such as new jobs are created, there is increased revenue generation, improved image to the community, increased skills, satisfying a need to the community and possible savings on infrastructure costs. Benefits for the clients are more efficient and effective service, availability of the services to all, increased awareness, increased accessibility and increased choice. For these parties from the public sector and the private sector to function together, it requires an effective partnership, hence,
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the theoretical background provided in the previous chapter on partnerships. The benefits according to Mohr et al. (2008), are that privatisation is positioned to the attraction of foreign direct investments, privatisation will broaden the tax base, and it will increase share ownership in the economy and serve as an instrument of black economic empowerment.
Morosini & Steger (2004) argue that privatised firms will not be exposed to greater competition and be more efficient than state owned enterprises. In an extreme case, it may be a replacement of the government monopoly by a private monopoly. While state owned enterprises need to take care of issues beyond their operational areas, the private sector may not be willing to follow the same process and prefers a narrow focus in their own direct interests (Mohr et al., 2008). Having explained the role of the private sector, it is important to analyse the environment and business principles it operates under as it influences the relationship between the public sector and the private sector.