Small contractors ultimately missing out on their slice of the Public-Private Partnership pie
Performance and Customs Bond Services (PCBS), a specialist construction Underwriting Management Agency, continues to issue a large number of guarantees for government contracts as municipalities push to get their expenditure through prior to 2013 budget a
There have been numerous talks around getting guarantors around the table to discuss the way forward. The correct credit enhancement of Municipal PPPs to ensure bankability of projects by providing Government guarantees or seeking international credit guarantees for projects that are not otherwise bankable is critical. Although the government is behind pushing greater participation in and ownership of businesses to ensure skills development and ongoing innovation in the sector, it is still addressing a number of challenges that have seen small contractors including local rural builders ultimately missing out on their slice of the PPP pie,” Africa comments.
Africa describes the overlapping and complex legal requirements local municipalities face as a huge challenge in successfully implementing and closing PPP projects. “A municipality is faced with the challenge of having to satisfy the requirements of both the Municipal Finance Management Act (MFMA) as well as the Municipal Systems Act (MSA). This complex and interlinked legislation often leads to confusion and duplication,” he says.
In addition, Africa explains that when it comes to procuring National Treasury funds, municipalities are reliant on Treasury allocation through conditional shares or equitable grants. “These are specific governmental allocations designed to uplift municipalities and the communities they serve and tend to be once-off in nature. Procurements made at provincial level on the other hand have a far more streamlined process in place,” he adds.
A further challenge is building a good debtor book. “Municipalities are reliant on municipal tax revenues or fees collected directly from users of basic services. Inefficiency in this area results in financial institutions regarding the funding of PPPs as a credit risk. All of these issues and complexities ultimately result in the potential benefits of PPPs not filtering down to our smaller contractors, majority of who are reliant on municipal work,” Africa explains.
Africa emphasises the potential that Public-Private Partnerships (PPPs) have in not only delivering basic services but also offering strong and sustainable BEE opportunities. “PPPs are perhaps most valuable at municipal level as it is at this level that the most basic services such as the provision of clean drinking water, solid waste disposal, the provision of social and low-cost housing, and electrification occur. The entire PPP process, from the appointment of the transaction advisor to the final procurement of the private party, ensures that BEE targets are consistently set and met. In each PPP project there is a BEE scorecard with targets for the private party in relation to equity, management and employment, subcontracting and local socio-economic impact,” he says.
For Africa a possible solution is more efficient utilisation of government resources to source the skills lacking within municipalities to build PPP capacity. “In addition to credit enhancement a more streamlined PPP procurement process will also go a long way in promoting the successful implementation and closure of PPP projects at this level,” he adds.
However despite the ongoing challenges plaguing the successful completion of PPP projects, Africa says that the strong entrepreneurial spirit emanating from local rural builders is reassuring. “Many are taking matters into their own hands through improving their own living conditions as opposed to waiting for government handouts. The will and basic skills are there however much still needs to be done to ensure they are given sufficient opportunity to access government funding,” concludes Africa.
