Public Private Partnerships in St Petersburg Gautrain Rapid Rail Link World Bank Institute Jack van der Merwe (Pr.Eng) CEO: Gautrain Management Agency 07-08 December 2007
Why Gauteng... why Gautrain?
The Powerhouse of Africa (1) Gauteng: Is less than 2% of South Africa s surface area Is responsible for 47.7% of all employee remuneration in SA Is responsible for 50.4% of all company turn over in SA Is accounts for some 33% of GDP of South Africa Accounts for about 10% of Africa's GDP and is the fourth largest economy in Africa Has the most developed infrastructure in Africa Has an estimated population of 8,8 million
The Powerhouse of Africa (2) It is estimated that in 2006 Gauteng could see a real GGP growth rate of well above 5,5 % Gauteng's 2.8 million households were last year responsible for more than one third (35%) of the country's household expenditure, spending R302 billion Gauteng continues to attract over 52% of the seven million international tourists who come to South Africa Gauteng is one of Africa's most economically productive regions and rank high in connectivity to global city networks and global flows of capital, information and goods
Choice of Procurement Method
Procurement Choices Traditional approach : Bill of Quantities (BoQ) Input specification Client (authority) designs project in detail Usually breaks up the project into various contracts Contractors bid to construct the contract according to BoQ, Specifications and General Conditions of Contract Contractor not involved in maintaining the system
Procurement Choices Public-Private-Partnership (PPP) contracts Output specification Client (authority) only defines the problem (essential minimum requirements) Turnkey project Contractor (concessionaire) bids to design, build, operate the project for the concession period
Bill of Quantities Contracts Pros: All bids are for the same detail design and specifications, competition on price is 90-95% of the tender evaluation process Process is relatively easy and quick Cons: Client (authority) takes all completion and integration risks Only the unit prices of the BoQ is fixed all quantities are re-measurable
Bill of Quantities Contracts Cons: (continue) In RSA the average cost over-run of BoQ contracts are 30 % and the average time-overrun is 27% The contractor is not responsible for the maintenance of the system
PPP Contracts Pros: Concessionaire takes all completion and integration risks Concessionaire offers a fixed price, fixed specification and fixed time frame (turnkey) contract Concessionaire is fully involved in the operation & maintenance of the system for the full concession period Concessionaire must hand over the system to the client at the end of the concession period in a prescribed condition
PPP Contracts Pros: (continue) PPP contract allows for concessionaire innovation and world-best-practice during design, construction, operations and maintenance PPP s give access to private sector funds (local & international)
PPP Contracts Cons: Bids from concessionaires offer different solutions and are complex & time-consuming to adjudicate PPP process very long and costly (transaction advisors) Because of size and complexity of the projects it may not always be possible to ensure sufficient competition between bidders
Public Private Partnership Components
Project Process Fundamental Principles Multi-billion Rand project Cannot be funded in total by Government Can only be developed as a Public-Private Partnership PPP project (BOT type project) Must have political buy-in & the private sector must show an appetite for the PPP project Must comply with all legal requirements
PPP Advantages What each party brings to a PPP Public Sector Land Legislation Subsidies Guarantees Rights of way Long term vision Concession Revenue Design and Build innovation Operation Maintenance Financing Capital Access to the market Users Private Sector
PPP Advantages What each party get from a PPP Public Sector Taxes People Mobility Economic development Social function Associated benefits Concession Design & Construction Contract Operation Contract Debt Supply Incomes Profit Time/cost saving Environment protection Service Quality Users Private Sector
Implementation Process Four pillars Political will & commitment Viable project (base case design) Technical Financial Legal/Institutional Funding (for Infrastructure & Operations) Government s portion Private Sector s portion Community acceptance & buy-in Socio-economic benefits Power of expropriation
Institutional Arrangement PPP s Regulated by the Public Finance Management Act (PFMA) and Regulations PPP Unit at National Treasury dual role Regulatory body (authorisations) arms length independent body which checks feasibility and sets affordability cap for CAPEX & OPEX of a potential PPP project Consultancy role on PPP s to Government departments (pool of knowledge concentrated in one department) PFMA prescribes a set of authorisations a project should achieve (go/no-go) in order for it to proceed
Process EXPENDITURE INCOME CONSULTANTS Engineering, Town Planning and Economic Development Value Add Modeling Rider ship Operate & Maintain Rolling Stock Land & EIA Station & Feeder Elec. / Mech. Civil Works Authorisation PPP-U 1 Feasibility / Risk Operator RollingStock Contractors Financial Model (BOT) Consortium Financial and Banking Pre-Qualification & RFP Budget & Authorisation Equity & Financing Legal and Institutional PPP-U 2 Government Final selection of bidder Banks & Financial Institutions Gauteng National Treasury Financial Closure PPP-U 3 Blue IQ PPP Construction Funding Local International Commissioning Investment Aid
PPP Requirements Feasibility Value for money Public Sector Comparator (PSC) (What will it cost if Government does the work through normal procurement process; and including completion and integration risk and cost) Affordability Total cost of project, expressed in Net Present Value (NPV) Yearly cost to the province (contingent liability) Maintain the 80/20% ratio in social vs.. rest split in budget
PPP Requirements Feasibility (continue) Risk transfer Identify, cost and allocate various risks to the role players best equipped to mitigate and manage them
PPP Components Technical content Financial proposal Legal mark-up Socio-economic Development
Nature of the Deal
PUBLIC project partners PRIVATE
Contractual Structure Private Sector Finance Province Bombardier 25% Bouygues 25% M&R 25% SPG 25% Shareholders Lenders Concession Agreement Shareholders Agreement Loan Agreement Bombela Family Concessionaire Bombela Turnkey Contract O&M Contract Bombardier 25% Bouygues 25% M&R 25% SPG 25% Turnkey Contractor Co-operation Agreement E&M Maintenance Sub Contract Operator RATP Dev 51% SPG 25.1% M&R 23.9% E&M Contract Civil Contract Bouygues 45% M&R 45% SPG 10% Civil Contractor Bombardier 90% SPG 10% E&M Contractor E&M Maintainer Bombardier Feeder & SPG Distribution Onshore Subsupplier Onshore procure Onshore Subsupplier Onshore procure Onshore Subsupplier Onshore Procure Onshore Subsupplier Onshore procure Offshore Subsupplier Offshore procure Offshore Subsupplier Offshore procure Offshore Subsupplier Offshore procure Offshore Subsupplier Offshore procure
Complex problems have simple, easy to understand, wrong answers. No. 4 Grossman s Misquote
More than Just Another Transport Project The project stimulates Economic growth Local & Foreign Investment New development Job creation Design to Restructure urban areas Reduce travel distances, time and cost Improve city sustainability The Gautrain will promote Public Transport SMME & BBBEE Development Tourism Business development
In summary
7 High Level lessons Learned Drawing up the risk matrix (and how do you ensure the negotiated FC deal and CA reflects this) Enforce Equity of non-participants (30% min) in the composition of the Concessionaire & specify all role players required for the duration of the concession period Make sure of the completeness of the total technical description of the system, as any additions in future (Variation Orders VO s) will be very expensive & very difficult to adjudicate
7 High Level lessons Learned Evaluation process documented & approved by Political Committee (Authorising body) prior to RFP submission Management and record of key decisions at the time of commencement of the project when only the authority is involved lenders due diligence Dedicated commercial team for Government same as contractors in consortium Must have a knowledgeable client with an empowered project leader, with an understudy who are willing to stay the duration of the project
The Seven Stages of a PPP Project Enthusiasm Promises & Programmes Disillusionment Panic Hunt for the guilty Punishment of the innocent Reward for those who had nothing to do with it
The philosophers have only interpreted the world, the point however is to change it Karl Marx Thank You The Future is not for the faint hearted. R Reagan www.gautrain.co.za