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The South African government, through the Medium Term Budget Policy Statement (MTBPS), says it is developing a blended financing risk-sharing platform that will build on the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) experience.
This is part of a series of reforms under way which is expected to catalyse greater private-sector participation in public infrastructure projects, starting with the energy sector.
In delivering the Medium Term Budget Policy Statement (MTBPS) today (Wednesday, 30 October) Minister of Finance Minister Enoch Godongwana said that in the energy sector, “we will continue to restructure the electricity supply industry, establish a competitive electricity generation market, and alleviate constraints on transmission infrastructure.”
REIPPPP impact on the MTBPS plan
One of the MTBPS documents released today by National Treasury, which focuses on public sector infrastructure, says that through the successful experience of the REIPPPP, government and investors gained a deep understanding of the risks involved in specific types of public-sector infrastructure investment.
“In this regard, government is developing a blended financing risk-sharing platform that will build on the REIPPPP experience.
“It will include a credit guarantee vehicle to help de-risk public-sector projects – starting with the energy sector – for private-sector developers and lenders, while reducing government’s contingent liabilities.”
The initial focus will be on independent transmission projects to bridge the energy transmission deficit, with options to include other sectors over the medium term.
The Independent Transmission Projects Office is expected to be operational by the end of 2025.
Increasing private participation in transactions through REIPPPP
The REIPPPP has unlocked private-sector participation in infrastructure investments and helped develop a credible project pipeline, says the MTBPS document.
“Various institutions across government are strengthening partnerships to apply the lessons of the REIPPPP in different sectors.”
Overall, the government has conceded that delivery of infrastructure projects is “often hampered by a lack of coordination within the public sector, poor cooperation with the private sector and high borrowing costs.”
“To address these problems, government is transforming the way it prepares and delivers infrastructure projects.
“It is mobilising private-sector resources that will augment public sector capability and provide new channels for financing.
“In parallel, work is under way to improve government’s capital budgeting process and strengthen institutional arrangements and governance across the ecosystem to facilitate private investment.”
Attracting investment
Godongwana said the government is implementing reforms that will create conditions to attract greater private sector participation.
The reforms include:
Mobilising significant private sector financing and technical expertise to augment the limited public sector capacity and capability.
Amending the PPP regulations to simplify requirements for undertaking these projects.
The amended Treasury Regulation 16 will be published before the end of November for implementation in 2025/26. The Municipal PPP Regulations 309 will be finalised by June next year, he said.
Scope for borrowing to be extended
In terms of “sustainable infrastructure financing,” the MTBPS document says government is considering new long-term financing mechanisms to support infrastructure investment as a standalone asset class.
These include the creation of a long-term financing instrument without the current market obligation to value assets on a daily basis.
The scope for borrowing will be extended to include infrastructure bonds, bilateral loan financing and concessional funding from international financial institutions, including multilateral development banks.
“Where possible, partners in the Just Energy Transition Investment Plan will be approached for concessional loans for projects with demonstrable climate change co-benefits.
“In addition to funding, multilateral development banks and other international financial institutions can provide technical assistance with project preparation and implementation.
“A request for proposals will be issued before end-November 2024 with details for selected projects and programmes that can be financed by interested lenders,” the document says.
Appraising larger infrastructure projects
Since its introduction in 2016, the Budget Facility for Infrastructure (BFI) has developed a standardised appraisal methodology for large infrastructure projects in line with global best practice.
One of the projects that have been approved for execution using the new appraisal and financing system from 2025/26 is for the South African Nuclear Energy Corporation to replace the SAFARI-1 research reactor.
The document says that the infrastructure investment system is being strengthened in the areas of planning, investment appraisal, contracting, monitoring and evaluation.
“These reforms are expected to attract significant private-sector investment to augment public-sector resources. Over time, these changes will improve the fiscal position as well as the provision of effective and growth-enhancing infrastructure.”
Eskom’s debt-relief arrangement
The national power utility, says the MTBPS document, remains highly dependent on government support through the debt-relief arrangement.
“The utility has begun to strengthen its performance, with no power cuts since the end of March 2024 and improved profitability.
“Its most recent financial plan also targets profitability from 2026/27 onwards.”
However, escalating municipal debt arrears continue to negatively affect its financial performance.
“The debt-relief arrangement granted to Eskom is intended to strengthen its balance sheet, enabling it to restructure and undertake the investment and maintenance needed to support stable electricity supply aligned with national needs.
“Given Eskom’s failure to dispose of the Eskom Finance Company by 31 March 2024, the National Treasury reduced the debt-relief allocation from R78 billion to R76 billion in 2023/24.
“This allocation was fully disbursed and converted to equity following Eskom’s compliance with all the attached conditions. Eskom’s allocation for 2024/25 will be reduced by R2 billion to R64 billion should it fail to dispose of the Eskom Finance Company by 31 March 2025.” |
