FINANCE: What Is Wrong With PPP's
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MUNICIPALITIES and the private sector tend to avoid using Public Private Partnerships (PPPs) as a model for service delivery in the local government sphere because of the cumbersome, complicated, time consuming and inter-related regulatory framework required to implement a PPP.
A municipal PPP is a commercial transaction between a municipality and a private party whereby the private party performs a municipal function for or on behalf of the municipality, or acquires the management or use of municipal property for its own commercial purposes (or both), assumes substantial financial, technical and operational risk, and receives a financial benefit in respect of the project.
In order to accelerate service delivery, municipalities and the private sector are using alternative models which do not constitute formal PPPs, says Coriaan de Villiers, partner in the public law department at the Cape Town branch of the Webber Wentzel law firm.
“The avoidance of the PPP framework is motivated by a genuine desire to ensure service delivery and infrastructure development.”
As an alternative to PPPs, within the existing regulatory framework, there are a number of options which can ensure effective service delivery and infrastructure development. In designing these projects, the parties need to seek a balance of the innovation and energy of the private sector, whilst ensuring municipalities are not short-changed by the private sector,” says de Villiers. This can be achieved without following the PPP route.
Even if a transaction is not a PPP, there may still be other regulatory hurdles to comply with. For example, if a transaction is not a PPP, the recently promulgated Municipal Asset Transfer Regulations which apply to rights to use, control or manage immovable property owned by municipalities may apply to the transaction, in which case a number of other procedural requirements have to be complied with.
She warns that the parties need to assess upfront whether the proposed transaction is in fact a PPP. If a transaction constitutes a PPP, but the prescribed regulatory procedures are not complied with, the transaction may be unlawful.
Parties should also know that it is theoretically possible to apply for an exemption from the PPP regulations in terms of the general exemption provision in the Municipal Finance Management Act, which is the primary legislation governing PPPs at the municipal level. National Treasury should be urged not to dismiss any applications for exemption out of hand because of the need to accelerate service delivery. In respect of some projects it may also be, depending on the nature and scale of the project, that the PPP route is in fact the best option, despite all the difficulties of embarking on a PPP.
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