The Structure of Black Economic Empowerment Partners in Public-Private Partnership Projects

Author: Maganedisa, Strover
Supervisor: Professor Pierre Gerber
Date: September 2009

The country requires an economy that can meet the needs of all citizens, and their enterprises, in a sustainable manner. This will only be possible if the economy builds on the full potential of all peoples and communities across the length and breadth of the country.

“I believe that increase in government investment will spur higher private sector investment. It is worth examining this investment strategy by government”.

Finance Minister, Trevor Manuel (2002)

In April 1997, the National Cabinet approved the establishment of an interdepartmental task team (IDTT), to explore how Public-Private Partnership (PPP) could improve infrastructure and services delivery efficiency. The mandate of the IDTT was to develop a National Public-Private Partnership programme. Its key objectives were to identify major constraints to the successful implementation of Public-Private Partnerships and to develop a package of intersectoral and intergovernmental policy, legislative and regulatory reform.

“Public-private partnership” is defined as a contractual arrangement whereby a private party performs part of a department’s service delivery or administrative functions and assumes the associated risks. In return, the private party receives a fee according to predefined performance criteria, which is entirely from service tariffs or user charges, or entirely from a departmental or other budget, or the combination of the two.

In a concerted drive to redress the stifling economic effects of apartheid, the democratic South African government adopted a policy of Black Economic Empowerment (BEE). PPPs are increasingly used to implement national, provincial government, municipality’s infrastructure and service delivery commitments. These PPPs are regulated by the National Treasury to offer valuable opportunities for strong and sustainable Black Economic Empowerment firms.  BEE policy is a key component of South African PPP projects where each project is structured on a careful combination of financial, technical and BEE components in order to achieve optimal value-for-money in government’s delivery of infrastructure and services. No PPP may be issued to the market by a government institution without a clear and appropriate set of BEE elements, targets and weighting duly approved by the National Treasury.

Companies bidding for a government contract solicit BEE partners in compliance with the government regulation; however these consortiums lack the following attributes: meaningful and beneficial direct ownership of substantial equity interests in the Private Party to a PPP Agreement and effective participation in the management control of the Private Party and its sub contractors.

Black economic empowerment in the construction sector appears to be sterile; only five big construction companies seem to have directly benefited from government contracts with a value more than R40 billion. And despite the government-stated policy of advancing BEE, new black companies are struggling to win major construction tenders. Lubisi and Jackie (2008)

The National Treasury together with the relevant institutions awarded PPP projects in diverse industry sectors, namely in transport, health, education, eco-tourism, housing, prisons, and information technology. It is the intention of this thesis to analyse the office accommodation and health sectors, examining the structures of consortia, shareholder arrangements, equity ownerships and participation in the management of the organisation.

The results of this research intend to verify whether or not the existing black economic empowerment finance and structure is appropriate for PPP projects.