How to make public-private partnerships work for South Africa’s SOEs – Futuregrowth

Futuregrowth portfolio manager Jason Lightfoot believes South Africa already has the key to making public-private partnerships (PPP) aid in the country’s economic growth – and it lies in the Renewable Energy IPP Procurement Programme (REIPPP).

PPPs can be an effective way for a country to accelerate growth but require certain measures to be in place for the partnership to be effective.

PPPs need regulatory clarity, skilled experts, stakeholder engagement, and an enabling environment for political and economic stability.

The REIPPP was launched in 2011 to bring additional megawatts onto the country’s electricity system through private sector investment in renewable energy solutions.

According to Lightfoot, the initiative has successfully attracted private sector investment, created jobs, and increased the country’s renewable energy capacity. 

It should be noted that the increased prevalence of load-shedding in the past few years has resulted in private-sector, non-REIPPP solar installations increasing to 4,550MW by the end of 2022.

The South African Photovoltaic Industry Association (SAPVIA) also said it expects another 2,300MW to be added in 2023, bringing the total capacity to 6,850 MW – almost as large as REIPPP solar capacity.

The private sector has therefore shown greater output in less time than the PPP. Nevertheless, the REIPPP has attracted over R209 billion of private sector investment since its launch.

As of 2021, it has also resulted in the construction of 117 renewable energy projects across South Africa.

Lightfoot explained that the PPP framework used in the REIPPP has been successful because it is based on international best practices.

The framework also includes clear guidelines for project selection, bidding, contract negotiation, and risk allocation – all of which other PPPs in South Africa lack.

Futuregrowth attributes the REIPPP’s success to the following features:

• The bidding process has been straightforward and open to all.
• Policy frameworks have been clear and consistent, which has created a stable investment climate.
• Social and economic growth have been centralised.
• A high value has been placed on sustainability.
• They have built up a proven track record of success.

Saving SOEs

Futuregrowth CEO Olga Constantatos told Business Day that the REIPPP could be used as a blueprint for South Africa’s failing state-owned enterprises (SOEs).

This would ensure stable funding for SOEs, as they could enter long-term concession agreements with private investors. 

Such an agreement would allow the private sector to take over specific state infrastructure for set periods in exchange for agreed fees or tariffs. At the same time, the SOE could avoid the controversial option of fully privatising.

This is the direction Eskom seems to be headed in, as one of the conditions for the SOE’s R254 billion debt bailout explicitly mentioned private sector participation.

Finance minister Enoch Godongwana said in his 2023 budget speech, “Eskom, National Treasury, and the Department of Public Enterprises have agreed to design a mechanism for building new transmission infrastructure that will allow for extensive private sector participation in the development of the transmission network.”

This implies that Eskom’s transmission network will, effectively, be privatised.

Many people have also called for more opportunities for households and businesses to feed their excess electricity back into the grid.

The DA recently introduced a Solar Access Bill that would mandate NERSA to establish a fair compensation scheme for feed-in tariffs across the country and require municipalities to provide and/or facilitate bi-directional meters for feed-in tariffs.

However, the government is unlikely to admit any further privatisation efforts regarding Eskom.

The finance ministry responded to reactions to the budget that mention the privatisation conditions by saying that “the government has no intention to privatise Eskom”.