PUBLIC-private partnerships (PPPs) and their variants are a way of bringing private sector skills and finance into the public service for a profit.

With an infrastructure backlog of a reported R170bn government realises that such partnerships, in line with international trends, are vital for efficient service delivery.

Since the partnerships were introduced in the late 90s, a host of opportunities have opened up for businesses and service providers, but most of these have been big-ticket projects running into the hundreds of millions, such as prisons and toll-roads.

For smaller enterprises, the trade and industry department established the Community PPP Programme in 1999, with the focus on empowering communities and merging commercial projects into mainstream business.

The partnerships are defined by the treasury as a contractual arrangement whereby a private party performs a departmental function on behalf of a national or provincial department for a specified time.

This usually involves risk transfer to the private party. The financial rewards, derived either from service tariffs or user charges, or from a combination of these sources, are based on outcomes.

The main types of PPP structures include:

Service contract: short term(one-three years). Under this option, the private sector performs a specific operational service for a fee, for example meter reading, billing and refuse collection services.

Management contract: medium-term (three-eight years). With this option, the private sector is paid a fee for operating and maintaining a governmentowned business, such as water supply management.

Lease: long term (eight-15 years). Under the lease option, the private sector leases facilities and is responsible for their operation and maintenance.

All revenues, fees or charges from consumers for the provision of the service go to the service provider which in turn pays government rent for the facility. Typical expamples include airports or port facilities.

Build, own transfer: long term (15-25 years). These are similar to concessions but they are normally used for new greenfield projects. The private sector receives a fee for the service from the users.

Examples of build-own-transfer projects in SA include the N3 toll road from Johannesburg to Durban and the N4 from Witbank to Maputo.

Concession: long term (15-30 years). Under concessions, the private sector finances the project and also has full responsibility for operations and maintenance. Government owns the asset and all full use rights must revert to government after the specified period of time.

Examples of concession contracts include the Dolphin Coast and Nelspruit water and sanitation projects. The service provider pays a concession fee to government and may assume existing debt.

Divestiture. This option can take two forms partial or complete divestiture.

A complete divestiture, like a concession, gives the private sector full responsibility for operations, maintenance and investment, but unlike a concession, a divestiture transfers ownership of the assets to the private sector.

Examples of divestiture include the sale of Metro Gas in Johannesburg and the sale of Johannesburg's Rand Airport.

Corporatisation. Under this scheme a department of a public entity becomes a ring-fenced company, under the Companies Act. The public entity is the sole shareholder and its corporate status enhances borrowing capacity. The duration is unlimited.

These sorts of projects usually require large, already prosperous companies, and while they help state authorities in executing much-needed infrastructural services, the benefits do not always trickle down to small and micro enterprises.

As Charles Godfrey, head of the Deloitte Foundation, which facilitates community partnerships, notes: "The trick is to break down these contracts into bitesized packages that can be given to small business."

This was one reason the trade and industry department introduced the community private public partnership programme under the enterprise industry development division.

Programme head Zandile Ndaba, says the main focus is to include previously ignored rural communities.

"Over the past three years the community private public partnership has helped to create more than 1000 jobs and has improved life for many in marginalised communities.

The programme links resource-rich communities to relevant state and private investors interested in the sustainable utilisation of natural assets, and promotes environments suitable for the development of commercial joint ventures by developing guidelines, frameworks and other support material relevant to the southern African region.

The focus areas are agro-biodiversity, aquaculture, tourism, small-scale mining, agri-business and forestry.

Some of the 30 or so projects spread across the country include the Wedela Agri-Business Project, started in North West after the closure of Western Deep, and the Maribus Seaweed Project, in St Helena Bay, which farms and harvests seaweed.

Nov 17 2003 07:26:40:000AM Peter Schafer Business Day 1st Edition