PPP > What is a PPP?  

South African law defines a PPP as a contract between a public sector institution/municipality and a private party, in which the private party assumes substantial financial, technical and operational risk in the design, financing, building and operation of a project.

Two types of PPPs are specifically defined:

  • where the private party performs an institutional/municipal function
  • where the private party acquires the use of state/municipal property for its own commercial purposes A PPP may also be a hybrid of these types.

Payment in any scenario involves one of three mechanisms

  • the institution/municipality paying the private party for the delivery of the service, or
  • the private party collecting fees or charges from users of the service, or
  • a combination of these

To view the PPP Project Cycle              Introducing Public Private Partnerships in South Africa

A PPP is not

The way a PPP is defined in the regulations makes it clear that:

  • A PPP is not a simple outsourcing of functions where substantial financial, technical and operational risk is retained by the institution
  • A PPP is not a donation by a private party for a public good
  • A PPP is not the 'commercialisation' of a public function by the creation of a state-owned enterprise
  • A PPP does not constitute borrowing by the state.

  • Why PPPs are good for Black Economic Empowerment

    There are key features of PPPs that make them inherently excellent for achieving BEE objectives:
  • The long-term nature of PPPs provides an opportune instrument to grow black equity and black management over time. Risk is clearly identified in PPPs, clearly costed and appropriately allocated, so black participants know in advance what they are committing to.
  • The formation of private consortia in the form of special purpose vehicles (SPVs) for many PPPs facilitates long-term beneficial partnerships between new black enterprises and experienced, resourced companies - both as equity partners and in project management, and both at the private party SPV and subcontracting levels.
  • Where government is the buyer of a service, and insofar as the service is provided to the agreed standards, there is a steady revenue stream to the private party, reducing risk to new black enterprises.
  • Principal equity sponsors in a PPP are often also first-tier Subcontractors, building incentives for optimal risk management.
  • PPPs provide significant subcontracting opportunities for black enterprises, where early cash-flow benefits can be derived as delivery commences.
  • PPPs have far-reaching broad-based BEE potential: through the subcontracting and procurement mechanisms they can involve a full spectrum of large, medium and small enterprises, and bring tangible local economic development benefits to targeted groups of people.
  • Return on equity to the private party is competitive where risk is properly assumed.
  • There is an increasingly strong demand for black professionals as transaction advisors to both institutions and private parties in PPPs.
  • PPPs develop skills.
  • PPPs create jobs.