South Africa’sSouth Africa’sMunicipal Infrastructure Municipal Infrastructure

Investment UnitInvestment Unit

Annual Portfolio Budget Hearing26 April 2002

Ms. Marlene Hesketh, Board Chair

Dr. James Leigland, Acting CEO

Ms. Danai Magugumela, Project Manager

Presentation Presentation OverviewOverview

1. Policy & Operation

2. 2001-02 Budget Review

3. 2002-03 Budget

4. 2001-02 Performance Review

5. Lessons Learned & Future

Direction

Policy & OperationsPolicy & Operations

What is the MIIUWhat is the MIIU?? Cabinet Memorandum, No. 14, 1997 Non-profit Sect. 21 Company, est. 4/98 Financial & tech. support from USAID PPU & Project Preparation Fund Grants & TA to support local MSPs Tech. & logistic support provided by DBSA 5-year life-span—likely to be extended

MIIU ObjectivesMIIU Objectives

A government intervention to: Facilitate private sector investment in

municipal services – on a controlled, sustainable basis

Help create a market in MSP services to provide advice to local governments

The MIIU BoardThe MIIU BoardIndependent BOD, representing: Private sector banks & investors Dept. of Provincial & Local Government

& National Treasury The Development Bank of Southern Africa Private individuals and business people Local governments

The Project Preparation Unit:The Project Preparation Unit:How Does it Operate?How Does it Operate?

Municipality applies for MIIU assistance Questionnaire helps conceptualise project MIIU assesses chances for success & development

impacts Formal grant agreement signed Municipality contributes partial funding (local

ownership) MIIU provides quality control

The Project Development The Project Development ProcessProcess

1. Feasibility Study of MSP options

2. Council decision on option (with MIIU advice)

3. Prepare bid documents, draft contract

4. Selection of public or private partner

5. Negotiate & sign contract

6. Financial close -- begin implementation

7. Initiate contract compliance monitoring

Completed MSPs:Completed MSPs:Total ValuesTotal Values

Contracts Values O&M R 42 m O&M plus Capex R 5,167 m Divestiture R 1,407 m Corporatisation R 70 m

---------- Total R 6,686m

Benefits for the Disadvantaged:Benefits for the Disadvantaged:Direct Benefits to Households:Direct Benefits to Households:

Project Households Harrismith water 14,222 Thabazimbi waste 3,000 Nelspruit water 42,667 Tzaneen waste 12,000 Jnb Metro Gas 6,000 Jnb Bus 355,556 Total 433,445

Benefits for the Disadvantaged:Benefits for the Disadvantaged:Indirect Service Efficiencies:Indirect Service Efficiencies:

Jnb Info Tech Dolphin Coast water Nelspruit water Jnb Fleet Jnb Market Jnb bus Eastern Cape IT

Benefits for the Disadvantaged:Benefits for the Disadvantaged:Environmental Improvement:Environmental Improvement:

Thabazimbi waste Robertson waste WMLC waste Nelspruit water

Dolphin Coast water Tzaneen waste Jnb Metro Gas

Benefits for the Disadvantaged:Benefits for the Disadvantaged:More Revenue for Services to Poor:More Revenue for Services to Poor:

Jnb Metro Gas Jnb Rand airport Richards Bay airport Pretoria airport Nelspruit water Dolphin Coast water Jnb Parking

Public-public PartnershipsPublic-public Partnerships

Harrismith Water – 14,222 households Maluti a Phofung Water – 178,000 uThukela Water (MJMSD) – 267,000 Johannesburg Water Utility – 622,000 Eastern Cape Info Tech. – 100,000 Johannesburg Bus & Market – 355,556

2001-022001-02Budget OverviewBudget Overview

MIIU Budget 2001-2002

Financial Mgmt. Goals: Maintain MIIU pipeline Accelerate disbursements; draw down surplus Explore new donor funding New activities: diagnostics; public awareness Accelerate transformation with new staff Target disbursements by category

Budget StructureBudget Structure

1. Revenuesminus

2. Administrative Expendituresminus

3. Project Expenditures

plus

4. Previous FY’s surplus

MIIU Budget 2001-2002

Revenues: Budget Actual Variance

Budget allocation 6,450 6,450 0

Donor grant 0 533 533

Interest 2,250 2,212 -38

Expense recovery 90 224 134

Success fees 2,300 0 -2,300

TOTAL 11,090 9,419 -1,671

MIIU Budget 2001-2002

Revenues: Var Explanation

Budget 0 --

Donor grant 533 Exchange rate correction

Interest -38 Lower IR than expected

Exp recovery 134 More recovered from Padco

Success fees -2,300 Not enough time to adjust bid docs

TOTAL -1,671

MIIU Budget 2001-2002

Admin Expend.: Budget Actual Variance

BOD expenses 28 10 -18

DBSA admin fee 1,579 1,658 79

General admin 699 953 254

Marketing/Comm 342 370 28

Trainee Programme 220 124 -96

Exit Planning 655 141 -514

TOTAL 3,523 3,256 -267

MIIU Budget 2001-2002

Admin Expend.: Var. Explanation

BOD expenses -18 Fewer directors, closer

DBSA admin fee 79 Cost increases on office equip

General admin 254 CEO trips, consulting costs

Marketing/Comm 28 Advertorials; public awareness

Trainee Prog. -96 Interns vs. permanent staff

Exit Planning -514 Delayed pending Cab. Memo

TOTAL -267

MIIU Budget 2001-2002

Project Expend.: Budget Actual Variance

MIIU pipeline 16,171 9,860 -6,311

Concessions 18% 0% -18%

Metros 16% 45% 29%

Dist. councils 35% 34% -1%

Other local councils 31% 21% -10%

MIIU Budget 2001-2002

Project Expend.: Var. Explanation

MIIU pipeline -6,311 New councils; demarcation; powers/functions

Concessions -18% L-t commitments difficult

Metros 29% Conclusion of all Jnb iGoli work

Dist. councils -1% --

Local councils -10% “Bs” unsure of powers/functions

MIIU Budget 2001-2002

Summary: Budget Actual Variance

2000-01 surplus 20,842 20,842 0

Revenues 11,090 9,419 -1,671

Admin. Expend. 3,523 3,256 -267

Project Expend. 16,171 9,860 -6,311

2001-02 surplus 12,238 17,145 4,907

MIIU Budget 2001-02Conclusions: Steady pipeline growth (highest ever project

spending). But growth much slower than expected due to

demarcation, powers & functions. Strong, early grant funding continues to

provide strong financial foundation. Importance of consistent Budget allocations. Need to explore new donor funding.

2002-03 2002-03 BudgetBudget

MIIU Budget 2002-2003

2001 2001 2002-03

Summary: Budget Actual Budget

Revenues 11,090 9,419 8,090

Admin. Expend. 3,523 3,256 4,678

Project Expend. 16,171 9,860 12,845

Surplus 17,145 7,712

MIIU Budget 2002-2003

2002-03

Summary: Budget Explanation

Revenues 8,090 (-) Less interest income

Admin. Expend. 4,678 (+) Two new SA junior staff

Project Expend. 12,845 (+) Recovery from demarcation-

related distractions

2001-022001-02Performance ReviewPerformance Review

Business Plan ObjectivesBusiness Plan Objectives

1. Key focus areas for MSP project

development work

2. Diagnostic Studies

3. Government policy & legislation

4. MIIU Transformation & skills

transfer

1. Focus Areas: 5 Signed MSPs1. Focus Areas: 5 Signed MSPs

1. Concessions: - Margate Airport

2. Metros: - Kelvin Power Plant Sale

3. Cs: - uThukela Water (MJMSD)

4. Bs: - Overstrand Solid Waste;

- Maluti a Phofung Water (pub-pub)

1. Focus Areas: in Process1. Focus Areas: in Process

1. Concessions: -PMB Airport; Durban SW

2. Metros: -Pretoria Power; Cape Town SW

3. Cs: -Ugu Wastewater; Amatola SW

4. Bs: -Kwadukuza Water; Rich. Bay Water

[53 active projects at 2/01]

Quick assessment of the service needs Report in 4-6 weeks No obligation to accept findings Guaranteed MIIU follow-up help if

partnerships identified Recommendations for dealing with

other problems (esp. with budgets)

2. 2. DiagnosticDiagnostic Studies Studies

1. Alfred Nzo (EC) 8. Sekhukhune (MP)

2. JS Moroka (MP) 9. Central Karoo (WC)

3. Mangaung (FS) 10. Kgalagadi (NC)

4. Ugu (KZN) 11. Umkhanyakuda (KZN)

5. Msunduzi (KZN)

6. uMgungundlovu (KZN)

7. Nelson Mandela (EC)

2. 2. DiagnosticDiagnosticss

1. Severe rural poverty means little chance for viable PPPs

2. Officials in urban-centred areas unaware of pending service system crises

3. Budgeting & financial mgmt not suited to early warning of problems

4. Many opportunities for PPPs, but much political resistance

2.2. Diagnostics: FindingsDiagnostics: Findings

1. MSA, Sect. 94(1)(c)2. Powers & Functions Steering Comm.4. Meetings/testimony on MFMB5. DWAF water policy white paper6. DWAF WSA regulations 7. DPLG Cities’ Network8. EDI Restructuring Ring Fencing

3. Govt. Policy & Legislation:3. Govt. Policy & Legislation:Task Teams & CommitteesTask Teams & Committees

Many opportunities to advise local officials regarding MSP development requirements in MSA.

(Sect. 78)

3. Govt. Policy & Legislation3. Govt. Policy & Legislation

Two new full-time Project Managers:

1. Ms. Danai Magugumela

(civil engineer)

2. Ms. Asha Bassa

(lawyer, banker)

4. MIIU Transformation4. MIIU Transformation & Skills Transfer & Skills Transfer

Departure of MIIU CEO, Gugu Moloi, to become CEO of Umgeni Water.

Recruitment of new CEO currently underway.

Change in Senior PersonnelChange in Senior Personnel

Lessons Learned &Lessons Learned &Future DirectionFuture Direction

Lessons LearnedLessons Learned

Continuing need for private investment in municipal infrastructure

Continuing municipal need for assistance with MSPs

Growing need to measure/monitor MSP performance

Need to counter misleading publicity (Nelspruit & Dolphin Coast)

Internal ChallengesInternal Challenges

PFMA Compliance • Auditable performance targets

• Directors’ liability King II – Corporate Governance

• Implications for the MIIU BOD? Succession planning

• Capacity building, successor organisations

• Donor funding (needed? From whom?)

MIIU into the FutureMIIU into the Future

Likely increase in MIIU client basebecause of... Final allocation of powers & functions Permanent appointment of city management MFMA + GAMAP = cost recovery emphasis Consolidation/rationalisation of grant

programmes EDI restructuring (?)

The MIIU Role in ReformThe MIIU Role in Reformbeyond concluding PPPsbeyond concluding PPPs

Review restructuring strategies in IDPs (via diagnostic studies)

Brief clients on restructuring requirements Inform clients re other support programmes Ensure MSPs fit restructuring needs

• Thorough feasibility investigations• Consider all options (incl. public-public)• Use performance-based contracts

Strategic IssuesStrategic Issues

1. Free Water policy• Linkages between the three spheres of

government

• Monitoring of municipal infrastructure investments

• Financial support to the unit to increase impact and capacitate local governance

(Continued)

Strategic Issues - cont.Strategic Issues - cont.2. Implementation of applicable legislation:

• The Municipal Systems Act• The Municipal Structures Act• Pending regulations

3. Communication about MSPs (private & public)

4. Linkages with strategic programmes of govt• Integrated rural strategy• Urban renewal programme

SummarySummary

Best-practice procedures & policies R6.7 billion in completed MSP projects 53 active projects Lessons learned – the need for MSPs in

infrastructure finance The role of MSPs in municipal reform

Thank You.For more information visit…

http://www.miiu.org.za