South Africa’sSouth Africa’sMunicipal Infrastructure Municipal Infrastructure

Investment UnitInvestment Unit

Annual Portfolio Budget Hearing14 March 2003

Presented by

MIIU Board Directors &

Management

Presentation Presentation OverviewOverview

1. Policy & Operation

2. 2002-03 Budget Review

3. 2002-03 Performance Review

4. 2003-04 Business Plan & KPIs

5. 2003-04 Budget

6. Lessons Learned

Policy & OperationsPolicy & Operations

What is the MIIUWhat is the MIIU?? Cabinet Memoranda: 1997 & 2002 - Life-

span extended to 2006 Non-profit Sect. 21 Company, est. 4/98 Financial & tech. support from USAID PPU & Project Preparation Fund Grants & advice to support local MSPs Administrative support provided by DBSA

MIIU MandateMIIU Mandate

Facilitate private sector investment in municipal services – on a controlled, sustainable basis

Help create a market in Municipal Services Partnership (MSP) services to provide advice to local governments

The MIIU BoardThe MIIU BoardIndependent BOD, representing: Private sector banks & investors DPLG & National Treasury DBSA Private individuals and business people Local governments Awaiting restructuring of Board in terms of

Cabinet Memorandum

The MIIU Grant ProcessThe MIIU Grant Process::How Does it Operate?How Does it Operate?

Municipality applies for MIIU assistance MIIU assesses chances for success & development

impacts – Project Preparation Report 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 options2. Council decision on option (with MIIU advice

on recommendations and implications of options)

3. Prepare bid documents, draft contract4. Selection of public or private partner 5. Negotiate & sign contract6. Financial close -- begin implementation7. Initiate contract compliance monitoring

MSP’s 31 Non-MSPs* 34All MIIU projects to date: 65

*Internal improvements and/or judged non-viable as MSPs

Completed MSPs:Completed MSPs:MSPs vs. Non-MSPsMSPs vs. Non-MSPs

P u b l i c - p r i v a t e 2 2

P u b l i c - p u b l i c 9

C o m p l e t e d M S P s :C o m p l e t e d M S P s :P u b l i cP u b l i c -- p u b l i c v s . P P P sp u b l i c v s . P P P s

A c t i v e P r o j e c t s :A c t i v e P r o j e c t s :T y p e s o f M u n i c i p a l G o v t .T y p e s o f M u n i c i p a l G o v t .

M e t r o s 1 3

D i s t r i c t M u n i c i p a l i t i e s 1 6

L o c a l M u n i c i p a l i t i e s 4 0

A c t i v e P r o j e c t sA c t i v e P r o j e c t s

A c t i v e P r o j e c t s :A c t i v e P r o j e c t s :P r o v i n c i a l B r e a k d o w nP r o v i n c i a l B r e a k d o w n

W e s t e r n C a p e 1 5 G a u t e n g 1 3 K w a Z u l u N a t a l 1 2 E a s t e r n C a p e 8 F r e e S t a t e 7 L i m p o p o 6 M p u m a l a n g a 5 N o r t h W e s t 2 N o r t h e r n C a p e 1

A c t i v e P r o j e c t s :A c t i v e P r o j e c t s :S e c t o r a l B r e a k d o w nS e c t o r a l B r e a k d o w n

W a s t e 3 3

W a t e r / s a n i t . 1 2

T r a n s p o r t 5

E l e c t r i c i t y 4

2002-032002-03Budget OverviewBudget Overview

MIIU Budget 2002-03

Financial Mgmt. Goals: Maintain MIIU pipeline – 70 in pipeline Accelerate disbursements; draw down surplus –

aiming to meet target by end March 2003 Explore new donor funding – DFID monitoring

system Continue new activities: diagnostics; public

awareness – 4 new ones Accelerate transformation with new staff –

performance reviews

Revenues - 2002-03

Budget Current Variance

Budget allocation 6,000 6,000 0

Donor grant 0 0 0

Interest 2,500 2,521 21

Expense recovery 90 116 26

------- ------- -------

TOTAL 11,090 9,419 -1,671

Revenues - 2002-03

Var Explanation

Budget 0 --Donor grant 0 --

Interest 21 Higher IR than expected

Exp recovery 26 More recovered from contractor

------

TOTAL -1,671

Admin. Expend. - 2002-03

Budget Current Variance

BOD expenses 70 10 -60

DBSA admin fee 2,215 1,570 -645

General admin 1,451 731 -720

Marketing/Comm 340 382 42

Trainee Programme 130 0 -130

------- ------- ------

TOTAL 4,206 2,693 -1,513

Var. Explanation

BOD expenses -60 Remun. budgeted, not approved

DBSA admin fee -645 Timing difference re new FY

General admin -720 Timing difference re new FY

Marketing/Comm 42 Extra recovery re Conference

Trainee Prog. -130 Interns vs. permanent staff

------

TOTAL -1,513

Admin. Expend. - 2002-03

Project Spending - 2002-03

Budget Current Variance

MIIU pipeline 7,652 4,489 -3,163

Project Expend.: Var. Explanation

MIIU pipeline -3,163 Additional spending expected before FY end

Budget Summary - 2002-03

Budget Current Variance

2001-02 surplus 17,211 17,211 0

Revenues 8,590 8,637 47

Admin. Expend. 4,206 2,693 -1,513

Project Expend. 7,652 4,489 -3,163

2002-03 surplus 13,943 18,666 4,723

MIIU Budget 2002-03

Conclusions: Budget 02-03 numbers are current, not actual FY change accounts for major variations Pipeline growing again – affects of

demarcation, powers & functions starting to diminish

Importance of consistent MTEF allocations. Need to explore new donor funding.

2002-032002-03Performance 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

MIIU Pipeline To dateMIIU Pipeline To date 70 active projects – the most ever 23 in concept stage – reflects new growth 35 in feasibility study – key step in process 9 in bid/negotiation stage 33 in solid waste All provinces included – for the first time 65 projects completed; 31 MSPs

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

1. Concessions: Mogalakwena water

2. Metros: Cape Town waste

3. Cs: Ugu, Amatola feasibility studies

4. Bs: Mbombela electricity & rev. mgmt.

Theewaterskloof waste

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

1. Concessions: Durban waste

2. Metros: Pretoria & CT power

3. Cs: Ilembe water; uThungulu waste

4. Bs: Mangaung Water; Rich. Bay water

[70 active projects at 2/2003]

2. 2. DiagnosticDiagnostic Studies Studies

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 8. JS Moroka2. Nelson Mandela 9. Kgalagadi3. Mangaung 10. Central Karoo4. Ugu 11. Umkhanyakuda5. uMgungundlovu 12. Matatiele*6. Msunduzi 13. OR Tambo*7. Sekhukhune 14. Lukhanji* *New in 02-03 15. Bushbuckridge*

2. Completed 2. Completed DiagnosticDiagnosticss

3. Govt. Policy & Legislation:3. Govt. Policy & Legislation:

1. MSA, Sect. 94(1)(c)

2. Meetings/testimony on MFMB

3. DWAF water policy White Paper

4. EDI Restructuring Ring Fencing

5. Advice to munis re MSA Sect. 78

3. Govt. Policy & Legislation:3. Govt. Policy & Legislation:

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

1. New SA CEO: Ms. Karin Pearce2. New long-term expatriate advisor:

Ms. Jacqueline Levister3. 2 South African Project Managers: Danai

Magugumela; Asha Bassa4. Secured two L-T advisors from DFID5. MIIU BOD has approved recruitment of

two new MIIU project managers

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

2003-04 Business Plan2003-04 Business Plan

STRUCTURE OF STRUCTURE OF PRESENTATIONPRESENTATION

STRATEGIC ISSUES FOR LOCAL GOVERNMENT

MIIU APPROACH TO ADDRESSING THESE ISSUES

MIIU KEY PERFORMANCE AREAS KPI’S BUDGET

OVERALL STRATEGYOVERALL STRATEGY Policies, planning;legislation;restructuring are in place –

the challenge for all sectors of society is sustainable implementation of services and growth

HOW CAN MIIU HELP TO ACHIEVE THIS, IN 3 YEARS?

MIIU is uniquely placed alongside all spheres of government, has implementation experience and skill, has credibility in the market and has the confidence of municipalities, to facilitate implementation through investment by both the public and private sectors; service delivery solutions within and between both the private and public sectors

Therefore, the next 3 years for MIIU are about “MAKING IT WORK”

STRATEGIC ISSUESSTRATEGIC ISSUES SUPPLY SIDE

AVAILABILITY AND ACCESS TO PRIVATE SECTOR FINANCE

SERVICE OPERATORSCONSULTANTS AND BEE

DEMAND SIDECAPACITY TO PRIORITISE, MANAGE,MONITORCOUNCIL COMMITMENT IN RELATION TO RISK

GENERIC ISSUESSTRATEGIC PLANS – INTERGOVERNMENTAL

ALIGNMENTLEGISLATION AND REGULATION

APPROACH TOAPPROACH TOSUPPLY SIDE ISSUESSUPPLY SIDE ISSUES

Stimulate the market’s appetite for water sector partnerships, through CHS in water and sanitation – public or private risk

Encourage municipal service partnerships in service delivery, based on public sector borrowing – public risk

BEE database and training opportunities

APPROACH TOAPPROACH TO DEMAND SIDE ISSUES DEMAND SIDE ISSUES

MIIU project process: professional responsibility – council resolutions and implications

Ensure financial risk apportionment is appropriate to risk management functions in contract design with regards to the risk of non-payment

Facilitate access to “on-the job” training for sector specific, contract related matters

APPROACH TOAPPROACH TOGENERIC ISSUESGENERIC ISSUES

STRATEGIC FOCUS ON ESSENTIAL SERVICES: Facilitate intergovernmental alignment between National;provincial programmes and local government:

DWAF;DPLG;DME;DEATcategories of municipalities through projects:

Multi-jurisdiction service delivery areas in water LEGISLATION: Actively participate in the

formulation of regulations appropriate to facilitating service delivery in local government:MFM Act

KEY PERFORMANCE AREASKEY PERFORMANCE AREAS

MSP’S IN ESSENTIAL SERVICES: Water and sanitation, waste and electricity. Some will be PPP’s, others will be public MSP’s. Focus is on MIIU disbursement to projects which enhance investment in and service delivery in the short term, and sustainability in the long term.

Target: 80 active; 9 new DIAGNOSTICS: Enhance the ability of rural

municipalities to deliver through analysis of the status quo and recommendations on solutions within existing resource constraints of MIIU

Target: 5 active; 3 new diagnostics

KEY PERFORMANCE AREAS CONTKEY PERFORMANCE AREAS CONT..

UNFUNDED TECHNICAL ASSISTANCE: Enables practical implementation of alignment between and within spheres of government through timeous intervention and advice on request Revenue Enhancement Programme -DPLG National Infrastructure Cluster Committee – DPLG;DWAF;DEAT;DPE

etc DWAF national coordinating committee DME/EDI Task Group Treasury/PPP Unit: Regulations for MFM Bill

COMMUNICATION Conferences/Seminars: less in number but more focused on impacting

municipalities and the private sector Monitoring and Evaluation system: establish in MIIU and begin M&E

on 5 projects Website: establish and keep up to date

Auditable KPIsAuditable KPIs

1. No. of active projects 80

2. No. of new completions 9

3. Total disbursements R14.1m

4. No. of completed diagnostics 8

5. No. of new diagnostic starts 3

6. Diagnostic disbursements R0.6m

7. Disbursement-related opex

to total grant expenditure 28.4%

Internal MIIU KPIsInternal MIIU KPIs1. Establish a project monitoring system 12. Value of MIIU TA to munis

20hr/mon3. Value of MIIU TA to other govt. 20hr/mon4. Completed electricity ring-fencings 35. Reports on ring-fencing implications 36. Established credit guarantee scheme 17. Agreements for muni access to guarantee 18. Development plans for MIIU’s SA staff 49. Contract mgmt course for muni officials 110. New funding for MIIU R14.9m

2003-04 2003-04 BudgetBudget

MIIU Budget 2003-04 – Approved by the BOD

2002 2002 2003-04

Summary: Budget Current Budget

Revenues 8,590 8,637 12,290

Admin. Expend. 4,207 2,693 6,591

Project Expend. 7,652 4,489 14,150

MIIU Budget 2003-04

2003-04

Summary: Budget Explanation

Revenues 12,290 (+) New donor funding expected

Admin. Expend. 6,591 (+) Two new SA staff

Project Expend. 14,150 (+) Recovery from demarcation -related distractions, plus

new project managers

Lessons LearnedLessons Learned

Success factors for Success factors for sustainable infrastructure and sustainable infrastructure and

service deliveryservice delivery Know the true cost, now and in the future – life cycle cost of infrastructure Know who is going to foot the bill now and in the future – whether it is

consumers or taxpayers or a combination of both Ensure level of service (quantity and quality) is appropriate to affordability Ensure users and providers of services understand and agree to price and level of

service – stakeholder cost/benefit Develop appropriate performance monitoring in the public sector Take timing into account: maturity of the market; political climate; budgetary

flows Enable certainty for life of the project so that everyone knows what they are in for

Certainty in:– Legal and regulatory framework– Pricing policies– Who carries what risks under normal and abnormal circumstances– Decision-making procedures and accountability

Success Factors in the Success Factors in the Municipal Sphere in SAMunicipal Sphere in SA

Human Capacity: identify solutions and make recommendations which spell out implications; move from feasibility to implementation; monitor; preemptive and remedial action

Financial management: intergovernmental coordination so that planning is meaningful and prioritising/scheduling can be done with certainty – knock on effect on construction industry; financial services sector; stability in the local environment;accountability for spending decisions

On average, +90% of municipal revenue comes from own sources – local economic base is very important, but local economic planning can’t on its own overcome macro structural problems.

Success Factors in the Success Factors in the Municipal Sphere in SA Cont.Municipal Sphere in SA Cont.

Legal and regulatory environment: • Local government legislation recognizes discretionary powers of

other spheres, e.g. Tariff capping; free basic services. Need for certainty of mechanisms for municipalities; private sector

Local government empowered by law to decide solutions and to carry the burden of risk: importance of local political responsibility for risk apportionment in a project• Requires cost benefit analysis to establish UP FRONT who can

and should afford what; and a determination of who is best able to manage which risks

• UP FRONT: Define Material Adverse Government Actions; determine what constitutes systemic risk and how to manage it; penalties

SOLUTION FRAMEWORKSOLUTION FRAMEWORK No single stakeholder has what it takes to create sustainable

infrastructure – partnerships between providers and users are needed; regulation should incentivize partnerships.

In the long run, sustainable infrastructure delivery means resources must come from taxpayers or consumers, i.e. users are the key. Targeting intragenerational equity should be deliberate. Ultimately, failure becomes a taxpayers’ cost – systemic non-payment by some impacts on all.

In the short term, infrastructure investment by its nature, happens in “large chunks”, and, both public and private investment is needed to overcome the “backlog hump” – we should be mindful of ensuring that at a minimum, intergenerational equity is attained in levels of service and cost of service.

CONCLUSIONCONCLUSION

Everyday decisions by municipalities, should answer these questions:

What are the long-term impacts of the decision? Is the decision sustainable at a local level? Have the economic, social and environmental

impacts been taken into account in the decision?

Thank You.For more information visit…

http://www.miiu.org.za