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Cape Town – “Regulatory uncertainty arising from the tolling disputes and the decision to review the Electricity Pricing Policy is making investors wary of lending to SEOs (state-owned enterprises) and could lead to increasing the cost of financing (infrastructure projects),”said minister in the presidency Jeff Radebe on Thursday.
“As leaders we have a duty to explain to our people why the increase in the cost of services they receive is necessary and make them understand the consequences of not meeting our obligations to those who help us fund our infrastructure,” he said.
He was giving the keynote address at the Inaugural Gauteng Infrastructure Investment Conference at the Gallagher Estate in Midrand, where government and the private sector are engaging to find ways to develop the province.
Speaking about the variety of approaches the public sector is using for financing infrastructure projects off-budget, Radebe said they included Public Private Partnerships (PPPs) and investment through SOEs.
“Private sector players, particularly institutional investors, are already contributing substantial debt-financing toward government's infrastructure investment programme,” he said.
Given the constraints to financing infrastructure through on-budget spending, government needed to expand off-budget financing and deploy it in a wide range of projects, explained Radebe.
IPPs provides important lessons
“The success of our Renewable Energy Independent Power Producers programme provides many important lessons,” he said. “In order for off-budget financing to be a viable alternative, we need to get the mix right in terms of paying for infrastructure once developed between tax-payer contributions and the user-pay system.
“This is important because many infrastructure projects have both a ‘social’ and ‘commercial’ component and therefore require a hybrid financing as well as repayment approach,” he said. “Therefore, the optimal financing structure needs to be tailored on a case by case basis to fit the specific nature of the infrastructure project.”
Radebe said better coordination of investment by businesses and provincial and local government into key infrastructure projects is required. “We need to employ effective procurement processes that initiate timely and internationally-competitive bidding for new capacity and negotiate robust contracts,” he said.
Sizeable investments required for backlogs
He said it is clear that sizeable investments are required to address backlogs, extend infrastructure to previously un-serviced areas and create the foundation for economic growth.
“However, there are a number of factors which are constraining government capacity to invest in infrastructure,” he said.
“(These included) on-budget financing that is limited by the need to maintain fiscal sustainability; weak balance sheets of SOEs that limit their capacity to raise financing; popular resistance to rising administered prices on top on the existing tax burden; and a public sector that is struggling to complete projects, which have already been budgeted for.”
The inaugural conference taking place on Thursday and Friday will focus on the following areas of infrastructure, in which public and private sector investment is necessary:
- Building new mega human settlements and post-apartheid cities;
- Rolling out massive public transport infrastructure;
- Broadening the energy mix to support economic growth and development;
- Investing in ICT infrastructure and broadband connectivity; and
- Aerotropolis (airport city) development to re-industrialise and boost manufacturing.
The ANC government has set ambitious plans for Gauteng, which has continued to grow as Africa’s economic powerhouse. GDP grew at an average of 3.6% a year from 1995 to 2012, employment grew at 2.1% from 2009 to 2014 and by March 2015, Gauteng was home to roughly 23% of all employed persons in the country.
“Gauteng has the potential not only to maintain its position as the economic engine of South Africa, but has the ability to expand its economic and social contribution beyond our borders,” said Radebe. “This requires constant and targeted investment by both public and private sectors, especially in physical infrastructure.”
