R395bn infrastructure pipeline enters critical procurement phase

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JEREMY MAGGS: South Africa has no shortage of infrastructure promises. The real question, though, is whether they finally become cranes, concrete and jobs.

Infrastructure South Africa has released a new construction pipeline, covering, I think, around 110 projects worth something in the region of R395 billion, spanning rail, energy, water, hospitals, municipal infrastructure and digital projects.

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Mameetse Masemola is head of Infrastructure SA. It’s an entity, by the way, established in May 2020 as the single point of entry for accelerated infrastructure investment. Mameetse, welcome to you.

South Africans have heard enormous infrastructure numbers before. How much, then, of this R395 billion is actually going to reach construction sites?

MAMEETSE MASEMOLA: The context to the construction book, Jeremy, this third edition of the construction book, is that these are projects that have already been allocated funding, so they are not projects that are still in theory.

They are not projects that are in planning. They are not projects that have been announced but do not have the requisite funding.

So the allocation comes from National Treasury, in the main, from the R1.1 trillion that the Minister of Finance (Enoch Godongwana) has made available over the next three years.

What we do as Infrastructure South Africa is that we harvest this information from the signed off annual procurement plans of certain state-owned entities, public entities and certain municipalities. This year, we’ve added more municipalities in this book, as well as provincial government departments.

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So we’ve harvested this information from those signed-off annual procurement plans, and this is the information that we then make into a book called the construction book.

Remember that there are many, many other construction projects that are taking place and that are being allocated funding. What we’ve done is we’ve simply highlighted some of the more strategic ones, if you can call it that, some of the ones that we believe that will move the economic dial when implemented.

So those are the 110 projects worth around R395 billion that are expected to go into procurement in the next 12 to 18 months.

So that’s what we’ve put together so that the construction industry, the building sector, people engaged in the space, they can have some line of sight of what’s coming through from a public sector perspective.

JEREMY MAGGS: So 12 to 18 months is key. How many are genuinely ready to go today, do you think?

MAMEETSE MASEMOLA: We are expecting by the end of October that 28 of these projects will be out to market. At the moment, we know for sure that three of them from the Eskom side are already in the market.

They are already in the procurement space, so people who want to bid for that work can do so or take advantage of the opportunities that are coming through from the Eskom side. We’re expecting an additional 25 of these projects to go out to market by the end of October.

Now, remember, that’s just the publishing of the tender.

So what we are going to be able to track, at least with this third edition, is the extent to which the procurement event is finalised, that there is a service provider that is then appointed and we’re going to work together with National Treasury on monitoring the construction of the particular asset, whether it is a bridge, whether it’s a road, whether it is an undersea cable, whatever project that is contained in the construction book.

JEREMY MAGGS: Let me ask you a little bit about risk. President Ramaphosa says poor project preparation, as I understand it, was historically a major problem. I don’t think there’s any argument around that. Has anything materially changed, do you think, to stop projects getting stuck again?

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MAMEETSE MASEMOLA: Yeah, it’s a good question, Jeremy. Ultimately, we don’t have, at least in the public sector, there’s a dearth of financial and technical engineering skills. We’ve lost those skills over a period of time because of a lack of a project pipeline, essentially.

So the last time the country had requisite capacity, from a planning perspective, was a period leading to the Fifa (Fédération Internationale de Football Association) 2010 World Cup.

Since then, you see the decline of these skill sets in government. We are rebuilding those skill sets, on the planning part, because that’s where the greatest risk is.

If a project is not well scoped, is not well priced, we don’t know where the funding pathway of this project is and so on, and the institutional readiness of the project sponsor or project owner and so on, if all of those things are not in place, the likelihood is that the project is going to fail.

So you’ve got the risk at the planning phase, which for me is the highest risk. Then you’ve got the procurement risk. Then you also have an implementation risk.

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But if you deal with and address adequately the planning component, then you are likely to mitigate the risks that come with procurement and not onboarding the correct service provider with the requisite capacity to execute that particular project and so on.

Also, that deals then with implementation risk, as it were. So it is correct that a major chokehold in the infrastructure value chain is around the planning and the preparation of major government projects.

JEREMY MAGGS: And that’s going to be of concern to the private sector, because public-private partnerships (PPPs), as I understand it, feature in the pipeline, it’s going to be difficult to convince private investors that they won’t face years of regulatory delays or shifting rules.

MAMEETSE MASEMOLA: Absolutely. That’s why the approach that National Treasury is taking around PPPs, is that when there is a public-private partnership project that is underway, on the preparation side, there is a multidisciplinary team.

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So Infrastructure South Africa gets involved, the Infrastructure Finance and Implementation Support Agency (Ifisa) from National Treasury gets involved, the Public-Private Partnership Advisory Unit at National Treasury, in addition to the project sponsor themselves.

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So if you have that multidisciplinary team at the planning phase and then managing the procurement aspects and then the procurement and contracting, and then the implementation, we see that that the risk is reduced enormously.

One of the projects that’s featuring in the construction book is Tygerberg Hospital, a public hospital in the Western Cape, in the city of Cape Town. So they will be looking to expand the hospital by adding another 935 beds.

We’ve prepared that project together with National Treasury and the infrastructure fund and so on as a PPP. So together with National Treasury, Infrastructure South Africa and Ifisa, we set and did all the bid evaluation, we manage the procurement phase and so on.

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You see that there’s a level of transparency, there’s better governance and, therefore, the private sector is likely to engage with the project because they know that it’s well scoped and it’s got that multidisciplinary team behind it.

JEREMY MAGGS: Thank you very much indeed. That is Mameetse Masemola, who is head of Infrastructure SA.

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