Port Managers Association of East and Southern African Conference

1. Port Managers Association of East and Southern AfricanConference 28 November 2011 Swakopmund, Namibia Thoughts on the financing of ports within Sub-Saharan Africa’s transportation networks

2. Peter Copley, Transport Specialist, Development Bank of Southern Africa….With great honour and some trepidation….Subject matter more or less the following…. • How to attract investment in our ports? • Partnership with Government • Attracting international shipping companies to our ports

3. How to attract investment in our ports • Society decides • Post 1994 South Africa saw great international interest in internal investment • This came from then Deputy President Mbeki, highlighting the role of the senior political patron • Driven by permanent public servants • Supported by project driven private sector champions

4. How to attract investment to our ports (2) • Post Polokwane, when society elected President Zuma to succeed President Mbeki, the commercialisation/privatisation process appeared to stall • Current international PPP interest in Africa is in Nigeria • South Africa will have to see what happens in Manguang next May….with the next societal expression of direction • To attract international investment you have to show the World that you are investment friendly

5. Not that it matters TOO much…..look to rail as an example • Of the G7, USA, UK and Japan have private sector rail systems (Japan the late comer as the national economy could no longer carry the debt. It took 10 years to take that decision) • Germany, Italy and France have state owned rail systems • Canada has a private system AND a state owned system • 50: 50 split, so there are no right answers • Society ultimately decides whether the public or private sector is the predominant source of finance, or PPP’s

6. REGION No OF COST % PROJECTS US$m Latin America 38 5 980 48% Asia 20 4 947 40% Europe 7 1 007 8% Sub-Saharan Africa 3 102 <1% Central Asia, Middle East and North Africa 2 323 3% 12 360 100% PRIVATE-SECTOR FUNDING - EMERGING MARKETS Regional Distribution SOURCE: International Finance Corporation - Financing Private Infrastructure Projects, again at the peak

7. Partnership with Government • The Maputo Corridor started (1995) within South Africa’s company and contract law • Only followed with PPP legislation in 1998 • Maputo Corridor now essentially a private sector driven corridor • Walvis Bay Corridor Group a true Public Private Partnership • We can learn something from that

8. Real Gross Fixed Capital Formation by the South African General Government and Public Corporations on Economic and Social Infrastructure, 1946 -2007 (Rm) PMAESA, Swakopmund

9. Attracting international shipping companies to our ports • Safety and efficiency in turn around times! • Vehicle carrying vessels are turned around in 4 hours at Maputo vs 24 hours in Durban • Which would you choose? • Facilitated by effective use of ICT, clearing customs while the vessel is still at sea • We need to turn BRICs into BRICS • Reflect on China’s balance of payments and the role of coal

10. World Oil Production Forecast Source: Energy Watch Group (2007)

11. Current Seminal Documents for Africa • ‘The African Infrastructure Country Diagnostic (Study)’:"Africa‘s Infrastructure: A Time for Transformation”: The World Bank, released in 2009 http://www.infrastructureafrica.org/aicd • ‘Infrastructure to 2030’: (ISBN 978-92-64-02398-7 OECD Publishing, May 2006) • Amongst many other publications and studies both local and regional, especially regional integration (e g SADC) PMAESA, Swakopmund, Namibia

12. The Africa Country Infrastructure Diagnostics Study backlogs • A huge number, of which the backlogs are, • 50% energy • 25% transport • 15% Information and Communications Technology (ICT) • 10% water and sanitation

13. SUB-SECTOR No OF COST % PROJECTS US$m Power 28 5 706 46% Telecoms 21 4 861 39% Ports 9 222 2% Pipelines 6 1 092 9% Railroads 3 117 <1% Water 2 362 3% Roads 1 313 2% 12 360 100% PRIVATE SECTOR FUNDING-EMERGING MARKETS Various Infrastructure Sub-sectors SOURCE: International Finance Corporation - Financing Private Infrastructure Projects, at the peak

14. The fundamentals from a point of view of the OECD • OECD Publication ‘Infrastructure to 2030’ • Amongst 15 policy recommendations: • ‘The governments of the World can no longer afford to provide necessary infrastructure unaided. There HAVE to be PPP’s’ • ‘Infrastructure is long term in nature and its provision is necessary irrespective of political persuasions’ • ‘Asset management is as important as new capital investment’ • (Recognise climate change, rising sea levels and extreme events)

15. Road Network Links: Current Quality and Potential Significance (West - Southern Africa Link Enlarged)

16. South Africa’s logistic competitors:(Source: PWC Germany ‘New spokes, new hubs’) • China Logistics Performance Index 3.49 (#27) • South Africa Logistics Performance Index 3.46 (#28) • Turkey Logistics Performance Index 3.22 (#39) • Brazil Logistics Performance Index 3.20 (#41) • India Logistics Performance Index 3.12 (#47) • Mexico Logistics Performance Index 3.05 (#50) • Russia Logistics Performance Index 2.61 (#94) • South Africa’s World Competitiveness Ranking (#54)

17. SADC Intra Regional Traffic movement (1996)……2011? PMAESA, Swakopmund

18. Thank you

19. Contact Details PMAESA, Swakopmund, Namibia

20. Peter Copley, Transport Specialist, Development Bank of Southern Africa….With great honour and some trepidation….Subject matter more or less the following…. • A broad background to funding of transportation of infrastructure in general • What lessons have we learned? • Putting these lessons into some focus for the future

22. Current Seminal Documents for Africa • ‘The African Infrastructure Country Diagnostic (Study)’:"Africa‘s Infrastructure: A Time for Transformation”: The World Bank, released in 2009 http://www.infrastructureafrica.org/aicd • ‘Infrastructure to 2030’: (ISBN 978-92-64-02398-7 OECD Publishing, May 2006) • Amongst many other publications and studies both local and regional PMAESA, Swakopmund, Namibia

23. The World Bank’s ‘Africa’s Infrastructure backlogs’ • A huge Number, of which the backlogs are, • 50% energy • 25% transport • 15% Information and Communications Technology (ICT) • 10% water and sanitation

24. Chasing Moving Targets PMAESA, Swakopmund

25. Average Economic Rates of Return (% per annum) on World Bank supported projects: 1974 –92 (Quoted from ‘World Development Report 1994’, The World Bank, Washington DC) The water related rates are financial, not economic, rates of return PMAESA< Swakopmund

26. The fundamentals from a point of view of the OECD • OECD Publication ‘Infrastructure to 2030’ • Amongst 15 policy recommendations: • ‘The governments of the World can no longer afford to provide necessary infrastructure unaided. There HAVE to be PPP’s’ • ‘Infrastructure is long term in nature and its provision is necessary irrespective of political persuasions’ • ‘Asset management is as important as new capital investment’

27. ‘The governments of the World can no longer afford to provide necessary infrastructure unaided. There HAVE to be PPP’s’ • A questionable statement? • With emerging markets currently showing better growth opportunities and return than mature markets, funding is flowing into the emerging economies BUT change is constant and cyclical. • South Africa had a window of opportunity immediately post 1994 and SANRAL availed itself of that opportunity with the Maputo Toll Road, the N3 and the Bakwena Toll Road, together with two prisons. • That opportunity changed with Polokwane and the deep pockets of the private sector investment community are currently looking in Africa to Nigeria.

28. 13 rail concessions had been awarded by mid-2005 and there have been a further two since then. • Kenya/Uganda and Tanzania have both been awarded and are scheduled to commence in 2006. • Sizarail (DRC) was ‘cancelled’ following a change in government • Ressano Garcia was cancelled in late2005 • Transgabonais was cancelled in 2003 and is being temporarily operated by the losing bidder.

29. ‘Infrastructure is long term in nature and its provision is necessary irrespective of political persuasions’ • The Maputo Toll Road is now in its 15th year of operation; the N3 in its 13th; and Bakwena in its 11th. No social unrest. No community violence…..provided there are alternatives (egMalelane and Parys with no alternatives). • South Africa HAS two PPP prisons which were built in 2000 and which are referred to in very good terms by the Inspector of Prisons, Judge van Zyl. Despite this the Minister has scrapped the next round? Why? The market gets confused by conflicting signals and people stop buying. • Second round of PPP interest in South Africa appears to be coming from the success of Maseru Hospital. • Long may it last in the legal and procurement framework which has now been established by the PPP Unit of the National Treasury

30. ‘Asset management is as important as new capital investment’ • On a recent 3 000 km road trip from Gauteng to Lusaka the ONLY road maintenance I saw being performed was on the PPP Bakwena Toll Road (Polokwane to Tshwane) and by a trader outside of his shop near Livingstone. • Reality is that providing, operating and maintaining infrastructure IS expensive…..and necessarily needs to be on-going. • A fundamental rule is that you will spend the same again in maintaining infrastructure over the life of the asset, if it is to be kept functional. • In broad terms this means that road provision costs are about 2 to 3 times what we would like them to be….and the same with rail….and the same with electricity…..and I presume the same with water and sanitation. • With communications we just pay! We are prepared to pay R2,60 per minute to talk on a cell phone but we aren’t prepared to pay R0,53 per minute to use an urban toll road? (The utility of time?!)

31. Road Network Links: Current Quality and Potential Significance (West - Southern Africa Link Enlarged)

32. The World Bank’s ‘Africa’s Infrastructure backlogs’ • A huge number, of which the backlogs are, • 50% energy • 25% transport • 15% Information and Communications Technology (ICT) • 10% water and sanitation

33. What is the single fundamental issue? • I submit that the single issue is whether these backlogs should be addressed by public or private funds, or a combination of both through Public Private Partnerships, commonly known as PPP’s

34. SUB-SECTOR No OF COST % PROJECTS US$m Power 28 5 706 46% Telecoms 21 4 861 39% Ports 9 222 2% Pipelines 6 1 092 9% Railroads 3 117 <1% Water 2 362 3% Roads 1 313 2% 12 360 100% PRIVATE SECTOR FUNDING-EMERGING MARKETS Various Infrastructure Sub-sectors SOURCE: International Finance Corporation - Financing Private Infrastructure Projects, at the peak

35. REGION No OF COST % PROJECTS US$m Latin America 38 5 980 48% Asia 20 4 947 40% Europe 7 1 007 8% Sub-Saharan Africa 3 102 <1% Central Asia, Middle East and North Africa 2 323 3% 12 360 100% PRIVATE-SECTOR FUNDING - EMERGING MARKETS Regional Distribution SOURCE: International Finance Corporation - Financing Private Infrastructure Projects, again at the peak

36. Real Gross Fixed Capital Formation by the South African General Government and Public Corporations on Economic and Social Infrastructure, 1946 -2007 (Rm) PMAESA, Swakopmund

37. Understanding the types of PPPs applicable totransportation projects • BOT’s; BOOT’s; EPC’s; EPCM’s are possibly there to confuse us • Fundamental is that there can be a procured PPP, from a body of government, or an unsolicited PPP proposal, which has to be handled in terms of the law • SANRAL an example of a body with a policy on unsolicited bids • Fundamental to match the technicalities of the proposal with the finances available • You CAN’T and don’t want to print money

38. The spectrum of PPPs Public control Private control Degree of private sector control of assets Design-Build-Finance-Operate Often broadly defined as concessions Build-Finance-Operate-Transfer Lease-Develop-Operate Turnkey Operation Operations & Maintenance Outsourcing municipal vehicle fleets and services such as garbage collection, tendered bus services Water and Wastewater Facilities Lease of municipal land South African Toll Roads, Gautrain Development of cellular phone network

39. Experience from South Africa’s Toll Roads • Entered into before PPP Legislation was in place • 30 year wholly private sector concessions which have changed hands now twice in about 12 years • 20 investors each at about ZAR 100 m each

40. Strategic road network of South Africa (SANRAL: 2005)

41. Who are the investors? • Contractors are the equity investors • Thereafter FNB, Standard, Nedbank, ABSA as 8 year lenders • Thereafter RMB, Standard Merchant, Investec as 12 year lenders • Thereafter Old Mutual, Sanlam, Mine Officers’ Pension Fund, Mine Employees’ Provident Fund, SASOL Pension Fund as 15 year lenders • and Public Debt Commission, DBSA/EIB as 20 year Lenders.

42. How is this being modified as we go forwards? • Gautrain’s Special Purpose Group (10% of equity) • Reya Vaya’s 526 taxi drivers and operators • Government Employee’s Pension Fund owns 60% of JSE, which is in the World’s Top 20 • Transnet currently looking for ZAR100 to 300 bn (Euros 10 to 30 bn) • Will they get it?

43. Vertical PPP’s? • This does open a door to ‘vertical PPP’s’ recognising that PPP’s are NOT fixed instruments. They are living businesses which run for the duration of the asset and quite possibly for longer. They are tradeable commodities. • Equity investors; commercial banks; merchant banks; pension funds; DFI’s; Governments all have horizons. Recognise them and use them. • We don’t have to look at the entire life of the asset to make a single successful PPP. • (Interesting to reflect on Anglo PLC and the Chilean State miner at present)

44. 13 rail concessions had been awarded by mid-2005 and there have been a further two since then. • Kenya/Uganda and Tanzania have both been awarded and are scheduled to commence in 2006. • Sizarail (DRC) was ‘cancelled’ following a change in government • Ressano Garcia was cancelled in late2005 • Transgabonais was cancelled in 2003 and is being temporarily operated by the losing bidder.

45. Putting the partnerships in PPP: How to ensure best practice in PPP projects • The World remains of differing opinions • G7 rail systems equally split between private and public ownership • Recognise that reality and recognise fundamental need against fundamental constraints of affordability • Recognise the term of ‘Public Private Partnerships’ and be true to that term

46. SADC Intra Regional Traffic movement PMAESA, Swakopmund

47. Road Network Links: Current Quality and Potential Significance (West - Southern Africa Link Enlarged)

48. The rail networks of sub-Saharan Africa are capable of carrying 23 million tonnes per annum. They currently carry 3,5 million tonnes.

49. Applying lessons from successful BOT /PPP processes • Three way institutional linkage • Top level political patronage • Ongoing public sector leadership • Clear set of rules • Ongoing private sector leadership • Reality in costing and in revenue streams • Consistency in application of the rules, including taxation

50. Where to from here? • Basic thresholds of sustainable PPP’s, from 4 000 vpd for road; 300 000 tonnes per annum for rail; 3 m tonnes per annum for ports; 250 000 passengers per annum for airports, with proven growth • Think in terms of BRICs and the reality of southern Africa • A fundamental need to think regionally.