The Inkosi Albert Luthuli Hospital. Cairo, May 25 26, 2008

Transcription

1 The South Africa PPP Program The Inkosi Albert Luthuli Hospital Transaction Cairo, May 25 26,

2 USAID Support ( ) to: Establish the PPP Unit (2000) Develop the policy/regulatory y framework for PPP Prepare guidelines and manuals on the regulatory requirements Establish a Project Development Fund to improve quality of PPP Build a portfolio of transactions Launch a highly effective stakeholder awareness campaign to educate the public and private sector in procurement requirements 2

3 The National Treasury's PPP Unit Develops, formulates, and promotes PPP policy Evolve as a dynamic and sustainable center of excellence for PPPs: Ensures that international best practice for PPP are followed Drives the flow of PPP deals Gives technical assistance to public institutions through project feasibility, procurement, and management Promotes an enabling environment for PPPs by: facilitating certainty in a regulatory framework developing best practices guidelines: National Treasury PPP Manual ; Standardized provisions of PPP/agreements providing training for both the public and private sectors disseminating reliable information driving black economic empowerment in PPPs 3

4 Regulatory framework for PPP 1999: Public Finance Management Act (PFMA): A Strategic Framework for Delivering Public Services through PPP National/provincial dep. accountable for value-for-money decisions and delivery National Treasury maintains budget oversight, guidance 2000: Treasury Regulation 16 for PPPs national departments provincial departments 2003: Municipal Finance Management Act: Provides for municipal PPPs and requires Treasury view and recommendations on their feasibility 2004: Code for BEE in PPPs provides for a BEE scorecard in each project, with targets in the private party's: Equity/Management and employment Subcontracting 4

5 Regulatory framework for PPPs Reg 16 A PPP is defined in South African law as: A contract between government institution and private party Private party performs an institutional function and/or uses state property in terms of output specifications for a significant period of time Substantial project risk (financial, technical, operational) transferred to the private party Private party benefits through: unitary payments from government budget and/or user fees The public sector retains a major role either as main purchaser of the services or as main enabler of the project. 5

6 Key PPP regulatory features Regulation 16 requires all PPP deals to obtain Treasury Approval (TA) for: Affordability Value-for-money Appropriate allocation of Risk Applied within set PPP project cycle: Inception Feasibility Procurement PPP agreement management 6

7 Several years ago the main issue in the PPP market was that too few deals had been closed. This has changed dramatically with eighteen successfully concluded PPP deals in the market. However, with new successes also come new challenges which need to be met head on. Today, one of the key challenges facing PPPs is ensuring that the concluded deals are successfully implemented 7 according to the terms of the final agreement Dec

8 PPP projects as of December Inception: 18 Feasibility: 26 Procurement: 6 Negotiations: 3 Closed deals since Treasury PPP Reg. in May 2000: 18 8 closed PPP deals prior to Treasury PPP Reg.: (N3 and N4 toll roads, two prisons, SANParks) 8

9 The Inkosi Albert Luthuli Hospital Sponsor: Kwa Zulu Natal Department of Health (DoH) A 846-bed, tertiary care, referral-only hospital situated in Durban Opened in June

10 The Inkosi Albert Luthuli Hospital The first hospital in South Africa to enter into a PPP for the delivery of all its non-clinical services It was also the first South African PPP to be conducted according to Treasury Regulation 16 and the first at the Provincial level The hospital provides highly specialized services for the entire population of KwaZulu Natal and half of the Eastern Cape Province (Population 12.5 million) The hospital is fully computerized and works on paperless principles. It uses leading-edge medical equipment, from MRIs to surgical instruments 10

11 Project Context Create a central hospital that was comparable to the best in the world, with the following constraints/needs in the public sector: Limited it funding within the KZN DoH for replacement of equipment; Lack of expertise within the public sector in facilities management; Lack of expertise within the public sector to sustain the IT systems; A public sector hospital management skills shortage, which made it desirable to outsource non-core functions so that the department could focus on the core medical functions of the hospital Need to ensure cutting edge technology 11

12 Scope of the PPP Project 15 year PPP/concession for the delivery of all the hospital s nonclinical services: supply of state-of-the-art the art equipment and information management and technology (IM&T) systems and replacing the equipment and IM&T systems so as to ensure that they remain state-of-the-art; supply and replacement of medical equipment; provision of all services necessary to manage the hospital s s assets in accordance with best industry practice; maintenance and replacement of the departmental assets in the hospital; provision or procurement of utilities and consumables and surgical instruments; and provision of facilities management (FM) services The hospital was built under a separate contract. However, the Project Company was responsible for the remedial works 12

13 Concessionaire Obligations Service levels based on outputs specification Outputs for medical equipment and IM&T had to be produced using state of the art equipment and industry best practices five-year replacement schedules for medical equipment three-year replacement schedules for IM&T The FM services have to be provided according to detailed output-based t specifications A complex and rigorously designed and essentially selfmonitoring penalty system ensures that any deviation from full service provision by the concession company is reflected in a series of payment deductions A help desk for effective end user contact, call logging, and service performance measurement tracking was required 13

14 Extensive IM&T facilities An electronic patient record; order-communications; on-line results reporting; electronic prescribing and recording of drug administration; theatre and out-patient scheduling systems; digital imaging; incorporated as a principle near-patient computing to support near patient testing. This required computer access at the bedside; IM&T links with secondary care (Other government hospitals) to facilitate direct bookings; and Started actively exploring the potential of tele-medicine 14

15 Risk Transfer Medical Equipment and IM&T Technology refreshment Obsolescence replacement Purchase cost including exchange and taxation risks Equipment performance/availability Maintenance costs Life of Equipment Hospital Buildings and Infra-structure Condition and availability of the IALCH building fabric/services and its required FM services performance upon commencement and during the term of the Project Agreement Whole life FM costs to include asset maintenance and replacement and FM service delivery in capital and revenue terms Condition of the IALCH buildings and infrastructure at the end Project 15

16 Project Costs Capital Investment (NPV): R1,560.5 m R947 m in the first year Operating Costs (NPV): R1,460 m Value for Money: R370 million over the Public Sector Comparator (PSC) constructed during the feasibility study stage 16

17 PPP Award Contract award in March 2001 to Impilo Consortium Treasury approval in line with the PFMA regulations was given in October 2001 Financial closure followed in early November 2001 Contract signed in December 2001 First patients on June

18 African PPP/Healthcare Deal of 2002 Monthly (FM) Service Payment R M/year Ithala Finance Corporation IMPILO Shareholders Quarterly (Capital Costs) 15-year PPP Contract R 360 M Int. free loan ROE R60 M Equity R326 M unsecured loan facility IMPILO Consortium Special Purpose Company Deferred Shares Cowslip Inv. (SPV) Payments (i + p) Lender: RAND MERCHANT BANK Provision of non-clinical services Inkosi Albert Luthuli Hospital

19 Financial Structure Upfront Payment = Once-off amount of R360m (including VAT). This amount was not adjusted for inflation; Interest-free loan from the KZN DoH (made via Cowslip, a special purpose vehicle created to channel the funds to the project from the government s Ithala Finance Corporation) The agreement specifies that the KZN DoH should have first ranking security over the assets Cowslip took a special class of equity, which allows it to take control of the Concessionaire in the event of default, thus ensuring immediate control over the assets for the continuance of clinical service provision. 19

20 Financial Structure Service Payment= R304.9m per annum (including VAT and in March 2002 terms), to escalate by CPIX and payable in: Monthly installments to cover FM costs Quarterly installments to cover capital refurbishment and replacement costs The fact that the escalation in the quarterly fee for the purchasing, replacement, and maintenance of IM&T and medical equipment is linked to CPIx means that, although there is a significant import component on equipment, both initially and during replenishment, the government did not accept any foreign currency risk 20

21 The Inkosi Albert Luthuli Hospital First PPP project to close in terms of the Public Finance Management Act PPP regulations; First of its scale and complexity to achieve financial close less than a year after announcement of the preferred bidder; and First project where investors and banks have had to take aepo provincial cagoe government e ced credit risk, s, without ouay any reliance on national government, other than the approval procedures as set out in the regulations 21

22 Thank You! 22

23 PPP Closed Transactions 23

24 Chapman s Peak Drive toll road Benefit to government: R450 million in capex and operations Signed: May 2003 Term: 30 years BEE: equity 30%; construction subcontract 10%; ops and maintain subcontract 50% 24 24

25 Free State social grants Value to government: R260 million Signed: April 2004 Term: 3 years BEE: equity 40%; subcontracting first year 30%, second year 35%, third year 45% 25 25

26 Department of Trade & Industry campus Value to government: R870 million Signed: Aug 2003 Term: 25 years BEE: equity 55%; construction subcontract 43%; facilities management 50% 26 26

27 Toll roads: N3, N4 east, N4 west Term: 30 years each N3 signed: May 1999; value: R3.5bn N4 east signed: Dec 1997; value: R3.0bn N4 west signed: Aug 2001; value: R 3.2bn 27 27

28 Department of Labour IT Value to government: R1.5 billion Signed: Dec 2002 Term: 10 years BEE: equity 30%; subcontracting 25% 28 28

29 Universitas and Pelonomi Hospitals Term: 16,5 years Signed: Nov 2002 BEE: equity 40%; subcontracting 40% 29 29

30 SANParks concessions Eleven concessions in four national parks Signed: 2001 to 2002 Terms: 20 years each Value: R270 million in fixed capital assets; NPV concession fees R253 million BEE: equity 20% plus; subcontracting 30% plus; 620 new jobs 30 30

31 Project inception Register the PPP with the relevant treasury; Inform the relevant treasury of the expertise within that institution to proceed with a PPP; Appoint a project officer from within or outside the institution; and Appoint a transaction advisor if the relevant treasury so requests PSC: R4.8 bill. Risk Adjusted PSC: 5.4 bill.

32 Lessons from project inception Learn from international expertise, especially if none is available locally Ensure that the transaction advisor is multi-disciplinary and contains experts in all fields necessary to the project PSC: R4.8 bill. Risk Adjusted PSC: 5.4 bill. 32

33 Traditional payment mechanism Example: Government office accommodation Government Payment Overruns CAPEX Construction/ ti development Delay costs Overruns Budgeted OPEX Time (years) 33

34 PPP payment Example: Government office accommodation Government Payment PPP unitary payment Construction Period No payment Operational period Payment against service delivery, linked to CPI-X Time (years) 34

35 35

36 Treasury s PPP feasibility approach Affordability limit 36

37 Agenda The South Africa PPP Unit South Africa s Regulatory framework for PPPs Generic PPP Project Life Cycle The Inkosi Albert Luthuli Hospital Transaction 37

38 Inkosi Albert Luthuli Hospital Value to government: R4.5 billion Signed: Dec 2001 Term: 15 years BEE: equity 40%; subcontracting 40% 38 38

39 PPP Objectives for KZN Department of Health Improved value for money by choosing Services on the basis of whole life costs Make service payments based on service availability Ensure that payments fall within the parameters of the KwaZulu-Natal Government's budget. The project had to be affordable Establish a replacement program for all equipment Transfer risk to the Project Company Ensure that DoH s commitment to BEE and development were met 39