Minister in the Presidency Jeff Radebe has defended the user-pay principle as one of the mechanisms to finance critical infrastructure projects, warning that “on-budget” resources are limited and that “off-budget” solutions, such as public-private partnerships (PPPs), would need to be pursued to address prevailing backlogs and to create the economic infrastructure needed for economic growth.

Speaking at an extremely well attended Gauteng Infrastructure Investment Conference in Midrand, Radebe argued that off-budget financing would only prove a viable alternative if the correct balance was found between taxpayer and user-pay contributions.

“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. Therefore, the optimal financing structure needs to be tailored on a case-by-case basis to fit the specific nature of the infrastructure project.”

The user-pay payment model was currently facing major resistance in Gauteng, after the South African National Roads Agency opted for an electronic-tolling model to pay for recent upgrades to its motorways. Compliance levels remain low, despite a recent intervention to introduce a “new dispensation” that lowered tariffs and reduced the monthly cap to R225 for light vehicles.

Radebe said that government leaders had a duty to explain increases in the cost services to cost-reflective levels, as well as to inform citizens of the consequences of not meeting repayment obligations.

“Private sector players, particularly institutional investors, are already contributing substantial debt financing toward government's infrastructure investment programme. However, regulatory uncertainty arising from the tolling disputes and the decision to review the electricity pricing policy is making investors wary of lending to State-owned companies (SoCs) and could also lead to increasing the cost of financing.”

Government was acutely aware that on-budget financing was limited by fiscal-sustainability imperatives, while SoC balance sheets were too weak to raise the financing required. Therefore, government was committed to removing obstacles to PPPs and was “sincere when we say we need the private sector to work with us”.

GAUTENG’S R1.7TR INFRASTRUCTURE NEED

Gauteng Premier David Makhura made similar overtures to the business delegates present at the conference, saying that in light of the province’s R1.67-trillion, 15-year infrastructure requirement, partnership with the private sector “was not a luxury”.

“Public-private partnerships are the only way to survive,” he averred, describing low investor confidence as the “elephant in the room”.

“The private sector remains the mainstay of fixed investment in the Gauteng economy, accounting for 80% of gross fixed capital formation at the moment. Most investable capital is in the hands of the private sector and it is therefore important to work closely with business leaders to unlock this capital and direct it towards improving the infrastructure for the common good,” the Premier added.

Under the province’s Transformation, Modernisation and Reindustrialisation (TMR) plan, the provincial administration was finalising a 30-year Infrastructure Master Plan for the Gauteng City Region, which would outline its infrastructure needs in the areas of transport, energy, human settlements, broadband and information technology, water and sanitation, education and health.

The plan showed that South Africa’s richest, most populated yet smallest province geographically required more R105-billion in infrastructure investment yearly to service both population and economic growth. The province’s population has expanded from 9-million to 12-million people over the past decade, amid a rise in urbanisation, as well as regional migration.

Failure to make the investments, Makhura said, could result in the province, which currently contributed 36% of South Africa’s gross domestic product, having its current status as a “gateway” to the rest of Africa undermined.

“Given the massive historical backlogs and poor maintenance of existing infrastructure in the face of growing needs, we need to mobilise more resources across the private and public sector in order to enhance social wellbeing and expand economic opportunities to all,” he said, adding that his government would prioritise the mobilisation of private resources and align private sector initiatives with the provincial development plan, the TMR.