CABRI POLICY DIALOGUE (Session 5) Monitoring the execution of infrastructure projects 24 August 2017 National Treasury: South Africa 1
UNDERSTANDING INFRASTRUCTURE DELIVERY GOVERNMENT’S INFRASTRUCTURE DELIVERY MANAGEMENT SYSTEM (IDMS) IDMS comprises three core systems: • a planning and budgeting system • a supply chain management system • an asset management system These core systems: • have forward and backward linkages • are located within portfolio, programme and project management and operation and maintenance processes Collectively these processes and systems, together with a performance management system, establishes the institutional system for infrastructure delivery
CURRENT PUBLIC SECTOR INFRASTRUCTURE INVESTMENT Provinces and municipalities continue to Proportional expenditure of total by level of government be significant drivers of infrastructure between 2015/16 and 2017/18 spending due to capacity expansion in Percentage transport, housing, water & sanitation, National departments 5% hospital revitalisation and social Provincial departments 21% infrastructure Local government 19% Public entities 8% Public private partnerships 2% Non-financial public enterprises to State owned companies 46% spend R432 billion (46% of total spend) Total 100% Total expenditure by functional classification between 2015/16 and 2017/18 R million MTEF Total % of Total Economic services 726 082 77% The bulk of expenditure Social services 184 794 20% is directed towards Justice and protection services 14 606 2% economic services Central government and administrative services 20 392 2% Financial 1 288 0% Grand Total 947 162 100% ➢ 3
FINANCING OF GOVERNMENT INFRASTRUCTURE PROJECTS Sphere Financing Vehicle Scale Sources ▪ ▪ ▪ National Budget Policy framework General taxation revenue ▪ ▪ Provincial appropriations On-going ▪ Municipal (50%) commitments ▪ General government debt including o Wages & salaries o Debt repayments ▪ Earmarked taxes o Bulk of public infrastructure ▪ Intergovernmental transfers investment • Little incentive to consider user charges or other sources of revenue to improve efficiency in project delivery • Cash-flow constraints can impact on project delivery • Poor in risk allocation and management • The Infrastructure Investment Programme for South Africa, a €100 million financing agreement supported by the European Union, which is designed to strengthen project planning and implementation.. ➢ 2017/08/17 ➢ 4
EXAMPLES Example SOURCE OF REPAYMENT Matrix Tax Payer Users Construction of provincial Building of dams is paid for on On Budget roads is paid for on the the national budget, and users provincial budget and tax cover O&M costs through water payers cover O&M costs charges SOURCE OF Off Budget Financing to build hospitals Eskom finances a power plant is raised through a PPP through raising debt, and FINANCING and the debt and O&M commercial users repay the costs are repaid through a debt over time and cover O&M unitary payment from DoH costs through the tariffs A hybrid approach to repayment PRASA borrows to finance the purchase of new rolling stock and user charges cover a portion of the capital and O&M costs and a unitary payment from DoT services the rest ➢ 2017/08/17 ➢ 5
INSTITUTIONAL CONTEXT FOR IMPLEMENTATION OF INFRASTRUCTURE PROJECTS • Spatial Planning and Land use Management Act (responsibilities and roles for each sphere of government) • Budgets follow functions • National government allocates funding according to functions • Sector departments, municipalities and entities = planning (long term) and implementation = implementation of budgets • Supporting legislation (PFMA, GIAMA, Infrastructure Development Act, MFMA) • Supporting institutional framework (National Planning Commission, National Treasury, PICC, Project Sponsors, Municipal accounting authorities, Municipal council, Department of CoG) • Based on the powers and functions; contracting happens at sector departments, municipal and entity level. 2017/08/17 6
COMPLIANCE OVERSIGHT • National government sets norms and standards • Sector policies / guides on priority areas / strategic and annual performance plans / service delivery plans • Establishment of sector norms and standards • Reviews of planning and design documentation • Monitoring of programme and project implementation • Treasury (National and Provincial) • Legislative compliance (DoRA, PFMA, MFMA) • Monitoring and oversight • Ensures value for money and public value • Coordinates with national departments to ensure compliance with sector norms and standards • Combined Treasury and National Sector Department • Moderation of all planning and performance documentation (in many cases as part of the “Performance Based System” – where good performance is rewarded financially) • Infrastructure Reporting Model (IRM) to monitor budget / expenditure performance on a monthly basis 2017/08/17 7
• National and Provincial Treasury MONITORING AND • Internet based Infrastructure Reporting Model REPORTING • Project information: • Financial and non-financial reporting • Monitor and report on the development of infrastructure plans (education and health) • Joint evaluation between Health and Education respectively. • Monitor the capabilities of the departments (Health and Education) through the Infrastructure Progression Model and make recommendation (pilot stage). • Support reporting via the development and expansion of Communities of Practices around identified problematic areas. • Legislated reporting through various sections of MFMA, PFMA and DoRA 2017/08/17 8
MAIN CHALLENGE The Auditor General’s Performance Audit Report on infrastructure delivery by the Provincial Education and Health Sectors (2011) indicated the following challenges:- “South Africa’s intergovernmental framework is still new and the challenge of improving intergovernmental cooperation and coordination is particular prevalent as regards infrastructure delivery” 2017/08/17 9
UNPACKING THE KEY COMPONENTS OF THE MAIN CHALLENGE Governance • Co-operative governance • Clarification of mandates – between the Departments / custodian and implementers • Challenges in having suitable institutional arrangements Capacity • Lack of skills within the planning departments (over / under commitments of the departments) • Poor implementation oversight. Planning and Budgeting • planning and budgeting done in silos • Committed projects are not fully prioritized and budgeted for over the MTEF. • Projects take longer to complete and handover and often asset registers are not updated. • Preference for building new infrastructure as opposed to maintaining the existing. Infrastructure Procurement • SCM committees have no experience in infrastructure procurement – mostly goods and services • Environment extremely legislated – due to fraud and corruption. Results in time delays. • Service Providers challenge SCM decisions continuously – results in committees being risk averse and always appoint lowest bidder which in many cases results in appointments made to service providers that cannot perform 2017/08/17 10
MECHANISMS TO ADDRESS CHALLENGES ….. Governance • departmental mandates clarified and agreed upon in terms of the legislation (Health and Education) • Clarity of roles and responsibilities – clear job descriptions Capacity • Dedicated skills transfer and capacity building through technical assistance, and training in planning, procurement and management systems for the provincial and national departments of health, education and public works, along with management oversight functions in provincial treasuries • The infrastructure skills development grant for municipalities, which funds the professionalization graduates in built-environment to increase the pool of experienced and professional practitioners. In the long term, these graduates will form a pipeline of qualified professionals. • Various grant instruments to support mainly municipalities to build capacity as part of implementing projects. ➢ 2017/08/17 ➢ 11 11
MECHANISMS TO ADDRESS CHALLENGES Planning and Budgeting • A performance-based infrastructure grant system that rewards provincial departments of education with additional incentive allocations for building capacity and demonstrating improved infrastructure planning • Dedicated modules developed as articulated in the IDMS dealing with Planning and Budgeting, Supply Chain and Asset Management. • Ongoing training of government Officials (subject to the budget) • Partnering with universities so as to embed the course academically. Infrastructure Procurement • Separation of infrastructure procurement from general goods and services. • Development and adoption of the Standards for Infrastructure Procurement and Delivery Management (SIPDM) which sets out the minimum requirements to be complied with for infrastructure procurement. • At least two university are running a pilot course based on the SIPDM ➢ 2017/08/17 ➢ 12 12
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