The Civil Engineering Contractor March 2019 | Page 41

BUSINESS INTEL
how governments and public utilities
can give the private sector those key
elements it requires within transaction
documents in project preparation,
while still ensuring the project is
beneficial from government’s side.
“Our view is that capacity building
has to be embedded in the contract
when hiring an adviser who has the
specialised expertise, so that once the
project is completed, much of that
expertise becomes in-house capability.”
She noted a common desire to
fast-track projects but questioned the
wisdom of such haste. “We’re all keen to
see delivery of infrastructure projects,
which in many cases are life changing
and even lifesaving, but instead of trying
to push a project to implementation
as soon as possible we [the Clinton
Foundation] will often work towards
a broader-based engagement with
communities and stakeholders to ensure
there is comfort with the feasibility
analysis, the transaction details, and how
that project fits into their long-term
plan for infrastructure development.
Our experience is that one should
go beyond the legal requirement for
public participation, which is typically
a very formal process that does not
really inspire community engagement.
Greater engagement has the effect of
getting communities to both understand
and to become excited about the project
as to what it will mean for them. It is a
de-risking tool,” said Wilson.
Paul Mojalefa
Mojalefa listed some current
innovations taking place in project
preparation:
• The use by funders of their own
AAA rating to wrap the bonds
on behalf of sub-investment-grade
governments, thereby attracting
other funders who may not
otherwise have the appetite to
come into that country.
• Project managers secure blue-chip
off-takers so that the latter’s status
improves the financial modelling
www.civilsonline.co.za
of the project and the appetite for
other lenders to participate.
• 
Islamic funding is an innovation
trending in some parts of the world
but yet to make a meaningful
impact in South Africa.
Cleyton Barros
As in Africa, Latin America’s primary
constraint is the lack of government
capacity, said Barros. “What tends to
happen is that all the expertise and
experience on the government side
resides in a single person who heads
their project preparation body, and if
that person leaves, all the expertise
leaves with him/her. Indeed, such a
person has a powerful incentive to
leave — so governments need to invest
in and train a team.”
James Mackay
Mackay proposed an alternate view of
factors contributing to project preparation
challenges and the lack of bankable
projects, especially the expectation gap
between the project sponsors and the
advisers they are hiring. “Sponsors and
advisers are both critical to developing
a bankable and successful project, and
alignment between these role players
is therefore critical. However, political
sponsors are invariably interested in the
political and economic benefits of such
projects and assume that by hiring private
sector advisers, a successful project
will be developed. The reality is that
advisers will only deliver what has been
contracted, so if the technical thresholds
were set too low or the work was poorly
scoped by the sponsor, this will result in
an expectation gap between the sponsor
and the advisers. When such projects
eventually ‘go to market’, the project
incentives are invariably misaligned
between what the sponsor wants and
what the private sector developers can
actually deliver. Such projects thereafter
often do not deliver the sort of social and
economic impact that was expected of
them. Commentators often attribute the
lack of projects to policy uncertainty —
in fact, there is sufficient policy certainty
to support good projects, but it is often
due to this gap in how projects are being
prepared that leads to the poor delivery.
“More robust preparation of adviser
scopes as well as building more robust
relationships with advisers around the
project vision should therefore be a
stronger focus of public sector sponsors.”
Mackay described one local success
story as being REIPP (government’s
renewable energy programme),
attributing that success to government
having gone to market and having
procured the best advisers locally and
internationally to develop the global
best practice for such a programme.
“The RFP was clear as to its scope and
certainty, which was a result of the
robust preparation that had already
gone into it.”
On the flip side, according to Kubeka,
the e-tolls saga in Gauteng reflected
the lack of community participation in
the project, which ought to have been
part of the project preparation, as a
legal requirement.
China is often touted as a model
for infrastructure roll-out that South
Africa could follow, but Mackay
said China also has a mixed record.
“Lessons in getting projects to
bankability, whether you choose a
‘Chinese’ or other funding model,
will ultimately come down to the
alignment between the sponsor and
the advisers and hence, the quality of
project preparation. This relationship
should ideally be completely seamless
to successfully deliver a large
infrastructure project.
“The key questions should be:
how do we get the benefits of
infrastructure into the economy; how
do we make sure that each dollar
we spend on project preparation
is going to result in jobs, regional
integration, and regional trade? These
questions are generally not asked by
the private investors, because their
focus is on commercial return and
capital security,” said Mackay. nn
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