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NATIONAL TREASURY
PPP MANUAL
MODULE 1: SOUTH AFRICAN REGULATIONS FOR PPPs

NATIONAL TREASURY PPP PRACTICE NOTE

NUMBER 02 OF 2004

In accordance with section 76(4)(g) of the Public Finance Management Act,

1999 (PFMA), National Treasury may issue instructions to institutions to
which the PFMA applies in order to facilitate the application of the PFMA
and the regulations promulgated under the PFMA.

This National Treasury PPP Practice Note Number 02 of 2004 ‘South African
Regulations for PPPs’ applies to departments, constitutional institutions,
public entities listed or required to be listed in schedules 3A, 3B, 3C and 3D
to the PFMA and subsidiaries of such public entities.
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PPP PROJECT CYCLE

NATIONAL
TREASURY
Reflecting Treasury Regulation 16 to the
Public Finance Management Act, 1999

PPP Manual reference

Module 1
INCEPTION
Phase I

Module 2
• Register project with the relevant treasury MODULE 3
• Appoint project officer
• Appoint transaction advisor Module 6

Module 1
FEASIBILITY STUDY Module 2
PROJECT PREPARATION PERIOD

Prepare a feasibility study comprising: MODULE 4

Phase II

• Needs analysis
• Options analysis Module 6
• Project due diligence Module 7
• Value assessment
• Economic valuation Module 8
• Procurement plan Module 9
Treasury Approval: I

PROCUREMENT
• Design a fair, equitable, transparent, competitive,
cost-effective procurement process
• Prepare bid documents, including draft PPP agreement
Module 1
Treasury Approval: IIA Module 2
Module 4
• Pre-qualify parties
Phase III

• Issue request for proposals with draft PPP agreement MODULE 5

• Receive bids
• Compare bids with feasibility study and each other Module 6
• Select preferred bidder Module 7
• Prepare value-for-money report
Module 8
Module 9
Treasury Approval: IIB

• Negotiate with preferred bidder

• Finalise PPP agreement management plan

Treasury Approval: III

PPP agreement signed

Phase IV
PROJECT TERM

• Measure outputs,
DEVELOPMENT monitor and
Module 1
regulate Module 2
performance, Module 5
Phase V

liaise effectively,
DELIVERY settle disputes
MODULE 6
• Report progress Module 7
in the Annual Module 8
Report
Phase VI

• Scrutiny by the Module 9

EXIT Auditor-General

II
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ABOUT THIS MODULE

Module 1: South African Regulations for PPPs opens with brief notes on how PPPs
and this Manual itself fit within South Africa’s public finance management system
in national and provincial government.

The substance of Module 1 presents Treasury Regulation 16 to the Public Finance

Management Act, 1999 (PFMA), the legal foundation for PPPs, in an annotated
form, taking the reader through the regulations and answering frequently asked
questions. The module closes with specific instructions to institutions considering
application for exemption from treasury approvals required in terms of Treasury
Regulation 16 to the PFMA.

The PPP project cycle depicts the phases and stages of Treasury Regulation 16 to
the PFMA. This PPP project cycle is referenced throughout National Treasury’s
PPP Manual.

Treasury Regulation 16, 2004, is attached as ‘Annexure 1: Treasury Regulation 16’.

Institutions and private parties will find Module 1 useful when they first consider a
PPP and want an understanding of the legal foundation for PPPs. The module is
also useful as a quick reference throughout the PPP project cycle. Cross-references
to other modules in National Treasury’s PPP Manual refer the reader to detailed
guidance and information about the various phases and stages of developing a
PPP.

III
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IV PPP Manual Module 1: South African Regulations for PPPs

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CONTENTS

INTRODUCTION 1

UNDERSTANDING TREASURY REGULATION 16 3

ANNEXURE 15
Annexure 1: Treasury Regulation 16 16

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PPP Manual Module 1: South African Regulations for PPPs

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INTRODUCTION

South Africa has established a firm regulatory framework in terms of which

national and provincial government institutions can enter into public private
partnership (PPP) agreements. The central legislation governing PPPs for national
and provincial government is Treasury Regulation 16 issued to the Public Finance
Management Act, 1999 (PFMA).
PPPs for municipal government are governed by the Municipal Systems Act,
2000, and the Municipal Finance Management Act, 2003. Municipalities are not
subject to the PFMA or to Treasury Regulation 16. National Treasury will issue a
separate PPP Manual for municipalities.

National Treasury’s PPP Manual

National Treasury’s PPP Manual and Standardised PPP Provisions are founded on
the PFMA and Treasury Regulation 16, and have been produced for national and
provincial departments, constitutional institutions, and public entities listed or
required to be listed in schedules 3A, 3B, 3C and 3D of the PFMA, and any
subsidiaries of such public entities.
Each module of National Treasury’s PPP Manual, together with Standardised
PPP Provisions, is issued by National Treasury as a PPP Practice Note, in terms of
section 76(4)(g) of the PFMA. These PPP practice notes, which will be updated
from time to time, constitute instructions in terms of section 76 of the PFMA,
aimed at facilitating the application of the PFMA and its regulations.

National Treasury PPP Practice Note Number 01 of 2004:

Standardised PPP Provisions: First Issue: 11 March 2004
National Treasury PPP Practice Note Number 02 of 2004:
National Treasury’s PPP Manual Module 1: South African Regulations for PPPs
National Treasury PPP Practice Note Number 03 of 2004:
National Treasury’s PPP Manual Module 2: Code of Good Practice for BEE in PPPs
National Treasury PPP Practice Note Number 04 of 2004:
National Treasury’s PPP Manual Module 3: PPP Inception
National Treasury PPP Practice Note Number 05 of 2004:
National Treasury’s PPP Manual Module 4: PPP Feasibility Study
National Treasury PPP Practice Note Number 06 of 2004:
National Treasury’s PPP Manual Module 5: PPP Procurement
National Treasury PPP Practice Note Number 07 of 2004
National Treasury’s PPP Manual Module 6: Managing the PPP Agreement
National Treasury PPP Practice Note Number 08 of 2004
National Treasury’s PPP Manual Module 7: Auditing PPPs
National Treasury PPP Practice Note Number 09 of 2004:
National Treasury’s PPP Manual Module 8: Accounting Treatment for PPPs
National Treasury PPP Practice Note Number 10 of 2004:
National Treasury’s PPP Manual Module 9: An Introduction to Project Finance

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The ‘instructions’ contained in National Treasury’s PPP Manual are presented in

the form of detailed best practice guidance, based on National Treasury’s PPP
Unit’s experience in PPPs to date. An institution to which Treasury Regulation 16
applies which seeks materially to deviate from this guidance should inform the
relevant treasury of such intentions prior to execution, and justify its reasons for
such material deviation in the relevant application(s) for treasury approvals in
terms of the regulation.

The PFMA
The PFMA approach to financial management focuses on outputs and respons-
ibilities and is a cornerstone of government’s strategy to improve financial man-
agement in the public sector.
Government is increasingly focusing its efforts on outputs and outcomes,
wanting to ensure that, in spending taxpayers’ money, it produces the intended
result. The PFMA makes the heads of departments (the accounting officers) of
national and provincial departments and the CEOs or boards of schedule 3 public
entities (the accounting authorities) responsible for implementation. They are
directly accountable to Parliament or the provincial legislature for the effective and
efficient management of their budgets to achieve their public mandates. These
responsible officials need constantly to evaluate value-for-money choices. A PPP
choice for the delivery of a public service, or to achieve a public good, warrants
such investigation.
By its nature, a PPP entails:
• targeted public spending, principally on outputs to agreed standards
• leveraging private sector finance and efficiencies
• allocating risks to the party best able to manage them.
As a mechanism of delivery, a PPP is firmly in line with the intent of the PFMA.

Treasury Regulation 16 to the PFMA

The PFMA provides, in section 76, that National Treasury must make regulations
for a range of matters to do with the effective and efficient management and use of
financial resources. Many of these matters are relevant to PPPs, and National
Treasury’s Regulation 16 provides precise and detailed instructions for PPPs. The
regulations have been amended since they were first issued in May 2000 to take
account of experience in implementing PPPs.
Treasury Regulation 16 to the PFMA defines a PPP, and sets out the phases
and tests it will have to go through.
The gazetted regulation is reproduced here, annotated at the points at which
questions are frequently asked. The regulation is also attached as ‘Annexure 1:
Treasury Regulation 16’.

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UNDERSTANDING TREASURY REGULATION 16

TO THE PFMA

16.1 Definitions
In this regulation, unless the context indicates otherwise, a word or expression to
which a meaning has been assigned in the Act, has the same meaning, and –

“affordability”1 means that the financial commitments to be incurred by an

institution in terms of the PPP agreement can be met by funds –
(a) designated within the institution’s existing budget for the institutional
function to which the agreement relates; and/or
(b) destined for the institution in accordance with the relevant treasury’s future
budgetary projections for the institution;

“institution” means a department, a constitutional institution, a public entity

listed, or required to be listed in schedules 3A, 3B, 3C and 3D to the Act, or any
subsidiary of any such public entity.

Which national and provincial government institutions are subject

to Treasury Regulation 16?
All references to ‘institution(s)’ in Treasury Regulation 16 are to these particular institu-
tions of government:
• all national and provincial government departments
• all constitutional institutions listed in schedule 1 to the PFMA
• all national and provincial public entities listed in schedules 3A, 3B, 3C and 3D to the
PFMA and any subsidiary of any such public entity.
The major public entities listed in schedule 2 to the PFMA are not subject to Treasury
Regulation 16. Municipalities are not subject to the PFMA or to its regulations.

“institutional function” means –

(a) a service, task, assignment or other function that an institution is entitled or
obliged to perform –
(i) in the public interest; or
(ii) on behalf of the public service generally; or
(b) any part or component of or any service, task, assignment or other function
performed or to be performed in support of such a service, task, assignment
or other function;

1. Affordability is dealt with in detail in Module 4: Feasibility Study and in Module 5: PPP
Procurement.

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“private party” means a party to a PPP agreement, other than –

(a) an institution to which the Act applies;
(b) a municipality or a municipal entity under the ownership control of one or
more municipalities; or
(c) the accounting officer, accounting authority or other person or body acting
on behalf of an institution, municipality or municipal entity referred to in
paragraph (a) or (b);

How is a private party defined?

The regulation defines a private party to a PPP agreement in the negative, explicitly
excluding public institutions. PPPs in South Africa are thus specifically defined to exclude
public-public partnerships. Not-for-profit entities are not excluded from the definition of
a private party but their capacity to carry substantial financial, technical and operational
risk in a project will determine the role they are able to play in a PPP.

“project officer”2 means a person identified by the accounting officer or account-

ing authority of an institution, who is capable of managing and is appropriately
qualified to manage a PPP to which that institution is party from its inception to
its expiry or termination;

“public private partnership” or “PPP” means a commercial transaction between

an institution and a private party in terms of which the private party –
(a) performs an institutional function on behalf of the institution; and/or
(b) acquires the use of state property for its own commercial purposes; and
(c) assumes substantial financial, technical and operational risks in connection
with the performance of the institutional function and/or use of state
property; and
(d) receives a benefit for performing the institutional function or from utilising
the state property, either by way of:
(i) consideration to be paid by the institution which derives from a revenue
fund or, where the institution is a national government business enter-
prise or a provincial government business enterprise, from the revenues
of such institution; or
(ii) charges or fees to be collected by the private party from users or
customers of a service provided to them; or
(iii) a combination of such consideration and such charges or fees;

What does a PPP entail?

A PPP is a contract between a public sector institution and a private party, in which the
private party assumes substantial financial, technical and operational risk in the design,
financing, building and operation of a project.

2. The project officer’s role and functions are dealt with in detail in Module 3: PPP Inception.

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Two types of PPPs are specifically defined:

• where the private party performs an institutional function
• where the private party acquires the use of state property for its own commercial
purposes.
A PPP may also be a hybrid of these types.
Payment in any scenario involves one of three mechanisms:
• the institution paying the private party for the delivery of the service, or
• the private party collecting fees or charges from users of the service, or
• a combination of these.

What is a PPP not?

The way that a PPP is defined in the regulations makes it clear that:
• a PPP is not a simple outsourcing of functions where substantial financial, technical
and operational risk is retained by the institution
• a PPP is not a donation by a private party for a public good
• a PPP is not the privatisation or divesture of state assets and/or liabilities
• a PPP is not the ‘commercialisation’ of a public function by the creation of a state-
owned enterprise
• a PPP does not constitute borrowing by the state.

What types of PPP does the regulation cater for?

Treasury Regulation 16 caters for a wide variety of PPP types. It allows such projects to
be developed in South Africa with a range of different characteristics, combining private
party risk in various ways for designing, financing, building, operating, infrastructure
and services, and for owning and transferring assets. This wide variety of PPP types is
reflected in international experience.

What PPP financing structures and funding sources3 does the regulation
provide for?
Treasury Regulation 16 is not prescriptive about the financing structure of a PPP. It is
assumed that these will vary widely from project to project and sector to sector, and will
be closely linked to the funding sources that can be secured for each deal.
However, PPPs typically involve the private party raising both debt and equity to
capitalise the project. National Treasury’s Standardised PPP Provisions have been devel-
oped for this typical PPP financing structure and sources of funding.
PPPs may involve a degree of capital contribution by the institution to the initial costs
of the project. Some PPP projects do not involve debt finance at all, being initially funded
either wholly through corporate finance or by a combination of government funds and
private equity. In end-user-pay projects there may also be an element of government
funding support to either or both the capital and the operating costs of the project.

3. Financing structure and funding sources are dealt with in Module 4: PPP Feasibility Study. Refer
also to Module 9: An Introduction to Project Finance.

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In essence, Treasury Regulation 16 provides that affordability limits, value-for-money

considerations and the risk profile of the project will determine a PPP project’s financing
structure and sources of funding.

Figure 1.1: Typical PPP structure

Institution

PPP agreement Direct agreement

Shareholders Shareholders Financing Lenders

Private party agreement
agreement

Construction Operations
subcontract subcontract

Construction Operations
subcontractor subcontractor

“preferred bidder”4 means the bidder, including any bidding consortium, to be

appointed as preferred bidder in terms of regulation 16.5.4;

“PPP agreement” means a written contract recording the terms of a PPP

concluded between an institution and a private party;

“relevant treasury” means the National Treasury unless delegated in terms in

section 10(1)(b) of the Act;

Which treasury is the ‘relevant treasury’?

National Treasury currently has the responsibility for regulating PPPs in terms of Treasury
Regulation 16 to the PFMA. These powers may be delegated to provincial treasuries,
thus the regulation refers throughout to ‘the relevant treasury’.

4. The process for choosing the preferred bidder is covered in Module 5: PPP Procurement.

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“state property” includes all movable and immovable property belonging to the
state as well as intellectual property rights vested in the state;

“transaction advisor”5 means a person or persons appointed in writing by an

accounting officer or accounting authority of an institution, who has or have
appropriate skills and experience to assist and advise the institution in connection
with a PPP, including the preparation and conclusion of a PPP agreement; and

“value for money”6 means that the provision of the institutional function or the
use of state property by a private party in terms of the PPP agreement results in a
net benefit to the institution defined in terms of cost, price, quality, quantity, risk
transfer or a combination thereof.

16.2 Exclusive competency of accounting officers and accounting authorities

16.2.1 Only the accounting officer or the accounting authority of an institution
may enter into a PPP agreement on behalf of that institution.

16.3 Project inception7

16.3.1 As soon as the institution identifies a project that may be concluded as a
PPP, the accounting officer or accounting authority must in writing –
(a) register the PPP with the relevant treasury;
(b) inform the relevant treasury of the expertise within that institution to
proceed with a PPP;
(c) appoint a project officer from within or outside the institution; and
(d) appoint a transaction advisor if the relevant treasury so requests.

What does the PPP project cycle involve?

The PPP project cycle enables the three regulatory tests of affordability, value for money,
and risk transfer to be applied at every stage of preparing for, procuring and managing a
PPP agreement. Regulation 16 sets out six distinct phases to the project cycle. It requires
that the institution apply these tests throughout, and that specific treasury approvals are
given at phases II and III of the project cycle. (See the PPP project cycle chart.)

16.4 Feasibility study 8 – Treasury Approval: I

16.4.1 To determine whether the proposed PPP is in the best interests of an
institution, the accounting officer or the accounting authority of that
institution must undertake a feasibility study that –

5. The transaction advisor’s role and functions and the appointment process are covered in
Module 3: PPP Inception.
6. Value for money is covered in Module 4: PPP Feasibility Study and Module 5: Procurement.
7. The steps in 16.3.1 are covered in Module 3: PPP Inception.
8. How to do a PPP feasibility study is covered in Module 4: PPP Feasibility Study.

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(a) explains the strategic and operational benefits of the proposed PPP for
the institution in terms of its strategic objectives and government policy;
(b) describes in specific terms –
(i) in the case of a PPP involving the performance of an institutional
function, the nature of the institutional function concerned and the
extent to which this institutional function, both legally and by
nature, may be performed by a private party; and
(ii) in the case of a PPP involving the use of state property, a descrip-
tion of the state property concerned, the uses, if any, to which such
state property has been subject prior to the registration of the
proposed PPP and a description of the types of use that a private
party may legally subject such state property to;
(c) in relation to a PPP pursuant to which an institution will incur any
financial commitments, demonstrates the affordability of the PPP for
the institution;
(d) sets out the proposed allocation of financial, technical and operational
risks between the institution and the private party;
(e) demonstrates the anticipated value for money to be achieved by the
PPP; and
(f ) explains the capacity of the institution to procure, implement, manage,
enforce, monitor and report on the PPP;

What are the tests for a PPP?

Whatever the PPP type, structure, payment mechanism, or sources of funding, all South
African PPPs governed by Treasury Regulation 16 are subjected to three strict tests:
• Can the institution afford the deal?
• Is it a value-for-money solution?
• Is substantial technical, operational and financial risk transferred to the private party?

16.4.2 An institution may not proceed with the procurement phase of a PPP without
prior written approval of the relevant treasury for the feasibility study.
16.4.3 The treasury approval referred to in regulation 16.4.2 shall be regarded as
Treasury Approval: I.
16.4.4 If at any time after Treasury Approval: I has been granted in respect of the
feasibility study of a PPP, but before the grant of Treasury Approval: III in
respect of the PPP agreement recording that PPP, any assumptions in such
feasibility study are materially revised, including any assumptions concern-
ing affordability, value for money and substantial technical, operational and
financial risk transfer, then the accounting officer or accounting authority
of the institution must immediately –
(a) provide the relevant treasury with details of the intended revision,
including a statement regarding the purpose and impact of the intended
revision on the affordability, value for money and risk transfer
evaluation contained in the feasibility study; and

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(b) ensure that the relevant treasury is provided with a revised feasibility
study after which the relevant treasury may grant a revised Treasury
Approval: I.

16.5 Procurement 9 – Treasury approvals IIA and IIB

16.5.1 Prior to the issuing of any procurement documentation for a PPP to any
prospective bidders, the institution must obtain approval from the relevant
treasury for the procurement documentation, including the draft PPP
agreement.
16.5.2 The treasury approval referred to in regulation 16.5.1 shall be regarded as
Treasury Approval: IIA.
16.5.3 The procurement procedure –
(a) must be in accordance with a system that is fair, equitable, transparent,
competitive and cost-effective; and
(b) must include a preference for the protection or advancement of persons,
or categories of persons, disadvantaged by unfair discrimination in
compliance with relevant legislation.

How is the private party chosen?

The regulation sets out clear PPP procurement steps that must be followed by institu-
tions, and prescribes distinct treasury approvals that must be obtained in this phase.
The Promotion of Administrative Justice Act, 2000 (PAJA), imposes a range of obliga-
tions arising from section 33(1) of the Constitution of the Republic of South Africa to effect
citizens’ rights to fair administrative action. These values are lawfulness, reasonableness
and procedural fairness.
Each administrative action in a PPP procurement process must be in accordance
with the law and prescribed procedures; there must be accountability, responsiveness
and openness in the decision-making of the institution; all bidders at each stage of a
procurement process must have an equal chance of competing for the contract; and no
action taken by government may prejudice their competitiveness.

How is BEE10 applied in PPPs?

In providing that active measures must be taken to promote black economic empower-
ment (BEE) at all stages of PPPs, the regulations are in line with broader government
BEE policy. Module 2: Code of Good Practice for BEE in PPPs informs how BEE must be
approached. The code is to be issued by the Minister of Trade and Industry in terms of
the Broad-based Black Economic Empowerment Act, 2003 (the BBBEE Act). The
Preferential Procurement Policy Framework Act, 2000 (PPPFA) also applies.

9. The stages and steps for procuring the PPP are covered in Module 5: PPP Procurement.
10. BEE is dealt with in all the modules as applicable to a particular phase, stage or step in the PPP
process. Module 2: Code of Good Practice for BEE in PPPs provides the policy and specific
guidance.

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16.5.4 After the evaluation of the bids, but prior to appointing the preferred
bidder, the institution must submit a report for approval by the relevant
treasury, demonstrating how the criteria of affordability, value for money
and substantial technical, operational and financial risk transfer were
applied in the evaluation of the bids, demonstrating how these criteria were
satisfied in the preferred bid, and including any other information as
required by the relevant treasury.
16.5.5 The treasury approval referred to in regulation 16.5.4 shall be regarded as
Treasury Approval: IIB.

16.6 Contracting PPP agreements – Treasury Approval: III 11

16.6.1 After the procurement procedure has been concluded but before the
accounting officer or accounting authority of an institution concludes a
PPP agreement, that accounting officer or accounting authority must
obtain approval from the relevant treasury –
(a) that the PPP agreement meets the requirements of affordability, value
for money and substantial technical, operational and financial risk
transfer as approved in terms of regulation 16.4.2 or as revised in terms
of regulation 16.4.4;
(b) for a management plan that explains the capacity of the institution, and
its proposed mechanisms and procedures, to effectively implement,
manage, enforce, monitor and report on the PPP; and
(c) that a satisfactory due diligence including a legal due diligence has been
completed in respect of the accounting officer or accounting authority
and the proposed private party in relation to matters of their respective
competence and capacity to enter into the PPP agreement.
16.6.2 The treasury approval referred to in regulation 16.6.1 shall be referred to as
Treasury Approval: III.

16.7 Management of PPP agreements12

16.7.1 The accounting officer or accounting authority of the institution that is
party to a PPP agreement is responsible for ensuring that the PPP agree-
ment is properly implemented, managed, enforced, monitored and reported
on, and must maintain such mechanisms and procedures as approved in
Treasury Approval: III for –
(a) measuring the outputs of the PPP agreement;
(b) monitoring the implementation of the PPP agreement and perform-
ances under the PPP agreement;
(c) liaising with the private party;

11. See Module 5: PPP Procurement.

12. Module 6: Managing the PPP Agreement covers the processes in detail.

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(d) resolving disputes and differences with the private party;

(e) generally overseeing the day-to-day management of the PPP agreement;
and
(f) reporting on the PPP agreement in the institution’s annual report.
16.7.2 A PPP agreement involving the performance of an institutional function
does not divest the accounting officer or accounting authority of the institu-
tion concerned of the responsibility for ensuring that such institutional
function is effectively and efficiently performed in the public interest or on
behalf of the public service.
16.7.3 A PPP agreement involving the use of state property by a private party does
not divest the accounting officer or accounting authority of the institution
concerned of the responsibility for ensuring that such state property is
appropriately protected against forfeiture, theft, loss, wastage and misuse.

16.8 Amendment and variation of PPP agreements

16.8.1 The prior written approval of the relevant treasury is required for any
material amendments to a PPP agreement including any material variations
to the outputs therein, or any waivers contemplated or provided for in the
PPP agreement.
16.8.2 The relevant treasury will approve a material amendment only if it is
satisfied that the PPP agreement, if so amended, will continue to provide –
(a) value for money;
(b) affordability; and
(c) substantial technical, operational and financial risk transfer to the
private party.
16.8.3 The accounting officer or accounting authority must substantially follow
the procedure prescribed by regulations 16.4 and 16.6 for obtaining such
treasury approval.

16.9 Agreements binding on the state

16.9.1 A PPP agreement or an agreement amending a PPP agreement, binds the
state only if the agreement was entered into on behalf of an institution –
(a) by the accounting officer or accounting authority of that institution;
and
(b) if all treasury approvals required in terms of this regulation 16 have been
granted by the relevant treasury in respect of the PPP.

Are unsolicited bids provided for?

The regulation makes no provision for unsolicited bids, and National Treasury is not in
favour of them. Unsolicited bids are difficult to manage, threaten to violate constitu-
tional protections of fair administrative process and competitive procurement, and
internationally, have not proven to deliver faster or secure better value for money in
PPPs. National Treasury encourages institutions to listen to innovative ideas from the
private sector but, in so doing, not to acquire associated intellectual property rights, and

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not to make any commitments that will undermine competitive procurement. If the
ideas seem promising, institutions should register the project with the relevant treasury
in terms of Treasury Regulation 16 and follow the project cycle as regulated.

16.10 Exemptions
16.10.1 The relevant treasury may, subject to any terms and conditions that it
considers appropriate and upon written application from an institution,
exempt that institution whether in relation to a specific PPP or in general,
from complying with any or all of the provisions of this regulation 16.

Applying for exemption from Treasury Regulation 16

An institution may be exempted from obtaining the prescribed treasury approvals, and
the procurement of a PPP may thus be able to go ahead without the oversight and
statutory approvals of the relevant treasury.
The relevant treasury will consider two kinds of exemption application:
• for the duration of a particular project; and/or
• for the institution itself, for a specific period.

National Treasury has set the following conditions for such exemptions:
• No exemptions will be given to institutions from complying with the regulatory tests
or phases of a PPP that are prescribed by Treasury Regulation 16.
• The application must clearly demonstrate the institution’s capacity to manage a PPP
to the standards and phases outlined in Treasury Regulation 16 by addressing the
issues outlined below.
• An exemption from treasury approvals does not exempt the institution from applying
Standardised PPP Provisions, as set out therein.
• An exemption from treasury approvals does not exempt the institution from substant-
ively following procedures outlined in National Treasury’s PPP Manual.
• An exemption from treasury approvals does not exempt the institution from complying
with the Code of Good Practice for BEE in PPPs.
• No exemptions will be given retrospectively.
• Only the accounting officer/authority may apply to the relevant treasury on behalf of
an institution.

Part A: Exemption for a particular PPP

The application must demonstrate the institution’s capacity to manage the PPP through
the phases and to the standards set by Treasury Regulation 16 without the oversight and
approvals of the relevant treasury.
The following must be addressed:
1. Give a short description of the project.
2. What institutional function and/or use of state property is envisaged?
3. What is the envisaged extent of public funding and/or revenue from users?
4. What is the proposed extent of private sector capital/skill/infrastructure?
5. What risks are to be transferred to a private party?

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6. What is the anticipated duration of the PPP agreement?

7. How does the institution propose to determine affordability, value for money and
appropriate risk allocation for the project?
8. Give a short history of similar projects undertaken by the institution.
9. Outline the policy and actual procedures followed to date by the institution in three
similar projects, specifically in relation to approving project feasibility studies,
compiling and approving bid documents, managing the competitive bidding process,
evaluating bids, determining value for money, establishing contract management
systems and negotiating and managing contracts.
10. Outline the institution’s management system for the project, attaching relevant
resumés of key personnel.
11. Submit the curriculum vitae of the appointed project officer, together with his or
her job description.

Part B: Exemption for an institution

National Treasury views the past experience of the institution in successfully planning
for, procuring and implementing PPP projects as the key factor in granting an institu-
tional exemption. The application must therefore demonstrate the capacity of the
institution established for procuring and managing all its possible PPPs through the
phases and to the standards set in Treasury Regulation 16 without the oversight and
approvals of the relevant treasury. The exemption may be granted for a specific period,
and re-applied for after that. The application must state the extent to which such
institutional capacity relies on the experience of specific individuals.
The following must be addressed:
1. Give a short description of the institution.
2. Motivate the period of time for which an exemption is sought.
3. What institutional function and/or use of state property is envisaged for PPPs?
4. What is the extent of public funding and/or revenues from users, for projects
envisaged?
5. What is the extent of private sector capital/skill/infrastructure envisaged?
6. What risks are likely to be transferred to the private sector?
7. Provide a summary of the PPP projects undertaken by the institution to date.
8. Outline the institution’s policy for determining project affordability, value for money
and appropriate risk allocation.
9. Outline the actual procedures established in the institution for approving project
feasibility studies, approving bid documents, managing the competitive bidding
process, evaluating bids, determining value for money, establishing contract manage-
ment systems, and negotiating and managing PPP agreements.
10. Outline the institution’s capacity to manage and administer PPPs, attaching rele-
vant resumés of key personnel.
11. Submit the curriculum vitae of people who will be assigned as project officers for
the institution’s envisaged PPP projects, together with their job descriptions.

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ANNEXURE

ANNEXURE 1
Treasury Regulation 16 16
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TREASURY REGULATION 16 TO THE

PUBLIC FINANCE MANAGEMENT ACT, 1999
as published in Government Gazette, 2004.

16. Public private partnerships

16.1 Definitions
In this regulation, unless the context indicates otherwise, a word or expression to
which a meaning has been assigned in the Act, has the same meaning, and –

“affordability” means that the financial commitments to be incurred by an

institution in terms of the PPP agreement can be met by funds –
(a) designated within the institution’s existing budget for the institutional
function to which the agreement relates; and/or
(b) destined for the institution in accordance with the relevant treasury’s
future budgetary projections for the institution;

“institution” means a department, a constitutional institution, a public entity listed,

or required to be listed in schedules 3A, 3B, 3C and 3D to the Act, or any subsidiary
of any such public entity.

“institutional function” means –

(a) a service, task, assignment or other function that an institution is
entitled or obliged to perform –
(i) in the public interest; or
(ii) on behalf of the public service generally; or
(b) any part or component of or any service, task, assignment or other
function performed or to be performed in support of such a service,
task, assignment or other function;

“private party” means a party to a PPP agreement, other than –

(a) an institution to which the Act applies;
(b) a municipality or a municipal entity under the ownership control of one
or more municipalities; or
(c) the accounting officer, accounting authority or other person or body
acting on behalf of an institution, municipality or municipal entity
referred to in paragraph (a) or (b);

“project officer” means a person identified by the accounting officer or accounting

authority of an institution, who is capable of managing and is appropriately
qualified to manage a PPP to which that institution is party from its inception to
its expiry or termination;

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ANNEXURE 1: TREASURY REGULATION 16

“public private partnership” or “PPP” means a commercial transaction between

an institution and a private party in terms of which the private party –
(a) performs an institutional function on behalf of the institution; and / or
(b) acquires the use of state property for its own commercial purposes; and
(c) assumes substantial financial, technical and operational risks in
connection with the performance of the institutional function and/or
use of state property; and
(d) receives a benefit for performing the institutional function or from
utilising the state property, either by way of:
(i) consideration to be paid by the institution which derives from a
revenue fund or, where the institution is a national government
business enterprise or a provincial government business enterprise,
from the revenues of such institution; or
(ii) charges or fees to be collected by the private party from users or
customers of a service provided to them; or
(iii) a combination of such consideration and such charges or fees;

“preferred bidder” means the bidder, including any bidding consortium, to be

appointed as preferred bidder in terms of regulation 16.5.4;

“PPP agreement” means a written contract recording the terms of a PPP concluded
between an institution and a private party;

“relevant treasury” means the National Treasury unless delegated in terms of

section 10(1)(b) of the Act;

“state property” includes all movable and immovable property belonging to the
state as well as intellectual property rights vested in the state;

“transaction advisor” means a person or persons appointed in writing by an

accounting officer or accounting authority of an institution, who has or have
appropriate skills and experience to assist and advise the institution in connection
with a PPP, including the preparation and conclusion of a PPP agreement; and

“value for money” means that the provision of the institutional function or the use
of state property by a private party in terms of the PPP agreement results in a net
benefit to the institution defined in terms of cost, price, quality, quantity, risk
transfer or a combination thereof.

16.2 Exclusive competency of accounting officers and

accounting authorities
16.2.1 Only the accounting officer or the accounting authority of an institution
may enter into a PPP agreement on behalf of that institution.

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16.3 Project inception

16.3.1 As soon as the institution identifies a project that may be concluded as a
PPP, the accounting officer or accounting authority must in writing –
(a) register the PPP with the relevant treasury;
(b) inform the relevant treasury of the expertise within that institution to
proceed with a PPP;
(c) appoint a project officer from within or outside the institution; and
(d) appoint a transaction advisor if the relevant treasury so requests.

16.4 Feasibility study – Treasury Approval: I

16.4.1 To determine whether the proposed PPP is in the best interests of an
institution, the accounting officer or the accounting authority of that
institution must undertake a feasibility study that –
(a) explains the strategic and operational benefits of the proposed PPP for
the institution in terms of its strategic objectives and government
policy;
(b) describes in specific terms –
(i) in the case of a PPP involving the performance of an institutional
function, the nature of the institutional function concerned and the
extent to which this institutional function, both legally and by
nature, may be performed by a private party; and
(ii) in the case of a PPP involving the use of state property, a descrip-
tion of the state property concerned, the uses, if any, to which such
state property has been subject prior to the registration of the
proposed PPP and a description of the types of use that a private
party may legally subject such state property to;
(c) in relation to a PPP pursuant to which an institution will incur any
financial commitments, demonstrates the affordability of the PPP for
the institution;
(d) sets out the proposed allocation of financial, technical and operational
risks between the institution and the private party;
(e) demonstrates the anticipated value for money to be achieved by the
PPP; and
(f ) explains the capacity of the institution to procure, implement, manage,
enforce, monitor and report on the PPP;
16.4.2 An institution may not proceed with the procurement phase of a PPP
without prior written approval of the relevant treasury for the feasibility
study.
16.4.3 The treasury approval referred to in regulation 16.4.2 shall be regarded as
Treasury Approval: I.
16.4.4 If at any time after Treasury Approval: I has been granted in respect of the
feasibility study of a PPP, but before the grant of Treasury Approval: III in
respect of the PPP agreement recording that PPP, any assumptions in such
feasibility study are materially revised, including any assumptions

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ANNEXURE 1: TREASURY REGULATION 16

concerning affordability, value for money and substantial technical, opera-

tional and financial risk transfer, then the accounting officer or accounting
authority of the institution must immediately –
(a) provide the relevant treasury with details of the intended revision,
including a statement regarding the purpose and impact of the intended
revision on the affordability, value for money and risk transfer
evaluation contained in the feasibility study; and
(b) ensure that the relevant treasury is provided with a revised feasibility
study after which the relevant treasury may grant a revised Treasury
Approval: I.

16.5 Procurement – Treasury approvals IIA and IIB

16.5.1 Prior to the issuing of any procurement documentation for a PPP to any
prospective bidders, the institution must obtain approval from the relevant
treasury for the procurement documentation, including the draft PPP
agreement.
16.5.2 The treasury approval referred to in regulation 16.5.1 shall be regarded as
Treasury Approval: IIA.
16.5.3 The procurement procedure –
(a) must be in accordance with a system that is fair, equitable, transparent,
competitive and cost-effective; and
(b) must include a preference for the protection or advancement of persons,
or categories of persons, disadvantaged by unfair discrimination in
compliance with relevant legislation.
16.5.4 After the evaluation of the bids, but prior to appointing the preferred
bidder, the institution must submit a report for approval by the relevant
treasury, demonstrating how the criteria of affordability, value for money
and substantial technical, operational and financial risk transfer were
applied in the evaluation of the bids, demonstrating how these criteria were
satisfied in the preferred bid and including any other information as
required by the relevant treasury.
16.5.5 The treasury approval referred to in regulation 16.5.4 shall be regarded as
Treasury Approval: IIB.

16.6 Contracting PPP agreements – Treasury Approval: III

16.6.1 After the procurement procedure has been concluded but before the
accounting officer or accounting authority of an institution concludes a
PPP agreement, that accounting officer or accounting authority must
obtain approval from the relevant treasury –
(a) that the PPP agreement meets the requirements of affordability, value
for money and substantial technical, operational and financial risk
transfer as approved in terms of regulation 16.4.2 or as revised in terms
of regulation 16.4.4;
(b) for a management plan that explains the capacity of the institution, and

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ANNEXURE 1: TREASURY REGULATION 16

its proposed mechanisms and procedures, to effectively implement,

manage, enforce, monitor and report on the PPP; and
(c) that a satisfactory due diligence including a legal due diligence has been
completed in respect of the accounting officer or accounting authority
and the proposed private party in relation to matters of their respective
competence and capacity to enter into the PPP agreement.
16.6.2 The treasury approval referred to in regulation 16.6.1 shall be referred to as
Treasury Approval: III.

16.7 Management of PPP agreements

16.7.1 The accounting officer or accounting authority of the institution that is party
to a PPP agreement is responsible for ensuring that the PPP agreement is
properly implemented, managed, enforced, monitored and reported on, and
must maintain such mechanisms and procedures as approved in Treasury
Approval: III for –
(a) measuring the outputs of the PPP agreement;
(b) monitoring the implementation of the PPP agreement and performances
under the PPP agreement;
(c) liaising with the private party;
(d) resolving disputes and differences with the private party;
(e) generally overseeing the day-to-day management of the PPP agreement;
and
(f) reporting on the PPP agreement in the institution’s annual report.
16.7.2 A PPP agreement involving the performance of an institutional function does
not divest the accounting officer or accounting authority of the institution
concerned of the responsibility for ensuring that such institutional function is
effectively and efficiently performed in the public interest or on behalf of the
public service.
16.7.3 A PPP agreement involving the use of state property by a private party
does not divest the accounting officer or accounting authority of the institu-
tion concerned of the responsibility for ensuring that such state property is
appropriately protected against forfeiture, theft, loss, wastage and misuse.

16.8 Amendment and variation of PPP agreements

16.8.1 The prior written approval of the relevant treasury is required for any
material amendments to a PPP agreement including any material variations
to the outputs therein, or any waivers contemplated or provided for in the
PPP agreement.
16.8.2 The relevant treasury will approve a material amendment only if it is satisfied
that the PPP agreement, if so amended, will continue to provide –
(a) value for money;
(b) affordability; and
(c) substantial technical, operational and financial risk transfer to the
private party.

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ANNEXURE 1: TREASURY REGULATION 16

16.8.3 The accounting officer or accounting authority must substantially follow

the procedure prescribed by regulations 16.4 and 16.6 for obtaining such
treasury approval.

16.9 Agreements binding on the state

16.9.1 A PPP agreement or an agreement amending a PPP agreement, binds the
state only if the agreement was entered into on behalf of an institution –
(a) by the accounting officer or accounting authority of that institution;
and
(b) if all treasury approvals required in terms of this regulation 16 have been
granted by the relevant treasury in respect of the PPP.

16.10 Exemptions
16.10.1 The relevant treasury may, subject to any terms and conditions that it
considers appropriate and upon written application from an institution,
exempt that institution whether in relation to a specific PPP or in general,
from complying with any or all of the provisions of this regulation 16.

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