1. What is driving South Africa’s green infrastructure agenda – is it international commitments, the language of climate change, or resource scarcity.
2. Do we realise that resource scarcity means we cannot do things in the same way?
3. Is the new investment in green energy and infrastructure only happening because it makes sense in terms of good risk management?
4. Do we recognise how valuable the region is as a collective in reducing vulnerability?
5. How are we translating and utilising the great research that is being done in the planning framework now?

The IIMP was initiated in 2006 to assess the impact of the increase in public sector demand in the supply for key infrastructure inputs. It is specifically meant to assist both the public and private sectors with more comprehensive and integrated information on the extent and nature of sector capacity required to meet the expanded Infrastructure spend. IIMP is also intended to build confidence in the projections and trends regarding infrastructure investment such as to motivate substantial private sector investment in additional capacity.

The first IIMP project was completed in 2007. The study, led by Dr. Suren Singh, provided a baseline assessment of various strategic inputs associated with the proposed public infrastructure investment programmes of government and the state-owned enterprises (SOEs). The report covered a review of all the key sectors and sub-sectors in respect of infrastructure in South Africa and provided an assessment of current capacity / outputs as well as public sector demand.

In 2008, the Corporate Strategy and Industrial Development (CSID) Research Programme, at the University of Witwatersrand, was appointed to undertake the second IIMP project. This provided an update of the 2007 research.

In 2011, the third round IIMP takes cognisance of the changed economic context since 2008, and provides a very comprehensive overview of infrastructure demand and supply, looking at no less than 15 infrastructure input sectors, including steel, cement, timber, plastic pipes, capital equipment, skills and transport and logistics costs. Led by Dr. Zavareh Rustomjee for the DBSA, the work is now completed and the results were presented to interested stakeholders.

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 In response EDI Holdings has wound down its operations and closed as of the 31 March 2011.  As such the Department of Energy will review the entire electricity value chain to develop a holistic approach towards energy security.

Eskom and 187 municipalities undertake the distribution of electricity to approximately 9 million customers, 31,000 people are employed in the EDI with an asset base of R261 million.  The operation of the distribution facilities vary between regions and municipalities.  Networks in many municipalities are believed to be in a poor state, with substantial investment required to maintain and rehabilitate assets.  There has been a chronic underinvestment in the upgrading and maintenance of distribution networks.  Much of this is attributed to a lack of asset management strategies, insufficient investment in planned and existing networks, ageing networks, inadequate maintenance and limited coordination of efforts to address national problem.  Limited fund and a lack of skills further exacerbate this issue.

A sound electricity infrastructure is required to support growth targets, create investor confidence and meet customer expectations.  It is estimated that the current requirement of electricity distribution in respect of maintenance, refurbishment, network strengthening and skills development is in the region of R27.5 billion.  The Department of Energy (DoE) has indicated in its Strategic Plan 2011/12 – 2015/16 that this is to be reduced to R15 billion by 2014.

The key programme initiated by EDI Holdings – ‘Approach to Distribution Asset Management’ (ADAM) is forms part of the response.  According to the DoE Strategic Plan 2011/12 – 2015/16 the first step in this process will be to develop an in depth assessment of the actual backlog along with detailed geographical maps at metro city and secondary metros.  Parallel to this process is the need to identify interventions required to rehabilitate infrastructure that is needed in the short term to ensure electricity service delivery.

This Infrastructure Dialogue takes a look at the current state of the Electricity Distribution, and the response required in light of EDI Holdings operations being wrapped up and what needs to be addressed as the EDI restructuring moves into a new phase.

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Economic infrastructure comprises the internal facilities of a country that makes it possible to do business and includes communication, transportation, distribution networks, financial institutions and markets and energy supply systems. Perkins, Fedderke and Lutz contend that the ‘relationship between an economy and its economic infrastructure is analogous to that between a building and its foundation. Economic infrastructure typically exists not for its own sake but rather to support various kinds of economic activity’ . Through research undertaken in 2005 they determined three main findings with regard to economic infrastructure and economic growth in South Africa: Firstly, the relationship between economic infrastructure and economic growth appears to run in both directions. Economic growth provides both the need for, and the resources to fund, various types of infrastructure. Alternatively, the failure to provide appropriate infrastructure services may hamper GDP growth. Secondly, providing the right type of infrastructure at the right time will be an important dimension of South Africa’s continued economic development. Thirdly, the need for investment in economic infrastructure never goes away. Until such time as existing infrastructure becomes obsolete it needs to be maintained, and as certain infrastructure programmes reach maturity new ones should be implemented, always in response to the economy’s changing needs and cost-benefit analyses. (South African Journal of Economics Vol. 73:2 June 2005)

The link between economic infrastructure and economic growth has been recognised by the South African Government. Over the last ten years Government has made significant and increasing investments into infrastructure development. The investment into infrastructure was one of the cornerstones of the Accelerated and Shared Growth Initiative for South Africa (AsgiSA) which resulted in over R320bn of public expenditure being used for this purpose since 2006. Government’s current economic strategy the New Growth Plan (2010) sees public investment in infrastructure as being a key ‘job driver’ both to create employment directly, in construction, operation and maintenance as well as the production of inputs, and indirectly by improving efficiency across the economy.

In accordance with this policy position, infrastructure investment is one of the 12 delivery outcomes that forms part of the Presidency’s Performance, Management, Monitoring and Evaluation programme. This programme is approved by Cabinet and comprises a new outcomes-based approach to defining targets and measuring progress of National Ministers and Departments. Twelve outcomes have been agreed as a key focus of work between now and 2014. Each outcome has a limited number of measurable high-impact priority outputs and sub-outputs with targets. In turn, each output is linked to a set of activities that will help achieve the targets and contribute to the outcome. Each of the 12 outcomes has a delivery agreement which in most cases involve all spheres of government and a range of partners outside government. Combined, these agreements reflect government’s delivery and implementation plans and its central priorities.  Outcome 6 is focused on infrastructure investment with the aim of creating ‘An efficient, competitive and responsive economic infrastructure network’. There are six outputs:

1) Improving competition and regulation
2) Ensuring reliable generation, distribution and transmission of electricity
3) Ensuring the maintenance and strategic expansion of South Africa’s road and rail network, and operational efficiency, capacity and competitiveness of South Africa’s sea ports.
4) Maintenance and supply availability of South Africa’s bulk water infrastructure
5) Communication and information technology
6) Developing a set of operational indicators for each segment

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This analysis was conducted by differentiating municipalities into categories ranging from metropolitan to deep rural municipalities, as the ability / capacity to borrow will differ markedly.

Equally important, the analysis looked at the operating account and the expenditure and revenue requirements to ensure that existing and new infrastructure provided could be adequately maintained to ensure sustainability. The analysis predicted expenditure of about R125bn in 2007, rising to R190bn in ten years (2006/07 prices).

As for the capital account, the ability to raise operational revenue including the availability of grants, such as the equitable share, will differ markedly between categories of municipalities.

The MIIF is an ongoing process and since the first dialogue, an updated analysis (Round 7) has been undertaken and new findings have been formulated.

Again briefly, the findings are that capex of about R97bn per year is predicted over ten years and that borrowings of about R49bn per year are required. On the operating account, an expenditure of R177bn in 2010 is predicted rising to R320bn in ten years.

These represent very large increases in comparison with MIIF 5. Part of this is due to escalation but it is due largely to higher expenditures on water and roads estimated in MIIF7. Also, modelling is highly dependent upon the availability of appropriate data. In MIIF7, significant work was undertaken to improve the unit costing of services and analysis of exiting infrastructure and the impact on capital required for asset rehabilitation and replacement. Not surprisingly, this indicates that significant additional expenditure needs to be incurred by municipalities to preserve their (infrastructure) assets.

Whilst, the National analysis is significant, the MIIF is also aimed at encouraging municipalities to undertake their own infrastructure investment analysis to improve financial sustainability as part of Infrastructure Investment Planning and as critical inputs into the Integrated Development Plan. The dialogue will include municipal experiences in this regard.
The MIIF is primarily concerned with the technical and financial analysis to promote sustainable service delivery at the municipal level. However, this cannot be dealt with in isolation from the institutional and governance issues that need to be addressed to ensure that proper multi-year planning and budgeting takes place in the first instance and that sustainable implementation plans are fully implemented.

The dialogue will provide the platform to review progress, identify and debate constraints and constructively formulate recommendations as a way forward.

Objectives of the MIIF

The Municipal Infrastructure Investment Framework (MIIF) is an ongoing initiative to review the investment requirements for the municipal sector and assess the financial status of municipalities in the future based on projected investments. The overall objective of the Framework is to:

•    Assess the amount of capital which is required to meet the municipal infrastructure delivery targets of Government and to assess the options for ensuring that sufficient capital finance is available to cover this capital cost.
•    To ensure that the infrastructure programme is financially sustainable, which implies that there is sufficient operating revenue to cover the operating and maintenance costs of infrastructure-related services.
While one part of the MIIF focuses on the national picture, another part places emphasis on supporting municipalities with their own infrastructure investment planning initiatives. The MIIF is therefore intended to serve all spheres of government involved with municipal infrastructure. In the sense that the private sector is also involved in delivering and financing infrastructure the MIIF will also be of interest to those outside government.

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While there is much debate as to what exactly a developmental state is and how it should be achieved, its consequences are that developmental objectives are included in the delivery objectives of Government activities and programmes. For example South Africa’s public sector’s infrastructure spending programme has formed the centerpiece of government plans to support and facilitate economic growth and development. In addition to contributing directly to economic growth, the public sector infrastructure programme is also supposed to support other social objectives by contributing to job creation, reducing poverty and assisting in developing competitive local industry (K Lockwood, Infrastructure Expenditure Tracker, 2010).

The Expanded Public Works Programme (EPWP) is one of the South African Government’s medium-term strategies aimed at addressing unemployment and poverty in the country. In respect of the infrastructure sector its aim in the first phase was to increase the labour intensity of government-funded infrastructure projects in a manner that not only increased the amount of work opportunities provided, but also provided training to beneficiaries.

The Competitive Supplier Development Programme (CSDP) has as its aim increasing the competitiveness, capacity and capability of the local supply base. The intention is to further the long-term commercial interests of state owned enterprise by improving competitiveness in supply, improving security of supply and providing the potential advantages of local supply versus imports. In addition it is hoped that improving the capacity and competitiveness of the local supply base will also contribute to the goals of shared growth, employment creation, poverty reduction, skills development, and Broad-Based Black Economic Empowerment (BBBEE).

This dialogue explores the experiences to date in securing development outcomes from the infrastructure spend. It also provides an opportunity to discuss the tensions between primary (mandate related) and secondary (developmental outcomes related) objectives in the delivery of infrastructure and how these can be accommodated and aligned.

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During the delays on the internal process driving towards the strategy approval, it was noted that WSI are already implementing Asset Management projects and these practical experiences were deemed important on the current relevance of the strategy before its approval.

You are kindly requested to provide inputs on the strategy before the 27th of October 2010.  Please also copy your e-mail submissions to this e-mail address Infra_man@yahoogroups.com.

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Water supply services in South Africa has seen significant achievements. Prior to 1994, only 62% of households had access to basic water services (DWA). The first non racial democratic government of 1994 introduced fresh thinking and new energy into water management. Water was defined as an ‘indivisible natural resource’ managed by the national government for the ‘benefit of all South Africans’ (the Constitution). The policy emphasis shifted from large scale infrastructure development to issues of access, with a strong component of social equity and ecological sustainability (N Segal, 2009). This lead to reforms in water policies and institutions.  In addition there was a strong drive to provide basic water services to all South Africans with the result that in 2009 approximately 89% of all South Africans have access to basic water services (Local Government Turnaround Strategy, November 2009). While this access is not consistent across the country, with some Provinces having better access than others, this achievement is significant.

However many challenges still exist and the long term prognosis is not positive. The Department of Water Affairs supply/demand scenarios for 2025 show that shortages will become prevalent if timely decisions are not taken for provision of more water (N Segal, 2009). The problem will be exacerbated if there is not a concentrated effort both to manage demand and to operate the supply system more efficiently. While challenges exist at all levels of Government, those occurring at Municipal level are the most concerning and include:

Poor standard of water projects: A 2007/08 review by DWAF and CSIR of 500 rural projects to assess the quality and standard of MIG funded infrastructure projects found that new water and sanitation projects were either partially or fully non-compliant. Many of the concerns related to technical design flaws.

Poor management of existing systems: Poor management is a significant problem in respect of existing facilities. The DWA ‘Green Drop’ report (2009) found that 55% of all wastewater systems are poorly managed and require drastic improvement.  The report concluded that municipal systems are generally considered to be far from acceptable, when compared to the required national standards and international best practice. The DWA ‘Blue Drop’ report (2010) assessed 157 (94%)Water Services Authorities  in terms of a number of criteria which included for example whether or not they have a water safety plan, process control and maintenance competency and efficiency of drinking water quality monitoring and reporting. The report found that 21% needed attention and 24% needed urgent attention. Overall these results, with 45% less than ‘good’, are concerning.

Lack of maintenance Overall DWA estimates that no more than 20% of the necessary expenditure on maintenance has been made over the past 10 to 15 years. The maintenance expenditure backlog for water services is estimated to be in the order of R100 billion, essentially because of the primary thrust to increase access to users.

Unsustainable pricing policies: The 2007/08 review by DWAF and CSIR found that pricing policies in many municipalities does not properly reflect full financial cost and economic value. Further Municipalities capacity to design and execute the required policies is weak. Legal, technical, financial and other measures are required to improve metering and billing.

Water has a profound importance to human survival. While the objectives of policy reform in the 1990s, and the principles underling them are widely lauded, it is evident that the system does not have the capacity fully to achieve them. This problem is most significant at the Municipal level. The dysfunctionality of local government is not confined to provision of water services alone, but the systemic nature of the problem and the generally weak governance that prevails makes it harder to deal with.

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Specifically, this month’s dialogue will address the roads network of South Africa recognising that roads make an important economic and social contribution through improving efficiencies and opening up business opportunities and employment creation as well as providing access to social services such as educational, health and community facilities.

However, in doing this there are currently a range of crucial challenges of which the most urgent includes the following:

Institutional and regulatory environment – responsibility for the road network is spread across all three spheres of government; however some roads have not been allocated to a responsible authority – there remains in excess of 140 000kms country-wide which fall under no authority and thus receive no attention. The interface between spheres of government and authorities is also not always easily managed and thus proves to be problematic – for example the ongoing collapse of the Mpumalanga coal roads notwithstanding their strategic importance to the national economy or the lack of expansion of rural roads which continues to exclude many rural communities from social services and economic opportunities.

Funding – there is a need to expand the network and this has concomitant capital funding requirements; however this is exacerbated by the extremely high proportion of the network which has fallen into total disrepair (ie beyond the useful design life expectancy) and therefore needs replacement and is thus also a capital rather than maintenance cost. Lastly the funding for operations and maintenance is a serious problem, both in amount and availability.

Developmental leverage – roads over their whole life-cycle provide a wide range of economic opportunities; from labour intensive, small contractor construction and community based maintenance initiatives to PPPs.

To ensure that these challenges are confronted in a robust and broad based manner the speakers will be drawn from both the public (different spheres of government and/or agencies) and private sectors.

This dialogue provides the platform to review progress, debate constraints and identify opportunities for constructively moving forward.

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Neighbourhoods in many previously disadvantaged areas have become the targeted focus of infrastructure spend. The NeighbourhoodDevelopment Partnership Grant (NDPG) established by the National Treasury provides technical assistance and grant financing for municipal projects in poor, underserved residential neighbourhoods such as townships.

There are many strategies for urban regeneration. Fiscal measures such as tax breaks are often used, and the creation of Urban Development Zones in many South Africa inner cities is a prime example. Removal of supply side constraints such as restrictive regulations and policies to investment in these areas are also an often used strategy.

This Dialogue focuses on capital expenditure into public infrastructure development as an intervention.

The Johannesburg Inner City Regeneration Charter for example refers to 5 pillars for inner city regeneration one of which is to “Maintain and Upgrade Infrastructure”. Thus the public sector through infrastructure development has the potential of improving these urban environments which can leverage private sector investment and ultimately revitalise and rejuvenate these areas. Such public infrastructure investment has also the potential of improving social inclusivity, alleviating poverty and creating employment, enhancing security, integrating previously disadvantaged areas into the mainstream urban fabric, enhancing social and community participation and regeneration, building strategic partnerships with the private sector, community organisations and voluntary groups, and even countering cyclical property cycles by providing profitable alternative areas for investment in lean times. There are also environmental benefits to be attained from infrastructure investment in regeneration as it utilises previously built up “brown field” sites rather than opening up new “green fields” to development.

This Dialogue session intends to review the successes of the substantial investment into public urban infrastructure for purposes of urban regeneration that have happened in South Africa. It will explore the quantum of this investment and the type of infrastructure investments that has been employed. It will explore the successes of these investments in terms of leveraging private sector investment and other elements of a score carding including employment creation and urban integration. It will delve into the effectiveness of these investments in enhancing social cohesion, creating safe neighbourhoods and creating effective markets. It will also explore the workings and synergies that are created by deploying infrastructure investment incentives with other intervention measures such as fiscal incentives and regulatory and policy incentives.

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