South Africa's PPP program began in the late 1990, with two toll roads, two jails, and several retail concessions in national parks. (Similar arrangements, under a different name, have also been used for power plants). Later, PPPs were used for hospitals and health services, government office buildings, government vehicle fleets, and the Gautrain, a new railway linking Pretoria and Johannesburg (see appendix 2).21
In most contracts in South Africa, the public contracting agency's biggest contingent liability is an obligation to compensate the project company if the contract is terminated before its scheduled end. 22 As elsewhere, the amount of the required compensation depends on the reason the contract is terminated. 23 South Africa's normal practice differs from that of Chile and Victoria for the case of the project company's default. In this case, the required compensation may be a predetermined fraction of the outstanding debt, if this is greater than the market value of the project. This means that the government may bear some of the losses associated with the project company's default (alongside shareholders and lenders).
In two PPPs in which the project company gets its revenue mainly from user fees, the public sector has also assumed contingent liabilities related to demand for the project's services. Chapman's Peak is one. The other is the Gautrain, which has a patronage guarantee that protects that project company from downside demand risk. Specifically, the provincial government will pay the concessionaire the difference between the concessionaire's actual revenue and a predetermined minimum level, if actual revenue is below the predetermined minimum but more than the concessionaire's forecast of revenue. The minimum level is an estimate of the revenue the concessionaire needs to cover all its costs, including the cost of capital. It exceeds forecast revenue by some 360 million rand a year. 24
__________________________________________________________________________________
21 Information on South Africa's PPPs can be found in the National Treasury's PPP Quarterly, available at www.ppp.gov.za
22 In PPPs in which the government pays for the service, contract termination means that the government no longer has to pay for the service, so the contingent liability is not simply additional to the obligation to pay for the service.
23 For details, see Government of South Africa (2004c)
24 PPP Quarterly 24 (October 2006).