Country: South Africa

Sector: Tourism

Name of Project: Cape Nature (De Hoop) Tourism project

Contracting agency: Public Entity (Cape Nature)

Agency type: Provincial Public Entity

Type of PPP: Concession

Contract term: 30 years (renewable after 30 years subject to conditions)

Construction period: Approximately 24 months

Bid Parameter: Lowest lump sum annual payment (payments made monthly)

Total cost of project: Capital Expenditure = R40 million (approximately $4 million)

Total Population served: Western Cape Province population and beyond (Tourism project)

Basic specifications: Licensing, accreditation requirements per contract/ relevant rules/ regulations

Stage of project: Signed in 2008 and is operational

Time taken for processing project from concept to contract execution: The project started around 2002 and finalized in 2008.

Local or foreign investor: Local investors called Madikwe. Although this private entity also acted as investment facilitators since it was going to sell some shares to foreign investors who did not want at the beginning to be involved in all PPP processes. Foreign were to be minor shareholders at the time.

Applicable legislation: Public Finance Management Act 1999, Treasury Regulation 16, Environmental legislation, heritage act and many others

Approving authority: Republic of South Africa through its National Treasury (PPP Unit)

Is the approval process the same as for other projects: Yes

Role of Private Party: Design, refurbish, build, finance and operate tourism facilities

Role of Public Authority: What was expected of the Authority was to manage the park. Ensure that the necessary infrastructure (such as roads, electricity) in the park is maintained.

Financing:, Since it was a small project the equity was provided by the private sector provider

Payment Mechanism: User charges (tourists pay for enjoying the facilities during their stay)

Tariff: The tariff is set by the private party. The private party pays the authority a fixed fee plus a variable fee if a certain turnover is exceeded. The fixed fee is set through bid.

Comparison to existing rates: Charge market rates

Government Support: It is not expected that Private operator would maintain roads in the park. This is done by the government. It is only expected to ensure that its facilities are maintained.

Other advantages: The government reduced the subsidies it used to pay the parks as result of its revenue generating activities

Contingent liabilities created: These would arise as a result of termination. Termination payments may result from private party default, force majeure, corrupt activities, etc.

Risks: Demand risk

Level of risk: Moderate to high, as tourists have many choices

Key risk mitigating features: Demand risk is the biggest risk for the private sector since it is expected to pay irrespective of whether business is good or not. However since Cape Nature is also involved in this business in other facilities it does share the information to other stakeholders for the benefit of the private party and itself.

Factors affecting decisions on the size of project or population serviced by the project: The tourism project is a very risky project. Lenders themselves are not that keen to fund it and so it is therefore likely that the project itself will be smaller in nature

Lessons learned:

•  At first the government was stubborn when the private operator demanded a long concession period. However, they realized that the period cannot be too short for a project where the private party has design, build, finance and operate functions to carry out and is, at the same time, expected to pay concession fees.

•  Infrastructure in the parks must be up to standard and be maintained. This cannot be expected from the small investors of the parks who are competing with others (bear in mind that they are not land owners so the land cannot be used as security for financing)

•  Need to look at government contribution but the State has other competing needs

•  Approval processes need not be stringent. Establish toolkit designed for these kinds of projects and not treat the same as other big projects. Note that this project took a long time to bring to agreement signing stage.

•  Ensure that contract management meetings take place so that issues can be solved and the red flags are identified earlier

•  Government should not just say the private sector knows its business and decide not to support them. The government needs to support them and also ensure that other government entities can use the services in order to help overcome the demand risks