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Growing PPP activity could spark the development of a PPP Secondary Market in SA

This paper seeks to identify the potential quantum of PPP equity that will be available for the establishment of a South African PPP Secondary Market and to identify the likely developmental stages of a local Secondary Market based on the evolution of the UK’s PPP Secondary Market.

In June 2011, President Zuma stated that ”The involvement of the private sector is critical to achieving our infrastructure initiatives. We must embark upon mutually beneficial public-private partnerships in championing our projects”. Since then, 28 new Public Private Partnerships (PPPs) reached financial close in South Africa as part of the first round of the Department of Energy’s (DoE) Renewable Energy Independent Power Producer (REIPP) programme.

A further 19 PPPs are expected to reach financial close in June 2013 as a result of the completion of the second round of the DoE REIPP programme. Assuming that the third round of the programme will result in the closure of a further 21 PPPs, South Africa’s contracted PPPs would have increased to 93 by 2014.

Given the growth in the number of PPPs realised through the DoE’s renewable energy programme as well as those likely to arise through the Presidential Infrastructure Coordinating Commission’s (PICC) ZAR3.2trillion investment plan, it is likely that a PPP Secondary Market will emerge in South Africa in the next few years.

The availability of an active PPP Secondary Market should attract more investors to the South African PPP market as it will provide investors with a well-defined exit route that would allow bidders to sell most of their equity stakes once projects become operational. A further benefit to the Southern African market would be that developers could recycle their equity through the PPP Secondary Market to fund a larger number of projects instead of tying-up the equity for the full concession period.

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