Unlocking Mega Capital Projects Through Strategic Partnerships

Johannesburg, 25 November 2024 

Overview of the Infrastructure Fund

In 2020, the South African government established the Infrastructure Fund (IF) through a strategic partnership among the Development Bank of Southern Africa (DBSA), National Treasury (NT), and Infrastructure South Africa (ISA). This initiative is focused on financing and implementing large-scale infrastructure projects and programmes with a capital value exceeding R1 billion. Serving as a catalyst for socio-economic development, the IF employs innovative blended finance solutions to drive impactful change. Central to this success is the collaboration with DBSA’s Project Preparation Division, which plays a critical role in preparing large-scale projects for implementation. The division provides feasibility assessments, technical and financial design, risk management, and early-stage funding support. This groundwork enables the IF to attract investors, mitigate risks, and enhance the prospects of projects in energy, transport, water, and social infrastructure across the Southern African region.

Project and Programme Overview

Since its inception over four years ago, the IF and its partners have achieved remarkable progress in infrastructure financing. The IF has been entrusted by project sponsors with packaging and financing 26 blended finance projects, representing a combined capital value of R102 billion. These initiatives span sectors such as water and sanitation, human settlements, student accommodation, transport, health, and municipal energy, with notable projects including:

• Human Settlements: Projects like Goodwood Station, Hospital Street, Midrand Heights, and Lufhereng Mixed Use Development, totalling R8.7 billion.
• Water and Sanitation: Initiatives like uMkhomazi and Olifants Management Model (Phases 2B, 2B+, 2D, and 2F), eThekwini Non-Revenue Water, and Moretele North Klipvoor schemes, totalling R51.2 billion.
• Transport: Key projects such as the 6 Ports of Entry Public-Private Partnership, Ukuvuselela, and Cape Town Container Terminal Expansion, totalling R19 billion.
• Student Accommodation: A suite of 10 projects across universities and TVET colleges, totalling R6.7 billion.
• Health and Municipal Energy Public-Private Partnerships: Including Tygerberg Hospital and City of Johannesburg’s Alternative Waste Treatment project, totalling R16.1 billion.

These projects are in partnership with various project sponsors, including the Departments of Home Affairs, Human Settlements, Water and Sanitation, and Higher Education and Training, along with municipal authorities and water boards.

Blended Finance and Private Sector Investment

The 26 blended finance projects have attracted R37 billion over a four-year period from the R100 billion allocated by NT through the Budget Facility for Infrastructure (BFI) for the IF. This funding includes innovative instruments such as first-loss capital, concessional loans, credit enhancements, tariff and interest subsidies, and viability gap funding, all designed to enhance the projects' bankability. Complementing this are R54.8 billion in private sector contributions and R6.7 billion in public equity.

Socio-Economic and Developmental Impact

The financial and economic outcomes of the 26 projects demonstrate positive net present values, ensuring that benefits for both investors and society are maximised. The socio-economic impact is significant, with initiatives such as the Ports of Entry project generating regional economic benefits valued at R67 billion and national benefits valued at R29 billion. Projects like Goodwood Station, Lufhereng, and the Olifants Management Model Programme (OMMP) are under construction, demonstrating substantial advancement and early-stage economic disbursements.

IF and DBSA Partnership in Project Development

The DBSA provides operational support to the IF. In addition to corporate support, the Bank plays a critical role in derisking and enabling bankability of project thereby providing project preparation servicing programme management support to the IF in the development and implementation of projects and programmes. The suite of services includes technical assessment, coordination of due diligences and programme management up to financial close.

Sector-Specific Project Highlights and DBSA’s Role

The IF collaborates with DBSA’s Project Preparation Division on key projects such as Goodwood Station, eThekwini Non-Revenue Water, OMMP, the 6 Ports of Entry PPP, and various student accommodation projects, with a combined capital cost of R18 billion. Potential DBSA’s and market participants’ financing extend across the IF project pipeline, offering a substantial investment opportunity for the market, totalling approximately R55 billion.

In addition, the DBSA Board has approved bridge facilities, including R1 billion for Project Ukuvuselela and R5 billion for the OMMP, with the IF and Project Preparation Division collaborating on funding support for transaction advisors on projects such as the Ports of Entry, Ukuvuselela, and the Alternative Waste to Energy Treatment (AWTT) projects. DBSA’s Climate Finance Unit also contributed R510 million in concessional funding to ensure the viability of the AWTT project.

Key Project Approved in 2024

• Project Ukuvuselela
  • An initiative by Transnet to retore the operational capacity of rail infrastructure to cater for increasing volumes of the automotive industry, with economic benefits including reduced logistics costs, reduction in negative environmental externalities, less congestion damage to road infrastructure and increased foreign direct investment (R7.0 billion).
• Alternative Wastewater Treatment Technology (AWTT)
  • A project by the City of Johannesburg aimed at managing solid waste and generating renewable energy from municipal waste, contributing to job creation and emissions reduction. (R5.74 billion).
• Non-Revenue Water (NRW) Project, eThekwini
  • A pilot project to reduce water losses in targeted areas, with the Water Partnership Office collaborating on funding and procurement. (R1.1 billion).
• Olifants Management Model Programme (OMMP) Phase 2D and 2F
  • Infrastructure expansion to provide water to commercial and institutional users, including new pipelines and water treatment facilities. (R7.0 billion).

Conclusion

The collaboration between the Infrastructure Fund and the DBSA, specifically the Project Preparation Division, underscores the transformative impact of strategic partnerships in unlocking mega capital projects. By aligning resources, expertise, and finance, the IF and DBSA continue to drive socio-economic development, support sustainability goals, and enhance the attractiveness of Southern Africa as a region for impactful investment.

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