Trouble ahead

Posted On Thursday, 11 August 2011 02:00 Published by eProp Commercial Property News
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The plan to toll Gauteng highways has opened up a political hornet’s nest

Road InfrastructureNational roads boss Nazir Alli passes seven toll gantries when he drives from his home in Marlboro, Johannesburg to his office east of Pretoria .

Under the initial tariffs announced by the department of transport to pay for Gauteng’s toll roads, the SA National Roads Agency (Sanral) CEO would have paid R700/month on his daily commute. Even with the revised tariff regime, he will pay over R500/month.

Similarly, because of the tolls, a business person who hires a car in Johannesburg faces a bill that is about R32/day higher — an estimated 10% of the car rental industry’s average daily rate. Administration costs could push this higher. Transport company Imperial Logistics estimates its annual toll cost will average R50m if the tariffs are accepted.

It’s surprising, then, that Alli is perplexed by the outrage from commuters, business, labour unions, the taxi industry and political parties on open-road tolling in Gauteng. 

Their anger is justified considering the multiplier effect tolling will have on inflation and the broader economy. International examples show SA’s road construction costs are of the highest in the world. 

The argument is being made that the fuel levy should be ring- fenced for road maintenance. To contain the backlash, government has adjusted the tariffs, but won’t abandon the user- pays method.

The sign-off by cabinet, expected later this week, can’t come soon enough for Sanral , which is R20bn in debt. Sanral is regarded as one of government’s best-run and most transparent agencies and has previously received a clean bill of health from the auditor-general. But it is now being threatened with a qualified audit because of funding uncertainty, which could damage its credit rating and fundraising ability .

The fact that Sanral raised R435m in its bond auction this month, bringing the total raised this year to R2,1bn, shows investors are not yet concerned. But that will not be enough to keep the agency afloat while it maps out road infrastructure; hence the move to tolling.

Gauteng freeways were to be tolled from June, but this has been delayed by the row over high tariffs. Toll collections from 49 automatic toll plazas, distributed over 185km of national road, will be used to fund Sanral’s Gauteng Freeway Improvement Project (GFIP). After they become operational in Gauteng, the automatic toll plazas will replace existing physical plazas on national freeways elsewhere in the country. Their introduction in urban environments beyond Gauteng is unlikely — for now.

The national debate has raised a number of broader concerns which, some believe, could have positive spin-offs for government spending on infrastructure. But where did it all begin?

SA roads were first financed on a user- pay principle in the 1980s. The N17 highway which links Johannesburg to the East Rand and, eventually, Swaziland was the first toll road built in SA. The circumstances surrounding Gauteng tolls, however, are vastly different.

In 2005, Gauteng officials’ concern about the state of its freeways prompted a closer look at the road network. Sanral set out to develop a plan for the upgrade. Much of that, says Alli, was contained in Horizon 2010, the agency’s 10-year plan for national road infrastructure.

In 2007, the GFIP was sent to the department of transport, which convened a task team to consider it . The team recommended that the project be funded through toll fees, and this was approved by cabinet in July 2007.

Three months later, Jeff Radebe, transport minister at the time, announced that the project would be funded through user fees. He cited 50c/km as the expected toll fee.

“All we have done since then is adjust the figure to account for inflation,” says Alli. (The proposal at present is for 58c/km for everyday “infrequent use” commuters in light vehicles, down from the 66c/km figure put forward earlier this year. Public transport like taxis, could get an exemption.) And, of course, the collection method has changed, with advancing technology removing the need for physical toll plazas. But tolling Gauteng’s highways is not the same as tolling the N3 between Johannesburg and Durban .

Stakeholders like Business Unity SA (Busa) are not opposed to tolling in principle, but disagree with the application of tolling in an urban area .

Says Coenraad Bezuidenhout, Busa’s head of economic policy: “Urban tolling is not the optimal solution for an economy that is as concentrated as ours in its development, and that needs to go as far as we do in developmental terms.”

The tolls will be applied in and around metros that contribute the most to national GDP. Bezuidenhout asks: “Why inflict that administrative difficulty and cost when it can be done more efficiently through the tax system?”

That is the burning question. The societal and economic impact will be severe. Economist Mike Schussler says toll fees will have a 0,22% impact on inflation. This is an indirect effect, and measures its impact on cost hikes of other products in the inflation basket. The effect on taxation, he estimates, will be 1,4%, so a taxpayer whose contribution is 38% will see that jump to 39,4% once tolling is implemented.

Cosatu economist Chris Malikane says tolling will compound poverty and low wages. The trade union federation has filed a section 77 intention to strike.

The extra burden on consumers cannot be seen in isolation. Over the past few years, administrative cost-price increases have been substantial, says Nedbank economist Carmen Altenkirch. Three years of 25% electricity hikes and higher rates and taxes have eroded consumers’ disposable income.

One also has to consider the multiplier effect. Lindie Stroebel, economic intelligence manager at the Agricultural Business Chamber, says users of the freeways will have to pay toll fees, but they will also buy goods that have been transported on these roads. Haulers are unlikely to absorb the additional costs. These will be passed on to the consumer.

Products may enter the toll area, go to a distribution centre, and then be transported to a store, which could mean travelling on the freeways once again. These cost pressures will be felt the most by the poor.

Schussler’s research proves this. The highest price increases will be on the cheapest kinds of bread, a staple food source for poor households. Already, poor households spend 39% of their household budget on food, compared to 11% for rich South Africans.

Another view suggests that consumers’ cost of getting to work, by whatever means of transport, should be regarded as an input cost to the economy, just like the cost of moving freight.

Government has considered alternative financing mechanisms but indications are that it will stick to its guns . “The user-pays principle, in our opinion, is an equitable source of finance. It affects only those who use the service,” Alli says.

Deputy transport minister Jeremy Cronin concedes that the user-pays principle is not always appropriate.

But he says: “If it is correctly applied, we have no intention of abandoning it .”

Was the fuel levy considered as a real alternative, as suggested by business? Cronin lists a number of problems with the idea. Most obviously, he asks, is it fair to make a taxi driver in the Eastern Cape pay for upgrades to Gauteng’s highways?

Bezuidenhout, in reply, points out that many products on the shelves in the hypothetical taxi driver’s home were transported through Gauteng .

But Cronin raises other concerns. National treasury is, in principle, opposed to ring-fencing tax revenues (with a few exceptions), because it believes it brings about inefficiencies in government spending . He says agencies lose some of the accountability of how they apply these funds.

Cronin notes that a large part of the fuel tax is already committed. Moreover, the amount allocated out of the budget for road infrastructure is more than the amount raised out of the fuel levy. In 2009/2010 , about R22bn would have been available from the fuel levy (had it been ring-fenced) for road infrastructure , whereas the amount allocated from the fiscus was R29,2bn — a R7,2bn shortfall.

If the fuel levy was to be increased for roads, it would need to be expanded to include rail infrastructure or public transport . Cronin suggests that other transport modes should also benefit from those funds, especially in the light of SA’s bid to reduce its carbon emissions.

Though some stakeholders have proposed other funding models, no serious alternative has been considered. Some business lobbies have asked government to consider paying for Sanral’s debt from the treasury . But this is still not a long- term solution for financing infrastructure.

Business and labour have also objected to how tolling was introduced, claiming insufficient concern was given to the consultation process .

Cronin refutes allegations of insufficient consultation. The financing of the GFIP, and even the tariff, was no secret. He says it was trumpeted by the provincial government when first announced.

The decision, at the time, was backed by a UCT Graduate School of Business and Arup Consulting study, which concluded that congestion in Gauteng would worsen if a roads improvement programme was not initiated. Traffic volumes on the freeways would grow by between 5% and 7%/year, the report said.

But Cronin says the already widespread view that freeways do little to relieve congestion was not considered. “You cannot look at road transport in Gauteng purely from a congestion point of view , but that is exactly what happened.”

A better freeway produces increased demand. Greater convenience and time- saving produced by the expansion of a freeway results in behavioural change on the part of motorists: more of them switch to using the freeway.

But Cronin says it also causes more urban sprawl. Property developers construct more housing complexes, shopping malls and restaurants to support a middle-class commuting lifestyle. He admits that no consideration was given to spatial development planning.

Little thought was given to an effective public transport system that would remove the need for an improved, but costly, freeway system. The investment in freeways was not made within the framework of an integrated transport system, which would, for example, consider the movement of freight from road to rail. (See story on page 38.)

It ignored the fact that only about 2% of public transport vehicles use the freeways. Little consideration was given to who would benefit. Freeway expansion primarily benefits middle-class people with mobile lifestyle choices. Those in townships do not benefit.

Problems with the tolling process itself have also arisen. Industry bodies, including the SA Vehicle Rental & Leasing Association, have raised compliance issues. The association’s Paul Pauwen says assumptions made about the level of noncompliance built into Sanral’s fee model have not been communicated. This exposes it to the risk of nonadherence. The lack of law enforcement, he says, could be disastrous for Sanral.

But Cronin believes good may come out of the debate. The crisis, he says, is “too good to waste”. The question of finance and the popular mobilisation of it presents an opportunity to prevent a repeat of previous mistakes. “Let’s use it to think about how to approach the second phase of the GFIP, as well as other major infrastructure projects.”

There is a temptation to keep the pipeline of infrastructure projects running on ahead to stimulate the economy. But questions about a project’s priority and affordability should not be avoided. The likely effect, though, is that the pipeline of infrastructure projects will be delayed even further.

Sanral, says Cronin, is likewise “a fantastic national asset that is too good to waste”, and should not become a casualty of this debate. “Its professionalism is unquestioned, but should it be used only to pioneer e-tolling and to facilitate largely urban road development?”

In addition to looking after the 16170km national road network, Cronin says, Sanral could act as a support structure for provinces and municipalities . That skill and competence could be used where it is most needed, he says.

Already, Sanral’s network may be doubled to 35070km. Subject to an agreement between provinces and the department of transport, untolled roads will be transferred to Sanral’s portfolio. Their upgrade will be funded through transfers from treasury and managed by Sanral. Current legislation does not allow non- toll roads to be funded through toll fees.

Sanral has also worked on non-national roads in the Eastern Cape. Its expertise could support cross-border initiatives like the Trans-Kalahari and Trans-Kunene road and rail corridors and the north-south corridor.

Also, a new presidential council that will apply strategic direction to all infrastructure projects and the parastatals that manage them was announced after last month’s cabinet lekgotla. The debate surrounding the GFIP, says Cronin, was a factor that played into the decision to create the council.

Alli believes further phases of the project — there are six — will go ahead, despite its unpopularity. This may be the case, but Cronin says it will submit to a broader inquiry to assess whether the funds allocated to it could be better spent elsewhere.

The new presidential council, he says, has agreed that allocating budgets should be biased towards road maintenance in the provinces and at municipal level.

According to the National Transport Master Plan , 31,5% of transport is represented by car travel, with public transport making up the other 68,5%. The taxi industry dominates public transport with a 76,5% market share, followed by bus (16,5%) and rail (7%). If that’s the case, investment should be directed at fixing public transport in major metros.

But does this mean government should not improve the highways? Is it fair to refer to the proposed tolls as highway robbery?

Questions about the efficiency of tolling , inadequate consultation and getting the public to comply with paying toll fees have tarnished the debate. But quality roads are a critical element of SA’s economic competitiveness. The GFIP has transformed many interchanges for the better and traffic flow on freeways has shown some improvement.

However, investment in roads cannot be separated from a strategic consideration of national transport policy and objectives. It has to accompany equal consideration to rail, maritime and air mobility, as well as a focused strategy to improve public transport.

Indications are that the National Transport Master Plan won’t fill that void in transport strategy. Investment should first be directed at fixing public transport in major metros. Moreover, the economic impact of tolling urban roads has not received sufficient consideration.

As the world sways on the brink of a double-dip recession, the impact that toll fees will have on consumers and business may add to the fallout in SA.

In the absence of public transport alternatives, distressed consumers and business protest that they cannot be expected to foot the bill through an extra tax.

 

Last modified on Tuesday, 29 October 2013 13:38

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