S Africa's e-toll imperiled by protests, split in government, and judge's stay on start of tolling
By Peter Samuel
2012-05-15: The future of South Africa's all-electronic toll system is in serious question following a court injunction against the planned start of tolling, and the resignation of Nazir Alli, the longtime chief executive of SANRAL (South Africa National Roads Authority Ltd,) the national government's toll authority.
The toll system has been ready to go for close to a year now, but has been repeatedly deferred in efforts to craft a political compromise. The tolls were hardly an issue when government decisions on the system were made and contracts signed six years ago. They didn't become a matter of contention until a few months before tolls were originally due to start mid-2011.
$2.5b toll revenue financing but no toll revenues
The revenue stream from tolls had been pledged by SANRAL to raise some R20b, $2.5b which was used to finance 115 miles, 185km of upgraded expressways in the the 9 million population Johannesburg/Pretoria metro area known as Gauteng. This area which accounts for over 40% of the country's economy (as measured by GDP) has seen the strongest economic growth of anywhere on the African continent and has had motor vehicle use grow by 5 to 7% annually.
This has swamped expressways built 20 or 30 years ago with 2 lanes each direction for a small elite of motorists in a much less populous metro area.
The Gauteng Freeway Improvement Project (GFIP) supported by toll bonds saw major construction 2007 through 2010 with many stretches of 2x2 lanes expressway widened to 2x4 lanes and some 35 interchanges upgraded usually with dual lane ramps and in a few cases director connectors.
Toll Gantries long prominent
Very prominent too were 42 sets of toll gantries mounted on V-style sets of posts and solid curved end structures in a distinctive African architectural style. The gantries which most cover 4 lanes, some 5 lanes are specially prominent at night with purple-blue lighting.
A Sanral-Kapsch contract for the lane-through-backoffice toll system and eight years operations was R6600m, $825m. Toll system capital cost is R1200m, $150m and operations over eight years are estimated at around R625m, $85m per year - though the figure could decline if less labor intensive back office operations are allowed.
In response to anti-toll protests the government agreed to delays, then to toll-free trips for vans and mini-buses used by low wage day laborers. Also it announced a budgetary subsidy to support lower overall toll rates. From the first announcement of end- June 2011, the start of tolls was pushed back to April 30 this year.
But now with the courts involved no startup date is possible.
Far from dampening the protest the government's willingness to compromise was seen as weakness, and helped the opposition to grow. Groups which had said little or nothing against the toll proposals through nearly six years of discussion, announcements, and planning, and read news of procurement of contractors, who drove daily on roads advertised as being built with toll money, who saw the opening of sign-up for transponders... belatedly became strident critics, protesters, and litigants.
And successful ones!
The major anti-toll group OUTA (Opposition to Urban Tolling Alliance) only formed two months ago (in March) won a major legal victory late April with a judge's "interdict" or in American legal jargon a stay. The judge Bill Prinsloo said people would "be held captive" by the toll roads.
He was moved to stop the tolls, he said, by testimony by several ordinary people of the financial burden of prospective tolls. He said he was "inspired" by the public interest and the protests.
SANRAL presented a very comprehensive affidavit to the court outlining the long and public process that led to toll financing being adopted six years ago and the justification for tolls and the difficulties that would follow from further deferral. But it was a dry and technical document.
OUTA's objections were very much a dramatizing of costs citing:
- Hilda Maphoroma a mother and cashier and a policeman husband for whom tolls would be 9% of their combined income
- Dennis Tabakin a pensioner and salesman for whom tolls on 500km/week would be R6600, $825/year
- Wayne Benjamin Osrin, a small plumbing business owner with three vehicles who said toll bills would force him to retrench
- Tshidi Leratse a receptionist with an after-tax salary of R7000, $875/month for whom tolled would cost R500, $63/month, 7% of her after-tax income.
A University of Cape Town assessment of the project a couple of years ago calculated that tolls will take an average of one third of one percent of incomes in the area and produce benefits for users several times costs.
Left-business lobby coalition
As might be expected the late protests came from the populist political left - labor unions under COSATU, consumer groups and the official opposition Democratic Alliance but also from business especially the rental car operators. OUTA's leading figure is Wayne Duvenage, head of Avis car rentals in South Africa.
The government party, the African National Congress (ANC) appears split on the issue. An ANC dominated government chose tolls and implemented toll financing and procurement and still officially wants to move ahead with tolls.
In its affidavit in the court case SANRAL put the case for tolls:
"Tolling is a user based funding mechanism for road infrastructure development It enables the mobilisation of substantial capital funds upfront, usually through debt equity, for the construction of infrastructure such as freeways. The implementation of toll roads by governments in developing countries and countries in transition is becoming an attractive option since:
- It allows fast implementation of infrastructure projects necessary to stimulate much needed economic growth.
- It does not require the government to make available additional funding from their current revenue base for these projects.
- It allows them to rather spend the funds for essential services such as health and education and other parts of the transport system such as upgrading of gravel roads in townships.
"Toll financing has a distinct advantage of accelerating the availability of initial funding for construction as compared to traditional tax-supported highway finance. The initial capital cost for a project could therefore be financed over a shorter period than through limited tax based budgets. As a result, the benefit of increased roadway capacity is available to the republic sooner. Therefore, tolling is an equitable way of implementing the user-pays principle and does not compromise fiscal integrity.
"Under a toll scheme two options are available for raising debt, namely private project financing and a state toll scheme."
The government also in choosing tolls originally recognized their value in managing congestion through variable pricing, it said, and providing for bus transit and carpooling.
But the ANC's non-government figures loudly denounce tolls.
The government stance is currently weak. The country's president and head of the ANC Jacob Zuma has not said anything on the project, and neither has the transport minister. Both have just had spokesman reiterate that the project is needed for economic development.
A deputy transport ministry (department) official Jeremy Cronin says that with the benefit of hindsight toll financing was not a good idea. He advanced the rather feeble line that it is simply "too late now" to halt it.
"If we could rewind the clock, we would not have recommended this," he is reported to have said on state SABC radio. "The problem is, of course, we have now spent R20 billion on the project and the question is, how do we pay for this? One way or another, the public is going to have to pay for it."
Judge Prinsloo's stay on tolls is intended to be followed by a full high court hearing of the issues. That is unlikely to start for some months or be decided before the end of the year.
Half a million e-toll transponders are already issued and their owners have paid R50, $6 each. The consumers union is calling on motorists to return their transponders and demand a refund - to which they are legally entitled. SANRAL is asking customers to keep their transponders until the country's high court rules.
SANRAL's bond ratings and those of the South African Government have already been reduced given the increased risk of default in the absence of any toll revenue. Moody's lead analyst on the case Kenneth Morare has been quite outspoken, saying that SANRAL was in any case heavily borrowed and that it has been relying on further borrowing to cover early operating deficits even with toll revenues.
The Moody's man said that there could be further down ratings if there wasn't a starts on tolls and that because of the control exercised by the S African government over SANRAL the government and the state rollers' ratings were linked.