The Medium Term Budget Policy Statement reveals more than enough about the complexity for providing road infrastructure and Gauteng’s predicament.
Roads: public goods or economic infrastructure?
A convenient policy position may focus on the principle that roadways are public goods. Which is partly true, because most of the roads in Gauteng were built through various public finance and infrastructure financing mechanisms largely through taxation and levies. This adds value to the public initially to stimulate development and activity, but over time the cost of building and expanding roadways begin to creep onto the expensive side of things for public sector. Funding from National Treasury eventually becomes implausible due to the other social and economic obligations under the Treasury’s broad portfolio of responsibilities.
If roadways are economic infrastructure as the White Paper on Transport Policy postulates, then roads must be treated in terms their economic value as assets with a specific internal rate of return. Which at some point leads to an inconvenient position that roadways require financing from the users who use them. Building and expanding roadways at some point only increases traffic congestion if the roadway market is not priced appropriately. The investment in roadway infrastructure is not only for the maintenance, but also to cross-subsidise services and systems which are needed by the public.
The Gauteng Freeway Improvement Project depends on compliance
Of the 41 000km of roadways, the Gauteng Freeway Improvement Project (GFIP) aims to set a charge for 500km in total (560km to be exact)— only 1.2% in total. This small portion of roadway infrastructure aims to be a core source of funding for various interventions, after the debt has been paid. When the Gautrain Management Agency was formed it aimed to reduce the projected traffic congestion in Gauteng by offering public transport alternatives that could be car competitive in terms of time, level of service, price and safety/security. In the same vein, the GFIP aimed to manage the spatial development of Gauteng and contain future travel demand in an efficient and effective manner. The proposed improvements between the South African National Roads Agency (Pty) Ltd and the Provincial Government of Gauteng included:
“…increasing the capacity of the existing network, encouraging the use of high occupancy vehicles and adding new roads where necessary. This is being planned within the ambit of an integrated transport solution, including public transport (rail/BRT/etc) and TDM and ITS.”
— Barry Standish. An Economic Analysis of the Gauteng Freeway Improvement Project. 2010.
The effectiveness of these improvements depended on society complying with the need to pay as users for the roadway improvements. Pressure groups are similar to unions and associations because they are incentivised to advocate for positions which will attract greater buy-in, and build their constituency. Some argue that roads are public goods, others evaluate the project in terms of the underlying process between development, procurement, construction and the financing in between. Having a close proximity to the public pulse, regardless of the accuracy of measurement, is used as a barometer for pursuing vested or overt positions on policy issues. The media distributes these positions and encourage debate. However, pressure groups should generally be held accountable, be transparent and be questioned rigorously for their policy positions with respect to their sources of funds, political and corporate relationships. Largely because they have an influence on road users’ propensity to comply with the user pay principle for roadways and future projects under the same principle.
Tolling is a sub-optimal option for SANRAL
If road users do not comply, then there is an accumulation of debt, a poorer sovereign credit rating and inefficient uses of roadways which produce long-term limitations to further developments through the same principle. While it is satisfactory for the road users to not comply, the Economic Analysis argued that:
“It should be noted that tolling is not an optimum solution from SANRAL‟s perspective. It is as an instrument that SANRAL uses to maintain the road network. While tolling may reduce road user benefits – this should be balanced with the consequences of the roads not being in a good condition.”— Barry Standish. An Economic Analysis of the Gauteng Freeway Improvement Project. 2010.
Tolling is a sub-optimal solution for SANRAL because it increases the costs for the road users, and it would be ideal to source the total funding from National Treasury. However this is not possible under the current economic circumstances. Increasing levies is not an efficient option due to the underpricing of the Road Accident Fund levy when compared to the accumulated cost of liabilities against the fund. These are set to double before 2025 from R341bn to R 605bn between 2019 and 2023, to keep up the levy may need to double in the ideal circumstance but this is limited by the carbon taxation framework among other factors. This pile of debt is also the underlying sense of urgency for the user-pay principle, and the case of the SANRAL:
“Government has extended a total guarantee facility of R38.9 billion to the agency, of which R30.3 billion had been used by 31 March 2019. Over the medium term, SANRAL is expected to repay R10.7 billion of maturing debt obligations and R10.8 billion worth of interest payments. To enable SANRAL to pay these obligations, government will implement direct user charges as outlined in the White Paper on National Transport Policy.”—National Treasury. Medium Term Budget Policy Statement, October 2019.
It follows therefore, that there is a cost attached to the lack of compliance, rippling through various transport objectives while naturally providing a benefit to road users. Meanwhile, public transport economy in the form of mobility and access are exposed to slower rates of investment and options to operate sustainably. On the other hand, Gauteng’s freight logistics economy is also confronted with the need to secure efficient pricing mechanisms that could fund a consolidation of goods, introduce intermodal facilities and enable broader economic benefits. Considering the broad goal of the GFIP described in quote , public transport, intelligent transport systems and travel demand management (which includes enabling the use of Non-Motorised Transport) measures are part of the underlying basket of improvements which require funding that far exceeds what National Treasury and the Provincial Government can afford. Here’s the tension: providing affordable mobility and access; and reduce the cost of logistics.
Effect on mobility and access
“At least three non-operational cities will be suspended from this grant and the remaining cities will be required to reduce their costs and demonstrate their effectiveness to remain funded.”—National Treasury. Medium Term Budget Policy Statement, October 2019.
In last week’s Medium-Term Budget Policy Statement (MTBPS), significant statements about transport were made. First it is the notion that at least three of the 13 cities will loose their public transport operating grants, particularly those who have not implemented. The rest are required to show evidence of their value. Although public transport operations in South Africa and around the world require a diversified revenue base, in land-use, subsidies, and unique service offerings— leaning on public funds only may not be sufficient. It is noticeable in our case already.
Without diversified revenues in the ficus it will be difficult for public transport operating grants in major cities and the public transport subsidy framework for 2020 to actually take an effective form. Largely due to the complexity of funding public transport systems and services in a fair efficient and effective manner. This is exacerbated by the need to offer a public transport system that is competitive with private cars; the roadway (i.e. dedicated lanes, sidewalk), systems (i,.e. IT) and service (i.e. customer service) requirements value proposition is quite expensive. Furthermore, the backbone of the South African urban and rural mobility and access network, such as passenger rail has grown to become expensive, and ineffective even though various improvements are being implemented. However, the question remains: how will the improved service needs be funded in a manner that is affordable for public sector, while enabling affordable mobility and access for households that is competitive without additional funding from other sources?
Effect on freight transport
This year’s Logistics Performance Index highlights that SA lacks in the skills and logistics infrastructure to realise its economic potential through efficient and effective supply chains. Inadvertently responding to this, Gauteng pursued a request for proposals which emphasised the coordination of freight trucks on its roads. The GFIP appears to have been designed to serve as a financing instrument for the future of Gauteng’s integrated transport network— not only for public transport, but for all modes of travel including private cars. It is also aimed at developing a deep narrative around managing freight logistics in a growing region like Gauteng in such a manner that this growth is managed and secure roadside station (i.e. truck-stops) are adequately funded and controlled.
This is one way to incentivise the controlled movement of freight vehicles in cities, and breaking bulk consignments into smaller portions through these logistics hubs— particularly in a region which aims to boast various Special Economic Zones, which will need logistics hubs. Lastly, from a freight perspective, the capital outlay required to manage and encourage the shift from road to rail and facilitate the true cost of road freight using public roads is significantly important. National Treasury’s economic policy proposal argues along these lines too: that the road freight industry may be flourishing on a road network that is under priced.
National Treasury’s proposal in this regard is quite sleek and in line with the Road Freight Strategy, and the underlying user pay principle:
“…heavy goods vehicles are effectively subsidised as they currently do not fully pay for the maintenance costs arising from the negative externalities that they impose on road infrastructure. In light of this, the Green Paper by the DOT proposes stricter enforcement of traffic laws, full cost recovery from road freight operators and related external environmental costs, and major improvements in rail services.”—National Treasury: ‘Economic transformation, inclusive growth, and competitiveness: Towards an economic strategy for South Africa’
The GFIP largely creates a new precedent\ for unique transport and infrastructure projects in which those who can, subsidise those who are not able to . In a sense that private car users who value using their vehicles for the commute will benefit greatly from paying the toll and flowing smoothly as others are not willing to pay that much. Where do the others go? They go to a car competitive public transport service that is part of an integrated network of mobility and access services which enable a complete door-to-door trip for most citizens.
Open Road Tolling is part of a new user pay ecosystem to fund transport projects and systems
Nevertheless, it seems reasonable to explore the evolution of road pricing schemes to provide some context. Usually roads are tolled to pay for their maintenance, administration and repay the debt associated with constructing it. With the appropriate technology, talent and administrative systems road users are charged for the congestion they cause along the roadways by paying for the delay they contribute to by joining the roadway in question.
From there we can lean into micro-level pricing and taxing for roadways based on distance, vehicle use and carbon footprints per passenger, or per ton kilometre or hour. However, the lack of consistency across the board in the transport economic regulatory environment has significant effects on the quality of life in households, industries — in addition to the longevity of reforms.
Open road tolling practically introduces the tip of a much larger iceberg in transport infrastructure systems. It introduces a vocabulary through which the true cost-and-benefits of mobility and access can be appraised, managed and distributed. Non-compliance however limits the available tools with which a precedent can be set specifically for other types of infrastructure services which users pay for already or in future.
Finally, Ron on Power Business asked me an interesting question about what will happen next, and really my concern is the transparency of the discussion and stakeholder engagement. This is the same framework which lead to the lack of compliance in the first place: the public not knowing what is happening, what are the issues, and the complexity of considerations involved. The ecosystem is so broad, I believe the public must know as it happens— not only through a report— but within a similar format as the commission of inquiry such as the Competition Commission.
Is the regulatory environment for the transport industry consistent with how network economies actually work?
When will road users, ranging from private cars to freight transport pay for the true cost they impose on the travel economy?
What option do households who can and aspire to purchase private cars have if the pace and grace at which integrated public transport planning takes shape on the ground?
Who holds the pressure groups to account in a manner that reflects their underlying interests, vested or overt and the mandate they serve?
Who will pay for the cost of delay if non-compliance was induced instead of revealing a public consensus?
What if the public consensus is orchestrated by biased information which suits the short-term gain, while resulting in long term losses?
Thank you for reading through this one, there is no link to the podcast from the interview with Ron Derby on Power FM’s Power Business last night. Just for your information, that is where this blog is coming from and other themes.