#232 Comments on the Economic Regulation of Transport Bill

LIVE STREAM: This presentation was shared with the Portfolio Committee on Transport, here you will find some details around my comments about the Bill. It is not my place to outline where the Bill should go, but the presentation does reveal key issues related to the trade-offs involved.

The Economic Regulation of Transport Bill (Bill hereafter) intends to enhance a competitive transport economy with an ‘integrated system of economic regulation’[1] across all transport services and infrastructure. 

The Bill also aims to facilitate the transition toward international best practice in the context of the performance, governance and effectiveness of transport facilities and services[2] through ‘building institutions for markets’[3]—they are premised upon building “consistent economic regulation of transport facilities and services”[4].  These arrangements are expecting to improve management of facilities and services, promote investment, and resolve conflict. 

At the core, is to pursue the development of small medium enterprises, and provide equitable[5] opportunity which advances access to and operation of transport facilities and services. 

The broad scope of application, but confined to a ‘single operator’ controlling more than 70%, or the provision of the service not cost effective[6], but this is subject to market power dynamics and or the facility or service is deemed essential[7]

With these considerations in mind, I submit that there are some critical concerns with regard to the scope of application in the Bill:

  1. The policy aims to introduce a consistent economic regulatory environment across various transport services and infrastructure, yet only ‘access to rail infrastructure’ is deemed a suitable point of discourse. Here I propose that the policy focuses on regulating access to transport infrastructure which falls within the premised Application of the Act. In this manner, the Bill becomes more inclusive of Secure Road Side Stations, Public Transport Routes, Taxi Ranks and Interchanges, in addition to airports and ports. As a result of exclusive and capital-intensive nature of the railway industry, I would argue that the policy leans too much toward one transport mode’s infrastructure rather than following international best practice—which covers a broad array of principles. 
  2. The Bill seems disconnected from existing regulatory entities and activities seen through the Integrated Transport Plans, at District and Local Municipalities. Given the sheer dominance of the minibus taxi industry in the passenger transport market, and the dominance of the road freight industry in the freight transport market the Bill lacks inherent economic principles that incentivise implementation. 
    1. 4(i)-(ii) require determination through an opinion from the Competition Commission, whereas, municipalities conduct transport planning activities which reveal route and market level competitive practices—especially in the public transport arena. If the policy is directed at small medium enterprises in the transport market, then how will it reflect the local area level competitive practices of dominant associations (public transport) and truckers (freight transport)?
    1. 11(8) argues that the Regulator must consider “each price control proposal on its merits in terms of subsection (4)”, whereas sub-section (4) seems opaque with regard to unique transport economic issues and current policy practices in South Africa. The Bill purports that the Regulator will take a national posture, and have functional bodies spread through provinces in order to manage the sheer volume of market changes.
    1. It is recommended that the Bill absorbs greater insight from a more South African outlook in terms of economic regulation—particularly given the dominance of minibus taxis, rising ride-hailing, microcargo, bike-sharing and other modes. Some key regulatory instruments worth considering are:
      1. The medallion approach to containing and managing the transport market, in addition to access pricing and price controls. 
      1. Following the White Paper on Transport Policy, incorporating the economic regulation of transport at a municipal level through devolving transport functions, and building transport components as part of the policy. 

While there are many other concerns, more technical issues with the Bill, I am of the view that the comments submitted are succinct and sufficient in order to create a more equitable and consistent economic regulatory market. 

[1] Section 3(1)(b)

[2] Section 3(1)(c) 

[3] World Bank (2002) ‘Building Institutions for Markets’. 

[4] Section 3(1)(d)

[5] The term equal opportunity is applied in the Bill, this may be an inaccurate term given the nature of the Bill. 

[6] 4(2)(a)-(b)

[7] 4(4)((a)-(b)

Technical Notes related to the Bill

The Bill responds to a call to address the structural issues embedded in network industries as identified by National Treasury[1], as investigated by the National Planning Commission[2] and as presented in the White Paper on Rail Transport Policy. It is largely motivated by the need to introduce structural reforms that (a) change the operational performance in order to enhance efficiency; and (b) change how the transport market is structured in order to introduce more private sector participation. 

These primary principles are aligned with Treasury, the NPC and the NDoT’s strategic direction to enhance Private Sector Participation through the separation of infrastructure from operations and empowering SOEs in particular to lean into their potential as outlined in the DPE report for Accelerating the Development of SOE’s in SA of 2000. As a result the Bill may be pursuing the economic regulation of network industries in transport, not necessarily of the entire transport market. 

Policy Issue

This alignment, in all the above-mentioned reports, makes no mention of the other transport modes, specifically the modes involved in the Competition Commission’s Market Inquiry on Land-based Passenger Transport: metered taxis, minibus taxis, and bus transport. As we know, each of these industries have unique challenges: 

  1. Metered taxis (and ride-hailing) have route, commission fee, pricing, cost structure and market access issues;
  2. Minibus taxis (and other future forms of paratransit) have route, operating lisence, securitisation, pricing, cost structure and market structure issues (compliance, law enforcement etc.); and
  3. Bus transport (contracted and ‘tendered’) have subsidy, performance and compliance issues while contracts remain in a negotiated state. 

Whereas, further economic regulation will be necessary for the efficient allocation of public transport subsidies between passenger rail, minibus taxis, bus transport and potentially non-motorised transport sharing schemes. 

A need for clarity

Given that the Bill outlines its purpose around developing Small Medium Enterprises and achieve the objectives of equality as in Section 2(a) and (b), it should therefore clarify its application as only relevant for parts of the transport sector and not the entire transport sector—particularly the network industries. Alternatively, the Bill or NDoT may clarify that the Bill will in future be progressively expanded to the economic regulation of passenger transport. 

Scenarios and options for the Bill to get through

The potential scenarios for the Bill may include:

  1. Applicable only to network industries in order to “enable” the removal of structural issues associated with inhibitive access to rail infrastructure for passenger and rail transport. This would lean the Bill toward the Economic Regulation of Rail Transport Bill or better yet, “Guided Transport” in future. 
  2. Is applicable to the entire basket of strategic assets in the transport sector, specifically maritime, aviation, guided transport and roads under the South African Road Agency Limited (SANRAL). Then it may be best termed the Economic Regulation of Network Industries in Transport to avoid confusion with the pressing economic regulatory issues in the non-network land passenger transport markets.
  3. Is inclusive of all transport modes, issues and industries which would then incorporate the planning authorities, provincial regulatory entities and the likes within the Economic Regulation of Transport. This approach would require deeper analysis and investigation by the economic regulator, to avoid dependence on ‘commentary’, ensure relationships with entities to be regulated are built and to engage deeply with the policy issues. It will also require the reinstatement of Chapter 2 Part A of the initial 2018 Bill, Section 5 in particular which covers the Provincial and Municipal Co-operation issues related to economic regulation. 

However, given the application of the Bill, where market power is concerned, then Scenario 3 is much more likely largely due to the premise of market power (there are some questions about how the 70% threshold was determined, and clarity on this issue is necessary). 

Challenge regarding the focus of the Bill

However, without the finalisation of the White Paper on National Transport Policy (to my knowledge) the certainty around the devolution of transport functions (especially rail transport), establishment of transport components, and the economic regulation of ride-hailing, paratransit (i.e. minibus taxis and tuk-tuk etc.), and road freight [3] prove to create an opaque environment for transport policy making in particular. 

All transport infrastructure and services are part of a Provincial Land Transport Framework, and subsequent Integrated Transport Plans. 

However, the Bill appears to assume two primary directions:

  1. Economic regulation is only applicable to strategic assets and services within the ambit of national government; 
  2. The economic regulator will not interface with provincial regulatory entities, planning authorities, transport plans and underlying contracts and social contracts (i.e. universal obligation issues embedded in subsidies allocated to bus transport, and potential subsidy discourses related to minibus taxis, and commission structures associated with ride-hailing); and
  3. The transport interchange, and intermodal infrastructure are assumed to be part of the network infrastructure in general and may be owned, operated and maintained by public or private sector. 

As a result, the comments outlined here assume that (a) inputs are necessary for network industries, and (b) the Bill may seek to apply to passenger transport and free market freight transport currently and in future.

[1] National Treasury (2019) ‘Economic transformation, inclusive growth, and competitiveness:

Towards an Economic Strategy for South Africa’. Pretoria, South Africa. Specifically pages 24-26.

[2] National Planning Commission (2020) ‘Position Paper: The contribution of SOEs to Vision 2030: Case Studies of Eskom, Transnet and PRASA’. The Presidency, Pretoria, South Africa. Specifically pages 15, 17-18. 

[3] See the Road Freight Strategy and Draft Implementation Plan, with the information platform from the NDOT.

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