Additional Adjustment Appropriation Bill 2011/12: National Treasury briefing & adoption

Meeting report

Additional Adjustment Appropriation Bill 2011/12: National Treasury briefing & adoption
Mr Lungisa Fuzile, Director General, National Treasury, briefed the Committee on the Additional Adjustment Appropriation Bill for the 2011/12 Financial Year (the Bill). He explained that this Bill intended to allocated R5.75 billion to South African National Roads Agency Limited (SANRAL) to pay for the debt incurred for completion of the Gauteng Freeway Improvement Project. He gave a brief historical overview of how roads were classified from provincial to national, and thus handed over to the management of SANRAL. He pointed out that the decision to construct the roads had been taken under the previous Gauteng provincial government administration.

SANRAL had incurred a debt of over R20 billion for the construction of the roads, which amounted to over three times its average debt, and also represented 0.8% of the country’s total gross domestic product (GDP). SANRAL was given a guarantee by government because of the serious implications of the debt, to the effect that should SANRAL be unable to pay a monthly instalment, then government would be requested to pay the debt instead. Consultations were held to look into other alternatives, including the collection of funds, by way of tolls, from road users. Mr Fuzile pointed out the largest benefit of the road would accrue to the users of the road in Gauteng, which was the financial capital of South Africa.

It was felt that the administrative costs would be greatly reduced by using tags on vehicles. He then set out the tariffs, which were calculated per kilometre. A light vehicle would pay 30 cents, a non-articulated truck would pay 75 cents and articulated trucks would pay 151 cents. The prices would vary, according to peak or non-peak hours. Government introduced a cap of R550 for frequent road users. Public transport had been excluded, to reduce the risks that the costs of the roads would simply be passed on to the underprivileged. Government had learnt useful lessons from this exercise, and in future alternative payment methods for motorists would be explored. He noted that the consultation process would also have to be improved.

Discussion
Mr N Singh (IFP) said his party was against the Bill and noted that the IFP study group, after discussing the issue, was sitting “with a hot potato”. This was the first time that he had seen the Department of Finance motivating a case for another department. In the past, special appropriations had been made, for instance to government entities such as Denel and South African Airways. Government would face a huge debt predicament if motorists refused to pay the tolls. He felt that National Treasury was setting a bad precedent in helping another department (Department of Transport) that should have done its preparatory work and research properly.

Mr Singh questioned the other guarantees that government had given and asked if the persons who had made these guarantees would honour the payments, as a burden would be put on taxpayers. He suggested that the Committee should look more closely at some of these guarantees. Alternative funding means, the basis of introducing such a system and the profits accruing all needed to be discussed, as they were areas of concern.

The Chairperson asked about on the role of government in giving guarantees.

Mr M Swart (DA) said the Democratic Alliance was of the view that if a tolling system was introduced, then an alternative, non-tolled route must be available. It was worrying that other provinces would effectively subsidise Gauteng. However, the DA was prepared to support the Bill.

Mr L Ramatlakane (COPE) asked when the guarantee was signed and entered into. He also asked if this was not an attempt to “stretch” the Public Finance Management Act (PFMA), and if, in effect, it amounted to a bail-out. The authority for reclassifying roads and the implications of privatising were worrisome. He asked if the tolling charge would be per kilometre, and, if so, how many kilometres were involved. The manner in which the adjustments were sponsored was raised, and he noted that this intervention did not go through the normal government cycle.

Mr M Mbili (ANC) asked about the difference between the state guarantee and the bond that people had bought from SANRAL. He also questioned what the implications would be, should government not release the funds amounting to R5.575 billion, particularly given the decision of Rating Agency Moody to downgrade South Africa’s credit worthiness. He asked what the role of the Department of Transport was in this whole process, and said it seemed that there was no effort on the part of the Ministry of Transport to provide funding. He asked why a state guarantee was needed.

Mr Fuzile noted that it was important to digest what had happened, and not to attempt to shift the blame, particularly on the former administration that had taken the decision to build the road.

He gave a composite response to questions raised. The R5.75 billion was meant to be a once-off payment. Alternative routes are available, although these roads would not be in as good a good state as the ones that were under the current tolling project. Useful lessons had been learned and other financing models would be explored in future. However, the “user-pays” system remained an important way of raising finance to pay for infrastructure. It was noted that the guarantee was structured in such a way that the interest rate would be high if SANRAL, on its own, had had to pay the R19 billion, this would have resulted in higher tariffs for motorists. Investors also were given no confidence that if something happened they would get their money back. It was noted that the guarantee was secured around 2008/2009. He re-emphasised the point that the conditions of the guarantee were that if SANRAL fails to pay one instalment the government would have to foot the entire R19 billion, and this could lead to serious liquidity challenges. The implications of one agency not paying its debts would also cause uncertainty and panic amongst investors in other state entities.
On the question of the timing, Mr Fuzile noted that if the payment was not made now, the interest would continue accruing, and this was a crucial issue. A delay in the release of the R5.75 billion would mean an accrual in the interest and a bad credit worthiness rating for SANRAL. Government could also be faced with the daunting task of having to pay over R19 billion.

No profit would be made and the road system had not been privatised, as SANRAL was an entity of government created for the purpose of constructing and managing the road system. He noted that there was no prescription in law as to how many and what time adjustments could be done. The re-classification was premised on the traffic volume and the importance of the road to the country. Quite a number of roads were re-classified and the number of national roads had increased from 6 000km to 16 000km. To date, over 375 km had so far been completed. He noted that the tag was calculated per kilometre.

In relation to the guarantee terms, he explained that SANRAL used to have an option that people could buy bonds, and if the bond was high risk, then a higher interest rate was paid. However, investors also did not currently want to invest in SANRAL as they felt it did not have an adequate revenue stream.

Mr G Snell (ANC) asked if all the 16 000km of national roads fell under SANRAL.

Mr Fuzile said that some of the roads were run by SANRAL and some by national government. He pointed out that SANRAL was an entity that was wholly state owned, so its management of the roads did not amount to a privatisation of the road network.

Mr N Singh (IFP) was not happy with the response to the question whether any profit would be made from this project. The media had asserted that foreign companies were going to make a profit from the collection of toll gate fees.

The Chairperson pointed out that the main issue being discussed today related to the approval of the R5.75 billion. Any other questions could be dealt with in future.

Mr Swart proposed the adoption of the Bill, on behalf of the DA. This was seconded by Ms R Mashigo (ANC).

Mr Singh indicated that he was objecting to adoption of the Bill at this stage, but that he would need to interact with the IFP, and his position may change.

The majority of the Committee adopted the Bill.

The meeting was adjourned.