Economic Regulation of Transport Bill: public hearings day 1

Meeting report

Economic Regulation of Transport Bill public hearings

Submission by Uber

Mr Zanoodene Kassim, Legal Counsel for Uber, Sub-Saharan Africa, described Uber’s business model, customer segment and relationships, and business locations, and then took the Committee through its submissions on the Economic Regulation of Transport Bill.

He told the Committee that section 4 (2) of the Bill had a wide application, and for this reason it potentially applied to different actors in the transport sector. The actors were of a diverse nature, type, size and had a unique ownership structure. The Bill did not take this into consideration, which meant its implementation was based going to be based on a “one-size-fits-all” approach, which was not acceptable.

The section stated that the Bill applied to any market which the Minister determined to be controlled by one entity. The entity must own 70 percent of the market share. The Bill had to specify what a market was. Moreover, the Minister had to ensure that the Regulator’s market evaluation method was influenced by principles similar to those used by the Competition Commission.

Under Section 2 (4), the Bill sought to supersede any transport legislation. Since the Competition Act was not a piece of transport legislation, the Bill presupposed concurrent jurisdiction on a matter that fell within the jurisdiction of the Competition Commission. In terms of section 3(1A) (b) of the Competition Act, two requirements must be met in order for there to be concurrent jurisdiction:

• The industry or sector must be subject to the jurisdiction of a regulatory authority. This requirement was satisfied by the Bill and its creation of the Regulator; and
• The regulatory authority must have jurisdiction in respect of conduct regulated under Chapter 2 or 3 of the Competition Act, i.e. prohibited practices or merger control.

 

The Bill did not satisfy part 2 of the requirements, because under section 4 (4) of the Bill, the regulator had powers to consult a market inquiry. In section 4 (5) of the Bill, the Regulator gave the Competition Commission powers to conduct market inquiries. The Competition Commission did not have powers to conduct market inquiries and as such, concurrent jurisdiction could not apply.

In section 9 (2), the Bill provided for the price control of a regulated entity. It was unclear whether Uber was a regulated entity in terms of section 4 (2) of the Bill. Be that as it may, it was Uber’s view that price controls undermined the economic concepts of supply and demand and pricing driven by market dynamics. The problem with price controls was that prices were unable to respond efficiently to demand surges, resulting in consumers faced with long waiting times and poor service due to supply not responding appropriately to the excess demand. This in turn meant that the industry did not develop into a dense and efficient network, which was reflective of the e-hailing model today.

Price controls were not only inefficient and cost ineffective compared to dynamic pricing, but these were also unconstitutional. In S v Lawrence, it was decided that price controls by the Regulator had to be rational in order to not infringe the right to freedom of trade under Section 22 of the Constitution. For a price control to be rational, it had to be “rationally” related to the outcome the Bill sought to achieve. Where the outcome was efficiency and cost effectiveness, price control was not rational compared to dynamic pricing.

Section 13 of the regulation sought to provide the Regulator with a wide range of different powers in respect of requests for information for a regulated entity, including confidential information. The Promotion of Access to Information Act (PAIA) already allowed for how requests for information could be made to private bodies such as Uber. For this reason, Section 13 of the Bill had to be drafted in line with the provisions of the PAIA.

Discussion

Mr M Chabangu (EFF) asked if Uber was a registered company in South Africa. Why was Uber the preferred choice of e-hailing service at airports? Did Uber have global standards on the treatment of drivers? The prohibited practices that were set by the regulator extended to cover the usage of roads. Did Uber refrain from using prohibited roads? The price for Uber was determined by distance. Did Uber have a price mechanism that took shortcuts into consideration?

Mr L McDonald (ANC) said the presentation had talked about Uber having 13 000 driver partners. How many of these drivers owned cars, and how many were South Africans? Uber had made it a habit of not employing South African drivers since it started operating in South Africa.

How much money did Uber retain from each trip?

Uber was concerned about the regulation of information because it did not want the public to be aware of how much money it was making and sending out of the country. The South African economy was in a position where strict foreign exchange controls were required.

Mr C Hunsinger (DA) said Uber had argued that on issues of concurrent jurisdiction – that the Competition Commission Act 89 of 1998 superseded the Economic Regulation of Transport Bill. What was the basis of this argument? If one was to argue that the powers extended to the Competition Commission were discretionary, what was going to be Uber’s counter argument?

Did Uber have the power to change trip prices without consulting anyone?

Ms M Ramadwa (ANC) asked which country Uber was managed and controlled from? Did it have global standards for the quality of cars? As a technology company, Uber was not accessible to those from disadvantaged backgrounds and those living in the rural areas. Were Uber’s standards aligned to the provisions of the Constitution of South Africa?

Mr T Mabhena (DA) said Uber had talked about the transport sector being wide and the Bill not being tailored to regulate particular actors. Uber was in the e-hailing services industry, and could not make submissions on behalf of the transport sector.

Uber had further submitted it was unsure whether it was a regulated industry or not. In the e-hailing industry, Uber had a 70 percent market share, and for that reason the Regulator had jurisdiction over the e-hailing industry. The role of the Competition Commission was to guard against anti-competitive prices, and the role of the Regulator was to promote the economic growth and welfare of South Africa by promoting an effective, efficient and productive transport sector.

There were cases of Uber prices changing en route to a passenger’s destination. Uber had to explain whether this did not amount to unfair competition. This was also unfair on passengers, as they were not allowed to make informed decisions.

How much was Uber directly contributing to the fiscus in terms of tax revenue?

What safety measures and standards did Uber have in place, and how many safety-related issues had Uber experienced? Had these issues been resolved, and how?

Uber responses

Ms Lindi Vundla, Senior Legal Advisor: Sub-Saharan Africa at Uber, replied that Uber was a registered company in South Africa under the name Uber South Africa Technology (Pty) Limited at the Companies and Intellectual Property Commission (CIPC). Uber also had another entity called Uber BB, and this was registered in the Netherlands.

On Uber getting preference at airports, Ms Vundla requested more information as the question was unclear.

Responding on whether Uber had global standards for the treatment of drivers, she told the Committee that different countries had different rules. Members had to take into account that drivers were not employees of Uber, but independent contractors. Be that as it may, Uber exercised due diligence in relation to its compliance with regulations related to drivers in the countries that it operated. South Africa had higher driver standards compared to other countries.

Regarding whether Uber complied with the prohibited practices, Ms Vundla told the Committee that the Transport Appeal Tribunal had ruled that rideshare drivers must have an operating licence that was issued under section 66 of the National Land Transport Act (NLTA) before conducting their trade in South Africa. Uber checked for this documentation before contracting with drivers. Also, Section 66 of the NLTA applied to metered taxi drivers. In this view, there was no differential treatment of Uber and metered taxi drivers.

On whether Uber’s price mechanism took consideration of shortcuts, she replied that Uber had a base fee of approximately R25 that it gave to the Uber drivers. An additional fee was calculated based on time and distance. As such, prices fluctuated depending on the traffic.

She said Uber did not have information on vehicle ownership.

Referring to the employment of non-South Africans, Ms Vundla said the constitution of South Africa applied to all those who lived in South Africa, and as such everybody living in South Africa had the right to freedom of trade. Uber checked for professional drivers’ permits before contracting with drivers. The Department of Transport was responsible for the disbursement of professional driver permits. Uber had full confidence the Department of Transport-issued permits to South Africans and non-South Africans with valid work permits.

On the percentage of money that Uber retained from each trip, she said Uber charged a service fee. Uber was willing to provide numbers in writing to the Committee on a confidential basis.

Ms Vundla responded on the externalisation of funds, and said that the bulk of Ubers earnings remained with the drivers. On its contribution to the fiscus, she replied that Uber was a registered company in South Africa and paid taxes. Furthermore, the new tax requirements in South Africa that came into effect in April 2019 required foreign entities that provided technological services in South Africa, for example, Uber BV, to remit value-added tax (VAT) to the South African Revenue Service (SARS).

Uber was controlled from the Netherlands, from where Uber BV provided the technological services. However, it had offices in Johannesburg, from where it directly managed its South African operation.

On whether Uber had global standards for the quality of cars, she said each country had different requirements, depending on availability and market preference. For example, Kenya had small hatchback cars which were not available on the South African market. People in South Africa preferred sedan cars.

Regarding the accessibility of Uber to people from disadvantaged and rural backgrounds, Ms Vundla said Uber was a business that grew and operated where the demand was. Previously demand had been in the urban centres -- for example, Sandton -- but it had expanded to places like Soweto. For this reason, Uber was slowly and surely expanding to rural areas.

Referring to the issue of concurrent jurisdiction, she told the Committee that in 1999 the South African courts had had to deal with a similar issue in respect of the Competition Commission and the Independent Communications Authority of South Africa (ICASA). The courts had ruled that the regulator that was specifically appointed to regulate a specific area of the law took precedence over the one that was not. For that reason, the Competition Commission superseded the Bill on matters pertaining to prohibited practices and price controls.

As to whether Uber had the power to change prices without consulting anyone, Ms Vundla said as long as Shoprite continued to change the price of tomatoes without consulting anyone, Uber could do the same. Be that as it may, Uber consulted with its drivers on price changes. All price adjustments took into consideration factors such as the price of fuel.

On the authority of the regulator to set regulations in a market where it considered an entity to be controlling 70 percent of the total market, she said that Uber was not calling for the deletion of the provision in the Bill. Uber was cautioning against the use of inaccurate evaluations. For example, Uber did not control 70 percent of the total market, and there was no need for the regulator to move in and control the market.

On Uber changing prices in the middle of trips hence prompting passengers to question their previous decisions to side-line minibus taxis, Ms Vundla said this was an observation which pointed to the fact that minibuses services were directly in competition with e-hailing services, and Uber could speak for the transport sector. However, Mr Mabhena had cautioned Uber not to do so.

She asked if she could respond on the number of safety incidents in South Africa in writing.

On safety standards and measures, Ms Vundla responded that the application process for professional driving permits included background checks. Uber used the services of third parties to conduct background checks. In addition, it had a two-factor verification process that required drivers to confirm their identities before taking any trips. Finally, it had a law enforcement liaison system to ensure that it was able to respond swiftly to safety-related incidents when reported.

Submission by Bolt

Mr Gareth Taylor, Country Manager for Bolt in South Africa, informed the Committee on the company’s business operations, customer segments and relationships.

Bolt took the Committee through its submissions on the Economic Regulation of Transport Bill, and started by reiterating its support for the National Land Transport Amendment Bill. Bolt considered this as an important piece of legislation that sought to provide clarity on e-hailing services in South Africa, as well as regulatory certainty, amongst other issues.

Bolt supported the Economic Regulation of Transport Bill, as it sought to “promote the economic growth and welfare of South Africa by promoting an effective, efficient and productive transport sector.” However, it remained concerned about the existing regulatory gaps that were already inhibiting the delivery of affordable and accessible transport services, and which facilitated economic inclusion and participation. Adding price controls to an already fragmented regulatory environment was premature and inappropriate, especially for e-hailing services, given the inherent affordability and consumer choice enabled by Bolt’s platform. For this and other reasons, including the fact that price controls stifled innovation in the public transport sector, Bolt did not support price controls.

(See presentation for more details).

On the determination and review of price controls, Bolt SA was of the view that Section 11 of the Bill was far reaching and intrusive. It directly intervened in the operations and business models of independent transport services such as e-hailing platform providers, and thus had a substantive impact on the users of the platform -- drivers and passengers. For that and other reasons, the provision had to be excluded from the Bill. The presentation also looked at Section 12 of the Bill.

(See presentation for details).

On confidentiality and disclosure of information, Bolt SA was of the view that Section 13(1) was unduly broad and open-ended, and empowered the Regulator to request information which was business and operations-specific and sensitive. Furthermore, the nature and type of information requested was far-reaching, and at present it was unclear as to the rationale in support of the disclosure and request for such information. Clear criteria and parameters had to be set out for the type of information the Regulator could request from independent businesses and services that were not state-owned. Here the presentation also looked at Section 14 and 60 of the Bill.

(See presentation for details).

On the role of the Competition Commission, Bolt SA was of the view that Section 21 endowed the Regulator with extensive and discretionary powers to introduce reductions in the price control in accordance with the circumstances in Section 18(e), 19(2) or 20(5)(b), in the absence of receiving and considering an opinion from the Competition Commission during the process of determining an appropriate reduction. The presentation further looked at Section 38, Section 43(2)(b)(i) and Section 43(2)(b)(ii) Section 43(4).

(See presentation for details).

Discussion

Mr Chabangu said Bolt sought to impoverish South Africans whilst enriching itself.

Mr McDonald said similar to Uber, Bolt was not fond of government regulation. This had to do with the fact that Bolt was exploiting its drivers. Most of the drivers did not own the vehicles, and had to pay exorbitant fees to own them. Bolt had a rent-to-buy policy for vehicles. It did not have proper safety standards and measures for the protection of drivers. It was contributing to the externalisation of foreign currency in South Africa. Moreover, it had made it a habit to employ non-South Africans. For the mentioned reasons, both Bolt and Uber were worried about any form of government intervention.

How much money did Bolt retain from each trip?

Bolt was concerned about the regulation of information because it did not want information on how it was contributing to the externalisation of foreign currency out in the public domain. The South African economy was in a position where strict foreign payment controls were required.

Mr Hunsinger said Bolt had challenged what the Bill sought to do - particularly in terms of price controls and prohibited practices - without offering any solutions. Bolt and Uber had to take notice that it was the Competition Commission that had recommended price setting, following its market inquiry into the public passenger transport industry. The report was titled “Competition Commission’s Public Passenger Transport Market Inquiry (PPTMI) Provisional Metered Taxis and E-hailing Services Report”. How did Bolt and Uber expect the transport sector to be regulated, if not through price setting and licensing. The Committee sought to ensure the harmonious operation of the e-hailing services industry, the metred taxi industry and the minibus industry.

Ms Ramadwa asked which country Bolt was controlled and managed from. She said the e-hailing sector was profit driven, and did not take social and public interests seriously, hence its fear of government regulation. The presentation on efficiency and cost had been done from a profit-driven perspective. Did Bolt have safety standards?

Ms N Nolutshungu (EFF) said Uber and Bolt were profit driven. Both entities had spoken of affordable public transportation, yet they were against price controls. They could not request to be exempted from price controls.

She said Ms Ramadwa had correctly touched on the issue of safety. There had been a lot of safety complaints against Bolt. What safety measures and standards did Uber have in place?

Bolt’s trip prices were 50 percent lower than Ubers. Could it explain how it determined its prices and how it was coping with so much lower prices? How much did Uber pay the drivers?

Mr Mabhena said the e-hailing sector was terrified of being regulated by the government, and this had to do with issue of price controls. The Committee could consider Bolt’s recommendation on the reduction of the notice period prescribed under Section 43 (4) of the Bill, from 30 days to 20 days. On the regulation of information, Bolt had correctly pointed out that business-related and sensitive information had to be protected by the Regulator. Nevertheless, Bolt was incorrect to suggest that there had to be a limitation on the information that the Regulator could ask for.

Mr P Mey (FF+) said the Freedom Front believed in free market systems. Uber and Bolt were doing a great job, and had to stay away from government regulation.

Bolt’s response

On the Competition Commission’s Public Passenger Transport Market Inquiry (PPTMI) Provisional Metered Taxis and E-hailing Services Report, Bolt responded that the Commission had stated that “the welfare-enhancing benefits arising from digital platforms and their network externalities must be encouraged and preserved to the extent that they were not leading to competition distortions.” The Commission had further stated that the “regulation of fares seems to introduce an administrative burden for authorities and it was inflexible to address changing market dynamics. Price regulation in general acts as a disincentive for innovation.” Bolt had participated in the processes of the industry.

 

On Bolt being fearful of government regulation, it responded that Bolt supported and welcomed all government regulations. This was one of the reasons Bolt remained supportive of the National Land Transport Amendment Bill. This provided the necessary clarity on the regulations applicable to the e-haling sector. Bolt also remained compliant with the National Land Transport Bill of 2009. It was regulated by the Professional Driving Permit (PrDP) in respect of driver’s licences.

Mr Taylor said market forces determined Bolt’s pricing mechanism. Bolt had to balance between its drivers’ earnings and its customers’ welfare. Failure to do so would result in Bolt losing either customers or drivers to competitors.

Mr Hunsinger asked, between the driver and the consumer, which the leading price variable was when it came to price determination

Mr Taylor said Bolt tried to balance both sides of the market force. It did not focus on one particular variable.

Bolt had a number of safety measures in place. For example, drivers had to go through a screening process before contracting with Bolt. It also required a professional driver permit before contracting with drivers. They had to go through a screening process before obtaining one. Bolt had a partnership with Namola – a crime responsive application. Namola had a good relationship with SAPS. Passengers could also confirm drivers’ details before getting on board. Once on board, passengers could also share their trips with anyone.

On Bolt’s prices being cheaper, Mr Taylor said Bolt had launched a lower cost category which consumers and drivers could freely choose to use.

Referring to drivers’ earnings, he said said Bolt took a 20 percent commission on every trip done by the drivers. This meant the drivers kept 80 percent of the fares. Also, Bolt offered discounts to customers, which it paid for. This meant drivers kept 90 percent of the fares.

On Bolt’s rent-to-pay vehicle policy, he said this was a good policy working in favour of the drivers. The drivers were able to buy expensive and good quality cars through the policy.  He compared the policy to South Africa’s real estate industry. Many South Africans were able to purchase houses only through the let-to-buy policy.

He responded on which country Bolt was managed and controlled from, and said it had a local entity that was registered in South Africa. The name of the entity was Bolt Services ZA. Bolt also had a technological company that operated from Estonia.

Submission by Dr Doug Blackmur

Dr Doug Blackmur, an independent higher education researcher, company director, economics and strategy consultant, mediator, mentor and trainer, took the Committee through his submission on the Economic Regulation of Transport Bill.

He referred to the definitions of economic regulation, market and oversight in the Bill. On the definition of economic regulation, he said this covered price, access and quality of service level.  On the quality of service level, the lawmakers had to set well defined quality standards, otherwise the Regulator would find it difficult to hold the transport sector accountable.

(See presentation for comments on other definitions).

He said there were environmental issues associated with the transport industry. Ships, for example, may pollute coastal waters by discharging ballast water into the sea; and air and noise pollution may arise from the activities of aircraft and road/railway vehicles. Perhaps the lawmakers could expand the role of the Regulator to environmental issues through having memorandums of understanding with environmental agencies.

The access agreements prescribed under section 8 (1) of the presentation had to go through what he called a public test. Agreements between parties may be against the public interest in some cases, and there was a need for a mechanism to amend them.

The Bill was silent on the issue of accountability in respect to the Regulator. Dr Blackmur advised the Committee to include a provision in the Bill for regular evaluations of the performance of the Regulator, including public submissions from interested parties. He recommended five years.

Section 30 of the Bill was problematic. It was unclear whether it empowered the Board to establish sub-committees. Moreover, Section 30.9.(d) of the Bill empowered the Board to monitor compliance by the Economic Regulatory Panel “with the procedures for the consideration of regulatory matters by the Executive Regulatory Panel.” These procedures were established by the Board, and could potentially clash with the procedures that Economic Regulatory Panel (ERP) had established for itself under Section 34.4 (c). There was a risk of the Minister having to constantly deal with disputes between the Board and the ERP.

The ERP was an extremely powerful body, and there was a question of whether it was surrounded by enough accountability to be litigated in court.

Discussion

Mr Hunsinger thanked Dr Blackmur for sharing his expert opinion on the content of Bill. The lawmakers faced the task of designing legislation that sought to improve regulation in the transport sector, rather than over-regulate. The same could be said about his assessment on the quality of definitions.

Dr Blackmur had said the definition of economic regulation talked of price access and service levels. He had recommended that the Committee should develop quality and performance standards lest the Regulator was going to find it difficult to enforce quality service access. Dr Blackmur had to share more details on this idea.

The presentation had also talked about the possibility of the ERP facing litigation. What elements of legal risk had Dr Blackmur foreseen? The ERP sought to regulate and provide guidance, but Dr Blackmur had warned against the possibility of a backlash.

Responses

Dr Blackmur said legal risk could arise from the quality and integrity of the definitions in the Bill. The industry’s reception of the Bill was foreseeable. Even though the Bill had been drafted exceptionally well, there were lawyers waiting to assess it for inconsistencies and advise disgruntled entities of the available legal routes. For this reason, the lawmakers had to exercise due diligence when drafting the Bill.

On the quality of service levels, he said it was impossible for a regulator to assess this without explicit quality standards. The term “quality” was perceived and understood differently. For this reason, the lawmakers had to get the industry involved in the formulation of standards in order to avoid a situation whereby the industry could cry “foul play” when asked to comply with standards. Joint standard setting was costly, but effective. It magnified the concepts of accountability.

The Acting Chairperson thanked Dr Blackmur for his presentation

Committee matters

The Chairperson invited Members to attend to the following items on the agenda:

• A letter of condonation from the Rail Road Association for the late submission of its comments on the Bill.
• Terms of reference of the sub- committee to deal with the Public Protector’s report on the conversion of vehicles.
• A challenge on information contained in a Passenger Rail Agency of South Africa (PRASA)-related report.
• Consideration of minutes.

The meeting was adjourned.