Economic Regulation of Transport Bill: public hearings day 4

Meeting report

The Chairperson welcomed Committee Members and stakeholders and invited Sakeliga to make the first presentation.

Sakeliga submission

Mr Piet le Roux, Chief Executive Officer (CEO), Sakeliga, said that Sakeliga agreed with a statement in the memorandum of the Bill that the logistics sector in South Africa was dominated by large state-owned enterprises (SOEs), but argued that they exercised state power rather than market power as the memorandum claimed.

Sakeliga had two main objections to the Bill. First, it sought to protect the dominance of SOEs in the logistics sector through regulation and price controls. Second, through Section 4(2) which granted the Minister of Transport discretion to subject any private entity to the Act, it tried to bring the private logistics sector under the regulation of the state. Far from removing the dominance of SOEs, it expanded the intervention of the state into the market. Introducing price controls into the private sector would entrench existing firms, and controlling prices to maintain normal levels of profit was a mistake that would prevent new firms from entering the market.

Sakeliga also objected to the inclusion of clauses designed to promote black economic empowerment. Their inclusion was understandable, but they gave the Minister, through economic regulation, the power to subject the entire private sector to the political objective of racial transformation.

Sakeliga was concerned that the cost of the Regulator would end up being paid for by private enterprises. This might add up to substantial additional levies, as was the case with the levies imposed on Eskom by the National Energy Regulator of South Africa (Nersa). In a post-pandemic context, it would be important to limit the costs of doing business in the country.

Discussion

Mr L Mangcu (ANC) was disappointed that the contents of the presentation differed substantially from the contents of Sakeliga’s written submission. The Committee was therefore unable to take a view on its submission. He asked Mr le Roux to expand on the way in which the Bill supposedly paved the way for greater private sector participation in the logistics sector, with reference to specific sections of the Bill.

Mr L McDonald (ANC) said that Sakeliga’s written submission had been a loaded gun. While it claimed to be in good faith, it also threatened legal action against the Bill. Black economic empowerment was the country’s policy and Sakeliga would simply have to get into line so that the wrongs of the past could be rectified. Sakeliga had circulated a memo to their members instructing them not to use South African Airways (SAA). Would they attempt to destroy other SOEs next? The right wing should not be allowed to change the way business was done in the country.

Mr M Chabangu (EFF) asked Mr le Roux to expand on the question of whether SOEs exercised state or market power. Was this something that contributed to the collapse of SOEs?

Mr C Hunsinger (DA) asked whether the Bill had been circulated among the members of Sakeliga. Had Sakeliga’s submission been compiled from the views of its members or did it express the views of the CEO? Did Sakeliga believe that there was a part of the market that fell outside the ambit of the Competition Commission, and if so, should this part be regulated?

Mr P Mey (FF+) asked for confirmation that Sakeliga welcomed the fact that the Bill paved the way for greater private sector participation in the transport sector but opposed price controls. Prices were the result of the interactions between suppliers and demanders and it was his view that South Africa needed to minimise government intervention. He recalled that during the apartheid era, the Road Transport Council had forced business owners to use rail transport.

Mr le Roux admitted that the presentation had differed from the written submission. For example, the written submission went into much greater detail on price controls. However, he had not seen any point in simply repeating the contents of the written submission in the presentation. The remarks on black economic empowerment were the only substantive addition to the written submission. Sakeliga’s specific recommendations were: (1) expand the access regime for the private sector to include concessions and privatised SOEs; (2) remove or severely circumscribe the ability of the Regulator and the Minister to apply price controls to the private sector, as there was no need to regulate the private sector beyond what was currently done through the Competition Commission; and (3) remove the clauses which referred, albeit indirectly, to black economic empowerment. Other legislation such as the Black Economic Empowerment Act dealt with this. Black economic empowerment was not successful in its stated aim of improving South Africans’ lives and it had become a way of politically allocating capital.

As a loss-making entity, SAA was threatening the fiscal stability of the country, and calling for it to be boycotted was actually a patriotic and ethically acceptable call.

The difference between state and market power was a terminological one: the dominance of SOEs was based on state power and not market power because it was maintained through legislation. He agreed that there had been many questionable interventions into the market during the apartheid era. For example, even the price of eggs was controlled. Price setting was a Pandora’s Box that government should not open.

Minerals Council of South Africa (MCSA) submission

Mr Christian Teffo, Senior Policy Analyst: Techno-economics, MCSA, said that the MCSA had been consulting with the Department of Transport for many years on the Bill. The MCSA supported the Bill insofar as it had the potential to address some of the challenges in the mining industry. Transport costs were 12.3 percent of total expenses in mining, amounting to about R70 billion per year and there had been above-inflation increases in transport costs over the last few years. For example, logistics costs for manganese had doubled over the last ten years to over 30 percent of expenses. Regulation of transport costs would be vital if South African mining operations were to be internationally competitive.

Clause 6(c) would promote the rehabilitation of underused rail infrastructure and facilitate public-
private partnerships (PPPs). Clauses 8(1) to (3) would ensure that contracts were competitive and enable South African companies to be competitive. The requirement to document recent use in Clause 8(5) might have the unintended consequence of preventing long-disused infrastructure from being brought back into use. The Regulator must have the technical capacity to analyse the information demanded from infrastructure owners in Clause 8(6). Clause 8(7) was acceptable, but it should be used to expand infrastructure capacity and not take it away from existing users. The MCSA supported Clause 9 in principle but noted that banks might require access rights to have already been granted before agreeing to finance an infrastructure project that subsection (4) required to be complete before it could grant the access right. The MCSA supported Clause 11 on price controls but was concerned about high employee costs, corruption and general inefficiency in SOEs. The Regulator therefore needed to have the teeth to implement 11(1) to (4). With reference to Clause 13, it was important that the Regulator be able to process the information from regulated entities and be empowered to issue fines to entities that did not submit required information.

Discussion

The Chairperson noted the potential problem in Clause 11(4).

Mr McDonald wondered whether the MCSA could assist Transnet to find a way of lowering transport costs for manganese. What was the cost of the damage to the country’s roads caused by the transport of heavy metals and ores? Was there not a better way of working together with SOEs to ensure that these cargoes were moved to rail at a competitive rate?

Mr Hunsinger noted that as much as 96 percent of freight was transported by road. What obstacles to using rail was the mining industry facing? How could the Regulator assist in overcoming these obstacles and in helping South African mining to become more competitive generally?

Ms N Nolutshungu (EFF) noted the concerns about employee costs, fraud and inefficiency at SOEs. These were issues that would need to be considered when the Regulator was set up.

Mr Teffo said that the MCSA was in constant consultation with Transnet regarding the cost of rail freight. Road transport was dangerous to human life as well as damaging infrastructure. About 15 deaths per year occurred on coal haul roads in Mpumalanga. The MCSA had engaged with Eskom about the possibility of using branch rail lines and investing in bigger mines close to the power stations where feasible. There were constant discussions between the MCSA and Transnet on using rail transport for chrome mining in the Northern Cape, but this would require an expansion of the rail network. The capacity of the Richards Bay port was greater than the rail line. Manganese was also shipped from Port Elizabeth and it would be useful to have a rail line there. New performance-based standard (PBS) trucks were being introduced on the roads. These were more efficient. Cable theft remained a serious problem for rail lines. This could be overcome through proper policing.

Traxtion Sheltam submission

Mr James Holley, CEO, Traxtion Sheltam, said that Traxtion was a South Africa-based private rail operator active in six Southern African countries. It was broadly in support of the ERT Bill and in particular it was in support of the government’s intention to allow private companies access to the core rail network. The country had 36 000km of installed track but it was under-utilised, and granting access to private companies would benefit both the private and the public sector by expanding the rail industry and generating access fees. These access fees should be low enough to ensure that rail was a feasible option.

Traxtion did not support the initial exclusion of Transnet Freight Rail (TFR) and Transnet Port Terminals (TPT) from the ambit of the Bill, as this would effectively exclude all freight trains because of Transnet’s dominance. Some of the barriers to entry in the rail sector were perceived corruption, unpredictable procurement and poor infrastructure due to vandalism. The Rail Safety Regulator (RSR) should remain in its present form. The committee should consider the potential of the Bill to improve rail linkages with other countries in the Southern African Development Community (SADC). The 70 percent threshold for applying the Bill should be considered with reference to the sector (road, rail or port) rather than to the service. The Bill should be developed in congruence with the National Rail Policy.

Discussion

Mr Hunsinger asked what the justification was for including TFR and TPT in the ambit of the Bill.  He observed that several of the cited barriers to entry into the rail industry related to functions of the proposed Regulator and asked how the Regulator might make involvement of the rail industry easier. The RSR currently operated mainly by issuing fines to non-compliant entities, rather than by ensuring compliance in the first place. In fact, its revenue had doubled over the last three years due to the state of the Passenger Rail Agency of South Africa (PRASA). Did Traxtion support this state of affairs? What specific aspects of the National Rail Policy should the Bill be in congruence with?

Mr Holley explained that the exclusion of TFR and TPT would defeat the point of regulation because of their dominance. Lowering barriers to entry and allowing a greater number of operators into the freight rail sector would be to the benefit of the South African economy as a whole.

Traxtion did believe that the fines issued by the RSR were an effective lever to compliance. He noted that RSR also had the power to suspend an operator’s licence, as it had done earlier in the year to Shosholoza Meyl. Safety regulations were strong, but regulations could only do so much. Regulations could not be blamed for acts of vandalism, for instance.

The elements of the National Rail Policy that Traxtion agreed with were its promotion of open access to the rail network and the vertical separation of rail infrastructure and operations. Notwithstanding the complexities involved, this seemed to be international best practice. However, converting the rail network from Cape gauge to standard gauge would cost around R1.5 trillion even before the replacement of the rolling stock that would become obsolete, and this was not supported.

Other business

Mr McDonald asked whether meetings of the subcommittee to discuss the Public Protector’s report on illegal vehicle conversions could be scheduled.

Mr Hunsinger asked whether the terms of reference for the subcommittee could include not just the conversion of Toyota Quantum panel vans into taxis, but also their conversion into ambulances, and also the conversion of other vehicles, such as Ford Transporters, into passenger vehicles.

Mr McDonald and Ms M Ramadwa (ANC) agreed with Mr Hunsinger’s suggestion.

The meeting was adjourned.