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E-tolling: It's all about the money

The e-toll road leads to many outstretched hands.

Of late, Gauteng motorists and SA citizens in general have been feeling like not much more than a collective pie for government to dip its fingers into.

Finance minister Pravin Gordhan

This has largely been due to the controversial e-tolling system that sparked public outrage and heated debate across different sectors and income groups. The biggest problem is that, instead of government sticking its fingers into several different pies, the taxpayer is the sole source and already heavily dug into, sometimes by more than one outstretched forefinger.

The electronic tolling system was established to pay off the SA National Roads Agency's (Sanral's) R20 billion debt and to fund future maintenance of the road network in Gauteng.

It has been plagued by several problems and unanswered questions since its most recent introduction to the public. These include questions around the relevant legislation being in place, whether sufficient consultation was carried out, why a largely foreign company was selected to implement and operate the system, and how much the system costs.

The most recent controversies around the system are about who actually benefits from e-tolling and where the money will essentially go. Links have been made between the system and the ruling party, the Congress of SA Trade Unions (Cosatu), the Government Employee Pension Fund (GEPF), and companies involved in the arms deal. Pie, meet fingers.

The real motivation

Finance minister Pravin Gordhan denied that the additional R5.75 billion funding, which was provided by Treasury to Sanral to help ease its debt, was motivated by GEPF bonds in the agency.

He admitted that National Treasury did know the Public Investment Corporation (PIC) had acquired bonds in the agency, to the sum of R17 billion, but the additional funding was provided to ease affordability concerns around the e-toll tariffs.

The PIC is wholly owned by government and manages investment funds on behalf of public sector entities. Clients of the PIC include the GEPF. The GEPF confirmed that, as at the end of February 2012, it holds roughly 50% of Sanral bonds, valued at about R15.7 billion.

“Our investment in conventional and inflation-linked bonds, issued by government and state-owned entities (including Sanral), is informed by our investment policy, which takes into account our long-term liabilities as a pension fund. Importantly, the crafting of our investment policy is done in consultation with the minister of finance, who acts as a guarantor of the fund on behalf of government,” says Arthur Moloto, chairperson of the board of trustees.

The Inkatha Freedom Party (IFP) said this is the real reason behind government's push to ensure the controversial Gauteng e-tolling project succeeds.

Describing the investment as “pre-1994 tactics”, IFP's spokesperson on finance and on the e-tolling project, Narend Singh, says it is finally clear why government wants to save this project at all costs, despite it being unfeasible and despite it receiving so much public resistance.

"Never could one have imagined such a huge cover-up in our post-democratic dispensation. It is now clear that there are huge economic issues at stake. If the tolling project fails, government will not only have to bail out Sanral, but it will have to bail out the civil servants' pension funds as well,” he comments.

Why so secretive?

This month it was reported that the ANC is set to profit from e-tolling as well.

However, the party denies this. “There is no e-tolling that is linked to the ANC. It is individual people. The ANC is not linked to e-toll profits,” says national spokesperson Jackson Mthembu.

For this reason, Democratic Alliance (DA) Gauteng caucus leader Jack Bloom called on Sanral to disclose all 33 sub-contracts involved with the Electronic Toll Collection (ETC) consortium that will be running the e-toll system.

E-toll revenue vs costs

ETC has reportedly only disclosed nine of the 33 sub-contracts. This includes catering company Tsebo Holdings, which is 15% owned by Nozala Investments and 15% by Lereko. Nozala is headed by Salukazi Dakile-Hlongwane, a trustee of ANC front company Chancellor House, and Lereko is owned by former environment minister Valli Moosa and Chancellor House trustee Popo Molefe.

“Another company is Gijima, which is 35% owned by well-known ANC backer Robert Gumede, which was awarded a multimillion-rand contract to design and run the entire IT system for the project,” says Bloom.

Sanral and ETC declined to provide details of the contract, saying confidentiality clauses are in place. “Why all the secrecy on contracts paid with public money?” asks Bloom.

He adds that this feeds all sorts of speculation that needs to be put to rest, including a possible link to an arms deal company.

Foreign boost

The DA also referred the e-tolling system to the public protector's office in light of a possible link with suspected arms deal corruption.

Bloom says there are allegations of links between Swedish companies involved in the arms deal, and the Vienna-based Austrian company Kapsch TrafficCom, which is the largest shareholder in the ETC consortium.

“Swedish Kapsch TrafficCom holds 40% of ETC, while Austrian principal Kapsch has the remaining 25%. The Swedish arm was previously part of Swedish manufacturing company Saab Aerospace and later became part of Kapsch AG.

“Saab, which sold 28 Gripen jet fighters to SA in the arms deal, sold a subsidiary called Combitech Traffic Systems to Kapsch. Together with arms deal company BAE Systems, it formed a company called SANIP, which was the joint venture between Saab Aerospace and BAE Systems to fulfil their obligations under the Arms Deal Offset Programme, which has been revealed to be largely empty,” says Bloom.

Also, Kapsch TrafficCom reported a boost in its 2010/11 financial year, partially thanks to its involvement in e-tolling.

Revenue in its road solutions projects segment, under which e-tolling falls, grew 247% year-on-year, to €158.9 million.

“This positive development resulted largely from electronic toll collection system implementations in SA and Poland,” states the annual report. CEO Georg Kapsch writes in the report that the year to March 2011 was the “most successful fiscal year to date in the corporate history of Kapsch TrafficCom”.

Double standards

Despite its vehement rejection of the e-toll system, Cosatu apparently benefited from the project, to the tune of R24 million.

DA shadow minister of transport Ian Ollis calls the federation's behaviour hypocritical. “Cosatu's disapproving public stance on e-tolling as being 'ill-conceived, corrupt and too expensive for this country's poor' clearly does not apply to their investment arm.”

Ollis says the trade union federation reportedly made R24 million profit through investment in a construction company, which benefited from the Gauteng Freeway Improvement Project (GFIP), for which e-tolling was created.

Cosatu's investment arm, Kopano Ke Matla, reportedly holds a 3% stake in road construction company Raubex, and Raubex received R800 million from a project that forms part of the GFIP.

“As Kopane's 'sole beneficiary', Cosatu has thus made a significant profit from a road-infrastructure project that they have vehemently opposed on every possible platform. This is pure hypocrisy. While lamenting the impact of rising energy prices and transport prices on SA's poor, Cosatu have in actual fact been capitalising on their misery,” says Ollis.

He adds that Cosatu general-secretary Zwelinzima Vavi claims he was unaware of the investment company's involvement in toll roads and the federation has withdrawn its investment from Raubex.

Financial erosion

The financial woes related to e-tolling isn't limited to where the money will go, but also to what will happen if there is no money at all and what needs to be done until money comes in.

The DA says Gordhan must shed light on the status of Sanral's debt following the e-toll delay. The system has been postponed pending the outcome of legal processes brought against it.

Delaying the implementation of e-tolling is credit negative for Sanral, according to Moody's Investors Service.

Sanral relies on e-toll revenues to service its debt of R20 billion, which it incurred to finance the GFIP. “The postponement adds uncertainty and establishes a precedent for a final court decision on GFIP e-tolls, which we expect by the end of May or June,” says the service.

“Any final pronouncement against GFIP e-tolls will have severe credit negative repercussions for the road agency and will exert further negative pressure on the finances of the South African national government (A3 negative), Sanral's unique shareholder and guarantor of a large proportion of the agency's debt. Indeed, the national government will be required to step in and service or redeem debt incurred by Sanral to finance the GFIP project.”

Moody's subsequently downgraded Sanral's ratings, in light of the e-toll issue. Its global scale, local and foreign currency issuer ratings downgraded to Baa2/P-3 from Baa1/P-2; and its South African national scale issuer ratings downgraded to A2.za/P-2.za from Aa3.za/P-1.za.

“The delay in GFIP e-toll collection adds pressure on Sanral's finances and raises concerns over its medium-term financial sustainability," says Kenneth Morare, Moody's lead analyst for Sanral.

The service adds that, so far, delayed implementation and lower-than-anticipated toll tariffs have resulted in a revenue loss of about R2.7 billion for Sanral (40% of its estimated 2012 annual budget), which will grow to R3 billion by the end of May as a result of the recent postponement.

“These losses will grow by an estimated R100 million each month the delay continues and will gradually erode the company's cash buffer.”

Pension risk

DA shadow minister of finance Tim Harris says finance minister Pravin Gordhan must brief the Parliamentary committee on the status of Sanral's debt, considering the GEPF's stake in Sanral. Arthur Moloto, chairperson of the fund's board of trustees, confirmed that only half of the R15.7 billion worth of bonds have a government guarantee.

“This raises the question of government pensioners' exposure to default risk associated with almost R8 billion worth of their pension,” says Harris.

Media liaison at the GEPF, Khaya Buthelezi, says, as an investor and bondholder in Sanral, the GEPF is waiting for guidance on the matter from the agency. “We are still observers at this point in time. We don't want to comment right now on the figures being thrown around.”

No liquidation

Harris also says Gordhan must answer questions on the fiscal impact of e-toll debts.

“The result from the delay in Gauteng's e-tolling will have important implications for South Africa's fiscal policy, the funding of infrastructure, and National Treasury's influence in government.”

He explains that from a fiscal policy perspective, if National Treasury has to provide a backstop of taxpayers' money for all of Sanral's debt, there will be a material effect on the fiscal framework and key debt-to-GDP numbers. “This will also raise questions about whether all debt issued by state-owned enterprises should be regarded as contingent liabilities for the national fiscus.”

Treasury confirmed Sanral has R37.9 billion worth of debt and R21.4 billion of this, or 56%, is guaranteed by government.

“The halt in the e-tolling project raises serious concerns about Sanral's ability to repay this debt, but the Treasury director-general today confirmed that Sanral would not be allowed to liquidate and that National Treasury would meet their debt obligations for at least six months,” says Harris.

Treasury did not respond to requests for further information and comment by the time of publication.

However, Gordhan, at the World Economic Forum on Africa on 11 May, reportedly said SA's budget will not be affected by the e-toll delay and the impact of this postponement will be managed.

The delay also means that e-toll call centre staff, staff at e-toll outlets, and rent for these spaces are being paid while the system is indefinitely postponed. Sanral has not responded to questions around the costs being incurred even while the system is on hold.

Where's the logic?

The projected annual revenue for e-tolling in the 2013 financial year is R1.01 billion, yet the operation costs for the system in the same year will be R1.12 billion.

This is according to transport minister Sibusiso Ndebele, in response to a question at the National Council of Provinces (NCOP).

The minister said the projected income from e-tolls for 2012 cannot be determined, because the system has not yet become operational, but the toll operation costs will be R519.6 million.

The projected annual toll revenue on the Gauteng toll route for the 2014 financial year is R2.49 billion and the toll operation/collection cost for the same period will be R1.42 billion.

The cost of maintenance and improvement of roads for the 2012, 2013 and 2014 financial years will be R2.29 billion, R668.7 million and R373.7 million, respectively.

DA member of the NCOP in KwaZulu-Natal Alf Lees says the figures demonstrate that the implementation of the Gauteng tolls was ill conceived and poorly planned. He adds that the high cost of administering the tolls explains why the cost of travelling on the toll roads is so outrageously high.

“On these grounds alone, the toll roads should never have been given the go-ahead by the Gauteng government. Treasury and the Department of Transport argue that tolling is necessary to fund this type of road infrastructure. And yet they do not seem to consider just how much operating the e-tolls actually costs.”

The high operational cost of e-tolling is the main issue most organisations have with the system.

Financial honour

Cabinet has appointed a committee to be chaired by deputy president Kgalema Motlanthe to co-ordinate all work around the GFIP.

Other members of the committee are the ministers of transport, finance, public enterprises, and performance monitoring and evaluation.

“This committee will, among other things, move with urgency to ensure that Sanral's financial stability is not affected in any way. The committee will assess the government's response to the North Gauteng High Court ruling and other related legal matters. It will also meet with appropriate stakeholders in order to find constructive solutions and consensus on the outstanding matters.”

Cabinet says the decisions government makes regarding the future of the GFIP will have serious implications for how SA finances future infrastructure projects. “We must also guard against decisions and actions that may impact negatively on our track record in the prudent management of government finances. Government has to act responsibly, ensure that it and the state-owned enterprises honour their financial obligations timeously.”

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