E-tolling: DOT considering fuel levy

Transport minister Ben Martins says he will consider an increase on the fuel levy as an alternative to e-tolling.

This comes after government, especially National Treasury, in the past continuously said a fuel levy increase would not be considered as a replacement for e-tolling, which is meant to fund the R20 billion Gauteng Freeway Improvement Project (GFIP).

Responding to a question at National Assembly last week, Martins said he will consider other funding options as opposed to e-tolling, in conjunction with minister of finance Pravin Gordhan.

“These funding options include increases in the taxation of fuel, increased vehicle licensing fees, (this is, however, a provincial competency), and an increase in general taxation. Each option has advantages and disadvantages, which are considered.”

The minister said it is of critical importance to determine funding options to maintain the larger South African road network, inclusive of a huge maintenance backlog previously reported to be in the order of R149 billion.

Martins explained that, in 2005, when the implementation of the GFIP was under consideration, then minister of transport Jeff Radebe required the proposal to be further evaluated by an inter-governmental workgroup. The workgroup considered, among others, funding options.

These included fuel taxes, vehicle licence fees, traffic fines, development impact fees, shadow tolling and tolling.

He further added that SA had a “dedicated fuel fund” in the past that ring-fenced funds for road projects. However, the levy was abolished in 1986.

In terms of vehicle registration/licence fees and traffic fines, the income is generated by provincial and local spheres of government and not necessarily available to transport authorities.

Development impact fees are developer contributions towards infrastructure provision and are taking place, but not on a formalised, national basis. It assists local network improvements, but not freeway development and expansion.

No tolls are levied from road users under the shadow tolling approach, according to Martins. “Instead, the shadow tolls are paid by government to the operator based on traffic counts on the road, an agreed rate per vehicle/vehicle type and an agreed set of performance criteria. The option does not create a new source of funds, or from making users internalise the external costs of their travel, but rather from government commitment to continued financial support over several years.”

The user-based funding mechanism, that is tolling, for road infrastructure development enables the mobilisation of substantial capital funds upfront, usually through debt equity, for the construction of infrastructure such as freeways. The minister explains that this is why it was decided tolling would be used to fund the GFIP.

Other principles of tolling also supported the decision. “Toll financing has a distinct advantage of providing infrastructure earlier than would have been possible with financing through general taxation. As a result, the benefit of increased roadway capacity is available to the public sooner.

“Tolling is regarded to be an equitable way of funding large infrastructure projects and does not compromise fiscal integrity.”

The minister says the Department of Transport still supports tolling in whatever format as an important tool for the funding of large road infrastructure projects.

David Unterhalter, representing treasury during e-toll hearings at the Constitutional Court in August, said ring-fencing the fuel levy for the GFIP is inefficient.

However, deputy chief justice Dikgang Moseneke Moseneke challenged this by saying e-tolling isn't efficient either.

Most parties opposed to e-tolling argue that money for maintaining the roads should come from the fuel levy that road users already contribute to and so there will be no additional collection costs - the main argument against e-tolling, since it will require millions of rands per month for operation fees.

“High compliance risks, coupled with high administrative costs, are two particular drawbacks that could put the success of the e-tolling system on the line,” says Business Unity SA.

“If the authorities were so pressed for funding, treasury had many opportunities to apply an interim fuel levy to fund Sanral's [SA National Roads Agency's] R270 million per month debt obligations to the GFIP creditors, pending the outcome of the legal case,” says the Opposition to Urban Tolling Alliance, which is challenging e-tolling in court.

“Quite frankly, had a fuel levy increase of around 10c/litre been applied back in 2008, when the GFIP upgrade began, the investment would be a long way down the road of being reimbursed.”

However, treasury said fuel levies for provinces are not equitable since it would be a costly exercise to collect the levy from fuel stations in the province and people not using highways will pay for it.

“The US always funded their roads through a dedicated fuel levy and it didn't keep up. Where we have a R149 billion maintenance backlog, they have on their interstate a backlog of about $2 trillion,” said senior GFIP project manager Alex van Niekerk previously.

He added that apart from National Treasury's argument against a fuel levy, the worldwide argument is that the long-term sustainability of a fuel levy is not good.