Download - BRIEFING ON PUBLIC TRANSPORT SUBSIDIES

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BRIEFING ON PUBLIC TRANSPORT SUBSIDIES

PRESENTATION TO THE PORTFOLIO COMMITTEE

ON TRANSPORT

05 NOVEMBER 2013

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SCOPE OF PRESENTATION

The presentation will try to answer the following questions:

Why do we find ourselves in this state of affairs?What is the current situation with regard to bus subsidies

in the country?Why is there a need for urgent intervention?What form should intervention measures take and what

are they likely to cost?How should a transition to improved system be effected?Responding to some concerns raised by SANTACO

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PRESENTATION OVERVIEW

Brief history and background Why the tender contract system was stopped Current situation Changing subsidy environment since 2009 The need for intervention National Public Transport Transformation Plan Response to concerns by SANTACO Conclusion

A BRIEF HISTORY OF TRANSPORT POLICY 1996-2005)

9 101 32 4 875 6

‘96 ‘02‘01‘98‘97 ‘99 ‘00 ‘03 ‘04 ‘05

1. Perpetuity

permits

1996 Introduction of

competitive tendering

1997 Signing of

Interim Contracts

1998 First

Tendered Contracts

<‘96

1999 Signing of Heads of

Agreement

2000 Target date for all services to

be on tendered contracts

2001 Moratorium on tendered

contracts

Since 2001 No tendered

contracts issued or awarded

2002-5 Negotiated Contracts

(some linked to asset sale)

BRIEF BACKGROUND

In 1997 Government signed Interim Contracts with subsidized bus operators (IC duration 2/3 years)

Interim contracts were to serve as a bridging mechanism between the life long permit system and tendered contract system.

Government negotiated and agreed to certain issues with operators which were captured in the Interim Contracts

These contracts gave certain rights and obligations to both Government and Bus Operators (annual escalation, right of first refusal, operators to surrender permits)

Government, labour and the bus industry entered into a Tripartite Heads of Agreement that was intended to govern the handling of labour issues in the transition from IC to TC

Plan: By end 2000 all services would be out on Tender Contracts The first group of major tendered contracts came out in 1998 mostly in Gauteng

and Kwazulu Natal However, in 2001 the tendered contract system was stopped

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WHY DID THE TENDER CONTRACT SYSTEM STOP?

In May 2001 a moratorium was placed on all tendered contracts for 3 main reasons:

– LACK OF TRANSPORT PLANS – (COURT ORDER)

– LABOUR PROBLEMS

– LACK OF FUNDING


3 main reasons-

– LACK OF TRANSPORT PLANS

– LABOUR PROBLEMS

– LACK OF FUNDING

LABOUR PROBLEMS IN TENDERED CONTRACTS

Successful tenderers tendered at much lower wage and benefit levels A massive drop in wages for employees (up to 75%) A huge reduction in the amount and levels of employee benefits Large scale outsourcing of functions by successful tenderers leading

to serious job losses in the bus industry Up to 40% of the original number of jobs were lost in moving from IC

to TC Labour cost became the main area in which operators cut costs to

the bare minimum Reduced training and development of staff – no provision in tenders

LABOUR PROBLEMS THAT REQUIRED SOLUTIONS

• Wages and Conditions of Employment• Job Guarantees • Clean Break Provisions• Bus Industry Restructuring Fund• Right of First Refusal• Amendments to the Heads of Agreement (HOA)

CHANGED LABOUR CIRCUMSTANCES

S197 OF THE LABOUR RELATIONS ACT (2000)

• S197 of the LRA specifically designed to protect jobs and the “going concern” principle in it applies also in the tendering system and therefore guarantees 100% continuity of employment.

• The sole purpose of HOA was to minimize job losses and this could be achieved through the LRA

• Tender documents should be structured in such a way that they enable compliance with the application of S197 of the LRA both with regard to disclosure of information for tenderers and security of employment for employees.

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3 main reasons-

– LACK OF TRANSPORT PLANS

– LABOUR PROBLEMS

– LACK OF FUNDING

COST OF TENDERED CONTRACTS

An analysis of 18 tendered contracts showed that the subsidy required for a tendered contract is on average 25% higher than during the interim contract.

Why? Due to high up-front capital investment required in a tendered contract – Bus specification (fleet re-capitalisation), electronic ticket

equipment requirements etc. The lack of sufficient funding for tendered contracts contributed to

the suspension and delay in implementation of tendered contracts. Regular budget shortfalls have been experienced by NDOT since

then so much so that no new tenders were awarded except the negotiation of a few parastatals

SUBSIDY ALLOCATION TRENDS

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CURRENT SITUATION

CURRENT SITUATION: FUNDING PICTURE

Contract type Numberof contracts

% of budget

Numberof buses

Tendered Contracts

66 30% 1834

Interim Contracts

39 66% 3,849

Negotiated Contracts

10 4% 250

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CURRENT SITUATION IC

The bulk of IC not yet converted and accounts for 66% of the subsidy budget

Since 2003 IC are extended on short term basis Subsidy previously based on the number of tickets (passengers) These contracts are characterized by the following inefficiencies:

Outdated routes Lack of service level and quality specification (reliability,

cleanliness, information, punctuality) Lack of monitoring No value for money No fleet recapitalization Annual escalation

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CURRENT SITUATION TC/NC

Tendered/Negotiated contracts characterized by:

Designed routes and services Designed according to available funding Provide service level and quality specification Monitored Value for money Escalation is paid on monthly basis

Tendered/negotiated contracts are also extended on short term basis from as far back as 2005

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CURRENT SITUATION - FUNDING

The current PTOG is already fully allocated to existing bus contracts but is far less than what is required to cover the total road based PT system. When current contracts are eventually replaced, there will be no surplus funds available for the proposed new system

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CHANGING SUBSIDY ENVIRONMENT SINCE 2009

The Department incurred a cumulative subsidy deficit of R1,2 billion during the 2008/09 financial year

National Treasury provided a once off allocation of R1,2 billion on top of the annual baseline allocation to clear the deficit

Subsidy allocations were converted from an agency base system to a conditional supplementary grant classified as schedule 4

Provinces were expected to cover any shortfall experienced by operators

Interim Contracts were converted from ticket base to kilometer base Escalation for Interim Contracts was fixed to the equivalent of CPI or

baseline increase

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System performance improvements Challenges

Rationalisation of current routes/services required to ensure efficient application of subsidies prior to funding increases

Rationalisation that brings material changes to existing contracts will be challenged as bridge of contracts

Enforce efficiencies in the existing contracts (replace current contracts)

Current budget is locked in existing services. New contracts cannot be introduced within the current budget since the subsidy increase for the past 13 years has largely been inflation adjusted

Contracting functions must be devolved to municipal level (NLTA) and funding will be made available

Only a few metros have the capacity to take over the contracting function.

Provinces must make good the deficit incurred by operators on their contracts

Provinces have never budgeted for bus subsidies except those that inherited the functions from previous administration (Limpopo, North West & Eastern Cape)

Ineffective Planning, institutional structures, allocation mechanism

Lack of local level integrated planning, ops. & management

Land use patterns

Previous government policies

COST DRIVERS OF CURRENT SUBSIDISED PUBLIC TRANSPORT

Cost Drivers Spatial, Institutional and Political Drivers

GABS World Bank Benchmark

Passengers per day per bus 212 1000 –1200

Km per bus per day 211 230-260

Passengers per bus km 1.0 4.3 –4.6

South Africa’s commuter bus market offers very poor productivity ratio’s, indicated here for Golden Arrow bus operations, at 4 to 5 times lower than World Bank, set for developing countries .

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NEED FOR INTERVENTION

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NEED FOR INTERVENTION

Current short term extension of contracts is unsustainable and create uncertainty in the industry

Office of the Auditor General has started to query the short term extension of these contracts (some province are being qualified).

Urgent intervention measures needed:Interventions

Short term • Adequate funding for existing bus contracts should be availed in order to maintain these contracts while introducing medium to long term solutions

• Fuel/labour cost increases should be covered

Medium to Long term Implement the National Public Transport Transformation Plan which advocates the replacement of all contracts in order to bring about visible efficiencies in the system

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NATIONAL PUBLIC TRANSPORT TRANSFORMATION PLAN

APPROACHNegotiate

PURPOSEIntegrate

GOALTransformation

Transform the system

Phase 1: Stabilization that seeks to move from month-to-month and interim contracts by negotiating them in terms of Section 41 of the NLTA even in the absence of IRPTN’s. Cost- additional 1,7bn.

Phase 2: Then integrate the services into Integrated Public Transport Networks as envisaged by both the National Land Transport Act (NLTA) and the Public Transport Strategy with full integration as the main objective. Total estimated cost- R12bn/ y

Med

ium

to lo

ng te

rmS

ho

rt

term

Approached National Treasury for additional allocation to the current baseline (2013/14) for the shortfall (R50m allocated for 2014/15 MTEF for fuel and labour cost increases.)

AL

L O

F T

HE

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OP

TIO

NS

RE

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IRE

MO

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Phase 1: Stabilize the current system by replacing the month-to-month IC in terms of the provisions of the NLTA even in the absence of IPTN’s. Identify interim and/or old order contracts to be replaced over

the MTEF. Develop a national implementation work programme and involve

the municipalities (develop a cooperation framework to deal with the contracting authority challenges)

Taxis should form part of the mainstream formal public transport system.

Mobilize more funding

PHASE 1: SHORT TERM (STABILIZATION)

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SUBSIDY REQUIREMENT (STABILIZATION)

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High Density Urban Setup (travel demand, congestion, travel time, etc

Low Density Rural Setup (availability, access etc.)

Dedicated infrastructure & services (BRT?)

Quality PT services to enable access and mobility

Phase 2: Full integration based on IPTN’s Address the contracting authority challenges in the NLTA. Review the Public Transport expectations in relation to the “12 cities”

requirements with regard to IPTN’s Adopt a differentiated approach for different PT challenges in the country

Ensure that modes (rail, bus and taxi) compete for the road and not on the road. Integrate (merge) the funding streams ( PTIS, PTOG, TRP, Green Fund, etc.). MinMec approved the plan (concept) in principle and directed for more work

to be done

PHASE 2: LONG TERM (INTEGRATION)

Main Metro’s BRT system on multiple main

corridors BRT “lite” and integrated bus

operations on secondary corridors Dedicated BRT System costs

include: Dedicated BRT Roadway

(inc.pavement reconstruction) Feeder routes New stations New vehicle fleets Integrated ticketing system Operational control centre

Full replacement of current road-based system

Other Metro’s & Emerging Cities

Single high volume corridor either:

or Priority bus trunk route Full /lite BRT single line in

larger cities. Other areas comprise bus &

feeder integrated scheduled network on existing routes, with some priority on busy corridors.


PHASE 2: LONG TERM (INTEGRATION) - APPROACH

There should be appropriate solutions for the different challenges facing the different cities, towns and rural areas. One size fits all will never work.

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Towns Formal bus system Inter-town services Mixed fleets including

Buses Midi buses Taxis


Scheduled services

High Density Rural and Rural Formalised mixed operations Vehicle re-cap Scheduled daily services to main centres Weekly services to regional towns Minimal infrastructure investments

Sparse Rural Selected interventions where viable Weekly & monthly services to towns Sharing services with health transport

and scholar transport Brokering, flexible scheduling and

confirmation of travel services No infrastructure costed

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PHASE 2: LONG TERM (INTEGRATION) - APPROACH

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CONSOLIDATED FUNDING REQUIREMENTS

Province 2012/13 Allocation

‘000Taxi/SBO integration

‘000

Eastern Cape 174,466 523,398

Free State 192,872 578,616

Gauteng 1,625,746 4,877,238

Kwazulu Natal 808,279 2,424,837

Limpopo 260,725 782,175

Mpumalanga 439,003 1,317,007

Northern Cape 39,255 117,765

North West 80,686 242,058

Western Cape 696,237 2,088,711

TOTAL 4,317,269 12,951,805

FUNDING PICTURE(2012/13 prices)

R B

illio

ns

R B

illio

ns

Funding for Operations Capital Funding

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RESPONSE TO CONCERNS AND PROPOSALS RAISED BY SANTACO

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CONCERNS AND PROPOSALS RAISED BY SANTACO

Issue Response

Right of first refusal contained in the IC and TC goes against the Constitutional provision and contravene the Competitions Act

The right of first refusal applies in relation to the first Tendered Contracts following the Interim Contracts. The objective was to increase the likelihood of existing operators being awarded the first Tendered Contract in the areas where they are currently operating

The shareholding in the Vehicle Operating Companies for BRTs has proven to be meaningless because the operation value chain has been outsourced to the private sector and not the taxi industry

Participation in the operation value chain of the BRT projects is subjected to government procurement processes as required in the PFMA. The taxi industry can still participate

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Issue Response

There is an urgent need to overhaul the Public Transport Strategy to align with the NDP

Government has already started to align long term plans of departments with the NDP and identify areas where policy change is required to ensure consistency and coherence.

There is a need for a total revision of the NLTA

The NLTA is currently being amended and issues that need to be reviewed should be brought into this process

The taxi industry has been excluded in the Intermodal Planning Committees

Section 15(1) of the NLTA relating to IPCs is being amended

IC and TC are still untransformed and exclude the taxi industry

The NPTTP intends to address this challenge but can only succeed with additional funding

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Issue Response

Subsidy for the taxi industry either through direct commuter payment or through subsidy to corporatized taxi associations

An estimated R12 billion operational subsidy needed for the full integration of road based public transport system. Direct user side subsidy as a method of payment can be explored

The cancellation and expropriation of permits/operating licence without compensation as provided for in the NLTA is against the vested rights to property and economic activity for the holder and should be tested in court

This matter could still be raised in the Act amendment process for consideration and discussion

Government has adjusted targets from 12 cities and 6 districts to 5 cities by 2015

All the 12 cities are at different stages of implementing IPTNs

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Issue Response

Provinces and municipalities be instructed to finalise their IPTN before end April 2013???

Municipalities in their capacity as planning authorities are responsible for preparing transport plans for their areas and ensuring the implementation thereof

Negotiation process must commence before end May 2013??? to replace IC an at least 70% be reserved for the taxi industry

Additional funding needed prior to the commencement of the negotiations. Negotiations will include all affected operators in the area. The 70% set-aside proposal need to be clarified

SANTACO must actively be involved BRT processes to ensure best possible deal for the industry

The taxi industry has been actively involved in all municipalities that are implementing the IPTNs

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Sufficient funding should be availed to sustain existing contracts in the short term while moving towards total transformation of the industry

Practical measures to bring about efficiencies on the part of operators must be explored

Funding for the NPTTP to replace the existing month-to-month contracts should be secured (implementation of the plan should include other road based public transport modes)

Rollout of IPTN in areas outside the 12 cities and in rural areas should also be prioritized and funded (to include other road based public transport modes)

A task team has been established between the Department, National Treasury and Provinces to deal with the overall subsidy funding regime and its challenges

CONCLUSION

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THANK YOU

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