Bus subsidies and their impact on taxi industry: Department of Transport briefing

NCOP Public Services

18 March 2013
Chairperson: Mr M Sibande (Mpumalanga)
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Meeting Summary

The Department of Transport outlined the current status and future plans for the subsidisation and moves to a more integrated public transport system. It was facing a dilemma in regard to the subsidies that had been historically awarded. There was, at the moment, too little funding to allow it to fund all operators and create new contracts. It had engaged with National Treasury in an effort to get more funding to ensure that its plans to move from bus subsidies to integrated transport systems were successful. It had embarked on a study of developing countries and developed countries, to see how they managed their public transport. At the outset, it was noted that far fewer people used bus public transport on a regular basis than in other countries, with comparative figures of 130 bus users in South Africa compared to 1 000 in other countries. Most people were currently using taxis to travel to work and the comparative statistics showed 25% were taxi users, 6% traveled by train and 9% by bus. Although across the whole world public transport tended to be subsidized, in South Africa the subsidisation was far lower, despite the importance of the transport system to functionality and improvement of the economy. It spent around 20% to 25% of gross domestic product on transport. Another of the problems was that South Africa was characterised by urban sprawl, and the quality of transport as well as population density was low.

The DoT noted historical issues around subsidy funding, which resulted in the poorer provinces – North West, Eastern Cape and Limpopo – getting less funding because they were still paying the bulk of subsidies from their own provincial budgets. 67% of the budget was being paid on interim contracts, but the problem was that these could not be properly monitored. They were to be phased out wherever possible to negotiated and tendered contracts. In 2007, Cabinet had approved the Integrated Public Transport Strategy, which envisaged different solutions for different areas. In smaller towns, the system needed to be formalised and mixed fleets of buses, midi-buses and taxis created. Networks would be established, which would replace the current systems. Different systems again were envisaged for high density and sparse density rural areas, depending on need. The Department adopted a two-phased approach. The first phase was determined by the availability of funds, and would involve identification of role players, national implementation work programmes, and involve the municipalities and try to stabilize and get cooperation. In the second phase, full integration would happen, and public transport expectations would be reviewed. All plans must meet demands, address congestion and ensure timely services. Full integration would also involve integration of the different funding streams. It was stressed that the Department needed more money if the plans were to become workable and sustainable and it had requested R1.7 billion from National Treasury. The Taxi Recapitisation Programme was to continue until taxis were fully integrated in the mainstream public transport, which would probably take another two years.

Members were disappointed in some respects with the presentation, with one Member commenting that all the Department ever did was call for more money, whereas they felt, firstly, that the Department must adapt its plans, and that it must have better management. They asked how the money had been spent, and called in particular for reports on what happened to the fares presently, what had happened to certain projects in North West on which substantial amounts were already spent, and what was happening with taxi recapitalisation, suggesting also that timeframes had to be put on this. They asked about employment of consultants, were worried about industrial action, asked about the historical reasons for subsidies, asked about apparent lack of monitoring and whether there was full involvement of stakeholders. They suggested that the Department should look to the example of Cuba. Written answers were required in 14 days.
 

Meeting report

National Road Based Public Transport Transformation Plan: from bus to public transport subsidization: Department of Transport briefing
Mr Lesiba Manamela, Acting Chief Director: Public Transport, Industry and Development, Department of Transport, presented the National Road Based Public Transport Transformation Plan, that set out details of the plans to move from bus to public transport subsidization. The  presentation was divided into three areas. The first would set out the study of subsidies in South Africa and interventions the Department of Transport (DOT or the Department) had  embarked on to improve public transport in South Africa, the second would deal with funding and implementation programmes, and the third part would set out the way forward and conclusions.

For the past fourteen years, subsidised bus contracts were managed on a month to month basis by the DOT. As a result the system became outdated in relation to routes, passenger volumes, and passenger kilometers, leading to a state where public transport was “in distress”. The Auditor-General (AG) started to query the month- to-month nature of the contracts, and in time they led to the audit opinions being qualified, and to disclosures of  irregular expenditure. There was need to stabilize the operating environment in the short term, and realise full integration in the long term.

Few subsidy contracts were signed, and these were mainly limited to KwaZulu Natal and Gauteng. There were challenges, especially financial challenges which halted the process.

Section 41(1)(b) of the National Land Transport Act stated that authorities may enter into negotiated contracts with operations in their areas, on a once-off basis, with a view to promoting the economic empowerment of small business, or of persons previously disadvantaged by unfair discrimination. This was to be done so that when new contracts were brought in, the negotiated routes of all the previously-disadvantaged people would be incorporated.

Most people used taxis in South Africa to travel to work. About 25% of the population used taxis, and about 6% the trains, whilst 9% traveled by bus. Mr Manamela pointed out that, across the world, public transport tended to be subsidised. In South Africa, the public transport subsidy was important for the functionality of the economy and improvement of the transport system. South Africa was on the right track in subsidising public transport in principle.

South Africa spent 20% to 25% of its gross domestic product on transport, or about R20 to 25 billion.  Countries who promoted use of cars were spending much more on transport costs. Compact cities with a strong bias to public transport spent much less on transport, and there were other significant social and economic benefits, because there was less greenhouse gas emissions. South Africa, on the other hand, was characterised by spatial sprawl, where some people were living far from the urban centres.

Mr Manamela noted that the International Review  on the Total Cost of Transport Strategies. In South Africa, both the density of population, and quality of transport, was considered low.  He said that if density was low, and quality was also low, the Department of Transport would have to pay high subsidies in order to support operators let alone to make a profit.

There were historical issues around the subsidy funding. The poorer provinces were getting low subsidies, especially North West, Eastern Cape and Limpopo. These three were formerly part of the homelands and thus were still paying the bulk of subsidies from their own provincial budgets. Gauteng got 38%, KwaZulu Natal 19% and Western Cape 16%. The other provinces received minimal amounts, again mostly due to historical reasons.

Mr Manamela noted that 67% of the budget went to interim contracts. Interim contracts were not monitored like the tendered or negotiated contracts, and there was therefore a need to alter this position. The DOT had appointed a monitoring company so that operators would be held accountable if they did not perform well.  Provinces had been trying to monitor the interim contracts, so that they would improve but they were unable to hold the people accountable under their present mandates.

He noted the statistics per province at the moment.  Gauteng had eight interim contracts, whilst Limpopo and Mpumalanga had seven. Eastern Cape, Western Cape and Northern Cape each had one interim contract, and Free State and North West had none. KwaZulu Natal (KZN) had 36 tendered contracts, with Gauteng slightly less, but most provinces had none. Northern Cape had the highest number of negotiated contracts, at five.

A Contract Cost analysis was also noted.  In South Africa, between five and seven times less people took buses to work than in other comparative countries. This meant that  buses in South Africa carried about  130 people daily, compared to international comparative numbers of 1 000 and more daily.

Mr Manamela moved on to describe some of the interventions taken by DOT. In 2007, Cabinet approved the Integrated Public Transport Strategy. The Strategy stated that there would be different solutions for different areas. Not every city had to adopt the Bus Rapid Transport (BRT) system, as it was expensive, and in fact it was best suited to the main metros in Gauteng and Western Cape. In the emerging metros and smaller cities there would be “ BRT Lite”, where dedicated lanes would be created for buses, which was a full replacement of the current road based system

In smaller towns, there was need for a more formal system, comprising mixed fleets with buses, midi buses and taxis. There was a need for full replacement of current road based systems. This meant there would be networks established, all of which would be subsidised.

The rural areas had been divided into two: namely,  high density rural, and sparse rural. Here it was estimated that most people needed transport once or twice a week, unlike urban areas where they needed to travel daily. High Density Rural and Rural had formalised mixed operations and a scheduled daily service to main centres, as well as weekly services to regional towns. Sparse rural areas had selected interventions that were viable, with weekly and monthly services to towns. That was why the Department suggested different solutions for different areas.

Mr Manamela then set out the DOT approach for the future. It had adopted a two phase approach.  Phase one was determined by the availability of funds, and this would enable the DOT to identify interim contracts, so that they would be negotiated. DOT also wanted to identify role players, mainly from the industry, whose operations were to be affected by the targeted contracts or routes. In this phase, the  Department sought to develop a national implementation work programme, and involve the municipalities, since they assisted with planning. The  stabilisation phase was supposed to help develop a cooperative framework, to deal with the contracting authority challenges. It also ensured the integration of the different funding sources, starting with the soon-to-expire Taxi Recapitalisation Programme (TRP) allocations, as taxis were now to be integrated into the mainstream formal public transport system.

The second phase was full integration, based on Integrated Public Transport Networks (IPTNs) This was meant to address the contracting authority challenges in the National Land Transport Act. The public transport expectations were to be reviewed, in relation to the 12 cities. Full integration would mean the adoption of a differentiated approach for different public transport challenges in the country, in order to, for instance, address high density urban situations. The Department of Transport must ensure that the plans could meet travel demands, address congestion and make sure that buses or public transport were on time. For low density rural setups, the Department was to ensure that availability and access of public transport increased. Full integration would mean that the Department must integrate all the funding streams of the Public Transport Infrastructure Support (PTIS), Public Transport Operations Grant (PTOG), the TRP, and the Green Fund.

Mr Manamela stressed that the Department of Transport needed money to ensure that these plans were sustainable and would succeed. It had estimated that a further R1.7 billion would be needed to meet its targets. For example, he set out figures of the budgets for transport in the Western Cape, noting that between 2012 and 2015 there had been a 30% increase. In order to achieve full integration, which would involve the integration of buses, taxis and other bus companies that were not subsidized,  the Department needed between R7 billion and R8 billion.

Mr Manamela highlighted the implementation programme for the MTEF period 2014/15 to 2016/17 (see attached presentation for details), giving a list of provinces and the contracts and funding proposed.

He reiterated the need for funding that was both adequate and sustainable, in order to achieve transformation. Strong inter-sphere relationships were also required.  Mr Manamela stated that there must be support from uniform standards and guidelines.  Leadership and management were to communicate all the time, and be committed to this project. The legislation must be strictly followed, and clarity was needed on the legal justification to negotiate. Mr Manamela also stated that, if not attended to properly, all of these factors would pose a risk.

The plans had been approved by MinMEC, and therefore funding remained as the main obstacle to achieve transformation and integration. The Taxi Recapitisation Programme was to continue until taxis were fully integrated in the mainstream public transport. It was stated that, in its current form, the Programme had to run for a further two years, to allow for finalisation of the option analysis and for securing adequate funding.

Discussion
Ms M Themba (ANC, Mpumalanga) thanked the Department of Transport for its presentation. She noted that the TRP had been going on for a long time and wanted to know exactly what DOT was doing about it.

Ms Kemantha Manilal, Director, Department of Transport, responded that the taxi recapitalisation programme was implemented in 2006 as part of a seven year plan, with a budget of R7.7 billion. However, only one-third of the allocated budget was received but at the same time 35 000 vehicles were added to the programme, to bring it up to a total of 135 000 vehicles. This immediately meant that the seven- year plan would not be achievable. The Department embarked on a funding strategy for the remaining five years, to find extra funding for the additional vehicles. The TRP was thus still an ongoing programme, but the Department was facing financial problems. However, the TRP would not be continuing indefinitely.

Mr H Groenewald (DA North West) said firmly that he believed that the presentation was not painting a good picture. The DoT was complaining about money all the time, but he believed the real problem was in fact lack of management.

Mr Manamela said that questions about funding were common from Members. The operators would determine the economic cost of operating a trip. Not every bus operator was currently getting subsidies. In South Africa, an operational subsidy was used, where the DoT would pick up the difference between what the user could afford and what the operator wanted in order to operate. The level of subsidisation was generally low in South Africa. The funding had not been keeping up with inflation. There was a dilemma if there was a need to bring in new contracts or buy new buses, because, as emphasised, the funding would have to be sustainable. The tendered and negotiated contracts had a requirement that the contracting authority should monitor the services. However, the interim contracts were signed on the same terms and conditions that the operators had had in place before 1996.  New contracts could not be entered into because of funding. There was a need to pursue the objective of better national funding.

Mr Groenewald questioned the Department on the number of consultants it employed. He noted that it was not as if people traveled for nothing; so he wanted to know what happened to the money that they paid as transport costs. In general, transport was not in a healthy condition in South Africa.

Mr Manamela responded by saying that consultants were used by the planning authority that was responsible for construction, under the Municipalities. The money for fares stayed with the operators.

Mr Groenewald commented that if nothing was done to improve the situation, the strikes and the burning of trains would continue. At the end of the day, the country would have to pay for the damages.

Mr Groenewald questioned the Department on the BRT project in North West province, saying that nothing was going on there. He said, however, that South Africa could not afford to stop these projects, as millions of rands were spent on them already.

Mr Manamela responded that the Department was overseeing the implementation but that the implementation was driven by municipalities. The PTIS Grant was intended to build infrastructure for BRT services, and it was controlled by the national Department of Transport.

Mr Z Mlenzana (COPE, Eastern Cape) thanked the Department for its presentation and acknowledged that the Department now knew what the Members expected to hear from the presentation.

Ms Themba said that the Department used a lot of acronyms, and urged it to be more considerate and either list or explain them.

Mr Manamela apologized for the large use of acronyms.

Mr Mlenzana questioned the Department whether it was correct that buses and trains were enjoying subsidies, but not the taxis.

Mr Manamela agreed that taxis did not get operational subsidies.

Mr Mlenzana sought clarification on why Eastern Cape received less subsidies, especially in comparison to KZN, and pointed out that actually KZN was more rural than the Eastern Cape.

Mr Manamela ascribed this to the historical context, that prevented some provinces from getting more.

Mr M Jacobs (ANC, Free State) agreed with Mr Groenewald that money would always be scarce, but felt that the Department had to make do with what it currently had. He wanted clarification on the time frames for phase one and phase two. He also wanted more clarification on the Presidential Infrastructure Grant and how it related to transport.

Mr Manamela promised him an answer in writing on these points.

The Chairperson added that the Department has to convince the Committee members to assist it. He was most concerned about the apparent lack of monitoring and said that it always seemed that the Auditor-General would have to comment and push before monitoring actually happened.

The Chairperson asked how many small businesses were involved in the section 41 interventions. He suggested that DoT should look to the example of Cuba.

Mr  Manamela assured the Chairperson that this would be done.

The Chairperson also suggested that limits be set on the TRP timeframes.

The meeting was adjourned.
 

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