Public Transport Subsidies: Department of Transport briefing

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05 November 2013
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

The Chairperson, in her opening remarks, noted that the Committee wanted to hear the Department of Transports (DoT’s) views on the transport subsidies. The Committee had heard from small bus operators, the South African Bus Operators Association (SABOA), and South African National Taxi Council (SANTACO), all of whom were concerned that they were not getting the types of contracts or subsidies that would enable them to continue sustainable businesses. The Committee had for some time expressed the view that an integrated transport ticketing system was the best option, as it would give passengers the choice of mode of transport, and the Committee also believed that offering subsidies to commuters rather than selected service providers were far less discriminatory. The Committee also expressed its concerns that not all modes of transport were available to all; for instance, air travel could be made more affordable and discount for vulnerable groups created. The Committee wanted to hear from the Department how it was intending to open up modes of transport, and, in time, how the scholar transport system was structured and how it would address issues of poverty and inequality.

The Department of Transport representatives gave a history of the tender contract system, its problems, why it was stopped and the current situation in terms of public transport subsidies. The current situation was that the bulk of the interim contracts had not been converted. They accounted for 66% of the subsidy budget and were characterized by many inefficiencies. Tendered contracts, which were supposed to take over, had designed routes and services according to available funding, value for money and provision of service level and quality specification. They were extended on a short term basis from as far back as 2005. The current Public Transport Operations Grant was fully allocated to existing bus contracts, but it was far less than what was required to cover the total road-based public transport system. The Department was aware that the current short term extension of contracts was unsustainable, and was creating uncertainty in the industry. Some interventions had been suggested, that included increasing funding, whilst longer-term interventions would include implementation of the National Public Transport Transformation Plan, in two phases. The total estimated cost for an Integrated Public Transport Network, was R12 bn per year. Appropriate solutions for different challenges facing different cities, towns and rural areas would have to be found. In regard to specific concerns, the Department noted that it had tried to increase the likelihood of existing operators getting the tendered contracts, and the taxi industry could still participate despite the operation value chain being outsourced to the private sector. The legislation was being amended. Direct user side subsidies, as a method of payment, would be explored. The Department was hoping to get sufficient funding in the short term to sustain the existing contracts whilst it moved to total transformation, but this must be coupled with greater efficiency measures.

Members asked about engagements with National Treasury and explored the differing views that the departments held, finally urging that the Ministers would have to reach finality on the issues. Members and taxi and bus operators continuously stressed that urgent solutions were needed to prevent a total collapse. Small bus operators repeated their concerns that they were actually still excluded, particularly with the introduction of the Bus Rapid Transport services. There was still a problem, in their view, with capping of subsidies, and felt that contract terms needed to be more in line with the life of the buses. They questioned what the “short term” represented, repeated concerns about the discrimination caused by lack of subsidies, and cautioned that if the Department waited too long, services would have collapsed. Members asked what plans had been made for the holiday season and safety issues on long-term routes. They urged the Department to “think out of the box” and come up with practical solutions.

Meeting report

Chairperson’s opening remarks
The Chairperson noted that the purpose of the meeting was to hear from the Department of Transport (DoT or the Department) on the subject of transport subsidies. She reminded Members that there had been presentations from different role players and service providers in transport over the past few months. The South African Bus Operators Association (SABOA) presentation was on the issue of contracts, and it had sought confirmation by the Department for longer running contracts, because if they continued to operate on a month to month basis, they would be unable to capitalise their businesses due to a lack certainty around contract longevity. The Committee also had received a presentation from a delegation of small bus operators who felt that they were marginalised by operating without a government subsidy. The South African National Taxi Council (SANTACO) also complained to the Committee that its members felt marginalised because they carried 70% of passengers and yet were operating without ay government subsidy.

The Portfolio Committee had its own view, and agreed that an integrated transport ticketing system (a single ticketing system) was the way forward, based on the logic that the passenger should have the option of choosing the best service provider. If a train was late, the passenger could choose to take a bus or taxi and could get the best service possible by not being forced to using one particular type of transport. This system would also promote respect from service providers towards passengers. The current situation was that service providers thought they were doing passengers a favour, but the reality was the opposite. The Committee wanted to hear the Department’s view on whether a subsidy going to the passenger would not be more appropriate than a subsidy that went to a service provider. Subsidies going to specific service providers discriminated against other service providers, and this was contrary to the Constitution, as well as discriminating against other passengers who were using a different service provider. The Department had a responsibility to ensure that all passengers, or all service providers, enjoyed a subsidy. The Committee wanted to know what had informed the Department’s past approach of subsidising certain passengers but not others.

Another issue the Chairperson raised was the concern that certain modes of transportation were not easily accessible to all passengers. The Committee wanted aviation transport to be accessible to all, and not just the rich. There were certain groups such as scholars, pensioners and people with disabilities who should be considered, and they should receive discounts irrespective of what mode of transport they were using. The Department was expected to tell the Committee how it was opening up modes of transport to all.

The last issue was that the Committee wanted the Department to work on was how the scholar transport system was structured and how it addressed issues of poverty and inequalities in transport. The Committee was not expecting a response on that topic today, but believed it fell within the issue of subsidy and inequality in society. Again, the Committee wanted to know what direction the Department was taking to try and deal with these issues.

Mr I Ollis (DA) stated that he did not completely agree with one of the Chairperson’s points – on discrimination against passengers. He noted that the Constitution did allow, in certain circumstances, for discrimination and there were many forms of discrimination that were not unfair, and so he cautioned that it was not a question of whether or not to discriminate, but a question of whether the discrimination was fair or unfair.

The Chairperson responded by saying that everyone had a right to their own views. She had to leave the meeting and asked Ms N Ngele (ANC) to chair the remainder of the meeting.

Public Transport Subsidies: Department of Transport briefing
Mr Mawethu Vilana, Acting Director General, Department of Transport, introduced Mr Mathabatha Mokonyama, Deputy Director General: Public Transport, and explained that he would respond to some of the issues raised by the Chairperson.

Mr Mokonyama noted that the presentation addressed several issues, such as why the tender contract system was stopped, the current situation in terms of public transport subsidies, the change in the subsidy environment since 2009, the need for intervention, the National Public Transport Transformation Plan (NPTTP) and a response to concerns by SANTACO.

He reported that the government had previously used life-long permit systems with subsidised bus operators. In 1997, however, the government signed interim contracts with bus operators that lasted two to three years. These contracts were to serve as a bridging mechanism between the life long permit system and a tendered contract system. Government, labour and the bus industry entered into Tripartite Heads of Agreement that were intended to govern labour issues, in the transition from interim contracts to tendered contracts. The plan was that by the end of 2000, all services would be on tender contract. The tender contract system was, however, stopped in 2001 due to lack of transport plans, labour problems and a lack of funding.

With respect to labour problems, he noted that there was a massive drop in wages for employees and a huge reduction in the amount and levels of employee benefits. Furthermore, large scale outsourcing of functions by successful tenderers led to serious job losses in the bus industry. As a result, and given section 197 of the Labour Relations Act of 2000 (LRA), it was determined that tender documents must be structured in a way that enabled compliance with this section. On the funding issue, an analysis of 18 tendered contracts showed that the subsidy required for a tendered contract was on average 25% higher than for an interim contract, due to high up-front capital investment required for a tendered contract.

The current situation was that the bulk of the interim contracts (ICs) had not been converted and accounted for 66% of the subsidy budget. These IC contracts were characterised by many inefficiencies such as lack of monitoring, no value for money, outdated routes and no fleet recapitalisation. Tendered / negotiated contracts (TCs) were characterised by designed routes and services according to available funding, value for money and provision of service level and quality specification. T/NCs were extended on a short term basis from as far back as 2005.   

The current Public Transport Operations Grant (PTOG) was fully allocated to existing bus contracts, but it was far less than what was required to cover the total road-based public transport system. There had been many changes to the subsidy environment since 2009, as more fully enumerated on slide 20 of the presentation.

He conceded that there was a need for intervention because the current short term extension of contracts was unsustainable and was creating uncertainty in the industry. Short term intervention measures suggested were provision of adequate funding for existing bus contracts and full coverage of fuel and labour cost increases. Some of the medium to long term intervention measures suggested included the implementation of the National Public Transport Transformation Plan, which advocated replacement of all contracts to increase efficiency of the system. This Plan had two main phases, with the goal of transforming the system. Further details were outlined on slide 26 (see attached document).

The total estimated cost of an Integrated Public Transport Network, with all current contracts integrated into the network, was R12 bn per year. Phase 1 of the plan was to stabilise the current system by replacing the month-to-month ICs in terms of the provisions of the National Land Transport Act (NLTA), even in the absence of IPTN. More funding was required for this phase. Phase 2 of the plan was long-term, full integration based on IPTN, and it would include specifications for action in High Density Urban Areas as well as Low Density Rural Areas. The approach would involve applying appropriate solutions for different challenges facing different cities, towns and rural areas. The Department was aware that a one-size-fits-all approach to this matter would never work. With respect to consolidated funding requirements, the current 2012/13 allocation was approximately R4.3 billion, and the Department estimated that with Taxi/SBO integration funding requirements, this would rise to close to R13bn.

Mr Mokonyama then addressed the concerns and proposals raised by SANTACO. He stressed that the Department had stated that the right of first refusal applied in relation to the first TCs following the ICs. The objective was to increase the likelihood of existing operators being awarded the first TC in the areas where they were operating. Participation in the operation value chain of the Bus Rapid Transport (BRT) projects was subjected to government procurement processes, as required in the Public Finance Management Act (PFMA) and the taxi industry could still participate despite the operation value chain being outsourced to the private sector. He explained that the government had already started to align long term plans of departments with the NDP and had identified areas where policy change was required to ensure consistency and coherence.

The NLTA was currently being amended and issues that needed to be reviewed would be brought into the process. Furthermore, Section 15(1) of the NLTA relating to Inter-modal Planning Committees (IPCs) was being amended. The NPTTP intended to address the challenge of ICs and TCs being untransformed and excluding the taxi industry, but this could only be resolved with additional funding. An estimated R12 bn operational subsidy was needed for the full integration of the road-based public transport system. Direct user side subsidies, as a method of payment, would be explored.

In regard to the finalisation of the IPTNs, the municipalities, in their capacity as planning authorities, were responsible for preparing and ensuring implementation of transport plans for their areas. Further concerns and proposals were outlined on slides 35-38. The conclusion by the Department was that sufficient funding should be made available 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. A task team had been established between the Department, National Treasury and the Provinces to deal with the overall subsidy funding regime and its associated challenges.

Mr Ollis asked the Department if it had recently engaged with the National Treasury. He stated that the Department needed interim funding, even if it was to change the current system or its contracts. He commented on the R12bn budget requirements and mentioned that the Public Utility Transport Corporation (PUTCO) in Gauteng was in a poor state, and his assumption was that it was due to short term contracts. There was likely to be an imminent collapse and very much uncertainty. Recapitalisation projects were on hold everywhere and the people could not wait for one day under a new system because the crisis was happening right now. He stated that the numbers seemed to show that there would be a crisis in two years time. There were multiple problems in dealing with the small buses and the taxi switchover. He said, with all due respect to taxi owners, that there was no recapitalisation for buses. He asked what engagements had taken place to discuss the current funding crisis. The next three years were critical and the Department should be discussing contracts and transport plans to address the environment. He expressed that all of these issues needed urgent attention, and cautioned that as more buses would break down, transport would go backwards.

A delegate from the South African Bus Owners Association (SABOA) stated that the concerns raised were relevant, but the Department was excluding small bus operators. Referring to slide 38 of the presentation, he explained that the small bus operators were still excluded, based on the methodology used for the BRT implementation. It was a big problem, particularly in Gauteng. Small bus operators were excluded from routes a long time ago and were operating hand to mouth. It would be unfair in the new South Africa if bus operators were continuously excluded.

Mr Thipelo Mareta, Northwest Transport Investments (NTI), and member of SABOA, stated that the NTI appreciated the depth and appreciation by the National Department of Transport on problems that were facing the industry and also appreciated the ways in which they have helped. NTI’s problem was the capping of escalation rates for the subsidy content that was introduced some years back. The progressive deterioration had continued over four years and the consequence was that there were serious inefficiencies that belied the four-year projection outlined. The real projection was that the industry was likely to collapse in the next two to three years. In particular, SABOA had tried to speak to a contract term that was in line with the service life of the buses. He stated that contracts lasting twelve years would be more appropriate.

Mr Resinate Nkuna, SANTACO representative, and Secretary-General of the Limpopo Provincial Taxi Council, stated that SANTACO had been speaking of these concerns for many years. He thanked Mr Mokonyama for his detailed presentation. He asked about the short term plans and asked how long the “short term” was. He stated that everyone had money problems and those who were receiving subsidies might have issues too but at least they were getting some kind of funding. If funding was further sustained it would still work for them. He reiterated that there were concerns that whilst the taxi owners transported over 65% of the population, they were continually discriminated against in an unfair manner. There was no easy solution, but he asked when the matter of contracts and funding would be resolved, and what the associated timeframes were. He said he appreciated answers about policy, but he would like an indicative answer on how long SANTACO was expected to wait until the issues were solved.

Mr Robert Lentsoane, SANTACO representative, and Chairperson of the Limpopo Provincial Taxi Council, asked how the Department could include SANTACO as part of an interim arrangement. He stated that if the Department waited too long the taxi industry would no longer be there.

Ms Ngele said that there were buses and BRT in Gauteng, and the new buses were on the same routes. She had not heard anything about a plan. She said that next month was the holiday season, and asked what was going to happen to long distance buses such as the Greyhound. She asked about other buses that caused many accidents on the road. She noted that SANTACO had launched a new operation that resulted in fighting, and she wondered if this whole Plan was going to work.

Mr Vilana stated that the Department was committed to solving problems but was well aware of the challenges. It would not be fair for the Department to commit to time frames, but it was also safe to say that the commitment was there and the Department wanted to bring taxis into the subsidy budget. It would be a challenge because there were certain legislative matters involved. He believed that no definite time frames should be outlined, but everyone should endeavour to transform. The commitment should translate into trust between the transport sector and the Department. The DoT and Treasury formed a task team to look at these matters. He agreed that the subsidy should cover everybody and not leave anyone out.

Mr Mokonyama stated that the Department could not discuss time frames because these were dependent on many issues. The plan was ready, but money was required to implement it. He said the Department was not subsidising operators as such, but it was, indirectly, subsidising commuter. He wanted to explore how it could directly fund commuters. The Department needed to get out of the current contractual arrangements, which were a major challenge. The Department was running short of money and even in the interim it would be R50 million that would be required. The Department requested additional funding for the year and received nothing. The Minister of Transport wrote a letter to the Minister of Finance and response was still the same: National Treasury held the view that a Department must demonstrate where it had brought efficiencies into the system, and more efficiency meant a Department would require less money. The Department, on the other hand, maintained that new efficiencies required new money. There was a joint Committee, and it seemed that the allocation for the next Medium Term Expenditure Framework was being finalised but did not look good. Not all costs were not necessarily considered and this was very problematic. From the Department’s point of view, it was important to understand the cost drivers. The demands of the government were huge.

He reiterated that there was a plan for minimum seven-year contracts but said there were issues around a negotiated contract and integration. The Department understood the concern from small bus operators that they needed to be included in discussions. He said the Department had forums and platforms for engagement and, for the record, wanted to emphasise that the Department was a key part of and instrumental in forming the Small Bus Operators Council, and had no intentions of excluding them. The Department needed to find a way of including people who were not previous operators on a BRT route because only they were affected by a BRT line. He reinforced that “short term” would always be short term. The Department needed to prevent any further deterioration. He stated that it was dangerous to bring long term issues into the short term, because the system would collapse, and that was in fact already happening, and the Department was well aware that it had responsibilities to commuters to ensure that whatever public transport arrangements there were, they would not deteriorate any further.

Mr Mokonyama stated that, in relation to the issue of duplication versus integration, municipalities had their own visions in their own plans and wanted to design their own systems. He stated that the Department would not subsidise a duplicated system. The Gauteng buses were now prepared to pick up people who were not going to the Gauteng station, since it had found in the past, that the Gauteng Station bus would only be a quarter full because of its limited route to the station only.

Mr Mokonyama heard the concerns about the long route buses and associated accidents, and said that it was a safety and enforcement issue.  Safety campaigns were effective in dealing with these issues.

The delegate from SABOA wanted to make a recommendation. SABOA understood that the Department was mindful of the passengers and that the Department could not put a time frame on the short term. He asked, however, if it could reconsider the interim arrangement and develop a plan that would allow the sector to benefit from a passenger subsidy.

Mr Nkuna added that there was a need for uniformity in terms of dealing with the current subsidy situation. When the operators received a subsidy, they made sure that it was passed on to the commuter. The subsidies were structured differently in Limpopo and the North West. He said that there should be uniformity in how subsidies are dealt with and this was a component of the NLTA. He stated that the Government was in breach of NLTA at the moment. He requested that the Department’s Director General appeal to National Treasury to resolve the issue, otherwise the industry would collapse, to the detriment of the commuters.

Mr JT Swarts, Member of the Small Bus Operators Council, Western Cape, thanked the national government because, for the first time in history, the Small Bus Operators Council was actually being mentioned. He commented that there had been a long history of suffering. As the BRTs were phased in, the small bus operators were being pushed out. He asked for someone to come and rescue them, particularly bearing in mind that they had operated, long before taxis, to transport communities and sports teams. Small bus operators received only a “crumb” of funding. There were many bus graveyards in rural areas and he said the present system of payment for small bus operators did not allow them to support their business. The fear was that since the BRT was growing, and cheaper, small bus operators would simply fade away unless they became part of the mainstream.

Mr Mokonyama thought that these were comments that did not require specific responses. However, he assured the meeting that the Department was setting standards so people were not made to suffer because of unfair structures.

Mr Thys Heyns, Corporate Director, Public Utility Transport Corporation (PUTCO), stated that the Department of Transport did a good job in presenting the facts. During PUTCO’s discussions with National Treasury the view was put forward that the Provincial Departments of Transport must supplement the public transport operations grant from the National Department. This was stated in the NLPA. There should also be a supplemental grant provided by the Department. In PUTCO’s discussions with the provinces, the provinces said they did not have the money and they were not providing funding. There was a disconnect between funding provided by the PPOG, and lack of funding by the provinces. There was a planning gap. PUTCO made it clear, in its discussions with National Treasury, that if more money was flowing out then was flowing in, the bus companies came under pressure and this affected service to their passengers. There were 15 000 people employed in the industry and jobs had to be protected as the bridge to the future. If the bridges were destroyed, everything would fall apart.

Mr Mokonyama said that, historically, the challenge in the provinces had always been underfunding. The National Treasury did not speak in similar terms to the transport sector.  The Department needed more funding for the sake of all South Africans, to take it where it should be moving. This message needed to go not only to National Treasury alone, but also to the provinces or to whoever could make the necessary provisions.

Mr Kadeja, Representative, South African Small Bus Operators Council, said that the established operators needed increased subsidies, and it was the SASBOC view that it would be proper if the Department brought everyone on board, for subsidisation. He heard the comment about including parties who were not affected by the implementation of the BRT, but stated that they found themselves in compelling circumstances. The Department was looking at only some people who were affected and not others. In the past, in the mining industry, those who had been earning small amounts were later able to amass far more, because legislation made it possible for them to be included. If the same inclusivity was not done for bus operators, they would remain on the periphery.

Mr L Suka (ANC) said that the approach to public transport was being shaped, and the Committee, Department and stakeholders needed to synergise the approach. He urged all parties to think creatively and out of the box and to learn the best practices from other countries, so no one was disadvantaged. He stated that the Department would have to speak to the principals and the Minister of Finance and Transport, and the debate must escalate so that the matters could be resolved. A clear model of funding was needed that would make everyone content. He believed that the Committee, Department and stakeholders should be able to reach some kind of conclusion. The Committee should do its oversight more robustly on this point, so no one was disadvantaged. He urged Members to try to find middle ground and hopefully the Committee would find time to reflect on the presentation.

Mr Vilana added that the Ministers needed to hold discussions and the situation had definitely escalated to the point where the principals had to reach a resolution.  From the Department ’s perspective, everyone should be involved in the matter.

The meeting was adjourned.


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