Recapitalisation of Taxi Industry: briefing

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10 November 1999
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Meeting Summary

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Meeting report

10 November 1999

Documents handed out:
Taxi fleet recapitalisation project

The concept of recapitalisation was adopted as a holistic approach in solving the problems associated with the taxi industry. The industry will be restructured in such a way that all the illegal practices, such as unroadworthy vehicles, that are presently associated with it can be removed.

Recapitalisation emerged as a recommendation from a series of consultations between the DTI and the National Taxi Task Team (NTTT). A record of understanding was made between taxi associations and government with the taxi industry mandated with the task of drafting a constitution for a new unifying body and government on the other hand was to facilitate the recapitalisation structure.

The Department of Trade and Industry delegation was led by Karen Pearce. Ms Pearce said that it was not a matter of simply replacing old vehicles with new ones. Rather it was looked at from the perspective of why is there a crisis in the taxi fleet. The answer to this question was that the entire environment was not conducive for making business and therefore it needed to be regulated.

There was a need to introduce regulations that would check on the viability of each operator in order to overcome risks. Overall the following issues were looked at: the high capital costs, high insurance rates and high interest rates.

The background history to this crisis has been the biased protection of certain industries: for example, the bus transport sector was, through state subsidy, protected from competing with other modes of passenger transport. There was therefore a need to encourage competition. The taxi industry's mode of minibus transport came from the commercial lines and was not public passenger built. This is clearly evident when accidents and collisions occur, most of vehicles normally roll over and many people are injured or die on the scene. Also many of the taxis are even older than the acceptable limit of ten years. This was a cause of dissatisfaction for passengers.

In 1998 Cabinet approved recommendations of the NTTT and one of these was the recapitalisation of the industry. Then a record of understanding was developed between the NTTT and government. Later the South African National Taxi Council (SATACO) was formed consisting of mother bodies of affiliated regional and provincial and national organisations. The government was appointed to facilitate the recapitalisation structure and to look for facilities and resources. A provincial summit was held and elections were held in the following six months.

From this summit, a 51 member committee was formed to coordinate activities. There was at first logistical problems since the members lived far from each other.

The South African Taxi Alliance and the South African Taxi Council made recommendations. An amount of R3 billion was to be raised by government for recapitalisation.

The DTI recommendation was to remove the existing fourteen-seater seat fleet and replace it with an 18 and 35- seater fleet. The fourteen-seater fleet is estimated to number 126 000 in total.

It was identified that the existing mode of transport was too small and not profitable enough on low density and long distance routes. Research is being conducted on the manufacture of purpose-built vehicles.

Tenders are to be issued for bidding on the assembly of such vehicles. The bidder must meet certain requirements. This would include a commitment by the bidder to give a scrapping allowance for the old vehicle that is traded in. The vehicles must be safe and efficient. The vehicles should make use of diesel engine as it is cost effective in fuel consumption. The vehicle must be sold at a low price with a need for the operator to have access to finance. There must speedy availability of vehicles and they must be manufactured locally, with the assembly parts being produced locally, in order to control costs. The operator has to pay 15% deposit and receive a 45% loan and a 35%subsidy. The insurance of vehicles must be included. Any bidder must meet these basic principles.

The other element looked at was that of looking at ways of paying the manufacture of the vehicle and recovery of the loan in a manner that would avoid RISK.

The scrapping allowance would be available for a period of 4 years, upon the condition that a person is a holder of legal taxi permit and registered taxpayer. An electronic smart card system would be introduced to serve as a means of payment to each operator by passengers. This would guarantee repayment of the loan as the money would be channelled directly to the bank. This would minimise commercial and non-commercial risks.

This credit card system would be administered by a financial institution that will permit direct transactions. On the non-commercial side there would be a mechanism that would be used to control the seating capacity and thereby control overloading. For example if there is an overload, the engine would not start at all.

These principles would encourage the long-term use of public transport instead of increasing the width sizes of roads and building new highways for growing numbers of private-use vehicles. Administratively, the scrapping allowance system would be managed by an independent source with the Department of Transport (DOT) supervising.

In some provinces about 40% of operator applications for legal permits were disqualified. This has got to be sorted out or this could be a recipe for renewed conflict. Here the government needs to intervene in a beleaguered campaign to legalise operator permits and subject them to taxation.

A project time frame for proposals is as follows:
29 November - a shortlist of proposals by the taxi industry would be submitted February 2000 - all bids would be considered by SABS and other quality standards interest groups.
April 2000 - the winning proposal / bid will be announced
1 October 2000 - the first vehicle would be available for demonstration.

The following questions were asked:
What precautions have been taken to save the environment from pollution?
The answer was that already South Africa is actively searching together with other countries on a device that could be installed on the exhaust manifold to reduce or stop pollution of environment.

What mechanisms are being taken to prevent people from subletting their permits to other people?
Stringent measures would be taken once a database of new permits is in place with a new set of conditions completely different from the previous one, These measures would identify people with vested interests, for example, policemen with a business interest in a taxi fleet. It is totally unfair for such external people to outstrip legal permit holders.

What is the guaranteed effectiveness of the smart card system?
The smart-cards would be designed in such a way that they could be used for multi-purposes just as some other credit cards.

Can the scrapping allowance also be regarded as an exiting allowance for those who cannot afford the new system?
Certainly this could be regarded so as to encourage people to exit formally.

Is this allowance the same and equal in proportion to the years of the usage of the vehicle?
No! Factors such as whether the vehicle is still registered and roadworthy would be used to differentiate the depreciating value of vehicles.
How long will it take to start taking action on unroadworthy taxis once the system is in place?
It is not clear now but the project would ask for an additional R117million for enforcement that would be channeled to the provinces.

Can an ex-permit holder re-apply again?
They would be allowed to re-enter the industry but only under the new conditions

Would the taxi operators accept the 35 seat vehicle, as it would be expensive and it is unlikely they will want to drive away with a taxi less than half full?

The response was that a mechanism would be devised to regulate the 35-seater bus on dense and busy routes or periods.

What about the possible loss of jobs for drivers that may result from this scheme? What would happen to drivers with the old licence for 14 seater minibuses, they would have to be taught to drive a completely different size vehicle and passenger capacity?

Whilst this is a reality plans would be devised to create other job opportunities within the industry, such as maintenance workshop training and to encourage the mobility of drivers to become taxi operators. Also one of the criteria to be used in the tendering process would be the re-training of drivers.

At the end of meeting it was decided that before any legislation could be devised with regard to these proposals, the views of the taxi industry need to be heard first otherwise everything would be a futile exercise. The DTI accepted that extensive consultation has not taken place to their satisfaction, as there was at first a lack of funding from government which has been received only three weeks back from today's date.
The reason being that it took time to recognise SATACO the new taxi council.

The meeting was adjourned.


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