Road Accident Fund, SA National Roads Agency & Cross-Border Road Transport Agency: briefing on Budgets

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09 March 2005
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report


9 March 2005

Mr J Cronin (ANC)

Documents handed out:
Road Accident Fund Budget 2005/2006
SA National Road Agency Budget 2005/2006: PowerPoint presentation
Cross-Border Road Transport Agency briefing

The Road Accident Fund (RAF) presented their budget for the 2005/2006 financial year. Issues discussed by the Committee included fraud, the promotion of road safety, access to the poor and illiterate, and the organisation’s visibility.

Then the South African National Road Agency Ltd. (SANRAL) presented their budget. Topics for discussion included the Auditor-General’s report, the non-existence of a ‘Master Plan’ for roads and unsolicited proposals.

Finally, the Cross-Border Road Transport Agency provided an overview of their organisation. The Committee discussed overloading and an increase of transport fees from Botswana.


Road Accident Fund (RAF) Budget 2005/2006
The Road Accident Fund’s presentation kicked off with their four strategic objectives:
- the promotion of a road safety culture among road users;
- the effective management of stakeholder relations;
- the elimination of fraud and corruption; and
- excellence in RAF business processes.

Their budget was based on the key assumption that 185 000 new claims were lodged annually. Their current claim backlog was 445 000 at the discounted actuarial valuation of R18.5 billion at 31 March 2004. The average cost of settlements was R22 000 per claim. The proposed legislative amendments would have a minimal impact on their budget.

A slide outlining the claims statistics was presented. A huge improvement had been seen in 2004, as 96% of claims had been settled. Key achievements that had impacted on the budget were the reduction of average settlement costs of claims from R27 758 in 2003 to R24 783 in 2004, and the claims settlement rate had increased dramatically. Claims administration costs per claim have also decreased dramatically, and financial and budgetary controls had been streamlined.

New RAF initiatives included a claims backlog special project; the validation of outstanding claims; the promotion of direct claims; the formation of strategic alliances with the Department of Home Affairs and the Post Office; and linking with the South African Police Service and the Scorpions to cut down on fraud. The initiative to reduce fraud had a high success rate. A total of 2132 cases were investigated, of which 727 were successfully prosecuted. Three hundred and fifty cases were dismissed or closed, 292 were still in progress and 763 were still under investigation.

The RAF’s strategic recovery plan involved the establishment of a verification unit that would have to validate the claims lodged before an offer were to be made to the claimant. This was a pro-active move to stop fraud before paying claimants. Another part of the strategic recovery plan was the evaluation of existing service providers to reduce reliance on them and to enhance their internal capacity. Other parts of the strategic recovery plan included:
- a re-engineering of their overall business processes;
- an agreement with the legal profession to structure compensation payments in instalments;
- the renewal of all service provider contracts to ensure proper service and Black Economic Empowerment (BEE) compliance;
- a new integrated claims management system; and
- proper liquidity management processes.

The presentation included a statistical overview. Last year, the RAF realised that they had liquidity problems. They took steps to address this and did not pay out any claims for three months, which is why the figures for January 2005 were low. The RAF’s proposed budget was also presented. They expected a total income of approximately R5.1 billion.

Mr AR Ainslie (ANC) asked how the RAF was promoting road safety. Mr Mitchell (RAF Board member) said it was critical to promote road safety, but law enforcement on roads was not their responsibility. They did not want to promote road safety with money out of their own pockets.

Mr Ainslie also enquired about administration costs. He asked how they were reduced. He also wanted to know the difference between service providers and consultants and their role in arbitration. The RAF responded that there were administration costs, and costs of settling a claim. He was answered that a service provider provided services, for instance a hospital, while consultants provide support, for instance information technology. The Board had been asked to stop the arbitration pilot project. The problem was that the mediation part, which would save costs, had not been rolled out. They paid fees of R475 per session for arbitration to an outside person, which was expensive. Mr Vernon Moodley (RAF: Claims manger) said that the system worked at the moment; if there was a dispute it could lead to arbitration. They must first go to mediation, which would save them a lot of money. Mr Mitchell said it would be best not to have the dispute in the first place. They were perfectly entitled to have internal controls and supervision. They had to do initial discussions with claimants themselves. The lessons of the pilot project would be banked, it should go nation wide. The RAF was looking at setting up a panel of acceptable consultants, which would save costs. They were also looking at setting tariffs.

Mr SB Farrow (DA) said they have had the backlog for a very long time. He asked how the system was managed. He asked if the people who were waiting would get priority. The RAF said that they addressed claims on a ‘first in, first out’ basis. The issue was a thorn in their flesh. The problem was prescription, which meant a claim could stay on their books for three years. They would go back and clean the data. The number ascribed to the backlog may be not be the number of claims to be dealt with, as some claims might be on more than one file. They had started a project in East London to go through all of the files to look at the claims.

Mr Farrow did not see the servicing of people in their objectives. He asked if the evaluation of service providers, which have been reduced, lead to an increase in staff. The RAF did not increase their staff, which was less than 1800 people.

Mr Farrow asked if the 2132 claims investigated for fraud were random claims or whether they were claims suspected to be corrupt. Cases were investigated when they suspected fraud and when they received tip-offs. They were working with the National Prosecuting Authority (NPA). The larger cases were handled by the Scorpions and the smaller cases by the Commercial Fraud Unit.

The Chairperson remarked that he saw a trebling of the compensation to staff. He said he did not want to see a cutback on staff, but an increase in effectiveness. He asked if the staff matched their core functions. The RAF wanted to represent themselves in court. Therefore they had many attorneys and advocates. However, their work was 15% legal and 85% administrative. The administrative officials were just doing back-office work.

Mr LBC Mashile (ANC) asked if they saw non-payment as a means of promoting road safety. The RAF said that it was not supposed to be a part of the promotion of road safety. It this was the case, it was only a coincidence.

Referring to the backlog, Mr Mashile said that he saw a number of aggrieved people, but the RAF saw claims. He asked if they were making a positive contribution to vulnerable people. A RAF Board member said they were concerned about the number of unpaid claims to poor people.

Mr Mashile asked if their consultants were former employees. The RAF said it would be difficult to answer. They could not stop former lawyers from being appointed if they were fulfilling the necessary criteria. They would not use consultants for legal matters. It sometimes happened that people who moved out were re-recruited.

A Member asked if they had an official who could help people who could not read or write. He also asked if people would have to go to the offices of the Department of Home Affairs and the Post Office to be helped. A RAF boardmember said that the Department of Home Affairs would be needed to verify the identity of claimants, and the Post Office would be used to pay people. This would address the issue of paying people in rural villages, as most of these were close to Post Offices. The RAF dedicated 2005 as the year of direct claims. They had officials helping claimants, but this had not been working well. Their most experienced officials would be in the frontlines, they would establish a call centre and open a client service unit. They would also focus on the promotion of these services once it had been established. The Member also asked if it would be acceptable if a person had his/her own lawyer. The RAF answered that it would be acceptable to claim through a lawyer, but they preferred direct claims.

A Member asked what happened to the beneficiaries if a claimant was dead. The beneficiaries of dead people would be contacted. They would be introducing a programme, ‘Look Up the Facts’ (LUF), which would enable them to reach people after accidents.

Ms R Mashigo (ANC) asked if the new verification unit was a short-term unit, and if the people doing that job would be empowered, or if it would provide permanent employment. The RAF said that the verification unit would be a permanent fixture. Their aim would be to stop fraud before it happened. It would be part and parcel of the claims process.

A Member said the RAF had indicated at a previous meeting that they would set up dedicated pay-points. He asked when this would happen. He also asked how it was possible that 350 fraud cases were dismissed or closed. The RAF answered the last question by saying that evidence did not always materialise, sometimes because of intimidation. The police were also facing a backlog and they could not always carry on with their investigations.

Mr DV Mabuyakhulu (ANC) asked for assurance that they had sufficiently popularised the institutions where people filled in claims, such as the Department of Home Affairs and the Post Office. He said if the people did not know where to go, having these offices would be useless. He also asked if the people in the Post Offices would be able to assist illiterate people. He also suggested that fraudulent claims could be coming from the poor who could not read or write and then filled in the forms incorrectly. The RAF said that the Department of Home Affairs would be used for the verification of claimants, not for claimants to fill in forms. They would look at the issue of RAF satellite offices. The thinking behind their partnership with the Post Office was visibility and accessibility.

Referring to the LUF programme, a Member asked if it would be possible for the RAF official to go to accident sites. The RAF responded that they would not be able to be everywhere, but they would be talking to the traffic officials and other law enforcement agencies. They would not only go to accidents, but also to traffic departments. They would also set up offices at hotspots. They had potential outreach offices that were not utilised properly, which they wanted to re-look at and change to LUF offices.

Mr Farrow said the figures presented were not adequate for oversight. He asked what their capital expenditure was, what they were going to do with their money and expressed his concern about their forecasts. He also asked how they got to their figures. He needed a decent breakdown of their budget. The accessibility of claimants was a problem. He was very concerned, as he got the impression that things were not going right. He also asked if undertakings were included in the budget. The RAF said that their capital expenditure would be used for setting up offices. They had some serious problems with cash issues in the last year.

The Chairperson was uncertain about the difference between the 2005/06 budget and 2005 forecast. The RAF responded that the 2004 financial year ended on 31 March. The year 2005 had barely begun so they used forecasts.

Mr Mitchell said that the Board had two broad strategies: liasing with the judge presidents of the provinces to get fraud out of the courts and the Board taking tight control of procurement contracts. He also said that the RAF had taken note of new initiatives such as the Post Office’s Mzansi Bank accounts. Mr Mitchell said that they had turned the fund around and that they had a duty to take of care of the country. They had to settle claims, and would not accept a backlog and inefficiency. A diesel rebate from the South African Revenue Service helped with their liquidity problem.

The Chairperson said that it had been one of the clearer inputs by the RAF and he had a sense of their direction. Referring to the National Expenditure Plan, the Chairperson said that the fuel levy was costing the country very much. The situation was dire. The Chairperson was sympathetic to the LUF proposal, as their data needed to be improved. He also referred to the huge problem of poor people sitting with undertakings they could not use.

Mr Farrow asked for a full, detailed budget. The Chairperson also hoped that such a document would be available with more detail.

SA National Roads Agency briefing
The CEO of SANRAL, Nazeer Allie, presented their budget to the Committee. He started by presenting statistics on the South African road network, as well as the increase of the national road network’s length over the years since 1972.

Mr Allie presented a graph indicating the pavement age trend and said that that they were facing a challenge: the age of the road network. Roads were designed with a lifespan of 25 years. The challenge would be to reduce the roads older than 25 years. They had strategies to face this challenge.

Mr Allie presented a graph that indicated how the costs of improving the roads would increase as the road aged. The costs would increase six-fold if maintenance were delayed. Vehicle operating costs were also explained. The costs of lost productivity were not even included in this.

Mr Allie explained how data were collected for the budgeting procedure. They had special vehicles used for measuring the quality of roads. They also used visual inspections, traffic data and bridge inspections. This information would then be put into a super project list before it would go through a process of budget optimisation to minimise costs.

Mr Allie related their principle key objectives:
- the management of a primary road network;
- improving the efficiency of business practices;
- maintaining market confidence;
- carrying out government’s targeted programmes;
- ensuring safe roads for all;
- working in partnership with road users, transport providers, relevant authorities and the private sector;
- being a good employer;
- achieving international best practices;
- encouraging innovation;
- research, discover and excel; and
- marketing solutions to road users.

He said that they could not be held accountable for the behaviour of drivers on roads.

Mr Allie discussed their performance indicators, which they had since 2002. The performance indicators were Smooth Travel Exposure (STE), Low Rut Exposure (LRE), High Texture Exposure (HTE) and Bridge Condition Exposure (BCE). They also had financial performance indicators, namely Return on Construction Expenditure (ACE), Expenditure Efficiency Index (EEI) and Private Sector Investment Index (PSII).

Mr Allie presented their desired outcomes for the different areas. Graphs indicating the Construction Price Adjustment Indices Trend, Indices Comparison Trend and the Bitumen Price Trend were also presented. These trends would have a bearing on expenditure.

Mr Allie presented a graph that showed what amounts they had asked for over the years and what they were allocated. For the financial year 2004/05 they asked for R2.6 billion, but only got R1.4 billion, which meant that they were one year behind. A slide comparing their required budget and their actual budget for non-toll roads was presented. This slide also gave a breakdown of the budgets. Graphs indicating their operational expenditure for non-toll roads and the capital expenditure for non-toll roads were also provided. Mr Allie said that the operating summary for non-toll roads would indicate how they would spend their money.

Mr Allie said that there were hard choices to make in South Africa. This was also true for road construction. A graph (slide 32) showed how long it would take to improve South Africa’s roads without toll roads.

Mr Allie presented a summary of the budget for the toll roads, as well as a breakdown of their operating expenditure and capital expenditure. He asked the Committee to note the contribution of private sector investments for the wellbeing of roads. A breakdown of the annual expenditure of the toll roads was provided. A total of R101, 8 million was used for plaza operations and maintenance, R104, 5 million for routine road maintenance and R164, 8 million for repairs and rehabilitation.

Mr Allie discussed the potential employment. It was a misnomer to speak of job creation and therefore they used person hours. SMME’s were also involved, but the jobs created by them were not included in the figures presented.

Mr Allie presented empowerment figures for the period between November 2002 and August 2004. They achieved an empowerment percentage of 44, 6%.

Mr Farrow requested a provincial perspective on the budget and agency agreements in the budget. He also asked for a business plan for infrastructure and asked about the injection of funds for poverty eradication and job creation. Mr Allie said the money for infrastructure would go to the provinces, as well as money for the Extended Public Works Programme (EPWP). He would send more detail to the Committee when available.

Mr Mashile said SANRAL asked for a budget, but got less every year. He asked if they had hopes that things would change in their relationship with Treasury. Mr Allie answered that there would always be hope, but that they were realistic and aware of the other challenges facing the country.

Mr Mashile asked if their potential employment figures were based on their requested budget or on what the Treasury would give to them. Mr Allie said that the potential employment figures were based on their actual allocation.

Mr Ainslie said that the construction of roads took place on several levels. He asked if there was sufficient co-ordination. He asked if there was a master plan for roads in South Africa. Mr Allie said that there was no co-ordination and no plan. He said if there had been a plan, they would also get better prices. He said they needed to smooth out the expenditure of government.

Mr Ainslie also asked about public-private partnerships and unsolicited proposals. He said the private sector might not have the same objectives as the government. He asked who carried the costs of unsolicited proposals. Mr Allie said that they had a strategic network plan, which he would present to the Committee it they wanted. They would only entertain unsolicited proposals that formed part of the plan. There were only three unsolicited proposals on the table. The costs were shared, but some costs were carried by SANRAL, usually for information they would need in any case.

Mr Ainslie said money must be tightly controlled. He asked for comments on the shortcomings reported by the Auditor General. It was the first time that SANRAL had an unqualified financial report. Their biggest concern was the identification of their assets. All their assets had been identified and brought onto their books. All the other issues mentioned by the Auditor General had also been dealt with.

A Member said that SANRAL only seemed interested in building roads where they could use a toll road. He asked if they used toll roads to get money, or if the money was used to improve the road. Mr Allie said that they only had 2 500 kms of toll roads.

The Chairperson said that it was a pity that there was no master plan for roads in South Africa. He asked Mr Allie for a one-page report explaining that there was no plan for the Committee to include in their report to Parliament.

Cross-Border Road Transport Agency
Mr Piet Geringer, acting CEO of the Cross-Border Road Transport Agency (CBRTA) started their presentation by describing their principles. They were a statutory body that started in 1998. Their main objective was the regulation of cross-border road transport into the region by means of issuing permits regulating the conveyance of freight and passengers. Internal financial control was conducted through ongoing reports from the CEO to the Board. External financial controls were annual audits by registered auditors and financial reports to the Minister, which would have to be tabled in Parliament.

Mr Geringer said that the Minister signed the SADC (Southern African Development Community) protocol on transport, communication and meteorology. This was concluded on 24 August 1996 in Lesotho. South Africa had multilateral relations with Swaziland, Namibia, Lesotho and Botswana. They also had bilateral road transport agreements with Malawi, Mozambique, Zambia and Zimbabwe. There have also been requests from the Democratic Republic of the Congo and Angola, but this still had to be discussed with the Minister.

The CBRTA had two initiatives for the execution of the transport policy; an information desk and Joint Route Management Groups (JRMGs).

Mr Geringer said that cross-border road transport agreements had the following goals: the regulation of the carriage of goods and the conveyance of passengers, an equal distribution of traffic, equal distribution of permits and the achievement and maintenance of an equitable non-discriminatory infrastructure cost recovery system. Mr Geringer presented an outline of the current regulatory framework.

Delays of seven days at the land border posts, like Beit Bridge and Lebombo, were not unusual in the past. Tremendous progress had been made in the past four years. All vehicles with the right documentation and bond facilities would be cleared on the same day, which meant that there were no more delays at both Beit Bridge and the Lebombo border post.

‘Cabotage’ was domestic conveyance by a foreign operator. Most countries in the region prohibited this, except if a country did not have suitable vehicles in special circumstances. The SADC protocol on Transport and Communications envisaged a gradual deregulation towards an open regional market for freight operations.

Mr Geringer explained the third country rule. This was the conveyance by foreign operators from points within South Africa to a third member or non-member state. Zimbabwe and Zambia had opened up third country conveyance for South African operators. Mr Geringer said this was strictly monitored by permits.

Mr Geringer discussed taxis’ overtrading of routes. Recent developments in SADC countries resulted in better vehicles and a greater demand to enter South Africa’s large passenger market. This, coupled with the moratorium on domestic permits, resulted in great pressure from potential operators to over saturate the market. The CBRTA had a responsibility to protect legal operators and companies by allowing them to upgrade their services and the enhancement of reliability, safety and comfort for passengers. The over saturation also brought in the potential of violence in this volatile market. Therefore, meticulous route profiling and statistics would become a crucial management tool.

Mr Geringer said that the CBRTA were increasingly faced with applications for Cross-Border permits from tourist operators. Thus, there would be foreign operators, with foreign registered vehicles, operating in South Africa. He discussed the extent of multilateral agreements between South Africa and Botswana, Lesotho and Namibia, as well as the bilateral agreements on road transport between South Africa and Zimbabwe, Zambia, Mozambique and Malawi. A problem existed in relations with Botswana, which had increased freight permits. The Minister would take up the issue.

Mr Geringer named their main challenges. These were the African Renaissance, achieving employment equity and changing the road transport industry to be more representative. The regulation of cross-border road transport was not only supporting the South African economy, but also that of the region. The income derived from permit fees was dependent on many factors totally outside the control of the agency.

The agency wanted to reduce their 136 employees to the original number of 102. The agency wanted to use natural attrition such as retirements and resignations to reach this target. If this could not be achieved, they would consider retrenchments or restructuring.

A review of the legislation and the establishment of international ranks were two of the agency’s strategic objectives. Other strategic objectives, presented by Mr Geringer, were the elimination of backlogs, ministerial intervention in their dispute with the Free State and Gauteng, and addressing the problem of overloading.

Mr S Monikisi (CBRTA: Chief Financial Officer) said that the Agency’s major source of revenue was permit fees. However, there had been no significant growth in revenues apart from the 19% between 30 June 2001 and 30 June 2000. A number of law enforcement inspectors were employed to address this issue. Mr Monikisi anticipated revenue of R36 million.

Mr Monikisi said that expenditure had always been a thorny issue with the agency. The year 2001 was the only one where their expenditure did not exceed their income. The major source of expenditure was human resource costs, comprising 70%.

The Chairperson said that the presentation has been much clearer than previous reports from the agency.

Referring to the budget, Mr Mashile asked if they were exempt from skills development duties. Mr Geringer said that they were exempt.

Mr Farrow expressed concern about the increase in freight costs into Botswana. He asked what was being done about it. Mr Geringer said that Botswana increased freight costs by 116%. It had been reported to SADC, which appointed a task team. They would discuss the matter with the task team. The economy would suffer.

Mr Farrow also expressed concern about overloading. He asked if the agency was actually involved in enforcing the regulations on overloading. Mr Geringer answered that they were working in conjunction with the Limpopo province in operating weighbridges. He said the provincial departments charged the drivers of overloaded vehicles, while they charged the company or operator. They were much stricter.

Mr Ainslie said that he saw that they had budgeted for a director's fee. He asked if they were planning a Board. Mr Geringer said that the Board had been appointed in September 2004.

The meeting was adjourned.


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