Saturday, September 20, 2014

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E-Tolls: Buckle Up South Africans, it’s Gonna be a Long Ride

Why did President Zuma authorise a hugely unpopular road tolling system just months before elections? And will it even work?
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Driving along the N1 highway in South Africa. Photograph by Dan Brown.

Last month, nearly 2,500 bikers and 2,000 cars forced traffic to come to a screeching halt on the N12 and N3 highways in Johannesburg in protest of the Gauteng Province's new road charges. The procession of motorists, frustrated at the 'e-tolls' system that requires drivers on Gauteng's upgraded highways to pay additional fees, stopped the flow of traffic for nearly six hours and flipped their middle fingers as they passed under the cameras that adorn each e-toll gantry along the road.

As that demonstration and previous acts of vandalism suggest, Gauteng's motorists are not happy with the e-toll system and are not afraid to show it. The opposition Democratic Alliance (DA) has even tried to capitalise on drivers' irritation by placing ironic signs along the freeways reading: “E-tolls. Proudly brought to you by the ANC."

The e-toll system, which started running in December, is a way for the South African National Roads Agency Limited (SANRAL) to pay back its debt stemming from a R20 billion ($1.8 billion) loan used to finance the Gauteng Freeway Improvement Project (GFIP), a 185 km road upgrade made in preparation for the 2010 FIFA World Cup.

In theory, motorists are meant to register their vehicles and purchase an e-tag, which will monitor their road usage, charged at R0.3 ($0.03) per kilometre of highway they use. Those not following these rules could be charged double or even six times the rate of registered and tagged users.

However, even the lowest possible fees add up quickly − the DA estimates that most road users will pay R400-R800 per month ($36-$73) − and come to sums that most of Gauteng's citizens can barely afford. And so the advice on the street for those drivers unable or unwilling to pay is to refuse to purchase an e-tag and to ignore SANRAL's warnings that "non-payment of [the] toll is a criminal offence" and that non-payers "will be stopped by the e-toll Road Enforcement Unit."

Apparently some faith-based organisations are even telling their congregations to break to the law by not paying the tolls, and one resident from a suburb outside Johannesburg echoed the sentiments of many, telling Think Africa Press that neither she nor anyone in her family is prepared to buy an e-tag and voluntarily pay the fees. “We would just take the back roads," she says. "We pay tollgate fees to get to Johannesburg," she adds, referring to South Africa's existing toll network, "so we shouldn’t have to pay to drive on the road as well.”

Time is money

The road users' anger and backlash at e-tolls begs the question of why the government didn't wait a few more months until after the upcoming May general elections to put in place the unpopular − and likely vote-losing − payment system. The answer is that it simply couldn't afford to.

SANRAL’s second debt bond matures this April. And with a credit rating that has been rapidly downgraded from a triple-A rating to just one notch above junk status, the agency is desperate for funding. The e-tolls were actually supposed to be up and running by June 2011 so the revenue from it could absorb SANRAL’s mounting debt. But instead, SANRAL − allegedly overpaying on a number of fronts thanks to an uncompetitive bidding process − lost R200 million ($18 million) for every month the system was not in place.

As a state-owned entity, SANRAL's problems are the government's problems. If SANRAL were to default on its loans, the state would have to bail it out. However, another factor adds to the government's stake in the issue. 50% of SANRAL's bonds − at a value of around R15.7 billion ($1.4 billion) − are held by the Government Employee Pension Fund (via the Public Investment Corporation which manages the fund's investments). What this means is that if SANRAL fails to pay back its loans, the state will not only have to rescue SANRAL, but also its civil servants’ pension funds.

Could it work?

The government is thus doubly implicated and doubly at risk, and it was these dangers hanging over his head that President Jacob Zuma authorised the e-tolls system in September 2013, shifting some of financial burden from the state coffers to ordinary motorists.

However many doubt the plan will even work. In Portugal, for example, a similar system is fraught with difficulties. Cars without e-tags cost just as much to bill as the motorist would have paid for a pass in the first place. Nearly a fifth of users fail to pay at all, meaning millions are lost each year. And nearly 30% of the revenues from the e-tolls go straight back into administrative costs.

“For similar reasons why e-tolling is failing in Portugal, it will fail here," says Wayne Duvenage, chairman of Opposition to Urban Tolling (OUTA). "E-tolling generally requires extremely high levels of compliance to work. 90% plus if possible, but nothing below 80%.”

Such a high compliance rate is unlikely in South Africa. For starters, a recent survey carried out by OUTA found that only 29% of vehicles in Gauteng have e-tags so far. Meanwhile, in 2012/2013, it has been noted that nearly 88% of payments and fines administered by the Administrative Adjudication of Road Traffic Offences (AARTO) in Johannesburg and Tshwane went unpaid.

“E-tolling has challenges in that it requires massive costs to administer and enforce," continues Duvenage, suggesting that the system can only work "if you apply it in a very compliant-natured environment − like Singapore for example − and when you get the people’s commitment to the process." Unfortunately, South Africa seems to have neither.

Taking its toll

The South African government's inability to sell the idea of e-tolls to the public puts it in an unenviable position.

Firstly, the timing of the move means the unpopular e-tolls will be fresh in Gauteng voters' minds as they go to the polls in May. Although the ruling African National Congress (ANC) will certainly win overall in South Africa, the margin is likely to be less enormous than in previous elections. An Ipsos poll released last month suggested that the ANC's support in Gauteng would drop to 45.5% − a significant dip from its the 64% it garnered in 2009.

However, the real issue for government is the same one that motivated it to establish e-tolls in the first place. If the system fails to bring in the necessary revenue, SANRAL will remain in debt. And if the agency is unable to auction off its debt bond in April, South African taxpayers will pay the cost.

The real question for South African is not whether or not to have e-tolls, but of what the alternative could be. Duvenage claims that a fuel levy would have been a better decision. A levy would incur virtually no administrative costs compared to e-tolls' R1.3 billion ($118 million) per year, and according to Duvenage, if this tax had been increased by a mere R0.09 in 2006, when the road improvements were mooted, the R17 billion ($1.5 billion) cost of the upgrades would have already been made back.

But as Duvenage notes, “we’ve lost all this time,” and now the problem is all the more urgent. The e-tolls system has proven seriously unpopular and the first few months suggest it has little hope of operating at the level it needs to in order to pay off SANRAL's debts. However those debts are not going to go away. And if not through e-tolls, they will still have to be paid off. Somehow.

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Comments

I appreciate the context of the write up, however, I am of the view that the government resources alone is inadequate to fund infrastructure deficit in sub Sahara Africa, hence there is need for Public Private Partnership in the form of road concessioning, tolling etc. One of the set backs I see is inadequate stakeholder engagement, lack of transparency , increased administration cost due to government bottlenecks.
A similar situation in Lagos, Nigeria adopts forced compliance with tolling, despite this the government bought back the debt in what many referred to as shady and Lagosians continue to pay tolls on the road. In the Lagos situation, the government has not been transparent on the transaction, rumours of conflict of interest by former public officials are rife. All these and more cast this very good debt for infrastructure initiatives in bad public light resulting in societal resistance