Business Intelligence - A rethink on e-tolls

By Kim Kemp

We all hate them. We feel we have been duped and frogmarched into submission, so, in a momentous act of civil defiance, we refused to bow to the gantry god. But were we wrong?

Despite our best endeavours as a province (and country, ultimately), the notorious e-toll gantries still stand in Gauteng — a grim reminder that they are not going anywhere, almost sinisterly waiting.

TOLLSIt is going to take more than a billboard’s assurance that e-tolls are affordable to woo the public back and regain their trust around the system.
Image credit: stop-over.co.za

For the first time in decades, South Africa stood firm against what they saw as governmental dictatorship, as an unreasonable foisting of public responsibility onto the shoulders of Joe Citizen, who was expected to reach deep into its communal pocket and pay to use the roads. The audacity!

The key objection was the widespread belief that there had been no consultation, that the gantries went up overnight, and that the cost to adhere to the system would be financially extreme for individuals and vehicle fleets alike, ultimately impacting on the economy. The argument soon arose that the fuel levy should be used to fund road repairs, maintenance, and new roads. And Gauteng — largely — stood firm, refusing to pay what they saw as the South African National Roads Agency’s (SANRAL’s) unacceptable abuse of the taxpayer. SANRAL became the villain, derided, and the butt of numerous disparaging remarks and commentary.

“If you base your future income purely on fuel sold, you run the risk of major miscalculations when determining revenue generation.”

The reality is that SANRAL saw the e-toll system as the solution to funding the very real need for road infrastructure, in an easy and efficient way. But before we discuss this, we need to have a little background as to why we even need money for roads, given the burden the taxpayer has in supporting a top-heavy government and a seething mass of poor.

Why maintenance?

Louw SANRAL


While Louw Kannemeyer, SANRAL’s recently appointed engineering executive, makes a strong case for the adoption of the e-Tag, there is still strong public distrust for SANRAL.
Image credit: SANRAL


While South Africa’s roads can compare favourably with any developed country you would care to name, they require maintenance, more so after heavy rains when the infamous potholes appear in our city and suburban streets. And therein lies the crunch.

Of the 750 000km of South African roads, only a mere 22 000km fall under SANRAL’s responsibilities, and these are not those potholed roads in front of your house in downtown suburbia. The authority’s mandate is national roads. Yet, this argument has been the cause célèbre for the e-Tag dodgers, citing poor urban road maintenance as an example of villain SANRAL’s perceived negligence.

Louw Kannemeyer, SANRAL’s new engineering executive, appointed in November 2017, is impassioned when he speaks about this perception. He explains: “If you go back into the history of SANRAL, you will see that we have what we call preventative maintenance. On a frequent cycle, we are trying to maintain the network [of roads] through periodic actions that keep the surface of the road waterproof. We are attempting to prevent the rapid deterioration of the national road network.”

Kannemeyer explains that South African roads have a specific design to achieve the necessary waterproofing: “The design of roads in South Africa is based on having a very thin waterproofing membrane at the surface.” Compared to Europe and the US, where this membrane averages about 100mm or more of waterproofing layer, South Africa has between 10 and 40mm. The engineer explains that this is largely because we are not an oil-producing country and that layer of waterproofing uses (imported) bitumen — a black viscous mixture of hydrocarbons obtained naturally or as a residue from petroleum distillation. Cost is an issue. He explains that over time, and for about the past 40 years, “the bitumen layers have been substituted with good quality, natural gravel materials” to counter importing costs.

Kannemeyer adds that this substitution has managed to reduce initial road construction outlay by between 30 and 50%, depending on the location.

He goes on to elaborate that, because the waterproofing layer is so thin (compared to overseas), when that layer cracks, water ingress occurs, undermining the granular layers beneath the tar, which soften and collapse, resulting in potholes if not repaired timeously. He emphasises that this is the reason that preventative maintenance is so crucial in South Africa.

So, what is causing the extensive road damage?

Rail vs road freight

In South Africa, economic growth and the change to ‘just in time’ manufacturing and limited warehousing, results in the need for smaller more frequent deliveries, which favour road transport above rail. Since deregulation in 1988, the modal split has changed to road (87%) and rail (13%). The result is an increased number of heavy vehicle axles on roads, and since road pavements are designed for the number of heavy vehicle axles over, the lifespan (in years) decreases.

According to Kannemeyer, the conception that our roads are damaged by heavy trucks hauling freight, as a result of poor or absent rail infrastructure, is not necessarily accurate. He comments: “Worldwide, road freight patterns are the same, in terms of rail versus road,” he says.

It is not peculiar that we use our roads so extensively for freight, Kannemeyer assures, as the worldwide trend is to focus on cost efficiency: “The ability to move your container on its own, receiving it on time, is quicker than loading it onto a slow-moving train. Even in Europe there are similar patterns — in fact, worse than ours. They have a 90% road and 10% rail ratio.”

It is often remarked that our roads are not built for heavy loads, for transporting ore from the mines and timber from plantations, for example. Kannemeyer counters this observation: “We don’t design a road to last a certain number of calendar years. We design it for the traffic that we expect to move along the road during a specific number of calendar years,” he emphasises. He explains that when a road is built, the present amount of traffic along that stretch is considered, both heavy and light, and it is forecast how this will change over a given number of years, for example 20 years. From this, a number is calculated. “In South Africa, for the pavement design, that number is called the equivalent standard axle: the equivalent number of standard axles that are expected to use that road during its lifespan. That could number in the millions, depending on how busy the road is,” he adds. “That determines the kind of road pavement that needs to be constructed, to carry that traffic.”

Kannemeyer explains that the preventative maintenance strategy works on an eight- to 12-year cycle. “Every year, and at a maximum of two years, we assess the condition of our entire road network, in our two survey vehicles, equipped with 3-D cameras and lasers.” These cameras can detect a crack less than 1mm in width, while the vehicle travels between 80 and 100km/h over a distance of up to 600km per day, depending on travel and road conditions. That information assists SANRAL to monitor the progress of the development of cracks and optimise time maintenance intervention on the relevant road, which, he assures, takes place within 48 hours of an issue being detected.

If a road has been designed with certain assumptions in place and the environment changes, for example a power station or mine opens along the road, the dynamics will change as traffic increases, reducing the life of the road. So too, the reverse will happen: if an existing facility or mine closes along the hypothetical road, the life of the road will be extended as the traffic lessens.

“If the assumptions were correct, certain roads are designed to carry the heavy traffic,” he says and adds, “If the original design did not account for the increased traffic, then yes, they can be totally under-designed” and may result in extensive damage.

Given the info above and the fact that without finances SANRAL is unable to conduct repairs, the obvious question arises: where has the money come from in the past and where will it come from in the future?

SANRAL’s budget

The engineer explains that SANRAL’s budget has two main parts to it. “There is an allocation that comes from National Treasury, via the Department of Transport, and there is toll funding that is generated by the toll financing mechanism where we sell bonds and so on. All taxes collected by the fiscus, whether it be the fuel tax, VAT or PAYE, all goes into the Department of Finance’s vault. From there, allocations are made across the board, from health and education, to roads. So, it’s important to understand that the fuel levy is not specifically allocated to use on roads,” he stresses. “If you look at the current medium-term expenditure budget, you’ll notice that what has been allocated to roads and road-related functions — including bus subsidies, traffic officers, and more — exceeds the generated revenue from the fuel tax.

“People are inclined to simply see what Treasury allocates, without understanding where the money comes from and where it goes,” he adds with a degree of exasperation and stresses, “There is no spare cash lying around for Treasury to use on roads! We have an ongoing challenge that we cannot repair each and every road as and when required — we do not have the available budget.” He emphasises that preventative maintenance is a priority, with any budget that remains thereafter going into capex expenditure, whether to strengthen or reconstruct existing roads, with the last on the list being the building of new roads.

So back to e-tolls and why we possibly need to reconsider them as a funding model if we are to get our road infrastructure back on track and if we are serious about improving our economy.

Building new roads can only occur from private sector financing, namely toll roads. These comprise SANRAL toll roads where it sells or issues the bonds: “We get the money, we appoint the private sector contractors to build the roads, and we collect the toll revenue; we are the direct owner of the toll road. The other toll roads come under concessions, such as Bakwena or Trans Africa Concessions,” Kannemeyer explains.

(The latter is a partnership between the governments of Mozambique and South Africa, and a private company, Trans African Concessions.)

How concessions work

SANRAL puts out a tender for a section of the national road network to the private sector. The private sector then obtains the financing to fulfil its obligation to maintain and undertake improvements to the road, to the standard determined by SANRAL, for a 30-year period. In return, the tolls collected over that period are theirs to keep. None of this money goes back into the state coffers.

“For a road to be selected as a concession, you need to have roads with relatively high traffic volume to ensure an acceptable toll, while still being financially viable.”

In terms of the concession agreement, the toll tariffs are set at the outset and form the bases of how the companies tender against each other; determining how the facility is managed, how the requirements are met, and at what price for the entire concession period — at the lowest cost.

“The one with the lowest toll tariffs is awarded the concession,” Kannemeyer adds. From the day the company is awarded the tender and appointed the concessionary holder, the toll tariffs can only increase in alignment with the consumer price index (CPI), year-to-year.

By making it a concession, the cost comes off SANRAL’s balance sheet, as does the responsibility for that section of road.

“For a road to be selected as a concession, you need to have roads with relatively high traffic volumes to ensure an acceptable toll, while still being financially viable,” he adds.

Understanding the fuel levy

Kannemeyer explains that even if the fuel levy was ring-fenced specifically for road infrastructure, modern vehicles are becoming increasingly fuel efficient, down from an average fuel consumption of >10ℓ per 100km travelled about 15 years ago, to the present, where the modern car has an average consumption of <6ℓ per 100km.

“If you base your future income purely on fuel sold, you run the risk of major miscalculations when determining revenue generation,” Kannemeyer points out. “Car registrations with eNATIS have climbed by 40% over the past 10 years, while fuel sales have declined by 0.4% over the same period. Which shows the impact of technology,” he adds.

As technology makes engines cleaner-burning, in the case of hybrids, even less fuel is used. Also, the trend towards entirely non-fuel-dependent transport in the form of electric cars will do away with collecting the levy completely; yet, these vehicles will all still need to use the roads, but how will revenue be generated, based on fuel sales?

Kannemeyer explains that the contribution from an old car towards the fuel levy, at the present rate of R3.15 per litre, is roughly R31.50 per 100km travelled. Whereas a modern car that uses half of that fuel, pays half the amount towards the levy. “The modern car still causes the same amount of road wear and uses the same amount of road space — while an electric car pays nothing,” he muses.

There are benefits to using a toll road and some of these include lower vehicle maintenance through travelling on a high-quality road surface, travel-time saving, and accident avoidance. Also, you know that there is little likelihood of encountering a pothole or a section of deteriorated road while on your journey.

Toll roads will always be cheaper than using alternative routes through suburbs, idling at traffic lights, and contributing to congestion. It was for this reason that Gauteng, the epicentre of industry in South Africa, was chosen for the first e-toll in the country. The present climate, however, around the Gauteng Freeway Improvement Project e-tolls has made it very difficult to roll out other concessions, Kannemeyer says. “Even those roads that we have identified, that would have worked 10–15 years ago, under the current political climate, there is no appetite for new toll roads. There needs to be a new white paper on how roads are to be funded,” he comments.

In conclusion

Joe Citizen continues to feel ‘burnt’ by what it sees as the heavy-handed implementation of the system, which took place during (in retrospect) what could be considered the country’s darkest days since the present government came into power, with graft and corruption going unheeded and unresolved.

Then, there is the spectre of having licence renewals withheld for unpaid fines, with amendments being sought in a bill to change the AARTO Act.

Nevertheless, something must be done to fund our road infrastructure if we are to be (remain?) competitive on the African continent.


 

<image> protest

<caption>Cosatu branches used the iniquitous e-Tolls as a forum to march, calling for better transportation for workers.

<credit> SAPA

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