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When government decided to go with Sanral's e-toll scheme, the biggest sin by those in authority was their disregard for the grossly inflated costs of road construction and the scheme's exorbitant contracted fees. The public, who were expected to pick up the tab, were left out of the equation and high revenue motives appear to have blinded the scheme's architects from an unexpected public backlash, writes Wayne Duvenage.
The massive increase in road construction costs for the Gauteng Freeway Improvement Project (GFIP – Phase 1) can never be ignored when it comes to road funding. The payment of R17,9bn for a 186km upgrade to an existing freeway was outrageously excessive, even to the layman.
Aside from the acknowledged construction industry collusion, the clear giveaway of Sanral's blatant or ignorant conduct to allow the GFIP to be unacceptably overpriced, is evident when reading Sanral's own "Declaration of Intent – 2005 to 2008" (DOI).
On page 27 of the document, they listed their intention to expand and upgrade the Gauteng freeway network by 340km, at an estimated cost of R4,56bn. One thing we can safely presume when Sanral put this document together, is that they knew the cost of road construction better than any other organisation.
When OUTA cross checked Sanral's estimates of their intended 340km freeway development project with engineering firms that built such roads for Sanral, along with other road construction data available, the going rate of a new 4-lane highway (two new lanes in each direction), was around R14m per km (or R3,5m per lane km). Meaning: Sanral's estimate of R4,56bn for their planned 340km Gauteng freeway network expansion made absolute sense.
READ: E-tolls – A 5-year debacle without purpose
How then was it possible that three years later when construction on the 186km GFIP – Phase 1 began in 2008, the project came with a price-tag of R17,9bn, which was almost four times Sanral's estimate of a 340km project. Let that sink in for a minute; they paid four times the estimated cost of a 340km project, for almost half (54%) of that freeway length.
Some of the discrepancy is obviously attributed to inflation (around R2bn as the DOI estimate was done at 2004 prices) as well as some unexplained extras and higher pricing pressures due to higher construction demand possibly not contemplated for at the time. But even if one heaps generous assumptions in Sanral's favour when calculating what the GFIP project ought to have been (as OUTA has done with qualified people), a price tag of R9,5bn for GFIP is considered as being generously high.
In short, there is no reasonable explanation for Sanral's R17,9bn GFIP project to have come in at over R9,5bn. Sadly, we the public must now pay for this overpriced infrastructure, just as we are having to pay for overpriced power stations, stadiums and other infrastructure.
Questions flippantly batted away
The second and even more mindless decision on the GFIP, was government's choice of the e-toll scheme to finance the freeway upgrade. Sold as being efficient because there was no need for cars to stop to pay (as one does at conventional toll plazas), this "drive-now-pay-later" scheme was promoted by consultants and economists who positioned it as a glorious and internationally sound scheme that would enjoy high levels of compliance – or so they thought.
Hiding behind a mantra of a "user-pays principle" to sweep aside criticism, little regard was given to the scheme's operational challenges and exorbitant costs. Questions about these high costs and challenges were flippantly batted away by Sanral's belief that the scheme was based on international best practice. Somehow they overlooked the fact that South Africa's administrative, regulatory and enforcement environment was very different to that of London and Singapore.
In presentation after presentation, Sanral's leadership reflected that the Electronic Tolling Collection-JV (ETC) had won the 5-year tender at a cost of R6,22bn (the lowest of four tenders), and this amount was even presented to Premier David Makhura's e-toll Advisory Panel in November 2014, when assessing the socio-economic impact of e-tolls on the province.
Little did Makhura's panel or others know that three years earlier in September 2011, Sanral had already signed the contract with the ETC-JV at a value of R9,19bn. The "Operation Services" element formed the bulk of this contracted cost at R8,2bn for five years.
That, folks, is a massive average of R1,64bn per annum just to administer and manage the eToll collection process, before R1 goes into the tarmac.
The absurdity of the eToll Operations Services costs at R1,64bn per annum is realised when one understands that the GFIP bonds over 20 years only required an allocation of R2,68bn per annum from Treasury. How was is it possible that the authorities who planned and approved this decision, found it acceptable for an eToll scheme to be priced at 61% of funds required for the upgrade?
Existing Treasury allocation mechanisms or an addition of 10 to 11 cents to the fuel levy were by far the most efficient mechanisms to finance the GFIP Bonds, of that there is no question.
Fortunately, the public's successful resistance has forced ETC to do the job at around R640m per annum. That is R1bn less than what they would have received, had the public rolled over and submitted to the scheme. And guess what, ETC have managed to do the work at R1bn less than what they were contracted to receive, without substantively reducing their staff size or number of customer contact centres.
The obvious question is what would ETC have done with the additional R1bn per annum, had their desired levels of public compliance been achieved? Could this be the reason behind government's reluctance to pull the plug on e-tolls? Could this be why ETC, the Austrian based Kapsch TrafficCom company, is working hard behind the scenes to convince government to implement a new carrot and stick approach to revive the dysfunctional scheme?
It's time to move on, ETC, your contract has expired and your time here is done. Please Mr Nzimande, Mr Mboweni and Mr President, stop listening to the drivel these people are feeding you. The public will never succumb to this devious scheme, which has not come close to achieving its objectives.
The time to pull the e-toll plug was yesterday.
- Duvenage is chief executive officer of the Organisation Undoing Tax Abuse (OUTA).
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