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BRIEFING ON PUBLIC TRANSPORT SUBSIDIES
PRESENTATION TO THE PORTFOLIO COMMITTEE
ON TRANSPORT
05 NOVEMBER 2013
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SCOPE OF PRESENTATION
The presentation will try to answer the following questions:
Why do we find ourselves in this state of affairs?What is the current situation with regard to bus subsidies
in the country?Why is there a need for urgent intervention?What form should intervention measures take and what
are they likely to cost?How should a transition to improved system be effected?Responding to some concerns raised by SANTACO
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PRESENTATION OVERVIEW
Brief history and background Why the tender contract system was stopped Current situation Changing subsidy environment since 2009 The need for intervention National Public Transport Transformation Plan Response to concerns by SANTACO Conclusion
A BRIEF HISTORY OF TRANSPORT POLICY 1996-2005)
9 101 32 4 875 6
‘96 ‘02‘01‘98‘97 ‘99 ‘00 ‘03 ‘04 ‘05
1. Perpetuity
permits
1996 Introduction of
competitive tendering
1997 Signing of
Interim Contracts
1998 First
Tendered Contracts
<‘96
1999 Signing of Heads of
Agreement
2000 Target date for all services to
be on tendered contracts
2001 Moratorium on tendered
contracts
Since 2001 No tendered
contracts issued or awarded
2002-5 Negotiated Contracts
(some linked to asset sale)
BRIEF BACKGROUND
In 1997 Government signed Interim Contracts with subsidized bus operators (IC duration 2/3 years)
Interim contracts were to serve as a bridging mechanism between the life long permit system and tendered contract system.
Government negotiated and agreed to certain issues with operators which were captured in the Interim Contracts
These contracts gave certain rights and obligations to both Government and Bus Operators (annual escalation, right of first refusal, operators to surrender permits)
Government, labour and the bus industry entered into a Tripartite Heads of Agreement that was intended to govern the handling of labour issues in the transition from IC to TC
Plan: By end 2000 all services would be out on Tender Contracts The first group of major tendered contracts came out in 1998 mostly in Gauteng
and Kwazulu Natal However, in 2001 the tendered contract system was stopped
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WHY DID THE TENDER CONTRACT SYSTEM STOP?
In May 2001 a moratorium was placed on all tendered contracts for 3 main reasons:
– LACK OF TRANSPORT PLANS – (COURT ORDER)
– LABOUR PROBLEMS
– LACK OF FUNDING
WHY DID THE TENDER CONTRACT SYSTEM STOP?
3 main reasons-
– LACK OF TRANSPORT PLANS
– LABOUR PROBLEMS
– LACK OF FUNDING
LABOUR PROBLEMS IN TENDERED CONTRACTS
Successful tenderers tendered at much lower wage and benefit levels A massive drop in wages for employees (up to 75%) A huge reduction in the amount and levels of employee benefits Large scale outsourcing of functions by successful tenderers leading
to serious job losses in the bus industry Up to 40% of the original number of jobs were lost in moving from IC
to TC Labour cost became the main area in which operators cut costs to
the bare minimum Reduced training and development of staff – no provision in tenders
LABOUR PROBLEMS THAT REQUIRED SOLUTIONS
• Wages and Conditions of Employment• Job Guarantees • Clean Break Provisions• Bus Industry Restructuring Fund• Right of First Refusal• Amendments to the Heads of Agreement (HOA)
CHANGED LABOUR CIRCUMSTANCES
S197 OF THE LABOUR RELATIONS ACT (2000)
• S197 of the LRA specifically designed to protect jobs and the “going concern” principle in it applies also in the tendering system and therefore guarantees 100% continuity of employment.
• The sole purpose of HOA was to minimize job losses and this could be achieved through the LRA
• Tender documents should be structured in such a way that they enable compliance with the application of S197 of the LRA both with regard to disclosure of information for tenderers and security of employment for employees.
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WHY DID THE TENDER CONTRACT SYSTEM STOP?
3 main reasons-
– LACK OF TRANSPORT PLANS
– LABOUR PROBLEMS
– LACK OF FUNDING
COST OF TENDERED CONTRACTS
An analysis of 18 tendered contracts showed that the subsidy required for a tendered contract is on average 25% higher than during the interim contract.
Why? Due to high up-front capital investment required in a tendered contract – Bus specification (fleet re-capitalisation), electronic ticket
equipment requirements etc. The lack of sufficient funding for tendered contracts contributed to
the suspension and delay in implementation of tendered contracts. Regular budget shortfalls have been experienced by NDOT since
then so much so that no new tenders were awarded except the negotiation of a few parastatals
SUBSIDY ALLOCATION TRENDS
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CURRENT SITUATION
CURRENT SITUATION: FUNDING PICTURE
Contract type Numberof contracts
% of budget
Numberof buses
Tendered Contracts
66 30% 1834
Interim Contracts
39 66% 3,849
Negotiated Contracts
10 4% 250
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CURRENT SITUATION IC
The bulk of IC not yet converted and accounts for 66% of the subsidy budget
Since 2003 IC are extended on short term basis Subsidy previously based on the number of tickets (passengers) These contracts are characterized by the following inefficiencies:
Outdated routes Lack of service level and quality specification (reliability,
cleanliness, information, punctuality) Lack of monitoring No value for money No fleet recapitalization Annual escalation
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CURRENT SITUATION TC/NC
Tendered/Negotiated contracts characterized by:
Designed routes and services Designed according to available funding Provide service level and quality specification Monitored Value for money Escalation is paid on monthly basis
Tendered/negotiated contracts are also extended on short term basis from as far back as 2005
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CURRENT SITUATION - FUNDING
The current PTOG is already fully allocated to existing bus contracts but is far less than what is required to cover the total road based PT system. When current contracts are eventually replaced, there will be no surplus funds available for the proposed new system
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CHANGING SUBSIDY ENVIRONMENT SINCE 2009
The Department incurred a cumulative subsidy deficit of R1,2 billion during the 2008/09 financial year
National Treasury provided a once off allocation of R1,2 billion on top of the annual baseline allocation to clear the deficit
Subsidy allocations were converted from an agency base system to a conditional supplementary grant classified as schedule 4
Provinces were expected to cover any shortfall experienced by operators
Interim Contracts were converted from ticket base to kilometer base Escalation for Interim Contracts was fixed to the equivalent of CPI or
baseline increase
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CHANGING SUBSIDY ENVIRONMENT SINCE 2009
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CHANGING SUBSIDY ENVIRONMENT SINCE 2009
System performance improvements Challenges
Rationalisation of current routes/services required to ensure efficient application of subsidies prior to funding increases
Rationalisation that brings material changes to existing contracts will be challenged as bridge of contracts
Enforce efficiencies in the existing contracts (replace current contracts)
Current budget is locked in existing services. New contracts cannot be introduced within the current budget since the subsidy increase for the past 13 years has largely been inflation adjusted
Contracting functions must be devolved to municipal level (NLTA) and funding will be made available
Only a few metros have the capacity to take over the contracting function.
Provinces must make good the deficit incurred by operators on their contracts
Provinces have never budgeted for bus subsidies except those that inherited the functions from previous administration (Limpopo, North West & Eastern Cape)
Ineffective Planning, institutional structures, allocation mechanism
Lack of local level integrated planning, ops. & management
Land use patterns
Previous government policies
COST DRIVERS OF CURRENT SUBSIDISED PUBLIC TRANSPORT
Cost Drivers Spatial, Institutional and Political Drivers
GABS World Bank Benchmark
Passengers per day per bus 212 1000 –1200
Km per bus per day 211 230-260
Passengers per bus km 1.0 4.3 –4.6
South Africa’s commuter bus market offers very poor productivity ratio’s, indicated here for Golden Arrow bus operations, at 4 to 5 times lower than World Bank, set for developing countries .
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NEED FOR INTERVENTION
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NEED FOR INTERVENTION
Current short term extension of contracts is unsustainable and create uncertainty in the industry
Office of the Auditor General has started to query the short term extension of these contracts (some province are being qualified).
Urgent intervention measures needed:Interventions
Short term • Adequate funding for existing bus contracts should be availed in order to maintain these contracts while introducing medium to long term solutions
• Fuel/labour cost increases should be covered
Medium to Long term Implement the National Public Transport Transformation Plan which advocates the replacement of all contracts in order to bring about visible efficiencies in the system
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NATIONAL PUBLIC TRANSPORT TRANSFORMATION PLAN
APPROACHNegotiate
PURPOSEIntegrate
GOALTransformation
Transform the system
Phase 1: Stabilization that seeks to move from month-to-month and interim contracts by negotiating them in terms of Section 41 of the NLTA even in the absence of IRPTN’s. Cost- additional 1,7bn.
Phase 2: Then integrate the services into Integrated Public Transport Networks as envisaged by both the National Land Transport Act (NLTA) and the Public Transport Strategy with full integration as the main objective. Total estimated cost- R12bn/ y
Med
ium
to lo
ng te
rmS
ho
rt
term
Approached National Treasury for additional allocation to the current baseline (2013/14) for the shortfall (R50m allocated for 2014/15 MTEF for fuel and labour cost increases.)
AL
L O
F T
HE
SE
OP
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RE
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MO
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Phase 1: Stabilize the current system by replacing the month-to-month IC in terms of the provisions of the NLTA even in the absence of IPTN’s. Identify interim and/or old order contracts to be replaced over
the MTEF. Develop a national implementation work programme and involve
the municipalities (develop a cooperation framework to deal with the contracting authority challenges)
Taxis should form part of the mainstream formal public transport system.
Mobilize more funding
PHASE 1: SHORT TERM (STABILIZATION)
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SUBSIDY REQUIREMENT (STABILIZATION)
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High Density Urban Setup (travel demand, congestion, travel time, etc
Low Density Rural Setup (availability, access etc.)
Dedicated infrastructure & services (BRT?)
Quality PT services to enable access and mobility
Phase 2: Full integration based on IPTN’s Address the contracting authority challenges in the NLTA. Review the Public Transport expectations in relation to the “12 cities”
requirements with regard to IPTN’s Adopt a differentiated approach for different PT challenges in the country
Ensure that modes (rail, bus and taxi) compete for the road and not on the road. Integrate (merge) the funding streams ( PTIS, PTOG, TRP, Green Fund, etc.). MinMec approved the plan (concept) in principle and directed for more work
to be done
PHASE 2: LONG TERM (INTEGRATION)
Main Metro’s BRT system on multiple main
corridors BRT “lite” and integrated bus
operations on secondary corridors Dedicated BRT System costs
include: Dedicated BRT Roadway
(inc.pavement reconstruction) Feeder routes New stations New vehicle fleets Integrated ticketing system Operational control centre
Full replacement of current road-based system
Other Metro’s & Emerging Cities
Single high volume corridor either:
or Priority bus trunk route Full /lite BRT single line in
larger cities. Other areas comprise bus &
feeder integrated scheduled network on existing routes, with some priority on busy corridors.
Full replacement of current road-based system
PHASE 2: LONG TERM (INTEGRATION) - APPROACH
There should be appropriate solutions for the different challenges facing the different cities, towns and rural areas. One size fits all will never work.
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Towns Formal bus system Inter-town services Mixed fleets including
Buses Midi buses Taxis
Full replacement of current road-based system
Scheduled services
High Density Rural and Rural Formalised mixed operations Vehicle re-cap Scheduled daily services to main centres Weekly services to regional towns Minimal infrastructure investments
Sparse Rural Selected interventions where viable Weekly & monthly services to towns Sharing services with health transport
and scholar transport Brokering, flexible scheduling and
confirmation of travel services No infrastructure costed
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PHASE 2: LONG TERM (INTEGRATION) - APPROACH
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CONSOLIDATED FUNDING REQUIREMENTS
Province 2012/13 Allocation
‘000Taxi/SBO integration
‘000
Eastern Cape 174,466 523,398
Free State 192,872 578,616
Gauteng 1,625,746 4,877,238
Kwazulu Natal 808,279 2,424,837
Limpopo 260,725 782,175
Mpumalanga 439,003 1,317,007
Northern Cape 39,255 117,765
North West 80,686 242,058
Western Cape 696,237 2,088,711
TOTAL 4,317,269 12,951,805
FUNDING PICTURE(2012/13 prices)
R B
illio
ns
R B
illio
ns
Funding for Operations Capital Funding
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RESPONSE TO CONCERNS AND PROPOSALS RAISED BY SANTACO
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CONCERNS AND PROPOSALS RAISED BY SANTACO
Issue Response
Right of first refusal contained in the IC and TC goes against the Constitutional provision and contravene the Competitions Act
The right of first refusal applies in relation to the first Tendered Contracts following the Interim Contracts. The objective was to increase the likelihood of existing operators being awarded the first Tendered Contract in the areas where they are currently operating
The shareholding in the Vehicle Operating Companies for BRTs has proven to be meaningless because the operation value chain has been outsourced to the private sector and not the taxi industry
Participation in the operation value chain of the BRT projects is subjected to government procurement processes as required in the PFMA. The taxi industry can still participate
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CONCERNS AND PROPOSALS RAISED BY SANTACO
Issue Response
There is an urgent need to overhaul the Public Transport Strategy to align with the NDP
Government has already started to align long term plans of departments with the NDP and identify areas where policy change is required to ensure consistency and coherence.
There is a need for a total revision of the NLTA
The NLTA is currently being amended and issues that need to be reviewed should be brought into this process
The taxi industry has been excluded in the Intermodal Planning Committees
Section 15(1) of the NLTA relating to IPCs is being amended
IC and TC are still untransformed and exclude the taxi industry
The NPTTP intends to address this challenge but can only succeed with additional funding
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CONCERNS AND PROPOSALS RAISED BY SANTACO
Issue Response
Subsidy for the taxi industry either through direct commuter payment or through subsidy to corporatized taxi associations
An estimated R12 billion operational subsidy needed for the full integration of road based public transport system. Direct user side subsidy as a method of payment can be explored
The cancellation and expropriation of permits/operating licence without compensation as provided for in the NLTA is against the vested rights to property and economic activity for the holder and should be tested in court
This matter could still be raised in the Act amendment process for consideration and discussion
Government has adjusted targets from 12 cities and 6 districts to 5 cities by 2015
All the 12 cities are at different stages of implementing IPTNs
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CONCERNS AND PROPOSALS RAISED BY SANTACO
Issue Response
Provinces and municipalities be instructed to finalise their IPTN before end April 2013???
Municipalities in their capacity as planning authorities are responsible for preparing transport plans for their areas and ensuring the implementation thereof
Negotiation process must commence before end May 2013??? to replace IC an at least 70% be reserved for the taxi industry
Additional funding needed prior to the commencement of the negotiations. Negotiations will include all affected operators in the area. The 70% set-aside proposal need to be clarified
SANTACO must actively be involved BRT processes to ensure best possible deal for the industry
The taxi industry has been actively involved in all municipalities that are implementing the IPTNs
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Sufficient funding should be availed to sustain existing contracts in the short term while moving towards total transformation of the industry
Practical measures to bring about efficiencies on the part of operators must be explored
Funding for the NPTTP to replace the existing month-to-month contracts should be secured (implementation of the plan should include other road based public transport modes)
Rollout of IPTN in areas outside the 12 cities and in rural areas should also be prioritized and funded (to include other road based public transport modes)
A task team has been established between the Department, National Treasury and Provinces to deal with the overall subsidy funding regime and its challenges
CONCLUSION
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THANK YOU