GAUTENG TOLLGATE: FF PLUS OBTAINS FORMULA ACCORDING TO WHICH SANRAL DETERMINED TOLLGATE FEES

 "The more answers we get the more questions we have," was the FF Plus' reaction following the Minister of Transport's reply to a parliamentary question which shows what method was used to determine the tollgate tariffs.

"The economic models which were used by SANRAL are the well-known cost-benefit-analysis, macro economic and micro economic analysis," Adv. Anton Alberts, the FF Plus Parliamentary spokesperson on Transport said.

"Although the parliamentary answer sheds more light on the method which was used, there is no explanations as to how exactly the results were obtained. Al the results point to good reasons for initiating the project. The FF Plus however still has some concerns about the process according to which the project was approached with.

"Irregularities such as that the company Tolplan was apparently part of the original viability study and also according to reports managed the construction of the tollgates, creates more questions about the viability and legality of the project. The FF Plus will be asking further parliamentary questions in this regard," Alberts explained.

The FF Plus also indicated this week that the party will be bringing an application in terms of the Promotion of Access to Information Act to obtain all documents from SANRAL which would indicate what the real costs of the Gauteng Highway Project to date have been and what formula was used to calculate the tariffs.

The FF Plus will continue with its application as the answer which the Minister has provided has created more questions than it has answered any questions.

"We especially want to see how the economic models were applied to calculate the toll tariffs in order for external economists to investigate the integrity of the research," Alberts said. 

The FF plus views the withholding of core information about the project as grounds for the setting aside of the current consultative process as the participants are being denied the right to react properly to the decision which SANRAL had taken.

REPLY OF THE MINISTER

NATIONAL ASSEMBLY

8000  FOR WRITTEN REPLY

8001 

QUESTION NO 710

DATE REPLY SUBMITTED: Wednesday, 01 June 2011

DATE OF PUBLICATION IN INTERNAL QUESTION PAPER: MONDAY, 07 MARCH 2011 (INTERNAL QUESTION PAPER NO 4 - 2011)

Adv A de W Alberts (FF Plus) asked the Minister of Transport:

(1) What formula was used to calculate the toll gate tariffs of Gauteng's open toll gate system;

(2) whether the (a) economic effectiveness, (b) territorial fairness, (c) horizontal fairness and (d) vertical fairness (details furnished) were taken into account with the calculation of the toll gate fees; if not, why not, in each case; if so, what is the relevant information in each case;

(3) whether an economic impact study was done in respect of the tariffs that were determined by Sanral; if not, why not; if so,

(4) whether the effect of the toll gate tariffs on (a) businesses, (b) job creation, (c) food prices and (d) the use of alternate routes through residential areas was included in this economic impact study; if not, why not; if so, (i) who undertook the study, (ii) when was it undertaken, (iii) what did the costs of the study amount to and (iv) what were the findings?  NW763E

REPLY:

The Minister of Transport:

(1) The economic studies (formula) were used, and it applies three methods of analysis:

• Costs-benefit analysis - this is the primary measure of the project's viability and gave a robust indication of the value that the project can deliver to the national economy.
• Micro-economic analysis - this reviews the same costs and benefits, but from the perspective of a range of different stakeholders.
• Macro-economic analysis - this reviews the effect of a project on the national and regional economies, including job creation and economic efficiency effects. It is therefore important from a policy perspective.

Conventional benefit-cost economic models are used to:

• derive the Road User Benefits, including Vehicle Operating Costs, for each toll class of vehicle;
• calculate the overall economic benefit of the project in relation to the costs of implementing the project; and
• derive toll tariffs for each of the vehicle classes based on the benefit that each user class will gain from the tolled facility. Examples of such economic assessment reports are available on the South African National Roads Agency's (SANRAL) website: www.nra.co.za, under the projects and impact assessment pages.

Toll tariffs are typically derived from the benefit that a user of a particular class of vehicle will experience when it uses the tolled facility in comparison to either the status quo (do-nothing alternative) and/or the alternative routes. The benefit is calculated using the time and fuel costs only. On occasion this benefit is multiplied by a "motorway bonus" that is typically derived from utility elasticity's calibrated against existing toll roads.

The "motorway bonus" quantifies the benefits that a typical user will attach to comfort, safety and ease of use. The tariff will also take into account, inter alia, future maintenance costs and the repayment of the loans. I also bring to the attention of the Honourable Member that the tariff is not based on what there is already - the sunk cost is not part of the tariff calculation.

Thus, nobody pays for something that they had before. They only pay for the upgrades as and when they use the road. A typical "logit" elasticity model is used to fine tune the toll tariffs and to balance the revenue and meet future expenditure, including repayment of the loans. Hence, a typical user derives more benefit from the tolled facility than what it will cost in toll fees.

(2) (a), (b), (c) and (d)

The economic effectiveness of the project was examined and the results to this are given as part of the answer to question (4) below - cost benefit analysis.

It is not clear that horizontal fairness and vertical fairness are necessarily applicable to the project. These two issues of fairness are typically associated with tax regimes to ensure that taxes are fair.

The tolling of the Gauteng freeways is not a tax, it is a user charge. As a consequence, the more a person uses the freeways the more they will pay for that use. From a horizontal fairness perspective, this means that everyone in a particular class of vehicle pays the same toll. It is therefore horizontally fair.

We understand vertical fairness in this context to mean that the tolls paid by people in different classes of vehicles. The difference in toll fees between different classes of vehicles is determined largely by similar differences on other toll roads in the country.

We understand territorial fairness to be fairness between countries and do not fully understand the use of the term in this context. Tolling is the payment for the benefit of using the upgraded and expanded highway network. The economic study found that the benefits to Gauteng are considerably greater than the cost of the freeway upgrades and subsequent tolling that is needed to pay for the upgrades.

(3) Yes, an economic study was performed.

(4) (a), (b), (c) and (d)

(i) An economic impact assessment was undertaken by the Business School of the University of Cape Town (UCT), with support from Arup Transport Consultants and Strategic Economic Solutions. The study addressed the issue raised in (a), (b) and (c). Traffic modeling was done by the Goba/Tolplan JV addressing the issue raised in (d).

(ii) These studies commenced in 2006, and were updated as the project progressed, until 2010.

(iii) Total cost for the economic study was R1.73 million. This includes the original study, subsequent updates as the project changed and a re-analysis of a new set of roadside interviews.

(iv) This report considered the economic case for the upgrading and expansion of the Gauteng freeway network. It applied the methodology as stated in (1) above.

The costs benefit analysis results are summarized in Table ES.1. It indicates that the upgrading of the existing network offers significant benefit to cost ratios (BCRs). The project also offers higher internal rates of return to investment (IRRs) than can be achieved on most commercial investments - the net present values (NPVs) of benefits versus costs are strongly positive. The project involving new freeways has the higher NPV, because the larger network is involved in the assessment. The financial analysis shows the financial benefits to road users, not to the project proponent, while the economic analysis shows the benefits to society at large.

Table ES.1 Economic Cost Benefit Analysis for a 50c per km toll tariff

All three of the measures, BCR, IRR or NPV, indicate that the upgrading of the Gauteng freeway network was based on sound economic principles. The project is set to return society to a positive net present value of R210 billion (rounded) over the next 20 years. It has an internal rate of return of 37% which, in itself, is a significant IRR. Finally, and probably most importantly, it returns a benefit cost ratio of 8.4. This means that for each one rand of cost, initial capital works and ongoing maintenance and running costs, society benefits by R8.40.

The ‘user-pay' principle (tolling) is Government policy. The tolling approach allows for funding within the current commercial remit of SANRAL. When the risks attached to the potential increase in tax, the sovereign credit ratings and thus the sovereign cost of borrowing, are not taken into consideration - the tolling reduces the user's benefits by the cost of the tolling infrastructure. The advantages of tolling are that both the user-pay principle and the projects will usually be implemented more rapidly than would otherwise be the case. It is realised, of course, that the allocation of funding from National Treasury does take into account the needs and priorities of the country, from an economic and social perspective. It should be noted that toll roads are a small portion - currently 3 120 km out of about 135 000 km of surfaced roads or 16 170 km of proclaimed national roads - and that the remainder of the national road network is non-toll and funded by the National Treasury, as well as the remainder of the approximately 606 000 km road network of South Africa.

The advantage of the tolling approach to funding is that it relieves Government of the financial burden of direct funding, allows users to ‘feel' the cost of travel, and also provides a valuable tool to optimize the operational management of the network. It should be noted that tolling is used selectively by SANRAL. It is an instrument that SANRAL uses to maintain the road network. While tolling may be perceived as reducing road user benefits, this should be balanced with the consequences of the roads not being in a good condition.

(iv)(b) The micro-economic analysis is designed to draw attention to the impacts of the tolling system on different categories of users. While the costs benefit analysis shows that the balance is overwhelmingly positive, this section draws attention to the impacts on the following categories:

• To mitigate the impact of toll fees, frequent users will be eligible for frequent user discounts. Also, time of day discounts have been offered.
• Ignoring all the benefits (such as saving time, vehicle operating costs, etc, and considering only the cost of tolling, the cost of living increase on household incomes less than R24 365 will be 0,31%, i.e. 31 cents for each R100 spent, and on households having an income between R24 365 and R55 159 will be 0,29% cents for each R100 spent. Thus, the project will have little impact on the consumer goods and will not be inflationary.
• Public transport vehicles using the network would have, as expected, additional costs. However, in this instance discounts of 75% have been offered to mitigate the impact on fares. Furthermore, toll fees are tax deductible.
• Effects on businesses would generally be strongly positive, because of the improved accessibility. A very small minority of businesses may suffer losses, through reduced passing trade.
• International research experience suggests that in addition to normal accessibility improvements, businesses in a growing economy, like Gauteng, would benefit from increased efficiency in their labour markets. This may add 30% to 50% extra to conventionally assessed benefits.

The macro-economic analysis shows that the investment in upgrading or expanding the freeway network would bring about additional growth in the national and especially Gauteng regional economies. As a result, there would be substantial job and business creation impacts over and above those associated with the construction contracts themselves.

 During the construction of the civil works 20 000 jobs were created - and at least a further 900 jobs will be created in fields such as ICT during the operations phase.

Traffic Modelling

Extensive traffic modeling was done during the planning and implementation stages of the project. Previous experience, when tolling is implemented in an urban environment, showed that traffic diverts onto the ‘back roads' for a short period, but then reverts back to the tolled route. This pattern was also evident when the Platinum toll road opened in Pretoria North. When comparing the impact of tolling, the effect of not having the additional capacity (do-nothing scenario), is compared with future scenarios when traffic has grown, and did not have any other option than to use the road network (freeways and supporting network) without any upgrades. The traffic modeling which compared the upgraded network (with toll roads) versus the current network for 2015 (4 years from now) indicated that:

• The tolled freeway network offers additional capacity (compared to the do-nothing scenario), which is especially utilised during the main peak periods.
• In terms of the overall alternative Provincial and Metropolitan road network, there should be a reduction of ±10% in travelled distance and in excess of 20% reduction in travel time on a daily basis as a result of the GFIP project.
• Comparing traffic volumes on key roads in the Provincial and Metropolitan road network, there is a daily reduction in traffic of between 5% - 8% and a daily reduction of approximately 6% in heavy vehicle traffic. This should have the effect of extending the maintenance and expansion programmes for these roads and resulting in significant savings for the Provincial and Metropolitan road authorities.

Statement issued by Adv. Anton Alberts, FF Plus Parliamentary Spokesperson: Transport, June 3 2011

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