Microsoft Word - FILM Final Report - September 2010

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FORUM BUILDING, 159 STRUBEN STREET, PRETORIA, 0001, GAUTENG, SOUTH AFRICA

FUNDING INSTITUTIONAL & LEGAL FRAMEWORK

PHASE 3: FORWARD PLANNINGFinal Report: September 2010

REFERENCE No: NAT/PH3/Sep. 10


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National Transport Master Plan 2005-2050 FILM Phase 3 Report (Final Report) September 2010

DOCUMENT SUMMARY SHEET

Electronic

Reference:

Phase 3 Report\Final

Status: Final Report

Document Title: NATIONAL TRANSPORT MASTER PLAN 2005 2050:NATIONAL

PHASE 3: FORWARD PLANNING

Date: September 2010

Prepared For:

Department of TransportForum Building, cor Struben and Bosman Streets, PretoriaPrivate Bag X193, Pretoria, 0001

Prepared By:

Ingrop South Africa,348 Rivonia Boulevard, Rivonia, Johannesburg, GautengPO Box 3867, Rivonia, 2128

Tel.: 011-808 3000

Fax.: 011-808 3001

Aurecon1040 Burnett Street, Hatfield

PO Box 905, Pretoria, 0001

Tel. : 012-427-2732

Fax. : 012-427-2850

SSI Engineers and Environmental ConsultantsPO Box 25302, MONUMENT PARK, 0105

Tel: 012-367 5800

Fax: 012- 347 8378


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TABLE OF CONTENTS

1. FUNDING FRAMEWORK ................................................................................................... 11.1 FRAMEWORK RATIONALE ..................................................................................................11.1.1 NATMAP 2050 Transportation Funding Criteria ........................................................2

1.1.2 2010 Medium Term expenditure Framework (MTEF) Budgeting Guidelines............ 41.1.3 Dedicated mode funding or not ............................................................................... 4

1.2 ECONOMIC EVALUATION AND INVESTMENT FRAMEWORK ...................................................51.2.1 Project Definition and Derivation of the Reference Model ......................................... 6

1.2.1.1 Objectives............................................................................................................61.2.1.2 The reference model...........................................................................................61.2.1.3 Operations........................................................................................................... 6

1.2.2 Harmonization of Inter-sectoral Project Hypotheses..................................................61.2.2.1 Macro-economic scoping ....................................................................................61.2.2.2 The escalation rate and public funding constraints............................................7

1.2.3

Project Analysis........................................................................................................... 7

1.2.3.1 Market study, traffic forecast and project time horizon ...................................... 71.2.3.2 Tax/subsidy regime and tariff policy ................................................................... 7

1.2.4 Public Socio-Economic Scorecard ............................................................................. 81.2.4.1 Principal beneficiaries .........................................................................................81.2.4.2 Determination of principal indicators ..................................................................81.2.4.3 Sensitivity analysis.............................................................................................. 9

1.2.5 Financial Feasibility, Financial Risk & Impact on Fiscal/Public Resources ............. 101.2.5.1 Indicators to be determined are:.......................................................................101.2.5.2 Determining financial feasibility ........................................................................ 111.2.5.3 Financial risk analysis.......................................................................................11

1.3 NATMAP 2050GOAL ACHIEVEMENT MATRIX ................................................................... 121.4

CAPITAL VS.OPERATIONAL EXPENDITURE (CAPEX VS OPEX)FUNDING ............................14

1.5 NATMAP 2050FUNDING PRINCIPLES............................................................................... 141.5.1 SECTORAL FUNDING SOURCES .......................................................................................15

1.5.1.1 Road Mode........................................................................................................151.5.1.2 Rail Mode.......................................................................................................... 181.5.1.3 Rail Infrastructure capex...................................................................................181.5.1.4 Maritime Mode .................................................................................................. 191.5.1.5 Pipeline Mode ...................................................................................................191.5.1.6 Air Mode............................................................................................................ 19

2. INSTITUTIONAL AND LEGAL FORWARD PLANNING.................................................202.1 INTRODUCTION ............................................................................................................... 20

2.1.1 Terms of Reference .................................................................................................. 202.1.2 Approach to Phase 3 ................................................................................................20

2.2 PROPOSED ALTERNATIVE STRATEGIES ........................................................................... 202.2.1 Proposed New Institutions ........................................................................................21

2.2.1.1 Multimodal Transport ........................................................................................212.2.1.2 Roads................................................................................................................ 312.2.1.3 Rail ....................................................................................................................332.2.1.4 Aviation.............................................................................................................. 342.2.1.5 Maritime.............................................................................................................34

2.2.2 Proposed Changes to Existing Institutions...............................................................34


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2.2.2.1 Multimodal......................................................................................................... 352.2.2.2 Roads................................................................................................................ 352.2.2.3 Rail ....................................................................................................................382.2.2.4 Aviation.............................................................................................................. 422.2.2.5 Maritime.............................................................................................................43

2.3 CONCLUSIONS AND RECOMMENDATIONS ........................................................................ 473. LIST OF REFERENCES.................................................................................................... 48


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LIST OF FIGURES

Figure 1.3.A: Objective - Improve mobility and access to employment opportunities for low-

income earners ......................................................................................................................12Figure 1.3.B: Policies Strategies Plans Matrix ............................................................................. 13Figure 1.5.A: The ABC of Securitization.......................................................................................16

Figure 2.3.A: Institutional Change Timescales and Activities....... Error! Bookmark not defined.


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GLOSSARY OF TERMS

ACSA Airport Company of South Africa

ATNS Air Traffic and Navigation Services Company LimitedBOT Build Operate & Transfer

CMIP Consolidated Municipal Infrastructure Programme

DEAT Department of Environmental Affairs and Tourism

NDOT National Department of Transport

EBITDA Earnings before Interest, Taxes, Depreciation, and Amortization

GIS Geographic Information SystemsGPS Geographic Positioning System

ICT Information and Communication Technology

IRR Internal Rate of Return

ITS Intelligent Transportation System

LDO Lease Develop OperateMIG Municipal Infrastructure Grant

MPF Multimodal Policy ForumMTBPS Medium Term Budget Policy Statement

MTEF Medium Term expenditure FrameworkNRFA Namibian Road Fund Administration

NT National TreasuryNATMAP2050

National Transport Master Plan 2005 - 2050

NER National Economic RegulatorNLTTA National Land Transport Transition Act

NLTB National Land Transport Bill

NMT Non Motorised Transport

NPA National Ports Authority

NPV Net Present Value

NATCHNational Transportation Development Planning & Investment ClearingHouse

PPP Public Private Partnerships

PFMA Public Finance Management Act

PRASA Passenger Rail Agency of South Africa

PTIS Public Transport Infrastructure & Systems Fund

PTOG Public Transport Operations Grant

RWDCE Road Weight Distance Charging Entity

SABOA South African Bus Operators Association

SALGA South African Local Government Association

SAMSA South African Maritime Safety AuthoritySANRAL South African National Roads Agency Limited

SARCC South African Rail Commuter CorporationTER Transport Economic Regulator

TICH Transport Investment Clearing HouseUTF Urban Transport Fund

VAT Value Added Tax

VUC Variable User Charging


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National Transport Master Plan 2005-2050 FILM Phase 3 Report (Final Report)

September 2010

1. FUNDING FRAMEWORK

1.1 FRAMEWORK RATIONALE

The funding analysis of Phase 2 concluded that:

Except for the air mode, transportation investments have trailed economic growth

and, in fact, come in the wake of general divestment when considered against

requisite spend just to maintain installed infrastructure and operational capacity. It is

fair to conclude that current flurry of investments are for the most a very

necessary attempt to restore lost capacity and as such must be lauded. As a longer

term planning and investment programme, NATMAP 2050 builds on these efforts,

but seeks to ensure sustainability and capacity expansion to 2050. In this respect, a

fundamental recast of funding solutions along the lines proposed below is

mandatory, alongside a review and recalibration of the institutional dispensation to

support and sustain transportation investments as the country prepares to face a

future weaned of fossil fuel dependency, long-term environmental degradation and

the finite nature of funding resources available to address a larger demand accruing

from a fairer and more equitable access regime to transportation for all citizens than

was policy in the past.

International experience in market economies indicates some common practices,

i.e., that public funding of transportation infrastructure is much more common than

for transport operations. Further, that private ownership of transportation services is

broadly common for freight than for passenger transport; predominant in road

haulage, freight forwarding and air travel, but exceptional for railway services.

Except for road passenger services, South Africa mirrors these international

tendencies.

Government provision of transport services faces a number of constraints which

distort optimal funding options adopted, and are exacerbated in a developmental

state, viz.,

Competition for resources from core government functions, and theinherent contradictions in trying to be policy maker or/and regulator of thesubject operations;

Managerial tensions of seeking commercial viability concurrently withsocial goals. This is further pronounced where subsidies underpinoperational sustainability or/and where public service norms andprocedures rather than operational needs drive/influence managementpractices;

Technical efficiency losses/compromises where the activity createssurpluses which are then used to cross-subsidise other often at theexpense of capital formation and re-investment in the profitable activity,etc.


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Fundamental to above issues is the reality that governments pursue many policy

objectives in transportation sometimes even parallel objectives that embody

dynamic tensions, if not contradictions.

With regard to transport infrastructure, NATMAP 2050 recognises that much of it

has attributes of natural monopolies, and, that the costs of provision more often than

not are difficult to recover from users and hence engender distributive outcomes. Assuch, the funding options adopted for infrastructure provision impact more

significantly on the achievability of NATMAP 2050 Funding Postulates prescriptions

than is commonly the case for operational investments

1.1.1 NATMAP 2050 Transportation Funding Criteria

The analysis of the status quo of transportation funding in SA confirms that funding

resources are finite and the different spheres of government tasked with various

responsibilities of providing transportation infrastructure and operation often do not

have the funding wherewithal to discharge their functions at adequate levels and on

sustainable bases.

Since taxation is a fundamental source for transportation funding, applicable taxes

must exhibit a fair structure to enjoy universal legitimacy among South Africans. To

achieve this, the structure must contain elements of the following criteria equity,

efficiency, adequacy and ease of administration and compliance. There may, of

course, and often there will be conflict between the criteria, but such conflicts only

serve to underline the imperative, which is, to give sufficient consideration to them to

guide the design/evaluation of taxes and/or user charges levied to fund

transportation investments. This holds true with respect to forecasting funding

sources to 2050. Summarized, the funding criteria require:

1.1.1.1 Equity

In modern, democratic SA, there does seem to be general acceptance that each

taxpayer should pay his/her fair share of the cost of government. This consensus

rests on the twin-notions of benefits received and ability to pay. NATMAP 2050

advocates that both notions should apply when deriving equity in the funding of

transportation investments, i.e., the amount that a user pays should be proportional

to the benefits received and, payments should be in accord with some measure of

capacity to pay.

1.1.1.2 Efficiency

Efficiency is concerned with the avoidance of undesirable economic side effects,i.e., the tax/charge is neutral in its effects on market behaviour, and does not

introduce any excess burden or loss in economic welfare above that resulting from

the tax/charge payment itself. Such effects should be kept at a minimum, unless, the

objective is to induce a change in economic behaviour.


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Departure from efficiency in transportation investments for the purpose of inducing

societal desirable economic behaviour is foreign to South Africa, but is gaining

currency and momentum elsewhere, e.g., the congestion pricing in London UK, for

the purpose of curbing congestion and reducing the need for expensive capacity

expansion. Whilst NATMAP 2050 endorses the departure from efficiency to achieve

wider societal goals, any purpose of a tax/charge other than to raise revenues to

fund transportation infrastructure and/or operations should be clearly delineated, itsdistorting economic effects carefully examined, clearly understood and factored into

the decision.

1.1.1.3 Adequacy

A tax/charge must raise sufficient revenues to support the programme it is designed

to support. Limited value transportation charges/taxes do not provide stable and

predictable sources of revenue.

Whilst most adequate taxes are generally levied on a broadly-defined base, and are

thus difficult to circumvent, a narrowly defined and/or dedicated transportation

tax/charge is not difficult to avoid through a change of economic behaviour.

Nonetheless, South Africas only quasi dedicated tax - the fuel tax - is stable, but,

given the conclusions of the energy and environmental analysis, it also is likely to

undergo structural changes which will affect its adequacy during the NATMAP 2050

planning period.

The adequacy criterion is further entangled by the multi-modal and integrated

approach to transportation planning that NATMAP 2050 prescribes. Indeed, any

perception of inequity may render politically sensitive the pooling of funding for one

mode to the perceived benefit of another. Consequently, attendant potential political

trade-offs that may ensue are bound to dilute any envisaged economic net gains

inherent in an integrated approach to delivering transportation benefits to society atlarge, as discussed above.

Hence, the adequacy norm, whether in form of taxes or user charges requires that

these bear a degree of correspondence to the costs of providing target

facilities/services for which funds are being raised.

1.1.1.4 Ease of Administration and Compliance

The second World Bank report Paying Taxes 2008: The global picture, measures

how easy it is for companies to pay tax (SA at 61st of 178 countries). It also ranks

countries according to tax burden on companies corporate income (SA at 65% of a

companys total tax rate against a global average of 37%). At an average of 350

hours a year spent on compliance against less than 50 hours in countries generallyconsidered as our traditional trading partners, SAs compliance cost is singularly

uncompetitive. It is against this background that the significance of transportation

related taxes/charges must be evaluated, and, NATMAP 2050 proposals take due

regard of compliance and charge/tax collection costs.


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1.1.2 2010 Medium Term expenditure Framework (MTEF) Budgeting

Guidelines

In order to properly situate the NATMAP 2050 Funding Framework, it is useful to

summarize the current Treasury practice as it applies to the 2010 MTEF. The

Treasury guidelines are designed to promote efficiency in infrastructure planning

and budgeting, supporting a better allocation of resources across government.

They apply to equally to mega-projects of between R300m and R900m as well as

large projects of between R50m and R300m. In setting out full project costs

including annual operational costs over the lifetime of the asset, the following

evaluated/analysed:

Needs or the problem(s) that have given rise to the need;

Cost benefit analysis including externalities (only externalities that result in

a significant effect should be included), as well as the discounted value as

represented by the projects net present value (NPV)

Options analysis to determine cost-effectiveness;

Sensitivity analysis and risk assessment, and lastly

The implementing entitys own readiness and capacity to implement the

project and the attaching timelines.

These guidelines incorporate all elements that NATMAP 2050 would wish to have

included in a discreet project evaluation. However, NATMAP 2050 requires that

projects be evaluated to take account of the multi-modal nature of delivering

transportation investments, emphasising integration and seeking inter-/intra-modal

efficiencies. As a funding framework, it also is concerned with equity, adequacy as

well as ease of administration and compliance of the funding instrument as set out

under 1.1.1 above - in addition to intrinsic project finance efficiencies.

1.1.3 Dedicated mode funding or not

Dedicated infrastructure funding, such as the traditional Road Funds, were often set

up at the behest of the World Bank in 1960s and 1970s in Africa, Latin America and

Asia. These funds were typically financed by earmarked taxation to protect Bank-

financed investments. Later, during the 1980s and 1990s, the so-called second

generation Road Funds were established, these were characterised by being funded

by levies or surcharges designated as user charges and identified separately from

general taxation. Earmarked budgetary arrangements invariably limit macro-

flexibility and - often in times of economic austerity aggravate the prevailing

constrained fiscal circumstances leading to inefficient allocation of resources.

It must be noted that the South African practice of issuing Conditional

Grants does not constitute an earmarked budgetary arrangement in the

sense of a dedicated fund.

Equally, the concept of user charges advocated here-below does not

constitute earmarking as the relationship between the infrastructure being


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subjected to charges and the behaviour to be influenced is direct and the

charge functions as a price rather than a tax.

First generation road funds can be rejected outright as they, not only constrain

leverage and flexibility in managing macro-policy or reallocating resources in the

light of changing national priorities, but are contrary to the multi-modal and balanced

transport system that NATMAP 2050 advocates.

The use of second generation dedicated funds and a decision to introduce such

funds in future must be based on practical and systematic assessment of the

context and ability to minimize abuse and misallocation of resources over time. The

significant operational efficiency gains in overcoming uncertainty in the level and

timing of funding inherent in second generation dedicated funds would contribute to

the NATMAP 2050 adequacy criteria, and is often cited as favouring second

generation dedicated funds. However, as discussed under 1.1.1.3 above, other

factors often outweigh this utility. The judicious application of the NATMAP 2050

funding framework as advocated herein is therefore deemed sufficient without the

use of dedicated mode-specific funds.

1.2 ECONOMIC EVALUATION AND INVESTMENT FRAMEWORK

The Goal Achievement Matrix described under chapter 1.4 below entails financialoutcomes that may in some instances be beneficial or not in monetary investmentterms, and/or in societal economic terms. Rigorous evaluation and assessment ofsaid outcomes becomes not only necessary but mandatory when the contemplatedinvestment is sufficiently large in absolute terms or/and in ongoing resourcecommitment to secure the investments sustainability to continue rendering thebenefits ensconced.

Large transportation projects, frequently, exhibit value added outcomes that may, inand of themselves, be desirable from a societal and socio-economic perspective.Such outcomes are referred to as structuring, i.e., they cause/induce secondarybeneficial effects on the productive economy. In such cases, a large transportationproject may not entail sufficient monetary investment benefits, or these may be notsufficient to justify the investment, but its economic structuring benefits may benonetheless beneficial to the region/sector/country - enough to counter-balance theinsufficient projects direct economic/financial benefit, and as such worthy of beingpursued.

Put in perspective, the socio-economic scorecard prescribed hereunder does notdictate the decision to make when faced with large transportation project proposals,but, offers transparent norms and monetized values that, when taken into account,may lead to a positive decision, notwithstanding a less than favourable monetary

internal return from the required investment.

The economic evaluation methodology advocated hereunder draws fromaccepted theoretic economic evaluation methodologies and practices, on theone hand, and, - in terms of best practices - on the other hand, borrows fromlegislated French prescription as amended, updated and enhanced in 2005,in particular. Indeed, even superficial examination of French practices quickly


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reveals a surprising degree of suitability, and institutional compatibility with theSouth African local circumstances that French practices embody.

The proposed framework is thus as follows:

1.2.1 Project Definition and Derivation of the Reference Model

This step describes the objectives pursued, alternative solutions available to achievesaid objectives, and sets out the reference model, i.e., the situation in the absenceof the proposed project (or do-nothing situation).

1.2.1.1 Objectives

Large transportation projects must contribute to furthering South Africas overalltransportation policies, and, to the country meeting itsregional/continental/international obligations. At a micro-level, user needs (traveltime, security, mobility, etc) as well as economic productivity gains constitute someof the objectives. The quantification of the requisite investment must becomprehensive and encompass both capex and opex estimates (including ongoing

demands on public funds), externalities and savings due to the projectsimplementation. In addition, any investment that, whilst required for the proposedprojects viability, but would at any rate have been made even in the absence ofthe project (termed eluded investments) is accounted for in the investment sumbuild up, but subsequently excised from the project budget.

1.2.1.2 The reference model

The reference model serves to benchmark the project. Its utility is directlyproportional to the rigour and coherence of its construction. Hence, it must presentan optimized and most probable situation in the absence of the project andencompass the same time horizon that the projects utility contemplates.

1.2.1.3 Operations

Comprising the total project costs and benefits, the socio-economic evaluation willalso factor in anticipated ongoing commitments arising from the projectsimplementation, including savings from non-implementation of competinginvestments as well as eluded investments.

1.2.2 Harmonization of Inter-sectoral Project Hypotheses

To conclusively compare inter-sectoral project alternatives, the macro-economicparameters modelled must have the same values, and, values attaching to

externalities must be normalized.

1.2.2.1 Macro-economic scoping

The macro-economic scoping will comprise indicators such as transport demand,inflation, GDP, long-term interest rates, etc.


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1.2.2.2 The escalation rate and public funding constraints

The escalation rate is in constant money, fixed at a uniform X% for all public projectinvestments. This rate is equivalent of a risk-free rate approximated by Treasurybonds. This rate will continually decrease to X-n% over the planning period to 2050.For project evaluations with a greater than a 50-year horizon, a constant rate of Y%will be applied for the period beyond 50 years.

To be factored in are risk factors, opportunity cost of public funds and the budgetaryconstraint.

1.2.3 Project Analysis

Project analysis must satisfy the imperatives of a long-term traffic forecast andcorresponding tariff sensitivity. As such, it constitutes the most delicate stage of theeconomic evaluation as forecasts have to allow for flexibility to manage anuncertain/unknown future.

1.2.3.1 Market study, traffic forecast and project time horizon

a) Particular attention must be paid to research and formulate the mostadapted model to the particular project, having due regard to

modal/multimodal parameters. The structure of the model and its

underlying principles and characteristics such as the chosen

parameters, values and their calibration, must be well defined.

b) Market analysis departs from the base of existing flows, factoring in

their evolution over time, mode share and competitive conditions. The

forecast must identify strategic points that may disrupt a linear

evolution as well as project risk factors and uncertainties. In order to

maximize prospects for attaining the projects commercial objectives,

necessary complementary investments and support activities such

as promotional campaigns must be factored into the market study.

c) The forecast traffic modelling results must distinguish and present areference traffic model, distinct from that captured from the

competition as well as induced traffic resulting from implementation of

the project.

d) Multiple project time horizons are necessary to take into account

different time periods due to the investments technical lifespan

or/and economic useful life on the one hand and financing modalities

and practices on the other. Traffic forecasts are dependent on

fluctuations in economic activity and tariff policy, both of which impact

decisively on transport demand. It is thus sensible to model the short

to medium term and only record some indications on long-term

tendencies.

1.2.3.2 Tax/subsidy regime and tariff policy

The tax/subsidy regime applied to transportation must be taken into account.Tariff setting policies that seek to achieve other objectives than to recoup projectcosts may be applied to effect and advance broader transportation policies and


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objectives. These include sectoral interventions and land-use policy goals, trafficdemand management and multi-modal channelling of competition.

Tax/subsidy regime and tariff setting are powerful tools of public policy seeking toinduce user behavioural change. It is capable of attaining an economic structuringeffect.

1.2.4 Public Socio-Economic Scorecard

It is important that a public cost-benefit (monetary or monetized and whereappropriate qualitatively defined) scorecard be evaluated to account for the projectstotal costs. It is equally important to analyze the various impacts on the differentcategories of beneficiaries and aggregate the normalized indicators. For thispurpose, principal beneficiaries are grouped into three coherent categories and theirrespective collective utilities determined. The collective benefit will thus be the sumtotal of these three categories of beneficiaries, computed in constant money anddetermined annually over the projects lifespan.

1.2.4.1 Principal beneficiaries

a) Users of projects transportation and users of alternative transport mode

User socio-economic benefits may be commercial (defined as the transport costdifferential) or non-commercial (for this purpose confined to value of time forfreight and passengers, value of human life, noise and pollution and carbon tax as per the Kyoto protocol). The collective surplus for this beneficiary group isa function of: Traffic as per the reference model, i.e., evolution of existing traffic in the

absence of the project;

Induced traffic, i.e., as a result of the implementation of the project, and

Impact on users of alternative modes (losers).

b) Transport enterprises and transport infrastructure managers

The surplus accruing to transport enterprises and infrastructure managers is

constituted by the variance in producer surplus resulting from project

implementation.

c) The State at all its spheres

For this group, the surplus arises from the variation in tax collected, the statesparticipation in funding the project as well as the projects ongoing commitments e.g., subsidies, repair and maintenance, etc.

1.2.4.2 Determination of principal indicators

Large transport project investments are characterised by an initial investment costand the annual recurring costs and benefits monetary and expressed in constantmoney, or/and qualitative, which are expressed in constant money.

a) Escalated collective benefits


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Escalated benefits accruing to the collective are defined as the differencebetween total project costs and benefits. This indicator provides the bestcriteria for accepting or rejecting a project proposal. It is expressed as

+

Definitions:

: year preceding the commissioning of the service provided bythe project , or the projects first phase

E: duration of construction

T: project lifespan

I: initial project cost (escalated, if it is implemented over severalyears or if it entails a multi-year commissioning), i.e.,

: sum of eluded investments. (eluded investments areinvestments that would be/have been undertaken irrespective of theprojects go-ahead)

: the variation in large maintenance investments in year t notaccounted for in the build up of operational expenses

: the projects economic benefits in year t, excluding operationalexpenses

r: the risk-free rate i.e., the escalation rate applicable to allpublic investments for NATMAP 2050 purposes, it is set at 50% of theyield of government bonds

R: residual value of the investment at the end of the projects lifespan(can be negative, if there is a cost of rehabilitation at the end of theprojects lifespan

b) Benefit to the collective per Rand invested

Expressed as the ratio B/I.

c) Internal rate of return

1.2.4.3 Sensitivity analysis

It is imperative that a sensitivity analysis be conducted to account for uncertainties inthe economic analysis. The most important parameters to be tested include:


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GDP growth,

Project costs capex/opex,

Traffic,

Energy costs,

Tariff evolution and competitive action, as well as

Monetized effects of pollution, noise, human life, etc.

1.2.5 Financial Feasibility, Financial Risk & Impact on Fiscal/PublicResources

Financial feasibility is calculated in constant money and exclusive of Value AddedTax (VAT), taking into account assumptions of inflation, traffic scenarios, tariffs,competitive behaviour/response assumptions, and time which is, however, limited

to the amortization period (or the concession period for PPPs. In the case that theamortization period does not coincide with the concession period, a separatecomputation is necessary).

1.2.5.1 Indicators to be determined are:

a) Escalated net value - VAN

VAN= - - +Whereas: i: is the reference escalation rate, representative of the

financing cost for the operator

: the applicable operational duration (amortization orconcession period)

EBE: EBITDA

: the operators total investment costs, including financing costs

: the escalated value of the operators eluded investments

: variation in large maintenance investments in year t (not included inthe operational expenditure)

: residual value of the investment accruing to the operator atthe end of the projects lifespan (can be negative, if the cost of rehabilitationat the end of the projects lifespan is charged to the operator)


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From an operators perspective, the VAN is the best criteria for accepting orrejecting the investment.b) The internal rate of return & payback period

c) State subsidies and/or support measures external to the project

In cases where the projects VAN is insufficient to underpin project operation,

further evaluation w.r.t tariff levels (taking due regard of socio-economic

affordability effects, adapting the project duration in the case of PPPs, or/andsubsidies.

1.2.5.2 Determining financial feasibility

Project viability

VAN, IRR and payback periods allow for the determination of the projectsintrinsic feasibility and compare different project proposals before making thefinancing choices and determining the amortization policy and cash flows.

1.2.5.3 Financial risk analysis

Financial risk analysis tests the projects robustness i.t.o its capacity toendure deterioration in underlying forecasts and/or environmental changes such as deregulation. In addition to evaluating specific risks attaching topublic operation of the project as opposed to a concession, a battery ofstandard ratios such as debt, liquidity, coverage ratios, as well assensitivity/trend analyses need to be determined and evaluated. Finally,certain simulations need to be run to test the projects capacity to withstandeconomic cycle fluctuations, competitive pressure from a new entrant,significant loss of custom, etc.


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1.3 NATMAP 2050GOAL ACHIEVEMENT MATRIX

Figure 1.3.B below seeks to illustrate how objectives harness policy principles andappropriate strategies to produce intended outcomes. Its hallmark is the rigour anddiscipline that it engenders in the consistency of multi-modal policy application and

inclusion of non-transport (in the stricter sense) support policies and measures inpursuit of prescribed objectives.

In Figure 1.3.A, a typical NATMAP 2050 Action Agenda to improve low-incomeearner mobility is illustrated.

Figure 1.3.A: Objective - Improve mobility and access to employment

opportunities for low-income earners

Institutional Policy/Measure:

DLA to prescribe national land use norms in favour of high density urban development

Provincial institutional capacity support to under-resourced DMs and policy execution oversightPlanning & investment Policy/Measure:

Derive indicative national average minimum wage & 10% monthly quantum of disposable income

New developments and re-developments to comprise of integrated work-live-recreation precincts

New road developments and periodic road maintenance programmes in urban areas to include

NMT set-asidesOperational, regulatory, concession Policy/Measure:

Regulator to set commuter fare band at R.x at constant prices for 5-years to Year Y

High Occupancy Vehicle lanes on all major corridorsPricing, Cost-recovery, Taxation & Subsidy Policy/Measure:

Tolling

Mass Rapid Transit subsidiesStrategy 1.1

Charge differentiated user fees which favour public transport on the road networkStrategy 1.2

Prioritize NMT in all new and urban renewal developmentsNATMAP 2050:

95% of urban and peri-urban dwellers access to passenger transport at 500m walking distance;

rural access at once-daily availability of village-to-nearest town transport

All local authorities to implement NMT strategies by 2025PRASA medium-term Plan/Measure:

Improve reliability of scheduled commuter transport to 10 minute interval at peak and 30 minutes

non-peak

18-hour service availability5-year investment Plan/Budget Provision:

Prioritization of network and rolling stock upgrade and maintenance spend

Demand responsive capacity and service expansion

Investment in service quality and customer-centric delivery

Treasury/DoT subsidy to PRASA to cover shortfall, conditional grants for service delivery

enhancement capex/opex


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Figure 1.3.B: Policies Strategies Plans Matrix

Institutional

measures

Planning &

Investment

measures

Operationa

lRegulation

&

Licensing

Measures

Pricing

Cost-r

Taxati

Subsid

Measu

Institutional Policies

Planning &Investment

Policies

OperationalRegulatio

n &

Licensing

Policies

PricCost-r

Taxa

Subs

Polic

Analysis of existing strengths and weaknesses, opportunities and strengths

Strategy 1.1

Strategy 1.2

Strategy 1.3

Strategy 2.1

Strategy 2.2

etc

Institutional

measures

Planning &

Investment

measures

Operationa

lRegulation

&

Licensing

Measures

Pricing

Cost-r

Taxati

Subsid

Measu

Objective

Objective

Objective


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1.4 CAPITAL VS.OPERATIONAL EXPENDITURE (CAPEX VS OPEX)FUNDING

Transportation investment considered under the NATMAP 2050 Funding Framework are

constituted by five categories, viz., creation (construction) and rehabilitation of the

infrastructure which is considered to be capital expenditure, as distinct from operational

expenditure, typically periodic maintenance, routine maintenance and operationalmanagement. Therefore, the framework considers funding modalities of capex distinct from

opex.

1.5 NATMAP 2050FUNDING PRINCIPLES

International experience in market economies indicates some common practices, i.e., thatpublic funding of transportation infrastructure is much more common than for transportoperations. Further, that private ownership of transportation services is broadly common forfreight than for passenger transport; predominant in road haulage, freight forwarding and airtravel, but exceptional for railway services. Except for road passenger services, South Africamirrors these international tendencies.Government provision of transport services faces a number of constraints which distort

optimal funding options adopted, and are exacerbated in a developmental state, viz., Competition for resources from core government functions, and the inherent

contradictions in trying to be policy maker or/and regulator of the subject operations;

Managerial tensions of seeking commercial viability concurrently with social goals.This is further pronounced where subsidies underpin operational sustainability or/andwhere public service norms and procedures rather than operational needsdrive/influence management practices;

Technical efficiency losses/compromises where the activity creates surpluses whichare then used to cross-subsidize other often at the expense of capital formationand re-investment in the profitable activity, etc.

Fundamental to above issues is the reality that governments pursue many policy objectivesin transportation sometimes even parallel objectives that embody dynamic tensions, if notcontradictions.

With regard to transport infrastructure, NATMAP 2050 recognises that much of it hasattributes of natural monopolies, and, that the costs of provision more often than not aredifficult to recover from users and hence engender distributive outcomes. As such, thefunding options adopted for infrastructure provision impact more significantly on theachievability of NATMAP 2050 Funding Postulates prescriptions than is commonly the casefor operational investments.

Notwithstanding the above, public ownership and operation of transport infrastructure is alegitimate and common policy choice. However, if chosen, the state-owned infrastructure

provider must be subject to tests of efficiency and sustainability that NATMAP FundingPostulates prescribe. It is in this light that contributions calling vertical separation must beevaluated. Indeed, there is a prima faciecase for vertical separation where the infrastructureis seen as a natural monopoly, but the service provision thereupon may be renderedcompetitively or, at least, periodically contestable. International evidence supports such astance, for example, in port and airport infrastructure. However, in the case of rail, and masstransit (metros and tram systems), the evidence is more complex. The technological andeconomic interface between the infrastructure and the rolling stock that uses it is complex.When separated, the management of this interface can be difficult and/or costly. Also,


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international practice does not provide incontrovertible best practice of long-term sustainableon-track competition - especially for passenger rail. Of course, this does not preclude theintroduction of periodic contestability of concessions or franchises.

1.5.1 SECTORAL FUNDING SOURCES

Deriving from the notion of basic level of service and the efficiency criterion discussed in

Phase 2 as well as from the NATMAP 2050 Funding Postulates:

1.5.1.1 Road Mode

1.5.1.1.1 Road Infrastructure Capex

Road infrastructure (construction, rehabilitation) capex is expected to continue to be fundedby the public sector including state agencies, during the planning period to 2050. However,the funding tools need to be reviewed and expanded to include (as may be appropriate foreach discreet investment):

1.5.1.1.1.1 Current commitments

Projects in the current MTEF and/or contained in approved capex of State Agencies will beconcluded using the assigned funding instrument.

1.5.1.1.1.2 New projects

All new infrastructure investment proposals for all modes must be subjected to a rigorouseconomic and financial analysis following the guidelines outlined under Sections 1.2.1 to1.2.5 above. Since most if not all proposals will be compiled by sector or mode, each suchproposal will need to be submitted to the centralized National Transportation DevelopmentPlanning & Investment Clearing House (NATCH) at the Department of Transport.

NATCH will:

not only verify the proposed economic and financial feasibility, but will be responsibleto subject the sectoral investment proposal to a cross-modal cost benefit analysis to

determine if the proposal is best delivered through the originating mode or another,or even a combination of modes;

ultimately arbitrate the proposed timing of the investment, taking into account thefinite resources at hand in relation to the recorded priorities in NATMAP 2050 atfirst, then within the Medium term Sectoral Plans and finally the rolling 5-yearTransportation Investment Plan for the country as a whole;

present and motivate the investment as part of a package for inclusion in the overallcountry-wide multi-disciplinary investment programmes to be considered by theNational Planning Commission, before ratification and approval by Cabinet.

In terms of public funding of the creation and rehabilitation capex - of road infrastructure,NATMAP 2050 endorses the current practice of not applying the Fuel Levy as a dedicatedfund as discussed under 1.1.3 above. The primary funding source for this function remainsthe national fiscus, as long as the current revenue collection principles continue in existence,with national collection being the dominant methodology.

In complement to public funding, the opportunity to involve the private sector should beexplicitly explored in the funding mix of new projects. This may take the form of a PublicPrivate Partnership:

Build Operate & Transfer (BOT) or a variation thereof most suited to the projectprofile, such as the Lease Develop Operate (LDO);


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As the bulk of future road infrastructure will most likely be developed along corridors,especially with respect of terminal nodes along the corridors, the underlying land-useenhancements should be pro-actively harvested through value capture techniquesthat tax the increased economic activity entail;

Securitization is an innovative funding instrument to be factored in especially withrespect to funding of facilities (terminals, stations, ports and inland ports, etc). assets

that are able to be ring-fenced, generate discreet and predictable cash-flows whichcan be packaged into a debt instrument and on-sold to investors are primecandidates for securitization see diagram below.

Figure 1.5.A: The ABC of Securitization

1.5.1.1.1.3 Road Infrastructure Operation (Opex)

NATMAP 2050 recommends a complete overhaul of funding instruments for road opex asidentified and analysed in Phase 1 & 2. The underlying basic concept espoused hereunderderives from the NATMAP 2050 Transportation Funding Criteria and Principles, discussed

under Phase 2 and summarized above under section 1.1.1 above, viz., equity, efficiency,adequacy as well as ease of administration and compliance. International best practicemade relevant to the South African environment provides calibration for reality and practicalimplementation to obviate disruptive experimentation or/and unrealistic system performanceexpectations. These funding criteria seek to make reality the basic right of all South Africansto access to transportation including the right to choose the preferred instrument(s) ofaccess to transportation both for private mobility and the transportation of goods andpassengers for economic gain. With its country-wide reach (in excess of 750000 kilometresof paved and unpaved roads), the road mode deserves particular attention as the mostaccessible transportation network in the country, and as such the most democratic mode


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that must be delivered in as strict adherence to the NATMAP 2050 Funding criteria aspractically feasible.

The NATMAP 2050 Road Mode Opex approach is two-fold.

First the approach considers the funding of access to the road network through an accessright fee.

This fee is graduated to reflect personal utility to the road user, i.e., private accessnot for economic gain using a private vehicle is charged at a lower rate than for anequivalent vehicle accessing the network for commercial gain whether forpassenger or goods movement; and

In the case of access for commercial gain, the access fee is further graduated toreflect a higher personal utility accruing to the user as the road network now servesas a capital asset to the creation of earnings that accrue discreetly a particularvehicle owner;

In addition to this graduation of personal utility accruing to the commercial user of theroad infrastructure, the fee is adjusted to reflect the potential stress on the roadsurface caused by the commercial and hence the inherent ability to damage theinfrastructure that accrues and is aggravated by the relative weight-carrying ability of

the heavy duty vehicle being licensed to access the road network. Finally,

A further graduation in access costs makes adjustment for equity in providing mobilityto all citizens of South Africa, viz., passenger vehicles access the network at adiscount to their equivalent heavy duty goods carrying trucks, in order to compensatefor the access becoming a barrier to affordability and hence lowering individualmobility.

A further consideration could be a punitive element to the fee build-up tocompensate for and/or discourage noxious effects of externalities on theenvironment. This would be based on a carrot & stick formula to encouragemigration towards cleaner technologies for automotive mobility needs and sointroduce pus-pull factors in favour of public transport in the case of passengers andrail goods transport in the case of haulage.

Secondly, the approach applies the principle of user charges to the usage of the roadnetwork. Again, for reasons of equity and efficiency, similar adjustments to the user chargerates are applied in accordance to the NATMAP 2050 funding criteria which prescribe thatequity, efficiency, adequacy and ease of compliance must underpin all funding instrumentsfor all modes of transport. NATMAP 2050 proposes to harness 21 st century technology toleapfrog the application and collection of user charges.

Road Opex funding is proposed to be shared between the 3 spheres of government asfollows:

For Access rights fees:

National government: 0%

Provincial government: 0%

Local government: 100%

Access rights fee collection is to continue in form of yearly renewable licences. Theapplicable quantum is however to be guided by the graduation as discussed above, andaccrue solely to local authorities.

For user charges:

National roads/government: Actual kilometres travelled


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Provincial roads/government: Actual kilometres travelled

Local roads/government: Actual kilometres travelled

User charge collection is proposed as follows:

In accordance with NATMAP 2050 funding criteria, a new revenue collection approach isproposed. To achieve the quantum leap that the modern technologies promise, user chargecollection will be through the application of intelligent transportation system (ITS) smart-vehicle technology to the task of fairly assessing road user charges, in a more stable andflexible way. Succinctly, the basic operation of the distance-based road user charge relies ongeographic positioning system (GPS) signals through triangulation to determine thevehicles position. A simple on board computer stores the file consisting of data polygons,using geographic information systems (GIS). These data polygons define the boundaries ofprovinces, district municipalities and metros as applicable. At the time of vehicleregistration/licence renewal, an account is established and road user payment options fixedwith the billing and dispersal centre.

(This capability allows for fairer user charge application across the length andbreadth of the country irrespective of uneven capacity endowment of each region

and sub-region. Also, in this way a potentially skewed user charge regime, whichwould unwittingly distort the prevailing natural inter-regional geographic competitiveadvantage(s) can be avoided within the country).

The computer continuously applies the per kilometre charge rate to the distance travelledwithin a given polygon and thus jurisdiction. What is stored in the on-board computer is thetotal amount owed to the jurisdiction. On a programmed schedule, the vehicle is interrogatedand stored data uploaded to a billing and dispersal centre, which bills the owner andapportions the revenue among the jurisdictions within which the vehicle has actuallytravelled.

(Significant enhancement of public policy effectiveness can be achieved throughelectronic user charging proposed hereunder, whilst achieving one or more ofNATMAP 2050s funding criteria such as the ease of administration and

compliance criterium. For instance, in terms of implementing travel demandmanagement, the system allows for variation of user charge rates to influencebehaviour, such discouraging peak period network overload through differentiatedcharge rates that favour off-peak periods, raising the applicable rate to encouragenight time goods delivery in congested CBDs, push-pull private traffic to publictransport through lane dedication for high occupancy vehicles use at peak times inaddition to differential charge rates, etc).

1.5.1.2 Rail Mode

Rail infrastructure includes tracks, marshalling yards, power supply and catenaries,telecommunications and control systems, bridges and tunnels. International experience with

vertical separation is not compelling, to a great extent due to the operational complexity thatensued where it was attempted.

1.5.1.3 Rail Infrastructure capex

For both passenger and freight operations on existing infrastructure, the integrated formula

is best left in tact. However, access financial arrangements between PRASA and FreightRail

must be regulated, with access charge regime biased in favour of passenger transport, and


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freight gradually migrating towards an economic rates regime to better reflect the cost of

infrastructure provision.

As a matter of policy and deference to rail efficiency for mass goods/passenger

transportation, the charge regime should be consciously favoured against road.

The Gautrain and Moloto Corridor high speed rail on standard gauge lead the railrejuvenation in SA. The momentum must be sustained. Future green-field rail projects suchas high speed lines, new freight lines, major station developments and re-developmentsmust consider incorporating PPPs and/or concession parties other than incumbents to instila measure of competition in the provision of service as well as infrastructure, wherefinancially feasible.

With regard to branch line infrastructure, there needs to be an instance that will house theseassets in a dedicated rail infrastructure agency, whilst alternative operation is sought. Theagency could evolve into an institution servicing both passenger and freight rail operationsholding the entire rail infrastructure park in South Africa.

1.5.1.3.1.1 Current commitments & new rail projectsMuch the same as for the road mode, remarks made under 1.5.1.1.1.1 & 1.5.1.1.1.2 aboveobtains for rail capex funding.

1.5.1.4 Maritime Mode

NATMAP 2050 favours the landlord model. In this model, the infrastructure provision is for acorporatized and commercially run ports landlord to provide navigation infrastructure,channel maintenance, wharves, utilities and common areas such as the internal roads.However, the incumbent should look to enhance efficiency through outsourcing of non-core/support activities such as tug services and maintenance. Shipping/barge andstevedoring services would be leased and/or competitively concessioned.

1.5.1.5 Pipeline Mode

The Pipeline mode infrastructure and operation should remain vertically integrated, but newcapacity must be competitively concessioned.

1.5.1.6 Air Mode

Current ACSA airport infrastructure and operation, and ATNS air navigationinfrastructure and operation should be retained under the regulated regime. As already thecase, airport services baggage handling, catering, aircraft refuelling, etc should becompetitively concessioned. Car parks should be also tendered out. In essence, save for theATNS function at airports, the preferred airport infrastructure provision model would simulate

that of the maritime ports under 1.5.1.3 above.


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2. INSTITUTIONAL AND LEGAL FORWARD PLANNING

2.1 INTRODUCTION

2.1.1 Terms of Reference

The terms of reference (TOR) define the scope of work of phase 3 as follows:

the Consultant task is to recommend the most cost effective, homogenous anddynamic institution structure that will enhance land use/transportation integrated

administration, planning, and operations for the planning period of 2005-2050.

Create a homogenous Department of Transport in all its aspects by land and sea and air

to embrace Railways, Road Transportation, Shipping and Civil Aviation in all their

general aspects including various Agencies dealing with specialised aspects of

transportation in this country.

2.1.2 Approach to Phase 3

During Phase 2 an analysis of the existing institutions and their legal support mechanisms

was performed. The need for changes in institutional and legal support was clearly identified

and informed by the different land-use, infrastructure and operations of the different modes.

As effective institutions are reliant on sustainable funding this chapter contains alternative

strategies as well as supportive proposed new institutions or proposed changes to existing

institutions to give effect to the needs identified during analysis. In cases where current

institutions cannot be improved upon currently, no changes are proposed.

2.2 PROPOSED ALTERNATIVE STRATEGIES

The following alternative strategies are proposed:

To introduce institutions and instruments where modal choice decisions are taken for

mega transport infrastructure investment projects.

To introduce homogenous economic regulation to the different modes of transport

where pricing is distorted due to lack of competition.

To ensure homogenous safety regulation entities for the different modes.

To take responsibility for the strategic development of different modes by producing

Integrated National Master Plans for infrastructure and facilities of each mode.

Ringfencing of infrastructure and operational costing in areas (like rail and pipelines)

where vertical separation of existing entities is not currently possible due to lack of

proven viable alternatives at this point in time.

To introduce mechanisms to transfer the real cost of transport to transport

operators by charging for the use of infrastructure in terms of weight distance

charging.

To introduce user representation onto the boards of institutions that provide transportinfrastructure.

Evaluate effectiveness of provincial departments/agencies responsible for spending

on transport infrastructure to ensure effective spending of public funding. From

evaluation to develop delivery and spending criteria.

Ensure that existing institutions execute on existing mandates by highlighting areas

where they are currently failing in their duties.


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To benefit from the effectiveness and proven delivery of institutions for the provision

of transport infrastructure of national importance (SANRAL, ACSA), by expanding

their responsibilities by enlarging their portfolios by transferring infrastructure from

less effective institutions.

Ensure effective coordination structures between National, Provincial and Local

government levels. Also ensure coordination with other relevant government

departments takes place that ensures alignment, cooperation and coordination ofservice delivery.

The statement structure follows strategy requires that each strategy be sufficiently

supported by structures for delivery. The above strategies are now discussed in terms of the

proposed new institutions, changes to existing institutions to give effect to them, according to

modes: multi-modal; roads; rail; aviation and maritime.

2.2.1 Proposed New Institutions

A need has been identified for new institutions in areas or where there is currently a lack of

capacity to meet the needs of the proposed strategy:

2.2.1.1 Multimodal Transport

There is a clear need to identify institutions on the multimodal level. From analysis it is clear

that there are turf wars between the different modes. Referees are required to balance

the optimisation of modes and national interests. Such institutions should be in a position to

give guidance to the different modes where the national interest wants them to focus. A

need has been identified for the following institutions:

Department of Transport - Multimodal Policy Forum

Introduce a forum where multimodal policy can be formulated. The aim is to limit duplication

of government service delivery and infrastructure provision and to reduce turf-wars

between modes by providing clear policy guidance.

Institutional Issues:

The proposed roles, functions and responsibilities of the forum should inter alia include:

Develop policy in terms of the roles, responsibilities and boundaries of the playing

fields of the different modes.

Give guidance to the different modes to understand their playing fields and allow

the modes to develop operational policy and strategy where most appropriate and

limit turf-wars between modes. It is expected to channel energy away from modal

pre-occupations and infighting to focused relevant and credible infrastructuredelivery.

Ensure overarching alignment of modes in a multimodal transport environment.

Ensure multimodal policy support to inter alia land-use and environmental issues.

Coordination of Master Plans of Transport Modes

The proposed forum should be part of the future Department of Transport structure in order

to centralise transport policy formulation in a cost effective and homogenous way inside a


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dynamic structure. This would enable the DOT to enhance inter alia land use/transportation

policy coordination.

The composition of the forum should consist of policy experts for the different modes with

experience in a multimodal environment. It should also contain representation from other

government departments like Land-use, Environment, etc.

Legal Issues:

This institution, as well as other proposed institutions, must be seen in the light of the roles

of the spheres of government as set out in section 11(1) of the National Land Transport Act

5 of 2009 (NLTA). This section came into operation on 31 August 2009, along with other

sections on contracting for public transport services. In terms of section 11(1)(a), the role of

the national sphere of government is, among other things, to

a) Formulate national transport policy and strategy

b) Be responsible for national strategic transport planning and co-ordination

c) Co-ordinate between provinces and address arrangements between the three

spheres of government

d) Assign functions to the most appropriate sphere of government

e) Liaise with other government departments, and

f) Monitor and capacitate provinces and municipalities.

As regards the intergovernmental relations aspect of the proposed Multimodal Policy Forum

(MPF), MINMEC already exists as a national intergovernmental forum contemplated in

section 9(2) of the Intergovernmental Relations Framework Act 13 of 2005. MINMEC has

sub-committees to involve municipalities, and these could be expanded or adapted to

incorporate other government departments and the aspirations of the proposed Multimodal

Policy Forum (MPF). However, a forum is needed that also incorporates the various modal

entities, including PRASA (rail passenger), Transnet (rail freight), SANRAL (national roads)as well as private entities such as SABOA (SA Bus Operators Association) and taxi

associations.

The proposed forum could either be established by statute, i.e. by an act of Parliament, or

informally by the Minister as a non-statutory structure. There is probably no need for it to be

established as a formal public entity in terms of the PFMA, but rather as a consultative

forum. However, if the forum is to have teeth to take decisions or give approval for actions

or to undertake planning that is binding on landowners etc. legislation will be needed to

provide for this. It may also be necessary to fund certain activities of the Forum, in which

case legislation will be needed unless the funding can be sourced from the DoTs normal

budget. An alternative would be for the Minister to establish the Forum informally as a

consultative body, but it would then lack the power to take binding decisions and all fundingwould have to come from the DoTs normal budget.

If it is decided to establish the MPF by statute, a Bill must be prepared to set out its

functions, powers and duties, the membership of the forum and housekeeping matters

such as holding of meetings, procedures, quorums etc. and provisions on funding. The

procedure for preparing and passing Bills is set out below.


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If the Forum will fall within the definition of public entity in the PFMA, the Department will

have to follow the steps listed below in respect of the proposed Transport Investment

Clearing House (TICH) and National Economic Regulator (NER), and the Forum will have to

be listed in Schedule 3 of the PFMA.

Provincial Issues:This institution would provide the necessary guidance to the provincial institutions that are

currently contributing to turf-wars in the provincial and municipal spheres.

In line with section 11 of the NLTA, the Forum, as a national institution, will be able to co-

ordinate between provinces and municipalities and assign functions to them. It can also

assist with capacity building and other assistance. Legislation in each province will have to

be examined to see if it needs adjustment to accommodate the objectives of the Forum.

Provincial legislation can only be repealed or amended by the relevant provincial legislature,

but national legislation can override provincial legislation if it falls within the categories listed

in section 146(2) of the Constitution.

Transport Investment Clearing House (TICH)

The purpose of this institution would be to give effect to the strategy:

to introduce institutions and instruments where modal choice decisions are taken for

mega transport infrastructure investment projects.

It would serve as a clearing house for transport infrastructure projects that require

investment. The institution would be mode neutral. Projects would be evaluated in terms

of appropriateness of the mode, integration with other modes and land-use in order to

ensure best solution in the national interest.


The proposed roles, functions and responsibilities of the institution should inter alia include:

Assist, support and advise transport institutions with limited skills in the formulation of

transport investment proposals that could ultimately be presented to the fiscus for

funding.

Technical and financial evaluation of alternative modal solutions to transport

problems of a national nature.

Motivation to the National Planning Commission and/or the fiscus to ensure funding

is obtained for mega transport infrastructure projects after determining the best or

appropriate mode.

Ensure appropriate procurement policy

Perform other functions necessary for the realisation of its objectives.

Additional functions which may include:

o Provide technical, management and financial advisory services, training and

other support services to transport infrastructure management institutions and

the DOT.

o Subject to approval by the minister provide its services outside the Republic

of South Africa


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USE OF TRANSPORT INVESTMENT CLEARING HOUSE (TICH) IN THE N

DEVELOPMENT PLAN APPROVAL PROCESS

Given and within NATMAP 2050 objectivesNational, Provincial Departments, DMs and

Metros & Agencies

Formulate their strategic goals,project/programme objectives

o Projects proposalso Set out their f inancial requirements

Application of overarching criteria as

provided for in NATMAP 2050 long-term strategic goals and objectives for

the entire country, e.g., say

Growth, Poverty alleviation, Regional distribution, Infrastructure to support specified

goals, etc

Match with Macro policies,

sectoral strategiesand targets

Resource availability physical / financial/ human

Review Plan Formulate

fundingrequests

Review Investi-

gate Consult

Assess Select Recom-

mend

Allocateresources

Prioritize

Approval by

Cabinet

Parliament ..

Objectives &issues

Concepts Scope Costs

Match with overall financial

resources Multi-modal assessment and

resource levelling among Provinces,Metros, DMs and Agencies

List of programmes/projects

Provs/ DMs

Organs &

Agencies

TICH/

Agencies/Provs/

DMs/OrgansTICH Political

Authorit

Integrate into

National Planning

Commissions

development plan


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The institution may perform additional functions that are incidental to its primary

functions only if it:

o Does not limit its capacity to perform its primary functions.

o Is not to the financial prejudice of itself or detrimentally affects another

transport infrastructure management institution.

In the execution of its activities it must:

o Be customer orientated.o Ensure compliance with national policy

Interact with the NPC on planning and investment in mega infrastructure projects.

The proposed structure is to consist of permanent officials with multimodal, financial and

mode specific experts in infrastructure and operations.

The entity is expected to bring savings to government in preventing duplication of

infrastructure. It should have a clear understanding of evaluation criteria as applied by

Treasury to ensure that appropriate issues are addressed in the clearing process and that

projects are motivated in terms of Treasury requirements, therefore shortening

implementation time and costs.

It should not own any infrastructure but ensure that infrastructure created complies with

national transportation needs.

Legal Issues:

This institution would share similarities with Transfund New Zealand and the Namibian Road

Fund Administration.

In order to establish its powers, functions and duties clearly, the TICH should be set up by

statute, i.e. by a national act of Parliament. In terms of section 48 of the Public Finance

Management Act 1 of 1999 (PFMA), it would be classified as a national public entity i.e. anentity which is not a national business enterprise (it will not carry on a business activity) that

is

- Established in terms of national legislation

- Fully or substantially funded from the National Revenue Fund or from a tax, levy or

other money imposed by national legislation, and

- Accountable to Parliament.

The entity will have to be listed in Schedule 3, Part A of the PFMA. Prior to its establishment,

a business case should be compiled and submitted to the National Treasury for approval to

motivate the establishment of the Clearing House. The business case should deal with the

following issues, among others, which will be incorporated into the Bill establishing the TICH:

a) A motivation of the need for the TICH, its proposed purpose and functions and why

the functions cannot be undertaken by the DoT in terms of its constitutional mandate.

b) Other possible institutional options such as a more informal national

intergovernmental forum established in terms of section 9 of the Intergovernmental

Relations Framework Act 13 of 2005.

c) The corporate structure and an explanation of how it will comply with the National

Guidelines for Public Entities and the King II/King III recommendations, whichever is

applicable.


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d) The governance structure, i.e. the board or other structure that will govern the TICH

and its proposed composition and proposed committees of the Board.

e) Accountability to the Minister and to Parliament, and requirements for strategic

plans, business plans, performance agreements, auditing and reporting.

f) Chief Executive Officer (CEO) and staffing, i.e. the organisational and human

resource implications.

g) Funding of the entity and financial controls.

Once Treasury and other necessary approvals have been obtained, a draft Bill must be

prepared to establish the TICH. This Bill should contain the following clauses as a minimum:

a) Definitions

b) A clause establishing the TICH as a public entity

c) The objects/goals of the entity

d) Its functions and objectives, i.e. more specific measures to attain its objects

e) Powers of the entity, i.e. powers necessary to achieve its objectives and ancillary

powers, such as whether it may own immovable property. These will include the

powers listed above to set policy etc.

f) Service level agreement (if it is decided to have one)g) Power of the Minister to give directives to the entity

h) Structure of the board, appointing members, term of office, disqualifications,

termination of membership etc.

i) Meetings of board and board committees. In terms of the PFMA certain committees

are compulsory, such as an audit committee

j) Board charter (if applicable)

k) Appointment of CEO, conditions of office, delegations etc.

l) Appointment of personnel

m) Assets of the entity (if applicable). It may need to own offices and equipment etc.

n) Finances i.e. how will the entity be financed, e.g. by grants from Parliament. Assets

may be transferred from the DoTo) Bank account, auditing and financial management

p) Strategic plan, monthly, quarterly or annual reports

q) Liquidation or termination of the entity

r) Other provisions, such as exemption from taxes.

The Bill must be discussed with interested parties/stakeholders such as the National

Treasury, PRASA, SANRAL and other entities that will be affected, etc. It should also be

published for comment in the Government Gazette. The Bill once finalised must be

submitted to Cabinet for approval and to the State Law Advisers for certification. It is then

introduced to Parliament. It will probably be designated as a section 76 [of the Constitution]

Bill as affecting the provinces. It should be noted that if it is proposed to raise taxes or levies

to fund the entity, these provisions must be contained in a separate Bill, called a money billwhich is introduced by the Minister of Finance under section 77 of the Constitution.

The Bill and the proposed entity will have to comply with Part 9 of the Treasury Regulations

on listing of the entity, responsibilities of the accounting officer, internal control and corporate

management, auditing etc.

Provincial Issues:


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Care should be taken to ensure that the TICH functions are in line with section 11 of the

NLTA. Legislation in each province will have to be examined to see if it needs adjustment to

accommodate the objectives of the Forum. Provincial legislation can only be repealed or

amended by the relevant provincial legislature, but national legislation can override

provincial legislation if it falls within the categories listed in section 146(2) of the Constitution.

Provincial Transport Investment Funds

Provincial entities are finding it difficult to fund transport investments and maintenance to

existing infrastructure. The current financing arrangements provide no dedicated funding to

transport and it is left up to the provincial governments to do the necessary allocation in

competition with other provincial priorities. It is proposed to create a transport investment

fund for each province to provide the necessary dedicated funds to fund new and maintain

existing transport infrastructure in the provinces.


The proposed roles, functions and responsibilities of the institutions should inter alia include:

Receive the access charges and user charges that accrue to the province and which

are collected by inter alia the Road Weight Distance Charging Entity.

Manage the funds dedicated to transportation infrastructure in accordance with

statutory requirements.

Have borrowing powers in light of the extensive amounts that would accrue to the

province annually.

Prioritise provincial transport projects for funding from the fund.

Projects that cannot be funded from the provincial funds could be referred to the

Transport Investment Clearing House for possible funding.

Legal Issues:

Legislation will be needed to establish these provincial funds. It will not be necessary to

establish new entities, as the funds can be managed by the relevant provincial MEC. The

legislation could also provide for specialised personnel to be appointed within each

provincial department to manage the fund.

It should be noted that the National Treasury has opposed the creation of similar funds in the

past. For example, when the National Land Transport Act, 2009 was introduced to

Parliament as a Bill it included provision for provincial land transport funds to be created.

This was opposed by the Treasury, on the basis that the type of funding envisaged could be

dealt with by conditional grants made by the Division of Revenue Act each financial year.

However, the idea of the funds as suggested above is supported because provision can be

made for a number of sources of funding for the funds and the use of the funds will be

dedicated to the purposes stipulated in the proposed legislation.

The legislation should deal with the following inter alia:

- Creation of the funds

- Provisions on which person or persons should manage the fund


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- Sources of funding, including the user charges referred to above

- Purposes for which the fund may be used. These should be strictly confined to the

purposes outlined above for which the funds are created

- Investment of funds and interest

- Accountability, accounting and auditing

- Restrictions on certain activities, such as borrowing or making certain payments

- Authorisations or permissions required for certain payments, e.g. over a specifiedamount.

It should be noted that in terms of section 228 of the Constitution, provincial taxes or levies

may only be imposed in terms of national legislation, i.e. the Provincial Tax Regulation

Process Act 53 of 2001. This Act provides for a process that must be followed before such

taxes or levies may be imposed, including approval by the Minister of Finance. If the

proposed access and other charges can be seen as user charges, this process will not

apply. This applies to the tolls raised on national roads in terms of the SANRAL Act, 1998

which are seen as user charges.

The funds will also have to operate within the framework of the Public Finance Management

Act 1 of 1999 (PFMA), which, for example, has limitations and restrictions on borrowing byprovinces. Regard should also be had to the Borrowing Powers of Provincial Government

Act 48 of 1996.

Provincial Issues:

Legislation in each province will have to be examined to see if it would affect the creation or

the management of the fund. If amendments are required, they will have to be effected by

the relevant provincial legislature. National legislation can override provincial legislation if it

falls within the categories listed in section 146(2) of the Constitution, for example if it is

necessary for the promotion of economic activities across provincial boundaries.

Transport Economic Regulator (TER)

There are a number of modes in transport where government or its agencies are involved in

both infrastructure provision and operations and where lack of competition is present in the

mode. This is for example present in the following modes: rail freight, commuter rail,

passenger rail, pipelines, harbour services, airports services, etc.

Documents

Microsoft Word - FILM Final Report - September 2010