Sovereign Africa Ratings

Unplugging E-Tolls: Navigating South Africa's Fiscal Quagmire

Roads promote economic development and are an important part of South Africa's economic infrastructure. Road funding has been and continues to be controversial, with numerous problems. Road infrastructure and all transport services that use roads, such as private vehicles, public transportation operations, and goods transporters, raise the public's standard of living, facilitate business interaction, provide social service, and contribute to the government's goal of promoting economic development. Gauteng is South Africa's economic powerhouse, accounting for 33.8% of the country's GDP in 2016 and roughly 5% of Africa's GDP overall. In and around Gauteng, there has been extensive urbanisation and development, which has increased traffic congestion.

In 2008, the South African National Roads Agency Limited (SANRAL) chose government-backed loans to accomplish a large highway renovation to reduce traffic congestion on major thoroughfares. SANRAL lacked the financial resources to support the Gauteng Freeway Improvement Project (GFIP). To recoup the funds used to finish Phase One of the GFIP, SANRAL adopted a user-pays model. It was decided to employ an e-tolling system, in which an electronic system determines the capacity of a vehicle and charges the road user accordingly.

In July 2008, SANRAL introduced a Domestic Medium-Term Note (DMTN), a financial instrument that increases the flexibility of producing cash for toll road construction. SANRAL launched e-tolls in 2013. The GFIP's costs in constant 2010 pricing are estimated to be R56 billion by 2030. The initial building costs were anticipated to be R21 billion. The cost analysis includes road-related expenditures during the construction phase, ongoing operational and maintenance costs, and costs associated with the Open Road Tolling (ORT) system deployment. This covers the cost of electronic tags, toll system infrastructure, Vehicle Classification (VPC) technology, and the ORT system's operating costs.

Road Funding

Road funding refers to the various revenue streams used to maintain and upgrade a country's road network. While the potential development function of road infrastructure is well recognised, road finance is divisive, with many conflicting viewpoints, and notoriously difficult. For decades, the gasoline tax served as the foundation for road funding, but its effectiveness and efficiency have dwindled in recent years. Some segments of South African society appear to support the implementation of a fuel charge to fund road infrastructure. This decision is founded on the notion that a gasoline charge provides a more equitable allocation, assuming that the fuel levy is sufficient when fully paid to the road sector. Non-governmental civil action organisations often endorse this stance, frequently advocating for the ring-fencing of the gasoline tax for road infrastructure. In the fiscal year 2022/23, the National Treasury collected R79.13 billion from the gasoline levy in RSA, accounting for 4.2% of the total tax revenue collected. In the fiscal year 2023/24, the fuel levy was R93.37 billion, accounting for 4.97% of the total tax revenue received.

SAR estimates that the revenue assigned to the Gauteng province in terms of fuel levy will be R23.37 billion in fiscal year 2022/23 and R25.22 billion in fiscal year 2023/24. This figure was determined using the litres of diesel and petrol sold in Gauteng province, as well as the fuel charge per litre specified in the Department of Energy's fuel price structure.

Most countries employ a fuel charge as their primary method of taxing road users. This type of levy is popular because of its simplicity, ease of implementation, and overall cost-effectiveness. The direct link between the fuel charge and road usage makes it an acceptable basis for collecting road expenditures. It is nearly impossible to escape this fee, and the administrative costs are little in contrast to the total revenue generated.

South African and international policy texts commonly recommend using the so-called user-pays principle to fund land transport. Tolls, on the other hand, are frequently used to support road-related projects and are based on the user-pays principle, which holds that those who profit from road use should be the ones who pay for its improvement or upkeep, similar to an airport fee. Airport fees contribute to infrastructure development, service advancements, safety measures, environmental initiatives, accessibility improvements, and economic growth in airport areas, benefiting both users and stakeholders.

SANRAL uses three tolling methods: classic manual toll booths, Electronic Toll Collection (ETC) for automated payments, and controversial e-tolls for Gauteng highways, which automate charges without requiring vehicle pauses. The money collected from tolls is used to reduce congestion, improve travel time, fix potholes, resurface roads, maintain and upgrade highways, expand roads, etc. Improved roads and corridors benefit the economy by reducing accidents, lowering vehicle operating costs, reducing congestion, saving time and money, and contributing to efficient and seamless transportation of goods and passengers.

Transportation investments, such as roads, public transportation networks, and intermodal transfer facilities, reduce the cost of moving people and commodities. This cost reduction may boost the productivity of businesses, organisations, and individuals by freeing up more time and money, resulting in higher production. Productivity, evaluated in terms of increased production per unit of investment, is an important driver of economic growth. Economic growth, as measured by GDP expansion, may result in a higher standard of life and increased revenue for the government.

Road Funding Options

There are several alternatives for funding roads, including a fuel levy, car registration fees, license fees, general tax, tolling, transit costs, and user charges. Road fund revenue is typically generated from two main sources: the government tax system and road user charges. Income from road user fees is typically more constant and predictable, whereas many governments struggle to maintain a consistent flow of revenue to road budgets. Fuel levies, bridge and ferry tolls, weighbridge fees, vehicle license costs, and international transit fees are the primary sources of revenue for road funds, excluding government tax support.

Advantages of E-Tolls

Toll roads provide a high-quality road network. Toll roads not only contribute to enhanced road safety, but they also reduce travel distances and result in significant savings on vehicle operating costs, including maintenance costs and much-needed travel time. This savings impact from road users has a multiplier effect on the economy; the "user-pays" approach represents a fair and precise method of paying for transportation services. Tolls connect road users' benefits to their payments by charging them based on how much of the road they utilise. Better roads lead to better infrastructure, which improves the economy. E-tolls allow for free-flowing traffic along the route and help to eliminate congestion. E-tolls lower carbon emissions by reducing the amount of time spent on roads. Motorist safety and security are enhanced along the route because it is a free-flowing collecting system on an open road. The other advantage is that heavy vehicles, such as trucks, can be charged greater tolls to compensate for the damage they cause to the road surface, which is not possible with licensing costs.

Fiscal Dilemma

Anti-toll sentiment has been building since 2012, spurred by calls from motorists, civil society, labour unions, and other interest groups to abolish e-tolls. Several explanations were advanced, including corruption in both the commercial and public sectors throughout both the development and operational phases of the project. For example, during the project's development phase, key construction companies colluded to inflate construction prices, resulting in exorbitant toll fees for road users. The Competition Commission also confirmed that construction businesses colluded throughout the project's building phase.

The introduction of e-tolls was also seen as a hindrance to small and medium-sized businesses and transportation groups. This was mostly due to growing municipal and fuel prices, taxes, and the tyre disposal fee. Concerns were also raised about political meddling on the SANRAL board, a lack of transparency, and instances of unethical business activities in the management and administration of the e-toll system’s operational phase.

The decision to scrap e-tolls, on the other hand, has significant fiscal consequences. The ruling left the Gauteng provincial government and the national government with a 47-billion-rand debt, divided 30/70. From 3 December 2013 to 26 October 2022, SANRAL owed R47 billion in e-toll debt due to the non-payment of more than 83% of non-compliant motorists. On 26 October 2022, the national government opted to bail out SANRAL by taking on 70% of the overall 47-billion-dollar debt, equivalent to 32.9 billion rands. The remaining 30%, totalling 14.1 billion rands, is assigned to the Gauteng provincial government on the condition that it funds its expected road repair costs of more than 2 billion rands per year for the next three years.

Conclusion

Treasury stated that the national government will make arrangements for the remaining funds associated with its share of the debt obligation for e-tolls. This will increase the RSA's sovereign debt load.

Furthermore, South Africa faces a rapidly deteriorating road network, increased urban congestion, and insufficient national road funding and strategy. The country cannot rely on the current national road funding framework to finance or manage its roadways. To replace the current approach, a policy is proposed based on the principles of efficient road user charging to control demand for road capacity based on marginal social cost, efficient investment to reduce total public and private investment in road capacity, and efficient road management to coordinate road user charging and investment.

Paying for roads through taxes or a designated fuel fund is cheaper than putting tolls on a road, even if they are administered through an ORT system. The collection cost is significantly lower because it does not include the cost of a toll collection system. The user-pays strategy, when translated into the globally accepted phrase of minimal social cost as a road user charge, will cover road user costs, but the principle does not ensure adequate revenue or budget neutrality.