Sanral shows user-pays model can fail

SA’s economic crisis is probably best captured by the financial reports of state-owned enterprises (SOEs). The South African National Road Agency (Sanral) has just written off R3.6bn in uncollected e-toll fees. This was precipitated by the Prescription Act, which makes it difficult to collect debts that are long overdue.

The Department of Communications recently indicated in Parliament that if all South Africans paid their licence fees, the SABC would be financially stable.

Sanral and the SABC rely on the user-pays principle, in which the end-user is directly charged for the service. Public infrastructure projects of this nature essentially have two sources of funding — the taxpayer or the end-user. In instances where the taxpayer has to foot the bill, there is a perceived unfairness when the product benefits a specific group of users. Direct injections from the public purse are regarded as unfair to the “excluded” citizens.

The end-user model alternatively targets those who directly benefit from the infrastructure use. But since the pool of direct users is inevitably smaller than the general population, the unit cost is higher and hence the end-users feel the direct financial effect.

However, if alternatives to the services offered are available, the scope for increasing the user charges is limited. This is the South African Airways dilemma.

The rejection of the e-tolls model was for financial and political reasons. The political rejection reflected the dissatisfaction with the lack of consultation by Sanral. In the SABC case, the decline in licence fee revenues indicates the loss of faith in its governance regime. Despite a failure to pay TV licences being illegal, it is impractical to prosecute all defaulting citizens.

In a country with stubbornly high poverty and unemployment, the user-pays model is not always a viable option for public infrastructure. Until such economic fundamentals are corrected, the taxpayer will remain the source of the bail-outs required to keep state entities viable. The decline in tax revenue — highlighted by the R50bn shortfall in projected collections for 2017 — means even that source is becoming difficult to tap into.

The question of how such entities should be funded is the biggest issue facing the finance minister. Suggestions of using public servant pensions to fund SOEs have been rejected. Part of the problem relates to the confusion between the financing and the funding of public infrastructure. Financing relates to where funds are sourced. Funding relates to how costs will be recovered — from the taxpayer or the end-user.

When public infrastructure assets are properly managed in a way that generates a reasonable return, financing them is easy as lenders have an expectation that they will be repaid. Assets that generate services that are regarded as necessary by citizens, such as electricity provision, stand a better chance of being financially sustainable and the user-pays model is more viable.

But if policies are changed with every new administration, raising financing becomes more difficult. Volatile politics has created a trust deficit that makes it difficult for financing and funding issues to be resolved.

Custodians of pension funds would find it easier to finance entities such as SAA if there were a perception that they would be run properly and generate a return.

Similarly, taxpayers would be more comfortable paying for public services if a value is to be derived.

Until that happens, we are condemning ourselves to a generation of underinvestment in public resources.

Sithole (@coruscakhaya), a chartered accountant, academic and activist, chaired the Lesedi Education Endowment Fund as part of the #FeesMustFall campaign. He writes in his personal capacity.