Ring-fencing the fuel levy
It is never a good idea to pay debt with debt. The consequences will always be expensive and ruinous to one’s credit rating. Just don’t do it unless, of course, there is no other way. This is the dilemma faced by Sanral, SA’s state-owned national road agency. Last week, a day after the agency reported a much reduced annual loss of R260m from R4.96bn in the previous year, it said it would approach the capital markets in the first quarter of 2019 to raise about R600m.
This amount, says Sanral, will be spent on capital projects in fulfilment of its mandate, so, technically, it is not raising debt to pay debt. But if the entity had been profitable it may have been able to fund new projects from cash generated, or at least in a better position to negotiate interest rates on new debt. But because Gauteng’s freeway users mostly refuse to pay e-tolls, Sanral is not profitable, and it now has a R6bn hole that has forced it to cut spending on capital projects and on repairs and maintenance.
These spending cuts, plus a special grant via the department of transport and a transfer of R1.9bn from Sanral’s nontoll portfolio, allowed the agency substantially to reduce its loss. That, however, does not reflect the true picture.
The transfer is likely to escalate to R5.75bn in the 2018/2019 year, an amount that would do little more than cover Sanral’s liquidity needs until July 2019. This means that it is likely to curb its spending on repairs and maintenance and on new projects, tolled and nontolled. The trouble is that if Sanral does not maintain its assets, they will deteriorate to the point of being lost, and if it does not upgrade existing roads and build new ones, SA can forget about growth and development.
It means that taxpayers will again have to foot Sanral’s bill even as the deteriorating road conditions diminish their capacity to generate taxable income.
This will not be popular. The cost of commuting has become onerous as fuel prices rise, giving material cause to commuters to resist e-tolls.
More worrying, though, is the resistance from people who can afford e-tolls, but still won’t pay as a form of protest about everything that has gone wrong politically and economically over the past two decades. This is an attitude that is unlikely to change unless the government fixes far more than roads.
The facts are that the e-toll model has failed and bailouts will come at a huge political cost for the government. Sanral will partly solve its problem by going to the capital markets, though a R600m injection seems paltry considering its needs. It has a good chance of succeeding, either by private placement or auction, backed as it is by a government guarantee of about R38bn. Sanral has also asked for the guarantee to be increased to R43bn and a borrowing limit (including unguaranteed debt) of R54bn.
As for the political fallout from taxpayer-funded bailouts, in this too the government will have to bite the bullet. The cost of not maintaining and expanding the road network, financially and politically, is likely to be far greater when the system collapses.
One way of getting taxpayer buy-in for a bailout is to ringfence the fuel levy to dedicate it to roads. Sanral is by all accounts an effective organisation and untainted by corruption, yet it is in financial difficulties. It may be reasonably assumed that an allocation from a ring-fenced fuel levy will be well spent.
Apart from imparting a sense of justice to Gauteng drivers who are expected to carry the greater cost burden of a road network whose externalities benefit everyone in the country, ringfencing will allow intergovernmental lending to jurisdictions whose road needs have been routinely overlooked by the Treasury. The ring-fencing model can apply to other development funding efforts too. For a government out of pocket, financially and politically, such a policy may be a lifesaver.
IT’S TIME THE STATE LOOKED ELSEWHERE THAN E-TOLLS TO FUND CRITICAL ROAD INFRASTRUCTURE