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South Africa Receives Court Go-Ahead For e-Tolls

by Lorys Charalambous, Tax-News.com, Cyprus

24 September 2012


South Africa’s Constitutional Court has ruled in favour of the National Treasury and the South African National Roads Agency Limited (SANRAL) in a court case that has led to a delay in the implementation of e-tolling to fund the Gauteng Freeway Improvement Project (GFIP).

The GFIP, one of SANRAL’s largest projects to date, was, from April 30 this year, to have been the country's first multi-lane free-flow toll system using e-tolls, but a successful application for an injunction in the High Court against their levying and collection was brought before the North Gauteng High Court by an alliance of transport and consumer groups led by the Opposition to Urban Tolling Alliance (OUTA).

OUTA has said that the tolls would be “an inefficient, costly and unnecessary additional burden on road users, who already pay through a number of taxes for the benefit of road use”.

In reply, the National Treasury has indicated that there would be serious negative implications for the future financing of roads and investment in public transport were SANRAL to be prevented from implementing the e-tolls collection system, with the latter adding that the most equitable way to pay for the road improvements, when their financing has to be borrowed, is through a ‘user-pay’ principle.

Following the High Court decision, the government appealed the ruling and also appointed a review committee to look at all aspects of financing the project, including SANRAL’s ability to pay back the debt already incurred in financing construction of the new road.

In court papers, Finance Minister Pravin Gordhan disclosed that SANRAL's cash reserves, which include a ZAR5.75bn (USD690m) government contribution to the project, will be depleted by the first quarter of 2013 should e-tolling not go ahead, unless additional transfers are made from the Treasury through higher taxes for road infrastructure.

In addition, failure to collect tolls raises the risk of SANRAL defaulting on its loans, which would trigger an immediate repayment of its entire loan book of ZAR37.1bn, and the government would also be obliged to support SANRAL by repaying the rest of its unguaranteed debt totalling another ZAR14.1bn.

The Constitutional Court in their unanimous decision, upheld the government’s appeal - effectively setting aside the order of the High Court. The government has welcomed the court ruling, which means that SANRAL can go ahead with arranging for the implementation of the e-tolls.

The government remains convinced about the appropriateness of the GFIP with the user-pay principle, as part of the country's investment in road infrastructure. George Mahlalela, Director-General in the Department of Transport said that "the development of a country's road infrastructure plays a critical role in sustaining its growth by facilitating the movement of goods and services across the country," and indicated that government would study the judgment and make an announcement on the way forward shortly.

The government is also still proceeding with the ongoing stakeholder engagement process on the GFIP through an Inter Ministerial Committee (IMC), led by Deputy President Kgalema Motlanthe, which is holding meetings with unions, business and other concerned parties, including OUTA. That committee has yet to report.

However, the government also remains adamant that a way has to be found to fund the GFIP, and that "there's a need for all stakeholders to come to an agreement. At the end of the day we can't just print money, a budget has to be found somewhere."

OUTA’s comment on the court decision was that its argument against e-tolling centred on whether road users were adequately consulted in 2008, given that e-tolling is such a major policy implementation decision and that SANRAL’s current e-toll model is not cost efficient.

It also points out that, while the court decision technically grants SANRAL an opportunity to launch e-tolling in Gauteng, much has yet to be done before they can do so: revised tariff pricing, and their final terms and conditions, must be published; greater clarity and final regulations are required regarding e-toll exemptions; and the enforcement method for non e-toll payment remains very unclear.

OUTA is, however, “encouraged by the recent remarks from Government that they are prepared to consider alternative forms of funding for GFIP and other national transport infrastructure programmes,” and looks forward to engaging further with IMC to find an alternative solution.

Finally, it confirms that it will continue to prepare for the High Court review in November this year, and feels that there remains too much for SANRAL to do to re-launch e-tolling in advance of that review.

TAGS: court | South Africa | tax | economics | fiscal policy | law | budget | fees | enforcement | travel and tourism | ministry of finance | construction | services | Africa

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