Archive | Finance, economic

SARS understaffed to deal with transfer pricing

Davis report on transfer pricing confirms …

NB: This article updated after two recent meetings of committee on transfer pricing. Report with clients.

JudgeDennisDavisSouth African Revenue Service (SARS) was completely lacking in sufficient staff to deal effectively with transfer pricing in order to spot illegal transactions, said Judge Dennis Davis in his capacity as chairperson of the Tax Review Committee when addressing the Parliamentary Portfolio Committee on Mineral Resources.

He also pointed out that SARS, in any case, was also not provided with sufficient information by declaring companies, particularly multinationals as legislation stood at present, to further probe cross-border transactions to determine whether the movements involved the illicit transfer of profits from high-tax to low-tax regimes.

He told parliamentarians that whilst about three years ago SARS had conducted a very specific and targeted investigation, and had raised in one financial year alone some R1.1bn, this only illustrated the far larger amount of “haemorrhaging” that was taking place.

Not transfers but manipulation…

The Judge had to explain to MPs time and time again that transfer pricing in itself was not illegal, only any manipulative tax behaviour usually involving non-declaration or undervaluation.

Judge Dennis Davis referred to the recent highly publicised case involving HSBC where some R23bn directly involved the SA fiscus “and which was under review by SARS”.  He also drew attention to the fact that as a result of disclosures during the Marikana inquiry, Lonmin appeared to have profited by some R280m in saved taxes by transfers.

railfreight“Fictitious transfer pricing declarations were the problem”, he said, where multinationals managed to declare profits which appeared lower in countries with higher tax rates and higher in countries with lower tax rates. This occurred where the culprits identified transfers of intangibles for less than full value; showed over capitalisation of tax group companies and declared contractual arrangements with low risk tax environments.

Digging deeper

The Davis Tax Committee had recommended to National Treasury Department that the current unit in SARS, dedicated to base erosion and profit shifting be strengthened. At present this constituted only twenty personnel. “Building up this team would enable SARS to dig deeper into companies’ affairs”, he said.

Billy JoubertBilly Joubert, Tax Director, Deloittes, pointed to the fact that transfer pricing was in fact a “neutral” instrument in terms of its intention to promote industrialisation because its purpose was in fact to achieve arm’s length profits across the value chain.

Transfer pricing rules based on international best practice provided investors with certainty and it also protected the tax base of the relevant country, he said.   It was therefore an essential part of any tax system, providing taxpayers did not manipulate prices by shifting profits to lower tax jurisdictions. He condemned the practice.

Arm’s length reporting in question

Joubert said South Africa was an observer and an active contributor to the OECD and their transfer pricing guidelines was a resultant consensus document. It was critical for SA to align with the tax policies adopted by their trading partners where they could, endorse “the arm’s length principle” adopting the guidelines in their own domestic environment and follow global standards.

He said that SARS had achieved the collection of approximately R5bn over the last three years from some 30 audits and adjustments of R20bn.

He concluded that SARS’s new rules “were now more closely aligned to the global standard and possibly ahead of many other countries”, noting, however, there was a lack of certainty in terms of outdated practice notes; limited guidance on implementation of “secondary adjustment mechanisms”; and also a lack of interaction with double tax agreements which were closely allied to the process.

Back to understaffing…

Prof Johann Hattingh of UCT pointed to the fact that the Davis Tax Committee recommended full compulsory OECD style taxpayer information disclosure and there “was more than enough in the legislative armoury of SARS to effectively combat intercompany mispricing or tax abusive behaviour”.

However, he also pointed to the fact that SARS was understaffed and simply outnumbered by input of declarations to effectively implement transfer pricing legislation across a broad spectrum.

Prof Hattingh explained that insofar as tax interpretation was concerned it was a complex and ultimately subjective evaluation because of the difficulty in identifying intangibles and services which were transferred or provided and the arm’s length price at which they were valued. Even the whole definition of an “arms length transaction” was subject to difficult legal, accounting and tax interpretation, he pointed out.

OECD the genisis

He said all BRICS countries, except Brazil, took the OECD guidelines as a starting point, Brazil using fixed international commodity prices which provided more certainty but which conflicted in many cases with double tax agreements, since double tax could arise in one of the countries involved in transfers.

EFF member Freddie Shivambu said that in terms of SARS, staffing with skilled personnel was not the only problem as far as could see but there was a lack of clarity on the way forward.  Judge Davis replied that there were indeed criminal elements involved, such as illegal siphoning of money and under-declaration of assets, but his committee had established “empirical evidence” that the amount lost to the fiscus was not always as high as it was reported to be.

But the way forward, he re-empahsised, involved updating wording of legislation; the ability to follow up on “arms length transactions” and more staff to do this. His Committee’s report was with the President.

ANC says transfer pricing is manipulation

Some ANC members pointed to the fact that some multinationals were making “massive profits and not contributing to the country’s agenda to address poverty, inequality and unemployment and transformation” and that transfer pricing should be banned. Others called for it to be declared “illegal”.

They were corrected again by Judge Davis who explained that transfer pricing was a legitimate necessary process for companies doing legitimate transactions and as such it could not and would not be “banned” or illegalised.

D Macpherson DAMr D Macpherson (DA) joined the debate to say that the issue of illicit transfer pricing should not become a political matter but that it was a national concern for all, pointing to the fact that whilst transfer pricing was one issue, the country was losing some R6bn through other forms of corruption.

It was all part of the same problem, he said, and the country had to take a stand against all illicit activities that deliberately robbed the government of revenue.

Not just mining worldwide

Meanwhile Judge Davis agreed with ANC members that “additional revenue was needed to redress historical injustices” but the World Bank had reported that South Africa had addressed this challenge better than most countries, including Brazil. There was no evidence to suggest that transfer pricing affected the mining industry notably.

He was joined by Billy Joubert of Deloittes who stated that such a transaction should not be criminalised because they were cross-border transactions, which was essentially transfer pricing, and re-emphasised that they were “neutral” until  assessed and found to be illicit or not.

National Union of Mineworkers said transfer prices should in principle match either what the seller would charge an independent, arm’s length customer, or what the buyer would pay an independent, arm’s length supplier. He claimed that transfer pricing defeated the objectives of the Minerals and Petroleum Resources Development Act.

“All it meant”, said the NUM spokesperson, “was retrenchment of employees; low and unequal salaries: inadequate investment on skills development; poor implementation of social and labour plans and less investment on health and safety standards, resulting in injuries and fatalities.”

brigette radebeBridgette Radebe of South African Mining Development Association (SAMDA) said her records showed that “out of 151 countries, South Africa lost, on average, the twelfth highest amount of money through illicit financial outflows”. She disagreed with Joubert of Deloittes on the ‘neutrality’ of transfer pricing and the effects and that the statement that the mining industry was a “small player” was incorrect.

She said the mining industry contributed 17% of GDP and 38% of exports, plus 19% of private investment with R78 billion spent in wages and salaries. “These figures were totally eroded and made misleading by transfer pricing”, she said.  She provided the parliamentarians with a series of figures explaining how transfer pricing in the mining industry took place and claimed that manipulation was often the practice.

SAMDA suggested the immediate alignment of the mining charter with the B-BBEE Codes of Good Practice with transfer pricing and to address the issue of penalties contained in the charter for non-compliance.  Much agreement from ANC members took place.

Multinationals under attack

One ANC member stated that “the bulk of South Africa’s mineral resources were in the hands of foreign nationals and it was good that SAMDA and organised labour came together and addressed the issue of transfer pricing in terms of the South Africa’s economy.”

A department of mineral resources (DMR) staff member attending was called upon by the chair to respond, who stated that all the issues raised would be discussed by his department and in the light of success with penalties under the Mine and Safety Act, increased penalties for breeches in declarations might be considered.

Cooperation possible

DMR and SARS had been working together, the spokesperson said, on the whole issue of transfer pricing, a memorandum of understanding between the two departments having been established.

SAMDA said that some multinational companies often wished to “manipulate prices to such an extent that there was no income for beneficiation or share distribution and consequently loans on shares could not be repaid.”

Other articles in this category or as background
http://parlyreportsa.co.za/uncategorized/sars-to-be-given-right-to-search-without-warrant/
http://parlyreportsa.co.za/securitypolicedefence-2/customs-duty-bill-cuts-inland-ports/
http://parlyreportsa.co.za/finance-economic/promotion-and-protection-of-investment-bill-opens-major-row/
http://parlyreportsa.co.za/finance-economic/financial-sector-regulation-bill-heralds-twin-peaks/

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Competition Commission zeroes in on retailing

Minister on new Competition Commission focus…

large retailerThe Competition Commission is to announce the terms of the market enquiry into “parts” of the retail industry within the next few weeks, said Minister of Economic Development, Ebrahim Patel, in his budget vote speech to Parliament.

What “parts” exactly were not clear from his speech, Minister Patel only saying itebrahim patel would involve large supermarket chains, grocery stores and small retail outlets like spaza shops.

At present the Competition Commission has launched a market enquiry into both the private medical industry and liquefied natural gas distribution process and was now in discussion with the construction industry on a similar restitution package as “redress for their collusion and price-fixing.”

Property ownership focus

Unusually, Minister Patel’s speech was short and to the point but he did say on the Competition Commission would be looking into the retailing industry and property ownership area.

He said the inquiry would involve “The structure of the industry including retail outlets in townships, the tenancy arrangements in shopping malls that seem to squeeze smaller players out and the impact of the growth of large retail chains on competition, jobs and small business development.”

Announcement appears in vacuum

large retailer 2Nothing was said on Minister Patel’s plans for the Competition Commission in the budget vote speech from Minister of Small Business, Lindiwe Zulu, nor in Minister of Trade and Industry, Rob Davies’ speech, DTI having been split the Competition Commission but still interested in entrepreneurship and job creation.

Deputy Minister of Economic Development, Madala Masuku, said nothing at all on the subject the Competition Commission in her speech but did advise Parliament that the department had been on a series of provincial business studies over six months on how to create more jobs and build small businesses and better service to the provinces. That possibly is the basis of what is now happening as a result of what they saw.

Small business seems stifled

The structure of small business and the relationship to retail chain outlets, competitive pricing and rentals must have been part of such observations.spazza

Also minister, Lindiwe Sisulu, before being transferred to the post of minister of human settlements had told the select committee on economic development that “SMMEs contributed 57% of South Africa’s GDP and accounted for 56% of employment.  The National Development Plan (NDP) envisaged that 90% of jobs created would be coming from small and medium enterprises.”

Partnerships in retailing and distribution

She told parliamentarians that economies around the world had shown that jobs were not created by large corporations, but by SMMEs.    However, large corporations and big businesses should seek partnerships in South Africa so that they could assist the department in building small and medium enterprises and thus contribute to economic development, she said.

Manufacturing distribution was also an area discussed at length  in government small business workshopsdistribution recently attended by parliamentarians where it was seen that the large retailers have also control of country wide market distribution at retail level, only dealing with areas providing suitable economic return and more sophisticated road and rail infrastructure.

This market inquiry by Minister Patel therefore has an investigative ring to it rather than any direct attack on certain sectors in the retail industry.

Other articles in this category or as background
http://parlyreportsa.co.za/energy/competition-commission-turns-lp-gas-market/
http://parlyreportsa.co.za/uncategorized/competition-commission-promises-health-care-inquiry/

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DTI does flip flop on BEE codes

B-BBEE codes changed on “management control”…

Rob+DaviesA  lack of understanding of the effect of B-BBEE Codes on business and the industrial environment, despite a workshop on the subject, was demonstrated when the department of trade and industry (DTI) amended its own amendment in a matter of days on the point scoring issue in terms of broad- based employment share ownership schemes.

More emphasis has been placed in the Codes generally on procurement from black business, now referred to as “supplier development”.

As you were…

However, the minister of trade and industry, Dr Rob Davies, confirmed in a statement that the second amendment corrected the changes as far as employment schemes were concerned and any such changes would not be retrospective on deals already done, such earlier deals continuing to reap the same benefits under B-BBEE Code pointing as before.

Control is everything

Minister Davies said that DTI still had a think tank operating on how further to make BEE in generalplan BEE more effective insofar as pressure on business was concerned to effectively ensure that management, control and ownership by black persons was increased.  His task team appointed would report back by the end of the month. He repeated this in his budget vote speech.

DTI completely avoided established government procedure by issuing an “explanatory notice” to a gazetted publication on B-BBEE procedures by announcing a completely new aspect on the rules on B-BBEE award-pointing, in this case termed as “amending guidelines”, thus avoiding the issue of public comment.

Most worrying was the fact that minister Rob Davies failed to make any reference to this in his earlier introduction to DTI’s strategic plan to Parliament a week before, subsequently presented to the portfolio committee on trade and industry by DG Lionel October and then to the select committee on economic affairs in the NCOP.

Forgot the union movement

Just as as business leaders were, so was the trade union movement, many of whose members are part of share employment schemes, options or not, and are therefore touched on the issue of reduced profit and dividends.

As far as not mentioning this in a budget vote speech, which was an excellent opportunity to inform business, there is fine line, say opposition members, between failure to disclose to Parliament and avoiding a contentious disclosure to Parliament that that might compromise a negotiation but in this particular case of changes to B-BBEE, the matter  appears to have only involved some members of cabinet and certainly none of the large spectrum of stakeholders involved. It all came as a big surprise.

The minister has published two further notices on the amended B-BBEE Codes regarding the second phase now implemented. The Chamber of Mines was yet another body caught by complete surprise, thinking that their relationships, in this case the minister of mineral resources, were far better than they actually now seem to be. There seemed to be a vacuum in communications.

DTI has now reported to Parliament on subject

To the rescue...

To the rescue…

DTI, in the form of DG Lionel October, has since reported to Parliament on the subject of the amended B-BBEE Codes of Good Practice and explained that Minister Davies had admitted that DTI had taken the wrong route with all good intention “to take a narrower view on black management control” but now had apologised for the descision, now reversed, on this aspect of the pointing system. All is reversed, retrospectively as well.

A full report is with our clients with further comments by DTI on the Codes and their application as revised “after the event”.     This analysis of DTI’s presentation will be archived to this website in the course of time.

In the meanwhile, we note that there is useful extra-parliamentary political comment on http://www.polity.org.za/article/da-geordin-hill-lewis-calls-for-debate-in-parliament-over-elitist-bee-codes-2015-05-08

Other articles in this category or as background on this website
http://parlyreportsa.co.za/bee/dti-earns-ire-parliament-bee/
http://parlyreportsa.co.za/bee/liquid-fuels-industry-short-transformation/
http://parlyreportsa.co.za/bee/one-year-implement-b-bbee-codes/
http://parlyreportsa.co.za/bee/b-bbee-codes-of-good-practice-far-onerous/

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Pravin tackles COGTA intervention at local level

 COGTA getting somewhere with municipalities…..

pravin gordhan MTBSIt is quite apparent why the seemingly impossible task of integrating local, provincial and national government service has been given to minister Pravin Gordhan of cooperative governance and traditional affairs (COGTA). He seems quite determined that all provinces and municipalities have to deliver on their constitutional mandate.

His department of cooperative governance (DCOG) recently updated Parliament on the current situation, led by some opening remarks by the minister himself.   He went straight to the nub of the issue by stating that section 139 of the Constitution provided for intervention by the relevant provincial executive if a municipality could not or did not fulfil an executive obligation.

First steps

Whilst the Local Government Reform Act, passed in 2014, has helped considerably by refining local electoral areas nationally down to 137, whilst 95 municipal districts have been designated in most cases to correspond with electoral areas. Thus, more representative structures have been established although some suspected at the time this was an election ploy.

Stabilisation of local government was the key, said minister Pravin to parliamentarians, and the process of “Back to Basics”, one of the 16 SIP strategic items on the list of the National Development Plan, was the basis of the department’s 2015/6 annual performance plan. This to ensure municipalities performed in their dealings with local government at the coal face.

Minister Pravin said, “Local government plays a key role in determining whether people live with dignity and whether they are able to access economic opportunities, consequently contributing to the overall development of the country”.    Part of COGTA’s mandate, he said, was to understand and support the development of intergovernmental relations in all three tiers of government.

New Bill to make third tier accountable

vusi madonaselaVusi Madonsela, DG of DCOGTA, advised that they were “aiming to build accountability for performance in local government systems by setting and enforcing clear performance standards by March 2019. To this end a new Intergovernmental Monitoring, Support and Intervention (IMSI) Bill would be processed through Parliament.

The performance of municipal public accounts committees (MPAC’s) therefore in all “dysfunctional municipalities as well as municipalities with adverse and disclaimer opinions would be monitored and enforced”, he said.

Changing attitudes to debt

Madonsela also said, “The culture of payment for services would be encouraged nationally with campaigns” and part of DOCG’s task was to improve the ability of at least 60 municipalities to collect outstanding debt. He named other targets such as to strengthen anti-corruption measures by 2019 and to have achieved a full local government anti corruption tribunal systems working.

He also said DCOG would start with 12 districts to develop integrated development plans and eight cities and towns would also be supported and monitored in developing long term strategies and proper spatial development programmes.

Skills always the problem

Opposition members called on COGTA for better performance by local government training SETAs. Many institutions were conducting training programmes for councillors but in the process had found that many councillors literally have no skills or formal education. Madonsela responded by saying there were now regulations being passed to weed out unqualified persons and those with false CVs.

Minister Pravin agreed that some of the factors that led to dysfunctional local government structures included political instability and problems with service delivery and institutional management inability.  Councillors were nominated and appointed by their political parties, he said, and “perhaps it should be a conversation amongst MPs on how councillors should be appointed.”

Back to “Back to Basics”

The net result at the moment, said minister Gordhan, that one in three municipalities, according to a study conducted nationwide, were failing and the success of the “Back to Basics Programme” would now depend on inter-government transfers to bring in skills and changing the employment criteria to economic, tax and financial viability experience.

He concluded that his department was getting tough where municipalities had broken the law and some of the answers may lie in strengthening district municipalities with specialists and merging some municipalities.   Another option was to abolish local municipalities completely and in their stead, start again with district management areas but he did not elaborate on this.
Other articles in this category or as background
Municipal free basic services slow – ParlyReportSA
Local government skills totally lacking – ParlyReport
Electricity connections not making targets – ParlyReportSA

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South Africa remains without rail plan

 Feature article….

Minister Peters fails on rail policy…

dipou Peters2In a written reply to Parliament on the whereabouts of the promised Green Paper on rail policy, transport minister Dipuo Peters told her questioners that such a document which has the intention of outlining South Africa’s rail policy was to be presented to cabinet in November. GCIS statements for cabinet meetings for November and the final cabinet statement in December 2014 made no reference to any such submission having been made – alternatively, the minister might have failed to have it put on the agenda. The country therefore went into Christmas recess once again without an established government policy on both freight and passenger rail transport matters, worrying both industrialists, investors and, not the least, built environment planners.

Just talking together

A draft Green Paper was first submitted to cabinet a year ago but cabinet instructed that more consultation on the proposals was necessary, particularly interchange between the transport and public enterprises departments. The portfolio committee on transport stated that policy on freight rail upgrading and infrastructure development was unclear, plans for commuter and long-distance passenger services confused and no clear picture had emerged on Transnet’s promised policy of structural re-organisation. Subsequent to this, the department set up a national rail policy steering committee to oversee the consultation process and introduce the required changes to policy. It has also divested itself of a number of non-core assets but no clear picture has emerged in statements on the promised policy of giving direction on the privatisation of branch lines.

Since time began…

According to the minister at the time, cabinet’s concerns had also involved the adoption of a standard gauge, private sector participation and economic regulation.  Subsequently, DoT indicated that standard gauge has been selected as the most suitable gauge for the South African rail network and as a result a final revised Green Paper was tabled before the steering committee in October 2014. Nothing has emerged. In the absence of any agreed policy, particularly to meet the proposed idea of rail freight re-assuming its dominant role over road transport in the light of the deteriorating national road picture, a number of developments have indeed taken place with regard to the purchase of diesel and electric train stock, signal systems upgrades and station re-building and passenger coach rolling stock manufacture. Nevertheless, no clear picture has emerged on the road ahead with regard to the freight/road picture, branch line privatisation, commencement dates for full long distance passenger services nor satisfactory plans and targets expressed on domestic commuter rail services.

All said before

Jeremy Cronin, when deputy transport minister, told Parliament in April 2011 that by establishing a local manufacturing base for the new rolling stock, benefits would ensue by creating a substantial number of local jobs. He added that as a result of the redevelopment of rail engineering capacity, skills that have been lost over decades of underinvestment in the local rail engineering industry would be recovered. The then deputy minister also said, “We are currently (2011) in the Green Paper phase with the primary objective of preparing the way for effective stake holder engagement. We are poised to reverse the decline in our critical rail sector that began in the mid-1970s and gathered pace in the late 1980’s.” In April 2015 therefore the country will be the fourth year of waiting for South Africa to outline its rail policy, “a system critically in decline” according to minister Cronin.

Recent update from Maties

A few months ago, a most important paper on rail transport, now in the in the hands of DoT, was published and out into the public domain by Dr Jan Havenga, director: centre for supply chain management, department of logistics, Stellenbosch University, who led a team of transport logistics experts to complete this erudite and informed report. The report is entitled “South Africa’s freight rail reform: a demand-driven perspective” and opens with a definition of government’s responsibilities in rail transport matters. “The role of the government is, primarily, to facilitate the development of a long-term logistics strategy that optimally equilibrates demand and supply through ‘anticipation’ of the market character.” “The definition of a national network of road and rail infrastructure and their intermodal connections will flow from this, presupposing neutrality across modes by taking full account of all relevant social, environmental, economic and land-use factors.” “This ensures that the mix of transport modes reflects their intrinsic efficiency, rather than government policies and regulations that favour one mode over another. The strategy is subsequently enabled by a clearly defined freight policy, a single funding regime for the national network and, lastly, the establishment of appropriate regulatory framework.”

Volume of freight critical

The report notes that “the American Trucking Association (2013) forecasts that intermodal rail will continue to be the fastest-growing freight mode in the next decade. Only the very busiest railway networks, which can exploit the density potential of volume growth, are likely to generate sufficiently high financial returns to attract substantial risk capital in long-term railway infrastructure.” “The Association of American Railroads as well in 2013 also highlights the impact of density on efficiency, revenue and, ultimately, the ability to reinvest.”

Lacking in market intelligence

Dr Havenga says, “The failure of South Africa’s freight railway to capture this market is attributable to a lack of policy direction regarding the role of the two modes (road and rail) in the surface freight transport industry and according to the Development Bank of Southern Africa, caused by the absence of sufficient market intelligence to inform policy.” He goes on to confirm that “one of the key requirements for an efficient national freight transport system is better national coordination based on market-driven approaches.”

Pressing need

“To avoid the ad hoc policy responses of the previous century, which led to sub-optimisation, increasing complexity and decreasing end-user quality, the pressing reform issue for South Africa, therefore, is agreement on the design of an optimal freight logistics network based on a market-driven long-term strategy that holistically addresses the country’s surface freight transport requirements.” Dr. Havenga’s final comment in the report, only a few weeks old, states that South Africa’s freight task is expected to treble over the next 30 years, with further concentration on the long-distance corridors. He points out that the country desperately needs a profit-driven market related core rail network to serve industry and manufacturing, as well as a developmental-driven branch line network to serve rural development. Other articles in this category or as background http://parlyreportsa.co.za/transport/minister-comments-taxis-e-tolls-road-rail/ http://parlyreportsa.co.za/finance-economic/prasa-gets-its-rail-commuter-plan-started/ http://parlyreportsa.co.za/uncategorized/transnet-says-freight-rail-operations-coming-right/ http://parlyreportsa.co.za/uncategorized/rail-is-departments-main-focus-in-year-ahead/

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Troubled bus industry goes to Parliament

SA bus industry operators in trouble

lowveld-bus-The South African bus system is on the verge of collapse, says the Southern Africa Bus Operators Association (SABOA) and, as the second largest mode of transport in SA behind only taxi transport, this fact was bad news for both commuters and those in industry and commerce whose workers use it extensively, Parliament was told.

Professor Jackie Walters, of the University of Johannesburg and strategic advisor to SABOA, told the portfolio committee on transport that, by its nature, the bus industry in South Africa was partially subsidised and was one of the only countries in the world that seemed to manage on month-to-month contracts.

Subsidies out of date

The bus industry in the past, in order to receive it’s subsidies, worked its calculations on the basis of commuters carried but the industry had slowly switched to contracts where kilometers covered are now the basis for calculation, a preferable system in the industry.  However there had been no extensions or expansion allowed in kilometers covered by subsidies for thirteen years.

Prof. Walters maintained that the bus industry performed a critical role in balancing demand and the pricing system within the public transport system.

The policy applicable to the commuter bus industry was founded on the White Paper on National Transport Policy of 1996, and in a number of other documents such as the Moving South Africa Strategy (MSA), the National Land Transport Transition Act of 2000 (NLTTA) as well as a Model Tender Document and the Heads of Agreement (HOA) between organised labour and the Department of Transport (DOT).

Money disappearing

He told parliamentarians that it was the Southern African Bus Operators Association (SABOA) that regulated aspects of the tendering system but the industry was under stress due to the unintended consequences of Division of Revenue Act (DORA) and the bus contracting system to the government, which was supposed to provide financial stability for industry. Whilst funds may be allocated under DORA to provinces, what happened after that was out of control of central government.

The financial stability intended for the bus industry to provide for commuters was a theory but on the ground quite the opposite was happening, he maintained.   This short-term horizon for the industry made longer-term investment decisions difficult and banks were reluctant to provide funding because of the uncertainty over the future of the contracts.  “No industry can operate on this basis‚” Prof. Walters said.

No windfalls, no shortfalls even

He attributed the problem again to the negative effect of DORA, which left it to provinces to make up the difference between the public transport operations grant allocated to provinces by national treasury and an agreed-upon escalation rate‚ which was linked to increases in the consumer price index.  Provinces continually claimed that they did not have the money to make up the shortfall.

Prof. Walters said the government had not taken into account at any stage the onerous operational cost increases that bus companies had to bear; namely 44% for labour‚ 28% for maintenance and the national escalation on fuel. There had to be risk sharing between government and the operators, he said.

 

No conformity

There were different types of contracts in the industry, he went on to explain, some which were seventeen years old and which were supposed to have been transformed after three years with competitive tendering and negotiation of contracts.

He said that in all there were 39 interim contracts in operation, 66 tender contracts and 10 negotiated contracts. The contract types in operation were based on a user-pays principle regarding the subsidies.

In conclusion, Prof Walters said that above all it was important to get national treasury to acknowledge the contracts and not leave things to the provinces.

DOT to investigate

MPs generally agreed that in the longer term, common ticketing systems over all services in the country generally had to be introduced, similar to that in the BRT system but a short term answer also had to be found to keep the industry alive in terms of the explanations from Dr Walters. 

DOT was told to  report back to Parliament.

Refer previous articles in this category
http://parlyreportsa.co.za//energy/transport-subsidies-to-business-are-wrong-says-parliament/
http://parlyreportsa.co.za//bee/all-not-well-in-the-trucking-industry/

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Bumpy road for e-tolling Bill continues

E-tolling finally makes it through Parliament…

Discontent was expressed once again regarding the Transport and Related Matters Bill regarding e-tolling when opposition members complained that the Bill had been classified as Section 75 for national competence only, therefore denying the National Council of Provinces the process under section 76 of the Constitution whereby the Bill and its contents could be debated and approved at provincial level.

Johannes Makgatho, department of transport, told parliamentarians of the select  committee on transport, NCOP, that when the South African National Roads Agency Limited (SANRAL) Act was promulgated, electronic toll collection (ETC) was not envisaged in its current form. The development of the Gauteng Freeway Improvement Project (GFIP) had necessitated ETC and the Bill was necessary.

Sanral goes big on bonds

road tollsThe Bill was described by DoT as being of vital importance for the collection of tolls, the lack of which would have a negative impact on the ability of government to raise capital for their infrastructure projects. SANRAL had issued bonds to the tune of R24bn and the inability to collect tolls to repay the bonds would imperil the state guarantee provided to SANRAL, Makgatho said.

Ms Suraya Williams, Principal Law Advisor from the Office of the State Law Advisors, told the committee that that the regular ‘substantial measure’ test was applied to the question of whether the Bill should be tagged under section 76 for provincial debate but according to this established constitutional process, the Bill had been found to be a Section 75 Bill.

Who has heard of Cross Border Agency?

The Democratic Alliance said that it did not object to e-tolling in principle but considered there was a lack of public participation on the project and the process of e-tolling as a whole and this was unacceptable. Also all funds were to be collected by a body known  as the Cross-Border Road Transport Agency, which they said was a relatively unknown entity and were deeply concerned that this body was competent.

The DA added that this state entity had already been found unable to handle its own finances and got into difficulties handling just cross-border taxi industry matters. Mr Alex van Niekerk, Manager of the Gauteng Freeway Project for SANRAL, said the Cross-Border Agency had indeed experienced much difficulty initially with vehicles entering the country and travelling on roads which had not been tolled, but they had now built up experience with e-tolling and were ready for GFIP and national e-tolling as it built up.

Like cellphones

Mr van Niekerk explained that e-tolling would replace conventional toll plazas and that tolls would be recorded electronically in reference to barcodes which recorded the type and status of the vehicle in the same manner as prepaid airtime on cell phones. Existing toll plazas would remain but rather than manual payments, the plaza would read the tag and give access if there was credit on the account.

He said the principle of tolling did not change at all, only the mechanism of tolling changed and “non-compliance at the time of travel could therefore be remedied after the fact.” No profit, he added, would be made by SANRAL in the collection of toll revenue and he added that technology for the GFIP was considered “cutting edge”.

The Bill has now achieved NCOP concurrence and has gone forward for final reading. It then goes to President Zuma for assent.
The following articles are archived on this subject:

 http://parlyreportsa.co.za//finance-economic/transport-laws-bill-on-e-tolling-amended/
http://parlyreportsa.co.za//cabinetpresidential/outa-goes-to-supreme-court-of-appeal-against-bill/

Posted in Finance, economic, Public utilities, Trade & Industry, Transport0 Comments

All not well in the trucking industry

Call that corruption exists

trucksIn answer to a call made by the portfolio committee on transport on the state of the trucking industry in South Africa, it became evident from responses by the department of transport (DoT); from the Road Freight Association (RFA) and examples given by an independent small operator, that large truckers dominated in an industry in an unfair manner that was rife with corruption.

Mawethu Vilana, deputy director-general DoT, said that going back to 2002/3, the department had begun an exercise to look at how to provide opportunities and also broaden the space for participation by smaller operators in the road freight sector. It became clear that smaller entrants lacked finance; that an “unscrupulous broking sector was part of the industry” and generally there was a lack of skills and know-how in the trucking industry generally due to poor provision of training facilities and an industry which was undercapitalised except but a few large operators.

DOT not playing proper role

Vilana admitted that when it came to black empowerment opportunities, the main player was the department of trade and industrydot logo (DTI) and not DoT, DTI having the BEE verification control system in their court, DoT playing virtually no part in either reform of the industry or the development of SMME’s.

On the subject of crime, little could be done about bribery and corruption, Vilana admitted under questioning by parliamentarians, unless legislation was beefed up with proper powers and a full, properly constituted investigation carried out into the industry.

Road users must pay

roadsHe also admitted that permit fees were high because of the principle of “user pays” which had been adopted by government “since road truckers caused great damage to the road system.”

Gavin Kelly, RFA said his association had 385 members, with 109 affiliates and 40 associates representing different levels of possible enforcement and ability to develop skills and training but complained of massive permit fees (the last being 412%); large levels of corruption amongst government officers and no value being added by the government’s road agency to the industry in general.

RFA also stated that there appeared to be no proper government road freight strategy and single government officials determined policy without ministerial approval.    Kelly said “no real consultation exists between the state road agency and the industry” and it was the RFA view that DoT “was just going through the motions.”

Trucking group says market closed

One medium sized operator, Tramarco, said that despite heavy investment in trucks and bearing in mind the “ever rising price of

tramarco site

tramarco site

fuel”, it was almost impossible to break into the transport business to obtain long-term “tangible” contracts from major mining groups and state utilities.   They appeared to feel “safer” using old contacts and larger companies and quite clearly favours were being granted, they said.

Their spokesman said that the entire industry was dominated by a number of large trucking groups and smaller entrants were effectively “locked out” of the industry because the industry was either not regulated properly.

AARTO somewhat dubious

They also said the licensing AARTO system was not working properly; there was a lack of legislative enforcement; too many corrupt officials had too much power and there appeared a lack of interest by large companies generally to uplift smaller operators, little interest in encouraging training and building the trucking job market.

Tramarco said that no favours or finance was called for by the medium and small sized companies but merely a fair chance to compete for tenders.   They called on government to provide leverage within its own government departments, state utilities and with industry to break up monopolistic habits and encourage more black empowerment opportunities.

“Large groups and utilities make lots of statements on freeing up the market but nothing happens”, Tramarco said.

MPs demand better skills development

MPs demanded of DoT that concrete steps be taken to assist small entrepreneurs and to provide proof of a record in the area of skills development. “It was clear that little had been done by the DoT in this area”, said one ANC member.

Opposition members said they were convinced that DoT “had no meaningful understanding of what the situation was on the ground.” One MP said the City of Cape Town had provided a solution by cutting the bigger contracts into smaller parts, supplying smaller quantities and increasing the number of entrants slowly. He called on DoT to start thinking of similar solutions on a national scale.

Roads to nowhere

Ruth BhenguChairperson Ruth Bhengu told DoT that the meeting had been called because an examples had been given to parliamentarians whereby “large companies gave small companies short-term contracts and rates that would not take them anywhere and businesses that were desperate could not only pay for their trucks but could not maintain them, the business going ‘broke’ as a result”.

There was also an immoral business broking sector emerging, she felt.

Vilana of DoT said there was nothing government could do to protect such entrepreneurs and that this was the nature of the industry which was high capital risk with a road system that was deteriorating.

The committee found this all very unsatisfactory and called for further meetings with DoT stating that these matters had to be resolved and that the challenges facing the trucking industry were to be investigated further. Also cross-parliamentary meetings with public enterprises and trade and industry committees were to be called. DoT was told it would be re-called for further reports.

Further archived references

http://parlyreportsa.co.za//public-utilities/aarto-amendment-bill-gives-back-up-to-road-law/

http://parlyreportsa.co.za//finance-economic/transport-laws-bill-on-e-tolling-amended/

Posted in Finance, economic, Mining, beneficiation, Public utilities, Security,police,defence, Transport0 Comments

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