What went wrong in the toll road fiasco?

This morning we woke up to the news that the Minister of Transport, Sibusiso Ndebele and the Gauteng Premier Nomvula Mokonyane, have taken the decision to suspend the gazetting of toll fees. This decision was based on the large public outcry in recent weeks around the proposed fees by SANRAL. While many of us sighed with relief at the thought of not having to pay the toll after all, from less selfish perspective, this outcome raises serious questions about what the relationship between a public entity and its oversight department should be, as well as government's commitment to published policy decisions. 

It is now clear that the Department of Transport, as the oversight department, should have interrogated the financial models more rigorously when they were proposed. Representatives from the Department of Transport generally hold seats on the boards of these public entities - and their role is to protect the investments of government as the shareholder. Part of this responsibility requires them to analyse and review all proposed pricing and tariff structures against the economic principles and government priorities of the day. And where there is a likely conflict between these two ideologies, hard decisions have to be made. The abrupt decision to suspend toll fees today suggests that the initial vetting processes may have been inadequate (or have subsequently been over-turned).

Secondly, there seem to be conflicting accounts of the public consultation process on the toll fees. Should these processes be left solely to the public entity (SANRAL) or does the oversight department have a bigger role in this? Mr. Alli is quoted in the Independent Online website as saying that 'it is a political decision.' If so, this suggests that the Minister and his department should have been integrally involved in the process of setting toll fees. 

Finally, it is distressing to read that the CEO of SANRAL was informed of the decision to suspend the gazetting of toll fees by the press. Given the importance of such a decision to the financial sustainability of SANRAL - one of our better performing public entities - one would have expected the CEO and its Board to have been part of, or at least informed of, this decision? After all, they will be held accountable for any negative consequences. 

In terms of wider economic policy, National Government has adopted the 'user pays' principle (particularly in the construction of economic infrastructure). By adopting this principle, the National Government sends a clear message that infrastructure finance should not come from the fiscus. In other words, funding for economic infrastructure should rather be raised on capital markets or through Public Private Partnerships. User charges over the economic lifespan of the asset should then be used to repay this infrastructure.  This is exactly what SANRAL has attempted to do by tolling the national highways - they have behaved consistently with what good policy requires of them, and are now being brought to book for having done so.

The consequences of this for SANRAL could be substantial. SANRAL's credibility in the capital markets has undoubtedly been damaged, and when the company launches its planned R20 billion bond issue on 2 March 2011, investors are likely to price in this new financial risk, and make them pay more for their capital. And in the end, someone will still have to pay for all this new infrastructure - and it is now not clear who this will be. The policy framework should reduce decision-making risk by providing clarity and consistency to government action.  This includes observance of the formal communication channels between the various institutions of the state. Unilateral, ad hoc deviations from stated policy goals do no one any favours in the long run.