PRESENTATION TO THE TRANSPORT PORTFOLIO COMMITTEE BUS SUBSIDY BUDGET SHORTFALL 2008/09 03 FEBRUARY 2009 1

CONTENTS CURRENT CONTRACTUAL OBLIGATIONS SUBSIDY DISTRIBUTION SUBSIDY BUDGET ALLOCATION SHORTFALL PER PROVINCE INTERVENTION MECHANISMS CONCLUSION IMPLEMENTATION 2

Current Contractual Obligations Competitive tendering introduced in 1997 Current Contract Regime Interim Contract – ticket based Tender Contract – kilometre based Negotiated Contract – kilometre based 3

National Budget - Subsidy Distribution – 2008/09 LIMPOPO Fleet Size Passengers Current Subsidy 611 74 426 988 R 168 000 000 National Budget - Subsidy Distribution – 2008/09 MPUMALANGA Fleet Size Passengers Current Subsidy 442 64 721 352 R 359 000 000 NORTH WEST Fleet Size Passengers Current Subsidy 673 29 865 729 R 39 000 000 GAUTENG Fleet Size Passengers Current Subsidy 2 113 133 898 725 R1 360 000 000 FREESTATE Fleet Size Passengers Current Subsidy 264 24 411 425 R 147 000 000 KWA-ZULU NATAL Fleet Size Passengers Current Subsidy 1 644 96 967 772 R 627 000 000 NORTHERN CAPE Fleet Size Passengers Current Subsidy 51 1 097 676 R 20 000 000 EASTERN CAPE Fleet Size Passengers Current Subsidy 364 6 779 724 R 122 000 000 WESTERN CAPE Fleet Size Passengers Current Subsidy 957 55 945 592 R 575 000 000 4

SUBSIDY DISTRIBUTION Tendered/Negotiated Contracts vs Interim Contracts Tender/Negotiated Interim Contracts No. of Contracts No of Buses % Subsidy 31 82 4 800 3 300 34% 66% Total Subsidy Split between Provinces for all Contracts Gauteng 40% Free State 4% Limpopo5% Northern Cape 1% Kwa-Zulu Natal 18% Mpumalanga 10% Eastern Cape 4% Western Cape 17% North West 1% 5

SUBSIDY BUDGET ALLOCATION Department annually motivated increases for bus subsidy baseline allocation since 1997/98 This was to provide for restructuring of public transport and to cater for growth in the current subsidised services No increases granted to the baseline until 2009/10 6

SUBSIDY BUDGET ALLOCATION Annual subsidy allocation was solely inflation related up to 2009/10 and made no provision for service improvement No funding to cater for increases in demand for public transport 7

SUBSIDY BUDGET ALLOCATION For the period 2004/05 – 2007/08 the average year on year subsidy baseline increase was 5.5% During the same period escalation (capital, labour & fuel costs) on contracts averaged between 10 to 12% Passenger growth for the same period averaged 10% 8

Subsidy Allocation – 2005/06 MTEF Request 3 908 040 000 MTEF Allocation 2 278 523 000 Adjustment Request 166 560 000 Adjustment Allocation 19 230 000 Actual Expenditure 2 383 660 000 Accumulated Shortfall 85 907 000 9

Subsidy Allocation – 2006/07 MTEF Request 4 028 523 000 MTEF Allocation 2 415 235 000 Adjustment Request 300 000 000 Adjustment Allocation 45 100 000 Actual Expenditure 2 695 573 000 Accumulated Shortfall 321 145 000 10

Subsidy Allocation – 2007/08 MTEF Request 3 553 431 000 MTEF Allocation 2 535 997 000 Adjustment Request 845 000 000 Adjustment Allocation 300 000 000 Actual Expenditure 3 109 951 000 Accumulated Shortfall 595 099 000 11

Subsidy Allocation – 2008/09 MTEF Request 3 635 997 000 MTEF Allocation 2 829 596 000 Adjustment Request 1 342 000 000 Adjustment Allocation 154 535 000 Projected Expenditure 3 576 444 000 Accumulative Projected Shortfall 1 187 412 000 12

SHORTFALL PER PROVINCE 13 SHORTFALL PER PROVINCE PROVINCE Shortfall/Dec-March Shortfall/Month Dec actual Shortfall Dec - Feb EASTERN CAPE 41,392,865.35 10,348,216.34 8,961,729.00 29,658,162 FREE STATE 55,763,904.85 13,940,976.21 11,801,739.77 39,683,692 GAUTENG 502,645,151.46 125,661,287.87 94,738,704.16 346,061,280 KWAZULU NATAL 238,933,754.55 59,733,438.64 52,713,304.00 172,180,181 MPUMALANGA 131,779,844.74 32,944,961.18 25,757,026.30 91,646,949 NORTHERN CAPE 8,406,897.40 2,101,724.35 1,746,965.78 5,950,414 LIMPOPO 58,694,323.45 14,673,580.86 11,234,544.07 40,581,706 NORTH WEST 13,052,255.33 3,263,063.83 3,085,203.14 9,611,331 WESTERN CAPE 210,595,625.05 52,648,906.26 43,097,421.10 148,395,234 TOTAL 1,261,264,622.16 315,316,155.54 253,136,637.32 883,768,948

SHORT TERM INTERVENTIONS - 2008/09 Provincial Departments of Transport in collaboration with Provincial Treasuries to explore virements to increase bus subsidy budgets Provincial Treasuries to consider funding shortfalls through their Provincial Revenue Funds National Treasury will as far as possible make fund available from the National Revenue Fund Options 2 & 3 will result in Unauthorised Expenditure DOT to pursue the following through Parliament: Special Adjustments Budget Approval of unauthorised expenditure 14

Interventions and Mechanisms for achieving change 2009/10 and beyond…………… Bus Subsidy Funding - Conditional Grant in DORA Critical conditions: Interim contracts to be converted to negotiated (kilometre based) contracts by September 2009 Alignment with IRPTN` Finalise integrated road based networks Develop KPI’s Identify key role-players who are to be part of the operating entity Engage with all parties to establish operating entity Implement depots and vehicles if so decided Recruit/develop admin capacity to manage the contracts Contracting authorities will have to: Change in compensation method – based on fixed kilometre KPI’s New national monitoring model Fare levels as set by the authority Fleet replacements to be based on requirements of the contracting authority Contracting authority may purchase existing assets (eg depots) and contract compliant vehicles Operators will have to accept: 15

Intervention Conditions  Operators that accept will sign an negotiated contract that includes: KPI’s Provision that the operator will be provided with an opportunity to be party to a new integrated contract regime for some or all of the services within the contract area Operators that do not accept will continue on month-to-month basis and their contracts will be terminated as and when required  16

Conclusion Subsidy levels have been insufficient since 2005/06 to halt the declining levels of service Current levels of subsidy are unable to meet the escalation in costs and the growth in demand Bus operators will not recapitalise their fleets due to the continued uncertainty of government policy regarding the contract system In order to improve operational and financial efficiency a more focussed approach to determining service priorities will need to be developed 17

Conclusion The method of contracting road based public transport services has to change to better reflect the complexities of the network by eliminating the costly duplication of services between modes Metropolitan and other large towns must have full control of their public transport services and this is achieved by ensuring all services are scheduled, monitored and managed Alignment between the current public transport services and the introduction of the IRPTN is critical 18

IMPLEMENTATION PLAN Phased implementation in co-operation with Provinces Negotiated performance based contracts for route operations Formalisation of unscheduled Interim Contract services Define operating areas that will not be served Implementation of supporting infrastructure Continued enforcement and monitoring of all contracted Public Transport Operations 19

Thank You Dankie Enkosi 20