Public Transport Network Grant (PTNG) Strategic Progress Report to Portfolio Committee September 2017

Purpose of this Presentation: To provide an input for the Portfolio Committee to workshop regarding the current status of the Integrated Public Transport Network programme for 13 cities funded by the Public Transport Network Grant

PTNG Status…1 PTNG is a Division of Revenue Act Schedule 5b conditional grant to 13 cities to implement upgraded public transport network services (5b is a specific purpose grant serving a national interest) Grant allocation: 2017/18 R 6.16 billion – 19/20 R 6.96 billion. Grant has been cut 3% in 2017 MTEF on top of 3% cut in 2016 MTEF. Due to city capacity and/or management instability, IPTN implementation is still in pilot phase with 10 of the 13 cities only starting operational planning post 2011/12. Size of grant at R6bn for 13 cities is a challenge e.g. Prasa has over R10bn for 5 major cities. Despite small grant size, since 2012 the DoT has avoided excluding cities by emphasising that all cities need to do proper business planning and to zero base all costs including scaling back on dedicated lanes, stations, vehicle numbers and IT. In several cities, ensuring cost effective procurement and cost and contract management has been a challenge for past 3 to 5 years.

PTNG Status…2 Public Transport Strategy since 2007 is based on 3 pillars Integrated Network operational plan based on real demand surveys Municipal (not operator) control over network services Maximum inclusion of incumbent affected operators through first round negotiated contracts Since 2012 the current Acting DG and his DoT team have continuously told cities to scale back on costs and to tackle high demand routes from townships at the outset.

PTNG Status…3 While expanding services beyond George, CT and Jhb has been slow, to date significant outputs have been produced that can be leveraged off: Over 900 buses procured in 6 cities Over 150km of dedicated lanes built in 8 cities Over 100 stations procured in 7 cities Over 600 feeder stops upgraded in 6 cities 6 depots procured in 2 cities Over 100 km of sidewalks and cycle lanes in 8 cities Over 1500 minibus licences compensated in 3 cities 3 cities carrying combined 140 000 average weekday passengers 2 cities contributing combined R500m plus of own rates revenues. Expected to double to R1bn once all 10 cities running Phase 1s. 9 additional or expanded city projects were due in 2016 which would double the current ridership

INTEGRATED PUBLIC TRANSPORT NETWORKS PTNG EXPENDITURE: 05/06 – 16/17 Q3 is R34bn vs R41bn allocated. Provisional, to be confirmed Oct 17 Municipality PTNG: 2013/14 EXP: 2013/14 PTNG: 2014/15 EXP: 2014/15 PTNG: 2015/16 EXP: 2015/16 PTNG: 2016/17 EXP: 2016/17 PTNG: SUBTOTAL: ‘13 – ‘17 EXP: SUBTOTAL: ‘13 – ‘17 PTNG: 2005-2017 EXP: 2005-2017 Buffalo City 20 - 35 0.6 55 347 19 Cape Town 1 299 872 1 377 727 881 768 950 621 4 507 2 988 10 339 9548 Jo’burg 1 112 675 1 066 1 151 1 037 1 015 542 4 344 3 126 8 418 7471 Tshwane 774 1 005 1 023 932 877 388 3 661 3 062 5 522 4 540 George 265 122 116 106 63 609 566 Ethekwini 579 93 775 370 1 232 1 207 642 3 536 2 312 5 623 3 730 Mangaung 30 15 48 200 73 298 156 814 785 Rustenburg 630 300 520 128 552 446 285 108 1 987 982 2 977 1 719 Ekurhuleni 243 250 230 339 310 500 204 1 332 860 1 453 911 Mbombela 124 43 195 154 70 60 635 327 1 105 856 Polokwane 199 190 184 783 528 1 145 835 Nelson Mandela Bay 185 87 186 28 601 315 2 217 1 563 Msunduzi 101 100 69 213 72 614 239 750 341 Totals 5 550 3 400 5 870 4 100 5 953 5 148 5 593 2 823 22 962 18 357 41 319 33 884 Operating services & expanding network Constructing Network Planning & Initial Network Construction

PTNG Status…4 DoT has allowed for flexible, differentiated IPTN solutions per local city demand for over 5 years and has concluded that current implementation gaps are due to city management and technical instability and weak operational and contract management capacity and are not due to a rigid model or mode technology. Diverse approaches among cities include: Mangaung, George, Mbombela are quality bus services with limited infrastructure Rustenburg, Polokwane, NMB have limited dedicated lanes and stations Tshwane, Polokwane, Mbombela, NMB, CT phase 2, Jhb Phase 1c, Ekurhuleni have all been supported to use existing minibus taxis as feeders/off peak trunks as a transitional cost saving measure. For years, all cities have been told to scale back on dedicated lanes, stations, depots and IT systems.

PTNG Status…5 5 cities to date have tried at least pilot services. 3 (CT, Jhb, George) have been relatively successful in terms of passenger numbers. 2 have been failures (NMB in 2013 and Tshwane). Failures have been linked to compromised project governance in both cases in DoT’s assessment: NMB’s 2013 pilot failed due to city technical capacity and political lobbying by minibus bosses. Basic transport planning demand and operating principles were ignored to simply spend budgets. DoT told city to stop pilot and city was punished by a reduced grant allocation subsequently. In December 2014 Tshwane prematurely launched a small fraction of its Phase 1 service against DoT advice. Both technical DOT and Tshwane teams were overruled in the haste to spend. Tshwane’s proper Phase 1 since 2011 has always been from Soshanguve to CBD, Menlyn and Mamelodi. Running just the short CBD to Hatfield leg makes no transport sense.

PTNG Status…6 By June 2016, the IPTN programme was to mature from a 3 city Phase 1 service (excluding unviable Tshwane pilot) to a 10 city rollout incorporating local differentiation Currently 3 cities operating a proper Phase 1 (CT, Jhb and George) and 1 city Tshwane running a partial unsuccessful pilot. 9 cities were supposed to launch new or expanded services by June 2016 and have been delayed due to city implementation weaknesses; including technical and management instability, dubious value contracting, premature pilots in NMB and Tshwane, weak management of minibus negotiations, weak financial planning, etc. In March 2017, DoT DG met all cities and warned them to improve performance. In May 2017 Minmec reiterated this and called for further engagement with cities. In 2017 both DoT and Treasury have engaged with all cities on doing proper costing, developing 10 year business plans, and ensuring adequate passenger volumes.

PTNG Status…7 Can the 10 cities due to launch or expand Phase 1s in 2016 manage this by Dec 2018? The acid test for city IPTNs is the next 16 months until Dec 2018. These 10 cities have invested a lot over the years into these Phase 1 services and given this legacy sunk spending, it is proposed cities be given a FINAL chance to prove themselves by the December 2018 deadline. City spending in 16/17 year is over 90% - so trend is positive. By 2018 deadline, 10 cities are supposed to be running viable Phase 1 services. This will be 2 years later than the previous 2016 target. In addition, by July 2018 cities will need to finalise a 10 year IPTN programme and business plan in order to qualify for funding for any future phases as per grant conditions. City performance and prospects are analysed individually in the following slides.

City Project Status…1 Buffalo City Cape Town Johannesburg Despite a draft Operations Plan approved in 2010, the city has witnessed slow progress and lack of championing, best case scenario is a business plan developed by end 2018 for the Mdantsane to CBD corridor and some route upgrading in Mdantsane. City is a candidate for mothballing if PTNG funds are limited. Cape Town One of two cities to have developed a 10 year IPTN programme business plan that integrates bus, minibus and rail. Candidate for additional funding to fasttrack high volume Phase 2 from Cape Flats to operate in 2020 vs 2023. If assigned PToG contract function, and sufficient funding to finish Cape Flats routes, has committed to a 10 year target of 500 000 passengers per weekday on IPTN road services. Currently carrying 75 000 pax per typical weekday. Has good potential to be a 10 year flagship national demonstration project with land use and rail integration. Johannesburg Carrying 50 000 pax a day, probably 60 000 actual due to poorly functioning fare system and weak cash management. Service to users underperforming due to weak operational management and poor quality and financial control. Despite business planning for 5 years still no final business model for Phase 1c from CBD to Alex/Sandton. City will need to improve by Oct 2017 budget proposal hearing for 2018 MTEF funding. By December 2018 City needs to improve Phase 1a and b operations management and implement a viable Phase 1c. No future phases to commence until Phase 1 a, b and c are proven to be operating viably and optimally.

City Project Status…2 Tshwane George City has been warned 4 times in 2017 to fasttrack full Phase 1 to increase volumes from 4000 to 30 000 and to minimise impact of financially unviable contracting signed in 2014-17 period. City team has committed to responding to inherited challenges. However, by Sept 2017 progress seems to be too slow in this regard, given the service quality crisis continuing for over 30 months. City needs a further warning to assemble a high capacity turnaround team urgently within 2 months. City running more as a municipal bus service versus a proper mass transit operation. Almost none of key planning officials and consultants from 2013/14 are still with project. George Has potential if it can dedicate own resources as reliant on Province. Though infrastructure-lite Quality Bus System, still requires DoT support to upgrade roads and install shelters and build depot. City needs to move to doubling numbers from 12 000 to 25 000 by rolling out main Thembalethu township service this year. City and Province need to show renewed vigour and commitment.

City Project Status…3 Ethekwini Mangaung Rustenburg Has developed a 10 year IPTN programme, good support from city CFO office, but needs to move to operating speedily in first half of 2018 and still needs to fully demonstrate readiness with regard to vehicle fleet and minibus negotiations and the minimisation of related costs and risks. City yet to complete minibus surveys and bus procurement could be contested. Mangaung City needs to complete the business plan for its Quality Bus design speedily and to demonstrate financial viability before getting approval to implement. City prematurely procured a large project management capacity in 2015 and needs to unwind this and switch to project implementation. This needs to occur by Oct 2017. In May 17 City committed to this and wants to target 2019/20 launch. Rustenburg City has worked hard in past year on a scaled down, financially viable business plan. Need to conclude this by October and then commit to implementation readiness timetable for operations within 12 months. Still need to conclude minibus negotiations. Project team needs support from Municipal Manager and Council if they are to meet deadlines.

City Project Status…4 Nelson Mandela Bay Ekurhuleni Mbombela City needs to conclude business plan for scaled down line to Cleary Park, conclude minibus negotiations and operate in 2017. New Project leader has committed to tough minded strategic approach. Project has stumbled since 2009 due to poor city leadership, probity and capacity. Ekurhuleni City worryingly launched a test service in February 2017 without DoT approval. Potential for a sub optimal scale rollout. Concerns about minibus industry lobbying. City needs to take firm control and finalise a viable business plan prior to any launch in 2017/18 of the Tembisa to Isando route. New project leader has committed to a more business like approach. If not carefully controlled can end up like Tshwane in a compromised, premature rollout. Mbombela Quality Bus model reforming existing subsidised bus service. Requires intergovernmental agreement between city and province and final operator negotiations and Phase one operation to commence within 12 months. Given 5 years of sub optimal intergovernmental cooperation, this project could be a candidate for mothballing if funds are limited.

City Project Status…5 Polokwane Msunduzi City scaled back plan in past year. Needs to move speedily to implementation and conclude minibus negotiations and operate within 12 months. City does not seem confident in its ability to negotiate with the minibus industry. Another candidate for mothballing if commitment is waning and funding is limited. Msunduzi City team instability has caused delays in past year. City needs to recommit to a firm timeline and business plan targeting operating by late 2019/20 or risk mothballing due to lack of commitment.

Summary of City challenges If commitment and capacity wane in next 12 months cities that could be mothballed to save budget and to prioritise better performers include: Buffalo, Polokwane, Msunduzi, Mbombela DoT and Treasury have developed cost and revenue templates for all cities to complete and to get Council approval on. A category of cities who have not fully completed this include Jhb, Tshwane, Ekurhuleni and Mangaung. They should be given a final chance to comply by June 2018. DoT and Treasury need to procure specialist performance auditing capacity to limit inefficient city procurement and contract management and to assist city transport officials to preserve the technical integrity of the plans. Tshwane needs to develop an urgent turnaround plan and capacity within 2 months as time has run out. Johannesburg (as well as Tshwane and Ekuhuleni) needs experienced mass transit operational expertise to reform the management culture. Possible collaboration with Gautrain Management Agency etc. would make sense. George, Rustenburg, NMB need their cities to commit and act speedily

Short term Proposals (Sept 17 to Dec 18) 10 cities who should be operating viable Phase 1s by now should be given till end Dec 2018 to prove themselves that the target of a combined 300 000 daily average passenger trips (from current 140 000) can be achieved in 2019. The two cities (CT and possibly eThekwini) with sufficiently developed 10 year IPTN business plans be prioritised for fasttrack implementation in order to serve as national catalytic impact projects DoT and Treasury to procure specialist performance auditing capacity to oversee and support cities to retain the integrity of the transport plans and avoid compromised spending (Tshwane 2014-17 and NMB 2013) and/or weak operations management (Jhb 1a/b) Portfolio Committee assess progress by April 2018?

Follow up Proposals (March 18 to June 19) If insufficient progress by April 18, then proposals on reducing and/or reallocating July 18/19 PTNG budget to fewer but better performing cities could be tabled With the pressure on 10 cities to launch or expand Phase 1 services in 2017/18, DoT reserves right to reject PTNG funding for any premature or compromised services that are not underpinned by a proper operations and business plan approved by Council

Medium term Proposals for discussion Is there a role for centralised, transversal procurement of IPTN inputs like IT, construction, project management etc. Should the Gauteng metros not voluntarily pool their operational management functions into a single technical agency How do we ensure the requisite level of political/managerial attention to operator negotiations and empowerment without them eventually holding the project to ransom Apart from the Phase 1 services mostly due in 18/19, should the R6 to R7bn of the grant be focused more on a smaller number of large demonstration cities for Phase 2s over the next 10 years The few key cities that have made progress with a 10 year IPTN business plan all require assignment of the PToG and licencing functions as well as greater accountability from Prasa for operations

Strategic Proposal Summary…1 By December 2018 ten cities should be running a viable Phase 1 service and nine of these need to launch or expand operations This is a non negotiable deadline! Underperformers risk mothballing or intersphere intervention Average weekday passenger trips carried on IPTNs needs to hit 300 000 in 2019 from the 140 000 at present Every city will need to commit to a Council, DoT and Treasury approved Phase 1 operating business model prior to any launches being approved Ethekwini and Cape Town have potential to serve as national impact catalytic 10 year IPTN projects targetting 500 000 average weekday passengers each by 2027 but will require fasttrack funding Cities will need to each contribute between 1 to 8% (depending on size of rates base) own rates revenue to drive IPTN implementation

Strategic Proposal Summary…2 Where Operational management and user quality underachieving. DoT to aggressively monitor and intervene in terms of DoR Act Only launch proper scale Phase 1s, (Ekurhuleni, Tshwane, NMB) Thorough surveys of existing minibus ridership, revenue and profits required to base tough negotiations on DoT and Treasury to aggressively check value for money of procurement and also contract management DoT and Treasury to centrally procure a team of experienced network operations managers to assist and benchmark operating cities If a Phase 1 in 10 cities not running viably by end Dec 2018, city will be held to account on terms of DoRA provisions. Reallocate to better performers. 2 additional cities (Msunduzi, Mangaung) aiming for 20/21. Buffalo unlikely to be operational before 2023, funding permitted.

Strategic Proposal Summary…3 While R6 to R7bn is unlikely to be sufficient to cover operations and infrastructure for all 13 cities simultaneously, at some point after the 10 to 12 cities have successful run a viable Phase 1 service in 2019, there will need to be a policy-based review of the exact number of cities who should proceed to Phase 2 as well as any additional PTNG funding required to support high performers. For the next 16 months, the PTNG cities need to prove themselves as capable implementors and contract managers within the existing funding envelope and the current Phase 1 plans.

Thank you