OUTA raises serious concerns over SANRAL's 2016 financial statement
Sanral’s annual report for 2016, released last week, is replete with errors, misrepresentation and an astonishing disregard for sound accounting practice and the intelligence of Gauteng motorists, the vast majority of whom have shunned the failed e-toll scheme.
OUTA raises serious concerns over SANRAL's 2016 financial statement
The errors and misrepresentations in the Sanral financial statements are too numerous to list here, but some of the more egregious statements that require answering or explanation by Sanral and / or the Auditor General, are detailed below.
The most alarming aspect of Sanral’s 2016 financial statements is the increase in trade receivables from R1,15 billion in 2014 to R4,96 billion in 2015 and R7,66 billion in 2016. Sanral clearly continues to count unpaid e-tolls as an asset on its balance sheet, when all indications point to virtually no hope of recovering this money. Had Sanral accounted prudently and honestly as regards these unrecoverable amounts, it would have been forced to report a far greater loss than the R954 million reported for the 2016 financial year. It is also noteworthy that impairment losses from toll and other receivables for 2016 were reflected as being R91,8 million, an implausibly low figure, suggesting Sanral refuses to acknowledge the large-scale failure of its ability to collect the bulk of e-tolls invoiced, even at the discounted tariffs as they have indicated their figures to reflect.
As a user pays scheme, which now has only around one in five users paying for the use of Gauteng’s freeways and 2,9 million unique road users in default, there appears to be no acknowledgement in Sanral’s annual report that the scheme has largely failed in achieving its aim to repay the debt borrowed for the upgrade.
This refusal to write off trade receivables in line with accepted accounting practice, has had the effect of padding its balance sheet and distorting its true financial position, at a time when bond investors are bailing out on Sanral bond auctions.
Some of these outstanding e-toll bills are well over two years old, well past the age of write-off in terms of accepted accounting practice. Conventional accounting practice requires that unrecoverable receivables which are clearly unrecoverable must be expensed through the income statement.
Between November 2015 and May 2016, Sanral’s Less60 campaign, offering a 60% discount to encourage Gauteng motorists to adopt e-tolls and settle the R5,9 billion ring-fenced and discounted debt, and despite a multi-million rand marketing campaign, they recovered only R145 million. Subsequently, Sanral has resorted to issuing summonses to 6,268 motorists - with a combined claim of R575 million - in an attempt to display an ability of enforcement, which they once again falsely believe will bully motorists into supporting their ill-fated scheme.
The likelihood of any reasonable success of forcing improved e-toll collections through their current legal process needs to also be weighed up against the backdrop of their recent court case loss of the tolling project in the Western Cape, plus the looming legal showdown with the Gauteng motorists headed up by OUTA.
OUTA estimates that today, upwards of 80% of Gauteng motorists do not pay e-tolls. How then is it possible for Sanral to report a 47% increase in trade receivables to R7,6 billion for the 2016 financial year, without having to provide for or write the bulk of this value off as unlikely to collect?
Sanral is clearly deluding itself and its shareholders into thinking legal prosecutions against non-paying motorists will improve its e-tolls collections, and appears to have convinced the Auditor-General (AG) of this unlikely outcome. This in turn raises questions as to the independence and probity of the AG in issuing a statement to this effect, and on which its “going concern” assurance is heavily weighted.
Another concern raised by OUTA from Sanral’s 2016 annual report is the R7,6 billion cost of “strengthening and improving” 531kms of national roads. This means road users are paying R14,3 million per kilometre, not for new roads, but for road improvements, which is exorbitantly higher than international and local benchmarks for work of this nature.
OUTA is seriously concerned at the increase in Sanral’s debt levels over the last 10 years from R6 billion in 2007 to R47 billion in 2016, while the tolled portion of the road network under Sanral management increased by just 500kms to 1,832kms. While we know of R22 billion attributed to the grossly overpriced Gauteng Freeway Improvement Project between 2008 and 2012, debt has climbed by an additional R19 billion with very little additional tolled road surface to show for this increased debt.
When one realises borrowed debt is supposedly to service recoverable debt through tolled roads, this rising debt concern translates into a debt ratio of R26 million per kilometre of tolled road, which has increased significantly from R4 million a decade ago.
Despite the Cape High Court and the Supreme Court blocking efforts to impose yet another tolling farce on Cape motorists on the Winelands N2 & N1 routes, Sanral appears to blindly blunder on with its plans to toll urban social infrastructure, regardless of public objections.
Sanral also appears to be dismissive of community objections to building a toll route along the Wild Coast, saying this plan is being delayed by people purporting to have the interests of the poor at heart. This brazen disregard for the valid objections of road users across the country is callously brushed aside by Sanral’s leadership.
The 2014 annual report mentions the Competition Commission findings of collusive practices in the construction industry and despite the fact that Sanral promised to seek redress from these companies, and issued summonses for the recovery of R760 million against construction companies suspected of collusion in 2016, nothing has come of this action to date. In fact, OUTA understands that charges against these companies have or may be dropped, provided they agree to a vague and soft development and transformation agreement. If this is the case, it is unconscionable that South African motorists are being made to pay for the outrageous costs inflicted on them by Sanral and these fraudulent companies.
Sanral’s annual report is also notable for what it does not disclose. The N3 Toll Concession is reported to have invested R469,9 million, TRAC R427,4 million and Bakwena R215 million in road upgrades and maintenance during the 2016 financial year. No detail is provided as to how this money was invested and OUTA will be seeking specific information on exactly how and where this money was spent. OUTA notes with interest in the 2015 annual report that the concessionaries "will return the roads to government free of debt and in a specified condition at the end of the concession period." In other words, no attempt will be made to extend or amend these contracts, which is something OUTA will be paying close attention to, as there are indications of plans to extend some of these concessionaire contracts through revised routes and new road construction plans.
The 2015 annual report mentions 1,3m e-tag users. No mention is made of the number of e-tag users in 2016, which raises questions as to the accuracy of this figure.
Also worthy of note is the downgrade of Sanral by ratings agency Moody's. The first downgrade was in the 2012/3 financial year, then again in September 2013. Moody's placed Sanral under review for possible downgrade in March 2016 and confirmed its negative outlook in 2016. Sanral blames "uncertainty and ill-founded resistance to the implementation of e-tolling in Gauteng" rather than mismanagement for its negative credit outlook.
OUTA is pleased to note that Sanral recognises public resistance to e-tolling as a primary risk to its business, however they have not accounted for this accordingly. We therefore expect Sanral to implement plans to drop this expensive, inefficient and unlawful debacle that has been foisted on the Gauteng motorists who have clearly ignored government’s calls for improved compliance.
It is clear that the unpopular e-toll scheme and the boycott thereof has hit Sanral’s bottom line harder than expected and their higher cost of borrowing has increased their finance costs to unbearable levels. It is unfortunate that Sanral has not reported sufficiently on this serious plight, nor have they proposed possible solutions to this dire predicament, other than the issue of summonses as a possible but very short-sighted answer.
In summary, none of Sanral’s board, the Minister of Transport and the Auditor General have provided any real thought or insight to the future of the e-tolling scheme, other than to continue relying on borrowings which are backed government guarantees. This strategy merely continues to dig a deeper hole for Sanral, as opposed to finding long term resolution for this once strong and economically sound state owned entity.