Do the maths Minister: R3.65/litre is absurd

Dipuo Peters’ statement that a further R3.65 will need to be added to the fuel levy, if indeed the fuel levy was to be used to fund the road infrastructure needs.

Firstly, it must be noted that this statement is being made during the feedback provided to the Gauteng e-Toll Advisory Panel. It must therefore be implied that Minister Peters is referring to the amount required to fund the Gauteng Freeway Improvement Project (GFIP).

If one takes a little time to assess the impact of an extra R3.65 on the fuel levy and compare this to the road infrastructure requirements, one quickly realises the absurdity of the statement and claims made by the Minister:

• Currently, the estimated annual volume of petrol and diesel sold in SA amounts to 22,9bn litres (11,7bn petrol and 11,3 diesel). Source: Using no growth on figures reflected in SAPIA Annual Report 2013.

• By adding the suggested R3.65c per litre to the fuel levy, an additional R84bn will be added into the tax pot per annum.

• The Gauteng freeway upgrade capital costs amounted to R18bn. (Note this is an inflated figure due to construction companies collusive behavior – which still requires action from SANRAL to recover funds on behalf of society).

• This means the suggested R3.65 per litre will be able to finance almost five new GFIP Projects per annum.

• Any economist and infrastructure finance planner knows that projects of this nature are never financed in one year. The bonds raised are generally depreciated and financed over 20 to 30 years.

• If one takes the 22,9bn litres of fuel sold per annum and adds R0.10c per litre (yes - TEN CENTS), the authorities will raise an additional R2,3bn per annum. This amount will cover the GFIP (R18bn) capital cost plus interest (at 12%) over 20 years.

• Clearly the Minister and SANRAL, when quoting this figure of R3.65 per litre, are conflating all other road upgrades and backlog projects throughout the country.

• If so, OUTA regards this as disingenuous to conflate the entire nations road backlog costs in a discussion which is purely centred around the e-toll matter.

• However, be that as it may, even if Minister was referring to the entire country’s backlog, let us take a look at this requirement:

1. Until a few months ago, the entire South African road infrastructure backlog spend requirement was reflected at R165bn. It now appears to have increased to R197bn.

2. Even at this new inflated figure of R197bn, if indeed the Government wanted to fund the bonds required to finance the entire country’s road upgrade backlog with new / additional money, they would only need to increase the fuel levy by R0.96c per litre, which in turn would generate the revenues required to fund the capital bonds and interest of approximately R445bn over 20 years - at today’s volumes of fuel pumped (which is conservative because we know the volume of fuel will increase over time).

• Three questions arise from these calculations:  (i) Why indeed is there this growing backlog in road infrastructure spending? (ii) Are sufficient funds being allocated by Treasury (dare we say from the annual fuel levy) to service the road infrastructure backlog. (iii) How does the Minister or her advisors arrive at the conclusion of R3.65 per litre requirement for the GFIP or the entire country’s road infrastructure backlog, or both for that matter?

• Finally, it must be resupportered that today, and as has been the case for decades, SANRAL receives annual allocations from Treasury (plus other mechanisms) to fund road infrastructure projects. These funds come from the national fiscus, into which the fuel levy is fed. Today’s fuel levy of approximately R50bn (est) generates double the value it did during the 2009 tax year (R24,9bn – Source: SARS), which was when the GFIP construction started. OUTA is not suggesting the proposed R0.10c fuel levy should be ring-fenced. Treasury should merely continue to do what they have been doing and simply allocate the required R2.2bn tax receipts to SANRAL to settle the GFIP bonds. This is well within their rights and requires no change in policy.

“It is this kind of misinformation and gross exaggeration that leads to further mistrust in our Government,” says Wayne Duvenage, Chairperson of the Opposition to Urban Tolling Alliance (OUTA). “Statements like these are intimidatory and we sincerely believe the Minister’s office is being misled by whoever is advising her on these figures. This also raises concerns that the Minister might not be taking the necessary time or seeking expertise to challenge SANRAL on their claims and calculations. Quite frankly, this is becoming an embarrassing situation for the Minister and the country.”