Assault on the poor
In September 1999, the Department of Transport (DoT) entered into a Tripartite Memorandum of Agreement (the Tripartite Agreement) with the Southern African Bus Operators Association (SABOA) and a trade union purporting to represent the interests of the SABOA employees.
Through this Tripartite Agreement, the DoT and its stakeholders committed what appears to me as being illegal and anti-competitive behaviour in the offering of public transport services in the Republic of South Africa by receiving subsidies from the relevant provincial departments responsible for public transport, thereby excluding the taxi operators from the mainstream economic benefit from the subsidies.
In this document, I contend that this Tripartite Agreement is not only unfair but also discriminatory in the circumstances and inconsistent with various legislation and with the Constitution of the Republic of South Africa.
It is clear from the preamble and also from a reading of the document as a whole that it was the intention of the parties to implement the tender system as soon as possible so as to stabilise the bus transport industry and to provide employment security to its employees. But most importantly, the Tripartite Agreement represents an assault on the poor who rely almost exclusively on the taxi industry for mobility in general and public transport in particular.
The South African National Taxi Council (SANTACO) is an association of taxi operators and/or minibus owners. I have the privilege of having been appointed advisor to SANTACO by the national office-bearers of this organisation. The taxi industry is one of the few commercial avenues where black economic empowerment has made a solid foundation. Although not entirely perfect, the taxi industry forms the only aspect of the economy where black entrepreneurs possess full ownership and control of operations.
This industry has operated for more than 80 years without any meaningful government support – if anything, successive apartheid governments treated the taxi industry as an illegal operation, and future support has been postponed even further with no relief in sight.
Certain SABOA members provided subsidised bus passenger transport services prior to 1994. As an integral part of their operations, these SABOA members had, prior to the advent of the new democratic dispensation, acquired indefinite permits to operate buses. After 1994, the government concluded that it wished to change the existing bus operating services in South Africa into a competitive tender system.
The government recognised that constitutionally those permits could not simply be withdrawn without compensation, as that would involve a deprivation of property. The then-existing permits and vested rights that went with them could prejudice the envisaged tender system if operators who held indefinite permits did not voluntarily surrender their permits. Accordingly, in order to facilitate this transformation, the government agreed with existing operators to enter into interim contracts that would preserve existing jobs and operations and would gradually phase in the new tender system. As a quid pro quo for operators abandoning their “evergreen permits”, the interim contracts contained “right-of-first-refusal clauses”.
The interim contracts provide in relevant part that:
“6.3 The Employer shall with the consent of the Operator and with prior notice of not less than three months, extend the contract under existing conditions, should it not be in a position to call for tenders for the services described in the Specification (Part 3).”
“6.4 At the end of the contract period the Employer may decide to invite tenders for the provision of services in substantially the same service area. If this is done, such invitation shall amount to a totally new contract on the terms and conditions set out in the tender documents.”
“The Operator shall have the right to be awarded the new contract at the rates and on the basis tendered by the tenderer, which the State Tender Board has decided has submitted the most acceptable tender (which will not necessarily be the lowest tender); provided that:-
“The Operator has tendered for the new contract and his tender amount is not more than five percent (5%) higher than the most acceptable tender, and the Operator proves to the satisfaction of the Employer that he is able to perform the new contract at the rates applicable to the most acceptable tender.”
When the terms of the interim contracts expired, most of them were extended by agreement between the government and various SABOA members. Some of the routes were put out to tender in certain instances where SABOA members had successfully exercised rights of first refusal in order to obtain the tender awards; and SABOA members are currently operating routes under their original interim contracts pursuant to extensions of the interim contracts. Should those routes be put out to tender, the SABOA members concerned will be entitled to exercise their rights of first refusal in those tender processes.
The interim/tendered contracts referred to above contained a “right of first refusal” to the effect that, when the services went out on tender, the operators would be awarded the new contract subject to the incumbent operator consenting to a contract being awarded to a new entrant. This “right of first refusal” derives from the Tripartite Agreement. This “right” is contained in clause 6.4 of the interim contracts and is also set out in clause 8.4 of the tendered contracts. In clause 1.4 of the standard tendered contract, this “right of first refusal” was amended as follows: “The right of first refusal, in relation to the first tendered contract after expiry of the individual interim contracts, would be set at 10%.”
Policy and legislative context
Section 217 (2) of the Constitution of the Republic of South Africa states that organs of state may implement a procurement policy providing for:
- Categories of preference in the allocation of contracts; and
- The protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.
Section 217 of the Constitution enshrines basic principles that provide: “When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.”
The “right of first refusal” goes against these constitutional provisions and principles of fairness, equity, transparency, competitiveness and cost-effectiveness. It also contravenes the Competition Act when taking into account that the purpose of the Competition Act is to promote and maintain competition in South Africa in order to promote efficiency, adaptability and development of the economy as it also aims to provide consumers with competitive prices and product choices; promote employment and advance welfare; expand opportunities for participation in world markets; ensure that small and medium-sized enterprises have equitable opportunity to participate; and promote a greater spread of ownership (in particular in regard to historically disadvantaged persons).
South African public policy in as far as it affects the taxi industry can be broadly clustered into four topical aspects that have characterised policy and legislative changes for the past 20 years within the public transport sector:
- Subsidisation of public transport (key issues have already been canvassed above);
- Development of the Integrated Rapid Public Transport Networks (“IRPTNs”) and the Integrated Public Transport Networks (“IPTNs”);
- Taxi recapitalisation; and
- Conversion of operating licences.
All the above policy issues are embedded in the following policy and legislative instruments:
- White Paper on National Transport Policy 1996;
- Public Transport Strategy as at March 2007;
- Public Transport Action Plan of March 2007;
- National Land Transport Act 5 of 2009 (“NLTA”);
- Division of Revenue Acts 12 of 2009 and Act 5 of 2012 (“DORA”), specifically with reference to the Public Transport Operations Grant (“PTOG”);
- The 2012 Budget Vote 37; and
- The National Land Transport Amendment Bill April 2013.
The public transport action plan
According to the DoT’s National Public Transport Action Plan of March 2007, the majority of public transport users rely on the minibus taxi as the preferred mode, and the number of people using the following modes at least once in the seven days preceding the publishing of the results in March 2007 were:
- Train: 1 083 000 (6% overall and 8% of public transport);
- Bus: 2 566 000 (12% overall and 18% of public transport);
- Minibus-taxi: 10 080 000 (48% overall and 74% of public transport);
- Car: 7 088 000 (34% overall).
From the above it is clear that the taxi industry is responsible for transporting 74% of the public transport commuters, but it is not subsidised by the DoT and other provincial departments responsible for public transport. While the taxi industry accounts for 74% of the public transport market, SABOA has 18% and 8% is covered by rail. Collectively, the buses and rail benefit from at least R20-billion in annual subsidies, while the taxi Industry gets nothing in the form of subsidies.
Taxis are not only the most available and/or visible mode of transport, but also the most affordable to the public. They are also the most popular mode of transport in urban areas for the majority of South Africa’s population. Notwithstanding the above, policy and legislative trends seem to suggest otherwise. The real interests of the industry have hardly been taken into consideration in formulating policy and legislation.
In summary, the 2007 Public Transport Strategy and Action Plan provide for the following with specific regard to taxi industry:
- That IRPTNs are the focal point for the ongoing public transport transformation agenda;
- Participation in the IRPTNs is a precondition for accessing the Public Transport Operations Grant (“PTOG”);
- Provision of subsidies for bus services;
- Creation of negotiated contracts;
- Emphasis is placed on integrating the taxi industry into the IRPTNs to enable the industry to access to the PTOG either on the basis of negotiated or tendered contracts;
- Taxi recapitalisation;
- The involvement of the taxi industry in the IRPTNs will be determined on a case-by-case basis and this will be guided by the particular transport needs of each planning authority;
- Conversion of operating licences; and
- Provision for a 20% target for empowering of taxi operators and small bus operators on the basis of the industry development model (2012 Budget Vote 37).
Although the above seems quite impressive on paper, this discussion document will show that the policy and legislative positions highlighted above have never been successfully implemented, mainly as a result of poor conceptualisation and a lack of consultation with the taxi industry. The sections below consolidate the topical aspects contained above for ease of discussion and presentation.
Subsidisation of public transport
Subsequent to 1994, the government decided to change the then-existing public transport operating system in South Africa to a system based on competitive tenders for subsidised bus operators.
In order to facilitate the transformation, the government agreed with the existing operators to enter into interim contracts that would preserve the existing jobs and operations while gradually phasing in the new tender system. The new system was subsequently formalised by the enactment of theNational Land Transport Transition Act of 2000 (“NLTTA”). Section 47 thereof addressed the issue relating to subsidised service contracts. It laid out the processes involved in administering the said contracts.
All the tendered and interim contracts concluded between 1996 and 2003 have expired and current engagements are regulated on a month-to-month basis, with funds previously being transferred on the basis of an annual agreement signed between the DoT and provinces.
All subsidy claims received from current operators are settled by the provinces from the funds received from DoT. On an annual basis, the provinces used to conclude a subsidy agreement with the DoT in terms of which the DoT committed itself to transfer funds to the provinces to meet the subsidy obligations emanating from the aforementioned contracts. None of the provinces to date are within their own budgets and able to allocate funds to settle subsidy claims received. Since 2009, the same subsidy is now processed directly by National Treasury through the Division of Revenue Act (DORA) as the Public Transport Operations Grant.
The nature of the above subsidy arrangements has on several occasions led to a number of problems. Provinces have faced enormous challenges regarding shortfalls in the subsidy transfers from the DoT, which have led to a multiplicity of legal suits initiated by the subsidised bus operators against the government. From as far back as 2005/06 and 2006/07 financial years, the funds that the DoT was transferring to provinces have never been sufficient to settle all the claims received from the bus operators. Technically, this has created a continuous cycle of shortfalls that provinces may never keep pace with.
As a result of the shortfalls, the contracts are periodically redesigned to accommodate the dynamic settlement and travel patterns and to extend services to new areas not served by original designs. New settlement patterns and population growth have resulted in the level of overcrowding in subsidised bus operations reaching untold and very dangerous proportions, creating unbearable travelling conditions for commuters and workers alike. Passengers are forced to travel on dilapidated, overcrowded buses and drivers are exposed to driving unsafe buses.
This state of events continues to beg for the involvement of another mass-mover in the subsidised services regime. It is trite that passenger rail is currently subsidised. What is therefore outstanding is the robust involvement of the taxi industry in the subsidised services regime to relieve the existing pressure on the bus operations.
Despite constant calls for action in this regard, the taxi industry is yet to see any movement from government in both policy and implementation. The industry remains prepared to partake in subsidised services regime and has also set in motion plans to establish a bus commuter service transport system.
Failure by the government to address this matter and the sustenance of this status quo is a direct act of discrimination against the industry, its participants and the commuters who would be the direct beneficiaries for the services – thus my observation that this is an assault on the poor.
Integrated (Rapid) Public Transport Networks (IRPTNs and IPTNs)
The National Treasury has been consistent in indicating that the subsidy funding base will not increase substantially primarily because the existing public transport (bus) contracts are based on old operation designs. Without necessarily getting into the operational details of the IRPTNs and IPTNs, the taxi industry has previously raised substantive and procedural concerns regarding the implementation of the IRPTNs.
In the cities where aspects of the IRPTNs are being rolled out, the substantive and procedural legal requirements that should have been met in the planning, design and implementation were violated by those cities, Johannesburg, Cape Town and Tshwane in particular.
It is therefore further argued that by proceeding with the implementation, the government will be condoning a process substantively and procedurally tainted with irregularity, one that has been executed in total disregard of the law. In the majority of the cases that the taxi industry has been involved in, the following are some of the concerns raised:
- Lack of consultation: Stakeholder consultation processes are provided for in terms of the Municipal Systems Act, 2000 (Act No. 32 of 2000) (“MSA”), which clearly stipulates, without alternatives, that a municipality must establish appropriate mechanisms, processes and procedures to enable the local community to participate in the affairs of the municipality.
- Abuse of procurement framework: In some instances, we have had reason to believe that the cities concerned may have violated procurement processes by exclusively propelling the business interests of the selected associations and entrenched bus operators for IRPTN-related contracts. This has been done in the guise of implementing negotiated contracts.
In consideration of the fact that IRPTNs have been identified as the taxi industry’s opportunity for entry into the subsidies regime, I submit that such opportunity is unattainable in light of the following:
- The inadequacy of the nature of consultation undertaken by the cities, as described above;
- The impediments created by the right of first refusal as stipulated in the preceding section;
- The government’s inability to capacitate the taxi industry to enable it to fully partake in the programme; and
- The time it has taken for cities to develop IRPTNs. It is on record that almost five years since the conception of the IRPTN process, no city has to date completed an IRPTN. The taxi industry is aware of the fact that given the dynamic nature of travel demands, the finalisation of IRPTNs may never be achieved.
In light of the above, the taxi industry is left with no option but to seek legal redress in the form of an order compelling the government to ensure that the taxi industry is included in the subsidy regime without subjecting it to the IRPTN process. As an advisor to the taxi industry, I have reason to believe that the IRPTNs are meant to delay the taxi industry’s involvement in the subsidy regime.
Conversion of operating licences
Prior to 1994, taxi operations were based on radius-based permits. These permits had no expiry date and operators enjoyed uninterrupted tenure in business operations. In effect, the operators enjoyed business continuity and were more or less guaranteed presence in the industry. These permits created a legitimate expectation that business operations would proceed unfettered.
Post-1994, a new seven-year regime was introduced. In other words, permits would only be valid for seven years. However, this was never implemented as a result of administrative challenges. In 2000, the National Land Transport Transition Act 22 of 2000 (“NLTTA”) dealt with the conversion of the licence from radius-based to route-based as an avenue for improving the regulatory framework relating to transport in general. However, operating licences would now be valid for only five years.
It was also further stipulated that “no one has a right to be issued an operating licence”. Gradually the landscape kept changing without any consultation with the taxi industry. Again, for administrative reasons, none of these provisions was enforced effectively.
The government, through the NLTA (Act 5 of 2009), then decided to further legislate for the administrative failures that arose from the NLTTA, albeit with minor modifications. For instance: the NLTA refers to rationalisation as opposed to conversion and it also reduces the validity period of the operating licence from seven years, in terms of the NLTTA, to five years.
Section 47 of the NLTA provides that all permits for a definite period remain valid but lapse when that period expires, provided that if such a permit is still valid at a date calculated as seven years from the date of commencement of the Act, it will lapse on that date. Further that all permits issued for an indefinite period remain valid, but shall lapse seven years after the commencement of the Act.
The cumulative impact of the above legislative and policy trends is that pre-existing unfettered business interests are now being subjected to arbitrary expropriation without adequate compensation. As earlier mentioned, the taxi operators have previously conducted their businesses with the legitimate interest that their business will continue regardless of any changes in policy. It is this kind of certainty that enables them to invest in their operations and plan accordingly.
Any attempt by the government to subject the operating licences to a renewal process without guaranteed extension is therefore perceived by the taxi industry to constitute an expropriation inconsistent with the provisions of section 25 of the Constitution. The taxi industry has therefore cautioned that it reserves its legal rights to challenge any attempt to expropriate its business interests without compensation.
Taxi recapitalisation programme (TRP)
The scrapping process, which involves the physical scrapping of old taxi vehicles (“OTVs”) by the taxi scrapping administrator (“TSA”), was launched in October 2006. The intention was to implement the process in two phases:
- The first phase referred to scrapping of OTVs that belong to operators that voluntarily wish to exit the industry; and
- The second phase of the roll-out strategy included the scrapping of OTVs and voluntary replacement with new taxi vehicles (NTVs) once the scrapping allowance had been paid out (initially about R50 000 and now about R64 000).
The TSA (besides scrapping OTVs) also facilitates the acquisition of the NTV as desired by the operator. This voluntary exercise would be followed by the third phase in which vehicles on the National Traffic Information System (NaTIS) that are regarded as the oldest would be required to be recapitalised in the earlier period while newer taxi vehicles would be scrapped later.
As part of the implementation of the TRP, mandatory distinguishing markers for NTVs entering the market as part of the TRP have been introduced through regulations in the Government Gazette in January 2007. NTVs that comply with the mandatory safety requirements as certified by the South African Bureau of Standards (SABS) continue to enter the market. To date 13 types of NTVs that comply with the safety requirements had been certified by the SABS.
The target for scrapping vehicles per year from 2006 to 2013 is as follows:
- 2006/07: 5 000
- 2007/08: 20 000
- 2008/09: 30 000
- 2009/10: 20 000
- 2010/11: 15 000
- 2011/12: 5 000
- 2012/13: 5 000
In light of the estimated 200 000 taxi vehicles on South African roads, these targets are modest by any standards. Furthermore, it is unfortunate that prior to the implementation of this programme, there was inadequate consultation with the taxi industry to understand the taxi business model. The taxi business is a long-term business, where, under normal circumstances, the return on investment commences beyond the fifth year. This is usually the period it would take one to pay off a vehicle instalment.
It follows that throughout the initial five-year period of a regular NTV, the operator expends all his/her revenue on meeting instalment obligations and maintenance needs. To this end, the business aspect of the vehicle is non-existent until the vehicle is six years old. The recap programme, however, inherently ignores this fact by issuing a scrapping allowance equivalent to the book value of the vehicle at year five.
This, to a large extent, does not represent the actual value of the vehicle to the operator. It is my view that the vehicle beyond year five represents the most valuable asset to the operator, since this period constitutes the operators’ business side.
To this end, I believe that the true scrapping allowance should be valued at the cost of obtaining a new vehicle as opposed to the five-year basis. It would make sense if the figure were to be closer to R350 000, which is the price for a new Toyota Quantum, and would be more appropriate under circumstances.
In summary, the taxi industry is of the view that the policy and legislative trends have not in any way considered its interests. The taxi industry has continually participated in forums that have sought its views on matters incidental to its business. However, many of its concerns remain unresolved. Besides the continual letters and correspondences that the industry has addressed to the minister, the DoT, provinces and municipalities, it is yet to receive any substantive response.
To this end, the taxi industry is left with no choice but to seek legal redress on all matters highlighted herein. Nevertheless, in the course of executing its legal rights, the taxi industry shall remain committed to participating in any process that is initiated to address its concerns. Accordingly, in April 2013, the taxi industry submitted substantive comments to the National Land Transport Amendment Bill 2013. I attach the comments to this document for ease of reference. From the comments, the taxi industry effectively suggests a way forward for most of the issues raised above and echo its concerns contained herein.
I remain hopeful that the minister will, at the minimum, commence a process that seeks to establish a more constructive relationship between the taxi industry and government.