PRESENTATION TO THE TRANSPORT PORTFOLIO COMMITTEE BUS SUBSIDY BUDGET SHORTFALL 2008/09

1. PRESENTATION TO THE TRANSPORT PORTFOLIO COMMITTEEBUS SUBSIDY BUDGET SHORTFALL 2008/09 03 FEBRUARY 2009 1

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

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

4. National Budget - Subsidy Distribution – 2008/09 4

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

6. 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

7. 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

8. 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

9. Subsidy Allocation – 2005/06 9

10. Subsidy Allocation – 2006/07 10

11. Subsidy Allocation – 2007/08 11

12. Subsidy Allocation – 2008/09 12

13. 13 SHORTFALL PER PROVINCE

14. 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

15. 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` Operators will have to accept: • 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 Contracting authorities will have to: • 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 15

16. 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

17. 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

18. 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

19. 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

20. Thank YouDankieEnkosi 20