ADDRESS TO SABOA AGM BY THE MINISTER OF TRANSPORT, MAC MAHARAJ

Johannesburg, 27 May 1999

Chairperson, Ladies and Gentleman.

Thank you for inviting me to address your Annual General Meeting.

As the out-going Minister of Transport I welcomed both this opportunity to address you and to say farewell because we have travelled a long way in my five years in office.

Being invited here today means that we have travelled this distance together; and I would like to thank SABOA and all its members for their contributions to Moving South Africa and congratulate you on the progress that has been made in implementing the Ten dered Contract System in the Bus Industry.

As you know, we are preparing the National Land Transport Transition Bill for tabling later this year and I wish to thank SABOA for its useful inputs into this process.

I was pleased to be informed yesterday that SABOA and my department had successfully concluded discussions on an empowerment project to train small bus operators.

A few of the high moments in the past five years have been:

• the White Paper on National Transport Policy being passed in 1996,
• the establishment of interim contracts with all the subsidised bus operators,
• the passage of the National Land Transport Transition Bill to provide the legislative platform for the establishment of Transport Authorities (TA), and
• the publication earlier this month of the Moving South Africa Action Agenda.

The Moving South Africa project is something I am particularly proud to leave behind.

For the first time government has in front of it a 20-year strategy plan for freight and passenger transport that is located within its national policy goals.

In the urban passenger section, we identified four key strategic gaps as:

1. THE LACK OF BASIC AFFORDABLE ACCESS: More than 2,8 million urban passengers are stranded without transport.
2. INEFFICIENT PUBLIC TRANSPORT SYSTEM: Over 30 percent of captive public transport customers are dissatisfied with their journey times, while none of the public transport modes are reinvesting at even half of their capital requirements.
3. INCREASING CAR DEPENDENCE: The car fleet is forecast to increase by 64 percent by 2020 and the size of the "stubborn" car-using customer segment is set to increase by 88 percent.
4. SUB-OPTIMAL SPATIAL PLANNING: Current land use planning is exacerbating the apartheid legacy of dormitory townships and long travelling distances by locating new housing on the cheapest land, which tends to be beyond the urban periphery.

Moving South Africa identified three types of strategic actions to address these gaps:

1. DENSIFYING ALONG CORRIDORS: The objective here is to increase volumes and density, thereby increasing the utilisation of the vehicle fleets. Corridor-based systems and competitive services are also likely to improve the level of service offered to cus tomers as frequencies should increase.
2. OPTIMISING MODAL ECONOMIES OF SCALE: This set of actions entails corridor supportive infrastructure investment combined with tough road space management. In corridors of over 30,000 passengers per direction per day we will support improvements to exist ing rail or dedicated public transport road infrastructure such as busways. In moderate ridership corridors of between 10-30,000 passengers the best option is likely to be priority or dedicated infrastructure for public transport over parts of the corridor . Low ridership corridors of under 10,000 passengers per day per direction are likely to require road based priority schemes since volumes do not warrant dedicated infrastructure.

   In essence greater investment is required to improve the performance of line haul modes on corridors; for example infrastructure investment that improves speed and safety such as dedicated busways. In addition, the choice of a line haul corridor system req uires investment in feeder access to stations and investment in developing and managing intermodal transfer stations and nodes.

3. IMPROVING FIRM-LEVEL PERFORMANCE: This set of strategic actions is based on the premise that both government and operators can do more to improve productivity. Government can facilitate this improvement by efficiently defining and enforcing the "rules of the game" as laid out in the Transition Bill. Operators can improve by responding to customers needs on the basis of commercial decisions in an environment of fair competition and better enforcement.

A dominant factor in the implementation of the current tendered contract system is the emphasis on cost-minimising strategies.

Objectors to tendering often say that cost-minimising strategies impact negatively on service levels.

However, in all tendering specifications (be they gross or nett contracts) the emphasis in principle has been on the provision of a given level of service for the lowest cost.

The minimum cost tender is reasonably assumed to be the best value for money from a service provider.

While the actual price offered under the tender contract may not be the most ‘efficient' price achievable under economic deregulation, the claimed advantages of regulated competition for the market more than overweigh the uncertainties in service provisio n associated with ‘on route' competition.

The recognition that level and quality of the service is central to a cost-efficiency strategy has often been ignored in practice.

There is a concern that the level of service to be supplied through the contract system is lower than that previously offered under a territorial monopoly with no potential competition.

The need to re-emphasise user benefits within the environment of cost efficiency must be given more prominence.

Tendering is an important tool in the Moving South Africa strategy to achieve improved productivity because it proposes that priority should be given to maximising the level of service and then establishing the minimum cost strategy for delivering this se rvice.

It is envisaged that tendering for subsidised routes would have incentives built in for productivity innovation and reinvestment. In this regard the focus is on promoting output-based performance rather than price competition.

Moving South Africa envisages that future bus tenders give more flexibility to operators to change service patterns in response to customer needs.

The contract specifications need not even stipulate a modal solution; rather, they should focus on performance objectives for operators to be met in a fashion appropriate to market conditions.

My Department is in the process of evaluating alternative ways of designing passenger services and has embarked on a study of output-based performance contracts.

It needs to be borne in mind that competitive tendered contracts still form only a small part of the total subsidised public transport services and that they only have been operational for a short period.

To date approximately 75 percent of the subsidy is paid out on the multi -journey clipcard system, while only 25 percent is distributed on a competitive tendering basis, with larger companies sharing in the major portion of these funds.

The conditions in the current transition to a tender-based contract system should be seen within the following three parameters:

• Firstly, in line with our Constitution, land passenger transport powers and functions have been devolved to provincial government. This includes full responsibility for the management and implementation of the Tendered Contract System.

  The national Department of Transport plays a role in terms of setting the vision, creating legislation and describing appropriate guidelines for the design of tenders. We also provide the Model Contract Documents which are standard to all provinces in this first round of tendering.

  In future, the creation of TAs will enable the Tendered Contract System to be implemented in accordance with the public transport plans, thereby rationalising and integrating public transport models in response to user preferences and real volumes.

• Secondly, the Heads of Agreement reached in November 1997 between government, labour and the industry specify conditions for moving to the tendered contract system. These relate to job security, subcontracting, contract period and retrenchment in the b us industry which have been incorporated into the model tender documents, and have far reaching effects on the design of tendered contract services.

  In accordance with the labour agreement, government gave the commitment that in the first round of tendering, set asides for alternative modes of transport will be limited in the design of new tendered contract services.

  Although this Agreement limits the options available in the design of tendered contract services this is a necessary step to be managed in the first round of tendered contracts as we move towards full modal integration and rationalise services in relation to customer needs and volumes.

• Thirdly, where public transport services require subsidies operators will compete for the market through tendered contracts. Contracts will be awarded only to operators who operate on commercial principles. Publicly owned companies will have to be rin g-fenced, with no unfair access to financial resources and be liable for taxation.

Common to any form of regulated competition is the requirement that suppliers compete on the same footing.

This imposes some strong institutional conditions, particularly where parastatal operators bid for tendered services, and where presently informal operators wish to bid.

Clear conditions for financial ringfencing need to form part of the absolute criteria in the Model Tender Documents. My Department has embarked on such a study and these conditions will soon be available.

In conclusion, I would like to emphasise that the successful implementation of the system of regulated competition will depend on both government and the industry.

We have a joint responsibility to meet the needs of our population, within a context of limited resources.

Government has to create the environment in which fair competition between modes can be achieved, and the public and private industry as a whole needs to align with the principles of efficiency and performance.

The system of regulated competition together with the components of re-engineering and restructuring will require the development of careful transitional strategies under a strong management structure.

Our White Paper and the Moving South Africa project have laid the policy and strategy down for government and industry alike.

The National Land Transport Transition Bill will create the legislative framework for implementing the strategy in the short and medium term.

It is clear that government has some way to go in creating an environment in which the incentives and punitive measures of the tendering system can signal to the industry an appropriate response as to whether they are meeting the needs of the passengers.

If there is a single message I can leave you with, it is that changes in the public transport systems are not completed.

The introduction of output based contracts signal to the industry as a whole, be it bus, rail or taxi, to make commercially based decisions to form strategic alliances in order to better meet the needs of the travelling public.

Thank you.