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Select Committee on Appropriations

Presentation on proposed amendments to public transport

grants (PTISG and PTOG)Philip van Ryneveld6th April 2011

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Background

• Director of Hunter van Ryneveld (Pty) Ltd

• Work with national and city governments on municipal issues, including finance, inter-governmental relations, transport

• Submitted the proposed amendments as part of the team working on the new Cape Town Integrated Rapid Transit project

• Proposed amendments are largely technical

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Subsidisation of public transport• National government currently subsidises

public transport through a number of channels including: – Capital and operating commuter rail subsidies

– Special grant for Gautrain

– Public Transport Operating Grant

• Provincially contracted bus services

– Public Transport Infrastructure and Systems Grant

• Largely for the new bus rapid transit systems

– Minibus taxi recapitalisation programme

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Relationship between PTOG and PTISG

• It was originally envisaged that as the new Bus Rapid Transit systems replace existing subsidised bus services the Public Transport Operating Grant (PTOG) related to subsidised routes would be shifted incrementally from the legacy contracts to the new Bus Rapid Transit contracts

• Two complex elements to this– Shifting funding from long standing contractual

arrangements with legacy bus operators to new services

– Shifting the funding stream between spheres of government

• National government has concluded that – PTOG cannot be shifted piecemeal

– until other sources are established PTISG should be used as the source of operating subsidies for the new BRT services

• The process of devolution is complex and carries significant financial risk for the cities, which will need to be addressed

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1. Public Transport Operating Grant

• PTOG is for “subsidised service contracts entered into by the provincial departments of transport”

• Can be devolved to the municipality but this “must include all services in that city at once”

• The process can be helped by including conditions in PTOG which – Require provinces to assist the transition in

specific ways

– Ensure that the subsidies which are released by the phasing out of routes are applied in consultation with the municipality to which services are being shifted

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Where public transport services provided by a provincial department of transport a provincial public transport service are replaced by municipal run Integrated Public Transport Network (IPTN) services the province must assist the transition by:

• excluding the applicable routes from existing provincial contracts

• calculating the subsidies paid in respect of the applicable routes

• assist the municipality negotiate the application of the subsidies

• determining the appropriate application of the subsidies in consultation with the relevant municipality

• taking all other reasonable steps as may be necessary

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2. Public Transport Infrastructure and Systems Grant

• From its introduction the PTISG has been mainly directed at cities

• In its early years was focussed on funding for transport services for the FIFA World Cup

• PTISG is now the main mechanism for implementing the Public Transport Strategy and Action Plan which includes– Creating Integrated Rapid Public Transport

Networks

– Assymetric devolution to cities in terms of the National Land Transport Act

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Outputs

... Public transport services include buses, security, station

management, ticketing and contributions towards the economic rights of existing operators and workers

...

(a) Use of PTISG partially for operating subsidies

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Limiting use of PTISG for operating subsidies

• National government has taken the view that cities must at least cover the direct operating costs of running the vehicles, preferably from fare revenue

• Direct operating costs are regarded as ‘fuel, labour and vehicle maintenance’

• Treasury has confirmed that PTISG wording intended to express this, but the actual wording could be read as giving its another meaning

• The proposed amendments, which the relevant national departments concur with, are intended to address this

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Conditions

... From the start of operations, IRPTN systems must

recover all the direct operating costs of contracted vehicle operators from fare revenue, other local funding sources and, if applicable, from any Public Transport Operations Grant contributions. These direct operational costs include consist of fuel, labour and vehicle maintenance. City-wide networks must ultimately also recover the capital costs of vehicles

...

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(b) Ownership of buses that have been purchased with PTISG

• One of the forms of subsidy being implemented by national government is to pay the capital costs of vehicles from PTISG

• Where private operators own the vehicles they have an additional incentive to maintain them, so there is an argument that they should be transferred to operators

• National Treasury wants to avoid the risk of transfer of the buses in a way that risks the interests of the public sector

• However, NT has previously agreed to arrangements other than ownership remaining with the municipality

• The amendment is aimed at achieving consistency with these agreements

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Conditions

... If buses are bought with grant funds and are

used by contracted operators, the municipality must retain ownership unless National Treasury specifically approves alternative arrangements.

...