Integrated Rapid Transit Project
Vehicle Operator Contracts for Phase 1,
extending beyond three financial years
Information document as required by Section 33
of the Municipal Finance Management Act
26 June 2013
V2.1
Invitation to comment on MyCiTi long-term contracts
In terms of section 33 of the Local Government: Municipal Finance Management Act 56
of 2003 the City of Cape Town intends
entering into 12 year contracts with Vehicle
Operator Companies (VOCs) for vehicle
operating services for phase 1 of the MyCiTi
Integrated Rapid Transit project. These
contracts will impose financial obligations on
the City for longer than the three year
period covered in the annual budget for the
financial year 2013/2014.
Transport for Cape Town (TCT), the City’s
Transport Authority, is expanding its MyCiTi
Integrated Rapid Transport System (IRT), as
part of the TCT plan to provide a reliable,
fast and efficient public transport system
that focuses on safety and good customer
service.
Phase 1 is currently being implemented,
providing services in the central city and
surrounding suburbs, between the Airport
and the central city, and to the West Coast,
including Table View, the surrounding suburbs and to Atlantis, as well as providing a
link between Dunoon, the central city and
Montague Gardens/Century City.
The proposal to conclude these contracts
was already advertised for public comment
in June 2010 and in October 2012 – based
on information available at the time. The
proposal for the long-term contracts regarding vehicle operations is now being readvertised for comment, with updated information on the expected costs of the
system.
This document is the information statement
about the proposal, as required to be made
available by the Municipal Finance Management Act.
In accordance with sections 21 and 21A of
the Local Government: Municipal Systems
Act of 2000 the City of Cape Town gives
notice that –
(a) The local community and interested
people are invited to submit comments or representations in respect
of the proposed draft contracts.
These must be received by no later
than 22 July 2013 by email, or
delivered to the physical or mailing
address below.
(b) Copies of the draft contracts and an
information statement summarising
the City’s obligations in terms of the
draft agreements are available for
inspection at the City of Cape Town
Civic Centre at the address below;
the various Sub Council Offices of
the City of Cape Town and at the
City’s libraries. You can call 086 010
3089 for information on the location
of the Sub Council Offices and
libraries. The draft agreements will
also be accessible at
www.capetown.gov.za/irt by clicking
on “public participation”, and then on
“Vehicle Operations (June 2013)”.
(c) Further clarification may be
requested from Ms Abigail Erasmus
at 021 400-9354 or via the email
below and may be made available on
the above mentioned website.
Addresses for delivery of comments:
• Physical address: IRT Operations, 14th
floor, Tower Block, Civic Centre, 12
Hertzog Boulevard, Cape Town 8001
• Mailing address: IRT Operations, 14th
floor, P O Box X9181, Cape Town 8000
• Email: abigail.erasmus@capetown.gov.za
• Fax: 086 201 1815
Submission must be marked: “VOC
Phase 1 contract S33 process”
People who are physically disabled or unable to write but would like to participate in
the process may present themselves during
office hours at the City of Cape Town Civic
Centre at the above physical address to Ms
Abigail Erasmus, who will arrange for a staff
member to assist them in transcribing their
comments and representations.
CITY MANAGER
CITY OF CAPE TOWN
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Contents
1.
Executive Summary ...................................................................................................3
2.
Background................................................................................................................5
3.
GABS litigation...........................................................................................................5
4.
Section 33 Approval Process .....................................................................................6
5.
Reasons for proposed twelve year terms of contract ...............................................8
6.
Contract characteristics ............................................................................................9
6.1.
Number of VOCs and market share .............................................................................9
6.2.
Responsibilities of the VOCs ........................................................................................9
6.3.
Payment basis of VOC’s ............................................................................................ 10
6.4.
Vehicle ownership .................................................................................................... 10
6.5.
Condition that a minimum of 80% of current directly affected minibus-taxi operators
surrender licences ............................................................................................................... 10
6.6.
Form of contracts ..................................................................................................... 11
7.
Sustainability implications ......................................................................................11
8.
Financial Implications .............................................................................................11
8.1.
Summary of operating costs and revenues of MyCiTi for Phase 1 ................................ 11
8.2.
Estimated VO costs compared with amounts in Business Plan ..................................... 15
9.
Details of national grant framework .......................................................................15
10.
Financial risks ......................................................................................................17
10.1.
Management of financial risks relates to costs and fare revenue .............................. 17
10.2.
Approach to national government on guaranteeing subsidy revenue ........................ 18
11.
Further documentation ........................................................................................18
Annex 1: Extract from Municipal Finance Management Act, 53 of 2003 .......................19
1. Executive Summary This information statement relates to the concluding of contracts for a period of 12 years with
three vehicle operating companies which will be responsible for the provision of vehicle operating
services for Phase 1 of Cape Town’s MyCiTi system.
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The key component of the MyCiTi Integrated Rapid Transit (IRT) system, as set out in the MyCiTi
Business Plan, is the Vehicle Operating Companies (VOCs), responsible for transporting the
passengers. In terms of the 2012 MyCiTi Business Plan it is intended that there be three
contractors operating the MyCiTi vehicles for Phase 1.
The VO contracts have been negotiated in terms of provisions of the National Land Transport Act,
2009, (NLTA) which allow contracts to be negotiated for a period of up to 12 years. The length of
time proposed as the duration of the VO contracts is 12 years.
The reason for the once-off negotiation and offering of 12 year contracts is to enable the existing
industry to transition into the new system, thus easing the very challenging transition from an
informal to a formal system of public transport in the area. Furthermore, by signing 12 year
contracts the VOCs will have the incentive to ensure that the buses are properly maintained, which
will in turn be to the advantage of both users and the City. Inadequate care and maintenance
would otherwise result in more breakdowns, especially in the later years of the contract, and
consequently reduced income and more penalties to the VOCs.
Section 33 of the Municipal Finance Management Act No 56 of 2003 (MFMA) provides that, for
contracts spanning more than three municipal financial years, a public consultation process must
be followed (involving both an invitation for public comment, as well as an invitation for comment
to specified organs of state), and that Council must consider and approve the full contracts before
the City Manager may sign the contracts on behalf of the City.
The City invited has already invited comments on earlier versions of the proposed long-term
contracts provided here: first in June 2010, and again (this time with updated information) on 5
October 2012. The current invitation to comment is based on finalized contracts and prices).
Negotiations have taken longer than was originally anticipated. Not only were they extremely
complex, but the basis upon which the City proposed to allocate market share was challenged in
court, the conclusions of which found in the City’s favour only on 26 April 2013.
The VOCs’ responsibilities include, but are not limited to, operation of the services in accordance
with the routes, schedules and timetables provided by the IRT Operations Department as the
contracting authority; receiving and maintaining the vehicles allocated by the IRT operation
department; and receiving, operating and maintaining vehicle depots and staging areas.
The signing of the contracts has significant financial implications for the City of Cape Town. These
are set out in section 8, which includes projections of costs and revenues. Revenues are derived
from fare revenue; advertising revenue; grant revenue from national government by means of a)
the operating cost components of the Public Transport Infrastructure Grant b) Public Transport
Network Operating Grant c) Public Transport Operating Grant, once assigned; and City of Cape
Town’s own general revenues.
It is envisaged that the City’s contribution to subsidising MyCiTi Phase 1 operating costs will be
approximately 2% of property rates per year, which is within the 4% limit agreed by Council. If
costs are higher or revenues lower the City could reduce services and increase fares – see
paragraph 10.1.
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The estimated VOC costs contained in this Information Statement are about 5% above the
projected figures as contained in the 2012 Business Plan.
National government’s contribution to costs is substantial. A termination or substantial reduction of
these subsidies would be financially damaging. The City has accordingly approached national
government with a proposal to guarantee the envisaged subsidy revenue for the duration of the 12
year contracts – see paragraph 10.2.
2. Background The key component of the MyCiTi Integrated Rapid Transit (IRT) system, as set out in the 2012
MyCiTi Business Plan, are the Vehicle Operating Companies (VOCs), who are responsible for
transporting the passengers in the system. In terms of the Business Plan it is intended that, in
Phase 1 of the IRT system, there could be between two and three contractors who will be
appointed for a period of up to twelve years to operate the MyCiTi vehicles. The contracts have
been negotiated in terms of provisions of the National Land Transport Act, 2009. This Act provides
for negotiations (as an alternative to a process of open tendering) in order to facilitate a transition
whereby existing operators have the opportunity to run the new services which replace them.
The final phase of negotiations began in May 2012, and these negotiations have resulted in
proposed contracts with three VOCs.
Section 33 of the Municipal Finance Management Act No 56 of 2003 (MFMA) provides that, for
contracts spanning more than three municipal financial years, a public consultation process must
be followed (involving an invitation for public comment, the issuing of an Information Statement,
as well as an invitation for comment to specified organs of state), and that Council must consider
and approve the full contracts before the City Manager may sign the contracts on behalf of the
City.
This Information Statement is issued in compliance with this requirement.
3. GABS litigation In June 2012 Golden Arrow Bus Services (GABS) launched proceedings in the High Court for an
order to the following effect:
•
to force the City to refer disputes regarding market share of Phase 1 services allocated
to GABS and compensation for buses and depots not required any more to mediation
and arbitration;
•
to order the City to “negotiate in good faith” with GABS regarding the new service; and
•
interdicting the signing of an agreement with VOCs in the interim.
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The application, which was also brought against the MEC for Transport and Public Works in the
Western Cape and two other VOCs operating existing MyCiTi services, was dismissed with costs in
the High Court by Judge J Griesel on 26 April 2013.
Judge Griesel said that the process of establishing an Integrated Public Transport Network was
‘extremely complex’. He found that compulsory arbitration and mediation where parties could not
reach agreement was ‘inappropriate’. ‘If the City were obliged to reach consensus on every issue
and with every participant in the process, failing which it could be compelled to go to mediation
and arbitration, it could become endlessly bogged down,’ he said when handing down his
judgement.
Being compelled to a process of mediation and arbitration would make it impossible for the City to
fulfil its statutory mandate, as required by the NLTA, to take steps ‘as soon as possible’ to
integrate services into the larger public transport system. The judgement said that the relevant
section of the NLTA meant a contracting authority, such as the City, was obliged to negotiate but
was not obliged to agree.
Golden Arrow’s application to compel the City to negotiate in good faith was also dismissed. The
judge said that the allegation that the City did not negotiate in good faith was a strong allegation,
which implied fraud or dishonesty.
He found that the City was not obliged by section 41 of the NLTA to negotiate with Golden Arrow
Bus Services about compensation for its vehicles and assets which would be made redundant by
Phase 1A and B. The City has not refused to negotiation at all, but the parties have negotiated to
deadlock on these issues. The fact that the City and Golden Arrow hold different views cannot
justify an inference of bad faith or unreasonableness on the part of the City.
He said that ‘in the context of a complex and policy-laded process of negotiation stretching over
years, as in this instance, I bear in mind that the court should show due deference for the greater
expertise and background knowledge of those involved in the process.’
The dismissal of the GABS application now has the effect that the City can proceed to contract the
VOCs, subject to the process in terms of section 33 of the MFMA being implemented.
4. Section 33 Approval Process Section 33 of the MFMA provides that, for a contract spanning more than three municipal financial
years, a detailed public consultation process must be followed after which Council must consider
and approve the full contract agreement before the City Manager may sign the contracts on behalf
of the City.
The relevant parts of section 33 of the MFMA, the structure of which form the basis of the
Council’s resolutions, are contained in Annexure 1.
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4.1. Process of Inviting Comments
The invitation for public comment regarding the Vehicle Operating companies’ contracts was
originally published in the press on 25 June 2010 in an information statement as specified in
section 33(1)(a)(i) that dealt with all four of the key sets of long term contracts required for the
operation of MyCiTi services, including the fare system, control centre and station management
contracts. The information statement combined all the contracts into a single information
statement since those other than the Vehicle Operator contracts was more easily understood in
the context of the others. Letters were sent in accordance with section 33(1)(a)(ii) on the same
date to the following organs of state: National and Provincial Treasury; National Department
responsible for local government; National Department of Transport; and the Provincial
Department of Transport and Public Works.
The information statement was published for comment on the City’s website at the same time, as
well as draft contract documents regarding each of the above contracts. The closing date for
comment was 30 July 2010. Following receipt of comments, Council approved the term of the
automated fare collection system and the control centre system contracts in terms of section 33 in
December 2010, leading to the awarding of the automated fare collection and the control centre
contracts in early 2011 (after conclusion of an appeal).
An updated version of the Section 33 information statement was published on 5 October 2012,
linked to the submission of the MyCiTi 2012 Business Plan to Council committees in September
2012. The 2012 Business Plan, which was subsequently approved by Council on 31 October 2012,
provides for the extension of the roll-out of MyCiTi services beyond Phase 1A to Phase 1B and the
N2 Express services.
Because of changes to the contract and a slight increase in the expected cost of the contracts as
compared with the MyCiTi 2012 Business Plan and the October 2012 information statement this
further information statement is being issued. The negotiations with the VOCs are now also very
close to being concluded, with only minor issues subject to finalisation. This latest version focuses
only on the Vehicle Operating Contracts (ie not on the other contracts) since this is the sole
purpose of the current process.
The publication of the latest updated information statement is to give the public the opportunity to
comment on the changes in the draft contract and on the updated operating costs and revenues
anticipated regarding Phase 1.
The draft contract is available from the City website (see page 2).
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5. Reasons for proposed twelve year terms of contract Through the VOC contracts the City will be able to implement a high quality public transport
system in the area of Phase 1, which will have significant long term economic and social benefits
for the City.
There are two key reasons for the twelve year term.
The first is that it facilitates the process of industry transition which is required in order to replace
the current minibus-taxi services and scheduled bus services with the new MyCiTi system.
It is important for the viability of the MyCiTi system that a significant majority of minibus-taxi
operators agree to have their operating licences cancelled, surrender their vehicles, and take up
shareholding in one of the VOCs, paying for such shareholding out of the compensation offered.
Similarly, the scheduled bus services are required to give up their subsidies for competing routes.
It is unlikely that agreement could be reached with the majority of existing operators if the
contract period is shorter than twelve years, which is the maximum period permitted by the
National Land Transport Act.
The second is that it offers scope for arrangements which incentivise better maintenance of the
vehicles. Vehicles which are well maintained and cared for are cheaper to run, especially as they
become older. By making the VOCs responsible for the vehicles for the full 12 years they will reap
the benefit in the later years of maintaining the vehicles well throughout the contract, through
fewer breakdowns and less vehicle downtime. This will also be of benefit to the City since overall
costs are reduced and service efficiencies and reliability to the benefit of passengers improved.
Furthermore, buses that are well maintained and cared for during the 12-year contract period will
have higher residual value at the end of the contract when it is intended that those that have
reached close to their commercial life will be transferred to the VOCs for their assumed residual
value as determined at the beginning of the contract.
After the initial 12-year contract, this service is planned to be put out to tender.
The major expansion of MyCiTi Phase 1 services planned for 2013 is possible only once the
contracts between the City and the MyCiTi VOCs have been approved by Council in terms of s33 of
the MFMA and have been signed with the VOCs. This is so because these services will impact
significantly on existing minibus-taxi routes. It is essential the process regarding compensation for
cancellation of minibus-taxi licences, and of surrendering of minibus-taxis has been completed
prior to commencement of these new services.
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6. Contract characteristics 6.1. Number of VOCs and market share
The initial intention, as set out in the 2010 MyCiTi Business Plan, was that the services would be
offered to two VOCs, which were considered an appropriate number of VOCs to ensure economies
of scale. In 2011 the Business Plan was amended to permit a third company, GABS, to be
contracted due to the fact that GABS was providing services elsewhere in the City and could offer
the economies of scale benefits linked to its extensive service. This regime was confirmed in the
2012 MyCiTi Business Plan.
The composition of the companies with their market share is shown in the table below. The
respective market shares were derived on the basis of a clearly articulated methodology and
verified data collection. They were contested through a court process by Company C; however the
court found on 26 April 2013 in favour of the City, which confirms the lawfulness of the allocation
of services on this basis.
Company A
Transpeninsula
Company B
Kidrogen
Company C
Table Bay Area Rapid
Transit (TBART)
Market share:
Market share:
Market share:
34.60 %
43.05 %
20.35 %
• Central Unity taxi
Association (CUTA)
• Blaauwberg / Atlantis Taxi
Association (BATA)
• Golden Arrow Bus Services
(GABS)
• Peninsula Taxi
Association (PTA)
• Dunoon Taxi Association (DTA)
• Sibanye Bus Services
• Vredehoek/Devils
Peak Taxi Association
(VDPTA)
• Maitland Taxi Association
(MATA)
• United Taxi Association (UTA)
• Ysterplaat Taxi Association
(YTA)
• Saxonwold Taxi Association
(STA)
6.2. Responsibilities of the VOCs
The VOC’s responsibilities include but are not limited to:
•
Operation of the services in accordance with the routes, schedules and timetables provided
by the IRT operations department;
•
Receive and maintain vehicles allocated by the IRT operation department;
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•
Receive, operate and maintain vehicle depots and staging areas.
6.3. Payment basis of VOC’s
The fee payable to VOCs is split primarily into four components, viz. (a) fixed costs, (b) costs
related to the number of buses, (c) costs related to the number of drivers, as determined by the
City’s scheduling software programme, and (d) costs related to the number of kilometres
scheduled per vehicle type.
6.4. Vehicle ownership
In Phase 1 the initial fleet of the 18m, 12m and 9m vehicles will be purchased by the City and
leased to the VOCs. This arrangement is being adopted because (at least in Phase 1) the expected
fare revenue will be insufficient to cover the cost of vehicles and because the City has been able to
secure grant funding to purchase these vehicles. Smaller 6m vehicles will also be required for
certain feeder services. It is envisaged that these vehicles will be purchased, leased or
subcontracted by the VOCs, to cover the initial 6 years of the VO contract.
Implementation of the vehicle ownership clauses in the contract will be subject to the condition
that National Treasury approves such mechanisms, as required by the Division of Revenue Act
framework conditions regarding the grants used to purchase the vehicles.
6.5. Condition that a minimum of 80% of current directly affected minibus-taxi
operators surrender licences
The contracts provide that a minimum of 80% of current directly affected minibus-taxi operators
surrender their licences. This is important since the continuation of minibus-taxi operations in the
area will reduce the MyCiTi ridership with adverse financial implications.
If fewer than 80% of minibus-taxi operators related to a specific taxi-based VOC surrender their
licences the City’s commitment to run at least 75% of the planned vehicle kilometres will be
reduced regarding that VOC. If between 75% and 80% of minibus-taxi operators surrender their
licences the City’s commitment falls to 65% of planned kilometres, while if fewer than 75%
operators surrender their licences the City’s commitment to run a minimum number of kilometres
falls away altogether with respect to the relevant VOC.
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6.6. Form of contracts
The attached contracts are in the form as they are to be executed. However they can only be
signed once Council has given its approval in terms of this section 33 process.
7. Sustainability implications The MyCiTi project will result in a reduction of negative impact on the environment, in that it will
reduce emission of CO² and other harmful gases and particles, as more people switch from private
transport to public transport, and since the vehicles purchased for MyCiTi services (other than the
6m buses) comply with Euro 4 standards or reduced emissions.
The project will also improve social and economic justice in the City by providing high quality
public transport to all at affordable fares in the corridor where the relevant phases of MyCiTi are
being rolled out. By setting its target on all users, including those that have access to private
motorised transport, and by seeking to attract and retain the latter users (in addition to ‘captive’
users) through good facilities and services, the City will ensure that high quality public transport
will be available to all (including ‘captive’ users).
The service is also providing better access to economic opportunities to all, thereby contributing to
economic development and increase in job opportunities.
This report complies with the Integrated Metropolitan Environmental Policy, as approved by
Council in October 2001, in that it will contribute to the integration of environmental issues into
local government decision-making at all levels.
8. Financial Implications The signing of the contracts will have significant financial implications for the City of Cape Town.
These implications have been elaborated upon in the approved 2012 MyCiTi Business Plan
8.1. Summary of operating costs and revenues of MyCiTi for Phase 1
The following table shows the annual projected operating costs for the MyCiTi system together
with expected revenues, assuming full roll-out of Phase 1 is complete, and costs are based on
2012/13 prices and represented in 2012/13 rands. To the extent that in earlier years the system is
still in the process of being rolled out costs will be lower. Conversely, costs will be higher to the
extent they are based on inflation related escalation as contained in the contracts. These costs are
furthermore based on the expected kilometres procured as indicated in the contracts. To the
extent that actual kilometres procured by the City are higher or lower than the expected amount
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12
the actual amounts payable will change in accordance with the payment structure as contained in
the contract.
The revenues are derived from
•
fare revenue;
•
advertising revenue;
•
grant revenue from national government by means of a) the operating cost
components of the Public Transport Infrastructure Grant b) Public Transport Network
Operating Grant c) Public Transport Operating Grant, once assigned to the City;
•
City of Cape Town’s own general revenues.
Table 1: Summary of estimated annual operating costs and revenues of MyCiTi for
Phase 1 in 2012/13 rands, assuming roll-out of the phase is completed
Item System revenue Including System costs Including Budget Fare revenue Advertising 327.7 312.4 15.3 VO contracts All other costs 635.2 377.2 258.0 Cost minus system revenue Cost covered by PTNO and PTI operating cost contribution PTOG contribution City contribution City contribution as % of rates 307.5 129.0 45.0 133.5 2.16% The following table shows the breakdown between the expected amounts to be paid to each
operator.
Table 2: Expected amounts to be paid to each operator per annum for Phase 1 in
2012/13 rands, assuming roll-out of the phase is completed
TPI Kidrogen TBART TOTAL 130.5 169.9 76.8 377.3 V2.1
13
The following table shows these amounts for each year of the long term contracts, detailing also
all other ancillary costs. Note that the rollout of Phase 1B is expected to be concluded in the
course of the 2014/15 financial year. Thus the 2015/16 financial year reflects the likely annual
costs once the system is in place. The PTNO provides for a higher contribution to ancillary costs
for the first two years of roll-out of the system; thus the City contribution reaches its expected
long term level of 2.16% of rates only in 2017/18.
The figures in Table 3 below have not attempted to provide for inflation since this is unpredictable
over a 12 year period, particularly given current global financial developments. They have been
given in terms of agreed dates used for contract negotiation purpose (such as the fuel price in
September 2012 and relevant wage levels as at 1 January 2013).
The contracts provide for escalation based on formulae related to actual prices of relevant cost
inputs which are in turn driven by labour, exchange rate and fuel price fluctuations and general
inflation. These are set out in detail in the contracts.
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Table 3: Estimates revenues, costs and subsidies for Phase 1 of MyCiTi at 2012/13 prices
Phase 1A+1B R millions 2012/13 prices 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 Total System Revenue 277395 327743 327744 327744 327744 327744 327744 Including Fare revenue Advertising 2020/21 2021/22 2022/23 2023/24 2024/25 327744 327744 327744 327744 327744 265395 312464 312463 312463 312463 312463 312463 312463 312463 312463 312463 312463 12000 15279 15279 15279 15279 15279 15279 15279 15279 15279 15279 15279 System costs Contracted service providers 426509 505920 510830 510830 510830 510830 510830 312280 370237 377223 377223 377223 377223 377223 510830 377223 510830 377223 510830 377223 510830 377223 510830 377223 Including VO contracts Control Centre 10909 13158 12022 12022 12022 12022 12022 12022 12022 12022 12022 12022 Fare system 14064 15894 16462 16462 16462 16462 16462 16462 16462 16462 16462 16462 Station services 89256 106631 105123 105123 105123 City’s internal service providers 105123 105123 105123 119575 123848 124374 124374 124374 124374 124374 105123 105123 105123 105123 124374 124374 124374 124374 124374 Including Operations Unit 59114 59393 59673 59673 59673 59673 59673 59673 59673 59673 59673 59673 Marketing 14618 12530 12530 12530 12530 12530 12530 12530 12530 12530 12530 12530 Other city services Total system costs 51925 52170 52170 52170 52170 52170 PTNOG/PTIG operating subsidy PTOG contribution City contribution City contribution as % of rates 635203 635203 307460 307460 307460 307460 163663 181672 180586 133543 128990 128990 128990 0 45000 45000 45000 45000 45000 45000 105026 75353 81873 128916 133469 133469 133469 1.91 1.33 1.40 2.15 2.16 2.16 2.16 128990 45000 133469 2.16 128990 45000 133469 2.16 128990 45000 133469 2.16 128990 45000 133469 2.16 128990 45000 133469 2.16 635203 52170 635203 52170 307460 635203 52170 52170 268688 302025 307460 307460 307460 307460 307460 52170 546084 629768 635203 635203 635203 635203 635203 Total system costs minus revenue 45842 V2.1
8.2. Estimated VO costs compared with amounts in Business Plan
The estimated VOC costs are about 5% above the projected figures as contained in
the 2012 Business Plan and the earlier information statement distributed as part of
the section 33 process.
9. Details of national grant framework National government has recognised the necessity to subsidise public transport,
including, in particular, bus rapid transit systems such as MyCiTi. The current
Division of Revenue Act of 2013 provides for three different grants for the
subsidisation of the operating costs of public bus services which are relevant to the
funding of MyCiTi operating costs.
These are:
•
•
•
Public Transport Infrastructure Grant (PTIG)
Public Transport Network Operations Grant (PTNOG)
Public Transport Operations Grant (PTOG).
The first two were originally combined in a single grant known as the Public
Transport Infrastructure and Systems Grant (PTISG), which was introduced to
subsidise the bus rapid transit systems which national government is supporting in
terms of its Public Transport Strategy and Action Plan (2007).
The PTIG now provides mainly for the capital subsidy for putting in place the new
BRT type services, while the PTNOG contributes towards the operating costs of the
additional, ancillary features inherent in a BRT type system. However the PTIG also
provides for infrastructure maintenance, which forms part of the operating costs, and
is thus included here.
While the PTNOG can be used to subsidise up to half of these additional ancillary
costs (and up to 70% in the first two years of each phase) it may not be used to
subsidise the direct vehicle operating costs of the vehicles.
The ancillary costs – usually not incurred in traditional bus systems – include items
such as the operation and maintenance of stations, control centre and the
independent fare system, marketing, management and oversight of the system, as
well as related municipal services.
The latest grant framework in the 2013 Division of Revenue Bill includes the
following:
• The grant can be used to fund security, station management, ticketing services,
control centre operations, information and marketing, network management, vehicle
financing and compensation for the economic rights of existing operators
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In the past national government has subsidised public transport operations, including
vehicle operations, through the Public Transport Operations Grant (PTOG). These
contracts have been largely with provincial governments. The current framework of
the PTOG provides that as road based public transport is assigned to cities so, too,
cities will take over the grant.
Once this has taken place and to the extent BRT type services replace traditional bus
services the PTOG subsidy is intended to be moved across from funding the
traditional services to assist in funding the new BRT type services. This has been
provided for in Regulation 2(2)(b) of the NLTA Contracting Regulations. Thus, as
Phase 1 of MyCiTi replaces the old GABS / Sibanye type services, the released
subsidy is intended to be moved to cover any deficit of such MyCiTi services.
In line with this, for the last few years the relevant framework (previously PTISG,
now PTNO) has included the following condition:
• From the start of operations, [Integrated Rapid Public Transport Network / Integrated
Public Transport Network] 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 consist of fuel, labour, operator administration and vehicle
maintenance
In the latest Division of Revenue Bill the words “Public Transport Operations Grant”
has been replaced with “PTNO”; however this has been acknowledged by national
government officials as an error which will be corrected in the adjustments budget
later this year.
In sum then, the grant sources relevant to the funding of Phase 1 of MyCiTi are as
follows:
•
•
•
Public Transport Infrastructure Grant (PTIG) – for funding infrastructure
with provision for maintenance of assets
Public Transport Network Operations Grant (PTNOG) – for part funding
costs ancillary to BRT operations as well as the financing of buses, but
not to be used on direct vehicle operating costs
Small portion of Public Transport Operations Grant (PTOG) – for
subsidising direct vehicle operating costs once contracts for traditional
services have been assigned and to the extent MyCiTi replaces
traditional services in the Phase 1 area.
Assuming these grants are maintained and continue at equivalent levels taking
inflation into consideration it is envisaged that the amounts contained in Table 3 will
be payable by national government in terms of operating grants in respect of Phase
1A and 1B for the coming 12 year period.
As is evident from Table 3, the amounts will be higher in the initial period because
PTNOG pays up to 70% of ancillary costs in the first two years of the introduction of
any new phase rather than 50%, which is the basis upon which amounts in Table 1
have been calculated.
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Once Phase 1 has been fully rolled out for more than two years it is estimated that
the PTNO grant together with the operating grant element of the PTI grant will total
R129.0 million per annum while the PTOG component allocated to Phase 1 will be
R45 million measured in 2012/13 rands,
10. Financial risks There are three key financial risks faced by the City of Cape Town in signing the 12
year contracts with the Vehicle Operating Companies.
The first risk is that vehicle operating costs are higher than anticipated. This could be
because of expansion of services or due to the operation of escalation clauses. The
contracts contain escalation clauses that will result in costs increasing automatically
if, for example, fuel prices increase.
The second risk is that revenues are lower than anticipated.
The third risk is that national government discontinues its operating grant funding
and does not replace it with alternative sources such as a new own revenue source.
10.1. Management of financial risks relates to costs and fare
revenue
If fare revenue is lower than anticipated and/or costs are higher than anticipated the
City can respond through a combination of reducing services and increasing fares.
As an example, assuming Phase 1 is fully rolled out, and fare revenue is 10% lower
than anticipated while vehicle operator costs are 10% higher than anticipated, then
the gap between fare and advertising revenues on the one hand and direct vehicle
operating costs on the other will increase from R49.5 million to R118.4 million.
Assuming the City did not wish to respond to this by increasing its contribution from
general revenues it could respond by reducing services and increasing fares. Because
of the way in which costs are structured the City would need to reduce vehicle
kilometres by roughly 18% to reduce costs by 10%. The actual reduction depends
on whether peak services are reduced, which reduces the size of the fleet and
therefore results in a bigger saving, or whether off-peak services are reduced, which
results in a low saving per kilometres reduced. If peak demand could be shifted to
the off-peak savings could be made with no drop in bus frequencies in the off-peak
periods.
Increasing fares by 10% would increase fare income by a similar percentage
assuming there was no reduction in ridership arising from the increased fares
(although obviously some loss in ridership can be expected, at least initially,
depending on the extent of fare increases).
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There are constraints on increasing fares in that this can generally only be done
annually with the passing of tariffs. However the draft 2013/14 tariff provides for
automatic fare increases if the fuel price increases by R2.90 over an assumed base
price at the start of the 2013/14 financial year of R11.50; and again when it
increases by another R2.70 – subject to the conditions forming part of the approved
tariff.
There are constraints in reducing costs in that the contracts guarantee vehicle
operating companies at least 75% of the envisaged kilometres. Passenger numbers
should be close to the envisaged numbers assuming most minibus-taxi operators
surrender their licences. As indicated, if fewer than 80% of minibus-taxis surrender
their licences the guarantee of at least 75% of anticipated kilometres will be
reduced.
If the City were to manage the increased gap simply by increasing its contribution
from rates this would increase the contribution for all operating costs to an estimated
R202.4 million, which is approximately 3.6% of rates. This would not be an
appropriate response.
10.2. Approach to national government on guaranteeing subsidy
revenue
National government’s contribution to operating costs is substantial, through the
PTOG and the PTNO – as discussed in paragraph 8.2. A termination or significant
reduction of these subsidies would be financially very damaging to the City. The City
has accordingly approached national government to give assurances on the
envisaged subsidy revenue for the duration of the 12 year contract.
11. Further documentation In addition to this Information Document, persons wishing to comment may wish to
access the draft contracts subject to the Section 33 process and further documents
relevant to the MyCiTi Projects. Additional documents are available on the IRT page
of the City’s website and include:
•
Draft tender/contract documents for the Vehicle operating company contract
•
2012 MyCiTi Business Plan
The website link where the Information Document and the documents listed above
may be downloaded is http://www.capetown.gov.za/en/irt,
•
then click on “Public participation”
•
then click on “Vehicle operators, 2013”.
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Annex 1: Extract from Municipal Finance Management Act, 53 of 2003 V2.1