Sanral reduces losses, but warns of major funding challenge

State-owned national road agency Sanral says it has become clear that without commensurate funding it cannot continue the growth trajectory and network expansion of the previous two decades.

The agency posted a considerably reduced loss of R260.4m for the year to end-March from R4.96bn reported a year earlier. The continued loss was attributed mainly to the sustained non-payment of toll fees by users of the roads constructed under the Gauteng Freeway Improvement Project (GFIP), chair for the period Roshan Morar said in Sanral’s integrated annual report published on Monday.

Morar said the year was a watershed in that Sanral found it necessary for the first time to transfer an amount of R1.67bn from the non-toll business to the toll-road portfolio. This transfer was made to cut the GFIP losses and came in addition to a special Treasury grant of R406m to offset the reduced income on GFIP.

Sanral is exempt from tax and no dividend was declared. The state is its sole shareholder.

The reduction in the loss was achieved on a 1.6% increase in government funding, while expenditure was reduced by 12.3%, mainly as a result of maintenance expenditure on roads declining by 13.8%, but also because of a 12.4% increase in revenue from conventional “boom down” Sanral-funded toll roads. Simultaneously, the continued slowdown in capital expenditure on network rehabilitation and strengthening projects resulted in a reduction in depreciation of R114.2m.

Finance costs also fell as a result of the cuts, down by R211.8m (4.6%).

The spending cuts were worrying, said development economics specialist at Wits university, Chris Malikane. “The economy is in desperate need of a massive demand injection through infrastructure roll-out. Sanral should be positioned as one of the critical instruments to lead in effecting an economic stimulus through national road construction.”

Malikane said that about 70% of SA’s roads needed repairs that would amount to more than R70bn, (plus) 58% of our road network is gravel. “This challenge offers an opportunity to roll out infrastructure that will improve productive efficiency and create much needed low-skill employment. The R63.4m (3%) cut in spending on repairs would would likely see conditions worsen.”

The bailouts by the government underscored the need for a thorough review of the mechanisms by which state-owned entities were funded, said Malikane.

“Sanral is contending with a heavy burden of finance costs, especially in its toll business. It is important that a developmental financing model be considered given the strategic and long-term nature of the assets in which Sanral invests,” he said.

“This is urgent because the decline in maintenance and repairs expenditures on the already ailing national road network will lead to higher costs to the public in future.”

In his review, Morar said Sanral recognised that Treasury would remain the primary source of funding the development and maintenance of roads, but that it would continue to be necessary to explore opportunities for public-private partnerships.

“The imperative for comprehensive consultation with communities and stakeholders ahead of such partnerships cannot be overstated. The notion of buy in takes on a very real meaning when public infrastructure is to be funded, wholly or partly, by user payment.”