Funding crunch imperils Sanral’s existence

The SA National Roads Agency (Sanral), which has been crippled by Gauteng drivers’ refusal to pay controversial e-tolls, faces an uncertain future amid funding challenges.

In Sanral’s annual report for the year to end-March tabled in parliament last week, auditor-general Tsakani Maluleke noted that the entity’s funding strategy for the next 12 months relating to the toll portfolio depends on approval for an increase in its borrowing limit and it raising funding either from government grants or more loans.

“These events or conditions, with other matters ... indicate that a material uncertainty exists that may cast significant doubt on the public entity’s ability to continue as a going concern,” Maluleke said, suggesting that its dire financial state may hamper operations unless the state steps in.

The cash-strapped agency, which is tasked with maintaining SA’s road network, has been hamstrung by its failed e-toll project in Gauteng that was part of a drive to improve the road network in  SA’s economic hub.  

The tolls, introduced in 2013 when evidence of rampant corruption during the Jacob Zuma presidency was being exposed, quickly became a focus of public anger and protests in Gauteng.

In 2019, Sanral suspended pursuing e-toll debt amid low compliance. Subsequently, the agency has struggled with low revenues and rising debt. Like several other state-owned entities, it has had to rely more on taxpayers to fund its operations.

Overall, across the nontoll and toll portfolios, government grants constitute the largest source of revenue for the agency, followed by toll fees collected from road users.

While the struggling entity received an unqualified audit opinion, the auditor-general highlighted that material impairments of nearly R10bn were recognised due to expected credit losses, which also include e-toll collections.

Slow response

The auditor-general highlighted that effective and appropriate steps were not taken to prevent irregular expenditure amounting to R487m as required by the Public Finance Management Act. Most of the irregular expenditure was caused by noncompliance with local content requirements.

She said she was unable to obtain sufficient appropriate audit evidence that disciplinary steps were taken against officials who had incurred fruitless and wasteful expenditure as required by the act. This was because investigations into fruitless and wasteful expenditure were not performed.

“There has been a slow response by senior management to address previously reported deficiencies relating to compliance and related internal controls. The entity’s internal processes and systems did not prevent noncompliance with supply chain management legislation from occurring,” Maluleke said.

Sanral receives an annual grant from the fiscus mainly to fund its nontoll road portfolio. During the year under review, the government grant allocated was R21.6bn, of which about R4.4bn was allocated to the Gauteng Freeway Improvement Project. The remaining nontoll grant was mainly for operational and capital expenditure on nontoll roads, which comprise 87% of Sanral’s road network.

Sanral said the nontoll portfolio has no liquidity concerns. The toll portfolio revenue for the year is R4.5bn, an increase of 22% from the previous year. In the current period, the Covid-19 lockdown restrictions had no significant impact on toll revenue as traffic returned to normal forecasted volumes in 2022, Sanral said in the annual report. 

Shown preparedness

Sanral said the 201km making up the Gauteng Freeway Improvement Project network represents less than 1% of the national road network or operations.

“Government has indicated and shown its preparedness to provide financial support to Sanral while a solution is awaited. Over the last three financial years, government has annually considered and approved an application to transfer R3.2bn (excluding VAT) to toll, during the midterm budget considerations,” the company said in the annual report, emphasising that it is confident of remaining in business.

“Therefore, based on past experience, management expects that it is inevitable that it will be supported by government to ensure that the entity does not default, until a firm decision has been concluded regarding [e-tolls] ...  [This] will determine the future of the portfolio and provide certainty on road funding,” Sanral said.

The company also said in February 2020 it was informed by the transport minister that his finance counterpart had approved a borrowing limit of R47.9bn up to end-March 2022. In August 2021, Sanral requested the transport minister to apply to extend its borrowing limit beyond March 2022.

By March 31 Sanral had not received a response to its application. The outcome of these engagements “may have an impact on Sanral’s funding strategy for the toll portfolio”, the company said in the annual report.

phakathib@businesslive.co.za