Economic Regulation of Transport Bill: Department briefing

Meeting report

Opening remarks

The Chairperson welcomed everyone to the meeting.

Mr Hlupheka Mtileni, Committee Secretary, went over the apologies and asked the Chairperson to allow all the provincial legislature representatives to introduce themselves.

Ms Thandiwe Mpondo, Parliamentary Liaison Officer, informed the Committee that the Minister was in a Cabinet meeting.

The Chairperson asked whether the Deputy Minister would attend the meeting.

Ms Mpondo said she did not know anything about the whereabouts of the Deputy Minister but she would find out and inform the Select Committee.

Ms M Moshodi (ANC, Free State) said that the briefing by the Department of Transport (DOT) could not proceed if a reason for the Deputy Minister not attending had not been provided. The Select Committee was dealing with a bill, and her attendance was important.

Ms Mpondo said she had not received any information at that stage.

The Chairperson said that he understood the importance of the ministry attending such meetings, but that Ms Mpondo would inform the Select Committee when she had received more information. He said that the meeting should continue, and asked if that was acceptable to Ms Moshodi.

Ms Moshodi said that it was fine.

Department of Transport on Economic Regulation of Transport Bill

Ms Rirhandzu Mashava, DDG: Integrated Transport Planning, Department of Transport (DOT), went through the process of the Economic Regulation of Transport Bill (ERT). There had been numerous public consultations on the ERT Bill, which had been amended accordingly. To date, the DOT has followed all the required processes, including consultations with the directly and indirectly affected stakeholders to produce the ERT Bill. The Portfolio Committee on Transport finalised the deliberation process (33 sessions were held) on the ERT Bill on 16 September 2022. On 27 September 2022, the National Assembly voted for the ERT Bill to be tabled to the National Council of Provinces (NCOP) for concurrency.

Why a single transport economic regulator

A single transport economic regulator (STER) was needed because South Africa needed to ensure the efficiency and cost-effectiveness of its transport system to meet its economic and social goals. International comparisons suggested that transportation comprised an unacceptably high proportion of logistical costs in South Africa. Economic regulation in transport was currently fragmented, inconsistent and in some cases non-existent. Therefore, the existing regulatory framework had to be improved and expanded.

Economic Regulation of Transport Bill

The ERT Bill aimed to address shortcomings through:

• Consolidation of the economic regulation of transport within a single framework;
• Establishment of the Transport Economic Regulator;
• Establishment of the Transport Economic Council; and
• Making consequential amendments to related acts.

The key components of the ERT Bill were divided into governance and substance matters.

Implementation plan

There were three broad phases for the implementation of the ERT Bill. There was a pre-establishment phase, a commencement phase and a fully-functional phase.

(Please see presentation for further details)

Discussion

Mr R Mackenzie (MPL, WCPP) said that the ERT Bill still had to be referred to the Western Cape. He said the slides in the presentation referred to the Bill as a done deal. The DDG had made mention of processes of looking for offices. This was bizarre, because before a bill was passed in this country, it was already busy negotiating. This was the perception that he got. The NCOP must still process this ERT Bill. He did not understand how the DOT was already appointing, negotiating and looking for offices when Parliament had not yet passed the ERT Bill. He said that this was the first he had heard of this.

Ms Mpondo informed the Select Committee that the Deputy Minister was also in the Cabinet meeting.

Ms Moshodi said the DOT had stated that the principles of the regulation should be standardised across the modes of transport and the regulator must be administratively independent, notwithstanding the fact that the DOT was responsible for determining this. She referred particularly to the promotion of funds for rehabilitation of infrastructure that was not standardised amongst the different modes of transport. How was this new proposed commission going be different from the old commission? Would there not be an overlap between the functions? The ERT Bill was intended to consolidate regulators in the transport sector. She asked which of the existing regulators would be dissolved. This would have job implications for the employees of these regulators. Was the DOT anticipating job losses? If not, how would the DOT plan to manage this process? There was already a high rate of unemployment in this country. She asked for the timeframe for the finalisation of the migration process for employees.

The Chairperson asked how the 70% market control in clause 4(2)(a) had been determined. Had any assessment been made of the number of public and private operators with more than 70% market control? This would also influence the decisions on the resources required to capacitate its regulator. He said this related to Transnet, which transported goods. He referred to clauses 49-54 that dealt with administrative matters concerning the regulator. He said that the cost associated with the regulation was often transferred to end users and customers. Fair price regulation was then used to buffer resources from those price increases. He asked if any measures had been put in place to protect the rail sector, which had not yet adapted to operating without a monopolistic advantage. Efficiencies had not yet been built into the training and operation systems in this sector. An economic impact assessment had to be done because it would allow the regulator to consider the security of supply, a subsidy, price setting, and doing what was required for the foreseeable future. Which other measures would be put in place to mitigate this situation? He said that he believed market inquiries were necessary to determine which aspects of the facilities and services in a particular market would be affected. The macro and micro economic factors presented at that time should be regulated. He asked the DOT to indicate to what extent such inquiries might lead to a concern of there being overreach, or unnecessary regulation. What steps would the DOT implement to ensure this did not happen?

Mr T Brauteseth (DA, KZN) had network difficulties and posted his questions in the textbox. He asked why it needed another entity to do the job of entities that had failed. He asked if this was not just adding another layer of bureaucracy far away from the workplace.

Responses

Ms Mashava said the negotiation and appointment were taking place to ensure that when the ERT Bill was passed, the DOT was not just running around. The DOT was being proactive to ensure that all systems were ready to go. Nothing had been put in place -- it was just internal processes running within the DOT.

She said that there would be no jobs lost. Schedule two of the ERT Bill stated that a person in the employment of the Ports Regulator before the effective date would become an employee of the regulator on the effective date. Section 197 of the Labour Relations Act would be used to transfer these employees. The ERT Bill aimed to ensure standardisation throughout and across the sectors. She made an example of the rail sector, where the infrastructure was currently being dilapidated in opening up slots. Currently, there are private operators within the systems. Part of the objectives was to ensure transparency and to promote investment openly. The ERT Bill did not aim to overlap any functions. There was only one economic regulator and several safety regulators in the transport industry. The DOT aims to regulate competition and promote equality and equity through the ERT Bill. This would indicate that there was fair play in the system. The functions would not overlap because there would be only one single economic regulator, which currently does not exist in the ports sector.

She said that the entities that were currently there had not failed. These entities were currently dealing with different aspects, charging different prices for different operations. The DOT was trying to ensure that only one regulator set the price regime and methodologies, that it was transparent, and would allow for a transport appeal board that would be able to engage with the various complaints and appeals that were brought to the council.

Mr Allen Chikambvi (could not establish job title) said that when the ERT Bill was initially drafted, the intention was to regulate monopolies which were state-owned entities (SOE's) which did not fall within the transport sector. The ERT Bill was then published for public comments, and some of the responses were that the ERT Bill would not be serving its purpose fully if it did not include the private sector. This was when the DOT had sat down and decided on how to go about regulating monopolies. This was where the 70% market control was determined. Once the ERT Bill was enacted, the monopolies producing at a 70% threshold would automatically be regulated by the state, and the rest of the entities would be catered for to ensure the pre-conditions of efficiency and poor effectiveness did not exist in the market. The Minister would then need to receive advice from the Competition Commission.

As far as duplication of functions was concerned, clause 43 of the ERT Bill had to be consulted. If there was a concurrence of jurisdiction between STER and the Competition Commission, there had to be consultation between the two parties. A memorandum of understanding had to be documented on how issues would be dealt with. The DOT was in consultation with the Competition Commission to reach such an agreement. The marketing inquiry process was something that the DOT was currently developing, and it would be embedded in the regulations.

An official of the DOT said there was a difference between the Competition Commission and the ERT Bill. The scope of the Competition Commission was very broad -- it looked at broad areas of competition, whereas the ERT Bill focused mainly on transport issues. A new entity was being added, but various entities would be consolidated under one roof. There would be more expertise in various areas of regulation and would allow the expertise to be constantly updated. Currently, most areas have a scarcity of skills in economic regulation.

Follow up discussion

The Chairperson asked the DOT to respond to the questions on administrative matters, the socio-economic impact of allowing the regulator to consider security of supply, and which measures had been put in place to allow cross-subsidies to continue for the foreseeable future.

Ms Mashava asked the Chairperson to repeat the last part.

The Chairperson repeated what he had raised.

Mr Chikambvi said that there was an interim rail economic regulation capacity project which was in the process of developing regulations on behalf of the DOT. It would address the issues of how things would be implemented on the ground. The Department was currently looking at the issues raised in this meeting. The current state of the ERT Bill was only meant to establish an entity. The DOT had not yet reached the level of developing regulations. He said that the answer to which measures had been put in place could be responded to only once the regulation phase had started.

Mr Mackenzie said he had a different opinion, because he had the perception that the ERT Bill had already been passed. He did not get the point of what Mr Chikambvi was saying. This was something that had been creeping in across the country, where various legislatures addressed important issues in regulations that were supposed to be addressed in law. The purpose of lawmakers was to enact laws. He got very suspicious when an individual told him to look into the regulations, because there were things that lawmakers disagreed with that found their way into the regulations. People were now sitting with load-shedding, where everything was consolidated under one entity which was Eskom. There was a bizarre reasoning that consolidating everything under one entity or one regulator was going to solve all the problems. He could not understand this. How differently was this regulator or entity going to operate? He could not figure out what the DOT wanted to solve with this new entity that another entity could not solve.

He said there was another issue of conflict of interests. The reasoning that there would be different skills under one roof was not something that he believed was actually going on. There was going to be a severe conflict of interests because of a new entity and a new board. He asked whether the current entities had been consulted. If so, what had the entities' opinions been? There was going to be a consolidation of some sort, but no entity could employ everyone. It would not be possible, because there was not enough money for everybody to be employed.

Ms Mashava said that the DOT was not consolidating the entire functions of some of the regulators. For cross-border transport, one of the issues that would need to be regulated was the issuance of licences and the pricing regime. That was the only component that should be regulated, and not necessarily the entire mandate and functions of the regulator. This was done to minimise the monopolistic nature and allow public participation in setting the tariffs and fees, to ensure that competition was accommodated and to promote participation in the private sector.

An official said that there had been consultation with the existing regulators of transfers. Existing regulators in the transport sector were performing the economic regulatory functions. One of these was the ports regulator with which the DOT had constantly been in engagement. Close to 28 entities had been consulted, such as the licensing council and regulation committee within the aviation space.

Ms Mashava said that the ports regulator became the nucleus of those entities that had been consolidated. The DOT had been developing a business case, including the consolidation of the inputs of various entities on how the entities would be affected and how it aimed to map forward the incorporation of the entities. Not everything got incorporated -- it was just certain functions within the regulator that would need to be regulated as they related to the rail sector. This was required because the rail sector was currently a monopolistic organisation. It would be regulated on access and pricing.

The Chairperson went over clause 4(11) of the ERT Bill, and asked if it would be only the regulators that were covered, or if it meant that the Minister would use his own discretion to look for other regulators. Did this mean that the Minister would then be above that regulator and have the discretion to put it under a new entity? He said that the question on market inquiries had not been responded to.

Ms Mashava said that the market inquiry question had been responded to.

Mr Chikambvi referred to clause 4(11)(b), and stated that a review of the performance and capabilities of a particular entity would be done. The ones listed in clause 4(11) would not be incorporated as per the order of the ERT Bill itself, so it could decide to include the national public transport regulator, as opposed to another regulator. This would be done at the discretion of the Minister through a public participation process. Everything needed to be done through a public hearing process.

Ms Malitaba Moleleki, Chairperson: Free State Portfolio Committee on Public Works, Infrastructure, Roads, Transport & Human Settlements, said she had a problem with the presentation being done only with slides and not clause-by-clause. She had received the documents only that morning, and did not have enough time to look at them. She asked whether presentations would be made during the public meetings. She said that the correct information was needed from the DOT.

Mr Mackenzie said that the DOT had indicated that the ports authority had other issues. He asked whether it would be possible to get a list of those other issues to assist with his understanding. Could the draft regulations be made available, since it had been repeatedly said that the regulations would address the concerns? He said that the draft regulations would give him an understanding of the functions that were excluded and what matters would be addressed.

Ms Mashava said that the draft regulations would be made available. Regarding the issues of the ports regulator, the current operation wanted to expand some of the staff, complement the current grant, and elaborate on some of the functions. At this point, there was nothing else that could be added, but the DOT had extended the staff of the post regulator and would possibly extend the grants. This was a lengthy process, and would most likely be done only when the ERT Bill became and act. It would then defeat the purpose of undertaking the exercise of wanting to expand the scope when it knew for a fact that it would be consolidated as per the ERT Bill and be transitioned into the new transport economic regulator. She said the main issues involved finances and resources.

An official said that the DOT would be more than happy to do presentations during the public meetings in all the provinces.

The Chairperson asked Mr Mtileni to provide the provincial legislatures with the necessary documents. He said that in the past, the DOT had always ensured that a support team was on standby during the public participation meetings.

Mr Mtileni said the ERT Bill was sent out last year to all the provincial legislatures. The Bill was also resent to the provincial legislatures in early January. This was the first consultation where the DOT was briefing the Select Committee. There would be another meeting with the provincial legislatures, and thereafter there would be public participation in the provinces with assistance from a support team from the DOT. The respective provinces would be briefed on 15 March.

The Chairperson said that having support staff from the DOT would make the briefing easier. All the inputs would help.

Mr Mackenzie said that the ports authority had raised a concern that all the other entities had. The budget process would start in February, and the new financial year in April. The structures and their staff planning would affect people. He asked how the DOT intended to deal with the responses, because many staff would be affected. The annual reports would have to be discussed soon, and public participation for the Bill would start in March. He was unaware of the NCOP’s intended timeframe to start the public participation process. He asked whether the decisions made by the regulatory board would be final, or if they could go on appeal to the Minister. Could the affected persons or entities approach the courts to affirm or object to a decision?

An official said that one of the functions of the regulatory board was to deal with issues of governance, and it was not necessarily responsible for making decisions on economic regulation. It would make decisions only on issues of governance of the regulator, and the decisions made would be at the board level. The decisions would not be ascended to the Minister. The entity would have to be independent of the political powers. He said that regulation decisions were made by the regulatory panel, which consisted of the chief executive officer and executive officers. If an appeal needed to be made, it would be referred to the council.

Mr Mackenzie asked where the council’s decision would go if people wanted to appeal.

An official said that there was a transport economic council, which was a separate body from the transport economic regulator. The transport economic regulator was responsible for receiving complaints regarding the decisions the regulator had made. If a member of the public or an entity was aggrieved by a decision that was made, the matter would be referred to the council and if the matter was not resolved, it would be referred to the judiciary.

The Chairperson said that a socioeconomic impact assessment report should also be shared, because it would help the Select Committee with the ERT Bill. The Committee would now be able to move forward on this Bill. The next step was for the permanent delegates to visit the various provinces.

Mr Mtileni said that at the moment, the Committee was sitting with four section 76 bills. It did not have the luxury of time. The legislators should allow the Committee to continue with its planning, and if a blockage occurred, it would see how it could move forward.

Closing remarks

The Chairperson said the election was happening soon, and the Select Committee should ensure that it dealt with these four bills by the end of the term. He extended his gratitude to all the provincial legislatures for joining the meeting and assisting the respective committees in their preparation processes for the Bill. The meeting had been comprehensive, and the Committee was now in a better position to appreciate the objectives and scope of the Bill. There was an alignment between policy and the legal framework, but a lot of preparation was still needed. The Committee was comfortable with the definitions, the building of relations with the rail sector, the price concerning the governance, the positive aspect of the ERT Bill, and the substance of the appeal process. He once again appreciated the DOT and the provincial legislatures for honouring this meeting.

Committee matters

The Chairperson asked Mr Mtileni if the minutes of the previous meeting could be adopted.

Mr Mitleni said that the previous minutes could not be adopted as there were not enough Members of the Select Committee present.

The Chairperson said that there should be a management meeting, and it should take place in person. Next week, there should be a meeting to move forward and adopt the minutes.

Mr Mtileni informed the Chairperson that there would be a joint sitting the following week. The minutes could be adopted on 22 February.

The Chairperson said that all the apologies should be noted and that the adoption of previous minutes of meetings would be added to the agenda for the 22 February meeting.

The meeting was adjourned.