HIGHWAY TOLLS

An alternative to tolling

Nazir Alli, CEO of Sanral
Nazir-Allicopy.jpg

The Western Cape High Court granted an interim interdict to the City of Cape Town in May 2013 to halt the implementation of the proposed N1/N2 Winelands Toll Highway Project in the Western Cape by the South African National Roads Agency Ltd (Sanral); and the City of Cape Town is now returning to court to attempt to resolve the ongoing dispute.

The question needs to be asked: Why the continued court interaction involving Sanral for matters that could potentially have been dealt with in an alternative manner? This question is just as relevant to the Gauteng Freeways e-tolling implementation project and the interaction with the courts that Sanral has been exposed to in the Gauteng Province.

Against the backdrop of the involvement of key decision makers such as the board of Sanral and the governance role they should be playing – particularly during the front-end of projects – the Centre for Business Management of Projects attached to USB Executive Development (USB-ED) offers some recommendations.

In performing the governance of large or important projects, it quickly becomes clear when boards are not asking the right questions early enough to avoid bad decisions. In the case of the Winelands Toll Highway Project, one assumes that a feasibility (and not a pre-feasibility) study was completed. One also assumes that, for a project of this magnitude, the Sanral board has acted responsibly and has approved and signed off on this project, with full insight into the study.

This makes it very difficult to understand why Chris Loxton, senior council for Sanral, argues that “the socio-economic impact could only be considered once Sanral had the authority to upgrade the roads, because only then could it determine how to fund the work” (as stated in The Star of Monday, 20 May 2013). The same article alludes to a process where the steps to be followed in this regard were to start concluding a concessionaire contract, calculate the total costs involved, and then see if it was feasible to collect the funding through tolls alone or through co-contributions.

This does not accord with the accepted good practice and governance required from a board for a capital project of about R10 billion following an assumed gated risk management methodology or process.  In fact, some doubt arises about the extent to which the Sanral board members have been educated in the governance role that they should play on large capital projects, as well as their ability to ask the right questions at the conclusion of the feasibility study for the project. It also becomes necessary to consider whether a ‘full’ feasibility study was indeed completed for the project and whether the study is not perhaps currently only of a pre-feasibility quality. If this is the case, then – from a governance perspective – the problematic situation has just compounded.

The essential difference between these two studies is that the pre-feasibility study is owned and driven by the Business team in the organisation and is very distinctly business-focused, as compared to the feasibility study where the Project team has greater ownership and is very technical and engineering-focused. It is during the pre-feasibility study that the opportunity is defined and it is determined whether the business case is robust. This is what should already have been established for the Winelands Toll Highway Project, yet following Sanral’s argument the study could not have been performed yet.

In the development and implementation of large projects, best practice demands that the ultimate decision maker (in this case the Sanral board) understands its key accountability for governance at the end of the pre-feasibility study and its role in agreeing to the continuation and approval of the project. If the board of Sanral were properly educated to ask the right questions early enough in the process, it would have interrogated the Business team on imperative issues. Such pertinent questioning would ensure that:

  • the business case is supported by investment and economic life analyses,
  • a comprehensive understanding of the legal/regulatory framework is in place,
  • stakeholder involvement/participation is appropriately addressed, 
  • the business plan is complete.

The board should also have probed for a clear understanding of the authorisation and resourcing process. They should have determined whether clear, timely and effective communication was in place and whether an effective decision-making process had been established. Sanral has counter-argued in the Western Cape High Court that the positive socio-economic impact of tolling could only be considered once Sanral had the authority to upgrade the roads, because only then could it be determined how to fund the work. This should already have been put in place as per best practices for a pre-feasibility study. Sanral is accordingly accusing the City of Cape Town of wanting it to conduct the decision-making process in an “upside-down” manner.

It needs to be emphasised that the completion of a full feasibility study, as per best practice in the development and implementation of capital projects, is significantly more technical and engineering-oriented. At the completion of the feasibility study, sufficient scope development would have been performed to enable the Business team to arrive at a very well-defined business plan. In such a business plan the cost of the project would be based on the best practical cost estimate of the project in real (constant currency) terms.  It would definitely not have required the concluding of a concessionaire contract to calculate the total project costs. Neither would it have been required that such a contract include the alternatives for collecting of the funds. Again, these are examples of activities occurring out of sequence and unnecessary for effective decision making.

As reported in Engineering News of 27 November 2013, a major part of the City of Cape Town’s legal battle is to obtain the documents as directed by the interim court order. Some of these documents are those proving that the Sanral board of directors had made decisions regarding seeking approval for the project from the minister, a toll feasibility and strategy report, a financial analysis report and an “intensive traffic modeling” document. Bid documents of the consortium selected as the preferred bidder to be awarded the 30-year concession contract to operate the toll roads also form part of the package.

The above-mentioned documents, except for the bid documents, are fundamentally part of a normal feasibility study package. The manner in which these documents were utilised by the Sanral board in their decision-making process most likely lies at the heart of Sanral’s reticence to release the documents, and not the confidentiality thereof. The City’s legal battle against the decision process that was followed (and not against the undertaking of roadworks) most likely speaks to the core of the debate. If decision makers have not followed good practices and one suspects the process is flawed, then more often than not approaching the court is the only option. This is however not a sustainable approach. Dealing with governance/accountability and applying logic to the decision-making process particularly during the front-end of capital projects is.

The critical point being made here is that resolving project issues during the initial phases (particularly when the terminology ‘feasibility’ is still being considered and stakeholder support is of paramount importance) does not necessarily require legal confrontation. There are alternatives to the key decision-making authority in an organisation at no cost during the front end of the project. It is argued (on the basis of rational as opposed to emotional thinking) that the Winelands Toll Highway Project legal confrontation could have been prevented if the Sanral board:

  • was suitably enlightened and educated regarding its governance accountabilities/ responsibilities with reference to the outcome and approval of a feasibility study for a capital project,
  • delivered on these accountabilities/responsibilities,
  • informed/updated the stakeholder community on the board deliberations (approval and strategy) regarding the outcome of the ‘pre-feasibility/feasibility’ study as far as it affected the manner in which the project was intended to proceed.

The points above are elementary methodologies as contained in the suite of best practices required for any good decision-making authority for a capital project to be fully effective. It is somewhat of an indictment if a key decision-making authority in South Africa such as the Sanral board has not followed these practices.

Lawyers will not make expensive court cases and stakeholder irritations go away. Only key decision-makers practising sound governance will.

The was a clear expectation that the Gauteng e-tolling debacle would provide a sound learning experience. Apparently this expectation has not been met. It is also fair to expect that the learnings from both the Winelands and Gauteng freeway tolling projects will be institutionalised within Sanral for the betterment of their relationships with the stakeholder community at large and the seamless development and implementation of their capital project portfolio. On this aspect the jury is still very much out.

Willem Louw

 

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