Media release

South African government approaches Constitutional Court on E-toll ruling

23 May 2012

23 May 2012

Pursuant to the decision by Cabinet at its meeting on May 16 2012, the Minister of Finance, Pravin Gordhan, has applied on behalf of the South African government to the Constitutional Court of South Africa for leave to appeal against the interdict by the North Gauteng High Court stopping the South African National Roads Agency Limited (SANRAL) from collecting tolls on certain roads in the Gauteng Province.

Minister Gordhan is being supported by the Minister of Transport, the Minister of Water and Environmental Affairs, the MEC of Roads and Transport (Gauteng) and SANRAL.

The South African government is of the view that Justice Prinsloo’s judgement is an unprecedented intervention in public finance matters and is a fundamental breach of the division of powers as stipulated in the Constitution.

“At the heart of the dispute in this case, lies a fundamental issue regarding separation of powers and whether or not a Court can exercise discretionary judgement over a governmental policy decision on appropriate funding mechanisms, revenue sources and the allocation of nationally raised revenue,” Gordhan says in court papers.

The Government decided in 2007, in terms of provisions of the SANRAL Act and after extensive planning and consultation, to finance the construction and maintenance of an improved Gauteng Freeway system through raising debt, to be repaid through open road tolling revenue.

Government contends that it, and not the Opposition to Urban Tolling Alliance or the courts, can decide how to finance the Gauteng Freeway Improvement Project (GFIP). Cabinet chose the user pay principle - whereby those who are getting the benefits of the improved road network contribute to meeting its costs – as an equitable way to repay the cost of GFIP.

“Citizens who enjoy higher-than-standard infrastructure ought not, as a matter of policy, to be subsidised by others who do not,” says Gordhan. Gordhan also points out that the equitable division of nationally collected revenue between provinces, which is governed by Constitutional principles, would be compromised by a replacement of toll revenue with general government support.

Due to uncertainty about the implementation of the toll system, ratings agency Moody’s has downgraded SANRAL’s rating by two notches, raising the risk of a default and leading some investors to consider selling their SANRAL bonds. SANRAL’s cash reserves which include the R5.75 billion received from Treasury,  will be depleted by the first quarter of 2013 should e-tolling not go ahead, unless additional transfers are made from the fiscus through higher taxes for road infrastructure.

Failure to collect tolls raises the risk of SANRAL defaulting on its loans, which would trigger an immediate repayment of the entire loan book of R37.1 billion. In such an event, Government will be obliged to support SANRAL by repaying the rest of the unguaranteed debt of R14.1 billion.

“Should the guarantee be called, there is a considerable risk of negative consequences for the South African government’s capacity to raise funds from capital markets. The credit rating of South Africa would also be impacted on negatively, since SANRAL is a wholly government owned entity,” Gordhan says in his affidavit.

SANRAL will also need to show, in its financial statements for year-end 31 March 2012 that its existence over the next 12 months is assured to avoid a qualified audit report. But the Auditor General has indicated he may issue a disclaimer on 31 July 2012 given the uncertainty on when tolling may commence. “This could prompt another ratings downgrade”, Gordhan says.

Furthermore, this uncertainty could hurt the ability of other state-owned enterprises such as Eskom and Transnet to access capital markets jeopardising the implementation of government’s wide-scale infrastructure projects.

To prevent further harm to SANRAL’s rating and the company’s very existence, Government has asked the Constitutional Court to hear the matter urgently, in the second half of July 2012.

Mr Jimmy Manyi, Cabinet Spokesperson
GCIS CEO and Cabinet Spokesperson
Cell: 082 379 3454

Issued by: Government Communication (GCIS)

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