Parliamentary Committee for Finance Presentation by Andrew Marsay Arup Transport Planning 20 February 2007

This presentation covers ... Lessons from 30 years’ international experience of transport infrastructure and economic development Application of some of these lessons to some important transport concerns in South Africa today Conclusions regarding the relationship between transport investment and economic growth and job creation

International experience - general findings Transport investments make the biggest contribution to economic growth in areas with high economic growth potential Transport investments with high benefit cost ratios make the biggest contribution to economic growth and job creation Transport investments do not automatically lead to growth and job creation; collateral support actions are needed

1. Growth potential lessons Transport investment cannot create economic growth potential where this does not already exist Transport investment can help release, and accelerate existing economic growth potential

Growth potential lessons – (contd) For freight transport, investment has its greatest economic impact in connection with points of access to a country: ports, airports and major trading/industrial areas For passenger transport, investment has the greatest economic impact when the underlying trends are towards urbanisation and especially CBD consolidation

2. Benefit cost lessons - financial cost performance Rail transport can only ever cover its full costs when used for bulk trades; rail generates little tax revenue Road transport can nearly always cover its full costs via either taxes or tolls; road generates huge tax revenues

Benefit cost lessons - financial cost performance (contd) UK (£) RSA (ZAR) road rail Tax revenue 20bn 1bn 26bn 0.3bn Public spend 5bn 15bn 3bn Revenue/spend 4:1+ 1:5 - 2:1+ 1:10 -

Benefit cost lessons – social cost benefit performance Rail transport projects rarely score Benefit Cost Ratios (BCR) greater than 3:1; some less than 1! Most highway projects score BCRs greater than 10; some as high as 20

Benefit cost lessons - environmental performance The environmental advantages of rail over road are rarely sufficient to make up for rail’s high cost An exception is very high density urban areas

Benefit cost lessons - environmental performance (contd) Congested motorways Main urban roads Main rural roads Environment cost – roads 13.9 36.2 12.1 Environment cost - rail 8.8 Road - operation + congestion 79.0 121.9 45.8 Source: Strategic Rail Authority (now part of UK DOT) ‘Sensitive lorry miles’, 2002

3. Collateral support lessons Public interface supports needed for passenger transport investments: good ticketing; good stations; good info’ Secondary routes/services must be developed at the same time as primary routes/services Without good project management and monitoring the benefits of transport investments will rapidly fritter away

Application of lessons in South Africa Is there a sound case for Gautrain? How to expand freight capacity on the Gauteng – Durban transport corridor?

SA application 1: Is there a sound case for Gautrain? South Africa is one of the world’s low density capitals with a weak public transport culture except for minibus taxi Global experience shows that transit investment cannot arrest urban sprawl Heavy investment in transit is only sensible only in support of pre-existing existing urbanisation/agglomeration trends

What are the trends in Gauteng? Although land use policies favour densification people are still moving away from public transport. However … Consolidation of urban agglomerations is taking place and CBDs are seeing some commercial recovery Property market is seeing rising densities and trend to CBD living. Can the trends be ‘captured’ - and optimised?

Getting to work in Gauteng … Public transport use From 55% in 1985 to 45% in 2005 Bus – 15% Trend … Private car use Train – 15% From 45% in 1985 to 55% in 2005 Minibus-taxi – 70%

Current metropolitan consolidation Source: CSIR research for DOT + Gauteng Province

Residential and employment land use trends (2025 projection) show that the role of the CBDs is set to be more dominant in future than now Source: Plan Associates research for Gauteng Province

Gautrain’s ‘footprint’ aligns well with the emerging metropolitan shape

Market retention?? (vs winning share) Gautrain a quality service that can raise the profile and quality of all PT? Market retention?? (vs winning share) Gautrain Bus Train Minibus-taxi

So, Gautrain may be a unique opportunity for PT investment Opportunity to implement NLTTA aims Opportunity to work with spatial trends Opportunity to consolidate the PT market But, collateral support needed to realise aims

Collateral supports called for in the Gautrain Integration Report Implement the National Railplan’s Priority Rail Corridors so that people can use Metrorail to access Gautrain Accelerate investment in other quality road-based public transport systems because Gautrain capacity is limited Expand the freeway system because most transport will continue to be road-based Most importantly, make sure the stations become integral, quality parts of the surrounding urban environment

Gauteng Transport Precincts Initiative Sets an institutional framework for securing development at and around Gautrain and other interchanges Sets criteria for identifying and pursuing development opportunities that will serve public and private interests Sets design principles by which transport functionality and property development opportunities are creatively blended Commits to the objective of making transport interchanges integral parts of the surrounding urban environment

SA application 2: Durban Freight Corridor: Road or Rail? Currently 85% of freight is by road and volumes could double in 12 years - how should capacity be provided? Transnet is planning to spend billions to win back market share to rail. Would this be an economic investment?

Rail rarely pays its infrastructure costs .. General cargo rail freight business can require up to 100% infrastructure subsidy Road transport can almost always cover infrastructure costs - if required to do so Rail management often blamed but real explanation is changed market realities Need to give examples here: quote from my paper and restructuring table

Rail brings in very little tax revenue .. UK (£) RSA (ZAR) road rail Tax revenue 20bn 1bn 40bn 0.3bn Public spend 5bn 15bn 3bn Revenue/spend 4:1 (1:5) +/-3:1 (1:10) Source: UK & RSA Departments of Transport + consultant’s analysis

But is rail a ‘special’ investment case? Socio-economic benefits of rail? Environmental performance of rail?

Socio-economic benefits? UK multimodal studies in the 1990s sought to level the road/rail playing field Strong Government policy steer led to two thirds of all Investment proposals being rail and other public transport Rail projects had BCRs of 3:1 or less and did not even meet UK Treasury’s socio-economic investment criteria (While most road investments had BCRs well over 10:1!)

Environmental benefits? Monetarisation of environmental criteria shows rail’s impact is just 25% that of road - in other words rail is better But of the environment costs are just 15-25% of the total lifetime cost of creating new transport capacity So rail’s environmental advantage will be rarely sufficient to compensate for low BCRs In very dense urban areas the case favours rail more

Environment costs – road vs. rail Congested motorways Main urban roads Main rural roads Environment cost – roads (p/mile) 13.9 36.2 12.1 Environment cost – rail (p/mile) 8.8 Congestion cost 79.0 121.9 45.8 Main point here is that the monetarised environment cost is not a major component of total costs Source: Strategic Rail Authority - now in UK’s DOT: ‘Sensitive Lorry Miles’

Enhancing corridor freight capacity The Gauteng-Durban transport corridor carries about 60mt of general freight Of this, 8mt (13%) is rail and 52mt (87%) road, of which the majority, say 36mt, is on the N3 What would be the most economic way to significantly increase the freight carrying capacity of the corridor? Source of data: DOT National Freight Logistics Study + consultant

Road capacity enhancement … A freight-only dual-2 carriageway to high load-bearing standard would cost +/-R12bn At an average of R5m/lane-km x 600km this could cover civil works, structures, junctions and land1 Would create capacity for +/- double the current N3 freight load, or 72mt p.a.2, i.e. all N3 freight + 100% new capacity Note 1: Land costs - 600km x 0.1 x R250,000.00/ha = R1.5bn Note 2: 5 veh/min x 60min x 30t x 14hrs/day x 300 days/year = +/- 40 mt 1-way

Road capacity enhancement (cont) A R4.00/km toll could pay capital, operating + maintenance costs over 25 years Additional benefits: Much reduced maintenance cost and extended pavement life on the existing N3 Large amount of new capacity on the existing N3 Much improved passenger safety on the existing N3 +/- R200m p.a. saving in current rail subsidies, + investment funds available for more economic investment in bulks

Rail capacity enhancement … Transnet quote investment of between R10bn and R60bn for freight, some of which is to win back general cargo share Gauteng-Durban rail corridor capacity could be doubled to 16mt (relatively) inexpensively, say +/- R1.5bn But to win back much more rail business is likely to require huge investment in terminals plus operational subsidies

Rail capacity enhancement (cont) My estimate is that win a further 16mt back to rail Transnet could spend R10bn With the (relatively) inexpensive initial 8mt this total spend of R11.5bn (R1.5bn + R10bn) yields a total gain of 24mt But note: the investment would not generate the revenue to pay for itself turnaround time, availability may still not be as good as road congestion, safety and maintenance costs on the N3 will continue to grow if extra road capacity is not also created

Implications 1 … R11.5/R12bn could buy 72mt capacity in road mode but only 24mt rail capacity A major increase in general cargo capacity can be achieved far more economically in the road mode It would be a misuse of national resources to pump billions of rands into general cargo rail freight capacity

Implications 2 … Invest in rail only in sectors where rail is still efficient, i.e. bulk freights, focusing available funds on coal and ore Use regulatory policies to encourage Transnet to implement these changes Invest heavily in dedicated highway infrastructure for general cargo freight Use regulation to maximise road freight’s efficiency and mitigate its environmental impacts

Summary and conclusion Transport investments make the biggest contribution to economic growth in areas with high growth potential Transport investments with high benefit cost ratios make the biggest contribution to economic growth and job creation Transport investments do not automatically lead to growth and job creation; collateral support actions are needed

Questions please!