Opinionista John Clarke 14 May 2014

Odious Debt from collusive tendering: a good reason not to pay e-tolls

The year 2006 marks the start of Sanral’s nemesis over tolling decisions, because it was in that year that Sanral CEO Nazir Alli refused to listen to a judge, a bishop and a queen, all urging him to meaningfully consult. His manifest failure to do so before negotiating with road construction consortiums over tolling concessions for the N2 Wild Coast and N4 Maputo Development Corridor toll roads has now become massively compounded in the Gauteng Freeway Improvement Project. In 2006 it was budgeted at R6.2 billion. Then the cost escalated to R11.4 billion in 2008 before again mushrooming to R18 billion in 2011. There are many good reasons for users of the freeways to refuse to pay their e-toll bills, but the sheer injustice of having to now pay a debt that has a large but still indeterminate odious portion, is perhaps the most persuasive of all.

The legal doctrine of “odious debt” holds that citizens cannot to be obliged to pay for debts incurred by their government in pursuit of unjust and exploitative policies and practices. E-tolling has been introduced to service a debt incurred by Sanral for the Gauteng Freeway Improvement Project. It arguably fits the criteria of odious debt because by colluding in price fixing the construction cartel has introduced a “moral hazard” which must be remedied before the debt becomes legitimate. The multi-billion dollar question is whether we can trust Sanral enough to recover the ill-gotten gains of the profiteering construction companies. In 2006 three apparently unrelated developments conspired to leave Sanral CEO Nazir Alli fatefully compromised and (in my personal opinion) untrustworthy.

The first was a plan hatched at a “Road Contractors Meeting” in May 2006 to effectively drive up the price of the GFIP and other road construction projects by collusive tendering and price fixing (see CityPress article). Sanral’s much vaunted initiative to forge PPP’s (Public Private Partnership’s) for BOT (Build Operate and Transfer) schemes started to become PS (pear shaped).

The Competitions Tribunal cryptically refers to the May 2006 meeting in several of their “Certificates of decision” against construction companies now found guilty of collusive tendering. Members of the construction cartel, including WBHO, Murray and Roberts, Stefanutti and Group Five, have now been fined for dividing up GFIP work between themselves (as well as for dividing up work for World Cup stadia).

The “Road Contractors Meeting” presumably happened without Sanral knowing about it. Nevertheless, it is unlikely that such a meeting would have occurred had Sanral been more watchful over their private sector partners. After all, Nazir Alli had, for the previous decade, been hard at work forging PPP’s with the very same cartel members in construction deals which Sanral brokered with them in return for long term tolling concessions. Thus the competitors had already become well acquainted with one another as members of consortiums to bring within collective reach ambitious road building schemes that would otherwise have exceeded their individual grasp.

It all started long before 2006. Disclosures made by the cartel members in the course of settlement hearings with the Competition Tribunal attest to the existence of collusive tendering dating as far back as 1997. Coincidentally that was roundabout when Sanral became a corporatised entity to broker PPP’s to help Government address the mounting road infrastructure backlog by “harnessing the efficiencies of the private sector”, with a policy mandate to “stimulate a competitive environment, ensure transparency, and offer the public protection from the possibility of monopolistic practices and exploitation” (according to their policy on Unsolicited Proposals). One wonders what the transport economists of yester-millennium now feel while bearing witness to the complete opposite – the lubrication of inefficiency by wanton profiteering.

After the settlement hearings the Tribunal announced last year that “Consent Orders” had been agreed upon. Sanral spokesperson Vusi Mona was quick to say “Sanral is disturbed and outraged by the collusive conduct of the construction companies in question. They have breached our trust, and have acted to our detriment and against the public interest.”

For once, the Opposition to Urban Tolling Alliance was in full agreement with Sanral.

However a source who has diligently followed the scandalous profiteering has advised public interest organisations to make haste to seek recognition as Interested and Affected Parties in any civil litigation that may yet transpire to recover the overcharging. It would not be in the public interest for transparency if Sanral and the CEOs of the colluding companies were allowed to quietly negotiate an out-of-court settlement. It would not remedy the “moral hazard” nor placate those who do not trust Nazir Alli. Public trust has to be publicly earned. Nazir Alli’s contempt for public consultation processes speaks for itself, as the following experiences from 2006 illustrate.

On 26 June 2006 the Deputy Judge President of the South Gauteng High Court, Judge Phineas Mojapelo handed down a criminal judgement that had found SANRAL to have badly failed in its obligation to consult with local residents affected by the tolling concession awarded to the Trans Africa Consortium for the N4 Maputo Development Corridor Toll Road. In outline a local farmer Mr Nicolaas Smit had been criminally charged on sixteen counts for refusing to pay toll at the Nkomati Toll Plaza. He was found not guilty because the toll road in question had not been lawfully declared as such for want of a proper public consultation process.

Judge Mojapelo’s judgment offered some very cogent lessons for the learning. He devoted nine of the 82-page judgement to provide legal content and definition to the term “consultation” and, based on the definition, another 35 pages to assessing and evaluating the evidence, before concluding that consultation had not in fact taken place as required by law.

“Consultation must be more than mere opportunity that the executive gives to the consulted to make effective representations… the right to be consulted is valuable … giving those who have the right to be consulted an opportunity to be heard… at a formative stage of proposals before the mind of the executive becomes fixed [pages 22-23].”

The judgement included a telling reference to Mr Alli’s conduct and attitude in a public meeting in Middleburg which ended acrimoniously. Mr Alli had been questioned whether decisions about the positioning of plaza’s had been finally determined and if not, whether opportunities to make representations existed. Judge Mojapelo notes “Mr Alli gave a somewhat long response which eventually came down to this: “No, you cannot talk to us any further, the positions are cast in stone.” A group of sixteen people walked out in disgust at his “intransigent attitude” and subsequently issued a media release condemning the “lack of transparency in dealing with this matter” saying that it was “totally meaningless to invite the public to a consultative meeting” if decisions had already been made [page 42 -44].

A helpful judgment is one which wisely and appropriately blends justice and mercy. Justice is served by good law and mercy by a carefully worded text that serves as a resource to help the loser learn from the experience, develop insight and come to an acceptance of the need to change their unlawful ways.

Mr Alli showed no such humility when I interviewed him two weeks after the judgement. On 5 July, 2006 I visited him to plead with him on behalf of Bishop Geoff Davies and Queen Masobhuza Sigcau of the Mpondo Royal Family who had been begging for Sanral to adopt a more conciliatory, collaborative and consultative approach after five years of bitter recrimination and alienation over the proposed routing of the ‘greenfields section’ of the N2 Wild Coast Toll Road scheme. His response to me was the third strike against his credibility.

He said he was aware of the complexity of achieving “the good of all citizens, and to find the correct balance between commercial incentive and public good”, but made it abundantly clear that he had already made up his mind to forge ahead not only with the N2 Wild Coast Toll Road, but the GFIP e-tolling scheme (and other ambitious “user-pay” tolling schemes) regardless of what the “users” felt about them.

I then wrote to him to apply under the Promotion of Access to Information Act for a copy of the “Development Agreement” struck between Sanral and the N2 Wild Coast Consortium. He refused, citing his obligation to protect their commercial interests. He said if I was given the agreement it “could provide potential competitors… with confidential information that they might not have resulting in a less competitive bid”. His bias was clearly toward “commercial incentive” rather than the “public good”.

How tragically ironic it is that the would-be “competitors” had already been scheming with each other to drive up the price of Sanral contracts, including the GFIP, by collusive tendering. In fact three of the five members of N2 Wild Coast Consortium – WBHO, Group Five Construction, and Grinaker-LTA, were already deeply entrenched as members of the cartel and had spearheaded the “Road Construction Meeting” in May 2006 where the collusive tendering plot was hatched.

Fortunately one participant in that process appears to have had an attack of conscience. The CEO of Power Construction, Mr Graham Power, repudiated “one instance at Power Construction which took place without my knowledge and from which we made no financial gain” where collusive tendering was discussed. Afterwards in October 2006, he formed a movement ‘Unashamedly Ethical’ described as “a campaign promoting ethics, values and clean living”. Was ‘Power shifted’ to launch the campaign because of what happened at the Road Contractors Meetings? Mr Power declines to say more at this stage “because the incident in question is sub-judice”. Does that mean that Mr Power, having declined the offer of a settlement from the authorities, will have his day in court to defend any allegations of collusive practice? Will it help bring the collusion more into public consciousness so that the odious “moral hazards” can be scrutinized and atoned for? Might we yet see Nazir Alli in the witness stand to be cross examined? Sooner or later it has to happen.

To hasten that to ‘sooner’, another promising power shift has now occurred in the political sphere. Despite Gwede Mantashe’s statement that the ten percent decline in the ANC’s electoral support in Gauteng in the recent elections had nothing to do with e-tolls, the seven aspirant ANC MECs and 15 aspirant ANC MPs who will not be taking up seats in the Provincial and National Legislature surely think otherwise.

Would the disappointed candidates perhaps now consider channelling their public service aspirations toward helping OUTA, Cosatu, Church leaders and other civil society voices to name, unmask and engage the Powers that have left us with odious e-tolls to repay an odious debt?

“The arc of the moral universe bends slowly, but it bends toward justice”, as Martin Luther King Jnr reminded us in the midst of the Civil Rights Struggle. What can we do to apply some energy to assist the bending of the arc? DM

John G I Clarke is Joint Spokesperson for the Opposition to Urban Tolling Alliance.

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