Economic reality has derailed plans to build the Wild Coast toll road, writes Craig Bishop
Less than two weeks before an important international investors’ conference in East London on the Wild Coast spatial development initiative (SDI), the government is learning its development lessons the hard way.
The Department of Transport has shelved plans to construct a R1,5-billion Wild Coast toll road through the former Transkei, which has been vehemently resisted by local communities and environmentalists.
The toll road’s opponents may celebrate the decision, but they cannot take the credit – economics, not activism, was the primary motivation for the decision.
National Department of Transport chief director of roads, Dipak Patel, says an analysis based on toll revenues and traffic studies revealed that the toll road was not economically viable.
It was also clear that many of the road users, especially locals who regularly travel between Port Shepston and Port St Johns, could not afford the fee – about R35 a trip.
Patel, who chairs the Wild Coast initiative implementing authority, admits he was never under any illusion that the economics of the toll road were “very tight”.
He says: “Studies showed that the majority of road users would be local traffic who could not afford the toll fees. As we honed our viability assessments with finer and finer information, we saw that the road was simply not economically possible.”
International merchant banking firm Deutsche Morgan Grenfell’s financial adviser, Martin Locke, agrees that the road would have fallen into a debt trap.
“The peak debt funding requirement [including interest during construction] is R1,486-billion, with R123-million being funded with equity. Initial annual toll revenue (under a high scenario) is projected at R27,4-million escalating at a real 3% per annum and an inflation assumption of 10%. The toll road would not have been able to service its debts.
“The initial debt service payments amount to R329-million compared with the net cash- flow available to service debt of R24- million.”
Locke says the decision has been well received by international and domestic parties. Many people had “jumped the gun, believing that the decision to build the road had already been taken but we do not even have road alignment at this stage.
“There is no point in the government putting out a half-baked project. It is wrong to expect the private sector to be the panacea for solving financial problems associated with projects. It is far more appropriate to see government carrying out thorough feasibility assessments.”
In addition to traffic studies, Patel points out that the projection of access revenue from agri-tourist projects in the region has been found to be insufficient to sustain the investment.
But he adds that the road is not completely off the agenda and the government may revisit the plans once other initiative projects are up and running and the projected earnings have been recalculated.
“We have learnt a lesson here. Now we have refined our methodology in viability assessments and are in a unique position to learn from experiences in packaging projects for the international private sector.”
But the decision to shelve the toll road will not affect the rest of the initiative’s projects, which will see an estimated R3-billion of corridor development invested in tourism, agriculture and forestry in South Africa’s Cinderella region.
This week, Eastern Cape Economics Affairs and Tourism MEC, Enoch Godongwana, stressed that the national government remains “firmly committed” to the Wild Coast initiative.
All four tourism nodes at Port St Johns, Mkambati, Dwesa/Cwebe and Coffee Bay will still go ahead, and an R180-million injection into agricultural projects, creating 10 000 jobs, is envisaged in addition to the development of 100 000ha of potential forestry in the Lusikisiki, Mount Ayliff and Libode areas.
“We envisage about R150-million will be spent on road-related infrastructure in the next 18 months. Our re-look at this region with its major economic potential as an agro-tourism initiative shows we still have attractive viable projects which will be presented to the investors’ conference on November 7,” says Patel.
Hugh Tyrrell, of the national economic affairs and tourism department’s coastal management project, CoastCare, is not convinced that private-sector investors are best suited to bring about community development in the former homeland.
“We need local economic development rather than handing over concessions to investors and hoping that they will have the necessary grasp of realities on the ground to bring about community economic upliftment.”
Asked if the decision to stop the toll road proved that economic consideration will always outweigh environmental concerns, Patel says he believes the government has acted courageously.
“Economic reasons will sway the government within reason, but it has had the courage to be upfront. This speaks volumes, and it is unfortunate if the environmentalists see it as a victory over the government.”
Patel denies that international investors will not be put off by the government’s backtracking on the toll-road. He stresses that South Africa enjoys a good international reputation over its initiative-style corridor development, pointing to the transparent adjudication process over the Maputo corridor.
“This points to a government that is willing to package projects for the private sector that have viable returns.”