The state-captured Public Rail Agency of South Africa (Prasa) has a new concern to deal with: being prosecuted for contravening the country’s competition law.
The Competition Commission maintains that a Prasa division called Prasa Corporate Real Estate Solutions (Cres) and a Prasa subsidiary called Autopax Passenger Services have conducted themselves in an anti-competitive manner.
However, the case also appears to be an example of another state-owned entity being badly run and constantly needing bailouts.
The commission’s market inquiry into land-based public transport has led to the recent release of two provisional reports: one on the general public transport market, which includes buses, trains and minibuses, and another on the metered taxis and e-hailing public transport market.
The inquiry’s report on the general market states that Prasa manages most of the terminals in the country, including Park Station in Johannesburg, Pretoria Station, Bloemfontein Station, Polokwane Station and the Cape Town Railway Station, and provides access to these facilities through Prasa Cres.
But Prasa also owns Autopax Passenger Services, which operates in the interprovincial bus services market under the brands City to City and Translux. The report says Autopax is a serial loss-making company with staff who have no “relevant technical expertise” and a management team that “lacks relevant experience in the bus industry”.
In January, it was reported that Autopax was struggling to pay all its employees’ salaries.
The commission says there are numerous examples of Prasa Cres giving Autopax favourable treatment and that Prasa “constantly provides financial support and bailouts” to Autopax, which has created distortions in the competitive environment.
The knock-on effect of these distortions is that interprovincial bus companies are less able to compete with Autopax on price and this likely has an impact on consumer choice and affordability, while taxpayers’ money has been used to fund these distortion-causing bailouts.
Speaking at the launch of the provisional reports on February 19, commissioner Tembinkosi Bonakele called Prasa’s conflict of interest “a big problem”.
Between March 2017 and July 2019, the commission received five complaints from interprovincial bus operators concerning numerous allegations against Prasa Cres and Autopax.
The commission investigated the complaints and said Prasa had contravened competition law. So, in early February, it referred the five complaints to the Competition Tribunal for prosecution.
The inquiry’s report says interprovincial bus operators have expressed concerns over the fees Prasa Cres charges at terminal facilities, especially at Park Station.
“Bus operators have raised a concern that Autopax is getting preferential treatment as it does not pay terminal fees and has been allocated exclusive loading and off-loading bays at Park Station,” the report states.
Prasa maintains that no “preferential treatment” has been extended to Autopax, but the commission says the evidence it has gathered points to the contrary, adding that Prasa’s involvement in providing access to both terminal facilities and interprovincial bus services is “undesirable”.
It says Prasa’s ownership of Autopax “creates perverse incentives as Prasa always tries to safeguard and protect the interests of Autopax even in instances where it is not economically justifiable to do so”.
“The interprovincial bus services market is competitive and the continuous protection or bailout of Autopax seems unjustifiable,” says the report. “This concern is exacerbated by the fact that Autopax is inefficient and has been underperforming for years.”
Autopax made losses of R28.5-million, R212.5-million, R304.6-million and R442-million during the four financial years from 2015 to 2019.
The commission says Prasa’s own strategic documents show that Autopax’s underperformance is attributed to, among other things, personnel without relevant technical expertise and a management team that lacks relevant experience in the bus industry.
The inquiry’s report also says Prasa Cres has given Autopax preferential treatment relating to debt collection. “Recently, Prasa Cres attempted to recover the outstanding amount from Autopax, but the effort was not supported by the Prasa Group exco,” says the report. “This indicates that the Prasa Group is involved directly in the affairs of the entities even if these entities have separate boards.”
The report also raises concerns that Prasa Cres had allocated an exclusive loading area and ticketing office to Autopax’s semi-luxury brand, City to City, at Park Station between 2000 and 2018, and that although the lease expired in June 2018, City to City continues to use it.
“Given the importance of access to terminal facilities by interprovincial bus operators, the exclusivity granted to Autopax is unjustified. Moreover, Autopax is not consistent in paying for the use of such facilities.”
Market inquiry recommendations
While the process to prosecute the five complaints referred to the Competition Tribunal will continue, the commission has used the provisional inquiry report to make some recommendations on Prasa Cres and Autopax.
It has recommended that Autopax be separated from the Prasa Group and become a separate state entity. Prasa Cres, which currently operates as a division of the group, should be incorporated as a new and independent state entity to eliminate conflict of interest and perverse incentives.
“The new state entity will manage all intermodal terminal facilities currently under Prasa Cres and other ranking facilities in partnership with municipalities,” says the report.
But the commission’s recommendations for interprovincial bus travel don’t end there. The report also says regulations relating to applications for operating licences for such services are “open to abuse and exploitation”. Large, established bus operators object to applications by new and existing entities trying to expand, it says.
“The abuse of this process creates an artificial barrier to entry and inhibits the ability of bus operators, especially small operators, to grow and expand,” says the report. “This practice also entrenches the position of bus operators that are prone to raising frivolous and vexatious objections.”
This article was first published by New Frame.