SANRAL clarifies its financials

Pretoria, 8 November 2017. The South African National Roads Agency SOC Ltd (SANRAL) yesterday [subs: 7 November] appeared before the Portfolio Committee on Transport to submit its Integrated Annual Report.

SANRAL received its 14th unqualified audit from the Auditor General (AGSA) this year.

The agency’s CEO, Mr Skhumbuzo Macozoma, explained that the delayed submission of its Integrated Report was as a result of discussions with the AGSA in respect of the agency’s going concern status and challenges in clarifying the government guarantee.

He added: “Ensuring best value for money and the confidence of the financial markets remain important objectives for SANRAL’s management.”

SANRAL was afforded an opportunity to explain key audit matters raised by the AGSA.

One of the these was SANRAL management’s estimation and judgement when it assessed and calculated impairment losses of e-toll debtors. This resulted in a R3.61 billion impairment or reduction of debtors.

After the impairment the outstanding debtors on e-toll is R5.185 billion. The agency reported e-toll collections at R1 862 million and received an additional grant from the fiscus of R372.9 million. Due to the subjectivity in calculating the impairment, the AGSA considered this a key audit matter and performed specific audit procedures to determine the appropriateness of the allowance. The AGSA indicated that they found this management assessment to be fairly valued and adequate, both in terms of the calculation and disclosure thereof.

The low collection rate on the GFIP concerned the agency and its Board has requested the shareholder to address the impact of the poor collection rate with Cabinet to ensure the sustainability of SANRAL.

The poor collection of e-tolls however does impact SANRAL’s going concern status and the AGSA indicated this as a material uncertainty. However, the agency receives direct government support in the form of allocations from the national budget as well as guarantees for the financial instruments that it uses to raise additional funds.

Non-payment of toll fees is an offence and this does not prescribe. SANRAL has repeatedly stated that it is making every attempt to collect the debt, in other words, enforce its claim.  It would not be prudent to write this amount off until it becomes clear it is not collectible

Reports that the agency has written off debt were incorrect.

SANRAL made a provision in its assessment of collectability in its Integrated Report as required by International Accounting Standard 39.

Additionally, subsequent measurement requires an assessment of possible loss events in order to further impair financial assets, i.e. trade receivables. Significant financial difficulty of a debtor and default or delinquency in payments are considered indicators of impairment.

Therefore, SANRAL has not written off e-toll debt.

The agency announced last week that fruitless, wasteful and irregular expenditure has gone down in the past year to R0.424 billion from R1.1 billion the previous year.

Its Board Chair – Roshan Morar – said then: “Where required and as part of consequence management, disciplinary action was taken against responsible employees, and in two instances against service providers, and it was made clear that any deviations from good corporate governance will not be tolerated.

“Understanding that some of the fruitless, wasteful and irregular expenditure emanate from events that precede the financial year under review, we have given management the instruction to eliminate these by the next financial year”, says Morar.

SANRAL in its Integrated Report was able to show an increase in its evaluation of assets. Road assets are valued on a depreciated replacement cost basis. The valuation of the road network and structures was reviewed at year-end and increased by 7% to R20 851m. Land contributed R1 459m of this value.

The increase, excluding land, was the result of:

  • Newly incorporated roads which contributed R3.7bn.
  • Unit rates increasing by 9.97 percent, mainly due to bitumen prices increasing from R3 600/m3 to R5 300/m3.
  • Significant capital investment, which ensured that the condition of the assets increased by 13.2 percent.

The AGSA confirmed that this revaluation was fair and disclosed properly.

SANRAL operates as two entities: non-toll and toll. These are not cross-subsidised. The agency is a Schedule 3A entity which means that it is not allowed to make a profit. The non-toll operation, which consists of 87% of the road network, is funded exclusively by the fiscus; it receives a grant from National Treasury in each national budget. The toll operation on the other hand, which consists of the remaining 13%, uses financial instruments in the form of bonds to raise long-term capital.

 

“We need to engage South Africans to avoid a situation where they resist tolling. There is a negative perception and resistance to tolling, and as a result we are not creating as many jobs as we would have loved to do,” said Macozoma.