The Zoomlion Towing Tax: The Lowdown; Bright Simons writes

“Towing tax” is doing a good job of slowly competing for my attention!

In a packed day, I managed to sneak in an hour and half for scrutinising this curious arrangement.

Here are some points and facts to note.

1. The entire set of laws and policies around this whole towing tax idea started in 2010 at the instance, prompting and pushing of Zoomlion’s RSML. Those were the days of GYEEDA, SADA, BETTER GHANA etc, and RSML already had its well greased fingers in other pies.

2. In fact, the Ghana Road Safety Commission (“NRSC”) entered into an agreement with RSML in 2013 to undertake this towing program only to discover that the law as it stood then didn’t allow them to impose their precious levies.

3. So with RSML’s help they assembled some drafters and set about crafting a legal regime to facilitate something they had already committed to do.

4. The notion therefore that the legislation is independent of the program itself is simply untrue. The law was made BECAUSE the NRSC couldn’t roll out the Zoomlion-conceived program.

5. Yet, without completing the relevant legwork, the NRSC signed a contract that came into effect immediately it was signed. No performance triggers, nothing. This means that this program, strictly speaking, commenced in October 2016. It has simply proved harder to push in practice than the parties anticipated.

6. Only RSML (the Zoomlion subsidiary) and the NRSC are parties to the contract. Therefore, this sudden talk of ‘other towing companies’ is strange and interesting.

7. The contract is for a period of 20 years and may be renewed.

8. Because this has been crafted as a ‘PPP’ even though it is in fact entirely dependent on public funds, the arrangement seeks to evade the Single Treasury Account policy of the government by enabling the depositing of the levy proceeds into a jointly controlled account. This is of course in manifest breach of the government’s own fiscal policy.

9. 85% of all levy proceeds shall go to the RSML. There is no cap on actual sums. There is no variation of scope based on higher than expected revenue. There are no mechanisms to review the percentage based on deliverables. They get 85%. End of story.

10. RSML must buy towing trucks, hire and train drivers, build and service a parking lot, and clear the roads of broken down vehicles if the owners are not able to do so of their own accord.

11. RSML must also buy ambulances and position them at various points in the country. It is perhaps an irrelevant detail that RSML is not authorised by the National Ambulance Service to undertake this service. Or that it has no experience in emergency medicine. You are probably thinking that running a towing service rarely confers automatic capacity to run an ambulatory service. Well, keep thinking. The abandoned national ambulance act is clearly being observed in the breach here.

12. NRSC is to ensure the prosecution of anyone who fails to pay the mandatory levy or the surcharge that RSML shall impose on persons for failure to pay the levy.

13. If a motorist fails to report a broken-down vehicle for it to be cleared, they expose themselves to a fine. How this will be ascertained is left to the imagination. In fact, there is a perverse incentive created in the program for RSML to keep failing to show up when called and then blame the driver for having failed to report. Right after which they can impose their ‘surcharge’. There is no provision for an appellate process.

14. There is no sound regulatory oversight foreseen. The arrangement expressly forbids the NRSC of seeking to regulate the operational conduct of RSML.

15. RSML shall have the power to impose these fines at its discretion, provided it ‘consults’ the NRSC.

16. Let it sink in: RSML shall have the power to determine by itself whether or not a motorist has reported a breakdown, and in its sole discretion impose fines (called ‘surcharges’) on such motorists. If you are worrying that this is in breach of the Fines Act, keep worrying.

17. RSML shall benefit from free advertising paid out of the NRSC’s portion of the levy proceeds.

18. It is RSML’s duty to ensure that its towing vehicles are in a serviceable condition, but it is unclear who bears the cost of insuring the towing vehicles.

19. Though there is supposed to be a periodic review of the contract between the RSML and the NRSC every 5 years, there is no mechanism other than by mutual agreement and consent to actually vary any of the terms.

20. Whilst the initiative has been sold as an omnibus road safety initiative to clear broken down vehicles from every nook and cranny, the wily RSML has ensured that in actual fact its obligations are in fact limited to seven major highway complexes and 21 towing points nationwide. That really is the extent of its commitments.

21. It is true that RSML is required to bring in nearly 120 tow trucks, of which 45 are heavy duty and 10 are medium tonnage. But there are no specifications for these trucks, and they don’t necessarily have to be brand new.

22. If RSML does buy brand new equipment then the $20 million we estimate shall be required in capital financing to meet all of RSML’s obligations under the program, though significant, is easily dwarfed by the 85% of levy proceeds it is entitled to.

23. The vehicle population in Ghana is higher than 2 million today.

24. 60% of the vehicles in Ghana are commercial or considered ‘heavy engine’ (i.e. > 2000cc). Back of the envelope calculations using the advertised levy rates for commercial and private vehicles (from 20 for private cars all the way to 200 GHS for heavy duty trucks), show that RSML could make $50 million dollars a year (ignoring surcharges) should they succeed in ensuring a 75% fee payment compliance rate among motorists.

25. Remember once again that all RSML is guaranteeing is an average of 12 tow trucks and one ambulance per region, based around 7 major highways. If you thought this was primarily about metropolitan road assistance, and had been having dreams about sipping pina coladas whilst your burst tyre gets fixed, well time to wake up, dude. This is mostly about highway patrolling. Which is why despite the fact that Accra has 60% of Ghana’s cars, it does not actually get a towing center. Well, the high price of land may have had a wee bit to do with it too.

26. But even if the returns to RSML end up amounting to no more than $20 million per annum, the total take will be in excess of $1 billion over the lifetime of the contract if increases in the levy merely tracks inflation in insurance premiums over the last decade. The NPV value may well exceed $400 million. With some of these heavy-duty trucks remaining in active duty for more than 15 years in many cases, and projected annual operating costs of less than $4 million, it is clear that this is a highly lucrative scheme.

27. Any business would fight to defend such a sweet deal, so RSML’s zeal is understandable.

28. What is curious is the Government’s seeming total lack of interest in considerably improving this clearly sub-optimal arrangement by incorporating many of the fine suggestions many well-meaning Ghanaians have made to date.

29. No one is naïve enough to dismiss the importance of Zoomlion’s financial muscle. That Zoomlion is indeed capable of raising the $20 million upfront to get this going is certainly significant. To the extent that Ghana wants to take road safety seriously and insofar as towing is seen as an important part of that plan, Zoomlion is GOING TO MAKE A LOT OF MONEY regardless of the form the program eventually takes. And no one has any qualms about that.

30. What some of us are worried about is the shoddy approach this whole program has taken, and the obscene profits that a monopoly will promote.

31. Any smart government will see that it is in its own interests to improve the quality of the program so that others besides Zoomlion also benefit whilst shaving a bit of the crazy margins off through moderately sophisticated program design so that Zoomlion is rewarded for its entrepreneurial energy and acumen without making them fat on cheap money and therefore disinterested in innovation and sophistication.

32. Ghana loses out if its big companies are made incapable of competing and performing in the top leagues due to easy money and shoddy government contracting.

Let’s get smart!

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