[I wonder if this won’t end up costing even more than the R20 billion they estimate? Jan]

The Gautrain œbullies

The Gautrain project aimed at alleviating traffic congestion in the country™s biggest urban area could cost taxpayers more than the shock price tag of R20-bn unveiled by finance minister Trevor Manuel recently in his Medium Term Budget Policy Statement.

There will be extra costs if the Gautrain fails to attract a sufficient number of passengers in the form of a revenue guarantee to the operators if they don™t get a certain number of passengers.

This emerged during a transport portfolio committee hearing in Parliament on Tuesday where Gautrain project leader Jack van der Merwe presented an overview of the Gautrain Rapid Rail Link.

Gautrain is a provincial government project aimed at modernising public transport in Gauteng by linking the main economic nodes in the region. Fast trains form the backbone of the plan, however buses will also be used to feed commuters into the station areas.

In 2002, it was estimated that Gautrain would cost around R7-bn. Now the price tag is œR20-bn plus. Most of this money will come from government.

It is clear the Gautrain project has ruffled many feathers across the political party spectrum for a number of reasons – partly because the financial details are, to say the least, woolly and cost estimates keep rising.

Equally troublesome for politicians, however, is that it appears local government representatives have felt œbullied into going along with proposals.

In a document highlighting some of the shortcomings in the process and project, transport portfolio committee members said engagement with leading transport officials in affected Metros œsuggests there is a strong sense of inadequate consultation, and perhaps even of resentment.

œIndeed officials in at least one of these Metros said that they had been (152)˜bullied™ into line, and that (152)˜although the Gautrain was not part of their own spatial and transport vision™, there was little that they could now do (152)˜because digging will be starting in January™, said the document.

Parliamentarians also have their noses out of joint at the way this project has been pushed to the Cabinet.

Portfolio committee members say that Parliament will have a few hours in which to assess what will be the largest ever budgetary allocation to a public transport project.

In the present budget, a total amount of R4,67-bn has been allocated to all public transport modes “ trains, buses and taxis “ throughout the country.

œThese modes presently carry some 6 to 7m regular passengers every single week-day in seriously undercapitalised, often unsafe and uncomfortable conditions, they said.

The Gautrain is aimed at wooing car owners off the roads and onto public transport, so in effect the R20-bn is subsidising the wealthier people in the richest province, according to committee chair Jeremy Cronin, of the South African Communist Party.

There is also a danger of setting a precedent in which provinces œrun ahead with a multi-billion project and expect the national fiscus to carry a large financial burden without a comprehensive or local process of evaluation or oversight when the real costs emerge, say Parliamentarians.

Officials steering the Gautrain project have given the impression the completion of Gautrain by 2010 is inextricably tied to winning the soccer world cup bid “ and that construction must begin in January if the 2010 deadline is to be met.

Van der Merwe admitted to Parliamentarians, after being questioned, that this was not the case. He said: œThe train is a moral obligation that we as a country have to deliver.

He said that if Gautrain was not ready by 2010, alternative temporary arrangements like those made for the world summit on sustainable development were a possibility.

However, he said Gauteng would not be a building site, with the project adding to congestion if the 2010 deadline was not met.

Construction will be completed before then, allowing for sufficient time to test the trains and ensure safety standards.

Cabinet has already agreed to the project in principle, however the portfolio committee can make recommendations, said Cronin.

œIt is not our objective to stop the project, Cronin told Moneyweb.

As public representatives, the politicians have been given very little time to give the project œas robust scrutiny as possible, he observed.

Hearings are expected to continue on Wednesday morning, and the portfolio committee will draw up a report before Cabinet makes a decision in mid-December whether to grant the funding.

One of the reasons for the total bill escalating is that Value Added Tax is now applicable, according to the South African Revenue Service, and this was not previously expected to be a cost, said Van der Merwe.

Another reason he cited was a higher-than-expected insurance bill because of terrorism-related incidents on cities elsewhere.

He said the full breakdown of costs could not be unveiled because negotiations with the preferred bidder were still underway, suggesting that too much disclosure could be financially prejudicial.

The final construction cost will be a fixed price lump sum, which means there will be no further cost increases for government after financial close has been reached in December, said Van der Merwe.

However, he conceded to politicians that there is a liability for taxpayers if a certain target of passengers is not met, as the private companies involved in the project expect a return from operations.

Construction costs will be œsunk, which means government will not be repaid for these.

Van der Merwe highlighted job creation among the project™s benefits.

However Parliamentarians did not appear convinced that there is just as much in this deal for the taxpayers who will be forking out the R20-bn-plus as there is for the businesses involved in the project.

The preferred bidder is the Bombela Consortium, which includes French companies, Murray & Roberts, a number of empowerment entities, Standard Bank, RMB and Absa.

The reserve bidder is the Gauliwe Consortium, which includes Spanish companies, empowerment companies, Nedbank and Investec.

Van der Merwe has been called back to Parliament to answer more questions on Wednesday.

Source: Moneyweb
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