Gautrain: MEC FOR FINANCE AND ECONOMIC AFFAIRS

Posted on Nov 2, 2005 in Speeches & Statements

The process to finalise the Gautrain Rapid Rail Link is on track. We are currently negotiating financial closure with the preferred bidder, Bombela. This process should be completed by the end of the year. This will allow for construction to start at the beginning of 2006. This will ensure that the Sandton- Johannesburg International Airport Link is operational in 2009 and the complete system in April 2010, in time for the FIFA 2010 Soccer World Cup. We are cognisant of the fact that the Gautrain will make an important contribution to the success of the World Cup and will do all in our power to ensure that it is completed on time.

Over the past few years the Gauteng Provincial Government has been working in close co-operation with the Minister of Finance, Trevor Manuel, and the National Treasury to ensure that the Gautrain, as a Public Private Partnership is run in terms of Treasury Regulation 16 of the Public Finance Management Act. As such, the necessary Treasury Authorisation on feasibility, determining value-for-money, affordability and risk transfer has been acquired.

In addition to locking significant private sector investment into Gauteng’s transport infrastructure, Gautrain forms a key part of an integrated transport network which will be central to continued economic growth in the region.  Given that Gauteng accounts for over a third of GDP, investment in Gautrain is seen not just as a provincial concern but as a national imperative.

Budgeting arrangements for the Gautrain have been finalised in the normal course of budgetary planning for the Medium Term Expenditure Framework (MTEF). Whereas more than R4-bn has already been allocated on the provincial MTEF, further funds will be appropriated on the votes of the province and the National Department of Transport in due course.

On 26 October 2005, MEC Ignatius Jacobs, MEC for Public Transport, Roads and Works issued a comprehensive media statement explaining why cost of the project has increased from a Nett Present Value (NPV) of R7.0-bn estimated in February 2002 to a NPV of R12-bn currently, which translates into an estimated R20-bn in nominal terms over the next five years.

When financial closure is achieved, expected during December 2005, the price will be fixed within the affordability limit set by National Treasury. This is how PPP projects work: the role of cost increases and delays during construction are for the private party (Bombela) to manage.

At present we are embarking on a public consultation process around the variant alignments for the Gautrain route. These were proposed by Bombela in an effort to optimise the operation and safety of the system. Work will only start on these sections once the necessary authorisations have been given. Negotiations with the various utility owners have started in an effort to move major services before the commencement of construction.

I cannot comment on media reports on statements made by the judge in the court case between the two black owned special purpose vehicles within the Bombela Consortium. We will await his judgement, which is expected on Wednesday, 2 November to see whether we should react.

It is common and recommended practice in PPPs for a Special Purpose Vehicle (SPV) to be formed in order for private companies to enter into a PPP agreement with government. This enables a group of construction and operating companies to place equity in the project and for debt finance to be raised on the strength of the cash flows in the project’s operating period. Importantly for South Africa’s transformation agenda, the SPV structure allows smaller BBBEE companies to take a strong equity position in a large project, alongside established national and international players. The SPV structure also enables international companies to invest equity and to play a critical, direct role in the development and operation of the project, contributing their expertise and experience in partnership with local companies.

There is nothing unusual about the preferred bidder’s company structure for the Gautrain. Similar structures are developed both here and abroad for projects of this nature. The South African requirement for strong BBBEE in every PPP agreement means that black companies will be active, not only in the shareholding of the company, but in its management, and in the numerous sub-contracting opportunities that exist for the construction of the train over five years and for its operation over 15 years.

It is inevitable that for a project the size of Gautrain, consortia of black companies would need to be formed to take up the considerable equity and sub-contracting opportunities made available by the province specifically for BBBEE.

The tender process followed by the Gauteng Provincial Government for the Gautrain Project was strictly in accordance with Treasury Regulation 16 of the PFMA. Local and international transaction advisors were employed and various consultations were held with Partnership UK, the PPP Unit of the British Government. The entire tender process was monitored by an Evaluation Process Verification Committee (EPVC) which reported directly to the Political Committee, which was mandated by the Gauteng Executive Council to oversee the Gautrain Project.

The process up to the selection of the preferred bidder and the reserve bidder was given a clean bill of health by the EPVC.

The Gautrain Project is a public transport project of national importance. It will change the way people see public transport and they will select it as a preferred mode of transport. It will create in excess of 130 000 jobs during construction, and an additional 40 000 jobs due to urban restructuring around the stations and 3 500 permanent jobs a year during its operation.

The Gauteng Provincial Government remains committed to the Gautrain Project. We will deliver an excellent public transport system to the people of Gauteng and to visitors to our province.

End

Issued on behalf of: MEC for Finance and Economic Affairs

For more information contact:
Jack vd Merwe

Issued by Department of Finance and Economic Affairs

Department of Finance and Economic Affairs
Wednesday, 02 November 2005
Gautrain Rapid Rail Link

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