The Gautrain could need as much as R560-million a year in government subsidies, over and above the R20-billion that its construction is currently expected to cost taxpayers.
This is despite repeated insistence from project leader Jack van der Merwe that the private consortium that is to build and operate the train would not receive a subsidy on its operating expenditure.
Concern is growing at the top levels of the National Treasury and the Department of Transport over the cost of the project, and its apparent lack of integration into a detailed transport plan, officials in both departments have told the Mail & Guardian.
The Treasury is involved in technical work surrounding the financial approval of the project, but the power to make a final positive or negative recommendation to the Cabinet rests with Minister of Transport Jeff Radebe.
It emerged in parliamentary hearings this week that a ”patronage guarantee” is crucial to the structure of the deal currently being finalised with Bombela, the prefered bidder. That means the government will have to chip in cash if projected ridership figures fail to materialise. Indeed, it appears from documents associated with the deal that Gauteng has always envisaged providing some level of subsidy support.
Bombela ”wouldn’t want to take all the downside risk” of lower ridership, Van der Merwe told the committee. He didn’t reveal details about the guarantee, but Department of Transport officials say they understand that Bombela is expecting in the region of 30 000 to 40 000 passenger trips a day. Van der Merwe, meanwhile, told SAfm on Thursday that about 60 000 passenger trips were required for the Gautrain to break even.
Negotiations on the precise ridership levels at which subsidy contributions are to be triggered form part of ongoing financial negotiations with the consortium.
The public-private partnership unit of the national Treasury, which is vetting the financial arrangements for the project, is responsible for approving an annual affordability threshold of R560-million requested by Gauteng province, a government official who has seen the relevant documentation told the M&G. The Treasury stressed that the ultimate cost and risk would reside with the province.
This doesn’t necessarily mean the subsidy will reach that level, but that negotiators from Van der Merwe’s team should take R560-million as an upper limit.
Van der Merwe told the portfolio committee on public transport that the train was expected to generate 134 000 passenger trips a day, but independent experts said this was almost certainly a substantial over-estimate.
Even funders of the project are sceptical about ridership, Andrew Shaw, of the Development Bank of South Africa (DBSA), pointed out to the committee that the international experience showed that initial projections were almost always too high.
The DBSA is providing funding to SPG, the empowerment component of Bombela.
Risks ”which may only be evident duing the operational phase” could contribute to a higher overall project cost, he suggested.
The DBSA, other funders, such as Rand Merchant Bank and Absa, along with consortium members Bombadier, Bouygues Travaux Publics, Murray and Roberts and SPG will largely be protected from that risk, however.
In Van der Merwe’s power-point presentation to the committee he skipped a slide showing the ”risk profile of the patronage guarantee”.
This slide shows that Gauteng province’s own revenue forecast for the train is lower than ”minimum required total revenue” for the project to be viable.
Bombela’s forecast is lower still. The gap between the required minimum, and the consortium’s projections is subject to negotiation, but it will need to be filled by a subsidy. The slide shows an ”expected” patronage guarantee — the amount the province is betting on putting in each year, even if its own projections are met, and a ”contingent liability” — the cash it will have to contribute if ridership is closer to Bombela’s estimate. The R560-million figure refers to the maximum affordable amount that the government could pour into this gap.
Meanwhile, planning costs associated with the project also appear to be ballooning. Gautrain Rapid Rail Link, the Section 21 company handling the bid for the Gauteng government, is already asking the government for more than R1-billion in additional revenue to fund fresh environmental impact work resulting from changes to the route and for transaction advice, according to two sources close to the project.
When Minister of Finance Trevor Manuel announced the new cost estimate of R20-billion in his Budget speech, it was broadly regarded as an indication of support for the Gautrain, which he said was of ”national significance”.
But the effect of the announcement was to trigger a major new debate about the project, and to allow concerns that have been bubbling under at the Treasury and the Department of Transport to percolate into the public domain.
That will provide back-up for Radebe, if he decides to take on Mbhazima Shilowa, the influential Gauteng Premier, and block or delay the train.
More cover for strong action by Radebe was provided by hearings in Parliament, where African National Congress and opposition MPs were critical of the plan, and portfolio committee chairperson Jeremy Cronin warned of the political costs associated with building a smart, high-speed service for the rich, while allowing other public transport options to deteriorate.
But, for now, he appears to be using his leverage in an effort to extract more marginal concessions. Lucky Montana, Deputy Director General in the Department of Transport, says he is discussing with Van der Merwe improvements to the integration of the train with other transport modalities, including Metrorail, which could mitigate some of the department’s concerns.