Reference no: EM133251228

Gautrain Project: briefing

The Gautrain Project delegation provided background information on the Gautrain Rapid Rail Link Project. Following this, they provided an overview of the proposed Gautrain system. It was estimated that approximately 130 000 passenger trips would be made on the Gautrain each day. It was noted that the Project would be conducted through a public private partnership. The Bombela Consortium had been selected as the preferred bidder, and it was hoped that the final contract would be signed in late 2005. If this took place, construction could begin in early 2006. It was hoped that the entire project would be completed by April/May 2010. The estimated cost of the Gautrain was R 20 million. However, this estimate probably would not rise any further as the contract with the Bombela Consortium would be a fixed cost contract. The delegation added that the Gautrain would form part of an integrated provincial transport system. A Departmental delegation briefly outlined their view of the Gautrain Project. Cabinet had not yet approved financial assistance for the Gautrain Project. It first wanted to ensure that the Project would lead to economic development, promote investment in infrastructure, contribute to South Africa's transport system; alleviate the use of private cars; and create jobs. The Department noted that Cabinet would be taking a decision on the Gauteng Project before the end of the year.

In the ensuing discussion, Members raised issues around the Gautrain Project and the 2010 World Cup. It was noted that there were no legal obligations on South Africa to complete the Gautrain by the 2010 World Cup. Members also enquired about certain details surrounding the public private partnership and funding. Some Members were concerned that government would perhaps be burdened with an unequal share of the risk. Members also enquired why the Metrorail could not be updated to operate rapid link trains; what the provincial patronage guarantee entailed; how many sustainable jobs would be created; and whether the middle-class target market would use the train. The Committee was also concerned about the huge expense of the Project. There were other transport issues, relating to the needs of poorer commuters, which also needed to be addressed.

The Chairperson noted that the Committee had been following the developments around the Gautrain Project. To date, the Gautrain Project had been conducted as a provincial initiative and, as a result, most of the oversight work had been undertaken by the provincial legislature and local government authorities. Nonetheless, the Committee had called the Gautrain Project to Parliament because it was of national interest.

The Chairperson stated that Cabinet would be taking a decision on whether to commence with the Gautrain Project during December. Indeed, it was possible that construction on the Gautrain could begin in January 2006. Ideally, the Committee would have wanted greater engagement with the Gautrain Project, but due to time constraints this would not be possible.

The Chairperson noted that the Minister of Finance had stated that the Gautrain Project would cost approximately R 20 billion. However, the entire 2004/05 transport budget was only R 4.67 billion. This money would be spent to ensure that six to seven million passengers a day received some form of transport. He noted that public transport was under-capitalised and, at times, unsafe. Indeed, there was an ongoing crisis with transport in South Africa. In the light of this crisis, the Committee needed to be responsible in its approach to the Gautrain Project.

The Chairperson noted that the Tshwane, Johannesburg, and Ekurhuleni municipalities officially supported the Gautrain Project. Nonetheless, during a Committee oversight visit to Johannesburg and Tshwane certain municipal officials had privately, and in their personal capacity, expressed reservations about the Gautrain Project. They felt that it complicated their spatial planning. Nonetheless, they felt that the Gautrain Project would commence, despite their reservations. Added to this, certain concerns about the Gautrain Project had been raised in the City of Johannesburg's Integrated Transport Plan. Similar sentiments were also expressed in the Tshwane Integrated Transport Plan. In fact, the Tshwane Plan stated that the City supported the Gautrain Project, despite their perception that there was little consultation. The Committee's caution appeared to be shared by some other entities, but for different reasons. Indeed, the estimated costs of the Gautrain Project had risen over the years. In addition, there was now a certain degree of pressure for the Gautrain Project to be undertaken. The Chairperson added that one perhaps needed to guard against the Gautrain Project being used by other provinces as a precedent to embark on similar projects.

Mr J Van Der Merwe (Gautrain Project Leader) provided background information to the Gautrain Project. This included highlighting the objectives of the Gautrain Project, which were to alleviate severe road traffic congestion; demonstrate government's commitment to public transport; increase Gauteng's economic growth; to create employment, to promote black economic empowerment (BEE); and promote the growth of small and medium-sized enterprises (SMMEs). Added to this, the Gautrain Project would contribute toward urban restructuring, link Tshwane to Johannesburg; uplift the Johannesburg and Tshwane central business districts; and link Johannesburg to the International Airport. The Gautrain Project could also be a catalyst to generate new resources for the promotion of public transport. Mr Van Der Merwe highlighted that the Tshwane, Johannesburg and Ekurhuleni municipalities officially supported the Project.

Mr Van Der Merwe provided an overview of the Gautrain's proposed system. The Gautrain would run on an international standard gauge line and would be capable of reaching 180 km/h. It was estimated that there would be 134 000 passenger trips on the Gautrain per day. Most of these passengers would be people that were currently using motor vehicles to travel to and from work. In order to attract these people, ample park and ride facilities would be constructed. Approximately 250 buses would be commissioned to shuttle these people from the parking facilities to the Gautrain stations. Added to this, international tourists and business people would be the target market for Gautrain running between Rosebank and the Johannesburg International Airport. Mr Van Der Merwe added that the Gautrain would have a positive impact on the province's economy. Approximately 130 000 permanent and temporary jobs would be created. It was estimated that the Gautrain would increase Gauteng's gross domestic product by approximately one percent.

Mr Van Der Merwe noted that the cost of the Gautrain Project had initially been estimated at R 7 billion. However, there had been various cost increases, which had occurred due to Environmental Impact Assessment (EIA) requirements, the rising cost of property, and the inclusion of VAT into the construction elements. In 2002, the estimated cost had risen to R 12 billion. Recently, the Minister of Finance had estimated that it would cost government R 20 billion to develop the Gautrain over a five-year period. However, it was unlikely that the estimated cost would not rise any further, as the contract with the preferred bidder would be a fixed price lump sum contract. Mr Van Der Merwe then discussed the affordability of the Gautrain. It was noted that the Gauteng government would have to borrow funds for the Gautrain. The Minister of Finance had agreed to this in principle. Added to this, the Department of Transport's Cabinet memo had been approved in principle. Mr Van Der Merwe added that the Gautrain formed an integral part of South Africa's 2010 World Cup bid. The International Federation of Football Federations (FIFA) had recommended that the Gautrain form the backbone of the Gauteng public transport system for the World Cup.

Mr Van Der Merwe outlined the Gautrain Project's funding details. Public sector funding for the Project's capital cost would be garnered from three sources, which were from the Gauteng Province's budget; Provincial borrowing from the national government; and a conditional grant from the National Treasury via the National Department of Transport. The private sector would be investing approximately R 3.9 billion in capital costs; however, they would be undertaking operational risk.

Mr Van Der Merwe highlighted that the Gautrain was incorporated into certain sections of the Provisional Land Transport Framework (PLTF). Indeed, it was also aligned with the Gauteng Spatial Development Framework; the Gauteng Transport Strategy; the Gauteng Strategic Public Transport Network; and the Gauteng Integrated Land-use and Transport Framework; the affected municipalities' Integrated Transport Plans; the affected municipalities' Integrated Development Plans; and the Airport Company's plans. A Public Transport Integration Task Team had also been established to investigate how the Gautrain could be integrated within strategic land-use and transport interventions.

Mr Van Der Merwe noted that negotiations were underway with Bombela Consortium to finalise the concession agreement. It was hoped that construction on the Project would begin in early 2006. The construction period would be approximately 54 months. As a result, it was hoped that the entire Gautrain system would be operational by April/May 2010.

Question:

You have been assigned by Mr Van Der Merwe to assist him with implementing risk management on the project. He tells you that he is really concerned about the project budget and he is not sure how much it will cost to complete the project. He asks you for your suggestion. As an experienced Risk Management Professional, what recommendations will you suggest to Mr Van Der Merwe and justify your response.