REPORT OF THE TRANSPORT PORTFOLIO COMMITTEE ON PUBLIC HEARINGS ON THE PROPOSED GAUTRAIN PROJECT

  1. Introduction - The Gautrain project is intended to provide a rapid rail link between Johannesburg and Tshwane, with a branch-line between Johannesburg International Airport and Sandton. The project has been developed as a Public Private Partnership, involving national government, the Gauteng provincial government and a winning private sector consortium, Bombela. The prime objective of the project is to contribute to relieving the road congestion on the N1 Ben Schoeman freeway. Subject to national cabinet approval and the final negotiation of the respective contractual obligations of the participating parties, the construction of the project is due to begin in January 2006, with a target completion date of March 2010.

  2. The role of the Portfolio Committee - The Transport Portfolio Committee has followed the development of the project over several years, but we have not previously assumed any direct oversight responsibility. This has been due to the fact that the project has been run by the Gauteng province, as one of several Blue IQ projects. However, on the 25th October 2005 the Minister of Finance announced in parliament that the Gautrain project had a "national" status. The Minister of Finance said that it would be costing government an estimated R20-billion. It is in this context that the Transport Portfolio Committee held public hearings on the Gautrain on the 8th and 9th November 2005. The Committee had very little time to ensure an effective and detailed oversight process. This is a matter of considerable concern. In the brief time available, the Committee nevertheless believes that its public hearings have provided an important opportunity to achieve greater clarity and transparency around the project. The hearings have also helped to open up a broader national public debate on the merits of the Gautrain project.
  3. Policy development and stake-holder participation in the project -The Committee is concerned that transparency and effective participation by key stake-holders in the policy development process around the Gautrain project have been inadequate. This is a view that appears to be shared by at least two of the three affected Metros, as became apparent to the Committee during recent fact-finding trips to the Tshwane and City of Johannesburg metros. The City of Tshwane Integrated Transport Plan 2004-2009, for instance, is explicit about several difficulties that it has with the Gautrain proposal. Section 7.6.2 of the ITP notes that the City of Tshwane Metropolitan Municipality (CTMM) Economic Development Department has committed itself to assisting with a successful implementation of the Gautrain project, but then adds: "This undertaking was given despite the fact that the Department’s Transport Division was not proactively involved, or invited, in the feasibility and planning studies undertaken for the project by Gautrans."

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  4. The Gautrain budgetary spend relative to other sectors of public transport - The projected public budgetary cost of some R20-billion makes this the most expensive single public transport project ever undertaken in our country. According to the project leader, the Gautrain is projected to have an initial demand of 134,000 passenger trips per day. Dr Andrew Shaw of the Development Bank of Southern Africa provided the Committee with a slightly lower initial demand projection of 104,000 passenger trips per day. These estimates of passenger trips per day would translate into around 60–70,000 individual passengers per day. The projected R20-billion to be spent on some 60-70,000 individual passengers (which is itself possibly an optimistic estimate) should be compared with what is being spent on buses, taxis and the Metrorail system, which together transport some 7 million South Africans every single week-day. The 2005 Budget allocates R250 million, R315 million, and R320 million for each of the next three years for taxi recapitalisation. The same budget makes additional allocations for existing and ailing passenger rail infrastructure of R100 million for 2006/7 and R250 million for 2007/8. The Committee acknowledges that the Gautrain project will be a completely new rail system and its construction costs therefore cannot be compared in a simplistic way with taxi recapitalisation, for instance, or with Metrorail infrastructure upgrading. Nevertheless, the very significant size of the estimate cost to the public sector of the Gautrain project and the relatively modest number of passengers it will carry do need to be weighed seriously against the back-drop of the bulk of our public transport systems which are in a dire state, with extremely high levels of public dissatisfaction (see, for instance, the National Department of Transport’s National Household Travel Survey conducted in 2003 and presented to Parliament in 2005). A decision to proceed with the project in its existing form constitutes, therefore, a considerable political risk for government.

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  5. The Gautrain and the 2010 World Cup Soccer Finals - At the outset of its hearings, the Portfolio Committee expressed concern at what was felt to be an attempt to steam-roller its oversight function by public statements from the Gautrain project leader that the country "had a moral and legal duty" to the 2010 Soccer World Cup Finals to begin constructing the Gautrain in January 2006. It was suggested that South Africa would lose the right to host the World Cup if the Gautrain was not completed on time. In the early stages of our public hearings, the Gautrain project leader once more alluded to these claims. However, the Committee was able to establish that South Africa’s official Bid Book to FIFA contains no reference to the Gautrain project. In the course of further interaction, the Gautrain project leader conceded that there were no contractual obligations to FIFA in regard to Gautrain. It was also agreed that the merits and viability of the project should be de-linked from the 2010 World Cup Finals.
  6. Are projected construction time-frames realistic? - The Committee does acknowledge that a completed Gautrain rapid rail system could be a positive asset in the context of the 2010 World Cup Finals. However, even if construction does start in January 2006, the Committee is concerned that a 2010 completion date may well be extremely optimistic. The Gautrain project leader repeated to the Committee an observation he has made several times in the public media, namely that preparation and construction of the project will be far ahead of the international norm. (See, for instance: "We have found that a project of this nature usually takes 14 years. We will do it in nine years", The Star, 25 June 2004). The Committee is uncertain of the grounds for this optimism. In March and April 2005 the major construction engineering groups associated with the two rival bids were reported to have warned that meeting the 2010 target would be "very difficult". "Both construction companies have warned that the development of the rail link would be extremely challenging, as it would involve tunnelling through the hard rock beneath Johannesburg" , "the size and complexity of the project…was immense" (Business Day, 1 April, 2005). In assessing the feasibility of the current target completion date, the Committee recommends that Government factors in the possible impact of skills shortages and the availability of key material inputs like cement and steel. If construction does start in January 2006, we believe that completion by March 2010 is far from assured. If we fail to complete on time, the project may present 2010 with a construction site rather than a high-speed rail system.
  7. Cost escalation - In its public hearings the Committee devoted some time to establishing the reasons for the dramatic escalation in estimated costs to government. While the final estimated costs still have to be settled in the contractual negotiations, the costs have risen from an estimated R7-billion to the R20-billion announced by the Minister of Finance in October 2005. The Committee was told by the Gautrain project leader that the R7-billion should, in fact, be compared with a new figure of R12-billion, because both were calculated as the estimated net present cost of the construction phase of the project. The R20-billion figure is the estimate of government’s total exposure over the five-year construction period, including the cost of paying back on borrowing. As to the escalation from R7-billion to R12-billion the Committee was told that this was related, amongst other things, to the absence of VAT in the earlier calculation, and to the cost of re-alignments. The Committee did not find these explanations entirely persuasive. The Committee is concerned that as recently as July 2005 Cabinet was still being given an estimate of R7-billion, even though the VAT liability had been clarified long before this. We are also concerned that costs to government may continue to escalate if the project gets under-way.
  8. A high risk project - These concerns were reinforced by the public submission made to the Committee by Dr Andrew Shaw of the Development Bank of Southern Africa. Significantly the DBSA is one of the major financial backers of the Gautrain project, and Dr Shaw expressed support, in principle, for the project. However, he characterised the project as "high risk". He told the committee: "I don’t think that the project has done a serious risk analysis. I suspect we have been presented a picture in which the risks have been substantially underestimated." However, the project leader assured the Committee that the R20-billion figure was a fixed cost contract and there would be no extra cost. The Committee has not seen the contract and recommends that Government closely analyses possible risks of cost escalations that often occur in projects of this magnitude. The Committee also recommends that Government analyses the implications of any delayed completion penalties.
  9. Construction cost underestimation in similar projects internationally - In the course of its public hearings, the Committee’s attention was drawn to a recent comprehensive international survey of 258 transportation infrastructural projects (Flyvbjerg, Holm and Buhl, "Underestimating Costs in Public Works Projects", Journal of American Planning Association, Summer 2002). The main findings of this study are that in 80 percent of transportation infrastructure projects costs are underestimated. Rail projects are the worst in this respect, with actual costs on average 45 percent higher than estimated costs. The research finds that cost underestimation appeared to be a global phenomenon, but it was more pronounced in developing countries. In singling out rail projects as particularly liable to cost underestimation, the report finds that rapid rail and rail projects involving tunnelling were special culprits. The Gautrain project is a rapid rail project and some 12 kilometres of tunnelling are envisaged. The Committee appreciates that a statistically established global tendency for serious cost underestimation in projects of this kind does not prove that the Gautrain’s current R20-billion cost estimation is necessarily flawed. However, the survey’s finding that in its 258 world-wide project sample "cost underestimation cannot be explained by error and seems to be best explained by strategic misrepresentation" should not be lightly dismissed in this case.
  10. R20-billion a "sunken cost" - In assessing the likely cost of the project, the Committee also draws attention to the fact that the estimated R20-billion cost to government for the construction of the Gautrain infrastructure will be a "sunken cost". In other words, unlike many of our current Public Private Partnership projects in road construction, there is no plan to recover this cost over a defined operating period of the project.
  11. Job creation and contribution to general economic growth – The Committee notes that there is an expectation that the Gautrain will create some 93,000 jobs in the construction phase, coming down to 2,700 direct jobs in operating and maintenance thereafter. An infrastructure project costing R20-billion will also certainly have a broader impact on job creation and general economic growth. These important positives would need to be assessed in terms of the cost and of possible alternatives. However, without discounting these positives, the Committee believes that the project is not primarily a job-creation project, and it must be assessed primarily in terms of its contribution to resolving the transport challenges confronting the province.
  12. Alleviating road congestion on the N1 - The key strategic objective of the Gautrain project is to help alleviate road traffic congestion on the N1 Ben Schoeman freeway between Johannesburg and Tshwane. There is relatively serious congestion on this important arterial route, and the Committee has been told that traffic on the route is increasing by 7 percent per annum. The Gautrain project hopes to attract some 20 percent of existing car-users on the Ben Schoeman to use the rapid rail system instead. It should be noted that, given the 7 percent annual increase, a (possibly optimistic) 20 percent reduction on the present car volumes would still leave the Ben Schoeman more congested in 2010 than at present.
  13. Many other congested axes in Gauteng - It should also be noted that the Ben Schoeman is not the only congested road in the Gauteng province. In regard to the Gautrain’s potential contribution to congestion relief, the City of Johannesburg’s Integrated Transport Plan 2003/2008 (Updated 2004) notes: "Whilst major public transport initiatives such as Gautrain can be expected to attract private transport users, this attraction will at best only slow down the growth in private transport demand (i.e. private transport demand will continue to grow albeit at a marginally reduced rate" (Executive Summary, p.42). The COJ’s ITP also notes that major congestion challenges are not confined to the N1: "The development of East/West linkages are just as important to the sustained growth of the City…" (ibid., p.39)
  14. Projected ridership figures - In his public presentation to the Committee, Dr Shaw of the DBSA was particularly concerned about what he termed an "optimism bias" in the Gautrain’s projected ridership figures. He noted that there was a high level of demand risk in the project because it is "extremely difficult to project demand for ‘greenfield’ development projects of this kind", and because "private car users are notoriously bad at leaving their vehicles at home." The authors of the international study on underestimation in construction costs referred to in paragraph 9 above, Flyvbjerg, Holm and Buhl, have found the opposite tendency when it comes to estimating demand. In a sample of 27 rail projects around the world, they found that actual ridership figures were more than 40 percent less than estimated in more than half the projects ("How accurate are demand forecasts for public works projects?", Journal of American Planning Association, Spring 2005).
  15. The risk of operating subsidies - Passenger number forecasts for the Gautrain are important not just for estimating the relative contribution the project might make to alleviating some congestion on one of Gauteng’s key arterial routes. Significant ridership levels are also important for the financial sustainability of the project during its operational phase. While the private sector participants will carry some risk in this respect, their patronage guarantee will be set at a level well below the patronage level required for the project to cover its operating costs. Beyond this lower level, the province and national will have contingent liabilities related to higher patronage guarantee levels up to the break-even mark. While all of these remain subject to final negotiation, and precise figures could not be provided to the Committee, the Committee is concerned that a significant part of the Gauteng province’s public transport budget could be swallowed up in ongoing subsidies for the Gautrain at the expense of other priorities. The Committee is also concerned that the operating risks to the private sector would appear to be considerably less than those imposed on government.
  16. A relatively affluent target market - The prime objective of the Gautrain is to attract a relatively affluent and a relatively modest number of car-users currently using the N1 between Johannesburg and Tshwane. Projected ticket-prices, the up-market location of the majority of stations, the high-speed rail-gauge and voltage use which are non-compatible with our current rail-lines, the proposed purchase of train-sets manufactured outside of South Africa (which places limitations on local job creation) – these and other features have all been deliberately chosen to provide an affluent sector of the Gauteng community with a first-world public transport mode. The project will also be providing 250 new buses to shuttle its target market passengers from their places of work and residence within a ten-kilometre radius of the Gautrain stations. Park-and-ride facilities will also be laid on. However, the location of the rail-line is remote from most of the major townships of Gauteng, and there has been very little consideration of ensuring connectivity with the major modes of transport used by township dwellers in Gauteng. The Committee is also concerned that insufficient consideration has been given to the implication of new buses operating in areas already serviced by the minibus sector and existing bus services. The Committee further believes that insufficient attention has been paid to existing metro Integrated Transport Plans and related bus and taxi routes and ranks, and the Metrorail system.
  17. Fragmented public transport – In a written submission to the Committee on behalf of the Gauteng Provincial Passengers Council, Dr Vaughan Mostert notes that the Gautrain’s Feasibility Report published on its website makes many claims to being part of a transport system ("It must be seen as part of the larger provincial transportation network"; "It is part of a total holistic transport system in Gauteng", etc.). In Dr Mostert’s view: "There is no holistic transport system in Gauteng or, for that matter, anywhere in South Africa. Formal public transport is fragmented, inadequate in terms of both route coverage and frequency, and has failed to develop in keeping with urban expansion. There is no integrated ticketing, scheduling, marketing or branding. Different operators offer different services under different sets of rules." Dr Mostert is also critical of the Gautrain project’s claim that it is "in line with Government policy and legislation." Dr Mostert points out that Sections 4 and 5 of the National Land Transport Transition Act refer 13 times to "the need to co-ordinate, integrate and rationalise public transport." Section 4, he notes, "specifically requires public transport subsidies to be aimed at currently marginalized users and those who have poor access to economic opportunities." Section 10, he further notes, "requires Transport Authorities to be set up. Sections 19 and 28 require these Authorities to produce a variety of plans relating to transport in general and public transport in particular. These requirements have not been met." Dr Mostert concludes this part of Gauteng Provincial Passengers Council submission by asserting that "The Gautrain scheme will play no part in meeting the requirements or principles of the NLTTA. It is not aimed at currently marginalized users and will not assist those who have poor access to social and economic activity."
  18. The potential for existing bus services to act as feeders for the Gautrain – In another section of the Gauteng Provincial Passengers Council’s written submission to the Committee it is noted that the Gautrain project claims that "existing scheduled public transport services can act as feeders". The submission, however, notes that in much of the area to be served by the Gautrain (Sandton/Midrand/Centurion) "formal public transport is almost non-existent. A few peak-only trips are run to and from the townships, on routes that lack focus and are known only to the handful of passengers using them." The submission states that, in principle, the core bus services of Johannesburg and Tshwane might be expected to play a strong role in supporting the Gautrain. However, it notes: "in their present form they are in no position to make a contribution to the scheme. For many years, bus services in both cities have been crumbling steadily…In Johannesburg, heavy passenger losses have taken place, with a 40 percent cut in bus trips since 1988."
  19. Greater connectivity – The Committee understands that some of these issues were raised in July by Cabinet when it gave an in principle commitment to the project. One of the preconditions for a go-ahead from Cabinet was that greater connectivity between the Gautrain and other mass public transport systems in the province should be built-in and demonstrated. The Committee is aware that some feasibility work has been done on this, but at the time of our hearings no documentation or briefing was available.
  20. Assessing connectivity - It is impossible for the Committee to reach any conclusions about the prospects for building-in effective connectivity between the major mass modes of public transport in the province and the Gautrain. The Committee believes that connectivity needs to be critically associated with fare-prices and should not be confined to technical matters or to physical proximity of different public transport modes. If real connectivity, that begins to overcome the divide between the first and second economies, indeed, proves to be possible, then it will certainly enhance the social value of the project. We cannot assess the prospects of a revised project without much more information being available, but we are concerned that hurried attempts in this regard might result merely in a retro-fit approach that falls between two stools, undermining the objectives of the present first-world project while not adding anything serious to existing public transport challenges.
  21. Three options - In the Committee’s view there are three main broad options available to Cabinet in seeking to reach a decision on the Gautrain project:

    1. The need for a comprehensive approach to transport challenges in Gauteng - Whatever option is chosen, the Committee believes that the challenges thrown up by the Gautrain proposal underline the imperative of the rapid establishment of a single Gauteng Transport Authority as envisaged in the National Land Transport Transition Act (2000). Such a Transport Authority should work closely with the Transport Authorities/Transport Departments of the three affected metros, in order to produce a comprehensive approach to public transport in the province, in which a sustainable basis is laid for improving existing public transport, integrating all public transport modes, addressing land use and spatial planning and aligning these with public transport plans and regulation. In the view of the Committee responses to the congestion challenges of the province can only be addressed in a sustainable manner in this way. Stand-alone projects are unlikely to achieve much. A precondition for the success of an integrated Gauteng approach to public transport is that the National Department of Transport should urgently facilitate much greater operational and financial devolution of public transport to the province and its three major Metros. This will affect the way in which transport subsidies are allocated including to current bus operators in the area, the operational responsibilities currently enjoyed by the South African Rail Commuter Corporation and Metrorail, and the National Department of Transport’s approach to taxi recapitalisation.
    2. Acknowledgments - The Committee expresses its appreciation to Jack van der Merwe, Gautrain project leader, Dr Andrew Shaw of the DBSA, and Professor Romano del Mistro of the University of Cape Town for the presentations they made to the public hearings. The Committee thanks the officials of the Department of Transport and the National Treasury who contributed actively to the Committee’s deliberations. The Committee further expresses its appreciation to the Gauteng MEC for Transport and his officials in the Transport Department, and to officials in the City of Johannesburg and Tshwane Metros who hosted us during study tours to learn about public transport challenges in the Gauteng province.

     

     

     

     

    Mr JP Cronin: Date

    Chairperson: PC on Transport