RIDING INTO UNKNOWN: Gautrains revenue uncertain.

	Picture: Mujahid Safodien
RIDING INTO UNKNOWN: Gautrains revenue uncertain. Picture: Mujahid Safodien

Gautrain’s hidden millions

By LOUISE FLANAGAN Time of article published Jun 21, 2011

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About R360 million a year of taxpayers’ money was promised as a subsidy – termed a “patronage guarantee” – for the Gautrain if there aren’t enough passengers.

The Gauteng Department of Roads and Transport’s budget for 2011/12 includes R259m in “patronage guarantee costs” for the Gautrain project.

This is what the province has promised to pay the Gautrain concessionaire, the Bombela consortium, if there aren’t enough passengers to keep the service running.

Next year’s guarantee is expected to be as much as R360m, as this year’s payment takes into account that the Gautrain is fully operational only next month.

Yesterday, Deputy Minister of Transport Jeremy Cronin said such a guarantee had been on the cards, but that he hadn’t been aware of the size of it.

“We were never told at what level they were guaranteeing… We certainly asked that question a great deal,” said Cronin.

Cronin was not in the job when the Gautrain was planned, but was part of the parliamentary portfolio committee on transport when the Gautrain project was discussed. He has previously criticised such big-ticket projects as inappropriate.

“Let’s hope it’s ‘in case’, or at worst transitional,” he said.

Cronin said such a huge guarantee would “absolutely not” be considered for other projects.

The R259m promise is listed in Gautrain documents handed to a recent meeting of the legislature’s portfolio committee on roads and transport.

The department referred queries to the Gautrain Management Agency (GMA).

Yesterday, the agency would not say how much the full annual guarantee is, but confirmed the R259m quoted was for part of the year.

“We need to, every year, review actual total revenue, adjust forecasts and budget accordingly,” said GMA spokeswoman Dr Barbara Jensen.

She said the guarantee would remain in place “until the actual total revenue equals the minimum required total revenue in terms of the concession agreement”, and that this should happen during Bombela’s 15-year operational period.

Jensen could not say how many passengers would be needed so Gauteng wouldn’t have to pay.

“It is not to cover a potential shortfall of passengers, but rather a mechanism by which the concessionaire can be assured of covering its operating costs (the so-called maximum total revenue).

“In determining the fares, the province had to take into account two factors: (a) affordability of fares; and (b) the unknown period of time for actual ridership to reach forecast levels,” said Jensen.

The patronage cost is part of the department’s annual R2.2 billion budget for the Gautrain for this year. This includes R1.2bn in construction costs, R382m for “operational and support costs” for the GMA, and R89m in loan repayment costs.

Although much of this appears to be operating costs, it is all listed under capital expenditure.

The department’s spending for the next two years on the Gautrain – R2.3bn next year and R2.4bn the year after – is also listed under capital expenditure, although the Gautrain is supposed to be finished this month. This is about a third of the department’s budget each year.

Jensen said it had been classified as capital expenditure on the instruction of auditors.

“Patronage guarantee is part of the cost of the system, hence it forms part of capital costs. Borrowing costs relate to interest payable, and are directly attributable to the development of the system and form part of the cost of the assets and, therefore, is treated as capital expenditure by the department,” she said.

The Gautrain patronage guarantee is referred to in a document produced last year by the World Bank and the Public-Private Infrastructure Advisory Facility on public-private partnerships.

“Roughly speaking, the provincial government will pay the concessionaire the difference between the concessionaire’s actual revenue and a predetermined minimum, if actual revenue is below the minimum. The minimum is an estimate of the revenue the concessionaire needs to cover all its costs, including the cost of capital. It exceeds forecast revenue by some R360m a year,” said the report.

The Gautrain was supposed to be finished by March 27, but Jensen said there were some technical challenges and it “may be open to paying passengers sometime during July”.

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