2005-11-04,+Gautrain+on+track+say+MEC,+Loliwe+claim+dismissed

= Gautrain: MEC for Finance and Economic Affairs =

Issued by Department of Finance and Economic Affairs

2 November 2005

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.

For more information contact: Jack vd Merwe (Please call 083-600-4862)

For media releases, speeches and news visit the Gauteng Provincial Government's portal at [|www.gautengonline.gov.za]

= Judge dismisses Loliwe’s Gautrain claim =

Business Report, November 3, 2005

By Wiseman Khuzwayo

Johannesburg - An application by two black economic empowerment (BEE) companies to the Johannesburg high court to be declared partners in the preferred bidder for the Gautrain contract was dismissed with costs yesterday.

The companies - Loliwe Rail Contractors and Loliwe Rail Express - had argued that they had been excluded from participating in negotiations with the Gauteng government since the announcement of the preferred bidder on July 2.

The Loliwe companies said they had replaced another BEE company - the Strategic Partnership Group (SPG) - as a 25 percent stakeholder in the Bombela consortium, which has been chosen in the public-private partnership to build the Gauteng rapid rail link.

Judge Ivor Schwartzman said the Loliwe companies had been unable to produce a written agreement with the Bombela members that showed the Loliwe firms had replaced SPG as partners in the consortium.

Other members of Bombela are JSE-listed Murray & Roberts; Bombardier Transport UK, a subsidiary of the Canadian-listed Bombardier; and Bouygues, a French construction company. The costs of the construction of the Gautrain have risen from the original 2002 estimate of R7 billion to R20 billion.

Paul Mashatile, the Gauteng MEC for finance and economic affairs, said yesterday that the process of finalising the project was on track and construction would begin at the beginning of 2006. Mashatile said that the provincial government was currently negotiating financial closure with Bombela and that this should be completed by December.

The rail link is supposed to be operational by the 2010 Fifa World Cup. Gautrain is a build-and-operate project with a concession of 15 years. The Gauteng government has stated that the potential socioeconomic benefits of the Gautrain far outweighed the costs of the project.

Gauteng MEC for transport, roads and works Ignatius Jacobs said 93 000 job opportunities would be created during the construction phase. A further 40 000 jobs would be created in the vicinity of the stations. About 3 500 people would be employed to operate and maintain the services during the concession period.

Jacobs said: "The Gautrain will not only change the face of Gauteng but also increase the province's competitive edge. It is a flagship public transport project of national significance that will result in the transformation of public transport."

From: http://www.busrep.co.za/index.php?fArticleId=2978042

Business Day, Johannesburg, 03 November 2005 = Court dismisses Gautrain BEE hopefuls =

Chantelle Benjamin, Johannesburg Metro Editor

CONSTRUCTION on the troubled Gautrain project will go ahead as planned after the Johannesburg High Court threw out an application yesterday by two companies to be declared the black empowerment representatives in the Bombela consortium.

At stake in the court battle was 25% of a R20bn project — the country’s biggest public-private partnership to date.

Involved in the case were Bombardier, the world’s biggest train maker; RATP, a French bus and rail firm; Murray & Roberts, SA’s second-biggest construction group and Bouygues, the world’s third- biggest construction company. These companies form part of the Bombela consortium, the preferred bidder for the Gautrain project.

Judge Ivor Schwartzman yesterday ordered Loliwe Rail Contractors and Loliwe Rail Express, both headed by architect and consultant Mbali Swana, to pay the costs of the court application and legal counsel for all respondents.

The Loliwe companies had claimed there was an agreement in place in terms of which they would replace the consortium’s existing empowerment component, Strategic Partners Group (SPG).

Swana claimed that he had been brought in to advise Bombela on tender documents relating to SPG. After consultation, Swana said it was decided that it would make more sense to create the two Loliwe shelf companies to replace SPG, and bring in the operational skills required.

In his judgment, Schwartzman said Swana’s counsel had failed to prove that there was any written or oral agreement to this effect.

This, said Schwartzman, served only “to reinforce SPG’s submission that, in acting as he did on behalf of the company he controlled, Swana had breached the duty of good faith required by him in terms of his company’s appointment as a consultant to SPG by attempting to seize his client’s stake in the Bombela Consortium”.

The judge said that, according to Murray & Roberts, the Loliwe companies had no shareholder agreements with any of its shareholders as recently as October 7, and neither firm had a share register, so they would have been unable to supply the register had it been requested by government.

Swana did not attend last week’s court case or yesterday’s judgment.

A delighted Zoli Diliza, chairman of SPG and Chamber of Mines CEO, called the judgment “a victory for investors in the project”.

“I do not consider this a personal victory, but a victory for the country. This project is bigger than any individual,” he said.

“The main priority now is to ensure that we meet the project’s tight deadlines.”

Gauteng’s finance and economic affairs MEC, Paul Mashatile, said yesterday that the court case would not delay financial-closure negotiations between Bombela and government, and they were expected to be completed as planned on December 15.

Shareholders were still deciding late yesterday whether or not to appeal against the judgment.

From: http://www.businessday.co.za/articles/national.aspx?ID=BD4A108528