Contract to operate the Gautrain post 2026 to go out on tender

The Gauteng Provincial Government plans to follow competitive procurement processes for any post-2026 contracts for the Gautrain and does not intend to extend the concession period with the Bombela Concession Company (BCC), the current operator of the rapid rail system.

JSE-listed multinational engineering and construction group Murray & Roberts (M&R) owns a 50% stake in the BCC, which holds the 15-year concession for operating and maintaining the Gautrain.

The concession expires in March 2026.

Greater focus on operating environment

Gautrain Management Agency (GMA) CEO William Dachs told Moneyweb on Wednesday the GMA entered into a public-private partnership (PPP) agreement with the BCC to build, integrate and operate the Gautrain system.

Dachs said this PPP has a financial model with particular characteristics, because it included a lot of capital investment to take open veld and develop an operating rail system.

“It doesn’t make sense to even look at extending it because you are basically extending a concession that had this massive build programme in it.

“Post 2026 you will be looking at something completely different – much more of an operating environment than a construction one,” he said.

Options

Dachs said the GMA also has to follow all National Treasury prescripts on PPPs, which involves following a regulated process of appointing transaction advisors, doing a feasibility study, and deciding on what is the best option.

He said the main options for the future of the Gautrain are:

• The Gauteng Provincial Government taking over and operating it;

• Entering into a contract with a private sector operator to operate it; or

• Doing a new type of PPP if further capital investments are required for the Gautrain.

Dachs said the GMA has appointed a team of transaction advisors that is busy with a feasibility study and will supply data on the cost, viability and best value for money of each of the options to enable a decision to be taken.

“Whichever procurement we do, it’s going to be competitive. We can’t just go back to Bombela [and negotiate an extension]. So it will go out to tender again,” he said.

Ridership levels

The Covid-19 pandemic and lockdowns have had a dramatic impact on Gautrain ridership levels.

M&R reported earlier this month that they are now at about 10 500 a day, a notable decline from the about 13 000-per-day ridership levels achieved in June.

Ed Jardim, group investor and media executive at M&R, confirmed that current Gautrain ridership levels are below the threshold at which the patronage guarantee kicks in.

The patronage guarantee is a subsidy to the BCC when its total revenue from the Gautrain is below a contractually agreed amount.

According to the latest GMA annual report, the patronage guarantee payment by the GMA increased to R1.971 billion in the year to end-March 2020 from R1.667 billion in the previous year. Patronage payments made by the GMA in the financial year to end-March 2021 are not yet available.

Jardim said M&R’s model is forecasting that Gautrain ridership levels will increase and return to a level where the patronage guarantee applies, in the 2023 calendar year.

M&R in June confirmed it had successfully finalised a Gautrain business disruption insurance claim and received R285 million because of the low ridership levels on the Gautrain caused by the Covid-19 lockdown.

Read: M&R receives R285m Gautrain business disruption insurance payout

Dachs agreed with M&R’s forecast, adding that there will probably be a two-year recovery period for Gautrain ridership levels but with “a huge caveat” in that this still depends on what happens with the Covid-19 pandemic and the extent and severity of any further lockdowns.

“Anyone who makes any predictions in a Covid-19 environment is using big assumptions,” he added.

Dachs said Gautrain ridership levels in the last few months of 2019 increased to 55 000 per day, and more than 60 000 on some days.

He said Gautrain ridership levels are currently very closely correlated with Covid-19 infection rates.

In this Covid-19 environment Dachs said he takes comfort from the fact that the BCC’s concession agreement only expires in March 2026.

Demand expected to return

“I think the Covid-19 impact, with all things being equal, will have worked its way out of the system. Congestion [on Gauteng highways] will have returned and the need for a good public transport system will remain and we will get back to that good revenue/cost ratio that we target.”

Dachs said he also takes comfort from the fact that the operating cost to operating revenue ratio on the Gautrain “was very very good”.

“It varied from year to year but even at its worst it was above 80%. At its best, in the initial years of lower operating costs and good ridership, it was actually over 100%,” he said.

Fare structure

Dachs said the Gautrain is in the right ballpark in terms of its revenue/cost ratio and any future contract entered into with an operator will depend on the ridership modelling, and that many people are likely to use the system.

But he said this modelling will also provide insights into whether the fare structure for the Gautrain can be changed “to make it more affordable, more accessible to more people and keep [it]running at that [cost/revenue] ratio”.

“That, I think, will dictate to a large extent what kind of system we can go for.”

Dachs said three factors influence Gautrain ridership levels:

• Congestion together with fuel and e-toll costs and their impact on motorists, the Gautrain’s primary market.

• The number of people employed, since ridership growth is strong when there is strong GDP and employment growth.

• How the Gautrain performs in terms of running on schedule and providing good service and consistent performance.

Dachs pointed out that pre-Covid-19, the attractiveness of the Gautrain was being negatively impacted by overcrowding, which is why the GMA was keen on getting additional rolling stock into the system.

The GMA said in February that it had put the planned investment of R2 billion in procuring additional rolling stock and a depot enhancement project on hold until further notice, because of the massive slump in passenger demand caused by the pandemic.

Read: Gautrain: Purchase of more rolling stock put on hold