An Insider’s View into Gautrain Management Agency

Mr. Jack van der MerweCEO: Gautrain Management Agency

1st November 2019

A: South Africa’s

Political Imperative

16,3

6,7

2,7

12,8

Total Labour Force - 38.4 million

Employed

Unemployed

Discouraged Work Seekers

Not Economic Active

(Age 15 – 64)

South African Labour Market Q2: 2019

South African Political Imperatives

• The STATS SA unemployment rate of our youth is a

staggering 55.2%.

• This is one of the highest unemployment rates in the world!

which is a ticking time-bomb that threatens the future of South

Africa.

• How can South Africa, within the current global environment,

address this crisis?

• Everything we do must be linked back to this crucial issue.

B: Gautrain Rapid Rail

Link (Gautrain I)

Gautrain Governance

• Background– The Gautrain Rapid Rail Link project was one of the 10 Blue IQ long

term economic development projects announced by the Premier in February 2000.

– The project was registered as a PPP project with National Treasury in April 2000.

– It followed an extensive approval process with multiple approvals from Provincial and National Treasury.

– An Executive Council decision (2000) created an Exco Committee, the Gautrain Political Committee, to oversee the development of the Gautrain project.

– The Gautrain Political Committee was chaired by the MEC for Finance, with the MEC’s for Transport, Local Government, Economic Development as members.

Gautrain Governance

• Background (continued)

– The Gautrain project was initially planned as a Provincial project, but at

the end of 2005 National Cabinet agreed to fund 50% of the CAPEX

cost of the project.

– This was conditional to the establishment of a single point accountable

Provincial Public Entity (GMA).

– GMA Act was developed, approved & promulgated and the GMA was

finally established on 01 January 2009.

Chief Executive Officer

Internal Audit

MEC

Public Transport

& Roads Infrastructure

Company Secretariat

SEMFinancial

Management (CFO)

SEMCommunications

& Marketing

SEMCompliance & Legal Services

SEMTechnical Services

SEMCorporate Services

9

Infrastructure Political

Committee

GMA Board

Audit & Risk Com.

HC & Remuneration Com.

Social & Ethics Com.

Finance & Assets Com.

Independent Adjudicators

ChiefOperating

Officer (COO)

IC

ISEM

IECP

DRB

GMA: StructureProvincial

Executive Council

SEMCIO

Current

Staff of

GMA 92

Implementation Process

• Four pillars– Political will & commitment;

– Viable project (base case design):• Technical;

• Financial;

• Legal/Institutional; and

• Socio-economic Development.

– Funding (for Infrastructure & Operations):• Show Government’s portion; and

• Private Sector’s appetite to invest in the project.

– Community acceptance & buy-in:• “sell” Socio-economic benefits; and

• Power of expropriation.

C: Key Deliverables

The Gautrain will promote

Public Transport

SMME & BBBEE Development

Tourism

Business development

The project stimulates

Economic growth

Local & Foreign Investment

New development

Job creation

Design to

Restructure urban areas

Reduce travel distances,

time and cost

Improve city sustainability

Gautrain: More than Just Another

Transport Project

D: Public-Private-Partnership

Requirements

Public Private Partnership

• Gautrain is a PPP Project

• Leading to a Concession Agreement

• Of the DBFOM type

• PPP Projects on National and Provincial levels are

regulated by South African Public Finance

Management Act Regulations (TR 16)

PPP Contracts

• Public-Private-Partnership (PPP) contracts– Output specification

– Client (authority) only defines the problem (essential minimum requirements)

– Concessionaire bids to design, build, operate the project for the concession

period a fixed price, fixed specification and fixed time frame (turnkey) contract

– Concessionaire takes all completion and integration risks

– Concessionaire is fully involved in the operation and maintenance of the

system for the full concession period

– Concessionaire must hand over the system to the client at the end of the

concession period in a prescribed condition

Major Phases of Project

PHASE PHASE NAME AND PERIODPROVINCE

SUPPORT

1

PROCUREMENT

Apr 2000 – Sep 2006

Financial Close only in February 2007

Transaction

Advisors

2

CONCESSION DEVELOPMENT

28 Sep 2006 – 7 June 2012

Plus defects/liability/retention period

GMA staff and

Provincial

Support Team

3

OPERATION & MAINTENANCE

7 June 2012 – 27 March 2026 GMA

PPP Requirements (Schedule 16 of the PFMA)

• Feasibility (Treasury Authorisation: TAI):

– Value for money:• Public Sector Comparator (PSC):

(What will it cost if Government does the work through the normal procurement process; and including completion and integration risk and cost).

– Affordability:

• Total cost of project, expressed in Net Present Value (NPV);

• Yearly cost to the province (contingent liability); and

• Maintain the 80/20% ratio in social vs. rest split in budget.

– Risk transfer:

• Identify, cost and allocate various risks to the role players best equipped to mitigate and manage them.

PPP Advantages (1)

• What each party brings to a PPP

Legislation

Subsidies &

Guarantees

Land

Rights of way

Long term

vision

Operation &

Maintenance

Design &

Build innovation

Capital

Access to the market

Financing

Users

Public

SectorConcession

(SPV)

Private

Sector

Revenue

• What each party gets from a PPP

Socio-economic

Benefits

People

Mobility

Taxes

Economic development

Environment protectionTime/cost saving

Service Quality

Concession

(SPV)

Private

Sector

Users

Public

Sector

Design &

Construction Contract

OperationContract

Servicing

of Debt

Incomes

ProfitLife-cycle Funding

PPP Advantages (2)

E: The Deal

PPP - Project partners: Equity (Initially)

PUBLIC PRIVATE

25%

25%

25%

25%

PPP - Project partners: Equity (First Change)

PUBLIC PRIVATE

25%

25%

17%

17% 8%

8%

PPP - Project partners: Equity (Second Change)

PUBLIC PRIVATE

33%

25%

17%

17% 8%

0%

PPP - Project partners: Equity (Third Change)

PUBLIC PRIVATE

50%

37.8%

0%

0% 12.2%

Concessionaire

Bombela

Turnkey

Contractor

Civil

ContractorE&M

Contractor

E&M

Maintainer

Operator

Contractual Structure

Lenders

Province

Shareholders

Agreement

Loan

Agreement

Concession

Agreement

E&M

Maintenance

Sub Contract

Bombardier 90%

SPG 10%

RATP Dev 51%

SPG 25.1%

M&R 23.9%

Bombardier 25%

Bouygues 25%

M&R 25%

SPG 25%

Private Sector Finance

Bombela “Family”

Onshore

Sub-

supplier

Offshore

Sub-

supplier

Bombardier 25%

Bouygues 25%

M&R 25%

SPG 25%

Shareholders

Bouygues 45%

M&R 45%

SPG 10%

Bombardier

SPG

Onshore

Sub-

supplier

Offshore

Sub-

supplier

Onshore

procure

Offshore

procure

Feeder &

Distribution

Co-operation

Agreement

Onshore

Sub-

supplier

Offshore

procure

Offshore

procure

Offshore

Sub-

supplier

Offshore

Sub-

supplier

Onshore

procure

Onshore

procure

Onshore

Procure

Onshore

Sub-

supplier

Offshore

procure

Common Terms

Agreement

Common Terms

Agreement

Complex problems have simple, easy to

understand, wrong answers.No. 4 Grossman’s Misquote

F: Funding

Funding

• Gautrain has 5 sources of funding:

– DoRA (Division of Revenue Act) money from central government via the

Department of Transport (only for construction - CAPEX);

– MTEF (Medium Term Expenditure Framework) from Gauteng Provincial

Government;

– Private Sector Equity;

– Private Sector Borrowing; and

– Provincial Borrowing.

Project Financing

MTEF26,1%

DoRA44,2%

Equity1,8%

Private Debt9,5%

Provincial borrowing

18,4%

G: Socio-economic Development

(SED)

SED Commitments

• The SED strategy contains 21 SED elements based on the

broad-based SED objectives of Government, grouped into the

following 6 Clusters:

– Procurement and sub-contracting;

– Local Content;

– Black Enterprise and Equity Participant;

– Participation in management;

– Direct Employment; and

– Training.

• The competitive bidding process was used to solicit the bidders

(Bombela’s) commitment to each of the SED elements.

166%

98%

117%

127%

225%

215%

411%

397%

266%

216%

124%

186%

176%

190%

180%

411%

197%

223%

179%

119%

100%

0% 50% 100% 150% 200% 250% 300% 350% 400% 450%

EEP08(b):Women Learners employed & mentored

EEP08(a): Women trained & mentored

EEP06:Expenditure on Human Resource Development

EEP05:People with Disabilities employed

EEP04:Women employed

EEP03:HDIs employed

EEP07:HDIs in Occupational Level C

EEP02:Women in Management Positions

EEP01:HDIs in Management Positions

SED13:Procurement from, or Sub-contracting to SPG

SED12:Expenditure by SPG on Plant & and Equipment

SED11:HDI staff seconded by SPG

SED10:Procurement of RSA Plant & Equipment

SED09:Procurement of RSA Materials

SED08:Employment of Local People

SED06:Procurement & sub-contracting to SMMEs

SED05:Procurement & sub-contracting to New BEE

SED04:Sub-contracting to BEE

SED03:Procurement from BEEs/ Black Persons

SED02:Shares held by Black Women

SED01:Shares held by BEEs/ Black Persons

Verified % Compliance

Economic Impact (1)

• After five years of operations GMA appointed

KPMG to assess the Economic Impact of the

Gautrain system.

• The study was centred around:

– Gautrain’s contribution to Gauteng’s long-term economic

development;

– Gautrain’s contribution to public transport becoming the mode

of choice; and

– Gautrain’s contribution to Gauteng’s improved spatial

development.

Economic & Social Impact (2)

• After eight years of operations GMA appointed

Hatch to assess the Economic and Social Impact of the

Gautrain system.

• The study was centred around five pillars of Impact:

– Delivering Jobs & Social Investment;

– Influencing Transport Choices;

– Reinforcing Development Nodes;

– Integrating the region & its Communities; and

– Changing Perceptions & Attracting Investments.

• (we are launching their report today at the press conference)

H: Economic Impact

(KPMG)

• The GMA have commissioned two independent studies to verify

the impact of the SED component of the project:

– Gautrain’s contribution to Gauteng’s long

term economic development:

• R20 billion total GDP impact during construction;

• 34 800 direct and 87 000 indirect and induced jobs created

(78% skilled and semi-skilled and 22% unskilled jobs)

• Each year of operations R1,7 billion added to the provincial economy

• 922 direct and 5 200 indirect and induced jobs created and sustained during 15

years of operations

• R617 million of the R3,2 billion household income generated from Gautrain’s CAPEX

and OPEX contributes to poverty alleviation in Gauteng

Economic Impact

– Gautrain’s contribution to public transport becoming the mode of choice:

• Clear move towards quality public transport;

• 24 200 fewer cars on the road, at least 13 fewer fatal crashes per year and 14 fewer fatalities

• Timesaving of between 10 to 12 working days per year

• Reduction of carbon footprint by 52% for Gautrain commuter

– Gautrain’s contribution to Gauteng’s improved spatial development:

• R46 billion total GDP impact added to the Provincial economy through property development induced by Gautrain;

• 245 000 total jobs were created as a result of property development (85% were skilled and 15% were unskilled jobs)

• R4.9 billion of the R28 billion household income generated from property development contributes to poverty alleviation

• 1% - 3% faster growth in residential property value in close proximity to stations and 100% higher office rental rates

• R10 billion retail property development close to stations

Economic Impact

• Gautrain’s contribution to Gauteng’s long term

economic development:

– Current impact:

• R20 billion total GDP impact during construction;

• 34 800 direct and 87 000 indirect and induced jobs created

(78% skilled and semi-skilled and 22% unskilled jobs);

• Each year of operations R1,7 billion added to the provincial economy;

• 922 direct and 5 200 indirect and induced jobs created and sustained during

15 years of operations; and

• R617 million of the R3,2 billion household income generated from Gautrain’s

CAPEX and OPEX contributes to poverty alleviation in Gauteng.

Economic Impact

• Gautrain’s contribution to Gauteng’s long term

economic development:

– Future Impact:

• 0.73 Total GDP multiplier for the construction phase of

Gautrain;

• 5 jobs per R1.0 million spent for the expansion of Gautrain;

• 0.96 total GDP multiplier for operation phase of Gautrain; and

• 4 jobs per R1.0 million spent during 15 years of operations.

Economic Impact

• Gautrain’s contribution to public transport becoming

the mode of choice:

– Current Impact:

• Clear move towards quality public transport;

• 24 200 fewer cars on the road, at least 13 fewer fatal crashes

per year and 14 fewer fatalities;

• Timesaving of between 10 to 12 working days per year; and

• Reduction of carbon footprint by 52% for Gautrain commuter.

Economic Impact

• Gautrain’s contribution to Gauteng’s improved

spatial development:

– Current Impact:

• R46 billion total GDP impact added to the Provincial economy

through property development induced by Gautrain;

• 245 000 total jobs were created as a result of property development

(85% were skilled and 15% were unskilled jobs);

• R4.9 billion of the R28 billion household income generated from

property development contributes to poverty alleviation;

• 1% - 3% faster growth in residential property value in close proximity

to stations and 100% higher office rental rates; and

• R10 billion retail property development close to stations.

Economic Impact

• Gautrain’s contribution to Gauteng’s improved

spatial development:

– Future Impact:

• 1.91 total GDP multiplier for property development around

Gautrain stations;

• Additional investment in property development around stations

will create 10 jobs for every R1 million spent; and

• 17% of additional household income generated from property

development will flow to poverty alleviation.

Economic Impact

I: Economic & Social Impact

(Hatch)

Influencing Transport ChoicesEach person who has chosen to make a trip

on the Gautrain instead of in a car has

delivered...

R74 of economic benefit per trip

Gautrain represents a new era in public transport

Quality of service rating (Max score = 10)

Reduced

costs from

fatal

accidents

CO2 emission

savings

Saves 22

minutes on

average

87% of Gauteng residents think that Gautrain is a good idea

Sources: GMA Market Segmentation Report; GMA Perceptions Survey; Hatch Calculations

• Reinforcing Development Nodes;– Office: + 820 000 m2 floorspace; 45% increase in median sales value per

m2

– Retail: + 31 000 m2 floorspace; 32% increase in median sales value per m2

– Other Commercial: + 805 000 m2 floorspace; 109% increase in median sales value per m2

– Residential: + 138 000 m2 floorspace; 52% increase in median sales value per m2

• 1 656 000 m2 more commercial space, with 87% occupancy rates. Which supports 66 000 jobs

• 59% of all office development activity in major South African nodes in 2018 was located around Gautrain stations

Economic & Social Impact

Integrating the Region and its

Communities

Sources: GMA Ticketing Information; Google Maps

Why do people use Gautrain to

cross city boundaries?

Shifting from car to

Gautrain typically

saves

43 minutes

between Pretoria Station

(Tshwane) and Sandton

Station (Johannesburg)

at typical 7am peak

Shifting from car to

Gautrain typically

saves

31 minutes

between Pretoria

Station (Tshwane) and

Rhodesfield Station

(Ekurhuleni) at typical

7am peak

Shifting from car to

Gautrain typically

saves

44 minutes

between Rhodesfield

Station (Ekurhuleni) and

Sandton Station

(Johannesburg) at

typical 7am peak

Summary of Key Impacts Achieved to Date

Delivering Jobs

and Social

Investment

Guatrain has alreadycreated

35,000 direct construction jobs

and 10,900 direct operational

jobs

Influencing

Transport Choices

87% of residents believe

Gautrain is a good thing

Each trip on Gautrain

instead of a car delivers

R74 in economic benefit

Reinforcing

Development Nodes

New commercial space

around stations = 66,000

jobs

59% of office development

activity in SA nodes in 2018

was located around

stations

Integrating

the Region

and its

Communities

70% of all trips on Gautrain

cross a city boundary

Changing

Perceptions and

Attracting InvestmentFDI investment into Gauteng

increased to over R44bn

in 2016

Now over 80

conference centres

in Gauteng

J: Gautrain Operations

Existing Routes

Gautrain: Operations

• Gautrain is the biggest PPP project and is seen as one of the best examples of a Transport PPP in the World. (World Bank, Harvard & Oxford)

• Gautrain Brand is well established:– High level of service:

• We run 6 800 trains per month, Average of 60 000 rail & 23 000 bus passengers per day;

• Punctuality of 98,6% & Availability of 99,5%;

• Fare evasion of less than 0,04%

– Steady growth in ridership (currently constrained by capacity challenges during peak periods);

– Gautrain is a public transport mode of choice (77% of ridership have moved from private vehicles to the Gautrain)

• Small organisation (92 staff members)

Gautrain: Operations

• Gautrain is part of an integrated public transport system in Gauteng

– Modal integration at stations with other modes:

• MetroRail at Hatfield; Pretoria; Park & Rhodesfield

• BRT at Park; Rosebank; Sandton; Midrand; Centurion; Pretoria; Hatfield and Rhodesfield;

• Mini-bus taxis; at Marlboro; Sandton; Rosebank; Centurion and Pretoria (UITP

International Award 1st Place)

• Metered taxis & e-hailing services at all nine stations

– Development of an electronic ticketing system for Gauteng;

– Development of an electronic route-finding App (Where-is-my-transport UITP

International award; 2nd Place)

• GMA is a single-point accountability entity with a well functioning

governance structure

• Good working relationship with the media

K: Gauteng Rapid Rail

Integrated Network (Gautrain II)

Gautrain II (GRRIN)• The GMA has developed an extension of 150km and

19 new stations to the existing system

(Gauteng Rapid Rail Integrated Network (GRRIN))

– Registered the project as a PPP project with National Treasury;

– Completed the feasibility study and submitted it to National Treasury for TA1

Authorisation (Schedule 16 of the PFMA)

– Registered it as a SIP project of the NDP (SIP 7)

2014 Socio-economic Density with Existing

Rail and Future GRRIN

Population Density Job Density

GautrainPRASAGRRIN

2037 Socio-economic Density with Existing

Rail and Future GRRIN

Population Density Job Density

GautrainPRASAGRRIN

GRRIN Extensions Phasing

Phase 1

SANDTON MARLBORO

MIDRAND

CENTURION

HATFIELD

ROSEBANK

PARK

PRETORIA

RHODESFIELD

O.R. TAMBO

SAMRAND

IRENE

TSHWANE EAST

HAZELDEAN

MAMELODI

OLIEVENHOUTSBOSCH

SUNNINGHILL

FOURWAYS

COSMO

LITTLE FALLS

ROODEPOORT

JABULANI

RANDBURG

LANSERIA

EAST RAND MALL

BOKSBURG

SANDTON 2

LEGEND

North – South Commuter

East – West Commuter

Airport

MODDERFONTEIN

Phase 1

Metrorail

Phase 2: Soweto link

SANDTON MARLBORO

MIDRAND

CENTURION

HATFIELD

ROSEBANK

PARK

PRETORIA

RHODESFIELD

O.R. TAMBO

SAMRAND

IRENE

TSHWANE EAST

HAZELDEAN

MAMELODI

OLIEVENHOUTSBOSCH

SUNNINGHILL

FOURWAYS

COSMO

LITTLE FALLS

ROODEPOORT

JABULANI

RANDBURG

LANSERIA

EAST RAND MALL

BOKSBURG

SANDTON 2

MODDERFONTEIN

MIDFIELD TERMINAL

CRADLE

Metrorail integration

North – South Commuter

East – West Commuter

Airport Service

Phase

GRRIN Extensions: All Phases

SANDTON MARLBORO

MIDRAND

CENTURION

HATFIELD

ROSEBANK

PARK

PRETORIA

RHODESFIELD

O.R. TAMBO

SAMRAND

IRENE

TSHWANE EAST

HAZELDEAN

MAMELODI

OLIEVENHOUTSBOSCH

SUNNINGHILL

FOURWAYS

COSMO

LITTLE FALLS

ROODEPOORT

JABULANI

RANDBURG

LANSERIA

EAST RAND MALL

BOKSBURG

SANDTON 2

LEGEND

North – South Commuter

East – West Commuter

Airport

MODDERFONTEIN

Metrorail

Phase 3- 5

CRADLE

MIDFIELD TERMINAL

Alternative Funding Analysis• Additional sources of Alternative funding were identified per the

DBSA report (“Gauteng Rapid Rail Network Extension (GRRNE) Funding Options Analysis”)

• The potential categories of “Alternative” revenue/funding are as follows:– Tax Increment Financing (TIR) (New & existing stations)

– Special Rating Areas (SRA) (New & existing stations)

– Vehicle License Fee

– Airport Tax

– Sales Tax - VAT

– Property Asset and Management Agency (Property Development)

– Station Auctioning

Alternative Funding Analysis

• The accompanying charts quantify the impact of ‘Alternative’ funding

sources on the project funding/financing split

Provincial MTEF; 27%

National DoRA; 40%

Private Sector; 33%

DEFAULT FUNDING INFRASTRUCTURE SPLIT

Provincial MTEF; 12%

National DoRA; 17%

Private Sector; 33%

Alternative Funding; 38%

ALTERNATIVE FUNDING INFRASTRUCTURE SPLIT

L: Closure

The Seven Stages of a Mega Project

• Enthusiasm

• Promises & Programmes

• Disillusionment

• Panic

• Hunt for the guilty

• Punishment of the innocent

• Reward for those who had nothing to do with it

Whatever it is that hits the fan will not

Be evenly distributed.No. 2 Law of Probable Dispersal

Thank You

“The philosophers have only interpreted the world; the

point however is to change it”

Karl Marx

“The Future is not for the faint hearted.”

R Reagan

“It always seems impossible until it’s done.”

Nelson Mandela

END

M: Leadership

Leadership

• Deliberate Practice: the 10 000-hour rule

(if you want to be an expert in a field you need 10 000 hours to

acquire the skills)

• Successful people’s recipe:

– Set aside 1 hour / day, 5 hours / week, for the rest of their lives

– They set aside these hours over their entire career for activities that can

be classified as; Deliberate practice of learning

• 5-hour rule

– Read;

– Reflect;

– Experiment

Who will Develop into Leaders?

• The Discipline of Finishing

• Psychologist Walter Mischel of Stanford in the late 1960’s

developed an unique test with children that has proven to be an

excellent method of predicting future successful adults

– The marshmallow test:

• A child, between the age of three and four, is put into a room, given a marshmallow

by an adult and then told he / she could eat it but, if they waited for the adult to

return they would get another marshmallow.

– These are the results:

Who will Develop into Leaders?

Marshmallow Test

One Marshmallow choice

Eat

NowWait

Stare at the

Marshmallow

Don’t look at the

Marshmallow

At this young age they already

realise how little power they

have over themselves

50% 50%

Choice

Decision

Behaviour

Result They become

more successful

Who will Develop into Leaders?

• But how do you determine if an adult will be successful

and become a leader?

• Warren Buffett, with a Nett worth of $87 billion is one of the four

richest people on earth

• When he decides to invest in a company, he uses three criteria

on their senior management to determine whether he will or he

won’t.

Warren Buffett’s three criteria for success

• Criteria Two: Energy

– Someone who is biased to taking action;

– Tendency to taking action over thinking over action;

– Healthy, don’t get ill often.

• Criteria Three: Intelligence

– Not business school intelligence

– Adaptive intelligence, can make key decisions on the go

• But if you don’t meet criteria One, you might as well be lazy and

dumb, because you will not succeed

Warren Buffett’s three criteria for success

• Criteria One: Integrity

– Say no to most things;

– If you say yes to most requests your life is divided into thousand little

pieces and spread amongst the priorities of other people;

– Alignment what your calendar says you do and what you say you do.

• But what are the tools that you should employ to achieve and

maximise these three criteria?

– Connor Neill, Professor of Leadership Communication, at the IESE

Business School in Barcelona, Spain, suggests the use of the following

tools in order to maximise the impact on the three criteria:

Tools to achieve Warren Buffett’s

three criteria

• Intelligence

– Write stuff down, your thought list;

– If you write down ideas you had today, If you write down people you

have met, describe things that are going on. In six months you will have

the accumulated intelligence of six month and not just of the moment.

– Start writing down your life, it’s the most valuable resource you have

Tools to achieve Warren Buffett’s

three criteria

• Energy

– What do high performance athletes do? They focus on one step at a

time. Successful ultra-distance runners never think of the total race, they

think about the next 15 minutes, anyone can run for 15 minutes.

– Always deal with the next unit;

Tools to achieve Warren Buffett’s

three criteria• Integrity

– How do Children spell love?

• TIME.

– The world is full of good intentions.

– The way you can see if an executive is behind an initiative is to let him

show you his diary;

– If you say your parents are important, open your diary and show the

hours;

– Your diary and your values must be in sink;

– success is hundreds of little good decisions that are repeated, consistent

to form good habits

– If you write a page a day, you will write a book per year