Our never-met-before-and-we-don’t-know-if-he-even-likes-us pal over at the DailyMaverick, Ivo Vegter, has once again produced a cut-to-the-heart piece about the patronage partnership between the Bombela consortium and the Gauteng Provincial Government.

In short, us taxpayers are funding the rides of some rich business folk and a couple of tourists, and saving the bacons of a few corporate executives.  This is unfortunately par for the course in a system like ours.  The provincial government is funding Bombela’s operating hole to the tune of around R360 million a year.  That’s a loss of R1000,000/day.  Good business huh?

This kind of cronyism is what modern ‘captialist’ democracies are really about.  It’s the feudal system with a smile and a wink.  Centralised financial power dressed up as the egalitarian society.

In October last year we wrote about the Gaubuses that serve no-one [the bus service linking GauTrain with your home...sort of].  In that post we said that,

“There is a very good reason why no-one rides on the Gaubus…because no-one wants to.  It doesn’t serve anyone, clearly.  Instead of realising that the service offers no value to society, the municipality will try at first to encourage people to use it by having ‘ride free’ days.  When that doesn’t work they’ll start trying to force you to use it by taxing vehicles, clamping down on car travel in certain areas, and forcing taxpayers to fully subsidise the busses permanently so that ‘ride free’ days become permanent ‘ride free’ transport systems.  Sounds grand huh?  Alas, we all pay in the end anyway.

They’ll try everything but admit that the service is not required.  That is classic government – conjure up a service and then manipulate the laws and incentives and tax and fund structures until eventually the people have little choice but to use it.

In the free market for transport these problems do not exist.  You don’t get the minibus taxis offering ‘ride free’ days because they don’t need to get bums on seats.  They’re packed to the rafters and fully and adequately supply the transport needs of millions all day every day without a fuss.

Gaubusses are empty because there is no need for them.  Maybe we’ll need them in the future, but not now.  They are subsidised black holes on wheels…with Gaubus we’re burning away wealth with every tire tread and gallon of fuel.  We’re paying drivers to drive no-one, maintaining busses that transport no-one, and using fuel we don’t need.”

Ivo applies this idea to the whole edifice that is GauTrain.  He finishes his piece with the brutal truth:

“The Gauteng Provincial Government is stealing from the poor, to give to Bombela.

The government is using your money to break private transport operators and undermine the hardworking people of South Africa. If a private company had done this without the benefit of a public patronage, it would have been hammered by the Competition Commission for predatory and anti-competitive behaviour.

The Gautrain deal is a massive waste of taxpayer money, and now appears to be fundamentally corrupt to boot. And if, as Errol Braithwaite told Eyewitness News, this guarantee was envisaged from the start, while Jack van der Merwe said there’d be no burden on the fiscus, and the Department of Transport claims it had no idea, that only means that the corruption was premeditated, in secret.

Proudly South African, they call that shameful train.”

Here’s Ivo’s piece…

Gautrain’s PPP: political patronage profiteering

What’s the point of so-called “public-private partnerships”, if the private partner gets all the profit and takes none of the risks? That’s just political patronage, and surprisingly, that’s exactly what Gauteng calls it: a “patronage guarantee”.

No wonder the Gautrain’s spin doctors were so cavalier in answering my scepticism about its financial viability, by agreeing to let me inspect the books after three years of operation. The Bombela Consortium, which operates the Gautrain, had a dirty little secret: it cannot possibly make a loss. No matter what.

A line item in the Gauteng transport budget for the coming year has revealed that the government will be paying Bombela as much as R360 million a year as a “patronage guarantee.”

In essence, what the government has told the lucky winners of the Gautrain lottery is this: We will guarantee that our people will use your train. And if they don’t, we’ll take their money by force, and give R360 million a year to you anyway. And then we’ll punish them again by making them pay for using cars on the highways. For which they also paid.

“Punitive,” is what Gautrain’s project leader, Jack van der Merwe, once called toll fees and carbon taxes. He was not wrong.

What a disgusting barrel of pork this project has turned out to be. The term “patronage” might refer to passenger numbers, but its other meaning, the use of political power to direct benefits to a private party, is equally apt.

Let’s just put this deal in perspective: in 2007, it was named the top deal in the world by value, at R25 billion. That amounts to about R9,000 for every single household in Gauteng. Add to that the R20 billion for the Gauteng Freeway Improvement Project, and each household is, on average, R16,000 out of pocket to public-private profiteers.

The select bloggers and journalists who were invited to the lavish Gautrain launch bash were angry when I suggested they were too busy enjoying the money thrown at them to ask any of the hard questions.

Among the questions I proposed at the time were…
Read the rest of the article here

3 Responses to “GauHole”

  1. clarky says:

    You guys must be very certain you understan the true intricacies behind PPP’s before you jump on the band wagon. The train is a R22 billion project. The private sector is asked to fund these deals for low margins and conversely the private sector requirs guarantees for accepting such risk for low margin. Hence the guarantee. The guarantee is only called on when passenger numbers are lower than forecast in order to ensure debt covenants are met. I also see no mention of the upside that is returned to Government when numbers exceed certain thresholds. Pretty fair deal I think, or would you prefer Government funds the train by way of a deficit? You guys are very good but be certain you are able to see the wood from the trees.

    • freeman says:

      If Gautrain is such an economic benefit then why does the private sector need to be asked to accept low margins and in return require ‘guarantees’? In a normal world, you scope it, cost it, budget for it, invest with acceptable risk, and make returns. If the Train is too costly for passengers in a free market then it means we don’t need it (at least not yet anyway), or, if the Train is planned as a low margin business in a free market, then risk and time-to-return metrics needs to factor this in to the investment decisions and business models.

      As for “no mention of the upside returned to Government”, we first have to assume there will be an upside, and secondly, an upside to government is not an upside to the tax payer, but instead an upside to fat cat politicians who know better than anyone how to waste it.

      “Or would you prefer Government funds the Train by way of a deficit?”

      No, I would prefer Government didn’t fund it at all and instead lowered our taxes substantially so we could decide what to do with our own money instead of it being dictated to us that we need this train or that road or x or y or z (Moreover, as an aside, when banks fund these projects they do it with fractional lending off base money created by the SARB, which is inflationary and taxes the people even more).

      Lastly, let’s call PPPs what they really are: Crony capitalism.
      1. The state decides like god that something will benefit society.
      2. It puts the god-given job out to tender.
      3. Makes sure the tender goes to a BBBEE consortium.
      4. The banks fund the State-BBBEE consortium because they get tax-payers guarantees (so the banks can’t lose!!). Wonderful risk-free return.
      5. The consortium spends too much money and runs over deadline but it doesn’t matter because there’s no competition and the taxpayers are picking up the tab.
      6. The project gets completed and proceeds to run at a loss.
      7. The banks get paid back as promised and are protected by the SARB anyway in the event that it all goes pear-shaped.
      8. Did I mention the taxpayers fund the hole?

      The point of whether or not Gautrain is an eventual success or not is not the issue here. The issue is the way in which the state goes about playing economic god and cutting large politically connected consortiums and the banking cartel into the whole money fest.

      I for one think Gautrain could be economically viable one day, and, spread into a broad network, could end up transporting millions of passengers every day and making Joburg a far more efficient city. But if that is the case, then private entrepreneurs are more than capable of making it a reality without the state’s meddling. If it’s not economically viable then we shouldn’t be doing it. Period. Government should not be in the business of deciding arbitrarily whether or not some infrastructure is beneficial or not. Government, AT MOST, should be a dispute-resolver in a free society.

      I wish Gautrain the very best, I really do, but the way in which PPPs are structured is rotten to the core…

  2. Bokkeman says:

    Another case in point: the Entilini consortium’s cosy deal for running the Chapmans Peak Drive toll road. They rely heavily on the guarantees to ensure profitability.
    Worse, last year it was discovered, after the road was kept closed by Entilini for around 6 months (!) that there were additional guarantees that kicked in during the event of road closures – it was more profitable for Entilini to keep the road closed and collect the guarantees from Cape Town City Council than have it open and collect the pitiful revenues from annoyed locals who do everything in their power to avoid using it – R30 one way!
    You should check if there are similar, out-of-service gurarantees for Gautrain.