Gauteng freeway overpriced by 321% - OUTA’s research paper
Recently, when the Organisation Undoing Tax Abuse (OUTA) announced it was putting the finishing touches to its research and position paper (revealed today – 22 February 2016 click here), on the benchmarks and comparisons of the Gauteng Freeway Improvement Project (GFIP) project to road construction pricing around the world, SANRAL’s spokesman, Mr Vusi Mona remarked “there is no unit cost for road construction that was an international benchmark that SANRAL was aware of.”
“That might be true in the strictest sense of the interpretation, as we imagine there is no strict pricelist or benchmark for any industry on a world-wide basis,” says Wayne Duvenage, the Chairman of OUTA, “we do however maintain that there are a number international benchmark case studies from which SANRAL can glean a good understanding of where they rank in the space of road construction costs, and if they did so, as we have done in our research, they will find that the prices they are paying for road construction in South Africa, if GFIP is anything to go by, is grossly overstated.”
OUTA’s research and position paper found eleven case studies from which to benchmark and compare SANRAL’s GFIP costs. Below is an indication of five of these which contain extensive road construction cost input and analysis totaling several hundred projects around the world:
In 2000, the World Bank developed the ‘Road Cost Knowledge System’ (ROCKS) database, which contained data from 65 developing countries on road construction and maintenance costs.
‘The Nederland IMPACT Study’ conducted by CE Delft in 2008, which compared road construction costs in 10 countries in Europe.
The USA Kansas Department of Transport in 2004, which looked at a range of road construction comparisons across the USA.
The Tanzania Roads Fund Board report compiled by Cesar Queiroz (a former World Bank Highway Advisor), who was commissioned to look at road construction trends of OECD supporter countries.
The Africon Study of 2008, another World Bank analysis of road construction costs across Sub-Saharan Africa, sampling 115 road projects in 24 countries, including South Africa.
These are just five of eleven case studies which OUTA has listed in a 26-page research position paper, which has culminated in their findings that the South African public have been grossly overcharged for the Gauteng Freeway upgrade (2008 to 2011) by an average of 321%
“The research went to lengths to ensure that we compared like with like,” says Duvenage. We factored in conversions from miles to kilometers and applied the Rand exchange rates applicable in 2010 (when the bulk of the GFIP project was nearing completion). We also added in year on year inflation rates at 7% and ensured that we converted all studies in lane kilometer widths to that of a ‘Centerline’ length per kilometer costs and reflected the average number of lanes on the GFIP project to 9 lanes. We also only compared the pure road construction cost elements of GFIP, leaving out the costs associated and estimated to the GFIP interchanges, median lighting and bridgework, so as to ensure the exercises was a close to the actual GFIP project as we could possibly get.
The research shows that in every instance of benchmarking, the GFIP project at R17,9 billion for the road only (excluding the tolling related expenditure) has been overcharged by between 136% (the lowest differential comparison to the Idaho Department of Transport report) and 832% being the highest differential to the GFIP cost – being a comparison to the Trans-Kalahari road project in Namibia .
When comparing SANRAL’s GFIP pricing with the average per kilometer pricing of these 11 case studies, we see that SANRAL have overpaid by 321%.
“This research and position paper tells us there is something grossly wrong with the cost of road construction under SANRAL’s watch,” says Duvenage. The summary table below, gives the range of the variances, on a cost per kilometer basis per study, in which the cost associated with the most likely similar project listed in each case. It is also important to note that most of the GFIP projects 9 lane width average, was the skimming and resurfacing of an existing (well maintained) road surface, whereas, many of these comparisons were to new road construction, which is substantially more expensive.
OUTA’s own research and assessment has generously pitched the GFIP cost at being no higher than R7 billion rand, which is lower than the earlier estimation of the project in 2015 at R18.8bn, now that more information has come to light. According to OUTA’s new estimates, SANRAL’s price tag of R17,9bn was an over-payment of R10,8bn, ie 152%.
In OUTA’s opinion, the outcome of this research has three serious consequences for SANRAL:
Firstly, it raises the question of what would the decision have been by Minister Jeff Radebe (the Minister of Transport in 2007/8, at the time of the e-toll decision), had the road construction costs come in at around R7 billion rand. There is no doubting that at this realistic cost, the bond repayment would have been substantially lower at well below R1bn per annum (20 years at 10% interest). This in turn, is significantly lower than the e-toll administration and collection charges which are at over R1 Billion per annum.
Secondly, at these costs, the entire justification for the e-toll project would be ruled as grossly irrational and now gives the motoring public more justification to defy the scheme.
Thirdly and most seriously, it questions the professionalism and integrity of SANRAL’s role to ensure the public receives the lowest prices and best deals for their money, when it comes to road building in South Africa.
On the basis of this research, OUTA is calling on the Minister of Transport to consider the following actions:
That SANRAL’s acceptance of such high road costing, is a serious problem for the public. As such, a thorough and extremely independent investigation is required to get to the bottom of these concerns.
The Treasury Oversight rules need to apply to SANRAL going forward.
All future contracts and bills of quantities, pricing etc, for all road projects in South Africa, must be conducted in an open and transparent manner, with invitations to civil society to scrutinise.
The Gauteng e-toll scheme is cancelled.
That SANRAL abandons its plans to toll the Western Cape Freeway project.
That all toll road projects and major road construction projects undertaken by SANRAL be investigated.
Click here to download the research paper.