THE launch of the MyCiti bus service has clearly rattled long serving Cape Town bus service Golden Arrow (GABS.) Hosken Consolidated Investments (HCI) the owner of GABS, has raised some serious issues around the future viability of bus routes in the Western Cape.
HCI CEO Johnny Copelyn – writing in the company’s latest annual report – said negotiations with the City of Cape Town regarding the market share of GABS’ participation in the new MyCiti environment had reached a stalemate. He said GABS applied to court to compel the City to enter into a mediation and arbitration process around areas of dispute. The application was dismissed but Copelyn said GABS has been granted permission to appeal the judgement.
Contextualising the bigger issue, Copelyn noted that for a great many years GABS been obliged to operate with only a short-term contract. “This has been a fundamentally unacceptable way to operate and has compelled us to take long-term capital risk, such as developing new bus depots and buying new buses, without the security of any commensurate contractual agreement with the state.”
He said that recently the Cape Town city authorities had been rolling out its MyCiti buses, and allocating contracts to operate them on the basis that GABS is a 10% participant. “Needless to say, HCI finds this trend very disturbing. This amounts to a non-tendered contractual allocation of a key service in the city, quite apart from a number of very real concerns we have at the completely unsustainable cost of operation, ensuing from the manner in which the contracts have been structured.”
Copelyn said that worst of all was the “complete indifference” of the contracting authority to the enormous commitment to promoting safe, modern public transport demonstrated by GABS. Copelyn said crucial factors influencing the decision to appeal the judgement were the precedent that would be set with regard to the way in which the City could conduct “negotiations,” as well as the failure of the Court to recognise that existing operators, such as GABS, are not in the same position as new entrants into the scheduled commuter market.
Copelyn said the outcome of the appeal would largely determine the manner in which GABS could expect to be treated when further phases of the Integrated Rapid Transit (IRT) system were implemented in the future. He said GABS remained concerned that the current IRT model was economically unsustainable, as the operational subsidy requirement was about R4,5m per bus a year, compared to the R670,000 per bus for the conventional GABS operated system. Copelyn estimated that to date R4,6bn had been spent on the IRT system and a further R850m was earmarked for 2013.14. “This expenditure has to date only realised 42 conventional and 29 midi buses on the road with the potential of a further 100 midi buses and 40 conventional buses during the rest of 2013.”
He said in the light of these exorbitant costs and the recurrent operational support required, it would be in the public interest if an independent Transport Economist were appointed to interrogate the cost of the IRT rollout before it becomes an unsustainable public liability.
“Our pedigree to adapt to changing conditions has stood us in good stead over the past 150 years and our approach and strategies to deal with all of these will be done in the future with the best interests of the company and all its stakeholders at heart.”
Copelyn said GABS had no other choice but to take legal steps to protect its business. “Be all this as it may, we have held several meetings with the City management and the Province, and there is a commitment by all to participating in a mediated process of trying to reach an accord on a stable and sensible path forward, which will hopefully not disadvantage GABS, and will promote the development of safe and effective public transport for the city.”
But Copelyn warned that the coming year would clearly determine the character of GABS’s future on a much longer-term basis. “In the meantime HCI remains committed to buying new buses each month - as has been its practice for the last several years - and, thereby, to ensure Cape Town has the most modern fleet on the continent.”
As regards the bus fleet, HCI funded 120 new buses for GABS at a cost of R190m, while another 87 buses were scrapped. Copelyn stressed that the strategically focused fleet recapitalisation programme and concurrent scrapping of old buses have contributed to the reduction in breakdowns. “The age of the fleet now boasts an industry best practice benchmark of 9,6 years.”
Despite the MyCiti challenges, GABS has remained a solid performer for HCI. In the past financial year GABS saw a 7% growth in passenger numbers – which Copelyn felt “underscored the inherent potential of the scheduled commuter sector as people moved from private vehicles to public transport as a result of high fuel prices”.
Gabs saw total revenue shift up 8,1% to R1,13bn, which Copelyn deemed “particularly creditable” in light of the fact that government funding received only escalated by 4,2%. GABS profit after tax of R96m was down 2,7% on the previous year, and mainly reflected a 15,8% increase in fuel costs.
GABS has taken action to minimise the impact of the fuel price. Copelyn pointed out that GABS had embarked on focused programmes to control operating costs in other areas of the company. These included the meticulous management of overtime costs in both the technical and operating divisions – where a chunky reduction in costs of 7,5% was realised. Copelyn said operating efficiencies were also markedly improved by reducing vehicle breakdowns by 19%.
Although the fuel price is out of GABS’ hands, the company is still making a concerted effort on fuel consumption. Copelyn said: “With diesel fuel making up a large component of operational costs, fuel consumption on the total fleet is being micro managed to ensure the highest possible level of efficiency.” He said initiatives included the testing of new electronic fuel saving programs on new buses.
By Jenni McCann