Murray & Roberts to benefit from Gautrain extensions

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18-10-2013
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Murray & Roberts
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Bombela will manage whole system.

Murray & Roberts (JSE:MUR) stands to benefit from extensions to the Gautrain rapid rail system through its investment in the Bombela Concession Company and the Bombela Operating Company. Gauteng MEC for roads and transport Ismael Vadi and Jack van der Merwe, CEO of the Gautrain Management Company, on Thursday announced plans to extend the current system of 80km by another 140km.

These plans are still at an early stage, but Van der Merwe said building can start within 4-5 years.

Murray & Roberts is part of the Bombela consortium that won the contract to build the current Gautrain system and operate it for fifteen years. It currently has 24% equity in the Bombela Operating Company that is subcontracted by the Bombela Concession Company to operate the system and 33% in the Bombela Concession Company itself.

“We are very happy with our investment” says Ed Jardim, spokesperson for Murray & Roberts. “It contributed R200m to our group EBIT (earnings before interest and tax) last year.” That is more than 12% of group EBIT.

This revenue is consolidated in the groups Construction Africa and Middle East business unit, says Jardim. This unit showed an EBIT loss of R28 million in the last financial year and the hole would have been a lot bigger without the Bombela contribution.

It is currently, with all Gautrain systems integrated and operating well, a fairly low risk operation, especially compared to the construction contracting environment.

The Gauteng government’s contract with the Bombela Concession Company grants it the right to operate the Gautrain system for 15 years. If the system is extended, the right applies to the whole system even if another contractor might win the tender to build some of the new sections, Van der Merwe explained.

This will increase the revenue of both the Bombela Operating Company and the Bombela Concession Company.

Murray & Roberts as a shareholder in both will benefit if the extensions are completed within the 15 year period, which according to Jardim is calculated from financial close in 2007 and therefore expires in 2022.

Some of the plans can be executed fairly quickly, like the new station at Samrand, says Jardim. The foundations for this station were built during construction of the system and it won’t take much to finish the station.

Other sections might take longer depending on factors like expropriation of land and tunnelling.

On the construction side, Murray & Roberts as part of the Bombela Civils Joint Venture and the Bombela Concession Company still has some outstanding Gautrain business. Several claims are yet to be finalised, including one said to run into billions of rands for delay and disruption. This refers to additional cost the contractor alleges were incurred due to the delays in the handover of the land on which the system was built.

Jardim says Murray & Roberts has learnt from experience and while safeguarding itself in any future contract, it would not bring past differences into a new contracting process. “We hope the Gautrain Management Agency will also put it in the past.”

He says it is for the board to decide whether the group will participate in tenders for construction of further section of the Gautrain. “We will put it through our risk assessment process and then consider it.”