The first year of Rea Vaya BRT has been an eventful one. It has been one of growth and achievement.

 THE first year of Rea Vaya BRT has been an eventful one. It has been one of growth and achievement. In these notes for the media we set out:

• Milestones that have been achieved over the past year;
• Facts and figures about the Rea Vaya project;
• Summary of agreements reached during the negotiations between the Taxi Industry and the City in respect of the Phase 1A bus operating contract, and
• Progress on finalising loan funding to pay for the 143 buses for the first phase.

1.    Rea Vaya milestones at a glance

Milestones prior to launch include:

• 2006: Bus Rapid Transit system feasibility study carried out
• August 2006: Fact finding mission to Colombia
• November 2006: Council approves Phase 1 BRT
• 2007/2008: Public participation on look and feel of stations and buses
• October and December 2007: Memorandum of Understanding signed with taxi associations
• October 2007: Construction of Rea Vaya BRT starts in inner city
• September 2008: Memorandum of Understanding signed with bus industry
• November 2008: Prototype station opens in Joubert Park
• December 2008: Tender for the assembly and maintenance of the buses awarded
• April 2009: First stations are named
• May 2009: Agreement with Scania signed and 143 buses subsequently delivered
• May 2009: BNDES Export Credit Agency agrees to provide loan funding for Rea Vaya Phase 1A buses
• 16 August 2009: Rea Vaya buses shown to the public at Thokoza Park

First year milestones:

• 30 August 2009: Rea Vaya launched, with route between Ellis Park in Doornfontein and Thokoza Park in Soweto
• 5 August 2009: Negotiations with affected operators to own and manage phase 1 A bus operating contract begins.
• 7 – 18 December 2009: Rea Vaya features in discussions at climate talks in Copenhagen
• 12 January 2010: Rea Vaya gets First Place Honourable Mention for the 2010 Sustainable Transport Award by the Institute for Transport and Development Policy
• 15 March 2010: New routes launched – a complementary route from Dobsonville to Ellis Park Station;  and feeder routes from Naledi to Thokoza Park Station; from Jabavu to Lake View Station; and from Mofolo to Boomtown Station
• 3 May 2010: Two feeder routes and an inner city distribution route added to Rea Vaya: from Protea  Glen  via Thokoza Park into the CBD; from Eldorado Park via Lakeview station into the CBD; and from Chancellor House and Library Gardens via Braamfontein, Wits, Hillbrow and the Art Gallery near Joubert Park
• 22 May 2010: Rea Vaya is used to transport fans to Soccer City for the Nedbank Challenge Cup Final, and to the Orlando Stadium for the rugby match between the Blue Bulls and the Crusaders – seen as a test run for the upcoming 2010 FIFA World Cup™
• 9 June 2010: City of Johannesburg and taxi industry concludes historic agreement, with members of the taxi industry becoming shareholders in Rea Vaya's Bus Operating Company
• June-July 2010: Rea Vaya is integral in ferrying fans to the Joburg stadiums for the 2010 FIFA World Cup™ matches. 
• 30 August 2010: Rea Vaya has been operating for a year!

2.    Key facts

The following are some of the key facts about the Rea Vaya BRT:

• Passenger numbers increased from 11 800 in the first month of operation to 34 000 per day currently
• Some 1 100 trips are operated over 18 500 kilometres per day using 280 000 litres of diesel every month
• 30 Rea Vaya stations service passengers
• 143 Buses are registered to the bus operating company
• All bus drivers were recruited from the taxi industry
• Permanent employment has been created for just about 1 000 people in the Rea Vaya family
• Rea Vaya transported 307 000 passengers during the 201 FIFA World Cup and cleared stadium stations way ahead of FIFA benchmark times

3.    Summary of agreements reached during the negotiations

Negotiations with taxi operators affected by Phase 1A of the Rea Vaya operations began on 5 August 2009 and effectively ended on 23 August 2010 with the signing of a final set of agreements.

The negotiation process was led by a team of independent facilitators, who were paid for by the City, but agreed to by both parties.

After an initial period of information sharing, the parties negotiated a series of innovative agreements covering the following areas:

• Compensation for loss of income in respect of operators who have been affected by the Rea Vaya Phase 1A roll-out of services;
• Verification process in respect of affected operators in terms of a Participation Framework Agreement;
• Bus Operating Contract;
• Fee per kilometer and escalation formula including profit margin for affected operators;
• Process of affected operators becoming shareholders in the Bus Operating Company (BOC) and shareholders taking over the BOC both from an ownership and management perspective, as well as operating the bus service;
• Employment of drivers and other employees of affected operators and related matters, and
• Implementation of the City's value chain policy framework in respect of Phase 1A.

The key provisions of these agreements are summarised below:

(a)    Agreements on Loss of Income
It was agreed in the negotiations that up to 585 minibus taxis will be removed from minibus taxi routes competing with the Phase 1A Rea Vaya services. Their owners will be eligible for indirect shareholding in the BOC via one of nine taxi operator investment companies ("TOICs") in return for such removal.

However, because Phase 1A was implemented in phases before ownership of the BOC by affected operators could be established, the risk of destructive competition between affected taxis and the Rea Vaya emerged and the taxi negotiating team agreed that taxis should be removed from operation and stored in return for compensation for loss of income to be paid by the City.

A loss of income agreement signed in November 2009 and two signed in March 2010 covered vehicles placed in storage up to May 2010. A further loss of income agreement was signed in June 2010 which will last until the transition period is over and all affected minibus taxis have been removed from operations.

(b)    Participation Framework Agreement (PFA)
One of the key issues in the negotiations was the qualifying requirements to become a shareholder in the Bus Operating Company, indirectly through one of the TOICs. This was important because, whilst about 1500 vehicles could be affected, only 585 would have to be removed and only these owners could be eligible to become shareholders.

Thus a Participation Framework Agreement was signed by the City and representatives of the affected operators on 27 January 2010, setting out the process of becoming a shareholder and all the qualifying requirements, such as a valid operating license for each vehicle to be withdrawn from an affected route.

It also requires that the minibus taxis must be removed from service and delivered to the CoJ's appointed auctioneers for scrapping or sale, the proceeds of which will be used by the affected minibus taxi operator to subscribe for shares in the BOC. The subscription price for shares in the BOC was later agreed to be R54 000.00 per share.

(c) Employment Framework Agreement (EFA)
The Rea Vaya Phase 1A project is aimed at being employment neutral, which it defined as creating at least as many jobs of equivalent or better quality and remuneration as it directly removes.

As 585 taxis would be withdrawn from service permanently, at least 585 drivers would lose their jobs. It is estimated that at least as many jobs have been directly created by Phase 1A of the Rea Vaya.

To date the full complement of 200 Rea Vaya drivers has been recruited from drivers nominated by the Phase 1A taxi industry negotiating team. They have all received full training from Scania SA (Pty) Ltd, assisted by the BOC, and they all became permanent employees of the BOC on 1 July 2010.

The EFA was signed on 16 July 2010 and it deals with all employment issues, including the job opportunities in the Rea Vaya stations and in the BOC that could be offered to taxi employees who lose their jobs.

The EFA provides that each shareholder can nominate one employee per vehicle surrendered. The nominated employees and their CVs and details will be recorded in a database and they will be given the first opportunity by the City and the BOC to benefit from Rea Vaya employment opportunities, to the extent that they are qualified and suitable for the relevant positions.

The main positions are:

• employment by the City at the Phase 1A stations as station ambassadors, station marshals and cashiers;
• employment by service providers contracted by the City responsible for security and cleaning of the Phase 1A stations;
• employment by the BOC including drivers, dispatchers, controllers, bus cleaners and administrative assistants.

The Employment Framework Agreement does not require that all the above jobs but must go to affected employees only. Instead, it set targets so that some jobs will still go to residents of the communities within which Phase 1A operates.

(d) Value Chain Framework Agreement
A value chain policy framework was approved by the Mayoral Committee in 2009. It set out the employment, business and investment opportunities for minibus- taxi operators arising from implementation of the Rea Vaya bus rapid transit system.  It provided for affected taxi operators, amongst others, to be eligible to benefit from certain preferential procurement processes.

The Value Chain Framework Agreement reflects agreement between the City and the Phase 1A Taxi Industry Negotiating Team about how the value chain policy framework will be applied in respect of the Phase 1A opportunities. It was signed on 16 July 2010.

The main opportunity made available in the agreement is for the Rea Vaya Phase 1A station cleaning and security contracts. The agreement sets out a process whereby affected operators can bid for such contracts in line with the supply chain policies of the City.

(e) Negotiation Closure Agreement
A Negotiation Closure Agreement (NCA) was signed between the parties on 4 June 2010. This recorded the milestones to be achieved and the process to be followed in order to achieve closure of the negotiations, and transfer of ownership of the BOC to the Taxi Operator Investment Companies (TOICS) that have been set up by the affected taxi operators.

The milestones, which were set out in the agreement and have already been achieved, are:

• Written agreement on the fee/km
• Finalisation and signature of the bus operating company contract.
• Publication of the closing advert.
• Finalisation and signature of the employment framework agreement
• Finalisation and signature of the value chain agreement.

The NCA also recorded the milestones to be achieved after the closure of negotiations, including:

• Finalisation of shareholding;
• Orientation, training and induction processes;
• Sale and scrapping of vehicles of shareholders;
• Submission by the new Board of Directors of the Management Plan for the City's approval; 
• Completion of a due diligence investigation on the BOC; and
• Subscription of shares process by taxi operator investment companies

(f) Bus Operating Company Agreement
A Bus Operating Company Agreement (BOCA) has already been signed between the City and the temporary bus operating company, known as Clidet. The aim in the negotiations has been to reach agreement with the Phase 1A taxi industry negotiating team, as the future owners of Clidet, on this contract, or to amend it as agreed.

As a result, a number of amendments were made, including to clauses that relate to maintenance, insurance, monitoring and step in rights of the City, as well as to address the taxi negotiation team's proposals to sell some of the shares to a foreign BRT operator in return for systems and management support and investment.  

The BOCA with the affected taxi operators will be a 12 year contract from the date when the company is transferred to the new affected taxi operator shareholders.

(g) Financial agreements
The financial negotiation was of central interest of both parties, as the outcome is an agreement on the fee that the City will pay for each kilometre required and operated by the BOC's articulated buses and the fee for each kilometer operated by its complementary buses. An escalation formula, in terms of which the fees are adjusted each month in response to changes in costs, was also the subject of negotiations.

After an intensive information sharing period, on 14 December 2010 both the City and the taxi negotiating team presented their financial offers. These offers were wide apart and the majority of the first half of this year was dedicated to coming closer together.

At stake became not only the fee per km, but also that the individual shareholders would receive sufficient income for each month of the contract, bearing in mind that, as with all loan and long term contracts, the early years are not as lucrative as the later ones.

The Rea Vaya model is also unique in that, since the initial engagements with the taxi industry, shareholders were not only promised dividends, but were promised a monthly income.  A significant amount of attention was thus devoted to working out how this income could be paid to shareholders, bearing in mind company and tax legislation.

On 23rd June, the parties finally agreed on a fee per km which could be paid as a restraint of trade from year three or a dividend from year five, depending on the outcome of an advanced tax ruling from the South African Revenue Service (SARS). For the first 2 years or for the first 4 years as the case maybe, the City would pay operators compensation of R5 500 per month escalating at 6% per annum.

The fee per km to be paid to the BOC was then agreed to as follows:

4.    Securing of loan funding to repay the buses

(a)    Introduction
For a number of reasons related to the urgency of the implementation of Phase 1A, the City procured buses on behalf of  a yet to be formed Bus Operating Company and has also played a very active role in securing funding for the BOC to pay for the buses.

Buses were procured through an open tender process from Scania (with Marco Polo) and funding was sought and obtained from the Brazilian Export Credit Agency, called BNDES with the assistance of HSBC as the fund arranger.

Below we set out some key milestones to date, key features of the loan and progress to date.

(b)    Milestones
Milestone achieved to date and to provide context are as follows:

• September 2008: The HSBC Bank appointed as Export Finance Arranger
• December 2008: Bus fleet tender awarded to Scania
• March 2009: Application for BNDES to fund the buses submitted
• 5 May 2009: BNDES agrees in principle to fund BOC to purchase buses over 11 years at competitive interest rates
• August 2009: Busses delivered and registered in name of interim bus operating Company (Clidet)
• August 2009: Phase 1A Starter service commences
• February 2010: Detailed negotiations in Brazil with BNDES
• March to August 2010: BNDES finalizing loan including settling agreements and receiving Brazilian government approvals.

(c) Key features of the BNDES loan
The BNDES loan for the funding of the bus fleet procurement for Phase 1A of the Rea Vaya BRT has the following salient terms:

Total amount for the total BNDES ECA loan: $42,528,673.57
Term: 11 years
Repayments: 22 semi-annual repayments
Interest rate: 5 year US Libor (2.60%) + 1.5% = 4.10%
Capital repayment holiday: 1 year

The BNDES loan covers the purchase price for the buses for an amount of $40,036,000 and a part of the service fees amounting to $2,492,673

The funding for the buses that is not being covered by BNDES will be covered by a loan for R55 million from the HSBC.

Before the loan can be drawn down, four agreements have had to be prepared and negotiated with the parties and a number of condition precedent met.

The agreements that need to be concluded are:

• Loan agreement between BNDES and the bus operating company (BOC) wherein the funds for the buses are lent to the BOC
• Debt Service Agreement which establishes a debt service account for each next half year repayment
• Direct agreement which sets out the obligations of the City and BNDES to the BOC
• Intercreditor agreement which governs the relationship between the BNDES and any other lenders on phase 1A of the project.

(d)    Progress to date
At the time of writing, the first four three agreements have been finalised and should be signed in this week.  After the three agreements are signed, the final post loan signing conditions can be met and the drawdown on the loan can be effected.

The finalisation of these agreements has taken longer than anticipated. Some of the reasons for the delay include:

• Language problems: In February 2010 changes in BNDES policies required the loan agreement to be translated into Portuguese, and all documents and comments have had to be translated from English to Portuguese and vice versa
• Unfamiliarity with South African legal system: this is first deal the BNDES are doing in South Africa, and many questions arose out of the BNDES' need to understand the legal system.
• Complexity of the deal, and requirement that COJ act in the best interest of  the BOC and the COJ
• Appointment of new BNDES underwriter in March 2010 resulted in almost all documents changing
• Many players: The COJ is not dealing directly with BNDES but through the transaction advisors. In addition to the BNDES, the transaction is also managed on the Brazilian side through their lawyers and they need to engage a number of other Brazilian governmental agencies.

Due to the many risks associated with the deal there has been ongoing oversight of the process by the Johannesburg Risk and Advisory Services (JRAS) as well as the Rea Vaya's probity advisors, Grant Thornton.

For more information please contact:
Lisa Seftel
Executive Director: Transport
City of Joburg
011 870 4511
OR
Nthatise Modingoane
City Communications
082 467 9228