Media statement by Gauteng MEC for Economic Development, Firoz Cachalia, on the update on Gauteng motorsport contracts, March 8 2010
On 7 August 2009, I announced in the legislature that we will no longer proceed to acquire the rights to host Formula 1. At the time this did not affect other motorsport contracts, namely: A1 GP, SBK World Superbike Championship and Superstars.
On 12 August 2009, I called a media briefing and issued a statement on the entire Gauteng Motorsport programme. During this briefing, I explained that a process of re-prioritising the budgets and programmes of the Gauteng Department of Economic Development and its various agencies was being undertaken in accordance with the new electoral mandate and the immediate priorities of the ruling party. This process was also a response to the adverse impact that the recession has had on government finances.
Today I would like to announce the outcome of the review undertaken by Blue IQ of the entire Motorsport programme, and certain related developments.
This review process began with an assessment of the legal issues involved to determine the rights and obligations of the various parties involved including those of the provincial government. Negotiations were then undertaken to achieve the best outcome possible in the circumstances. Mr Selwyn Nathan acted as an interlocutor and played an important role in securing a favourable outcome.
Where it was clear that there was a legal basis to terminate, we made this clear in our discussions with our partners. Where there was uncertainty, we sought a settlement in order to mitigate risk and to secure the best possible terms. It was important in this process to preserve relationships with our partners, protect business reputations and preserve the reputation of the provincial government as a reliable party that acts in good faith and could be relied upon to fulfil its obligations.
This was a considered and protracted process which I believe has secured the best possible outcomes in the circumstances. A multi-year program that the newly elected government considered was not in accordance with its priorities has been settled amicably without potentially resorting to costly litigation and in a way which preserves valued relationships. This leaves the way open for a future motorsport programme in South Africa and in particular for a private sector player
Formula 1
An ongoing commitment to Formula 1 at this time would have required an investment of R7 billion over a 10 year period to acquire hosting rights. This excludes infrastructure costs estimated at R2,4 billion and event management costs. Such costs could not be absorbed at provincial level without having an adverse impact on other priorities such as education and healthcare. Furthermore, to persist with this program in the face of the impact of the recession on revenue would have placed a permanent strain on the provincial fiscus.
A1 GP
This was a multi-year contract continuing through to 2011. This contract has been terminated amicably. We will save approximately R125 million in total by not continuing with these events, taking into account the savings on licensing fees, hosting costs and event management costs.
BMW Sauber
This contract, which was entered into by the Gauteng Motorsport Company (GMSC) has also been terminated amicably. Potential liabilities under this contract were approximately R105 million based on a three year period.
SBK and Superstars
These two contracts relate to the SBK World Superbike championship and the Superstars motorsport events. The SBK contract was for a period of five years (2009 to 2013) and the Superstars contract extended over three years (2009 to 2011). The legal advice we received is that these agreements were probably unenforceable under South African law but potentially enforceable in a foreign jurisdiction which would then expose the provincial government to costly litigation and reputational risk.
We have therefore settled these two contracts with FGSport which requires that the provincial government pays an amount of R 115 million by the end of April 2010, an obligation which we will fulfil.
In terms of the settlement agreement, the provincial government will carry out its obligations to host the two events already set down in the 2010 calendar. We will ensure that these events are a success.
This means that our obligations for 2011 onwards are dispensed with and that on these two contracts we will have achieved a further saving of R 281 million over a three year period.
Nightsbridge
Nightsbridge was contracted by Gauteng Department of Economic Development to provide consultancy services in relation to the motorsport events. Mr Selwyn Nathan will continue to provide project management services for the hosting of the two upcoming Superbike and Superstars events as part of the settlement of his contract. He will be paid an amount of R 2,5 million in full and final settlement which includes costs already incurred by him as well as his ongoing obligations.
Gauteng Motorsport Company (GMSC)
The shareholders of GMSC met in December 2009 and resolved to wind up the company by way of a voluntary creditor's liquidation. The necessary steps to give effect to the resolution have been taken and a liquidator is expected to be appointed shortly.
Accordingly, no further funding for GMSC has been requested or provided in the next financial and subsequent years. In the light of the winding up of GMSC, Blue IQ has been requested to manage the Gauteng Department of Economic Development's remaining commitments regarding the motor sport program. A dedicated division of Blue IQ has been established for this purpose.
Mr Stephen Watson, the Chief Executive Officer of GMSC will also continue to assist Blue IQ in the management of the two upcoming events since he has the necessary skills, experience and commitment.
Costs and savings
The total motorsport three years grant allocation was R167 million (2009/10), R334 million (2010/11) and R426 million (2011/12). This amounts to just over R928 million for the MTEF including Formula 1 rights and licence fees.
Therefore, the total estimated savings of this decision on motorsport contracts, taken over the full period of the contracts concerned against the MTEF grant allocations, amounts to R796 million. This includes allocations which were originally made for deposits for Formula 1. This money has now been re-allocated by the provincial Treasury to new priorities which have been identified.
In concluding, I wish to reiterate that the decisions taken on Motorsport are aimed at ensuring that we channel all the available resources to our immediate priorities adopted by Gauteng Provincial Government which flow from our electoral mandate. I believe that the cautious but principled approach that was adopted has resulted in an outcome that serves the public interest.
Statement issued by Department of Economic Development, Gauteng Provincial Government, March 8 2010
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