Gautrain puts brakes on M&R

Johannesburg - JSE-listed construction group Murray & Roberts interim results to end December-2009 have been impacted by problems with its Gautrain contract and delays in Eskom-related contracts.

Discussing Gautrain, CEO Brian Bruce said: "There's an arbitration and a litigation process, and at the same time we still have to deliver the project."

He explained an agreement was made to change the job specification of the Gautrain - a rapid link rail network in Gauteng - to deliver the job earlier then initially agreed upon so it could have phase one ready in time for the World Cup in June 2010. However, the client (the province) was refusing to pay the money.

So for now Murray & Roberts is funding the construction on the Gautrain itself, which it's preparing to claim back at a later stage.

"It's confusing, because there are political statements being made about the Gautrain and then there are our business statements. But the Gautrain is part of a public private partnership, and the concession company also has to make a decision (about the cost overruns) due to time changes in the contract," said Bruce.

He said there has been no indication of when issues would be resolved, and due process had to be followed. "But no one wants a project that will take up to five or ten years to complete either."

Murray & Roberts said in an earlier statement that because of the Gautrain delays, and other issues out of its control - like Eskom project postponements, the rand strength, reduced industrial and mining activity and costs of financing increased working capital - it had to defer some of its interim revenue for its 2010 financial year.

The statement read: "The directors have considered the potential impact of the above on the performance and prospects of the group and have decided that to increase the level of uncertified revenues will increase the future risk profile of the balance sheet. It has therefore been decided to defer some revenue entitlement in the period under review."

Murray & Roberts still had no indication Eskom's project plans. On Wednesday, the National Energy Regulator of SA approved a 24.8% tariff hike effective April 2010 to help Eskom fund its infrastructure plans. However, the tariff hike approved was much lower than the 34% hike requested by the state-owned power utility.

"I don't know what the consequences are now that Eskom is getting 25% rather than 35%, and we still have to wait for a response from Eskom," said Bruce.

"It'll probably have to get more funding from the private sector, but there's a whole lot of new dynamics that need to be looked at. Independent Power Producers (IPP's) would probably be looked at, and they'll probably look for a different tariff regime," he said.

The company saw a drop in revenue for the six months to end-December 2009 from R17.6bn in the previous corresponding period to R16bn, following the deferment of revenue recognition in the early stages of the Medupi Boiler House Project for Eskom and on the Gautrain Project.

Diluted headline earnings per share were 34% lower at 200c, while earnings after taxation plummeted to R658m from R1.116bn. An interim dividend of 52c per share was declared, which was lower than the 85c declared in its 2008 interims.

- Fin24.com