A Perspective On Transit Focussed Developments Construction Essay

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Most railway Companies across the world have some sort of property rights in a form of Land ownership along railway lines. Some of these railway corporations have developed strategies that seek to maximise and exploit economic benefits out of available land along rail lines and also to promote active living. These rail companies have realised an important aspect that rail being a mass mover of commuters allow rail companies to benefit from activities which are not core to rail operations, and in this instance being property development along and around railway vicinities. It is for this reason that railway stations and its surroundings (Bertolini. 1995) is the object of an increasing number of radical redevelopment projects in order to capture the intensification of flows and increased accumulation of activities. Whilst some projects have succeeded others have failed, Bertolini (1995: 331) attributes this failure to development fragmentation.

A more general theme of railway property development is to be adopted towards achieving envisaged results. In South Africa, for decades and until the present day, station redevelopment efforts have struggled due to a divided environment. Divided communities have developed into those that are in the right side of the track and those on the other side of the track. Burying the tracks or building over them has been debated for many years, and still there is no one right answer to resolve and overcome this barrier. One of the greatest challenges (Donaldson, 2005: 344) to overcome in the post-apartheid city is the inequality and spatial inefficiencies caused by apartheid planning. Although this challenge has still not being answered, the physical (Bertolini 1995) divide accounts today for only part of the complex identity of station areas, as new social and spatial patterns have emerged around stations calling for new interpretation of the phenomenon. The traditional planning for railway lines and stations resulted in railways being located far from community establishments to prevent disturbance caused by noise and train smoke. This traditional planning concept (Priemus & Zonneveld; 2003:166-167) has seriously compromised the interconnectivity and interoperationality of various traffic networks.

Donaldson (2005: 356) purports that over four decades black South African's were systematically marginalised in terms of accommodation, leisure, employment and transport. The apartheid structural segregation resulted in low density sprawl and created long distance work travel patterns and this in effect has given rise to a car-based travel system.

Due to an increasing car based travel system in South African and long distance travel to work due to trains stations that are built at the periphery of inhabited areas it has resulted into a decline on commuter patronage. This phenomenon is exacerbated because the modern commuter has demanding needs such as modal flexibility, transport integration, train station convenience, reduced distance to the station area etc. The new emerging market does not want to travel a long distance to catch a train or rather they resort to using own cars. This group want a secured parking at station areas where they could leave their cars in the morning for work and fetch them in the evening from work, this is a sophisticated group that rely on punctual modes of transport in order to arrive early at the office without missing any of their appointments. This complex group prefers a station were they can relax appropriate facilities for meetings or conferencing and facilities appropriate to live. This group wants convenience out of a station precinct. According to Donaldson and Marais (2002: 28) it is meaningful to postulate a corridor city development especially in a fragmented urban spatial setting such as the apartheid city.

Due to poorly integrated rail system and in order to retain customer patronage, many countries have innovated concepts such as the development of park and ride facilities and transfer mechanisms which according to Priemus & Zonneveld (2003:167) creates traffic technical difficulties and institutional problems such as the coordination of services and the absence of universal fare structure (smart card). Within a South African context, such an approach continues to marginalize the poor who cannot afford private transportation and who live in areas far from rail stations. According to Donaldson (2001: 344) only 11% of Black people in South Africa use private cars to commute to and from work.

The National Planning Commission has found that in the cities, most poor South African's live at townships or places far from economic activities. Government social houses and low cost houses and other developing settlements are being built far away from developed townships because there is no development space within developed communities (Manuel, 2010) and this adds to challenges of providing infrastructure. The National Planning Department also found that urban areas (Manuel, 2010) are failing to coordinate delivery of household infrastructure as part of a broader process of building vibrant and viable human settlements.

According to a white paper (1994) titled "A New Housing Policy and Strategy for South Africa" the government made mention of the below challenge facing social housing:

"…As an integrated process, housing delivery requires coordinated and integrated action by a range of players in the public sector and the non-State (private) sector. Inadequate coordination and integration of efforts between the housing function and functions such as education, health services, transport and local government in the past, lie at the root of the breakdown in the housing process in many areas of the country..."

The 1996 National White paper on Transport sets out amongst others the following strategic policy objectives for land passenger transport which is relevant to commuter rail:

To encourage efficient urban land issues to correct spatial imbalances and reduce travel distances and commuting times to a limit of about 40 km or one hour in each direction.

To improve accessibility and mobility, limiting walking distances to less than about one kilometre in urban areas

To ensure that operations become economically viable with minimum financial support

Following the White paper of 1996, Moving South Africa (MSA) was established in 1998 and formulated an urban transport designed in support commitments of the white paper for transport. MSA's strategy focussed on three categories namely:

Densification of transport corridors

Optimisation of modal economics and the service mix to promote integration of modes which offers the best cost/service trade-offs for a given corridor.

Improving firm level performance, i.e. effective regulation of all modes and the enforcement thereof; and tendering with innovation and reinvestment incentives.

According to Bertolini (1995), it is crucial to understand that a station's nature is that of a node (i.e. the quality of connections) and that of a place (i.e. the value of adjacent land uses), differing concepts that both define a station and its issues. Stations are today nodes of networks, notes at which various forms of transports including taxis, busses, airlines (in a case of Gautrain) and private transport converge. Stations are also places within the city, places within townships and places which have individual characteristics. Some of these places have elegant shops, shopping centres, super markets, hotels, houses etc.

"… Stations identify a 'place', both permanently and temporarily inhabited area of the city, a dense and diverse conglomeration of uses and forms accumulated through time, and that may or may not share in the life of the node. The mixture of housing, small business premises and informal public spaces of the station's neighbourhood are an expression of this local dimension. As a node and central to these analyses is the tension between a space of global connections and a space of local disconnections. In and around railway stations this tension, almost literally, materializes. On one hand, stations offer a (potential) connection to several of the material and immaterial flows that create value in the current 'informational' mode of development. Stations are (or may become) important nodes in both transport and non-transport (e.g. business, consumption) networks. The connections to ever denser, faster and further reaching transportation systems, as well as the development, there of office complexes and shopping centres are materializations of this global dimension of station locations." (Bertolini, 1995)

In addressing above challenges on the white paper of 1996 and Moving South Africa, Priemus and Zonneblom (2003) are of a view that a new generation of infrastructure should create path dependency and create high population densities around rail areas in order to influence urbanisation patterns and economic developments and creating linear cities. According to Tang BS et al (2005: Vol 16 (1)) the intensification of development density of the land around railway stations provides a large amount of floor space to support more residents and higher intensity of urban activities which will in turn improve the ridership of the transit railway and its operational viability. An approach which incorporates all key stakeholders.


The successful integration of rail and property should provide a clear set of rules of the game. A clear delineation and definition of different roles and responsibility of all institutions within PRASA and that of government should be spelled out correctly and understood by all. The role of private sector should also be addressed. An implementation strategy and a formulated policy with a clear vision (Yeung 2004) will not come about naturally unless an appropriate institutional framework for successful development has been adopted. The process of establishing a proper institutional framework would have to identify topical factors of concern to be addressed in order for the mandate and vision to be achieved. Some of the key crucial factors (Chiang 2004) to be agreed upon in order to allow implementations are the following:

1.1.1 Government policy. A supportive government policy with DoT being the custodian should be in place. This policy should cover areas such as, land grant, zoning requirements and design around rail areas, urban growth management and where necessary issues around land expropriation. TFD will also attract other public transport modes such as taxis and busses, a policy regulating other modes of transport should also be in place and perhaps with regulated parking tariffs.

Lack of development is regularly blamed to government for lack of clear policy or lack of implementation. Government supports on many instances is not evident due to (Alasah 2009) corruption, lack of law enforcement and lack of absence of local people into decisions. Government policies and government spending are critical in determining the level of private investment appetite. Private sector investment will be necessary is the Transit Focussed Developments were to be achieved properly and speedily and to address the long challenge of under-investment onto rail (Ndebele, 2011).

The role of government is crucial in many instances, according to(Yeung, 2004) the government should provide exclusive property development rights of station areas for the achievement of Transit Focussed developments within PRASA and also for reasons of railway safety, railway planning and technical reasons (Transport Burreau, 1999).

Clearly defined roles and responsibilities relating to safety and operational aspects of the railway and a proper management of the interface between railway and property development are achieved through a single entity managing both says Yeung (2004). The rail corporation's involvement onto property development will alleviate government's pressure to subsidies rail and put more discipline onto the rail operator to utilise profits gained from property development for the maintenance and development of rail activities.

An alternative approach that requires development rights to be awarded to private developers could (Yeung 2004) negative effect onto land premium bids because private developers could factor inn additional coordination costs.

1.1.2 Stakeholder management. A system that manages both internal stakeholders and external stakeholders should be in place. Looking into the external stakeholder analysis, the following process consisting of five elements (Olander, S. 2006):

Stakeholder identification

Stakeholder needs and concerns

Stakeholder impact analysis

Evaluation of alternative solutions

Level of acceptance

The importance of a stakeholder management process is to eliminate possible conflict and have the input of all concerned members. Looking into the rail scenario in South Africa, the following external stakeholders should be party to the process: Informal traders at station areas and formal traders, taxi operators, bus operators, the community, local municipality etc (Public Participation Process). Below is an external stakeholder analysis model.

Figure 1: External stakeholder analysis in relation to project management and an external stakeholder management process. Olander, S. 2006

1.1.3 Definition of roles. PRASA is a complex institution by itself with a number of role players within it. Metrorail runs trains and manages station properties, Shosholozameyl runs trains, Intersite manages certain property, there are bus operators and PRASA is the mother body. When the roles are not clearly defined, there could be internal issues relating to who reports to whom, this was evidently the case during the research. For the project manager to be fully empowered, a policy will have to be drafted.

1.1.4 Urban Factors. South Africa has an active population and this would necessitates a stakeholder management policy and a team that should be set to address key concerns and expectations from urban design concepts such as dealing with informal traders kiosks. A decision and an involvement process to decide whether such structure or informal trading businesses/services should be included on the new premises. If such issues were not to be addressed, the public may complain that TOD seeks to chase small businesses away from station areas.

1.1.5 Railway Operations: The current situation would have to be improved in order to support property. A much more reliable and safe train service is what most commuters seek, which will justify fare increases. With more people using train stations, commuters would naturally expect a much tighter train frequency and a faster out-of-station transfer.

1.1.6 Property Division and Concession design: A clear agreement allowing Intersite to be the sole property company on behalf of PRASA with the necessary authority and power of attorney should be in place. This could be beneficial in that PRASA as a state owned entity relying on government subsidies may not be qualified to claim taxes (e.g. Value Added Tax) from South African Revenue Services whereas Intersite would be in a much more suitable position for such. Furthermore, a company specialising in property management is best suited to address necessary concession requirements related to property. Some of the factors that will be included on the concession design will be the following:

Site/ Area of development

Development specifications and standards

Size, structure and design of property

Servitudes or Right of way

Period of contract/lease

Facilities management

Financial management

Advertising management and rights

Guarantees, Warranties, Surety & Insurances

Legal structure

Obligations of the concessionaire

Employment relating to Foreign Internationals

Damages for delay by PRASA/Intersite/Government

Damages for delay by the concessionaire

Performance security

Development (Construction) monitoring

Completion certificates

Procedure, payments, restrictions for change of Scope

Concession Fee, Grants, User Fee, Revenue shortfall etc

Escrow account

Force Majeure

Compensation for breach of agreement

Suspension of concessionaire's rights


Defects and liability after Termination

Divestments of rights and Interests

The working of an institutional framework will always depend on the commitment government has to make in order to achieve TOD. TOD as an approach challenges government to give out concessions to interested parties were the government is unable to raise capital investment. The question to answer probably is whether the government of South Africa is ready to develop such partnerships for rail densification, a partnership which already has been developed on some of our national roads. No evidence has been observed to date which suggests that the rail operator will implement PPP approaches towards the achievement of railway densification. Perhaps it could make sense to government to list different stations separately on stock exchange and allow Intersite Investments to be fund managers for rail property developments. Various models of commercialisation could be analysed and accustomed to South African environment for a South African solution including PPP arrangements.

1.2 Commercialisation (Listing, privatisation, BOT, BOO - stakeholders) property rights

Robinson et al (1998) refers to commercialisation as the process of increasing the effectiveness and efficiency of a public sector organisation by operating and managing the organisation like a commercial business. This normally involves increasing the specificity of the organisation and subjecting it to competition. Commercialisation may additionally involve contracting out or out-sourcing, externalisation, corporatisation or privatisation of all parts of the organisational functions.

According to Heggie and Kerali in PricewaterhouseCoopers (2000) commercialisation refers to the adaptation of commercial or private sector practices in the management of public sector assets and finances. Commercialisation can be considered as the process of transforming the operations of a public sector organisation to work in a more business like manner, and become more effective and efficient. Commercialisation doe not necessarily involve 'privatisation'. Commercialisation should be seen as a world wide business phenomenon and Country's such as South Africa should be looking to draw the positive benefits derived from commercialisation and adopt it to the rail sector in this instance.

Several governments and parastatals around the globe in several developed countries have restructured their road administrations by creating autonomous or semi-autonomous road agencies that operate at arms length from government with an aim to achieve operational efficiencies. Although the road or the road agency remains an asset of government, it is being operated by the road operating structure in place.

According to Maluleke (…… …..) the concept of commercialisation can be seen as a financial break-even based on commercial principles for public enterprises and should be seen as a world wide phenomenon with enormous challenges and opportunities that should be embraced by the South African public sector because it offers greater business potential.

South Africa law requires that every state developmental institution should ensure that civil society is represented at the board level of public corporations (Maluleke……….). Public institutions are also required to be transparent in both structure and decision making processes and this suggests that they should act within contrains of public policy as well as accounting to parliament (Republic of South Africa 1994:128). In this sense, the commercialisation of public institutions is purposefully designed to fulfil the requirements as contained in the Reconstruction and Development Program.

Governments throughout the world are commercialising their public operations to cut costs, improve user orientation and increase sector specific revenue (Estache and De Rus, 2000:236). In the South African context, agencies such as National National Roads Agency Ltd or the Passenger Rail Agency of South Africa (PRASA) were established for this purpose. It is therefore theoretically correct and expected for PRASA to be autonomous as supported by Estache (1995:9), where he points out that "Agencies are usually autonomous or responsible to a government minister and are empowered to override local authorities".

Given what Estache has alluded on, perhaps it is time for PRASA as a commercialised Agency to aggressively pursue concepts within the ambit of commercialisation such as railway property development to improve the financial status of PRASA and alleviate or reduce its government dependency which according to Montana (1998) "PRASA's biggest challenge remains an inability to raise additional funds to change the face of the organisation or to address community concerns due to its government dependency structure". There are several models that could be considered in addressing such a challenge.

1.2.1 Build Operate and Transfer (BOT)

Build Operate and Transfer (BOT) is when a property development investor invest into constructing the property, thereafter the landlord issues to the investor a right to operate the property for an agreed amount of time and at the end of the duration the property reverts back to the land owner. The duration of operation is normally calculated taking into consideration several factors such as loan repayment and the duration required to pay off investors and order commitments the project may have assumed. BOT is a world wide approach to infrastructure development projects which addresses a key issue of investment finance. The approach is normally considered when the government has no project finance and thus requires a private investor to invest.

According to Augenblick and Custer (1990) private contractors who are mostly local contractors are tasked with the responsibility to put together heavy machinery, plant and system operators. In most instances, private contractors have an equity ranging between 10% and 30% whilst the project company tasked with the responsibility of building the project, operating the project and servicing the project debt including paying off investors. The project company takes between 70% and 90% of the project. However Augenblick and Custer points out that although the structure of BOT may be easily understood they are complex and recommend a more traditional way of raising finances because such projects normally requires government support as well as government guarantees and in some instances a government standby credit facility for unforseen circumstances.

This model do serve as a possibility in most developing countries however the typical political and economic uncertainties in most developing countries raise great challenges and obstacles to the BOT approach (Augenblick and Custer, 1990) and thus our view that such a model would not suite PRASA given its stringent requirements on government and its broader characteristics. The characteristics of a BOT according to Augenblick and Custer, 1990: 7 are as follows: Host Government. The host government (South African in this instance) is a crucial participant in the process because it is the host government that must want the project for it to resume. The host government will have to authorize the project and in most instances this will require special legislation and specific governmental approvals (Augenblick and Custer, 1990). The South African government or PRASA will have to raise financial guarantees and other forms of guarantees which generally will be spelled out by a company whom the government or PRASA have entered into a concessionary agreement with. PRASA or the government will then be required to provide part of the financing either as debt, equity or standby basis. The model is a challenge when the expectation is that of a complete private sector venture especially in developing countries. Sponsors, Project Company. A group of sponsors or a sponsor with the required financial capability is a necessary requirement for this model. Sponsors usually form a consortium with internationally based company or an ideal engineering company and with suppliers of heavy machinery. The consortium could also pull through the services of a maintenance company or a facilities maintenance company that would provide service throughout the life of a project. The cost in developing a BOT project are expensive because all the necessary feasibility studies and designs are generally developed before even an approval to go ahead has been issued by the government or the agent. It is with this that most BOT tend to have a cost sharing matrix with all members of the consortia. Given financial challenges at this early stage, equity participation by the government or PRASA at this stage could be useful as it would provide ease of raising private finance, however on the other hand it tends to introduce bureaucratic interference with project development and operation that privatisation is meant to avoid. Financial viability. A BOT project should have clear sources of revenue for it to attract investment. The case of mabopane station for instance where PRASA spent over R 160 million towards the construction of a bridge with trading stalls for informal trading, traders were promised to be allocated these stalls once construction is complete. These informal traders were trading inside mabopane station without renting space. Although this project has managed to achieve the removal of traders inside a train station, there is no clear income stream from the project as there are no lease agreements signed, the project commenced without even quantifying possible income from trading stalls, informal traders that used to trade for free will either reject leases or will push for minimum rental to accommodate their business. This project is more of a social and will not attract investment. Although this project was internally funded by PRASA, it should have had a clear income stream perhaps for maintenance and recovering own investment. In this case the source of revenue could range from advertising and leasing.

The traditional way of financing PRASA projects have financial limitations and only few projects will be achieved due to limited resources. The principles of BOT require PRASA to view projects as income generating projects as opposed to capital expense in order to attract investment and be able to provide return on equity. PRASA stations are synonymous with high volumes of people commuting to work and from work. Taking advantage of such numbers could result in good revenue income stream due to advertising or property leasing, including residential developments at could attract a BOT project. Local partners. According to Augenblick and Custer (1990), one other strong element of any BOT project is having a local partner within the consortium. This becomes crucial because a local partner would even help the sponsors to understand the environment even to manage local challenges. Mabopane is another clear example given the fact that project construction completion date has been exceeded by over two years because the locals have several times stopped and closed off the site. As Augenblick and Custer (1990) have stated the presence of a local partner is crucial in dealing with issues from local structures and communities including providing logistical support. In the case of Mabopane there were no local partners, perhaps a lesson on how not to approach future BOT projects. Construction consortium. At the heart of a typical BOT project is a large building job often involving the supply of considerable heavy equipment and because of the need to assure investors and lenders of quality, time and cost of the project, reputable companies with proven reliability are recommended (Augenblick and Custer, 1990). Financing. Generally, BOT projects have a combination of both equity provided by sponsors and debt provided by commercial banks or even bilateral government lenders. It is possible however to have a BOT without equity but with subordinate debt (Augenblick and Custer, 1990) however the senior lenders are likely to want a cushion to support their senior debt. The cushion could either be in a form of subordinated debt or equity or even both depending on what has been agreed upon. It would be ideal in this instance for PRASA to demand some form of long term financial commitment from the sponsors through the operating period to ensure extended returns on equity and to ensure that the project lives through a construction risk as well as operating risk. In this instance the project will also seek to get different or combined guarantees throughout construction phase and operating phase. Security to Lenders. Our view is that it would not be difficult to provide security because the nature of PRASA projects will be real estate and the lenders could have the right of foreclose on the project should there be default.

An escrow account can be agreed upon, where all revenues and reserves will service all debts before distribution of equity shareholding.

For the benefit of the lenders, a trustee can be assigned to manage the benefits thereof.

The lenders would probably insist upon the right to take over the project (Augenblick and Custer, 1990) in the case of financial or technical default prior to bankruptcy stage, this according to Augenblick and Custer would be accomplished by having a project company's equity owners pledge all of the stock for security for the loans.

Lenders may as well insist onto PRASA to provide a standby subordinated loan facility which is almost equivalent to sovereign guarantee of project risk. Transfer to PRASA. A typical BOT will require that the project is transferred back to PRASA at the end of the concession period. Assuming that PRASA will retain land ownership, then only above ground property will be transferred to PRASA including leases and other attachments to the property and other improvements to the land. The transfer however may require a final payment to the consortium by PRASA depending on the financial criteria of the transaction as originally negotiated. All necessary certificates for machinery or the transferred assets should be in place and the property should also be in an acceptable condition.

Figure 1 below is sketch which seeks to provide a summary of the points discussed under section 1.2.3. Although only BOT has been discussed under the section, general requirements of other models such as Build rent and Transfer (BRAT), Build Own and Operate (BOAO), Build Own Operate Subsidise and Transfer (BOOSAT) have similar requirements as presented on the model below and all refer to financial arrangements of a project.

Investment bankers Legal Counsel technical Advisers

Host Government



Raw material Energy Supplier

Concession agreements, Approvals, Gaurantees, Equity, Loans, Standby gaurantees

Equity Investment, Shareholding agreement

Long term supply contracts

Investment bankers/ Legal counsel

Insurance policy

Passive Equity Investors

Equity Investment



Long term off take contracts

Operating Management Contract

Deed of Trust



Escrow Agreements

Gaurantee Agreement


Fixed price Turnkey Construction Contract

Long Term Debt

Escrow Agents



Export Credit Gaurantee Agency

Construction Consortium Equipment


Figure 2: Build Operate and transfer structure; Augenblick and Custer (1990)

1.3 PPP environment in SA (public vs private land

Stakeholder Management (municipalities, gov departments, private sector - PPP)

1.3 Institutional Arrangements (Environmental issues, transport, services, ergonimics, parks)

3.2 Benefits of Integrated Development Model

3.3 Synergies between Transport & Real Estate

3.4 Value Capture as Financing Mechanism

3.5 Joint Development

3.6 Sustainable Urban Form & Living

3.8 Government Services at Stations

3.9 Planning & Design Features: Selected Stations

3.10 External Benefits

Changed Dynamics

DoT/Structure of PRASA

Imperatives of railway villages

1.2 What is Transit Focussed Development (TFD)

The Hong Kong experience, through MTRC represents a unique approach in handling the relationship between rail and property development model which has effectively contributed to the urban development of Hong Kong. The Hong Kong Model has three principal elements namely policy, process and project. TFD is more than the combination of property and rail nor the same as the integration of rail and property developments projects above stations, these are only outcomes of a successful model (Tang et al, 2004).

According to Zhang, 2007 Transit Focussed developments is a strategy to integrate transit and land use by focusing development around a transit station. Our view is that a more general theme rather than a project management approach should be agreed upon and adopted in order to master the unique complexities of station redevelopment.

A transit Focussed Development is a developmental approach that considers all agents around a station node. Agents of change are found both on node and place dimension of a railway station and its surroundings. There are two aspects (Bertolini 1995) important in determining the redevelopment prospects of these spaces and they are:

The strengthening of integration systems as response to the mobility gridlock.

The emerging of the multi-centred urban region as the mature form of industrialised metropolises (rail cities).

Bertolini further purports that the "redevelopment of a railway node may be defined as the enhancement and combination of a transportation interchange and an activity pole."

1.3 The Structure of PRASA

Passenger Rail Agency of South Africa (PRASA) is a state owned entity (SOE) which is mandated by the South African government to report to the National Department of Transport (NDoT) headed by Minister Sbu Ndebele. PRASA is divided into a number of service providers namely:

Intersite Investments




City to City

Intersite Investments is a division of Passanger Rail Agency of South Africa (PRASA) which is expected to drive property related investment initiatives on behalf of PRASA and this investment should be limited within the property ambit of PRASA portfolio and along rail line vicinity. Whilst PRASA and all of its subsidiaries largely depend on government subsidies, the future success of Intersite Investments is expected to change this fate.

Metrorail is a subsidiary of PRASA which is tasked with the responsibility of running trains within urban areas. Metrorail operates in major cities across South Africa. Some of the cities where Metrorail operations are found are Cape Town, Durban, Pietermaritzburg, East London, Johannesburg and Pretoria. Metrorail provides social transport service as customers' fares are being subsidised by government, and fare increase is also subject to approval by government. Amongst other challenges facing rail companies including Metrorail are inefficiencies relating to train operations, poor infrastructure maintenance, decaying below rail infrastructure, outdated rail technology, obsolete above rail infrastructure, loss of lives due to train accidents etc. South Africa's rail infrastructure has not evolved in decades.

However PRASA's biggest challenge remains an inability to raise additional funds from government to change the face of Metrorail or to address operational inefficiencies due to its government dependency structure and lack of funding. PRASA is faced with a challenge of increasing commuter patronage and reducing its government dependency on subsidies. For over 5 years, no approval by government has been granted to Metrorail to increase commuter fares (Montana, 2010). Simply put, Metrorail services and operations are unsustainable and un-economical. Whilst PRASA and the Department of Transport are committed to the policy goal of affordable transport for all, failure to increase or adjust fares whilst operational costs are on the rise, is irresponsible and will simply lead to the asset further being run down (Montana, 2010).

On Shosholozameyl financial challenges Montana had this to say "The Due-Diligence Report on Shosholoza Meyl showed that PRASA would require about R1.4 billion per annum to run the business. However, only R450million per annum is provided to PRASA to run this service. The truth is that this business is grossly under-funded, and if not properly addressed, it will become a burden on PRASA's financial position." (Montana, 2010)

Shosholozameyl is also a train operation company under PRASA that operates long distance trains and border to border trains. The structure of Shosholozameyl is similar to that of Metrorail with regard to government dependency, yet more efficient than Metrorail because of less adhoc trips and more planned trips. The design of long distance trains and Metrorail trains are different, Shosholozameyl trains are much stronger trains built for comfort and built with bigger engine motors in order to handle long distance destinations. Most of these trains are coal propelled or steam engines. However Shosholozameyl uses the same rail infrastructure or rail tracks as that or Metrorail and Spoornet (Transnet).

Autopax and City to City are bus operating subsidiaries of PRASA. Their bus stations and administration offices are largely found at railway stations under the same buildings managed by Intersite property management, a strategy which seeks to enhance public transport integration of various modes. Autopax services are more expensive than City to City services as they serve different market segments. Autopax destinations are mainly city areas and urban areas whereas City to City also targets rural areas.

The author is a former employee of Intersite Investments, formerly known as Intersite property Management. Intersite Investments is division of PRASA. The author was an employee of Intersite Investments during an area when the company reached a conclusion that the current station design does not accommodate the modern South African commuter needs and expectations.

During August 2008, an Intersite took a number of study tours across several major cities of the world including Hong Kong, Nertherlands, Paris, London, Madrid, Barcelona, Berlin and Frankfort to study the development of railway vicinities and the land use development strategy around railway areas (The author was part of the team). The study presents the results of an exploratory world study tour intendment to explore factors on a comprehensive property, rail and land use development concepts on key areas the group were able to reach. The team was lead by a delegation from Arup International Group.

Arup is an international company of independent consultancy firm of engineers, planners, designers and technical specialists. Their head office if in Netherlands and they have satellite offices across the world. They have been involved with a number of station precinct designs across the world.

The aim of the study tour was to explore and adapt the concept of transit focussed development (TFD) to South Africa's passenger rail services in order to motivate a case for transit villages (TV). The objective of this study and of the tour was to ascertain the impact and benefits of the "integrated rail-property development model. To analyse its strategies and challenges and recommend what is best to Intersite Investments and PRASA. The report should be used as a working paper for Intersite Investments as it is also intended to stimulate further debates towards the development of a strategic document for PRASA and Intersite Investments, the research report in intended to contribute to the work being undertaken by Intersite Investments.

The results of this exploratory study was achieved through a programme of close dialogue interviews with private property developers from various entities, various railway regulators and operators and a number of workshops were conducted in South Africa various interested groups such and property giants such as Old Mutual Property Investment Group (OMPIG), several railway practitioners, government representative such as the National department of Housing (NDoH), National department of Transport (NDoT) and other stakeholders and practitioners within related industries in order to establish the range and breathe of factors that were identified as deal makers or deal breakers onto the concept of railway site regeneration. A number of factors are identified on the research study as it were to unfold.

National Department of Housing (NDoH) was invited with a specific interest of exploring the concept of social housing along train corridors, considering that South Africa is faced with numerous challenges in delivering social houses.

Intersite Investments believes that such challenges could be best addressed through an integrated development planning approach that includes the department of Transport, the department of Housing, private investors and other sectors of government. Because Transit Focussed Developments (TFD) will not only address PRASA's challenges but also alleviate spatial challenges in South Africa which continues to marginalise many poor South Africans (Manuel, 2010).

Given the above, it seems there is no easy solution to address spatial challenges unless there is a coherent planning framework and financial resources. Without exploiting PRASA's excess land, it seems that spatial challenges will continue to remain a challenge because land costs in the cities are expensive. Furthermore, remote communities suffer the pain of increased transportation costs due to distance from cities and low population densities, they do not benefit from subsidised transportation such as rail because there is no infrastructure on those communities and they are marginalised from participating in the life's of the cities and towns. Eventually the government will have to build schools, clinics, police facilities etc. resulting in increased costing due to infrastructure inadequacy.

Study Objectives

The main objective of the study is to:

Explore Transit Oriented designs from world experiences to inform a working paper for Intersite Investments.

Examine critical success factors and conditions conducive to the achievement of a Transit Focussed development model.

Explore the level of government support required for PRASA to achieve TFD.

Explore the possibility of replicating the Hong Kong model to South Africa.

Explore benefits and impacts generated by the model

Explore the possibility of integrating social housing along rail corridors

Report Structure

Following this introduction …. (Incomplete section)

2.5 Scope of Study and research question

The Study is focussed on the following four aspects namely:

Urban planning

Urban planning principles are inherent to the case study. We have already defined a station as both a node and a unique place. Principles of urban planning will examine key interrelationships between land use strategies and PRASA across various station areas. Our question in this aspect becomes 'what role can planning play within this complex rail environment with multiple stakeholders?" To be more precisely, the question above could be broken down into three:

How could/does rail transit system influences urban land development

How could the land use characteristics benefit ridership of Metrorail

How are synergies created through the integration of property and rail in terms of social and economic benefits?

The study findings on this aspect will help identify who are key role players and stakeholders in the process. Intersite/PRASA will have a precise master plan for each station environment. The outcome of this aspect will also be informed by corridor analysis information as well as a thinking pattern or a structural analysis of each station environment will emerge. It will identify key impacts of urban planning from the case study.

Institutional Analysis

Implications of urban planning systems remains varied in different cities. There are many unique factors contributing to a varied outcome across different cities and different stations, such as contextual factors, the agency problem and interest, bureaucracy and formal rules of the game, un-written rules and informal practices influencing human and organisational behaviour. This part of the study seeks to emphasize the importance of property rights, government regulatory systems and policies in creating common transaction values. The study looks into the prevailing institutional arrangements between PRASA and Intersite, amongst other aspects with regard to land leasing, joint development with private developers, co-operative planning with government sectors and other relevant processes.

Financial Analysis

Our view is that property and transport are key to financing any transit focussed development. At the time of the research, the author did not have concrete financial information relating to PRASA rail properties and therefore a high level analysis based on market trends was used. A possible financial transaction structure will be recommended.

Corridor Analysis (Incomplete)

Literature review.

1 Introduction

3.2 New Institutional Economics

"If institutions are the rules of the game, then organisations are the players. They are a group of individuals engaged in a purposive activity. The constrains imposed by the institutional framework (together with other constraints) define the opportunity set and therefore the kind of organisation that will come into existence…" Sjostrand S. 1993, p 36)

Stakeholder Management: "A stakeholder is any group or individual who can

affect, or is affected by, the achievement of an organisation's purpose" (Freeman

1984). Stakeholders can be divided into internal and external ones (Gibson

2000), external stakeholders being those affected by the project in a significant

way, but not directly involved in execution of the project (such as neighbours, the

community, the general public, as well as trade and industry)

MTRC Property Development Process

2.8 A special, if not unique, feature of the firm is that it is "operating on commercial

principles and financing on its own terms"4 . To make this a reality, the company has

to rely heavily on the property-related sources of revenue. In other words, property

development is used to subsidize construction and development of the railway.

2.9 According to MTRC (2000), the typical development process normally involves the

MTRC to plan the alignment of the railway line with the government and assess the

construction costs. The company will then discuss with the government the related

property development opportunities that enhance the rate of return on the overall

investment. The project agreement between the MTRC and the government for the

construction of the railway line typically contains the undertakings from the

government to grant land for property development at identified sites along the 8

alignment. The company will apply for and obtain all the necessary statutory planning

approvals for the developments and negotiate the terms of the land grants with the


2.10 Private developers are solicited by the MTRC as the partners in implementing the

projects. The development packages are offered to the developers through public

tenders. Tender packages normally contain a design scheme prepared by the company

to assist developers to respond to the tender and, if awarded, to implement the

development5. Successful private developers are responsible for the detailed design of

an awarded development package in accordance with the specifications of the

development agreement with the MTRC. The MTRC will carry out the civil works

and enforced the technical control standards and requirements for interfacing between

its railway premises and the property development 6 . The property developer is

responsible for all development costs, including the land premiums, construction costs,

finance costs, professional fees, marketing costs, and expenses related to the selling

and leasing of the completed properties.

2.11 The MTRC derives economic benefit from property developments through profit

sharing with the developers in agreed proportions of any cash profits from the sale or

lease of the properties, the sharing of assets in kind, or through up-front payments

from developers. A 'no cash, no risk' approach has been adopted in its joint venture

partnership with the developers (Cheng, 1988). The MTRC will not allow the

property interests to be used as collateral by the developers to seek finance. Equally,

the MTRC will not be liable under the joint venture agreement to any losses arising

from the development. The developers have to take up all the losses.

Methodology (WIP)

We have used an inclusive methodology for the case study, engaging both the private sector and the public sector practitioners and institutions. Private and public sector property developers were included, ranging from those who specialise within commercial properties and those that specialise on residential developments as well as low income housing and Reconstruction and Development Project (RDP) houses. Professional consultants and urban planners were included as well as Arup International. Key members of PRASA and that of department of transport were included. Various stakeholders that have interest in the development of railway vicinities such as informal traders organisations were party to engagements.

A conference with property developers was arranged at Sandton City during April 2009 for a Question and Answer session. Senior company executives were party to this conference and the following companies were present:

Old Mutual Property Investment group

Rand merchant Bank

Cosmopolitan housing

National Department of Housing



Intersite Investments




Environmental specialists


Town planners

Land surveyors


The Agenda was set by Intersite together with Arup (Annexure 1). The conference was structured more as a workshop with eight discussion groups. The groups were divided into eight members per group, discussing issues as provided on the agenda. Two members of a group were required to make a 15 minute presentation after a 60 minute group discussion. All reports were captured on a tape recorder and their working charts submitted to the administrator. Presentations were done without any interruption permitted, then the audience were allowed an opportunity to raise questions to all group members and the group will be expected to respond. The facilitator at times would prompt topics for discussion emanating from a presentation. Key issues were followed up with lines of questioning by the facilitator that probed deeper within the various themes. The structure of all presentations was the same.

Two data captures were employed by Intersite and they used two laptops to capture comments, recommendations and concerns, a tape recorder was used to record all proceedings. Delegates were required to introduce themselves in terms of their names, company they present and their role before proceeding with a comment. Flip charts used by the facilitator were collected and filed. The notes of the presentations were collated into a standard structure and themes were then identified according to their explanatory value.

Building up to a conference, interviews with key members of various institutions were done by the researcher. Face to face interviews were conducted depending of availability of executives. With other executives, telephonic interviews were conducted and email interviews were also conducted. In all cases, the interviewee were allowed to set up an agenda to allow for an open discussion within the subject matter and most interviewees would elaborate on the issues for a while without any interruption by the interviewer. This in many instances allowed interviewees to highlight critical issues of concern.

Corridor Analysis


The research looks at various infrastructure rail development experiences around the world with a particular interest on Hong Kong as a means of introduction for PRASA Transit Orientated Development (TOD). Hong Kong has achieved the integration of railway and urban planning through the Kowloon - Cantoon Railway Corporation (KCRC) which also has a property division similar to that of Intersite within the PRASA scenario. In 2007, KCRC was merged into Mass Transport Railway (MTR) and MTR became the most profitable rail business in the world, this was done under a service concession agreement. The rapid transit system of MTR operates a 211.6 km of rail line and carries 2.3 million passengers on a daily basis from a Hong Kong population of 6.8 million.

A wholly new approach to land use and planning is required, impacting both on the professions and the communities. Even today, South Africans tend to view land as an infinite and cheap resource, whereas the opposite is generally true. The country's extremely wasteful approach to land will have to change, allowing for higher densities and innovation in its use. A different approach to land use not only promises the possibility of social cohesion, but can also have a dramatic and beneficial impact on costs and the efficiency of other resource utilisation such as energy and water.

The inability and unwillingness to release sufficient suitable land for housing continues to be a constraint to timeous housing delivery:

Lack of coherent policy on land: no clear outline of responsibilities for the identification, assembly, planning and release of land for low-income housing exists, and inconsistent positions exist between different government departments and tiers of government;

land identification: previous racial zoning practises, reluctance of certain authorities to accept responsibility for low-income housing, resistance of many existing communities and various legislative constraints have impeded the identification of sufficient, suitable land for low-income housing;

constraints to land assembly: due to legislative controls and the fact that land was previously assembled according to ability to pay rather than need, insufficient land has been assembled for low-income housing;

land planning: present planning legislation and approaches are burdensome, inappropriate in the South African context and resource-intensive;

land invasions: increases in informal land invasions hamper efforts to timeously release adequate, suitable land for human settlement in a planned manner, and may result in certain people attempting to jump the housing / subsidy queue; and

land title: many different tenure arrangements (many of which are not officially recognised) complicates the registration of secure tenure. Furthermore, notwithstanding the sophistication of South Africa's land registration system, most citizens are forced to acquire accommodation outside this formal system.

Housing is defined as a variety of processes through which habitable, stable and sustainable public and private residential environments are created for viable households and communities. This recognises that the environment within which a house is situated is as important as the house itself in satisfying the needs and requirements of the occupants.

Government strives for the establishment of viable, socially and economically integrated communities, situated in areas allowing convenient access to economic opportunities as well as health, educational and social amenities, within which all South Africa' s people will have access on a progressive basis, to

Land held by public authorities represent a significant national asset and therefore its disposal and/or application should be un- dertaken within a coherent policy approach. It is believed to be essential that the potential use of appropriately located and suitable land for affordable housing should be considered for such use on an equal basis with other competing uses.

It is therefore envisaged that suitable mechanisms through which such consideration can be achieved will be pursued in conjunction with the relevant national and provincial/local authorities.

As an integrated process, housing delivery requires coordinated and integrated action by a range of players in the public sector and the non-State (private) sector. Inadequate coordination and integration of efforts between the housing function and functions such as education, health services, transport and local government in the past, lie at the root of the breakdown in the housing process in many areas of the country.

Mechanisms at provincial and local government level which will ensure coordinated planning and budgeting on a multi year basis between all relevant government functions and the non-State (private) sector are to be instituted. These mechanisms must, eventually, result in the necessary coordination and integration of planning and budgeting at the national level.

Housing, as the sector most adversely affected by the absence of such coordination and integration is envisaged to take the lead in this process. This approach will require the most dedicated and structured approach to such inter-sectoral coordination, and is likely to provide one of the most significant contributions to the attempts of Government to redevelop our society.

Hong Kong Model

instance would naturally be driven by Intersite or a special purpose entity nominated by PRASA.

PRASA's stations are mainly designed as transit centres as opposed to centres of meetings, shopping, leisure, destination places etc. PRASA stations are places which commuters pass through to catch a train or upon disembarking from a train or a cross over from one area to the other.

Mechanisms at provincial and local government level which will ensure coordinated planning and budgeting on a multi year basis between all relevant government functions and the non-State (private) sector are to be instituted. These mechanisms must, eventually, result in the necessary coordination and integration of planning and budgeting at the national level..."

Our view is that stations should be designed as a destination place, a place which will hold people longer within the station. Stations should be designed as places of meeting places, designed as places where young people or young adults could play; they should be designed as places for relaxation, for shopping, for entertainment or places where people could obtain social or general services.

Commuters are said to prefer other modes of transportation except rail given operational inefficiencies and spars location.

The study seeks to identify and analyse key integrating factors to be addressed in order to unlock the implementation of this strategy which would increase rail customer patronage and ridership.

In the South African context, we have a specific challenge with regard to the movement of workers between Tshwane and KwaNdebele. Workers travel for 120 to 180 kilometre single journey trips at an average cost of R7 500 per passenger per month. This is costing R350 million per year in state subsidies. This has increased by 100% over the past 10 years. This is clearly not sustainable.

Hong Kong has aggressively pursued transit value capture to finance railway infrastructure through its “Rail + Property†development program, or R+P. More than half of all revenues received by the MTR Corporation, the owner-operator of Hong Kong’s largest railway network, come from property development. A wide variety of R+P projects presently exist in Hong Kong. Most focus on housing development though all have some degree of commercial development. Recent generation R+P projects have placed a stronger premium on urban design and quality of pedestrian environments. This has generally paid off in the form of ridership gains and higher real-estate prices. Based on ridership modeling, an R+P station with a transit-oriented design averages around 35,000 additional weekday passengers. The biggest ridership bonus comes from transit-oriented development tied to large-scale residential R+P projects. Housing price premiums in the range of 5% to 17% were found for units built as part of R+P projects. If the R+P projects had a distinctively transit-oriented design, the premiums exceed 30%. With such success, the R+P model is being seriously considered as a means of financing rail infrastructure and advancing transit-oriented development in mainland Chinese cities. MTRC recently won a concession to apply the R+P model to finance Line 4 of Shenzen’s metrorail system. As rapid urbanization continues to paralyze the streets of many Chinese cities with traffic and threatens environmental quality locally and on the global stage, it is imperative that arguably the most sustainable form of urbanism â€" the linkage of land use and public-transport â€" be aggressively pursued. Hong Kong’s R+P model, we believe, is the best template available for achieving sustainable transit finance and sustainable urbanism.

Literature review

Role of Land Use Planning Land use planning is a specific public sector intervention that creates the framework for managing the allocation of land uses among competing development needs. As such it is a basic precondition for facilitating housing supply.

As a key public sector intervention land use planning should serve a range of objectives. The objectives relevant to housing are:

To redress the spatial inequities and distortions that have resulted from planning according to apartheid and segregation policies of the past;

to ensure that housing is developed on well-located land which promotes physical social economic and institutional integration of South African society;

to translate national and regional reconstruction and development policies into appropriate on-the-ground development;

to provide the framework of certainty necessary to mobilise investment into development from both government and non-government sectors; and

to ensure that well-located land is allocated specifically for affordable housing alternatives.

A national policy approach to land development and land use control shoul