Drakensberg Cable Car

I your point on what you are posting about. You can attack any angle of any arguement if you want to - it easy to argue that people who want the Drakensberg escarpment to themselves are selfish and even elitist, or to argue that places like Vergelegen get practically no visitors each year, so opponents can go there if they prefer. These points are not my viewpoint on the matter, but are lines of attack one may take in challenging what has been said.

The vast majority of arguements in any case will be that of opinion.

Eg:
Will people litter?
Will the environment in the area look ugly afterward?
Will the operator care about the environment in the area?
Etc

Psychologists say that the best predictor of future behavior is past behavior. So we can look at the Chain Ladders and Sani and draw conclusions from there for certain aspects.

For me - I like to look at numbers. Numbers can be analysed, challenged etc. Numbers don't lie. They have presented a business plan that quotes various numbers.

Background

I don't know if you have read my report - www.maloti-drakensberg.co.za/cableway/documents/Newman-Review-of-Final-Draft-Business-Plan-for-Busingatha-Cableway-Dec-2013.pdf

This report was prepared over a very brief period and didn't cover certain aspects that have come to my attention since (e.g. they assumed that the buildings would be tax deductible even though I am yet to find a S13 allowance that applies to cableway buildings - S11(e) doesn't apply to immovable property).

Importantly, it is not a report of my opinion on the matter. I have simply questioned the validity of what they have said in the Business Plan and included some calculations to make my point.

So what qualifies me to write such a report?

My main line of work is analysing businesses and projects from a financial point of view - whether existing, proposed, for a purchase, or even analysing and existing business to improve profitability or efficiency. This kind of thing is what I do - people can challenge whether or not I am any good at hiking, climbing or have descent knowledge of the Drakensberg as much as they want to, but the analysis of businesses is my line of work.

As to whether or not I am biased on the matter - I very rarely hike in the Northern Berg. I have been to Mnweni once and for the most part the cablecar would not make much of a difference to "me as a hiker".

Key issues

300 000 people growing at 8.2% p.a. - requires a 526% increase in visitors to the area in the base year.
R350 and R200 per ticket - one of the most expensive cableways in the world for a family of 4
Low interest IDC loan for 60% of the capital - the project doesn't seem to qualify for an IDC loan.
Rate of return - WACC of 3% ex inflation, that is about 8.5% with inflation. A 5 year Retail Bond (which you can get at the post office) gives you 7.5%, SATRIX top 40 has averaged something like 15% over the last 5 years.

This is just a brief/crude summary of findings - please read the report for full details of the above.

Business model

Any business requires a solid business model to make money. The common ones are:
- Low margins high volumes, e.g. most cash and carry shops
- High quality, high margins, e.g. the manufacturers of Ferrari, Woolworths etc
- Investment through service funding, e.g. insurance companies. A good example is Outsurance's life policies where you get 15 years premiums back if you don't claim for 15 years. Rough numbers - but if you pay R150k over 15 years, it is worth around R450k in 15 years time (accounting for timing of the payments during the period at just over 14%), so actually you paid R300k in insurance premiums.
- Working capital generation, e.g. (I think it's Pick 'n Pay who does this) all sales are cash/card, all suppliers pay 90 days, stock days average something like 35. That means an operating cycle of -55 days (a negative operating cycle is very rare in business). The money raised by this delay of 55 days between the money coming in and going out is then invested at a high rate (I think they have some financial services scheme).

The business plan describes high volume (300 000 people in an area that currently only gets 135 000 visitors) and high margin (as one of the most expensive cableways in the world).

Why its success is questionable

There are numerous other significant concerns I have with the numbers, but it all boils down to this - the business only might possibly work if they achieve:
- 300 000 people in year one
- Growth of 8.2% p.a. sustained for 20 years
- R350 and R200 per ticket
- The maintenance, running and construction costs are within those quoted in the relevant reports

Disclaimer

The above is a briefly written reply to Scag's post - not a report, professional opinion or official release. For my comments given in my capacity as an accountant, please refer to my report dated 31 December 2013 as found on the link above.

Another number to look at is to Google 'Accuweather Cathedral Peak', select monthly view and then count the number of days with good weather. Weather-wise the Berg is rather unpredictable, the cableway will be closed more than be open this time of the year.

It seems that the company that did the economic viability study, arent strangers to questionable projects. They are the ones responsible for the Durban waterfront project (I am not sure if this includes the proposed small craft harbour which will destroy vetches pier, but it does include the development of the point area; which as far as I am aware, has been a flop). They also did some work on King Shaka airport(I recall there was a lot of fuss kicked up about a common migratory pathway for birds which was directly in a landing aircrafts approach. I dont know if it has been a problem though, now that the airport is operational).

They were also responsible the Ushaka marine world, which as mentioned before, is costing tax payers a fair amount.

Scag wrote: It seems that the company that did the economic viability study, arent strangers to questionable projects. They are the ones responsible for the Durban waterfront project (I am not sure if this includes the proposed small craft harbour which will destroy vetches pier, but it does include the development of the point area; which as far as I am aware, has been a flop). They also did some work on King Shaka airport(I recall there was a lot of fuss kicked up about a common migratory pathway for birds which was directly in a landing aircrafts approach. I dont know if it has been a problem though, now that the airport is operational).

They were also responsible the Ushaka marine world, which as mentioned before, is costing tax payers a fair amount.

These are interesting points. Much earlier in this thread on VE, we noted that a cable way in the Berg would just be another dispersed and failed effort to float unrealistic tourist levels in KZN. The problem in KZN has long been that the projects have been too spread out. There is no concentration of effort in any one locality and not enough numbers in any one of them to support the initiatives. Compare this with the success of Cape Town's Waterfront. There we have a concentration of resources and effort. The plans in KZN are just naive. The politicians are either looking for the silver bullet that will cause tourism to explode without the necessary nurturing that it requires over years, or else they want to pocket the cash bound up in failed vanity schemes - probably both in the case of the Berg cable way.

And as for the consultants who write the scoping studies for these projects for the government, it seems clear that they just say what the sponsor wants to hear. So that they can be sure of winning the next project that requires the same.

There is a poll being run on Tourism Update website.

www.tourismupdate.co.za/NewsDetails.aspx?newsId=71217

You have to register which is easy I did so under "Associations" as an industry sector.

The poll only runs for a week so get in there an make your voice heard. It only started this morning and is currently 78% against after 18 votes.

In today's Witness:

Cable car pipe dream

Review of R500 mln project in Berg exposes financial viability concerns

A REVIEW of the business plan for the R500 million cable car in the Drakensberg has raised serious concerns about the financial viability of the project.

Newman Accounting and Tax Services, which did the review for African Conservation Trust and Wilderness Action Group, said the business plan drawn up for the KwaZulu- Natal Department of Economic Affairs and Tourism does not indicate how there will be a 526% increase in visitors to the Drakensberg region, enough to make the proposed cable car sustainable.

The business plan also does not indicate any market research done to indicate that visitors will pay R350 per adult and R200 per child to go on the cable car, given that the prices are more than most of the other cable cars in the world, the review said.

A regular round trip on the Table Mountain cable car costs R215, according to the Table Mountain Aerial Cableway’s website.

Department of Economic Development and Tourism spokeperson Bheko Madlala said yesterday that not all cableways are equal and there is great variability in length, location and purpose.

“Comparable cableways around the world that offer similar increases in altitude or length typically cost approximately double the proposed R350 return fare,” said Madlala.

“The success of the cableway lies primarily with the ticket price and number of tickets sold. The business plan does not adequatelty address these key aspects,” according to the review. In fact, the business plan quotes no market research. The review also said capital costs were likely to be higher than expected because of rand depreciation and a failure to consider the maintenance and design requirements of a difficult operating environment in the Drakensberg, compared with other cable cars. In addition, the business plan did not consider the additional cost of having to take sewage down the cableway, according to the review.

The review also quotes Sabine Lehmann, managing director of Table Mountain Aerial Cableway Company: “I think visitor numbers [ in the Drakensberg] are too small for the project to cover its costs … an attraction such as a boardwalk or treetop walkway could be just as attractive at a fraction of the cost.”

Madlala said they were doing a full consultative process with all stakeholders. A meeting of more than 15 000 people late last year gave the project “a ringing endorsement”, and the project was given the “thumbs up” at a meeting of businessmen in December, said Madlala.

Sigungu Miya, the spokesperson for the traditional leadership of the AmaZizi, said in a statement the DEDT had never formally introduced the proposed Busingatha cableway “to the late Nkosi Miya and they have never come to consult at the AmaZizi tribal office”.

The cable car will traverse the land of the AmaZizi community.

“Contrary to the claims of some people, Inkosi Miya never agreed to have the cableway in our area … We do not want this cableway in our area,” said Miya.

The DEDT said the development approval process is set to start once the public consultations are over. A number of views for or against the project had been received.

“A product of this nature will attract holiday- makers from a wider circle than what the northern Drakensberg attracts at present. As for the issue of the funding model, we are looking at a number of funding models which will be announced once the public consultation is over,” Madlala said.

" As for the issue of the funding model, we are looking at a number of funding models which will be announced once the public consultation is over,” Madlala said."
Just to make sure that no one can comment on the financial part of the proposal again. Someone, somewhere must have therefore found the soft spot in that daft proposal.

The new funding model?
=(proposed visitor numbers x 2) x (proposed ticket prices x 0.5)
or
=(proposed visitor numbers x 0.5) x (proposed ticket prices x 2)

depending on which bit is easier to misrepresent......