GP Motorsport contracts terminated

Monday, March 8, 2010

Johannesburg - The Gauteng government has explained that it had cancelled GP Motorsport contracts so that provincial resources could be channeled to other more immediate priorities.

The Gauteng provincial government has cancelled the GP Motorsport contracts which will result in an estimated saving of R928 million.

"I wish to reiterate that the decision taken to terminate Motorsport contracts are aimed at ensuring that we channel all the available resources to our immediate priorities adopted by the Gauteng provincial government," said Gauteng MEC for Economic Development, Firoz Cachalia on Monday.

The savings include allocations which were originally made for Formula 1 deposits and the money has now been re-allocated to newly identified priorities.

The total Motorsport 3-year grant allocation was R167 million for 2009/10, R334 million for 2010/11 and R426 million for R2011/12.
This amounts to just over R928 million for the MTEF, including Formula 1 rights and license fees.

Cachalia said an ongoing commitment to Formula 1 at this time would have required an investment of R7 billion over a ten-year period to acquire hosting rights.

This excludes infrastructure costs estimated at R2.4 billion and event management costs and such costs could not be absorbed at provincial level without having adverse impact on other priorities such as education and healthcare.

The terminated contracts include A1 GP, Formula 1, and BMW Sauber. Potential liabilities under the BMW Sauber contract were approximately R105 million on a three-year period.

However, with regard to the SBK and Superstars contracts, the department was legally advised that the agreements were unenforceable under South African law, but potentially enforceable in a foreign jurisdiction which would then expose the provincial government to costly litigation and reputation risk.

These two contracts with FGSport require the provincial government to pay R115 million by the end of April 2010 - an obligation which will be fulfilled, said Cachalia.

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. It means that our obligations for 2011 onwards are dispensed with and that on these two contracts we will have achieved a further saving of R281 million over a three-year period," he said.