PRASA hearing, with Minister of Transport

Meeting report

Passenger Rail Agency of South Africa (PRASA) Annual Report 2014/15 interrogation
The committee resumed its interrogation of the Annual Report of the Passenger Rail Agency South Africa (Prasa or the Agency), with the Minister of Transport, Ms Dipuo Peters, in attendance.

Mr E Kekana (ANC) questioned how members of the tender committee were appointed, for how long and if they signed appointment letters on issues like ethical conducts.

Mr Nathi Khena, Acting Chief Executive Officer, Prasa, replied that the members of the tender committee were appointed by the CEO for a 12-month period. They signed appointment letters and they were guided by a policy setting out their responsibility on ethical issues.

Mr Kekana asked if the tender committee members had been trained after their appointment. He noted that on page 56, paragraph 28 of the Annual Report, non-compliance was identified in procurement of R17.9 billion contract for new rolling stock. He asked how that could have happened if, as the Acting CEO had indicated, the committee members were trained and it was clear there had been a transgression of the law.

Mr Khena repeated that they were trained and Prasa had also looked at other advanced type of training.

Ms Zodwa Manese, Non-Executive Director, Prasa, replied that the non-compliance took the form that at when the tenders were closed, the criteria had changed. The new criteria set out that if the bidders did not have experience in the rail sphere, they were disqualified.

The Chairperson said the question was not so much about what happened but why this situation arose if the tender committee had been trained.

Mr Popo Molefe, Chairperson of the Prasa Board, also reiterated that the tender committee had been trained. The Auditor-General (AG) found in the course of the evaluation that the National Empowerment Fund (NEF) which formed part of the adjudication committee, had participated without declaring a conflict of interest

Mr Khena said it was a multi disciplinary committee involving the National Treasury, probity officers, Prasa Members and NEF. He added this whole situation had arisen through an oversight as the members of the tender committee were in fact well informed on adjudication processes and procurement.

Mr Kekana asked, and received confirmation, that the group had been acting on behalf of Prasa.

Mr Kekana asked if Prasa could then provide the attendance register and minutes.

Mr Khena replied that there was no attendance register and minutes submitted.

Mr Molefe added that he had not seen the attendance register and minutes .The matter had been investigated because there were critical irregularities. Measures had been put in place now to prevent a recurrence.

Mr Kekana asked if the Board could confirm that the reason why the attendance register was not provided was because those who sat in the tender committee had a conflict of interest.

Mr Molefe replied he could not speculate, and he did not know the answer to this.

The Chairperson asked if that was an isolated unfortunate incident or there were usually no attendance registers and minutes.

Mr Khena said attendance registers were usually kept, but this particular one was not found.

Mr Kekana said this complicated matters. If there were minutes they should be supplied to SCOPA.

Mr Khena then said that there were minutes of the meeting.

Mr Kekana asked why Prasa had contravened the law and did not notify National Treasury of unsolicited bids to the value of R91 million (as set out on page 57, paragraph 29 of the Annual Report)

Mr Khena replied that it was simply negligence on the part of the Agency as processes were not followed.

The Chairperson asked who exactly did not follow processes

Mr Khena replied that the Chief Procurement Officer and the former CEO were signatories to this matter, and on investigation, it was discovered that this matter was not adjudicated properly..

Mr Kekana asked what happened subsequently

Ms Manase replied that the contract was stopped and the service provider (BARAN) took Prasa to court. Investigations were ongoing and actions were taken against anyone implicated in the matter besides the initial two persons that were implicated. The matter was still in court.

Mr Kekana asked If the Financial Capital Investment Procurement (FCIP) committee was involved in operational matters

Ms Mashila Matlala, Non-Executive Director, Prasa, replied that the FCIP was not involved in operational matters but received the report from management after the adjudication had been made. It assessed the adjudication and did a report for the Board.

Mr Kekana asked if the FCIP negotiated prices, since page 47 of the Annual Report provided that the committee supported the Board in successful negotiation of price reduction.

Ms Matlala replied that the committee did not negotiate prices for new bids but for variation purposes.

The Chairperson asked her to explain what “variation purposes” were.

Ms Matlala replied that it meant changes in the amendment of scope and increment of prices. The committee would check if the motivation for price increase was in line with the amendment of the scope. The motivation to vary came from the management.

Mr Kekana questioned the role of the CFO in the committee

Ms Matlala replied that after the variations were done, the CFO confirmed the availability of the budget and the committee received approval that budget was available.

Mr Kekana asked for clarity on the role of the Board. He noted that Ms Matlala seemed to be serving in all the committees.

Ms Matlala replied that all the committees had a chairperson and the chairpersons formed a governance committee, chaired by the Board Chairperson. Each Non-Executive Director served on the committees, and it was not an anomaly.

Mr V Smith (ANC) said it did not matter who sat on the adjudication panel as the Board was ultimately responsible. He said there were findings from the AG that Prasa had R551.6 million in irregular expenditure, that feasibility studies were not done, quotations were made without a closing date and payment was made without supporting documents.

Mr M Booi (ANC) made the point that this situation was really not what Parliament should expect of the Board.


Mr Molefe replied that having identified the gross irregularities, measures were taken by the Board to ensure that records were kept.

Mr Booi remarked this was a matter that involved a huge amount of money and the Board seemed to be suggesting that SCOPA should not investigate the matter until the systems were improved. He urged that the Board take careful note of what was being presented.

Supply Chain Management
Ms N Louw (EFF) questioned Prasa on another area. She noted that the Chief Procurement Officer had said some officials were trained in supply chain management. She requested details on the type of training, minutes and an attendance register for that training.

Mr Molefe replied that the Board would ask for that report and bring it before SCOPA .

Ms T Chiloane (ANC) asked why management did not take measures to prevent irregular expenditure by following the law. She referred to page 111, item 41 of the Annual Report.

Ms Manase replied that a number of instances of irregular expenditure occurred in that period as there had been a failure to prevent this. Now, there was an internal audit unit in place to verify what was being paid. Irregular expenditures had been reduced.

Ms Chiloane asked who the individuals were who were involved in the awarding of a R3.5 billion contract to Swifambo Rail Leasing, and what disciplinary measures had been taken against them, as this was a case of fraud rather than merely of irregular expenditure

Ms Manase said some employees were dismissed, others were given warnings and some were still being investigated. The AG had said there was no tax clearance certificate on the locomotives and the evaluation criteria were changed. She repeated that the matter was in court and issues of corruption were being investigated.

Ms Chiloane asked if there were any other projects Prasa had with Swifambo. She asked what the chances were that Prasa would win the case in court?

Ms Manase replied that there were no other projects.

Mr Molefe added that the Agency had a strong case, but he could not know the outcome.

Ms Chiloane asked for an explanation on the figure of R7.329 million on consignment which was not documented in terms of Prasa Supply Chain Management (SCM) policy, as set out on page 111 of the AR. She asked what had gone wrong here.

Ms Manase replied that it related to Sasol and Autopax. Although the Board approved the consignment, no evidence was provided to the AG because the minutes were not clear. It was no longer seen as an irregular expenditure as the Board had condoned the error of irregular recording.

Mr Booi said the culture of not having minutes was a consistent one.

Mr Chiloane asked who was responsible for taking minutes, which appeared to have been a particular challenge in Prasa

Mr Khena replied that the Secretary was appointed by the Chief Procurement Officer. From the Board’s perspective, the Company Secretary took minutes.

Ms Chiloane said R6.5 million was used on a contract extension without the approval of a delegating authority. She asked what action was taken against officials who approved such amount of money, and was the money recovered?

Ms Manase replied that there was a disciplinary process and the employee was dismissed. She added that there was value for money achieved, but the correct process for extension of contract was not followed.

Fruitless expenditure
Ms Chiloane asked for explanation on Interest and penalties on late payments of creditors’ accounts, amounting to R11.158 million.

Mr Khena replied that it related to cash flow management. Measures were put in place for the CFO to deal with matters of financial prudence. At that time, the measures were not followed properly.

Mr Molefe added that when the payment was due, Prasa did not have cash to pay. This resulted in a delay in payment, and escalations in the amount to pay.

Ms Chiloane asked the Board to explain a fruitless expenditure of R2.6 million

Ms Manase said it related to a former employee of Prasa who had left and was later reinstated as an Advisory Secretary. Processes were not followed. There was no evidence of value for money from this matter. The contract was terminated and Prasa was in the process of recovering the money.

Ms Chiloane questioned what had happened in respect of spending of R6 million.

Mr Khena replied that an employee was wrongfully dismissed. He took the matter to court and was reinstated. The Court said the CEO who had left must pay the legal costs. Prasa was trying to recover and had obtained advice on how to recover the money.

Ms Chiloane asked if the employee's dismissal was as a result of a vendetta.

Mr Molefe replied that he could not say if there was a vendetta, but Prasa had failed to persuade the Court that the dismissal was done in a regular manner. There was a restructuring and this employee could not be retained in his first position. There was a negotiation to another post, but with the same salary as he had been earning in the old post.

Ms Chiloane asked for the explanation of an operating loss of R28 million, bringing into question the financial sustainability of the subsidiary. This was set out at page 55; Item 11, of the Annual Report.

Mr Khena replied that the challenge was due to the nature of the projects that took too long to materialise. Measures put in place to mitigate did not materialise, resulting in the loss.

Ms Manase added that there were plans and strategies which were put in place to correct the situation. These had now been approved and in the future this should improve the results.

Ms Chiloane asked who was responsible for approval.

Ms Manase replied that it was the former Group CEO.

Gibela contract
Ms Chiloane asked for the explanation of R1.1 billion lost in the contract with Gibela Rail Transport Consortium. This appeared at page 97 of the AR.

Ms Manase replied that it related to a contract that was worth R53 billion when tenders were finalised, but ended as R59 billion because there had been a weakening of the rand by the time of the signature of the contract.

Mr Khena added that when National Treasury approved it, there was a confirmation of the above situation through a Gazette.

Ms Marissa Moore, Chief Director, National Treasury, expanded on this. When the project was conceived, it was estimated to cost R40 billion. The figure then shifted, first to R51 billion and finally to R63 billion as a result of the weakening of the rand. The National Treasury was advised to reduce the amount because it had become unaffordable. The Treasury had noted that, in a particular paragraph, and it was working with the public finance sector and would brief the Minister.

Governance and Financial position
Mr Booi remarked that Prasa was not in a healthy financial position, as it had not been able to generate revenue on its own, and had to depend on the National Treasury. He asked if the public was happy about the services of Prasa

Mr Khena replied that the Agency’s infrastructure and rolling stock was old and tended to fail consistently, the supply of spare parts was a challenge, whilst vandalism and stealing of copper cables were serious issues that were contributing to the challenge. The confidence on commuter rail was not where it should be. The Board was puttingin a turnaround strategy to deal with all the deficiencies in an attempt to allow Prasa to give more satisfactory services to the commuters.

Mr Booi asked the Board to indicate to the Committee the extent to which the Board could be trusted. He pointed out that the Board could be trusted as the Board did not follow its own procedure in receiving corporate gifts.

Mr Molefe replied that the Directors were given corporate gifts and were told that it was a tradition followed by the company. It was not a decision by the Board. The Board members had agreed not accept any gifts in the future in order that they did not compromise their position.

Mr Smith asked if indeed negligence was the reason why the Agency contravened the law and did not notify National Treasury of unsolicited bids to the value of R91 million. He referred to page 57, paragraph 29 of the AR.

Mr Khena replied that it was so.

Mr Smith asked who were the people responsible, as they must be named and shamed.

Mr Khena replied that the Chief Procurement Officer, Mr Josephas Pungula, and the former CEO, Mr Lucky Montana, approved the unsolicited bids.

Mr Smith said the CPO and CEO were functionaries of the Board. The Board was the authority that was ultimately accountable.

Mr Khena replied that the CEO had a delegated authority to approve up to R100 million, and this contract was below the radar of the Board.

Mr Smith asked what legal advice the Board had received concerning the ex employee who did not fulfil his contract to the tune or R2.6 million. SCOPA believed the the Agency must start taking his pension.

Mr Khena replied that this matter involved the former Group CFO. He was paid off the entire contract amount, and then appointed as the financial adviser of the Board.

Mr Manase added that the contract said that the work he was to perform was giving advice to the Strategy Division manager. The manager, however, said that he had not received any advice from him. That was why it was stated that there was no value for money.

Mr Smith said the structure was dangerous and something was clearly wrong which could not be condoned. The ex-employee who deliberately broke the law was probably still alive and in the state's structures. The Board had appeared before SCOPA three times and each time it said investigations were on going. It could not continue like this.

Mr Molefe said the matter was affected also by the former CEO of Prasa. This employee's outstanding salary amounted to R6 million. The court ordered the former CEO to pay the legal costs which the Board had paid, as the CEO was acting on its behalf. Later, however, there was a reversal of the decision by the Board and the Legal Department had been instructed to recover the money.

The Chairperson asked for the current status of this matter.

Mr Khena replied that the Legal Department was instructed to recover the legal costs at the end of November 2015.

The Chairperson remarked that it was now end of February and nothing had been done.

Mr Smith demanded that one of the officials should go out now and make a phone call to the Head of the Legal Department in order to verify the status of the matter. He warned the officials and board members that they should not come unprepared to SCOPA.

The Chairperson replied that he still did not know how things were processed, and how information went out.

Mr Smith questioned the lack of disclosure of the conflict of interest between Batalala Construction Company and a member of the bid evaluation committee, in a contract that was valued about R8.6 million. He asked for details on the nature of the conflict of interest?

Ms Manase replied that the Batalala Construction Company said it had no relationship with the employee of Prasa. Contrary to this declaration, however, each of them shared a common interest.

Mr Smith asked if the construction company had been blacklisted and the contract terminated, as there was a deliberate flouting of the law. He added that audit reports were usually signed on 11 November and before that date, Prasa would have had all the facts and reminders from the AG. The Public Finance Management Act (PFMA) said the Accounting Officer must do everything in its power to look after the resources of the institution, and the sanction for failing to do this was five years imprisonment, or a fine. The law must take its course and the offenders must pay for what they had done wrong.

Mr Khena replied that Prasa intended terminating the contract.

Mr Smith asked how it was possible that there could be an extension of the original contract without having had an approval.

Ms Manase said it was an extension of a contract from R1.1 million to R6.6 million. This happened without proper approval from the former CEO. There were disciplinary measures taken against the manager and he was on suspension. One of the employees had resigned.

Mr Smith said this basically amounted to looting and questioned what must be done to apply the law. He commented that it seemed to be quite unbelievable that nobody could pick up such a large extension in a contract. He demanded to know what the original contract was about and to what extent it had been extended.

Ms Manese replied that the contract related to fencing, and what happened was that the employee had extended it without authority. He had been dismissed. The company went to court to obtain an order and Prasa ended up having to pay the company

The Chairperson asked if the company was still contracted to Prasa, and Mr Khena replied that it was.

The Chairperson then questioned how that could happen. He summarised that the company had sued Prasa on the basis that Prasa had no right to terminate a contract that was entered into without authority. He questioned the audacity of the company and wondered what influences the company was exerting.

Mr Khena replied that the company, SA Fence and Gates, had asked the court for reinstatement of the contract and the court decided in its favour. He noted that this was a decision of the court, and Prasa had no control over what decisions were made by the court.

Mr Smith said Parliament and the Department of Transport must think about this issue. He questioned how a company could sue Prasa on the one hand, yet still have the audacity to continue doing business with it on the other. He noted that the question was how much, at the end of the day, would Prasa be paying for this. The person who authorised the contract had caused enormous loss to the taxpayer and he was apparently not sanctioned for this. He said that SCOPA would find him and hold him accountable.

Mr Khena replied that the contract cost over R50 million, as damages were awarded over and above the initial contract and extension

Ms Louw returned to the earlier points about whether the Board was keeping minutes. She wondered if the Board was purposely not keeping records because this would make it harder to check what the Board was doing or if it was not keeping records because it did not have the skills. She questioned the mandate of the Board.

Mr Molefe replied that its mandate included implementing the directives of the government, managing prudently the resources as allocated to the Board, and accounting to SCOPA and implementing the PFMA

Ms Louw questioned how the Board had not seen nor projected that it would have irregular expenditures of over R500 million. This begged the question whether the Board still deserved to be in place.

Mr Molefe replied that Prasa was responding in a range of ways to the irregularities in the Agency. It was putting in place a new Chief Procurement Officer to ensure better control, and had instituted a criminal investigation into fraudulent behaviour. The reality was that there had been a culture of lawlessness in the institution.

Ms Louw demanded the records of all the disciplinary actions taken in respect of the irregular expenditures

Mr T Brauteseth (DA) asked who was responsible for supervising the person that authorised the expenditure, and asked if there was anybody in the meeting who had served on the last Board for 2014/15. He asked whether any Board member was prepared to resign over this “mess”. He asked which head of department had not been watching the ball.

Mr Booi asked who the Chairperson of the Board was accusing.

Mr Molefe replied that he was not accusing anyone. SCOPA was doing its job. There were instances that showed a culture of hiding information and not keeping records. Directors had indeed done what they should not have done. There was a need for a good Board management that submitted matters correctly to Parliament and was committed to perform.

Mr C Ross (DA) said non-compliance and irregular expenditure was often around 72% across all departments. There were findings in the AG’s report in respect of irregular expenditure. He made the point that since 2010, there had not been an audit committee that appeared to be reflecting on matters.

Ms Manase replied that there had been an audit committee from 2011 till date and it functioned well.

Mr Ross said material financial misstatements were not corrected timeously. He urged the Minister to give special attention to the R59million in this instance, to look carefully into the AG's findings and dissect the particular recommendations. Irregular expenditures needed to be investigated and consequences implemented for them.

Mr Ross then asked the CEO to give guidance on predetermined objectives and the reviews that had been done

Mr Khena replied that quite a number of plans, such as training, technology and modernisation of the infrastructures would be in place and being implemented within the next four to five years, which would have a positive effect on the quality of services and delivery.

Chairperson asked if Prasa had a CFO

Ms Manase replied that Prasa had a CFO, who had requested permission to be excused from the current meeting.

The Minister of Transport, Ms Dipuo Peters said that she had noted the issues raised by the AG on procurement, contract management, non-procedural appointments and dismissals. There was a need to uphold a culture of record keeping in Prasa. She gave a history of various communications with the Board on various issues. The AG had raised serious issues about Swifambo. She believed the modernisation programme was a very important investment, and one that the Department of Transport had to protect. The outcome in Swifambo was a matter for the court to decide. The Ministry was working with SA Qualifications Authority (SAQA) to check whether Prasa had the requisite skills. She agreed that there had been a culture of non-accountability in the Agency, though the Ministry was on track in engaging with it. There were so many investigations in Prasa and there was a need to reconcile them so that there could be one point of reference. All the investigations had to do with procurement and contract management.
The Ministry and Department of Transport were busy with investments in modernisation, communication, marketing, and security of passengers which would improve services. The Ministry definitely did not want Prasa to be seen as a “haven for corruption” and was dealing with the issues.

The Chairperson said the question of finding the balance in the relationship between the Board and management was very important. It was important also that no pendulum situation should occur whereby the problems would be compounded, and Parliament must ensure that the Board and management were working efficiently. The Board and management were so close that their assignments could not be separated. He then asked why the CFO had asked to be excused from this meeting.

Mr Khena replied that the Chief Financial Officer, Ms Hunadi Manyatsa, had been intimidated by a service provider, and was unstable as she had a medical condition that impacted on her work.

Mr Molefe added that he had been informed that Ms Manyatsa had become erratic, was a victim of intimidation at the hands of a service provider, and had a psychological illness. She had stayed away from work, had used up the 36 sick days she got in a leave cycle, and spent seven months working from home. She only returned to work three weeks ago but had not made herself available to travel with this delegation to Parliament, despite Mr Molefe personally insisting she did. 

Mr Ross remarked that there was no adequate answer with regard to pre–determined objectives. The ICT was a concern, and policies and procedures had not been documented. He asked for a report on lack of implementation.

Mr Khena replied that the Board has raised issues about control and how ICT was assisting the organisation.

Mr S Radebe (ANC) said he had intended not to speak, since he was not a Member of this Committee. However he wanted clarity on what committee Mr Molefe was alluding to when he said that it was not SCOPA who troubled the Board.

Mr Molefe said that the Portfolio Committee on Transport had questioned Prasa as to why its board met so frequently, suggesting that it should meet only quarterly. He asked then what the Board should do? The Board had to get through its work. The Directors were not meeting for extra fees but to get management to perform.

Mr Booi demanded that all the details of the investigative reports be brought before SCOPA. He wondered if Mr Khena was misleading SCOPA again, when he had not wanted to give all the details about the Chief Financial Officer and questioned if that person was not a source of the problems. The finances of the Prasa were public money and must be sternly protected.

Ms Chiloane remarked that this was the first time SCOPA had a hearing without the CFO in attendance.

Mr Kekana said SCOPA would continue to monitor Prasa until it was an organisation that could be trusted. The answers provided were not sufficient. He urged the Board to take SCOPA seriously and said that the Committee did not expect senior management not even to be able to produce an attendance register.

The Chairperson then listed four requirements that the Committee wanted the Board to produce:
- a status report giving full details of the irregular expenditure incurred during the financial year under review
- a report on the issues regarding the Chief Financial Officer
- a comprehensive update on all the corruption-related investigations handled by Prasa and crime fighting agencies
- give a detailed list of all disciplinary processes under way.

The Chairperson reiterated, as mentioned by Mr Kekana, that SCOPA was going to be working very closely with Prasa. Today's meeting would mark the beginning of continuous engagement on issues that had caused the abnormality. There was a need to have a sense of national responsibility. SCOPA would not allow “shabby talks” and would implement what was expected of it as a most important Committee of Parliament. It may well come and see where Prasa was operating from.

The meeting was adjourned.