Briefing by Transnet on the National Infrastructure Plan

Meeting report

Opening Comments
Chairperson Mentor advised that the meeting resulted from an oversight visit to Transnet. The report on the oversight visit had to be adopted at the Committee’s next meeting. After seeing Transnet’s pipelines, the Members decided to request insight into Transnet’s entire National Infrastructure Plan (NIP). She noted that the document on the NIP that was prepared by Transnet for the Members of the Committees was submitted at the meeting and the Members did not have the opportunity to study the document beforehand. This was not desirable and Members deplored what appeared to be a growing trend by Government Departments and parastatals to submit documentation to Parliament at a very late stage.

Chairperson Coleman shared the concerns raised over the late submission of documentation. She proposed that the meeting was proceeded with regardless in the interests of saving the costs already incurred to allow the delegates from Transnet and the Committees to attend the briefing. She warned that any recurrence of the failure to provide Members with the necessary documentation would result in the meeting being cancelled.

Mr S Van Dyk (DA) agreed with the comments made by the Chairpersons and suggested that Parliament investigated the issue of late submission of documentation and this had been a problem for some time.

Mr L Greyling (ID) agreed that the matter needed to be taken up by Parliament.  He said Members needed to receive the documents at least two days before the meeting and the Parliamentary Research Unit also needed adequate time to go through the documents.  The Committees tended to deal with presentations as lectures rather than interrogating the information provided.

Ms G Borman (ANC) remarked that the Members were unable to do justice to substantial presentations in the limited time allowed.  She supported the proposal that the meeting was proceeded with in the light of the costs already incurred in setting up the meeting.

Mr Z Ntuli (ANC) noted that it would be necessary to arrange a subsequent meeting with Transnet in order to allow the Members adequate time to engage with the organisation on the NIP.

Ms N Ngele ANC) agreed that the meeting should continue and warned that the late submission of documents would not be tolerated again.

Chairperson Bhengu asked the representatives from Transnet to explain why the documents were not provided to the Committees in time.

Ms F Hajaig (ANC) remarked that the failure to provide documentation in time was a bad start to the new term. She found it unacceptable that an important institution like the Department of Public Enterprises (DPE) failed in this regard.

Mr M Nhanha (COPE) felt that Parliament was treated with disrespect by the organisations concerned. He stated that the persons responsible for fruitless expenditure should be held accountable and should be required to repay the amounts concerned. The law was clear in this regard. He felt that the Parliamentary Committees needed to take a tougher stance, even if it meant canceling the meeting and sending the representatives from Transnet home.

Chairperson Bhengu agreed with the view expressed by Mr Nhanha.  However, she felt that the meeting had to proceed in view of the costs incurred in preparing for the meeting and because of Parliament’s tight schedule during 2010.

Chairperson Mentor agreed that the Committees should continue with the meeting even though it would be unfair to expect the Members to interrogate the report without adequate preparation. An explanation from Transnet was required.  Transnet would be given the opportunity to present the document and the Members would be allowed adequate time to study the presentation. A subsequent meeting would be scheduled between Transnet and the Committees to discuss the submission.

Mr Chris Wells, Acting Group Chief Executive, Transnet conveyed the organisation’s embarrassment and sincere apologies for the late submission of the documents.  He gave the assurance that Transnet did not usually behave in such a manner and normally submitted documentation well in time. He gave the assurance that the late submission of documents would not recur. He explained that Transnet wanted to include the very latest information in the presentation. However, Transnet recognised that late submissions were unacceptable and assured the Members that the organisation had a deep respect for the Members and the oversight role played by the Committees.

Chairperson Bhengu accepted the apology from Transnet.

Chairperson Coleman suggested that Transnet proceeded with the presentation.

Chairperson Mentor felt that responsibility for the problem needed to be shared by the DPE and expressed the similar incidents would not occur with other parastatals.

Mr Andrew Shaw, Deputy Director-General, DPE extended the apologies and gave the assurance that the matter would be taken up at the executive management level.

Briefing by Transnet
Mr Wells introduced the delegates from Transnet.  He explained that Transnet owned and operated a national freight transport system consisting of port, rail and pipeline facilities. To optimise the benefits, the system had to be operated in a coordinated and integrated manner. The NIP was Transnet’s long-term infrastructure planning framework, which provided the basis for the holistic development of the freight transport system.

Transnet drew up a capital investment plan for the period 2009/10 to 2013/14 to earn an income of R80.5 billion for the organisation.  Capital investment during the 2009/10 financial year amounted to R21.9 billion, of which R10.6 billion was allocated to rail operations.

South Africa (SA) was situated far from its key trading partners and had to overcome many logistical challenges. Maritime transport costs were a significant component of total transport costs. SA was strategically placed to service the Southern African, Asian and South American trade routes. Transnet’s key role was to assist in economic growth by providing appropriate port, rail and pipeline infrastructure and operations in a cost-effective and efficient manner and within acceptable international benchmark standards. In terms of transport, SA was ranked 28^th out of 155 countries and was the highest performer amongst upper-middle income countries. However, SA needed to address a number of strategic challenges concerning freight logistics. The challenges centered on the transport-intensive economy, high domestic logistics costs, high ocean freight rates for container shipping, poor regional connectivity, scarce skills and policy and regulatory uncertainty.

Transnet’s strategic objectives included operating ports in a complementary manner, implementing a high performance rail corridor backbone for SA, implementing integrated service strategies for key customer segments, enhancing the connectivity of the SA freight system with the regional freight system and growing the skills base and supplier base for the broader transport industry.

Mr Vuyo Kahla, Group Executive: Office of the Group Chief Executive, presented the policy and regulation challenges identified by Transnet. The current port, rail and pipeline policy assumed that the State owned and invested in infrastructure and allowed the private sector to operate the facilities. Transnet believed that splitting the organisation into separate state-owned enterprises would benefit the economy. Current port and pipeline regulatory mandates encouraged the Regulators to take on policy-making roles that impacted on Transnet’s mandate. Transnet felt that without a strategic State-Owned Enterprise (SOE) role in an appropriate combination with private sector investment, the freight network would depend on project-specific State revenue allocations and short-horizon, non-integrated, costly private investment. The lack of regulatory certainty had a negative impact on revenue and economic regulation in its current form was not conducive to encourage investment in major infrastructure programs.

Ms Moira Moses, Group Executive: Transnet Capital Projects, presented an overview of the NIP. The objective of the NIP was to provide Transnet and its stakeholder community with a framework within which long term planning for port, rail and pipeline facilities could be executed.  The plan provided a basis for engagements with key Government and other stakeholders. The NIP was updated on an annual basis and aligned with Transnet’s rolling five-year plan. The plan took into account rolling trends, such as new commercial hubs, changes in key commodities and freight demand as well as trends in the logistics industry. The general planning principles for the NIP included the provision of capacity ahead of demand, ensuring the sustainability of development plans, integrating the planning of port, rail and pipeline facilities, aligning with the planning of national roads, the electricity supply and other authorities and the provision of reliable, safe and cost-effective freight handling services of a world class standard. Transnet’s strategy for sustainable development and environmental management was currently under development.

Mr Francois Meyer, Planning Director, Rail: Group Planning, presented the integrated demand forecast. One of Transnet’s primary objectives was to create capacity ahead of demand. Freight forecasting was an important tool to understand how demand for transportation capacity would change in the future. In November 2005, Transnet embarked on a process to understand current and future demand for freight and developed the Freight Demand Model (FDM). The FDM formed the basis for the NIP and all long-term planning activities of Transnet. The demand for freight was very concentrated in South Africa and Transnet’s activities were concentrated mainly in four ports and five land corridors.

The NIP included a rail development plan. The railway network was classified into core network and branch lines. The branch line strategy made provision for awarding concessions to private operators. Feasibility studies were conducted to determine the viability of each concession opportunity for private operators. The principles applicable to rail planning included matching capacity to demand, improving operational characteristics, providing strategic and connectivity links and standardisation to simplify operations, improve flexibility and maintenance.

A freight ring was being developed for Gauteng as that province was at the centre of most regional and port connections in SA. The freight ring was expected to facilitate the uninterrupted flow of freight, provide a key link between hubs and terminals and provide dedicated freight routes separated from congested routes. In respect of hubs and terminals, the capacity plans had indicated that the existing terminals would not cope with the long-term demand. The solution was to maximize the footprint of the existing terminals before developing any new super-terminals. This would allow for good access to the existing road infrastructure and would be close to the customers and main corridors.

Chairperson Bhengu interrupted the presentation by Transnet and announced a ten-minute recess.  After the recess, she announced that the Chairpersons had held a brief caucus and had decided not to continue with the rest of the presentation. The decision was taken because there was insufficient time available to complete the presentation as well as allow the Members to ask questions to obtain clarity. The Chairpersons felt that another meeting needed to be arranged with Transnet and the Departments of Transport (DOT) and Trade and Industry (DTI).

Discussion
Mr Ntuli asked for comment on the cost factors of building a new railway as opposed to building an additional rail parallel to an existing line. He wanted to know if Transnet had taken air pollution into account when assessing the utilisation of trains that used coal and electricity.

Mr Meyer replied that the cost of doubling railway lines or building a new line parallel to an existing railway line was significantly less than building a new line from scratch. It was expensive to upgrade an existing line to a new specification and did not necessarily result in a cost-saving.  In most cases, the upgrading of a line was as expensive as building a completely new line.

Mr Meyer confirmed that Transnet took the effects of carbon emissions into account. Railway operations contributed significantly less to pollution than road operations and had a smaller carbon footprint. Rail operations were a more efficient means of transport. At first glance, the use of electricity appeared to be more desirable than the use of diesel but negative impact of generating electricity from coal needed to be taken into account. Eskom would be in a better position to inform the Members of the full effect of the electricity used by Transnet. Most of the electricity provided by Eskom was generated by coal-driven power stations. The latest diesel locomotives were significantly more fuel-efficient and complied with the strictest emission controls required in other developed countries.

Mr P Rabie (DA) commented on the phasing out of railway lines. He noted that many railway lines in rural areas had deteriorated. The line between Bredasdorp and Caledon was utilised infrequently and he asked if Transnet was planning on phasing out the line. He stated that there would be dire consequences for the economy of the whole area if the line was phased out.

Ms Sue Lund, General Manager: Policy and Resources: Transnet, advised that the Bredasdorp-Caledon line would not be closed as it was an active branch line. The line had been identified as one of the first lines that could be suitable for concessionising in 2010 Transnet planned to call for expressions of interest from the private sector to operate the branch line as a concession. Transnet would be communicating with the Provincial Government about the roll-out details of the plan in the near future. Transnet had not yet had the opportunity to prepare a detailed plan to implement the strategy for the branch lines. The strategy was developed in close consultation with the DOT, the DPE and Transnet. The implementation of the strategy would be rolled out with the approval of the Minister.

Mr Ntuli asked what Transnet's relationship was with the DOT, whether the two entities interacted with each other concerning railway matters and whether their planning efforts were co-ordinated.

Mr Vuyo Kahla, Group Executive: Office of the Group Chief Executive, advised that Transnet and the DOT had bilateral arrangements for engaging on a number of matters. A bilateral committee, co-chaired by himself and one of the Deputy Director-Generals of the DOT, held a quarterly meeting to discuss the plans of the two organisations.

Chairperson Coleman stated that integrated planning was very important, especially planning within and between State Owned Enterprises (SOEs). It was important to consider external shareholders and the capacity challenges of the organisation. Other issues arose as a result of the lack of integrated planning in the transport sector. She remarked that Transnet focused a great deal on the return on investments. She was aware that any profit would be reinvested back into Transnet. She asked if Transnet had any other way of ensuring that returns from operations were optimised as opposed to focusing on putting corporate governance systems in place. She asked if Transnet saw the value in integrating planning with other stakeholders in the sector. Long-term planning was important for speeding up economic growth but it was also important to focus on shorter term needs, such as the need for skills. She felt that Transnet was not doing enough to mitigate the challenge of skills shortages in the country. She requested that Transnet informed the Committees of the short-, medium- and long-term plans of the organisation. She wanted to know why a time span of thirty years had been determined for the NIP.

Mr Wells explained that Transnet focused on a five-year capital plan to enable the organisation to 'link in' with the plans and expectations of shareholders and to conform to the Public Finance Management Act. Transnet had tabled a revised five-year capital plan and reviewed the priorities for the following five years. Transnet did not focus on the short-term priorities relating to skills development or procurement policies in this presentation as the purpose of the meeting was understood to look at the NIP in particular. However, Transnet had developed a skills plan that would be presented to a number of Government Departments in the near future. He offered to brief the Committees on the skills plan at any time.

Mr Kahla responded to the question on integrated planning. He advised that the NIP was developed after extensive consultation between Transnet, the DOT, other affected local, provincial and national Government Departments and the public. The NIP was submitted to the Cabinet, which requested that a national dialogue was held on the plan.

Mr Wells explained that the NIP extended over a period of thirty years because the plan was based on five-year 'chunks' of information for a total of thirty years. Transnet needed a long planning cycle to determine if significant projects (for example a new airport site in Durban) would still be needed in the long term and that the substantial capital cost of such projects would be justified. The long-term nature of the NIP did not mean that Transnet was ignoring the short term and medium term needs.

Ms H Line (ANC) asked if Transnet had developed any plans to reduce carbon emissions resulting from the use of coal in rail operations. 

Mr Wells explained that Transnet focused on the use of diesel fuel and not coal.

Chairperson Bhengu urged the representatives from Transnet to speed up the responses to the questions asked by the Members.

Mr Farrow suggested that Transnet provided written responses to Members’ questions.

Ms Hajaig asked what role was played by Transnet in NEPAD programmes to ensure the growth and development of the African continent. She noted that the Coega Programme was nearing completion but was concerned over the withdrawal of companies from the port. She asked what kind of businesses or investments were required to make the port financially viable. Concerning the issue of the lack of infrastructure in rural areas, she remarked that there used to be fairly good branch lines in rural areas but for some reason many of the lines were discontinued before 1994. This resulted in many problems for the people living in rural areas. She asked if Transnet had any plans to reinstate the branch lines in rural areas or to provide new lines that would make traveling for rural people easier and help to ease the pressure on South African roads. She would accept a written response to her questions.

Mr P Van Dalen (DA) felt that the increase in the number of heavy trucks on the roads was as a result of the inefficiency of Transnet. He asked what was being done to encourage people to make use of the services offered by Transnet again. He wanted to see less people making use of road transport and more people using the rail services. He remarked that a number of branch lines that Transnet wanted to sell to private companies no longer existed because the lines had been stolen. Replacing the lines would cost Transnet a significant amount of money. He was concerned that Transnet was not maintaining certain station buildings and many were in a dilapidated state. Eskom was transporting a lot of coal via trucks, which contributed to the damage caused to the roads. He asked if Transnet planned to build railway lines between the coal mines and the power stations concerned.

Mr Van Dyk noted that there were far less funding available compared to the amount actually required to implement the NIP.  Clearly, additional sources of funding needed to be found. It was easier to say what was needed than to come up with a solution to the problem but Transnet needed to elaborate on the details provided of the sources of the funds to implement the plan. He was concerned that there were many railway lines that were under-utilised and wanted to know the reasons. He said that it took almost one week for goods to be transported from Gauteng to Cape Town by rail, whereas the length of time taken by truck was one and a half to two days. He asked if the supply of services offered by Transnet was meeting the conditions of demand. He asked what priority was enjoyed by the agricultural sector and what was being done to assist emerging farmers in the rural areas.

Mr G Koornhof (ANC) noted that Transnet had held consultations with certain Government Departments on the NIP.  He wanted to know what platform would be used by Transnet to inform the public of the plan. He asked if Transnet was going to engage with the National Planning Commission (NPC) in the Presidency to coordinate the NIP with the plans of other entities, for example Eskom. He was unclear on how Transnet's NIP fitted into the bigger national infrastructure plan. He observed that a lot of housing stock situated next to railway lines had been vandalised or completely destroyed. He wanted to know who the housing stock belonged to as there appeared to be a significant number of housing unites that were under-utilised.  He asked if Transnet had any plans to improve the utilisation of housing stock owned by the organisation.

Chairperson Mentor advised that a list of questions that required written responses would be forwarded to Transnet.  She invited the Members to forward additional questions as well.  She remarked that Transnet could not simply develop plans that were based on the commodities that were being manufactured at the moment. The plan submitted did not follow the strategic direction that the country wanted to take. The plan did not include the demands of the international market. She felt that it was crucial that the NIP was aligned with the country’s objectives and strategic direction over the next 30-50 years. The presentation made no mention of the resources invested by the State into the NIP. The resources made available by the State had to ensure that the country’s objectives were achieved.  The issues concerning equity and rural development needed to be addressed.

Mr Farrow commented that the issue of road versus rail transport was under debate. Transnet's presentation concerning roads made him wonder why there had not been closer liaison between Transnet and the DOT on the matter. The road versus rail debate needed to be placed on the agenda and the Committees needed to consider ways to transport more goods by rail instead of by road. There were two Ministers, two ministries and two persons running transport in the country. There was a school of thought that the two agencies needed to be combined and he wondered if many of the problems highlighted by the Members would not be resolved under a singe responsible entity.

Mr M De Freitas (DA) wondered if discussions had been held between the Ministries and Departments concerned over the possibility of amalgamating all the transport entities under one roof, where all transport issues could be dealt with. He said that the country was losing a lot of business because the Durban port (the biggest port in the country) was so inefficient. Many businesses were now using the port in Maputo. He asked Transnet to comment on this matter and to advise the Committee on what was being done to correct the current situation.

Chairperson Bhengu said that it was clear that more time would be needed to discuss the issues raised by the Members. A follow-up meeting with Transnet needed to be arranged. The NIP was a detailed plan but the Members were unable to adequately prepare as the Parliamentary processes had not been followed regarding the timeous submission of documents. Members needed to discuss the report on the NIP with their respective political parties as the view of the political party would be expressed rather than the view of the individual. She said that the report lacked a social and economic development context. The report reflected a different view from that of the DOT in terms of road infrastructure versus rail infrastructure development and how rail infrastructure eased congestion on roads. The presentation omitted this issue. The presentation did not make reference to the reduction of the cost of traveling and of transporting goods as well as the time taken to travel and transport goods. These issues would be addressed at the next meeting between Transnet, the Department and the Committees. The DOT would be provided with an opportunity to present its views as well. The Committees appreciated the effort put into producing the report but a number of issues required further discussion to ensure that there was a common understanding between the Members, Transnet and the other affected Departments. The issue of the NPC also needed to be considered.

The meeting was adjourned.