SA National Roads Association Ltd, & Passenger Rail Agency Annual Reports 2010/11

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12 October 2011
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

The South African National Roads Agency Limited (SANRAL) presented its Annual Report 2010/11, noting that it was established in April 2008, and had to assume responsibility for the proclaimed national roads in South Africa, including freeways and motorways, toll and non-toll networks. It managed the tolls on toll roads, managed the concessionaries and gave advice to the Minister. In the financial year under review, SANRAL worked hard to maintain its own assets. The contributions that it made to the government outcomes were listed, and these included contributions to safety, education, growth of rural areas, creation of sustainable human settlements and rural settlements. The main strategic priorities were concerned with efficient management of the national road network effectively, achieving safer roads through more consistent maintenance, public education. It had formed several useful cooperative relationships with other entities, within and outside South Africa, and its governance practices were good. It had worked on its procurement policies. It was supporting tertiary institutions to produce engineers. Money relating to toll roads amounted to about R30 billion. Work had been done on best practices. The projects completed in the financial year were outlined, and those to be completed or pursued in 2011/12 were also set out. The Gauteng toll road and the disputes around tolls, as well as the final system to be introduced, were described. An Enforcement Unit had been set up, that would deal not only with toll infringements but other traffic violations as well. It was noted that SANRAL had assisted with the development of small enterprises, awarded about 72% of contracts for maintenance to black enterprises, whilst about 20% was awarded to contractors who were dealing with empowerment, training and support.
Community based projects were largely concerned with safety, and economic opportunities in rural areas and employment of women were also specifically targeted. The
Community Development Programme focused on the provision of much needed transport infrastructure within poor communities. Some of these were described, outlining the amounts spent on training and wages. SANRAL’s challenges included its funding shortage to attend to all upgrades and maintenance of the non-toll network, the need to achieve better cooperation between government departments, provinces and municipalities, and constraints in the delivery of projects. Members were generally complimentary about the presentation, but one Member suggested that SANRAL had enough funding, if it concentrated on national roads, but the requests from provincial government to assist with their responsibilities had placed it in a dilemma. The various options for road construction were discussed. Members questioned the work with municipalities, and noted the suggestions about the need to update the Road Act in order to address the tolling issues. They asked if SANRAL had gender representivity, and noted that it needed to employ more women on projects.

The Passenger Rail Agency of South Africa (PRASA) then presented its Annual Report, noting that the high costs of running the network stemmed from poor geographic planning in the past, although it was recognised that the rail system was key to meeting objectives. PRASA described its successful work during the 2010 FIFA World Cup, and its significant spending, which had included upgrading of many stations and systems. It had managed also to
make investment initiatives in modern signalling and rail rolling stock, and it had unlocked the value of its property assets. It had reviewed its business case, and Siemens had been appointed in the first phase of the signalling upgrade. The value of its assets increased by 10%. It had completed 50 infrastructure projects, had refurbished 356 bus coaches, had achieved its target of 66% black economic empowerment (BEE), and had, for the sixth time in a row, achieved an unqualified audit report, although there were some matters of emphasis raised. Challenges in the financial year included the downturn of more than R1 billion on cash and non-cash items. Passenger trips had declined by 25%, and its fare income had decreased by 39%. Wasteful and fruitless expenditure was noted by the Auditor-General, in the amount of R9.3 million. The Rail Division, its biggest business, had under-performed, and there were serious stock declines and unresolved contractual and pricing issues with RS Contractors. The dispute with Transnet had paralysed the mainline passenger services. Since then, external additional revenue was injected from Autopax, through a Shareholders Loan of R333 million. The Board was implementing a financial turnaround, so that PRASA could deliver on its mandate, and the improvement of operational effectiveness. PRASA had to invest in new capacity to meet passenger demands in the medium and long term. A new property division had been set up to manage the property internally, so that Intersite would now no longer deal with property but would focus on leveraging non-core and non-strategic assets to generate more income. It had also invested in a new rolling stock fleet for Metrorail and Mainline Passenger Services, and was working on proposals for this fleet, which would create 2 000 job opportunities, whilst another 65 000 jobs would be created by a new programme to build trains in South Africa.

Members questioned what was being done outside of Gauteng, Western Cape and KwaZulu Natal, urging that more work be done in Eastern Cape, noted some of the rail projects in the latter province and called for a list of the locations of the ten women-entrepreneurs’ firms. Members noted that it was unfortunate that metrorail could not be offered outside of the major towns, asked about the signalling system, and noted that another presentation would be given on its property.

Meeting report

Appointment of Acting Chairperson and opening remarks
Mr L Suka (ANC) was requested to act as Chairperson, as the current Chairperson had suffered a bereavement and was unable to be present.

The Acting Chairperson summarised the presentations given on the previous day and noted that the Committee would continue to receive the presentations of Annual Reports by entities of the Department of Transport (DOT)

South African National Roads Agency Limited (SANRAL) Annual Report 2010/11
Mr Nazir Alli, Chief Executive Officer, South Africa National Road Agency Ltd, asked that condolences be conveyed to the Chairperson on behalf of his entity (SANRAL). He noted that SANRAL was established in April 2008 by Act of Parliament, No 7 of 1998 and was responsible for proclaimed national roads, toll and non-toll networks. SANRAL was also responsible for maintaining, upgrading, operating, rehabilitating and funding national roads, which were highways and freeways only. In addition it must manage the levy tolls on toll roads, manage concessionaries, give advice to the Minister on road-related matters and create public value.

Mr Alli informed the Committee that SANRAL had worked, in this 2010/11 financial year, to manage its own assets, which was not the case before. He listed the twelve government outcomes, and noted that SANRAL assisted towards improving the quality of basic education and ensuring a long and health life for South Africans, by making sure that they were safe on the national roads. SANRAL also contributed to creating decent employment through inclusive economic growth, producing a skilled and capable workforce to support an inclusive growth path, an efficient, competitive and responsive economic infrastructure network and ensuring that rural communities were assisted to become vibrant, equitable and sustainable. SANRAL also assisted in the creation of sustainable human settlements and improved quality of household life. He noted that SANRAL further contributed to efficiencies in the public service and local government.

One of the Department of Transport (DOT) main outcomes was to have an effective and integrated infrastructure network that served as a catalyst for social and economic development. It must be safe and secure, contribute to improved rural access, infrastructure and mobility. The Department was also aiming to improve public transport systems, increase its contribution to job creation and increase the contribution of this Department to environmental protection.

SANRAL had eight strategic objectives in the 2010/11 financial year. He highlighted the objectives to manage the national road network effectively, including non-toll roads, toll Roads and overload control. SANRAL also provided safer roads by carrying out more regular maintenance on the roads. It had a Road Safety Management System, and there was constant Engineering. It further educated the public on road safety and road maintenance. SANRAL contributed to carrying out Government’s targeted programmes on community development, social and entrepreneurial development, and development of human capital, internally and externally.

To this end, SANRAL had formed co-
operative working relationships, including those in the environmental sphere, and co-operation with neighbouring Southern African Development Community (SADC) countries, and other relevant departments, provinces, and local authorities. SANRAL achieved and maintained good governance practice, corporate governance, risk management, prevention of fraud and corruption, credit ratings, and performance agreements.

SANRAL noted that, in the 2010/11 year, it had done work on the external environment, procurement policy and the Community Development programme. SANRAL also supported tertiary institutions in higher learning and participated in the Young Professionals Cluster. It had achieved financial sustainability through National Treasury (NT) allocations. Money lent for toll roads was currently close to R30 billion. It had pursued research, innovation and best practice on road infrastructure, social sciences and the psychology behind pedestrian behaviour.

Mr Alli then briefly outlined the key priorities for 2011/12, which involved the asset maintenance of national roads, an incorporation of some roads, as requested by provinces, into the National Road network. Toll roads would be pursued in Gauteng, the N1/N2 Winelands and the N2 Wild Coast. Community Development Projects in rural areas were to be increased.

Mr Alli outlined the projects that were finished or almost finished. He said that the Leandra project was opened in August 2011, N1 Polokwane Bypass was completed, N3 Marianhill Extension had reached the Environmental Impact Assessment (EIA) stage, and other toll road extensions were to open later in the year. The Gauteng Freeway Improvement Project Tolling was planned to commence in February 2012 after the approval and gazetting of the tariffs by the Minister and registration of e-tags by motorists.

On the Gauteng Freeway Improvement Projects, he noted that tariffs had been set in February 2011, but were later suspended. In March 2011 a Steering Committee was established to review tariffs following political and public resistance
. In July 2011 the Steering Committee report was submitted to the Minister. Cabinet approved revised tariffs in August 2011, and it was expected that the tolls would start operating on 1 February 2012.

All transactions were recorded electronically and SANRAL had started a one-tag standard. This included one account which might include various vehicles with E-Toll tag accounts, at 31% discount, and frequent users would get 15% discount if they were to pay above R400 per calendar month. Vehicles had to be registered because there were no discounts if they were not registered. All discounts would be cumulative but commuters’ taxis and buses were exempted. A potential violation would be identified if a person did not have an e-tag or account, if there were insufficient funds in account or if the vehicle was not identifiable. An Enforcement Unit, consisting of traffic officers together with the operators of the road toll (ORT) had been set up to enforce matters, and they would attend not only to toll violations but also to other traffic violations. The Enforcement Unit would also be attending to other requirements like management of incidents.

SANRAL had agreements with fleetbanks to assist with distribution and management of tags. Large fleets had direct agreements with SANRAL to manage their own tags and payments. Initial registration was done through a predefined template on bulk registration.

Routine Road Maintenance was done all the time on the toll roads, and the repairing of potholes was done within 48 hours. Periodic Maintenance would be attended to every 7 to 8 years.

Mr Alli then highlighted some of the internal matters at SANRAL. A scheme for scholarships and bursaries, and the offering of internships had been developed and skills development was further being promoted through funding to universities, and Chairs of Transport. SANRAL aimed to develop future engineers. SANRAL was funding the Universities of Stellenbosch and of Cape Town. SANRAL was also working with a school in Khayelitsha. SANRAL had also facilitated a number of job creation projects.

SANRAL had further assisted with the development of small, medium and micro enterprise (SMME) development. On the maintenance contracts, about
72% of work was given to black SMMEs, and 8% to other SMMEs, whilst about 20% was awarded to contractors who were managing empowerment, training and support. Community based projects, which were generally safety-related, were undertaken. These included pedestrian bridges, other bridges, and roads. Economic opportunities in rural areas and employment of women were also specifically targeted. Projects that offered catalysts for opportunities such as tourism, and the hospitality industry were also undertaken.

Community Development Programme focused on the provision of much needed transport infrastructure within poor communities. These programmes also focused on the method of infrastructure delivery, and method of construction, which included labour-enhanced construction and which maximised job creation. Transfer of skills was done as part of small contractor development, to maximise retention of wealth in communities

Some of the provinces that had skills development programmes were outlined (see attached presentation for full details. The value of work done by SMMEs totalled about R3 million.
It was noted that in 2010/11, SANRAL had rolled out four community development projects in Pondoland, and in the OR Tambo District Municipality for road safety infrastructure. These had been identified by the local municipalities as priorities in their Integrated Development Plans (IDPs).
These four projects involved the construction and upgrading of about 35km of informal gravel access roads to surfaced standards. 308 local workers were employed, of whom 117 were female. 294 people had been trained and R3.3 million was spent on wages. The training covered various topics, including first aid, compaction, environment, roadside safety, material identification, quantity calculation; establishment of work areas, and concrete batching and mixing. About R1.4 million was spent on training.

In the North West, at Madibeng Municipality’s Madidi Village, there was a project involving the construction of secondary roads within the area, a pedestrian bridge over the stream, storm water drainage and an NQF Level 4 learnership programme in supervision of construction processes. This contract was worth about R30 million, and was financed by SANRAL in partnership with the Department of Public Works, Roads and Transport in the North West Province. The project created 556 jobs for 24 months. 27 learners had been trained on NQF Level 4, and 55% of the value of the project directly benefited the community. Social benefits included school children now being able to attend schools in bad weather, greater accessibility to clinics and police stations, a lower crime rate and renovation of the community hall.

Ugu District Municipality  and Vulamehlo Local Municipality in KwaZulu Natal (KZN), a bridge was built over the uMkomazi River, at a cost of R40 million. There were some challenges to this project, due to the delays in amendment of legislation on the Open Road Tolling and resistance to use of alternative funding sources.

Another challenge identified by Mr Alli was that SANRAL had insufficient funding to attend to all timely upgrades and maintenance of the non-toll network
, which affected its reputational risk. Other challenges lay in achieving co-operation between government departments, provinces and municipalities, and addressing the constraints in the delivery of projects. SANRAL also needed more high-level planning and co-ordination between inter-modal transport and the three spheres of transport administration.

Mr S Farrow (DA) complimented SANRAL on its good presentation. He, however, noted that he would not support an increase to the SANRAL budget, because he believed that SANRAL had sufficient funds.  He elaborated that SANRAL, according to its own legislation, was supposed to be responsible for national roads. However, provinces had then asked SANRAL also to attend to provincial roads, which created a huge dilemma at SANRAL. Mr Farrow asked if SANRAL had looked beyond the making of roads, saying that other alternatives ought also to be considered. He also asked about the risks of what was contained on page 126 of the Annual Report.

A Committee member asked whether there were commonalities between the objectives.

Mr Alli explained that government had various options; it could increase taxes, or borrow money, or create toll roads. Whatever government finally did would be decided upon by the lawmakers in Parliament. He added that public transport was also, correctly, being subsidised.

A Member asked if SANRAL was succeeding in its aim of creating safer roads.

Mr Alli responded that SANRAL had always provided safer roads but no one could be held liable for another person’s negligent driving.

The Member also wanted to know if the number of jobs stated in the presentation were full time jobs.

Mr Alli explained that not all jobs were permanent.

Mr N Duma (ANC) encouraged SANRAL to increase its coordination. He asked SANRAL to give some further details on its coordination and work with other entities.

Mr Alli stated that SANRAL offered to assist municipalities and to regulate their projects but, in many instances, the Municipalities had indicated that they did not want assistance, fearing that SANRAL, although it was a government entity, would be diluting the Municipal assets.

Ms N Mdakana (ANC) noted that she was concerned with the gender equity within SANRAL, as she thought that SANRAL seemed to be a male-dominated entity.

Mr Alli explained that in fact there was equal gender representivity, and this included female professional engineers. However, he agreed with Ms Mdakane that it would be desirable to increase the numbers of females that were employed on projects, and SANRAL was trying to do this, even though there were many superstitions about women working in the tunnels.

Mr M De Freitas (DA) thought that the automobile systems were “in chaos”. He stated that private motorists and emergency vehicles had not budgeted for the tariffs that would be imposed at the Gauteng toll gate.

Mr Alli reported that there was an economic impact report that was available to everyone, which meant that everyone in fact had the opportunity to know about the tariff rate charges. In addition, an economic impact report made by Freight agreed with SANRAL figures.  

Mr De Freitas stated that the reality was the public that was not informed on time about the tariffs for the toll road. He said that it was not so much a question of what the public would have to pay as the fact that they were just not advised on time. The public did not generally have spare money to meet unforeseen expenses.

Mr George Mahlalela, Director General, DOT, explained that the issue was not about whether the toll gates were or were not needed, but the conditions of the secondary roads. He stated that in future a way had to be found to on how to fund the project and transfer skills, and this issue was to be debated on the Summit. He also suggested that it was necessary to extend the debate with the stakeholders, and raise the question of whether there was a need for a new Road Act. The future of the South African road tariffs must be debated. DOT was preparing for this Summit at the moment.

A Member sought clarity as to how illegal number plates would be dealt with.

The Acting Chairperson appreciated the presentation, the concerns and the comment to consider the updating of the Act.

Passenger Rail Agency of South Africa (PRASA) Annual Report 2010/11
Mr Lucky Montana, Chief Executive Officer, Passenger Rail Agency of South Africa, informed the Committee that the Passenger Rail Agency (PRASA) had implemented a new strategy during 2010/11. The main problem in South Africa stemmed not so much from the need to acquire new stock, as the fact that there was still “geographical apartheid”, with many people having to travel long distances to work, so that PRASA had to try to develop a more user-friendly transport system. A major issue was the high cost of running the old railway system. However, PRASA recognised that the rail system was key to meeting objectives in the country.

2010/11 financial year was a momentous year for PRASA, despite the economic and operating environment. Three strategic highlights were successfully achieved. It had successfully contributed to the hosting of the FIFA 2010 World Cup. It had managed to turn the rail system around by investment initiatives in modern signalling and rail rolling stock. Lastly, it had unlocked the value of property assets.

Mr Montana said, in relation to the World Cup, that PRASA had transported a significant number of football lovers in order to strengthen the position of rail as the backbone of passenger transport. PRASA loyal customers were rewarded and were motivated by celebrating with staff. 1.4 million people were transported by rail to the stadiums and fan parks. During the FIFA World Cup, 2 000 coaches were refurbished, 3 new railway stations were built and 50 stations were upgraded. PRASA had also implemented a modern integrated communication system. Improvements to 111 Stations, under the Station Improvement Programme, were completed. Over R10 billion was spent on the FIFA World Cup. PRASA had learnt that, with correct investment and maintenance, rail could play a central role as a mass mover within an efficient public transport system. Passenger information was the key, as it allowed the public to plan their journeys to the stadiums.

Mr Montana outlined some of the other key highlights. PRASA had set itself a target on having the business case for renewal completed. It had already appointed Siemens for the first phase of the commencement of the signalling upgrade. PRASA’s value of assets had increased by 10%.PRASA was also able to complete 50 infrastructure projects. 356 bus coaches were refurbished. PRASA had reached its target of 66% black economic empowerment (BEE). For the sixth time in a row, PRASA had achieved an unqualified audit report, although there were some matters of emphasis raised.

PRASA also noted some of its challenges in this financial year. It was noted that PRASA had a downturn of more than R1 billion on cash and non-cash items. Passenger trips had declined by 25%, and its fare income had decreased by 39%. Wasteful and fruitless expenditure was noted by the Auditor-General, in the amount of R9.3 million. In the 2010/11 financial year, the biggest business, the Rail Division, faced major challenges which contributed to poor performance. It had a serious stock decline and unresolved contractual and pricing issues with RS Contractors. There was also a decline in revenue performance. The dispute with Transnet had paralysed the mainline passenger services.

In respect of the financial statements, Mr Montana noted that property, plant and equipment had increased by 11%. With the implementation of the new system, intangible assets had increased by 327%. Mainline Passenger services had increased when compared to the 2009/10 financial year. However, he reiterated that PRASA had a huge dispute with Transnet, which had cost it a great deal. The revenue generated had since improved due to external additional revenue from Autopax, although the PRASA rail fare revenue had decreased compared to the previous financial year.

In August 2010 PRASA had formulated a new strategy in terms of which the PRASA Board would have to review the performance o the business, and to approve changes that were intended to deal with the financial and service delivery challenges facing PRASA. The key interventions under the new Strategy identified by the PRASA Board were the implementation of a financial turnaround, so that PRASA could deliver on its mandate, and the improvement of operational effectiveness. PRASA had to invest in new capacity to meet passenger demands in the medium and long term.

In terms of the Balance Sheet Restructuring Programme, PRASA had a new property division called PRASA CRES, which managed property internally. Intersite would no longer deal with property, but would focus on leveraging non-core and non-strategic assets, to generate additional income. PRASA also achieved the capitalisation of the Autopax Shareholders loan of R333 million, as well as a portion of Intersite shareholders loan. Four possible options were identified when PRASA pursued a Strategic Equity Partnership (SEP), subject to Ministerial approval, to inject R1 billion into the business. These options were the sale of non-core and commercial properties, an SEP transaction in terms of which an equity investor purchased a significant stake in Intersite, the raising, by PRASA, of a long-term loan secured by its cash generating properties, and long term development leases between PRASA and various private sector developers, for development of PRASA-owned properties.

PRASA had invested in modern new capacity in during 2010/11 financial year. One of the investments was the new rolling stock fleet for Metrorail and Mainline Passenger Services, which was supported by government. In March 2012 PRASA would put forward a proposal for this programme. The New Rolling Stock Fleet would create 2 000 job opportunities. Its feasibility study had been completed. 65 000 jobs would be created through a programme that would deal with new trains that would be built in South Africa. PRASA had also invested in a signalling upgrade programme, which would start operating by December 2014. This programme had started in Gauteng. PRASA would spend approximately R17 billion in seven years. In Lenz-Midway, construction was already under way and in November 2011 PRASA would issue two signalling tenders, in KZN and the Western Cape. Procurement was already in process.

PRASA had planned to create 5000 jobs by 2011/12 through accelerated rolling stock, infrastructure projects, through Public Works contracts for the rehabilitation of rail infrastructure, and lastly through using cooperatives for cleaning of rail corridors and rail reserve. In respect of the empowerment initiative, PRASA had targeted 10 women-owned entrepreneurs on the rail project. PRASA also had a pilot project with the taxi industries. PRASA was also reviewing its Black Economic Empowerment programme.

In conclusion, Mr Montana said that although the year under review had posed significant challenges, it was also characterised by major advances. The R billion loss remained a major challenge, but the Board was busy addressing this with various revenue generation plans. The new strategy had already placed two subsidiaries on a sound financial footing and had sought to unlock values out of the assets of PRASA.

Ms Mdakana was not pleased with the fact that the presentation concentrated on the three largest provinces of Gauteng, KwaZulu Natal and Western Cape, all of which were quite highly-developed, and asked when PRASA would start making improvements in the other provinces, including Eastern Cape. She asked in which provinces the ten women entrepreneurs were based.

Mr Montana assured the Committee that PRASA had not forgotten about the Eastern Cape, which was at the top of the PRASA agenda. He informed the Committee that the railway line between Alice and East London had been opened again, and that there were trains operating on those lines. He also informed the Committee that PRASA had used almost R2 billion for refurbishing the railway line between Queenstown and Mthatha, via Cofimvaba. One of the 10 women entrepreneurs was from East London, and he would provide a list with their names and locations.

Mr Duma also suggested that clarity had to be achieved between PRASA and Transnet.

Mr Maseko thanked the entity for the presentation. He stated that the main issue with the metro rail was that it ran only in the cities and not in small towns or in rural areas.

Mr De Freitas wanted to know if there were no other methods of transport, such as bus services, that could be set up in the rural areas. These rural areas were really ignored by PRASA.

Mr Montana stated that running metro rail in rural areas would be quite costly, as the ticket income covered a very small portion of the running costs.

Mr Duma wanted to know if PRASA was going to do a presentation on property to the Portfolio Committee. He asked if PRASA had ever had worries that its signalling model might not work.

Mr Montana explained that PRASA was looking to the Indian model system of signalling, which was old but had been well managed by India, and it was possible to use this also in the Eastern Cape and Limpopo, where there had been some safety issues. He then promised that PRASA would discuss other issues that were raised, during its next visit to the Committee.

The meeting was adjourned.


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