PRASA's Strategic Approach to Rail Transport Development & its Impact on Job Creation & Poverty Reduction

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24 April 2012
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

Mr Tshepo Montana, Group Chief Executive Officer of the Passenger Rail Agency of South Africa presented the organisation’s strategic approach to the development of rail transport within South Africa, focusing on three main issues; the development of rail infrastructure, skills development and the building of a rail engineering industry within SA.

Mr Montana drew attention to the high levels of under-development, shortage of skills, changes in land use patterns and the lack of maintenance that contributed to the country’s poor rail transport system. A first step in addressing the problem had been the announcement of a tender to procure 7 224 train coaches over a 20 year period, at a cost of approximately R123.5billion. This would lead to 65 000 jobs and an increase in the manufacturing capabilities of South African industries.

Mr Montana noted that the development of rail transport involved defining rail transport as the backbone of a transformed transport system, as this was critical to achieving government’s economic development objectives. Critical factors relating to this included providing an efficient and reliable rail transport operation, developing an industry of suppliers and encouraging research and development and skills training to enable a sustainable rail engineering industry with the capacity to design, manufacture and export rail products. The development of the system would also address the country’s economic and social development needs, particularly those of the rural areas.

Mr Montana presented a series of interventions that would assist in the development of rail transport. The economic background and feasibility study were briefly discussed, with particular reference made to the decision to have a level of 65% of components manufactured locally. The benefits of this decision were also presented.

Mr Montana explained the Department’s approach to achieving a sustained Broad Based Black Economic Empowerment programme that would contribute to the long term development of the industry. Mr Montana highlighted projects identified in the long-term transport upgrade expansion. Also discussed was PRASA’s employment creation initiatives and poverty reduction programmes, skills development and training programmes and people empowerment projects.

Members raised queries around transport subsidies and the issues of cable theft, railway police and vandalism on stations, and asked for clarity on what the influencing factors were in the decision to procure most of the components locally. Members also asked for more details on the proposed list of components to be produced locally, and questioned whether there was currently sufficient stock to cater for the proposed corridor upgrades. They suggested PRASA should develop a more effective communications strategy for the project and asked if there would be any legislation required to ensure the project was successful. Questions were raised on some of the specific rail projects identified, with some members expressing frustration that inadequate progress had been made on other projects.

The Chairperson commended Mr Montana for the presentation and requested that it be made to the African National Congress caucus within Parliament. The Chairperson suggested that the project should take into account the availability of natural mineral resources within the South African Development Community countries and noted that the goals of the programme reflected those of some national, regional and continental development plans. The Chairperson suggested that there should be greater synergy between the departments of Transport, Agriculture, Mineral Resources, Higher Education and Training, Rural Development and Science and Technology, to ensure that social development was achieved through the project.

Meeting report

Passenger Rail Agency of South Africa (PRASA) presentation
Mr Tshepo Montana, PRASA Group Chief Executive Officer, highlighted the three specific issues the presentation would try to address. These were the development of rail transport within the country; skills development and the building of a rail industry; and showcasing specific initiatives undertaken by PRASA to achieve its job creation and poverty alleviation goals.

Mr Montana noted that the passenger commuter rail system was at near collapse. This was due, among other factors, to 33 years of underdevelopment, poor maintenance, skills shortages, structural changes and shifts in land usage patterns since the mid ‘90s. An intervention strategy had been devised, but had been identified by the Committee as not being adequate to address the long-term challenges faced by the rail system. The current rail transport strategy needed to be viewed in this light.

The Minister of the Department of Transport (DoT) had recently launched a request for proposals for the Rolling Stock Renewal Programme, an important component of Government’s infrastructural modernisation drive. International and domestic manufacturers had been invited to bid on the construction of train coaches. A compulsory briefing session had been set up for 9 May 2012, with July 2012 identified as the date for proposal submissions. PRASA hoped to announce a preferred bidder by November 2012. The trains would be built largely in South Africa as part of the Government’s objective of strengthening the country’s manufacturing base. The programme called for a new fleet of 7 224 coaches, to be procured at a rate of 360 coaches a year over a 20 year period, at a cost of approximately R123.5 billion. An estimated 65 000 direct and indirect jobs would be created, with an estimated 65% of the manufacturing happening within SA.

The programme was the first major step in addressing the transformation of rail transportation in SA. Synergy was required between PRASA and TRANSNET to ensure that not only passenger, but also freight, rail was developed. Rail was defined as the backbone of the transport system (although not the only mode) and as such, needed to be reflected in the transport plans at all levels of government.

While investment was critical, an efficient, reliable passenger and freight rail operation was also required. Improved relationships between PRASA and TRANSNET, the relevant government departments and the relevant portfolio committees, Transport and Public Enterprises, had resulted in a noticeable increase in synergy and improved services.

A strong and sustainable industry of suppliers would be required to address the critical needs of the rail system. Investment in research and development at universities and institutes of technology would assist in developing technology to sustain the industry. The major outcome should be the establishment of a state- owned rail engineering company that would design, manufacture and export rail products.

Owing to the high costs of rail infrastructure, a clear policy was needed to determine how it would be financed. The state would be required to fund the infrastructure, with the operations being funded by the users of the services.

PRASA would attend an internal workshop on the DoT’s green paper on rail, to address issues and requirements for the rail system. These requirements included:
▪ Adoption of the country’s rail strategy.
▪ Identification of suitable rail models to be used. South Africa could create a second network of high speed trains while enhancing the current commuter networks, as was the case in China and Spain.
▪ Addressing the critical economic and rural development and transport objectives of South Africa.
▪ Using rail infrastructure to link airports and ports to the rest of the country.

PRASA’s interventions aimed to change land use patterns and discourage urban sprawl, and to ensure the densification and integration of the transport system so that transport costs to the public could be reduced. This would be accomplished through:
▪ The rehabilitation and upgrading of the existing rail infrastructure.
▪ Investment in new capacity (see slide 8 for details). 
▪ Modernising the system.
▪ Expanding the rail network.
▪ Revitalising the rail engineering services.
▪ Improving operational effectiveness.
▪ Unlocking the value of rail properties. This included developing stations and properties so that they would become income generating entities. This would provide alternate subsidising opportunities for PRASA.
▪ Developing the skills of railway workers.
▪ Linking airports and other transport systems.
▪ Employment creation.

PRASA needed to become a sustainable company that was able to generate sufficient resources form services and property development.

Mr Montana identified the key components targeted by PRASA for the creation of the new industries which would be needed to supply components for rolling stock (see slide 13). These would be strategically located to assist in poverty alleviation and rural development, and would create sustained industries that not only manufactured products, but also provided long-term servicing for the rail system.

Mr Montana provided an overview of the economic impact that the local manufacturing programme would have on SA (see slide 14). The return of investment would be seen in terms of job creation and increases in tax revenues.

PRASA would adopt a different approach to Broad Based Black Economic Empowerment (BBBEE). The BBBEE stake would be increased from the current 26% to a 30-40% range. The National Empowerment Fund would warehouse that stake on behalf of PRASA. The selection of the BBBEE partners would be a separate process following the appointment of an equipment manufacturer. This would see BBBEE partners taking a long-term interest in the development of the industry, avoiding situations where poor technologies and manufacturers were awarded tenders due to strong BBBEE partners and vice versa.

An important element in operational effectiveness was the revitalisation of long-distance rail services, given their strategic importance in connecting rural areas with city centres. Reducing the travel times on these routes was therefore important. A coordinated maintenance programme between PRASA and TRANSNET would allow existing rail networks’ speeds to be increased to 160km/h. Four rail corridors had been identified for trial runs of this programme. These were:
▪ Pretoria – Polokwane – Messina
▪ Johannesburg – Nelspruit – Komatipoort
▪ Johannesburg – Queenstown – Mthatha
▪ Johannesburg - Durban

Further interventions included policy development to prioritise passenger services over freight on the rail network, and the modernising of long-distance coaches to ensure they had adequate services like water and sanitation.

Mr Montana presented the network expansion plans of PRASA, TRANSNET and the DoT identified to address the long term needs of SA. These were,
▪ Johannesburg - Durban High Speed Rail
▪ Moloto Rail Corridor High Speed Rail
▪ Bara Rail Link
▪ Daveyton Rail Extension
▪ Hammanskraal (Rehabilitation of Existing Rail Line)
▪ Motherwell Rail Extension
▪ Johannesburg – Queenstown – Mthatha
▪ Cape Town International Airport Rail Link
▪ King Shaka International Airport Rail Link

Mr Montana highlighted some issues concerning the above projects. The Moloto Rail Corridor had received cabinet approval in 2006, with R8.6 billion in funds being set aside, but no progress had yet been made. The project was important for long-term economic growth for the region, so the failure to make meaningful progress was an indictment on PRASA, the government and the DoT.
A feasibility study was near completion for the Motherwell project. The project was important in providing a proper transport system to support the Coega port development in the Eastern Cape.
R450 million had been set aside to revitalise the line between Queenstown and Mthatha.
Mr Montana noted that there was conflict between PRASA and the City of Cape Town concerning the Airport Link project.

Mr Montana discussed the various employment creation initiatives and poverty reduction programmes set out by PRASA. Included was the project to double the rail line and build an additional station in Greenview. This would reduce the average waiting time for trains from 40 minutes to seven. Construction was currently underway and was expected to be completed by March 2013. With the investments being made in the rail systems by PRASA it was expected that employment opportunities would be unlocked and labour intensive methods would start to become successful. Additional programmes identified included those for wheel refurbishment, modernisation and refurbishment of coaches, and the cleaning of railway stations and corridors through the use of co-operatives. These co-operatives would start to take over the cleaning and maintenance of the stations with a view to developing sustainable livelihoods for themselves. Mr Montana also gave the example of the Iketsetseng cooperative, which was setting up its own wholesale store within three Gauteng stations to provide produce for sale to hawkers in the area. PRASA was also providing additional training to this organisation in partnership with the Departments of Agriculture and Trade and Industry.

PRASA had identified 250 young people from disadvantaged areas who would receive bursaries for study as engineers, artisans and technologists at a cost of R9 million a year. An additional programme sought to train people in customer services, to ensure passengers received better quality service at stations. PRASA was working with the Department of Higher Education and Training to develop programmes which would provide the industry with the necessary skills for local manufacturing and the production of railway system components. PRASA was trying to establish a dedicated railway training institute. Many young people had been sent to Germany and China to be trained on the new signalling and telecom systems to be used in SA.

PRASA continued to work with community-based organisations and trade unions. This investment in people would ensure that the roll-out of the programme would be successful. Mr Montana added that there needed to be a review of the subsidies paid to transport operators so that they reflected the realities of a modern democratic SA. Large amounts of money had been spent by governments but the transport system still remained fragmented. PRASA’s approach aimed to create an integrated transport system.

Ms D Dlakude (ANC) suggested that there should be a review of the policies related to the awarding of transport subsidies, taking into account the large difference between the quality of services in urban areas compared to those in rural areas.

Mr Montana agreed that the policy related to the awarding of subsidies required major changes, and provided a background to the issue of bus subsidies. After 1994, a deal had been struck between the Department of Transport and the established bus companies which saw those companies forego their lifelong permits in exchange for a new tender process. The tender process was structured in such a way that if the established companies lost a tender, but not by more than 10%, they would be re-awarded the tender. In addition, unions at the time wanted to ensure that jobs were secured. Negotiations on the system had continued to the present, but with very little progress and transformation having taken place as a result. There needed to be a balance between the needs of government, the industry and the labour unions to ensure adequate transformation within the industry, in addition to an extension of services to poorer areas.

Ms Dlakude noted the high level of interest from the residents of Mpumalanga concerning the status of the Moloto Rail Corridor project.

Ms Dlakude asked how PRASA would deal with the issue of cable theft.

Mr Montana noted that cable theft was not a simple crime and affected not just PRASA but also municipalities, Transnet, Telkom and Eskom. One of the ways the problem was being addressed was through changes in technology -- for example, using modern systems that included less copper. The other important factor was law enforcement. Appropriate legislation, regular scrap metal dealership raids and stronger penalties that reflected the huge losses experienced by the economy and the country in general, needed to be considered.

Ms Dlakude asked if railway police would be stationed within the train carriages.

Mr Montana stated that PRASA had built facilities in 26 stations around SA from which police could launch their operations. Given this large investment the railway police system would need to be reviewed in order to ensure that it was still beneficial. Mr Montana noted that most crime at stations was committed during off peak times as opposed to peak times, so rail police needed to be on trains during off peak times. Other issues for concern were railway police changing shifts during peak times and a general lack of co-ordination between police and Metrorail security staff.

Mr G Krumbock (DA) asked for more detail on the philosophy of PRASA with regard to the local versus international procurement process, taking into account the estimated rate of return against any financial benefits gained from importing (See Slide 16: Impact on the Economy).

Mr Montana answered that the original intention was to fund the project through private sector loans and rely mainly on importing. Informed by both PRASA’s financial position at the time and a detailed feasibility study, it was confirmed that the cheaper option would be a government-funded programme that saw most of the manufacturing happening within SA. The immediate return on investment would be an increase in tax revenue with long-term returns being a more efficient transport system, promotion of the local manufacturing industry, increased productivity in the economy and a reduction in transport subsidies per passenger. The current fiscal position of SA meant that the original targets of 500 coaches produced per annum would be revised downwards to 250-300 per annum. An additional factor for the modernising programme was that the maintenance costs of the old rail system was too high and had too few economic benefits. Mr Montana noted that PRASA had posted a summary of the feasibility study on its website.

Mr I Ollis (DA) asked how the new rolling stock infrastructure and signalling systems would be protected against further vandalism, given that in many metros, fencing along railway lines was removed.

Mr Montana answered that PRASA had moved away from the current fencing system and had issued a tender for a higher requirement fencing system to be implemented. A major challenge was that the railway networks were all above ground and open and therefore difficult to enclose completely, which was a requirement of the Rail Safety Regulator. PRASA was trying to protect key stations, staging yards and
Central Train Control Centre (CTCs). In stations where higher security fences were already used there had been an increase in revenue, as passengers could no longer cut through the system.

Mr Montana added that encroachment on the rail corridors also added to the problem, citing examples of Wellington and Mamelodi, where local governments had allowed communities to settle too close to the railway lines. Railway reserves were necessary to ensure adequate space for maintenance and any further expansions. Mr Montana added that PRASA had lost between R68 million and R100 million through theft and vandalism the previous year.

Mr Ollis noted that chassis and coaches were not included in the list of targeted components (see slide 13) and asked if this meant that the carriages would be imported largely pre-manufactured, with some assembly at a local level.

Mr Montana answered that what was being purchased internationally were not components, but the technologies and propulsion systems of the trains. The current train carriages used in SA were four times heavier than modern trains used in China and Spain and offered less space for passengers. The result was more energy was required to propel them. Mr Montana acknowledged that the slide was misleading and represented just some of those components that could be produced within SA, although the costs of producing some of the components locally would be inefficient and in some cases prohibitive in the short term. It was expected that some imports would be required in the short term but bidders would need to present a plan as to how they would achieve the 65% local content target over time, including the development of the new manufacturing industries.

Mr Ollis asked if there was sufficient rolling stock to support the proposed rail corridor upgrades once they came online.

Mr Montana answered that of the 7 224 new coaches being procured, about 5 200 would be used to support the existing network, with the remainder supporting the new corridor developments. The short-term needs were approximately 710 rail coaches to relieve the pressure within the existing rail networks, particularly those in the Western Cape, Gauteng and Kwazulu-Natal provinces.

Mr Ollis asked for clarity on the proposed high-speed rail link from Pretoria to Messina.

Mr Montana answered that it was an upgrade that would see trains running at higher speeds of 160km/h, as opposed to a high-speed train link, which PRASA defined as anything above 200km/h.

Mr L Suka (ANC) commended PRASA for the progress report and suggested that the information should be shared with the public at a wider level, particularly with those communities that were directly affected.

Mr Montana agreed that the message should be taken to the people and stated that radio had proved to be the most effective method of communication. PRASA was also developing a television campaign to encourage public interest in the programme.

Mr Suka asked if any legislation would be required to ensure that there would be no delays during the delivery stages.

Mr Montana answered that legislation would be required to ensure that the high speed railway project was implemented, citing the importance of the Gauteng Infrastructure Act in ensuring that the Gauteng Rapid Rail project was completed. The required legislation would allow the Minister of Transport to engage, consult and if necessary. override local municipalities and property owners to ensure that the project was a success. This included possible expropriation to ensure that the public interest was served. It would be up to the Department of Transport to develop the policy and present it to the Committee.

Mr Suka asked if there was sufficient capacity for implementation of the programme.

Mr Montana answered that there would be enough capacity in the form of local and international transaction advisers, and an inter-departmental steering team at government level.

Ms N Ngele (ANC) expressed frustration that the proposed Johannesburg - Queenstown – Mthatha Rail Project did not take into account the additional routes used by passengers disembarking at the Mthatha stop.

Mr Montana answered that 10 additional stations would be added into the route and that PRASA would also look at taxis and buses to be used as feeders, connecting other areas to the main link. The main proposed link had been developed on the basis of travel demand studies of the area, looking at the origin and destination points of passengers. Mr Montana suggested that committee members from the Eastern Cape Province should join PRASA during their visit to the area so they could share their views and connect PRASA with relevant stakeholders, to ensure that services were based on the needs of the local communities and not just on strategies implemented by planners.

The Chairperson commended PRASA on the presentation and praised the increased clarity it provided. The Chairperson requested that the presentation be made to the ANC caucus in parliament, together with a presentation on the China Study tour report prepared by the Committee. Both would need to be debated by the ANC caucus as it provided a basis from which the railway transformation process would be undertaken.

The Chairperson also suggested that a workshop on the programme be given for all Members of Parliament, similar to the recent workshops on the New Growth Path and National Development Plans. This would provide members with a better understanding of the programme and enable them to better address the concerns of their constituencies. Additionally it would help to build support among members and assist in mitigating negative perceptions like those created around the Gauteng Freeways Improvement Project.

The Chairperson noted the similarities between the rail programme and the FIFA 2010 Soccer World Cup project, the exception being that the rail programme would be a more sustainable, development-focused project. The New Growth Path and the Committee’s China study report both made strong references to the link between mineral beneficiation and manufacturing, particularly the strong links to available mineral resources in Africa. Local and regional mineral resources available within SA, Zimbabwe and Mozambique should be used in the manufacturing of the components required for the project. This would provide a practical start to addressing the goals of development set out in the NEPAD and SADC regionalization policies. The Chairperson noted Zimbabwe’s development plans were linked to the establishment of a suitable transport network within the country, and that there were suitable mineral resources within Zimbabwe to address the needs of the programme. The Chairperson suggested that a marketing strategy be implemented which linked the rail project to the NEPAD goals, in addition to being compatible with the development plans of Zimbabwe and the SADC region.

The Chairperson noted that the Departments of Energy and Agriculture and their respective parliamentary committees would need to identify the complementary roles that the departments would play in ensuring that the project was successful.

The Chairperson noted the stability and common understanding that existed between the chairs of the Public Enterprises and Transport portfolio committees and suggested that this relationship should be extended to include the committees for Mineral Resources, Energy, Higher Education and Training, Science and Technology, Agriculture, Rural Development and Economic Development. This would raise awareness as to how rural communities could become involved with the production of the raw materials needed for the manufacturing of components, and how this could benefit those communities.

The Chairperson again praised the programme for its ability to enable high-level economic development and technological advancements while still allowing situations where low-skilled communities and small,medium and micro enterprises (SMMEs) could also partake in economic advancement.

The meeting was closed.


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