Department of Transport, PRASA and Cross Border Road Transport Agency 2011/12 Annual Reports

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10 October 2012
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

The Department of Transport (DoT), together with two of its entities, presented annual reports for the 2011/12 financial-year.

The Department of Transport briefed the Committee on major projects undertaken by the sub-divisions of the Department. The Department received an unqualified audit and under-spent by R320m. 26% of planned targets were not achieved. Its vacancy rate was standing at 19.87%. Audit findings indicated there was a lack of follow-up on outstanding quarterly reports in a timely manner, non-financial reviews of corporate plans, and reviews were not performed on some quarterly reports.

The Cross Border Road Transport Agency (CBRTA), indicated that the Agency received an audit qualification for the current year audit. The CBRTA was geared to demonstrate its commitment to adding public value through its strategic interventions. Amongst its key achievements, the Agency had conducted a study on the analysis of business processes at the borders focusing on the freight supply chains at the borders. The Agency incurred irregular expenditure due to non-compliance with procurement prescripts and incurred fruitless and wasteful expenditure.

The Passenger Rail Agency of South Africa (PRASA) reported that passenger numbers for Metrorail had shown a 9.5% annual improvement. The recapitalisation of the fleet had commenced following the approval of the feasibility study by the Cabinet. The Property Portfolio was still not delivering value. The lack of funding for the long distance train service was adding a huge financial burden on PRASA. Figures for irregular expenditure and wasteful expenditure were reported.

Members asked why the scrapping of old taxis was taking too long; who funded the construction of the Nkandla tarred road; how the DoT was planning to address inadequacies pointed out in the audit report; why there was a big hike in tariff fees on cross border traveling; what was being done to minimise multiple inspections on the borders; and commented that a big investment should be made on rail transport. A DA Member asked about the origination of the budget responsible for the Nkandla tarred road. The Chairperson felt it was unfair to use the budget process and the Auditor-General's report to entertain matters raised in the media.


Meeting report

Department of Transport (DoT) performance and expenditure report 2011/12
Mr Dan Pretorius, Acting Chief Financial Officer: Department of Transport (DoT), said, in regard to major projects undertaken for the 2011/12 period, the Freight Division saw the finalisation of the draft 2050 Vision for the Durban-Gauteng Corridor institutional arrangement and implementation plan; the completion of the Greenhouse Gas Database; the approval of the finalised draft of the Road Freight Strategy; the completion of the optimisation plans for border posts; the collection of freight flow information in all provinces; and the completion of the Draft Framework for a national Freight Information System.

Rail Division
A total of 510 rail coaches was overhauled and upgraded. The Draft Green Paper on Rail Policy was completed for approval, and a feasibility study on rail manufacturing was completed and funding was secured to procure new rolling stock, upgrade signaling infrastructure and construct new rail depots. The final draft implementation plan for the establishment of the interim regulatory capacity for Rail Economic Regulator had been issued for comments.

Road Division
The Road Division created 40 621 full time jobs through the S’hamba Sonke road maintenance programme. Legislation requiring buses to be tested every six months was being implemented. Four municipalities had been assisted to develop non-motorised transport plans. 25 technicians were trained on Geographic Information Systems and the Road Asset Management System. The technicians would be placed in districts to implement the Rural Transport Grant Frameworks. A total of 14 978 schools implemented the road safety education campaign.

Civil Aviation
The Draft White Paper on National Civil Aviation Policy was developed. Draft legislation was completed to establish the Civil Aviation Safety Investigation Board. The Aviation Appeals Committee was established and was operational. The Aviation Security Audit was facilitated and the Corrective Action Plan filed with the International Civil Aviation Commission. The sale of the Durban International Airport had been finalised.

Maritime Division
The Maritime Division saw the ratification by the President of the African Maritime Charter. A framework for reporting on maritime safety and security incidents became operational. The Merchant Shipping Act 2011 came into operation, and the African Union Maritime Transport Charter was signed.

(Tables and figures indicating performance indicators and the actual targets of the entities of DoT were shown)


The DoT received an unqualified audit opinion. It had under-spent. The Department had applied for rollovers of 94.3% of the amount under-spent. The rollovers applied for were all committed to projects, and the approved amounts would be spent. 99.2% of the original budget had been spent. 26% of planned targets were not achieved. The vacancy rate within the Department was sitting at 19.87%. There was irregular expenditure . Audit findings indicated that the accounting office did not take effective and appropriate steps to prevent irregular expenditure, and that management did not establish a culture of compliance. Leadership was found to have not exercised oversight responsibility over compliance and related internal controls. No financial reviews of strategic plans of the public entities took place. There was a lack of follow up on outstanding quarterly reports in a timely manner.

(Tables and graphs on finances were presented)

Cross Border Road Transport Agency (CBRTA) performance and expenditure report 2011/12
Mr Sipho Khumalo, Chief Executive Officer: Cross Border Road Transport Agency (CBRTA), indicated that the Agency had conducted a Study on the Model for Trade Supply Chain Analysis. This model was part of the development of the business case for border modernisation.

The entity further undertook a study on the analysis of business processes at the borders focusing on the freight supply chains at the borders. The study focused mainly on the analysis of business processes, identification of impediments, international benchmarking, compliance checks and requirements, and South African Revenue Service (SARS) customs modernisation programmes.

An assessment of South African transport corridors focusing on freight flows along the Durban-Lebombo and Durban-Beitbridge corridors was conducted.

The report on the assessment of route utilisation and impediments to passenger flow along the Durban-Lebombo and Durban-Beitbridge corridors was finalised. The report talked to the passenger and driver impediments, route utilisation, and a model for market access.

The Agency introduced performance management systems across all organisational layers, and established a Project Management Office to manage key strategic projects. It improved fraud and corruption detection, and prevention interventions led to the seizure of fraudulent permits and arrests.

The visibility of road transport inspectorate was significantly improved, and this resulted in improved compliance. The Cross Border Operators Forum was initiated and became operational. A report on liberalising market access for road freight has been finalised.

(Tables and statistics figures on law enforcement, regulatory permits and employment equity per gender were shown)

Audit outcomes

With regard to audit outcomes, the Agency received an audit qualification for the current year audit. However, there was an improvement in that the current year penalty revenue was not qualified. This created an opportunity to break the cycle of historical audit qualification. Audit findings indicated non-compliance with Public Finance Management Act (PFMA) and practice notes in relation to quotations, preferential point system and advertisement of bids.

The Agency incurred an irregular expenditure due to non-compliance with procurement prescripts and fruitless and wasteful expenditure. As a result, the entity had developed a dashboard for all the audit findings in order to fast track the systematic resolution of these matters. The performance contracts of executives were being amended to include key risks and findings identified in the audit report. Action plans had been developed for all the significant audit findings with clear deadlines and responsible persons. The internal audit function would be capacitated.

(Tables and graphs on finances were presented)

Mr Khumalo concluded that his entity was geared to demonstrate its commitment to adding public value through its strategic interventions, and was poised to support the National Programme of Action for industrialisation and job creation.

Passenger Rail Agency of South Africa (PRASA) performance and expenditure report 2011/12
Mr Lucky Montana, Chief Executive Officer: PRASA, took the Members through the infrastructure projects that his entity had undertaken. These were the Signaling Programme, Bridge City; and Greenview Capacity Enhancement Project.

Signalling Programme
The upgrading of the signalling system was a key strategic priority. PRASA was replacing all existing signalling interlocking which mainly consisted of obsolete mechanical and electro-mechanical systems. For the next three years, the project had been allocated an amount of R2.4 billion, while telecommunication had been allocated R768 million for the 2012/13 period, R814 million for 2013/14, and R855 million for 2014/15.

Bridge City
This project was involving a new town centre that was being built 17 kilometres from the Durban city centre and it was bridging communities of Phoenix and Inanda, Ntuzuma and KwaMashu and linking them into the urban system. PRASA was constructing a 3.2km rail extension. The rail service would be complemented by an integrated bus and taxi interchange located adjacent to the railway station. The overall developments in the area included a regional hospital, retail, residential, magistrate court and other commercial facilities. PRASA would spend approximately R700 million in the construction of the rail line.

Greenview Capacity Enhancement Project
The project entailed the doubling of existing railway line from Eerste Fabrieke to Greenview. It included earthworks, trackwork, substructure, alterations to road-over-rail bridge, signaling and electrification, and upgrading of Mamelodi Gardens and Pienaarspoort stations and the construction of a new station at Greenview. The Greenview project would provide for 50% increase in passengers over the medium to long term.

Challenges cited were around the formalisation of agreementfor the use of land; relocation of the informal settlement at Greenview; approval of station drawings and authority to start construction; Pienaarspoort level crossing closure; and provision of access roads and intermodal facilities.

Infrastructure interventions were envisaged to be around R13. 5 billion. These interventions were needed to permit operation of new rolling stock and to obtain optimal use of new rolling stock.

Economic Development and Broad Based Black Economic Empowerment (BBBEE)
The PRASA approach to economic development was informed by, amongst other things, the following:
opportunity presented by long term investment in the Rolling Stock Fleet Renewal programme; the
opportunity presented by structuring new project companies to be created for implementing the programme;
government objectives and policy framework for BBBEE; and legislative requirements and guidelines such as the Broad Based Black Economic Empowerment Act 2000 in relation to procurement

PRASA had developed outputs for economic development and these were informed by regulatory framework and socio-economic conditions in South Africa. Outputs developed for economic development were as follows: sustainable job creation for black people, the youth, women, and South Africans; skills development for black people – engineers, artisans, technicians and technologists; subcontracting to black-owned enterprises; development of small, medium and micro enterprises; and increased black equity.

Key Features of Economic Development
A local factory in South Africa was to be constructed and be operational by July 2016; there was to be a minimum 40% local content by year three of delivery; a minimum of 65% local content by value of trains was to be sourced locally, no later than 2021/22; there was to be subcontracting with entities owned by black people, small entities and entities owned by women; and the development of rail related skills and transfer of skills to South Africans.

In order to facilitate the involvement of black people in the economic development programme, PRASA had engaged the National Empowerment Fund (NEF) and the Industrial Development Corporation (IDC) about the possibility of funding the suppliers in this programme so as to enable the achievement of PRASA objectives in economic development. The procurement finance product from NEF required the applicants to be more than 50% owned by black people while the Gro-e-Scheme from IDC was meant for start-up entities.

The NEF had been brought into the process to hold the shares while the procurement process of Equity Partners was underway. The NEF would become a shareholder during the warehousing period and would be entitled to all rights of a shareholder in the Project Company. PRASA would ensure that the shares were transferred to the Equity Partners in such a way that there was sufficient time in the remainder of the contract to enable them to make a meaningful contribution to the project and derive commercial benefit from it. NEF would provide an equity contribution that would commensurate with its shareholding in the Project Company.

With regard to finances, PRASA had committed and spent R4.328 billion of an allocated capital budget of R6.1 billion (70%). The overall budget had been committed by 31 March 2012 for Multi-Year Capital projects. There was an improvement of 96% on the prior year’s shortfall of R795.6 million to R28. 9 million in the current year. This was mainly due to fair valuation of investment property. Irregular expenditure amounted to R25.676 million. This was mainly due to lapsed contracts at Autopax. Wasteful expenditure was sitting at R5 million. The Property Portfolio was noted to have not delivered value. Its income of 48.8% was below budget.

(Tables and graphs on finances were presented)

Passenger services

It was noted that passenger numbers for Metrorail had shown a 9.5% annual improvement. Fatalities declined by 7%. This resulted in a decline in the fatality rate per million passengers of 16.1%. The recapitalisation of the fleet commenced following the approval of a detailed feasibility study by the Cabinet.

Major challenges included the lack of funding for the long distance train service. This was adding a huge financial burden on PRASA. Striking the right balance between operational funding and capital allocations was another challenge. It was critical to capitalise the costs associated with infrastructure upgrade and modernisation.

Department of Transport
Ms D Dlakude (ANC) wanted to know the reasons for not meeting the targets for the scrapping of taxis. She further asked why figures for the Bus Rapid Transit (BRT) in Durban were not included in the presentation.

Mr Pretorius replied that the target could not be met because of the slow response from some provinces, especially KwaZulu-Natal. Another reason was that some operators did not register for the scrapping and they still wanted to be in business.

About Durban BRT, he stated that Durban had not yet started with the BRT programme. That was why figures only for Cape Town and Johannesburg were presented.

Mr I Ollis (DA) asked the Department to explain what the R40 billion earmarked for 10 years was to be used on. He asked how many driver’s licences had been confiscated. Were trains already running on the newly created line extensions? He asked the Department to name the company involved in the R12 million irregular expenditure, and about the origination of the budget responsible for the Nkandla tarred road.

Mr Pretorius replied that the R40 billion was meant for the acquisition of new rolling stock. There were no figures available on confiscated driver’s licences. A commission was undertaken but because of budget constraints it was aborted.

Regarding new train line extensions, he indicated the construction of the new lines has been completed but the operational side of the project had not yet started.

On the issue of the R12 million irregular expenditure, he explained that the name of the company involved was not known to him. But the issue was related to the investor conference that took place last year. One company that did not win the business took the matter to the Public Protector. The matter was still with the Public Protector. The company that won was evaluated using normal evaluation procedures that were always followed based on price and functionality, but not on points. The adjudication committee overturned the decisions of the evaluation committee.

With regard to the Nkandla tarred road, he elaborated that baskets of monies came from different spheres of government, for example, municipalities and provinces. It was noted that in South Africa there were Roads Authorities that deal with roads. These authorities were in municipalities and provinces and had their own budget processes. The DoT was not interfering in their work, but it only advised and exercised oversight. The Nkandla road issue has been on the agenda since 1991. There was no public transport between Nkandla and Kranskop and that community was huge. The Department of Transport in KwaZulu-Natal developed a strategy for developing that area. So investment in that area has been recognised.

Ms Dlakude indicated that Members should stick to the Auditor-General report, and not ask about Nkandla.

Mr Ollis said the presentation was about the budget spent. That was why he was asking that question. He wanted to know if there would be a platform to raise the Nkandla road issue.

The Chairperson said Members should deal with budget-related matters not media reports.

Mr Ollis responded by saying as Committee Members they had the right to ask about money spent on transport issues. If something came to the attention of the media, that showed that somebody had obtained information of where the money came from.

The Chairperson stated it was unfair to use the budget process and the Auditor-General's report to entertain matters raised in the media. The Committee needed to have facts first and then ask about matters raised in the media, but not in the budget process.

Mr G Krumbock (DA) said it was unfair to say Members must not ask about things raised in the media because the issue (Nkandla road) involved public money.

Mr Ollis asked the Department to forward details to the Committee about the Nkandla road.

The Chairperson indicated that the Department has got a mandate to develop roads in rural areas. She suggested that Mr Ollis should have first asked what the budget for road infrastructure development was, then ask about the rural areas that have benefited, and then ask if Nkandla had benefited.

Mr Ollis wanted to know why the Department was not knowledgeable about the Nkandla road because it was a big story in the media. He asked why the Department did not have facts on the issue.

Ms Dlakude intervened by saying rural areas were equally the same as cities. Development had to take place in rural areas. So Members must not deviate from what they were discussing. The issue should not to be politicized. Nkandla was not the only place where development was happening.

Mr P Mbhele (COPE) asked how the Department was planning to address the deficiencies and inadequacies pointed out in the audit report. Secondly, he enquired if there was something new that has come out of the migration of Scholar Transport from the Department of Basic Education to DoT. Lastly, he asked why Shova Kalula was happening only in four cities.

On the issue deficiencies, Mr Pretorius agreed that that has been identified through the Auditor-General's report. The office of the Auditor-General would assess those issues on a quarterly basis. About Scholar Transport migration, he indicated there were serious improvements. It was easy to have it integrated with the public transport system. That was the advantage. The programme was running fine in KwaZulu-Natal. But the Eastern Cape and Mpumalanga were experiencing challenges.

Regarding Shova Kalula, he explained that the problem was under-funding. The Department decided to develop a strategy for the roll-out of the programme. Already there was a public-private partnership and a development of capacity with manufacturers of bicycles. The strategy has been finalised.

Mr Krumbock commented that Durban was seen as the slowest port in the world when it came to the days it took to up-load and off-load goods.
To which Mr Pretorius said the role of the Department was to monitor efficiencies. It would aim to get reports on a quarterly basis on improvements. For instance, there was a Local and National Ports Coordinating Committee, and the private sector had a seat there. That was how the DoT was managing efficiencies in the ports.

Ms N Ngele (ANC) asked how was the Department planning to address the problem of vacancy rates at senior level which was above 20%; and why the Department under-spent by R320 million.

Responding to the issue of vacancies, Mr Pretorius expatiated that a team has been identified to dedicate its energy to the filling of vacancies. Advertisements were placed in newspapers in June 2012. The plan was to complete the process by September. By the end of the year everything would be complete. The issue was discussed with the Auditor-General.

About under-spending, he admitted there was under-spending in infrastructure. It was realised that the system was going to be old and be out-of-date soon. That was why money had been saved to get completely new systems. It was a strategic decision.

Ms R Motsepe (ANC) wanted to find out about the outcome of four cases that involved employees of the Department.

Mr Pretorius replied that two cases were still with the Public Protector while investigation for the other two had been completed and taken forward for consideration.

Mr Ollis enquired if the issued permits were given to South African companies doing business in other African countries or were given to companies of foreign countries doing business with South Africa. Secondly, he wanted to find out why the number of permits issued was decreasing while tariff fees had increased approximately by 600%; and thirdly, why there were so many multiple inspections on the borders; trucking companies were complaining that these inspections were time consuming.

Replying to the question of permits, Mr Khumalo stated all the permits were issued to South African operators whether they were transporting goods or people to countries in the Southern African Development Community (SADC) region. There were bilateral and multilateral agreements that governed the movement of goods and people. The process was being reciprocated by the countries South Africa was dealing with. For example, if 50 trucks were licensed to go Zambia, then Zambia would have to send 50 trucks to South Africa.

On the issue of decreased permits issued , he elaborated that this could be attributable to permit fees and the five year permits. When the entity was incepted it was assumed that its operation costs would be from the permits and would be increased yearly. But there was no regulation that stated the percentage for the yearly increase. Consequently, permits did not increase and the entity shrank because of the lack of revenue. The Auditor-General intervened. A policy directive indicated that passenger movement should be charged less and charges be more for carbotage because the trucks were doing more damage to the roads. It was also reasoned that the entity was self-funded and hence it had to increase its income so that it could do its job.

About multiple inspections, he explained that all the government agencies involved in inspections had different mandates. So, if they stopped a truck they had to see to it that it complied with the laws and regulations. A level of coordination was being developed with the Department of Home Affairs. The “Single Window” stated that if a truck was stopped once, then it would not be inspected for the second or third time.

Mr M Duma (ANC) remarked that the trucks were damaging the roads. He reasoned that if rail was used more jobs would be created instead of employing one truck driver. He further wanted to know about the ownership of the trucks: if they were owned by locals or foreigners.

Mr Khumalo agreed that trucks were damaging the roads. But he indicated that the very same trucks that were damaging the roads were driving the economy – transporting goods to South Africa and from South Africa to foreign countries. They were generating foreign revenue. He noted that the transport industry, by nature, had its negative side but the benefits generated were more. It should be remembered that South Africa had not got many rail links with other SADC countries except Mozambique. So this needed a balancing act. Regarding ownership, the trucks were owned by South Africans, especially those transporting goods to other African countries.

The Chairperson commented that findings on household survey about public transport in South Africa pointed to congestion on road rather than on rail. She did not the relation between the targets presented and the findings of the survey regarding the number of permits used versus transportation issues. 80% of goods were transported by roads, hence the many permits, and less by rail.

Mr Khumalo replied by saying that, from an investment point of view, cross border rail links should be considered to minimise the cross border road links that were resulting in fatal accidents, harmful emissions, and high price of goods.

The Chairperson commended the Agency for the work it has produced and on improvements it had made.

Mr Ollis asked what was the status of the buses that Autopax had for the Soccer World Cup.

Mr Montana explained that the buses were still with PRASA. 50 were leased. Some of these buses were used by PRASA when trains were not functioning properly. Others had been sold and sponsored to some schools. Some taxi people had approached PRASA about the buses. The proposal was being given consideration. Other buses were being used by the PSL teams.

Mr Ollis asked why PRASA spent very little at first, and then more later during the 10-year period of the R40 billion rolling stock programme?

Mr Montana replied that once the procurement process was completed, the “Winning Limit” approach would be implemented.

Mr Ollis said that in the long term new trains would be bought. Would there be new signals or communication systems?

Mr Montana replied that new signals would be installed. A new short message system (SMS) system was in place to alert people of disruptions and problems. Siemens was responsible for the roll-out of the telecoms systems.

Mr Ollis asked, if the property division was the jewel in the crown, what the problem there was, because its income was not growing.

Mr Montana replied that the property division needed a cash injection and expertise. PRASA had applied to the DoT to get a strategic equity partner to come on board. So far, nothing had been approved. Proposals were being developed to obtain an investor partner.

Mr Ollis said that, If a BEE company had its own structure or arrangement, PRASA did not have a problem with that. What did PRASA do with this arrangement if companies that had to work together had different BEE arrangements?

Mr Montana replied that different BEE arrangements would not be an issue between two companies. Rolling stock manufacturers would go for 7% in the deal, not 30%. It was envisaged that most beneficiaries of these deals would be companies working with rolling stock manufacturers. Even if the companies did not know each other they still could get into business together. That was happening already. There was no reason that PRASA could not agree to such arrangements.

Ms Ngele asked Mr Montana to explain how the fast trains that were going to be bought were going to run because, to her, it appeared that there would be no new trains in the townships.

Mr Montana elaborated that new, high-speed trains were going to be bought. These trains would operate locally in all suburbs and townships and others would make long distance journeys. The only difference would be that those running locally would have a governed running speed of 100 km/h and the long distance ones would have their own speed control measures. The trains would use cutting-edge technology.

Ms Dlakude wanted to know how people were going to be accommodated in the new rolling stock if the passenger mainliner from Mpumalanga to Johannesburg was on the verge of being discontinued.

To which Mr Montana indicated that new trains had been ordered already. These trains were dual-powered – using diesel and electricity. Many projects were in the pipeline to revitalise the rail lines in different parts of the country.

Ms Motsepe asked what happened when a contractor failed to finish the job.

Mr Montana replied that usually one needed to have guarantees in place when awarding the business.

The Chairperson commented that PRASA had made it possible to turn things around. The Committee and the Board of PRASA saw the kind of investment that was needed to make PRASA work in order to deliver a service to the people. This demonstrated that if one spoke with one voice, it was possible to move mountains and get things done. Rail transportation was the backbone of transportation in this country. Decline in passenger use of Shosholoza Meyl should be assessed in line with services offered by the carrier. People liked rail service because it was safer and cheaper than taxis, but it was taking too long to arrive at the destination. So it was important that one asked who had the responsibility for transporting people.

The meeting was adjourned.


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