Department of Transport 2016 budget briefing; Passenger Rail Agency of SA and Railway Safety Regulator on their 2016 Annual Performance Plans

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Transport

12 April 2016
Chairperson: Mr G Radebe (ANC)
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Meeting Summary

Railway Safety Regulator Annual Performance Plan 2016/17
Railway Safety Regulator Strategic Plan 2016/2021
Passenger Rail Agency of SA 2016 Annual Performance Plan [email info@pmg.org.za]

Passenger Railway Agency of South Africa (PRASA) presented its Annual Performance Plan to the Committee. It noted that passenger trips dropped by from 550 million to 500 million between the previous and current financial year. The strategic roadmap had been rolled out in 3 phases: comprising  stabilisation of commuter rail (2009-2010), a focus away from refurbishment to replacement (2011-2014), and recapitalisation, growth and expansion (2015 and beyond).  Its contribution to the National Development Plan  included increasing investment in public transport and resolving existing public transport policy issues, providing affordable, faster, reliable and safe transport. Its plans were in alignment with the National Transport Master Plan for 2050, with the focus on prioritising a list of rail service and network expansion interventions that provide more capacity to accommodate forecast growth, and focusing efforts to make better use of the networks. It was emphasising the rollout of specific programmes such as rolling stock fleet renewal investment programme, depot modernisation, station modernisation, and signalling. Key strategic pillars that underpin the achievement of the strategic priorities were also highlighted and the entity’s investment outlook revealed an allocation of 56.7% of the investment into infrastructure, 28.5% to new rolling stock, 13.0% to accelerated rolling stock programme , and 1.8% for the acquisition of new locomotives. The allocation per division revealed an envisaged increase in allocation over the next three years. 39% of the revenue is provided by fare revenue (Autopax and PRASA Rail), 49% is obtained from government subsidy (DOT), 8% is from rental income (PRASA CRES and PRASA Rail), and 4% is from other sources. The group subsidy depicts an increase of Opex above 5.0% during the MTEF period. The rail subsidy had been reduced to provide for the mainline passenger service. PRASA will ensure the building of 580 trains in the country, which will be comprised of 65% local content, ensure a generation of 20% in terms of energy for new trains, ensure the creation of 16 645 jobs over the next 10 years, and ensure property and asset development with private sector investment. The Chief Financial officer described it as “technically solvent” but at risk of not being able to pay for operational obligations, as it was underfunded and it would require a  transfer from capital grant to operational subsidy on an annual basis. PRASA was reportedly granted only R800 million from the request for transfer of R1.6 billion from capital subsidy to operational subsidy which left an operational cash shortfall of R599 million at the end of the financial year. 

The majority of Members' questions relating to PRASA were centred on the decline in annual number of trips, poor state of rail transport in the Western Cape, insurance recoveries which doubled up in 2015/16 as compared to 2014/15 financial year, affordability of world-class services by citizens, partnerships with Transnet, high personnel expenditure yet many vacancies, integration of services with transport stakeholders, and clarity regarding the status quo of the Moloto project.

The Railway Safety Regulator (RSR) outlined its contribution to the Nine point plan as conducting technology reviews on all new technology introduced, supporting operators in mitigating risks within the railway landscape, and also developing regulations to encourage private sector investment. Interventions relating to the State of the Nation Address (SONA) included ensuring that strategic objectives are achieved, unqualified audit status is maintained and moved towards a clean audit, and encouraging an internship and junior inspector programmes. The entity’s main vision  is to aspire to zero safety occurrences. Statistics confirmed that the entity has improved in meeting its targets over the years and it only failed to achieve one target in the 2015/16 year. A regulatory impact assessment was conducted by the RSR in conjunction with the University of Stellenbosch to identify gaps in terms of RSR regulatory and security issues. The assessment identified collisions and train fires as the main cost driver for PRASA, with few derailments and level crossing accidents. For Transnet Freight Rail, the  highest cost driver was derailments and the lowest was level crossing occurrences. Cost per risk profiles were outlined, and security related incidents were described. The most train fires happened in  Gauteng, KwaZulu-Natal, and Western Cape whilst collisions was associated with the Eastern Cape. Compliance  and risk interventions reported increased over the past financial years and interventions in 2015/16 doubled those in 2014/14. Efficiency and productivity reportedly increased, with less inspectorate staff. Targeted revenues were described, as well as the budgets.  Grant income of the entity  increased by 4% each year for the past two financial years and permit fees increased by 27% each year during the same period. The budgeted revenue for the current financial year is comprised of 52% from safety permit fees, 24% from technology audit fees, 22% from government grant, and 2% from investigations. Strategic projects include asset management, Association of Railway Regulators in Southern African Development Community (SADC), high speed rail regulation and related standards, and security regulations and related standards such as supporting railway police. A proactive intervention towards safety regulations is imperative. The major challenges spotted by the CEO were unsecured railway reserves which results in increased fatality rates from people struck by trains , and revenue generating streams which are not explicitly mentioned in the RSR Act.

Members asked about the collaboration of the entity with SAPS as regards train fires, theft, and vandalism of infrastructure. Other questions include the limited investigations into people struck by train occurrences, engagements with stakeholders and entities regarding safety issues, generation of revenue by amending the RSR Act.

The budget of the Department of Transport (DOT) was then presented. The budget for the current financial year was reported as R56.61 billion with a forecasted increase of 4.5% in 2016/17, 9% in 2017/18, and 7% in 2018/19. The increase in 2017/18 and 2018/19 wa prompted by additional allocations for Moloto road upgrade, Gauteng freeway improvement project, non-toll road network, and Public Transport Operations Grant (PTOG). The medium term focus of the Department will be geared towards maintenance, upgrading, and expansion projects. Baseline reduction is effected for compensation of employees, goods and services, and transfers and subsidies. Budgets for administration (R394.7 million), integrated transport planning (R78.95 million), rail transport (R18.98 billion), and road transport (R24.52 billion) will increase over the next two financial years. There is a once-off allocation of R100 million for civil aviation in the current financial year for satellite tracking system. The budgeted amount for the current financial year is R253.22 million, R159.41 million in 2017/18, and R167.81 million in 2018/19. The budget for maritime transport increased from R121.08 million in 2015/16 to R121.73 million in the current financial year. The figures for line items were set out, and the posts structure was described.  The budget for major transfers is R54 billion for 2016/17 and will increase in the next two financial years. As regards upgrading rail infrastructure and services, the budget for rail infrastructure is expected to grow at an annual rate of 5.5%. The capital budget constitutes R46.5 billion over medium term and the Cabinet approved reductions of R710 million over medium term to lower the national aggregate ceiling.  The R573 Moloto road will be upgraded at a cost of R3.7 billion in the medium term and SANRAL budget was increased by R1.3 billion over the medium term for the Gauteng freeway improvement project and also increased by R2.2 billion to strengthen non-toll road network. Road infrastructure damaged by disasters will be rehabilitated at a cost of R848 million over the medium term. The grants budgets and spread were described. Taxi scrapping was allocated a larger portion of the budget. Members; questions related to a number of apparent discrepancies, which it was greed would be conveyed in writing to the Department, and the apparent mismatch in information about the Moloto Road projects between the presentations of SANRAL and DOT.  Members asked for updates on the suspended DDGs, as well as the frequency of interactions with PRASA and other entities.
 

Meeting report

Passenger Rail Agency SA: 2016 Annual Performance Plan briefing
Mr M Mahlala, Director, Passenger Rail Agency SA,  briefed the Committee about the legal operating structure of the entity (PRASA) which identified rail operations such as Metrorail, Shosholoza Meyl and Premier Classe, as well as subsidiaries such as Autopax and Intersite investments. He also set out the organisational structure of the entity and highlighted the main objective of the entity as ensuring that rail commuter services are provided within, to and from the Republic.

PRASA's   strategic roadmap has been rolled out in 3 phases:
- stabilisation of commuter rail (2009-2010)
- a focus away from refurbishment to replacement (2011-2014)
- recapitalisation, growth and expansion (2015 and beyond).

He highlighted applicable legislation as the Nine- point plan, Public Finance Management Act (PFMA), National Land Transportation Act (NLTA), and others. He reiterated that the entity contributes to the National Development Plan (NDP) by increasing investment in public transport and resolving existing public transport policy issues, providing affordable, faster, reliable and safe transport, providing transport plans that are aligned with spatial development, renewing the commuter train fleet, providing property development, and improving broadband connectivity.

Its strategic plan was also aligned with the National Transport Masterplan 2050, which focuses on prioritising a list of rail service and network expansion interventions that provide more capacity to accommodate forecast growth, transform the rail product on many corridors, seek to make better use of the network, and propose corridor extensions to new or growing settlement. He added that the focus extends to the rolling out of specific initiatives and investment programmes  such as rolling stock fleet renewal investment programme (a 20- year programme ), depot modernisation (over 10 years), station modernisation (over 10 years), and signalling (a 5-7 year programme ).

He stated that the themes informing the delivery on the corporate plan and its strategic objectives will be characterised by mode of choice, modernisation, public value, growth expansion, mobility, accessibility, service excellence, and sustainability.

PRASA’s external challenges are customer-centric, its ambitions are public value driven, and its solutions are to provide a secured future. The strategic priorities for the MTEF period are to ensure customer centricity via running the business (delivering on the mandate, building positive stakeholders), getting the basics right (through governance and compliance, projects execution and contracts management), modernisation readiness (such as infrastructure readiness and rolling stock fleet removal), and securing the future business (by delivering on the modernisation programme , and growing the revenue base).

He then identified the five key strategic pillars that underpin the achievement of the strategic priorities as meeting customer expectations, superior performance, closing the funding gap, delivering public value, and delivering on the brand promise.

56.7% of the investment is allocated to infrastructure, 28.5% is allocated to new rolling stock, 13.0% is allocated to accelerated rolling stock programme , and 1.8% is allocated for the acquisition of new locomotives.  The investment strategy was outlined.

He noted that an increase in allocation is envisaged over the next three years. The Medium Term Expenditure Framework (MTEF) capital programme amounts to R21.9 billion from 2014/15 – 2018/19 for PRASA corporate services, R5.0 billion for PRASA rail, R13.7 billion PRASA technical, and R5.9 billion for PRASA corporate real estate solutions. Operating costs, total revenue, depreciation and shortfall are all expected to increase over the next three financial years. The group revenue streams were then described.  39% of the revenue is provided by fare revenue, 49% relates to government subsidy, 8% is from rental income, and 4% is from other sources. He also highlighted that the major income streams are from operational subsidy from the Department of Transport (DOT or the Department), fare revenue  from Autopax and PRASA Rail, and rental income  from PRASA CRES and PRASA Rail). The group subsidy depicts an increase of the operating expenses above 5.0% during the MTEF period, but the growth is below the National Treasury (NT) projected inflation, and no additional subsidy was allocated for Main Line Passenger Service (MLPS) on National Treasury's allocation. He reiterated that the rail subsidy was reduced to provide for MLPS.

The report on the financials was then presented. The total equity and liabilities are R68.37 billion, R80.41 billion, and R97.65 billion for financial years 2016/17 to 2018/19 respectively. For the same period, cash equivalents at the end of the years are projected as R5.8 million, R2.2 million, and R2.8 million respectively.

PRASA;s engagement with the Industrial Policy Action Plan was that it had  a local train manufacturing plant which will ensure the building of 580 trains in the country which will be made up of 65% local content. He reiterated that the entity intended to generate 20% in terms of energy for new trains.

PRASA aims to create 16 645 jobs over the next ten years through projects such as rolling stock fleet renewal programme, national signalling programme, and rail extension amongst others. He added that the organisation has also engaged in property and asset development with private sector investment. To contribute to the transport infrastructure plan, it aims to provide affordable, safe, secure, and reliable transport and invest over R172 billion.

He then outlined the key performance indicators, and stated that an indication of key performance for “getting the basics right” is an unqualified audit opinion. As regards running the business, the main KPI was a good customer satisfaction rating for PRASA passenger entities. In relation to changing the business, performance indicators identified include a readiness for deploying the new EMU trains in Gauteng corridors, station improvements and upgrade projects. For securing the business of the future, the KPIs highlighted were setting up a Memorandum of Understanding with metropolitan transport authorities, and spending on black women owned companies. Actions to improve performance were highlighted as reviewing of target setting process for realistic and achievable targets, reducing the number of indicators by 30%, alignment of budget to APP, consequence management, and monitoring and evaluation process via group executive and board.

Ms Hunadi Manyatsa, Chief Financial Officer, PRASA, presented the financial report of the previous financial year. She stated that the entity is technically solvent but is at risk of not being able to pay all of its operational obligations. PRASA is currently underfunded in operational activities, and current income and expenditure trends now require transfer from capital grant to operational subsidy on an annual basis. She reiterated that PRASA was granted only R800 million out of its request for transfer of R1.6 billion from capital subsidy to operational subsidy, which left an operational cash shortfall of R599 million at the end of the financial year. Whilst presenting the income statement for the end of the financial year, revenue increased from the previous financial year and was now R6.8 billion and R7.5 billion for entity and group respectively. Other income decreased from the previous financial year and reflected R1.8 billion for entity and R2.0 billion for group. Losses significantly reduced from the previous financial year and the profit and total comprehensive income for the year were R308.2 million for the entity and R321.62 million for the group.

Discussion
Mr C Hunsinger (DA) raised his concern over a decline in the number of client trips from 550 million (2015/16 APP) to 500 million in the current financial year. He added that five of the 25 platforms in Cape Town which has nearly 600 000 daily commuters are paralysed in terms of operations. He reiterated that passengers are losing confidence in PRASA due to lack of safety and reliability of its current services. He then enquired about the efficiency of railway police in regard to the number of commuters allowed per platform. As regards the security of the general rail reserve, he asked about the plans in place to protect the entity’s assets and infrastructure. He mentioned that since 95% of commuters are low and middle income earners, it would be inappropriate for the entity to lose out on its market share as commuters are the real assets of the organisation. He then requested PRASA to share its crime statistics with the Committee and inform it accordingly if there have been any arrests, investigations, or convictions. He sought clarity about the specific policy applied and the forecast formula used in the entity’s draft budget.  He also asked why insurance recoveries doubled up in the 2015/16 financial year as compared to 2014/15 financial year. He enquired if third party court claims covered liabilities that may occur.

Mr M Mabika (NFP) mentioned that in previous engagements with PRASA, Mr M Sibande (ANC) had highlighted the poor state of rail transport in Western Cape. He then enquired if there had been any interventions. He also asked about the entity’s plan to mitigate train delays.

Ms S Xego (ANC) welcomed the presentation by PRASA. She then suggested that the Minister of Transport should be placed at the head of the board of directors in the presented organisational structure. She asked if there are also plans to subsidise commuters who are high income earners. She noted PRASA’s focus groups for its economic empowerment and skills development, and enquired if there are provisions for spouses of military veterans. She also asked why PRASA termed its target groups in terms of skills development and job creation “black citizens and Africans”. She further sought clarity on the affordability of the world class services the entity intended offering, considering the category of commuters who used the services.

Mr M Maswangayi (ANC) asked if there are any partnerships with Transnet for manufacturing trains locally, since Transnet currently exports locomotive trains to Mozambique

Mr L Ramatlakane (ANC) asked why the target of Shosholoza Meyl dropped over the years. He then sought clarity on the contradictions between the APP and the corporate plan. He also asked about the performance of the real estate of PRASA.

Ms D Magadzi (ANC) enquired why personnel expenditure is high whilst there are still many vacancies. She expressed her shock that despite PRASA’s high haulage of commuters, the entity still received a lower subsidy than Gautrain, with its far lower haulage, and whether PRASA had discussed this with National Treasury.  She also questioned the reduction in the number of commuter trips. Ms Magadzi sought clarity on the entity’s integration with the Bus Rapid Transport (BRT), taxi industry, and other stakeholders and enquired how organisational culture and compliance issues will be dealt with when ICT issues keep resurfacing each year. She accused PRASA’s media of sluggishness in publishing its own projects. She reiterated that PRASA’s projects are mostly publicised in newspapers and many local communities are not well informed about the entity’s products and services.

Mr M Sibande (ANC) enquired about the Moloto Road Project, asking for details on the funding and an explanation of the  discrepancies between the APP and corporate plan figures. He also sought clarity on the statement “PRASA is technically solvent” which was reflected in the report. He questioned the duplication of mandates, as PRASA currently uses both consultants and the Department. He asked about the entity’s role in facilitating trans-Kalahari projects. He questioned if there is tangible proof of rail stations and on-going projects that confirm PRASA’s interventions. He also questioned the silence of the entity about its own achievements – a typical example was the upgrading of the park station. He too wanted details and the financial implications on investigation of crimes.

Mr William Steenkamp (PRASA board member) responded that a detailed report on safety and security will be submitted to the Committee, and a historical safety and security Indaba will be conducted in May 2016. He conceded that PRASA had failed in advertising its own products and services and affirmed that an advertisement campaign is scheduled to launch at the end of April 2016. He added that the subsidy constitutes a major issue for PRASA, as it hauls 60% of the market share of commuters in the Western Cape. He added the current subsidy being received is grossly unfair and insufficient for the entity to fulfil its mandate ,considering the massive network and the capital-intensive maintenance of infrastructure. He stated that PRASA will further engage the Committee on the Moloto Project update.

Mr Nathi Khena, Acting Chief Executive Officer, PRASA) highlighted that critical issues raised by the Committee requires quality time for effective engagement. He reiterated that a lot of projects are on-going and mentioned that there have been meetings as regards the extension of Gautrain’s services to Soweto as PRASA currently services the area. He affirmed that no funding has been received by the entity for the Moloto project and added that funds reportedly released were strictly for the road upgrade and not for the rail part of the project. He mentioned that cross-border services are only being offered by buses, and not trains. He stated that capacity is being built within the entity to fulfil the African Union (AU) mandate to be the manufacturing hub of Africa, and there are partnerships with Transnet in this regard. In regard the world-class services that the entity plans on offering, he noted that a funding model is being developed. 

The Chairperson enquired why there have been no updates on the Moloto project.

Ms Magadzi mentioned that in previous engagements with South African National Road Agency (SANRAL) and PRASA, the Committee was informed about the progress report and there were no updates after that.

Mr Jan de Villiers, Acting Deputy Director General, Department of Transport,  responded that the National Treasury raised two issues on the Moloto project,  namely the affordability issues and huge spatial arrangements for Tshwane. He confirmed that the transaction advice process was concluded. A meeting has been set up between the Minister of Finance and the Minister of Transport and the outcome of the meeting is awaited. The upgrading of the road network is required to sustain the rail network.

The Chairperson mentioned that the Moloto project was a promise that was long overdue and residents in the area are eagerly awaiting the realisation of the project.

Mr Sibande mentioned that the Deputy Minister of Transport addressed Moloto residents when the promise was made, so that the delay in the realisation of the project was unacceptable.       

Railway Safety Regulator: Strategic plan 2016-2021
Ms Thembi Msibi, Chairperson, Railway Safety Regulator, highlighted the contribution of the entity to the Nine-point plan. These included conducting technology reviews on all new technology introduced in support of the PRASA modernisation project and Transnet Freight Rail (TFR) market demand strategy, supporting operators in mitigating risks within the railway landscape to ensure safe and efficient railway operations, and also developing regulations to encourage private sector investment. In answer to the priorities of the State of the Nation Address, the Railway Safety Regulator (RSR) prioritised the achievement of strategic objectives, ensures its unqualified audit status is maintained and moves towards a clean audit, and encourages internship and junior inspector programmes amongst others.

Mr Nkululeko Poya, Chief Executive Officer, RSR  presented the rest of the strategic plan. He mentioned that the entity’s main vision is to achieve zero occurrences and he identified the strategic pillars as enforcement, engineering, and education. He also briefed the Committee about the organisational structure and the annual performance. He confirmed that the entity has improved in meeting its targets over the years. He reiterated that the entity only failed to achieve one target in the 2015/16 financial year thereby achieving a 95% score. However he clarified that the 2015/16 performance is yet to be audited.

RSR, in conjunction with the University of Stellenbosch has conducted a regulatory impact assessment which also serves as a cost benefit analysis. The assessment identified gaps in the RSR regulatory framework such as rail reserve, access control, and security issues regarding theft and vandalism. He reiterated that the assessment also identified collisions and train fires as the main cost driver for PRASA. The outcomes of the assessment will inform the RSR regulatory framework development and focus on planning of RSR interventions.

The occurrence costs depicted derailments as a main cost driver, and level crossing occurrence costs as the least. The TRF occurrence costs over the financial years 2009/2010 to 2014/15 showed that the highest cost drivers remained derailments, with a maximum of R816.3 million in 2010/2011 and the lowest to be level crossing occurrences, with a low of R0.62 million in 2011/12. The freight cost per risk profile revealed that Beitbridge, Natcor, Maputo, Krugersdorp, and Capecor all require more RSR attention as they fall above the 0.1% cost of risk at R1 000 GDP/tonne. Security related incidents over the study period depicted the main cost driver as train fires and the lowest was identified as level crossing accidents. For all occurrence costs in regions (2010-2014), train fires were closely associated with the Gauteng, KwaZulu-Natal, and Western Cape regions whilst collisions was associated with the Eastern Cape region. The cost of risk for PRASA weighed average gross value add (WAGVA) showed that Cape Town, Ethekwini, and Western areas of Mogale and Merafong all required more attention as the areas appeared above the 0.1% cost of risk for PRASA WAGVA.

He confirmed that the  compliance and risk interventions have increased over the past financial years and interventions in 2015/16 doubled those in 2014/15. He reiterated that efficiency and productivity has increased, even with less inspectorate staff.

The second strategic outcome of the entity is to ensure a sustainable institutional growth and development. RSR aimed to  secure a sustainable financial environment. Set targets are R123.5 million (2016/17), R143.1 million (2017/18), R161.65 (2018/19), and R180.2 (2019/20) for generation of revenue from the main revenue stream. He added that the entity also considers increasing its service delivery index over the years, as a means of ensuring performance excellence.

Mr Poya then presented the budget. The forecasted revenues are R252.9 million (2016/17), R281.1 million (2017/18), and R304.3 million (2018/2019). He noted that the revenues will be spent on compensation of employees, goods and services, and capital expenditure. He informed the Committee that grant income of the entity increased by 4% each year for the past two financial years and permit fees increased by 27% each year during the same period. He explained that the budgeted revenue for the current financial year is comprised of 52% from safety permit fees, 24% from technology audit fees, 22% from government grant, and 2% from investigation.

He then outlined the strategic projects embarked on by the entity. Asset management remains a tasking process for the entity. He also identified other projects: namely the Association of Railway Regulators in Southern African Development Community (SADC), high speed rail regulation and related standards, and security regulations and related standards such as supporting railway police. He noted that a proactive intervention is necessary for safety regulations.

The major challenges are unsecured railway reserves which results in increased fatality rates within the” people struck by trains” category, and revenue generating streams which are not explicitly mentioned in the RSR Act.

Discussion
Mr Hunsinger enquired about the role of the RSR as a safety regulator in the supply of South African manufactured locomotives to Mozambique by PRASA. With reference to PRASA’s occurrences cost from 2010 to 2015, he asked how the RSR collaborates with South African Police Service (SAPS) to prevent the recurrence of train fires, theft, and vandalism of infrastructure. He asked how it was possible to quantify the risk occurrence of a passenger in rand value. He then sought clarity on strategic objective 1.1 (level crossings) targets in terms of percentages over the years. He also mentioned that the plan to investigate 10% of level crossing occurrences contradicts the entity’s vision of a 0% occurrence, which in turn negatively affects the corporate image of the organisation. He also questioned why only 5% of cases of people struck by trains would be investigated, and said that this was not a good indicator.

Mr Sibande commended the presentation. He enquired if the issues raised by the auditors, as highlighted for 11 November 2014 have been addressed. He asked about the frequency of interaction between  PRASA, the DOT and other entities. He then enquired if there have been study tours to other nations like Japan to learn new methods of mitigating accidents. He also sought clarity on the differentiation between arson and train fires. He further questioned the “NIL” reflected in the report for some years, whilst it was known that there had been incidents of  burning of trains in Western Cape. He enquired about PRASA’s compliance with RSR recommendations.

Mr Maswanganyi enquired if there had been any engagements with Gautrain, PRASA, Transnet and the Department on safety issues.

Mr Ramatlakane asked RSR what interventions it would like to see from the Committee, in relation to the RSR Act in particular, to help it realise its mandate. He mentioned the  zero occurrences target, which he also thought was misleading and ambiguous. He enquired if the investigation of 2% of the occurrences is prompted by resource constraints. He then enquired about the report of investigations, assessments, and commissioning as regards locomotives which was raised in previous engagements.

The Chairperson enquired how the Committee can be of assistance in alleviating the challenge of revenue generation.

Ms Msibi noted that RSR was not entitled to have a surplus and overdraft because the entity is a Schedule 3 entity. She mentioned that the RSR is still dealing with underlying issues and will engage the Committee in due course. In previous engagements with the Committee, the RSR informed it that there are interactions with other entities, as well as PRASA. She reiterated that signalling issues have been discussed, amongst other challenges, and a meeting has been requested to engage Transnet at board level on pertinent issues.

Mr Poya said that the GVA is calculated using statistics from the World Bank and Human Sciences Research Council (HSRC). GVA is calculated by using statistics such as the average economic value of a commuter on a train in certain geographical areas, and statistics from PRASA such as the number of persons on trains. He indicated that the RSR’s involvement in interacting with other regulators will be pertinent to the issuing of manufacturing permits in the nearest future. He reiterated that manufacturers are not operators, but are required to adhere to some strict safety rules. He reiterated that the Act governing the RSR was developed pre 2002 and the DOT is trying to amend the Act to be prescriptive in the way the Regulator is funded. He clarified that the number of investigations had reduced due to a reduction in accidents. He stated that the tactical plan will reflect the statistics of audits and investigations, but added that the main objective is to drastically reduce the number of investigations. In relation to engagements with PRASA, he mentioned that a request has been made to PRASA to submit certain documents to RSR.

Ms Tshepo Kgape, Chief Operating Officer, RSR, clarified that people struck by trains still remains the highest risk factor. She too said  that the number of interactions with entities have significantly increased, especially on operational issues, including engagements with TFR and Gautrain.  She mentioned that there are no repeat findings by the Auditor-General in the past financial year. An International Rail Safety Conference was conducted in South Africa. She also mentioned that regulations dealing with issues such as rail reserves are being developed to prevent people from being struck by trains. She clarified that the 100% of 50% reflected in the report refers to multi-year projects.

The Chairperson sought clarity on the information requested from PRASA by the RSR in previous engagements. 

Mr Poya responded that the information requested from PRASA included maintenance information and arrangements for proposed locomotives, air quality study in tunnels in relation to the diesel locomotives, and human factors (ergonomics, verification and validation of design). He affirmed that the air quality report was received earlier, on 12 April 2016. in relation to TFR costs, he explained that train fires can happen through electrical faults and arson. He added that PRASA is currently in compliance with RSR recommendations as regards signalling and communication. He said there is an agreement between both entities to ensure that the outstanding issues are rectified prior to the next permit submission in September 2016.

Ms Magadzi asked about the status of the amendment of the Act and if it will be finalised before the end of the current financial year.

The DOT replied that the gaps in the current Act were identified in the previous financial year and the draft Bill has been completed. He added that a consultation process is on-going with stakeholders.

Department of Transport (DOT) 2016 budget briefing
Mr Collins Letsoalo, Chief Financial Officer, Department of Transport, tabled the budget for the current financial year, as R56.61 billion. He reiterated that the budget increased by 4.5% in 2016/17, 9% in 2017/18, and 7% in 2018/19. He clarified that the increase in 2017/18 and 2018/19 is prompted by additional allocations for the Moloto Road upgrade, Gauteng freeway improvement project, non-toll road network, and Public Transport Operations Grant (PTOG). He also stated that the Department will in the medium term focus on maintenance, upgrading, and expansion projects.

The baseline reduction is effected as follows:
- Compensation of employees in 2017/18 by R34.2 million, and R54.1 million in 2018/19
- Goods and services, reduction of R61.7 million in the current financial year, R64.5 million in the next financial year, and R75.6 million in 2018/19.
- Transfers and subsidies, for SANRAL as R200 million in the current financial year, R153 million in the next financial year, and R240 million in 2018/19. Reductions for PRASA were highlighted as R350 million in 2016/17, R170 million in 2017/18, and R190 million in 2018/19.
- The Public Transport Network Grant (PTNG) reductions were depicted as R570 million in 2016/17, R250 million in 2017/18, and R200 million in 2018/19.

The budget for Programme 1 (Administration) for the current financial year is R394.7 million and will increase over the next two financial years. The budgeted R78.95 million for Programme 2 (Integrated Transport Planning) in the current financial year will increase over the next 2 years. He confirmed that R18.98 billion is budgeted for Programme 3 (Rail Transport) in the current financial year. He noted that the amount will increase to R20.13 billion in 2017/18 and R21.19 billion in 2018/19. For Programme 4 (Road Transport), R24.52 billion is budgeted in the current financial year, R27.40 billion in 2017/18, and R29.82 billion in 2018/19. For Programme 5 (Civil Aviation), he highlighted that there is a once-off allocation of R100 million in the current financial year for satellite tracking system. He confirmed that the budgeted amount for the current financial year is R253.22 million, R159.41 million in 2017/18, and R167.81 million in 2018/19. The budget for Programme 6 (Maritime Transport) increased from R121.08 million in 2015/16 to R121.73 million in the current financial year. He identified the budgets for 2017/18 and 2018/19 as R117.46 and R120.44 million respectively. The CFO explained that the programme is inclusive of national maritime transport policy, inland waterway strategy, 2020 IMO world maritime day, cabotage policy, and Operation Phakisa ocean economy. For Programme 7 (Public Transport) there is a budget of R11.65 million in the current financial year, R12.80 million in 2017/18, and R13.54 million in 2018/19.

The budget for compensation of employees will increase for the next three financial years and he informed the Committee that there are 866 approved posts in the entity out of which 715 are filled, 732 are funded and 134 posts are unfunded. He reiterated that the vacancy rate for Deputy Directors General is five out of ten, and added that R61.71 million was reduced from the goods and services budget of the current financial year to fund posts. He said that the budget for major transfers is R54.00 billion for 2016/17, R59.08 billion for 2017/16, and R63.33 billion for 2018/19. He clarified that the transfers are to PRASA, SA National Roads Agency Limited, Provincial Road Maintenance Grant, Road Maintenance Grant, Public Transport Operations Grant, and Public Transport Network Grant.   For the upgrading of rail infrastructure and services, the budget for rail infrastructure is expected to grow at an annual rate of 5.5%. He explained that the R13.5 billion is allocated in the current budget over the medium term for Metrorail and Shosholoza Meyl, which subsidise over 500 million passenger trips per year in metropolitan areas and 450 000 long distance passengers. The capital budget constitutes R46.5 billion over medium term, and the Cabinet approved reductions of R710 million over medium term to lower the national aggregate ceiling. 

In regard to road infrastructure maintenance, Mr Letsoalo affirmed that the R573 Moloto Road will be upgraded at a cost of R3.7 billion in the medium term. He added that the SANRAL budget has increased by R1.3 billion over the medium term for the Gauteng Freeway Improvement Project and also increased by R2.2 billion to strengthen non-toll road network. He reiterated that road infrastructure damaged by disasters will be rehabilitated at a cost of R848 million over the medium term.

The PRMG budget revealed KwaZulu Natal to have the highest allocation in the current and next three financial years. Total budgets are R10.2 billion for the current financial year, R10.7 billion for 2017/2018, and R11.53 billion for 2018/19. The PTOG is expected to increase at an average annual rate of 6.6% over the medium term. He added that the PTOG budget increased by R700 million over the medium term for the provision of affordable public transport service. He also mentioned that there is a PTOG budget of R5.4 billion for the current financial year with the Gauteng province allocated a larger portion. He stated that the PTNG budget (R5.5 billion in 2016/17) will continue to grow for the next 3 financial years. He also mentioned that “other transfers” budget will continue to grow over the given period and taxi scrapping is allocated a larger portion of the budget.  

Discussion
Mr Hunsinger commended the presentation of the Department. He then requested a justification for the budget flow trends highlighted over the next three years. As regards Programme 4, he enquired about the steep increase in budgets of 2017/18 and 2018/19 compared to the current financial year. For Programme 6 (compensation of employees) he enquired about the steep reduction of the budget in the next two financial years. As regards major transfers, he enquired if the co-funding system highlighted is supported by a memorandum of understanding. He questioned if the Moloto Road project is valued at R30 million per kilometre and then enquired about the criteria used in determining PTOG for provinces.

Mr Sibande enquired if there are any interactions with entities, especially the RSR. He expressed his worries about the filling of vacant posts and also asked about the criteria adopted for determining the PTOG. He a that developed provinces like Western Cape with developed infrastructures are allocated more grants when compared to other provinces with extremely little infrastructural development. He then asked if funds have been released to PRASA as regards the Moloto Road project. He questioned the contradictory figures for the public transport programme, which was reported to have increased by 4.3% in the budget and by 17% in the APP. He lastly questioned why Department said nothing on its recapitalisation programme.

Ms S Xego (ANC) enquired why the rural Eastern Cape Province receives the same allocation as the Free State Province. She enquired if the South African National Taxi Council (SANTACO) applied for funding or received a standing allocation. She also sought clarity on the plans in place to resolve the challenges associated with taxi scrapping, as many taxi operators are not interested in scrapping their old taxis.

Mr Ramatlakane enquired if the contradictions between the APP and the budget, as identified in previous engagements, have been attended to. He also enquired why there is a drop of 50 million in passenger trips. He sought clarity on conflicting figures and dates in the APP 2015/16 and the budget.
Ms Magadzi suggested that details of the discrepancies in the alignment of the budget and the APP should be forwarded to the Department. She then commended the research functions of the RSR and noted that research and innovations need to be congruent with the economy.

The Chairperson asked about the amount that has been spent on BRT projects in other provinces. He also asked about the current status of suspended Deputy Director Generals. He then enquired about the Department’s plan to resolve the issue of the very few funded posts (especially at executive level) and also enquired about the performances of State Owned entities (SOEs), as outlined in previous engagements.

Mr Pule Selepe, Director General, DOT, said that there had been agreement during previous engagements with the Committee that discrepancies in figures would be forwarded in writing to the Department.  He agreed with the Chairperson ons the volume of legislative work for the Department in the current financial year, despite very limited time. In relation to the vacancies, he said an agreement has been reached with the Minister so that a comprehensive report would be drafted as the Minister promised to engage with the National Treasury on the issue of funding. He reiterated that the cutting of budgets of compensation of employees is applicable to other governmental departments as well. He also mentioned that the current Deputy Directors General were facing burn-out, as there was so much work to do. However, despite the limited resources, the DOT has performed well.

Mr Letsoalo  mentioned that compensation budgets for all Departments have been cut, which makes it very difficult to fund vacant posts. He mentioned that there are engagements with the National Treasury and the Department will welcome any contributions by the Committee to ensure all the critical posts are filled.  The co-funding is part of the grant framework. He also stated that the PTOG is historic and the allocations to provinces will only change when the allocation structure is transformed. He confirmed that there are intensive interactions with entities on a frequent and quarterly basis. He mentioned that the 17 funded posts are funded in terms of the NLTA.

He mentioned that a feasibility studies as regards the Moloto Road project has been conducted and the National Treasury noted that the State does not currently have enough resources to execute the project. A contingency plan was made to upgrade the road whilst waiting for funding for the rail section of the project. He affirmed that some funds have been released to PRASA to set up some project offices for the project.

Taxi recapitalisation is still an on-going project. On the taxi scrapping budget increase, he mentioned that the amount is an inflationary increase. He said the Department has adopted a dynamic risk management framework which identifies the risks that might prevent the Department from fulfilling its mandate and consequently realised risks are registered and counter measures are assessed. He mentioned that some funds had been spent on Bus Rapid Transport (BRT) in other provinces but added that not all provinces will require BRT services. In relation to the provincial grants,  allocations are made based on capacities of provinces to carry out projects. 

Advocate Adam  Masombuka, Acting Chief Operations Officer, DOT, mentioned that the two former Deputy Director Generals had been charged; one  disciplinary hearing was in progress and the other disciplinary hearing had been postponed to 30th May 2016.

The Chairperson said that cases should be dealt with and concluded rather than being postponed.

Mr Chris Hlabisa, Deputy Director-General: Roads, DOT, mentioned that the R30 million per kilometre is due to a number of issues on the level of service required.

Ms Magadzi mentioned that many projects which are purported to have been constructed are yet to be finalised even though funds have been released.

Mr Sibande raised his concern about the contrasting pieces of information from the Department and PRASA on the Moloto Road project. He then justified his enquiry about interactions of the Department with PRASA.

The Chairperson enquired about Advocate Sobekwa.

Mr Selepe replied that this person would be leaving the Department at the end of April 2016.  

The Chairperson mentioned that the Committee still requires information regarding the status and performances of SOEs before the budget presentation.

The meeting was adjourned.
 

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