PRASA on its performance: hearing

Standing Committee on Appropriations

19 October 2016
Chairperson: Ms Y Phosa (ANC)
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Meeting Summary

The Committee received a full briefing from the Passenger Rail Agency of South Africa (PRASA) on its financial and non-financial performance. It was noted frankly that PRASA continued to experience challenges in the efficiency of providing affordable public transport as PRASA had an ageing rolling stock and infrastructure. It firstly addressed the challenges of Metrorail. PRASA had expected that Transnet would do general overhaul but the performance of Transnet in that regard was mostly below 50%, which caused Metrorail to continue to run whatever was available until it too failed, and it had to take some services off. Over the years, Transnet had actually only met 30% of repair obligations which was a major problem since Transnet was the largest provider for general overhaul. The problem was historical. PRASA still questioned why the decision had been taken to leave the coach business with Transnet when it was not responsible for passenger rail, and PRASA suggested that interventions at a political level were needed to address this. Similar problems existed on the infrastructure side, for PRASA ran on Transnet's rails which, whilst suitable for rolling stock, were not suitable for passenger services. Theft of cables and system vandalism remained problematic, especially since repair components were difficult to obtain or unavailable. Closing off the railway reserves was one solution, but this meant that communities could be cut off from other amenities and PRASA was trying to work with municipalities to ensure that, for instance, passenger bridges were built. It had been found that on one corridor, Vaal to Johannesburg, up to 90% of passengers were evading fares by getting on at undesignated spots, or believed that because there had been service disruptions on one day, they were entitled to not pay on the next day. PRASA was considering its options on refunds and exchanges. PRASA had several subsidiaries, including Intersite and also PRASA Corporate Rail Estate, who dealt with its properties, Mainline Passenger Services for long distance rail and Autopax for long distance bus, PRASA Technical and Rail Engineering for engineering work, and PRASA was considering rationalisation to lower costs. Its aims for the service were availability of sets and seats, timeous arrivals, improved ablution facilities and better communication. Leadership were using the train to travel to meetings, and holding meetings in different locations to test the service and offerings for themselves.

Controls had been brought in on Supply Chain Management because PRASA's controls had not met good governance standards, and there had been problems with even very large amounts being awarded on quotations and not on tenders. Major cost-cutting drives were introduced, as part of the turnaround plan, addressing employees and energy, the two biggest factors. PRASA was currently probably paying 30% too much on energy because it was contributing to Eskom's levies for electrification of rural areas. Security costs had to be reduced, and PRASA was engaging with SAPS as well as its own railway police. Community disruptions posed a serious risk to PRASA. New ward councillors were trying to persuade it to change community liaison people, which would lead to service delays. Metrorail would continue to have mostly old trains for the next seven to eight years, but there was difficulty in running concurrently before corridors were closed and upgraded. Spares and components contracts faced risks through cancellation. Civic disruptions were particularly targeting people trying to use transport to get to work.

Addressing the budget, it was noted that Metrorail's subsidy was only R3.73 per passenger per trip, compared to Gautrain R60.30, BRT's R15.00 and private bus company's R12.00. The rich were in reality being subsidised more than the poor, and Metrorail's assets were around 40 years old. Because of this, the Rail Safety Regulator imposed speed restrictions, which impacted on efficiency and popularity with the public. Taking back the coach business from Transnet to PRASA would allow PRASA to do better.

Members asked for further comment on the plans for local content and the proposed manufacturing plant in Dunnottar in Nigel, coaches to be built in Brazil, the locomotive contract and the state of the legal action. They pointed out that many of the findings by Auditor-General South Africa (AGSA) were repeat findings and involved the rolling stock, but there were also matters of concern around governance and a particular worry to the Committee was the increase in expenditure that was fruitless, wasteful or irregular. They asked about supplier contracts and whether PRASA might not consider in-house work. They asked for an update on the AGSA findings in respect of previous audits and PRASA's own findings, why PRASA was providing broadband and whether this was within its mandate, and for comment on the terms and particularly any non-compliance clauses of any contracts between PRASA and Transnet, and why PRASA found it so difficult to hold Transnet to its obligations. In fact, some Members commented that this seemed to be a common theme where one would blame the other. They asked for more elaboration on the targets of creating black industrialists and cautioned that this should not include those who were already wealthy. They wondered if PRASA could ever be self-sufficient, as a going concern.

They asked about cooperation given to the Acting CEO by staff members. Other questions related to the staffing in general, why PRASA had a headcount over target but was still not achieving its performance targets, at what levels were the critical posts and for clarification on the jobs numbers. They asked for more detail on the nine major targets not achieved. They wanted more precise figures for fatalities and injuries. Members also questioned whether it was normal for pre-payments to be made for rolling stock and locomotives, and the total cost.


 

Meeting report

Passenger Rail Agency of South Africa (PRASA) on its financial and non-financial performance
Mr Popo Molefe, Chairman of the Board, Passenger Rail Agency of South Africa, submitted an apology from the Chairperson of the Audit and Risk Committee of the Agency (PRASA), who had been unable to change her programme to attend the meeting.  He noted that the remaining members of his delegation had been selected because of their expertise on the particular areas that the Committee had requested should be covered in the briefing.

Mr Collins Letsoalo, Acting Group Chief Executive Officer, PRASA, outlined the content of the presentation.
He said that PRASA continued to experience challenges in the efficiency of providing affordable public transport, as PRASA had an ageing rolling stock and infrastructure. 

Mr A Shaik Emam (DA) interjected that he was concerned about the 13 million and 24 million jobs created, which were simply mind boggling numbers.

The Chairperson requested that PRASA be allowed to continue with its presentation and Members would be given an opportunity to ask questions – and clear up what they felt might be inaccuracies – at the end of the presentation.

Dr M Figg (DA) thought it was not possible to continue without PRASA having given clarity on that figure which he thought might be a material error.

The Chairperson said he would allow PRASA to respond this once but would then request that the Committee should not interject, and should allow PRASA to finish the presentation.

Ms E Louw (EFF) said that although in principle she was inclined to agree with the Chairperson, she was worried that more errors might arise, and she asked if PRASA would please note any areas of discrepancy so that questions on these could be cleared up immediately, before the main part of the discussion.

The Chairperson concurred with Ms Louw.

Dr C Madlopha (ANC) reiterated emphatically that the Committee would be taking notes but asked that PRASA be allowed to continue.

Mr Letsoalo said he would answer Mr Shaik Emam's question. The “critical actions” target was a target of the National Development Plan, to be achieved by 2030. The NDP stated that there were 13 million jobs in 2010 and the figures shown on the right hand side of the table was PRASA's contribution to that number for 2010.

Metrorail Challenges
Mr Letsoalo said PRASA expected that Transnet would do a general overhaul, but that generally speaking the performance of Transnet on overhauls had been below 50% of what had been expected. He illustrated the impact; if Metrorail was waiting for a train to return from being overhauled and that did not occur within the expected time, Metrorail would simply have to keep running others until they failed. If other financial years were also included with similar performance, it would be seen that Transnet had met only 30% of the repairs obligation, which meant that 70% of the rolling stock that Metrorail should have received back, after maintenance had been done, was in fact still with Transnet. That caused major problems as Transnet continued to be the biggest service provider for general overhaul. The problem was a historical one. There had been discussions around this in Parliament at the time when Transnet and PRASA separated. The current leadership of PRASA continued to ask was the rationale for the coach business remaining with Transnet, when Transnet was not necessarily responsible for passenger rail services. PRASA felt that this needed intervention at a political level, for it had already engaged with the Department of Transport (DoT) on the matter.

Similar problems to those with the rolling stock were also experienced on the infrastructure side.  The Eastern Cape (EC) region, for instance, ran on Transnet’s network. The issue there was that the track quality index that PRASA used was higher quality, since it was moving people, than the track used for moving coal or goods. If the owner of the system continued to use the rails for running freight, then this was at odds with PRASA's desire to have better track for passengers.

There was also a problem with Transnet’s traffic control operators (TCOs) and train controllers. For example, in Eastern Cape, PRASA had lost its trains because someone opened a track mistakenly. That person had been fired but PRASA was still missing a locomotive. It made no difference whether or not PRASA obtained an insurance payout, because it affected the service and that was not insurable. A similar problem happened in May 2016, in KwaZulu Natal (KZN), when PRASA lost two other trains through a Transnet TCO having opened up the track at the wrong time.

Mr Letsoalo said that PRASA continued to have problems with people stealing PRASA's cables, as well as people vandalising its systems in other ways; in Western Cape (WC) vandals had doused signal equipment with flammable substances and burnt it. As PRASA's infrastructure was also old, the components were not easily available, and some may not be manufactured any longer so that repairing might not be an option. That also created problems. Recently, PRASA had arrested a lot of people who literally went into trains that were returning from overhaul and pulled out all the copper as the trains were moving on the network.

Closing off the railway reserves created another problem because when this was introduced some communities became cut off from other amenities. This meant that PRASA had to work very closely with municipalities to ensure that services would not be cut off. At times, PRASA would be ready to close-off but municipalities would be without funding for the bridges over the rail network.

Revenue collection program to address shortfalls on revenue and reduce fare evasion.
Mr Letsoalo said that a study had been done by the DoT on one of PRASA's corridors between the Vaal and Johannesburg and had found that 90% of the people on that network did not pay for travel. They were not paying because the network was not closed off, which meant people were getting on to the train anywhere down the track. Because of other challenges in the Metrorail service, enforcement became difficult. If someone had paid for the service from Vaal to Johannesburg and the train failed, that person still had paid for a whole trip, and would feel justified in not paying on the following day. The issue then became a debate over whether, when Metrorail could not deliver on its service, it would have to refund the individual, whether PRASA had to enforce vigorously as the service improved, or if it wished to enforce now despite the service challenges.

Turnaround Plan for the PRASA Group targeting operational efficiencies
Mr Letsoalo said that the turnaround plan for the PRASA group would include cost reduction, revenue generation strategy and realignment of the Group. PRASA spent about 52% of its total expenditure on employees, which translated to about R5.8 billion per annum. PRASA's government subsidy was R4.8 billion per annum which meant the subsidy was effectively going straight to paying employees, without PRASA financing any of the programmes. There were more people in PRASA's actual structure than there were in the approved structure for the State Owned Company (SOC). Meantime there were vacancies in critical posts, which meant on the one side it was over-resourced, whilst on the other there were not enough skills. PRASA was also top heavy as it had about 65 executives including six Chief Financial Officers (CFOs) and six CEOs. Some people did very little, and others worked very hard, and it was necessary to find a balance.

In terms of realigning the group; PRASA had subsidiaries. Intersite and PRASA Corporate Rail Estate were  both dealing with PRASA properties. Mainline Passenger Services (MLPS) and Autopax both did long distance passenger services; Mainline on rail and Autopax on buses. MLPS might only be carrying 200 people on a train from Johannesburg to Durban and the question was why they should not simply be put on a bus instead. move from Jo’burg to Durban carrying 200 people in a train with a capacity of 3000; the question arose why those people could not be simply put in a bus instead.

PRASA Technical and Rail Engineering were both doing engineering work. PRASA would have to rationalise all of those to lower costs, though the service would not necessarily improve.

In regard to the train service, PRASA was dealing with ensuring there was availability of seats, that trains arrived on time and that there was constant communication with commuters, as communication to date had been quite lacking. Ablution facilities were also in an unsavoury state. The leadership had decided that the Executive Committee (EXCO) would, on a regular basis, hold its meetings at different stations so as to understand the plight of the commuter. Additionally the EXCO had decided that an EXCO member living in Jo’burg who had to travel to Pretoria for meetings would travel on Metrorail, not on Gautrain.

Efficiency, effectiveness and economy in utilisation of the budget
The leadership had brought in controls on Supply Chain Management (SCM). Mr Letsoalo noted that PRASA had been governed in a very different way to the norms; for instance the Chief Procurement Officer (CPO) at PRASA had been reporting to the Group CEO, instead of to the Chief Financial Officer, which was another finance function. That had now been rectified. Other issues now sorted out were, for instance, when the State Owned Companies went out for quotations, and when for tenders as PRASA had been known to ask for a quotation only for a R50 million contract.

Major cost cutting drive 
Mr Letsoalo said that there was a major cost-cutting drive, forming part of the turnaround plan, to reduce wastage and drive efficiencies. The biggest costs were for employees and for energy. Mr Letsoalo said that PRASA would require support on reducing the energy costs, as the view of the SOC was that it paid 30% over and above its normal energy consumption. The 30% was a subsidy that Eskom wanted PRASA to pay to allow Eskom to electrify rural communities. PRASA did not pay tax and was funded using a subsidy, and he explained that this effectively amounted to double-dipping. PRASA would certainly be engaging Eskom on that point.

PRASA also aimed at reducing its security costs as they had gone up drastically. Together with the South African Police Service (SAPS) PRASA had a cohort of 6 500 railway police who reported back to SAPS; sometimes police officers were refusing to go on the trains and that was a problem under discussion with the Commissioner. There was also a problem with command and control as to how SAPS officials were deployed, and how PRASA security personnel were deployed as well.

Risks within the Investment Programme
Mr Letsoalo said that community disruptions continued to be a problem for PRASA. New ward councillors had taken positions from August. Historically, PRASA's community liaison unit would have liaised with exiting councilors, and the new councillors were sometimes telling PRASA to fire its previous liaison officials, in order to hire their preferred ones. There was a huge potential impact, of delaying operations on new and current services.

He also noted that people would compare the Gautrain and PRASA services, but he pointed out that greenfield projects were easier than brownfield ones; if PRASA had to upgrade a line, the whole line had to be closed, in which case there would be no service, and passengers became impatient. For the next seven to eight years, most of the Metrorail trains would be older ones and from a technical point of view they could not be run concurrently on the same line network. Corridors would have to be closed and upgraded to allow the new trains to function. The general overhaul and ad-hoc spares and supply of components would be delayed due to cancellations of contracts.

Mr Letsoalo said there was a dilemma between adhering to good governance principles and continuing the work and gave the example of weighing up the options if it was found that a contract for critical components was irregular, as to whether it was more practical to cancel the contract or regularise it. Regularisation bordered on corruption but cancellation would cause a situation where PRASA was effectively denying to itself the opportunity to meet the requirements of service.

Challenges and Opportunities within the Investment Programme
Community occupation and unrest in rail reserves were ongoing challenges, and where these did happen, they could cause indefinite delays in programmes. Recently, in Langa Township, people had been fighting about houses and service delivery, trying to ensure that people did not go to work by attacking any means of transport. Metrorail had suffered particularly, because its infrastructure was in the open; signalling equipment and the perway were damaged, and tyres set alight. It had taken a long time to fix lost rail tracks and that impacted on the service.
Budget
Mr Letsoalo said that Gautrain received a subsidy, per passenger per trip, of R60.30c, whereas Metrorail received R3,73c per passenger per trip. The Bus Rapid Transport (BRT) was averaged at R15.00c and private local bus companies receiving R12. The expectation was that Metrorail would offer the quality of service aligned and comparable to that of Gautrain. In theory, this was possible but the disparity in the subsidies could not be ignored. The reality was that the rich were being subsidised more than the poor. Additionally, Metrorail’s assets were, on average, more than 40 years old right the way across  the network to the signalling equipment. PRASA was also running an open system whereas Gautrain was operating a closed system. Because the network was old, the Rail Safety Regulator (RSR) also imposed speed restrictions so that moving from Mamelodi to the Vaal took six hours on Metrorail’s system, whereas Mamelodi to Pretoria Central, 29 km, took 57 minutes on Metrorail.  To move from Mamelodi to Pretoria central which was a distance of 29 kilometres would take 57 minutes on Metrorail. Compounding all of that were the breakdowns where trains failed in sections, and that they were late.

Opportunities
Mr Letsoalo said that getting PRASA back its coach business from Transnet would allow the SOC to do better. Autopax had been sold to PRASA and when it was transferred Transnet decided to keep most of the Autopax Depots, so that those had to be returned to PRASA. That was why Mr Letsoalo was proposing that, at a policy level, a review had to be done on the asset split at the time when the separation of Transnet from PRASA took place.

PRASA’s programmes provide an opportunity for localisation and economic development (programmes such as the Rolling Stock Fleet Renewal Programme) which had a real impact. PRASA had set itself a target of 65% local content from the new rolling stock. The SOC had contracted the South African Bureau of Standards (SABS) to test and ensure that local content did amount to 65% in the new rolling stock. 

With the view to increasing commercial activities at stations, Mr Letsoalo said there was no reason why PRASA, which already owned land, should not also own malls or small shopping centres along its network.

The implementation of the modernisation programme has provided opportunities for integration with other modes of transport, such as taxis and buses. A decision would have to be made on the gauge issue. Interoperability was vital in order for PRASA to deliver critically, but it was necessary to think carefully before demanding that everything that was non-standard gauge had to be uprooted. He made the point that Gautrain was standard gauge, but the rest of the country was not, and the merits of expansion in either gauge must be carefully looked into.

Discussion
Dr Madlopha asked whether “rationalisation” spoke to PRASA's turnaround strategy, and if so, how long would it project that this rationalisation and final realisation would take. She commended PRASA on achieving another unqualified audit opinion but was concerned that the irregular and wasteful expenditure still continued. She wondered if there had been consequences, especially for the accounting officer.

She thought that PRASA had presented a good plan in terms of local content and the proposed manufacturing plant in Dunnottar, in Nigel. She asked what had been the progress in implementing the 65% local content plan? PRASA had also reported that 120 coaches of its new rolling stock would be built in Brazil with the remainder being built in-country as the aim was to capacitate locally. She asked for more detail on the coaches coming from Brazil.

Mr Shaik Emam said it sounded like PRASA understood where all its weaknesses were but the real test was when and where it would attend to them. He asked how far PRASA's engagement with DoT and other relevant role players was, in relation to finding solutions. He asked that PRASA also update the Committee on the dispute that PRASA had had with the Auditor-General South Africa (AGSA) on its 2015/16 audit report  and PRASA's own audit findings. He pointed out that many of the findings against PRASA by AGSA were repeat findings around supply chain management (SCM) and had also involved rolling stock. In regard to the point that PRASA had problems with suppliers cancelling contracts he asked if consideration was being given to replacing these suppliers with in-house capacity.

He asked if PRASA had any suggested solutions in relation to the weaknesses in its SCM, and getting back the value lost. He also wanted to know what interventions it had put in place to achieve better against its targets, having only achieved 18 out of the 44 targets.
 

Mr A Mcloughlin (DA) wanted to know whether it was part of PRASA's mandate to provide broadband facilities. He said that he had visited the recently refurbished Kwaggastroom, Sebokeng, and Johannesburg upgrades, and had started to take some pictures, but had been accosted by a PRASA official threatening to arrest him, to which he had responded that there were no notices banning him from taking pictures inside the station. He noted the point that PRASA wanted to turn stations into commercial hubs but suggested that it then had to ensure that it made them user friendly for people like himself.

Mr Mcloughlin said he had the impression that PRASA was merely trying to shift blame, particularly on to Transnet. He asked if there was a contract between them, and if so, and there was non-compliance, what remedies and consequences there could be? He suspected that Transnet may also have complaints about PRASA. Fundamentally, he had a problem with the separation of the two State Owned Companies and wondered if there was not merit in having a third, separate entity to own the properties and the network system. Currently, with all the subsidiaries, there seemed to be a lot of overlap.

Ms D Senokoanyane (ANC) asked how it was possible for people to forgo tendering for a R50 million project and to use a quotation instead. She felt that the information provided on governance, internal controls and accountability was scanty, more particularly because of the fruitless, irregular and wasteful expenditure. She asked at what levels were the vacant critical posts. She wondered if PRASA placed much emphasis on checking its services offering. She noted that PRASA suggested that cuts in long-distance train services were made because the trains were running at a loss, and asked whether, if she preferred to travel by train, PRASA would insist that she used a bus.

Ms E Louw (EFF) said the presentation had alluded to nothing new. AGSA's audit report for 2014/15 had indicated that PRASA suffered from lack of consequence management and leadership, and she hoped that this might be attended to in the future. She asked if the TCOs had been adequately skilled or if the accidents were caused by lack of skills. She asked for clarity on the 17 000 jobs, and whether they had been created or were still to be created in future, and also wanted to know how many critical vacancies there were, and what the projection was as to when they might be filled.  She asked what the nine targets not achieved were, and why they were not achieved. She also asked that PRASA provide actual figures, not percentages, for fatalities and injuries. Finally she asked why security had not been deployed in hotspots prior to the new project of increasing security.

Dr Figg commended PRASA for having identified the challenges and acceding to them. He was pleased to hear that leadership had used the train, and were prepared to experience, first hand, the problems of long-distance train travel. He asked PRASA to elaborate whether the target of creating of black industrialists was aimed at local black industrialists, and whether the Guptas were included in this category?

He commented that he was not satisfied that PRASA had overspent on employee costs whilst still reporting a shortage of critical skills, asked how this could be so, and how did PRASA plan to remedy that problem.

Dr Figg also alluded to the comments that Transnet was not meeting its obligations and asked then what PRASA saw as the solution, and why it was seemingly prepared to tolerate the failure. He also asked when would the identified opportunities be implemented and how far was PRASA in its intended 65% local content procurement and development?

Ms N Ndongeni (ANC) wanted to know how many women had benefited from PRASA's job creation. She asked what budget had been set aside for black women advancement, and how that was distributed between the provinces? She too wanted to know when its projected turnaround strategy would be realised. wondered if it had  the requisite capacity to implement its proposed Turnaround Plan?

The Chairperson commented that although PRASA had obtained an unqualified audit opinion, she would require PRASA's internal auditor to speak to why there had been no movement to improve upon the fact that it was still getting audit findings, particularly if there were six CFOs in place. She wondered if there was really any need to keep 65 SMS staff at PRASA. National Treasury was trying to implement a policy moving from consumption to investment, and the policy also said that administrative costs had to be reduced, to allow a larger portion of the budget to go to service delivery.

The Chairperson asked if Mr Letsoalo had found that old staffers at PRASA were giving him cooperation, since his secondment to PRASA by the Minister, and whether those who might have resisted change had participated in any change-management workshops.

The Chairperson asked if PRASA had identified the cause of the train accidents, and whether it had developed corrective or preventative measures in that regard?

Mr Piet Sebola, Group Executive:Strategy, PRASA, said that construction at Dunnottar had begun where the development was, on 72 hectares of land. PRASA was planning to manufacture 580 trains there over the next 10 years. The manufacturing activities would be implemented in a phased approach. PRASA was 60% along the way towards building the training centre on 4 000 km2 of land, where it would be training all its engineers and artisans. Parallel to that process PRASA had received twelve of the trains that were manufactured in Brazil, which were currently housed in Pretoria, where the testing commission had been completed successfully. PRASA had made all necessary submissions to the Rail Safety Regulator (RSR) for confirmation that the trains would be safe to operate in PRASA's network. He also clarified that the trains were different from the locomotives which were one of the matters in dispute before the court.

Mr Sebola spoke to the 65% local content commitment, saying that would only be achievable when the training centre was operational. This was planned to happen from July 2017. However; the construction site at Dunnottar employed over 500 men and women, and Gibela Rail Consortium had also employed over 250 technical capacity staff including engineers and technicians. In line with PRASA's plan, it would be adding 600 additional jobs between October and July 2017.

PRASA had set aside R1.7 billion for women participation in its companies but that had not been confined to any particular provinces. Additionally, PRASA had contracted about 39 South African owned companies, although the end result would involve around 100 companies, to supply different components, glass and stainless steel for the train’s project. It had recently met with the SABS to sign the preliminary report for the 2014/15 financial year as to whether Gibela met all the specifications of the contract to supply PRASA with trains. Gibela had done well therein and the SABS would start on auditing the 2015/16 FY and then the 2016/17 year, looking into whether the jobs were realistic targets and whether the companies contracted would be able to supply all the components.

PRASA had already created about 8 000 jobs in terms of the SOC's general overhaul and performance realisation programmes.

Mr Molefe said there was a tendency to conflate “trains” with “locomotives”. There had been no issues regarding PRASA trains that were being built in Brazil, as the design and safety had been approved by the RSR locally. The locomotives had been procured from Swifambo, a local company. The design of the locomotives, however, was problematic and the RSR had not approved it. The RSR only knew about the design after the trains had already been built and they were currently the subject of court proceedings.

He conceded that PRASA had said there were issues with Transnet, but PRASA had been engaging with DoT for a while to date, directly at SMS level and at various executive levels. PRASA had also been engaging with the Minister of Transport, Ms Dipuo Peters. The main challenges with Transnet were legacy problems. He reminded the Committee that there had been changes to the provincial boundaries in 1994. When Mr Molefe was the Premier in the North West some of the assets which had been under Bophuthatswana went to the Northern Cape and the Free State and others went to Mpumalanga, Limpopo and Gauteng. PRASA had to sit and rationalise the various entities in its group and then deal with the question the division of Transnet and PRASA. That had required that those dealing with that rationalisation must be vigilant and must be guided by how the assets were seen then as instruments of transformation and service delivery.

In respect of Transnet, Mr Molefe thought that any people with vested interests would have been the former SMS staff of Transnet, and instead of thinking about how the assets of Transnet could be used to enable PRASA to discharge its mandate, the “old guard” prioritised revenue generation for Transnet. That was why Transnet had given Autopax to PRASA but kept the depots, although they did indeed constitute part of PRASA's core business. The engineering capacity of Transnet could have been part of PRASA,  so as to deal with the general overhaul challenges. The matters had not been adequately confronted at a political level. The result, ultimately, was that PRASA had a massive mandate to deliver to the poor, but had been emasculated.

Mr Molefe pointed out that Gautrain by and large had been serving the middle class when it started, and it was getting a better subsidy, leaving the poor with lower subsidies and lower service, and every time a train was late, commuters would set Metrorail trains alight, which made the bad situation even worse.

Mr Molefe confirmed that PRASA had a contract with Transnet and it could not sever ties with Transnet as Transnet had greater capacity for the general overhauls than PRASA did. Essentially PRASA needed Transnet now, although it had engaged with it on its failure to deliver on its obligations. The leadership at PRASA had been told that some of the locomotives that Transnet overhauled broke down almost immediately after the overhaul because the components used by Transnet were not resilient. That was why PRASA was paying repeatedly for the same work. It was not a question of simply trying to pass the buck as there were real challenges. 

In relation to the 2001 resolution of an integrated approach in Government, moving away from the silo approach and departments working as a team, he noted that perhaps the greatest challenge was why the DoT responsible for transport entities did not oversee Transnet, as it was under the Department of Public Enterprises (DPE).

Mr Molefe said that whether PRASA would force people to use buses instead of trains was based on the realities of using the resources prudently. In the long term it wanted to provide efficient and effective transport services, including long distances. Mr Molefe knew that management were looking at speed trains for long distances but he personally might prefer to spend that time in a car. If PRASA could not get enough passengers to travel on the long-distance trains, and if it had buses that actually moved faster than the trains, then he would encourage people to use the buses.

Mr Molefe said that it was quite clear that the TCOs were not adequately skilled because the accidents had occurred. If they misbehaved it was possible that there was not consequence management. PRASA would have to reflect on its employee wellness programmes because some of those TCOs had serious problems of a personal and health nature which, if not detected, could continue to cause accidents.

PRASA used, as the starting-point for the definition of “black industrialist”, those people who had been defined in the Black Consciousness Movement as including African, Coloured and Indian people in South Africa who had been disadvantaged in the past. He did not know exactly when and how the Guptas came to South Africa and acquired citizenship, but if the Guptas fell within the category being black and industrialist, and if it was doing ethical business in South Africa, then they would qualify as black industrialists. This was something that required innovation and funding from South Africans; development finance institutions, particularly the likes of the Industrial Development Corporation (IDC) would use their funding programmes to advance the development of black industrialists.

Mr Molefe explained how the high vacancy rate and high salary bill running concurrently had happened. Previously, rules did not matter so much to PRASA, and it had happened that people had been offered jobs without really determining what the need was and what such people would do if absorbed into the structure of PRASA. Many of the people, particularly those in the security and protection units of PRASA, had no skills, but it had created the situation where the salary bill could probably not be trimmed. Leadership and management had to start prioritising and actively filling those posts without which PRASA could not function – he gave examples of all posts that related to SCM and financial management and control. Without those the SOC would continue struggling to comply and improve upon the matters of emphasis reported by AGSA. Most of those matters were legacy issues, but the new matters that AGSA had picked up were precisely because people were providing a service to PRASA which enabled the SOC to move the trains and if PRASA became aware of irregular procurement it would nonetheless decide to allow contracts to run whilst going out to another tender, because the alternative was collapse of the service and community protests, should the contracts be cancelled outright.  Many services that had been procured on a consignment basis, and in the current period they amounted to R10 billion of irregular expenditure, although in the long run they added value to PRASA's services. Other contracts were outright unlawful. Where there were administrative errors, PRASA might condone and disaggregation would be reflected in the next AGSA report. The current PRASA leadership had done quite a lot of work in dealing with irregular and unlawful acts that had taken place previously, with about 40 cases with the Hawks, as well as the two large cases involving the locomotives. Many managers caught defrauding had either disappeared, were being taken through the disciplinary processes, or were subjected to criminal investigations, prosecution and civil action.

Mr Letsoalo confirmed that in terms of the lawsuits, all the paperwork had been submitted and possibly the matter of the Swifambo locomotives might be settled.

He commented that whether or not PRASA moved to using a centralised SCM would be dependent on the law that applied; currently it was using its own SCM but if transversal contracts were agreed it might look into that.

He agreed that in principle, it was good to try to avoid contracting in service providers and use internal capacity but the issue was whether that was at the cutting edge of technology. One way of dealing with this was to have a supplier developer programme, where some suppliers, in order to grow, would invest in innovation. The private sector was generally a better innovator than PRASA, especially in component manufacturing.

Mr Letsoalo said that PRASA tried to achieve value for money by benchmarking, but again, it was a matter for debate what was the best course of action when despite benchmarking PRASA might find later that it had been billed 40% over reasonable costs; whether to proceed or to start again. It was unlikely that a re-start would leave people unaffected. Also, the fewer the specialist suppliers, the less likely it was that PRASA would get competitive prices, and it was often very difficult to detect whether there had been collusion. PRASA would still test against international best practice.

He conceded that an achievement of 18 out of 44 targets was not particularly impressive. The reality was that when performance was being reviewed, he did not think people really focused on the reasons why an entity had not performed. He had raised various issues, including whether targets were SMART. The question was whether one should first determine whether a target was within control? For instance, PRASA had a target to the number of passenger seats filled by Autopax, but it had lost 20 buses in Mamelodi. It would obviously miss the target, and the insurance payout for those buses would never recoup the real cost of the loss. PRASA had also lost trains to either arson attacks or involvement in accidents, which meant it would also miss targets on the Metrorail side as well.

In regard to the value-added services, Mr Letsoalo pointed out that PRASA was competing with entities who were receiving R25 compared to the 3.7 cents given to PRASA. Taxis were not given subsidies but their offering of WiFi mean that passengers were attracted to them, which was why PRASA had to get involved in offering broadband WiFi. This was one method to compete and keep passengers, and he believed that it was indeed within the mandate of PRASA. It cost PRASA very little and sometimes other private sector players would also offer free WiFi, whilst using PRASA infrastructure.

Mr Letsoalo addressed Mr Mclouglin's complaint and said that there were two aspects. He did not know why citizens were threatened with arrest for taking photographs, but he asked Members to appreciate that if everyone was allowed to take pictures of the infrastructure, there was a fair chance that this could assist robbers or illegal access, and that was probably the reason, although PRASA would look into it He pleaded that people should also appreciate the position of the staff, who could become very frustrated for apologising all the time for delayed trains and possibly face violence from angry service users.

Mr Letsoalo said that there was provision in the contract for non-compliance, and insurance cover, so PRASA could penalise Transnet for non-delivery of rolling stock worth R2million but at the end of the day it did not help people to get the stock.

Mr Letsoalo explained that the Department of Public Enterprises (DPE) was supposed to be a “temporary” department and had at one point been a component of Department of Public Works (DPW). DPE was initially created for a five-year period, for the purposes of attending to restructuring. Transnet went to DPE for restructuring and was intended to be de-established. Airports Company of South Africa (ACSA) had  gone to DPE but returned to DoT. Telkom went to DPE and thence to Department of Communications. Other SOEs had remained with DPE. He suggested that it was a political decision whether to continue with DPE, and what that would mean to the policy positions of SOCs, and how they would deliver.

Mr Letsoalo conceded that indeed, rules had been broken at PRASA before the current leadership which was trying to correct the issues.

The turnaround plan had been divided into three phases. Quick wins had been prioritised to be done within a year. There were medium term aspects that were planned over a period of three years and there were long term aspects which were targeted for five years.

He agreed that PRASA did not need such a large executive, and that PRASA was about 70% over-capacitated. As a rail company it needed artisans and engineers, and there were vacancies there. Job cuts should start from the top.

He added that there were known crime hotspots on PRASA's network and already PRASA, knowing that the

northern area of Pretoria was one where much cable was stolen, had deployed railway police. With SAPS, the members had to consent. That was why PRASA had its own security and protection services because then Mr Letsoalo had command over those individuals and could set a roster for them.

He noted that there currently was no higher learning institution that focused on signal engineering and  therefore PRASA had to get a signal engineering trainer from somewhere. This SOC was working closely with Stellenbosch University and others, to develop centrers of excellence, to train people and PRASA also had its own internships for training.

The safety part of PRASA's services was largely due to its open system which created a lot of challenges. However, children would often indulge in risky behaviour too, so that PRASA had to regard safety as a critical priority.

Mr Letsoalo then addressed questions around the staffing. Many CFOs of companies could, having discovered an irregularity, deal with the individual causing it. PRASA  had not moved in its audit outcomes, and he expressed the view that it had been fortunate to no have received an adverse opinion – for it had R14 billion in irregular expenditure. The reason was that this was a regulatory audit, but in order to move to clean governance, PRASA would need to address all the policies that had been breached.

 The key findings for the train accidents concluded that this was down to human error, including PRASA's drivers not adhering properly to signals. The RSR had found against Transnet’s TCOs. PRASA did train its officials on an ongoing basis. The amounts noted were what PRASA had lost from the accidents or what it was paid in compensation, and would be higher if the two train accidents were included. PRASA had been paid R37 million, but it had lost all the business for that period as there were two less trains and many less passenger trips, which impacted heavily on the service. Additionally, PRASA had to run short sets because of the non-availability of trains. The money from insurance was a very small portion of the real cost of the accidents in PRASA's system.

The new trains had better technology and the new signalling would cut-off certain events from happening.

Mr Rasheeque Zaman, Chief Audit Executive (CAE), PRASA, said the control environment at PRASA was weak. SCM, Human Capital Management (HCM), certain areas of finance and Information Technology (IT) were some of the weak areas that had to be considered. It would be important to close-off findings that had been previously raised by AGSA. PRASA had to work around the basic reporting structure in those areas, coupled with other elements which were working with the ICT environment to strengthen controls. The HCM included ongoing training, supervision and management. There was a lack of document management which also needed to be corrected amongst staff at PRASA. He reported that the PRASA SMS officials were currently busy with the action plan on AGSA audit report including the control measures which would be put into place.

Mr Shaik Emam was glad that PRASA concurred, and it was the first time that he had heard them admit that  an unqualified audit did not mean a clean audit. He wondered if PRASA could ever be self-sufficient as a going concern?

Ms Louw suggested that the Committee should also invite Minister Dipuo Peters to these meetings, as some issues spoke directly to her role as the Executive Authority (EA) of the DoT. She commended the delegation for the frank presentation and encouraged the leadership to strive to correct matters.

Dr Figg said he hoped that next time PRASA came before the Committee Mr Letsoalo would no longer be acting in the post. He asked if it was normal for pre-payments to be made for rolling stock and locomotives, and what was the total cost of this.

The Chairperson said Mr Letsoalo had not responded to the question as to whether he was finding resistance from some senior staff. She wanted an explanation on the decline of locomotive procurement from when seem against the budget increase from R3.5 billion to R4.8 billion. She asked Mr Letsoalo to speak to the high allowance increases for the Board, if that had happened since his secondment. She hoped that PRASA had developed an implementation plan to address matters set out in the Public Protector's report. She asked what targets had PRASA achieved in this mid-term year of the strategic plans.

Mr Letsoalo said PRASA could never be self-sustaining because commuter rail services all over the world were heavily subsidised. In the United Kingdom, government had to take it back after attempts to privatise. Rail was a monopoly and big investments were required although it could be efficient. PRASA was peaking currently at about R0.38c cost recovery for every rand spent, but he thought it could do more, especially if it  utilised its secondary management and the property portfolio.

PRASA had a plan to take the rail system into the SADC region, but interoperability was an important factor, since PRASA was building for standard gauge but Botswana was using narrow gauge. There were  engagements on the north-south corridor together with the trans-Kalahari, but DoT could give more detail on that. He said that PRASA was not shy about making recommendations to the Committee and certainly welcomed the assistance offered in pushing for other matters.

The R9.9 billion pre-payment was a norm for big capital spends. When the airbuses were bought, South African Airways (SAA) had done something similar. However; PRASA had not checked whether R9.9 billion was in line with international standards.

Mr Letsoalo had received cooperation from some members of his team but not all of them. Those with things to hide would always have a problem, and he was younger than them, which made them assume that he knew little, despite his experience with the DPE, working on the restructuring of Transnet, Denel and SAA. He had to win over some people still. However, overall, PRASA had quite a strong team.  There was a programme in place for change management. The current SMS was working on a turnaround strategy which would be taken to the Board and then hopefully to the shareholder, so that other stakeholders could be engaged. However, certain aspects of the turnaround strategy the team felt were non-negotiable were being implemented. He confirmed that the Public Protector recommendations had been considered in the development of the turnaround strategy.

In regard to the amounts, he said that foreign exchange losses meant that purchases of locomotives had to be dropped from 88 to 70. He had experienced interference on the day-to-day operations of the group from the Board at times but the SMS members would push back to insist that there was a line that the Board should not cross although of course the Board had to oversee operations. Contextually when management did not do its work, and when the Board came before Parliament, the Committee would say that the Board, which was the accounting authority, had to account. If management did not play its part it became quite difficult for the Board to account and PRASA was reviewing the Board's charter to see how matters might be better managed.

To date the PRASA had achieved the reported the 62.5% of targets, rising from its previous 40% and hopefully would be able to keep the trajectory where it was. In setting objectives, there were also risks that had to be identified. It would check targets and achievements on a quarterly basis, assessing the emerging risks and measures that were needed to minimise the impact to non-realisation of objectives.

Mr Molefe explained that the R1.3 billion escalation derived from the ballooning of the euro-rand exchange. When PRASA had bought the locomotives the exchange rate had been €1: R10.40c. In the period since the rate had gone up to €1: R15.00. Additionally, because the specifications had not been designed correctly from the onset, the locomotives had to have particular retrofits done such as rear mirrors, traction systems and extra seats for the assistant driver, which meant that PRASA had to pay another R360 million.

The Chairperson said from experience some boards liked to hold many meetings to make money, and meetings were fine as long as there was understanding that the Board stuck to its mandate and did not interfere with administration, which, for its part, had to do its work properly and account on a quarterly basis to the board.

The meeting was adjourned.

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