PRASA audit outcomes: AGSA briefing; 2019 Adjustments Appropriation Bill: Department of Transport briefing – with Deputy Minister present

Meeting report

The Chairperson announced that the focus for the day would be on the Passenger Rail Agency of South Africa (PRASA). Early in the term of the Committee, it was learned that R4.5 billion had been moved from PRASA to the South African National Roads Agency Limited (SANRAL). It amounted to taking money from the poorest of the poor. There was also concern about capex underspending, and PRASA audit outcomes.

Briefing by the Auditor-General on PRASA audit outcomes

PRASA received government subsidies from the Department of Transport amounting to R7.4 billion for operations and R8.4 billion for capital expenditure during the 2018-19 financial year. The audit outcome of PRASA had regressed to a disclaimer, after two financial years of qualified opinions with findings. Controls at the entity had broken down, as evidenced by failing infrastructure, accidents, theft and vandalism and security issues. PRASA only achieved 26 percent of the targets in its 2018/19 Annual Performance Plan (APP). Declining passenger numbers and unrealised revenue targets demonstrate that the entity is in a downward spiral with regards to its service offering to rail commuters and its overall performance. There were material findings on the strategic objectives of improved rail systems performance and expansion of rail networks and services. PRASA did not provide supporting documents to support its reported performance on objectives. Ineffective compliance monitoring processes remained unaddressed. Large infrastructure projects did not comply with Supply Chain Management (SCM) legislation around contract awards, and that had triggered irregular expenditure. The Gibela rail transport consortium was awarded a contract for the provision of new train sets, but failed to deliver according to the acceptance schedule. Protracted SCM processes hampered progress with the Modernisation Programme projects.

Discussion

The Chairperson thanked the Auditor-General for what he described as a helicopter view, and asked Members to comment and pose questions.

Mr O Mathafa (ANC) asked if it was normal for irregular expenditure to increase, whilst probity checks were instituted. Probity checks could surely arrest irregular expenditure?

Mr X Qayiso (ANC) asked that the AG elaborate on disclosure and evidence provided.

Ms D Peters (ANC) asked if oversight by the Department of Transport (DoT) was adequate and productive.

Mr Z Mlenzana (ANC) remarked that PRASA had to be assisted against SANRAL. Did the AG see light at the end of the tunnel for PRASA?

The Chairperson asked the AG to explain what a disclaimer was.

An official from the office of the AGSA replied that there were various audit opinions. An unqualified audit with no findings was known as a clean audit, which implied that there were adequate internal controls, and compliance with legislation. Unqualified with findings meant that financial statements were credible, but there were findings on compliance and performance information. A qualified audit opinion meant that financial statements were not disclosed correctly, for example concerning revenue, and there were findings on compliance. An adverse opinion meant that there were big errors in financial statements, and the AG disagreed with management about it, plus findings on compliance. A disclaimer meant that challenges in financial statements were so big that that the AG could not find documentation on which to base an opinion, and therefore distanced itself. Bad record management was found in PRASA.

He answered Mr Mathafa that probity checks were done for big tenders, but something was not working. He answered Ms Peters that DoT could improve on oversight, and that it could become more visible in 2019/20. The new Director General (DG) was positive about planning, and the war-room established by the Transport Minister was a positive development. He replied about light to be seen, that the root cause of PRASA challenges was its institutional culture. A paradigm shift was needed. The executive management had to be aware that what it was doing was in the interest of the country. The AG had pointed out areas of improvement. Much could be improved with the right people. The PRASA Board could not achieve desired results without capable executive management.

Mr Nicholas Mokwena, Senior Manager: AGSA, added that record management was a major challenge. PRASA took very long to respond to requests for information.

Mr D Joseph (DA) remarked that internal and external auditing was done before it went to AGSA. It seemed to him that there were information bottlenecks that could lead to misinformation. He asked if senior management was required to declare financial interests.

The Chairperson added that there was an internal audit committee, an audit committee and a governance committee. A number of trains were not delivered through the Gibela contract. He asked if the Gibela contract was audited, and if so, was there compliance on the part of Gibela?

Ms Kumari Naicker Senior Manager, AGSA, replied that the contract was audited in 2013/14 and 2014/15, and there were issues related to the awarding of the contract, and compliance with SCM prescripts.

An official from the office of the AGSA replied that the contract structure was such that localisation was emphasised, but 20 trains were initially manufactured in Brazil. Shop had since been set up in SA [to manufacture train sets locally]. The AG monitored the process of compliance and delivery.

The Chairperson commented that it was a R52 billion contract, and a lot of commitments were contained within it. He asked that the AG look into the contract, and tell the Committee at a future meeting what had happened to deliverables.

An official from the office of the AGSA responded that the AG would do so.

Mr Mlenzana advised that the AG look at the governing Act to see how PRASA could be assisted to cope with challenges.

Ms Naicker added that PRASA had an internal auditing unit, but there were resource challenges. The unit could not finalise and execute plans timeously. There was a lack of records for the governance committee, with no evidence of decisions taken, and no minutes of meetings.

The Chairperson told the AG that it would be invited again. The Gibela contract was won on account of jobs promised. It had to be known if the promise materialised. The Committee would await information on that, early in the following year.

The Chairperson noted that an Appropriations Standing Committee was required by the Money Bills and Related Matters Act. The Committee appropriated money for government departments at national, provincial and local levels, through the Division of Revenue Act (DORA). The Finance Minister presented a budget as a proposition to Parliament, and it was then referred to the Committee to agree or disagree, and to make recommendations. The Money Bills Act prescribed public participation. Money granted could only be used when the Division of Revenue Bill (DORB) became an Act. The Committee was concerned about underspending on capex by PRASA. Money moved from PRASA to SANRAL was taken away from the poorest of the poor.

Briefing by the Department of Transport and PRASA on PRASA matters of concern

The briefing was presented by Mr Alec Moemi, DoT Director-General, Dr Nkosinathi Sishi, PRASA acting Chief Executive Officer (CEO), and Ms Lesibana Fosu, PRASA Chief Financial Officer (CFO). A major PRASA challenge was that PRASA was a slave to TRANSNET [Transnet SOC Ltd]. A viable cost structure was needed. Cargo was prioritised over humans. PRASA did not have rail engineering capacity, and coaches had to be sent to TRANSNET for repair. Once there, the coaches did not return. TRANSNET owned rail stations for which PRASA had to pay rent. The money moved to SANRAL was not intended for use by PRASA, and had not moved for three years. Once PRASA was really well, the money would be returned. PRASA had established a war room through a directive of the Minister of Transport to address service recovery, safety management and acceleration of the capital programme and modernisation. Progress with improving performance included increased overall on-time performance, reduction in Rail Safety Regulator (RSR) directives, appointment of service providers to aid in recovery of coaches, no major accidents in the preceding three months, and three executives appointed in critical positions. A procurement schedule designed to accelerate capital and procurement spending was developed.

Discussion

Mr Mathafa commented that there were encouraging measures taken towards a PRASA turnaround. But it could not be assumed that PRASA was starting with a clean slate. It had to be known and understood what had led to the current crisis. The passenger rate was going down and rail safety was not up to standard. One life lost was too many. He asked about the capacity of internal audit. How could legislation be changed to resolve the conflict between PRASA and TRANSNET? It was said that PRASA was relaxing SCM policy to deal with underspending, but there were delays due to probity checks. Even with probity checks in place, there was still too much irregular expenditure. Was there value derived from spending on customer services? PRASA had a cash balance of R18 billion, and could not spend its capex budget. There had to be a breakdown of accounts payable amounting to R6 billion.

Ms Peters referred to modernisation and challenges of underspending. PRASA challenges were related to old projects. What progress had been made with automated ticketing? PRASA projects and programmes were costly. The DG had given figures about train sets and rolling stock, but ridership figures had to be supplied along with that. Did PRASA have a legal right to transport passengers? How much was paid to TRANSNET per month? Localisation was a key component in the Gibela contract, and there was a commitment to support the Black Industrialist programme. Rail skills and training capacity had to be developed. The country could become a hub for rail skills training. How many local people were empowered through the Gibela contract? A French supplier was used in the contract, in spite of the emphasis on localisation. Was value derived from an investment of R52 billion?

Mr Joseph remarked that De Aar, once at the centre of a functioning rail network, had become a ghost town. Many stations had closed down. The country had to get its rail back. What could be done to improve PRASA institutional culture? How could rail infrastructure be protected against vandalism and crime? He asked about the availability of coaches, as compared to five years before. He referred to slide 7. How could cash flow be improved?

Mr Mlenzana asked about implications of underspending on capex. How was a large wage bill coped with, within a context of declining revenue?

Mr Qayiso asked how townships and small-scale emerging farmers could benefit from the rail system. What factors had led to fruitless and wasteful and irregular expenditure? There were procurement challenges. The rail system could not assist the economy if only R4.6 of R8.4 billion was used for capital expenditure.

Mr Mathafa remarked that PRASA was budgeting for more than it could spend. PRASA had the highest figures for irregular expenditure. Contracts had to be investigated.

Ms Peters asked how far investigation had progressed. Had any member of PRASA ever worn orange overalls?

The Chairperson asked for an update about commitments contained in the Gibela contract. The PRASA CEO had to comment on progress with women in rail. He told the DoT DG that a cash balance of R18 billion was unacceptable. Money had to be used, as there were costs related to keeping money in the bank. It was said that TRANSNET did not deliver on servicing trains. Were there other service providers? The PRASA/TRANSNET conflict had to be resolved. He welcomed the establishment of a war-room. Accounts payable were R6 billion. Who was money owed to? People and entities who were owed, could not spend money to grow the economy. It was said that structures would be set up to aid spending, but how long would that take? Care had to be taken not to overemphasise extension of rail networks. The real challenge was to make what was there work.

Ms Khanyisile Kweyama, PRASA Board Chairperson, responded that the current board had found a broken PRASA, as concerned structures, people and systems. There were acting people in many positions. The culture was deficient, because too many people were not doing the work they were supposed to do. Deadlines were not met and work performed was of a bad quality. The PRASA Board was a non-executive board, and could not go beyond sending back work that was badly performed. There had been no movement on directives from the Railway Safety Regulator (RSR). PRASA did have a legal right to transport passengers. The right was suspended for a single day during re-application for the licence. The board of TRANSNET was met with to deal with issues one by one, but the DGs of Transport and the Ministers had to be involved in the process. The Gibela contract had to be unpacked. The contract had its own board, and there had been interaction between the Chairperson and herself, about unimplemented empowerment. Women in rail was not sufficiently implemented. She answered Ms Peters about orange overalls, that investigations by the Public Protector, the National Treasury (NT) and the AG had sat on the shelf, but recommendations had more recently been made about disciplinary action, with cases sent to the Hawks. The Special Investigations Unit (SIU) spent six months at PRASA and provided a report. The establishment of the SIU tribunal could expedite disciplinary actions against individuals implicated in wrongdoing.

Mr Moemi noted that Ministerial intervention had already started with Mr Blade Nzimande. A dearth of leadership in PRASA was found. PRASA had received a disclaimer audit opinion, but it was still better than two preceding years in which no financial statements were submitted at all. The wrongdoers were still in the system. The entity received 30 percent of the DoT budget, and as such was simply too big to fail. The Minister had met with the AG about PRASA challenges. The SIU was consolidating cases, and key vacancies were being filled. Safety vacancies for work like signalling, required by the RSR, which had not been filled for some time, were now filled. The Road Accident Fund (RAF) owed R471 billion to beneficiaries, and the DoT had to intervene. The executive had to decide about a road to rail strategy, but the question was where the policy had to be determined. A list of disputes with TRANSNET would be provided. The President had to mediate between the DoT and the Department of Public Enterprises.

Ms Kweyama related how trains in excellent condition at Pienaarspoort were only allowed to run during non-peak hours, after 9h00 and before 16h00. When the PRASA board asked why, it was told that stones were thrown at trains during a service delivery protest at Mamelodi. A board of enquiry was appointed, and it was decided to remove the trains from peak hour service during the course of the investigation. But when the board of enquiry was asked about finalising the investigation, PRASA was told that it was their board, and the onus was on PRASA to conclude the investigation. By that time the trains were not running during peak hours for a considerable length of time.

Ms Fosu said that there was no proper budget process. Cost drivers in PRASA were personnel, and core or support functions. The wage bill was high, but PRASA did not want to shed jobs. There was the challenge of work performed without required skills. Government could not create jobs, it could only create an environment for the private sector to do so. The way in which PRASA was currently budgeting for energy was not talking to the situation on the ground. Under normal circumstances there were checks and balances built into the procurement process. Probity was introduced to curb irregular expenditure. The R6 billion amount of accounts payable was because costs had been incurred with money that PRASA did not have. There was budgeting for deficit in PRASA year after year. TRANSNET was owed R1.3 billion, which PRASA could not pay.

The Chairperson asked the Deputy Minister for concluding remarks.

Ms Dikeledi Magadzi, Deputy Minister of Transport, commented that there was work in progress to provide reliable and safe public transport. The systems that the Minister had put in place through the PRASA war room would yield fruit. It was unfortunate that PRASA had received a disclaimer. SCM processes had to be put in order. She commended the DoT Director-General for his ability to speak on PRASA matters, and could assure the Committee that he could speak as well about the other DoT entities. Value for money from interventions would become evident. New trains would be put to proper use. The DoT would account to the Committee regularly. PRASA was currently a problem child but there was nothing that was insurmountable.

The Chairperson concluded that on the way forward, the Committee had to be informed about what was happening with respect to women in rail, and the contractual commitments of Gibela. PRASA was in a reconstruction phase, and there had to be leadership stability. There had been seven CEOs at PRASA in five years. It took a CEO a year to become thoroughly familiar with all that happened in an entity.

The Chairperson adjourned the meeting.