Second Adjustments Appropriation Bill: Minister & Department of Transport briefing

Standing Committee on Appropriations

24 November 2020
Chairperson: Mr S Buthelezi (ANC)
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Meeting Summary

Video: Standing Committee on Appropriations

The Minister of Transport, Department and the new Passenger Rail Agency of South Africa (PRASA) Board briefed the Standing Committee on Appropriations on the Second Adjustment Appropriation Bill as it relates to the transport sector.

The Department has a total revised budget of R57.406 billion. The net reduction for the Department amounts to  R41.093 million after taking into account the reduction on compensation of employees as announced in the budget speech, rollover of funds, additional funding as part of the presidential employment initiation, and a reduction to bail out the South African Airways (SAA).

There was a shift of funds to the Airports Company of South Africa, by means of issuing preferential shares to it, to address the revenue shortfall.

The Minister said the Covid-19 pandemic had a devastating effect on the South African economy and the fiscus. The transport sector continued to carry the brunt of the economic impact due to travel and transport restrictions. Rail transport was particularly affected with PRASA ravaged by acts of criminality and vandalism.

Members asked questions which included what the rail transport capacity of PRASA was; the relationship between Nelson Mandela Bay, the Department, and National Treasury; what preparations the Department made around the economic recovery plan announced by President Ramaphosa; what PRASA’s role would be, especially in relation to local procurement and employment; about the budget cuts the Department made, if the Department had to make any concessions because of it; if the recovery plan for SAA proved to be value for money; and the economic cost of vandalism and theft of PRASA infrastructure.

Meeting report

Ms Dalian Mabula, Acting CFO, Department of Transport, briefed the Committee on the Second Adjustments Appropriation Bill [B25 – 2020] as it relates to the transport portfolio.

The Department had a total revised budget of R57.406 billion. The net reduction for the Department amounted to   R41.093 million. This is after taking into account the reduction on compensation of employees as announced in the budget speech, roll-over of funds, additional funding as part of the presidential employment initiation, and a reduction to bail out the South African Airways (SAA).

The Committee was informed of funds shifting to the Airports Company of South Africa (ACSA) for the revenue shortfall, and for issuing preferential shares.

[see presentation attached for further detail]

Opening remarks by Minister of Transport
The Minister of Transport, Mr Fikile Mbalula, said the Covid-19 pandemic had a devastating effect on the South African economy and the fiscus. The transport sector continued to carry the brunt of the economic impact due to travel and transport restrictions. Rail transport was particularly affected, with the Passenger Rail Agency of South Africa (PRASA) ravaged by acts of criminality and vandalism.

The aviation sector also experienced a sharp decline, with the Civil Aviation Authority of South Africa (CAASA) generating income through a passenger safety charge, fuel levy, and administration fees. Other than limited repatriation and evacuation flights, the entity generated no income. Income declined by 98%. The entity requested R195 million. R145 million was funded through reprioritisation, whereas R50 million was unforeseen and additional.

The impact of the pandemic had disastrous consequences for ACSA. Left unattended, the entity would have breached its debt obligations. This would have triggered immediate debt repayment obligations. The liquidity issues faced by the entity had serious implications for the entity to continue as a going concern. Revenue declined by 87%, with a 91% reduction in traffic volume. The entity requested R3.5 billion because of its weakened credit profile. It was unable to generate cash to service the debt.

Most of the reduction in redirection of funds came from the capital budget of PRASA. The entity underspent, and the reduction of R3.4 billion was spent in other areas which did not get funding from the reprioritised budget. This would not affect PRASAs operations.

To cushion the budget cuts on the transport sector, municipalities and cities were advised to slow down infrastructure networks and funds were redirected.

The newly installed PRASA Board would rise to the occasion to address the challenges at PRASA. PRASA must be built to deliver on its mandate. Upgrades to the central line in Cape Town and Mabopane Corridor are at an advanced stage, and security related issues and sabotage of PRASA infrastructure will be addressed. A compact agreement was signed with the new PRASA Board.

Mr D Joseph (DA) thanked the Minister and his team for the presentation and welcomed Mr Leonard Ramatlakane as the new Board chairperson of PRASA.

The presentation referred to security related costs and issues. He wanted to know if the budget for security was increased, what the financial situation was, and if the allocation was enough to adequately protect South Africa’s rail network.

He also asked what the rail transport capacity was, as South Africa was heading into the festive season. It was important for rail transport to operate as this would inspire confidence in the economy.

Mr Joseph said he did not hear anything about the Nelson Mandela Bay transport network. He asked about the relationship between Nelson Mandela Bay, the Department, and National Treasury.

He also asked for information on the projects which would be affected by the downwards adjustment of R3.5 billion from the Department’s budget.

Mr X Qayiso (ANC) wanted to know what preparations the Department made around the economic recovery plan announced by President Ramaphosa. He wanted the Department to indicate what its role would be, especially in relation to local procurement and employment.

Before the debate on the Second Amendment of the Division of Revenue Bill, there was a presentation by a research institute which offered to assist PRASA on its security related challenges. PRASA never took up the offer. Mr Qayiso asked why PRASA did not take up the offer in light of the damage inflicted on PRASA infrastructure.

He asked about the budget cuts the Department made, and asked if the Department had to make any concessions. He also wanted to know if there were any areas the Department thought it compromised too much on. He asked if any alternatives to these budget cuts were floated.

Mr O Mathafa (ANC) welcomed the presentation and said he would also broach security related matters. The Minister mentioned security related issues during the presentation. Regarding this, he asked what would happen in the meantime to stem the continued pillage of railway infrastructure. He worried the pillage would reach uncontrolled levels.

He asked what would happen with the Mabopane Corridor and Cape Town Central Line upgrades, considering R3.5 billion was shifted from capital projects. He asked if the onus would be on maintenance or capital projects expenditure.

Regarding assets no longer in the Department’s inventory, he asked if PRASA had a scrapping policy for assets the entity no longer used. He made particular reference to decommissioned train stations which were not secured. These decommissioned train stations ran the risk of vandalism and criminality, he said.

Mr Mathafa noted the persistent reduction in the compensation of employees, and asked if this would not impact the Department’s ability to deliver on its mandate. He made particular reference to processing taxi licenses. He said he himself comes from Pretoria, a city synonymous with taxi strikes.

On the matter of the South African Airways (SAA) rescue plan which came at a price tag of R681 million, Mr Mathafa asked the Minister and the Director-General to explain if there was value for money.  He asked if this allocation was discussed with National Treasury; how this amount would affect the mandate of PRASA; and how the entity interlinked with Transnet.

The Chairperson referred to the economic cost of vandalism and theft of PRASA infrastructure. He asked for a briefing on how these acts impact PRASAs insurance premiums. He also asked for the cost implications of vandalism and theft of PRASA assets and infrastructure.

Capital expenditure continues to be an endemic challenge at PRASA. It impacts PRASAs operational and financial performance. While it might seem prudent to have a lot of money in the banks, the reality meant extra financial burdens are placed on the government, who was the ultimate guarantor of these funds. He also queried the cost to tax payers.

Government borrowed funds at exorbitant rates and entities ought to be mindful of this. This is also within the context of taxpayers having to foot the bill. If these allocated funds for funded mandates were not directed as envisaged, it would ultimately create service delivery challenges.
He asked for PRASAs capital expenditure projections of allotted funds. The country needs expenditure on capital projects, which is infrastructure.

PRASA said it entered into negotiations with the Development Bank of South Africa (DBSA), with a view to the latter acting as an implementing agent for all capital projects. He asked PRASA to take the Committee into its confidence regarding this decision. He did not understand why PRASA considered such a move as the money spent on its services could have been utilised for infrastructure expenditure.

He touched on the economic recovery plan of President Ramaphosa. One of the salient aspects of the recovery plan was government departments should procure locally where possible. He called on the Department to ensure there should be initiatives aimed at local procurement in line with the recovery plan. The Chairperson said he did not expect the Department to provide feedback at the current meeting, but instead to go to the drawing board and provide feedback at a later stage.

On recapitalisation of SAA, the Chairperson said the Open Skies Agreement (the Agreement) allowed foreign carriers access onto domestic routes in South Africa, and had to be reviewed. He asked for a briefing on this, and asked if there were any engagements with the Department of Public Enterprises (DPE) on the Agreement.

The Chairperson touched on the woes at Sosholoza Meyl, and said the festive season was upon us. This meant countless numbers of South African migrant workers would return home and counted on this service. He wanted a brief regarding if PRASA was prepared.

He referred to the Rolling Stock Fleet Renewal Programme which saw PRASA award a multi-billion tender to the Gibela Rail Transport Consortium (Gibela) for the production and procurement of a new fleet of trains. He asked if Gibela made strides in the commitments made by the consortium.

He noted the adverse findings the Auditor-General (AG) made regarding PRASAs financial statements being in a shambles. This led to the AG issuing a disclaimer. The Chairperson said this is a serious irregularity which had to be corrected. He called on the newly installed Board, as well as the accounting officers at the ailing entity to show a marked improvement in the future.

Ms Mabula said funds allocated for funded vacancies were not touched, and funds were redirected from the proposed increases in salaries. Salaries would not be reduced.

Mr Ramatalkane referred to vandalisation of assets and said the PRASA Board asked PRASA executives to compile a comprehensive report on all damage and related costs inflicted on PRASA infrastructure. Once these calculations are done, PRASA will be able to pronounce on the actual costs involved, only then would insurance claims be filed. The damage was huge and would cost an arm and a leg.

On the appointment of the DBSA as an implementing agency for PRASA, Mr Ramatlakane said this particular matter was not yet discussed by the PRASA Board. Any decision of such a nature would require the involvement of the Board. The idea might have been floated in light of the capacity challenges PRASA experienced at the time. The new Board was only a month old and such a decision did not come from the Board he led. The Policy and Implementation Unit of PRASA would be strengthened.
Subject to correction, the Board would reverse such a decision, if it was taken.

On Mabopane and Cape Town Central Lines, Mr Ramatalkane said the programme to revive these mainlines gradually improved and the Minister will re-launch these corridors starting from 27 November 2020.

On the commitments made by Gibela to PRASA, Mr Ramatalkane said a round table with the former was in the pipeline to review the work done thus far. There were some challenges which prevented Gibela from delivering some of the rolling stock. The challenges Gibela faced were PRASA’s doing. PRASA had not yet started work on the depots which would host the brand new trains for safekeeping. The Board engaged PRASA executives on the need to finalise the construction of these depots. The depots should be completed within six months.

Mr Ramatlakane referred to the AG’s comments on dismal financial accounting practises at PRASA. The Board wants to see a different picture emerge at PRASA. To this end PRASA executives are committed to a decisive turnaround strategy. At a next meeting, the Board, and PRASA executives, would be more than happy to provide feedback on progress made.

On security related matters, Ms Thandeka Mabija , the Acting Group Chief Executive Officer, PRASA, said PRASA earmarked R900 million for security related expenses and said Mr Qayiso was correct about PRASA not taking up the offer by an institute of research to assist PRASA. The Council for Scientific and Industrial Research (CSIR) assisted PRASA to design a model for security.

On asset disposal, she said PRASA has an asset verification policy and a committee in place which deals with scrapping assets.

Ministerial response
The Minister said when he assumed Office, the former Board made a request about DBSA being appointed as an implementing agent. This request was not processed. At the time the request was made, PRASA had chronic capacity constraints. This was the rationale for the DBSA proposal. In the meantime, the Minister and his team worked hard at critical vacant points. The installation of the new Board was also a positive step in the right direction.

The inability of PRASA to spend its Capex budget brought about an accumulation of resources which had to be redirected, given the current realities ushered in by the Covid-19 pandemic. With the renewed capacity at PRASA, it would be able to implement the Capex budget. 

The disclaimer issued against PRASA by the AG should be seen as a reflection of the past and not the current or future reality at PRASA. According to the Minister, the future looked bright and remedial action undertaken at the ailing entity was for good. The systems were strengthened to ensure good governance, and he signed a compact agreement with the PRASA Board. This compact agreement spelled out the weaknesses and critical areas which had to be delivered on.

As much as the pandemic impeded progress, so too did rulings by the judicial branch against the Minister in relation to the appointment of an administrator for PRASA. He was referring to the Western Cape High Court Judge Nathan Erasmus setting aside the appointment of Mr Bongisizwe Mpondo as the administrator of PRASA. The application was brought by activist coalition #UniteBehind, who said there was no legal standing for the appointment of an administrator by a Minister under the laws governing PRASA.

The Minister is confident the new Board will build on the progress made. The Board is well suited to deal with issues PRASA grappled with. The AG report for the next financial year would be vastly different if the new Board and PRASA executives fulfilled mandates.

On transport related infrastructure and the rolling stock tender which was awarded to Gibela, the Minister said his Department and Transnet drafted a concept document which addressed this particular matter. He was working with the Presidential Infrastructure Coordinating Commission (PICC) under the leadership of the Minister in the Presidency. Insourcing security guards would commence and the necessary infrastructure would be built.

The Minister touched on the huge impact graft and other forms of malfeasance had on PRASA operations. The Minister said this would be rooted out.

The Department was in the process of developing an aviation strategy, which included the Open Skies Agreement. These agreements had to be reviewed. Discussions between the Department and the Department of Public Enterprises were on-going and should be finalised within the coming months. South Africa’s economic recovery and national interests had to be prioritised.

Follow-up questions
Mr Z Mlenzana (ANC) applauded the Minister for the appointment of the new Board and asked when the new appropriations would be transferred to PRASA. He asked when the Committee would see action taking place at PRASA.

Mr Qayiso said the response on the research institute was not clear, and he was confused.

The Chairperson wanted to know what reasons were advanced by National Treasury for refusing to give a guarantee to the Airports Company of South Africa (ACSA).

He asked what implications the court judgment had on the operations at the Road Accident Fund (RAF).

Follow-up replies by officials
Ms Mabula said ACSA did not get a guarantee. This is because of the entity’s dire financial position brought about by the Covid-19 pandemic. The Department had a meeting with National Treasury where Treasury asked for additional information. She said even in the event of issuing ACSA shares, the entity would still not be able to sustain operations. Discussions were on-ongoing.

Follow-up replies by the Minister
The Minister said the RAF court judgement exposed widespread collusion between RAF officials and the ‘so-called’ representatives of claimants. The judgement was scathing in this regard. The matter is being dealt with and the executive authority was directed by the Court to pay special attention to the judgement. Corruption occurred at all levels and comprised the involvement of almost everyone from medical practitioners to legal representatives. The judgement confirmed what the Minister knew all along.

A forensic investigation is being considered. The judge directed the National Prosecuting Authority (NPA) to investigate the rot at RAF. 

The Minister said relevant legislation will be reviewed, and amendments will be brought to safeguard against the wholesale looting which occurred at RAF. Cabinet still had to be briefed on the developments. The Minister said he would return to the Committee to apprise on developments.

Closing remarks by the Chairperson
The Chairperson said the Committee supported the Minister and his team in navigating the vast challenges experienced in the transport sector, and said ‘things had to be done right’.

PRASA Board Chairperson and executives of the Committee must support the turnaround strategy for the troubled entity. Millions of South Africans depended on subsidised rail transport.

PRASA must devise a comprehensive plan which detailed the role the entity would play in the economic recovery. He recommended this plan be shared with the Minister first. The same applied for the brief on Gibela.

Closing remarks by the Minister
The Minister said Gibela did a lot of work. He agreed with the marching orders given by the Chairperson regarding the PRASA Board and management doing their jobs. He said he met with Gibela, its French partners, and Broad Based Black Economic Empowerment (BBBEE) stakeholders to be apprised on developments. He is happy to give detailed feedback during a next engagement with the Committee.

The meeting was adjourned.



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