In this virtual meeting, the Minister of Transport and the new PRASA board briefed the Committee on the current state of affairs at the entity.
Government approved the appointment of the new board last month after the agency operated without a permanent board for three years.
The Minister said that much work still needs to be done in addressing pervasive challenges relating to: security, theft and vandalism of critical assets; infrastructure as well as sheer criminality that continues to undermine the provision of a reliable commuter rail service.
The AG flagged the following factors as the root causes for the disclaimer in the findings of the entity’s 2019/20 audit: inadequate governance records; instability in key positions; poor financial management and record keeping; lack of compliance, monitoring and enforcement; lack of consequence management; inadequate audit findings action plan; and inadequate oversight.
The PRASA board said it was in the process of expediting the implementation of the modernisation programme; ensuring effective consequence management through a divisionalised structure, moving to digital document management and providing support to investigations that are currently underway by law enforcement authorities. It currently had investigations taking place by both the Directorate for Priority Crime Investigation (DPCI, or ‘the Hawks’) and secondment agreement with the Special Investigating Unit (SIU), the former of which was not yet concluded.
The Committee wanted to understand what the validity of decisions made by an illegally appointed administrator of PRASA was; whether the former Company Secretariat of PRASA had been held accountable for the lack of board minutes for the past several years; the reasons and costing of the sale of some formerly acquired locomotives; the usability of said locomotives; the reasons for an auction of some locomotives and the reasons for seeking new locomotives. All of these details could not be provided; however there was a commitment to do so in writing once the new board had itself been more fully briefed.
The Committee further asked about security of the rail infrastructure, appointment of the Werksmans Law Firm, and the continued vandalism of infrastructure.
The SIU offered to brief the Committee more fully of its investigations under proclamation at a later stage, and explained some of the consequence management that has resulted from its work thus far, being careful not to speak to live matters in detail.
SCOPA said it would offer PRASAs board its support so long as it does the right things. PRASA remains on Parliament’s radar through SCOPA as the majority of the country’s people are dependent on a functional, and effective and efficient PRASA to commute to work, to look for employment, to go to school, amongst other things.
Minister of Transport opening remarks
Mr Fikile Mbalula, Minister of Transport, said that much work still needs to be done in addressing pervasive challenges relating to: security, theft and vandalism of critical assts; infrastructure as well as sheer criminality that continues to undermine the provision of a reliable commuter rail service. He was pleased to introduce Mr Leonard Ramatlakane, the Chairperson of the newly appointed board of control, at PRASA. He is no stranger to the transport portfolio and is well-versed in the challenges confronting PRASA. He had no doubt that the calibre of the board appointed will rise to the occasion and tackle PRASAs challenges with urgency and single-minded commitment. The Ministry and PRASA remain on a path of building a passenger rail agency that has the requisite capacity and leadership to deliver on its mandate. PRASA is well on-track with infrastructure upgrades and modernisation of, amongst others: the central line in Cape Town and the Mabopane Corridor in Tshwane.
In recent months, it has unveiled a security strategy to tackle the sabotage of PRASA infrastructure. This security approach involves law enforcement agencies. The rail system continues to be a target of theft, vandalism, senseless attacks on employees and private security that are sabotaged while on duty. The security plan is premised on developing requisite internal capacity and capacity to mitigate theft and vandalism of the rail infrastructure. Improving operational performance includes the recovery of the commuter service and the acceleration of the modernisation programme. These are critical tasks that must be accelerated as they are central in positioning passenger rail as the backbone of South Africa’s transport system. In building on the work done by previous accounting authorities since the dissolution of the last board, the Department has concluded a shareholder compact with the new board. This compact emphasises the urgency of critical tasks that will deliver tangible outcomes in turning the business around.
Among other priorities outlined in the shareholders compact, for the remainder of this financial year, the following has been prioritised: implementation of security and asset protection strategy plan; a merger of PRASA Cress and Intersite; a divisionalisation of Autopax; resolution of the locomotive acquisition from Stadler Rail; ensuring the general overhaul of the rolling stock and ensuring implementation of the presidential directive on the roll-out of the central line in Cape Town and Mabopane to Pretoria line in Gauteng.
The Department remains disappointed that the PRASA audit outcome for 2019/2020 is a disclaimer with findings; however this outcome indicates the correctness of its decision to dissolve the previous board and make decisive interventions. This outcome resonates with its findings of a broken organisation. It is, however confident that the fruits of its intervention will reach maturity in this financial year and will be evident in the 2020/2021 audit outcomes. In his audit opinion, the Auditor General (AG) flagged the following factors as the root causes for the disclaimer in the findings: inadequate governance records; instability in key positions; poor financial management and record keeping; lack of compliance, monitoring and enforcement; lack of consequence management; inadequate audit findings action plan; and inadequate oversight.
The Minister assured the Committee Members that significant progress has been made in areas that the Department has prioritised, subsequent to the dissolution of the previous board. These results will only become evident in the 2020/2021 financial year. This includes: all matters raised in the AG’s report and ensuring that there are no repeat findings; accelerating interventions aimed at improving operational performance; expediting the implementation of the modernisation programme, with the priorities being fencing, the signalling pairway, station upgrades, security interventions across all corridors; ensuring effective consequence management and providing support to investigations that are currently underway by law enforcement authorities. In addition to the appointment of the new board, significant progress has been made in filling critical vacancies at senior management level. During the course of this year, the following vacancies were filled by capable executives: Chief Executive Officer (CEO) for PRASA Rail Division; CEO for PRASA Cres; CEO for Autopax; Chief Security Officer and Group Company Secretary. The board has prioritised the filling of the vacancy of Group CEO and is expediting this appointment with the urgency it deserves. The Department has no doubt that the tide is turning and PRASA is well-on track to deliver on the mandate of positioning rail as the backbone of South Africa’s transport system.
The Chairperson thanked the Minister for his overview and noted that the presentation had been sent and received by all members. He asked that the presentation begin immediately, after which point questions would be fielded.
Presentation by the Passenger Rail Agency of South Africa (PRASA) board on the current state of affairs at PRASA
Mr Leonard Ramatlakane, Chairperson of PRASA, greeted all the Committee Members, the Minister and Deputy Minister and the board of PRASA, who were in attendance. He said he would begin by making a few remarks, where after the Acting Group CEO would make the presentation.
As the Minister already indicated, the board has been in office for about a month; however it feels like a long time already. There are a number of challenges which the board has committed to deal with and it is currently focussed on stabilising the organisation in terms of key position and policy aspects; such as the supply chain management (SCM) problems that have always been a problem. It is immediately focusing on stabilising these issues and on focusing PRASA on its core mandate and as a board, it is committed in making sure this mandate is carried out. Within that mandate, security issues and the issue of capex are also a focus; including a focus on gaining the capabilities and skills that are needed to ensure that infrastructure which the Minister spoke about is actually carried out. He then asked the Acting Group CEO to take the Committee through the presentation, after which questions would be answered.
The Chairperson concurred, asking the Acting Group CEO to continue and congratulated the Chairperson on his appointment.
Ms Thandeka Mabija, Acting GCEO, PRASA, greeted all present and said she would be brief as the Minister had covered most of the salient facts.
Ms Mabija stated that PRASAs 2019/20 audit outcome comes with a disclaimer. She asked the Committee to take note that as much as the audit of the AG was concluded at the end of September, the work of the current financial year was not taken into consideration. The issues which resulted in the disclaimer were already alluded to: inadequate governance records and instability in key positions; which the Minister has already alluded to in listing the positions that have been filled—however, there remain two positions to be filled, for the Group CEO of PRASA and the Group Chief Financial Officer (CFO) of PRASA; poor financial management and record keeping; lack of compliance, monitoring and enforcement; lack of consequence management; inadequate audit findings action plan; and inadequate oversight.
These are the issues which would be the focus of the presentation on the annual performance with the aim being to indicate what PRASA is doing to address the issues.
Overview of Audit findings
The presentation depicts a table comparing the audit findings for 2018/19 and 2019/20. There was a marginal overall decrease in the number of findings from 173 to 120. Work is currently underway to address these issues through an audit findings action plan that is structured per functional area and per division; which are then reported at a Group Executive Committee level. The audit action plan will be shared with the new board of PRASA and the relevant committees.
Addressing the Audit Findings
The PRASA board of control has already established: audit and risk; human capital and remuneration; safety, health and environment of internal control; finance, capital, investment and procurement and governance and performance committees. At the board induction last week Saturday, the board requested that there be a finance Committee which would specifically look into the finances of PRASA.
Issues such as vandalism of the PRASA network has exacerbated matters highlighted by the AG which is that PRASA does not have a credible fixed asset register.
There is an asset register at PRASA; however the board noticed that a structured plan was needed to ensure that the asset register is updated and that it reflects all of the assets of PRASA. To address this issue, it has developed key performance indicators (KPI) that involve the establishment of the Chief Financial Officers Forum, so that all material irregularities are investigated, resolved and condoned where necessary; with the relevant delegations that are available in the organisation. Another KPI it is working on is strengthening the internal control environment. It has identified that one of the key issues resulting in repeat findings is a lack of detection. Detection does not only speak to finances, but also to various actions needing to be performed within the organisation. This is the work of the CFO’s Forum which looks at reconciliation of finances; including staff training across PRASA on the Public Finance Management Act (PFMA). As employees join the PFMA, there is a requirement that they are trained in the PFMA, and refresher training on the PFMA is also provided.
PRASA has also put in place a structured programme for document management. As the Minister indicated, a key finding in the audit was accessibility and availability of documents. PRASA has also ensured that it does not depend on the AG, as it is introducing self-assessments, which will be introduced before the end of the financial year, so that it tracks issues on a continual basis.
This links with the establishment of internal control, which is underway. Furthermore, to address the AG’s audit findings, a proclamation was issued such that the Special Investigating (SIU) is dealing with PRASA matters that were raised in the Public Protector’s report. Because of internal capacity constraints however, a secondment agreement was concluded with the SIU and four members of the SIU have started work on the 17 material irregularity matters identified by the AG.
On 10 September, PRASA had its first meeting with the SIU’s secondment team to track progress and there is already progress on four of the seventeen matters. It is hoped that by the end of February, all 17 matters will have been investigated and the relevant consequence management will have been taken.
The Chief Human Capital Officer of PRASA chairs a meeting of all the CFOs and CEOs of PRASA, who are held accountable for the progress that they are making to mitigate and strengthen the control environment and to address the historical audit findings. In previous sessions, the AG reports that there are AG findings dating back to 2016, which have not been addressed however, she assured the Committee that the 2018/19 audit findings have been addressed. This committee sits on a monthly basis to ensure that it is able to report to the relevant board committees on a monthly basis.
PRASA has noted a serious need to revise its asset management processes. There is a multi-disciplinary process being put in place to mitigate the problem of vandalism. It I also looking into resources in the short term to strengthen the security function. It is fast-tracking processes to ensure that by 01 December, it has insourced 90% of security so that there are boots on the ground.
It has signed off an asset register to ensure the verification of assets is managed and that it is easily accessible for self-assessment audits. Currently, there is work done by divisional CEOs and CFOs to ensure that assets are checked and verified, paying attention to the condition of assets across PRASA. PRASA has gone on tender to appoint valuers in order to gain a clearer understanding of the various levels of vandalism at various stations, so that it can properly account for all of the assets on the round. This will, however require, the asset management approach, which there is a need to strengthen on a group level. PRASA has found that in some divisions, there is best practice in the management of assets, however, going forward, it would like to ensure that asset registers are updated on a continual basis and that this will form part of the Group Executive Committee report as it keeps track of what is happening in the organisation. The goal, as part of the divisional management, is to ensure that these asset registers are kept up to date.
Progress in resolving the 2018/19 audit findings
There has been work done within the current financial year to ensure that there is closure on the audit findings of 2018/19, where there were 187 findings, 75% of which have been addressed, 19% of which are in progress and 6% which are yet to be addressed.
Irregular expenditure analysis
In 2018/19, irregular expenditure was at R3 billion. In 2019/20, it was R1.3 billion. This cannot be condoned, hence on a monthly basis the CEOS are held accountable by the Acting Group CEO and, she was sure the permanent Group CEO would ensure that the CEOs account for irregular expenditure on a monthly basis. This is not, however, the focus, as what is desired is proper detection to ensure proper reduction of irregular expenditure. Tracking is needed in order to ensure that consequence management takes place. PRASA is not happy at present; however, it can see a telling decline in irregular expenditure. The major contributing factors of irregular expenditure are depicted on slide 16, and speak to the need for the internal control environment needing strengthening.
PRASA also noted that in previous years there has been no condonation of irregular expenditure because where value has been derived by the organisation, the PFMA prescripts allow for condonations, with the appropriate consequence management, so that there are no repeat occurrences.
Fruitless and wasteful expenditure analysis
The graph on slide 17 also indicates that this is on the decline since in 2018/19 where it was at R51 million and in 2019/20, it is at R48 million. Here, PRASA is strengthening this area, and ensuring that this area is tracked on a monthly basis, with serious consequence management that is communicated company-wide. Once employees know what will happen to them if they violate the supply chain policy and the PFMA, it will be a deterrent to ensure that it does not happen again.
There have also been long-outstanding debts in the organisation, which have resulted in PRASA incurring interest due to PRASA not paying the debts back within the 30-day timelines and the aging if the debt payments. The CFO would speak more to this in detail.
Consequence management is critical in ensuring that issues are addressed. In the current financial year, there have been employees who were dismissed for violating the procurement process. Slides 19 and 20 attempt to show what has been done in terms of consequence management in terms of the PFMA as well as the number of employees implicated. Consequence management by nature, is fluid and continuous, therefore the numbers may be different by the next day. The areas where it says ‘not applicable’ is not that consequence management was not taken, in relation to PFMA, but is merely an issue of how it has been captured by human capital on the system. The Office of the AG was very particular in 2019/20 in saying that it would like to see that employees faced consequence management. Accordingly, for the 2019/20 financial year, the number of employees facing consequence management were 10. Six of them were dismissed. For the current financial year 2020/21, 17 are undergoing consequence management and eight were dismissed. Law firms were appointed to assist PRASA to deal with these matters.
Performance Summary 2019/20
The presentation details 12 key objectives for the financial year in question, as follows:
-Strengthening governance and stabilizing the organisation.
- Improving PRASAs financial position; considering the decline in revenue in various areas within it.
-Improving commuter and passenger experience.
-Ensuring reliability and availability of service and infrastructure.
- Managing and improving property conditions.
- Improving passenger rail travel experience
- Protecting people, assets and infrastructure.
- Asset management and maintenance.
- Exploiting sets through property development.
- Procuring for business
- Effective management of capital programme
- Build to last
- Building customer and stakeholder confidence
-Planning for Growth and network expansion.
PRASA has implemented a risk management framework and there is a risk register which indicates what it needs to focus on. There is still a need to focus on ensuring that PRASA has a strategy as per the commitment to the corporate plan. The Acting Group CEO noted that direction of the company is not set by the corporate plan, but it is set through a strategy document.
She wanted to give the Committee comfort, however, that the operating model has been developed.
A factor which affected revenue performance under objective two had to do with the locomotives. The Minister alluded to the need of addressing the issue of the locomotives and the train sets within the organisation.
PRASA said that it has received approval from National Treasury to extend the current contract and ensure that it is able to provide the mainline passenger services and increase passenger numbers so that the picture of revenue decline does not continue.
PRASA did, however take cognisance of the fact that the recovery of corridors is impacted by COVID- 19. To date, it has recovered 15 corridors. There is work in place to ensure that more corridors are recovered including the main passenger line services.
On the availability of locomotives, PRASA has already received a draft commercial agreement that it, as per the direction of the Minister and the current board, must expedite and finalise before the end of December 2020, so as to ensure that it is able to access the Stadler locomotives. Six of these locomotives are already in the country and it is looking at getting 23 locomotives from Stadler into the country in total, so that it has a reliable fleet. The fleet would then comprise of a combination of diesel and dual locomotives, the latter being diesel and electrical locomotives.
Gibela is providing PRASA with the train sets, and one of the impediments has been PRASA not having enough capacity at the depots to accommodate the trains. The board of control visited Cape Town last week and gave the Acting Group CEO a directive and timelines to unlock capacity to receive additional trains from Gibela and have this concluded within six months. This unlocking will take place with the programme of asset disposal of various train sets that have been burnt throughout the country over the years. Scrapping these assets, whilst following the relevant government processes will enable PRASA to open space in yards to ensure that there is enough capacity to gain the train sets needed. She gave the Committee the assurance that there is a plan to address availability of train sets and locomotives.
In the interim, PRASA is aware that some of the train sets being gained from Gibela will require the work being done by the University of Stellenbosch, Transnet and PRASA to wait for clearance of the Overhead Track Equipment (OHTE). She had addressed the committee, last week Friday to review the timelines as it does not have four months within which to do that work. PRASA is also formally partnering with Transnet as directed by the board of control, to ensure that the low hanging fruits of opening up low-capacity is achieved.
On asset management and maintenance, she noted that engineering standards have not been developed and that it was critical for engineering standards to be developed for maintenance purposes and that work is performed. It is also working to create inhouse capacity for engineering to ensure and capacity and leadership in infrastructure maintenance.
The insourcing of security was not implemented and the Minister announced and gave a directive that PRASA must insource. This programme is in progress and it hopes that it will have reached 90% recruitment by 01 December 2020. Sourcing of drones and armoured vehicles are in the priority pipeline of recruitment for this financial year. Integrated control rooms were reported as not being implemented as they are in the pipeline and being tracked on a weekly basis. The Acting Group CEO and the divisional CEOs are tracking this so that come 15 December, when National Treasury deems that no more work can be advertised, critical aspects of PRASA will have been concluded.
Performance 2019/20: Non-achievement per division
What is key on this slide is ensuring that the assets of PRASA through a consolidated effort. This is not only the responsibility of security, but also for the end user to ensure that equipment is buried so that criminals cannot easily access it.
She asked for the Acting Group CFO to take over.
Salient Financial Position
Mr Krishna Govender, Acting Group CFO, PRASA, stated that group revenue has increased by just over R2 billion from R14 billion n 2018/19 to R16.2 billion. Group expenditure has decreased from R16.1 billion to R14 billion.
Group profit/ loss reflects a profit of R2.3 billion. This share includes a lot of non-cash-flow related items, particularly from a ground perspective and how these transactions are accounted for.
Group profit / loss (excluding non-cash items) is R0.8 billion. This profit is in effect a grant allocation which remained unutilised in the financial year.
Comparatively, PRASA has seen an operational and capital grants increase in both 2018/19 and 2019/20, with it being heavily weighted in the 2020 financial year. The graphic on the right relates to revenue weights of internally generated revenue.
Staff costs are a material cost driver which reached 52% when non-cash items are stripped out.
From a benchmark perspective, this will reduce over a period of time if revenue generated internally increases.
A summary of the balance sheet was shown detailing: property, plant and equipment; prepayment (Gibela); cash and cash equivalents; capex spend; investment property; and conditional grants.
He said PRSA has grappled with what the core problems are which boil down to transactional accounting people who are essentially managing the asset base. Therefore, in terms of the plan that the Acting Group CEO mentioned, PRASA is targeting a devolution of the asset register into the divisions, particularly at a technical level. This is not only from a custody perspective, but from an impairment perspective, that allows PRASA to write off values provided it goes through the right governance processes of investigations, etc. before doing so.
Improvement in Internal Controls and Processes
The first two bullets speak to the recovery of the asset management through the asset register. There needs to be a collaborative approach in addressing asset management and how it feeds into finance.
There have been indications that there were no policies established within the organisation. Post-financial year, however, this has changed, particularly from a group policy perspective. There still is an element of institutionalising these processes.
From an accounting policy matter perspective, there are two main areas: capital grants and development leases. PRASA has a differing view from the AG in terms of how these transactions need to be accounted for. As a result, it has engaged in a process of airing its views with shareholders such as the Department of Transport and the Office of the Accountant General in particular, at National Treasury. It will have a conversation with the AG in advance of the financial year end to pave a way forward before reaching the audit cycle next year.
On the point of appropriately qualified and experienced personnel, PRASA has acknowledged that it does not have the requisite skills to address all of the issues it is faced with as an organisation. Therefore, from a human capital perspective, it is looking to understand the correct match needed for PRASA and as quickly as possible, to bring in the right skills. One such skill is technical accounting.
Actions to Improve Business Performance
The Acting Group CFO noted that a consequence management process has been implemented. COVID-19 has exacerbated PRASAs understanding of business continuity, which needs to be a focus even ordinarily. Security; ICT stabilisation; human capital management; and an asset management plan.
The Chairperson asked the CFO not to repeat things which have already been mentioned as the Committee needed to manage its time as members need to pose questions.
The Acting Group CFO said that the Acting Group CEO and the Minister had spoken to PRASAs core mandate of having the ability to transport passengers. It has spoken to the issue of the appointment of the board.
The Chairperson did not think it was fair that the CFO repeated points already made after he asked him not to.
The Acting Group CFO said he would hand over to the Acting Group CEO.
Ms Mabija said that she had nothing to add and that PRASA was ready to take questions.
Ms B Van Minnen (DA) said that there is no option but to make PRASA work, however since the last time the Committee had seen PRASA, she had not seen much progress. On the administrator and his illegal appointment, she asked how this affects spending under his watch. She asked if it would it be illegal or wasteful expenditure and how it would be addressed. She also asked how come the administrator received a premature bonus before departure and how his remuneration would be paid back and whether the Minister would be responsible for this. Regarding lockdown and vandalism, she asked how it is that the asset register can reflect any kind of increase. Further, she asked how revenue can reflect subsidies and grants as these cannot be seen as revenue. The Committee previously raised the issue of conditional grants not being spent, and she asked what is happening on this point. A number of statements were made about security contracts and she asked why they are not renewed in time. If the 90% target is only being achieved in December, she asked what would happen with potential vandalism over the festive period.
Ms B Swarts (ANC) said she had two issues to raise: lack of governance records and the missing board meetings minutes which have been highlighted by the AG for the past three years. She asked who has been responsible for this. It was also concerning that there are no board minutes for the last three years. She asked who the board members are and who the responsible Committee Secretary is as they are as they are responsible for keeping minutes. She asked what has been done to hold all of these parties accountable. PRASA has procured assets which it does not use and that has led to fruitless and wasteful expenditure. She asked how much this figure comes to for the 2019/20 financial year.
Mr R Lees (DA) congratulated the board and wished it luck for the job ahead of it. He added that it could count on SCOPA’s support if it did right. He was interested to understand the issue of the locomotives and Stadler Rail. It was told that there are six already here in the country and 23 to come. He asked what is to happen to those already here and which were deemed unusable. There was a stage where those were being offered on auction. He asked how many of those there were, whether there was an auction, whether it was successful if there was one and whether PRASA recovered the costs for the locomotives. If not, he asked how much the losses are in that instance. A great deal is being said about train sets and what is going to be done, but what this implies is that the services currently being provided are inadequate. He asked for confirmation that this is the case and that the demand is not being met. He asked what PRASAs on-time record has been for the last few months. Lastly, he noticed a lot had been said about what would be done about the vandalism however from the comments, it appears to be continuing. He asked, what has been done to address this, or whether it is being allowed to carry on whilst plans are being made and new contracts are being negotiated.
The Chairperson asked the Minister to give a comprehensive explanation about the set of circumstances which characterised the appointment of the administrator, the legal ramification of the irregular appointment; the set of decisions made over that time and their legality. The record of decisions becomes very important in this regard. This question was asked in the previous meeting and SCOPA indicated that it would wait for the court judgment to be given, which has since happened.
PRASAs expansions and deviations are quite extensive and SCOPA would like a comprehensive submission on all of them as it would have to zoom into them and have a hearing on them. The Committee would indicate a date as to when it would like these, as it had done with other SOEs.
Insofar as its forensic investigations are concerned, since there were quite a number not being conducted by the SIU, he asked who was conducting these investigations. Since PRASA has a SIU secondment, he asked why those investigations are not being done by the SIU and what the scope of those investigations are.
On the flip-side of this, Adv Mothibi, Head of the SIU was here, and he asked to be appraised on the progress of the investigations without going into the substantive details as these are matters which are still live. He asked when these investigations can be expected to be concluded so that SCOPA can ascertain whether PRASA is co-operating with the investigations.
PRASA had contracts with Werksmans Attorneys for about R300 million which was awarded irregularly. He asked what the current progress on those awards were and whether PRASA still has any other contracts with Werksmans now. If so, he asked what the scope of the contracts is and what their value is.
The perennial headache of the former CEO of PRASA, Mr Lucky Montana is also an issue, and he asked what the progress is around cases related to him are concerned, if there had been any.
The issue of minutes had been raised before. The Minister, Deputy Minister and the DG will recall that the issue of minutes raised at the meeting with the dysfunctional interim board; which disclosed that minutes had not been adopted and yet the schedule of payments was quite up to date. He would imagine that they cause a great deal of unease for the new board as it is coming into an environment where there is uncertainty about the legalities of the decisions taken that it is inheriting as well as dismal record keeping indicative of corruption; a failure to adhere to basic fiduciary duties and the highest level of incompetence, which characterised the board at the time. He asked what the corrective measures are insofar as record keeping is concerned and what has been the implication for the failure to adhere to with due regard to administrative management and what consequence management has been looked at. When consequence management was raised with the interim board, it was all over the show it was clear that some people were being protected, including the Company Secretary. These are all issues which require clarity. He handed over to the Minister and his team, and said there would be a round of follow-up questions after that.
Mr Ramatlakane spoke to the decisions taken by the administrator. As a new board, it has decided that a decision- making inventory needs to be created of all of those decisions as they would fall into a grey area after the court ruling. Once a record of decisions has been consolidated, as a board, it will have to apply its mind to every decision and regularise those decisions in terms of the Act or the rules. Once the record of decision is received, it will be able to deal with the issue of regularising decisions. The Company Secretary has been asked to provide this by 07 or 08 December.
Conditional grant ad skills shortage
On the unspent conditional grant, capacity is a challenge for managers to be able to spend on capex. This is why earlier he spoke to the need of stabilisation in terms of personnel and skill.
At the moment, the board has given itself three months to address the skills shortage and is considering leveraging off the skills of sister SOEs. Given that it is five months before the end of the financial year, this is what is being accelerated at the moment.
There is additional security that has been adopted, as addressed by the Minister. At the moment there is an acceleration for additional security to be appointed in order to look after the infrastructure. It is a catch-22 as without security, vandalism and damage to property will continue.
Fruitless and irregular expenditure
The board has asked that the work that the divisional CFOs are doing is given to it so that it can understand the reasons as to the figures or whether it should follow the PFMA route. The board is currently waiting on responses on this.
The Werksmans issue falls here. Last week, the board asked for the record of expenditure and the scope of work. The AG has already pronounced on the matter; however, the board is still waiting for information before deciding how it will proceed.
This is part of what the board has asked for and is being dealt with by the Audit and Risk committee. The board should have more information about this after 8 December
Locomotives and train set shortage
This is part of the shareholder compact. It is the board’s view that the 23 locomotives waiting somewhere should find passage to South Africa so that PRASA is able to utilise them in meeting the objective and core function of the organisation. The Acting Group CEO or CFO may want to add to this. On the train sets, there is a shortage of train sets, particularly with the burning of train sets that has taken place. This is why the board is accelerating the depots for newly manufactured trains to be kept and deployed in order to provide a service.
PRASA is having conversations with the Hawks and is waiting on the conclusion of its investigations, as investigations have been taking long.
Ms Mabija said that seven locomotives were sold for the value of R95 million. Liquidation is still in progress. There is a draft commercial agreement which will enable PRASA to access the remaining locomotives.
Document and consequence management
The previous Company Secretary was dismissed by PRASA. There is currently a fairly new company secretariat team that started in August 2019 that is assisting PRASA to address document management issues. To prevent this in the future there is a process in place to migrate a 365 server for audit purposes so that there is no dependence on individuals to provide documents, but that they are accessible from a server.
E-document has also been introduced for all contracts of employment and supply chain contracts, which must be loaded via e-document so that there are no files.
She noted that SIU was present to speak to whether or not PRASA was co-operating with it.
The Minister asked if he would be given a chance to respond.
The Chairperson asked the SIU to speak, followed by responses and then the Minister.
Adv Mothibi said that there is a secondment agreement which started in September and is scheduled to end in February 2021. If more information is needed, it could be provided. Mr Mike Poya and the Chief Investigating Officer were present. To date there are various outcomes which have contributed towards consequence management. He was informed that eight to nine officials were suspended as part of consequence management and that two of those have since been dismissed.
On the proclamation, the proclamation has its own focus areas. SIU would appreciate having a scheduled meeting with SCOPA for a comprehensive presentation on its progress. For the purposes of today, the proclamation covers about seven focus areas, which include: security services; general overhaul and upgrade services; the work or upgrade in respect of systems overhaul; repair of rails and infrastructure or maintenance through the implementation of the supplier development programme. It also focuses on an advanced early detection cable theft solution in the Bonteheuwel-Philippi corridor in the Western Cape. It also covers travel management services, the supply of mobile transporters and forensic services.
To date significant progress has been made and the total value of the matters under investigation has been quantified to over R7 billion. The outcomes that the teams have reached include the potential criminal referral of four persons.
Once the employer-employee relationship is terminated, it does not mean that the SIU will not follow those who need to be pursued with civil and criminal liability.
There are potential recoveries in some areas, and the SIU stands ready to present comprehensively
On its timeline, the SIU anticipates the proclamation part will be concluded by March 2021 and the secondment aspect will be concluded in February 2021.
The Minister said that the court did not pronounce on any other matter other than the unlawful appointment of Mr Mpondo. The Department subscribes to the principle known as the Oudekraal principle. The principle means that all matters taken by the administrator remain valid unless set aside by a court of law. There is a plethora of similar examples by the courts including the appointment of the then NDPP Shaun Abrahams. PRASA understood the judgement to mean that it was the appointment which was unlawful and not subsequent decisions made.
Mr Lees asked what is being done to stop the vandalism. If it was our homes, more would have been done, and he asked what processes have been put in place.
On the locomotives, he asked what the cost was of every locomotive sold as seven were sold for R95 million. He asked whether a profit was made from the sale and how many of those sold were unusable. He sought clarity whether it was just the seven, or whether there were others that cannot be used in its network.
The Chairperson repeated questions about Werksmans and whether PRASA currently has contracts with it and if so to what was the value and scope thereof. Secondly, he reiterated the query as to how far cases involving Mr Montana are.
Value of train sale
The Acting Group CEO said she could not provide the value of the trains at present but this would be provided.
Useability of locomotives
The locomotives can be used within PRASAs network in areas where it has 25 kV railway electrification. In other areas however, it has been advised not to use them. It has, however been alerted to the fact that there is a tripartite team that has been put in place to ensure that once the locomotives are put in place, there are no challenges.
Stellenbosch University, Transnet Freight Rail (TFR) and PRASA are currently working to ensure that there are no challenges on the catenary wire. This work should be concluded between two and four months and PRASA is in communication with TFR to find a way to fast-track this.
She had just received information from the team about the original amount paid for the locomotives. was R2.6 billion.
Insourcing of security is one of the steps being taken by PRASA. 3100 have been recruited. 1000 have already been deployed to various areas. PRASA is cognisant that this is not enough to cover the stations and buildings that it has; hence the integrated security strategy which speaks to a combination of utilising technology and cameras in some areas.
In the short-term, PRASA aims to have drones. Part of the recruitment process it is busy with includes armed security guards. Part of its response also includes joint operation of specialised services with the South African Police Service (SAPS).
By 1 December, PRASA aims to have reached 90% of recruitment for its security team. It is making a concerted effort to insourcing experienced security managers. PRASA is aware that its security deployment strategy is not sufficient, but it is confident because it is tracking it monthly and has shareholder support. The shareholder Department and National Treasury allocated PRASA an additional R900 million in October to ensure that the security strategy is enhanced and so that it is not hamstrung by budgetary constraints.
Adv Smanga Sethene asked if he could speak, explaining that he is a new board member of PRASA. The information on Mr Montana was requested last week Saturday and once the board receives this, it will ensure that the information is shared with SCOPA and the SIU.
The Chairperson thanked him, adding that he does not want it to appear that the Committee is going after one individual, but wants to ensure that a logical and legal conclusion is reached. He repeated his question on Werksmans for the third time.
The Acting Group CEO asked Adv Mothibi to respond to the investigation relating to Werksman. As to whether Werksmans continues to do work for PRASA, she confirmed that there is some litigation that it is working on but they are historical in nature. She did not have the numbers as to how many and what the cost was but these could be provided.
The Chairperson said he was not sure how this was passed onto the SIU, but allowed it.
Mr Leonard Lekgetho, Chief National Investigations Officer, SIU, said he was speaking on behalf of Adv Mothibi. The SIU is investigating a contract with Werksmans. There are a number of contracts that the SIU is investigating. Given an opportunity, the SIU will come and brief SCOPA on all of the contracts it is investigating. The appointment of Werksmans is one of the contracts under investigation and is at a very advanced stage.
The Chairperson said that this was what he assumed, which is why he asked if outside of the R300 million case, there was other work that Werksmans was doing for PRASA and the costs of that work. He thought this information would be received in writing. He asked if any Member had further questions.
Mr Lees said that the R2.6 billion was presumably for a lot of locomotives, and he asked how many so that the Committee can work out how much the seven cost. On the collaboration with the University of Stellenbosch, he asked whether the research could conclude that the locomotives will not be useable on some of the lines. If there is a chance of this happening, he asked why the ones which were sold were not modified. He was battling to understand the process and the costs involved.
Mr Ramatlakane said that the locomotives were more than the seven locos mentioned by Mr Lees. The contract costed R2.6 billion and not the R26 billion mentioned by Mr Lees. The board still needs finalisation on the issue of how many locomotives are In the country from the contract and how many are still outside of the country. Its understanding is that some of the locomotives were outside of the country because of the ongoing litigation and would be kept in the harbour until the litigation is over. In order not to mislead Parliament, he felt that PRASA may need to provide a comprehensive report in writing on the locomotives, confirming how many were auctioned and where the others are. The report would also need to clarify the contents of the original arrangement about the route which the locomotives were meant to operate in as the board had been informed that the locomotives were not going to replace metro rail, since they could be used on a different line, which is 25 kV. Given this opportunity, PRASA would be able to answer more fully in writing, after having gained more accurate information.
The Chairperson supposed Mr Lees would be amenable to that in order to get accurate information. He asked that the report be submitted by end of business day on Friday.
Mr Lees thanked the Chairperson.
The Chairperson asked the Minister to give his concluding remarks.
Minister Mbalula said that the Committee was not as harsh as it sometimes can be, and that it gave the board a gentle welcoming. Two individuals did not take up their posts on the board. One said that they had other work commitments and another said that the work was too hard. The two appointments would be made in the new year as the Cabinet cycle had come to an end.
The Chairperson said that SCOPAs reputation precedes it as when it meets with new boars, it is generally nice. SCOPA would offer PRASAs board its support so long as it does the right things. Its support was conditional. SCOPA had a full appreciation of the challenges which beset PRASA as triggered by the meeting it had with the interim board, which resulted in its dissolution. PRASA remains on Parliament’s radar through SCOPA as the majority of the country’s people are dependent on a functional, and effective and efficient PRASA to commute to work, to look for employment, to go to school, amongst other things. If he had it his way, the priority of bail-outs would first go to PRASA. The movement of particularly the black majority who do not have the luxury of flying, among other things, are dependent on a functioning PRASA. Therefore, the chaos, destruction of property, thuggery and looting which characterises certain quarters of society is a slap in the face to those whom the nation seeks to liberate from the clutches of poverty inequality and unemployment. He asked that the board keeps this in mind as it does its work. The Committee will look at the AGs report on its findings. To the SIU, the Committee has noted its timelines of February and March 2021 and will schedule it for the comprehensive meeting it indicated. He encouraged the Minister not to lose heart. The Committee is looking into initiating an inquiry into PRASA; however, it will wait for these processes to conclude.
SCOPA would be leaving for KwaZulu-Natal on Thursday for its oversight visit. He therefore asked that members check that their travel arrangements were in order. The Committee had planned an oversight visit to the Eastern Cape for the following week, however, there was now a house sitting, and it could accordingly not go on the visit. As such it might have time to hear the comprehensive report from the SIU, but this was yet to be decided as it now has two days in its schedule next week.
He was in contact with Ms B Zibula (ANC) on the passing of her daughter, and he asked that the Committee members keep her in their prayers. Communication on funeral arrangements would be provided. To PRASA, he thanked them for the meeting and noted that next time the Committee may not be as nice.
The Chairperson then adjourned the meeting.
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