South African Transport & Allied Workers Union on Spoornet restructuring

TRANSPORT PORTFOLIO COMMITTEE
28 February 2001
SOUTH AFRICAN TRANSPORT AND ALLIED WORKERS UNION ON SPOORNET RESTRUCTURING

Documents handed out:
SATAWU Presentation

SATAWU delegation: SATAWU Deputy-President Mr X Phakathi; Mr M Maziya, Regional Secretary: Western Cape; Mr Mashalaba and Mr Vilane (NALEDI); Ms J Barrett, SATAWU Policy and Research Officer

MINUTES
SATAWU presentation
Ms J Barrett provided the Committee with a document outlining Satawu's key concerns, in particular, the restructuring of Spoornet:

TOWARDS A NATIONAL CONSENSUS ON THE FUTURE OF RAIL IN SOUTH AFRICA
Satawu meeting with the Parliamentary Portfolio Committee on Transport

Satawu delegation list
Khangelani Mashalaba, Chairperson rail sector
Jane Barrett, Policy & research officer
Xola Phakathi, Vice president
Nicholas Maziya, Regional Secretry, Western Cape
Ivan Abrahamse, Regional education officer, WC
Mawethu Vilane, Advisor

What is Satawu?
The South African Transport and Allied Workers Union was established in May 2000 as a result of a merger between the then Satawu (previously Sarhwu, Blatu, and Tatu) and Transport and General Workers Union. The merging unions were both founding affiliates of Cosatu. Satawu remains an affiliate of the federation.

Satawu organises in the following sectors:-
· All divisions of Transnet, the transport parastatal. This includes Spoornet, Metrorail, SAA, Portnet, Petronet, and the various support divisions of Transnet
• ACSA
· Private airlines and airport operations
· Private port operations
· Road freight industry
• Bus industry
· Taxi industry
· Tollgates
· Parking garages
· Motor ferry
· The security industry
· The cleaning industry

Total paid up membership of Satawu is 100,000. There are 18 other registered unions in the transport sector. No other union in the sector has more than 16,000 members.

The president of Satawu is Ezrom Mabeyana (a Transnet employee) and the general secretary is Randall Howard (a former employee of SA Container Depots in Cape Town). The head office of the union is in Johannesburg.

Suggested Aims for the meeting
· For Satawu to brief the Transport Portfolio Committee on its views on the future structure, ownership and operations of our national railways.
· For Satawu and the Portfolio Committee to discuss concrete steps that could be taken to further develop a national consensus on the future of rail in South Africa.
· For Satawu and the Portfolio Committee to identify additional priority issues (including non-rail issues) for joint discussion in future.

Proposed aqenda
1. Welcome and introduction of Portfolio Committee and Satawu participants.
2. Agreeing to the aims and agenda of the meeting.
3. What is the significance of rail in South Africa?
4 Satawu presentation on its views on the future of Spoornet - ownership and turnaround, followed by questions and discussion.
5. Steps for building a national consensus on the future of rail.
6. Additional issues for future discussion - Railway safety regulation; Ports; bus tendering; and any other issues

Questions at the heart of Satawu's views
1. How do we position the railway system for future growth?
2. How do we ensure long term sound investment in new technology and in maintenance?
3. How do we ensure that the stated government policy of promoting "integrated multimodal transport" is practised at all levels?
4. What are the options for making the system more efficient and effective?
5. Are any changes in the structure or ownership of our national railways necessary in order to meet the transport objectives of a system that promotes economic growth, that is safe, affordable and environmentally friendly?
6. What are the options for raising public and/or private capital for investment?
7. How do we ensure that any internal or structural changes to our national railways do not result in adding to our already high unemployment figures? And how do we ensure that those employed at all levels on our railways are properly trained and are placed in quality jobs?
8. How do we ensure that internal and/or structural changes to our railways do not result in some communities being left stranded or devastated as a result?
9. How do we develop a national pride in our railways where all stakeholders feel responsible for growing the use of the network? In particular, how do we mutually tackle the massive problems of vandalism, fraud and theft?
10. How do we ensure political accountability as well as the participation of stakeholders in the process of bringing about changes to the system (including ownership and service delivery)?

The current rail network in South Africa
The map below shows the Spoornet network of 20,000 route kms (You will sometimes see figures for Spoornet quoted that are much higher. This is because there are many more kms of actual track - in sidings, places where there are double tracks, etc. However, route kms gives a more useful indication of the network.) In addition to the Spoornet network there is a considerable distance of rail track owned and operated on company properties. The mines, large companies such as Eskom and Sasol are examples. Most of these tracks are linked in one way or another to the Spoornet lines.
[Ed - The map is unavailable]

Spoornet Feb 2001: Some facts and fiqures
Spoornet is the rail division of the Transnet group. It employs 43,225 people and operates 2,500 locos and 95,000 wagons on 20,000 route kms of track. It transports 59% of all freight in the country. In the financial year ending March 2000 it recorded a profit of R84m (compared to a loss of R135 the previous year). It has assets of R19,5bn. Spoornet has six operating divisions and two supporting divisions. 33% of Spoornet's turnover goes to maintenance of infrastructure and rolling stock.

General Freight Business (GFB)
· 33,151 workers
· 83m tons of traffic per annum
· 1850 customers - with the 10 biggest customers accounting for 40% of revenue, 90 customers making up 50% of revenue and the rest accounting for only 10% of revenue.
· accounts for 66% of Spoornet's turnover
· lost R1,7bn in the year ending March 2000

Coal link
· 2,594 workers
• 66mt export coal plus some GFB traffic
· accounts for 25% of Spoornet's turnover

Orex
• 864 workers
• 23mt iron ore plus some GFB traffic accounts for 5% of Spoornet's turnover

Main Line Passenger Services (MLPS)
· 1,297workers
· 5 million passengers pa
· accounts for 3% of Spoornet's turnover

Lux Rail (Blue Train)
· 86 workers
· accounts for 1% of Spoornet's turnover

Rail and Terminal Services
•129 workers

Support Services
• 4,927 workers

Link Rail
· Currently a shell - intention to locate branch lines in this unit

Metrorail
Metrorail is owned by Transnet and is contracted to government to run urban commuter rail Services. The contract is between Metrorail and the SARCC (SA Rail Commuter Corporation) which is an agency of the Department of Transport. The SARCC owns the commuter rail assets (including land and property). The asset base is R35bn. SARCC has been allocated R350m per year by government to upgrade and invest in maintenance and upgrading of the system. This figure should be closer to R500m to sustain the current asset base, with a further R700m required annually to upgrade the system. There is a backlog of about R8bn in investment in the metro rail fleet. The average age of the fleet is 24 years and the signal system is out-dated.

Metrorail carries 491 million commuters per annum. This is 17% of all commuters.
The revenue risk of Metrorail used to be carried by government but since August 2000 Metrorail has carried the risk, with government providing a fixed annual subsidy of R800m. Cost recovery from fare revenue is around 60%, despite the fact that 23% of passengers evade paying for tickets. 60% recovery is good by international commuter service standards.

Metrorail ran at a profit of R119m in 1999/2000, double the profit recorded in the previous year.

Metrorail employs 8,000 workers - 4,000 less than it did in 1994.

The current contract between Metrorail and the SARCC runs out in 2003. Government's thinking to date has been to move away from the monopoly contract with Metrorail and to introduce competitive tendering for long-term contracts on specific routes. Such a concession contract was due to be piloted in the East Rand from some time this year. However this pilot plan appears to have been put on the back burner. SATAWU is of the view that international experience show conclusively that commuter rail concessions not only tend to end up costing governments more by way of subsidies, but that invariably service and working conditions decline.

The road/rail problem in freiqht transport
The financial troubles of GFB are compounded by competition from road freight.

The proportions of freight carried by road and rail
In October 2000 there were 31,032 private sector road freight vehicles in South
Africa (i.e. operating for reward, not owned and operated in-house). This was a 6,5%
increase on the numbers of road freight vehicles in 1999.

In 1999 private road hauliers transported nearly 434 million metric tons of freight compared to 180 million metric tons of general freight transported by rail. Spoornet's proportion of the general freight market dropped 1% between 1994 and 1999. In 1999 Spoornet carried 29% of all general freight tonnage. If the bulk commodities of coal and iron ore are included this percentage rises to 59%.

Who pays for road maintenance, and how does this affect price?
While Spoornet has to reinvest 33% of its turnover into track maintenance (this excludes expansion or upgrading), road hauliers do not pay directly for the maintenance or building of roads. Maintenance is therefore built into the price structure of rail but not of road. The problem of overloading by road freight hauliers has been well publicised. Overloading keeps road freight prices down but pushes road maintenance costs up.

However competition between road and rail does not boil down simply to price. In fact the rand per km rail rates between Durban and Johannesburg, for example, are highly competitive. Not only this, internationally the rates are comparatively low, compared to internationally hi9h rates for road freight.

Time inefficiencies
The real problem is time inefficiencies. It takes just over half a day for a container transported by road from Durban harbour to reach its final destination in Gauteng, compared to 4,9 days for the same container to be transported by rail and then delivered to its destination. There are some obvious time blocakages especially at the port and at Kazerne inland port in City beep, Johannesburg. Satawu has made a proposal to Spoornet management that a special project be developed to solve these inefficiencies. This project could potentially be linked in with Gauteng Province's proposals for a Special development Initiative in the City beep area.

The diesel levy
Added to the problem of competition from road, Spoornet pays a diesel levy that goes straight into the fiscus. In 1999/2000 Spoornet paid a total of R28.7m in such a levy. Satawu is fully in support of management's view that Spoornet should immediately be relieved of this levy.

Why overloading and heavy road useage is not just a problem for rail
The state of roads is critical to the cost of road transport. Overloading and heavy general useage leads to a rapid deterioration of road conditions. A poor road surface can add 42% onto vehicle maintenance and running costs. Poor curvature can add a further 16% and poor radients can add a further 42% to costs. This means that a poor road can double costs of maintaining and running a vehicle. The World Bank has calculated that a $1 reduction in road maintenance expenditure can increase the cost of a vehicle operation by $2 to $3. South Africa has a backlog of between R4Obn and R57bn on road maintenance and building nationally. The road systems is currently underfunded by R3,3bn per annum to simply keep it in its current state.

So overloading and heavy road useage can add millions to the input costs of commodities. This cost is currently borne by the state. There are additional environmental and other social costs too - including the costs to the state of accidents. Each fatal accident costs the country on average half a million rand in the cost of emergency services, lost productivity and so on. Each serious non-fatal accident costs on average R100,000. The total annual cost of fatal and serious accidents to the economy is therefore a staggering R12bn.

Haphazard road planning
Historically South Africa has had no medium to long term planning on road infrastructure. There has been fragmented planning and spending between the National Roads Board, provincial administrations and local authorities. Massive fluctuations in road building and maintenance spending has impacted extremely negatively on the construction industry. despite the fragmented planning (or perhaps because of it) South Africa has historically spent a surprisingly high proportion of GDP on roads. However expenditure per million vehicle kilometers is significantly less than comparable countries.

Summary report on developments on railway restructuring:
DPE, Spoornet management and Satawu
26 Feb 2001

Introduction: Satawu policy
Satawu has a firm policy against the privatisation of Spoornet and Metrorail. The policy is contained in a founding resolution passed at the merger congress in May 2000. The policy is in line with Cosatu anti-privatisation policy.

Why are we against the privatisation of our railways? (and our ports and airline for
that matter). Satawu is of the view that privatisation puts the profit motive at the
top of the agenda. In almost every international example this has lead to
- a reduction in service (including the closing of lines and of Stations)
- a lowering of safety standards and an increase in rail accidents
- a greater cost to the government both in subsidies and in indirect costs (eg the cost of repairing roads due to an increase in road traffic)
- massive job losses

Satawu is not however opposed to making the railways more efficient and effective. In fact it is in our interests to serve the freight customers and passengers better and to grow the service.

What is government now saying about rail privatisation?
In 2000 DPE employed a firm of consultants, Rothschilds, to advise on railway restructuring. Rothschilds completed their report at the end of 2000 and a copy was sent to Satawu in February 2001. The main points in the report are the following:

- The profitable sections of Spoornet, Orex and Coal-link should be contracted out (i.e. concessioned) for between 25 - 30 years.
- The branch lines should be concessioned out to private companies. Those branch lines that are not profitable should be allowed to close. The concessioned branch lines must be allowed to operate with "lower standards" (meaning lower employment standards and probably lower safety standards).
- Concession out Main Line Passenger Services (MLPS) and allow some long distance services to close.
- There will only be about half the lines left for Spoornet General Freight Business to run. i.e. the Spoornet operated network will reduce from 20,000 km to 10,000 km.
- Cut at least 15,000 jobs within Spoornet. Transfer some workers to the newly concessioned companies, with new conditions of employment
- Cut out the smaller freight customers and concentrate on the big ones.

Government (through the department of Public Enterprises) insists that it has not yet made up its mind about the proposals. However, there has been no public rejection of the proposals. Therefore Satawu takes the threat of massive job losses and cuts in the service very seriously.

What is Spoornet management saying about privatisation?
Spoornet management opposes the idea of concessioning out the profitable lines. They have made a presentation to government arguing for a part of the company to sold to private shareholders through and IPO (Initial Public Offering).

Spoornet management supports the concessioning out of branch lines and the closure of the non profitable ones.

Both the Rothschilds proposals and the management proposals are privatisation. Both forms of privatisation will put profit and competition at the centre of operations, to the detriment of service, safety and employment.

How has Satawu engaged Spoornet management on the future of rail?
1. A number of proposals have been put to Spoornet HR management about how to make Spoornet more efficient. The proposals were presented to Spoornet in September 2000 in the form of a Joint Labour document called "Reconstructing Spoornet". Shop steward members of the Spoornet Operational Efficiency Committee (OEC) were fully involved in drawing up the proposals.

2. The framework for the proposals is based on an argument that the issues of ownership (concessioning etc) must be put on hold by government while there is engagement on all other aspects of Labour's proposals. In addition there must be a moratorium on retrenchments for three years while the operations are turned around. Joint Labour believes that it will be impossible to bring workers on board if they continue to be threatened with retrenchment and likely permanent unemployment.

3. The proposals also put volume increases at the centre of a turnaround strategy -Satawu does not want to see productivity improved simply via the closure of unprofitable (or less profitable) lines. Government commitment to better regulation and policing of road freight is also an essential precondition to the revival and expansion of rail.

4. Various practical proposals were included in the "Reconstructing Spoornet" document. These include:
- Putting in place the practical integration of different modes of transport e.g. via through ticketing for passengers (such as taxi to rail)
- All efforts must be made by Spoornet to meet regional economic needs - including close collaboration with provincial governments.
- Management must provide Labour with an investment plan and all new
investments must be put up for interrogation by Labour.
- Management must put up a plan for Human Resources investment - especially in training.
- Management must tell Joint Labour what they plan to do to improve the quality of management.
- Joint Labour should be consulted re its ideas on improved marketing.
- In addition various Human Resources projects have been proposed. These include:- improving Supervision; targeting particular grades or job categories for improved training; introducing new ways of organising work on a pilot project basis; reviewing the whole grading structure; improving race relations; improving the implementation of the equity plan; and improving security and loss control.
- Establish a joint management labour team to investigate ways of improving efficiency on the Jhb-Durban corridor of GFB as well as any other lines that have been identified as problem lines.

5. The Human Resources management of Spoornet has never fully replied to the proposals. A letter has now been sent to the CEO of Spoornet asking for a meeting
to discuss the implementation of proposals.

What has Satawu done so far to engage with government?
1. A meeting with the Minister of Public Enterprises was requested in October last year. No official reply has ever been received. However an official of the department of Public Enterprises (DPE) has informed head office that a meeting will be arranged shortly.

2. A meeting with the Minister of Transport was also requested in October. He responded positively and a meeting duly took place. Although the Transport Minister has no direct say over the restructuring of Spoornet, he is nevertheless in charge of overall transport policy and therefore can influence the process. He is also responsible for Metrorail.

3. A meeting with the ANC members of the Transport and Public Enterprises Portfolio committees was held on 19th February 2001. A meeting with the full Transport Portfolio Committee will take place on 28th February.

4 There has been close co-operation with the Eastern Cape government on the Umtata East London line (See the report).

Engagement with the public and other stakeholders
1. Numerous press articles have been written to publicise the union's position. The latest edition of South African Labour Bulletin contains a number of articles
contributed by the union.

2. It is Satawu's intention to talk with as many users of the railways as possible. Satawu has a relationship with SACO (the SA Commuters Organisation) and has asked Cosatu to assist via the Cosatu locals in strengthening the organisation. Freight customers are also seen as an important constituency, though no discussions have taken place to date.

Satawu campaign
Satawu will be embarking on a tough campaign to defend railway workers and our
railways in general. The campaign will take the form of
- Media and propaganda (including a leaflet to be distributed in the next week)
- Locally organised protest actions
A National Day of Action on 29^th March, to coincide with the ITF's International Day of Action on Railways

The Umtata - East London rail project: an example of regional economic planning and a possible model for other provinces
Satawu has been closely involved in an investigation in Eastern Cape Province into the regeneration of the Umtata - East London rail line. This was an investigation into the importance of an integrated approach to state owned and operated transport and regional economic development. The investigation is being lead by the department of Economic Affairs of the Province, headed by MEC Enoch Godongwana.

Satawu has also been involved in discussions around the revival of the commuter rail ink between East London and King Williamstown, and ultimately to Fort Beaufort. This project is an offshoot of the Umtata East London project. Presently commuter trains only travel between East London and Berlin.

Linked to the whole project there have also been preliminary discussions between the DOTs of KZN and E Cape about extending the rail line to Kokstad.

The current rail line between Umtata and East London is thoroughly inadequate - it is far too long and is also only electrified part of the way. This means that the train journey is very long and this discourages the use of the line for freight and passengers. There is the potential for economic growth through the promotion of a range of bulk products in the region. These include the following:
- Grain: The region used to be the country's biggest producer. The Dept of Agriculture is interested in a programme to convert subsistence farming to commercial farming. Bulk transport for export via East London would be required.
- Sheep: There are currently large numbers of sheep in the region. Sheep owners have no way of transporting wool to the export market and so their wool is not "harvested". The provision of cheap bulk transport would change this.
- There are forests previously owned by Safcol that will be ready for harvest in two years time. The forests will then be faced with a transport problem.

There are number of proposals on the table for shortening the line in order to help revive it. These include building tunnels and bridges in order to straighten it. A draft report of the investigations has been published.

Satawu has commented on the report and has recommended that consultation with stakeholders be stepped up. In particular Satawu has proposed an awareness campaign amongst people who live in the villages and informal settlement areas alongside the railway line. The inhabitants of these areas are responsible for a large proportion of infrastructural damage including to tracks and fencing. Their support for the development is therefore critical.

In addition Satawu has supported the proposal that the project starts with the timber and wool. Spoornet needs to start negotiations with forest owners on the exportation of timer through the Eastern Cape ports. Investment requirements for this phase of the project will be R86m.

The revival of the commuter service between EL and King Williamstown has been fast-tracked and agreement has been reached that this should be launched on ~ May 2001.
Satawu has proposed that the launch be linked to May bay rallies and that free transport to workers should be provided on the line on that day. In preparation for this launch SARCC has agreed to rehabilitate the line between Blaney and King Williamstown (which is not electrified) at minimum cost.
(Cmde Derrick Simoko has been representing Satawu in the two projects for the past 18 months. He is contactable at Satawu head office or on 083-6859860.)

Discussion
An ANC member asked whether it is possible for potential retrenched workers to be trained and used as drivers.

Ms Barret replied that management is saying that most of the retrenched workers do not have the basic and necessary education to be trained as drivers.

[Ed - The rest of the discussion was not minuted].