Transport Portfolio Audit outcomes; Department of Transport, SAMSA & PRASA Annual Report 2021/22; with Ministry

Meeting report

Ms Valerie Carelse, Secretary, Portfolio Committee on Transport, informed the Committee that the Chairperson would not attend the meeting. She asked for a nomination for Acting Chairperson.

Ms M Ramadwa (ANC) nominated Mr L Mangcu (ANC) as Acting Chairperson.

Mr L McDonald (ANC) seconded the nomination and suggested that Mr Mangcu continue to be the Acting Chairperson until the Chairperson returned in order to avoid wasting time on voting.

Mr Mangcu accepted the nomination and suggestion.

Ms Carelse reported that there had been a delay with tabling the Road Accident Fund’s (RAF’s) annual report and therefore, RAF would not be part of the meeting. It was suggested that the Passenger Rail Agency of South Africa (PRASA) present their annual report for 2021/22 during the time allocated to RAF. The Driving License Card Account (DLCA) annual report had also not been tabled and would not form part of the Department of Transport’s (DOT’s) briefing. She mentioned that there was also a letter regarding the late tabling of PRASA’s report.

Mr C Hunsinger (DA) suggested that the Committee prioritise those entities that had submitted their statements. Those entities that had not submitted their statements could be dealt with after all other submissions.

Mr McDonald and Ms Ramadwa supported Mr Hunsinger’s suggestion.

Opening remarks by the Minister
Minister of Transport, Mr Fikile Mbalula, said that in the year under review, the DOT had achieved 63 of its 68 performance targets, translating to 93% performance. Areas of underachievement included integrated transport planning, rail and road transport planning and maritime transport. Corrective measures had been identified. The vacancy rate had been prioritised as it remained unacceptably high, even though the DOT had filled 61 vacancies and a decrease in the vacancy rate. The infrastructure programmes performed optimally during the period under review following the unprecedented COVID-19 pandemic. Key infrastructure programmes have been implemented by entities such as PRASA and the South African National Roads Agency Limited (SANRAL). These entities continued to advance labour-intensive methods to maximise job creation. The DOT had been conceptualising measures to improve performance and objectives. The impact of these measures would become apparent when the third quarter performance was presented. Public transport was primarily driven by the taxi recapitalisation programme. The cut-off date for the scrapping of illegally converted panel vans was 1 January 2023. There had been engagement with other industries on further measures to give impetus to the scraping process and positioning of the taxing recapitalisation programme. This was meant to ensure that integrated public transport networks achieved their intended objectives of transforming the face of the public transport system. The Auditor-General of South Africa (AGSA) provided the DOT with a report that covered all their entities except for RAF. The report was instructive and would assist the DOT in implementing measures that would significantly improve performance. Since engagements with the board of the RAF, the board has withdrawn the litigation it had been pursuing in favour of an alternative dispute resolution mechanism to address the areas of dispute with AGSA. This would allow them to get back to the business of transforming RAF into an entity that would be able to provide much-needed relief to those who fell victim to crashes. This would also clear the way for the tabling of the outstanding reports to Parliament.

The Minister was pleased with the number of entities that had achieved clean audits. However, he was aware that much more needed to be done to ensure bigger entities such as PRASA also reached this level. Capacity constraints, instability in key positions and poor implementation of audit plans were the reasons for the repeated disclaimer. A process was currently in place to fill the vacancies on the board. There was particular attention on strengthening the management team, filling critical vacancies, supply chain management (SCM) and finance. Moving forward, the outcome of this process would inform the strengthening of shareholder compact with each entity and put measures in place to eliminate fruitless and wasteful expenditure and reduce irregular expenditure by 75% by 2024. The DOT intended to ensure that all entities used the factors highlighted in the consolidated report to contribute to a clean audit as a best practice benchmark moving forward. There had been progress regarding the investigation of fraud. Liquidity remained a challenge, however, although there had been extensive engagement with National Treasury (NT) on this matter. The final determination on funding would be made available soon, which would go a long way to addressing several balance sheet issues. The achievement of performance targets in the annual performance plans was critical to ensure people’s lived experiences were changed for the better. The DOT was concerned that achieving just 61% as a sector meant that efforts should be redoubled to make a meaningful difference in the lives of people and achieve 100% of the medium term strategic framework. Improvements have been made to monitoring mechanisms. This improved approach was more of an interventionist method of oversight and monitoring. This would be done through a project management office with a direct line of oversight for all projects, including road and public transport projects. In strengthening governance, the AGSA had made certain recommendations to the accounting officers of the DOT and its entities, which would be incorporated into the performance agreement of the Director-General (DG) and the shareholder compacts.

Briefing by AGSA on the 2021/22 Performance of Transport Portfolio
Ms Madidimalo Singo, Deputy Business Leader, AGSA, confirmed that RAF and Road Traffic Infringement Agency (RTIA) could not be included in the presentation. The accounting authority declared a dispute on RTIA’s audit report. A dispute resolution process had been concluded but the RTIA said it did not accept the outcome and this had been referred to the ethics and risk unit that dealt with such complaints. The RAF outstanding annual report for 2021/22 was against the backdrop of litigation against AGSA in the previous year. In the current year, the RAF had intended to interdict AGSA from issuing the audit report but the courts had ruled that it may issue the report. There was no reason for the DLCA not to have tabled its audit report.

Ms Carla Ferreira, Audit Manager, AGSA, took the Committee through the 2021/22 annual report of the DOT. The overall outcomes in the transport portfolio had slightly improved compared to the previous year. Six (43%) of the auditees (The Cross-Border Road Transport Agency (CBRTA), DLCA, the South African Civil Aviation Authority (SACAA), Railway Safety Regulator (RSR), Road Traffic Management Agency (RTMC) and the Ports Regulator (PR)) had achieved unqualified audit opinions with no findings. RTMC had improved its outcome from unqualified with findings on compliance to having a clean audit. CBRTA had achieved a clean audit for the last six years, while SACAA had received a clean audit for the last three years, and RSR and PR had done so for the last two years. All the entities with clean audits.

PRASA
The audit outcome of PRASA remained disclaimed with material findings on compliance with laws and regulations. The financial statements were disclaimed because of material misstatements relating to property, plant, equipment, commitments, prior period error disclosures, fruitless and wasteful expenditure and irregular expenditure. PRASA had however managed to resolve three areas, namely capital subsidy and grants, statements of comparison of budgets and actual and risk management disclosure note. Factors that contributed to the disclaimer were: capacity constraints, instability in key positions, inadequate reviews and the late implementation of audit action plans. However, PRASA was commended for producing an annual performance report with no material findings on the usefulness and reliability of key performance indicators and targets.

Governance/Stability
There has been positive progress in filling vacancies at board level and executive management as well as Deputy Director-General positions at the DOT. This would go a long way toward enhancing governance, accountability and oversight in the portfolio. The executive authority should prioritise the appointment of the new DG at DOT and fill the Chief Executive Officer (CEO) vacancies at SAMSA and SANRAL. The organisational structure of RTIA should also be urgently approved so the agency can fill key management positions. At PRASA, the executive management should be stabilised and key positions such as Group CEO, Group Chief Financial Officer (CFO), Group Chief Procurement Officer (CPO) and Group Chief Audit Executive, which were currently filled in an acting capacity, should be permanently filled.

Expenditure management
Irregular expenditure had increased from R1 623 million to R1 786 million, and fruitless and wasteful expenditure increased from R117 million to R291 million over the past year. PRASA, the Airports Company of South Africa (ACSA) and SANRAL has remained the largest contributors to irregular expenditure. Most of the entities need to implement preventative controls to monitor compliance with legislation especially related to SCM. Non-compliance with SCM prescripts was the biggest contributor to irregular expenditure.

Quality of submitted financial statements and annual performance reports
Eight auditees (DOT, RTMC, DLCA, PR, SACAA, RSR, CBRTA and ACSA) had submitted financial statements free of material misstatements. This was an improvement because the previous year, it had only been five auditees. Three entities (SAMSA, SANRAL and Air Traffic and Navigation Services (ATNS) had to correct material misstatements identified through the audit process. Like the year before, PRASA had not submitted financial statements. The financial statements that were received contained material misstatements that could not all be corrected, resulting in a disclaimed opinion.

Financial sustainability
The financial health of the revenue-generating entities in the portfolio had been affected by COVID-19, but entities such as ACSA, CBRTA and SACAA were expected to recover as restrictions had been lifted and the local and global economy was returning to normal. A material uncertainty may exist regarding the going concern status of RTIA due to the High Court judgement relating to the Administrative Adjudication of Road Traffic Offences (AARTO) Act, although the agency had appealed the judgement. SANRAL was experiencing liquidity challenges in the toll segment due to motorists resistance to e-tolls and inability to raise funding. In the current year, the liquidity challenges were exacerbated by maturing debt that SANRAL may not be able to fully service due to the reduction in the borrowing limit and restrictions on the issue of new bonds or the refinancing of existing bonds. AGSA recommended that the DOT and SANRAL continue engaging NT and Cabinet to find a sustainable solution.

Compliance with laws and regulations
Most instances of non-compliance were in the areas of expenditure management, consequence management and material financial misstatements. Action plans to address audit findings were developed but not effectively implemented or monitored. Most of the findings raised were recurring findings. The portfolio should implement consequence management for continuous non-compliance.

Information technology
The public sector has experienced some cyber-attacks which posed a significant security risk. Action plans should be developed and implemented to improve information technology controls.

Material irregularities
Nine material irregularities were identified at PRASA in 2018/19 and two potential material irregularities at SANRAL 2020/21. Remedial actions were issued to PRASA relating to unfair procurement processes for the purchase of locomotives. This material irregularity had been resolved. The potential material irregularities at SANRAL had been resolved.

Kwazulu-Natal (KZN) flood relief effort
PRASA and SANRAL had completed some successful interventions but progress was slow relative to the implementation plan, mainly due to delays in the approval of budget reprioritisation requests.

See presentation document for discussion of the key root causes of audit findings, recommendations and commitments.

Ms Singo emphasised that there needed to be stability in critical positions to ensure that audit action plans become effective. There were also procurement challenges that needed to be addressed to ensure delivery of infrastructure projects. There needed to be capacitation of the project management unit, SCM unit and, for some entities, the finance unit, because it directly impacted the ability of the auditees to deliver on their projects. There must be an enhanced level of oversight on infrastructure projects. The DOT must identify the root causes of audit findings and where action can be taken. There had to be more comprehensive consequence management. A few entities had consequence management systems but some entities struggled with this.

Discussion
Mr M Chabangu (EFF) argued that underspending had been caused by the slow pace of scrapping and recapitalisation of taxis. What was the underlying cause of this and what measures were in place to address it? What criteria would be applied when appointing the new SANRAL board? How did PRASA intend to improve on its repeat findings? Did it have qualified employees to address the findings, and if not, why didn’t PRASA hire people who were? Finally, road maintenance projects were not completed because of hiring disputes within communities. Correct hiring procedures should be followed and the voices of the communities needed to be heard to establish what they actually wanted.

Mr K Sithole (IFP) observed that AGSA had powers to take action on its recommendations for the different entities and the DOT. However, it did not seem to exercise these powers. What mechanisms or systems were in place to ensure that this was done?

Mr Hunsinger appreciated the presentation but was frustrated that there had been many repeat findings. The presentation made it seem like AGSA was uninvolved in this process. AGSA seemed to be confusing its role of being neutral and independent. For quite some time, the Committee’s core objection had been the misalignment between what is presented by AGSA as clean audits and what people actually experience. In other words, clean audits versus service delivery. This seemed like a very one-sided performance evaluation and did not contribute meaningfully to improving service delivery. ACSA was a good example. According to the presentation, it had achieved 90% of its performance targets, but at the same time, they were one of the three main contributors to irregular, fruitless and wasteful expenditure. In previous years, RAF had achieved a clean audit but now had over R300 billion in outstanding claims. The Committee had been entertained with phrases such as “hopefully”, “we would want to see” and “we are sharing insights”. It cannot be that the main audits of the internal working of the entities stand on the sideline and comment as if they are not involved with the same people that have evaluated the same entities for a number of years. They cannot come here and present in a quasi-clinical and distant manner. It was frustrating to look at the mission statement of the AGSA. This is a failure because democracy had not been strengthened through the efforts of the AGSA. Oversight and accountability had not been strengthened. This was an absolute failure in the mission of the AGSA since they are the ones looking at the same entities’ books every year. Preventative controls, for example, had been absent for many years. Where was the influence of AGSA? Where was the insight of AGSA? How was AGSA protecting the ecosystem of governance? The components could be seen, but their impact could not. Reducing irregular, fruitless and wasteful expenditure should not be a performance target: it should simply be zero. The R150m increase in irregular expenditure was shameless and could not be brushed off as something that would be attended to. He also noted that it was interesting that the AGSA had presented on infrastructure when it was the job of the entities to do so. How was AGSA going to improve its evaluation of entities? How was it going to strengthen democracy? How was it going to improve oversight? How was it going to improve accountability?

Ms Ramadwa appreciated the presentation. She wanted to know how often AGSA engaged with the DOT and what happened when issues were identified.

Mr McDonald also thanked AGSA for their presentation. He congratulated the entities that had achieved clean audits for a number of years. Did AGSA not think that it should start instituting consequence management at PRASA? In the private sector, if someone was caught engaging in malfeasance they were fired or turned over to the police. This was the type of attitude that should be entertained. He asked whether AGSA was aware of a recent new ruling on additional payments and penalties due from ACSA to the South African Revenue Service (SARS).

Responses
Ms Singo said that AGSA did indeed have powers in terms of the Public Audit Act, which had introduced the concept of material irregularities. In the present environment, many material irregularities have been issued to enforce these powers. As a result, there has been some progress regarding the accounting authority addressing material irregularities. After the audit process, AGSA went a step further where financial losses occurred. If the Committee needed more information on how the entities had dealt with the material irregularities, such information could be provided. If the entity did not do what they were supposed to, enforcement powers were then used. The new culture shift strategy mentioned earlier aimed to assess performance aspects related to service delivery. Once the audit process was finalised, AGSA evaluated the audit action plans. However, many of the institutions were dealing with capacity challenges, which hampered the implementation of the action plans. When challenges were identified, a status of records review was done with the intention to be an early warning system. There were instances where management was ready for AGSA to step in and do an interim audit. AGSA did not want to sit on the sidelines until the police had to become involved.

Another concept introduced was real-time auditing, which had been used to audit the KZN flood relief efforts. Transport infrastructure delivery was a key focus point for AGSA. It aimed to empower the audit committee management and the board of the entity responsible for service delivery. It was important to have real-time insights into the challenges being faced. The presentation gave five key ideas that AGSA believed to be key to improving service delivery. AGSA believed that if everybody in the accountability ecosystem did what they needed, there would be change and improvement. AGSA sent notifications to entities’ accounting authorities so that when non-compliance was identified, it could be addressed. In the failure to do so, AGSA did exercise its powers to issue remedial actions.

Ms Ilze Slabbert, Senior Manager, AGSA, said that one of the material irregularities identified at PRASA was still currently under investigation by the Special Investigations Unit (SIU). The locomotives issue was currently being dealt with, and PRASA’s actions were being monitored. It was happy with what was being done but if there was stalling, AGSA had the right to bring back the material irregularity. In terms of consequence management, there were a number of PRASA officials on suspension and undergoing disciplinary action. There had been deliberation on the instability at executive management level and the kind of general instability in the entity, which makes consequence management harder.

Mr Vinay Ramballi, Senior Manager, AGSA, recalled that the ruling Mr McDonald was referring to related to a 2011 audit on ACSA’s tax returns, which had led to a revised assessment that ACSA had objected to. The recent ruling said ACSA could not bring up new grounds for objection later. ACSA’s financial statements showed that it had paid over the revised assessments with penalties and interest. These penalties and interest are classified as fruitless and wasteful expenditure pending the outcome of the whole objection process.

The Chairperson thanked AGSA for its responses. AGSA had proposed some recommendations on what they believed the Committee should do. If there was agreement with these recommendations, the Committee would accept and adopt them. There has been poor performance on PRASA’s part and the Committee would require a report from the board on what was being done to address this.

Briefing by the Department of Transport on its 2021/22 Annual Report
Mr Ngwako Makaepea, Acting DG, DOT, took the Committee through the annual report. The presentation included an annual performance overview, key highlights per programme, information about the Department’s response to COVID-19, the performance of conditional grants, governance, human resources development and financial results, and summaries of the AGSA report and the performance of DLCA. The Department had achieved 63 out of 68 (93%) of its performance targets. 42% of its senior management were women and its vacancy rate was 24%.

Key performance highlights

Programme 1: Administration
The COVID-19 pandemic has negatively impacted key planned infrastructure programmes. 26 allegations relating to fraud, corruption, financial irregularities, irregular appointments procurement irregularities had been recorded. Engagements were ongoing with the City of Cape Town and the Western Cape Government to seek a consolidated approach to address the illegal occupation of the railway reserve in Langa. 1 154 jobs had been created through the Rolling Stock Renewal Programme: 414 women, 809 youth and 16 persons with disabilities. 61 vacancies had been filled: 36 males, 25 females and seven youth. No irregular expenditure had been incurred by the Department for the period under review, although 21 cases were under assessment and the total value of unauthorised expenditure as at 31 March 2022 was R1.3bn.

Programme 2: Integrated Transport Planning (ITP)
Green Procurement Guidelines for land transport have been developed. The Economic Regulation of Transport Bill is still being processed in Parliament. A draft Regional Integrated Strategy and a baseline draft of the freight migration plan have been developed. Regulations for Autonomous Vehicle (AV) technology have not been approved yet due to prolonged stakeholder consultations.

Programme 3: Rail Transport
The Railway Safety Bill had been introduced. Parliament had not approved the National Rail Bill due to its dependence on approval of the White Paper on National Rail Policy by Cabinet.

Programme 4: Road Transport
A draft General Laws Amendment Bill had been developed as targeted but the Nationa Anti-Fraud and Corruption Strategy had not. Annual monitoring report on the Provincial Road Maintenance Programme was developed as targeted. The target for road maintenance had not been met due to changes in the proclaimed national road network length.

Programme 5: Civil Aviation
Regulations for Remotely-Piloted Aircraft Systems (RPAS) have been amended. There had been a decrease in the number of fatal accidents when compared with the same period in the previous financial year.

Programme 6: Maritime Transport
The Maritime Development Fund Bill was submitted for approval for Cabinet submission. A legal opinion on the alignment of the corporatisation of the Transnet National Ports Authority (TNPA) with the National Ports Act and the Companies Act was being sought. The Merchant Shipping Bill was not approved due to prolonged State Law Advisor processes.

Programme 7: Public Transport
The Transport Appeal Tribunal (TAT) Amendment Bill had been introduced to Parliament. The piloting of an integrated single ticketing system for public transport had commenced in Rustenburg and Polokwane. A framework for the development of a Public Transport Funding Model was developed. A framework for the taxi industry ownership of the scrapping entity was finalised.

Selected Consolidated Indicators for programmes 3-7 can be found on slides 67-82.

Performance of conditional grants
A summary of spending of Public Transport Network Grants (PTNGs), Provincial Road Maintenance Grant (PRMG), the Rural Road Asset Management System (RRAMS) Grant and the Transport Operations Grant was provided.

See slides 86-104 of the presentation for further details

Governance
The Department’s Fraud Prevention Plan was the pillar of proactive detection of fraud and corruption risks. There had been no strike actions. All Senior Management Service (SMS) personnel had been instructed to disclose their financial interests. During the 2021/22 financial year, the Internal Control Unit developed action plans to address deficiencies identified by AGSA. The Audit Committee has complied with its responsibilities arising from the Public Finance Management Act (PFMA) and Treasury Regulation 3.1.13. The Audit Committee has adopted appropriate formal terms of reference as its Audit Committee Charter, which is reviewed annually. It has regulated its affairs in compliance with this charter and discharged all its responsibilities as contained therein.

Human Resources Development Initiatives
-The Department’s vacancy rate remained high (24.31%). However, at top management level, vacancies had been reduced with the appointment of three DDGs and seventeen SMS personnel in the 2021/22 financial year. The Department was in the process of appointing a DG.

Summary of the Report of the Auditor-General
AGSA’s opinion had been that financial statements present fairly, in all material respects, the financial position of the Department of Transport as of 31 March 2022. No material findings were identified on the usefulness and reliability of the reported performance information for the evaluated programme. Material misstatements had been identified in the annual report submitted for auditing under-reported performance information for Programme 4: Road Transport. AGSA had identified a material finding on compliance with specific matters in key legislation. AGSA had been unable to obtain evidence that disciplinary steps were taken against some of the officials who had incurred irregular expenditure, due to records not being complete and being maintained properly. AGSA had identified five cases where consequence management had been inadequate.

Other matters
The SIU investigation into the procurement fraud of personal protective equipment (PPE) in 2020 has been finalised. The investigation concluded that the allegations of impropriety and maladministration were valid.

Overview of financial results
Mr Makoto Matlala, CFO, DOT, presented the financial results.

Expenditure by programme
- Administration (budget: R522m): Underspending of R82m, mainly on compensation of employees,  goods and services projects such automation tools for internal audit, and slow spending on the document management solution.
- ITP (budget: R83m): Underspending of R18.7m on compensation of employees and goods and services as internal capacity was utilised for some projects and others were deferred to the coming financial year.
- Rail Transport (budget: R16.8bn): Underspending of R28.2m, mainly on goods and services projects such as the appointment of a Housing Development Agency (HDA) on behalf of the PRASA in the City of Cape Town.
- Road Transport (budget: R34.2bn): Underspending of R98.3m, mainly due to the non-payment of the Road Traffic Infringement Agency (RTIA) for the AARTO roll-out as a result of the court judgement to allow for other processes to unfold. These funds would be declared as savings. 
- Civil Aviation (budget: R564m): Underspending of R18.3m, mainly on compensation of employees and goods and services due to lower-than-anticipated spending on the watchkeeping services project, and delays on projects such as the National Aviation Transformation Strategy.
- Maritime Transport (budget: R148m): Underspending of R32.6m, mainly on goods and services as a result of lower-than-anticipated expenditure on the Oil Pollution Prevention project and the use of internal capacity for projects such as the Review of the Merchant Shipping Bill as well as the development of policy and legislation.
- Public Transport (budget: R13.1bn): Underspending of R243.8m, mainly on transfers and subsidies due to low uptake in the taxi recapitalisation programme, which is demand-driven.

Virements
A total amount of R101.6m had been shifted from goods and services across programmes as follows:
- R61.4m to fund interest and rent on land as a result of the long process of the court proceedings in the matter of Ndorum Joint venture for the refurbishment of Mthatha Airport;
- R1.7m  to fund transfers for payment of vehicle licences under provinces and municipalities as well as transfers to households for resignations and retirements that could not be anticipated;
- R38.4m to fund building and other fixed structure for funds paid as a result of the court judgment against the department in favour of Ndorum Joint venture; and
- R142 000 to fund debts written off on travel and subsistence due to no-shows and for excess on vehicle damages.

Irregular, fruitless and wasteful and unauthorised expenditure
- Irregular expenditure amounted to R119 million (23 cases) remaining at the beginning of the 2020/21 financial year. Of these cases, the disciplinary process has started on cases. The balance of 29 cases of fruitless and wasteful expenditure was R43 000 at the end of the financial year.

Discussion
Mr Sithole said it seemed as if the DOT had just been cutting and pasting their reports. There had been underspending for a few years. The DOT did not have a DG, SANRAL did not have a CEO, SAMSA did not have a CEO, and RTIA did not have a CEO, CFO or CPO. When would all the vacancies be filled? PRASA, DLCA and SANRAL had not achieved key performance indicators. There had been underspending on key areas such as administration, road transport and military transport. There were potholes all over the country. What about service delivery to communities? Fruitless and wasteful expenditure had become the norm. Many recommendations had been made, but the DOT was failing and not implementing them. They are even failing their own targets. The DOT was failing the communities.

Mr P Mey (FF+) said that moving from road to rail has always been a goal, but no improvements have been made. PRASA was also not doing well. The private sector would only invest if they could make money and not be overruled by government. Was there any hope that the private sector would be able to help PRASA?

Responses
Mr Makaepea replied that government’s road-to-rail policy was focused on freight rather than passengers and was built around concessioning. The DOT was working together with Transnet on this issue. It looked at the issue of branch lines, and PRASA was working very hard towards opening the ten priority corridors. The DOT would be moving along with the policy in the White Paper to check where the private sector wants to operate within PRASA. Many entities have approached the DOT to see how they can work in the passenger rail space. The vacancy rate was a critical issue. Some positions had been filled with internal people. For example, the DDGs for rail transport and ITP had been filled. The DOT would ensure that the vacancies of other entities, such as PRASA and SANRAL, were filled. There had been engagements regarding fixing potholes. Two apps had been developed to help identify potholes that needed to be fixed. Measures had been put in place for consequence management.

Passenger Rail Agency of South Africa (PRASA) Annual Report 2021/22
Mr Hishaam Emeran, Acting Group CEO, PRASA, said PRASA was on a steady path to recovery. The board had made significant strides in addressing irregularities. Five of the ten priority corridors had resumed peak and off-peak services. Implementing an integrated security strategy with physical security and technology had commenced. 39 new train sets had been completed. Just three of 17 pre-determined objectives had been achieved although there had been some partial achievements. Fencing for six depots was in progress with completion expected by the end of 2022/23. Rebuilding of corridors in Gauteng had commenced. The co-investment in commercial development for Cape Town Station had been concluded. There was stability at board level but instability in key management positions, and capacity to implement the capital programme was limited. There was also limited availability of the network, which severely impacted PRASA’s fare revenue. PRASA had received a disclaimed audit with findings. The root causes included the absence of a sustainable and comprehensive turnaround plan to address audit outcomes and performance shortfalls, management instability, capacity constraints, poor internal controls and record-keeping, lack of compliance monitoring and enforcement, poor procurement planning, and inadequate consequence management.

Discussion
Mr Mabhena asked PRASA to give an update on a case in which 70 contracted protection officers had taken money from PRASA.

Mr Sithole asked the Chairperson of the Board of PRASA what had been achieved since his appointment. He drew attention to the vandalisation of Springs and Germiston stations. How many stations were being guarded? Was there proof that stations were being guarded? If PRASA did not move fast, vandalism would have a financial impact. How and when was management instability going to be fixed? He asked for clarity on figures of R1.3bn and R900m for losses in 2020/21 and 2021/22 respectively. He asked PRASA to provide the Committee with information on 44 employees that were supposed to have been disciplined.

Mr McDonald recalled that PRASA had planned to deploy a certain number of security guards, but it seemed like they were constantly appointing new service providers. Somebody had to take responsibility for the decrease in fare revenue. It had decreased from R1.5bn to around R165m. There was no consequence management for the board and the Chairperson. Security guards had been removed. Whose responsibility was this when other mechanisms could have been used to ensure that assets were protected? Akasia Park Station, for example, had been reduced to rubble. He mentioned that when he saw cables being stolen, he called the police. He was concerned that a company as big as PRASA only spent about R400 million on repairs and maintenance. This did not seem like enough. Assets need to be looked after and maintained. If PRASA could not maintain stations, there was no use in building them.

Mr Chabangu said that PRASA was taking the Committee for a ride and they were undermining the new Acting Chairperson of the Portfolio Committee. This was unprofessional. PRASA must write a letter and apologise for what they have done. It was really unprofessional. Within the DOT, PRASA was the entity with the worst performance.

Responses
Mr Leonard Ramatlakane, Chairperson of the Board, PRASA, reported that consequence management for the 44 employees was being carried out. Some employees had however since resigned. The process of filling vacancies in the executive committee was ongoing. The issues of walling and corridor development were being addressed. Corridors and stations were being fixed. The ten priority corridors would be fixed first to generate the revenue required to fix the other corridors. There has been some progress in addressing the vandalism that has occurred since 2020, although progress was slow because of capacity constraints. He admitted that security was a challenge. AGSA had identified irregularities in the security tender and declared that they must be regularised, which was why it had withdrawn the tender. This was done without replacing the security and vandalism was the result. He undertook to follow up on the issue of Akasia Park Station. There would be an integrated security plan to address the issue of the vandalisation of stations.

Mr Emeran replied that three contracted protection officers involved in the incident Mr Mabhena mentioned had been identified. They had since been suspended and an independent investigator had been appointed. The Germiston, Springs and Johannesburg corridors would be returned in a subsequent phase. PRASA was busy scoping the work required over and above the stations, such as the electrical infrastructure, that also had to be rehabilitated. More information on the rolling out rehabilitation and securitisation at the corridor level could be provided in due time. The loss figures Mr Sithole had inquired about related to cash in hand. He agreed with Mr McDonald about the importance of maintaining infrastructure and that the spending was on the low side. There had been a focus on capital roll-out in the past year. This is something that would be addressed going forward. The reduction in revenue was due to the fact that just 14 or 15 out of PRASA’s 40 passenger rail corridors were operational.

SAMSA Annual Report 2021/22
Ms Nthato Minyuku, Chairperson of the Board, SAMSA, observed that SAMSA had received an unqualified audit for the second consecutive year. It had also been engaged in good governance campaigns, and she expected that the Committee would want to hear about executives who had been suspended and the outcomes of the forensic investigations aimed at cleaning up governance at SAMSA.

Ms Zamachonco Chonco, Acting CEO, SAMSA, said that performance had decreased from 88% in 2020/21 to 62% in 2021/22. SAMSA had experienced financial constraints due to delayed approval of the tariffs on which SAMSA depended for 80% of its revenue. These tariffs also not increased at all in 2021/22. Nevertheless, SAMSA had received an unqualified audit opinion.

Mr Walter Simakani, Senior Manager: Corporate Strategy, SAMSA, said that SAMSA continued to build on the successes of a turnaround strategy implemented in the previous financial year. South Africa had maintained the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW) White List status, increasing the employability of seafarers trained in South Africa. There had been a 100% reduction in fruitless and wasteful expenditure and a 75% reduction in irregular expenditure. A Social and Ethics Committee had been established.

Financial status and audit findings
Revenue had increased by 9% to R585.2m in 2021/22. This was mainly due to the positive performance from SAMSA levies, although volumes had not yet recovered to pre-2020 levels. SAMSA earned a profit of R32m in 2021/22 compared to a net loss of R18.9m in 2020/21. Total net assets had increased by 46%  to R108m. SAMSA’s dependence on tariffs remained a risk factor, while broadening its scope of work to include inland waters was not funded. 57% of AGSA’s 2020/21 audit findings had been addressed. Action plans for 2022/23 audit findings were being developed. These included a 100% reduction in fruitless and wasteful expenditure and a 75% reduction in irregular expenditure. SAMSA had requested condonement of previous years’ irregular, fruitless and wasteful expenditure.

Discussion
Mr Sithole asked for clarity on the shortage of surveyors resulting in Port State Control inspections being below accepted levels, and on whether SAMSA had a permanent CEO or not. 

Responses
Ms Minyuku said that the SAMSA board had made a recommendation to the Minister of Transport for a CEO in December 2021. The recommended candidate had to be supported and endorsed by the Minister and then approved by Cabinet. SAMSA has not yet received any feedback from the Ministry on the recommended candidate. SAMSA has spoken to the Ministry about financial sustainability and tariffs that are reflective of the cost of doing business.

Ms Chonco explained that currently, there were 15 Port State Control officers, which was not enough. SAMSA was currently making use of about 250 external surveyors to do this work, while a further 50 would be needed to fulfil the inland waters mandate as well.

Closing remarks by the Deputy Minister
Deputy Minister of Transport, Ms Sindisiwe Chikunga, said the issues raised would be addressed. Some processes need to be followed to appoint a CEO for SAMSA. The Minister would be able to indicate whether he accepted SAMSA’s recommendation once these processes had unfolded. There had been some serious issues and it was impossible to say what the way forward was, but hopefully, it would be outlined in the near future. She thanked the board of SAMSA for creating jobs. The tax regime did create a hindrance for shipping companies wanting to register in South Africa. However, the Department was engaging with National Treasury on this matter.

The meeting was adjourned.