Transnet business operations, rail concessions, maintenance & infrastructure development updates (with Ministry)

Meeting report

The Chairperson indicated that many developments have taken place in Transnet since the last meeting between it and the Committee. It was the responsibility of the Committee to assist Transnet in rebuilding its capacity. Members would be briefed on Transnet’s overall performance and the strategic initiatives it has implemented to resolve its challenges. Before that, the Minister would be provided the opportunity to make his opening remarks.

Opening remarks

Mr Pravin Gordhan, Minister of Public Enterprises, indicated that he would also be logged into two meetings at the same time.

The annual report released recently was accompanied by a statement from the Ministry touching on Transnet’s declining financial and operational performance. This decline has impacted several sectors in the economy, specifically commodities. Part of the reason for the decline was the lingering effects of the damage made by State Capture. The rest was due to internal and external factors, which he said would be touched on in the presentation.

Nonetheless, work was underway to resolve the issues faced within Transnet, with the Board tasked by the Ministry to present a turnaround plan in the next month – which will also be presented to the Committee.

Mr Andile Sangqu, Board Chairperson, Transnet, said that Transnet looked forward to accounting to the Committee and sharing the steps taken to turn things around at the entity. He apologised on behalf of Board members who were not present at the meeting due to other commitments.

The new Board has identified several challenges faced by Transnet, and it noted that it will not be possible to resolve all of them at once. All of the challenges have been given priority by the Board, but a large number of them will have to be resolved over a longer period. While the rest will be resolved in the medium term.

A back-to-basics approach has been implemented by the Board which looks at the internal processes, operational reform, and business improvements. A turnaround plan is currently being developed by the Board, which it hopes will be approved in a month’s time.

The Board noted that some of the challenges are out of its control, and as such, he appealed for the Committee to assist Transnet in dealing with those particular issues – all of which, he said, would be mentioned during the presentation.

He pointed out that the Minister has been clear with the Board that changes needed to be made to turn around the situation at Transnet, and it has responded by clearly detailing the challenges to him, and it will continue to provide him with regular updates on the progress.

Briefing by Transnet

Dr Andrew Shaw (Group Chief Strategy and Planning Officer), Ms Portia Derby (Group Chief Executive Officer of Transnet), Ms Nonkululeko Dlamini (Group Chief Financial Officer), Ms Sizakele Mzimela (Chief Executive Officer: Transnet Freight Rail), Mr Pepi Silinga (Chief Executive Officer: Transnet National Ports Authority and Mr Jabu Mdaki (Chief Executive Officer: Transnet Port Terminals) took the Committee through Transnet’s overall performance and the strategic initiatives it has implemented to resolve its challenges.

Transnet has identified six areas for improvement, these were locomotive unavailability, the impact of the damage caused by the floods in KwaZulu-Natal last year, the increase in vandalism of its infrastructure and theft of cables, the industrial strike action conducted in 2022, derailments, and the high levels of debt and repayment obligations.

Despite recording a 0.6% increase in revenue to R68.9 billion Transnet suffered a net loss of R5.7 billion during this financial year. A decline in revenue was recorded in Transnet Freight Rail (TFR), down by 7.9% to R34.8 billion, and Transnet Engineering, down by 9.6% to R8.045 billion. However, there was an improvement in revenue in the National Ports Authority, up by 6.7% to R13.392 billion, Port Terminals, up by 15.8% to R16.826 billion, and Pipelines, up by 9.8% to R5.8 billion, and Property, up by 100% to R2.42 billion.

While the net operating expenditure increased by 2% to R45.9 billion and the cash flow statement declined by 12.8% to R25.4 billion.

The Auditor-General of South Africa (AGSA) identified new irregular expenditure worth R556 million for this financial year. However, this was down from the R1.1 billion irregular expenditure reported in the previous financial year. Fruitless and wasteful expenditure decreased by R8 million, or 67%, this financial year.

There are several reasons for the decline in Transnet’s financial performance. One of the reasons is the non-supply of spare parts and the delivery of ninety new locomotives from the rail giant CRRC (Chinese Railway Rolling Stock Corporation) E-Loco Supply, which is partly owned by the Chinese government.

The issues between the two companies relate to Transnet’s declaration in 2019 that its contracts to upgrade its fleet with 1064 new locomotives as irregular and unlawful. CRRC, which was meant to provide Transnet with hundreds of engines, then stopped work on the contract. Due to the lack of spare parts, the locomotives that the CRRC provided to Transnet are unusable once they have broken down – many of them are currently stationary.

This has contributed to a decline in freight volumes on key export routes for commodities in the country, which has in turn caused revenue in the TFR to decline, and for Transnet as a whole to lose out on revenue.

The lack of spare parts and the decline in Transnet’s cash balance had created a backlog in the maintenance and repairs of Transnet’s assets, such as the rail network and locomotives. Further placing strain on Transnet’s financial performance.

Due to the increase in vandalism and theft along Transnet’s rail corridor, the entity has had to increase the number of security personnel stationed around the railway networks. The vandalism of the Container Corridor between Johannesburg and the port of Durban, among other things, has led to Transnet deciding that it will release a request for qualifications (RFQ) to help identify private parties interested in taking a twenty-year lease for operation maintenance. Involving the private sector has the aim of encouraging a shift of intermodal traffic from road to rail to help achieve increased operational reliability and efficiency.

(See Presentation)

The Chairperson advised Transnet to improve on the preparation of its presentations as it was unacceptable for it to present a document over two hours to the Members. Doing so denies Members the opportunity to engage with the content of the presentation.

As mentioned by the Minister earlier, Transnet has been tasked with drawing up a turnaround plan that must be submitted in a month’s time. This plan will contain all the details of the measures that will be put in place to turnaround the performance of the entity in the longer term.

Thereafter, he opened the floor for discussion.

Discussion

Mr N Dlamini (ANC) mentioned that the presentation contained the same information presented to the Committee on previous occasions. He was disappointed that Transnet had not reported any progress on the issues it has faced.

After that, he asked what the Board’s key targets were.

He admitted that he was confused by the statement in the presentation which said that the issues related to the CRRC are being resolved, after which money will have to be paid into their account. When the Committee conducted oversight at the Durban ports, it was mentioned that the China-North Rail did not deliver any usable locomotives. The Committee then pointed out that the costs should be recovered. As such, he asked for clarity on why Transnet will still be paying China-North.

He asked what factors the rating agencies took into account when deciding to improve their outlook on Transnet. It seemed that Transnet only sought the assistance of the private sector to resolve its issues instead of implementing its own measures. This was concerning, he said, as private companies would only assist Transnet to improve their own financial balance sheets. He was concerned that TFR, which usually contributes 45% of Transnet’s revenues, would follow the same route as SA (South African) Express.

Following that, he asked how far Transnet was in resolving the 10-64 locomotive challenges, with the number of stationary locomotives seemingly increasing. At some point Transnet should consider reverse engineering some of the locomotive components, he advised, which will assist in improving the efficiencies at the ports. Doing so, he added, would also prevent Transnet from having to wait for undetermined days to receive those parts from the original equipment manufacturers (OEMs).

During an oversight visit at the ports in Cape Town and Durban, the Committee was briefed on the Port Master Plan. What was said in the briefing today, however, did not correlate with the plan, as Transnet indicated that it will allow the private sector to run rail line slots. He asked if Transnet had the will to make the necessary changes that would make the rail lines profitable or if it intended to rely solely on the assistance of the private sector.

Mr G Cachalia (DA) mentioned that the losses incurred in this financial year had wiped out the profits reported by Transnet in the previous year, which were due to the re-evaluation of its property assets. While Transnet clearly required cash from refinancing, delayed financial statements, negative sentiment, and audit qualifications would make this unlikely. This was against the background of Transnet only meeting 25% of its targets and its operational performance report containing material misstatements, as pointed out by the AG.

Furthermore, the company can not service its debt because it does not have sufficient cover. All the while the collapse of the rail network and ports cost the country R1 billion per day, according to the Gain Group. He asked who would be tasked with resolving these challenges and how they would do so.

He then asked how the company’s costs were up whilst volumes were down. Moreover, he asked why the volumes were falling faster than revenue, and if this was due to the tariff increases. If so, he wondered how this was sustainable.

At current trends when did Transnet expect to incur its first year of operating losses, he asked, as it seemed that this was the direction the entity was headed.

The Committee, he stressed, was not concerned by the external challenges faced by the entity. What it wanted was to hear what solutions were being implemented by Transnet. Management, policy, and oversight that was less than stringent, were to blame for Transnet’s problems, he felt. All of that lay with the DPE, the Minister, the Committee, and Transnet.

Demands for a turnaround plan in the next month by the Minister have been heard by the Committee before. Nevertheless, he was pleased that the composition of the Board had improved from the last one. Thereafter, he asked where the skilled staff would be sourced from to assist Transnet in overcoming its challenges.

He asked what plans Transnet had in place to procure new trains and get the current ones operational. Further to that, he asked when Transnet planned to undertake refurbishment and maintenance of the current fleet of trains, and where the money would be obtained from.

After that, he asked if Transnet planned to receive another bailout from the National Treasury (NT) or if it had a comprehensive privatisation project, prefaced by the third-party operators, that is being embarked on, in tandem with an integrated security structure to underpin it. If that was in place, he asked who would be involved in its implementation and how it would be resolved because the current situation was untenable.

Ms N Mhlongo (EFF) was disappointed that Transnet sought to include the private sector to assist in making some of its divisions profitable. This partnership was a recipe for disaster, and will lead to the demise of the entity. Moreover, she felt that this proposal was introduced to make the idea of privatisation more appealing to the public.

She asked what the financial impact has been of maintaining the stationary locomotives. When the locomotives were procured was it not foreseen that they would have to be maintained and repaired? If so, she asked what strategy was put in place to ensure that they would be functional once more.

While she was pleased by the slight improvement in the fruitless and irregular expenditure reported by Transnet, she felt that more could be done to reduce the amount all the way down to zero Rand. She asked what the root cause of the fruitless and irregular expenditure was and what controls were implemented to adequately deal with the repeat non-compliance identified from the previous financial years.

Moreover, she asked if Transnet had reviewed and strengthened its current controls; whether the officials responsible for the fruitless and irregular expenditure had been identified, and if consequence management had been implemented.

Revenue has been declining in Transnet under the leadership of Minister Gordhan. The previous Board, which was appointed by him, had failed in executing its mandate. No action was taken against the Board and the current CEO for their non-performance.

While she acknowledged the damage done by State Capture, she felt that given how much time has passed since then, the Minister could no longer continue using it as an excuse for Transnet’s declining performance. In fact, all state-owned entities (SOEs) under his leadership have regressed, she stressed. Considering all of these noted failures she felt that it was incorrect for the Minister to absolve himself from the problems faced at Transnet. In her opinion, the Minister had failed in executing his duties.

She asked what steps and interventions the Minister had implemented in the past five years to arrest the decline in Transnet’s performance.

Serious damage has been done to Transnet’s capacity, which will take several years to address. She pointed out that no turnaround plan was mentioned in the presentation.

The EFF, she added, called for improved governance in all SOEs.

Wrapping up, she asked if the matter of systematic underdevelopment had been taken up to the Cabinet. Further, she asked what the long-term plan was to ensure adequate funding is allocated to Transnet so that it is able to reduce the backlog of maintenance and repairs.

Ms C Phiri (ANC) pointed out that five security service providers (SSPs) were appointed to secure the TFR’s corridors against vandalism and the theft of the railway network. She asked how much the SSPs cost Transnet and if they were vetted to prevent the TFR from being exposed to criminal activities within its operations.

Then she asked how many former employees of outgoing SSPs were absorbed into the various outcome-based security workforce.

Previously Transnet mentioned that the serious organised crime investigation unit had successfully arrested the individuals who were responsible for cable and fuel theft. Moreover, it outlined that the Transnet Naval Command Centre (TNCC) had been successful in appointing a service provider to assist in combating criminal activities. She asked if the Transnet employees had been involved in organised crime. If so, what could be done to resolve this?

Mr F Essack (DA) noted that the ship turnaround times for the marine services authority were not productive at all, which was at the core of Transnet’s business. He asked for a detailed plan on how this would be addressed.

Revenue has been declining in TFR due to the reduction in volumes, rolling stock, and dysfunctional locomotives. Many turnaround plans have been presented to the Committee over the years but no progress has been made on these issues.

There was an overspend against an operating expenditure of R252 million, with the biggest contributor to this being unbudgeted personnel costs. He asked how this was sustainable and what the master plan was to address this expense.

There was no question that private/public partnerships were the way to go for Transnet to resolve the challenges it faced, he felt. Going this route would be in the public interest.

Ms T Siweya (ANC) wondered if Transnet was confident that its plans would ensure that the entity is profitable and sustainable. She appealed to Transnet to take the country and its people seriously, as the presentation did not illustrate that they were.

She asked why Transnet continued to have a high wage bill despite the locomotives remaining stationary.

Mr S Gumede (ANC) felt that the report presented to the Committee was filled with too much detail and was difficult to understand. He requested that Transnet simplify its presentation documents in future meetings as it would make it easier for Members to engage and provide solutions to some of the issues it faces.

After that, he asked how far the entity was in addressing the damage done by the floods that occurred in KwaZulu-Natal (KZN).

He asked how much profit Transnet would have made had all its locomotives been operational.

He did not understand how Transnet was able to make a R5.7 billion net loss six months after it had made a profit of R159 million. He asked what was the biggest contributor for this net loss and what Transnet’s biggest expenditure items were.

After noting that Transnet’s previous presentation report stated that efforts were underway to combat theft and vandalism of the railway network, he asked how much Transnet was paying the security services and if it was in a position to continue to pay them.

He then asked what steps were being taken to build up confidence and regain the TFR’s lost customers.

Much more time was required for Members to probe the challenges faced by Transnet, he concluded.

Ms T Malinga (ANC) said that she would only pose four questions as the rest had already been asked by Members.

One, she asked what Transnet’s strategies were to ensure that its current financial position does not disincentivize private partnerships and collaborations as outlined in its growth and renewable strategy.

Two, she asked how Transnet planned to ensure a reduction in its high debt levels.

Three, she asked how Transnet would resolve the breaches in cash interest cover (CIC) loans.

Four, she asked how many CIC covenants were breached as of 31 March 2023 and whether Transnet received the required waivers from the affected lenders.

Ms S Graham (DA) said that all the questions she would have asked had already been posed by Members.

Ms J Mkhwanazi (ANC) was disappointed that other members of the Board did not attend the meeting, given its importance.

Thereafter, she asked if there was a representative from the DPE in the meeting besides the Ministry. If so, she asked what their views were on what was mentioned by Transnet during the presentation.

The Chairperson asked Transnet to further elaborate on the issues that it believed the Committee could assist it with.

Then he asked when Transnet would inform the Committee after or before it has decided to engage in a collaboration with the private sector.

While he agreed with the view that private partnerships were required to improve the efficiency of all SOEs, he did not believe that they should be sold off. The role of the Committee was to provide oversight over these companies in the interest of the public.

Minister Gordhan indicated that the ideal was to ensure that Transnet is a completely competent organisation and that its logistics system is properly attended to. He requested that the Committee provide Transnet an opportunity to develop a coherent strategic plan that will address how all the challenges will be resolved.

While the department was not looking to approve any plan which sought to privatise Transnet, it noted the difficulty in obtaining a further bailout from the NT because of the low levels of economic growth and the current constraints on the fiscus. Given the constraints, Transnet will have to, one, find different ways to begin generating more revenue. Two, it will have to consider what private partnerships it will enter into to ensure its rehabilitation. In doing so, it will also have to consider how best to maintain and safeguard the public interest.

The new Board, he stressed, will ensure that there is proper oversight, reporting, and transparency on the financial performance of the entity. Furthermore, both the DPE and the Board will work towards improving the inter controls. Particular attention had to be paid by the DPT, the Board, and executive to improving Transnet’s operational performance so that better services are provided to the entity’s various stakeholders.

Referring to the comments on the performance of Transnet under his tenure, he explained that the appointment process in the government was quite rigorous and that there will be further improvements once many of the recommendations made by the Zondo Commission are implemented. The CEO of all SOEs is nominated by the Board itself, with the shareholder making the final choice of the appointment.

He admitted that improving Transnet’s financial viability will take time and will be difficult. However, there are discussions in place with some members of the Presidential SOE Council, as well as the Board and management, on how best to mobilise funds to address the entity’s infrastructure-related problems. One of the options is the establishment of an infrastructure agency.

Despite its challenges, he believed that Transnet had entered a new era, where all of its challenges were receiving focus from the DPE and the Board. The solutions discussed will be provided to the Committee in the next four to six weeks, he added.

Ms Derby, in response to the question on the CRCC, mentioned that Transnet will need to be able to pay the local subsidiary of the company for the services it provides and when doing so it should ensure that there is no forfeiture of the cash in their accounts.

She indicated that Transnet could not provide more detail than what has been said on its relationship with South African Revenue Services, as this was private.

She admitted that it did sound as if Transnet had been repeating itself over the years. In fact, when looking at its AFS for 2020-2021, 2021-2022, and 2022-2023, the one theme that repeats itself is the issue of the locomotives. A long-standing locomotive cannot be used by the entity as it requires a part or component to function, she said. It was correct to say that it is an asset bought through debt which Transnet now cannot use to generate revenue.

Recently Transnet has found a solution for these locomotives with the agreements between it and General Electric as well as Alstom. What remains to be resolved is the locomotives supplied by, which run on the north corridor, as the company decided not to participate in the procurement event. Transnet has been in discussions with the Sheba company which supplied 80% of its components.

Concerning the question on the CRCC, she mentioned that in November 2022 Transnet had arrived at a definitive settlement agreement with the CRCC, where it is expected to deliver both the parts and the supply of new locomotives. Once the General Electric and Alstom matters are dealt with the agreement will be in effect.

The main reason for the issues related to the long-standing locomotives was due to two instruction notes.  One, Instruction Note three of 2016-2017 paragraph eleven, which stated that one cannot undertake a procurement without a full budget (she did not mention the second note). Much of Transnet’s revenue decline was due to the Covid-19 pandemic, the July 2021 riots, the server hacking, and the recent worker strikes.

Regarding the question of why the entity’s operating costs had increased, she pointed out that over 50% of Transnet’s operating costs go to the remuneration of staff. In addition, Transnet has taken the decision to retain staff whilst trying to correct the issues with the locomotives.

On the 18th of August of this year Transnet received a letter from the NT, which said that, for the first time, it could undertake procurements with money raised from the market. On the 14th of May 2023, the executive management approached the Transnet Board and said it could not continue in this manner and something had to be done. If the executive management had decided to undertake the procurement without the approval from the NT, it would have been deemed as an irregular expenditure, she highlighted.

Transnet has indicated that with the decline in revenue it did not have enough to invest on the maintenance and repair of the railway lines so that they are able to run all the locomotives at the right speed without creating derailments and backlog. In addition, it previously informed Members that work is being done to quantify exactly what is required and what the entity has prioritised. A presentation was also made to the government on the five-year investment required. She hoped that through the regulatory model Transnet would be able to maintain the railway.

In previous presentations, Transnet has outlined the increase in vandalism of its infrastructure and cable theft over the last few years. These issues became a serious challenge during the lockdowns. When the security services providing protection for the Passenger Rail Agency of South Africa (Prasa) were removed in 2019, vandalism and theft worsened in areas such as the container corridor.

Since then Transnet has been engaging with the government and has worked with the South African Police Services (SAPS). Now, with the measures implemented Transnet has begun to see an improvement. One of these measures was the issuing of a new tender for security services, which brought outcomes-based security into the system – the previous one had been granted irregularly. Currently R1.7 billion is being spent on security.

What often occurs in the entity is that when there is a change in contract the security incidents often increase. The members who were in the previous company are usually absorbed into the new contractor, she confirmed.  In this case, a probity check and verifications with the Regulator of Security Practitioners were done on the individuals, and in certain instances, they found that some had criminal records that were not employed. This caused some tension. All of the security companies were also vetted by the State Security Agency and were cleared.

She assured the Committee that Transnet would not be procuring any more locomotives from China-North Rail.

The comments made on the TFR eventually ending up like SA Express was unfair, and she suggested that the right to reply should be available to everyone.

Referring to the concerns on private sector participation, she said that there needs to be a discussion around when the Committee, as the oversight body, should be informed on decisions taken involving the private sector.

Manganese continues to be transported through Saldana, and the plan was to build the Manganese terminal in Gqebera in the Port of Ngqura as soon as there are approvals – this is currently in process. Manganese is currently being moved through East London due to the current crisis, which ensures that the customers are fully covered.

Touching on the questions related to the container corridor, she highlighted that in a previous presentation, Transnet indicated it had lost R19 billion in the last ten years because it moves grain, automobiles, and at times timber as well as other agricultural products through the container corridor, all of which do not pay the full cost of providing the service.

Transnet has decided to cut the losses, with the preferred being obtaining a subsidy from the government to fix the railway line, get the slot to the required design, and if necessary, sell access to third parties. As this was not possible, Transnet decided to look for a private partner to invest and upgrade the railway track and keep it as an open-access system, allowing Transnet to participate at some point – which it cannot do now because of its poor financial situation.

In response to the comment made that the losses incurred in this financial year were a result of the property revaluation, she noted that these comments were also made during the briefing in the previous year. Transnet believed that getting investment properties properly valued would mean that when they either enter into partnerships or sell them, they would receive a fair price. She was pleased that the valuation of the property portfolio had increased in the last three years: in 2021 the valuation of the property portfolio was R5.9 billion, R6.5 billion in 2022, and R8.8 billion in 2023.

While Transnet acknowledged the challenges it has faced, Transnet has observed some green shoots, with three of the operating divisions being profitable, while the fourth, Transnet Properties, was moving in that direction. Two areas that are performing badly are TFR and Transnet Engineering, but efforts are in place to ensure that their cost structures are recast and bring about profitability.

Addressing the concerns around the possible privatisation of Transnet, she assured the Committee that the steps taken by the entity were not leading to its privatisation. In each transaction, Transnet remains as the main partner, even in the case of the partnership with International Container Terminal Services Incorporated (ICTSI).

Automation will improve efficiencies at Transnet and enhance its internal controls to reduce irregular expenditure, she said. Going out on a fully automated procurement process was not possible without getting some resolution on the instructions notes, because if it did not, the system would be complicated. Now that it is able to automate its system, Transnet will do so, which will allow it to have a system that can be audited directly, she continued.

Transnet is also working on creating a product catalogue so that there is standard pricing.

Touching on the questions related to ship to shore (STS), she said that this matter required a follow-up discussion so that Members could better understand what occurs at the port. One of the suggestions made was for Transnet to work with the World Bank and engage on what would be the measure for a ship turnaround. For instance, in the case of the Durban ports a vessel comes into the port, goes to one terminal, offloads some of its cargo, and then goes to another.

Referring to the question on Transnet’s debt, she remarked that Transnet always honours its debt repayments and has never failed to do so.

Ms Dlamini confirmed that Transnet has never defaulted on its debt commitments.

Concerning a comment made on Transnet’s financial statements, she clarified that they were not qualified but unqualified. The matters raised on the shareholder compact are outside the financial statements and reported in the director’s report, which is included in the broader report for the financial year.

In response to the question on the contributors to the increase in Transnet’s expenditure, she stated that the entity increased its operating expenditure from R45 billion to R45.9 billion, with personnel costs seeing a reduction. In 2022, the personnel costs contributed 58% to Transnet’s expenditure, whereas in 2023 this dropped to 54%, representing a R1.5 billion reduction.

Other reasons for this increase were: an increase in expenditure in the maintenance costs, as the entity wants to make sure that the assets are renewed; an increase in expenditure on electricity and fuel; and an increase in expenditure on security costs.

Touching on why the rating agencies had improved their outlook on Transnet, she mentioned that the entity has continuous engagements with rating agencies. Each of them conducts a full review of Transnet once a year. One of their responsibilities is to confirm to lenders that Transnet will not default on the funding it has received.

The rating agencies kept track of Transnet whilst it was working repaying the maturity of the $1 billion loan. It was only after this debt was repaid that they released their rating of Transnet.

Referring to the question on how Transnet reported a loss of R5.7 billion after reporting a R159 million profit six months prior, she explained that Transnet closed the system every month and has to report on the performance and the value of assets. Where there are challenges or risks of impairment, the entity has to address that as it closes the financial year.

Due to the challenges related to the stationary locomotives and the TFR, Transnet had to assess the standing locomotives for the additional impairment requirements and that contributed significantly to the losses reported compared to July in 2022, she pointed out. In addition, the reduction of volumes in the intervening period also contributed to the losses.

Concerning the question on the CIC, she told the Committee that R32 billion was impacted and it related to ten facilities. Work has been done with the funders concerned and they have waived their rights, thus allowing for the matter to be cleared. Now the facilities are back to what they were and the breach has been cleared.

Ms Derby noted the request for Transnet to simplify its presentations going forward. In addition, she apologised for the late submission of the presentation and explained that it was done because the entity had to await the financial information for this financial year.

Ms Silindile Khubeka, Head of Group Finance: Governance and Risk Compliance, Transnet, highlighted that the root causes of the irregular expenditure related to issues of internal controls in supply chain management. The majority of the R556 million irregular expenditure stemmed from the spending on the flood emergency, as the NT indicated that the approval was not reported on time after the emergency spending was reported. However, the irregular expenditure has been halved from R1 billion in the prior financial year. No fraud has been identified in the irregular expenditure, she added.

A number of reforms have been put in place, such as the automation of the tender processes. In the past, there were over five categories that led to irregular expenditure, such as non-compliance with the Construction Industry Development Board (CIDB) and legislation. This year it relates to the emergency spend and the 2017 regulations. Much work has been done to implement consequence management, with the AG only reporting that Transnet had not taken action on one transgression.

Mr Sangqu informed Members that in its first two months, the Board has managed to classify what issues can be resolved internally, with efficiency being one of those. These will form part of the turnaround plan that is to be presented to the Minister – concerns around cost containment will also be addressed in the plan. However, many of these issues will not be resolved without a cash injection.

The new Board has identified that there is a maintenance backlog of R50 billion which needs to be funded. Since the entity does not have access to that money, it will have to consider its options but the issue there is that the company is stretched in terms of its ability to raise cash as it does not have a strong balance sheet.

At present, Transnet is paying R1 billion a month on interest debt-servicing costs, and it has reached the limits of its gearing capacity, he highlighted. Hence, part of the turnaround will be to investigate the possibility of disposing of some of the assets to generate funds.

The remnants of State Capture remain with the company, and this is illustrated in the debt profile which has increased from R60 to R70 billion seven years ago to R130 billion now. Due to the many years of under-servicing and lack of maintenance of infrastructure, the value of the assets has decreased.

In response to the question on what areas the Committee could assist Transnet, he indicated that Transnet requires the reinforcement of the SAPS and other law enforcement agencies to deal with vandalism of infrastructure and theft of cables, given their national importance.

Also, the Committee could assist Transnet in resolving the matter of the CRRC locomotives, as it severely costs the country large sums of revenue.

Wherever possible, the Board will require assistance from the department and Committee to deal with some of the challenges, he went on. However, it is aware that it needs to take internal measures to rectify other issues that both the DPE and Committee cannot assist it with.

He thanked the Members for the opportunity given to Transnet to address them.

The Chairperson thanked the Department and Transnet for their input in the discussions.

Thereafter, he asked if there were any outstanding minutes for the Committee to adopt.

The Committee Secretary indicated that the Committee had no outstanding minutes to adopt.

The meeting was adjourned.