Passenger Rail Agency of South Africa 2022/23 Annual Report; with Deputy Minister

Meeting report

Opening remarks by the Chairperson
The Chairperson accepted the apologies from Minister of Transport, Ms Sindisiwe Chikunga, and several Committee Members. He observed that this would be the Select Committee’s last engagement with the Passenger Rail Agency of South Africa (PRASA) during the 6th Parliament. He invited the Deputy Minister to make opening remarks.

Opening remarks by the Deputy Minister of Transport
Deputy Minister of Transport, Mr Lisa Mangcu, reported that PRASA had seen “good and significant improvements" since the 2021/22 financial year. PRASA had moved from a disclaimed audit opinion to a qualified opinion. A couple of other areas have also been improved upon. The Deputy Minister recalled that PRASA had not previously fully accounted for expenditure on Personal Protective Equipment (PPE). This matter had now been addressed through an asset verification process, which had also uncovered major impairments resulting from historical inadequacies in the safeguarding of assets. PRASA was now moving in the right direction. PRASA's performance in terms of pre-determined objectives improved from 19% to 59%, and the improvements came in areas that directly impacted the lives of the people. He said that the Department had seen some improvement in filling critical vacancies in the areas of information and communication technology (ICT) and human resources (HR). The impact of PRASA’s security strategy was also starting to show. Infrastructure was being reclaimed and incidences of vandalism were decreasing. Lastly, capital spending showed good performance. He acknowledged that PRASA still had a long way to go but the improvement in its audit outcome was something to be proud of.

Opening remarks by the PRASA Board Chairperson
Ms Nosizwe Nokwe-Macamo, Board Chairperson, PRASA, said that great strides had been made to restore train services in most metropolitan areas. 26 out of 40 train service corridors had been refurbished and re-opened. These corridors were being serviced by the new trains (Isitimela Sabantu) which were being manufactured in Nigel, South Africa. The Western Cape had seen the successful re-opening of parts of the Cape Town Central Line, which carried about 40% of the rail passengers in that province. She noted that the board had tightened controls and audit concerns from previous years were being addressed. The leadership instability was also being addressed and a turnaround strategy was being implemented. The board had recognised the critical role that rail services played in the country. She confirmed that performance against pre-determined objectives had improved from 19% to 59%. Capital expenditure for the period had reached at R13bn, exceeding the R12.6bn budgetary allocation. Thus far, 146 new trains have been received. PRASA had moved from a disclaimed to a qualified audit opinion. She conceded that this was still not ideal, but it did show progress. The board continued to ensure that the various controls were adhered to. Its ambition was to achieve a clean audit.

Presentation by PRASA on its 2022/23 Annual Report
Mr Hishaam Emeran, Group Chief Executive Officer (GCEO), PRASA, explained that PRASA had achieved ten out of 17 pre-determined performance objectives. He said that the Cape Town-Bellville and Cape Town-Nyanga sections of the Central Line had been recovered in 2022/23, and PRASA was now in the process of extending the recovery to Chris Hani and Kapteinsklip. He reported that as of February 2024, PRASA had received the 200th new Isitimela Sabantu train. Targets not achieved included some re-signalling work on the Central Line, some aspects of the security plan, independent verification of the 67% localisation of rolling stock components, the number of passenger trips, the targeted level of operations on the Mabopane Line, aspects of the depot modernisation programme, and the target for the overhaul of coaches on mainline passenger services. He said that although the target for passenger trips had not been met, the number of trips had still increased steadily and significantly from a low of 480 000 in July 2022 to 2.81m in March 2023. There has also been a significant decrease in the incidence of theft and vandalism.

Mr Brian Alexander, acting Group Chief Financial Officer (GCFO), PRASA, provided an update on PRASA’s finances. He said there had been a vast improvement in the quality of the financial statements that had been prepared. He drew attention to the significant increase in the value of assets written off and impairments in 2022/23. The reason was the massive clean-up of assets that had been undertaken. For example, a new professional valuation of the old yellow and grey passenger trains alone had added R2bn to PRASA’s impairments, while vandalism of infrastructure during COVID-19 had added R6bn. He pointed out that interest from money in the bank was currently PRASA’s largest source of income (apart from subsidies) but that this would decrease as it spent money on capital projects. He discussed operating expenses, cash flow, capital expenditure and the balance sheet.

See attached for full presentation  

Discussion
Mr M Rayi (ANC, Eastern Cape) asked why so many PRASA board members and executives were still working in acting capacities. The appointment of a permanent GCEO since the last meeting in 2022 was appreciated, but many other senior positions, such as the GCFO, Chief Information Officer (CIO), CEO: PRASA Rail, CEO: Corporate Real Estate Solutions and CEO: PRASA Technical, were all filled by acting personnel. He asked whether interviews for permanent appointments for these positions had been held. He did not think moving from 19% to 59% achievement should be described as an achievement. Similarly, a qualified audit was not a cause for celebration. He recalled that irregular expenditure of R28bn had been reported at an earlier meeting and asked for an update on that. He questioned why an amount of R12bn that had been requested to be condoned had not been mentioned in the presentation, especially since it turned out that Treasury had not condoned that irregular expenditure. He asked for clarity on two outstanding material irregularities that had not been addressed. He asked for greater detail on the asset write-offs. He asked in which province the 14 unrestored rail corridors were and whether any were in the Eastern Cape. Would these corridors receive any of the 600 new trains? He observed that the Annual Report was silent on the rescue plan for Autopax. He asked for updates on the criminal case against an employee who had embezzled about R34m, on the investigation of the cyber attack that had cost R30m, on procedures that were not followed in the awarding of a R1.8bn signalling contract in the Western Cape, and on the issue of ghost workers.

The Chairperson appreciated the presentation and the progress recorded by PRASA and was mindful that the GCEO had mentioned that the presentation only covered progress up to the 3rd quarter. He said it was important to get a sense of whether PRASA had adopted an action plan around the issues raised by the Zondo Commission. He recalled the presidential proclamation authorising the Special Investigating Unit (SIU) to investigate. He requested an update on the joint actions undertaken by PRASA, The City of Cape Town and the Department of Human Settlements (DHS) on the relocation of the 891 households on the Central Line. Could the issue be considered to have been resolved? He also requested an update on mainline passenger services between Johannesburg, Durban and Cape Town.

Responses
Deputy Minister Mangcu reported that the Board Chairperson had now been made permanent. The board itself was responsible for making the remaining acting positions permanent.

Adv Smanga Sethene, member of the Board, PRASA, said that as part of Operation Ziveze all PRASA employees were requested to present themselves and their qualifications to their supervisors. This process revealed that law enforcement agencies would be required to take the investigation further, so it had been handed over to the SIU. He described the cyberattack as “unfortunate" and confirmed that the employee had been dismissed and R9m had been recovered. An urgent court order to freeze the perpetrator’s assets was being sought. The investigation was ongoing. He noted that a permanent Group Chief Human Capital Officer, Chief Audit Executive and Company Secretary had been appointed. There had been interviews for the other senior management positions, but there was a view that the members of the board had not participated in the interviews, so the positions would be re-advertised.
Mr Alexander explained that Treasury had returned the R12bn to PRASA on the basis that investigations had not been conducted within 30 days of the irregular expenditure having been incurred. This was because it was long outstanding expenditure. It had directed the board to decide whether to condone it, which it had done. He said the two outstanding material irregularities had been referred to the SIU for investigation. No irregularities had been found in the Western Cape signalling contract. In the embezzlement case, R15m had been recovered and R5m would be paid out by insurance. Various processes had been changed that would prevent bank details from being fraudulently changed on the PRASA system. On asset write-offs and impairments, he said that the loss of R10bn mainly centred around old yellow and grey rolling stock decommissioned, theft, and vandalism during COVID-19, which had left just four out of 40 rail corridors operational. He said that Autopax’s operations had been significantly reduced. A final business rescue offer had been tabled before the business rescue practitioners. Autopax had not received additional funding.

Mr Emeran agreed that 59% performance was not good enough, and nor was a qualified audit. It was significant however that it had achieved a qualified audit after four years of disclaimers. He explained that some of the 40 national corridors belonged to Transnet, not PRASA, and it relied on Transnet to recover these. This affected the Eastern London-Berlin and the Port Elizabeth-Uitenhage corridors. PRASA operated Diesel locomotives on these corridors, and although a fleet of new Isitimela Sabantu electric trains had been allocated to the Eastern Cape, the fact that the province had a 25kV electrical network whereas the rest of the country ran on 3kV presented a challenge. The province had also suffered vandalism of its electrical network. Technicians were looking at innovative technologies that could protect the network from vandalism and also be applied to extend it into rural areas. He reported that forensic investigations into ICT and supply chain management (SCM) were ongoing and ran parallel to the SIU investigations. They included lifestyle audits of senior executives. He reported that the relocation of households on the Cape Town Central Line had been completed. Concrete foundations were provided, and the area was fenced. CoCT had provided water tankers and mobile toilets. Contractors had begun work on the critical Nyanga-Philippi section of the line. Significant recoveries of the line were expected by the end of March 2024. He acknowledged that there had been significant delays on the mainline passenger services that had been run over the festive season. For the service to be effective, infrastructure had to be upgraded and more locomotives provided. Engagements between PRASA and Transnet would continue.

Ms Nokwe-Macamo agreed that 59% performance against pre-determined objectives was by no means satisfactory. The board had merely wanted to illustrate that the needle had moved in the right direction. Leadership stability and adherence to controls were essential. The board would not hesitate to institute consequence management.

Follow-up questions
Mr Rayi asked whether any of the 600 new trains being manufactured in Nigel were being built to run on the 25kV network in the Eastern Cape.

The Chairperson asked for more details about PRASA's localisation programme and the verification process delay. It was important that local production capacity be stimulated. He emphasised the important role that PRASA played in the transportation value chain. Passenger trains were mostly used by the working class and the poor. He appreciated the increase in passenger numbers. These passengers were being cushioned against rising transport costs. He also asked for job creation statistics, especially around the localisation programme and around women, youth and people with disabilities.

Responses
Mr Emeran confirmed that a portion of the new fleet had been allocated to the Eastern Cape. Originally, the thought had been to convert the new trains to run on the 25kV. However, since this network had not yet been restored and the line was owned by Transnet, different solutions, including battery and diesel power, were being considered. Transnet had indicated a preference for diesel locomotives to mitigate theft and vandalism. He confirmed that localisation was an important PRASA prerogative. The South African Bureau of Standards (SABS) had been awarded a contract for verification, but it had experienced challenges due to leadership instability and lack of expertise. SABS had since dealt with these issues and the contract would continue. Job creation was another critical delivery point. PRASA had set and already met its 9000 job creation target, mostly in security. More detailed information on job creation could be provided. He drew attention to PRASA’s success in spending its capital budget in 2022/23, adding that for every R1m spent on economic infrastructure, two direct jobs and three indirect jobs were created, plus two more jobs due to the knock-on effect on job creation. These were conservative estimates. PRASA would have to make do with a reduced budget for both capital and operational expenditure in the coming year. This could have an impact on service delivery, but it has also prompted PRASA to explore innovative ways to deliver on its mandate.

Closing Remarks
Ms Nokwe-Macamo said that the PRASA Board and executive management were fully committed to PRASA delivering on its mandate. It occupied an important position in South Africa's economy and provided mobility to masses of people. The impact of PRASA's infrastructure recovery on job creation was evident.

The Chairperson thanked the Board of Control and the executive management for their attendance and excused them from the meeting.

Procedural Matters
The Committee adopted minutes dated 6 December 2023, 7 February 2024 and 21 February 2024.

The Committee programme for January-March 2024 was also discussed and adopted.

The meeting was adjourned.