Transnet: briefing

Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
21 September 1999
TRANSNET: BRIEFING

Documents handed out
Transnet Corporate Governance Manual 1998/1999
Transnet Audited Financial Results for the year ended 31 March 1999
Transnet Company Profile 1998

Website: http://www.tnet.co.za

SUMMARY
Transnet explained their present and future projects. Also discussed was how the company has tackled problems of non-efficiency, high costs as well as the pension fund.

MINUTES
Representing Transnet were four executive directors: Mr Bheki Sibiya (Human Resources), Mr Sango Ntsaluba (Restructuring), Mrs. Gloria Serobe (Finance), and Mr SJ Macozoma (Managing Director).

Transnet is a government owned business which "focuses on the movement of goods, people, and information for customers in the freight, passenger and related services industry".

Mr Macozoma, the main presenter, said that Transnet is made up of seven transport businesses: South African Airlines, Spoornet, Portnet, Petronet, Autonet, Fast Forward and Metrorail. In addition it has six related businesses. It also has three supporting services. However, this is not reflective of Transnet's total assets because it also holds large numbers of shares in other companies.

In his brief history of Transnet, Mr Macozoma said that the company's foundation can be traced back to the South Africa Railways and Harbours Bill of 1910. Transnet did not become a company until 1989 when the Legal Succession to the South African Transportation Services Act was passed.

Ms Serobe presented the profit/loss figures over the past seven years:

Questions by committee members
Adv Swart (DP) asked if Transnet had made an appeal on an environmental report that was made on the 30 August 1999.
In response, Mr Macozoma said that Transnet did lodge an appeal.

Mrs. Taljaard (DP) asked if the private sector would be involved in Portnet.
Mr Macozoma replied that it did eventually plan to involve the private sector.

Mr Mkize (ANC) asked about the decline in income due to labour costs and wanted to know what was being done about the issue.
Mr Macozoma said that the problem with labour at Transport is one that has occurred because of new technology. Previously, the company used steam to power its machinery before switching to diesel and it currently uses electricity. However, added efficiency has led to further job cuts. In years past, it employed 275,000 people. In 1996, the number fell to 115,000 and Transnet currently employs only 92,000 people. Not only does this added technology lead to job cuts but demands a workforce which can adjust to these improvements. Since many adult workers must be educated before using the new equipment, the labour situation has become even more complex.

Pension Fund
Transnet took out a 10-billion Rand note. It must annually pay 1.4 billion on the interest. The annual rate is 16.5% and it is a 20-year bond, which matures in 2010 at which time the company must pay the bond in full. Often when the company shows a loss it is because it must pay interest on the bond, taking away 1.4 billion in profits. This bond is a contractual obligation of the company with no options of annual redemption. Because there are more pensioners than active members in the company (due to loss of labour) so the company must subsidise the pension plan.

Before 1988, members of the black community were not considered full-time workers and were not part of the pension plan. However after the 1988 strike, all members were admitted into the pension fund. However, the effective shareholding is still skewed with whites owning 90%. Another reason that the company has added funds to the pension plan is to help compensate for the extreme disparity between individuals.

South African Airlines (SAA)
Although some thought that SAA was a monopoly, Mr Macozoma explained that it has consistently lost market share to competitors. The company was losing money because it had huge overheads caused by pricing, service, route structure as well as providing customers with what they wanted but not necessarily what they were willing to pay for.

He went on to say that it lost market share at both ends of the spectrum because its service was falling which caused it to lose appeal with one group of clients. On the other , its prices were not low enough to draw other clientele from its competitors. In effect, it was squeezed on both sides by other main airlines. There was further discussion about tactics SAA used to correct these problems.

Questions by committee members
Mr Frolick (UDM) asked what downsizing was planned for Spoornet and how it would affect the Cape, especially poorer areas.

Mr Macozoma responded that any railage below a certain tonnage is never profitable and passenger-carrying in almost every country in the world is subsidised because one cannot make a profit from it. However, he did not go into detail on specific downsizing plans. He did say that fewer trains were being used to carry commuters during non-peak hours.

There were also questions raised about provisions for security regulations and Mr Macozoma assured them that Transnet is working on safety by using world-wide expertise but that safety still sits in the Department of Transportation.

Mention was made that it is hard to get rail transportation contracts because of the constant danger of theft from railcars and that it is unprofitable to have a guard in every car. Transnet is also working to develop contracts whereby corporations can arrange to have goods transported both on ground and sea while appearing on the same invoice.