Transnet Annual Report: briefing
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PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
10 October 2006
TRANSNET ANNUAL REPORT: BRIEFING
Chairperson: Mr Y I Carrim (ANC)
Documents handed out:
Presentation to the
Portfolio Committee by Transnet
Transnet Annual
Financial Report
SUMMARY
The committee was briefed on the annual report and financial statements of
Transnet for the past financial year. The reports included details of the sale
of the assets SAA, Metrorail, Transtel and V&A Waterfront. Details were
given of future disposals and the use of the proceeds of the sales. The report
also included the business growth strategies for the next five years,
projections on the budgets and how the entity had performed over the past year.
The Committee expressed appreciation for the clear and concise presentation and
commented that the progress had been excellent. There were still some
improvements that could be made to make the entity more lucrative in terms of
finances and social development.
Questions were asked by members on the Gautrain, the switching of Transnet operations from road to rail,
prevention of fraud and corruption within the business, and the contribution
towards social investment. Clarity was sought on the SAA and Metrorail sales,
and the Autopax review. Congestion at the Durban port was discussed. The sale
of the V&A Waterfront was raised. Further questions related to repair or
reuse of old rolling stock, employment equity targets and equity in pension
payouts, gender equality and training programmes for women, the procedures for
sale of non-core assets, the remuneration and operation of the Board, and the
result of the sale of MTN shares.
MINUTES
Ms Maria Ramos, Group Chief Executive, Transnet, explained that the
presentation would focus on the financial statements of Transnet over the past
financial year and the growth strategies and implementation over the next
couple of years. The growth strategy and turnaround plan focused on four
pillars, being human capital development, corporate governance and risk
management, balance sheet restructuring and redirection and re-engineering of
the core business. There was a major re-engineering programme underway, and
Transnet had commenced the rollo out of a R64.5 billion investment plan. Non
core assets had been disposed of, governance structures and risk plans
implemented and a comprehensive HR strategy planned. Details were given on the
specific progress in each area, including details on the sale of the four
assets SAA, Metrorail, Transtel, and V&A Waterfront. It was stressed that
the successful turnaround would depend upon human capital investment, and to
this end Transnet had introduced various strategies, including transformation
imperatives. It had made significant progress in achieving equitable
representation across the divisions. In respect of corporate governance and
risk management a framework and due diligence had been completed. The salient
figures for 2006, broken down into difference categories, were tabled and were
compared to the previous year and to budgets. The financial statements also
examined the retirement benefit obligations. The budget for the next five years
was tabled, which indicated a gross capex spending of R64.6 billion, with a
projected surplus by 2009/10. Ms Ramos indicated that certain processes had
continued after the balance sheet had been drawn, and summarised the main
developments in regard to SAA and Metrorail sales, and the processes to dispose
of Viamax, Freight dynamics, TPFA, and freight dynamics. The Neotel
telecommunications assets were to be sold and SAX was awaiting PFMA final
approval.
Ms Ramos summarised that there had been sound financial performance for the
year, that the investment programmes were underway, that the disposal of
non-core entities would be completed by December 2006. The progress had been
pleasing but there were still significant challenges. The sustainability of the
turnaround must be achieved by relentless effort and driving of strategies.
Management and staff were fully committed to working as a team on delivering
priorities.
Discussion
The Chairperson thanked the representatives of Transnet for the clear and
concise presentation, and noted that the progress and achievements over the
past two years were outstanding.
A visiting DA member from the Portfolio Committee of Transport asked when the
oversight on the Gautrain would be done by Transnet, how the future expenditure
in capital wouldl be financed and if there were any exercises or contingency
measures that Transnet was taking to ensure the availability of materials,
given the fact that they would now be competing with the demand of the
construction of the Gautrain.
Ms Ramos explained that Transnet was in no way involved in the construction of
the Gautrain as it was not awarded any contracts in the process.
The Chairperson questioned if Transnet had made any progress in switching its
operations from road to rail.
Ms Ramos replied that the issue of road to rail was not a tariff issue since
rail is cheaper per ton per kilometer than road. The problem was that rail is
slower, impacting upon time and efficiency, and there would need to be
sustainable investments by entering into this division, since currently
Transnet had less than ten percent of the market. However, Transnet had
introduced new running scheduled container trains that would help establish a
reliable and efficient service and create client confidence. At the moment the entity could not compete
effectively with road until investments in the rail business increased. At this stage no dent had been made in the
plans because Transnet would need new equipment, which was part of the
investment strategy. Plans had been made with a target date of 2008. An order
of locomotives had been made and would
take about 12 to 24 months to fulfil. Hence the locomotives would only be
received in 2008 which is the time that Spoornet plans to go into road freight.
At the moment Transnet transported about 80 million tons of general freight but
with the new locomotives it planned to increase the figure to about 140
million, or 160 million by 2011 if achieved its target high growth level.
The Chairperson asked how Transnet was ensuring prevention of fraud and
corruption within the business.
Mr. C Madasa (ANC) enquired how Transnet was contributing towards social
investment, and the general attitude of the entity towards this issue. He also
asked how it was dealing with fraud and corruption with regard to awarding
contracts.
Ms Ramos replied that social investment strategy was an imperative part of the
business transformation. Transnet’s corporate social investment (CSI) was handled
through the Foundation, which had its own Board of Directors. The Board
reviewed the key projects and deciced whether the focus of projects was
appropriate. She gave the example of Pelophepa Health Train, which was
appropriately targeted and had adequate reach and impact on the communities it
was directed towards. Transnet was also working with other state owned entities
for increasing impact and a more integrated approach. Ms Ramos stressed the
point that transformation was not social investment but a business imperative
and formed part of core business objectives.
In response to the fraud prevention questions, she stated that Transnet had a
fraud prevention strategy that was used to detect, prevent and encourage
reporting of fraud in the business. The employees were put through a prevention
programme as part of the strategy, and experience had shown that the programme
had increased the number of reports of fraud. Steps were taken whenever fraud
was reported.
The Chairperson asked what the review of CSI would entail, and why Transnet had
planned to do this.
Ms Ramos explained that a tenth of the growth strategy structure was directed
towards social investment. Last year 500 wagons were bought, in 2006 a thousand
and in 2007, 1500 wagons will be bought by Transnet. The maintenance of these
wagons needs skills which will increase employment of a lot of engineers and
other technical staff. In 2006 Transnet had already hired a thousand people in
this regard.
Mr P Hendrickse (ANC) asked for a clear elaboration on the difference between
the SAA and the Metrorail sale, and what exactly was under review with regard
to Autopax.
Ms Ramos replied that when SAA and Metrorail were disposed of, a valuation on
both businesses was done. At the time,
Metrorail reflected a negative balance on its books. The entity did not
receive any proceeds or any shares from the disposal of SAA, as all the shares
of the business were transferred to the Department of Public Enterprises.
In regard to Autopax, the strategy of was under review. This sale was made
within the agreement with the unions which laid the foundation for the
restructuring of Transnet. Autopax had two lines of business, being Translux,
which was a luxury line, and City to City which was a semi-luxury line. The project
team Intercity had been set up to look at different options with labour and
government to ensure that the strategic significance of the service provided by
these lines was not lost in due to the sale.
Mr Hendrickse asked how Transnet was dealing with congestion at the Durban
port.
Ms Ramos explained that part of the cause of congestion was weather delay. She
acknowledged that there were capacity constraints in Durban, but the high wind
delays contributed to the problem which then led to operations being held back.
The capital investments programme included purchases of containers for both
Durban and Cape Town.
MrZ Kotwal (ANC) expressed concern that the V&A Waterfront was sold to
foreigners, and asked if it was not possible to sell to local people, which
would tie in better with the restitution of land processes. He asked if a share
awarding scheme could have been used.
Ms Ramos explained that the point in selling the V&A was to maximize value
and obtain cash to finance large capital spending and the pension funds. The
criteria that were set did not exclude foreign buyers and once the process was
underway it could not be undermined by changing the rules. The consortium had
foreign and local participants and long-term commitment had been made.
Mr J Stephens (DA) asked if the wagons that were presently unused could not be
repaired and reused by Transnet, instead of purchasing new wagons. He asked if
the locomotives purchased would be electrified since the high fuel consumption
and fuel pricing could be a problem.
Ms Ramos replied that the Spoornet team had been looking for old wagons that
could be reused. Most of the wagons that were idling could not be used for the
iron ore line since it was very specialized and the wagons were old and
insufficiently technologically advanced. Furthermore some wagons could not be
reused as they were designed for different rail systems.
Mr L Gololo (ANC) enquired about the strategies that Transnet was using to
ensure that it reached its BEE targets and what submissions were given to the
Department of Trade and Industry with regards to the BEE Codes. He further
asked if and how Transnet would ensure that the pension payouts were equal
across all races of employees.
Ms Ramos clarified that the submissions that were made to the dti ensured that
Transnet did comply with the Labour Relations Act and BEE codes. The purchase
from the company Matshi was an example of how Transnet was working towards
achieving the BEE codes. She noted that 42% of Transnet went to BEE companies.
However, a small percentage went to women and no demographic breakdown of women
owned enterprises was listed.
In terms of the salary pension payout, Transnet followed what had happened in
society as a whole and ensured that there was an equal pension payout across
race. It planned to increase the pension of those pensioners who earned less
than the current state pension and also planned to consolidate the ‘black
widow’s fund’, increasing payouts to the same level as state pensions. This was
still subject to approval by the trustees.
Mr Carrim noted that Transnet did not address the issue of gender equity
salaries with the issue of the pension payouts. He asked if the entity had any
succession training and any management training of women to ensure they
increase in management.
Ms Ramos explained that entrepreneurs had to be nurtured and hence Transnet had
leadership skill training programmes. She stressed that there remained
challenges in recruiting women in the highly industrialized engineering professions;
but Transnet were busy training a significant number of women, for instance as
tug masters and train drivers, in hard core engineering environments.
Mr C Wang (ANC) asked how Transnet communicated the sale of non-core assets.
Ms Ramos explained that Transnet used the national newspapers to communicate
the intention to sell assets to interested parties and set the criteria to
follow to ensure that the bidders are serious in buying.
Mr Wang asked how responsive the business was in terms of handling possible
increased numbers in the demand of materials.
Ms Ramos stated that Transnet would not increase infrastructure before they had
conducted research with their clients
as to how much and when they would need materials. Only once this information was
received would Transnet be able to set an appropriate response to the possible
increase in demand.
Mr Wang asked what Transnet was doing with the increasing labour intensity of
their operations.
Mr Hendrickse requested clarity on the significant increase of the remuneration
of the one Board member from the last financial year to 2006 on page 77 of the
report, and questioned if board members were subject to sanctions.
Ms Ramos replied that the Board of Transnet had constituted in August of 2004,
and in the following year the Minister made changes to the renumeration
strategies. That was the reason for vast changes in the amounts reflected over
the past two years. She confirmed that the Board could impose some sanctions on
members who made poor decisions.
Mr Hendrickse asked if the sale of the MTN shares had achieved the desired
effect.
Ms Ramos replied that the MTN shares proceeds were used as a closed pension
fund. The sale had made a difference to the pension fund scheme since it
contributed a significant amount, and had therefore achieved its desired
effect. The pension scheme was closed to further injections, so the investment
portfolio was steered towards fixed income investments and minimization of
risk.
The meeting was adjourned.
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