Legal Succession to South African Transport Services Amendment Bill : Department of Transport briefing

NCOP Public Services

26 August 2008
Chairperson: Mr F Adams (ANC, Northern Cape)
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Meeting Summary

The Department of Transport briefed the Committee on the Legal Succession to the South African Transport Services Amendment Bill [B43-2008]. The reasons for the amendments were outlined as an imperative from Cabinet to improve the efficiency of passenger rail transport in South Africa. Transnet and the SA Rail Commuter Corporation now wished to enter into an agreement of sale in respect of Shosholoza Meyl and this made it necessary to effect certain amendments to ensure that the provision of rail commuter services and long-haul passenger services remained legally acceptable. Transnet provided a briefing on its new thrust as a freight only entity.

Members raised concern about Clause 3 of the Bill as it stated that the relationship between the State and the Corporation would cease to exist. The wide ranging powers given to the Corporation were also called into question, as no mention was made of the Public Finance Management Act. The Committee was not fully satisfied with the change in focus of Transnet to a freight only service, as rail passenger transport could be jeopardised financially. The Department provided assurance that a passenger rail service was a social service and was best located within the Department.

Members expressed discomfort regarding the repeal of Section 15, as this would not be in the interest of the public and could bring about unprecedented fare increases. The Committee asked consistently for guarantees to protect the interest of the public. There was a strong focus on the consultation process and the lack of adequate consultation regarding the Bill. It was decided to confer with the provinces regarding the Bill before any decisions are made.

Meeting report

The Department of Transport briefed the Committee on the Legal Succession to the South African Transport Services Amendment Bill [B43-2008]. The reasons for the amendments were outlined as an imperative from Cabinet to improve the efficiency of passenger rail transport in South Africa. Transnet and the SA Rail Commuter Corporation now wished to enter into an agreement of sale in respect of Shosholoza Meyl and this made it necessary to effect certain amendments to ensure that the provision of rail commuter services and long-haul passenger services remained legally acceptable. Transnet provided a briefing on its new thrust as a freight only entity.

Members raised concern about Clause 3 of the Bill as it stated that the relationship between the State and the Corporation would cease to exist. The wide ranging powers given to the Corporation were also called into question, as no mention was made of the Public Finance Management Act. The Committee was not fully satisfied with the change in focus of Transnet to a freight only service, as rail passenger transport could be jeopardised financially. The Department provided assurance that a passenger rail service was a social service and was best located within the Department.

Members expressed discomfort regarding the repeal of Section 15, as this would not be in the interest of the public and could bring about unprecedented fare increases. The Committee asked consistently for guarantees to protect the interest of the public. There was a strong focus on the consultation process and the lack of adequate consultation regarding the Bill. It was decided to confer with the provinces regarding the Bill before any decisions are made.

MINUTES
The Legal Succession to the South African Transport Services Amendment Bill [B43B-2008] (the Bill): Department of Transport (DoT) briefing

Mr Kubin Pillay, Deputy Director-General: Department of Transport tabled a document setting out the proposed amendments being made by the Bill. Mr Pillay provided a background to the amendments. He stated that in 2004 Cabinet had approved that urgent action be taken to improve the efficiency of passenger rail transport in the country. It authorised the consolidation of all sectors of transport, except for Transnet, over two phases. The first phase has been concluded on 1 March 2006, consolidating of Metro Rail within the South African Rail Commuter Corporation (SARCC). The second phase entailed incorporating the assets, finances and personnel of Shosholoza Meyl within SARCC.
Transnet and the SARCC now wished to enter into an agreement of sale in respect of Shosholoza Meyl, and this made it necessary for certain amendments to be affected to the Legal Succession Act to ensure that the provision of rail commuter services and long-haul passenger services remained legally acceptable.

Proposals for substitutions to definitions and their deletion were presented (see attached document). Clause 2 of the Bill related to the interests of employees during the transfer, and their membership of medical aid, as set out in Section 10 of the principal Act. Clause 3 would delete section 15 of the Act, because the relationship between the State and the SARCC would cease to exist following the transfer of long haul passenger rail services and long distance bus services. Clause 4 would change the name of the South African Rail Commuter Corporation to the Passenger Rail Agency of South Africa, and allowed for the Minister to set up the new Agency. Clause 5 would add the powers of the new Agency and remove the restriction of powers that was placed by the Principal Act. The object was now set out that it would, in consultation with the Department of Transport, provide passenger rail and the long distance bus services within, to and from the Republic in terms of the principles set out in section 4 of the National Land Transport Transition Act, 2000.

Clause 6 was described as
amending section 24 of the principal Act by substitution of the reference to Association of Regional Service Councils to the South African Local Government Association” (SALGA). Clause 7 amended section 25 of the principal Act by addition of a new subsection 25A, which would provide for the transfer of long distance passenger and long distance bus services, and also provide for exemptions on the transfer of land from the SARCC to the Authority.

Clause 8 of the Bill amended section 31 of the Principal Act by insertion of a reference to section 17. This would make section 31(1) (a) to be applicable also to the SARCC. It also made a technical amendment to section 14 of the principal Act.

It was noted that the Bill had been published for comment and the list of those making submissions was provided.

Discussion
Mr L Van Rooyen (ANC, Free State) asked for clarity regarding Clause 3 of the Bill, because the principal Act stated that the only shareholder was the government. He was concerned that Clause 3 now stated that the relationship between the State and the Company ceased to exist.

Mr Van Rooyen also expressed concern about the amendments to Clause 5 of the Bill, as wide ranging powers were given to the Corporation, with no mention being made of the Public Finance Management Act (PFMA).

Mr Pillay said that the SARCC was a Schedule 3 entity under the PFMA, and was therefore subject to it. The fact that it did receive funding from the fiscus was even more reason to ensure compliance with the PFMA. Regarding the extensive powers of the Corporation, Mr Pillay said that these powers were currently located within the Corporation already, and if it needed to borrow money, it had to be done with the approval and concurrence of the National Treasury.

Rev P Moatshe (ANC, Northern Cape) said that he was unclear about Transnet concentrating only on the freight side of transport. He said that the Committee needed to understand why this was happening and why these transactions were taking place.

Mr Pillay said that he could only answer from the perspective of the decision taken by Transnet. Passenger rail service was seen as a social service. Transnet had taken the decision to emphasise on freight. That meant that a business decision had been taken that would result in the passenger rail service not getting the necessary attention and growth if it was to remain in Transnet. The Department of Transport believed that this may have a negative effect on rail services. Since Transnet had taken that decision, there was a need to locate passenger rail as a social service elsewhere, so that it would not be lost, and therefore the Department of Transport took it over. He pointed out that this was an entirely strategic decision taken by Transnet. Transnet received no funding from the State and generated much of its own resources. If it were no longer to be dealing with passenger rail, this would result in it functioning in a more efficient manner, and Transnet could thus better address the input costs of doing business in South Africa. Mr Pillay added that from a strategic perspective it would enlighten the Committee if the representative from Transnet was allowed to provide an input on the matter.

Ms M Olifant (ANC, KwaZulu Natal) asked if the South African Rail Commuter Corporation was going to be removed to establish an Agency, and if this Agency would be fulfilling the same functions as the Corporation.

Mr Pillay said that the SARCC was responsible for commuter rail services. The Corporation had effectively been replaced by the ‘Passenger Rail Agency of South Africa’. The functions and powers would be extended beyond the Metro areas to the rest of the country.

There was agreement from the Committee to allow the representative from Transnet to provide an input.

Ms Sue Lund, General Manager: Research and Policy, Transnet, briefed the Committee on Transnet as a freight-only entity. Ms Lund said that in 2004 the Minister of Public Enterprises mandated Transnet to focus on the critical supply chain of the freight logistics system of the country. In so doing, Transnet identified the need to separate the business of passenger services from the business of freight services.

Ms Lund emphasised the differences between the logistical systems of freight and rail transport. There was a fundamental recognition, by both the Minister and Department of Transport and the Minister of Public Enterprises, that there was a need to streamline and rationalise the services that were provided by these different transport sectors.

The freight systems had a dependence on an integrated supply chain between the hubs and spokes of moving bulk freight and containers. The services that passengers required from the Metro situation and long haul services was quite different from the logistical business. Hence, over the years since the Transnet turnaround strategy in 2004, the parts of the business that were peripheral to the core business of freight transport, were identified. These non-core aspects had been systematically disposed of, either by returning them to government or by selling them off to the market place.

Ms Lund clarified that Transnet was a Schedule 2 State Owned Enterprise, which received no subsidy from the fiscus, contrary to other government departments. Transnet had a board mandating it to run the company as a self-sustaining business. This business had been significantly turned-around, and the levels of investment now allowed had seen R80 billion committed to investments over the next five years. 

Ms Lund concluded that a passenger rail service was a very particular type of service that needed to be protected and grown for the public need. She added that she hoped this input would assist Committee Members to understand the situation.

Mr Van Rooyen still expressed discomfort regarding the repeal of Section 15 of the principal Act, because he feared what would happen to the interests of the public. The culture of the organisation would be changed, as this Corporation was profit-driven and not subject to the public interest. The tariffs could be increased in the interest of the Corporation.

Rev Moatshe asserted that he did not have the precise insight to engage with these matters, but was concerned about entities borrowing money without being controlled. He noted that he would need to understand the full reasons for and implications of legislation to be passed. He questioned how entities could borrow money without being controlled.

Mr Pillay responded by explaining that it had to do with the continuity of services, given that the focus was on freight transport. He added that Transnet was a Schedule 2 entity, so the passenger component required some subsidisation. The DoT had a guarantee from the fiscus to cover the liabilities of an operational shortfall, because this service was not profit-driven.

Mr Pillay expressed the belief that fares could be kept at a stable level. He added that this entity could not just proceed to borrow funds, as it had to be done through the National Treasury.

Mr Pillay stated that there had not been an increase in fares because of the increases in fuel prices. The DoT did not intend to increase fares for long distance travel.

The Chairperson asked what guarantees could the State provide to show that it had acted in the public interest if this Bill was passed, as the Corporation had vast powers in terms of being market driven. In terms of the proposal for the repeal of Section 15, he asked if there were any guarantees for the ordinary man in the street that his interests would be taken care of.

The Chairperson noted the changes to Section 24. He felt that there was not a danger of reckless dealings with finances, because there were suitably capable people from the finance sector in place. He asked if it would not be necessary to have a representative from Department of Public Enterprises involved.

Mr Pillay said that, owing to the increases in the fuel price, rail prices were now much cheaper than buses. The intention was not to increase prices of long distance journeys.

Ms Olifant said that she was fairly happy with the answers given, but she did feel that the Committee needed some time to go through this piece of legislation thoroughly, and in the next Committee meeting would be able to deliberate more extensively on the issues raised.

Rev Moatshe asked whether the Committee would have another chance to discuss the legislation. 

The Chairperson said that the Committee would decide on this matter. He said the Committee would work through the legislation and would pass it when satisfied.

The Chairperson asked about the consultation process and whether this Bill had been open to public scrutiny and debate, because provinces could raise concerns.

He asked who determined the salaries of directors and CEOs.

Mr Pillay said that rail would be firmly located within the government, as government was the only shareholder. There was no intention to privatise and outsource any functions of the Agency. The Minister had the power to take corrective action and the National Treasury could intervene where and when necessary.

Regarding the salaries of executives and CEOs, he said these were determined by guidelines developed by the National Treasury and the Department of Provincial and Local Government (DPLG), referred to as Remuneration of Boards and Chief Executives. These guidelines provided for salary determination in many different ways, including the consideration of Performance Agreements.

Mr Pillay said that in terms of the consultation process, the Bill was published for comment. The rail development plan was developed by all three spheres of government and submitted to Cabinet. Mr Pillay added that the Eastern Cape had gone quite far in developing a rail plan for the region.

Mr Trevor Mphahlele, Deputy Director, Department of Transport said that if the Committee felt that the process had not been consultative enough, the provinces could be contacted for further inputs.

The Chairperson said that that would be a different process, and called into question why it had not been done in the first place. A Section 76 Bill had to go through the provinces, but this was a Section 75 Bill. He said that there was MinMEC and other structures that were part of the process. The Chairperson added that if the Department wanted to send it back to the provinces, it meant that the Bill had not been through a consultation process with MECs.

Mr Van Rooyen said that he had no problem with the principles, but had problems with the issues that were not in the Bill. Mr Van Rooyen said that this Bill was loose and must be discussed clause by clause, so that Members could satisfy themselves that it reflected what was needed.

Ms Olifant reiterated the need for further consultation to seek confirmation on all aspects of the Bill. She added that advice on the technicalities in the Bill was needed, and this should be shared with the relevant people in the provinces.

Ms Olifant proposed that the Committee meet to deliberate and get more clarity on the Bill before a final decision was taken. The Committee could then develop its own proposals regarding the Bill.

The Chairperson agreed.

The meeting was adjourned.

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