Progress made on Transnet governance and financial challenges; with Minister

Meeting report

Opening Remarks

The Chairperson welcomed Members, the Minister of Public Enterprises (DPE), Chairperson of Transnet Board, the newly appointed Chief Executive Officer (CEO) and all Transnet officials. The Deputy Minister and the Director-General were unable to join the session as they were attending another meeting. The purpose of the session was for the Committee to be briefed by Transnet on the progress it had made in addressing its governance challenges. It was one of the State-Owned Entities (SOE) that had been badly damaged by corruption and state capture. It was responsible for improving efficiencies in the economy and driving government's developmental programmes. The Committee had to ensure that Transnet invested in infrastructure, supported small and medium enterprises, promoted localisation, employment and invested in skills development. No company was exempt from the crisis of job losses in the economy but the Committee hoped that Transnet would not fall into that.

The Committee had an opportunity to visit some of the entity's plants and it saw massive infrastructure and workshops that were supposed to be utilised for industrialization in the country. South Africa had to not solely depend on primary production of goods but it also had to produce secondary goods.  Infrastructure indicated that the country was capable of producing its own cars, trucks and locomotives. Members would like to see this kind of action in their lifetime as it would help Transnet bring change and improve the economy. To achieve this, it had to get rid of corruption and wastage. Members were encouraged to engage after the presentation and to make contributions that would aid Transnet. He handed over to the Minister to make his opening remarks.

Minister’s opening remarks

Mr Pravin Gordhan, Minister of Public Enterprises, greeted Members, officials from Transnet and members of the public. He said that he might have to leave the meeting early to attend a Cabinet meeting but would return afterwards. The Transnet Board had been in place for almost two years now. It had done extremely well to resolve some of the legacy issues relating to management and good governance. It had also taken steps to undertake the recovery of funds that had been lost although a lot more needed to be done in this regard. Part of the challenge in governance was going to be the pursuit of those who were responsible for various forms of corruption including those involved in the locomotive deal and many other transactions that took place during the period of state capture.

On the management team, he said that the new CEO had been in office for seven or eight months now and together with the Board there was an effective management team in place. The team was attending to issues of procurement where corruption often took place and reviewing some of the major investment decisions. Once this was completed the, Committee would be briefed. It had been a difficult period for the operations of Transnet.

There have been challenges at ports relating to the weather in the West Coast and Cape Town. Initially it was felt that this would impact on exports from the Western Cape, particularly citrus and other fruit, but the CEO would brief Members on the steps taken to ensure that the agricultural sector was not compromised. The overarching issue had been the Covid-19 pandemic and its impact on the frontline, infection rate of workers and the impact on various groups of workers on the dockside.

Minister Gordhan said that the management team had dealt with various contingencies which had been praiseworthy in the kind of context they were in. During the lockdown, essential items were being allowed through the ports expeditiously to ensure the effective combatting of the pandemic. The key factor was still the human factor and the number of frontline workers who were infected and group of workers having to be laid off. This impacted the operations of ports notwithstanding that there had been a recovery.

On freight rail, he said that it had continued well but the volumes of mining resources leaving South Africa had been impacted. The figures for this could be provided. There had been a global drop in demand for certain commodities due to the pandemics impact on different parts of the world. The failure was in the fuel pipeline and it was good to see the Hawks making arrests because the fuel pipeline has been the subject of sabotage and theft.

The impact of the pandemic on the supply chains across the world would be an unfolding situation over the next few years as the world began to adjust to the reality that having the workshop of the world concentrated in one part could become very inhibiting. The pandemic could have a severe impact on the disruption of trade, trade routes and the supply chains that operate. The early signs of adjustment taking place would have an impact on the prospects of South Africa's ports and the manner in which Transnet would have to adapt to accommodate additional traffic. Transnet would have to adapt its strategies and logistical framework around the kind of role the harbours would play. The Chairperson of the Transnet Board had not been well for the last two weeks and thanked him for making himself available for the meeting.

Mr Popo Molefe, Chairperson, Transnet Board, greeted everyone in attendance and said that the Minister had given a very good introduction. The entity had received four apologies from officials who were in Board meetings dealing with urgent financial matters and another official who was in hospital. The CEO would provide an introduction followed by the heads of various operating divisions who would present on the strategic issues within the entity.

Briefing by Transnet

Ms Portia Derby, Group CEO, Transnet, greeted everyone in attendance. She said that people had been fantastic throughout the Covid-19 period and the entity was buckling down to make sure there was a stabilising impact on the supply chain. The last engagement between Transnet and the Committee was on 29 October 2019. Some of the concerns raised by Members in the last meeting included consequence management, corporate social investment expenditure, operational efficiencies and fruitless and wasteful expenditure.

On investigations, the entity appointed a law firm last year to deal with the offences committed. The Special Investigating Unit (SIU) has been making progress on some of the investigations directly. At the time, there was a lot of vacant leadership positions but now there was a full and complete executive team, except for one individual who had started the handover process and would effectively take office on 1 October 2020. Fruitless and wasteful expenditure was a key concern and the entity was fighting hard to deal with irregular expenditure. More work needed to be done to ensure that in an attempt to deal with corruption, there was not too much control to the extent that the entity was unable to move. The Pension Class Action has been finalised and a settlement had been reached. She introduced officials from the executive team.

Ms Nonkululeko Dlamini, Group Chief Financial Officer, Transnet, said that the intention of the presentation was to update the Committee on the 30 September 2019 audit results. It would also indicate the financial performance of the last four months of lockdown. The borrowing programme was a significant element in the business to ensure operations were funded.

On operating divisions, freight rail was the largest contributor at 51% followed by port terminals that contributes 16% and national ports that contributes 15%. Transnet had assets to the value of R35 billion to run the business. Personnel costs remain the largest and contributed to 57% of the total costs. The entity was working towards finalising the year end by 30 September 2020 and the report will be submitted to the National Treasury (NT).

Despite the challenges in the economy, the entity has continued to contribute in revenue, creating jobs and delivering a positive bottom line to the economy. The growth in the borrowings level remains an area of focus to ensure that the entity manages within what it can sustainably afford to run with. The electricity costs also continued to rise. The overall picture was that there was much less growth and a reduction in the levels of activities. There was a slow-down in capital investments because there was not much activity in construction sites. Transnet was categorised as an essential service so it had continued to operate. The containment terminal was able to operate close to normal while the auto sector was doing 50% of its activity. The petroleum volumes were also impacted due to the lockdown. As a result of varying levels of activity, the revenue line was only at 60% of what it had initially planned for. There has been an increase in activity and as of July the revenue line was at 84%. In order to manage costs, savings from the operating costs would be banked. There had also been a reduction in the interest rate and this had a positive impact in managing costs.

Mr Andrew Shaw, Chief Strategy and Planning Officer, Transnet, said that there had been huge reductions in Gross Domestic Profit (GDP) around the world. During 2019, most parts of the economy around the world were doing relatively well but South Africa was not in a very strong position and growth in that year was weak. The 2020 forecast reduction in GDP was about 8%. All countries are forecasted to have a relatively lower growth expectation but that growth will increase dramatically after the pandemic. South Africa is faced with one of the worst recessionary environments that its ever had since the 1930's. The export performance has declined as well as a reduction in volumes in the container market as a consequence of the inability of supply chains to deliver into the global economies.

On crude oil, there has been a dramatic impact due to the substantial reduction of usage in crude oil and liquid oil. On thermal coal, there has been a sustained use of thermal coal in South Africa's export markets which were India, Pakistan and Indonesia. The price would reduce but the demand would remain stable. There were challenges around delivery at ports due to the social distance campaign. There was some stability in most of the commodity forecasts going forward except for oil. South Africa was very well positioned as a manganese exporter. The prices have sustained themselves and projections going forward is that China's demand will be flat and the price will be stable. The pressure on Transnet is to make sure it can meet the demand in terms of the ability to export as much manganese as the market could facilitate. There had been a sharp drop in container trade due to Covid-19. Fuel demand had been one of the more challenging areas.

In respect of refined fuels there was a sharp down turn in 2020 and a massive reduction in billions of litres moved. There would be a slow pick up in fuel coming out of the Covid-19 period. There was a global phenomenon of a shift away from fossil fuels and liquid fuels. There would either be a flat line or a significant decline in demand which would be largely independent of economic growth as it was due to this shift. There had been a fairly strong upward trajectory for jet fuel but it might take some time for the aviation market to recover.

Mr Pandelani Munyai, Chief Information Officer, Transnet, said that the main project was the IT Data Service Contract. It was decided that the contract would be given to T-Systems but Gijima went to court and won the case declaring that the contract should have been awarded to them. Since then, Transnet has engaged with Gijima to make sure the contract is signed. All of the issues were resolved and the contract was signed in June. As it stood now, the contract was in operation and covered the design and implementation of Data Centre hosting services. The contract was critical for the operation of Transnet as a whole because it provides full support in the entity.

On network services, the service contract expired in November 2019 and the tender process was underway. The winning bidder would assist in building, designing and training Transnet employees so that the entity on its own will be able to manage and control the whole network space. The Transversal Integration Platform would avoid serious duplications that are happening within the operating divisions. The main purpose was to ensure that there was a unified digital strategy.

Mr Stanley Mamaregane, General Manager: Group Legal Services, Transnet, said that Transnet had been working closely with the Zondo Commission to facilitate the flow of information. Office space had also been provided so that information can be easily accessed. Transnet signed an agreement with Regiments to recover an amount in excess of R700 million which was payable by October.

A settlement was reached in the Pension Class Action and the implementation of it was underway. Transnet had engaged with Sasol and Total to assess the possibility of settling the litigation matter outside of court given the long standing relationships the entity had with them. It was engaging with the Department of Transport (DoT) on the fees paid to the Railway Safety Regulator. These discussions were being set up because the fees were not in line with the realm of reality.

Ms Yolisa Kani, Chief Business Development Officer, Transnet, said that Transnet's strategy focused on geographical expansions in new markets within the African region but with special focus on the Southern African Development Community (SADC) market.

The operational constraints were expected to lead to delivery delays as seen in the freight logistics. The impact was severe for small trucking businesses because they tend to not have any backup, recovery plans or intermittent operation plans. The lack of technology as well as tools to follow health guidelines further complicated their response. Top players had also been hit just as hard. Companies' credit metrics were likely to deteriorate triggering downgrades and several freight and logistics investments have been placed on hold indefinitely.

South Africa would be burdened by credit markets, low levels of private investment, high unemployment, labour militancy and the re-emergence of electricity constraints. Supply chains were likely to move in new and more geographically dispersed directions. It would take another four years to be at the GDP growth prior to Covid-19. Foreign Direct Investment (FDI) would fall by 30% as investors may want to focus more on their home markets than on overseas ventures.

Mr Khaya Ngema, Chief of People, Transnet, said that at the beginning of the lockdown, one of the challenges was getting Personal Protective Equipment (PPE) to ensure safe operations. A decision flow called the 'Corona Loop' was created to look at customers and sufficient volumes. One of the challenges was the unavailability of certain types of workers who were critical in operations. The entity had to understand the risk profile of its employees. Some workers were starting to come back to work while others could not return because they were chronic workers. The risk routine was an ongoing process. The difficulty was that some workers of these workers were the most experienced and critical to supervising operations. New ways of work had to be developed to ensure safe operations, efficiency and availability of employees. The entity learnt how to zone the teams, how to manage shared spaces and institutionalising remote working. The bulk of employees who were outside of operations are working remotely. The digital backbone of the entity was improved to enable this. The relationship with trade union representatives was also enhanced. A lifestyle policy and audit was introduced. The entity continued to deal with consequence management of those who had been found wanting in part of the investigations.

Mr Velile Dube, Chief Executive Officer: Port Terminals, Transnet, said that the challenges in ports last year include congestion and industrial action. There was great unhappiness in the industry and the agricultural sector was highly impacted by the lack of activity in the port due to industrial action. In order to stop the repeat of what happened last year, new equipment was acquired and was now being installed and new systems for receiving goods in the ports is also being introduced.

One of the hardest hits by Covid-19 was in the port of Cape Town where there were delays of vessels waiting outside. The recovery rate for Covid-19 was 96% and 12 individuals had lost their lives. All of the learnings from Cape Town have been extended to the ports of Ngqura and Durban. While the rate of infections in those ports were much higher than what was experienced in the early days in Cape Town, the learnings have been implemented a lot faster and the protocols were now entrenched. The challenge remained getting the industry as a whole to collaborate with the port. The ports were the first and last points in the supply chain so collaboration was needed to synchronise planning.

Ms Derby said that as of last Thursday, there were four employees in hospital. The entity had tested 2095 employees exclusive of those tested in the private system. 2082 were positive and 2010 have since recovered. As of this weekend, 35 people have died. Port terminals were the first and last line of the logistics system. It affected everyone and Covid-19 had a direct impact in increasing pressure in the system.

The Chairperson thanked the officials for the presentation and asked members to engage with it.

Discussion

Mr L Mpumlwana (ANC) said that the document was lengthy and Members had been given a short time to prepare questions. Next time, the presentations had to be given to Members on time so that they were able to participate fairly. Members read in the media about arson in the trains. What measures were in place to identify, investigate and mitigate the risks? How safe are passengers in the trains? Passengers were being mugged and robbed on a daily basis.

On legal matters, he asked for more details on which civil matters were currently present before the court and which matters were being discussed outside of court.

On transformation, how far had Transnet transformed since 1994 to today in terms of the percentages of representation of race?

The Chairperson said that the Committee was dealing with Transnet and not the Passenger Rail Agency of South Africa (PRASA).

Mr Mpumlwana apologised and said that he withdraw any questions related to PRASA. He said that he would rather ask questions after the other Members.

Mr G Cachalia (DA) said that Transnet was essentially a monopoly and despite some profitability, it had failed to do its job which was to provide public goods, enable the economy effectively at a competitive price and to lower the cost of doing business in South Africa.

The rail was inefficient and expensive. For example, dolomite from the Northern Cape cost R609 per tonne versus R256 per tonne by road. The turnaround time at the Durban port was three times longer than at other large ports and it was also prohibitively expensive. The cost of exporting and transporting 20 food containers from Cape Town was $2000 five years ago. It was more than double the average of other high income economies.

The debt and outstanding loans in transport sat at R122.5 billion and a portion of that is guaranteed by government. What plans are there to restructure, investigate, mitigate and address these issues? Have any investors or suiters been approached by the company? FDI was expected to fall by 30%. How much capital had been raised? This would indicate the traction that had been achieved. If capital costs were capped at 8% of revenue, and revenue had been hit heavily by Covid-19, how would the situation be addressed?

Ms O Maotwe (EFF) said that she wrote letters to both the Minister and the Chairperson of the Transnet Board on 3 August 2020 and received no response. Some of the questions raised in the letter include the following: how much had been paid to Mncedisi Ndlovu and Sedumedi Attorneys (MNS) and when was the contract ending.  

On the assets of Transnet, she said that there was an advertisement by the CEO relating to an expression of interest in ownership where customers are invited to ensure such interests. What exactly was it intending to do? Was it an attempt to sell Transnet to private owners? Minister, are you going to stop any attempts by Transnet to sell this strategic asset of the state to private owners? This letter was written a month ago and Members would like to hear responses on it.

The meeting today was premature because Transnet had not released its financial statements. It was said that it would only be released on 30 September. Nothing in the presentation mentioned 2019/20 or the projection for 2020/21. Transnet needed to come back once the financial statements were released so that Members can actually engage on the performance of 2019/20.

On ICT, she said that Mr Munyai presented quite a few initiatives. How were all of these initiatives going to improve efficiency and how much would be saved by embarking on these initiatives?

Ms Maotwe said that the T-Systems issue was an old one. Did it mean that T-Systems had been executing duties for Transnet even though the contract expired two to three years ago? Why did it take so long, besides the court cases, to sign the agreement with Gijima? Transnet had an agreement that laptops get recycled or upgraded every three years. Was this still the case? If so, what was being done with the old laptops that were being returned? Who was it being sent to? In the past, there were rumours of the laptops being related to some foundation.

On governance, the presentation spoke very briefly about it even though Transnet was in deep trouble with its governance issues. She requested that Members be provided with more detail on governance issues. How many employees had appeared before the Zondo Commission and how many more were yet to appear? What was it doing to protect whistleblowers? The same situation that transpired at Eskom had to be avoided.

On business development, she said the Africa strategy was as old as eight years and it was a strategy of the past. Mr Brian Molefe spoke about it as far back as 2012. What is the status of Transnet International Holdings (TIH)? TIH was considering prospects beyond Africa with countries like Colombia and Chile. Transnet was reversing these gains by taking it back to Africa and the SADC region only. There were contracts with the SADC region and this market had already been touched on. Which countries did it sign revenue generation contracts with in this past financial year? Who was it supplying locomotives to and how much did it sign those contracts for? For example, on the Ghana project, how far is it? Have you signed a contract and what was the implementation status of the projects in Nigeria, Senegal and Mali?

Ms Maotwe said that Covid-19 resulted in the inability to fly out and reach international customers. What was it doing internally to build capacity? It need to look at things built by Africans for Africans. For example, engines are still being taken from international suppliers. Why was it not trying to capacitate certain development within Transnet to develop its own engines from scratch during the Covid-19 period? There were young engineers who are very dynamic, agile and energetic. Why was it not committed to focusing on them? In order to capture the international market, South Africa needed to build its own capacity and build its own wheels instead of just joining components together and claiming that wheels are being built. What was it that you are doing to capitalise on building internal capacity to address some of these issues? She requested that Transnet refrain from talking about Africa strategies because it was just embarrassing. It had to move forward from Africa strategies as it was just reversing the gains that have already been made.

Ms C Phiri (ANC) said that the presentation was too long. It felt as if Members were in a workshop and time was not on their side. Next time, the presentation had to focus on a specific issue so that Members could focus on that aspect. Transnet had good stories to tell but none of them are reflected in the presentation. In one of the social media channels, it stated that Transnet had a programme of localising manufacturers and suppliers but there was no mention of small businesses who want to venture and trade with the entity. Could this programme be explained? How did it monitor businesses who wanted to venture in that space but did not meet the standards? Members needed more clarity on the issue of including South Africans in the programme.

On cable theft, what was the strategy to curb this? It also disturbed the business of the day. She requested that Transnet elaborate on how it affected the entity and asked what strategy it had in place to deal with it.

On Covid-19, the presentation indicated that there was an impact on operations due to the unavailability of personnel in charge of operations. When Members conducted oversight, they saw young engineers and employees on site. Why did the entity not have a programme where the older generation of employees upskilled or transferred skills to younger generation employees? This would avoid a loss of skills crisis.

Mr S Gumede (ANC) said that it had been a long time since the Committee met with Transnet and the document was expected to be voluminous. The submission time of the document did not allow for proper preparation of questions by Members that would take the entity forward. It would have been nice to have the final performance of the entity included in the document rather than the performance of the previous year and judging the entity on that basis.

He requested that another meeting take place where Transnet presented and Members were allowed to ask questions after each and every presentation so that there could be meaningful contribution and the entity could perform better.

It seemed as if most of the work of the new Board had been overshadowed by the pandemic. Mr Dube underestimated the impact of Covid-19 on the figures. His presentation differed from what the CEO presented as the final figures. Members would be happy to receive the right figures because there was confusion caused by the discrepancy.

May the 35 people who died rest in peace. The 5.4% global growth seems to be overestimated with the current situation. It was doubtful that South Africa would get to that point unless Members were provided with an assessment including the indications of reaching that point. It was positive to view level 1 because there will be more freedom but Covid-19 will still be around and many people will still be vulnerable. The projections had to take into account that Covid-19 may still have an impact.

Mr Gumede agreed with Ms Maotwe that it has taken a long time to finalise the matter between T-Systems and Gijima. There must not be the kind of thinking that there was nepotism or favouritism on the side of T-Systems. The presentation indicates that the entity had been downgraded twice. The whole country had been downgraded and now the entities too. One also thinks about the issues with Denel. It looks as if the entities were now becoming vulnerable and this was worrisome.

The entity was commended for being sustainable and not worrying the NT to ask for more money but it had to decrease its debt so that it did not become even more vulnerable with the downgrading status. Members did have the financial performance before them but would be interested to know the entity's equity and assets because it was in fact projecting an increase of R145 billion. He requested more information on the transport system. The police must be thanked for arresting those people who are interrupting the transportation of oil.

Ms J Mkhwanazi (ANC) said that Transnet had to be commended for its progress especially on recoveries, the Zondo Commission and related matters. From the financial reports, do you see Transnet being able to sustain itself and able to deliver on its mandate especially on the economic growth development of the country including skills development, employment and capacity of the state? When Members visited Transnet, the issue of capacitating SOE's to venture and partner with one another was emphasized. This makes sure that all SOE's produce a better, quality and affordable development of the state. Are you considering that and what is the assessment going forward? On infrastructural development and maintenance, the risk assessment plan must make sure that infrastructure is protected and not damaged. Members have read in the news that there is a lot of infrastructure damage. Can you tell us your infrastructure and risk management plan going forward?

Mr Mpumlwana said that it would have been better for Members to receive the presentation earlier. Can you inform the Committee on civil matters that are presently before courts and those that are being settled outside of court?

On transformation, what was the percentage of race and positions in terms of both employees and suppliers? On foreign investments, what programmes did it encounter in these corridors? How did the foreign law affect the programmes?  

Ms J Tshabalala (ANC) said that the presentation was highly technical and Members need more time to engage with it. Members look forward to receiving the financial statement when it became available but its absence did not stifle the Committee from conducting oversight because Transnet is continuing with its work. Infrastructure remained a problem. It had been fought for and the working class, poor and vulnerable citizens really need it. With the easing of lockdown restrictions, people need the railway and the theft of infrastructure affects ordinary people. How do you assist the working class? The corruption and theft cannot be apportioned to the people who are using these services.

On law enforcement agencies, has there been any security company in charge of looking after the infrastructure? What has been the response from the security and what is it that you could have done to prevent theft? What type of security company is it and what are they expected to assist with? The problem of infrastructure in Gauteng was really worrisome. Would the security company increase its efforts to make sure this did not reoccur and what is it going to cost Transnet? Members understood the issue of mining and the lack of funds to cater for such but the infrastructure was very important for the livelihoods of people. How much was going to cost to service the infrastructure and where would it come from?

She said there was a Member who reported to her about an advertisement that showed Transnet's good infrastructure. This Member was asking whether the advertisement was showing thieves and thugs the cables that can be utilised. Can you relook into it to see if it's attracting the wrong people? The Committee commends the entity for dealing with corrupt executives but the issue of timeframes is very worrisome. Corruption sits in entities for such a long time and officials are unable to see it. Now that it has seen with the Zondo Commission, what are the checks and balances to really look into these things?

On the law firm that handled the investigation cases and recommended civil or criminal prosecution, how many cases of that nature did Transnet have? Out of those recommendations received from the law firm, how many are for civil cases? What is the value of money it was likely to recover from it? Although it had a legal department it still decided to contract a law firm. What was its reasons for having a specific law firm? At what point did it need a law firm and not its own legal department? What has been the cost of receiving the services from this law firm to date?

Ms Tshabalala said that Transnet had good stories to tell. Are you communicating this to the public? It was no secret that when it came to corruption, the public narrative was that it was only politicians but often it was senior officials and public servants. Was it communicating this information?

On the pensioner rules and flow, when would this be done? On litigation matters being settled outside of court, what did it mean by this? Which entities were involved and who was owed the out-of-court costs? Are there any matters based on your own employees that have been referred to the National Prosecuting Authority (NPA) for concurrence? When the Zondo Commission uncovers the issues, would its legal department refer any criminal or civil cases to the NPA?

On the issue of revenue and month-to-month improvement, could Members receive this information? The presentation indicates that if a number of commercial issues are resolved it will release unplanned cash into the system. She asked for clarity on this and asked the entity to explain and expand on the graph on slide 11. She asked for an explanation on the ratings of local and foreign currency on slide 12. She agreed with Mr Gumede that the projections were ambitious. The presentation also indicated that the IRP2018 energy mix aimed for more renewables than diesel. She asked how it had related to that and for Transnet to expand on the options.

On the School of Engineering, she asked what the cost of the entire programme was. Was the entity retaining and attracting people to stay in the establishment? On hostels for workers, she said that the state of hostels was really worrisome and requested a strategy on the issue.

The Chairperson said that there was nothing prohibiting Members from requesting progress reports from any entity. It was a standard that all companies would appear before the Committee to table their annual reports but that did not mean entities cannot be requested to update Members on the progress. This meeting was not premature. It was part of the Committee's oversight over the entity. Members would receive other entities before the presentation of the annual reports so that there was no surprise when the annual report highlighted serious problems and challenges. Members need to see these problems coming and make inputs to help the entity resolve them. He handed over to the CEO and her team to respond to the questions posed by Members.  

Responses

Ms Derby apologised to Members for sending the presentation late. Transnet was more than happy to come back and make further presentations in whatever form was requested. As soon as the audited statement was available, a presentation would be made on the previous financial year.

Ms Sizakele Mzimela, Chief Executive: Freight Rail, Transnet, said that Transnet was dealing with the same challenges faced by PRASA. There was a significant increase of cable theft and theft of signaling systems that allow trains to move effectively. This has led to a number of delays which equally leads to unhappiness from customers because deliveries to the ports are not made on time. The shared infrastructure with PRASA were deemed as hotspots because in those specific areas there was an increase in cable theft. In order to resolve this, there had been an increased use of technology such as drones and helicopters to respond quickly when there is theft. There has been a conversion of using diesel locomotives as opposed to electronic locomotives. That means there was also a process of removing cables in order to allow diesel locomotives to run. Transnet has initiated work streams with PRASA to jointly find solutions. PRASA has had challenges in the last few months of not being able to secure the security required to safeguard the infrastructure. As a result, Transnet has deployed additional physical security in those areas but there is a need to look at other options to reduce cable theft going forward. There was a three year plan geared towards increasing the deployment of technology and converting copper cabling to cabling that is less prone to theft. This would also mean ensuring new technology to safeguard goods such as containers supporting the automotive industry.

Ms Mzimela said that one of the key focus areas was to drive the cost compression. This is being done in collaboration with some of the key customers. Most export customers are not competing amongst themselves only but with other exporters around the world. Transnet had undertaken initiatives to reduce its fixed costs and also to look at reducing the unit cost of operation. There were challenges because the volumes were one directional which led to it not being as competitive as other competitors. From a rail perspective, Transnet did not have the monopoly. The market share was between 52% and 54%. The entity was constantly competing with trucks on the road who had better opportunity to carry one load to the ports and were also able to get additional volumes from the surrounding areas in order to reduce the unit cost of moving some of the freight.

Mr Ngema said that in many instances, Transnet was the sole custodian of the specialized skills of rail and ports in the country. The Transnet Academy was never executed in the manner it should have been but it was being executed properly now. It was a consolidation of the different schools because the entity had under-invested in them. They had not been given the technology, facilities and faculty that they should have been given. If there was a consolidation of capabilities and skills, the skills development could be benchmarked against comparable authorities in the world. Transnet wanted to improve its partnerships with Technical and Vocational Education and Training colleges, local universities and research institutes.

The Young Professionals programme generated professionals in various skills who got absorbed into the entity and others into the rest of the industry. This created a skills pipeline and also supported the economy. The Silverfox programme had been launched to allow seasoned professionals who had concrete skills to become mentors for young professionals coming into the system.

Ms Dlamini said that Covid-19 impacted financial timelines. The audit for the year end was supposed to start around the time the lockdown started. As a result, the NT gave all the entities an extension to the end of September. Transnet was in the final stages with the auditors and the closed period was necessary to get the final audit opinion.

On ratings, the colours differentiate between local and international ratings. As the country was being downgraded, the banks were also downgraded so it was more of a sovereign matter that everyone was impacted by. Transnet was working on issues raised by the rating agencies. Based on forecasting of financials, the entity was working towards financial sustainability. The guarantees were very old in as it was only entered into around 1998. Since then the entity had not asked for any new guarantees.

On privatisation, there was a lot of work done with the private sector but it was not a process of privatisation. The private sector was invited to partner with the entity to manage the activities on balance sheets to achieve the same objective of economic growth. The mention of the advertisement was not about privatisation but rather about partnership because these were assets that were being under-utilised and more revenue could be drawn out of them without using Transnet money.

On commercial issues to unlock cash, with the lockdown, travelling had been minimized which constituted direct savings. Where there was outstanding debt from clients, this was unlocked to ensure cash flows quicker into Transnet. In the last four months, debt had been raised within the borrowing programme. Money was not raised in the capital market if it was not needed.

Ms Kani said that Transnet was busy reviewing its private sector framework to enable the entity to go into partnerships and collaborations. The team was being reviewed to grow the business. The focus was on SADC because there were new partnerships that have not been touched on before. Opportunities outside SADC had to be considered on a case by case basis. Those that had not materialised were because the risk assessment indicated that it posed more of a risk than an opportunity to the country.

On the Ghana project, Transnet was asked to provide additional information and this was still being evaluated by Ghanaian officials. On the revenue made, it was around R3 billion.

Mr Munyai said that the contract was issued in 2015 and due to the legal issues, Transnet only started engaging with Gijima in 2018. The technical issue was a main issue as well as commercial issues. Most of the processes done manually will be eliminated by digitization and services will be shared across the organisation to avoid duplications.

On laptops, he said that they were returned to the service providers.

Mr Mamaregane said that the entity was expecting to recover around R700 million from Regiments. There are three entities assisting in the civil and criminal prosecutions. They were the NPA, Hawks and the SIU. The assistance was in the form of freezing assets and pensioner money owed to former employees.

On the Zondo Commission, there were about ten former and current employees testifying before the Commission. Transnet had no influence on who or what was said in the Commission. The information on the civil matters could be made available to Members in writing.

On outsourcing legal matters, he said that employees of Transnet were not entitled to represent Transnet in court proceedings. The representative had to be independent from the entity involved.

On the Sasol and Total matter, he said that the entity had a relationship with them since 1996. The transportation of crude oil or the refined product would be on a neutral basis. There would be no extra charges for transportation. The contestation was around the money owed to Transnet by Sasol and Total in terms of the new regulations brought in. The business relationship needs to be preserved therefore it was in everyone's interest to settle the matter outside of court.

Mr Dube said that that there were 708 positive cases in the port terminals. The number quoted by the CEO referred to the numbers of the entire organisation including all the divisions and the head offices.

On delays in the port, he said that the supply chain and logistics was a team sport and as the first and last line in the chain there was a failure by Transnet in a number of ways.

On the people side, the entity had not been quick to appoint the people required to do the operation of lifting equipment. There has also been a failure to build redundancy in the port environment, lack of investment in equipment, failure to introduce incentives, facilitating information sharing with everyone involved in the supply chain, truckers would arrive at any time and other external factors such as weather patterns. The port in Durban was surrounded by a residential area and the access roads feeding into the port had remained the same size over the years. The issue of congestion needed to be resolved.

On expensive shipping costs, he said that the shipping lines need to adhere to the shipping schedule. The costs are below the global average but what is costing money is the time spent waiting to be serviced.  

Mr Shaw said that the forecasts were based on assumptions that a vaccine would be found in the next six months to a year and that the pandemic would be suppressed for a period of time. South Africa would increase around 3.5% in GDP next year as a catch up for the decline this year.

On mitigation of risks, he said that the focus is on rebuilding volumes of commodities and social distancing practices. Transnet was not a monopoly. A large part of the organisation was regulated and it was not allowed to abuse its monopoly power. There may be market dominance but it was incorrect to label the entity as a holistic monopoly. The customers were largely big corporates and the entity would like to work more closely with them in order to strengthen revenue. The governance framework around capital projects were being reviewed.

Mr Vuledzani Nemukula, Chief Procurement Officer, Transnet, said that in order to resolve the challenges, the entity was price bench-marking and reorganising the procurement function. All existing contracts were being renegotiated.

On localisation of the manufacturing programme, he said that the entity was starting with the supply of rail. Other commodities would be picked up in order to sustain the local market.

Mr Ralph Mills, Chief Executive: Engineering, Transnet, said that it was not feasible to get into the domain of building engines from scratch without a considerable investment and quantities to be produced. It was possible to adapt different engine types so that customers were presented with different options. The entity had developed its own traction motor. There are currently 170 young engineers working on a variety of programmes.

Ms Derby said that the unions had asked Transnet to participate in an industry study. On rules of origin, the entity had to understand the implications for South Africa so that it could compete as an African manufacturer. Lifting equipment was mostly imported.

On pensions, she said that the entity made the first lump sum payment last year.

On hostels, she said that there were about 20 of which four were administered properly and 16 were derelict where rentals were never paid. There were discussions with various municipalities in this regard.

On the Sasol and Total case, it was an area of great concern around the relationship with the regulators. A process has started with the Competition Commission to make sure that the entity does not abuse its dominant position.

On safety, the entity was able to deliver commodities safely. Law firms had to represent the entity and outside legal help was only used when necessary.

Mr Molefe said that the MNS matter arose as a parliamentary question on 29 August. The Minister responded to it and everything he said was factual. Members must be reminded that the new Board did away with any possibility for the directors or Board to influence any matter that pertained to procurement. The directors are left to play their oversight role.

The Molefe Foundation did exist and has been doing work for the last 20 years. No family member benefits from that procurement because it was a charitable foundation. It was strictly run on the basis that it accounts for every cent that it receives and it audited its books. The beneficiaries were the students. If anyone could make a proper case on the matter, the books could be opened. Many things that were stated in the letter by the EFF were false as determined by the Press Council. He did not know if the MNS contract was extended but knew that Transnet was in a process of reviewing. A report on whether there was any favourtism towards MNS was being created.

Minister’s closing remarks

Minister Gordhan thanked the Transnet team for its presentations. Several letters received by the EFF had been responded to on 14 August and that response has not been acknowledged by Ms Maotwe or her Chief Whip.

On privatisation, he said that any disposal had to be approved by the Minister of DPE and Finance. This was a closed period and the audit process was delayed by about two months. Once the team was ready, the Committee would be receive a presentation on the financial statement.

On the Zondo Commission and litigation matters, he said that the appropriate information would be provided to Members. Transnet was not dependent on government guarantees and the work that still had to be done in relation to state capture was something that would be pursued relentlessly to ensure corruption was dealt with by the law and where possible, recoveries are made.

On partnerships with the private sector, he said that it constituted important opportunities for Black Economic Empowerment and the involvement of black businesses.

Chairperson’s closing remarks

The Chairperson thanked everyone in attendance.

Ms Maotwe tried to make a comment but the Chairperson refused to recognise her.

The Chairperson said he was closing the meeting and not recognising further speakers. Unruly behavior was not welcomed.

He thanked everyone in attendance.

The meeting was adjourned.