Transnet 2021/22 Annual Report; with Minister

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Public Enterprises

07 September 2022
Chairperson: Mr K Magaxa (ANC)
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Meeting Summary

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Transnet

In a virtual meeting, the Transnet delegation presented on the following aspects of the Transnet 2021/22 Annual Report:
• Broad overview of the business’s operating context during and after Covid
• Performance of key divisions of the business
• Environmental, Social and Governmental (ESG) outcomes achieved by the business
• Financial performance of the business for 2021 and 2022
• Progress on current initiatives and the way forward

Committee members were concerned about the ongoing cable theft and vandalism of rail and pipeline infrastructure and asked for stringent and effective security measures to prevent the destruction and theft of infrastructure which ultimately caused power failures as well as spillages resulting in environmental degradation. Members raised concerns about the unlawful occupation of Transnet property and asked what Transnet was doing about this. They enquired about the state owned entity's profitability and capability to pay back its debts on time. They asked the SOE to respond to criticisms about the restrictive terms and conditions it has imposed on the use of the rail network by private third-party freight operators. Questions were also raised about the delay in the road to railway strategy.

Meeting report

Mr Popo Molefe, Transnet Board Chairperson and his colleagues provided a detailed report on the operations, performance, financials, strategy and challenges of the business. The delegation gave an analysis of the operations under each division of the state owned entity, the challenges experienced in each division as well as each division's achievements. The delegation also clarified the controversies laden in the status of the SOE's financials.

Divisions in the business
• Transnet Freight Rail (TFR)
• Transnet National Ports Authority (TNPA)
• Transnet Port Terminals (TPT)
• Transnet Engineering (TE)
• Transnet Pipelines (TPL)
• Transnet Property (TP)

Achievements
• Established internal security measures to address vandalism and cable theft through adopting innovative technologies to protect infrastructure
• Established partnerships with private sector to ensure that corridors generate profit for the business and developed third-party access
• Established partnerships with government and communities to ensure that culprits are caught, arrested and convicted
• Improved gender equity within organisation and specifically among staff under operations
• Kept gearing ratio under 50%

Challenges
Unlawful occupants on Transnet property
Vandalism, cable theft of infrastructure
Pipeline spillages
Cost cutting effects such as organisational brain drain
• Longstanding implications of state capture on the value and public perception of Transnet
• Market opportunities ripe for investment

Discussion
Mr N Dlamini (ANC) welcomed the report saying that it portrayed a positive picture. However, he wanted to see a comparison between the Transnet performance before Covid and immediately after Covid. The Committee had been expecting to receive an Annual Performance Plan (APP) from the Department of Public Enterprise (DPE) but they never received it which is why Transnet was the one presenting instead of the department. This had caused a lot of confusion building up to the Committee meeting. He questioned if the department could assume an oversight role over the various state-owned enterprises (SOEs) if it was unable to meet its own commitments such as tabling its APP as well as its budget.

About the Transnet properties, the report suggests that at some stage property belonging to Transnet had not been correctly valuated. Currently, the property valuation issue has been corrected. He stated that the fact that Transnet’s property had been valuated suggests that Transnet is able to determine all the property that is under its ownership which was important because that would mean that Transnet is able to identify their property that has been unlawfully occupied. He made an example of Durban, saying that Transnet property has been hijacked. He asked what measures would be put in place to evict the people who are unlawfully occupying the property.

On matters of Transnet Freight Rail (TFR) each time Transnet briefs the Committee it brings up vandalism and cable theft. Transnet’s complaints do not provide any relief towards the matter. He asked Transnet what they were going to do to solve the problem of vandalism and cable theft. What proactive steps were they going to take to ensure that this is no longer a challenge.

On Transnet’s financial performance, the report suggests that Transnet was saving by spending less and cutting costs through the Voluntary Severance Package (VSP) – a financial incentive offered to employees with the hopes that if they opt to take the package they will resign or retire. He asked what sort of impact the VSP has on the skills pool that remains in Transnet as most people who opt for the package are people with years of experience who have accumulated a lot of knowledge at Transnet. If Transnet lets these employees go, would they not face a similar situation to Eskom were due to lack of experienced professionals they have to beg previous employees to return. He asked if Transnet had a mechanism to retain the skills necessary to continue effectively operating. The report talked about revenue improvements and he asked if the revenue improvements reflect profit generated from savings rather than actual operations and how long it was expecting to preserve the savings.

On Transnet Pipelines (TPL) there is also theft of the pipeline. He was concerned that the Committee and the public had not received any information on what measures are in place to deal with this. On Black Economic Empowerment (BEE) the report suggests that over R29 billion has been spent on BEE initiatives. He asked for further information about the companies who were part of the BEE initiatives and what sort of employment these companies have created for the state’s job creation mandate.

The report suggests that Transnet will want to piggyback on the private sector for the programmes they have in the pipeline. He asked to what extent they planned on leveraging the resources of the private sector. To what extent Transnet was engaging about monopolies within the system? He referenced a case currently with the Competition Commission about a company that was given a 27-year concession basically to be a monopoly in the liquid petroleum gas industry. He requested insight on how monopolies hinder other businesses that seek to enter these very same markets and how this aligned with their transformation agenda.

Mr G Cachalia (DA) commented that 45% is a high gearing ratio. The gearing ratio looks at how much of the assets was financed from the company’s debt or alternatively from its equity. The higher the gearing ratio the more debt is being used to finance the company. He requested details on what measures they are taking to bring this within acceptable levels particularly given that 25% and below is considered low risk by investors.

On the loans from banks, he asked for details on the terms of the R1 billion repayment and when the next amount would be expected. He asked how much impairments and property valuations contributed to the profitability and the state of the balance sheet. The Committee had to bear in mind that these are accounting measures. He understood that if you bar these accounting measures, there would be a loss of R6.45 billion. He requested that they expand on the profitability without including impairments and property valuations.

Mr Cachalia asked how core aspects in the business would be funded. How would the scaling and financing of logistics and distribution networks using owned-assets and non-owned assets affect business performance? He asked questions about current private sector partnerships, pipeline security, the effect thefts and spillages have had on diesel reserves, how the shift from road to rail fits into the business’s strategy especially on the Gauteng-Durban corridor and if any party had been bought into the third-party access road-to-railway network, and if yes, then who.

He was concerned that operations at Transnet Port Terminals were below expectation and requested updates on plans to tackle this. He was curious how the business would secure further funding and where the funding would be allocated. Noting the adverse funding in procurement, he asked for the remedy for this and what consequences would be applied to those responsible for this. He requested the reasons the Transnet pension fund board members were being replaced and what board decisions would be taken in the interim by the depleted board. Was the pension fund being earmarked for any alternative uses? There was scant detail on security and requested a schedule of losses to enable comparisons in improvements. On infrastructure maintenance, he asked how much was required from government led funding.

Ms O Maotwe (EFF) said that she did not believe that Transnet had been doing well. If her questions were answered truthfully, they would expose the hypocrisy contained in Transnet’s financial report. She asked how far along plans were to enable third party access to the freight rail network. The report suggested that Transnet had generated R5 billion in profit after tax. She asked how they had generated this profit, and to clarify from where the sales came and which commodities contributed to the profit. What products was Transnet responsible for manufacturing and selling to the markets, who were Transnet’s customers and from which countries these customers came? She asked if there was any value adjustment to the property that was not declared, and if so, how much had not been declared. Transnet had poorly performed by spending only 1.6% of the training budget. She asked why it had underspent on training and how it planned to improve.

In 2012 Transnet spent R3.4 billion on maintenance, and since then it has been falling short on maintenance expenditure. On this point, she asked how the value of the assets had increased by R13.2 billion in 2022 when the spending on maintenance had been falling short since 2012. The fair value adjustment created the impression that Transnet’s operations are profitable when they are not. She asked Transnet how much they would need to spend to return the rail network to its 2012 condition since that is when maintenance spending peaked. This is in light of how dilapidated the network is today. On Transnet deferring its payments to creditors, she asked for the reasons behind the payment deferrals. She wanted an analysis of how late each payment to creditors had been and how much Transnet was owing its creditors.

Ms J Mkhwanazi (ANC) appreciated the presentation and the progress made by Transnet. One of the mandates of Transnet is to enable economic growth. She requested it elaborate on this mandate and the work it had done to improve on this mandate. How had the decline in global economic growth affected the implementation of Transnet's Africa strategy. She asked about its security plan in working with stakeholders and departments to deal with cable theft and vandalism.

She asked what Transnet was doing to secure its rail network which had been affected by vandalism and theft. She requested that the Transnet CEO speak about consequence management for irregular, fruitless and wasteful expenditure (IFWE) in the Auditor General’s report. What plans has the board in place to address the challenges faced by the operating division in this financial year?

On performance against the shareholder’s compact and the targets, Transnet achieved only 17 out of 44 targets. What was DPE’s plan to hold the board accountable and its oversight plan over Transnet. How would Transnet’s employee reduction assist or curtail the business to maintain its competitive advantage? Lastly, how would employee reduction affect the mandate of SOEs to address employment and skills development?

Mr F Essack (ANC) noted the extension in the duration of the debt portfolio. He wanted clarity if an assessment had been done on this extension and what the eventual impact on the balance sheet would be. How much does Transnet spend on external consultants currently?

Ms R Komane (EFF) said that what Transnet had suggested in its reports about the profits it had generated was contrary to what the National Treasury Budget Office had reported. The Office opposed the fact that Transnet had been making a profit. She asked for clarity about these contradicting reports. What were the terms were for the R1 billion repayment due to be paid by Transnet? What measures were in place to control diesel spillage? Little had been done to meet the target for the training budget. Since we are in a country with a skills shortage, why could it not meet the target? She asked what measures were in place to assist it to meet the training targets in future.

She agreed that the Committee could not celebrate Transnet’s performance after Covid and the Committee needed to measure and compare Transnet’s performance prior to and after Covid. Thereafter. Then should there be cause for celebration, the Committee would acknowledge it.

She reiterated the concerns about ongoing cable theft that Transnet was unable to resolve. She asked what it had been doing to prevent further cable theft. She inquired about the duties of the other security cluster role players including Eskom. On the illegal occupation of Transnet’s property, some of the claims about illegal occupation are not truthful as some were in fact not illegally occupied. Transnet was aware of this and it should provide a response. Lastly, DPE was not submitting its reports in time. She asked how the Committee could expect DPE which is failing to submit its reports, to perform oversight duty when unable to meet its own commitments.

Ms J Tshabalala (ANC) expressed her frustration about the power failures. She asked how the power failure challenge caused by cable theft and vandalism would be resolved in the current financial year. She requested a written strategy from Transnet that details its plan to deal with the matter. Also, she requested that Transnet explain how it intended to increase female representation in the operation division.

She stated that due to the inefficiency of the rail network, companies had resorted to shifting their goods from rail to road. She asked how Transnet was addressing this shift going forward in policy and practical strategy. How would Transnet ensure that the country moves from road to rail? On Transnet allowing third party access to its rail network, there has been criticism from the private sector that its third-party access policy is not aligned to government’s national rates policy. Also, the investment period of two years is too short to make significant returns on investment required. She asked Transnet to provide a reply to these criticisms.

The decline in global economic growth has affected the implementation of Transnet's Africa strategy. She requested it elaborate on the Africa strategy. She asked when the Transnet National Port Authority (TNPA) would have its own board members. She requested that Transnet inform the board of the challenges faced by the operating division during this year. How will it be addressed this financial year? The Committee had raised throughout their oversight about delayed procurement negatively impacting on the work environment of employees – had that been addressed? She asked what Transnet had done to ensure that the necessary funds had been invested into the aging infrastructure and midlife refurbishment.

Transnet was the property owner of the railway in Booysens, Johannesburg which was where her constituency office was located. There is an informal settlement in Booysens that has been taken over by foreign illegal nationals. What was Transnet going to do about this? She remarked that Transnet changed the officials it discharged to attend to the situation too frequently. This was an inconvenience because every new official did not have a good background on the issues and her office had to update new officials on the situation. Officials did not stay long enough to resolve the problem. She appealed to Transnet as this was property under its ownership so it had to assume responsibility over the property and for its maintenance and security. She asked Transnet to send officials who could effectively respond to the matter and provide a solution.

Mr S Gumede (ANC) congratulated Transnet on its achievement on the unqualified audit findings. Transnet, Eskom and Denel were the three entities which remained the pillars of the Department. If those three entities could improve then the image of the Department would change. Transnet was heading towards a positive goal and he was hopeful that the other two entities would produce positive results as well. Implementation always spoke louder than a good strategy plan. He requested Transnet expand on the consequence management put in place to deal with irregular, fruitless and wasteful expenditure (IFWE). He was wary of the fact that consequence management was a weak spot for Transnet because management appeared unwilling to discipline its members. He asked why this was the case. He stressed the importance of every organisation being able to self-ventilate its personnel, processes and practices to ensure good governance. He remarked that perhaps there are still remnants of state capture within Transnet which explained the lack of discipline measures.

He appreciated Transnet’s growth and renewal strategy but he believed that it spoke more about the involvement of the private sector. He asked if the increased involvement of the private sector was a way to make up for the implications of the cost cutting measures. It could be that Transnet is using small businesses to resolve the potential brain drain in Transnet as a result of cost cutting. If this is the case, the private sector would be the one mostly responsible for providing development of expertise and skills for the effective functioning of Transnet. He cautioned against this saying that it would weaken Transnet. He requested a collaboration between Transnet Engineering and Denel Engineering saying that this collaboration could boost the image of the Department.

Minister's response
Minister of Public Enterprises, Pravin Gordhan, provided clarification about the APP and the Annual Report. The APP was long completed earlier in the year and submitted to the Committee. What the Committee would be waiting for is the Annual Report for which the parliamentary deadline is 30 September. The Annual Report is ready but the department has not submitted it yet since it is not due. He cautioned the Committee not to create the impression that the department is not meeting its commitments.

About the strategy for solving the vandalism and cable theft, he replied that this is a matter that the state must deal with, particularly law enforcement. The South African Police Service (SAPS) and other law enforcement agencies of the state are making a serious effort to tackle the issue and the state is putting special measures in place to resolve this. In addition, there are parts of the network where the private sector is collaborating with Transnet particularly on the coal line and providing security assistance to prevent theft and vandalism.

The Committee should be aware that the Minister of Trade and Industry and Competition is also dealing with the question of the export of scrap material and under what conditions it should be banned. The matter was currently before Parliament but very soon government would be putting in place the necessary measures once public consultation had been undertaken. He suggested that all parliamentary committees work together to promote the ban on export of copper and other metals under certain conditions and to extend their support to the Department of Trade Industry and Competition’s (DTIC) new strategy on scrap materials. He was hopeful that once these measures were effected, they would make a big difference in curbing the market for stolen products. The South African Revenue Service (SARS) was also involved in alleviating this by ensuring that the ports of entry and exit in South Africa would have sufficient controls in place to ensure that these new measures would be properly implemented.

The transition from road to rail is an important policy area. His colleagues in Transnet would give a report on this. The transition had been disrupted because of the floods on one hand and the condition of the rail container line on the other hand. They were coming up with new ways on how best to adjust the container line to enable the road-to-rail strategy to work. One of the difficulties is that rail takes a slightly longer time to get a container from Durban to Gauteng than road would.

On third-party access and the two-year limitation, Minister Gordhan replied that benchmarking is being done in connection to this and he has encouraged Transnet to engage in negotiations so that they can find some understanding between themselves and those who are interested. He cautioned the Committee to be aware that different parties have different interests when it comes to an important issue like this. Some parties would like a complete free-for-all without limitations and other will approach the matter in a very different way. Ultimately a balancing of interests needs to be achieved.

The Minister referred the property valuation and the R5 billion profit generated to the Transnet delegation who would be able to give greater attention to this. He contested the proposition made by some Committee members who suggested that there was a mess at Transnet. There has been a systematic effort which will continue for the next few years to overcome the maleficent state capture which cannot be subdued overnight. There are various institutions in the country that are going through a similar process of rehabilitation, reorganisation and revitalisation.

About the security plan, he commented that this is not just a Transnet issue. This is a countrywide and government wide issue. He admitted that a lot more aggressive work had to be done by the law enforcement agencies to bring the culprits to book. About discipline management, the Department continues to hold the board accountable in terms of its performance. DPE would present a report on this in due course. He was not aware of any commentary by National Treasury about contestation around the profit generated by Transnet. If the Committee could provide the Department with material that indicated National Treasury’s proposition was true then he would set up the appropriate dialogue with Treasury to clear up the contradictions.

About a plan to tackle the power failures, he stated that the power failures are a frustration for everyone but there is no easy answer except that Eskom generation must do better at ensuring that the kind of mishaps they had at Koeberg power station in the last few days would be mishaps that are avoided going forward.

On the road-to-rail initiative, the N3 is becoming clogged with trucks carrying containers amongst other commodities and there was some urgency in dealing with this matter.

The Department has encouraged Transnet to venture into the rest of Africa. As far as the Africa study is concerned there are some very concrete results in Kenya and Kenya that would be elaborated on by the Transnet delegation. The delegation would also explain some of the challenges about fragmentation on the continent which prevents Transnet from expanding to the rest of Africa. There are areas where further cooperation would be required from different countries to make the expansion possible.

The Transnet National Ports Authority board is a matter that the Department is still attending to but hopefully in the next month or so DPE would be able to respond back to the Committee.

The Minister replied that Mr Gumede was right to congratulate the board and he had correctly identified Transnet, Denel and Eskom as the three pillars of the Department. There needed to be a sense of urgency to get these entities to operate in the right way. He agreed with Mr Gumede that plans do not produce outcomes but rather it is implementation that produces results at the end of the day. The matter of irregular expenditure is being seriously discussed between the Auditor-General’s Office, the Accountant General’s Office and various other role players because the concept is often abused to suggest all sorts of things.

In the case of SOEs that have been impacted by state capture, it was important that the Auditor-General ring fences past irregular expenditure that was undertaken during the State Capture period which will be dealt with in accordance with whatever prescripts apply at a particular point in time versus irregular expenditure within the current audit period. He believed there has been some movement on this which was positive news.

Mr Gumede was correct to imply that getting rid of one form of state capture did not mean that we have gotten rid of corruption. State capture and other forms of capture can be seen in different parts of the state. Individuals, entities and businesses attempt to extract as much as they can from the state in different forms and at different levels in order to profit and lead a grand life.

Mr Gumede’s caution about cost cutting was a valid one but at the same time what is needed is the right balance to ensure that the cost base of big entities is a manageable one and that an inordinate cost base would not impact negatively on the tariffs charged either to households or to businesses. The collaboration between Transnet Engineering and Denel was something that the Department was promoting and once discussions about this collaboration had advanced DPE would enlighten the Committee on the way forward on this collaboration.

Transnet response
Mr Popo Molefe, Transnet Board Chairperson, replied about the possible existence of remnants of a state capture within Transnet that it is not something that can be resolved overnight. Transnet is a commercial organisation and in dealing with the effects of state capture, one also had to be careful not to deal with the matter in a manner suggesting that the board and management do not trust the people who are in Transnet because this would create an environment of fear and panic and this would likely impact on the productivity of employees. The matter must be dealt with based on evidence. Should evidence emerge about implicated specific individuals, action would be taken. It was important to maintain a measure of stability in Transnet to enable effective performance.

Transnet is one of the leading organisations in promoting gender equity. If you look at the top structure of Transnet, the Group Chief Executive (GCE) is a woman, the Group Chief Financial Officer (GCFO) is a woman, the Transnet Head of Business Development is a woman. There are many more women who occupy leading positions in Transnet. He directed the Committee to the statistics in the report which demonstrated that 44% of top management employees at Transnet were women. If we compare the current statistics to where Transnet was four to five years ago, the Committee would realise that there have been significant improvements that Transnet has made.

Mr Itumeleng Matsheka, Transnet Chief of People Management and Learning, replied that the VSP process was started in August 2021 and the application deadline was September. There were about 2 669 employees who accepted the package and left Transnet but this was in the context of a staff headcount of around 54 000. The last cohort of Transnet employees to leave exited by the end of July. Most of the employees who left Transnet were train drivers. There have been programmes on the operation side such as the Transnet Academy that has been upskilling employees and this made it possible for Transnet to bring on assistant trained drivers who have been able to fill the gap created by employers who left Transnet after taking the severance packages.

On the exit of experienced people, the exits gave young people a chance to achieve upward mobility. For example, assistant train drivers were now able to apply for trained driving jobs. Transnet was able to create more jobs for South Africans because as more people moved up to more senior positions, Transnet was able to recruit and hire more people for the junior level positions. The effect was that this created greater employment opportunities.

On the amount spent on training, Mr Matsheka replied that in light of the social distancing measures for the pandemic over the last two years, training that required face to face sessions because of the nature of the work done by engineers, artisans, technicians and train drivers was compromised. Transnet was forced to come up with innovative ways to train people while still conforming to the Covid regulations. Licensing was not a big issue because Transnet kept constant contact with regulators, so Covid requirements were relaxed.

On the Public Finance Management Act (PFMA), Transnet was on top of everything because they had designed a process that distinguishes between performance related issues and dishonest transactions which the law tended to categorise as one and the same. They have detected very few cases of fraud and dishonesty however they are taking precautions by training their employees. Transnet had significantly reduced dishonest transactions from a disciplinary management stance.

On skills development, Mr Matsheka announced that with the advent of the establishment of an accredited Transnet Academy, it had a broader view on what kind of training Transnet required. It is accelerating the pace of its training and because of this he was hopeful that Transnet would exceed its training targets going forward.

To add to the Board Chairperson’s remarks about gender equity, Mr Matsheka announced that with the advent of the Transnet Academy, it had established several programmes focused on creating a solid benchmark within operations as this was an area that needed a lot of improvement. There are programmes in logistics such as Women in Operations, Young Leader’s Program and Supervisor Development Program among many other programmes. Transnet continues to emphasize the hiring of and promotion of women.

On consequence management and disciplinary action in the last three financial years, there has been 159 suspensions and of those, 91 employees were dismissed. The rest received different disciplinary actions such as suspension without pay and 12 months written warning. They must balance their approach against people development.

Mr Andrew Shaw, Transnet Chief Strategy and Planning Officer, replied where Transnet stands with respect to the strategy and particularly private sector participation (PSP) transactions that have been initiated across Transnet, the nature of transactions in all instances are partnerships. Partnership was a kind of transaction that had the potential to bring real value to Transnet. Pursuing this kind of transaction required Transnet to go through a process of engaging with the markets, identifying what was in the best interests of both parties and concluding a fair and transparent process. This takes time but they are trying to move as fast as they can within the constraints of government processes. The focus on the products Transnet intends generating revenue on includes automotive containers, coal iron, manganese chrome and magnetite energy, gas and agriculture.

Transnet had several transactions in the container market. They saw the container market as relating back to the road-to-rail strategy. The container market was an area where Transnet wanted to work more closely with the private sector because the private sector through shipping lines, through the logistics service providers own the freight rail transit and its often moved within the container. Transnet wanted to move within this community in such a way that they have a real benefit to their own supply chains by bringing some of the freight onto their rail network into some of Transnet’s hubs and ports. He mentioned two port-related PSPs, the first being the Devon container terminal port and the second being the Coega container terminal. In both instances Transnet has progressed quite far. They have gone through the request for information process (RFI). They have a shortlisted bidder list, and they are progressing as rapidly as they can.

On third party access, he noted that they have third party access on three key corridors. The first is Gauteng to Durban. The second is Gauteng to East London and the third is Gauteng to Gqeberha. In all instances Transnet had received several interested submissions from the private sector. So there is interest. On the two-year rule, Transnet manages the two-year rule based on what has been done internationally. They see a lot of real opportunity of bringing freight back to rail by involving third party providers which is a key part of the strategy. It aligns completely with the White Paper on Rail Reform and they have seconded four people to the Department of Transport to assist in managing the process of developing an integrated rail plan which demonstrates their commitment to the process.

In respect of iron ore, Transnet is in the wagon market, with a considerable number of wagons within the iron ore corridor. This would be a way of generating significant returns to Transnet particularly because there is a lot of interest from the mining community. Transnet would invest the returns generated elsewhere.

Mr Rudzani Ligege, Managing Executive at Transnet Freight Rail, replied that Transnet had been greatly affected by cable theft in a few of their own corridors. 44% of the incidents in the country are happening on the Container Corridor which starts from Durban all the way to Johannesburg. The corridor is a strategic line that connects the two big economies being Gauteng and Durban. 30% of incidents take place in the North Corridor which starts from Lephalale all the way to Richards Bay. This corridor carries coal which is the biggest contributor to Transnet profits. The Central Corridor is the third corridor that experiences incidents. This is the central most part of Johannesburg which plays a vital role in connecting all the other corridors.

In attempting to resolve cable theft, Transnet is thinking about introducing penalties and incentives that reward service providers contracted with to provide security when they do a good job or enforce repercussions when they fail to secure the corridors. Transnet refers to this solution as outcome-based security. Another solution being adopted is the Essential Infrastructure Task Team that operates in all provinces. The unit deals with the security of all infrastructure and it is a collaboration with other key organisations like Eskom. Transnet is also a chair of the Infrastructure Crime Forum which facilitates the collaboration of important stakeholders to deal with crime. Transnet’s customers also assist with security related issues. Technology such as drones have been used as well to deal with the issue.

Transnet had seen a drastic drop in cases of vandalism and theft on a general level, but despite this they were still being affected by vandalism and theft in very critical areas and this severely injured Transnet. The vandalism of locomotives was also a very big issue. Transnet was coming up with new technology that would protect vulnerable aspects of infrastructure such as casing the covers of batteries. It is also creating quicker incident response measures by making service roads more accessible. Service roads are the roads that run parallel to the railway line. Transnet security officers were granted peace officer status by the Minister of Justice and Correctional Services on 5 August. This means that Transnet officers can make arrests which will assist the National Prosecuting Authority in bringing culprits to book. The officers are also able to open dockets and assist in investigations. It creates internal capability instead of simply relying on national law enforcement.

Ms Nonkululeko Dlamini, Transnet Chief Financial Officer, explained the Transnet PFMA exemption on irregular expenditure disclosure notes in the annual financial statements (AFS). What it means is the reporting of irregular expenditure was still as detailed as it was when Transnet had previously reported on the matter. In the Annual Report submitted to the Portfolio Committee has two books. One book is called Financial Statements and the other is called Integrated Report. On page 121 of the Integrated Report, Transnet had disclosed all the IFWE that occurred in the financial year instead of in the AFS. Transnet’s focus going forward would be to ensure that mechanisms that safeguard against irregular expenditure would be strengthened.
- On the debt portfolio, slide 25 of the presentation reflected the profile of Transnet’s debt and when it matures. The information in the slide was split into two parts. There was a graph that monitors the monthly and yearly debt payments due as owed on 31 March 2021.
- On the gearing level, this is an area that Transnet is continuously focusing on. She stressed the importance of raising money from the balance sheet and off the balance sheet to ensure that they can comply with the economic requirements of the capital expenditure required by the country. Transnet is working on remaining within the 40% to 45% gearing level and not exceeding 50%.
- On consultant expenditure, she remarked that that was an area that Transnet was closely monitoring but page 59 of the presentation slides indicated that there had been a reduction on the expenditure of consultants.
- Transnet had a requirement that every three years the Transnet pension fund board members had to be rotated. The board was composed of labour colleagues as well as management. The rotation of the board members was in line with the rules and requirements of the pension fund.
- On the impairment numbers reported for the current year, impairments are not something that Transnet likes to see on the AFS but when trains are derailed and damaged, they had to remove them from their balance sheet because they were no longer worth the value, and this resulted in Transnet impairing the number.
- On the profit generated, slide 23 provides details on the R8.7 billion losses. Straight arithmetic of R6.5 billion is not correct because if you look at the losses Transnet made in 2021 there was a significant portion of provision for security in the pipeline and other areas and that was a cost that Transnet was going to spend. A lot of work had taken place in the new year on pipeline security such that the damage that would have been caused in the environment – with the security measures put in place – had reduced so Transnet did not have to repeat those provisions. That was an improvement in the financial performance before considering the work done in the valuation of the property portfolio.
- The deferred payment of creditors is not in the AFS as a stand-alone item. They had a process of making sure that they manage their working capital to ensure they can collect their cash as quickly as possible.
- The average payment days for Transnet suppliers is around 23 days.
- On the terms of the R1 billion, Transnet engaged lenders on the borrowing terms and negotiated with lenders keeping in mind Transnet's balance sheet, credit risks and then they would decide on a benchmark for the right price that should be charged.

Adv Michelle Phillips, Chief Executive Officer at Transnet Pipelines, spoke about Transnet’s environmental programme which had been influenced by the security strategy. This was if Transnet invested on security measures such as spending money on protecting the pipeline, this would prevent damage to the pipeline and prevent the environmental damage resulting from spillage which has been an ongoing problem over the past three years. By changing the strategy to integrate security measures to protect the pipeline, tightly managing service providers, employees and maintaining a close relationship with the Environmental Affairs Department, Transnet has been able to save an excess of R1.3 billion

She offered a comparison of the amount of fuel transported before, during and after Covid. Before Covid TPR was moving 16 billion litres of excess fuel. During Covid TPR moved 13 billion litres and after Covid Transnet has since recovered the excess, moving around 15 billion litres. In the next year she predicted Transnet would be moving back to pre-Covid levels of 16 billion litres, but this would increase the risk of Transnet as a target for vandalism and theft. In response to this risk, Transnet would plan to tighten security measures. Transnet had recorded successful arrests of perpetrators of theft and vandalism with 36 arrests over the last two months. They had not been as fortunate in terms of convictions. Out of 186 arrests only seven convictions had been achieved. They had been engaging with prosecutors and the Hawks in order to increase convictions. They were also trying to establish a tribunal which would specifically deal with matters related to infrastructure vandalism, destruction and theft.

Mr Kapei Phahlamohlaka, Chief Executive Officer at Transnet Property, replied on the measures in place to evict unlawful occupiers of Transnet property. When property becomes vacant, it becomes ripe for illegal invasion. So one of the security measures applied to tackle the matter is to try and not leave property vacant. When property is forcefully occupied, Transnet will open a case and once the property becomes vacant, security will be employed to occupy the property and ensure that is protected from unlawful occupation. It does happen that unlawful occupiers intimidate security officials that have been placed on the property. In such instances, again a case is opened, and culprits are taken to court as a matter of urgency.

He cautioned the Committee to remember that in South African law evicting people without a court order is something that the courts frown upon. So Transnet tries always to follow the proper legal procedure when evicting unlawful occupants. He referenced the recent court case where Transnet managed to get a court order to evict the unlawful occupiers. After the court deciding on the matter, Transnet engaged the Department of Human Settlements which is currently looking to acquire the property from Transnet to accommodate the former occupants. Some of the property under Transnet’s ownership is occupied by Transnet employees and retirees. It is trying to sell the properties to the employees and retirees so that the occupants no longer continue to stay for free.

On the unlawful occupation of Transnet property at Booysens, most of the people are undocumented foreign nationals. Transnet has been working with the City of Johannesburg to remove the occupants. Transnet wanted to build a wall to create a separation between the railway line and the informal settlement so people are protected from the passing trains. The problem is that people refuse to vacate the railway line. The City of Johannesburg has identified land where they can relocate the occupants encroaching on the railway line. Unfortunately, relocating people will require certain extensive documentation and bureaucratic red tape because the occupants are foreign nationals.

Another problem is that the occupants do not want to move to the new alternative accommodation because they reason that the alternative land is too far away, so distance is an issue. Another reason they give for refusing the relocation is verification. Transnet is prepared to make itself available to engage on the matter and negotiate a way forward, but the City must come to the table as well because it has certain capacity that Transnet does not have such as bringing law enforcement during the verification process. Once the occupants are relocated Transnet is committed to building parameters that will separate the railway and the settlement.

Property valuations were a continual process. In the past property was evaluated by Transnet internally. Currently, external auditors conduct valuations. The Auditor-General did not want to accept valuations done by Transnet internally so independent valuators were employed to verify the numbers. The Auditor-General also appointed their own independent expert to review the valuations. Going forward Transnet will continue to appoint independent valuators. Transnet is on a procurement process to appoint valuators for a three-year term.

Ms Portia Derby, Transnet Chief Executive Officer, replied that in internal operations women represented 32% of all employees. She replied that Transnet may not be at 50% but for a very labour intensive and capital equipment intensive operation they were doing very well. She told the Committee to bear in mind that Transnet had to also consider their male colleagues as well.

On security, Transnet was ensuring that they increase their engagement with communities. The new tender that TFR has issued is an outcomes-based tender. The nature of the tender is such that Transnet will be looking at success and no longer looking at how many helicopters, vehicles, and guns are needed, which means that for the first time community-based security companies are going to make sense as being integrated as part of the Transnet system. Community-based security would also be an advantage for the purpose of accumulating real-time intelligence on security threats.

On third-party access, with the introduction of the new transport economic regulator, the governance of the rules for third party access were now going to be directly under the oversight of that regulator. Transnet would still be working very hard to create the ecosystem that will allow a vibrant market for third party access.

On infrastructure and maintenance, since 2012 to 2022, Transnet had spent R32.9 billion on maintenance on the infrastructure side. They spend R1.5 billion on capital equipment maintenance. She admitted that this was not enough for what they had to do. On an annual basis, in the case of infrastructure, they should have been spending between R7 to 9 billion a year. Transnet was nowhere near that amount. They were around R3 billion. This was the reason that they had a very active programme where they were talking to both the Industrial Development Corporation (IDC) and the Development Bank of Southern Africa (DBSA) to see how Transnet might be enabled to fund the rest of the maintenance they have undertaken. On the impact of BEE spend, she replied that they would make the information available.

On Transnet Engineering as well as Transnet TPT, Transnet was looking at establishing master agreements with the original equipment manufacturers (OEMs). The advantage of doing this means that Transnet would have consignment stock in South Africa, especially for imported componentry. It also means that when there is a technical maintenance issue that must be undertaken, the OEMs would be available on the ground to provide immediate support. This support is critical because one of the major things is that it is too costly to have a ship-to-shore container crane which is out of service. This crane is a type of large dockside gantry crane found at a container terminal for loading and unloading containers from ships. The ship to shore crane costs Transnet every hour in revenue loss if it is not operational. So culture change and getting everyone to understand that we must shift our gear towards ensuring that all the equipment we have is operational. Every day that it is not being used either leads to an impairment on the one hand on the other hand, worst-case scenario, is that Transnet continues to pay the loans it would have incurred.

On the 27-year LPG concession agreement Transnet has given to a player, she replied that it remains one of the most difficult situations to ensure that there can be third-party access. In the new Richards Bay terminal where they were looking at edible oils import, Transnet would ensure that all third-party open access infrastructure would be owned directly by Transnet so they have direct control in connecting any other customer who wanted to connect on the system. She admitted that one of the problems TPA must deal with is to ensure that when it gives a private sector party licence to operate an open access facility, TPA needed to have direct access to the metering equipment along with the third parties so that when a party asked to use the capacity, Transnet would be able to verify if indeed the capacity was fully utilized or not. At present this is not something it can do.

The Chairperson thanked the DPE and Transnet for the engagement.

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