Transnet 2020/21 Annual Report

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Public Enterprises

08 December 2021
Chairperson: Mr K Magaxa (ANC)
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Meeting Summary

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Annual Reports 2020/21

The Portfolio Committee met on a virtual platform with the Executive Board of Transnet, for a briefing on the entity’s annual report and financial statements for 2020/21. In general, the presentations indicated that Transnet was in trouble, with many of its divisions experiencing problems related to under-capitalisation and the COVID-19 pandemic. Its revenue had dropped by about 10.5%, from R75 billion in the previous year to R67.3 billion in the 2021financial year, while its operating costs had increased by 16.2% to R47.8 billion. Considering the reduction in revenue and increase in expenditure, there had been a significant reduction in its operation earnings, which had resulted in a net loss of about R8.4 billion compared to the previous year’s profit of R2.9 billion.

Various factors had contributed to this. One was the effects of state capture. It was made clear that Transnet had hardly had qualified audits in the years before state capture, and the present financial statements were evidence that remnants of state capture still affected its performance. In addition, procurement through “middlemen” who placed their mark-up on the prices of products and equipment, had increased the company’s expenditure. Vandalisation of Transnet property -- which included the theft of cables and the damaging of railway lines -- had added to its challenges, and made security a problem. It was using private security, and this also added to its costs.

Despite this, the Executive Board was optimistic about the future of the entity in the following year. Given that full vaccination across the globe meant the opening up of economies, Transnet's services were going to be in demand again. The engineering division, despite its challenges, had managed to initiate significant innovations that would have a favourable long-term impact. These had included the use of old compressors to fit the new Chinese locomotives. These spares were difficult to procure from China, and an innovation of this nature improved efficiency.

Although some Committee Members said the performance of the entity had been fair, others disagreed and called for action to be taken against the management, saying that it lacked the capacity or knowhow to lead an organisation in the logistics sector. One asked why many of the executive members, at one point, had been officials occupying high positions in government departments in the past. This comment sparked debate about “cadre deployment” in the company.

However, the discussion moved towards suggesting that the Executive Committee was new and had to be granted time before its performance could be judged. In fact, there was consensus that the new Group Chief Executive had demonstrated a good understanding of what she was doing. It was agreed that Transnet was the backbone of the South African economy, and it was therefore important to assist it. The Chairperson remarked that there was need to meet with Transnet more frequently to ensure it did not suffer the same misfortunes as other state-owned enterprises, like Denel and South African Airways. 

Meeting report

The Chairperson said there were several issues that he wished Transnet to address in the meeting. These included the impact of subsidisation of the entity by the National Ports Authority (NPA), the cyber attacks on its systems and its recent announcement to retrench about 10% of its staff. The Committee believed that Transnet was still the backbone of the country’s economy and could not afford to have its efficiency compromised. He asked Mr Kgathatso Tlhakudi, Director-General (DG), Department of Public Enterprises (DPE), to provide his opening remarks.

Mr Tlhakudi said it had been a very difficult year for Transnet. It had been exposed to the economic cycle, coupled with the impact of the pandemic and other challenges, like the safety of its infrastructure, that had a direct impact on the performance of the business. The executive team had also had to contend with historical malfeasance in the business. As would be shown in the presentation, the figures from irregular expenditure had impacted the entity’s annual performance. This was an area that needed to be closely monitored to ensure that the burden of the past did not impede the performance of the current team. However, despite all these challenges, he believed that a good baseline had been set by the team for better performance going forward.

Dr Popo Molefe, Group Chairperson (GC), Transnet, began by discussing the effects of state capture. Although the topic was slowly beginning to sound like a broken record, its impact had been devastating to Transnet. This would be evidenced by the report to be presented by the executive team. For example, the entity’s operational performances were linked to the contracts that were founded during that time. Consequently, the contracts concerning the procurement of locomotives did not include the maintenance of equipment. The other issue was the large costs of procurement. It had dug deeply into the company’s financial resources, so that there was no longer money to rehabilitate the infrastructural networks which the newly acquired locomotives were supposed to operate on.

He said such problems had not arisen only between 2013 and 2014. For decades, maintenance in the company was neglected. The constraints imposed by the Public Finance Management Act (PFMA) on to the company’s ability to compete with the private sector added to its challenges. However, notwithstanding these factors, Transnet had begun the process of implementing private sector participation (PSP) in the investment of ports and adhering to the Department of Transport’s (DoT's) requirement to open rail branch lines. This strategy had reduced the company’s financial constraints on infrastructural projects, because PSP had availed financial resources that were not available at Transnet.

Dr Molefe also stated that the company’s procurement challenges stemmed from the use of “middle-men.” The stipulations were that the procurement of the port’s equipment had to be acquired through “local content” means. This, in effect, meant that these goods had to be manufactured in South Africa. However, the local content requirements now included the procurement of equipment by state-owned enterprises (SOEs) from middle-men. This system had resulted in more challenges, because these middle-men implemented mark-up pricing to the goods in question. As a result, Transnet was paying more for these products. The entity was now in talks with the Department of Trade, Industry and Competition (DTIC), the DPE and National Treasury (NT) to address this matter.

He said the vandalism of Transnet’s infrastructure had to be addressed, and that the Committee’s collective wisdom was needed. The Transnet National Ports Authority (TNPA) had been corporatised and turned into an independent subsidiary of Transnet. This had effectively eradicated the issue of balance sheets that had caused problems in the past. The TNPA now had its own subsidiary board.

The Chairperson thanked the GC for his insights and asked the executive team to proceed with the presentation.   

Transnet Integrated Report 2020/2021

Ms Portia Derby, Group Chief Executive (GCE), Transnet, said the presentation was divided into two segments, with the first providing an overview of the of the 2021 financial year and the other, led by Ms Nonkululeko Dlamini, Group Chief Financial Officer (GCFO), covering the entity’s financial performance.

In terms of the company’s strategic review, nine products -- including iron ore, coal, chrome, manganese, automatises, fuel, chemicals and natural gas -- contributed 80% of the company’s revenue. The other area that the company hoped to include in its strategic approach was agriculture. The company was working closely with the sector to ensure that it met its requirements, particularly at the ports, and to find rail transport solutions which were cost effective and efficient. The main challenge within the sector was that it was time sensitive. Unlike other commodities, agricultural produce needed a fixed schedule which, at this point, the company could not provide. It was far from this level.

The 2020/2021 global economic contractions had also had an impact on Transnet’s performance. This included the recent imposition of lockdowns and restrictions around the world as a result of the outbreak of the COVID-19 Omicron variant. The government stimulus programmes instituted in the previous year also did not meet the expected outcomes in the company. This was coupled with the country’s relegation to “junk status” in 2020, according to Moody’s rating. This meant that the economy was no longer investment grade. However, the future seemed to present hope for the company. With the vaccination programmes rolling out gradually, Transnet was in a position to bounce back. This was because a successful vaccine roll-out in different parts of the world meant there would be few lockdowns and restrictions.

The rising unemployment levels in the country remained a noteworthy problem. 74.4% of the youth were without jobs. This not only had a negative impact on Transnet, but on the economy as whole. This was because economic growth included aggregate demand, and not exports alone. Given such high levels of unemployment, aggregate demand would remain low. In addition, manufactured exports had fallen by 5% due to lockdown measures. Notable products were vehicles, steel and petroleum. Petroleum was perhaps the hardest hit by these restrictive measures, as its demand had plummeted significantly because of restrictions on movements -- borders were closed and flights in and out of countries were barred. The domestic lockdown added to these challenges. Consequently, the revenue of the company was negatively affected. Due to financial limitations, the company could not invest in the rehabilitation of equipment and maintenance. This was the reason why strategic partnerships were important to help Transnet overcome its shortcomings by bringing more money for growth opportunities, and not just servicing debt.

Summarising the performance of the company’s individual operating divisions, she said Transnet Freight Rail’s (TFR's) revenues were just under R39.5 billion. The company also reopened the loop for time lengths. This had improved the speed and service delivery to the auto industry and reduced the route by 60 kilometres. Apart from this, cable theft remained a serious problem - this one of the company’s priorities, especially amidst its objectives to improve the reliability of rail and attract more cargo from road transportation to the railways.

There were more collaborations regarding supply chain solutions for port facilities and improved terminal utilisation. In this endeavour to foster growth-enabling partnerships between Transnet and its customers, there were a few clients who owned their own wagons. The entity was actively looking to increase the number of such customers, while ensuring that it did not prejudice the operations of black economic empowerment (BEE) companies, or new entrants who did not own wagon fleets. This strategy was useful because it freed up the money that the company required, enabling it to continue with its maintenance programme, thereby increasing the infrastructure available for operations.

The engineering division, on the other hand, as evidenced by its financials, was in trouble. This was partly because there was no manufacturing work. However, it did record successes in the financial year. This was because the port hauler, equipment previously imported, was in the process of being commissioned. The entity was looking forward to getting an order from Transnet Port Terminals (TPT). The engineering division had also been able to introduce innovative solutions for spares. This was the modification of old compressors to fit the new Chinese locomotives. Transnet had also secured a contract to supply 300 wagons, to the value of R360 million, to CFM Mozambique. Mozambique was a crucial partner to the entity. For the magnetite and chrome exports, it was the shortest route to the port.

Transnet's 2020/2021 financial performance

Ms Dlamini said Transnet’s revenue had declined by about 10.5% to R67.3 billion in the 2021 financial year, compared to about R75 billion in the previous year. Its operating expenditure was R47.8 billion, which was an increase of about 16.2%. Considering the reduction in revenue and increase in expenditure, there was a significant reduction in earnings before interest, depreciation and tax, which in effect reduced the company’s operation earnings by about 42.8%, to the level of R19.5 billion. This had resulted in a net loss of R8.4 billion, compared to the previous year’s profit of R2.9 billion.

The company continued to utilise money from capital markets to ensure sustained operations. It also reported gearing levels of 48.7% in the previous year, which was within the desired range, although these figures could be improved. The cash-interest cover ratio was also closely monitored because in raising funds from the capital markets, there was a need to ensure that the interest accumulated was covered by the money that was generated from operations. Therefore, the desired ratio was 2.5 times at the minimum, and comfortable at the level of about three, but with the entity’s current performance, cash interest coverage had dropped to two times.

The financial performance of the company was affected by issues from the past. These included some of the provisions that the company had to make in relation to third party claims. In addition, the COVID-19 pandemic’s impact and security problems stemming from socio economic issues related to cable theft, had had an impact on the railway line. This had a “double whammy” effect, because of the addition to the security expenditure; Transnet had to also spend on rehabilitating the infrastructure. It was also facing overdue debts from its clients. This had reduced the amount of funds available for the company’s operations.

The interest rollovers had resulted from the debt that was accumulated over the years, since between 2012 and 2013. Consequently, Transnet had to service this debt while trying to raise new debt for its operations and capital expenditure for infrastructure. A process of “stepping back” during the national budget was hoped to be adopted by Transnet, to minimise its requirements and avoid any expenditure that was not needed. Instead, it hoped to provide for the requirements that would assist Transnet to perform and improve. Therefore, cleaning up the balance sheet was a priority, while at the same time restructuring debt.

About 51% of the R47.8 billion reported in the financial year had covered personnel costs. The company also spent a large amount of its funds on electricity and fuel. Apart from the many financial problems that the company experienced, its assets had depreciated and to sustain this growth, there was a need to ensure that its infrastructure was up to standard. It was comforting that the company had not obtained a qualified audit in this division. However, the company had received qualified reports in other areas. Up to 2018, the entity often reported clean balance sheets and did not get qualified audits. It was after 2018 that this situation had arisen, amidst the period of state capture. Action had therefore being taken to address these effects from the past.

The Chairperson thanked the delegates from Transnet for the detailed and comprehensive presentation. It had provoked a lot of questions. He opened the meeting for discussion.

Discussion

Mr N Dlamini (ANC) said some of the challenges mentioned by the GCE in her last remarks were partly due to decisions around the allocation of funds to Transnet by the government. Although there were some well-founded reasons for limiting funds to SOEs, problems like mending the conveyor belts and the subsequent fires were consequences of such decisions. Although Mr G Cachalia (DA), when granted his turn to speak, was going to paint a very bleak picture about the state of affairs at Transnet, a close look at the financials showed that not all divisions were incurring loss. The Transnet Port Terminals (TPT) and engineering divisions seemed to be the ones under-performing.

Considering that the TPT division also dealt with pipelines and the transportation of commodities like fuel and gas, security was bound to be a contributing factor to its problems at some point. People had resorted to the use of trucks, maybe because Transnet’s pipelines were no longer as safe as they ought to be. Instead of relying on private security, it was probably time to revert back to the old system, where arrangements were made with the South African Police Service (SAPS) to protect the country’s rail and pipelines. It was possible in the future for Transnet to report that its sub-contractors were connected to the stealing of cables and railway lines. This would make sense, because the basic principle in business was to create demand. He added that the looting of ammunition in a warehouse in the Mobeni industrial area, KwaZulu-Natal, showed the sensitivity of security. Because of this incident there were more guns, unregistered and unaccounted for, in the townships. 

Mr Dlamini said that the railway issue was still a mystery, because the recent Budget speech delivered in Parliament suggested that there was a move to allow the private sector to take over the railway networks. The modalities of how this was going to be executed was yet to be shared. The Committee was going to monitor these developments and evaluate how this move was going to help the country and, most importantly, Transnet in its operations. Apart from this, Transnet was on the road to recovery. Once the ports in Durban were expanded, and the city successfully transformed into the gateway to Africa, jobs would be created from both local industries and vessels transporting cargo to the continent.

Mr Cachalia said Mr Dlamini’s comments referring to him were out of place and not constructive. Contrary to Mr Dlamini’s claims, his questions, as always, were going to be presented in the spirit of responsible oversight, and in a constructive manner to ensure that questions concerning matters important to the country’s economy were effectively answered.

In the first question, he referred to the Transnet report from the previous financial year, and asked how it hoped to achieve its goals. In this report, the company was described to be well positioned to become an agile and trustworthy freight transport service provider and logistics partner, but this had not happened. Despite the well appreciated and detailed presentation, there was an insufficient explanation of how this was going to be achieved against the downgrades to junk status, the company’s investment paper procurement protocols that fostered inefficiencies and inflated costs, the loss of vantage to road transport in terms of volume, efficiencies and technology, and matters beyond the company’s control like economic stagnation, zero effective capacity of safety and security operators to stem theft and vandalism. He also said that the R8.4 billion revenue loss and impairments referred to in the report -- if taken against the previous year's profit of 3.9 billion, plus the loss incurred in 2021 -- would still result in significant losses within the range of billions.

Mr Cachalia asked if the decrease in revenues was due to volume or price. Considering the impact of the COVID-19 pandemic and the reduced economic activity, it was probably volumes which had gone down. If it was volumes that had decreased, were operating activities and costs not supposed to similarly decrease? He asked for clarity on why operating expenses had increased by more than 10% after inflation, while revenues had decreased by 10%. Regarding the qualified audit, he understood that the Public Finance Management Act (PFMA), and other related regulations, placed very difficult conditions on the operating environment, so many qualifications were recorded because of formalities. These qualifications were often unrelated to the substance of the business. However, were there any qualifications which the executive board regarded as a concern for the company’s business and its integrity?

He asked why Transnet had not procured a fleet of trucks to complement its rail services, as it was an integrated logistics chains business. Did the company view investment in infrastructure as an integrated decision across the three value chains of pipelines, ports and rail, or were these decisions made on an independent basis? To what extent were the three value chains supposed to be managed separately? What was the rationale to keep these three vertical entities under the same management, and to what extent was the company willing to allow the private sector to invest or co-invest in the company?

Mr Cachalia asked the presenters to define “rail friendly”. What kind of freight was classified as suitable for rail or road transportation? He said the demand-led strategy had been implemented ten years ago, but with no success. What had changed in this regard? How many employees were within Transnet’s engineering division, and how were they going to be reduced or redeployed if the company did not have work for them?

Concerning Transnet Port Terminals, he asked how many container moves the company was achieving, and how this compared to best practice. What was the total space available at terminals for containers, and what was the average duration of a container in the port? What percentage of containers moving in and out of South Africa was transported by means of rail versus road? It was odd for Transnet to ascribe volumes moved to the Transnet National Ports Authority (TNPA). Why did the presentation present the authority as if it was the operational unit? Was this simply a mistaken narrative, or was the TNPA viewed as an operator by the company? If so, where was the borderline to TPT? If this borderline was ill-defined, it partly explained the sub-standard performance.

He asked if ports in South Africa were managed as a single unit, or if they had been set up in competition with each other. What was international best practice to achieve high performing ports in this regard? What was the rationale behind returning operations back to the Carlton Centre, after moving to Waterfalls for security reasons associated with the former premises? Had the safety matters been attended to, and what had the cost of moving been? How big was the head office payroll, and what was the total consulting group spending per annum?

Mr Cachalia recommended that rail, ports and pipelines be managed separately. It was more efficient this way. He gave the example of the Canada Pacific Railway, where the management team was replaced by people with deep railway expertise and track records. This had reduced the operating ratio from above 80% to below 60%. He asked if Transnet was employing this kind of expertise, or continuing with deployment. If so, why was the company not following the widely known Hunter Harrison example?

Finally, he said growth was a key metric in Transnet’s strategy, but it was not a listed company. Growth required money and Transnet did not have much of this resource. He suggested that the company needed to focus on delivering public goods efficiently. It had to be measured with transportable gross domestic product (GDP) -- the logistic costs as a percentage of transportable GDP. This would help disaggregate the relative advantages of rail versus road. What was the company’s net promoter score (NPS)? What was its target and was the company still measuring it? And if not, what was the reason? What was Transnet Freight Rail’s (TFR) operating ratio, which showed the efficiency of a company's management by comparing its total operating expenses to net sales? What was the trend, and how did it compare to benchmarks? He proposed emailing additional questions to the GCE for ease of answering.

Ms O Maotwe (EFF) said because the presentations had been too long, very little time was left for the Committee to receive concrete answers for its questions. Overall, she was dissatisfied by the state of affairs at Transnet because of its revenue loss of 10.5% and the net loss of R8.4 billion, among other things. This was evidence that the company’s strategy was not working. It was time for it to seek revenue outside the Southern African Development Community (SADC) countries. In the past, projects had been identified in Ghana, Nigeria and Senegal. Was it not time to revisit these projects? She asked why the Transnet Strategy 4.0, approved in 2017, had been abandoned. The presentation had hinted at efficiencies in the Durban ports, a matter that should have been covered by the Transnet Strategy 4.0 -- a programme duly approved by the board.

Recently, Transnet had lost a case against the Newlyn Group, where it was alleged Mr Siyabonga Gama, former Chief Executive Officer, was accused of fraudulently signing the contract. The court had dismissed these claims and stated that the evidence had been unconvincing and false. How many contracts like these had not been successfully implemented due to such petty suspicion? Perhaps the culture of fear and indecisiveness brought in since 2018 was what prevented the company from moving forward.

Ms Maotwe asked why the company provided severance packages indiscriminately. The package was being granted without regard for the skills required to take the company forward. Did the Executive Board know which skills were required for the company to succeed in the future, because Transnet was letting go of skills that were responsible for the company’s high levels of profit in the past.

Evidence from the presentation showed that most containers in the ports arrived through road transportation, rather than the railways. Why did the company not actively try to bring containers back to rail transportation? These were the things the company needed to leverage on, to realise profit.

Finally, she vehemently expressed her lack of trust in Transnet’s chairperson and the GCE. They lacked the capacity to run the entity. For the first time, Transnet had recorded such a huge loss. For this reason, she recommended that they both resign.

Ms C Phiri (ANC) applauded the presenters for providing a detailed and comprehensive report, and said they had demonstrated profound understanding of the environment they were working in. She particularly praised the GCE for making the presentation easy for the Committee to understand. She asked how the company sought to address the question of gender balance. Currently, the representation of women was far from the desired 50%. This also applied to the representation of people with disabilities. How would the Executive Board seek to address the rapidly decreasing revenue. The presentation also showed that there were recurring issues concerning non-compliance to legislation. What was the company’s consequence management strategy if these matters were the result of human negligence in the management of its finances?

Ms M Clark (DA) asked how many locomotives the company had in stock that could not be repaired. What steps had been taken to address the repair and servicing these locomotives? Due to the suspension original equipment manufacturers' (OEMs') contract, what was the progress in the 1 064 locomotive tender with regard to fraud and corruption? How many officials had been found guilty, and what was their status in respect of the financial value outcomes? Were they going to pay these funds back?

In light of the inefficiencies in the rail network, and the subsequent shift of companies to using road transport, what was Transnet doing to ensure that rail networks became safe and attractive again? In addition, how did the company intend to make railway transport competitive in the market? What measures were the company staking to secure its railway network that had been affected by vandalism and theft? What were the financial losses due to the vandalism of railway networks and Transnet’s infrastructure in general? She gave the example of Katlehong station, a fairly new building that had been vandalised to the ground.

Ms Clark asked what Transnet had done to deal with continued breakdowns and upgrades of current ageing infrastructure? Did it have sufficient funds for this process, and when was it going to address this issue? In addition, what was the estimated cost of such a programme? How did the company deal with the continued field equipment theft, and how many cases of such theft had been opened and successfully prosecuted? What did these incidents amount to in terms of financial losses? She asked what consequence management strategies had been instituted against the perpetrators of irregular, fruitless and wasteful expenditure? On this matter, she requested a report to be sent to Committee for it to have a detailed breakdown.

She asked what corrective measures had been implemented to address shortcomings within internal controls. How did internal controls hope to reduce fruitless and wasteful expenditure? What training and support was provided to enable the executive and staff to address these problems and to execute their duties responsibly?

She recommended that the company avoid its reliance on middle-men for procurement. Not only did this bring with it extra expenses, but it was against the stipulations of the PFMA. What consequence management measures had been introduced to eradicate this practice? Were there vaccination sites within Transnet’s infrastructure and how successful were those being used? How many of Transnet’s railway coaches had been hijacked, compared to road transport?

Ms Clark asked if the Mozambican company that manufactured South Africa’s wagons also had a maintenance programme. Did South Africa did not have the capacity to manufacture these wagons itself to lower costs? Given the targets that the reports proposed about increased railway utilisation in Durban, she asked for a progress report in the future to monitor if these targets were being met. How many buildings did the company own, and how many of them were utilised or leased, and at what cost?

She requested clarity on the deployment of skilled cadres in the company. Did this mean that one had to be an ANC card carrying member to qualify for these jobs? How much corruption, fruitless and wasteful expenditure and loss control had accounted for the net loss of R8.4 million? Was Transnet 100% tax compliant? She said there was need to conduct oversight on the aspects that Transnet sought to implement to turn the company’s fortunes around.

Before allowing the next speaker to comment on the presentation, the Chairperson clarified that cadre deployment had nothing to do with the ANC. He said no positions in public entities across the country were preserved for ANC members.

Mr S Gumede (ANC) applauded Transnet for a detailed presentation. Based on the information provided by the report, there seemed to be a need for the Committee to meet with Transnet more frequently, because the entity was very important and the Committee could not afford to lose it. There was a need for collective wisdom -- that is, support from the Department of Public Enterprises as well as regular oversights by the Committee. This way, the Committee would have been abreast with proceedings in the entity, thereby closing the information gap which, in some instances, had resulted in Members asking irrelevant questions about the organisation.

He expressed concern about Members who seemed to be very angry. Suggesting that the group chairperson and the GCE had to resign was far-fetched. If they were not executing their tasks properly, there were procedures that had to be followed, which were embedded in the contracts that they signed. He reminded the Committee that the GCE had been appointed in 2020, and there was a need to understand that some of the issues that were being addressed in the presentations were the effects of the previous leadership. Since her appointment, the GCE had provided excellent presentations. The same was the case with the CFO who, in her presentation, had answered many of the questions that he had wished to ask.

He asked if there were still remnants of state capture in the organisation. If so, how many of those were remaining? Apart from this, procurement in the company was a matter of great concern, because it had significantly contributed to the qualified statement. In the future, how would Transnet appoint contractors that did not lead to such qualified statements? The previous contractors that were appointed did not get the required scoring, and their pricing had exceeded the PFMA tender price as well as other procurement procedures.

Mr Gumede said he was happy with the GCE’s projection that the years 2022 and 2023 were her targets to drive the entity to greater heights. However, she had to ensure that she swept away all the elements that had prevented the company from achieving this in the previous years. She had demonstrated the ability to do well in her job, and he had absolute trust in her abilities.

Since there were concerns about the pandemic and the emergence of the new COVID-19 variant, was the company prepared to handle these developments? He mentioned that there was a need to send condolences to the families of the 155 workers who had died due to the virus. In addition, what measures were being taken to boost Transnet’s weak assets, like agriculture and property? What was the impact of receiving a waiver on its debt? He was happy with the explanation provided by the CFO, but why was this information not shared with the Auditor General (AG)? This was critical information for the AG to understand the entity’s position. For four years, the Committee had been receiving qualified reports from Transnet. What prevented the entity from implementing the AG’s recommendations? Since there was now a new dispensation in the form of the new GCE in the company, what measures had been put in place to ensure that the AG’s recommendations were attended to?

Ms R Komane (EFF) cautioned Members not to confuse concern with anger. She asked how many locomotives were parked on the coal line, and when the maintenance contract with the China Railway Construction Corporation (CRCC) was going to be finalised. What volume levels were anticipated on the coal line in 2021? She asked these questions bearing in mind that Transnet would refer to cable theft as one of the factors. She asked for more clarity on the nature of its collaboration with a private security provider. What processes were followed to identify this company, and what was the value of its contract? What were the performance requirements from such a company? What logistics expertise did the new leadership at Transnet have? How useful were their expertise in providing the critical direction that Transnet needed at this time? Why were most of the executives in the entity former leaders of government departments?

She asked what the company’s international strategic direction and mandate was, and whether it was true that its projects were limited to the SADC region. If this was the case, why had the Zimbabwean project been cancelled? It could have enabled Transnet to export some of its stock. Since the President of Kenya, Mr Uhuru Kenyatta, had been given a tour of the company’s facilities, was this also change in strategy? Was this a shift to seek collaboration beyond the SADC states?

Ms V Malinga (ANC), like previous Members, asked the company’s executive to provide a plan on how it was going to implement the AG’s recommendations to Transnet over the past four years. What was the consequence management procedure for the people responsible for providing contracts to people who did not make the grade? Where there any suspensions? What strategies had been implemented to ensure that the country’s pipelines were secure? How far was the project to replace the copper wire so that it could not be sold to the scrap yards?

Ms J Tshabalala (ANC) was concerned at how subsidisation was implemented before an economic assessment was performed. Like most Members, she stressed the need to devise a plan to execute the AG’s past recommendations, as well as the implementation of consequence management. What progress had been made to secure the pipelines? What was the negative impact of the shift from rail to road? This specific policy was important, and there was a need for the Minister of Transport, Mr Fikile Mbalula, to address it. Had Transnet developed any remedial action to frustrate the environmental remediation backlog to comply with the relevant and applicable environmental legislation, while maintaining organisational sustainability? This was because the company’s pipelines' operating expenses had increased partly because of environmental remediation and rehabilitation costs.

Ms Tshabalala asked what measures had been taken to bring its automotive segment within the TPT division back to life, as it was the worst affected business segment within Transnet ports. In addition, why did the company not manufacturer designer wagons to match the changing automotive model requirements? How far was Transnet to responding to poor contract management amidst the contract irregularities regarding the OEM contract? When was the company’s engineering division going to supply the remaining balance of 185 of the 300 wagons secured by the CFM Mozambique, to increase its external revenue? What consequence management had been instituted against the perpetrators of irregular, fruitless and wasteful expenditure?

Under-expenditure was another problem that needed to be addressed. She asked the Executive Committee to explain how allocated funds were under-spent. Although the pandemic seemed to be the common excuse, this was a recurring thing. Considering that Transnet had recorded a loss of R8.4 billion, it was far from under-spending. What was even more disappointing was that the company spent much of its resources paying workers, instead of investing in key areas.

She raised concerns about Transnet property that was leased to other SOEs. The infrastructure leased to the Passenger Rail Agency of South Africa (PRASA) in Johannesburg was ill-maintained. Illegal miners (zama zamas) occupied this property, and that the premises often were the scene of deaths and gender-based violence (GBV). She asked how much PRASA owed the company for this property.

She also addressed the question of cadre deployment. She said the people who were employed by Transnet were qualified personnel who deserved the opportunity of employment, like any other South Africans. The GCE was a woman who had demonstrated the ability to lead the entity, and pointed out that the ANC did not have the membership of everyone in the country. South Africa was a democratic country, and everyone had the right to be affiliated with any political movement.

The Chairperson expressed appreciation for the detailed presentation, although he said it was more focused on operational performance. In the next meeting, he hoped that the Executive Board would provide the Committee with a sense of strategic direction. He echoed Ms Tshabalala’s points on the issue of subsidisation, and asked the Executive Board to highlight the anticipated negative impact this was going to have on the entity.

He stressed that Transnet was a very important SOE which the Committee did not wish to see fall into unfortunate circumstances like Denel or South African Airways (SAA). He recommended that Transnet should diversify its capacity. This was because it possessed adequate infrastructure to do so, and the Committee was optimistic about its capabilities, as it was central to the South African economy. Transnet had the potential to reduce unemployment in the country.

He said it was possible that the theft of cables and general vandalism of such property was instigated by private interests. Related to one of the points mentioned earlier by another Committee Member, he believed that private service providers contracted by the state were somehow connected to these acts of vandalism because they wished to continue providing their services. This could be avoided by employing more people in the company.

He added it was possible that some of the questions presented by Committee Members were not necessarily a true reflection of their opinions. They were influenced by business interests. To support this, he said he was often approached by private business owners to forward their interests in Committee meetings. It was highly likely that other Members of the Committee were subjected to similar pressure. Therefore, it was important for Members to avoid such influences and to ask questions that genuinely helped to improve the SOEs, and not business interests. He asked Transnet to respond to the questions.

Ms Komane interjected and said due to the limited time remaining in the meeting, Transnet was not going to do justice to the questions that had been asked. It would be futile for the entity to respond to the questions just for the sake of responding.

The Chairperson suggested that Transnet be given the opportunity to respond to the questions that they could address with the remaining limited time. If Committee Members had additional questions, they could send them to the Committee Secretary who would relay them to Transnet. The Committee could also arrange for another meeting in the following year.

Mr Cachalia also interjected and kindly asked the Chairperson to consider the point raised by Ms Komane. He asked if it was not sensible, given the importance of the questions raised by the Members, that everyone send their questions to Transnet. These should be responded to either in writing, or by recalling Transnet in 2022. Otherwise the responses that were going to be provided were going to be very short.

The Chairperson agreed with this observation. He asked Members of the Committee to second the decision. After this decision had been seconded, he suggested that in 2022 Transnet to be the first priority of the Committee.

Dr Molefe interjected, and requested that the questions be compiled into a single document by the Committee Secretary so that all the issues raised would be adequately addressed. He also mentioned that the issue of cadre deployment had to be addressed, because there seemed to be confusion over its definition.

Mr Dlamini also interjected, and asked that the questions that were raised during the Committee’s oversight visit to Cape Town be incorporated in the list of questions, and be addressed by Transnet’s in its responses.

The Chairperson agreed, and advised the GC and the GCE to liaise with the Committee Secretary and to address questions from the oversight visit, as highlighted by Mr Dlamini.

The meeting was adjourned.
 

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