Spoornet Restructuring: progress report

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Public Enterprises

11 June 2003
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Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
11 June 2003
SPOORNET RESTRUCTURING: PROGRESS REPORT

Acting chairperson:
Mr Komphela (ANC)

Documents handed out:
Spoornet Restructuring

SUMMARY
The progress report on Spoornet Restructuring identified the components of the new Rail Model that is being implemented. Each component was looked at in detail. Thereafter Spoornet looked at the results of it key performance indicators for the past three years. These included locomotive age, turnaround time, number of passengers, redundant employees, BEE performance, operational cost per passenger. Performance indicators revealed decreases in passenger numbers and freight consignments but increases in operating costs.

Members raised concerns about redundant employees and the imminent retrenchment of 8000 workers.

MINUTES
Mr Riad Khan (DPE Unit Deputy Director responsible for transport matters) accompanied by Mr Richard Goode (Director: DPE Restructuring Unit), went through the presentation detailing Spoornet's restructuring process (see document). The Rail Model that they are implementing can be summarised as follows:

- Integrated General Freight Business(GFB) and CoalLink
- OREX to be shadow incorporated and restructuring options to be developed
- Extended network - 15 800km, that includes a selection of light density lines
- Expanded volumes up to 2020
- Operating efficiencies & productivity improvements supported by required levels of investment
- Investigation of a two-tier management structure for light and low density line network
- Tri-partite Task Team to investigate status of low density line network
- Government to hold Spoornet accountable for performance, turnaround strategies & projects
- Implementation audit mechanism to be implemented by NFA Transport Sector
- 8 000 employer induced retrenchments to be implemented
- Tri-partite Job-loss Mitigation Task Team to be established
- Appropriate Road to Rail policy initiatives to be developed and implemented by NDOT
- Luxrail to be concessioned
- Passenger Rail consolidation to be investigated

Discussion
Mr Louw (ANC) raised a concern about the retrenchment of 8000 workers and asked if there was a programme in place for their skills to be employed in other areas. Had there been discussions with unions regarding the retrenchments? Mr Louw also questioned the cost of the recent damage to a Luxrail locomotive.

Ms Roopnarain (IFP) asked about the cost of retaining redundant workers and why locomotives were allowed to operate beyond their lifespan.

Mr Frolick (ANC) asked if skills retraining would make these employees viable to the organisation.

Mr Theron (DA) asked if Spoornet was managing transformation and if consultants were brought in on matters requiring further expertise. He also asked how restructuring would remedy the increases in costs and the passenger number and freight decreases.

In response to these questions, Mr Khan pointed out that retrenching the 8000 employees would be avoided as long as possible, and that the aim was to move them to fill vacancies in other areas of business. The unions were included in discussions concerning the workers to be retrenched, and that 8000 was the maximum number.

Regarding redundant workers, Mr Khan revealed that the cost of retaining such workers amounted to approximately R6 million. He explained that this workforce had already been paid for and was used as a sponge - assisting with painting and other such work. Many of their skills were not transferable. Minimal skills re-training was planned in Transnet's Social Plan.

Concerning the age of locomotives, he explained that the figures represented the average ages and that some locomotives were either older or newer than the average age. Utilisation of these depended on whether the locomotive was appropriate for the line and type of service. The older the locomotive, the slower it would travel - to ensure safety.

In reply to Mr Theron's question, Mr Khan said that Spoornet, Transnet and the Department of Public Enterprises managed transformation on a strategic level. Consultants were brought in to assist with operations and management where the capital to do so did not exist. Concerning turnaround time, Mr Khan explained that many measures had an impact and all had to be taken into consideration to move the level upwards. The damage to the Luxrail locomotive was estimated to be approximately R3 - 5 million.

Mr Theron asked whether restructuring plans included measures for safety.

Mr Louw noted that a number of old locomotives were to be found in the countryside and asked whether there were plans for these to be removed.

Mr Frolick asked about the progress made concerning new safety features to be introduced on trains. He also wanted to know if the figures presented were relevant to the SADC region.

Mr Khan answered that trains were an alternative to and not in competition with the taxi industry. He said that people would make more use of trains if they knew them to be on time and a safer mode of transport. More security and better lighting at stations would be included in a range of initiatives to increase passenger numbers. He explained that accidents on rails were often between passenger and freight locomotives as these two shared lines. He said that client concerns were top priority because one derailment means 10 late consignments. Not all cargo is appropriate for rail transport and not all industry's needs are met. Concerning the unused locomotives in rural areas, Mr Khan said that those were no longer in use. Safety features had been incorporated into new coaches a few weeks ago, but that large-scale refurbishing of locomotives would require more funds. He added that the figures presented did not include the rest of the SADC region.

Mr Richard Goode (Director: DPE Restructuring Unit) then addressed the Committee. He said that Spoornet had netted an income of R800 million in March 2002 and that it was in no financial crisis, but that real challenges made it clear that the old asset base would have to be replaced to meet the country's requirements. He said that operating costs had increased and subsidised services absorbed losses as profits were made in other areas. Mr Goode said that the main concern involved capital expenditure delivering the highest level of service.

Mr Nzimande (ANC) commented that the focus should not be on the shift from road to rail as some freight was not suitable for rail. It was Government's commitment to keep lines open where they still served a purpose. Mr Nzimande said that Spoornet was consistent in its engagement with industries and business concerns to improve service delivery.

Mr Komphela thanked the DPE delegation for its address. He commented that the Committee had noted unsafe carriages during an on-site visit to Pretoria and he mentioned the decay of train stations around the country. He went on to say that no solutions to the problems raised by the delegation had been put forward. He added that it was disconcerting that the BEE companies mentioned were not visible because these were key to poverty eradication. He said that these issues would be discussed further at a follow-up meeting.

Meeting Adjourned

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