RSR & PRSA 2020/21 Annual Report; with Deputy Minister

Meeting report

RSR 2020/21 Annual Report

Deputy Chairperson's introductory remarks

Ms Yongama Pamla, Deputy Chairperson, Railway Safety Regulator (RSR), told the Committee that the organisation had achieved 100% of its planned annual performance targets and its first clean audit from the Auditor-General of South Africa (AGSA). This was a defining moment for the RSR. The efforts of the RSR, which was rooted in building a culture of excellence, accountability, and clean governance, had been deliberate to ensure these achievements had been attainable.

RSR had executed various strategies and plans to ensure that it remained equipped to meet the demands of the industry it serves. It had awarded bursaries to 12 students and employed 12 interns to provide them with work experience. It had been appointed as the secretariat for the Regional Rail-Regulatory Association of Southern Africa. It continued to participate in the railway safety activities in the Southern African Development Community (SADC) region.

The Covid-19 pandemic had decreased the combined traffic levels of operators. Operators had experienced an increase in theft and vandalism of their rail infrastructure. Despite these challenges. RSR, together with industry players, had tried to find a lasting solution. The safety of the passengers, goods and communities remained its main priority.

Mr Mmuso Selaledi, Acting Chief Executive Officer, RSR, presented the 2020/21 annual report.

He said that RSR was able to achieve 100% of its annual performance outcomes for 2020/21 and a clean audit. This was the first time the entity had achieved a clean audit.

RSR had four strategic drivers. These included:

1. A risk-based approach to safety.  The enhancements to the regulatory framework were all aimed at understanding the safety risks within the environment and ensuring that adequate mitigations were put in place to reduce the risk to “as low as reasonably practicable.”
2. Good governance and clan administration.  The organisation was committed to excellence and to practising the highest standards of ethical and accountable behaviour at all levels within the organisation.
3. Financial sustainability.  The management of the RSR in a fiscally prudent and sustainable manner was an important cornerstone in carrying out its mandate.
4. Stakeholder engagement.  Ensuring safe railway operations was a collaborative effort that

required all stakeholders to play their part in a consistent and meaningful manner linked to their mandate.

RSR’s contribution to government priorities:

Outcome 1: Railways were safer. RSR advanced nation building and social cohesion and a safe South Africa. Some of the contributions include occurrence reporting categories published; an industry-wide hazard log; the Railway Management Maturity Model; and Verbal Safety Communication Determination Developed etc.

Outcome 2: Good governance and clean administration. This involved transforming the economy to serve all South Africans and create jobs. Some of the contributions included the RSR spending a total amount of R35.7 million, of which R33.4 million (93%) was spent on broad-based black economic empowerment (B-BBEE) compliant suppliers; R6.3 million (18%) going to women-owned companies; and R2.9 million (8.7%) being spent on youth-owned companies. Of the total 242 companies utilised, 166 (69 %) were exempt micro enterprises (EMEs), 37 (15 %) were qualifying small enterprises (QSEs), and the remaining 39 (16%) were large companies.

Outcome 3: Improved stakeholder service. RSR was tackling the persistence of apartheid spatial development to build sustainable and safe human settlements, towns and rural areas, and effective local government. Some of the contributions include the RSR conducting several meetings with the South African Local Government Association (SALGA) during the period under review. Key initiatives undertaken included the collaboration of the RSR, the Passenger Rail Agency of South Africa (PRASA) and Transnet to address issues of mutual interest, particularly on rail compliance by municipalities.

RSR currently had 162 employees. Its 2020/21 revenue was R259.8 million, the accounting surplus was R2.6 million, and its cash surplus was R121 million.

Discussion

Mr I Seitlholo (DA) congratulated the RSR on its clean audit. In the Municipality of Greater Taung, particularly near the M18, it had been over two years since a train carrier had an accident, and the wreckage was still there. What was the RSR’s role in such an instance? Was it aware of the incident which took place two years ago?

Mr M Chabangu (EFF) asked how much money the RSR gave to students as bursaries. If it did not have any figures, they may submit the figures later. What did it do with students after their studies were completed? What measures it put in place to ensure passengers' safety? Were RSR’s level-crossings well-manned? Were the robots well-functioning, if the electricity was not functional, what was RSR’s plan-B in this regard?

Mr K Sithole (IFP) asked the RSR clarify the five audit findings. How many students had been awarded RSR bursaries? What was the relationship between RSR and PRASA?

RSRF's responses

Mr Selaledi responded on the accident around the M18, and thanked Mr Seitlholo for alerting this for the RSR. He said operators were responsible for conducting investigations on all the occurrences. RSR had a prioritisation mechanism in its own policies, where they decided what occurrences must be investigated. He was not personally aware of this accident. This would be put into a written response to the Committee.

Regarding bursaries, RSR had disbursed R1.6 million in bursaries. 12 students were sponsored. RSR was a small entity, with only 160 staff, and did not always have the opportunity to take in the students when their studies were done. RSR was a regulator. It did not take students directly out of university, but rather required them to gather the necessary skills at the operators so that when they did join the regulator, they had the practical experience needed so that they could understand the regulations in order to carry out the RSR's oversight and inspection mandate.

Regarding questions posed around RSR security and the station precinct, RSR had conducted a research paper around personal safety on trains within the station precinct. This gave a number of findings and insights around what could be done, including protection measures. It had conducted research around level crossings, which gave insight as what technologies could be deployed, and had shared this research with operators. It was acutely aware that the Committee was concerned about the security situation not only in station precincts, but the entire country.

From a regulatory aspect, RSR conducted a security assessment on PRASA. A permit was given to PRASA, which had a condition for it to conduct a security assessment in collaboration with RSR. This report was shared with the CEO of PRASA, after which both boards convened a meeting where the security issues were presented. The report was left with PRASA. RSR would return in January to assess the recommendations.

Regarding specific protection around level-crossings, there is an accident report. One of the challenges which arises -- because the asset involves various players -- is who would fund the infrastructure and who maintains the infrastructure. This indicates some of the challenges experienced at the level crossings.

The RSR was embarking on a programme called level-crossing elimination. This seeks to eliminate level-crossings completely. These were some of the aspects RSR was looking at, but it required funding.

The five audit findings involved the BEE reporting to the Commission, the financial statements, and findings in the procurement space etc. RSR was confident that those findings would be addressed, and was aiming to sustain a clean audit.

RSR’s relationship with PRASA had significantly improved. In 2018, PRASA had taken the Regulator to court because the RSR had indicated an intention to suspend operating permits. This resulted in the judge putting RSR under judicial supervision. Since then, the Department had played a key role in nurturing this relationship. One of the elements in a permit assessment was around leadership and the continuity of leadership. One of the reasons that RSR was not at the point of issuing PRASA a three-year permit was particularly around leadership changes. When PRASA comes around for the next permit assessments, the group CEO must carry out his plans accordingly, and then RSR could have a conversation regarding the permit. As it stands now, the relationship had greatly improved. RSR continues to conduct its work and was looking forward for their relationship improving even more.

The Chairperson asked how clean the RSR’s audit was if there were still issues to be dealt with?

Mr Selaledi responded that the audit was clean -- just not spotless. These five findings were not material. As it stands, it was a clean audit. Historically, there was a problem around irregular expenditure. This had been brought down to zero. If there was human error, someone must be disciplined. Treasury had accepted this.

The Chairperson commented that it was a concern that the chairperson of the board of RSR could not attend as he was travelling abroad, and was not present in the meeting. He said that when the Committee extends invitation to an entity on time, there was no excuse for the entity’s leadership to be absent or not to present.

He congratulated RSR on their work and released the delegation from the meeting.

Ports Regulator of South Africa 2020/21 Annual Report

Chairperson's introductory remarks

Dr Tshisikhawe Victor Munyama, Chairperson: Ports Regulator of South Africa (PRSA) said that the organisation's responsibility as outlined by the National Ports Act, was to manage the activities of the National Port Authority to ensure that it performs it functions.

PRSA, through its decisions, continues to reform the port pricing to bring about appropriate pricing in the provision and maintenance of port infrastructure for all the commercial ports in the country. Appropriate pricing was defined in PRSA’s tariff strategy. Prices reflect the cost and all benefits derived from the use of port infrastructure, facilities and services as a collective. The PRSA end goal was to improve the pricing of South Africa’s port infrastructure.

PRSA had to assist in dealing with several challenges. This included the effect of Covid-19. It had retained or increased new incentives to provide a level of relief to port users, and had provided technical support to the Department of Transport on the issue of corporatisation of the authority. By design, the regulators cannot get involved in the day-to-day running of the regulator entity. However, PRSA monitors the Authority and holds the executives to account on their plans to improve delivery and on their mandate.

PRSA monitors impact of the restructuring of the Authority that is currently under way, the effect of the reported cyber attack on Transnet which happened in July, and the recent fires in the ports, etc.

Annual Report briefing

Ms Jowie Mulaudzi, CEO: PRSA, commenced her presentation by outlining the entity's mission, vision, values and legislative frameworks, and said that in terms of a recent court, it had to be consistent in the application of tariff methodologies.

Its 2019-2024 medium term strategic framework (MTSF) goals include:

• To increase competitiveness and access to transport modal networks through effective regulation and establishment of a single transport economic regulator (STER);
• Reduction of costs for priority sectors by increasing the efficiency of ports through corporatisation of the National Ports Authority (NPA);
• A 4% growth in exports for defined national priorities (automotive, manufacturing and agro-processing);
• Increased levels of investment by public entities, and the entities' increased contribution to economic growth.

PRSA strategic outcome-oriented goals:

1. Ensure implementation of all elements of the regulatory framework within its mandate.
2. Enhance the capacity to deal with all the output requirements of the organisation.
3. Continue to maintain PRSA's reputation as an organisation with integrity focused on delivery and excellence.
4. Ensure that the NPA complies with the Act.
5. Consider the proposed tariff of the Authority and regulate the provision of adequate, affordable, and efficient port services and facilities to ensure enhanced competition and investment.

The multi-year tariff methodology applicable up to the 2023/24 tariff period would be reviewed in 2022/23. The tariff strategy to redress tariff imbalances over a ten-year period, which started in 2015, resets the incidence of tariffs between cargo owners, shipping lines and tenants, sets the base rates for the different cargo handling types, and sets a framework for addressing cross-subsidisation within port infrastructure, facilities and services pricing.

Ms Mulaudzi outlined the regulatory service delivery environment during the past financial year, covering port operational efficiency, the NPA's capex programme, appeals and complaints, stakeholder engagements and industry development, and the effect of the Covid-19 pandemic.

Challenges faced in executing the mandate for 2020/21 included the appointment and filling of vacancies at board level, and budgetary constraints on expanding its mandate as per the Ports Act and forming the nucleus of STER, as required in the Transport Economic Regulation Bill.

Some of Ports Regulator highlights in 2020/21 included savings of R8.9 billion between tariffs applied for and granted between 2010/11 and 2020/21; a 30% reduction in licence fees payable over the duration of the licence; a 60% reduction in cargo dues for bunkering vessels to support port calls by passing vessels; and the approval of the full capex programme applied for to ensure continued support for Operation Phakisa projects and the overall infrastructure development which must support the needed country's economic recovery and growth.

A pragmatic approach to regulation resulted in PRSA being able to deal effectively with the impact of the pandemic on volumes, the cyber attack and the unrest in KwaZulu-Natal.

Mr Thokozani Mhlongo, Chief Financial Officer: PRSA, noted that the entity had had to do some budget reprioritisation. PRSA relied on transfers from the fiscus. It had achieved a clean audit for 2020/21, which meant that there were no material findings on compliance, the annual financial statements, and performance information. The non-material findings from the Auditor-General (AG) were part of the audit outcomes action plan to monitor and ensure that the recommendations from the AG were being implemented accordingly and to ensure that such findings did not materialise in the future.

PRSA had met its broad-based black economic empowerment (BBBEE) target of 75% of discretionary expenditure being directed to suppliers with a BEE rating of 2 for 2020/21. It had 12 women among its 18 employees. PRSA had not yet developed large programmes that were directly aimed at youth, suppliers and women's empowerment due to the nature of the organisation and funding constraints.

He said it should also be noted that the tariff determinations that had been made were aimed at making the port tariffs as competitive as possible, and to increase accessibility to new entrants to the industry as one of the entity values. This was done through the equity of access mandate. BBBEE targets for women and youth empowerment were taken into account when evaluating bids and quotes for procurement of goods and services.

PRSA did not award any scholarships and/or bursaries for the 2020/21 financial year due to funding constraints. However, financial assistance was provided to employees to further their studies.

Discussion

Mr L Mangcu (ANC) congratulated the PRSA for achieving a clean audit and for the measures that they had implemented. He referred to 22 July, when Transnet experienced an alleged cyber attack, which had resulted in some of the containers not being able to dock in South Africa. Some ports were at more than 100% container capacity, so some of the vessels had omitted South African ports altogether. This had resulted in the containers being dumped in other ports in Africa. How had this affected PRSA’s revenue collection? Since no containers could leave South African ports because of Covid restrictions, how had this affected revenue collection? How had this incident affected the general image of South Africa’s ability to handle its ports? He commented that if containers which were supposed to be docking in South Africa’s ports were being dumped in other African ports, revenue was missing and reputational damage would occur. There had been an investigation into this issue. If PRSA had been part of those investigating, had it received a briefing as to what transpired? If so, were they satisfied with this briefing, and what had been the outcomes?

 Mr L McDonald (ANC) said there had been a lot of talk of ships generating electricity, which were going to be port bound in South Africa. Had PRSA been in discussions over these ships? There was an environmental concern regarding pollution from the ships. Electricity was a key factor in South Africa at the moment. One needed to be wary that South Africa coastlines were subject to a lot of pollution, and pollution must not increase. PRSA had to careful that it did not price itself out of the market. He noted that the revenue had been increasing, as well as the tariffs. South Africa's economy was going through a difficult time, so PRSA must be careful not to exceed the cost factor which might make it a problem for companies to bring ships to South Africa.

PRSA's response

Ms Mulaudzi thanked the Committee for the questions they had raised and for the congratulatory remarks made about PRSA’s clean audit. Regarding the Covid-19 business continuity question, PRSA accepted this. The stakeholder engagement programme of the Regulator, where there was no contact because of travel restrictions, had affected budget provisions made specifically for this instance. PRSA had anticipated that it would have new members who had to have outreach at the ports. As the CFO had indicated in the presentation, those savings had been re-prioritised to deal with certain backlogs, such as tribunals.

Regarding the July cyber attack on Transnet, and the effects thereof on containers that were bound for South Africa and had to be off-loaded at other ports, she said that it would affect the revenue collection of the Transnet National Ports Authority, and not necessarily PRSA itself. In the tariff methodology, revenues that were generated in the ports system were a significant part that determined the adjustment to the tariffs that were allowed to PRSA. Currently, it was sitting with the tariff application of the Authority, and was assessing the extent to which the revenues that it had budgeted had been affected by Covid-19 overall and whether one could isolate the effects of the cyber attack. The methodology allowed adjustment to those revenues. In PRSA’s current tariff methodology, a provision was made to say that where the revenue was not realised because of the terminal operators under its management, then the Regulator should be able to make the tariff adjustment as if they had realised that revenue.

Referring to the general image of South Africa because of the cyber attack and the reputational damage, she said that curing the cyber attack period she had had the opportunity of engaging with key players in the port system. Most of those who were operating in the space were surprisingly sympathetic to the cyber attack situation, as some of them had also experienced this. They were concerned about the ability of Transnet and PRSA to respond. Plans had to be put in place for the manual systems to be faster in response to cyber attacks. If such an instance happened again, then the response would be much faster than what it had been in July. There was an acceptance that cyber attacks had become an industry in themselves. It was not a matter of them not happening, rather how would the regulator would respond to their occurrence.

In terms of PRSA’s investigation, the chairperson of the Board had indicated in his remarks that PRSA’s direct levers were the tariff process, and the adjustment of revenues through this mechanism. It was therefore important that the different players that had oversight of the day-to-day operations of the Authority play a critical role in addressing these issues. PRSA was aware that the Department of Transport, together with the port consultative committees, had put measures in place to get to the bottom of the matter and hold Transnet accountable.

Regarding ships generating electricity, their accommodation in South Africa’s ports and the environmental concerns, the same point she made earlier applied here too. Section 56 of the National Ports Act, which PRSA monitors, was specific about how port facilities were utilised and sets out a process that PRSA must follow for the delivery of port facilities in South Africa. It was aware that this was a government priority that it had to respond to. Due processes had been followed for this to be done in compliance with the National Ports Act.

Regarding the Regulator pricing itself out of the market, she said it had ensured that the Authority was not found wanting in respect of not being able to have the revenue to fulfill its mandate. This had been done simultaneously, as the tariffs themselves had been smoothed out. The decisions of the Regulator made in 2020/21 had resulted in prices that were effectively similar to those applied in 2010/11. It had worked hard to strike a balance between protecting port users by lowering prices or smoothing prices in the South African system, whilst also allowing the Authority to raise revenue to allow it to be financially sustainable. The Regulator would look at and strive to ensure that there was appropriate pricing in the ports system.

The Chairperson thanked the PRSA for their responses to the questions posed by the Committee.

An apology was made by the Deputy Minister, who had to leave the meeting. The Chairperson wanted to place it on record that he had wanted to recognise her, and allow her to make closing remarks. The Committee accepted her apology.

The Chairperson commented that the Committee would from time to time call on PRSA as need be. He thanked them for bringing their full contingent to the Committee, which showed seriousness in this matter.

The Committee Secretary advised that the Committee would convene again on Tuesday, 16 November at 09:00. The Chairperson commented that the Committee had to re-visit its programme of action.

The meeting was adjourned.