Metrorail and Spoornet on restructuring

Meeting report

TRANSPORT PORTFOLIO COMMITTEE; PUBLIC ENTERPRISE PORTFOLIO COMMITTEE; LABOUR AND PUBLIC ENTERPRISE SELECT COMMITTEE: JOINT MEETING
14 March 2001
METRORAIL AND SPOORNET ON RESTRUCTURING PROGRESS

Chairpersons: Mr J P Cronin, Mr S T Belot

Documents handed out:
Metrorail Presentation
Spoornet Presentation
[incorporated in the minutes]

SUMMARY
Lack of security is one of the issues touched upon by Metrorail. The other is ageing rolling stock last bought in 1985. Outdated technology also affects the company as well as the inefficient use of land characterised by settlements mushrooming closer to the rail. These cause safety concerns.

Spoornet on the other hand has been plagued by losses from its Main Line Passenger Services, and is appealing to Government to subsidise that unit. It also appealed for an exemption from paying fuel levy and asked for the railway police to be brought back. In April the Minister will announce the details regarding restructuring of Transnet.

MINUTES
The delegation from Transnet, Mr Mafika Mkwanazi, Managing Director (Transnet), Mr Honey Mateya, Chief Executive Officer (Metrorail), and Mr Zandile Jakavula, Chief Executive (Spoornet) briefed the Committee.

Transnet
Mr Mkwanazi gave an overview of Transnet. It is made up of companies such as Metrorail, Spoornet, South African Airways, Portnet, Petronet, and Freightdynamics. Below "The Big Seven" are several subsidiaries like Transtel, Promat, Propnet, Datavia, Transwerk, and so on.

In future, Transnet is to branch into other niche markets like Information Technology, where it is to be part shareholder at Arivia.kom, and telecommunications by acquiring M-Cell shares. In terms of social responsibility issues, Transnet is involved in the fight against HIV/AIDS and human development.

Mr Mkwanazi said "things are looking up" at Transnet. The company's total budget this year was R6.3 billion of which R1.7 billion was allocated to the South African Airways and the remaining R4.6 billion to the company's core businesses.

Metrorail
Mr Mateya touched on the company's mission, which is to "render a safe, effective and affordable rail commuter service". He said Metrorail has a track of 2400 km, bigger than New York's, although not as efficient when it comes to security. This is an issue that needs to be addressed.

Metrorail gets its funding from the Department of Transport through the South African Rail Commuter Corporation (SARCC) and the Department of Public Enterprises through Transnet. He said his company was "set for a revolution", considering it last bought new carriages in 1985 and since then there have been no investments. This poses a challenge that needs to be addressed.

Mr Mateya noted that transport is the lifeblood of the economy and its importance in contributing to the growth of the economy, cannot be overstated. It feeds industry and business and ferries commuters to and from work.

Metrorail runs services in areas where there are no proper stations. This compels people to block the rail to force the train to stop in order to board it. In certain instances, new railway track is required. In most cases it is the "obsolete rolling stock" that needs replacing. Metrorail's signaling systems are also outdated. Mr Mateya said it was a battle to obtain finance to extend or improve the Metrorail network.

Other challenges faced by the company are the mushrooming of settlements close to the rails, resulting in serious accidents and loss of life. He told the Committees there is a need for policy on the use of land. To address such challenges, Metrorail will pursue an integrated public transport policy.

Five point strategy for growing the business:
- Improving customer service
- Grow revenue base
- Upgrade the asset base
- Continue reducing costs
- Partnership with the private sector.

The case for commuter rail concessions is that Metrorail is facing the following issues:
- Aging rolling stock
- Outdated technology
- Backlog on infrastructure
- Inefficient land use
- Lack of integrated public transport policy
- Institutional reforms and
- Public safety.

Mr Mateya said the objectives of concessioning to private operators are to:
- Reduce and eliminate subsidies
- Maximise revenue collected from concessioning
- Ensure rail customers are not exploited
- Minimise hardships to retrenched staff
- Monitor and regulate safety effectively.

He said Metrorail hopes to achieve private-public partnership through:
- Transnet's shareholding
- Multi modal transport
- Concessioning
- Restructuring of Regions.

Mr Mateya showed statistics on Metrorail's performance for the period 1997-2000. Most of the income came from selling tickets and that the company expected profits to improve this year. Cost coverage this year was expected to be more than last year's while subsidies were expected to be less than last year's.

In conclusion he said issues that need to be addressed are:
- Aging rolling stock
- Outdated technology
- Backlog on infrastructure
- Institutional reforms
- Public safety
- Lack of integrated public transport policy

Spoornet
Mr Jakavula informed the Committees that over the last three years his company has been trying to make a profit, to improve service efficiency, grow the business itself, and transform the company's gender and race representivity. In the last eighteen months Spoornet has begun to make a turn-around.

The company is focusing on these key areas: profitability, efficiency, transformation, communication, customer service and safety (for both the employees and customers).

The company's key objectives are to be a logistic provider, contain costs, create employment or less painful retrenchment, turn around projects that are loss making, develop people's skills within the company, and retain critical skills.

Mr Jakavula said within the company's structure, the backbone is COALink, which carries 66 million tons of coal for exports a year, and OREX, that carries 23 million tons of iron ore for exports a year. Together they form what is known as the General Freight Business (GFB) Unit, which makes up 67.8 percent or R10 billion turnover of business for the company.

Other units are the Main Line Passenger Service (MLPS) that accounts for 2.6 percent of the company's business and LuxRail or Blue Train that accounts for 0,5 percent of the company's business.

Mr Jakavula made an appeal for Government to subsidise the MLPS and wondered why the Government was not doing so since other countries do subsidise passenger trains.

He said the Blue Train was breaking even and next year will make a profit of R1 million. He said if Spoornet were to be profit driven, it would cut off less profitable railway lines which would not be good for communities.

He mentioned that Spoornet is active in Africa and its participation is in the region of R110 million per annum. Areas of activity include the developments of Spatial Development Initiatives (SDIs) and the rehabilitation of rail networks and carriages.

Mr Jakavula expressed concern about the levy Zimbabwe imposed on Spoornet for taking tourists to Victoria Falls. He informed the Committees that if his Zimbabwean counterparts did not stop he would pull out of the country. He said he was "not a Father Christmas" but a businessman who was there to make a profit.

Mr Jakavula said forecasts show the company would make R1 billion operating profits this year and a positive cash flow of R124.5 billion resulting in R320 million net profits. Capital investments are expected to reach the figure of R943.5 billion.

In terms of representative transformation, he said the company has nine executive members, of whom six are black and three are white. Previously there were twelve members of whom nine were white and three were black. However, only one of the executive members is a woman.

In terms of social investment initiatives, the company's focus areas are AIDS awareness, education and human development. He said the company's involvement in economic empowerment has grown from R152.1 million last year to R202 million this year. The company's performance was influenced by the GDP performance. When the GDP dipped, so did the performance of the company; when it rose, the company followed suit.

In concluding his presentation, Mr Jakavula asked to the Government to remove the fuel levy against Spoornet, which does not use roads. He appealed for subsidies for the MLPS and asked for the removal of shacks near the railway line. He also asked for the police that were removed long ago to be returned. He said around April, Minister Jeff Radebe would make an announcement concerning the restructuring of Transnet.

Discussion
Chairperson Cronin noted that transport is a complex issue with certain challenges that do not appear to be converging, such as how to turn these parastatals around and make them profitable, how to reduce subsidies and how to grow the business itself. He said if the imperative was to make them profitable the danger lies in eliminating railway lines that are not profitable. Many South Africans use public transport as a mode of transport and 20-25 percent rely on trains.

The other priority is to make railways safe from vandalism, arson, accidents and train delays. He said public transport is also critical to the economy. Profits are not an indication that railways are doing a good job. It could be that cutting down on lines brings about profit.

He noted that still absent is a clear Integrated Development Policy. Parliament wants transport to work for the economy. South Africa is an oil importing country and the price of oil is unlikely to go down. Railways consume less oil. To get what is desirable requires major investments. Parliament needs to contribute to this public debate as to what the rail should be.

Mr R Ainsle (ANC) noted that concessioning was a failure elsewhere and asked what special recipe Metrorail has. He also asked the status of the East Rand pilot concessioning project.

Mr Mateya replied that concessioning is driven by the Department of Transport and the South African Rail Commuter Corporation. Metrorail's role is to prepare for its coming concessioning and not to be deterred by its failure elsewhere.

Mr Msikinya, Director-General of Transport, added that the East Rand concessioning would have been premature since the infrastructure is in a terrible state. The infrastructure has to be put in place before talking about concessioning.

Mr Slabbert (IFP) asked what could Spoornet do to get cargo off the road and onto rail?

Mr Jakavula replied that to get cargo from road to rail would require Spoornet improving efficiency. This is what they are working on now. He conceded things are at present out of hand but that the Committees can help to address them by relieving the company from paying fuel levies and policing overloading by trucks on the roads which militates against the use of rail transport.

Ms Botha (DP) said the last time she heard about the Blue Train it was going to be sold. She asked for an update.

Mr Jakavula responded that the selling of the Blue Train was in the domain of the Minister who was going to make a decision in April this year.

Mr Msomi (IFP) asked whether Spoornet has a balancing act in terms of pricing, benchmarking and profitability.

Mr Jakavula said Spoornet is trying to be profitable without compromising its corporate social responsibility. He noted that Spoornet is running a business without depending on hand outs. In terms of benchmarking, it is difficult to make comparisons - does one compare with developed or developing countries?

Mr Schneemann (ANC) observed there are major discrepancies on cost per kilometre between road and rail. He said a survey had showed that it was cheaper to transport cargo by road than by rail. He asked what caused this and whether finance from the private sector has been considered.

Mr Jakavula replied that a number of elements determined the price. One is the type of load trucks carry. He noted that in most cases the capacity of a truck is not fully used compared to that of a wagon on a rail. The other element is terrain. Terrain influences costs and train wagons use one trip instead of three for the same distance covered by trucks as trains can load more.

An ANC member wanted clarification on Spoornet's involvement in the continent and whether the movement of cargo across the borders is done efficiently.

Mr Jakavula said that through the Southern African Railway Association (SARA) a SADC body, Spoornet is able to monitor its cargo and wagons using a tracking device that it has installed wagons going beyond SA borders. Since the introduction of this system, incidents of wagons together with their cargo disappearing, have dropped dramatically.

The meeting was adjourned.