Railway Recapitalisation contribution to empowerment and skills development: Passenger Rail Agency of South Africa briefing

Meeting report

Railway Recapitalisation’s contribution to empowerment and skills development: Passenger Rail Agency of South Africa (PRASA) briefing
The Chairperson welcomed the Chairman of the Board of the Passenger Rail Agency of South Africa (PRASA) and noted that the Committee had had positive interaction with the entity, although there was some room for improvement.

Mr Sifiso Buthelezi, Chairman, PRASA Board, thanked the Committee for interacting with the board. He stressed that PRASA was well aware that it was using taxpayers’ money and was fully accountable. He noted that this briefing would address some of the issues on which PRASA had been deliberating.

Mr Tshepho Montana, Group Chief Executive Officer, PRASA, highlighted that a detailed plan had been unveiled on the recapitalisation of rail. In addition to this, the findings of the feasibility study had been presented. The Rolling Stock Fleet Renewal Programme would serve as a catalyst for public transformation and economic opportunities would arise from the investment.

A forecast of commuter rail volumes and market engagement indicated that there was a need for new passenger fleet, including about 7 224 coaches. PRASA aimed to acquire about 360 coaches per year. A total of R123.5 billion would be used over a 20-year period. Furthermore, 65 000 direct and indirect jobs would be created. Long-term procurement would allow local capability to evolve to above 65% of the value of a coach produced locally. The Industrial Policy Action Plan (IPAP) had called for the implementation of strategies to stimulate local manufacturing and rail engineering, and to increase the local procurement of goods.

Mr Montana noted that there would be engagement on the broad based black economic empowerment (BBBEE) aspects of the initiatives on 22 November. The objective was to encourage meaningful participation by BBBEE companies, as well as enterprise development and training, to familiarise the South Africa market with the project and its BBBEE requirements and to emphasise the broad based nature of the acquisition programme.

PRASA's strategy to encourage local production and local development was to align the procurement initiatives to the government’s primary objective for localisation, to assist in creating industries that could sustain local production, to focus on manufactured and non-manufactured areas such as engineering, technology transfer, design and components manufacturing, and to set high standards for BBBEE participation in the recapitalisation programme. In addition there would be a minimum target of 65% local content for manufacturing. There would also be skills development and transfer for local labour to sustain local production, and a commitment was made to stimulate local and economic development.

A framework for the alignment policy was given. In terms of the Industrial Policy Action Plan (IPAP2) there would be increased participation of historically disadvantaged people, and support would be offered for meaningful BBBEE participation in the programme. There would also be a Competitive Supplier Development Programme (CSDP) which would increase the competitiveness, capacity and capability of the local supply base, as well as a National Industry Participation Programme (NIPP), which would increase local sales, small, medium and micro enterprise (SMME) involvement, and BBBEE promotion, and there would also be research and development and technology transfer.

The 65% local content would be achieved through foreign currency spending on localisation, local job opportunities, skills development, technology transfer and sourcing of locally manufactured components.

A skills development plan was then outlined. PRASA was in the process of developing a skills development plan that would form part of the fleet renewal programme. There would be an engagement with the Department of Higher Education and Training (DHET) regarding skills development for local production in manufacturing. The successful bidders would be required to undertake training of engineers, artisans and technologists. Partnerships with third parties were also being encouraged. A breakdown was given of the employment opportunities and economic multipliers.

Mr Montana explained that BBBEE aimed to achieve equity in the supplier base, and so the supplier programme was very important. PRASA was looking to SMMEs and cooperatives to source some of its products. A list was given of the components that should be produced locally, and this included car body shells, windows, seats, heating and ventilation, lighting, interior cladding and passenger gangways, wheels, axles, bearings, auxiliary converter and batteries and electric propulsion.

He noted that PRASA would strongly emphasise equity participation, although it could not dictate to companies. There was also need for management control by black people. In terms of employment equity there was need to include black women in senior management, middle management and junior management. There was also need to have goods and services procured from black people, based on BBBEE procurement recognition levels, including procurement from qualifying small and micro enterprises.

He concluded that empowerment was a priority of the PRASA Board and the Minister of Transport, and it was felt that there could be no compromise on these critical issues in order to strengthen local manufacturing capacity.

Discussion
Mr S Farrow (DA) asked how PRASA would ensure that the necessary transfer of technology, skills and training would happen and that technikons would make the necessary skills available locally. He highlighted that there was need for PRASA to ensure a spread of wealth, especially in the Eastern Cape, which was one of the poorest provinces, since this would create infrastructure development and create job opportunities.

Mr L Suka (ANC) appreciated the presentation, and urged that now PRASA must implement what it had stated. There was a need for the Committee to continue to have dynamic interaction with PRASA, monitor PRASA closely and see PRASA’s quarterly reports. Furthermore, there was a need to tell the nation what the intentions of PRASA were. He asked whether the R123.5 billion could be cushioned, so that PRASA would not be adversely affected if this amount inflated, if the economy went into recession or if any financial global challenges arose. He also wondered if it would be advisable that penalties or a law be enacted which would ensure that PRASA complied with its objectives. He said he would be keen to attend the BBBEE meeting on 22 November.

Mr M De Freitas (DA) asked whether PRASA had done an analysis of the black talent that was in South Africa, which could then be used to achieve PRASA's targets.

Mr E Lucas (IFP) said that the presentation highlighted a promising picture for the railway industry. He asked whether PRASA was looking at using fibre-optics as an alternative to copper cables. He believed that the empowerment targets could be achieved. He pointed out that South Africans built Sasol 1 and 2, and those who had done so were probably still available to assist.

Ms D Dlakude (ANC) commended PRASA on its good presentation. She said that the Committee must support PRASA to help it achieve its objectives.

Mr Montana responded that all the issues that had been raised were very important. Firstly, he pointed out that there was a need to restrict the components that were going to be bought from outside the country. The suggestion that penalties be used for interventions was a very crucial one, and PRASA would consider this suggestion. However, he also cautioned that use of penalties could become problematic, and there was a need to view the bigger picture, so that if a penalty regime was introduced, it would have to be very focused.

Mr Montana agreed that interventions were needed in order to acquire the capacity and skills that were needed to build the railway industry. There was nothing stopping PRASA from getting a list of the employees who had helped to build the SASOL plants, so that the employees could also be asked to assist PRASA in building its own plants. PRASA would support that view.

He thanked Members for their comments and said that PRASA could take on board suggestions on how it should set up local facilities in order to benefit the whole country, including poor provinces such as the Eastern Cape. He assured the Committee that PRASA would act to achieve what it had set out. He noted that a transaction advisor was in the process of being appointed and PRASA was in the process of concluding the financial arrangements with the National Treasury. By March, PRASA would be more than ready to implement.

Mr Montana added that according to the national travel survey, if the rail system worked, 5 out of 10 passengers were willing to use railway as their preferred mode of transport.

Mr Montana noted that PRASA would be prudent when it came to cushioning the R123 billion that it expected to use, in order to prevent the costs escalating by reason of any adverse economic conditions. There was no need for legislation to be enacted in order to ensure that PRASA complied with and achieved its objectives.

Mr Piet Sebola, General Manager, PRASA, added that PRASA had already set some measures in place. The normal inflation rate would, however, apply to the deals.

Mr Montana noted that there was a need to produce light trains that were fuel-efficient. The Committee was assured that PRASA was dealing with the issue of cable theft. This would prevent potential local suppliers from using stolen cables when PRASA built its trains.

He noted that an assessment was done in order to determine the skills and capacity that PRASA already had and what it still required. There were some areas in which PRASA had the capacity but there were also areas where it did not. There were a number of engineering companies that could be used and they would be mobilised.

Finally, Mr Montana noted that PRASA would invite Members of the Committee to the BBBEE meeting in November

Mr P Mbhele (COPE) said that he was impressed by the presentation, and it was clear that a good deal of hard work had already been done by PRASA. He asked whether the BBBEE meeting for 22 November had been properly advertised, and how whether people in rural communities had been informed.

Mr Montana said that many different mediums had been used to notify people of the meeting, but he would also appreciate Members spreading the word to their constituencies.

Ms N Ngele (ANC) noted that many of her questions had already been addressed, but noted that monitoring would be vital.

Mr Montana agreed that there was need for the monitoring process to be managed properly in order to ensure optimal results. He also stressed that he was fully in agreement with the need to make this programme into a reality. Cooperatives and women needed to be supported, and PRASA already had plans to do this.  

The Chairperson said that the model that had been presented to the Committee by PRASA was a good model, but there was need to fine tune it so that it could become a model that could be used in other industries of the country and even perhaps be used by other countries. She highlighted the need for PRASA and the Committee to work closely together. She noted that there was need to strategically plan for the building of plants and rail facilities, especially since a large number of imports arrived by sea, through ports in Cape Town, Richards Bay, East London and Durban.

The Chairperson noted that Government had to reduce poverty and make communities self sufficient and self-reliant. The procurement by PRASA should be driven 90% by socio-economic development factors, and 10% by price. A procurement system that was cost-driven was profit motivated, and would not help the poor. She noted that transport should lie at the heart of social development and economic growth. China had positioned its transport sector in order to attract investments. Rail transport was the backbone of transportation. There was need to see what change could be brought about by jobs in the industry, and not to focus on the number of jobs alone. In this regard, she stressed that the jobs must assist families who were struggling to become self-reliant, not line the pockets of those who were already wealthy. If the process was not managed correctly the project by PRASA had the potential to do this, without actually reducing poverty. She urged that this project must actually narrow the gap between the first-world and third-world economic conditions in the country.

The meeting was adjourned.