PRASA Logo

Disturbing the status quo and putting PRASA back on the rail - The 100 Days Report Card

 

06 July 2021

 

Since my appointment in March 2021, I have taken time to onboard myself around the business of PRASA with the understanding that we do not have the luxury of time. Unfortunately, we do not have greenfield area to rebuild PRASA; but We are fixing an organization whilst the train is in motion, and we cannot afford to fail. The challenges facing PRASA are not insurmountable but will require all stakeholders working together to resolve. There is URGENCY to resolve the challenges facing the business.


In my analysis of the challenges facing the business, I have identified key areas that will require urgent attention to unlock the inefficiencies. Informed by what I have observed and the documentary evidence, I am convinced that in the short term and medium term a lot will be covered, and I am here to account what has been and what will be done.

 

Some of the issues form part of the Shareholder Compact between, Minister Fikile Mbalula and the Board of Control, whilst others are part of my Performance Contract with the Board. I have also sought to focus on the issues raised with me by PRASA employees during my first weeks at PRASA when I embarked on several Employee Engagements across the country. I will also reflect on issues raised with me by various stakeholders keenly interested in a stable PRASA.

 

Ladies and Gentlemen, I take full responsibility of the activities of PRASA and I will also ensure that my team also delivers on what we have promised. I pause to reflect on the issues covered and processed to over the past three months.

 

Cash Position of PRASA

Unfortunately, PRASA is currently facing a serious cashflow challenges purely because of erosion in our revenue streams; these included fare collected from rail operations which has significantly been reduced due to non-availability of the product, rental income around our stations reduced significantly because of lack of train operations; which contribute substantially to the business operations. Importantly, the impact of COVID has contributed immensely on the business operations of PRASA; and some of its tenants; who have not been spared from the economic hardships. PRASA in the main has an Operational Expenditure challenge which has contributed to complaints from the public particularly around Opex payments where PRASA has been paying its debtors on 160 days payment terms to manage its debts.

 

The above is untenable to our debtors but together with the Group CFO we are addressing the situation which includes reviewing the payment terms. We are aware of National Treasury regulations to pay Small and Medium Enterprises within 30 days. In my next media briefing I am convinced this picture will have changed; but our debtors should remain assured that we will honour valid claims against PRASA. Equally and most importantly, we are going to be resolute in collecting what is due to PRASA from its creditors.

 

Capex Programme

PRASA’s capital programme has failed to meet its targeted plans. Sadly, this has also affected PRASA’s Modernization programme aimed at replacing aging operations and improve efficiencies. Fortunately, the challenge in the space only requires internal capacity to resolve. We have amplified our SCM Policy together with its Standard Operating Procedures. To this extent we have appointed competent colleagues to serve in our Bid Committees to finalize specifications, evaluation and adjudications. You will have noticed that in recent times we have issued numerous packages and projects as part of our targeted implementation of the Capex programme. It is a targeted implementation because we want to ensure that projects, we implement address our immediate challenges and pass our
capex priority model.

 

    Since my appointment amongst others, I have also approved and submitted to the Board for
    approval the following projects:
  • Designers for the Fencing Programme for Mabopane and Central Lines
  • Substations Refurbishment for Mabopane and Central lines
  • OHTE recovery for Mabopane and Central lines
  • Supply and delivery of 48kg/m rail nationally
  • Panel of Maintenance support services for Rolling Stock.
  • Salt River, Durban Yard and Springfield Depots – design consultants

 

We will also ensure that all the projects we are issuing to the markets, once they are awarded, will be monitored, benefits tracking to demonstrate total value of the projects to the business and the community we serve.

 

I have established, iSitimela saBantu Project Office – a PRASA wide coordination of projects and unlocking of bottlenecks for accelerated delivery of station, network and rolling stock rehabilitation with estimated investment of R12 billion for the current fiscal year.

 

PRASA sits in a unique position in that its capex and infrastructure programme is countercyclical in that – when other business in the economy are struggling PRASA will be reviving the rail industry and by extension the economy. We have started engaging key stakeholders in the industry to prepare themselves to be part of these programmes towards PRASA’s recovery.

 

Corridor Recovery Programme

Gauteng Corridors (8):

  • Mabopane – (planned 4 November 2021) – current running Diesel Locomotive service. 46% percent complete; 11 substations awarded and under construction; 160km of Overhead Traction Equipment (OHTE lines) at tender award stage expected to be completed end of the month – Anticipated to commence with about 18 trains (12 Mabopane and 6 De-Wildt). Phase 1 Walling for critical infrastructure such as substation has gone through design phase and various SCM approvals is due for advertisement by next week. Phase 2 Walling including 8 footbridges for the entire line is following similar phases with designs being finalized and adverts expected beginning July 2021.
  • Saulsville – (planned 29 Jan 2022) – current Single traction line operational since Feb 2021 – Anticipated to commence with 5 trains.
  • Pienaarspoort, Leralla, Kaalfontein, Daveyton and Naledi (planned 28 Feb 2021) – current under Diesel Locomotive service except Daveyton and Pretoria - Kaalfontein with no services - Anticipated to commence with 48 trains.

 

Progress to date on the recovery of the remaining 7 corridors for GP

 

27 substations and 405km OHTE lines have been advertised last week with expected evaluation and award about beginning of August 21 and service resumption around March 2022.

 

Western Cape (2):

  • Cape Town – Simonstown via Athlone and Wynberg
  • Central Line – Cape Town – Khayelitsha and Bellville – (planned 19 May 2022) – delayed by illegal land occupation encroachments – legal process underway to relocate the people through the City of Cape Town. The project is 40% complete; 6 packages for substations are under tender advertisement phase; walling contractor expected to be appointed end of July 2021.

 

KwaZulu-Natal

  • Umlazi – Durban
  • Durban – KwaMashu

 

Partnership with Presidency on Infrastructure

In 2020 when the Presidency Infrastructure Unit launched and pronounced on its projects and programmes, PRASA was unfortunately not mentioned. This was a demonstration on how South Africans in general have lost faith in brand PRASA – this will certainly change. I have established contact with Dr. Kgosientsho Ramokgopa around PRASA’s infrastructure plans and how this should form part of the national discourse. PRASA will henceforth be part of the SOLUTION to assist with government priorities on expenditure, employment and economic recovery. We will also ensure that within these parameters, PRASA takes forward the resolution of the African Union of 2014 to create South Africa as a Rail Manufacturing Hub. This initiative will place PRASA as a key part of government industrial plan.

 

Security issues

This ranks amongst the top 3 risks facing PRASA which requires focused attention. PRASA has been faced with unprecedented levels of both vandalism and sabotage. Security remains a critical aspect of the rail services, to this end various measures were introduced including in-sourcing security functions with 3100 employees recruited. We had commenced with engagements with sister companies in Eskom and ACSA to participate in their security contracts, unfortunately this was not successful. We will be issuing to the market contracts for private security to support the work we are doing in this space. However, PRASA needs to follow modern interventions and would include deployment of technology as force multiplier to protect its assets. In this regard procurement processes have commenced. We are looking at sourcing different technology options which will also assist us to move away for old security plans but focus on modern interventions.

 

I have also enlisted the services on a short-term contracts of additional security experts to focus on some of our security challenges and threats. Their initial assessment has been quite revealing and we will soon make serious pronouncements around their work.

 

PRASA has conducted preliminary audit on the cost of vandalism across the business, this has taken us to just over R4billion. Naturally, this dictates to us to pursue a different approach in our security plans. I was recently informed of a very interesting fact; on the Mabopane Line one of our substations supporting rail operations was completely vandalised whilst 100 metres from it an Eskom substation with same security fence has not been touched. Our security team will amongst others assist us in understanding these issues.

 

Operating Permit

As indicated, PRASA has several risks and one of them is on the ability to receive an operating permit from the Railways Safety Regulator. Whilst this should be an easy task, PRASA over the years has neglected various safety issues which at one point in 2019 led to a court case. We cannot afford this embarrassing moment and we will ensure that issues around safety are elevated for the benefit of our employees and the commuters. We have improved on several prohibition directives a testament to improved relations with the Regulator. We appointed a Nominated Manager to focus specifically on Rail Safety Regulator (RSR) related issues.

 

We will embed a positive safety culture. We are also reviewing our risk matrix to also develop a risk register to anticipate some of the challenges to face.

 

Operating Model

For a business as big and complex like PRASA, its operating structure reflects the old business. A process has commenced to develop a new operating model which will also assist towards finalization of an optimum funding model for the business. The operating model will also address the question around the required personnel and skills for a modern rail company.

 

Autopax Bus Service

It has become abundantly clear that PRASA requires to review its bus operations, Autopax – operator of Translux and City-to-City busses. Notwithstanding the negative impact of COVID to the bus industry, PRASA had already taken a decision to divisionalize Autopax from a subsidiary. Extensive consultation has commenced with labour as some of the plans involve reduction in employee numbers, currently the target is for reduction of 350 employees; we are however looking at the possibilities of absorbing a certain number of these employees into the PRASA Group where vacancies are available.

 

Ultimately, a new model and operations of Autopax will become possible once the divisionalization process has been established. This would include a revised mandate on the operations of Autopax to support the primary mandate of PRASA on rail operations.

 

Consolidation of the Property Portfolio

The secondary mandate of PRASA is around its property portfolio which amongst others should generate enough income to cross-subsidize the rail operations. Currently the property portfolio is fragmented, and a decision has been taken to consolidate the property into one commercially focused entity.

 

This entity would also ensure as the landlord of PRASA properties, all the properties in terms of facilities management are adequately maintained. Furthermore, they will also seek to pursue commercial and investments opportunities with the aim that whatever is generated would assist on the financial position of PRASA to remove dependence on government.

 

Employee Increases

PRASA in 2020 entered 3 years multi-year financial commitments around annual increases for employees in the bargain council. Consequently, the COVID pandemic equally made a bad situation worse. We have engaged with labour about these challenges. We have engaged with Department of Transport with the view of requesting assistance for PRASA to address this matter. We are waiting for a response. We are also faced with complaints from our managers who have not received any annual increases for the past 3 months. We are enforcing a performance management culture going forward where individual and group performance would be recognised and rewarded.

 

Uniform and Printers (tools of trade)

In my employee engagements roadshows, I have met extremely committed employees, whom despite the negative narrative around PRASA, remains hopeful. Whilst there are other issues that affect their deliveries, some were soft issues which I am personally involved with in their resolution. Since my appointment I have approved the appointment of supplier to deliver nationally within our operations the much-needed printers. I have also approved the additional funding shortfall for the purchase of the uniforms for our employees who still want to be associated with brand PRASA.

 

Stadler Matter

PRASA has commenced discussions with the Liquidators following engagements with the Department of Transport in 2020. A tripartite group with the Liquidators, Stadler Rail and PRASA was established to explore possibilities of a commercial settlement agreement. Stadler Rail is the company that acquired the locomotive business of Vossloh in Spain who were the original equipment manufacturer of the locomotives. The proposed commercial agreement is being pursued purely because following the sale auction of the 7 locomotives of the 13 which were already in the country, the liquidators could only receive R65 million, this was deemed to not be a fair collection. The Liquidators have also lodged a R288million VAT claim against SARS. The liquidators fully support the proposed agreement which will have a greater benefit and value to PRASA. The proposed commercial agreement amongst
others includes:

- 6 Afro4000 locomotives currently in the South Africa
- 7 Afro4000 locomotives currently in the harbour in Spain
- 5 AfroDual (diesel and electric) locomotives at the factory in Spain and
- 5 AfroDual which will be produced upon conclusion of the commercial agreement
- 2 years’ worth of capital spares
- 2 years of maintenance support in South Africa

- Training of drivers and technicians
- Transportation of all locomotives to South Africa’s chosen port of entry

 

The proposed commercial agreement is valued at R1.1 billion and there will be NO money exchange with parties, effectively PRASA will not incur any cost; this will be part of the monies already paid to Swifambo.

 

PRASA for now will pay only for travel expenses of their technicians and drivers during the training in Spain and South Africa.

 

Ultimately the proposed commercial agreement will be effective after an order of court has been made following agreement by all parties in the Tripartite group. Notwithstanding the above, there is still 5 litigation cases brought by erstwhile director of Swifambo fighting the litigation process.

 

We continue to work well with Gibela towards the realization of new fleet for South Africa. Although we are behind schedule due several issues, chief amongst them includes delays in the depot modernization programme and delays occasioned by the impact of COVID. I am proud to report that:

 

 

We acknowledge the delays in this flagship project, but South Africans should remain assured, they will soon see these trains aptly termed Isitimela Sabantu – Stimela sa Batho, Mense Trein, the Peoples Train would soon be ferrying them to the various destinations.
They will enjoy the fruits of the investment made by our government.

 

There has been delays on the ICT space within PRASA where significant investment and projects have stalled over several years. We have commenced to address as part of modernizing and bringing efficiencies to the business. A number of technology driven interventions are being implemented which will also assist in addressing some of the repeat audit findings such as disaster recovery plan, records management, data storage etc, we will soon be activating some of the dormant SAP modules which licences were bought but not utilized.

 

Scrap Disposal

As part of generating additional revenue, PRASA has approved a Disposal Policy which would allow us to dispose of our scrap at a cost. This has been a sore point around our depots as this matter has attracted both security and safety hazard and the scrap were impacting on the optimum security and protection of our assets. The disposal committees have been appointed and all the risks related to our scrap lying all over will be a thing of the past.

 

AGSA, PP, SIU and Hawks matters

You will recall that PRASA received successive disclaimer audit opinions from the AGSA for 2018/19 and 2019/20 financial years. This is UNACCEPTABLE and receiving the necessary attention. In the main, AGSA raised issues relating to asset management and limitation of scope, i.e., documents and records could not be made available to AGSA for audit purpose. With regards to asset management, the GCFO has established an asset verification team and this team has been working tirelessly to undertake and finalise a comprehensive asset verification process. This exercise will culminate in an updated asset register and is scheduled for completion by 30th June 2021. PRASA is an asset intensive organisation and there is no reason why we cannot account for our assets. PRASA has also initiated a Records and Document management project, in line with the recently approved Document Management Policy. Records and document management project entails back scanning of all proprietary documents, cloud computing and achieving in compliance with the applicable legislation.

 

We continue to engage with our law enforcement agencies and chapter 9 institutions as part of improving weaknesses in our governance structures as well as stopping malfeasance which has been besetting PRASA in recent times. As the title of my presentation today – I will be disrupting the status qou – the reality is that there are people in PRASA who have become comfortable in doing wrong things and the fact that no serious action has not been taken against them; they are in for a rude awakening. Those employees who committed acts against PRASA and no disciplinary cases were pursued to disregarded these will also be fully processed to ensure as we move forward nothing holds us back. PRASA has entered into a Secondment Agreement with the SIU to investigate material irregularities raised by the AGSA, whistleblowing reports and some matters which were previously investigated by
Werksman attorneys but not concluded. I have been in regular contacts with the AGSA, SIU and the Hawks.

 

You will soon see a number of cases be brought to the fore for finalization by the law enforcement agencies and this will assist PRASA to close this sad chapter which will put PRASA back on the ‘rails’.

 

Addressing the Audit Findings especially the Irregular Expenditure:

Most of the audit findings by the Auditor-General South Africa (AGSA) are attributable to:
o Non-compliance with the stipulated procurement processes
o Use of emergency procurement where such is not warranted.
o “Parcelling” of tenders to avoid competitive bidding procurement process
o Non-compliance with local content requirements
o Inability to confirm receipts of tenders before closing date and time

 

Measures taken to address the findings:

  • Supply chain management governance structures including the bid specification, evaluation and adjudication committees have been reconstituted and members trained accordingly.
  • Established a tender receipts register across the company and created tender office
  • Partnered with National Treasury to provide training on PFMA to management employees.
  • Developed a Contract Management Framework with the assistance of GTAC for implementation throughout the organisation. This is intended to improve and strengthen contracting and contract management.
  • The existing Delegation of Authority (DOA) has been reviewed and is being subjected to necessary approvals. The revised DOA will empower the regions and introduce more accountability and oversight.
  • PRASA has submitted applications for the condonation Irregular Expenditure amounting to about R13 billion of the R28 billion to National Treasury. National Treasury has approved applications amounting to R86 million and the remainder is under consideration.
  • In terms of performance contracting for the 2021-2022 financial year, all executives have contracted on NIL incurrence of irregular expenditure and fruitless and wasteful expenditure

 

Concluding Remarks

As part of immersing myself, I have found that PRASA has several talented people who given the opportunity will play a key role in the stabilization, recovery and growth of the business. I have come to appreciate the level of skills and experience that is available and will be afforded the opportunities to be part of the solution. However, this does not mean where needed external expertise on short or long term will not be sourced. I have started to fill some of the key senior positions. The challenges facing PRASA are not insurmountable
but will require all stakeholders working together to resolve. The priority is to build capacity and capability for the organisation to deliver on its mandate, resume services, modernise the infrastructure and restore good governance.



prasa-logo

Committed to delivering high quality passenger service on sustainable bases

Contacts

+27 12 748 7000

info@prasa.com