Transnet on its 2014/15 Annual Report and financial statements

Meeting report

Transnet 2014/15 Annual Report briefing
Ms Linda Mabaso, Chairperson, Transnet introduced the executive members of Transnet who would present the Annual Report (AR) for 2014/15.

Mr Siyabonga Gama, Acting Group Chief Executive, Transnet, highlighted that there has been an increase in revenue, EBITDA, improved disabling injury frequency rate (DIFR), capital investment, rail volumes, and B-BBEE.

Mr Garry Pita, Group Chief Financial Officer, Transnet noted that in the 5 year review, there has been a significant increase in volumes, operational efficiency and assets without significant deterioration of financial ratios.

Mr Gama further stated that export coal volumes increased by 12% due to improved availability from key customers, and there was improved resource availability through sustained implementation of the capital investment programme. There has been an improvement in on-time departures due to operational efficiency. Export iron ore volumes also increased by 10% compared to the previous year, due to sustained implementation of capital investment, improved availability on internal resource and improvements on tippler breakdowns at Saldanha. Maritime container volumes also increased by 1%, mainly due to increased containerisation in the bulk and break-bulk sectors.

Transnet was proud of its DIFR performance which is 0,69 compared to 0,75 in past years. This is due to continued focus and investment in safety. He regrettably reported the death of four of the company’s employees. Transnet exceeded and achieved its targets for black employees, and female representation is growing steadily. 4 426 jobs were targeted to be created, but only 2 905 were created. There has been good and steady progress in fraud prevention.

Discussion
Ms T Stander (DA) asked how Transnet is handling maritime and rail logistics, the receiving and transporting of the anticipated 16 million tons of grain that is needed in terms of the drought mitigation. She also asked it what its own plans were for mitigation with regard to drought. She asked how goods, specifically grain, would be transported to their destinations without getting wet? The grain is to be arriving in March. She noted that now that Transnet had modernised its ageing pipelines infrastructure, there are growing concerns on inaccurate operational data and values of assets. She asked if Transnet will use any of the increase to subsidise railway investment, and whether Transnet is considering any measures to support its prime customers, such as the steel industries? She noted a recent proposal that Transnet go in with Richards Bay on coal exporting, to encourage growth and black owned mines, yet Transnet took a more difficult route of building its own terminal. She asked that it give the Committee some clarity on that point.

Ms N Mazonne (DA) said she undertook a personal oversight at the Durban harbour, where the importers complained of backlog at the harbour. She also noticed that there was an increase on time waiting for freight. The container value had also reduced because of reduction on imports. She asked what was being done to alleviate the waiting times, especially for coal freight? Clarification was needed on the length of freight to be accommodated in ports like inland ports. There is a concern on coal supply, and she referred t the reports that there was some animosity between Eskom and Transnet on mines to be used, so clarity was also needed on this matter. She too noted that in order to alleviate drought, food would be exported in March, and farmers were asking what terminals had been earmarked to take and accept this extra load – Durban, Port Elizabeth or Cape Town? If Transnet did not have the freight capacity to transport the food around the country, then she wanted to know which other organisations had been contacted by Transnet and what arrangements there were in terms of transport. She referred to concerns that there may be a food crisis at the end of March. An organisation like Transnet would be expected to ensure that food reached its destination.

Dr Z Luyenge (ANC) asked how long officials were supposed to act in their positions and asked what Transnet was doing to try to fill positions permanently. Did Transnet have a depreciation policy on its assets, and which assets were contributing the most to the growth of the company? She wanted to know what was the Human Resources mechanism on sustaining and retaining  its existing staff. Finally, Transnet was asked to ensure that transformation and expansion should extend to rural places.

Mr R Tseli (ANC) asked the reason why the target for creation of 4 426 jobs was not met since he believed there had been a budget for that. He would like to see Transnet do better in reducing its irregular expenditure, and asked how this happened in the first place. He asked what measures are being put in place to avoid the type of violence that happened at the Port of Ngqura in 2014? He also asked what mechanisms were currently being used to interact with employees at organised labour level. He enquired as to Transnet’s communication strategy and how it would communicate with communities on its projects.

Ms D Rantho (ANC) asked how many females were employed at Transnet. She questioned a remark made by Transport Economist Mr Andrew Marsay, who had noted that ‘higher than expected pricing of the pipeline meant that not much liquid bulk traffic has been transferred from road to pipeline”. She enquired exactly how much bulk had been transferred from road to rail and how much was left, and also what was being done to move the transport to rail, given that most of the roads were not ideal. She asked why there was there a decrease in 2013 of group operational efficiency? Speaking to safety, she asked what is the strategy to prevent employee’s deaths, how many had died in the last year, and what compensation was offered to the family, including whether Transnet would offer education or training to the family members of the deceased.

The Chairperson noted the concern expressed by the Auditor-General (AG) on the company’s non-compliance with regulations. One of the main reasons for this Committee's oversight was to ensure that there was not fruitless and wasteful expenditure. She wanted the reasons why the target on research and innovation was not met. She urged it to work on a strategy to eradicating economic turbulence.

Mr N Singh (IFP) asked about the integrity of pipelines. There was a growing concern about pipeline leaks last year, so he wanted to know what safety measures had been put in place to prevent recurrence. He asked if Transnet undertook any programme on maritime studies. He asked Transnet to clarify the issue of billboard spaces allocated to other companies by Transnet. Finally he commented that the Durban dig out port had been put on hold until 2024, and he felt that was a very long time away.

Mr Gama responded that Transnet did have the ability to handle and transport the tons of grain coming in. It had formed an association with grain industries. There was enough capacity on the rail side, but he did concede that Transnet might fall short in the port terminal side.

Mr Karl Xhanti Socikwa, Chief Executive: Transnet Port Terminals, said a command centre had been set up. There had been good preparation for the arrival of the silos.

Mr Gama said that, through the Department of Trade and Industry there has been an intervention to deal with the key customers like steel industries. The manganese sector was also in distress, and Transnet was working towards assisting this sector to stay afloat.

Mr Gama noted, in answer to the question around Richards Bay, that Transnet is not building any terminal.

Mr Socikwa commented on the waiting time and said that Transnet was working on an extension. The company had introduced measures to deal with congestion of trucks coming in, and a Saturday and Sunday slot had been added.

Mr Ravi Nair, Acting Chief Executive: Transnet Freight Rail, said the length of the freight was immaterial – because if the train was too long it was quite easy to break it up. Some customers wanted long trains whilst others wanted short trains, so the length of the train would usually be determined and prioritised by the customer. He said that there was not actually animosity as suggested between Transnet and Eskom, and they followed the market, depending upon what was needed. In relation to the Eastern Cape and rural areas that needed railways, the problem was that Transnet has not been able to make out a good case for viability. The smaller ports are not within the Transnet network. What is important is the activity that takes place.

Mr Pita also responded that Transnet has mechanism for enterprise development. The company is also working to providing funding for black women owned enterprise. Depreciation of assets is based on the particular asset like building, railway or pipeline or vehicles. Building can depreciate from 10 to 50 years. There is mostly depreciation on rail. Internal index evaluation is done every year in this regard.

Ms Nonkululeko Sishi, the Group Executive of Human Resources said there is there is retention strategy and incentive skill in place.

Mr Gama said that job creation follow economic growth. Jobs are created in terms of the rhythm of the economic activity. More activities mean more work. There is 70% increase in female employment.

Mr Pita said the irregular expenditures were mostly due to contract values being exceeded. The company is working hard to prevent a recurrence of this – and it had, amongst other initiatives, engaged in roll-out of Public Finance Management Act (PFMA) training to all operating divisions, done forensic data analytics, engaged in knowledge sharing with entities, and conducted compliance review and training on standard operational procedures at operating divisions.

Mr Pita noted that the violent strike at Port of Ngqura happened because a union that was not recognised by Transnet was using violence to force recognition. The company was working together with security guards to ensure it would not happen again.

Mr Mboniso Sigonyela, General Manager: Corporate Relations, Transnet, replied to the questions on communications. He said that Transnet continued to try not to spend too much money on communication.  Transnet was targeting its communication towards its shareholders. However, the company did up its game by ensuring that its initiatives, projects and benefits are communicated and appreciated by the community.

Mr Gama said that it was very difficult to assess whether one mode of transport is cheaper than the other.

Ms Tanuja Naidoo, Chief Financial Officer, Transnet Pipelines, said there was a challenge in deciding what should actually go into the pipeline, or be transported by road.

Mr Gama said that the death of the workers did not occur on the company’s premises, but happened outside the premises but during working hours. There were programmes organised for the deceased’s family members.

He said that the company was working on reducing irregular expenditure; the AG has expressed itself satisfied with the developments so far. He said, in answer to the question on the integrity of pipelines and safety of community, that there had been slight hitches, but not a huge problem at all, but the company had engaged the services of an independent entity in the UK, to investigate the problem.

Mr Pita spoke to the industrialisation programme. He said that Transnet, before awarding tenders, would ask for localisation in terms of locomotion. Transnet was continuing to meet its procurement target. 

Ms Naidoo said initiatives had been taken on the pipeline pressure and a reversed plan is being worked on.

Mr Gama said the Durban dig-out port has been deferred to 2024, due to economic downturn. The issue of the bill boards was unknown to him, but he said that it will be investigated.

Ms Sishi said there are schemes for students moving from matric to further studies. Maritime studies schools are found all over the country. The admission criteria are mostly science and mathematics. The opportunity to study with Transnet has been advertised in newspapers, and this opportunity was also extended to students from other countries also.

Mr Gama spoke on regional connectivity, assuring Members that the Minister was working on that issue and that Transnet was the implementing authority.  It was continuing to work on Southern African development.

Ms Mabaso assured the Members of the Committee that the filling of the position of the Group Chief Executive is receiving full attention. The position of the Group Chief Financial Officer had already been filled.

Mr Tseli said that the Committee had recommended the setting up of a forum where entities can meet from time to time to share knowledge, but the assistance of the shareholders is needed for progress update and sharing.

Ms Rantho expressed concern on the lack of progress on communication. She suggested that all strategies and projects should be communicated to the community, or it was also possible to distribute pamphlets.

Dr Luyenge noted the comment on making the appointment of Group CEO, but asked the timeframe.

Ms Mabaso responded that it would be filled within a reasonable time.

Ms Mazonne asked for an update on pension pay out discussions and also on the outcome of the court case.

Ms Stander said that 20 factories were shut down in one area, because government subsidies were withdrawn. People lost their jobs,and so she suggested that Transnet may wish to target those areas for job training.

Mr Gama said the company was aware of the situation there, and it was trying to promote entrepreneurship. One-stop shop processes would be accelerated.

Mr Pita said the problem of how to tender for work had been noticed.

Mr Stanley Shane, Chairperson, Transnet Pension Fund, said the company is working to restructuring the pension fund payouts. In the 1970s he had a defined benefit fund. However, this was subject to litigation at the moment and the company was thus not at liberty to discuss the litigation.

He pointed out that the Minister has set up a forum for chairpersons of the various State Owned Enterprises, with committees such as the governance forum, which meets on a regular basis. Sharing of experiences and knowledge is vital to turnaround.

The Chairperson encouraged members to exercise a high level of patriotism and ensure that fiscal discipline is upheld.

Committee Minutes Adoption
Members adopted the minutes of 17 February 2016.

The meeting was adjourned