annual SOUTH AFRICAN RAIL COMMUTER RP: 151/2002 ISBN: CORPORATION LTD

Transcription

1 annual R E P O R T 2002 RP: 151/2002 ISBN: SOUTH AFRICAN RAIL COMMUTER CORPORATION LTD

2 M O V I N G P E O P L E 2002

3 annual R E P O R T SOUTH AFRICAN RAIL COMMUTER CORPORATION LTD

4 The new 10M4

5 contents VISION AND MISSION STATEMENTS COMPANY PROFILE MANAGEMENT BOARD CHAIRMAN S REPORT CHIEF EXECUTIVE OFFICER S REPORT CONTENTS: THE ANNUAL FINANCIAL STATEMENTS REPORT OF THE AUDITOR-GENERAL DIRECTORS REPORT BALANCE SHEET INCOME STATEMENT STATEMENTS OF CHANGES IN EQUITY CASH FLOW STATEMENT NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS

6 vision & mission STATEMENTS VISION To establish rail as the preferred mode of public transport and to be the recognised champion in ensuring the provision of quality commuter rail services for all Transport Authorities in South Africa. MISSION To manage the assets and funding of the rail commuter business on behalf of government, and to ensure the efficient and effective local delivery of rail commuter services, within National Land Transport Policy directives and appropriate regulatory regimes. Railway signal 4

7 company PROFILE FOUNDING THE COMPANY ON 1 APRIL 1990, THE SOUTH AFRICAN TRANSPORT SERVICES (NATIONAL RAILWAYS) BECAME A PUBLIC COMPANY CALLED TRANSNET LIMITED, AS A CONSEQUENCE OF THE DEREGULATION OF THE TRANSPORT INDUSTRY. THE NATIONAL RAILWAYS ALSO SHED ITS RESPONSIBILITY FOR RAIL OCMMUTER SERVICES TO THE NEWLY FORMED ENTITY. The South African Rail Commuter Corporation Limited (the Corporation) was established at the same time to assume the responsibility for the rail commuter services throughout South Africa. Train exiting a tunnel The Corporation inherited all assets (land and properties) in and around commuter stations and corridors for the purpose of commercialising these assets to financially contribute to a reduction in the subsidisation of the social commuter rail service. During 1992, a wholly-owned subsidiary company of the Corporation, Intersite Property Management Services (IPMS), was formed to perform this function for the Corporation. The main objective and business of the Corporation is to ensure that, at the request of the National Department of Transport or any local government body designated as a transport authority, rail commuter services are provided in the public interest. Services are currently provided by Metrorail Services, an independent division of Transnet, in terms of a negotiated concessioning agreement. 5

8 management BOARD BACK LEFT: Brian Jacobs EXECUTIVE MANAGER: ASSET MANAGEMENT & DEVELOPMENT BACK MIDDLE: Enos Ngutshane EXECUTIVE MANAGER: CONTRACT MANAGEMENT & BUSINESS DEVELOPMENT BACK RIGHT: Jakkie van Niekerk EXECUTIVE MANAGER: FINANCIAL SERVICES FRONT LEFT: Jack Prentice MANAGING DIRECTOR: INTERSITE PROPERTY MANAGEMENT SERVICES (IPMS) FRONT CENTRE: Ben van der Ross ACTING CHIEF EXECUTIVE OFFICER FRONT RIGHT: Selomane Maitisa EXECUTIVE MANAGER: CORPORATE SUPPORT SERVICES 6

9 7

10 c h a i r m a n s REPORT The Government's quest to make commuter rail "the preferred mass mode of public transport in South Africa" has been cited in most public forums. It was from this statement that the SARCC Board of Control had to review the Corporation's mandate to incorporate the Government's position on this mode of transport. During the 2001/2002 financial year, the realities of the appropriate commuter rail service for the new millennium, came to surface. These realities require a total change of rail service providers' mindset to meet this challenge. The consequence thereof being the sort of issues we are grappling with to transform the rail industry to meet this challenge. These issues are: what should be the vision for passenger rail in South Africa, and therefore what should be the vision and focus of the SARCC? How do we effectively transform the organisation and industry to optimise effectiveness? What is the role of rail in terms of helping to alleviate road congestion and improving general public transport? What role should be played by commuter rail in the African context, towards the alleviation of poverty, creation of employment, increased mobility of people, promotion of tourism, reliable and costeffective transport system, and lastly, sustainable transport towards sustainable development of the South African, and the African economy. These issues would take time to effect. Among the challenges, the most important one is forging a new rail policy and plan for the country. On the other hand, government has indicated that it may initially merge the key two players in passenger rail operations into a single entity and simultaneously review the role of the SARCC. Whilst the SARCC Board has to make its contribution to the resolution of issues outlined above, commuter rail remains the essential means of transport serving the lowest income groups of the economy who depend on it to commute to and from work. Review In the 2001/2002 financial year, Government provided SARCC with a subsidy of R1, 861 million, R495 million of which was for capital projects. There was, however, a net budget shortfall of R79 million. The capital funds were spent on refurbishing rolling stock, signalling and commuter rail stations. The Corporation stepped up its monitoring aspect of the negotiated concessioning contract with Metrorail (a business unit of Transnet). The Contract Management and Development Division's Inspectors were adequately trained and embarked on a closer monitoring of the contract. The Division also undertook station census to get an independent view on the level and quality of service provided by Metrorail. The Corporation introduced the new 10M4 coaches in the Wits region, Gauteng, at a launch function held at Park Station on 23 October Notwithstanding these new coaches, the ageing rolling stock remains a concern in the provision of a reliable service to commuters. The deteriorating condition of rolling stock, among other factors, has been linked to an increased number of trains cancelled versus train scheduled during the financial year. The condition of our rolling stock, if not addressed urgently, will also compromise safety in future. SARCC, through its wholly owned company, Intersite Property Management Services (Intersite), upgraded 14 stations at a total cost of R121 million. Nine (9) inter-modal facilities were developed throughout the country during the 2001/2002 financial year thus contributing to a seamless public transport system in South Africa. Intersite, once again, contributed substantially to the total income of the Corporation. It earned income of R150, 9 million compared to R135, 2 million in 2000/2001. Safety and security remains key to the Corporation in ensuring the provision of services to commuters. Regrettably, five train accidents occurred during the 2001/2002 in which 24 people were killed and 353 were injured. All fatalities occurred in the Charlottedale accident in KwaZulu-Natal in February The Corporation, together with Metrorail and Spoornet, instituted an internal inquiry into the accident and Cabinet established a Board of Inquiry to investigate the accident. Reports on these investigations will be completed during 2002/2003. The Corporation continued to put more effort and resources into the management of safety of commuters and the security of assets by investing funds in improving the safety of operational facilities. Vandalism of assets and cable theft continue to plague the commuter rail system. To curb cable theft, the Asset Management and Development Division introduced a new signalling technology that uses materials, which have little or no value to the second hand market. During the financial year under review, Government continued to put on hold, indefinitely, the planned full-scale concessioning of the commuter rail services. The negotiated concessioning agreement between SARCC and Metrorail, which expires on 31 March 2003, would be extended in the interim whilst the institutional restructuring process is being finalised. The two parties would discuss and 8

11 agree on the terms of the extension of the contract during the following year. This year marked the heightening of the Board's efforts to transform the SARCC and its business. The strict adherence to corporate governance and business ethics were top on the Board's agenda. Other activities included the revision of the mandate of the Board, the extensive review of the SARCC employees' demographic and gender profiles, which resulted in a ratio of 62% to 38% for Blacks to Whites, respectively. The actual implementation will take place early during the 2002/2003 financial year to allow for the execution of the necessary human resources processes. The strategies to effectively deal with the balancing of employee demographics at senior to board levels of management, and the aggressive change of the total SARCC business approach have also been concluded for implementation during the next financial year. The focus on empowerment of people from previously disadvantaged background has resulted in the revision of the SARCC tender policy by stipulating a pre-qualification 25% minimum of blacks in all supplier tenders, and the higher weightings for satisfaction of HDI requirements in the tender evaluation processes. The SARCC has developed strategies to pro-actively introduce and encourage BEE potential suppliers to commuter rail by informing them of the business opportunities within SARCC and the necessary requirements to participate, inclusive of the manner in which SARCC would provide them with the necessary support. The approach of Intersite in the upgrading of stations has shifted to a more consultative one to accommodate the needs of commuters, and to provide improved facilities for informal traders (hawkers) in an effort to develop this sector of business from an employment creation viewpoint. The SARCC is actively participating in the binational commissions arranged by the NDOT to contribute to the Nepad initiatives and to attract the necessary rail expertise for its business. Challenge Despite the challenges outlined above, the deteriorating condition of rolling stock and funding thereof continue to be a major challenge to the Corporation and the industry. During the financial year, NDOT provided the Corporation with R135 million towards the refurbishment of rolling stock, which was used for the 10M4 project. However, to sufficiently maintain the current system, a total capital investment of between R1, 3 billion and R1, 6 billion per annum would be required. To expand and grow the rail commuter system, an additional R800 million per annum would be required over a 20-year period. The Future The commuter rail institutional arrangement was under a spotlight in 2001/2002 financial year. Government and key role players began discussions on the framework. These discussions would continue into the following year. During the year, Minister Omar initiated the establishment of a Rail Policy. The Corporation is involved in the development of the Policy, which would be completed in 2002/2003 Thanks I thank the Minister of Transport, Dr. Dullah Omar, for his encouragement and guidance and also for the support of his Director-General, Mr Sipho Msikinya, Advisor, Professor Rwelamira, and Deputy Director-General, Mr Jerry Makokoane, during 2001/2002. It has been a pleasure to work with the Minister of Transport and his team. During the year, I reconstituted Board Committees. The Personnel Board Committee was renamed the Human Resources Board Committee and the new Tender Board Committee established. I would like to thank fellow Board members for their participation in, and contribution to these Board Committees over and above their input and advice in addressing the challenges facing the Corporation. To the Chief Executive Officer of Metrorail, Mr Honey Mateya, his executive management and staff, my thanks for continuing to provide the service as per our agreement. I thank the Corporation's Acting Chief Executive Officer, Mr Ben van der Ross, for his contribution to the achievement of the Corporation's objectives. I also record my appreciation to the Intersite's Managing Director, Mr Jack Prentice, for his continued effort and success in managing the Corporation's property portfolio. Lastly, but not least, thanks to the Corporation's Executive Managers and the staff for their hard work in striving to achieve the mission of the Corporation. EDDIE LEKOTA CHAIRMAN 9

12 chief executive officer s REPORT The 2001/2002 financial year has been a difficult and challenging year for the rail commuter industry and the general commuting public. It is becoming increasingly difficult to balance pressing challenges, risks and priorities against available resources and current uncertainty in relation to organisational arrangements in the industry. Despite these difficulties, service provision has continued and there have been many positive highlights. During the year the newly appointed Chairman, Mr E.L. Lekota and Board of Control played an active and positive role in defining the vision and strategic direction for the business. These efforts culminated in an approach which addresses the challenges and the future of the rail commuter business at the highest possible level. They have created the required channels for intervention at national policy level. The Management and Board of Control believe that should the future role of rail, as an environmentally friendly development catalyst, not be determined at national policy level, it will be difficult, if not impossible, to transform the rail commuter business into a sustainable and user friendly public transport mode. SERVICES PROVISION SARCC received a subsidy of R1 856 million in the 2001/2002 financial year. This subsidy comprised of an operational subsidy of R1 366 million and a capital grant of R490 million. Metrorail, a division of Transnet, operates the rail commuter services on behalf of the SARCC under a four year concession type agreement, which expires on 31 March A total of 467 million passenger journeys were undertaken during 2001/2002 in the six metropolitan areas where commuter rail services are provided. A total of R970 million was expended on maintenance activities associated with the provision of rolling stock and rail infrastructure. The SARCC concluded its financial position for the year with a shortfall of R80 million on the operational subsidy provided for the entire rail commuter business. INFRASTRUCTURE AND ROLLING STOCK The Asset Management division of the SARCC, and Intersite Property Management Services, a wholly owned subsidiary of the SARCC, manage commuter rail assets with book value of R5, 6 billion. Life Cycle asset management of rail infrastructure and rolling stock is the responsibility of the Asset Management division, whereas rail stations, integrated public transport facilities and property developments are managed by Intersite. The annual base capital grant allocation to the SARCC for maintaining, upgrading and expanding rail commuter services and infrastructure amounts to R300 million - R400 million per annum. However in the financial year under review, an additional R135 million was provided to the SARCC for the 10M4 rolling stock refurbishment programme. Funding for reinvestment, re-capitalisation and growth of the rail commuter business remains a threat to sustaining the current rail commuter business. To sufficiently maintain the current system, a total capital investment of R1, 3 billion - R1, 6 billion per annum would be required. To expand and grow the rail commuter system, an additional R800 million per annum would be required over a 20-year period. The current annual limited capital allocation compels the SARCC to manage priorities for capital expenditure in terms of short-term crisis/emergency requirements. The situation has created a serious dilemma in terms of the performance of the system and consequently an unacceptable commuter and public experience of the rail commuter system. This has unfortunately, but inevitably, resulted in commuter frustrations, leading to instances of service boycotts, rioting and damage to rail commuter assets. During 2001/2002 the Corporation launched a new generation train set and train configuration in the Wits region, Gauteng. The new 10M4 is a result of continuous research and development to establish an appropriate and cost effective technology application as base for a future rolling stock refurbishment programme. The 10M4 design won an SABS Design Institute award for its potential for future development in October Approval was granted by the NDOT during 2001/2002 for commencing the technical feasibility study on the Khayalitsha rail extension in the Western Cape Province. This represents the first rail development project beyond the conceptional design phase, in the past 15 years. 10

13 Intersite completed 14 station refurbishment and nine intermodal facilities development projects during the 2001/2002 financial year, thus contributing significantly to the improvement of the rail commuting experience. SAFETY AND SECURITY Management efforts were focused on all elements of safety and security in the rail commuter business. The full spectrum of safety risks in the rail commuter environment researched and analysed by the SARCC, included the following: Safety in relation to accidents and Safety Management systems, Safety of passengers during operational activities, Safety in the public and operational areas, and Protection of assets Various projects and proposals followed the investigations in order to identify the risk areas and to implement appropriate sustainable solutions to deal with and unfortunate, and in many instances uncontrollable, wave of abnormal operational circumstances for which the business has not been structured or resourced. During 2001/2002, five accidents occurred on the rail commuter network in which 24 passengers lost their lives, while 353 passengers were injured. The 24 passengers were killed in the regrettable Charlottedale accident in KwaZulu-Natal in February Various boards of inquiry were established to investigate this accident, including a Cabinet appointed Board of Inquiry. Findings of the Boards of Inquiry will be released during the course of the following financial year. Incidents of vandalism, specifically the theft of signalling and overhead power cabling, as well as train window and door theft, have increased exponentially. These activities render the safe and punctual performance of the rail system virtually impossible. Various initiatives and projects are currently being planned and/or implemented to counter such criminal activities. The proposed dedicated transit policing unit will be incorporated with successful safety and security initiatives already being implemented by the rail commuter business. STRATEGIC AND BUSINESS CHALLENGES FOR THE COR- PORATION Funding The capital underfunding of the Rail Commuter Business remains the single biggest challenge and dilemma for the Corporation. The condition and availability of rolling stock and infrastructure have a serious effect on service delivery, punctuality and operational safety. Poor service reliability currently contributes significantly to passenger dissatisfaction and frustrations. The image of the rail system as the preferred public transport mode is threatened, should a turn around of the business not be achieved during the next financial year. Regulatory and Institutional regime The current regulatory and institutional regime which governs the rail commuter business is based on a negotiated rail concessioning arrangement. Following intensive investigations into long term concessioning, Government took a decision not to proceed therewith, but rather to effect the provision of passenger rail services under a public ownership model for the foreseeable future. When the market value and asset condition of the rail commuter business has been enhanced and stabilised, the issue of concessioning can be revisited. As a consequence, the current contract with the operator will be extended on an agreed basis, from March THANKS I thank my management team and staff for their co-operation and effort in achieving the objectives of the Corporation during this challenging year. I also thank the Managing Director of Intersite, Mr Jack Prentice, and his team for their contribution to the business. To the Board of Control and our Chairman, Mr Eddie Lekota, I thank you for your support and direction throughout. BEN VAN DER ROSS ACTING CEO 11

14 annual financial STATEMENTS 1 APRIL MARCH

15 CONTENTS REPORT OF THE AUDITOR-GENERAL DIRECTORS REPORT BALANCE SHEET INCOME STATEMENT STATEMENTS OF CHANGES IN EQUITY CASH FLOW STATEMENT NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS

16 report of THE AUDITOR-GENERAL for the year ended 31 March 2002 REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE GROUP FINANCIAL STATEMENTS OF THE SOUTH AFRICAN RAIL COMMUTER CORPORATION FOR THE YEAR ENDED 31 MARCH AUDIT ASSIGNMENT The financial statements and group financial statements as set out on pages 26 to 39, for the year ended 31 March 2002, have been audited in terms of section 188 of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996), read with sections 3 and 5 of the Auditor-General Act, 1995 (Act No. 12 of 1995) and section 28(3) of the Legal Succession to the South African Transport Services Act, 1989 (Act No. 9 of 1989). These financial statements, the maintenance of effective control measures and compliance with relevant laws and regulations are the responsibility of the accounting officer. My responsibility is to express an opinion on these financial statements, based on the audit. 2. NATURE AND SCOPE The audit was conducted in accordance with Statements of South African Auditing Standards. Those standards require that I plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes: examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Futhermore, an audit includes an examination, on a test basis, of evidence supporting compliance in all material respects with the relevant laws and regulations which came to my attention and are applicable to financial matters. I believe that the audit provides a reasonable basis for my opinion. 3. AUDIT OPINION In my opinion, the financial statements and group financial statements fairly present, in all material respects, the financial position of the South African Rail Commuter Corporation at 31 March 2002 and the results of its operations and cash flows for the year then ended in accordance with generally accepted accounting practice. 4. EMPHASIS OF MATTER Without qualifying the audit opinion expressed above, attention is drawn to the following matters: 4.1 Matters affecting the group financial statements State compensation The State compensation, which is received annually to finance the operational deficit of the Corporation, is not guaranteed. State compensation received in respect of the operating subsidy for financial year amounted to R1 366,250 million, which represented 71,9 per cent of total operational expenditure of the Corporation. Under these circumstances uncertainty exists about the Corporation`s ability to continue operations without the curtailment of services. Furthermore, the borrowing powers of the Corporation have been withdrawn in terms of the South African Rail Commuter Corporation Limited Financial Arrangements Act, 2000 (Act No. 64 of 2000). Adequate subsidisation is therefore regarded as fundamental to ensure that the mandate of the Corporation, as required by Government, is executed Property, plant and equipment a) Capitalisation of design and study costs Included under net property, plant and equipment of R 5 534,436 million at 31 March 2002 were study and design costs, amounting to R14,847 million which were commissioned by the State. The criteria required for capitalisation prescribed by generally accepted accounting practice were however not met, as the implementation of the plans was dependent on approval by the State. Furthermore, forecasts of the future economic benefits to be derived from these plans have not been prepared as at 31 March This deviation from generally accepted accounting practice was disclosed in the accounting policy of the Corporation. b) Classification of property, plant and equipment Various completed projects, amounting to R12,130 million which showed no movement from the financial year to the financial year were recorded in the work-in-progress register of the Corporation. The finalisation of these projects were dependent on the receipt of completion certificates. c) Depreciation on buildings In contravention with generally accepted accounting practice and 14

17 the accounting policy of the Corporation, a building to the value of R50 million was not depreciated. Accumulated depreciation and the retained deficit have been understated with R5 million. This deviation from generally accepted accounting practice was disclosed in the accounting policy of the Corporation Non-distributable reserves Government grants, amounting to R2 389 million as at 31 March 2002, received in respect of property, plant and equipment were recorded as non-distributable reserves. Contradictory to generally accepted accounting practice these reserves were not amortised as income received over the useful economic life of the related assets. This deviation from generally accepted acounting practice was disclosed in the accounting policy of the Corporation Accounts payable Included in accounts payable of R475,752 million was an unknown deposit of R5,3 million of which the obligation could not be verified. 4.2 Matters not affecting the group financial statements Non-compliance with laws and regulations: Approval of the annual budget Contrary to section 52(a) of the Public Finance Management Act, 1999 (Act No.1 of 1999) (PFMA), the budget for the financial year of the Corporation was not submitted to National Treasury for approval. The non-submission of the budget was due to inadequate funding received from the National Department of Transport to the amount of R245 million. In terms of the South African Rail Commuter Corporation Limited Financial Arrangements Act, 2000 ( Act No. 64 of 2000) the borrowing powers of the Corporation were withdrawn and consequently a negative budget will result in the non-payment of liabilities. The Corporation brought this matter to the attention of the Ministers of Transport and Finance prior to the due date for submission of the budget as required by section 52(a) of the PFMA Fire at Germiston Station A fire on 22 April 2002 at the Germiston Station resulted in damages to 29 coaches with an insured value of R41,6 million Weaknesses in internal control: Information system A follow up computer audit of the general control environment surrounding the computerised information systems of the Corporation was finalised on 13 June This review revealed the following control weaknesses: The disaster recovery plan was not available for review. An information technology policy was drafted but the policy was not formally approved and made available to all users. User account management procedures were not approved and communicated to all users. Backups for the Oracle Financial System and the VIP system were not regularly tested and were stored at the premises of the Corporation. In light of the fact that numerous hard copy printouts were also not made, the risk of losing irreplaceable data if the computer is damaged or destroyed was significant. Only one person was responsible for the VIP system and the reconciliation with electronic fund transfers, which was regarded as weak segregation of duties. Physical security around the computer system was inadequate. 4.3 Financial Statements In terms of section 55 (1) (c) (ii) of the PFMA, 1999 (Act No.1 of 1999) the accounting officer must submit the financial statements within two months after the financial year-end to the Auditor-General. The financial statements were submitted in time, but due to amendments to the statements emanating from the audit, the final financial statements were only signed on 26 July APPRECIATION The assistance rendered by the staff of the Corporation during the audit is sincerely appreciated. DORIS L. T. DONDUR for Auditor-General Johannesburg 30 July

18 directors FOR THE YEAR ENDED 31 MARCH 2002 R E P O R T The Board of Control presents the group financial statements of the South African Rail Commuter Corporation (hereafter referred to as the Corporation ) for the year ended 31 March Incorporation The Corporation has been registered in terms of Section 22(1) of the Legal Succession to the South African Transport Services Act No. 9 of As per Section 31(2) of the same Act the provisions of the Companies Act, 1973 do not apply to the Corporation. 2. Nature of the Business The core functions of the Corporation are: 1) To ensure that, at the request of the National Department of Transport or any sphere of government, rail commuter services are provided in the public interest and to promote rail as the primary mode of mass commuter transportation and, 2) To manage and develop commuter rail assets, which includes property, land (in and around stations), rolling stock and infrastructure. The Corporation ensures the provision of commuter rail services through Metrorail, (a business unit of Transnet) under a negotiated concessioning agreement. Metrorail's activities include the operation of the trains, the daily maintenance of rolling stock and infrastructure, the collection of and accounting for the fare revenue collected from passengers, and the provision of security relating to the service. The property portfolio of the Corporation is managed by Intersite Property Management Services (Pty) Ltd (a wholly owned subsidiary of the Corporation hereafter referred to as Intersite ). Intersite performs property management services, both in respect of property owned by the Corporation and property owned by Transnet which are used for the commuter service. Its activities include maintenance of the properties, improvements to the properties, property developments, letting of the properties and collection of rentals. The restored Pretoria Station 16

19 3. Vision, Mission and Objectives Vision To establish rail as the preferred mode of public transport and to be the recognised champion in ensuring the provision of quality commuter rail services for all Transport Authorities in South Africa. Official opening of Tembisa Station by Minister Omar Mission To manage the assets and funding of the rail commuter business on behalf of government, and to ensure the efficient and effective local delivery of rail commuter services, within National Land Transport Policy directives and appropriate regulatory regimes. Objectives 3.1 To manage the negotiated concessioning and other contracts relating to rail commuter services and infrastructure. 3.2 To be an effective and efficient concessionor by ensuring the provision of safe, reliable, affordable, clean and punctual rail commuter services. 3.3 To ensure value for money in the utilisation of the rail commuter subsidy. 3.4 To plan, facilitate and ensure optimal rail commuter infrastructure expansion. 3.5 To ensure optimal utilisation of funds and rail commuter assets. 3.6 To enhance the Corporation's assets by facilitating investment from external sources. 3.7 To ensure the provision of adequate funds, both capital and operational, in order to sustain the long-term viability of the business. 17

20 directors R E P O R T Overview of the achievement of the Corporation's business objectives (non-criminal) incidents decreased by 0,96% same period. during the 3.1 To manage the negotiated concessioning agreement with Metrorail and other contracts relating to rail commuter services and infrastructure. Management of the Contract The Contract Management and Development Division has stepped up its monitoring aspect of the negotiated agreement with Metrorail. The Corporation now monitors the agreement closely and gets independent reports, over and above Metrorail regular reports on the provision of service. Mutual asset rental contracts The contract between the Corporation and Transnet, trading as Spoornet, includes a penalty structure for non-delivery of access to the assets and a safety case for all operators on the same infrastructure. 3.2 To be an effective and efficient concessionor by ensuring the provision of safe, reliable, affordable, clean and punctual rail commuter services. Safety The Corporation continued to put more effort and resources into the management of safety of commuters and the security of assets by investing funds in improving the safety of all operational facilities, namely rolling stock, signals, perway and stations. The Corporation records all incidents in and around the commuting areas distinguishing between crime related and operational incidents. The total number of criminal incidents decreased by 18,05% during 2001/2002 and operational Commuter rail safety remains a priority of the Corporation and the results achieved during the financial year under review testify to efforts by both the Corporation and Metrorail to provide a safer means of transport for commuters. Reliability and punctuality Train punctuality has deteriorated slightly from 89,65% in the year 2000/2001 to 89,14% in 2001/2002 and passenger trips decreased from 489 million in 2000/2001 to 467 million in 2001/2002. Trains cancelled versus trains scheduled increased from 0,77% in 2000/2001 to 3,48% in 2001/2002, against the acceptable norm of between 0,30% and 1,00%. The increased number of trains cancelled were due to a number of factors of which the more important were: - Vandalism and cable theft. - The deteriorating condition of rolling stock due to increasing intervals between major services, brought about by a shortage of funds. - The unavailability of train sets due to shortages resulting from arson, vandalism and accidents. - A directive from Metrorail Head Office for all regions to comply with the Basic Conditions of Employment Act, especially in relation to hours worked by train drivers. Affordability Commuter rail provides an affordable public transport to essentailly the lower income groups of our society. The Corporation strives to keep the service affordable to commuters. Annual fare increases proposed by Metrorail are discussed with and sanctioned by the Corporation and approved by the Minister of Transport. 18

21 3.3 To ensure value for money in the utilisation of the rail commuter subsidy. Despite major increases in maintenance and security costs it was possible to contain the subsidy increase to 7,5% (2000/2001: 8,4% ). 3.4 To plan, facilitate and ensure optimal rail commuter infrastructure expansion. Signalling upgrade In the financial year, three major signalling projects have been commenced by the Corporation at a cost of R180 million, broken down as follows: Bellville - R 60 million Johannesburg Park Station - R 60 million Midway, Lenz, Lawley & Grasmere - R 60 million - R 180 million The achievement of the upgrade programme which is required over a continuous period of 25 years would improve the service rendered to commuters by reducing train delays caused by breakdowns. However, the inability of Government to commit to an effective funding programme to upgrade the entire fleet over time renders this unlikely at present. This is a matter of considerable ongoing concern for the Corporation. The replacement of coaches over 40 years will cost in the order of R54 billion, (at present value). Rolling Stock Refurbishment The Corporation owns a fleet of coaches of which are operational and 431 are scrap, surplus or defective. Rolling stock, which is old, has been, in some cases, directly linked to train delays. The Corporation has begun with the implementation of its rolling stock refurbishment programme. The first upgraded 10M4 coaches were delivered in Gauteng, Wits Region, in October 2001 at a launch honoured by the presence of the Minister of Transport, Dr. A.M. Omar. R400 million has been budgeted for the upgrade of 176 coaches (88 coaches each in Cape Town and Johannesburg). The balance of the upgraded coaches will be delivered in New coaches have a modern new interior and exterior appearance. The driver's cab has been modernised and has better protection in case of a collision. The new 10M4 19

22 directors R E P O R T Stations Upgrade The Corporation through its subsidiary, Intersite, has upgraded fourteen stations at a cost of R121 million in the year under review. and other related services, amounting to R24,1 million (2000/2001 R22,7 million). Once again, Intersite contributed substantially to the total income of the Corporation to help to reduce the subsidy required for rail commuter services. Major projects undertaken during this financial year include the following station upgrades: Stock Road - R 27 million Woodstock - R 12 million Station B - R 14 million Denneboom - R 10 million Wintersnest - R..9 million 3.5 To ensure optimal utilisation of funds and rail commuter assets. 3.7 To ensure the provision of adequate funds, both capital and operational, in order to sustain the long-term viability of the business. Capital Funds The total investment of capital to the value of R454,5 million (2000/2001: R291,8 million) was made during the year under review. These funds were expended mainly towards the rolling stock refurbishment programme, infrastructure and station upgrades. 3.6 To enhance the Corporation's assets by facilitating investment from external sources. Funds Although the Corporation strived to ensure the provision of commuter rail within its set budget, a shortfall in subsidy has lead to the inability to pay the management fee due to Metrorail, to the amount of R79 million. Efficiency programmes which the Corporation initiated in the previous financial years assisted in containing the cost of operations. Commuter rail assets The Corporation rented portions of its infrastructure to Spoornet during the year and earned R60 million (2000/2001 R60 million) in rental income. Property development Income earned from Intersite activities amounted to R150,9 million (2000/2001: R138,2 million). This included income from third parties for the management of property portfolios Operational Funds The Corporation received an operational subsidy of R1 366,3 million (2000/2001: R1 372,0 million) for the 2001/2002 financial year. 4. Financial Position and Results Operational Results Total Group income amounted to R214,8 million compared to R200,8 million in 2000/2001. Group operating expenditure increased by 8% (2000/2001: 0,88% increase). State Compensation An amount of R1 366,3 million was received as a subsidy for operational expenditure (2000/2001: R1 372,0 million). This represents a decrease of 0,44% (2000/2001: 8,4% increase), despite the inflationary nature of expenditure incurred by the Corporation. The subsidy for capital expenditure was R490,2 million (2000/2001: R355 million), 20

23 5. Post Balance Sheet Events On 22 April 2002 a fire destroyed 29 coaches at the Germiston station. The insured value of the damage caused, amounted to R41,6 million, while the replacement value is estimated at more than R300 million. The cause of the fire is still being investigated. 6. Performance Information Services provided The Corporation, through its concessionaire Metrorail, provides rail services in the four major centres, namely Wits (Johannesburg), Northern Gauteng (Pretoria), Western Cape (Cape Town) and KwaZulu-Natal (Durban) as well as Port Elizabeth and East London. The length of each network, together with the number of stations utilised on each region, is as follows: Passenger Journeys The table below shows the number of passenger journeys travelled during the year under review compared to the previous year. Passenger journeys (millions) 2001/ /2001 Increase/ decrease(% ) Wits 172, ,899 (1,38) Northern Gauteng 80,151 81,262 (1,37) Western Cape 152, ,407 (7,37) Kwa-Zulu Natal 53,744 60,950 (11,82) Port Elizabeth 2,054 2,041 0,64) East London 6,239 5,928 5,25) Total 466, ,487 (4,60) Passenger journeys decreased by 4,74% (2000/2001: 0,32% decrease). Regions Network (km) Stations Wits Northern Gauteng Western Cape KwaZulu-Natal Port Elizabeth East London Total The new Tembisa Station 21

24 directors R E P O R T 7. Subsidiary: The Corporation's interest in its subsidiary is summarised as follows: Name % Share-holding Issued Capital Amounts owing Attributable by subsidiary to share of net the Corporation profit /(loss) Intersite Property Management Services (Pty) Ltd R'000 R'000 R'000 Ordinary shares 2000/ % (1 500) The interior of the new 10M4 coach 22

25 8. Corporate Governance The King Report The Board of Control endorses the Code of Corporate Practices and Conduct as set out in the King Report and ensures that the Corporation complies with the Code. The need to operate the group's activities in an open and accountable manner with the highest level of integrity is recognised. Board of Directors The Minister of Transport, Dr Dullah Omar appointed two Board of Control members during the year, bringing the total number of directors to eight non-executive members. The names of the directors are set out under note 9 below. The Board, in order to keep effective control over the group meets on a regular basis, and it recognises its responsibility to report material matters to the Minister of Transport which it does through regular meetings of the Chairman and Acting Chief Executive Officer with the Minister, as well as through the National Department of Transport representative on the Board of Control and ad hoc reports as and when necessary. Annual Financial Statements The directors are responsible for the preparation of annual financial statements in such a way that it fairly presents the state of affairs and results of the operations of the group. The annual financial statements have been prepared in accordance with the Statements of Generally Accepted Accounting Practice. They are based on appropriate accounting policies, which have been consistently applied. Going Concern The operational subsidy for 2001/2002 was R79 million lower than the requirement to operate the service as requested by the National Department of Transport (2000/2001: R22 million). For 2002/2003 the allocation of operational subsidy is again inadequate, to the extent of R245 million. If the inadequate capital subsidy provided by Government to maintain the level of assets required for the current service levels is also taken into account, it is clear that the continuation of the Corporation as a going concern is under threat. The Minister of Transport is currently addressing the future financial needs of the Corporation at the highest level and the directors have a reasonable expectation that the matter will be resolved to the satisfaction of the Corporation. Provided that sufficient and ongoing financial support is provided by Government, the Corporation will be able to continue its operations in the foreseeable future. The annual financial statements are therefore presented on the going concern basis. Affirmative Action The group has implemented a policy of affirmative action as part of its employment strategy. The principles of the policy, and the support for Black Economic Empowerment, are also applied to external consultants and suppliers of goods and services. Employment Equity Forum The Employment Equity Forum has prepared an Employment Equity Plan, which it monitors on a continuous basis. Code of Ethics A formal Code of Conduct and Ethics has been compiled to which the directors and employees fully subscribe. This Code provides reasonable assurance that all people are treated with dignity and respect, that business practices are beyond reproach, and that the group's reputation for its integrity and credibility is protected. 23

26 directors R E P O R T Environment The Group is aware of the necessity of maintaining the highest standard of environmental care, and complies with all regulations in this regard. 9. Board of Control The affairs of the Corporation are managed by the Board of Control members who include members of the Departments of Finance and Transport. The Minister of Transport appoints board members, including the Chairman. In addition, the Minister appoints to the Board as Participant Observers, representatives of the four provinces in which the Corporation operates a commuter rail service. The following Board members served as directors during the year: Messrs: EL Lekota (Chairman) MP Malungani (Deputy Chairman) WF Burger V Daniels J Makokoane JM Ngobeni O Shelembe (Resigned 28/02/2002) RM Kgosana (Appointed 01/11/2001) L Magagula (Appointed 01/03/2002) 10. Internal Audit PricewaterhouseCoopers (PwC) continued to perform the duties of internal auditors of the Corporation. They perform internal audit functions based on the level of risk associated with the various activities of the Corporation, as agreed with the Audit Committee. 11. Internal Controls A Fraud Prevention Policy was developed and approved during the year under review. Subsequently, a Fraud Prevention Plan was finalised and launched to all staff members at an Employee Communication Forum meeting. Internal controls and systems are now designed to provide adequate assurance of the integrity and reliability of the financial statements, to safeguard and maintain accountability of assets, and to minimise the risk of fraud. Railway signal The following participant observers served during the year: Mr E van der Merwe (Gauteng) Mr RF Petersen (Western Cape) Dr J Mtila (Eastern Cape) Mr G Mahlalela (KwaZulu-Natal) (Appointed 30/12/2001) The Acting Chief Executive Officer is Mr BJ van der Ross, who served as such throughout the year. 24

27 12. Board Committees 12.1 Audit Committee The Audit Committee consists of three members of whom two, including the Chairman, are non-executive members. One of the non-executive members is a financial expert. The Acting Chief Executive Officer of the Corporation serves as the third member. The Chief Financial Officer, internal auditors and external auditors attend meetings by invitation. Members: Mr RM Kgosana (Chairman and non-executive member) (Appointed 01/11/2001) Mr EL Lekota (Non-executive member) Mr O Shelembe (Resigned 28/02/2002) Mr BJ van der Ross (Acting Chief Executive Officer) 12.2 Human Resources Committee Members: Mr EL Lekota (Chairman) Mr J Makokoane Mr O Shelembe (Resigned 28/02/2002) Mr BJ van der Ross (Acting Chief Executive Officer) 12.3 Tender Board Committee Members: Mr JM Ngobeni (Chairman) Mr EL Lekota Mr BJ van der Ross (Acting Chief Executive Officer) Mr JP van Niekerk (Chief Financial Officer) Mr BN Jacobs (Executive Manager: Asset Management and Development) 12.4 Infrastructure, Property and Rolling Stock Committee Members: Mr WF Burger (Chairman) Mr EL Lekota Mr BJ van der Ross (Acting Chief Executive Officer) Mr V Daniels Dr J Mtila Mr J van der Merwe Mr RF Petersen Mr G Mahlalela 12.5 Group Capital Investment Board Committee Members: Mr BJ van der Ross Mr EL Lekota Mr JM Ngobeni 13. Corporate Details 13.1 Corporate Secretary Mr M I Fakie resigned on 31 October 2001 and Ms N Siyothula was appointed (on a contractual basis) on 1 November Registered Address: Block B Lincoln Wood Office Park Woodlands Drive Woodmead 13.3 Postal Address: Private Bag X2 Sunninghill

28 b a l a n c e sheet AS AT 31 MARCH 2002 COMPANY GROUP Notes R 000 R 000 R 000 R 000 ASSETS Non-current Assets 5,531,944 5,318,742 5,534,436 5,320,940 Property, plant and equipment 2.1 5,531,709 5,311,378 5,534,436 5,313,811 Investment in subsidiary Loan 4-7,129-7,129 Current Assets 480,558 1,984, ,861 1,984,345 Accounts receivable 70, ,309 76, ,545 Amount owing by subsidiary 3 51,493 22, Loan 4 7,129 7,128 7,129 7,128 Bank and cash 351,538 1,831, ,377 1,850,672 Total Assets 6,012,502 7,302,870 6,012,297 7,305,285 EQUITY AND LIABILITIES Capital and Reserves 5,464,755 5,255,813 5,460,421 5,252,237 Ordinary share capital 5 4,248,258 4,248,258 4,248,258 4,248,258 Non-distributable reserves 6 2,389,019 2,352,243 2,389,019 2,352,243 Funds 7 100,000 80, ,000 80,000 Accumulated deficit (1.272,522) (1,424,688) (1,276,856) (1,428,264) Non-current Liabilities 63,957 70,801 63,957 70,801 Long-term liability 8 34,927 37,967 34,927 37,967 Deferred income 9 29,030 32,834 29,030 32,834 Current Liabilities ,976, ,919 1,982,247 Accounts payable , , , ,843 Short-term loans 11-1,624,000-1,624,000 Short-term portion of long-term liability 3,040 2,739 3,040 2,739 Short-term portion of deferred income 4,998 3,665 4,998 3,665 Total Equity and Liabilities 6,012,502 7,302,870 6,012,297 7,305,285 26

29 i n c o m e statement FOR THE YEAR ENDED 31 MARCH 2002 COMPANY GROUP Notes R 000 R 000 R 000 R 000 Revenue , , , ,806 Income from property management , , , ,242 Infrastructure assets rental 13 60,000 60,000 60,000 60,000 Sundry income 3,792 2,369 3,940 2,564 Expenditure 1,900,474 1,758,219 1,927,462 1,784,031 Defined contribution plan expense 2,855 2,742 5,331 4,914 Depreciation , , , ,441 Insurance claims 82,847 64,640 82,847 64,640 Insurance premiums 37,712 31,371 37,712 31,371 Management and agency fee 1,364,402 1,342,006 1,364,402 1,342,006 Other operating expenditure 25,150 12,888 36,474 23,117 Property portfolio expenses 125, , ,703 97,600 Salaries 24,877 23,241 48,345 43,942 Operating deficit before interest (1,709,912) (1,580,307) (1,712,670) (1,583,225) Interest received 15 37,642 3,661 39,642 5,100 (1,672,270) (1,576,646) (1,673,028) (1,578,125) Interest paid 16 (11,979) (9,803) (11,979) (9,824) Operating deficit before state compensation (1,684,249) (1,586,449) (1,685,007) (1,587,949) State compensation 1,893,191 1,744,406 1,893,191 1,744,406 Operational subsidy 1,366,250 1,372,000 1,366,250 1,372,000 Capital subsidy 490, , , ,000 Special grant 36,776 17,406 36,776 17,406 Surplus for the year 208, , , ,457 27