Overview
The 1990/91 book year was the year of inception for the South
African Rail Commuter Corporation after recommendations from many
investigations over several years materialised in this new legal
entity. These investigations all focused on the social responsibility
of funding and implementing mass passenger transportation facilities
in the urban environment. As a result of the particular juncture
in time in which our country finds itself, the Corporation was established
under very difficult circumstances and yet was able to achieve a
great deal with limited resources during the period under discussion.
Incorporation
In addition to the initial studies by Mr J Driesen and Prof
D G Franzsen regarding transportation policies, the late Dr Wim
de Villiers undertook a comprehensive, yet very specific study
early in 1985 with regard to strategic planning, management practices
and systems within the SA Transport Services.
Dr de Villiers came to the conclusion that the new SA Transport
Services, Transnet Limited, could not be put on the road to privatisation
and yet retain the social responsibility of the State by way of
cross-subsidisation. Initially only a division within Transnet
was considered, but later the wiser decision was taken by Parliament
to put a new focus on Rail Commuter Transportation and create
a separate body.
On 1 April 1990, the South African Rail Commuter Corporation
came into being as a fully commercially viable legal body in terms
of the Legal Succession to the South African Transport Services
Act, 1989 (Act no. 9 of 1989).
The principal aim of the Corporation was formulated in Article
23 (1) of the Act as "To ensure that rail commuter services
be provided in the public interest in the RSA".
In order to comply with this directive, the capacities of a normal
commercially competent person were bestowed upon the Corporation.
Structure
It is fit to mention in this first annual report that the
Corporation functions under the control of a 10-member Board of
Control and that the Chairman reports to the Minister of Transport
and of Posts and Telecommunications.
On 1 April 1990 the Corporation assumed responsibility for not
only the management of all rail commuter services, but also inherited
all assets in and around the commuter corridors. In this regard,
the directive by the State, as sole shareholder of all these assets,
very clearly stated that all developable assets should be commercially
exploited and utilised in order to maximise cross-subsidisation
of the social commuter service.
The Corporation thus saw itself from day one in a dualistic role,
and two businesses were established. On the one hand, all the
Metro services were placed under the authority of a General Manager,
while on the other hand the management of all developable assets
fell under the General Manager (Properties). The typical staff
functions of Finances, Manpower and Technical supply services
to both businesses, with a General Manager heading up each one.
On 31 March 1991 there were forty two members of staff at the
Corporate Head Office, and it is intended to keep this complement
as small, streamlined and flexible as possible without impinging
on the demands of the statutory directive.
Relationship with Transnet
As determined by the founding statute of Transnet Limited
and the Corporation, the Spoornet Division of Transnet undertakes
the management of all services and all maintenance of fixed and
movable assets is handled by either Spoornet itself, or by other
business units of Transnet.
In order to facilitate this Principal/Agent relationship, a management
agreement was entered into with Transnet Limited. Apart from the
financial arrangements included therein, the matter of the supply
of services was also addressed. A business agreement which specifically
addresses all norms and standards of the supply of service and
maintenance will be established in the coming book year.
Different notice periods for the termination of various tasks
performed by Transnet Limited on behalf of the Corporation, were
stipulated. As the Corporation develops the ability to manage
such tasks and projects on its own, open tenders will be called
for in order to ensure that the best prices are paid for the services
concerned.
Currently, the Operating Agreement takes the form of a contractual
amount which appropriates operational and maintenance costs to
the Corporation according to cost distribution keys for direct,
indirect and overhead expenditures. The Corporation thus had no
insight into the calculation of the contractual amount in this
first book year. Against the background of the "actual cost"
basis, on which the relationship with Transnet exists, an attempt
will be made in the new year to agree with Transnet Limited on
the establishment of a separate Metro division with a dedicated
cost system.
External environment
During its first year of existence, the Corporation operated
in an exceptionally dynamic environment. Numerous shifts on the
political front presented major challenges in terms of scenario
planning. On the economic front, business confidence was low,
investment limited and labour unrest disturbing, while civil recalcitrance
was a significant impediment to the general security needed for
a healthy business climate.
Corporate positioning
Initially, the Corporation as a legal entity was unknown and
often unpopular amongst its diverse target audiences. A large-scale
campaign of personal interaction was initiated to inform the respective
opinion makers in both the public and business sector of the identity,
strategy and objectives of the Corporation. This exercise included
not only politicians, State Departments, Regional Development
Advisory Councils, Regional Services Councils and local authorities,
but the positioning was also directed towards professional institutions,
academics, international transportation associations, consultants,
financial organisations, suppliers, extra-parliamentary groups
and other commuter transport operators both locally and overseas.
Internally the task was equally challenging to bind personnel
appointed from diverse disciplines into a team. For this purpose
a corporate value system was accepted.
Strategic direction
On 1 April 1990 the Corporation inherited assets to the value
of R4,3 milliard but the public perception of the condition of
the assets and associated supply of services was everything but
favourable. The Board of Control selected the most logical and
positive alternative from amongst a number of options, namely
that it was necessary for the infrastructure to undergo a radical
reparation phase in order to make up the backlog, drastically
address the supply of services, and rapidly develop an underdeveloped
property portfolio to full market potential. Such reparation scenarios
are by the nature long term matters, and their execution would
be difficult in an unstable external environment.
Nevertheless, during the period under review, approximately R14,2
million was invested to address the quality of service supply,
especially; in security. The Cabinet ruled that the SA Police
had an undeniable responsibility in terms of the commuter environment,
and a five year programme for the upgrading of security to the
value of R38,6 million was approved.
Financial position
For the 1990/91 book year, a contracted amount of R1 118 million
was agreed upon with Transnet Limited. After a time, this amount
was adjusted to R1 328 million to make provision for salary adjustments
and costs carried by the agent in terms of pension and medical
fund shortfalls.
These adjustments naturally accentuated the funding requirements
of the SA Rail Commuter Corporation and increased the initial
funding to R830,5 million towards which the State contributed
a direct grant of R161,5 million as well as channelling Transnet
dividends to the amount of R500 million.
In terms of the agreement with Transnet, the SA Rail Commuter
Corporation was obliged to pay the contracted amount in 12 equal
payments. It was thus clear to the management from the very first
month, that funding would be one of the greatest challenges and
it was therefore decided to enter the money and capital markets
in order to finance the funding and minimalise finance costs.
The SA Rail Commuter Corporation estimated its income from fares
at R347 million which amounted to a cost coverage of 31,3%. As
a result of the economic climate, labour unrest, a tense security
situation and the level of fare evasion, the actual income for
fares amounted to only R309,8 million. This state of affairs,
together with the average international cost coverage of between
45% and 55%, resulted in the SA Rail Commuter Corporation having
to increase its fares on 1 October 1990 by 15%. The book year
was closed with a cost coverage of 29,84%.
Prospects
As a result of population growth and large scale urbanisation,
the Corporation will be put under increasing pressure to provide
effective and affordable mobility to the commuting public. This
challenge will have to be handled amidst a difficult economic
climate and a continuing tense security environment. The SA Rail
Commuter Corporation is however fully confident that the improved
security arrangements and service supply, as well as the upgrading
of the commuter environment, will lead to greater community satisfaction
and enable the State to achieve its socio-economic objectives.
Appreciation
We would in the first place like to express our appreciation
to Minister George Bartlett who as Minister of Transport in the
first year of our existence, supported us in word and deed, and
also to Minister Piet Welgemoed who succeeded him. As is the case
with the establishment of any new organisation, there were many
obstacles to be overcome, but much was also achieved and we would
like to express our thanks and appreciation to the Board of Control
of the Corporation for their unfailing support and understanding
during the past year.
The demands made on the Corporation were fully met by a competent
and energetic personnel corps who deserves great praise. As a
result of the dynamic developments in the rail commuter environment,
the Corporation looks forward with great expectation to meet the
challenges of the future.
