THE MANAGING DIRECTOR'S REPORT
The Rail Commuter Corporation grappled with a tough operating
environment during the past year. The operating subsidy for commuter
rail travel was reduced by 12,3% while at the same time passenger
numbers grew and costs rose in line with the increased activity
and the need to maintain a public service for the poorest.
Nonetheless, the Corporation and Metrorail have emerged with
a determination to drive down costs through initiative and energetic
management and with a vision of new efficiencies in a commuter
rail service operated on a concession basis.
The year was also marked by significant successes, specifically
the settling of the long-standing dispute with Transnet over penalties
imposed by the Rail Commuter Corporation in terms of an agreement.
This was a learning experience for both sides and has produced
a new spirit of co-operation that will help to structure a better
management and performance regime in the future. The fruits of
this new spirit can be seen in improved punctuality and reliability
of the trains.
SUBSIDY AND FUNDING
The radically reduced funding from government resulted in the
Corporation having to borrow money to cover the deficit of about
R70 million for the year. Unfortunately, borrowing like this to
meet operating needs has eroded the Corporation's borrowing capability
and this will have a deleterious effect on finances in the next
financial year.
At the same time, the Corporation acknowledges that the level
of the annual subsidy from government - about 1% of the national
budget - is not sustainable and costs are constantly being managed
downwards.
Once the concessioning Agreement with Metrorail is in place,
together with the demonstration project which will place about
1% of the commuter rail operation under a private concessionaire,
the Corporation should reduce costs by between R200 and R300 million
a year. This will be achieved through concessioning and leaseback
of equipment and assets as well as operational savings.
But a major challenge that the financial constraints have raised
is what to do with routes that are particularly costly to run.
Since commuter rail provides a public service that extends affordable
mobility to as many of the poorest as possible, the decision on
whether to rationalise and thus close certain costly routes has
major implications beyond the purely monetary. The era of concessioning
and reducing subsidies makes it imperative to tackle this difficult
challenge while also looking at ways of substantially increasing
productivity, introducing one-man trains and other innovations.
RESTRUCTURING
The transformation of the Corporation, begun during the year under
review, will be completed in 1998. There will be four divisions,
in line with its new role and functions, covering management services,
financial services, contract development and management and asset
management and development.
This will also entail staffing up the contract and asset management
divisions to undertake research and development, planning and
acquisition of rolling stock in line with the Corporation's mission
and strategy. The result wilt be an increase in staff members
to 70 during 1998, from the 47 at the beginning of the financial
year. This will give a powerful boost to re-establishing in-depth
urban rail expertise which had been lost over the past decade.
CONCESSIONING
The process leading to the formal signing of a concession agreement
with Metrorail has been a particularly lengthy, complex and cumbersome
one.
However, the detailed and extensive documentation required is
almost complete and it should be signed within the next financial
year. As part of its preparation, the Corporation has prepared
a shadow bid for the concession, a process that has been a very
useful learning one for all involved.
As far as the demonstration project is concerned - offering about
10% of the current operations to private tender - tender - the
criteria for selecting a specific project have been largely agreed
with the trade unions and the stakeholders. The process of identifying
the possible routes, deciding on the best one and selecting the
concessionaire will be finalized in the new year. The project
should be up and running early in the year 2000.
INTERSITE
Once again, the property management and development arm of the
Corporation has done an outstanding job of optimising returns
on the property portfolio. Besides the 36% growth in income, Intersite
formally signed an agreement with the SA National Roads Agency
to manage and develop its extensive portfolio.
Since its inception in 1992, Intersite has contributed about
R310 million to the Corporation's income stream and, through this,
helped to ease the subsidy burden. With its new responsibilities
for the Roads Agency,
Intersite will be looking to optimise the returns on these properties
as well. Intersite has also been very successful in facilitating
public-private sector partnerships in its drive to maximise returns
on State assets. In the past six years, R747 million of private
sector investment has been mobilised into 61 Intersite developments,
bringing the total invested in the Corporation's property portfolio
to R1,2 billion since 1992.
There are also new opportunities in the wings. Two countries
outside South Africa have asked Intersite for proposals to develop
their public property portfolios, further recognition of the particular
success the property management subsidiary is enjoying.
ENPOWERMENT
The Corporation's restructuring has opened opportunities to better
balance the organisation composition.
Once completed, this process will result in a top and middle
management structure that better reflects both the demographic
distribution and the profile of the commuters being served. Continual
staff development and training and the opportunities of concessioning
and regionalisation will create the environment for ongoing staff
promotion and growth.
Intersite has also established a sound record of empowerment.
More than 60% of its contracts has been awarded to companies owned
and operated by previously disadvantaged groups, with another
30% awarded to joint ventures where skills transfer and capacity
building are promoted. With regard to capital projects, contracts
worth R78 million were awarded to black-owned companies during
the year under review.
THE FUTURE
The formalising of the concessioning agreement with Metrorail
and resolving the funding problem, the Corporation finds itself
with the two top priorities for the coming year. Both are linked
in that the introduction of concessioning could be jeopardised
by these funding problems. However, these are regarded as challenges
to be overcome. Both the Corporation and Metrorail are positive
about the future and determined to resolve the issues for the
good of the commuter.
THANKS
The year under review has not been easy and more challenges are
lying ahead, particularly if the depressed economic situation
in the country is taken into account. I am, however, confident
that with the continual support of our Chairman and the Board
of Control and an excellent and dependable management team and
staff, we will successfully negotiate the year ahead.
EMPOWERMENT
The corporation's restructuring has opened opportunities to better
balance the organization composition.
Once completed, this process will result in a top and middle management
structure that better reflects both the demographic distribution
and the profile of the commuters being served. Continual staff
development and training and the opportunities of concessioning
and regionalisation will create the environment for ongoing staff
promotion and growth.
Wynand Burger
Managing Director
