PRASA in a dire state – Manny de Freitas

DA MP says leaked AG report details leadership and financial crisis at the SOE

DA to lay criminal charges against the PRASA Board following leaked AG report detailing leadership and financial crisis

21 August 2018

Cities and economies flourish when well-functioning public transportation systems are in place with rail being the backbone of such a system. A reliable and safe commuter rail is crucial to ensuring that people can get to work on time, to allow people to look for jobs and so that residents can access various services and amenities. With the rising cost of living, rail is now the most affordable way to travel.

However, through years of systematic corruption and mismanagement, the Passenger Rail Agency of South Africa (PRASA), which is responsible for delivering passenger rail services, has our rail system on its knees.

The DA has travelled the country to investigate the current conditions on our railways on our #RailSafety tour that included visits to the Western Cape, Gauteng and KZN. Across the board, South Africans are fed up with the current dangerous conditions they are forced to endure by the failing ANC government.

Every day, commuters are forced to deal with chronic and lengthy delays due to ailing infrastructure and vandalism. Just this morning we have seen reports of yet another train set on fire here in Cape Town. This is the seventh train fire in the city in the last few months alone.

Commuters are also unsafe due to a severe lack of safety officials and police to patrol train stations. This allows crime and vandalism to thrive, further compromising the safety of commuters and the stability of the system.

PRASA has been without a full-time Board for more than a year since the end of July 2017, and as the entity lurches from one crisis to another, the response from PRASA and the successive Transport Ministers has been the continued cover up corruption.

A laundry list of serious allegations was laid bare in the then Public Protector’s 2015 “Derailed Report” that described how top officials at PRASA handed out contracts to friends and allies. The real cause of the breakdown of PRASA has been systematic looting, seemingly to pay out ANC cronies.

The Public Protector’s report instructed the National Treasury to investigate these findings. These reports were finalised in December 2016 and were eventually leaked to the public last year.

However, 3 years since the Derailed Report, and after billions have been stolen from the entity, no one has been charged or arrested. In the light the lack of political will by the ANC to ensure accountability for those who have brought PRASA to its knees, the DA laid charges against those implicated.

Leaked Auditor General report on PRASA reveals the total institutional breakdown

One of the key instruments of accountability and transparency is the yearly Annual Report that all entities must provide to Parliament by 30 September each year, as required by the Public Finance Management Act of 1999. This document includes the Auditor General’s Recommendation on the financial affairs of a public entity.

PRASA has not yet submitted last year’s 2016/17 Annual Report which is now 318 Days overdue.

It is now in the public interest to reveal what is contained in this report. The main findings of the report in the DA’s possession are as follows:

Financial viability is in question as the entity has incurred massive losses

The report reveals that PRASA is on the verge of financial collapse that is directly linked to massive losses last year. The report states that “The entity and group have incurred a loss of R1,7 billion and R1,3 billion respectively for the year ended 31 March 2017.” This resulted in a “the accumulated loss as at 31 March 2017 is R4,4 billion for the entity and R4,5 billion at the group level.

The AG comments that “The declining financial performance is further evident in the cash outflows from operations of R2,3 billion and R2,4 billion for entity and group respectively” and “It is further noted that there was no disclosure in the annual financial statements highlighting the financial sustainability challenges faced by the entity and group.”

PRASA systems are inadequate to identify irregular and fruitless and wasteful expenditure

The AG’s report indicates that “During the duration of the audit and prior to submission of the annual financial statements a number of findings identifying irregular and fruitless and wasteful expenditure were identified”.

The AG comments that “As the entity is currently undergoing a number of investigations relating to supply chain management matters and as confirmed by the Acting Group CFO and Acting  Group CEO on 4 December 2017, the PRASA group did not have an adequate system for identifying and disclosing all irregular and fruitless and wasteful expenditure, there were no satisfactory alternative procedures that I could perform to obtain reasonable assurance that all irregular and fruitless and wasteful expenditure had been properly recorded in notes 41 and 42 to the separate and consolidated financial statements”.

PRASA leadership has clearly learned nothing from the “Derailed Report” with irregularities able to continue due to lack of systems of accountability and transparency. There appears to be little or no political will to address this matter.

Tender irregularities continue: tenders do not comply with respective laws and regulations, are not transparent.

The AG took a sample of tenders from PRASA in the financial year 2016/7 which revealed critical issues of the 36 tenders analysed by the AG:

All had irregularities related to the method of selection of a service provider and all the tenders had questionable bid processes.

In 92% of the cases, internal processes or regulations, as well as relative regulation, law or legislation, were not adhered to.

In 33% of the cases, tender requirements were ignored and in 39% of the cases, tender amounts exceeded permissible amounts.

In five tenders, the highest scoring bidder did not receive the tender and in five cases, service providers were appointed without contracts.

In two cases, the incorrect service providers were appointed.

There are discrepancies between information supplied and information obtained by the AG. The AG noted the lack of consequence management for persons who are liable for irregular and fruitless and wasteful expenditure incurred. This sample and the lack of consequence management speaks to serious mismanagement and continued misappropriation of funds at the entity.

Major issues with remuneration of PRASA employees

From the report, it is clear that some executives received remuneration illegally or incorrectly. One such case is the Intersite and Autopax Company Secretary, Mr Lindikaya Zide who took the responsibility of Company Secretary at Intersite and Autopax and continued to receive an allowance when he was no longer responsible for these positions. This amounted to approximately R250 000 of wasteful and illegal expenditure.

Additionally, declaration of interests were not submitted by suppliers, members of accounting authorities and employees. Twenty-two members are listed as not disclosing their interests and connections to suppliers including the previous Chairman of the Board, Popo Molefe. This is a contravention of the Section 50 PFMA.

The report also mentions although there was a request to pay the AGCEO an annual salary of approximately R6 million the Board could not provide proof of approval for this salary. Without such proof, Mr Letsoalo should not be entitled to this salary and should, therefore pay it back.

In order to get PRASA back on track and to ensure that South Africans have access to a safe and reliable rail system, the DA will take the following steps:

DA to lay further criminal charges against PRASA officials 

As indicated in the AG report the majority of the tenders went “through a system which is not fair, equitable, transparent, competitive and cost-effective as required by Section 217 of the Constitution of the Republic of South Africa and Section 51(1) of the Public Finance Management Act (PFMA), as the appointment was not done through a competitive process.”

According to the Section 86 of the PFMA, an accounting authority is guilty of an offence and liable on conviction to a fine, or to imprisonment for a period not exceeding five years, if that accounting authority wilfully or in a grossly negligent way fails to comply with a provision of section 50, 51 or 55.

Based on the information in this report the DA will lay charges against those implicated in terms of the PFMA which in this case is the is PRASA’s board who serves as the entity’s accounting officer.

PRASA must release Annual Report immediately

PRASA must immediately release the 2016/7 Annual Report to Parliament so the full context and performance of the entity can be assessed as legislated. The DA will write to the Minister of Transport, Blade Nzimande, to ensure the urgent release of the report to the public. The Treasury reports commissioned by the Public Protector should be immediately released including an action plan by the Minister and PRASA executives when those implicated will be face consequences for their actions.

Parliamentary Inquiry into PRASA must commence immediately

Parliament, through the Portfolio Committee on Transport, must immediately begin its Inquiry into PRASA as PRASA and the Ministry has no appetite. This process is crucial to ensure that the rot in PRASA is removed. The Portfolio Committee has already agreed to this Inquiry and therefore, the DA will write to the Chairperson of the Committee, Dikeledi Magadzi, to urgently confirm the dates.

The DA has designed a rail plan that will create a safe and well-managed railway system which put commuters first and will ensure job security. The plan is based on four aspects:

Stabilising and modernising the current rail system -  An urgent update is required to ascertain the progress on upgrading the current signal system to phase out the manual signal to prevent further crashes and derailment.

Merge Transnet and PRASA under the Department of Transport - This means all rail-related passenger and freight services should become the direct responsibility of the Minister of Transport. This will streamline decision making and improve planning and integration.

Ceding control of Metrorail services to Metros - This process will see Metropolitan governments take over Metrorail functions gradually which will ensure integrated public transportation systems and better governance. The Western Cape Government and the City have already committed additional security personal thus ensuring increased protection of commuters and infrastructure at risk.

Diversifying Ownership - While the state should retain ownership of the infrastructure, the DA calls for the gradual privatisation of some railway operations. This will increase competition and choice for transportation in the rail sector.

The DA’s plan is the only alternative to the ANC’s broken public railway transportation system. Our rail plan will put commuters first and ensure job security because it will be safe, efficient and corruption free.

In 2019, South African have the opportunity to choose a government that is committed to empowering South African public transport commuters and ensuring that the rail transportation system puts the safety of South Africans first, ensures that South Africans keep their jobs and are able to use trains to find work.

Issued by Manny de Freitas, DA Shadow Minister of Transport, 21 August 2018