Prasa on brink of financial collapse‚ annual report shows

10 September 2018 - 17:54 By Andisiwe Makinana
The annual report‚ which covers the financial year ended in March 2017 reveals that Prasa was failing to deliver in its core mandate‚ which the agency blames on governance and leadership instability.
The annual report‚ which covers the financial year ended in March 2017 reveals that Prasa was failing to deliver in its core mandate‚ which the agency blames on governance and leadership instability.
Image: Gallo Images / Rapport / Deon Raath

The Passenger Rail Agency of South Africa (Prasa) has finally submitted its 2016/17 annual report to Parliament - almost 12 months behind schedule. And the report does not paint a pretty picture.

The country's rail agency is not only on the brink of financial collapse‚ it is shedding commuters who have lost confidence in its ability to deliver an efficient and timeous service.

The annual report‚ which covers the financial year ended in March 2017 and which was supposed to be tabled in Parliament at the end of September last year‚ reveals that Prasa was failing to deliver in its core mandate‚ which the agency blames on governance and leadership instability.

Only 55% of targets for the period under review were achieved‚ up from 40% in the preceding year.

Prasa recorded a comprehensive loss of R928-million‚ up from a R554-million loss the previous year.

Its revenue declined by 12% from R3.3-billion in 2015/16 to R2.9-billion in 2016/17‚ mainly due to a decline of 14% - or R389-million - in fare revenue collection‚ from R2.7-billion in the previous year to R2.3-billion during this period.

Despite an increase of 5% in operating subsidy from R4.9-billion to R5.2-billion during this period‚ the operating expenses increased from R9.2-billon to R10.6-billion; a R1.4-billion or 15% increase‚ mainly due to liability of R635-million for the National Transport Movement ruling by the Labour Appeal Court.

Prasa's acting CEO‚ Sibusiso Sithole‚ said the rail division’s disappointing performance‚ where only 33% of its targets were achieved‚ posed a serious challenge in positioning rail as the mode of choice for the commuting public. This undesired level of performance is evident in the corresponding satisfaction rating during this period which remained flat at 56.90% (56.78% in 2015/16).

The continued decline in performance level by the rail unit has shown a corresponding effect on the passenger patronage which dropped to 372-million passenger trips per annum‚ against 448-million passenger trips the previous year. Passenger patronage has a direct impact on the fare revenue.

Similarly‚ both the long distance passenger services experienced a decline in customer satisfaction where Mainline Passenger Services and Autopax dropped to 70.43% and 61.82% respectively when compared to 74.60% and 74.72% recorded in the previous year.

For Mainline Passenger Services the performance had been affected by the inability to run additional trains to meet revenue targets due to the unavailability and unreliability of locomotives.

“Noting the below-than-acceptable performance in delivering on the core mandate of the organisation‚ management is now focusing on key interventions to turn both Metrorail and Autopax around‚” wrote Sithole.

He said the rail interventions were targeted on ensuring the availability of rolling stock‚ as well as the reliability of infrastructure‚ whilst ensuring passenger safety and security of assets.

The auditor-general issued Prasa with a qualified audit opinion.

He noted that the Prasa group (Prasa and its subsidiaries) did not have an adequate system for identifying and disclosing all irregular and fruitless and wasteful expenditure and that there were no satisfactory alternative procedures to obtain assurance that all irregular‚ fruitless and wasteful expenditure had been properly recorded.

“Consequently I was unable to determine the full extent of the adjustment necessary to the balance of irregular expenditure state at R19.6-billion for the entity [Prasa] and R20.3-billion for the group...”

Fruitless and wasteful expenditure incurred stood at R988-million for Prasa and R992.2-million for the group but these figures could also not be justified.

Prasa chairperson Khanyisile Kweyama wrote that irregularities in contract awards identified by the auditor-general in the 2014/15 audit and the report of the Public Protector titled “Derailed” issued in August 2015‚ resulted in the review of procurement and contract processes.

“The contract irregularities identified negatively impacted the ability of the organisation to maintain rolling stock assets as procurement of spares and components were terminated‚” she said.

The theft and vandalism of cables and components aggravated the challenges of maintenance resulting in increased numbers of rolling stock unavailability and unreliability. This negatively affected the delivery of a safe‚ clean and secure train service‚ said Kweyama in the report.

She noted that a sizeable number of capital expenditure (capex) projects were subjected to forensic investigations and others subjected to litigation to be either reviewed or set aside. This negatively impacted on capex spent.

She said the forensic investigations conducted exposed Prasa to increased irregular expenditure and fruitless and wasteful expenditure.

Kweyama said her board had prioritised restoration of stability and governance by ensuring that the continuous decline in the financial management‚ performance reporting and compliance processes are addressed. In this regard an action plan to address significant control deficiencies and consequence management will be developed and implemented.

The board will furthermore attend to the uncertainty relating to the growing concern by ensuring financial viability and sustainability of the agency. The governance and leadership instability characterised the period under review‚ she said.

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