Parliament Transport Portfolio Committee Budget Presentation 29 May 2002

 Presentation Overview SARCC Presentation  Presentation Overview  Challenges Identified  Solutions - Critical Requirement

 Rail Commuter Business - Funding Rm 2001/2002 Rm 2002/2003 % Income Subsidy Operational Capital Fare Revenue (Metrorail) Rental of assets (SARCC) Property (Intersite) Interest 2 838 2 970 4.6 1 856 1 951 5.1 1 366 490 1 386 565 744 783 60 66 151 170 27 Expenditure Operational Commuter Services Metrorail Management Fee Asset Rental Heavy Repair Property Insurance Administration and Other 2 917 3 215 10.2 9.2 2 427 2 650 1 828 1 995 79 86 48 54 163 198 147 171 120 99 42 47 Capital 490 565 15.3 Shortfall 79 245

 Rail Commuter Business - Capital Subsidy Normal Allocation 98/99 Rm 99/00 00/01 01/02 02/03 300 355 405 Additional Allocations 10 M’s Khayelitsha extension Other 135 60 20 80 TOTAL 300 355 490 565 Capital Expenditure Rolling Stock Stations Perway (track) Signals Electrical OH Telecommunications Information Technology 01/02 Rm 02/03 281 99 29 26 18 4 33 TOTAL 490 565 296 148 25 48 19 13 16

 Operational Subsidy Resumé Rm 2001/02 2002/03 2000/01 1999/00 1998/99 Total Allocation 1 140 1 277 (12%) 1 372 (7.4%) 1 366 (-0.4%) 1 386 (1,5%) Requested Original Allocation 1 247 1 407 (12.8%) 1 422 (1.1%) 1 461 (2.7%) 1 631 (11.6%)* 840 845 1 322 1 266 1 386 Shortfall Additional Allocation 407 562 100 195 245 300 432 50 Adjusted Shortfall Savings Effected 107 130 50 95 245 23 82 28 16 Final Shortfall 84 48 22 79 245 * Increased insurance premiums (vandalism) and imported rolling stock components

The Effect of Inflation  Operational Subsidy (Excl Capex & Interest) The Effect of Inflation 1990/91 Base Year Rand Million 94/95 Base Year Actual Subsidy

 Challenges Identified Financial/Funding Challenges Short-term operational shortfall (Current and following year) Long-term - Inadequate capital investments Business Challenges Manage capital programme as best we can. Priorities/trade-offs between standards, service quality, an obsolete signalling system and ageing rolling stock Increasing pressure of maintenance cost of a deteriorating system Dysfunctional regulatory and institutional regime Passenger safety from crime - initiative with SAPS Integrity of the system (assets, operations and management), in relation to accidents Integrated public transport plan - Partnerships with local government

 Short Term - Immediate Operational Shortfall 2000/2001 • Subsidy Requirement = 1 777 • Take over loans = less budgeted interest = - 355 1 422 • NT further reduced allocation as a forced = - 100 saving 1 322 (100) • Request/Intervention for additional allocation = + 50 1 372 (50) 1372 2001/2002 • Subsidy Requirement = 1 461 (2.7%) (No interest and Mercer savings) • Subsidy allocated = 1 266 • Request to TCom - Plus R100m = 100 1 366 (95) Result: Base line established for MTEF in 2001/02 inadequate

 Inadequate MTEF Allocation Shortfall Projected: 2002/2003 R245m 2003/2004 R295m 2004/2005 R258m + R79 = R324 R79m shortfall - Options submitted by NDOT (Transnet Management Fee) Implications = BOC in default of PFM Act. = Approve budget at end of Feb which is not finalised. = 2002/03  Very serious service reductions and rationalisations. Increase in requirement Requirement Allocation Increase 98/99 - 99/00 (First year of contract) Increase 99/00 - 00/01 (Mercer) Increase 00/01 - 01/02 (Mercer) Increase 01/02 - 02/03 Increase 02/03 - 03/04 Increase 03/04 - 04/05 1 407 12.8% 1 422 1,1% 1 461 2.7% 1 631 11.6% 1 771 8.6% 1 930 9.0% 1 277 12% 1 372 7.4% 1 366 -0.4% 1 386 1.5% 1 477 6.6% 1 672 3.2%

 Long Term - Inadequate Capital Investments Actual Requirement - Backlogs and Current needs = R1 400 - R1 700 ad infinitum Funding level 01/02 02/03 Base allocation 355 405 Additional allocation 135 160 490 565 Actions to identify and quantify the problem: Analysed requirements since the 1990’s. SIG Consortium investigation on Rolling Stock - 1997. Audit: Capital Investment Programme - 1999. NDOT: Request investigation: Consultants investigate and verified backlog and investment needs. Utilised asset condition assessments. Proposed investment scenarios and impact on business (safety and risk)

Realistic Solution (20 Yr Plan) Allocation ito limitations  Capital Investments (R’m) (all figures in 2000 rands) Assets Backlog Requirement Realistic Solution (20 Yr Plan) 10 Yrs pa 11 - 20 Yrs pa Allocation ito limitations (Annual Average) Critical Issues Rolling Stock 5 109 850 1 400 220 40 Year threashold (Average 27 yrs). Overhaul cycle 12 yrs (Currently = 17 yrs) 45% contribution to train cancellations. 1300 coaches out of service (70% vs 95% Int nom) Signalling 1 568 200 20 60 Obsolete system. 25% contribution to train performance. Create abnormal operational conditions. Cable theft. System capacity (less r/s) (Need less rolling stock)

Realistic Solution (20 Yr Plan) Allocation ito limitations  Capital Investments (R’m) (all figures in 2000 rands) Assets Backlog Requirement Realistic Solution (20 Yr Plan) 10 Yrs pa 11 - 20 Yrs pa Allocation ito limitations (Annual Average) Critical Issues Stations 1 560 200 100 80 Commuter experience. Development (socio + economic - empowerment) Station effectiveness. Security/safety. Ticket verification/control Electrical OHS 237 80 100 20 Reliability Cable theft

Realistic Solution (20 Yr Plan) Allocation ito limitations  Capital Investments (R’m) (all figures in 2000 rands) Assets Backlog Requirement Realistic Solution (20 Yr Plan) 10 Yrs pa 11 - 20 Yrs pa Allocation ito limitations (Annual Average) Critical Issues Perway (Track) 10 20 Safety Operability IT 20 35 10 Efficiency Management Total (Maintain System) 8 504 1 385 1 675 400

Realistic Solution (20 Yr Plan) Allocation ito limitations  Capital Investments (R’m) (all figures in 2000 rands) Assets Backlog Requirement Realistic Solution (20 Yr Plan) 10 Yrs pa 11 - 20 Yrs pa Allocation ito limitations (Annual Average) Critical Issues Total Maintain System) 8 504 1 385 1 675 400* Network Development Infrastructure Rolling Stock 3 750 4 000 375 400 19 Static rail system. Access to basic mobility. Development. Road based solutions. Total 16 254 2 160 2 450 419 * Nominal value investments = R350 - R400m per annum

 Effect of Inflation on Capital Allocation Inflation - 1990/91 Base Year 560 Rand Million 495 Inflation - 1994/95 Base Year Base Capital Allocation

Business Survival Years  Investment Scenarios Dynamic Growth Scenario R2100 - R2 400 m/a Investment Scenarios Indefinite Survival Scenario R1 400 - R1 700 m/a Limited Survival Scenario R950 - R1 050 m/a Decline Scenario R355 - R400 m/a 5 10 15 20 30 40 50 Business Survival Years

 Actions Taken improvements. Divert continuing pressure for improvements/expansion. Manage system best to ability, within constraints. Switched to condition based maintenance. Optimisation investigations - Reduce need for rail services and assets. Efficiency opportunities - (Initial investment required however). Prioritise investments - Balance between operability, critical needs, safety and improvements. Audits - Stations (critical safety improvements) - Condition and integrity - Crashworthiness - Extend Life cycle processes - Cost effective/alternatives as a result of limitations (10M - R2m vs R12m)

 Actions Taken (continue) Rail plans in relation to Local Transport Plans (Total system optimisation alternatives). Alternative funding mechanisms (R1,2bn in station upgrades and developments). Reduction in vandalism (actions and materials used) Fibreglass overhead structures - reduce rust tendencies). Regulatory and Business structure options to introduce incentives for effectiveness and investment possibilities. Involving private sector in cost effective and sustainable alternatives and funding options with Treasury.

 Implications of Underinvestment Maintain degenerating system. Jeopardising operability and safety. Impact on efficiency and effectiveness. Does not assist in addressing poor Image of the rail system. Decreasing patronage and market share, which effects the cost effectiveness of system and subsidy deployment. System not corresponding with developmental changes. Becoming technically obsolete - Availability of components and basic safety of the system. Increasing maintenance costs.

 Solutions - Critical Requirement How could the committee assist in maintaining the current rail commuter system towards a growth and development scenario? Support in resolving the immediate short term operational shortfall (R79m) and MTEF shortfalls based on an inadequate base. Support for long term solution/intervention on the backlog and immediate investment requirements.

 SARCC Budget Request to NDOT Rm 2001/2002 2002/2003 % Income Rental of Assets Property Development 214 236 60 154 66 170 10.3 10.0 10.1 11.5 Less Expenditure Commuter Services Metrorail Management Fee Asset Rental Heavy Repair Property Insurance Administration and Other (SARCC) 2 914 3 210 1 107 79 48 164 154 1 212 86 54 198 171 99 47 42 9.5 8.9 12.5 20.7 9.6 25.3 11.9 Operational Subsidy (1 461) (1 631) 11.6