Department of Public Enterprises DATE - 6 October 2015 Page 1 Rail Restructuring Presenter:DPE Transport Venue: Parliament Date : 20 March 2002 Time : 11h00

Department of Public Enterprises DATE - 6 October 2015 Page 2 DPE Mission Mission The Department of Public Enterprises works to maximize the value and benefit that state owned enterprises deliver to the government and to all the people of South Africa.

Department of Public Enterprises DATE - 6 October 2015 Page 3 DPE Strategy To fulfill its mission, the Department of Public Enterprises is committed to: –Improving SOE financial and social performance through monitoring, evaluation and reporting –Ensuring high standards of governance through board selection and training –Communicating government’s expectations through board participation and regulatory reform –Increasing black economic empowerment and empowerment of HDI’s through SOE joint venture ownership and procurement

Department of Public Enterprises DATE - 6 October 2015 Page 4 DPE Strategy cont… -Strengthening the competitiveness of SOEs through restructuring and strategic equity partners -Realising asset value through sales and transfers -Creating a business climate that promotes investment and creates jobs

Department of Public Enterprises DATE - 6 October 2015 Page 5 Objectives of rail restructuring process: –Enhance the efficiency of rail transport infrastructure for the safe and cost effective movement of goods and people –Incremental developmental approach to the restructuring of the rail industry –Retain and enhance the strategic role that rail plays in the Southern African Economy –Develop space for the participation of women(in particular rural women), disabled persons and BEE entities in the industry Restructuring of the Rail Industry

Department of Public Enterprises DATE - 6 October 2015 Page 6 Restructuring of the Rail Industry cont… –Enhance shareholder value –Raise the economic value-add of the rail industry –Support the National Land Transport Strategic Framework of The Department of Transport, currently in draft form –Integrate the initiatives of all Government Departments into the restructuring process –Raise the the level of competition in the sector –Support the movement of appropriate cargo from road to rail

Department of Public Enterprises DATE - 6 October 2015 Page 7 Status Overview 2002 March Process of Restructuring Model development –March 2001 the NFA Transport Sector establishes a Task Team comprising Labour, NDOT and DPE –Task Team sets up Technical Working Group(Task Team representatives and Spoornet Management) –The Technical Working Group develops recommendations for the restructuring of Spoornet –Government and Labour agree on a common model for rail restructuring –Cabinet approves model December 2001 –Joint statement released to press 27 March 2002

Department of Public Enterprises DATE - 6 October 2015 Page 8 Status Overview 2002 March cont… Adopted Rail Restructuring Model: –Spoornet General Freight Business and CoalLink shall remain an integrated freight company –Luxrail shall be concessioned to a hospitality entity –Shadow incorporation of all discrete entities shall occur –Halcrow Turnaround Strategy to be implemented by Spoornet Management –Internal Restructuring and transformation of all entities

Department of Public Enterprises DATE - 6 October 2015 Page 9 Status Overview 2002 March cont … - Efficiency drive by all divisions and entities in the rail sector - NDOT to develop policies that support appropriate road to rail transfer of cargo employer induced retrenchments to occur in the period to Job Loss Mitigation Strategies to be developed and implemented - OREX remains a division of Spoornet, pending the investigation of restructuring options - Passenger Rail Transport is to be integrated

Department of Public Enterprises DATE - 6 October 2015 Page 10 Status Overview 2002 March cont… –Network option shall be km extended volumes to 2020 –An investigation into a two tier system of Management for high and low density lines

Department of Public Enterprises DATE - 6 October 2015 Page 11 Rail Entities Spoornet GFB/CoalLink Luxrail LDL’s Metrorail/Shosholoza Meyl OREX

Department of Public Enterprises DATE - 6 October 2015 Page 12 GFB/CoalLink Model –Integrated FreightCo Lead Agency –DPE Issues –Profitability –Client focus –Inefficiency –Structure –Lack of financial transfer transparency Processes to occur –Halcrow Turnaround Strategy to be implemented –Shadow incorporation of Business Units to allow financial transparency

Department of Public Enterprises DATE - 6 October 2015 Page 13 GFB/CoalLink cont… –Internal restructuring and transformation –Efficiency drive –Implementation of the Job Loss Mitigation Strategies that will attempt to reduce the amount of induced retrenchments –Implementation of the Spoornet Social Plan for the resulting retrenchments

Department of Public Enterprises DATE - 6 October 2015 Page 14 High and Low Density Lines Model – –Not determined as yet Lead Agency - -Department of Public Enterprises Issues - -Most low and light density lines are unprofitable - -They are strategic infrastructure corridors for rural areas

Department of Public Enterprises DATE - 6 October 2015 Page 15 High and Low Density Lines cont… Processes to occur –Investigation into a dual management structure to manage Linkrail and GFB/Coallink –Multiple stakeholder(Provincial and local authorities, Private Sector, communities, National Departments) low and light density line viability assessment process by Spoornet, under guidance of DPE with the oversight of the NFA

Department of Public Enterprises DATE - 6 October 2015 Page 16 Metrorail/Shosholoza Meyl Model - -To be integrated with SARCC into a state owned and subsidised passenger rail company Lead Agency - -National Department of Transport Issues - -Huge subsidy every year - -Low service levels - -Safety standards

Department of Public Enterprises DATE - 6 October 2015 Page 17 Metrorail/Shosholoza Meyl cont… Processes to occur - Inter-departmental working group investigating possible structural options - Development of integrated restructuring plan - Subsidy level investigation

Department of Public Enterprises DATE - 6 October 2015 Page 18 Luxrail Model - -Luxrail to be concessioned to hospitality industry entity Lead Agency - -DPE Issues - -Loss-making operation(R 15 mil/yr) - -Brand destruction occurring - -Not a strategic asset

Department of Public Enterprises DATE - 6 October 2015 Page 19 Luxrail cont… Processes to occur -Engagement with Spoornet and Luxrail management to develop timetable for concessioning -Commencement of legal and financial processes in preparation for concessioning -Transaction marketing and Communication

Department of Public Enterprises DATE - 6 October 2015 Page 20 OREX Model - -OREX shall operate as a division of Spoornet pending the formulation of a model that suits the development of the region Lead Agency - -DPE Issues - -Need to integrate port and rail operations - -Need to develop model that forms integrated solution with DTI and DME initiatives in region - -Capex needed for expanded mining output

Department of Public Enterprises DATE - 6 October 2015 Page 21 OREX cont… Processes to occur -Divisionalisation and shadow incorporation shall occur to ensure transparency of transfer pricing in group -Interdepartmental technical team(DPE, DME, DTI) to develop integrated solution to OREX base case needs for regional development -Development of a government OREX restructuring plan with base case developed by technical team -Engagement with Labour in NFA on the proposed government restructuring model