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Rail Restructuring: Improving Efficiency and Value in the South African Rail Industry

This presentation discusses the restructuring of the rail industry in South Africa, aiming to enhance efficiency, increase shareholder value, and support national transportation strategies. Key aspects include the internal restructuring of rail entities, job loss mitigation strategies, and the integration of passenger rail transport.

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Rail Restructuring: Improving Efficiency and Value in the South African Rail Industry

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  1. Rail Restructuring Presenter:DPE Transport Venue: Parliament Date : 20 March 2002 Time : 11h00

  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.

  3. DPE Strategy • To fulfill its mission, the Department of Public Enterprisesis 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 SOEjoint venture ownership and procurement

  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 investmentand creates jobs

  5. Restructuring of the Rail Industry • 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

  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

  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

  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

  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 - 8 000 employer induced retrenchments to occur in the period to 2006 - 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

  10. Status Overview 2002 March cont… • Network option shall be 15 800km extended volumes to 2020 • An investigation into a two tier system of Management for high and low density lines

  11. Rail Entities • Spoornet GFB/CoalLink • Luxrail • LDL’s • Metrorail/Shosholoza Meyl • OREX

  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

  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

  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

  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

  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

  17. Metrorail/Shosholoza Meyl cont… • Processes to occur - Inter-departmental working group investigating possible structural options - Development of integrated restructuring plan - Subsidy level investigation

  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

  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

  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

  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

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