11 March 2003

1. SA Rail Commuter Corporation Ltd The Portfolio Committee on Transport Presentation on SARCC’s Strategic Goals, Plans and Budget for 2003/2004 By CEO – Eddie Lekota 11 March 2003

2. Presentation Overview • SARCC Mandate • Vision • Mission • Corporate Strategic Objectives • Major Strategic Plans • Budgetary Implications (by Jakkie van Niekerk) • Conclusion

3. The Mandate of the SARCC Primary & Secondary Objectives of the Act Primary Objective The SARCC’s mandate is to ensure that, at the request of the National Department of Transport or any sphere of government, rail commuter services are provided in the public interest, and to promote rail as the primary mode of mass commuter transportation. Mandate The SARCC’s mandate is to ensure that, at the request of the National Department of Transport or any sphere of government, rail commuter services are provided in the public interest, and to promote rail as the primary mode of mass commuter transportation. Secondary Objective To generate income from the exploitation of assets transferred to the SARCC by the Minister of Transport under Section 25 of the Legal Succession to the SATS Act (Act 9 of 1989)

4. The Mandate of the SARCC To ensure The provision of rail commuter services In the public interest At the request of NDOT or Transport Authority.

5. The Mandate of the SARCC - Legal Succession Act – to Ensure To ensure The provision of rail commuter services In the public interest

6. To guarantee: (provision of rail commuter services) • Offer a formal assurance • Something that makes a specified condition certain • To take responsibility for • To undertake to protect • To promise The Mandate of the SARCC - Legal Succession Act To ensure: (provision of rail commuter services) • To make sure • To make certain • To guarantee

7. The Mandate of the SARCC - Legal Succession Act To ensure The provision of rail commuter services In the public interest

8. Shareholder Government (Incl. TA’s) Business Stakeholders Community • Trade and industry • Suppliers • Labour • Other modes Users The Mandate of the SARCC - Legal Succession Act - Public Interest Public

9. The Mandate of the SARCC - Legal Succession Act To ensure The provision of rail commuter services In the public interest

10. Travel Needs Available Funding Shareholder Stakeholders Community Users The Mandate of the SARCC - Legal Succession Act – Provision… Service Requirement Service Provision In public interest

11. Vision To establish rail as the preferred mode of public transport and to be the recognized champion in ensuring the provision of quality commuter rail services for all transport authorities in South Africa, in the public interest

12. Mission To ensure the movement of people through the provision of safe, reliable, affordable and sustainable commuter rail services; and to develop the rail assets, using best practices in the interest of all stakeholders.

13. Corporate Strategic Objectives Utilize and develop the commuter rail provision environment to protect and promote the interest of the users, public and stakeholders. Support the rail system through ITP’s and IDP’s towards the aims and requirements of policies of all tiers of government. Establish the delivery policy framework for rail commuter service provision. Improve (and establish where necessary) the performance compliance framework and mechanisms for funding, delivery and compliance of rail commuter services. Develop and promote the provision of sustainable mass-moving rail commuter services, optimized funded enhancements and professional services towards socio-economic development. Create an environment for the development of expertise and knowledge within a consultative and rail business intelligence framework.

14. Major Strategic Plans • Transformation of SARCC and commuter rail business. • Safety and security of passengers and assets • Promotion of rail as the mass mover. • Funding and optimization of subsidy • Bi-nationals and SADC • Investment in assets

15. Major Strategic Plans - Transformation • Internal Transformation • Management and employee representativity • Black Economic Empowerment • Tender Policy and suppliers’ / consultants’ workshop • Skills development and exchange programmes • Information resource and business intelligence • External focus – new structure incorporating public participation • External Transformation • Public participation – Batho-Pele • Public meetings / road shows thru appropriate structures • Community sense of ownership of commuter rail • Informal business development • Provision of community facilities at stations • Attractive, accessible service to ALL

16. Major Strategic Plans – Safety and Security • Safety and security remains the biggest threat to the image of rail commuting 2000 2001 2002 Injured Killed Injured Killed Injured Killed Operational Safety Act 85 17 468 14 414 17 400 Violent Crime 21 11 354 12 401 416 35 28 754 29 929 830 Total % of Incidents involving people 29,3% 42,1% 24,8%

17. Major Strategic Plans – Safety and Security Cost of damage to assets • 2001/2002 2002/03 • Vandalism R8,7m R11,3m • Arson - Buildings R20,1m R32,4m • Arson - Rolling Stock - R48,0m (Insured cost) • (Replacement cost = R350 m)

18. Major Strategic Plans – Safety and Security – Court Case • Court case in Western Cape has serious implications. • Costs to address the issue of the “open system” as is required by the outcome of the • court case. • Closing-off the system = R1,2bn once-off capital • Operating costs R1,4bn per annum.

19. Major Strategic Plans – Safety and Security Plan in Progress • SARCC investigated increase in crime on the rail commuter system since • March 2002. • Developed total safety and security strategy with feasibility pilot study in • Western Cape. • Project involves alarms on cables, helicopter surveillance, dedicated armed • response teams and development of intelligence capability with existing forces. • Pilot successful and has been implemented on the entire Western Cape • system since October 2002.

20. Major Strategic Plans – Safety and Security Plan in Progress Results since October - December - Western Cape • Serious crime related incidents - Decreased 63% • Serious liability incidents - Decreased 60% • Murder - Decreased 63% • Attempted murder - Decreased 63% • Assault - Decreased 58% • Robbery Decreased 53% • Asset damage - Decreased 20% • Burglaries - Decreased 100% • Arson - Decreased 100% Cost of strategy for Western Cape = R15m per annum

21. Major Strategic Plans – Safety and Security – Other enhancements • Safety Regulator • SARCC’s engagement with the regulator • SAPS Rail Unit • Once approve and implemented, it will assist in the reduction in crime incidents and damage to assets • CCTV on stations and in trains in the future

22. Major Strategic Plans – Rail Promotion as Mass-Mover Extension of Lines Status • Several expressions of interest in unserviced areas. (Free State, Limpopo, • North West). • Total 180 new proposals identified since 1990. (New stations, interchange • facilities, extensions, new lines and network/yard improvements). • Conceptual design of highest priority projects undertaken. • Only 3 stations proceeded for implementation and Katlehong Kwesine line • re-instated. • Khayelitsha line extension under design.

23. Major Strategic Plans – Rail Promotion as Mass-Mover Investment Potential • R10m requested for 2003/04 from internal capital programme. • If approved - enable basic planning of 5 projects and initiation of 7 projects. • Motivations submitted for implementing 3 top priority new stations. (Orange Farm • Oakmoor/Olifantsfontein, Lebaleng). • Total of 6 priority upgrade stations submitted for funding for partial or full • upgrade (±R69m). (Allow for special needs passengers, ticket verification, security, • PA and information systems). • Repositioning of commuter rail • Aggressive marketing and promotion of rail

24. Major Strategic Plans - Subsidy optimisation • SARCC believes metropolitan rail systems can be more efficient if totally rationalised/ • optimised in terms of a metropolitan rail plan. Categories of efficiency proposals • 1) Institutional and regulatory efficiencies • Improving the current regulatory regime between SARCC and Metrorail (Concessioning • Agreement). • A review of the incentive and budget framework of the contractual agreement. • 2) Operational efficiencies • Managing peak demand to improve utilisation of the system and decrease operational cost. • (System at its peak for 5 hours a day whereas all equipment and resources are deployed • at full for 24 hours a day). • Rationalisation of services - more optimum modes with modal integration. Rail services • not economical for 60 - 100 passengers per hour - eg night services. • Nodal transfer and rail corridor management in association with other transport modes

25. Major Strategic Plans - Subsidy optimisation • 2) Operational efficiencies……continued • Fare evasion in terms of nodal stations - close the system through major interchange. • facilities. Passengers will have to enter through at least one verification point. • Improve fare structure and ticket system. (Reduce the need for automatic fare collection • points and equipment). • Concentrate 20% of effort on 80% of activity. - 50 major nodes vs 460 stations. • Major nodes highly developed within closed system paradigm. The strategy will concentrate • on the customer, as well as safety and security personnel. • 3) Corporate governance • Internal audit & control • Fraud / corruption management • 4) Cross-subsidization thru alternative rail technologies

26. Major Strategic Plans – Bi-Nationals and NEPAD • Sharing of ideas with other countries and identification of investment opportunites • Aim to turn Intersite into a rail consultative service provider beyond property business • Stations such as Park Station could be turned into an African economic & business hub

27. Major Strategic Plans – Investment in assets • Perway (Track) = Good condition Issues: • Encroaching informal settlements (Dangerous operating environment) • Passengers, women and children crossings tracks - open system. • Security (Cable theft and train robberies) • Signalling Issues: • Ageing signalling technology. • Commenced with limited replacement. • Need to accelerate replacement to achieve other operational • efficiencies - less rolling stock by increasing system capacity through • bi-directional signalling.

28. Major Strategic Plans – Investment in assets • Stations Issues: • Major developments and station upgrades limited due to other • urgent funding requirements. • General environment and condition of stations are critical aspects to • improve safety and security, and to address the “open” system. • Station master plan with re-designed corridor services and major • nodal transfer interchanges required. (Co-operation of local authorities in • terms of integrated public transport plans). • Automatic Fare collection project (R18m allocated - Total requirement = • ±R480m).

29. Coaches 1200 1031 1000 911 909 803 800 Coaches 538 600 400 313 200 117 0 11-15 16-20 21-25 26-30 31-35 36-40 41-45 Age Group Major Strategic Plans – Investment in assets- Rolling Stock • Fleet = 29 years old with some coaches over 40 years. • 40% of fleet older than 30 years. Average age: 29 years Age Distribution

30. Rolling Stock Age Distribution • Mean Time Between Failures = 35 days (International norm = 600 - 700 days) • (Once every two years). • Average of 1300 coaches are constantly out of service. • Roadworthy condition single biggest factor in service reliability (40% of causes • of poor punctuality relates to availability of rolling stock). • General Overhaul (major service) extended to 16 years (Specification • require 9 year overhaul cycles). • SARCC provides ±R200m per annum from operational subsidy to this programme. • (Additional funds from capital allocation, ±R100m per annum transferred to this • programme to prevent cycles beyond 16 years).

31. Rolling Stock Plan • SARCC upgrade programme - rebuild of rolling stock locally. Two contracts • only, valued at R615 m producing a total of 236 coaches. (Total of 4500 coaches). • ±50% of current SARCC capital grant is allocated to rolling stock. • Metrorail also spends ±R200m per annum on day-to-day maintenance of rolling • stock. Rolling Stock Strategy • Introduce full life cycle asset management philosophy - I.e. combine maintenance, • general overhaul and capital refurbishment programme under single management • strategy. • Units due for GO with good body work will undergo necessary GO and be • re-scheduled for service. Currently 260 units per annum at ±R300m • Requirement = 400 units at R450m per annum. (12 year cycle) • Units with scrapped body structure will be refurbished/upgraded into new • generation rolling stock.

32. Rolling Stock Plan……..continued • 10 Year programme of decreasing GO programme and accelerate refurbishment • programme. • Refurbishment programme replaces GO programme with decreasing maintenance • costs. • More capital work required during GO cycles and GO strategy does not not offer • a long-term solution. • Strategy requires R1000m - R1200m per annum. Current total investment = • R250m - R300m. • Industry capacity can be incrementally increased as per requirement.

33. Rail Commuter Funding Rm 2002/2003 Rm 2003/2004 % 3 222 3 534 9.3 • Income • Subsidy • Operational • Capital • Fare Revenue (Metrorail) • Rental of assets (SARCC) • Property (Intersite) • Interest & Sundry 11.0 2 111 2 344 8.6 1 546 565 1 679 665 17.7 860 937 66 66 170 187 25 0 • Expenditure • Operational • Commuter Services • Metrorail Management Fee • Asset Rental • Heavy Repair • Property • Insurance • Administration and Other 3 308 3 626 9.6 7.9 2 743 2 961 2 072 2 234 86 94 54 54 198 228 171 183 115 115 47 53 Capital 565 665 17.7 Shortfall 76 92

34. 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% 1 546 13.2% 1 679 8.6% 1 874 11.6% Inadequate MTEF Allocation Shortfall Projected: 2002/2003 R76m 2003/2004 R92m 2004/2005 R56m 2005/2006 R73m + R79 = R155

35. Operational Subsidy (Excl. Capex and Interest) The Effect of Inflation 2800 2600 2400 2200 2000 1990/91 Base Year Rand Million 1800 94/95 Base Year 1600 1400 Actual Subsidy 1200 1000 800 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04

36. Rail Commuter Business - Capital Subsidy 99/00 Rm 00/01 Rm 01/02 Rm 02/03 Rm 03/04 Rm Normal Allocation 300 355 355 405 405 • Additional Allocations • Rolling Stock • Khayelitsha extension • Other 135 60 100 20 80 160 TOTAL 300 355 490 565 665 02/03 Rm 03/04 Rm Capital Expenditure Rolling Stock Stations Perway (track) Signals Electrical OH Telecommunications Information Technology 296 404 148 140 25 28 48 45 19 20 13 15 16 13 TOTAL 565 665

37. Funding level01/02 02/03 03/04 Base allocation 355 405 405 Additional allocation 135 160 260 490 565 665 Long Term - Inadequate Capital Investments Actual Requirement - Backlogs and Current needs = R1 400 - R1 700 ad infinitum 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)

38. Requirement Realistic Solution (20 Yr Plan) Allocation ito limitations (Annual Average) Critical Issues Assets Backlog 10 Yrs pa 11 - 20 Yrs pa • 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) Rolling Stock 6 386 1 060 1 750 220 • Obsolete system. • 25% contribution to • train performance. • Create abnormal • operational conditions. • Cable theft. • System capacity (less r/s) • (Need less rolling stock) Signalling 1 960 250 25 60 Capital Investments (R’m) - 2002/03 Rands

39. Requirement Realistic Solution (20 Yr Plan) Allocation ito limitations (Annual Average) Critical Issues Assets Backlog 10 Yrs pa 11 - 20 Yrs pa • Commuter experience. • Development (socio + • economic - empowerment) • Station effectiveness. • Security/safety. • Ticket verification/control Stations 1 950 250 125 80 Electrical OHS 300 100 125 20 • Reliability • Cable theft Capital Investments (R’m) - 2002/03 Rands

40. Requirement Realistic Solution (20 Yr Plan) Allocation ito limitations (Annual Average) Critical Issues Assets Backlog 10 Yrs pa 11 - 20 Yrs pa Perway (Track) 12 25 25 10 • Safety • Operability • Efficiency • Management IT 25 44 44 10 Total (Maintain System) 10 633 1 729 2 094 400 Capital Investments (R’m) - 2002/03 Rands

41. Requirement Realistic Solution (20 Yr Plan) Allocation ito limitations (Annual Average) Critical Issues Assets Backlog 10 Yrs pa 11 - 20 Yrs pa Total Maintain System) 10 633 1 729 2 094 400 • Network Development • Infrastructure • Rolling Stock • New Provinces • Static rail system. • Access to basic mobility. • Development. • Road based solutions. 4 685 5 000 (1000) 468 500 (150) 468 500 (100) 5 Total 20 318 2 697 3 062 405 Capital Investments (R’m) - 2002/03 Rands

42. Dynamic Growth Scenario R2700 - R3000 m/a Indefinite Survival Scenario R1700 - R2100 m/a Limited Survival Scenario R1100 - R1300 m/a Decline Scenario R400 - R500 m/a Investment Scenarios Investment Scenarios 0 5 10 15 20 30 40 50 Business Survival Years

43. Effect of Inflation on Capital Allocation 800 723 700 670 665 629 600 565 596 Inflation - 1990/91 Base Year 495 569 Rand Million 532 500 504 498 467 458 429 427 400 405 405 Inflation - 1994/95 Base Year 399 393 356 355 355 339 300 317 300 300 288 292 250 250 250 250 250 Base Capital Allocation 200 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04

44. Conclusion • A business with great opportunities to improve public transport mobility and service • delivery, especially safety of passengers • Envisaged institutional reform - • Government to decide the framework for public service monopoly provision. • (Inside/Outside Transnet, with or without economic regulator). • SARCC proposes stronger regulatory control and re-alignment of current • dysfunctional arrangements. • Rail plans and improvement of services impossible without re-alignment of functions, • roles and responsibilities in the industry. • Co-operation between Transnet (Metrorail) and the SARCC