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THE PORTFOLIO COMMITTEE ON TRANSPORT AND INFRASTRUCTURAL DEVELOPMENT ON ENQUIRY INTO THE TURNROUND STRATEGY FOR THE NATIONAL RAILWAYS OF ZIMBABWE

 

 

 


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FOURTH SESSION- EIGHTH PARLIAMENT

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FIRST REPORT

 

OF

 

THE PORTFOLIO COMMITTEE ON TRANSPORT AND INFRASTRUCTURAL DEVELOPMENT

 

 

ON

 

ENQUIRY INTO THE TURNROUND STRATEGY FOR THE NATIONAL RAILWAYS OF ZIMBABWE

 

 

S.C 13, 2017

 

Presented to Parliament in July 2017

ORDERED IN TERMS OF STANDING ORDER No. 17 THAT:

1)      At the commencement of every Session, there must be as many Committees to be designated according to government portfolios as the Committee on Standing Rules and Orders may deem fit.

2)      Each Select Committee must be known by the portfolio determined for it by the Committee on Standing Rules and Orders.

 

TERMS OF REFERENCE OF PORTFOLIO COMMITTEES STANDING ORDER No. 20

Subject to these Standing Orders, Portfolio Committees must-

a)      examine expenditure administration and policy of government departments and other matters falling within their jurisdiction as Parliament may, by resolution determine;

b)      consider and deal with all Bills other than a Constitutional Bill and Statutory Instruments or other matters which are referred to them by or under a resolution of the House of by the Speaker;

c)      consider or deal with an Appropriation in Money Bill or any aspect of an Appropriation or Money Bill referred to them by these Standing Orders or by resolution of this House;

d)     monitor, investigate, enquire into and make recommendations relating to any aspect of the legislative programme, budget, policy, or any other matters it may consider relevant to the government department falling within the category of affairs assigned to them, and may for that purpose consult and liaise with such department; and,

e)      consider or deal with all international treaties, conventions and agreements relevant to it, which are from time to time negotiated, entered into or agreed upon.

 

 

 

 

 

 

 

 

 

1.0       Introduction

1.1       The National Railways of Zimbabwe (NRZ) is undoubtedly a key player particularly in terms of commercial and industrial bulk goods transportation in the country. However, it is a matter of public record that, like most parastatals, NRZ has become a liability and not the strategic asset that it should be to the country. To put the issue into perspective, out of a fleet size of 166 locomotives, only 60 locomotives are operational.  These average between 33 and 50 years old, whereas a locomotive has a useful lifespan of at most 25 years. Employees are owed over USD 90 million in outstanding salaries while debts have ballooned to a staggering USD 176 million.

 

1.2       Despite this untenable prevailing situation, the Committee is convinced that NRZ still has the latent potential to be an important cash cow for the Government and people of Zimbabwe, especially in these challenging times when domestic resource mobilization has become the operative mantra. The Committee is firmly convinced that the revival of NRZ should be pursued with vigour and intent as it is key to the transportation sector, particularly the transportation of bulk commercial and industrial goods.

 

1.3       Given this background, the Committee saw it fit to invite the Board and Management of NRZ to enquire into their proposed turnaround strategy for this key institution. This is premised on the recognition that an efficient and profitable NRZ will contribute significantly to the fiscus and to the attainment of the accelerated economic growth trajectory envisaged in our economic blueprint- ZIMASSET.  This report presents the findings of that enquiry.

 

2.0       Submissions from the Board & Management- Current State of NRZ

The Committee received input on the current state of NRZ form the Board and Management of NRZ. Their submissions highlighted the following:

·         Out of a fleet size of 166 locomotives, only 60 patently unreliable locomotives are operational; 

·         The average age of the said locomotives is between 33 and 50 years whereas a locomotive has a useful lifespan  of only 25 years;

·         Out of a total of 7153 wagons, 3641 have been decommissioned for various defects, leaving only 3512 in service; 

·         Out of a fleet of 283 passenger coaches, only 108 are in use and these are in a deplorable state; 

·         255 kilometres of the 2760 kilometres of rail network are under speed restrictions to the extent that a train has to slow down to a speed of 10 kilometres per hour in these areas causing inordinate delays in transportation of commercial and industrial goods;

·         The Centralised Train Control System (CTC) has been rendered dysfunctional due in part to vandalism.  This entails that there is little control over trains from the given control position. 

·         Employees are owed over USD 90 million in unpaid salaries; and,

·         The parastatal’s debt has since ballooned to USD 176 million

 

2.1       Projected Operational and Financial Performance

Given the afore-stated background, the NRZ Board & Management submitted the following projections for 2017:

 

2.1.1 Freight Movement

In 2017 NRZ would transport freight tonnes amounting to USD 3.5 million, an improvement of about 30% from the $2.7 million realized in 2016. This positive difference was attributed to the long haul nature of some of the freight that was to be transported.

 

2.1.2    Passenger Movement

In terms of the passengers, NRZ was targeting to move 387 000 passengers against the 287 000 that were transported in 2016. This would translate to a 34% improvement in passenger transportation in 2017.

 

2.1.3    Revenue Generation

NRZ projected that the revenue to be generated from both freight and passengers against the anticipated increase would be USD 87 million.  If achieved, this would be a 32% increase from the USD 66 million raised in 2016. 

 

 

2.1.4    Transportation of Grain and Chrome Ore

NRZ had transported 372 000 metric tonnes of grain from the projected harvest of 700 000 metric tonnes in 2016. In 2017 they were targeting to transport 300 000 metric tonnes within the first six months of the year. However, the revenue generated from the transportation of grain was not provided at the time of the enquiry.

 

3.0       Key Strategies to Improve Operational and Financial Performance

In order to attain the set targets for 2017, NRZ proposed the following strategies and interventions:

1.      Reduction of Salary to Revenue Ratio from the current 94% to about 62% in 2017 on the back of cost- cutting measures and an improvement in revenue as highlighted above.

2.      Rebuilding Customer Confidence through Service Level Agreements between NRZ and its regular customers which outline commitments to service delivery.

3.      Flexibility in pricing tariffs which allows price adjustments as and when necessary to remain competitive.

4.      Lobbying the Government to expedite the enactment of legislation banning bulk goods transportation by road and thus ring- fencing traffic to rail.

5.      Advocating for a waiver of duty on diesel for locomotives.

6.      Increasing Frequency of Cross Tripper Trains, that is, trains which do not stop and are manned by two sets of crews to expedite the movement of cargo. 

7.      To alleviate the challenges associated with the moribund, antiquated and dilapidated fleet, NRZ proposed to engage the private sector to assist in terms of recapitalization.

8.      Selling of Scrap Metal to raise the much- needed revenue. Scrap metal reportedly earned the organization about USD 2.5 million in 2016.

9.      Sourcing funding for recapitalization from the Government.

 

4.0       Committees Observations

1)      The Committee noted, with dismay, that a large part of NRZ management’s resuscitation strategy is premised on recapitalization by Government. Given the well documented fiscal constraints that we are currently faced with, this appears highly unlikely in the immediate future. This business as usual approach will not achieve the desired results of reviving the once thriving NRZ.

2)      While the reduction of the salary to revenue ratio is a long- overdue initiative, there does not seem to be any solution in sight in terms of raising the much- needed financing for the workers who are already owed over USD 90 million, let alone those who, by virtue of the cost- cutting measures, will join the long list of creditors.

3)      Public private partnerships offer the most plausible and ideal strategy to get NRZ out of the doldrums. However, the debt overhang of USD 176 million exacerbated by the USD 90 million owed to employees are making it increasingly difficult for the entity to attract serious investors.

4)      Bureaucratic red tape between the organization and the parent Ministry is inhibiting expeditious decision- making particularly with respect to price tariffs. This has rendered NRZ uncompetitive especially against road transport as the latter is able to make price adjustments instantaneously in line with market forces.

5)      The Committee observed that NRZ is not actively following up on the mineral claims held in South Africa which provide an alternative source of much- needed revenue for the entity. Given the challenges NRZ is facing, the lackadaisical attitude towards this critical resource is incomprehensible.

6)      While management foresees an improvement in passenger movement in 2017, there are no concomitant initiatives taken by the organization to lure passengers to use rail transport instead of road transport. The Committee could not ascertain the basis of this confident projection given the stiff competition in the road transport industry at the moment.

7)      The collapse of the Centralised Train Control System could have devastating fatalities on both cargo and passengers if it is not replaced as a matter of urgency.

 

 5.0      Recommendations

1)      Government must take over or, at the very least, guarantee the debt owed to employees if NRZ is to attract a serious private investor. This should be done by September 30 2017

2)      The parent Ministry should expedite the enactment of legislation banning the transportation of chrome ore, among other bulk goods, using road transport and ring- fence traffic to rail. The area which has speed restrictions should expeditiously be attended to and all rail ballasts should be installed. This should be carried out by October 2017

3)      Procurement and decision- making procedures must be streamlined to reduce red tape and enable quick decision- making in this cut-throat industry. This needs to be done immediately after the tabling of this report

4)      The Centralised Train Control System must be replaced as a matter of urgency to prevent loss of lives and/ or cargo resulting from fatal accidents by September 2017.

5)      The Board and Management must actively pursue the mineral claims resident in South Africa as they could provide an important source of leverage in sourcing funding. Immediately a committee should be set up by the Minister of Transport and Infrastructural Development to pursue this game changer by December 2017.

6)      NRZ must develop an inventory of all its properties both within and outside the country and use some of the properties to liquidate their debts. This needs to be presented to parliament by end of August 2017.

7)      Engineer Mukwada who is now substantive General Manager of NRZ should immediately cease sitting on BBR Board a competitor in the rail industry as this is bound to compromise his service delivery at NRZ and also a poor corporate practice.   

8)      NRZ must come up with a proper industrial relations policy to avert the breakdown of relations without the organisation staff by August 2017.

9)      Given that Cabinet has given its nod for engagement of PPP for NRZ, therefore NRZ should immediately make rigorous efforts to engage in PPP by December 2017.

10)   Government to immediately remove duty on fuel meant for NRZ Local motives but to put stringent monitoring measures to avert and make sure there’s no abuse by end of July 2017.   

 

5.0       Conclusion

5.1       The National Railways of Zimbabwe remains a key strategic entity in domestic resource mobilisation, employment creation, national development and the revival of the Zimbabwean economy. Its resurrection should, therefore, be an imperative rather than an option. However, for this to happen, the board and management need to think outside the box and pursue alternative revenue generating initiatives as opposed to approaching the Government again and again with the proverbial begging bowl.

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