Transnet’s financial situation has turned for the worse, with the state-owned transport group reporting a loss of R5.7-billion during the year ending March 2023, mainly due to inefficiencies of its rail network.

During a results presentation on Friday, Transnet CEO Portia Derby described the reporting period as “harrowing” referring to Transnet’s rail network remaining in a mess, with volumes continuing to decline, indicating that the state-owned entity (SOE) is transporting fewer goods via rail.

Disruptions to the rail network (mainly 3,877 incidents of cable theft), power supply disruption, floods in KwaZulu-Natal, and a more than a week-long strike by workers have all resulted in Transnet swinging from a profit of R5-billion in 2022 to a financial loss.  

Transnet’s rail operations are a crucial cog in South Africa’s economy. They are responsible for moving most of the iron ore and coal that is produced in the country and then taken around the world.

Shipping containers sit on board a cargo ship as it departs from the Port of Durban, operated by Transnet. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

But exporters are facing major problems in railing their goods to market and this can be seen at Transnet Freight Rail (TFR), the largest division at Transnet which generates most (45%) of the SOE’s revenue of R68.9-billion. Rail volumes at Transnet declined by 13.6% as TFR moved 149.5 million tons (mt) from 173.1 mt. Volumes have been languishing below 200 mt since 2020.

A big problem with the freight business is that Transnet does not have enough locomotives that move through its rail network. About 370 locomotives — the heavy haul ones that are supposed to pull the coal and iron ore wagons — are idle. But 70 of these locomotives are set to be returned to service by March next year. 

Transnet has been in a long-standing dispute over the corrupt 1,064 locomotive contract, which was declared illegal. Some of these locomotives were procured from China Railway Rolling Stock Corporation (CRRC), and as a result of the dispute, it refused to provide Transnet with spares for the locomotives. 

Read more in Daily Maverick: Why Gordhan’s diplomatic visit to China is a make-or-break moment for Transnet

Derby said negotiations with CRRC are ongoing to fully resolve the dispute, but Transnet has signed a settlement agreement with the company, which has agreed to provide the SOE spare parts. Another pressure point for Transnet is its debt, with its borrowings increasing to R130.1-billion, from R128.8-billion in 2022. It pays R1-billion every month alone in interest on this debt. DM