Ailing Transnet on the brink of becoming South Africa’s next Eskom

Ailing Transnet on the brink of becoming South Africa’s next Eskom
(Photo: Waldo Swiegers / Bloomberg via Getty Images)

The neglected state-owned ports and freight-rail operator is lurching from a labour instability crisis to another financial and operational crisis — at an enormous cost to South Africa’s economy.

In many troubling ways, transport group Transnet is at risk of becoming the next Eskom. 

Both state-owned enterprises have experienced many years of neglect and underinvestment in their infrastructure by the government, resulting in their inability to perform basic functions — moving goods through ports and by rail, or generating and delivering electricity.

If Eskom is the heartbeat of South Africa’s economy, Transnet is the spine. 

But not only are operations at both entities in a perilous state, so are their financial situations, with both entities often reporting financial losses and carrying smothering debt of billions of rands.

To add to their troubles, labour relations at Eskom and Transnet have deteriorated. A nearly two-week strike at the power utility earlier this year pushed South Africa deeper into rolling blackouts. The dispute ended when workers walked away with a 7% pay rise.

Transnet has also been in the throes of a labour dispute as its workers, inspired by what their counterparts achieved at Eskom, have downed tools for more than a week, demanding a pay rise that is at least equivalent to the inflation rate, which measured 7.6% in August.

Read more in Daily Maverick: “R1bn a day — SA counts the cost while Transnet strike drags on

Workers employed in Transnet’s marine operations and those who guard ports are not allowed to take part in the strike as they are considered to provide an essential service, as agreed by Transnet and trade unions.

The strike — led by trade unions recognised by Transnet, including the United National Transport Union (Untu) and the South African Transport and Allied Workers’ Union (Satawu) — has mainly affected the company’s port terminals in KwaZulu-Natal.

As ports operate with skeleton crews, the productivity of Transnet’s operations has been throttled. Nearly 30 vessels were stuck outside Transnet’s terminals facing delays in docking.

There haven’t been major strike-­related disruptions reported at Transnet’s other port operations, mainly in East London, Ngqura, Gqeberha, Mossel Bay, Cape Town and Saldanha, or at its rail networks.

A Transnet insider, who is part of the wage negotiations, told DM168 that the company’s management is already worried about workers downing tools, and it will be “overly concerned” if the strike is prolonged.

“That is when shit will hit the fan — not only for Transnet but also South Africa’s economy,” said the insider.

Transnet Port Terminals declares force majeure in the wake of ‘illegal strike’

Ballooning wage bill

Transnet pulled in revenue of R68.5-billion during its 2021/22 reporting year, but its financial situation is already worrying. It costs R26.2-billion to pay its 55,000 workers (comprising those employed permanently or on fixed-term contracts). 

The remuneration bill makes up nearly 60% of Transnet’s total annual expenditure of R45-billion. Add the costs of servicing debt and Transnet’s financial position is precarious.

The remuneration bill has been rising in recent years, whereas revenue has been in decline since 2018. And now the remuneration cost is set to balloon.

Transnet initially offered an increase of 1.5% for 2022 (backdated to 1 April), which was later sweetened to 4.5%. Then, in 2023 and 2024, the pay will rise by 5.3% each year. But the trade unions have rejected Transnet’s improved offer, insisting on an increase that is linked to the inflation rate.

Some market-watchers estimate that if Transnet were to offer workers an inflation-linked pay rise, it would add between R700-million and R1-billion to its costs.

Transnet spokesperson Ayanda Shezi did not confirm this cost range, saying only that pay discussions with trade unions were continuing and “the final impact on Transnet will only be clear once the dispute is settled”.

The cost of paying workers at Transnet is unsustainable. Speculation inside Transnet is rife that the company might go through another round of retrenchments by offering voluntary severance packages once the labour dispute is settled. It embarked on a similar process in 2021.

As the rand tanks, SA business warns of dire economic consequences from Transnet strike

Visit Daily Maverick’s home page for more news, analysis and investigations

How Transnet lost its way

Some of Transnet’s many problems are self-inflicted, including more than a decade of State Capture plunder, underinvestment in its operations, poor management of rail and port systems, theft of 1,500km of copper cable in five years and vandalism of its infrastructure. Others are out of its control, such as the Covid lockdowns, the July social unrest and April floods. 

In spite of it all, Transnet remains crucial to the economy. The company is responsible for ferrying most of the iron ore and coal that South Africa exports to countries around the world — exports that depend on Transnet’s efficiency.

Transnet also plays a big role in carrying freight and fuel across the country. When it isn’t operating properly, the economy sinks.

But Transnet’s infrastructure is so poor that exporters, mainly mining companies, struggle to rail their goods to market.

Transnet Freight Rail, the largest division in Transnet, remains a mess, with rail volumes continuing to decline. In 1996, Transnet moved 56million tonnes of coal on the coal line to the Richards Bay Coal Terminal. Coal volumes peaked in 2017 at 76 million tonnes but fell to 72 million tonnes in 2020. In 2021, volume was down again to 58 million tonnes and the mining industry is pencilling in a further decline to 49 million tonnes in 2022.

As Covid lockdowns ended, Transnet’s revenue should have grown strongly (but it remains flat) because global prices of commodities such as coal and iron ore hit record highs.

Instead of reaping a windfall, mining companies had to cut production because hundreds of Transnet’s trains could not arrive on time or run at all.

Companies were pushed to truck their coal by road, and Transnet lost an opportunity to earn more revenue from mining companies.

Like Eskom, Transnet has debt problems. Its debt load of R129-billion has become so overwhelming that it nearly defaulted on a loan repayment due on 26 July on a 10-year $1-billion (about R17-billion at the time) international bond.

It raised more money at the eleventh hour to pay back the loan and avoid a default, which would have triggered a string of other lenders to demand immediate repayments.

NPA makes deadline to produce indictment against big fish for Transnet graft trial

Tough negotiations

Transnet, which holds wage negotiations with trade unions every three years, is conducting the current round of talks from a vulnerable position — financially and operationally.

There is a sense that Transnet wasn’t prepared for the latest negotiations as it may have hoped that trade unions would be sympathetic to its problems.

DM168 understands from people close to the negotiations that Transnet went into the talks without having a firm plan for how it would fund any pay rise adjustments. Essentially, it went into the negotiations blind.

It is understood that Transnet is considering three mechanisms to fund a pay deal, whenever it is concluded.

  • First, Transnet might increase the fees it charges users of its ports, terminals and rail network to generate additional revenue. This will be hugely unpopular because Transnet customers are already unhappy about its service. They won’t be getting value for money.
  • Second, Transnet might increase its borrowing capacity by raising money from existing lenders at the risk of worsening its debt load.
  • The third option involves asking the government for financial support, which would be a bridge to cross because Transnet hasn’t received a bailout from the government for more than 20 years.

Representatives of the unions Untu and Satawu say they don’t have an appetite for prolonging the strike.

“All Transnet needs to do is play ball. We have already been reasonable in our demands and would consider an offer above inflation,” said Untu deputy general secretary Dan Khumalo, adding that the union had trimmed its pay demand from an initial 12% to 13%. 

Anele Kiet, Satawu’s deputy general secretary, expressed similar sentiments.

Flailing Transnet has cost South Africa R50bn in lost mineral exports this year

Limping economy

A prolonged Transnet strike would be a disaster for the economy, which is already limping along because of Eskom’s power cuts.

Investec chief economist Annabel Bishop said the Transnet strike, on its own, risked pushing the economy into recession in 2022. Many sectors were taking a hit with every passing day as the strike continued.  

In the fruit industry, 7,800 containers of citrus weighing 185,000 tonnes, meant to be exported from the ports of Durban, Ngqura and Cape Town, could be affected.

It’s the end of the harvesting season in South Africa and the citrus industry wants to take advantage of export opportunities.

The mining sector said it was losing out on R815-million of exports a day because miners are unable to rail and load 357,000 tonnes of iron ore, coal, chrome, ferrochrome and manganese on to ships daily.

The impact has also been felt in the trucking industry. Gavin Kelly, CEO of the Road Freight Association, said the strike had also affected the road transport sector, with some trucks standing idle at ports for up to four days.

“Roughly 85% of all goods moved through and around the country have a road leg,” said Kelly.

“Many of the trucks are now caught in delays when returning to fetch the next load due for export/import. Import and export logistics has virtually ground to a halt.” DM168

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.


Comments - Please in order to comment.

  • Carsten Rasch says:

    It seems all the chickens have conspired to come home to roost. I dread the coming of the new year.

  • Dennis Bailey says:

    It’s like our SA gov’t don’t look anymore; they just kill anything that’s potentially profitable.

  • Patrick O'Shea says:

    The rot started a lot more than 10 years ago, when rail was uprooted all over the country and sold as scrap to China by the cadres.

  • A.K.A. Fred says:

    Transnet is in terminal decline. I worked for the organisation for 10 years and I subsequently have been involved in the rail industry for a long time. The changes at Transnet over time have been monumental. Loss of skilled staff (mainly older, white, well trained and experienced people) has been escalating over the past 12 – 15 years – same problem as eskom – fuelled by affirmative action and employment equity targets rather than sound development and management of the workforce. When things get bad, useful/dynamic employees look for a way out but with minimised financial risk. So, voluntary retrenchment packages are welcomed by these “stuck” employees. The problem for Transnet is that their workforce capability is further diluted by loss of critical skills and institutional memory. If you accept that Transnet in 1994 was already lagging private enterprise in terms of efficiency and customer service (as a lethargic state enterprise), then the situation today is diabolical. More and more the workforce is becoming incapable, underskilled and bloated. Underskilled employees in responsible positions generally regard their job as a position for life and want to hang on to their meal ticket. Increasing salaries without a commensurate commitment from employees to improve operational efficiency is a mistake, as is voluntary retrenchments rather than targeted retrenchments. The subject requires more response than is allowed in this comment but the point is made.

  • Johan Buys says:

    The common thread among the failed entities is cadre deployment. It is time that our lenders put in place administrators that see to the entities appoint skilled people : not the next person on party lists. What does party policy have to do with running an airline, the ports and railways, the national electricity utility, an arms manufacturer, the roads agency, the road accident fund, etc etc? The exact same horror movie is playing out in local government.

  • Jane Crankshaw says:

    Yet another tale and trail of corruption perpetrated with our BRICS partners! Perhaps it’s time for taxpayers picking up the tab to force our government to resign from this criminal cartel and get some of our reputation back. Supporting Russia by abstaining, allowing the Guptas to remain free and the Chinese for selling us crap that doesn’t work is just the tip of the iceberg! Let Saudi Arabia take our “S” position in this band of criminals and allow this country to save ( some) face!

  • Jimbo Smith says:

    To understand the extent of destruction at Transnet, look no further than the “Minister” in charge. The basic concept of any business leadership is built around experience, competence, requisite skills and surrounding yourself with the best talent available. One does not have to be a brain surgeon to figure this catastrophic mess and the many others for exactly the same underlying reasons.

  • Thomas Cleghorn says:

    There is of course a 4th funding model that might not have been thought about? One could run the entity in an efficient manner… It certainly sounds as if there is an excess of goods to be moved and the business is there. It should work and at least be self sustaining, the problem is that if Eskom is the heart and Transnet is the spine the ANC are the brain…
    Can we get to look at the financials? Show them to the Unions & maybe make pay hikes related to improved Transnet performance. Maybe employees could even double their incomes if things went well?
    Transnet had/has such potential to improve the lives so many and to build much needed infrastructure, employ & contribute to the (green) economy. Are there any functional SOE’s out there?

  • Sam Joubs says:

    This is what happens when you buy votes. Time to shut it down and let the private sector take over. Such a take over might negatively affect the economy for a few years during the transition periods but that will be preferable to a permanently failed economy.

    • Jane Crankshaw says:

      That would be a great idea, except you have to still deal with racist BEE policies, the Construction mafia, the TaxiMafia ( who are now the only public transportation option for the majority trying to get to what little jobs we have) cable theft, rail theft and goods theft ( as recently witnessed)
      The rot started at the top – to privatise any SOE, we will have to get rid of the ANC and their mates, the EFF.

  • Malcolm McManus says:

    At least Eskoms power lines fit under the bridges. Which says little for Transnet’s yet to be used new trains.

  • Confucious Says says:

    Every single thing that these jokers touch is destroyed! Yet they love to point fingers!

  • nickha says:

    A sorry state of affairs. If you allow state capture, vandalism of assets, poor management and corruption to become a way of life coupled with mindless unions demanding unaffordable wage increases, the end result is obvious: disintegration of operations and massive job losses. But carry on regardless.

  • Tim Price says:

    This and nearly every state run entity. Take a look at the decline of the TMNP under SA National Parks. A fraction of the funding generated thee goes back into the park, rangers who would rather ticket someone swimming in a dam than catch bark strippers and no full time team to maintain trails. Speaking of which, these are fast becoming a danger to visitors with little or no sign of improvement.

  • Clyde Smith says:

    “We have already been reasonable in our demands and would consider an offer above inflation,” said Untu deputy general secretary Dan Khumalo, adding that the union had trimmed its pay demand from an initial 12% to 13%”
    Given the quality of ministerial administration in the ANC, I’m pretty sure that they’ll respond by saying “If you trim your demand to 15%, you’ve got a deal”.

  • Heather Darby says:

    We may be angry and saddened by the state of the country’s infrastructure, but they don’t care so long as they are getting their salaries and 10%’s of something that’s all that matters. Until there are monumental changes in government nothing will really change. Just limping from one mess to the next.

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