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TURNAROUND CRISIS ANALYSIS

Transnet’s shake-up must lead to courageous and much-needed reforms

Transnet’s shake-up must lead to courageous and much-needed reforms
From left: A Transnet logo on a gantry crane at the Port of Durban. (Photo: Waldo Swiegers / Bloomberg) | President Cyril Ramaphosa at Parliament in Cape Town on 5 September 2023. (Photo: Gallo Images / Brenton Geach)

When Transnet unveiled a financial loss of R5.7bn last month, the writing was on the wall for CEO Portia Derby, who submitted her resignation last week.

At the presentation of the Transnet results, Public Enterprises Minister Pravin Gordhan admonished executives and the board for the terrible performance of the state-owned enterprise (SOE), ordering the board to deliver a turnaround strategy and a review of skills at the top. This was a clear indication that Gordhan had lost confidence in Derby after many years of offering her political cover.

In the three years she has been at the helm, Transnet’s ports have become the world’s most inefficient and its rail network has become unreliable for big industry. Organised business had already written her off in late 2021.

Crisis committee time

The mining industry, which depends on Transnet trains to take coal to markets, estimated that the SOE’s inability to move trains because of mismanagement, cable theft and vandalism had cost the industry R50-billion in lost opportunities in 2022 alone.

Given this enormous cost and the lost tax revenue that the government could be generating but isn’t, the Presidency too has lost confidence in Transnet management, including Siza Mzimela, who heads the SOE’s freight rail division. Mzimela also fell on her sword by resigning.

Because of many years of underperformance and reform, the Presidency, working with private sector players, has taken control of Transnet’s strategy and is leading initiatives to fix its trains and ports. 

This work is being done through the National Logistics Crisis Committee, a joint initiative between the private sector and officials from the Presidency, which is closely scrutinising and intervening in turnaround failures within Transnet operations.

Though Transnet is involved in the work of the committee, the SOE has little say about its strategic direction, which is now left to the Presidency.

Transnet’s management and board will be further stripped of their strategy responsibility when the logistics road map is presented to the Cabinet in the next few weeks.

The effect of implementing this road map is that Transnet will cede the ownership of the rail infrastructure to the Department of Transport, and the running of the more than 30,000km freight rail network across the country will increasingly involve the private sector, which will, in turn, pour in money to upgrade the network.

Refusing partnerships

Last year, Transnet came close to defaulting on debt worth R17-billion, which could have triggered a debt crisis. It has a smothering debt problem of R130.1-billion, and the SOE now pays R1-billion in interest on it every month.

The Auditor-General has trashed Transnet’s bookkeeping for being shoddy, as seen in its disclosed irregular, fruitless and wasteful expenditure of more than R2.4-billion.

Transnet CFO Nonkululeko Dlamini has been responsible for this financial reporting function and also resigned from Transnet.

Defenders of Derby and other executives have argued that expectations for them to turn around Transnet were lofty, considering it was a key site of State Capture for many years.

From early 2020, Derby, Dlamini and other executives walked into a broken entity, whose rail and port operations suffered from many years of underinvestment, and had to navigate a layer of middle management that resisted any reforms.

The problem with this defence is that Derby, along with other Transnet executives, were seen as militant, often refusing the help offered by private sector players.

This is a dangerous time for Transnet, which has become the next Eskom. It will probably need a taxpayer-funded bailout and leadership that is fit, independent and courageous enough to implement the many and much-needed reforms. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R29.

Front page P1 07 October 2023

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