Business Maverick

Business Maverick

Government throws a R47-billion support package to get Transnet back on track

Government throws a R47-billion support package to get Transnet back on track
From left: High-voltage electricity transmission towers above shacks in the Dunoon informal settlement area of Cape Town, South Africa, on 1 June 2023. (Photo: Dwayne Senior / Bloomberg via Getty Images) | The Transnet logo in Cape Town, South Africa, on 6 February 2023. (Photo: Dwayne Senior / Bloomberg via Getty Images) | South African bank notes. (Photo: Reuters / Siphiwe Sibeko) | Cranes at the Port of Durban, operated by Transnet in Durban, South Africa, on 25 May 2018. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

It’s not an immediate cash injection or bailout. But the government has given Transnet a guarantee facility that the state-owned transport group can use to raise new debt with banks or settle existing debt obligations. 

Finance Minister Enoch Godongwana has caved into the request by Transnet for financial assistance as he unveiled a support package worth R47-billion for the struggling state-owned transport group. 

The financial assistance of R47-billion to Transnet has been described by Godongwana and the National Treasury as a “guarantee facility”, which will help the company deal with immediate debt obligations and support its logistics turnaround plan. 

It’s not an immediate cash injection or bailout. Guarantees are given by the Treasury to state-owned enterprises (SOEs) to help them raise new debt with banks and other funders or settle existing debt obligations, especially when they soon come for repayment. SOEs would then use the guarantees awarded by the government to secure new debt or roll over immediate repayments to a later date. If SOEs fail to pay back debt when it’s due (or default), then the government or taxpayers would be on the hook for payments. 

Transnet has a lot of debt due soon and will likely use the newly awarded guarantee from the Treasury (worth R47-billion) to settle debt or extend repayments to a later date. 

Transnet has another portion of debt worth almost R10-billion that has to be repaid by the end of December, with another R40-billion due over the next three years. Transnet recently told Daily Maverick that it plans to ask lenders for a reprieve on the debt due at the end of December by negotiating a later repayment date. 

Read more in Daily Maverick: Transnet seeks further reprieve from R10bn debt repayment as December deadline looms

With debt of R135-billion and financial losses running into billions of rands, Transnet is increasingly at risk of defaulting on debt repayments. And because of its financial crisis, lenders are wary of providing more money to Transnet to fund its operations.

Out of the R47-billion guarantee facility, Transnet will draw down an initial amount of R22.8-billion “to deal with immediate liquidity matters such as settling maturity debt”, the Treasury said in a statement issued on Friday 1 December. 

The Treasury said it had decided not to provide Transnet with an equity or cash injection at this point because the budget for 2023/24 was closed. 

U-turn on Transnet, financial support 

The latest financial support for Transnet from the Treasury is a U-turn on the approach taken by Godongwana on SOEs. When Godongwana unveiled the Medium-Term Budget Policy Statement on 1 November, he repeated the need to show ailing  SOEs “tough love”, saying the era of continuously providing them bailouts for survival will come to an end — especially SOEs that do not show demonstrable evidence of reforms in their operations. 

On Transnet, Godongwana made it clear that he would not even discuss a bailout for the SOE unless it bought into and implemented the government’s new roadmap to transform South Africa’s logistics sector.

Read more in Daily Maverick : MTBPS: Godongwana repeats tough love message to SOEs about bailout requests 

Godongwana might have reconsidered his approach and became sympathetic to Transnet because its board recently unveiled a plan to reform its logistics operations. 

Last month, the board of Transnet unveiled a turnaround plan that requires financial assistance of more than R100-billion from the Treasury, which consists of a R47-billion equity injection and the government taking over R61-billion of the SOE’s debt — similar to the debt relief measure offered to Eskom. The turnaround plan is premised on Transnet embracing the private sector as a partner for delivery in its rail and port operations and restructuring its balance sheet by settling smothering debt, with help from the government.

Read more in Daily Maverick: Transnet’s turnaround plan is premised on securing a R100bn ‘capital injection’ from government 

The Treasury said that given the seriousness of challenges faced by Transnet, it had decided to grant the guarantee facility.

Transnet’s rail network is a crucial cog in South Africa’s economy, responsible for moving to markets most of the iron ore and coal that is produced in the country. However,  Transnet trains are often delayed or don’t move at all due to poor management of rail systems, cable theft and vandalism.

Mergence Markets has calculated that the decline Transnet’s rail volumes, SA has lost out on exports worth a cumulative R200-billion.

Ports run by Transnet are equally in a mess and are ranked among the world’s worst as they are miles behind in terms of efficiency, container loading and waiting times. 

Since Godongwana presented the 2023/4 Budget in February, South Africa’s economic fortunes have turned for the worse, with Eskom blackouts surpassing those of 2022, trains and ports operated by Transnet continuing to be unreliable and commodity prices tumbling. Because of these factors, the government unveiled a bigger-than-expected budget deficit this year, as its revenue from tax collections (especially from mining companies) is declining while state expenditure is rising.

Read more in Daily Maverick: More tax to come, but no SOE bailouts, as Godongwana juggles public finances to extend R350 grant

Godongwana believes getting Transnet working again — especially its rail operations — would be a key intervention to grow the economy and boost tax revenue.

The Treasury said the guarantee facility to Transnet will come with strict conditions, including the SOE exploring further “the divestment of non-core assets, reduction of the current cost structure, alternative funding models for infrastructure and maintenance requirements. The latter includes but is not limited to project finance, third party access, concessions, and joint ventures”.

Industry response 

Gavin Kelly, the CEO of the Road Freight Association (RFA), has raised doubts about the ability of the government’s latest support to Transnet reforming its operations.  

“Whilst this is heartening, Transnet has received allocations and presumably bailouts from Treasury before — and the question still remains whether the management, operational foresight and control that was required for many years, will now come into play. It has not done so before — so the question is whether this will ‘suddenly’ now happen — or are we to see a similar experience as happened with South African Airways,  where countless “bailouts” occurred without the desired result,” said Kelly. 

He said the RFA is aware that there are both infrastructure and equipment interventions that require capital, but “it remains convinced that an attitudinal and management change is required within Transnet, as well as the core supportive SOEs that are in the logistics supply chain”. DM

Gallery

Comments - Please in order to comment.

  • Con Tester says:

    In a nutshell, the Looting Licence has been renewed in the absence of the required Certificate of Competency.

    A more truthful headline would be: “National Treasury gives green light for shovelling R47-billion of taxpayer money down a dark, bottomless hole where most of it will be squandered and stolen.”

    Not as punchy maybe, but certainly more accurate.

  • Hari Seldon says:

    Why not give 10 billion to the NPA and 37 billion to Transnet?

    • David Mark says:

      Give it all to the NPA! The problem with Transnet isn’t money, it’s criminality, just like the rest of the SOE’s.

      • Cunningham Ngcukana says:

        You are both sick in your heads because you have not read the article. There is no money given to Transnet but guarantees for two things: firstly to meet the debt obligations so that is can function as a going concern. Secondly to be able to raise funding to turn around Transnet that is an important cog in the economy. They have an immediate R10 billion debt that is payable by the end of December. We know about the equipment at the ports that is broken in the rail system and ports as well as the crisis committee that involves business to turn things around. You would have both failed in class because you are referring to matter not raised by the article. You are also not saying what the alternative is but you are just cynical.

        • Grumpy Old Man says:

          Agreed Cunningham, Treasury had very little choice in the matter. For me the story is gonna be the conditions Treasury impose on Transnet

        • Patterson Alan John says:

          Never in the history of South Africa has so much been given by the taxpayer to produce nothing!
          Why are the SOEs in such a parlous state?
          Total incompetence from everyone appointed to run the businesses.
          No preventative maintenance, no forward thinking, no ability at all when cadres are appointed instead of capable professionals.
          Nothing will be turned around, because there is no viable plan. More hot air.
          Put this comment in an envelope and open it in 2 years’ time. Will I be right?

  • you’ve got to be f*cking kidding me! Yet another payload into the trough!….just a small draw down of R22.8bil….yeah, right. As tax-paying citizens, we deserve better. We need to vote this govt out before it’s too late, if it isn’t already.

  • Alley Cat says:

    Another black hole!!!

  • Sue Hutchings says:

    Oh well there goes R47-billion of taxpayers money to be plundered and looted and wasted. And Transnet will be in the same sorry state in 5 years time.

  • David Mark says:

    Money won’t fix Transnet. It’s infiltrated by a criminal cadre mindset. The money will just get stolen.

  • Art Gee says:

    Betcha, 60% are going towards their “Self-enrichment” program!!!
    Thats how things work in SA, under the ANC govt.

  • Richard Baker says:

    Why is formal business being so acquiescent? The State is the biggest threat and risk to their companies and the economy and country.
    Not just those directly affected in their operations but the indirect such as the Long Term pension companies whose results and savings on behalf of the population are also at risk of collapse.
    Their words and lack of forcefulness continuously let government off the hook. Not only these guarantees for Transnet-beady eyes now looking at the accumulated UIF funds and nations reserves.

  • Geoff Coles says:

    Remind me who is now in charge that gives Treasury confidence?

  • Louis Fourie says:

    The ANC needs cash for the election.

  • Dragon Slayer says:

    There are good, honest and competent civil servants – its the other 90% that give them a bad name!

    Until self serving sheltered employment policies are hounded out nothing can change.
    It is also time that the qualifications and where they were obtained of everyone employed using tax-payer money is made public. If post-grad degrees are claimed their thesis or dissertation should also be published – including who moderated them.

  • Chris Lee says:

    The thoughts going through my head right now are unprintable.

  • Robert Morgan says:

    It speaks volumes that everyone’s immediate reaction is one of suspicion of wholesale looting and corruption. The ANC will never more be eyed with anything other than derision and disgust. Their damned spot is irradicable, their tarring unavoidable. What a magnificent legacy, they must be so proud.

  • Lynn Wood says:

    As a first step. Does Transnet add any value to the various parts under its portfolio?
    From what I see there is a Transnet board and corporate management structure that is replicated in the various operating units, (Ports Authority, Ports Terminals, Pipelines, Engineering, Freight Rail, Property). Let’s the smaller operating units stand on their own.

  • Elmarie Dennis says:

    Election money

  • Iam Fedup says:

    What utter claptrap. The money will first go to “employees “ who do very little, (I hesitate to actually call them workers,) and the rest will be stolen. Privatise the damn thing and let honest and competent people run it.

  • Gordon Pascoe says:

    One has to question where money is being spent for Transnet to end up with so much debt, this by the way not only ranking among the worst performing ports but also among the most expensive ports in the world. I would argue that one reason why the debt is growing is to support a bloated salary bill under the guise of funding its “operations”.

  • Geoff Coles says:

    Nearly half of the supposed guarantee will be utilised before end December to pay back loans due.
    But where’s the plan to get things right when there is no Management expertise, no timeline, no nothing!

  • Penny Philip says:

    Just sell Transnet to the Chinese & get this fecking country working again.

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