Business Maverick

FREIGHT RAIL FAIL

Transnet’s critical operation and financial situation extends from bad to worse

Transnet’s critical operation and financial situation extends from bad to worse
From left: A crane operator loads a shipping container on to a truck at the Port of Durban, operated by Transnet in Durban, South Africa, on 28 October 2015. (Photo: Kevin Sutherland / Bloomberg via Getty Images) | Shelley Christians | Gantry cranes sit above a ship in the container terminal at the Port of Durban, operated by Transnet on 28 October 2015. (Photo: Kevin Sutherland / Bloomberg via Getty Images)

The state-owned transport group has recorded another financial loss running into billions of rands. Its rail and port operations remain a mess, undermining South Africa’s economic recovery. And lenders are wary of providing Transnet with more money, forcing the government to come to its rescue. 

As investors and lenders doffed their working caps for the year in December, Transnet released financial results that showed that almost everything at the state-owned transport group went from bad to worse in recent months. 

Transnet extended its money-losing streak as it released results on 22 December 2023, showing that the transport group recorded a financial loss of R1.6-billion during the six months ending September.

Transnet is important for South Africa’s economy because it is responsible for ferrying most of the iron ore and coal that the country produces and exports around the world. Transnet also has a major role in carrying freight and fuel around the country and helping importers land their goods at ports. When Transnet isn’t operating properly, many businesses and South Africa’s exports come to a standstill.

Transnet’s operations, mainly its freight rail network and ports, are in the doldrums in almost every regard. 

Exporters are facing major problems in railing their goods to market and this can be seen at Transnet Freight Rail. This is the largest division at Transnet as it generated most (52%) of the R39.2-billion revenue that the state-owned entity (SOE) generated at a group level. 

Transnet Freight Rail’s revenue, which is generated from the contracts it mainly has with the mining sector, increased by 8.1% to R20.2-billion. The increase in revenue is not a function of Transnet’s operational efficiency but an increase in tariffs it charges customers to rail their goods to markets. 

Operationally, Transnet Freight Rail remained in a mess, with volumes continuing to decline, indicating that the SOE is transporting fewer goods via rail. Beyond mining goods, this division also rails steel, cement, agricultural products, and bulk liquids. Total volumes fell by 7.2% to 75.6 million tons (mt) compared with 81.5 mt in 2022. 

There is so much to blame here: Transnet’s poor management of rail systems (hundreds of its locomotives, the heavy-haul ones that are supposed to pull the coal and iron ore wagons, stood idle and were unavailable for service), rail infrastructure being hit by cable theft and vandalism. 

Volume declines were broadly seen in the mining sector, with exported iron ore (down 6.4% to 26.5 mt) and coal (down 10.7% to 23.4 mt). This is a declining trend that has been playing out for many years, making Transnet unreliable for exporters. 

For instance, Transnet moved 56 mt of coal in 1996 on the coal rail line to the Richards Bay Coal Terminal. Coal volumes peaked in 2017 at 76 mt but fell to 72 mt in 2020. In 2021, volumes were down again to 58 mt and remained flat to 58.3 mt in 2022. Volumes declined further in 2023 to 48.7 mt. 

Inefficiencies at ports

Ports operated by Transnet are equally a mess. Container volumes received and handled by Transnet’s port terminals declined by 1.8% during the six months ending September to reach 2.1 million TEUs. TEUs refer to 20-foot equivalent units, which is a measure of trade volumes at container ports.

Transnet ports are miles behind in terms of efficiency, container loading, and waiting times, and rapidly losing market share and investment attractiveness to more efficient port operators on the African continent. 

Read more in Daily Maverick: Transnet’s financial crunch intensifies after losing millions in revenue due to Durban port inefficiencies

To turn the situation around, the Transnet board and Cabinet have approved a much-vaunted logistics plan that sets out timelines for everything, including allowing private ­sector companies access to railway lines, setting up an independent manager of the rail network, rightsizing the network by closing down unprofitable lines and giving private operators concessions on ports and rail routes. 

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

Transnet’s financial problems 

Beyond operational problems, Transnet’s financial woes are also daunting. While much of the attention is on Eskom’s debt problems, Transnet has its own. It carries a debt of R128.9-billion in its financial books, consisting of short-term (R65-billion) and long-term borrowings (R63.8-billion). 

The chances of it defaulting on debt repayments are increasing. 

Underscoring Transnet’s heightened debt-default risk is its rolling cash interest cover, which is sitting at 1.9 times, a decline from 2.1 times a year ago. The interest cover measures the ability of a company to pay interest that is due on outstanding debt. And a decline in the interest cover — as has happened in Transnet’s case — means the SOE is burdened by debt expenses and its ability to meet interest payments might be questionable.

Some of Transnet’s lenders, which have given the company R48.8-billion spread across 18 outstanding loans, require it to have a cash interest cover of between 2 times and 2.5 times. Transnet cannot comply with this requirement (constituting a breach in loan terms) because its cover profile is 1.9 times — thus forcing it to inform its lenders and ask them for a pardon. 

A default on debt repayments by Transnet would push other lenders to call for immediate loan repayments. When debt repayments are due, Transnet now takes the approach of asking lenders for reprieve and making payments at a later period, rather than settling the debt.  

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

This has made lenders wary of providing more money to Transnet to fund its operations. Transnet is now able to defer debt repayments to a later period after the National Treasury provided it with a government guarantee of R47-billion. 

Read more in Daily Maverick: Government throws a R47-billion support package to get Transnet back on track

Transnet can use the guarantee awarded by the government to secure new debt or roll over immediate repayments to a later date. Transnet will be able to draw down an immediate R22.8-billion from the government guarantee to deal with present challenges, including the settlement of maturing debt. DM

Gallery

Comments - Please in order to comment.

  • Heinrich Holt says:

    Everything the government touches is a mess, starting from basic services and ending with foreign relations. All speaks of incomprehensible incompetence. What a way to start 2024.

  • Nor Hes says:

    Cadre mangement at its best.

    Did you expect anything else?

  • Andre Swart says:

    How can the same people that destroyed Transnet ever fix it?

    If they now, all of a sudden , know how to fix Transnet why did they destroy it in the first place?

    It’s just another BIG LOOT AND PILLAGE scheme orchestrated by the ANC.

  • Zed Buchler says:

    This was fully expected. The decline will keep going if the “big bosses” behind the trucking industry, keeps on supporting so called theft and vandalism to Transnet’s infrastructure. The same thing happens to Prasa exept here we have the taxi industry doing it. Maybe its time to do in depth reporting on this phenomenon Daily Maverick?

  • Alfreda Frantzen says:

    I grew up in Bloemfontein, the railway hub of our republic. How can all this be now, after an enviable employer with organised track record, building own coaches, maintaining lines, impressive Blue Train, just disintegrate?

  • Alley Cat says:

    The knock-on effects of damage to our roads caused by heavy cargo that should be transported by rail are also serious.
    With more traffic routed round our Cape because of the risk in the Suez canal, we should have been cashing in, but we can’t even deal with existing traffic. Same with the sanctions against Russia. We should be doubling our coal and platinum exports, but we can’t get the minerals to the ports. What a mess that is so typical of the ANC and its useless cadres!

  • Tim Bester says:

    Privatise this beast and be done with deployed SACP/anc comrades attempting to ‘fix’ it.

  • Confucious Says says:

    It is simply amazing!!! We see it, you see it, the rest of the world sees it… but the anc… nah, they see nothing!!!

  • Fanie Rajesh Ngabiso says:

    Welcome to South Africa, home of the big 5:

    1. Lies
    2. Nepotism
    3. Theft
    4. Laziness
    5. Ignorance

  • Peter Smith says:

    We see the same issue with SOE’s and local government. They have all been graded below investment grade. Government now has to foot the bill for all. The next step will be to use the reserves which should buy another year or two for the ANC. After that it will be the pension funds. It is unlikely that SA can turn this around. The final phase will be civil unrest that will destroy whatever is left. This was all predicted in the World Bank report of 2010. South Africa will become a history lesson: a case study of what happens when the basic preconditions for democracy to function is ignored.

  • Cachunk Cachunk says:

    The anc are utterly and completely useless.

  • Gerrie van der Merwe says:

    There is a book “Atlas Shrugged”. Author Ayn Rand, published in 1957. Please go and read this book. It describe perfectly what is happening in South Africa.

  • Rae Earl says:

    The ANC is solely responsible for this mess. Transnet is a massive organisation which requires top aggressive management with inbred knowledge of the industry. This, coupled with solid business acumen is essential to the running of its operations. How the hell did government allow such a critical SOE to be placed in the hands of inept top management like Portia Derby and Nonkululeko Dlamini? Even more incredible was the fact that they were allowed to continue with their operational wreckage for 3 years before being replaced. Given the mindset of the ANC, it would appear to be beyond their comprehension to grasp or understand the magnitude of every SOE failure at their hands and the colossal damage this has done to South Africa and its citizens. This government simply cannot be allowed another 5 years in power. The disaster would be unimaginable.

    • Geoff Coles says:

      Go back 6 months….almost all the top positions at Transnet were held by females….. something very odd in a transport business. Were any actually qualified

  • Jan Vos says:

    Question: Is there even ONE government department that is still functioning properly?
    Don’t bother answering – we all know the answer.

  • Grant Kimber says:

    Idiots will continue to vote for this idiocy to continue until there is nothing left.

  • D'Esprit Dan says:

    What the article misses is the role of our logistics network in the broader region. It carries millions of tons of goods destined for the landlocked hinterland, both locally produced and as transit cargo. Transnet’s collapse and the criminal hijacking and burning of trucks on our roads has resulted in every other country in the region bar Lesotho moving quickly to upgrade and build alternatives to SA routes. This will see exports of minerals and produce from the region rerouted through Angola, Namibia, Mozambique and Tanzania, with inputs into these sectors, and consumer goods making up the backhaul to realise efficiencies on those routes. Those products won’t come from South Africa.

    Last year we exported over half a trillion Rand’s worth of goods to the rest of Africa. That’s R5,000,000,000,000. That’s what’s at stake here too.

  • William Morrison says:

    I was one of the a employees who took VSP in 2017, my take on this mess, is that VSP, is part of Transnet’s downfall. Most competent employees, that put their heart and souls in the SOE, are no longer there, to maintain, what have been over all the years that Transnet, was the Employer of Choice for many South Africans. Simular to the ANC’s Cader deployment, the SOE must move away from its equity policies, that are preventing competent candidates from entering.

  • David Pennington says:

    One can not simply place a Gibbon in charge of the Ape House

  • andy.mylroie says:

    Isn’t it about time that the ANC government accepted the fact that they are incapable of making a success of anything. Every state owned enterprise is a mess through ineptitude and corruption and yet they think that they can make NHI work. All that NHI is set to do is provide more funds for the so called political elite to steal. Having personally witnessed the functioning of the public health service I have come to the conclusion that the powers that be are incapable of understanding the functioning of time honoured systems that work elsewhere in the world to make things run smoothly and efficiently. Those two words are meaningless in this country.

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