Transnet debt crisis

Transnet’s leadership has admitted the rail and ports utility is in a debt crisis, paying roughly R1 billion a month to service its R130 billion debt pile. 

“It has been a harrowing couple of years. It has been a harrowing three years. Much has happened to us in South Africa and particularly to Transnet,” CEO Portia Derby said.

Derby spoke at the review of the utility’s financial and operational performance for the 2022/23 financial year last week. 

Transnet’s debt has ballooned to R130 billion, with chairman Andile Sangqu saying that the company currently pays R1 billion monthly to service this debt. 

Rating agency S&P Global cautioned earlier this year that Transnet has not been able to meet its cash interest cover metric for some of its lenders. 

Much of this debt stems from a deal to purchase 1,064 locomotives in 2014 for R54.5 billion, assuming the economy would grow by 5% per year. 

With a growing economy, Transnet is expected to transport increased volumes of freight and thus generate more revenue. 

However, this growth did not happen. Despite the South African economy conducting far more trade than two decades ago, Transnet’s revenue and logistical capacity have not increased. 

The GAIN Group estimated that Transnet’s collapse is set to cost the country R1 billion a day in economic output, equivalent to 4.9% of annual GDP or R353 billion in 2023. 

The figure of R353 billion for 2023 is less than the R411 billion GAIN estimated Transnet cost the South African economy last year. 

Director at GAIN Professor Jan Havenga expected the utility’s performance to improve markedly this year due to cooperation between Transnet and mining companies. 

However, this improvement did not materialise as the total freight transported by Transnet declined in 2023. 

South Africa’s economic growth of 0.5% for 2023 could have been over ten times higher at 5.4% if Transnet operated at full capacity. 

The calculated cost to the South African economy includes the failure to achieve potential exports, the impact of inefficient logistics resulting in higher costs, and other indirect impacts from lost revenue on the economy. 

Volumes of iron ore and coal transported through Transnet’s freight rail network for export have dropped because of poor management, idle locomotives, and cable theft. The volumes delivered by its freight rail business dropped 13.6%.

The Minerals Council of South Africa estimated that poorly run ports and freight-rail lines may have cost the country R150 billion in exports last year.

The government announced overhauling Transnet’s board in July to effect a turnaround. It’s also working with businesses to arrest the decline of its rail and port services.