Transnet may sell up to R50 billion worth of assets to finance the maintenance of its rail infrastructure as a R130 billion debt burden weighs down the utility that pays R1 billion monthly to service its debt.
Transnet’s board chairman, Andile Sangqu, revealed this when he reported to Parliament’s public enterprises portfolio committee this week.
Transnet, the state-owned freight transport company, plans to spend R84.9 billion in the next five years on infrastructure at Transnet Freight Rail (TFR), its largest operating division.
However, the company faces a R130 billion debt burden and pays R1 billion monthly in interest on this debt, making it difficult to raise money to pay for its maintenance.
“We have reached the limit of our gearing capacity and do not have a strong balance sheet. There are a lot of things that need to be done, but the company does not have the financial capital to deliver on that mandate,” Sangqu said.
Transnet reported a R5.7 billion loss for the year ended 31 March 2023, compared with a R5 billion profit in 2022.
The volumes delivered by its freight rail business dropped 13.6% during the period.
The planned infrastructure spending is necessary to upgrade TFR’s ageing network, which is essential for transporting goods around South Africa.
Transnet CEO Portia Derby has said the company is exploring ways to raise cash, including selling assets and seeking government guarantees.
However, it is unclear whether these measures will be enough to cover the cost of infrastructure spending.
The utility can turn to the government for additional funding, which is unlikely as the National Treasury is unwilling to increase spending.
Transnet’s board was charged by the Minister of Public Enterprises, Pravin Gordhan, to create a turnaround plan within three weeks.
This plan will likely contain a proposal to dispose of assets to raise money to fund the utility’s maintenance plan.
Gordhan also called on the board to draw up a report on how Transnet will be restructured to ensure it can deliver on its mandate, cut spending, and tackle corruption.
The minister told Parliament that the government is unwilling to extend more funding to state-owned enterprises.
No time to waste
Billionaire Patrice Motsepe has warned that despite efforts to improve Transnet’s performance, the country does not have time to wait for results.
Motsepe said he and ARM’s management team are encouraged by their engagements with Transnet to collaborate with the private sector to improve the utility’s performance.
“That is an excellent beginning,” Motsepe said. “But, we do not have time now. What we need is results, results, results. We need the partnership to deliver.”
“We can’t be experimenting. There’s no time to be playing around and fidgeting.”
Employing the best people for the job is “absolutely non-negotiable”, Motsepe said. “The best people in any industry are the ones who have grown up in the business and understand the business.”
Transnet’s rail and port woes cost bulk commodity miners billions in lost revenue.
The Minerals Council of South Africa estimated that poorly run ports and freight-rail lines might have cost the country R150 billion in exports last year.
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 actually 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.
According to GAIN, 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.