South Africa

Transnet begs for money

The Bureau for Economic Research (BER) said Transnet’s request for a government bailout comes at an “inopportune time” as the government is grappling with a budget shortfall.

This comes as Transnet has identified areas requiring immediate state support in a turnaround plan being submitted to the government.

Transnet told Bloomberg that its board would discuss the plan with the Public Enterprises Ministry and Finance Ministry.

Last week, Transnet submitted a plan to the presidency setting out ways to reverse the country’s logistics crisis, which included an ‘Eskom-esque’ partial debt transfer to help ease the burden of its estimated R130 billion debt. 

Transnet said a healthier balance sheet is required to finance its rail infrastructure maintenance. 

The state-owned enterprise reported a loss of R5.7 billion in 2022/23 and a drop of 23.6 million tons in rail freight, down to 149.5 million tons.

The BER said this request comes as the government grapples with multiple spending pressures and a revenue squeeze, necessitating some consolidation from the National Treasury. 

“Therefore, Transnet’s request comes at an inopportune time,” the BER said. 

“The request is also at a time when a lot of background policy work is being done on suggestions to improve Transnet’s poor operational performance.” 

This work is led by Operation Vulindlela, a joint initiative between the Presidency and Treasury to unlock the binding constraints on South Africa’s growth. 

“In a positive step, the recommendations of this work are strongly in favour of greater private sector participation in South Africa’s railway and port operations,” the BER said.

“Indeed, a key proposal is for Transnet to concession the running of the key coal and iron ore railway lines to private sector operators.” 

The BER said the overarching suggestion is to move away from the current situation where Transnet is the owner and the operator of South Africa’s rail and port network. 

Counting the cost of Transnet’s collapse

Transnet’s collapse has come with a significant cost to the country, as it is set to cost South Africa R1 billion a day in economic output, equivalent to 4.9% of annual GDP or R353 billion.

This was revealed in a study by the GAIN Group, a boutique consultancy focusing on contract research of freight transport in particular.

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.

An analysis of 29 domestic mining companies by PwC in its South Africa Mine 2023 report showed that combined net income slumped to R108 billion in their latest financial years from a record R206 billion.

Transnet Freight Rail’s poor performance has been a significant challenge, particularly on the export coal line.

The mining sector’s woes will affect the government, which has benefited from windfall taxes and royalties in the past two years. The sector’s reported tax expense declined by 34%.

Newsletter

Top JSE indices

1D
1M
6M
1Y
5Y
MAX
 
 
 
 
 
 
 
 
 
 
 
 

Comments