South Africa

Transnet crisis more complex than Eskom

The crisis at Transnet is more complex than that at Eskom, as the utility has quasi-regulatory functions on top of its deteriorating rail and port infrastructure. 

This is feedback from the managing director at Krutham, Peter Attard Montalto, who told 702 that the National Treasury would have to address the complex issues at Transnet by imposing strict conditions on its bailout.

Last week, Transnet submitted a plan to the presidency to reverse the country’s logistics crisis, including a request for the National Treasury to take on R61 billion of its debt. 

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

“It is not a surprise. This has been coming down the road for a long time,” Montalto said, as Transnet had already been breaching loan covenants with banks at the beginning of the year. 

Montalto said that the Treasury has little choice but to come through in some form and provide support for Transnet. 

“If you did not do these bailouts, they would come back to bite you ten times worse later regarding defaults and investors pulling out of the country.”

“There is a massive moral hazard problem here: Treasury has an implicit 100% guarantee against all SOEs, and the markets sense this. It is only really about the conditions the Treasury can apply through the bailouts,” Montalto said. 

National Treasury will most likely impose strict conditions on Transnet for the bailout, similar to Eskom’s, whose debt relief is tied to implementing structural reforms. 

However, Montalto warned that the problems at Transnet are even more complex than those at Eskom due to the nature of the organisation. 

“Transnet is even odder than Eskom in many ways as it has quasi-regulatory functions. For example, it implemented third-party rail access when it should not have, as an independent regulator should do that,” Montalto said, 

It also has deep conflicts between parts of its business, with its rail operator and infrastructure manager regularly butting heads. 

National Treasury will have to try to solve this through the conditions it attaches to Transnet’s debt relief. 

Managing director at Krutham, Peter Attard Montalto

Transnet crisis needs urgent intervention

National Treasury has previously said to Parliament that Transnet’s underperformance poses a significant risk to the South African economy and requires urgent intervention.

The Treasury said ongoing security incidents, locomotive unavailability and the poor state of the rail infrastructure have negatively impacted Transnet’s operations.

“Inefficiencies of the Transnet’s freight rail network pose a significant risk to the South African economy and require urgent intervention,” the Treasury said.

“Transnet’s overall performance for the period has deteriorated in all the critical commodity segments and business flows, not achieving the targets set in the 2023/24 Corporate Plan.”

The Treasury said rail volumes for the first quarter of the financial year were 18.2% behind target due to commodities not meeting their budgeted targets.

In addition, container volumes handled by the ports were 2.2% lower than budgeted, and pipeline volumes were 25% below budget.

Treasury attributed the decline in freight rail to several factors, which included:

  • Operational inefficiencies
  • Theft and vandalism
  • Underinvestment in the network
  • Ongoing security concerns
  • Locomotive failures and undersupply
  • Continuous power failures at the mines, vandalism and community disputes

The Treasury said port productivity is also significantly lower than benchmark African and European ports. 

“Maintenance of critical equipment is the main contributor as the port of Durban seldom has higher than 60% availability of container equipment.”


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