Treasury wants private sector to rescue Transnet

With no additional funds for Transnet announced in the Budget Speech, the government is turning to the private sector to run South Africa’s railways and free up its logistics bottlenecks. 

Finance Minister Enoch Godongwana said Transnet’s performance has been very poor, with operations limited by its deteriorating financial state. 

It has consistently registered below-target financial performance across its operating divisions, reporting a R5.7 billion loss for the 2022/23 financial year. 

Transnet’s inability to generate cash from its operations has seen its debt pile rise to R131.8 billion by the end of 2023. 

Godongwana did not mention additional funding for Transnet in his Budget Speech on Wednesday, aside from the R47 billion guarantee facility announced at the end of last year. 

This defied expectations from economists and rating agencies, which predicted a further bailout in the region of R50 billion for the ailing port and rail operator. 

A cash injection or debt transfer would have freed Transnet to invest in maintaining its equipment and upgrading port facilities. 

Moreover, it would have enabled the utility to tap the capital markets to raise money for major projects and replace stolen or vandalised equipment. 

Instead, Godongwana outlined how the National Treasury would push Transnet to allow private operators to use its rail network. 

He said the Cabinet approved the Freight Logistics Roadmap in December 2023 to address the nation’s increasingly unreliable logistics system.

The roadmap outlines plans for immediate ways to improve port equipment, locomotive availability and network security.

It also creates a clear path for improving efficiencies, facilitating the opening of competition and leveraging the financial and technical support of the private sector.

“In this regard, third-party access to the freight rail network will be introduced by May 2024,” the minister said.

Durban port privatisation

Private-public partnerships have already been secured to upgrade Pier 2 of the Durban Container Terminal.

The minister said this would improve private investment in equipment and enhance technological capability and operational efficiency.

The privatisation of Durban’s container terminal will significantly improve productivity and, in time, resolve the severe backlogs at the port. 

Durban is Transnet’s largest container terminal, handling 46% of the country’s total port traffic and over 60% of its container traffic. 

International Container Terminal Services Inc. (ICTSI) is set to take over Durban’s container terminal after entering into a 25-year partnership with Transnet earlier this year. 

The Philippines-based company is the largest independent terminal operator in the world, with operations in over 20 countries. 

Head of ports, transport, and logistics at Bowmans Law, Andrew Pike, is optimistic about the impact of the container terminal’s privatisation. 

Pike said ICTSI’s impressive track record resulted in the company beating out six competing bids for the container terminal. “If you look at their ports, it is really world-class. They are a very good partner to go with.”

Transnet will have a 50+1% share in the joint venture, and the utility will remain the employer of workers contracted out to ICTSI. 

ICTSI will have management control of the utility and “will be fairly free to introduce change”.

Pike expects the company to overhaul the port’s management structure and operational systems, focusing on automation and digitisation. This will increase the productivity of the port immensely. 

“If you look at some of their performance figures from around the world, it is not unreasonable to expect them to double, if not triple, the productivity of Durban’s port.”

However, ICTSI will not have it easy, as the company will have to negotiate with Transnet about the deal’s exact terms.

“Transnet is used to running a monopoly, and they will not take kindly to being told what to do,” Pike said. 

There are also significant problems with getting goods to and from the port as Transnet’s rail infrastructure is collapsing. 

“Without an efficient logistics system, a well-functioning port is a bit of a waste of time,” Pike said.