Transnet needs R14 billion every year for turnaround

Transnet will need R14 billion annually for the next five to six years to fix its rail infrastructure that has fallen into disrepair or was vandalised.

This is according to Road Freight Association CEO Gavin Kelly, who outlined the challenges facing the state-owned utility.

Transnet exposed the state of disrepair that its infrastructure faces in its recently published Network Statement.

This statement outlined how private train operators can now access the utility’s rail network.

Transnet reported that there had been major theft and other issues that made its rail infrastructure inefficient. These issues often completely derail the schedule of the trains and create problems with signalling. 

However, Transnet has faced significant challenges with repairing and maintaining its rail infrastructure.

Not only does Transnet’s inefficient infrastructure hamper its own progress, but it also has a severe negative impact on the South African economy.

Rail inefficiencies caused by Transnet’s decline have cost South Africa’s economy dearly, with some estimates placing the financial cost at more than R400 billion in 2022.

Due to delays and cancellations, Transnet often struggles to meet its operational goals of moving 200 million tonnes of freight annually. Last year, the utility had to lower its target to 170 million tonnes.

The railways historically played a key role in transporting goods from origin to destination, mainly between the ports and inland areas like Gauteng, South Africa’s economic hub.

From 2009 until 2016, rail transport made up around 27% of total road and rail transport. 

However, rail transport has been on a steady decline and now only constitutes around 16% of total road and rail transport. 

Freight volumes declined after 2019 due to various reasons, including sabotage and vandalism to the railways.

This has been coupled with the economic effects of the Covid-19 pandemic, under-investment in infrastructure, low locomotive availability, and extreme weather conditions.

Due to Transnet’s decline, CEO Portia Derby was replaced by Michelle Phillips in October 2023. 

Phillips and her new management team have been implementing an 18-month recovery plan since she took the helm. 

They identified Transnet’s critical challenges as the utility’s operational performance, financial limitations, and external and environmental constraints. 

However, despite their efforts to turn the company around, Transnet’s loss widened to R7.3 billion for the financial year ending March 2024, compared to R5.7 billion the previous year.

The enterprise’s most recent results for the six months through September 2024 showed that its financial performance deteriorated further.

The latest loss was largely due to Transnet’s debt servicing costs, which amount to R1 billion a month.

The Auditor General (AG) said that Transnet relies on expensive debt for operating cash. The AG said this funding model is unsustainable, particularly if Transnet’s performance does not improve.

An improved performance would allow the utility to generate sufficient internal cash flows to service its debt without resorting to further borrowing.

“This is a cause for concern because if the guarantee facility is exhausted and Transnet is unable to secure funding for refinancing, it might default on its debt repayments,” she said.

“Such a default could have severe consequences.”

Last year, the National Treasury awarded Transnet a R47 billion debt guarantee to aid the utility in its turnaround.

Kelly told Daily Investor that there Transnet only has three options to procure the R14 billion it needs to fix its rail network –

• A state bail-out different to what it has already had for some years 
• More loans against equity
• Private investment by finding someone prepared to shoulder all the risk for very poor return if the scenario remains the same 

However, Kelly said no investor would give Transnet the money unless the investor had skin in the game.