Three years into Transnet’s turn-around, Maria Ramos has swapped her customary high heels for a pair of sturdier shoes, as financial and management restructuring gives way to an enormous operational overhaul of the rail, port, and pipelines businesses.
The past fortnight has seen announcements about a better deal for pensioners, the R1,4-billion sale of the housing loan book to FNB, and the planned disposal of the Carlton Centre, but that really represents the tying up of loose ends; it is of miniscule impact compared to the planned investment in rail and ports — R78-billion just to be going on with.
”The bulk of my energy and the team’s energy has been on the operational side. It has been exciting — I have been climbing up cranes,” Ramos says.
Ramos is expected to announce further improvements in financial and operational performance next week, but fundamental tensions between the government’s promise of better, cheaper infrastructure, and the costs of a massive investment programme are complicating the view from the top of those shiny new cranes.
Since 2004, the government has been promising to commit billions to improvements in economic infrastructure, improving efficiency and reducing the cost of doing business. Parastatal companies, particularly Transnet and Eskom, were to be the big levers that cracked open the growth potential created by macro-economic stability.
The difficulty is that, away from the problem children SAA and Denel, the government is spending none of its own money. Transnet is expected to ”leverage its balance sheet” in order to raise finance for investment on commercial terms. And in order to do so, the company, like Eskom, wants to levy higher fees, setting up a clash of expectations with the public, and with regulators.
The most public dispute so far as has been with the National Energy Regulator of South Africa (Nersa). Transnet subsidiary Petronet wants to build a new R9,5-billion pipeline from Durban to Gauteng that will drastically reduce the risk of fuel shortages and end Sasol’s stranglehold on the highveld market.
To help fund the debt, Transnet applied for an increase in pipeline tariffs, which Nersa refused them. The pipeline plans are now on hold.
”It does make for difficult discussions with regulators. If we are to make a big R10-billion investment in a pipeline, we need some certainty over the tariff,” Ramos says.
A much more discreet battle has been going behind the scenes over the role that is likely to played by the newly established ports regulator.
There is intense frustration within the department of transport, and among some private sector players in the ports sector, who feel that Ramos is resisting the implementation of a tougher regulatory regime in order to protect margins in the most profitable area of Transnet’s business.
They argue that Transnet subsidiary South African Port Operations uses its control of port operations to squeeze out smaller players and to ensure that its higher prices go unchallenged.
Ramos bristles at that suggestion: ”There is perhaps a little too much anxiety among people with quite narrow interests shouting about Trans-net’s dominance in the ports. The regulator is there now, it is going to look at the Act, and set out rules of the game. If we think the regulator has got it wrong, there is an appeals mechanism to deal with that.”
Asked whether there isn’t a fundamental contradiction in the suggestion that parastatals can be profitable while delivering cheaper and more efficient services she is cautious, but some frustration is evident.
”It is a tension that is there. On the one hand, you say ‘go and raise money off your own balance sheet’ — we don’t get a government guarantee anymore, we don’t get any capital injection. On the other hand, we have a public that expects us to provide commercial services at reduced prices.
”Look at the reaction when we announced that we were going to spend R8-billion [on a new container terminal] at the port of Nqura. I don’t know what people think it costs to build a four-berth terminal. Someone has to pay for it.”
The only real advantage Transnet has over a listed company, she points out, is that the government takes a long view, so the company can make a return on its investment over 10 or 20 years, unlike private sector firms, which must more quickly satisfy their shareholders.
Some of these arguments, no doubt, will have been canvassed with the new regulator, which Ramos has met with. She makes it clear, without quite saying so, that she was firm.
”It was a good meeting and my sense of the regulator is that they are going to give themselves some time.”
It always seemed like alchemy to promise more electricity, better rail services and more modern ports without higher prices, without compromising commercial stability, and without taxpayer subsidies.
Competition, or the lack of it, regulation, and politics are going to pull in different directions in the coming years, but in the end something will have to give. It probably won’t be Ramos.