From a lump of coal into a diamond

Maria Ramos is a small woman. It is perhaps unfitting to comment on a chief executive’s build, simply because she is a woman, but her formidable track record as both a government and business leader is, well, big. Very big.

Ramos says the main challenges faced by the company in its turnaround phase were about “ensuring that we look at the operational efficiencies or lack thereof in our core divisions”.

This followed defining Transnet’s core divisions and disposing of divisions superfluous to the company’s operations, such as SAA, which was sold last year, and Shosholoza Meyl, the sale of which is under way to South African Rail Commuter Corporation.

Operational performance showed measured improvement in general freight business, ports and pipelines. Transnet National Ports Authority’s container export and import volumes are up by 12,7% and 16,6% respectively.

For Ramos, however, the work is not done. “Even through a growth phase, there’s always more that you can and need to do to get operational performance — on a continually improving path,” she says.

“The methods of work change, technology changes and there is always more that can and ought to be done in that environment.”

Her contract ends in October. Where she will go after that is fodder for the rumour mill. All she will say is: “I have an agreement with the board that we are going to make an announcement at the AGM at the end of July. And I think that’s an agreement I want to stick to.”

But despite the much sunnier picture, the occasional sulky grey clouds still lurk on the periphery. Not least of which are concerns about Transnet’s coal line capacity, which links South Africa’s rich northern coalfields to the Richards Bay Coal Terminal (RBCT), the largest coal export terminal in the world.

Coal volumes decreased by 5,2% because of a shortage of supply from the mines and because of Transnet service disruptions caused by, among other things, derailments. The line has the capacity to move up to 74-million tons of coal a year.

The RBCT, meanwhile, increased its export capacity to 76-million tons a year and intends to increase its capacity further to 91-million tons a year by the first half of 2009.

Ramos downplays the reported tension between RBCT, coal miners and Transnet arising from concerns about the line’s continued efficiency and capacity.

“In our R80-billion capital expenditure programme we have provided [for] expansion on the coal line to 78-million tons,” she says.

“We have a major feasibility study which we are undertaking with the full knowledge of the industry and the Richards Bay Coal Terminal.”

The aim, she says, is to take the line up to 81-million tons of coal moved a year and then on to the targeted 91-million tons.

“That’s completely aligned to both the mines’ expansion plans and Richards Bay Coal Terminal’s expansion plans,” says Ramos.

“I don’t think there’s any dispute about whether we are going to meet their expansion requirements,” Ramos says. However, given the investments that will be required by Transnet to meet additional capacity, the company wants to make sure that these will be worthwhile in the long run.

Another concern has been the institution in 2006 of the National Ports Act and the allowance it makes for the corporatisation of the Transnet National Ports Authority (TNPA) into a separate company.

Of the R13-billion profit from operations, the company’s maritime business, including TNPA and Transnet Port Terminals, contributed the lion’s share at R7-billion. Similarly it forms the largest slice, R6-billion, of profit after tax that sits at R8-billion. By Transnet’s own admission, its business would seriously be affected by the loss of the TNPA. Transnet has, however, received written assurance from government that it will not trigger the corporatisation of the TNPA.

Ramos is adamant that this is not simply an issue of profits for the parastatal. “This is a strategic issue as well as a balance sheet issue.”

Ramos argues that the way cargo is transported and the logistics involved in getting it from its departure point on to a port cargo terminal is “critically important”.

She says that retaining the ports is about maximising “the value and efficiency” along the company’s network of 14 freight rail corridors.

“Now it doesn’t make sense for us to be making investments, for example, on rail and for no investments to be made at the port,” she says.

“And, equally, it doesn’t make sense for the investments to be made at the port and for no investments to be made on the rail.”

There are concerns that Transnet’s monopoly undermines South Africa’s competitiveness. But Ramos believes these concerns are unfounded and lack perspective.

“If you look on the African continent where points have actually been concessioned, the results haven’t always been fantastic. You haven’t actually had greater competitiveness and lower tariffs, if that’s your measure of competitiveness,” she says.

“If we want competition because we think competition is going to bring in greater efficiency, new technology — then those are all valid reasons to consider it,” she says.

“If we think we want competition because we don’t like the fact that Transnet is state-owned, then I don’t think that that’s a valid reason.”

Transnet’s results
Net profits are down because of losses incurred through discontinued operations and fair value adjustments. However, what’s more indicative of Transnet’s performance is that operating profit before tax, depreciation and amortisation is up by 18,3% to a comfortable R13,2-billion, while adjusted headline earnings are up from R4-billion to R5,2-billion.

The company managed to battle its debt leverage demons, improving gearing to 29%, down from a disconcerting 83% in 2004. And, with growth being its new focus, Transnet achieved a 35,2% increase in capital expenditure, which totalled R15,7-billion.

And, despite the small increase, in general freight volumes moved—up by 2%—it nonetheless points to the first increase in freight business in more than a decade.

In the year ahead the company looks to further its capital expenditure to R20-billion.

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