/ 1 September 2023

Transnet records R5.7bn loss

Transnet has defended its pick to run its Durban Pier 2 container terminal in the wake of a court challenge by snubbed bidder APM Terminals.

Transnet, hammered by vandalism and still trying to climb its way out of years of state capture, has recorded a R5.7 billion loss and a drop of 23.6 million tonnes in rail freight moved, down to 149.5 million tonnes over the past year.

This was among the key financial data highlighted in Transnet’s annual financial results for 2022/23 released during a media briefing on Friday. 

The state-owned company was particularly hard hit by a 179% increase in cable theft incidents on Transnet Freight Rail’s lines and equipment over the past five years.  

The “systemic” lack of investment has led to a total of 315 long-standing locomotives that require repairs up from 106 in 2019/202.

Economists said it was not surprising that local businesses are increasingly seeking alternatives (such as road freight and the services of neighbouring ports of Mozambique and Namibia) to efficiently move their cargo to export markets.

Transnet’s total revenue increased by 0.6% to R68.9 billion from R68.5 billion in 2021/22. 

The marginal increase in revenue was attributed mainly to positive port and pipeline operational performance. 

Automotive and break-bulk volumes rose 21.0% and petroleum volumes increased by 1.0% but Transnet’s rail volumes plummeted 13.6%.

The state-owned entity recorded a decrease in EBITDA (earnings before interest, taxation, depreciation and amortisation) of 2.1% to R23 billion, with a net loss of R5.7 billion.

EBITDA declined 40.5% to  R6 722 billion for rail, 33.8% to R2 billion for engineering services, 0.03% to R7.5 billion for the National Ports Authority while port terminals achieved growth of 40.1% to R5 892 billion and pipelines grew 30.8% to R4.8 billion.

Transnet CEO Portio Derby said Transnet began implementing outcomes-based security solutions on 1 August 2023, which is expected to result in a reduction in the “crippling theft and vandalism of key (freight rail) infrastructure resulting in operational disruptions”.

“A huge spike in cable theft incidents over the last five years is escalating revenue loss and repair costs. Over the past five years there has been a 179% increase in security-related incidents resulting in theft and vandalism of infrastructure,” she said.

Cable theft increased from 120km stolen in 2017/18 to 1 506km in 2021/22 and this was reduced to 1 037km in 2022/23. There were 3 877 cable theft incidents reported for the last financial year, a decrease from 5 506 in 2021/22.

“Although there has been a 30% improvement in incidents in 2022/23 when compared to the previous financial year, the number of incidents remains high,” she said.

Incidents are occurring on high impact areas such as the passes on the export coal line.

Transnet achieved an unmodified opinion from the auditor general and reduced new irregular expenditure by 50.2% from R561 million to R556 million for the financial year. 

Irregular expenditure now amounts to R2.2 billion, of which R1.7 billion is related to multi-year contracts. The main reason for the irregular expenditure was due to repeated non-compliance with various supply chain management prescripts.

Net operating expenses increased by 2% with personnel costs comprising 54% of expenditure, followed by “other related expenses” (17%), fuel (10%), materials and maintenance (10%) and fuel costs (9%). 

Transnet chairperson Andile Sangqu said the entity was developing a “turnaround strategy” and an implementation plan with “key targets, milestones and deadlines” which will be submitted to the board.

“This will consist, among others, of business improvements, optimisation of operational performance and processes,” he said.

A key priority will be increasing locomotive availability to service key export markets such as for commodities, coal and chrome. TFR is also pursuing collaboration with existing rail partners such as Caminhos De Ferro’s De Mocambique (CFM) to increase volume movements to neighbouring countries.

Minister of public enterprises Pravin Gordhan said the National Logistics Crisis Committee established by President Cyril Ramaphosa would bolster the Transnet board’s efforts to “confront operational challenges” in the freight logistics system and restore the efficiency and competitiveness of South Africa’s port and rail network.

However, he said several findings of the auditor general’s office were “of particular concern” including the problem of security and crime and Transnet’s “significant decline in performance targets”.

“Only 26.3% of annual targets were achieved, this poses a detrimental impact on our economic growth and global market competitiveness. This is unacceptable,” Gordhan said. 

He added that the material misstatements and revenue collection inefficiencies and the “alarming irregular expenditure of R556 million” was concerning, along with the highlighted breakdown in the standard tendering process and a “repeated lack of evidence regarding adherence to policy, and concerns over the awarding of contracts”.

Gordhan said Transnet had “come a long way” following state capture over the past few years to ensure irregular expenditure is brought under control.

“It is important to separate the kind of irregular expenditure incurred during the state capture period and the current irregular expenditure identified both by management and the auditor general. We expect that the SOE will systematically deal with the historical irregular expenditure and clean up the books,” he said.

“Even R500 million irregular expenditure for the financial year under review is far too excessive for the current period. And that is why we believe that specific attention must be given to putting the right controls in place on the one hand, but also ensuring that there are consequences for those individuals responsible for current irregular expenditure,” Gordhan said.

The Centre for Risk Analysis’ head of policy analysis, Chris Hattingh, said the burden of proof in terms of rooting out corruption at Transnet lies on the government and the state-owned entity.

“For years businesses have had to navigate Transnet’s shortcomings and failures and have had to ‘state proof’ themselves regarding alternative arrangements they can make. I want to be hopeful there is at least a bit of a rest — if not a turnaround — of the situation and looking at low hanging fruit where Transnet can optimise themselves,” Hattingh said.

“But you can’t blame the farmers and miners that are building up other capacities, for example, looking at road freight, which is not ideal, but it is at least one way for business to move goods. Some exporters are also now going to Maputo and Namibia to get their exports out and that means less revenue for Transnet and the fiscus.”

Hattingh added that Transnet may have missed the boat in terms of the global demand for commodities.

“We could have exported a lot more commodity volumes and that could have benefited the fiscus,” he said.