/ 24 October 2023

Transnet seeks government financial support, but mum on details

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’s board has approached Public Enterprises Minister Pravin Gordhan and Finance Minister Enoch Godongwana for “immediate government support” to assist the R130 billion debt-burdened entity that desperately needs to repair its port and rail network infrastructure.

Board chairperson Andile Sangqu presented a “turnaround plan” for the state rail, port and pipeline company to both ministers last week and on Monday to trade union leaders. The plan outlines operational and financial initiatives it said must be implemented in the six to 18 months “to stabilise the business and position the company for growth”. 

This comes after Transnet posted a R5.7 billion loss on the back of falling freight rail volumes that dropped 23.6 million tonnes to 149.5 million tonnes in the 2022-23 financial period.

Port equipment and rail infrastructure, which has reduced Transnet’s efficiency in handling import and export cargo, is also in need of maintenance, according to the unions.

Transnet’s plea for “immediate government support” indicates that it intends applying for a treasury bail-out, said Peter Attard-Montalto, managing director of financial services and capital markets think tank Krutham, warning that without one, the entity was unlikely to survive the year as a going concern.

Transnet provided the principles of the plan but no finer details about the financial implications or when it would be implemented, although Sangqu earlier told parliament that the company was considering selling some of its assets to raise R50 billion needed to finance its rail infrastructure maintenance.

When asked by the Mail & Guardian for more information, Transnet declined this week to be drawn on the funding details of the plan and whether it had sought a financial bail-out — similar to Eskom’s R254 billion cash injection — from the treasury.

“We are in continuous engagements with the government for support. The support is for the implementation of the recovery plan. Any communication on the outcomes of the engagements will be done in due course,” Transnet said in response to the M&G’s  questions.

United National Transport Union (Untu) general secretary Cobus van Vuuren said Transnet’s management executives and Sangqu had presented to trade unions a “very high-level turnaround strategy” on Monday that “did not include any detail, but merely strategic imperatives like the importance of increasing efficiencies, utilisation and thus increasing revenue”.

He said that acting group chief financial officer Hlengiwe Makhathini had “once again painted a very bleak financial picture of where Transnet finds itself currently, highlighting the importance of increasing the revenue streams”.

“During these discussions, Untu highlighted to the management representatives that the biggest challenge within Transnet is not related to the people component or the skills of the people, but rather the equipment-related resources (locomotives, spares, ship-to shore container cranes, straddle carriers, rail infrastructure) that are in bad condition, and implored Transnet management to ensure that these shortcomings are addressed sufficiently,” Van Vuuren said.

He said Untu had stressed the importance of including the union in business and operational strategic planning sessions so that the final product of the turnaround strategy includes labour’s input.

“The Transnet turnaround strategy should be not just a top-down approach that is enforced, but rather a process that includes input from labour from the start, labour who are at the coal face of each and every problem that all the Transnet employees face daily,” he said.

Van Vureen said management had committed to having further discussions with the union.

Attard-Montalto said Transnet needed to be bailed out if it was to survive the year.

“There is a quite clear need to take a substantial part of the debt off the balance sheet as Transnet is slimmed down and shifts its nature over time to more of an infrastructure manager and system controller than an operator,” he said.

 “However, the application process is key — they were rejected last time and the treasury will need to have the external independent report into them complete (which) they have just put to tender, and conditionality from the roadmap will be key

 He said implementing reforms at Transnet was more complex than the steps Eskom has had to take and would take time “whilst half of the debt stock comes due in the coming three years.”

 “But they simply don’t have the revenues and things will get worse before they get better — indeed they are unlikely to be a going concern at year end without a bailout,” he said.

 “Treasury have no option to bailout, the question is how and when … Transnet lacks the political backing or reform speed or management to get into gear in anything like the timelines needed to secure the balance sheet.”

In announcing the turnaround plan earlier this month, Transnet said it was predicated on “several detailed goals to reform and strengthen the operational state of the freight rail division in particular” to service key sectors of the economy.

These included balancing financial stability and operational performance; improved use and care of operational assets and infrastructure; improved integration and operation execution across operating divisions; improved relations with employees and visible management at operations; the development of a deeper accountability framework; cost reduction measures, cash flow and working capital improvements and continuous discussions and collaboration with all stakeholders.

Transnet said the board had prioritised filling its three executive positions for which recruitment had already begun.

New recruits are being sought to fill the jobs after a raft of resignations in quick succession recently including group chief executive Portia Derby, group chief financial officer Nonkululeko Dlamini and Transnet Freight Rail chief executive Sizakele Mzimela.

*This story has been updated with comment from an analyst.