Transnet plays down capex claims

File picture: Dean Hutton

File picture: Dean Hutton

Published Oct 8, 2015

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Johannesburg - Freight rail and logistics utility Transnet has downplayed claims that it is cutting its capital expenditure (capex) by up to R200 billion because of the slump in the price of iron ore and coal.

The company said it would conduct a review of its freight demand only in February.

This would be in line with customer requirements and it would adjust its forecasts accordingly.

Transnet spokesman Mboniso Sigonyela said the utility was well within its budget projections and had so far spent close to R100bn since the launch of its market demand strategy four years ago.

“Transnet continues to drive a countercyclical investment strategy through our seven-year rolling investment plan, which is currently at R336.6bn,” said Sigonyela.

“We expect to continue with our programme in line with market demand.”

Transnet acting chief executive Siyabonga Gama said last month that while the rail operator remained committed to completing its investment plans, some projects could take longer than previously expected because of the decline in commodity markets.

Cutting expansion

Earlier Reuters quoted Transnet sources as claiming the utility was considering cutting its capital expansion plans over the next three years.

The news agency quoted two sources at the company who attributed this to the slowdown in commodity prices, particularly from China.

“It’s because of the downturn – the volumes are not matching that well with the capital expenditure,” Reuters quoted the source as saying. The source added that the company’s plans to expand its coal and manganese lines would not be affected.

Economist Azar Jammine said while the reports could be speculative, they could also mean the utility was reviewing its spending plans in line with market conditions.

Jammine said Transnet could be looking into consolidating its balance sheet so it could avoid going into the market to borrow finances to fund its programmes.

“It could be a good move by the company because commodity prices are not very buoyant at the moment,” he said.

“But while it could boost its balance sheet, it could also result in the backlog of its infrastructure programmes in the long term.”

Transnet is involved in a seven-year plan to upgrade its rail and port capacity to ease the export of raw materials.

New locomotives

The R336bn plan included placing orders for 1 064 new diesel and electric locomotives last year and agreements for R13bn in financing towards the purchases in March.

In June, the company signed a R30bn loan agreement with China Development Bank to fund the programme to renew its ageing locomotives.

Gama said the utility would be drawing the first tranche of R18bn through a grace period that would be perched on the US dollar, with a protection programme over the next four years should the rand lose its ground against the dollar.

A month later, Transnet reported that its full-year profit gained 8.2 percent on the back of transporting more coal, iron ore and manganese, and its revenue grew 8 percent to R61.2bn.

The company said its coal volumes by rail rose 9 percent while iron ore and manganese volumes increased 11 percent in the fiscal year.

* Additional reporting by Bloomberg

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