Transnet knocks on Treasury’s door as its new board details what it’s done in 100 days

The Transnet board is now focused on implementing the recovery plan aimed at driving up volume growth and enhancing rail and port operations. Picture: File

The Transnet board is now focused on implementing the recovery plan aimed at driving up volume growth and enhancing rail and port operations. Picture: File

Published Oct 27, 2023


Roiled by executive resignations, tender scams and a R130 billion debt, South African rail and port company Transnet is knocking on the doors of Treasury for a bailout as its board chairperson, Andile Sangqu, outlines plans to rationalise loss-making activities, dispose of non-core assets and rope in private players in a turnaround bid.

Sangqu’s board has just clocked 100 days since its appointment in July, but as the parastatal has been rocked by massive resignations of executives in the past few weeks. Resignations include: CEO Portia Derby, chief financial officer Nonkululeko Dlamini, Transnet Freight Rail CEO Sizakele Mzimela and Ali Motala, the head of Transnet’s coal line.

This has left Hlengiwe Makhathini as the acting CFO, with Michelle Phillips, CEO for Transnet Pipelines being appointed as acting CEO.

Makhathini told a media briefing yesterday that Transnet was looking for a government bailout that local media reports put at R100 billion.

According to Makhathini, the bailout being requested from the Treasury would be used “to support the recovery plan” and to “reduce debt” as well as to shore up its “financial ratios for debt market” participation.

Transnet chairperson Andile Sangqu. Photo: Supplied

While Public Enterprises Minister Pravin Gordhan recently confirmed that the government had asked the Transnet board to implement a recovery plan, there has been no confirmation of the amount that the parastatal is requesting from the Treasury.

In his 100 day presentation yesterday, Sangqu said Transnet was on the path to recovery after his board’s appointment in July amid “the most challenging times” in the company’s history.

His board was now focused on implementing the Transnet recovery plan aimed at driving up volume growth and enhancing rail and port operations. The plan is also geared at improving the availability and reliability of critical equipment as well as enhancing the quality of assets.

To achieve this, Transnet is focusing on private sector partnerships as conduits to drive growth and operational delivery in its key market segments. Moreover, another key focus area would be on disposal of non-core assets to preserve cash.

“Given the financial position of Transnet, rail and port operations will focus on the highest-margin traffic. Transnet Freight Rail will be separated vertically to create two separate divisions, which will be named Transnet Freight Rail Operating Company (TFROC) and Transnet Rail Infrastructure Manager (TRIM),” said Sangqu.

Transnet’s rail reform programme, he said, was progressing, with commercial and personal separation set to be completed this month, while third-party access would be opened by April.

Transnet will also be rationalising loss-making and non-productive activities including improved operational outputs on similar cost bases, the sale of residential properties, especially hostels, the rationalisation of underutilised parts of the goods network and improved allocation of municipal accounts to tenants.

Efficient debt collection and the formation of strategic partnerships to leverage cheaper capital will also be prioritised.

Transnet has been haemorrhaging cash, with generated revenue falling from R72.9bn in 2017 to R68.9bn for the 2022/2023 year. Operating expenses have, however, increased from R40.4bn to R45.9bn over the same period, a growth of 2.15%.

With revenues lower and operating expenses spiking, Transnet has experienced “lower operating profits in the past five years as reflected by the decline in Ebitda from approximately R32.5bn to R23bn”, showing a CAGR of 6.64%.

“Transnet’s inability to improve profitability, has contributed to the increase in total borrowings from R123bn to R130bn between FY2017/18 and FY2022/23,” said Sangqu.

Makhathini said this debt position meant that Transnet was not in a good financial position, especially as an additional R13bn was accruing in interest payments.

High interest rates in South Africa and other major regional and international markets were also making the situation worse, to the extent that this was squeezing cash flows.

Trade unions Cosatu and the National Union of Mineworkers warned recently that 35 000 mineworkers were set to lose their jobs because coal was no longer transported by rail.