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Transnet gears up for growth as economic viability gains traction

Transnet anticipated coal volumes to increase by 7 metric tonnes per annum in the medium term, which it said could generate significant revenue through partnership-based co-investment. File photo

Transnet anticipated coal volumes to increase by 7 metric tonnes per annum in the medium term, which it said could generate significant revenue through partnership-based co-investment. File photo

Published Jul 29, 2022

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Fresh off the back of announcing a better set of financial results for the 2021/22 year this week, Transnet chief executive Portia Derby has said the national logistics entity is spreading itself thin in several sectors.

The state-owned firm is trying to shrug off the shackles of state capture, deal with decaying infrastructure and vandalism, among other woes.

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But Derby, credited with turning the fortunes of the state-owned freight logistics group, which in its annual results earlier this week reflected a R5 billion profit and an unquali-
fied audit report for the first time since 2018, has a plan to put Transnet back on the growth track despite many challenges.

For example, the group’s largest operating division lost more than 15 million tons of freight volumes in the year ending March 31, 2022 after it declared a force majeure due to irregular locomotive acquisitions, maintenance problems and massive cable theft on its coal lines.

“Notwithstanding our limited capital investment capacity, we will prioritise various strategic interventions over the next three to five years,” Derby said.

She envisions the hyped up manufacture of train wagons and new manufacturing opportunities to supplement its income along with taking a bigger role in the ferrying of essential commodities, including coal.

According to the World Bank’s 2022 forecast, there were widespread coal shortages during the year, in the wake of the war in Ukraine.There is a global demand for coal.

As such, Transnet anticipated coal volumes to increase by 7 metric tonnes per annum in the medium term, which it said could generate significant revenue through partnership-based co-investment.

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"For this reason, we will implement various operational breakthrough programmes to support our coal operations, which will include fast-tracking the procurement of critical components and services to support operations across the North Corridor and strategic ports, most notably the Richards Bay Coal Terminal, the Richards Bay Multipurpose Terminal and the RBT Grindrod Terminal, and allocate underutilised assets to support profitable flows exported via the Richards Bay Multipurpose Terminal,” she said in Transnet’s annual report.

Derby said Transnet’s growth and renewal strategy would open unique revenue-earning opportunities for engineering to serve Freight Rail’s in-house wagon and locomotive maintenance requirements and new supply chain markets, which would require wagon manufacturing and maintenance services.

Derby envisages that as the utility grows its African footprint, it would push engineering as a serious player in rolling stock manufacturing in sub-Saharan Africa, as is already evident with engineering’s manufacture and delivery of 300 freight wagons to Mozambican state-owned railway operator, Caminhos De Ferro De Moçambique.

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The recently released White Paper on Rail, which has been approved and gazetted is seen by Transnet as a stepping stone while issues of its implementation are still being ironed out.

Derby said Transnet would participate in the Interim Rail Economic Regulation Capacity, which is focused on developing a new economic regulatory model for rail, among others.

“We plan to sell rail slots on a limited number of corridors, thereby fast-tracking the implementation of the White Paper and the intended liberalising of South Africa’s rail sector. The slot sales will help us understand the added complexities of third-party access to the rail network, reposition rail in markets where we are not dominant, densify underutilised railing routes, and ultimately move traffic from road to rail,” she said.

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Transnet Freight Rail was pressing ahead with a bidding process for the sale of 16 rail slots to third-party operators, which are to be expanded to 42 slots in 2023.

On Thursday, ArcelorMittal South Africa confirmed that it would seek to secure third-party access to Transnet’s rail network as part of efforts to stabilise the logistics involved in supplying key raw materials, such as iron-ore, having experienced an intense period of rail disruption during the first half of 2022, which cost it some R650 million in lost sales

Meanwhile, to carry out Transnet’s growth plan, Derby said the entity needed a robust capital allocation framework that aligned with priority segments and networks, focusing on growth in revenue, profitability and market share, while assisting it in its debt repayments and improving overall liquidity.

This week, S&P Global Ratings lifted the credit watch on Transnet ratings on the back of improved liquidity.

This included Transnet’s long-term local and foreign currency issuer ratings at BB-, the standalone rating at BB- and the National Scale Rating (NSR) at za.AA, but the outlook remained negative.

It warned that Transnet could lose its market share to competing logistics groups due to its prevailing operational challenges.

BUSINESS REPORT

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