Transnet has been thrown a R47 billion lifeline by the National Treasury to support its recovery plan, but this amount is less than half of what the troubled State-owned logistics company had requested.
Treasury today said that Finance Minister Enoch Godongwana has concurred with the Public Enterprises Minister Pravin Gordhan to issue Transnet with a R47bn guarantee facility effective immediately in support of its recovery plan, including meeting its immediate debt obligations.
Transnet swung into a loss of R5.7bn for the year ending March 2023 mainly due to inefficiencies of its rail network, and has a massive debt of R130bn with interest costs of R13bn per annum.
In a turnaround plan produced by the board, Transnet last month asked the Treasury for a R100bn financial support package over the next two years which includes a R47bn equity injection or loan, and for the government to take over R61bn of the company’s debt.
In recognition of the seriousness of significant operational, financial and governance challenges, Treasury and the Department of Public Enterprises (DPE) have been working with Transnet to find a solution to the company’s immediate and longer-term problems, and the decision to grant the guarantee facility is a result of these discussions.
In a statement today, Treasury said the government continued to pursue deep-running, broader reforms of the company and the logistics sector as a whole.
It said that without a comprehensive reform of the sector, rather than that of a single entity, we risk being faced with similar challenges in the future.
“The financial support package provided for the entity is a R47bn guarantee facility against which Transnet will drawdown an initial amount of R22.8bn to deal with immediate liquidity matters such as settling maturity debt,” Treasury said.
“Government has not considered an equity injection given that the budget for 2023/24 is closed and is confident that this guarantee facility alongside swift implementation of the Transnet Recovery Plan will be sufficient to resolve Transnet’s challenges.”
A Guarantee Framework Agreement between the National Treasury, DPE, and Transnet will include strict conditions that will be continuously reviewed, and amended when deemed necessary.
Any further drawdowns will be subject to Transnet meeting these conditions.
Godongwana said he was positive that the necessary reforms needed to put Transnet back on track could be achieved if the entity committed to meeting the strict conditions, attached to the guarantee, and quickly implemented the reforms informed by the National Logistics Crisis Committee.
Gordhan said a well-functioning logistics company was particularly important given the geographical distribution of economic activity in the country, its reliance on commodity and other exports, as well as the distance from key export markets.
A Guarantee Framework Agreement must be concluded between Treasury, the DPE and Transnet within 14 days of the activation of the guarantee, to ensure that any fiscal risks are mitigated and that the conditions of the facility are fully agreed to by all parties.
In addition, Treasury will continue to work with Transnet to pursue other initiatives to revive its operations and financial viability.
Transnet is also to explore further the divestment of non-core assets, reduction of the current cost structure, alternative funding models for infrastructure and maintenance requirements, including but not limited to project finance, third party access, concessions, and joint ventures.