MTBPS: Transnet needs to shed non-core assets, explore alternative funding models

The Treasury said in its Medium-Term Budget Policy Statement (MTBPS) document that Transnet’s poor performance over the past five years has been characterised by declining freight volumes, underinvestment, inadequate maintenance and shortages of rolling stock. Photo: File

The Treasury said in its Medium-Term Budget Policy Statement (MTBPS) document that Transnet’s poor performance over the past five years has been characterised by declining freight volumes, underinvestment, inadequate maintenance and shortages of rolling stock. Photo: File

Published Oct 30, 2024

Share

The Treasury said in its Medium-Term Budget Policy Statement (MTBPS) document that Transnet’s poor performance over the past five years has been characterised by declining freight volumes, underinvestment, inadequate maintenance and shortages of rolling stock. This has led to deteriorating financial performance and a weak balance sheet.

Optimising the entity’s capital structure and returning it to profitability will require Transnet to shed non-core assets, reduce its current cost structure, and explore alternative funding models for infrastructure and maintenance, such as project finance, third-party access, concessions and joint ventures.

The company continues to face significant operational difficulties, with marginal improvements reported since the implementation of the recovery plan in the last quarter of 2023/24. The plan includes an aggressive strategy to curtail declining rail volumes and return operations to financially sustainable levels.

Although Transnet can access capital markets, its ability to raise more funding is constrained by accumulated debt levels. These, in turn, have led to unsustainable interest costs and refinancing risk, resulting in liquidity pressures.

In December 2023, the government granted Transnet a R47 billion guarantee facility to secure new funding to implement its recovery plan in line with the Cabinet-approved Roadmap for Freight Logistics. To effect the roadmap, Transnet is working with the National Logistics Crisis Committee, composed of government departments, rail and port users, and independent experts.

Key areas identified to improve operational performance in the short term include accelerating capital spending on operational equipment, allocating capital for the rehabilitation of rail infrastructure, and returning old locomotives to service.

Two priority infrastructure projects involving Transnet assets were the Ukuvuselela Gauteng-Eastern Cape High-Capacity Rail Corridor, which would upgrade the South Corridor railway line and expand port infrastructure for automotive handling, and the Cape Town Container Terminal Expansion Phase 2B to expand landside capacity at the terminal. This project includes rehabilitating and upgrading the container stacking pavement, expanding the truck staging area, and building new rail sidings so that export volumes of table grapes, citrus, and deciduous fruit can be expanded.

Treasury said that since 2018, Transnet Freight Rail has consistently transported fewer volumes than targeted. This resulted in rail transport payload declining by 12.0% in 2022 after a 6.9% fall in 2021 and an 11.1% drop in 2020, while road transport surged by 25.0% in 2022 after growing by 10.4% in 2021. This meant that the percentage transported by rail fell to 15.6% of total land transport payload in 2022, down from 20.6% in 2021 and 23.5% in 2020. Transnet’s strategic plan was to have a 30% share of land transport.

Coal and iron ore exports forgone due to operational failures could have added 1.3 percentage points to the current account balance in 2022, resulting in a current account surplus. Treasury estimated that the cost of rail inefficiencies in 2022 was R411 billion, and in 2023 it is estimated at around R350 billion. Fewer exports meant that mining companies had less revenue, and this also reduced tax receipts.

BUSINESS REPORT