Cape Town - Transnet has painted a bleak and worrying picture, as debt running into the billions “strangles” the state-owned entity, placing its long-term sustainability under threat.
Minister of Transport Barbara Creecy and Transnet appeared before the standing committee on public accounts (Scopa) to account for a number of governance-related issues. Transnet is the custodian of rail, ports, and pipelines.
The briefing was to cover issues related to the Transnet audit income, including the financial performance, irregular and wasteful expenditure, governance, human resources, deviations and expansions, and accruals for the 2023/24 financial year, on Tuesday.
“We all know about the unhappy history of Transnet and I think if we were to characterise where Transnet is at the moment, one would say that Transnet is in a phase of recovery,” Creecy said.
“Of course as a patient recovers from serious illness, there are ups and downs. From my perspective, the down is that the number of tons of freight that we are transporting as an entity have plateaued…”
Previously, Transnet freight rail volume achieved 220 million tons freight per annum. This figure was last achieved in 2017.
Transnet Group CEO Michelle Phillips said there was a decline in volume from 226 million tons to 149.5 million tons in 2022/23. Transnet is working on achieving a freight volume of 215 million tons per annum.
“We talk about a decline in revenue over that same period from R72.9 billion (in 2017/18) to R68.9bn (in 2022/23).”
Transnet has also seen a decline in profit from R4.8bn to a loss of R5.7bn in the year 2022/23.
Some of the challenges threatening Transnet's sustainability and which has led to the need for a recovery plan include a maintenance backlog, ageing infrastructure, vandalism and cable theft, as well as high debt.
Transnet saw its debt increasing from R58bn in 2011/12 to R122.5bn in 2017/18, and then R130bn in 2022/23.
The 6.1% increase has resulted in an annual R13bn repayment obligation. “What that means is that our annual repayment, on a monthly basis, we have interest payments of R1bn, of course really causing a major problem for the business as well as reducing its working capital, threatening our ongoing sustainability,” Phillips said.
Phillips said they have had to develop a recovery plan, approved by the Board in October 2023, over six, 12, and 18-month periods. Transnet is currently in phase two of the plan.
“We then had an exodus of leadership in October/ November 2023 and a number of us had to step up and act in positions to try and turn things around,” Phillips said.
“Government provided some support to us in the form of a R47 billion guarantee that allowed us to continue to borrow so that we can ensure that we can finance the recovery plan.”
She said they were trying hard to meet the government guarantee conditions.
Phillips said R51.4 billion was needed to restore the rail network as a result of a significant infrastructure maintenance backlog, and a further R19.2 billion to ensure sustainability of the network going forward.
“We have quantified in Transnet that when we look at what is generally referred to as the State Capture years during the financial year 2011/2012 to 2018/2019, we see that there is a R60 billion of what we call ineffective debt, this is debt that has been incurred and debt that we have to redeem but for which we, in effect, do not receive any positive value.
“The reason we do not receive any positive value for that is because some of those assets have not been able to enter the system as intended when we entered into this debt,” Phillips said.
“The borrowings, we spoke about where the numbers stood at 2011/ 2012, you’ll see R122 billion in borrowings in 2017/2018, that number in 2022/2023 has risen to R130 billion.”
Through whistleblower reports and investigations conducted at the National Ports Authority (NPA), Transnet has had to suspend 12 members of the NPA management team and currently, Transnet has a team of people filling acting positions as a result.