Away from its highly publicised work of upgrading South Africa’s dated rolling stock, Transnet has also been investing heavily in its port infrastructure. With billions of Rand already committed, the company’s MDS has promised much more spending and this is bringing about very exciting times for South Africa.
This year has been an unusual one for South Africa’s rail, port and pipeline company, Transnet. In October, the business announced that revenues were up 6.4% to R32.2 billion, EBITDA increased by 9% to R13.9 billion and cash generated from operations increased by 11.6% to R15.2 billion.
These successes were despite the infamous muted global economy that has crippled many large organisations. But this year also saw the hugely popular Brian Molefe seconded to struggling energy utility Eskom, where he has already started to make an impact.
To fill the chasm left by Molefe, Transnet turned to their most experienced member of the executive team, a man with 21 years of Transnet know-how under his belt – Siyabonga Gama.
Gama was appointed as Chief Executive in April and quickly went about building on the growth strategy left by Molefe.
“My job is to galvanize the executive team, to make sure that we steer the ship, that we keep it on course and we continue our plans. We already have a business plan for the 2015/16 financial year. We have to take that and make sure that we execute,” Gama told Bloomberg Business.
Gama has previously held the position of CE at Transnet Freight Rail where he transformed that operating division from yearly losses averaging R21 million in 2005 to R5.1 billion profit in the last financial year.
He commented on the company’s recent spending pattern saying that it would continue for the rest of the year and beyond as Transnet looks to continually grow its footprint.
“With the market demand strategy up to now, we have spent more than R108bn. For the rest of the year that number will grow to about R125 billion. But over the next ten years we expect to invest between R340 billion and R380 billion on infrastructure and rolling stock, as well as on deepening some of the ports that we have because ships are getting bigger.
“In order for us to take advantage of some of the 9000 TEU ships that are being built we will deepen some of the ports, especially the port of Durban. The port of Ngqura is already well poised to be able to accept some of the bigger ships,” he told Moneyweb’s Siki Mgabadeli.
PORT BUSINESS
Port business is a vital part of Transnet’s portfolio and just last month the company announced that it had seen improvements in efficiency and volumes in the last year.
A 2.3% increase in its port container volumes to 2.34 million TEU during the six months to September 30, from the 2.29 million TEU handled in the same period last year, was welcomed by management and improvements in ship turnaround times in September 2015 compared to March 2015 at most of its container terminals, including the Port of Durban, were also well-received.
The Port of Durban recorded a 6% drop in its ship turnaround times from 51 hours in March to 48 in September this year. The same was true at the Ngqura terminals which recorded a 23% drop from 34 hours in March to 26 in September, while Cape Town facilities also showed a decrease, down 11% from 27 to 24 hours. In addition, Port Elizabeth operations registered a 19% drop from 26 to 21 hours. The average moves per ship working hour (SWH) (a measure for terminal productivity) recorded an increase from 42 to 62 moves at the Ngqura Container Terminal, while Durban’s Pier 1’s moves increased from 47 to 50 and Pier 2’s moves from 59 to 62.
Investment into port business is strong from Transnet as it understands the importance of efficiently dealing with exports of vehicles and commodities such as iron ore and coal as well as imports in the FMCG markets. As part of its Market Demand Strategy (MDS), Transnet has already ploughed a huge amount of money into its ports and this looks set to continue after Transnet Ports Authority Chief Operations Officer Phyllis Difeto explained more about infrastructure upgrades at ports of Durban, Saldanha, Cape Town, East London, Ngqura, Richards Bay and Port Elizabeth. She told worldmaritimenews: “A total of around R2 billion will be spent over the next five years, as part of Operation Phakisa, to refurbish existing repair facilities, while we will invest an estimated R13-15 billion to create new repair facilities at the South African ports.
“Once completed the berths will have a draught of 14.5m enabling them to handle vessels with draughts up to 13m, however the Maydon Wharf entrance channel will still need to be deepened thereafter to enable these vessels to sail in fully laden.”
These infrastructure projects are expected to create additional bulk capacity at the Port of Ngqura and at the port of Richards Bay which will have a new LNG terminal and bulk liquid berth to handle up to 100,000 TEUs of containerised cargo. Additionally, TNPA plans to launch a fleet management programme for all ports as part of its efforts to support the oil and gas, ship repair and building industries in the region.
Another major milestone for TNPA was realised recently after further investments into port operations were marked with the launch of the first of nine new SA built tugboats.
The Mvezo is named after Eastern Cape village where former president Nelson Mandela was born and was built by SA Shipyards.
Mvezo had a bottle of champagne broken over its bow in a traditional launch ceremony on November 12.
TNPA programme manager Eugene Rappetti, Senior Manager for Marine Operations, said the ports authority had 29 tugs presently in service nationally, but the requirement for bigger, strong tugboat fleets had increased in line with bigger commercial vessels calling at South African ports more frequently.
TNPA chief executive, Richard Vallihu said: “This is the largest single contract TNPA has ever awarded to a South African company for the building of harbour craft.
“The building of Mvezo and the eight other tugs in this project, demonstrates that this country has the expertise to compete in the global shipbuilding industry and to use the maritime economy to unlock the economic potential of South Africa, in line with the government’s Operation Phakisa initiative.
“These nine tugs are 31 metres long with a powerful 70 ton bollard pull, so this is a big step up in power from our older tugs with 32.5 to 40 ton pulls.
“The new tugs feature latest technology, including Voith Schneider propulsion which makes them highly manoeuvrable and able to change direction and thrust almost instantaneously while guiding large vessels safely into our ports.
“We have also committed to ensuring that each tug has a minimum of 60% locally manufactured components, while partnering with international companies on the remaining aspects that cannot be manufactured here, for example, the engines and propulsion units.
“Ultimately South Africa will achieve a socio-economic benefit of more than R800 million as a result of the supplier development plan attached to the contract,” he said.
AFRICAN INFRASTRUCTURE
Away from its port business, Transnet has also been making moves which will benefit South Africa’s neighbouring countries.
Just last month, the company announced plans to build a large multi-purpose fuel pipeline in Zambia. The distance between the capital and Zambia’s third largest city is 316 km and the pipeline would aim to reduce the price of fuel at the pump. Initial plans suggest that the pipeline would transport 500 million litres of stock per year and there would be a charge to the fuel companies looking to use the facility – meaning that no government money would be needed for construction and maintenance.
Transnet Executive Manager for International Business, Nyameka Madikizela said that if the project was to go ahead it would be between Transnet, Zambia Railways Limited and another local partner. She also commented on the importance of Zambia in the North-South Corridor, a route through which SA ports can benefit in a big way.
“Transnet has been working closely with Zambia Railways Limited as a strategic partner, as Zambia is one of the few countries where there is return cargo originating from its source.
“This is a huge project which, just as in the case of a similar project we have just finished between Durban and Johannesburg, will directly and indirectly create significant employment for Zambians both during and after construction.”
“This way of transporting fuel has several advantages which include reduced fuel cost for owners, it is safer compared to road tankers, there is reduced pressure on roads and above all it guarantees fuel security or availability in the country as the pipeline is complete with a depot which could contribute to increased fuel holding capacity in the southern region of Zambia,” she said.
These ambitious plans are good news for Transnet and as many other large companies begin to streamline and consolidate operations because of a bleak economic outlook, proposals like this display the strength of the state-owned business. Gama even went as far as saying that the company still had more room for borrowing when he spoke at the company’s half year results announcement in September.
“The gearing ratio at 41.4% gives us enough headroom for us to be able to execute the capital investment programme and to borrow more if we need to do so.
“But, we remain conservative… in the medium term we will continue to keep that in check and it is not likely to exceed the limit we have set of 50%.”
Acting Chief Financial Officer Garry Pita reiterated Gama’s optimism, saying: “A lot of investors said they like what we are doing in SA; they believe our financial services market is very stable, our stock exchange is stable and it’s still a good haven to invest in.”
Going back to port investment, it seems as though this vital economic resource will not have its development threatened by the dulling economy. Transnet Port Terminals Chief Executive Karl Socikwa said at a recent stakeholder event: “We shouldn’t get despondent that the Chinese downturn affects our dependency; we should look for opportunities in regional Africa, working with other growing African economies.
“We have a lot of good people on the ground at this company, people who know, from experience, how things work and how they can be improved, finding practical solutions to practical problems.”
Perhaps now is the time to get into the maritime industry; with all of this investment and development there will be job creation and innovation and the industry will need skilled people and companies with expertise to continue growing this highly-valuable business.