TRANSNET: Localisation Drive Fuelling Transnet Future

These are tricky times for South Africa’s State-Owned Enterprises (SOEs). Names have been dragged through the mud, financial damage has been significant, operational inadequacy has been highlighted, and what should be organisations of pride for South Africans continue to miss the mark.

But, behind the scenes – away from the cameras, courtrooms, and commentators – the fundamental work of the country’s government parastatals is ongoing. Huge numbers of employees – skilled people, with development and improvement of South Africa and Africa as the backdrop of their employment – continue to go to work hard, knowing that their contribution is invaluable.

The necessity of cleaning up SOEs is not in doubt, but most are clear that the good work being done on the ground, out of the boardroom, should not be interpreted – the associated value chains and localisation that has been developed is too important.

For this reason, President Ramaphosa continues to put resource and faith in the big SOEs, including Transnet. The benefits of a thriving infrastructure, rail, and pipeline company are too big to pass up. Calls for increased private sector involvement have not fallen on deaf ears, and the government is putting plans in place to test this with Transnet.

Importantly, fantastic work is being done everyday by the company’s 54,000 people. Split between Freight Rail, National Ports Authority, Port Terminals, Engineering, Pipelines, and Property, these people are firmly behind the company’s vision to harness the power of the nation and combine with technology to brighten the future of millions across the continent – and beyond.

RESULTS IMPROVING

At the end of the December, Transnet released its interim results for the period ending 30 September 21. With some pleasing numbers, and reinforcement that Transnet is a core driver of economic growth in the country, CEO Portia Derby reported to a Parliament Portfolio Committee on Public Enterprises that the company could start to see a return to meaningful profitability by late this year or early 2023. Transnet reported a R8.4 billion net loss for the year ended March 2021, but remains the only SOE to be completely self-funded by its own capital. This, the first loss reported by Transnet, was put down to the Covid-19 pandemic and its impact on freight volumes, and employee health as well as theft, vandalism, state-capture, and poor management from previous senior staff.

“There is a lot that we need to do to get Transnet back on a stable footing and profitable once again. The latter half of 2022, maybe 2023, is when we will start to see some improvement,” said Derby.

Transnet Board Chair, Popo Molefe added: “The impact of state capture on Transnet has been devastating. That will be apparent in our annual financials and the irregularities there. It also becomes apparent in our operational performance because that is linked to the manner in which we contracted when we procured locomotive and equipment.”

The results released in December showed a revenue increase of 10.5% to R35.4 billion, a decrease in net operating expense of 0.4% to R22.1 billion, EBITDA at R13.3 billion, and capital investment spend going up by 15.5% to R5.7 billion. BBBEE spend also hit R11.3 billion, helping the group to retain its Level 2 status.

“Transnet has clearly demonstrated its financial and operational resilience as evidenced by the positive financial results for the six-month period. This improvement in performance in a tumultuous environment in which the company has experienced threats to its operational activities in the form of the cyber-attack and the civil unrest that led to the declaration of a Force Majeure is impressive, but the third and fourth wave of Covid-19 is expected to temper this recovery in the second half of the financial year,” said Group Chief Financial Officer, Nonkululeko Dlamini.

GREEN LIGHTS

Noted clearly by all officials, Transnet’s ability to nurture a thriving economy is undoubted. In January, Minister of Transport, Fikile Mbalula said that Transnet NPA was working hard to utilise investments to improve port infrastructure.

“To date, working closely with Minister of Public Enterprises and the Transnet National Ports Authority, we have given a green light in respect of a number of investments in the Ports, which will deliver tangible economic dividends and place South Africa on a sustainable growth path.

“The Strategic Fuel Fund will construct an onshore Liquid Natural Gas (LNG) regasification facility at the Port of Ngqura. This investment is of national importance as it responds to energy policy and energy security of the country. The total project value is estimated at US$1.5 billion,” he said.

In February, President Ramaphosa said: “Transnet is addressing these challenges and is currently focused on improving operational efficiencies at the ports through procuring additional equipment and implementing new systems to reduce congestion,” as the company looks to bolster its relationships with private companies for localisation purposes.

Already underway with private resources to prevent cable theft and vandalism on the freight rail network, the company will allow third-party access to the rail network from April this year to move more containers between Durban and City Deep.

Another integration for Transnet is underway at Durban Container Terminal and Ngqura Container Terminal where a ‘special purpose vehicle’ is being created to assume control of operations over a 25-year period. This process will be in collaboration with employees and an international terminal operator.

This special purpose vehicle will operate on a license agreement with Transnet Port Terminals and will fund future expansion at Durban and Ngqura container terminals. According to Public Enterprises Minister, Pravin Gordhan, this is not attempt at privatisation but a method of allowing Transnet to focus on its core purpose while continuing to achieve the goals of each unit.

“Transnet doesn’t have the capital that it requires to attend to every single need that the economy has… Transnet does require investment in its equipment and infrastructure and so it needs to find alternate ways of generating revenue which would assist with operational costs but also with investment, maintenance of equipment,” he said.

“The special purpose vehicle will provide required investment in the terminal to improve efficiencies, resolve operational challenges and modernise the terminals,” Transnet said, noting reports that suggest both Durban and Ngqura container terminals operate under capacity.

This strategy forms part of a wider focus from Transnet on localisation. In December 21, the company attempted reinvigoration of local manufacturing capacity around rails.

“Transnet is placed at a significant disadvantage relative to its competitors in the market if it is compelled to procure through middle-persons, who add their own mark-up to the price of procured goods as a way to overcome the requirement to procure locally goods that are not manufactured in South Africa. This not only makes goods more expensive for Transnet, but reduces its ability to lower the cost of logistics in South Africa.

“Transnet is therefore working with the Industrial Development Corporation (IDC) on the establishment of a local manufacturing facility for rails. Transnet has committed to procure from a local supplier for a period of up to 15 years to ensure viability of the supplier,” the company said.

LOCAL RAILS

This ambition will be vital in the country’s future drive for logistical expansion. In May 2021, Transnet Freight Rail doubled capacity on its export likes from the Free State to support grain season.

“Through integrated demand planning with farmers, TFR plans to move 550,000 tons of export grain, a 133% increase from 235,826 tons in the previous season. The 550,000 tons is equivalent to approximately 16,100 trucks off the road, which will have a material impact in easing road congestion in the Port of Durban precinct,” the company said, adding that it would further increase rail capacity for the 2022 season.

In October 2021, Transnet confirmed the reopening of branch lines in the Eastern Cape aimed at supporting businesses in the East London and Coega IDZs. There is much appetite for railing of beverages and other FMCG products, cement and containers with auto parts between Gqeberha and East London. This R26 million investment into the Cookhouse-Blaney line was hailed by Portia Derby.

“The re-opening of this branch line reaffirms our commitment to resuscitate economic development in regions that have been historically under-served in terms of infrastructure investment. The line, which is a link between two strategic economic hubs in the Eastern Cape, will reduce the cost of doing business for the movement goods between these two cities,” she said.

“TFR Chief Executive, Sizakele Mzimela, added: “For TFR, the reopening of this branch line is a massive achievement and fits squarely with Transnet’s strategy to contribute to our country’s economic recovery.

“In addition to job creation opportunities, our sincere hope is to help stimulate economic growth by looking at ways we can connect with the communities this line touches, on key maintenance projects. This means longer-term, sustainable opportunities beyond the once off refurbishment,” she said.

Eastern Cape Premier, Oscar Mabuyane highlighted, during his 2021 State of the Province Address, the strategic importance of the Cookhouse-Blaney line. “We are very much excited about the new collaboration and partnership between government and Transnet, as well as business for coming on-board to make full use of the available capacity, the expertise, and experience in the business of freight movement management this partnership offers,” he said.

Clearly, work on the ground is achieving results, and the day-to-day operations of Transnet – often overlooked in times of difficulty – are vital in the country’s economic progress. With localisation and upskilling at its heart, Transnet was, is, and always will be a crucial artery in South Africa’s system. With positivity being regularly achieved, and with a renewed focus on working alongside local businesses, it is likely that the only way is up for Transnet, and it will probably haul South Africa along with it.