TRANSNET – Rail & Port Investments to Drive SA Economic Growth

Of all South Africa’s State Owned Enterprises (SOE), Transnet is arguably the country’s most important. Employing more than 55,000 people, the rail and port infrastructure utility is a major driver of economic performance and is the one of the most important elements behind President Ramaphosa’s big investment drive – if South Africa wants to attract FDI, it must have functional ports and rails in order to import, export, and move product around this large nation.

But, despite its clear importance to South Africa, and southern Africa, Transnet has been plagued by negativity after years of mismanagement and corruption have left the titanic business with a tarnished reputation and a lacking level of trust from the South African public.

This unfortunate situation was compounded in November when Auditor General, Kimi Makwetu confirmed that SOEs were indeed under extreme financial pressure. “There were weaknesses in the performance reporting processes and an increase in non-compliance at the 14 SOEs and their significant subsidiaries audited by the Auditor General South Africa (AGSA). These entities also disclosed R1.4 billion in irregular expenditure,” said Makwetu.

For Transnet, this kind of news is not welcome as the company works hard to restore its standing as a trusted, reliable and ethical partner of South Africa. Acting CEO, Mohammed Mahomedy – viewed by many as a cleaner of corruption – has stated that the company is now regaining credibility.

“Transnet is a significant entity in the lives of South Africans and the local business community. Notwithstanding the adverse findings and reports at the Zondo Commission and in the media, the Board and management are confident that the vast majority of the organisation’s strong Transnet community are good, committed and passionate people who have given of themselves for the benefit of the organisation and all that it stands for,” he said when discussing the company’s financial results.

Several recent announcements have helped to affirm that the business continues to do good work, and remains extremely important to the country.

REELING IN GOOD RESULTS

In September, Transnet released its results for the year ending 31 March 2019. Revenue increased by 1.6% to R74.1 billion; EBITDA increased by 3.8% to R33.8 billion; profit for the year increased by 24.7% to R6 billion; and cash generated from operations increased by 0.7% to R35.2 billion. The company also recorded a disabling injury frequency rate (DIFR) of 0.71 – below 0.75 for the eighth consecutive year, and well below the global benchmark of 1.0.

These encouraging results demonstrate that, even during tough times, Transnet’s important work is continuing to generate positivity. With ongoing capital investment programmes underway, it is likely that Transnet’s influence will also continue to prove vital across the various value chains in which it plays.

“Transnet is a significant entity in the lives of all South Africans; and as one of the largest logistics infrastructure SOEs on the African continent, it is in many ways the very heart and lungs of our economy. This 55,000-strong employee community is also a microcosm of the macrocosm that is the South African developmental state. As such, it is both our duty and privilege to support National Government’s developmental mandate through large-scale industrialisation, active and competitive supplier development, job creation and employment equity – both within Transnet’s operations, and through the creation of direct and indirect industrialisation opportunities in the wider economy,” said Mahomedy.

This positivity continued in December when decent half year results were released, highlighting a revenue increase of 2.9% to R38.7 billion; an EBITDA increase of 5.1% to R17.5 billion; cash generation from operations increasing by 5.3% to R16.2 billion; and profit for the year increasing by 3.5% to R2.9 billion.

“Operational performance during the period under review was mixed with areas where performance exceeded expectations and areas where, due to various challenges in the port environment and general freight rail sector, performance was below expectations,” said Mahomedy.

MECA 2

Also in September, Transnet announced details of an exciting new partnership with Kalagadi Manganese. This black female-owned business has partnered with Transnet through a R3 billion, three million tonne per year deal which will see beneficiated sinter manganese moved across the country’s rail infrastructure to ports for export to global markets.

The Manganese Export Capacity Allocation Agreement (MECA 2) is a five-year deal which will also see creation of new jobs and large contributions to the national economy.

“This contract, which as part of the MECA2 project, will offer us an opportunity to move three million tonnes product from the Kalagadi Mine and Sinter Plant in the Northern Cape through to Eastern Cape Province Ports,” said Founder and Chairperson, Daphne Mashile-Nkosi – who has been working on a partnership with Transnet for more than a decade.

“This partnership supports a job creation of over 1250 direct opportunities through various parts of our value and these will make a contribution of R6.2 billion annually to the country’s GDP.”

MECA 2 kicked off in 2015 and has since helped to realise an increase of manganese export volumes from five million to 15.1 million tons each year.

“As an entity, we want to be an active contributor to the country’s mission of retaining the position of being the leading exporter of high-grade beneficiated manganese. And this contract gives us the opportunity to make that dream a reality,” said Mashile-Nkosi.

Transnet Chief Customer Officer Mike Fanucchi added: “This is an indication that Transnet is serious about the integration of its operations to suit customer needs. When we commenced with the MECA process, and the integration of our service offering, we only had two manganese companies playing in the export manganese markets. We are excited to see this number increasing.”

Today, Transnet has organised MECA 2 contracts with 10 local manganese producers and has set aside 15% of its overall manganese export lines for new entrants.

WORLD’S LONGEST

In October, Transnet Freight Rail (TFR) celebrated as it officially launched its new 375-wagon manganese train – a production train with the largest number of wagons in the world. TFR had held the previous record with its 342 wagon iron ore train.

The train, which extends over four km, travels 861 km from Sishen to Saldanha and can now carry 23,625 tons of manganese per train. Designed to assist customers in the Hotazel region, the new train brings improved efficiencies.

TFR General Manager for the Iron Ore and Manganese Business Unit, Russell Baatjies said: “The project team was challenged to explore the use of technology through Industry 4.0 solutions, to achieve the same objective at minimum cost. Applying distributed power technology to increase the train length to 375 wagons will reduce capital requirements by over 90% of the initial estimate.”

TFR’s Acting Chief Executive, Lloyd Tobias said: “This is in line with TFR’s business objective of applying the heavy haul operating, maintenance, design, construction and best practice principles on General Freight operations, and the Transnet Strategy of migrating traffic from road to rail.”

TFR General Manager, Brian Monakali who is also the former Chairman of International Heavy Haul Association said: “This is another breakthrough for the Heavy Haul Railway Industry. Rio Tinto, Australia, recently started with the implementation of Driverless trains in their Iron Ore railway system. Transnet has now successfully operationalised the 375-wagon train. The collaboration on technical research and sharing of best practice by Heavy Haul operations worldwide will surely keep pushing the operations, safety and rail capacity envelop to new levels through application of breakthrough technology.”

PEOPLE INVESTMENT

The type of innovation and engineering excellence that shines through at Transnet comes as a result of the company’s ongoing focus on people development and its ability to bring people through a system. By investing in skills development, Transnet is obtaining talent from South Africa and exposing it to the world.

In November, TFR welcomed more than 100 new engineering and technician graduates into the rail network operations side of the business. All have completed the Engineering Development Programme which is part of a wider Transnet scheme which has seen the group spend R700 million on training programmes in 2018/19 alone.

The 73 technicians and 35 engineers will undertake a wide range of important work for Transnet and will pave the way for future recruits coming out of South Africa’s universities.

Brian Monakali said: “EDP forms part of Transnet’s overall training programme. The development of Engineers and Technicians in rail engineering creates a pipeline and succession pool of qualified and competent Technicians and Engineers who are ready to advance the business needs and be promoted into critical management and specialist functions.”

Lloyd Tobias agreed saying: “There has been some notable progress over the years in terms of the intake of Engineers and Technicians at Transnet. As a SOC, we see the youth as the future leaders of our country and as informed by our mandate to commit to the skills development and training of our youth, the Engineering Development Programme seeks to contribute to the Government’s plans to advance youth development.”

TFR Executive Manager: Human Capital (Service Delivery), Zinhle Sithole spoke about the company’s successful collaboration with educational institutions. “The Engineering Bursars are recruited from a number of tertiary institutions, the collaboration also gives Transnet a chance to tap into the minds of academics when comes to Engineering, Research and Development projects and other career developments,” she said.

GERMAN PARTNERS

A positive deal was concluded in November when Transnet arranged a loan agreement, as part of its diversified funding plan, with Frankfurt-headquartered KfW Ipex-Bank. The seven year, R1.6 billion bilateral loan will support the country’s freight-handling infrastructure development.

“The signing of this loan agreement demonstrates continued investor confidence in the business and their comfort with the improved governance environment, that has been driven by the new Transnet board of directors,” said Mohammed Mahomedy.

Transnet’s Acting Chief Financial Officer, Mark Gregg-Macdonald added: “This is Transnet’s second loan agreement with KfW Ipex-Bank which comes with a longer tenor and larger commitment than the previous facility concluded with them five years ago.”

LEDJADJA COAL

Transnet has made its name in the coal fields of South Africa. Railing coal to the ports for export has been a major driver of business for the company over the years. In November – a productive month for Transnet – the company announced details of a new partnership that would see its work in the coal sector extended.

The R10 billion contract with Ledjadja Coal – a division of Resource Generation (ResGen) – will see Transnet haul 3.6 million tonnes per annum from the Boikarabelo Coal Mine in Limpopo’s Waterberg coal field to Richards Bay for export. Currently in development, the mine is aiming for first coal to be loaded at the port in June 2022.

The Waterberg is an extremely important region for Transnet, and for South Africa’s coal export industry, and the company continues to invest heavily in infrastructure development to maximise potential from the area. A 1.8 km passing loop has been completed at Matlabas which allows 100-wagon trains to cross without disrupting other traffic. A 2.8 km loop is underway at Thabazimbi, and expansion with a new five km line is underway to connect Bleskop and Norite. When all is complete, the Waterberg project will unlock capacity allowing for Ledjadja and other coal operations to send their product for export with ease.

Mike Fanucchi said: “This contract will enable Transnet to fulfil its mandate of lowering the cost of doing business in South Africa. This contract will stimulate an appetite of coal miners in and across the Botswana border.”

ResGen Chief Executive Officer (Interim), Leapeetswe “Papi” Molotsane said: “The signing of

the deal is an important effort in opening up the Waterberg region, in line with South

Africa’s strategic imperatives embedded in SIP 1. Boikarabelo is a genuine public-private partnership with key South African stakeholders such as Transnet. Securing rail capacity with Transnet is such a huge milestone for the company as it results in multiple economic benefit for Lephalale and surrounding areas.”

With this significant new contract, the success of the new graduates, and the progress being made in the manganese space, it’s clear that Transnet’s decent results are not a one off and the business case behind this behemoth organisation remains robust. With new management purging the system of corruption, the future looks bright for Transnet as it continues to roll on as one of South Africa’s SOCs that is much needed.

“The Board has made significant progress in ensuring the organisation is cleansed of the malfeasance associated with the ‘state capture’ era and has been able to draw on a depth of talent to take on the roles vacated by senior executives whose services were terminated,” said Mahomedy.

As the reputation of all SOCs are nurtured back to health, Transnet is fortunate that its work is vital and ‘inextricably involved in all aspects of life in South Africa’ and its reach in terms of numbers of people employed make it a business that holds significant clout. With all of the exciting projects underway right now, and with more to come in the future, Transnet’s power and influence will continue to grow.