It seems incredible to think that, in the early 1990s, Transnet’s treasury division was so powerful that its decisions were said to have ramifications as far afield as the Bank of England.
Today, Transnet — which runs South Africa’s rail and ports network — is a barely perceptible shadow of its former self. Astonishingly, it is vying with Eskom as the biggest risk to the South African economy.
Though its debt of R135bn is dwarfed by Eskom’s R423bn, Transnet’s implosion is estimated to be costing South Africa R1bn a day in economic activity.
Jan Havenga, whose consulting group GAIN released a report on Transnet in September, put the projected loss to the country at R353bn this year. As Havenga put it, the country’s estimated GDP growth this year of 0.5% “could have been 10 times higher at 5.4%”.
For added context, you might want to reread Transnet’s most recent accounts — the full document, not the sanitised media release. There, it’s not so much the R5.7bn in losses that strike you, or the theft of more than 1,000km of cable, or that volumes lost to “security incidents” were up 550% from 2018.
Rather, it’s the annexure on Transnet’s key performance agreements. On the measure of improving operational efficiencies and reducing safety and security risk, the utility met just 22% of its targets.
And on the target to ‘accelerate strategic initiatives to improve commercial performance’, it scored 0%
And on the target to “accelerate strategic initiatives to improve commercial performance”, it scored 0%. These included such projects as selecting a partner for the Ngqura Container Terminal, and the sale of 6,500 iron ore wagons.
Transnet’s abject failure to hit its own targets should have resulted in a far swifter exit of executives than it did, with CEO Portia Derby only resigning in September.
So, how should we think of the National Treasury’s R47bn “bailout” of Transnet, announced last week?
Well, first, this isn’t a conventional bailout, where the Treasury simply turfs briefcases of cash at a state entity. Rather, it’s a guarantee facility, against which Transnet can borrow funds from lenders at a better rate than it would otherwise get.
Second, it comes with “strict conditionalities”. In other words, if Transnet continues to drag its feet in implementing reforms, the Treasury can pull that guarantee. These conditions, the Treasury says, will be “continuously reviewed and amended”.
So what must Transnet do? Well, it has to implement the logistics recovery plan, while exploring “the divestment of noncore assets, reduction of the current cost structure, and alternative funding models for infrastructure and maintenance requirements”.
In other words, it has to get serious about allowing the private sector to run concessions on certain rail lines, with the iron ore and coal lines the jewels in what should be a glittering crown.
Still, you can understand the scepticism among those who fear the Treasury is again throwing good money after bad. The Road Freight Association asks why we should believe that the “management, operational foresight and control that was required for many years” will now suddenly happen.
It’s a valid question. But the consequences of not providing this support to Transnet would have been even more disastrous. It may have only railed 149Mt of coal last year, rather than the 212Mt of 2018, but imagine it railing zero tons of coal.
As it is, the Treasury structured this “bailout” in a savvier way than it has in the past, and now has leverage to ensure changes happen. Ultimately, it had no option — when its arteries seize up entirely, a body becomes a corpse.
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