South Africa\u2019s Transnet has a turnaround plan to ease port and rail snarl-ups that have hamstrung the continent\u2019s biggest economy. It just needs money.<\/p>\n\n\n\n
While state-owned companies could rely on government bailouts in the past, the massive amount of funding that was pumped into power utility Eskom in recent years has made asking the National Treasury for a handout more difficult for the next in line. In this case, it\u2019s Transnet.<\/p>\n\n\n\n
Eskom\u2019s latest relief package of R254 billion in conditional debt came with strings attached in the form of performance targets. In Transnet\u2019s case, the government wants to see progress on its turnaround plan before disbursing any money, Finance Minister Enoch Godongwana said in his mid-term budget statement.<\/p>\n\n\n\n
Transnet wants its request for a bailout to be considered on the merits of its turnaround plan<\/strong> rather than being lumped together with Eskom because the success of its strategy partly relies on government funding, Chairman Andile Sangqu said in an interview during a train journey on Friday between Johannesburg and Pretoria.<\/p>\n\n\n\n \u201cYou can\u2019t have a blanket approach,\u201d he said. \u201cIf you look at our recovery plan, it\u2019s predicated on number one: operational reforms in which we believe that there are some efficiencies that can be unlocked. And I think if we do that, we\u2019ll be able to improve our tempo and our cadence in terms of the volumes, and that will assist with the turnaround.\u201d<\/p>\n\n\n\n Rail inefficiencies in 2022 cost South Africa\u2019s economy R411 billion and worsened the government\u2019s tax shortfall, according to budget data. Deteriorating rail infrastructure and rolling stock has meant that exporters can\u2019t get their products to ports. Offloading at container terminals can take weeks because of equipment failure and low productivity.<\/p>\n\n\n\n To support its recovery plan, Transnet requested an equity injection from the state as its 130 billion-rand debt pile means it\u2019s unable to fund itself in capital markets. <\/p>\n\n\n\n The company \u201chas ongoing engagements\u201d with the Treasury, Transnet said in a response to questions, without providing details on the amount of relief requested.<\/p>\n\n\n\n Transnet\u2019s performance deteriorated rapidly over the past decade as corruption and mismanagement during the administration of former President Jacob Zuma took their toll, followed by pandemic-induced losses. <\/p>\n\n\n\n A surge in infrastructure theft and restrictive graft-prevention measures by the Treasury deepened the malaise. Portia Derby, appointed three years ago as chief executive officer to fix the business, left last month as the situation grew worse.<\/p>\n\n\n\n There\u2019s little time to waste, and funding is paramount, Sangu said.<\/p>\n\n\n\n \u201cEvery day counts in the sense that we\u2019ve set up goals in terms of where we want to be,\u201d he said. \u201cWe understand the fact that there are processes, but the fact of the matter is the clock is ticking.\u201d<\/p>\n\n\n\n Earlier this month, the company rolled over R7 billion of debt due Nov. 6 by issuing short-term paper to the Public Investment Corp., which oversees South African government pension funds. <\/p>\n\n\n\n That debt is due to be repaid in March, giving Transnet less than four months to effect a turnaround and convince the government it deserves help.<\/p>\n\n\n\n Moody\u2019s Investors Service on Nov. 10 put the company\u2019s rating on review for downgrade, citing concern that Transnet\u2019s liquidity profile is weakening.<\/p>\n\n\n\n \u201cFunding will be difficult,\u201d said Jan Havenga, an emeritus professor at Stellenbosch University who specializes in logistics. Still, with help from the Treasury \u2013 which could include debt restructuring and a capital injection of R20 billion for two years \u2013 the company could be turned around, he said.<\/p>\n\n\n\n Coal Trucks<\/strong><\/p>\n\n\n\n Volumes hauled by the freight rail division, which accounts for 43% of group revenue, have declined by a third since 2018, according to Transnet\u2019s annual report.<\/p>\n\n\n\n Transnet\u2019s export coal shipments, delivered from mines owned by Anglo American Plc spinoff Thungela Resources Ltd. and Glencore Plc, have dropped for four consecutive years. That resulted in the lowest volumes leaving Richards Bay Coal Terminal in decades.<\/p>\n\n\n\n The deteriorating rail situation was illustrated vividly during a tour last week showcasing Transnet\u2019s rail facilities: the event was delayed as a result of vandalism and theft of copper cables along the tracks, while broken signals forced the train driver to take instructions from the main control room via mobile phone.<\/p>\n\n\n\n The failure of rail transport has forced exporters to turn to roads, putting thousands of heavy trucks a day on routes to the coast. The traffic congestion has become so severe that Transnet is looking to source land in the area surrounding Richards Bay to use as a staging area for the rigs to park.<\/p>\n\n\n\n Old Ports<\/strong><\/p>\n\n\n\n Transnet\u2019s port terminal business represents about a fifth of revenue and also faces mounting troubles. Extreme weather conditions and rains have damaged equipment that was already poorly maintained, resulting in vessels waiting nearly three weeks at anchor, Earle Peters, managing executive for Transnet Durban Terminals, said in a presentation. <\/p>\n\n\n\n The hub handles more than 40% of South Africa\u2019s port traffic.<\/p>\n\n\n\n Shipping companies A.P. Moller-Maersk and MSC Mediterranean Shipping Co SA have announced surcharges of more than $200 a container due to South African port congestion.<\/p>\n\n\n\n Transnet is implementing measures to clear the backlog that will last months into 2024. Buying cranes and other measures to meet longer-term targets will require funding.<\/p>\n\n\n\n \u201cOur priority is to mitigate the situation, and we are regularly communicating the contingency plans to our customers to ensure they can plan their supply chains accordingly,\u201d Lubabalo Mtya, Maersk\u2019s managing director for southern Africa and Indian Ocean Islands, said in a statement.<\/p>\n\n\n\n Even if Transnet\u2019s recovery plan is enough on paper to fix the business, securing needed funding will be a challenge, said Carmen Nel, head of multi-asset strategy at Terebinth Capital Ltd.<\/p>\n\n\n\n \u201cThe bailout and effective debt transfer provided to Eskom has created moral hazard, making it difficult for the Treasury not to deal with Transnet in a similar manner,\u201d she said. <\/p>\n\n\n\n \u201cTreasury will apply more stringent conditions and a more thorough process.\u201d<\/p>\n\n\n\n
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