{"id":785458,"date":"2024-08-04T09:00:00","date_gmt":"2024-08-04T07:00:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=785458"},"modified":"2024-08-02T17:37:16","modified_gmt":"2024-08-02T15:37:16","slug":"the-state-company-that-collapsed-from-r5-billion-profit-to-r6-billion-loss-in-five-years","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business\/785458\/the-state-company-that-collapsed-from-r5-billion-profit-to-r6-billion-loss-in-five-years\/","title":{"rendered":"The spectacular collapse from R5 billion profit to R6 billion loss in five years"},"content":{"rendered":"\n

South Africa\u2019s second-largest state-owned enterprise (SOE), Transnet, has collapsed from posting a R5 billion profit in 2019 to a net loss of R5.7 billion in 2023. It also has over R120 billion in debt. <\/p>\n\n\n\n

This is a result of the company\u2019s poor performance and a driver of its continued struggles, with Transnet unable to invest in much-needed infrastructure upgrades to boost its operational capacity. <\/p>\n\n\n\n

Its collapse has severely impacted South Africa\u2019s economic performance, with estimates placing the cost of Transnet\u2019s poor performance on the economy at R353 billion in 2023.<\/p>\n\n\n\n

This is despite Transnet\u2019s significant competitive advantage over its global peers. Its business is dominated by bulk commodity exports, which are very lucrative and have good margins. <\/p>\n\n\n\n

Analyst at Coronation, Humaira Surve, outlined in a recent research note how Transnet has collapsed and why South Africans can be optimistic about its turnaround. <\/p>\n\n\n\n

Returning Transnet to its full capacity would significantly boost South Africa\u2019s economy, reduce inflation, and positively impact the environment.<\/p>\n\n\n\n

Rail transport consumes a quarter of the fuel used by road transportation, making it particularly attractive for transporting commodities and other goods over long distances. <\/p>\n\n\n\n

By removing heavy freight from roads, traffic volumes would be substantially reduced, as would the damage and cost to maintain the road network. <\/p>\n\n\n\n

From a social perspective, increased rail usage in South Africa would make our roads safer for all users and lower the cost of consumer goods through lower transport costs.<\/p>\n\n\n\n

However, the main benefit would come from significantly increased commodity exports, which would boost economic growth and enhance the country\u2019s foreign exchange earnings. <\/p>\n\n\n\n

A lot of negative impact was felt by the collapse of Transnet due to the sharp decline in commodity exports. <\/p>\n\n\n\n

Transnet operates a nationwide freight rail network of approximately 21,000 route kilometres, with access to seven port terminals. <\/p>\n\n\n\n

Given South Africa\u2019s commodity-rich economy, we have excellent origin\/destination pairs, with mines on one end and ports to the rest of the world on the other, Surve said. <\/p>\n\n\n\n

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However, based on the Draft Transnet Network Statement released in March this year, which provides a comprehensive overview of the rail network\u2019s condition, there is a mammoth task ahead for this potential to be realised. <\/p>\n\n\n\n

Transnet needs to stop the rampant theft and vandalism of rail infrastructure, repair ageing infrastructure and potentially increase the length of sidings to allow longer trains to operate.<\/p>\n\n\n\n

Vandalism of infrastructure, in particular, is a major concern for Transnet. For example, over half of all substations on its most important line connecting Durban to Gauteng were offline. <\/p>\n\n\n\n

This means that electric locomotives, which are extremely cost-effective, cannot run on half of the corridor, which requires the use of diesel locomotives on the affected sections. <\/p>\n\n\n\n

Further, the theft of signalling systems has led to manual authorisations and speed restrictions being implemented, creating excess expense and reducing network capacity. <\/p>\n\n\n\n

Surve said Transnet will have to end the destruction of signalling and substations to achieve a fluid network. <\/p>\n\n\n\n

Deteriorating infrastructure is another major concern for the utility, resulting in speed restrictions and sections of the line being inoperable for 12 hours a day. Some parts of the country\u2019s rail network even have obsolete equipment. <\/p>\n\n\n\n

The poor management of infrastructure has been compounded by severe weather events, which have severely limited the usage of the Durban-Gauteng corridor in particular. <\/p>\n\n\n\n

Transnet\u2019s disastrous financial situation also means the utility cannot invest in upgrading its infrastructure, ensuring it remains inefficient for years to come. <\/p>\n\n\n\n

Relatively short rail sidings \u2013 a section of spare track allowing one track to pass another \u2013 restrict train length on several lines.<\/p>\n\n\n\n

Increasing train length is one way to lower the cost per car, as adding cars to a locomotive is a cheaper way to increase capacity than adding locomotives. <\/p>\n\n\n\n

If investments are made to extend sidings, Transnet could run longer trains and reduce the locomotive cost per carload of freight.<\/p>\n\n\n\n