Greater participation by the private sector is clearly the only workable solution to address Transnet’s failings, but there’s plenty of scepticism about the logistics utility’s willingness to take this route.
Transnet has made it clear that it is not privatising its operations but merely seeking private sector ‘partners’. It is steering clear of the word ‘privatisation’ to avoid ruffling feathers within the African National Congress and more particularly its trade union allies.
After a meeting with Transnet board members late last month, President Cyril Ramaphosa “directed Transnet to implement reforms swiftly and completely turn around the crisis in South Africa’s logistics system”.
“The problem with this directive is that it makes the cause of the problem – Transnet itself – largely responsible for the solution. But the parastatal has a poor recent track record in this regard,” says Trade Law Association consultant David Christianson.
He says in a blog that the obvious solution is greater participation by the private sector through some combination of concessions (including port terminals and bulk mineral export lines), the auctioning of freight rail slots on existing routes, or even full privatisation of parts of the system.
Ramaphosa promised, in his 2022 State of the Nation Address, that 16 freight rail slots would be auctioned to private sector operators on viable routes, mostly between Gauteng and Durban or Cape Town.
“But the conditions imposed on bidders were described by observers as ‘onerous’,” says Christianson.
“Particularly problematic was the lifespan of each contract – a mere two years – despite each requiring considerable capital investment. Private sector commentators suggested that a contract period of between 10 and 20 years would be more appropriate. In the event, 90 interested parties attended the tender briefing in April last year but only 19 went on to the expression of interest stage and only one slot was awarded, for a minor route (agricultural bulk commodities on the Kroonstad to East London line).”
Mesela Kope-Nhlapo, CEO of the African Rail Industry Association, commented that this was a clear sign that “Transnet is still ideologically opposed to meaningful private sector participation”.
“Transnet’s unwillingness to play a cooperative game with the private sector is the factor that Ramaphosa is going to have to overcome,” says Christianson.
“Transnet’s total debt – R108.24 billion – is only about a quarter of that owed by electricity parastatal Eskom, but the transport utility’s capacity to pay down what it owes is much more limited and falling,” he adds.
“For the six months to September 2022, Transnet’s revenue was R36.1bn, exactly equal to its debt service payments for the same period. If these figures can be trusted, they indicate that the parastatal is on a financial knife edge. But Transnet is a secretive organisation, characterised by a marked lack of transparency. Its valuation of its capital assets, mostly rail track and rolling stock, was recently described as ‘suspicious’. Indeed, it is difficult to reconcile the increase in the claimed value of the parastatal’s assets (456% since 2005) with its poor track record in capital expenditure and an increase in income of only 170% over the same period.”
Since the Covid-19 lockdown, Transnet’s container freight business appears to have all but collapsed, adds Christianson. “The prime Johannesburg-Durban freight corridor handled 107 trains per day at its peak. The figure now is reported to be less than 10 and national rail freight volumes are said to be at the lowest levels since the Second World War.”
The growing switch from rail to road over the last three decades appears to have accelerated since Covid-19.
Transnet attributes performance problems to cable theft and a shortage of locomotives. “The locomotive issue is a real one, with 300 sitting idle thanks to a tax dispute with supplier, Chinese state-owned CRRC, which is withholding spare parts. But other observers point to falling levels of capital investment, down from R33bn in 2015 to R13bn in 2022.”
Earlier this year, Transnet issued a Request for Qualifications for a 20-year concession on South Africa’s premier trade route, the Johannesburg-Durban container line, says Christianson. “Transnet management told parliament that the project required an investment of R5.5bn and the tender document specifies that the concessionaire will be required to guarantee the jobs of more than 3 000 Transnet employees who currently work on the line.
“A genuine concession on this route, would be a game changer, says Christianson. “The question is, how willing Transnet is to surrender control. Some observers have pointed out that the standard length of similar concessions in other countries is 30 years.
“Political will is going to be the key ingredient. President Ramaphosa expects his initiative to produce a ‘roadmap’ for Transnet, which is reminiscent of the Roadmap produced for Eskom in 2019. The Eskom initiative failed to avert the present load-shedding crisis. There are reasons to doubt that the Transnet exercise will be much more successful.”
