Cabinet has backed the separation of Transnet National Ports Authority (TNPA), the landlord port authority for South Africa’s eight commercial ports, to operate as a stand-alone company owned directly by the state.
This would remove TNPA from the Transnet SOC Ltd group and establish it as a state-owned corporation independent of Transnet. Arguably, this is the biggest single port structural reform initiative since the passing of the National Ports Act in 2005.
The reform is long overdue. The Act envisaged TNPA’s corporatisation through a two-stage process, which was supposed to commence “as soon as this Act takes effect”. The first stage would establish TNPA as a subsidiary of Transnet, with provision for its subsequent separation as a state-owned corporation independent of the group.
The subsidiary model was the scenario outlined by the President in 2021. Cabinet’s latest decision, however, supports moving TNPA outside Transnet altogether. In our view, this is a welcome move.
Independence and investment
There are compelling reasons for this initiative, chief among them the need for TNPA’s operational independence. South Africa’s largest terminal operator, Transnet Port Terminals (TPT), is a sister operating division of TNPA within Transnet. This arrangement has long undermined market confidence: TNPA is responsible for awarding concessions and other port agreements, creating an inherent conflict when TPT is among the bidders.
Similarly, TNPA is, at least theoretically, required by the Act to regulate terminal operator tariffs, yet would face an obvious conflict of interest when regulating TPT’s tariffs.
Moving TNPA out of Transnet would address this “player–referee” conflict. It would position the authority to award concessions and oversee port operations on a more equitable basis, with all market participants, including TPT, treated equally. Tariff regulation will also need to be considered in the context of the new Transport Economic Regulator.
Structural separation is an important step towards building market confidence and allowing private operators to compete for port opportunities without concerns about institutional bias.
Another challenge within the current structure is that TNPA, understood to be a profitable business, shares its revenue with the wider Transnet group. This cross-subsidisation has constrained its ability to direct revenue exclusively towards port upgrades and other initiatives that enhance the port system.
As a stand-alone corporation, TNPA could benefit from greater transparency over its revenue streams and more scope to invest in much-needed infrastructure. Financial independence could also support a move towards cost-reflective port user charges, based on the costs of providing port services rather than cross-subsidising other Transnet businesses.
Cabinet has set several principles for the separation. These include fair compensation for Transnet based on an independent valuation of TNPA, long-term financial sustainability, equitable allocation of liabilities, protection of employees and customers, continued strategic state ownership and control of national ports infrastructure, and improved investment capability.
Cabinet has also approved an investigation into the feasibility of a minority equity partner from one of South Africa’s development finance institutions (DFIs). Such a partnership could be significant.
There are substantial demands on the finances of both Transnet and TNPA. The planned berth-deepening project in Durban, for instance, requires major investment. An equity partner could help TNPA fund its port projects, while a DFI could potentially improve access to competitively priced finance. Other benefits could include governance and project management expertise.
Contracts and financing
However, implementation will take time.
Apart from valuing the business and agreeing on compensation for Transnet, the parties must address the transfer of port agreements. Although these agreements are entered into through TNPA, they are legally with Transnet. Their transfer, together with the assets and other obligations of the business, will therefore be an important part of establishing the independent authority.
Depending on the agreements and the legal mechanism used for separation, this may require counterparty consents, including from funders that have financing agreements with Transnet.
Funders will want assurance that the restructuring and any DFI investment do not breach loan covenants, and that both Transnet and TNPA can meet their repayment obligations. Lessons may be drawn from the restructuring of Eskom Holdings and the establishment of the National Transmission Company South Africa.
Concessionaires will also scrutinise TNPA’s ability to meet obligations under existing port agreements currently carried by Transnet.
Given Transnet’s significant debt, the process is likely to involve reviewing financing agreements for disposal, change-of-control and negative-pledge provisions. This could be followed by requests for lender consents or waivers and renegotiation of guarantee terms. Employee transfers and other operational matters will also need attention.
These challenges are not insurmountable, but resolving them will take time. Transport Minister Barbara Creecy recently told Parliament that the department wanted to begin implementing the separation decision before year-end. That should not be confused with completing the restructuring: Cabinet’s statement did not set a completion date.
TNPA’s separation forms part of wider logistics reforms, including the separation of rail infrastructure management from train operations through Transnet Rail Infrastructure Manager and Transnet Freight Rail.
These changes support government’s policy of increasing private sector participation while retaining strategic state ownership of core infrastructure.
Progress has been slow, but Cabinet’s support for a stand-alone TNPA is a significant step. The task now is to translate that decision into a financially sustainable institution capable of supporting fair competition and sustained investment in South Africa’s ports.
